SM Energy's second quarter 2022 results webcast. Before we get started on our prepared remarks, I remind you that our discussion today will include forward-looking statements. I direct you to slide two of the accompanying slide deck, page six 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 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 Chief Executive Officer, Herb Vogel, and our Chief Financial Officer, Wade Pursell. I will now turn the call over to Herb.
Good afternoon, and thank you for your interest in SM Energy. Last quarter, we went into detail on the progress we are making towards our three key objectives in 2022, and today I will reiterate that things are going very well on all fronts. Starting on slide four. Number one, we are very pleased to report that we have reached our target net debt to adjusted EBITDA of 1x. In fact, the leverage multiple is now at a very comfortable 0.7x, and as most of you know, our next target of $1 billion in net debt is just right around the corner. Wade will speak more to that shortly. Our second key objective this year is to demonstrate the value of the Austin Chalk and our overall long-term high-quality inventory.
Last quarter, we highlighted the quality and predictability of the Austin Chalk, and this quarter, we'll talk a little more about new zones we have tested in the Midland Basin, where we are seeing exciting results. We reiterate up to eight zones with production potential in our operating areas of the Midland Basin. Our third objective, demonstrating measurable top-tier ESG stewardship, remains part of everyday operations. We continue to test new technologies and innovations to further our progress. In addition, later this month, we will publish a number of updated ESG disclosures employing various broadly accepted frameworks, including TCFD, CDP, and SASB, which we hope you will find informative. With that brief introduction, I'll pass it to Wade to provide a few highlights on the quarter. Wade?
Thanks, Herb, and good afternoon. I'll start on slide six. Our balance sheet strengthened significantly in the first half of 2022 as we generated $591 million in free cash flow and paid down $551 million in absolute debt, resulting in the 0.7x net debt to adjusted EBITDA at the end of the second quarter. With the great inflection point around the corner, we've been steadfast in not getting ahead of ourselves in our return of capital commitment, but I can give you a little insight into how we're thinking about this strategically. We seek to implement a framework that is sustainable over the long term. We consider long-term capital requirements, prioritize balance sheet strength, and consider long-term price cycles. We seek lasting value creation for the shareholder.
I think our shareholders can expect an increased fixed dividend component and buybacks at appropriate times. At current stock price levels, buybacks would absolutely make sense. More to come as we turn the corner in the coming months. Turning to slide seven. Beyond the significant balance sheet events, the second quarter results were terrific, driven by better than expected well performance and a continued commodity price tailwind. Bottom line results were largely on track, as expected, and the discussions in the earnings release and the 10-Q should hopefully cover any specific questions you might have. Let's turn to guidance, where we updated several line items on slide 8. Production guidance is raised based on the better well performance we are seeing to date in both the Midland Basin and South Texas.
The completion design changes made in Midland starting at the beginning of 2021 are continuing to meet the high end of performance expectations, and South Texas Austin Chalk results remain strong as we move to larger pads in development mode. Capital guidance was increased to assume another 10%-15% of inflation and incorporates continuous re-rig and pressure pumping activity through year-end. Inflation for the second half is simply higher than expected last February, which concurs with the most recent industry estimates that are indicating closer to 30% as of mid-year. We believe that's similar to 2022 with comparably favorable pressure pumping terms prior to certain service industry consolidation, meaning we are measuring the rise in service costs from a lower benchmark.
We do believe we're still below current market rates overall, thanks in part to our efficient site operations that in turn support our contractors. Given the tight supply of rigs and pressure pumping equipment, combined with tight labor, we will maintain the excellent teams we are now using into 2023, which optimizes capital efficiency and safety over the long run. Safety is certainly a top priority, and year to date we have a particularly strong record. Continuous operations are expected to result in an increase of 6 net wells drilled and three net wells completed in 2022. Turning to slide nine. Our original capital budget was based on an $80 oil and $4 gas price environment, and we're now forecasting $99 and $6 for the full year averages.
The significantly higher cash flow generated by higher commodity prices is partially offset by the increased capital, but still results in a reduction in the reinvestment rate to approximately 45% from 50%. I will note that retaining our great contractor crews through year-end does not contribute to higher production in 2022, but is expected to benefit 2023. Turning to Slide 10. Briefly in regards to hedges, for the remainder of the year, we have less than 50% of oil and natural gas hedged to benchmark prices plus some basis hedges. For 2023, we expect to hedge less than 30% of total production, which is consistent with our projected reduction in leverage.
Before I turn it to Herb, who will comment on our high-quality assets, I will add that yesterday we entered into a new agreement on a revolver that, among other things, highlights our asset value with significantly increased borrowing capacity. A few key metrics on the new revolver are the borrowing base is increased to $2.5 billion from $1.1 billion with an aggregate maximum credit amount of $3 billion. Lender commitments are increased to $1.25 billion from $1.1 billion. The maturity date is extended to August 2027, subject to typical provisions surrounding timely retirement of bonds at their maturity dates. Customary covenants include total funded debt to trailing twelve-month adjusted EBITDAX ratio of 3.5x and a minimum adjusted current ratio of 1:1.
In regards to restricted payments, including dividends and buybacks, similar to prior terms, we have unlimited flexibility subject to certain standard provisions, including pro forma maximum total funded debt to adjusted EBITDAX of 2.5x . The new credit agreement is filed with the current 10-Q for your reference. In closing, I would just say that I'm very excited that we are ahead of plan in significantly reducing leverage, strengthening the balance sheet, and growing free cash flow, and look forward to furthering our discussion of return of capital in the coming months. I'll now turn it back to Herb for a brief operations update. Herb?
Thanks, Wade. I believe our high-quality 13+ year inventory differentiates SM from peer companies our size. Last quarter, we reviewed the repeatability and predictability of the Austin Chalk, where we expect to have organically added about 400 locations to inventory. We emphasized that Austin Chalk wells drilled in 2021 and 2022 have payouts that average less than one year, demonstrating the very high quality of these assets. South Texas operations continued strong through the quarter, and we have updated our cumulative curve in today's slide deck to reflect the 46 Austin Chalk wells that have now reached peak IP30. Today, let's focus on the Midland Basin, starting with Slide 16. Last year in the Midland Basin, we were able to organically replace inventory, and we continue to actively test new intervals beyond our core Lower Spraberry and Wolfcamp A and B intervals.
In June, we published successful Wolfcamp D test results. Today, we add test results from three recent Dean wells, shown in slide 17. These three Dean wells had average 30-day IP rates of approximately 2,400 BOE per day with 88% oil and average 12,300-foot laterals. Those rates are certainly top tier. The wells have outperformed our expectations due both to great rock and higher proppant loading in their completions. In total, we have drilled 14 Dean wells to date with average 30-day peak IP rates of 1,440 BOE per day at an average 89% oil. Dean wells are being incorporated into our optimized co-development plans. We have a very well-resourced geosciences team, which is very unique for a company our size. Our culture values data analytics, innovation, cutting-edge technology, and the ability to drive improvement and change.
The differential insight, understanding of fundamentals, and resulting contributions of this team have supported our ability to organically grow our inventory and achieve top-tier well performance across our assets, now clearly evident in both our Midland Basin and Austin Chalk well performance. With that, I will close by reiterating some highlights from today. The balance sheet inflection point is fast approaching, and I believe it's a great time to be in SM Energy stock. The quality of our top-tier asset base is reflected in the sizable increase in the capacity of the borrowing base, increased more than 125% to $2.5 billion. Our premier operations are driving organic growth and continuously improving well performance across our portfolio. Look out for our updated ESG disclosures, which we will publish later this month. Finally, our strategy remains consistent and our execution ahead of schedule.
I look forward to speaking live tomorrow and answering your questions.