Travis D. Stice
Chief Executive Officer and Director at Diamondback Energy
Thank you, Adam, and welcome to Diamondback's fourth quarter earnings call. 2021 was a great year for Diamondback and our industry with higher product prices, allowing the vast majority of our industry to, one, repair and improve balance sheets quickly; two, accelerate returns to shareholders; and three, make significant progress on environmental objectives. At Diamondback, we reduced our absolute debt by $1.3 billion, increased our base dividend every quarter, initiated a return of capital framework and announced ambitious environmental goals designed to help us earn our environmental license to operate.
In the fourth quarter alone, buoyed by commodity price strength, Diamondback generated $772 million of free cash flow with production and capital, both positively exceeding expectations. We returned 67% of this free cash flow to stockholders, which was above our commitment to return at least 50% of our free cash flow to shareholders quarterly. This return was made up of $106 million allocated to our growing base dividend, now at $2.40 a share on an annualized basis, which represents a current yield of approximately 2% and $409 million in share repurchases as we bought back nearly 3.9 million shares at an average price of just under $106 per share.
We are at the beginning of an incredible period of value creation for the industry, and I'm confident that the capital discipline demonstrated by us and our peers in 2021 will continue, putting returns and, therefore, shareholders first. We believe this is the best near-term path to equity value creation as our shift from a consumer of capital to a net distributor of capital cements itself as our long-term business model. two months into 2022, economies are rapidly reopening around the world, stoking demand which we believe to be close to, if not above, pre-pandemic levels.
On the supply side, we are witnessing some underperformance from OPEC+ to meet this increasing demand, calling into question spare capacity, with global inventory numbers now approaching 2010 to 2014 levels. We cited both global oil inventories and OPEC spare capacity as impediments to any discussion around U.S. public company oil growth and those issues appear to have subsided for now. However, the global balance remains tenuous at best with up to one million barrels per day of additional Iranian barrels potentially coming online sometime this year and U.S. growth expectations continuing to climb higher, led by private companies and more importantly or more recently majors.
Both of these supply factors could be bearish signals for oil. Therefore, Diamondback's team and Board believe that we have no reason to put growth before returns. Our shareholders, the owners of our company agreed. And as a result, we will continue to be disciplined, keeping our oil production flat this year. As such, our plan for this year is simple. Maintain oil production of approximately 220,000 barrels per day by spending between $1.75 billion and $1.9 billion.
At current strip pricing, this production and capital spend equates to nearly $4 billion of free cash flow, which for our returns framework gives a minimum of $2 billion of cash back to our investors. At the same time, we are committed to permanent returns to our investors, which is why we continue to lean into our base dividend, increasing it again by 20% this quarter. Our growing base dividend is our primary means of returning capital, and we've increased it by a quarterly CAGR of over 10% since it was initiated in 2018.
Today, we have line of sight to get our dividend to $3 a share by the end of this year if market conditions remain favorable, which would mean 25% of our 2022 distributable free cash flow would be allocated through this constant predictable form of shareholder return. History has taught us that oil is a volatile commodity and that the macro environment will not always be this favorable. So we continue to work towards protecting our base dividend down to $35 WTI, with the view that this dividend is really just a form of debt and if plus our maintenance capital budget have to be protected to the extreme downside.
By continuing to focus on our fortress balance sheet and layering on our strategic derivative positions to our hedge book, we are confident in our ability to perform in any environment. While the base dividend is the primary tool of returning capital, we will also utilize share repurchases and potentially variable dividends to reach at least 50% of distributed free cash flow on a quarterly basis. We continue to repurchase shares opportunistically, taking advantage of volatility while generating returns on these repurchases well in excess of our cost of capital at mid-cycle commodity prices, which today is assumed to be around $60 WTI.
Through the end of the fourth quarter, we've spent $430 million or 22% of the $2 billion program our Board authorized last September. If the free cash flow returned through our base dividend and repurchase program does not equal at least 50% of free cash flow for that particular quarter, then we will make our investors hold by distributing the rest of that free cash flow via a variable dividend. This strategy gives us the ability to be flexible and opportunistic when distributing capital above and beyond our base dividend and most importantly, allows at least 50% of free cash flow to be returned.
However, it is important that the Board also retains discretion on what to do with the other 50% of the free cash flow generated. As was the case in the fourth quarter, we have the ability to distribute above and beyond our 50% threshold if we feel comfortable with our balance sheet and associated cash balance and do not have a use for excess cash, we will return that cash aggressively to shareholders. Some quarters, we will distribute 50% of free cash flow, but in others, we will have the ability to return more, just like we did in the fourth quarter.
Going forward, we fully expect to differentiate ourselves not only by our returns framework but more importantly through our consistent execution in the field. Last year, our clear fluid design lowered our average drilling days in the Midland Basin by approximately 35%. That's an astounding achievement for our drilling department. On the frac side, our simul-frac operations continue to reduce our time on pad as we are now averaging 3,200 feet per day with our 4-well simul-frac design.
As we've laid out in our investor deck, these operational efficiencies have helped us mitigate the substantial cost pressures we've seen related to consumables and labor and as we noted last quarter, these gains will be permanent, giving us more variable cost control than our peers due to these industry-leading drilling and completion times. Now when you bake in these cost increases and offset them with our efficiency gain, this equates to about 10% of additional capital spend year-over-year, which is baked into our guidance.
We will try to offset this inflation by doing what we do best, innovating, implementing new technology and drilling more efficient and better wells. As mentioned, we were able to offset a vast majority of pricing increases we faced last year through this type of innovation. And we're confident we can maintain our best-in-class capital efficiency and cost structure this year. At the same time, we are fortunate to have multiple pieces of our capital cost structure locked in with contracts and dedications like our water and sand supply.
As the rig count in the Permian climbs, we will continue to work to control other components of our cost structure, particularly services, labor and consumable products while continuing to be the leader in cash margin and capital efficiency. Finally, I'd like to close by detailing the strides we've made in our environmental, social and governance practices. To begin, we met four or five environmental goals in 2021, which had a 20% weighting in management's short-term compensation this year and included specific targets related to flaring, water recycling, GHG emission intensity, produced liquid spills and total recordable incidents.
Unfortunately, we did not meet our expectation of flaring less than 1% of gross gas produced. While we met this goal on legacy Diamondback acreage which was how the goal was set, we missed our target when incorporating our acquired QEP assets, which included the QEP Bakken asset we divested in October. We will continue to improve our takeaway on the acquired Permian acreage and partner with our midstream companies to not only structure contracts then incentivize takeaway in price-agnostic environments but also apply performance-based incentives and penalties related to flaring.
All of our progress in 2021 positions us well to hit our long-term goals of reducing our GHG and methane intensity by 50% and 70%, respectively, by 2024, and recycling over 65% of our water and eliminating all routine flaring by 2025. These environmental goals hit close to home as we hold the unique title of being the only publicly traded E&P headquartered in Midland, in the heart of the Permian Basin.
As such, we feel an enormous social responsibility to better the community in which we live, work and play. We recently committed $2.5 million to a complete redesign of Midland's largest public park as well as $500,000 for Midlands Meals on Wheels program. Arguably more important, however, our employees continue to give their time to sponsor and host camps, reading and instructional programs and public work projects. I'm incredibly proud of our team's efforts. 2021 is a great year for the company.
We generated record free cash flow and distributed over 30% of it to shareholders, strengthened our balance sheet by substantially reducing our absolute debt load and continued to produce one of the cleanest and most cost-effective barrels in the industry. Looking ahead, we are confident in continued consistent operational execution and the ability to generate peer-leading returns.
With these comments now complete, operator, please open the line for questions.
