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Operator
Good day, and welcome to the Chesapeake Energy Corporation Second Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, today's event is being recorded. I would now like to turn the conference over to Brad Sylvester. Please go ahead, sir.
Bradley D. Sylvester - VP of IR & Communications
Thank you, Rocco, and good morning, everyone, and thank you for joining our call today to discuss Chesapeake's financial and operational results for the 2021 second quarter. Hopefully, you've had a chance to review our press releases and the updated presentations that we posted to our website yesterday and this morning. During this morning's call, we will be making forward-looking statements, which consist of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections and future performance, the benefits of our proposed transaction with Vine Energy, Inc., the expected timing for the completion of the transaction and the assumptions underlying such statements.
Please note that there are a number of factors that will cause actual results to differ materially from our forward-looking statements, including those factors identified and discussed in our earnings release yesterday and in other SEC filings. Please note that except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place undue reliance on such statements. We may also refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. For any non-GAAP measure we use, a reconciliation to the nearest corresponding GAAP measure can be found in our materials and on our website.
With me on the call this morning are Mike Wichterich, Nick Dell'Osso, Sheldon Burleson and Tim Beard. Mike will give a brief overview of our recent results and events, and then we will open the teleconference up for Q&A. So with that, thank you, and I will now turn the teleconference over to Mike.
Michael A. Wichterich - Interim CEO & Chairman of the Board
Hi. Good morning. Thank you for joining. We're pretty excited today here at Chesapeake, and we're glad you're here. So we're going to do a quick -- just a quick flyover on our quarter. Second quarter was pretty great. We're pretty excited about it. We told you in the first quarter that this company is going to generate a lot of free cash flow. That's what we've done in the second quarter. We did not disappoint. We had $429 million in EBITDAX, $300 million-ish in free cash flow. That went to the balance sheet. That's how you know it's real when it shows up in cash in the bank. And so we're pretty pleased. We don't think this is a onetime event. It's a trend, which is why we're updating our guidance. You'll see we're 16%. We want to raise guidance on EBITDAX by 16%. We reduced G&A by 15%. We're not changing our CapEx and that all feels pretty good.
We do generate a lot of cash. We have a bunch of cash. The question becomes is what to do with it. We've told you really clearly in our first quarter. The goal is to return cash to shareholders. That's why we started a fixed dividend in the first quarter. We told you at that time that we would define a variable dividend strategy by year-end. Today is that day. So we're going to implement a variable return program that's going to take 50% of our free cash flow quarterly and pay it out. That's going to start in the beginning of next year. We're pretty thrilled to run it. the very bottom of the page, you may have seen this in the previous press release, our commitment to the environment and being a good steward of assets. We are pledged that we will turn our Haynesville area into an RSG basin for us.
We think that is not only the right thing to do and the smart thing to do, and we're pretty pleased and we're making great progress. Turning to the Vine acquisition, which we're really excited and fired up about. During the quarterly calls and last time and every time I have an investor call, I get a question often about will Chesapeake participate in the A&D market, how will it look? What are the whats, wheres, whens and hows.
And honestly, we are very picky. And we're picky and we think this acquisition absolutely reflects that. We have what we think are 5 non-negotiables in any transaction. The first non-negotiable is you can't overpay. We don't think we are. This is a 0 premium deal. When you look at it, if you want to calculate the price, you can do it yourself, it's basically the 30-day exchange ratio. That is how we based it. No premium, feels great. We're not overpaying.
The second non-negotiable is, we're not going to break our balance sheet. We are not Chesapeake of the past. We think this is a competitive advantage. You'll see our leverage is still below our long-term goal, which is sort of fantastic. And we're going to keep it. It was hard to get here. Now you could ask that, hey, did you build some overhang on your stock with the new buying shareholders? And I'd say, maybe you could think about it that way. We don't think about it that way. The Vine Energy shareholders have been very clear on their intent. The intent is they like Chesapeake, they like the story. They want to participate in the upside. And frankly, we're happy to have them.
Third, non-negotiable. It's got to be accretive. On the metrics that matter. We think this transaction is, you guys will calculate it, we feel great about it. Fourth is, hey, we're looking to be better, not just bigger. And so we think this transaction does it. Better to us means adding low breakeven drilling locations. This transaction does it, it means having scale you combine low breakevens and scale and size, and I think you have a winning formula and to generate a lot of free cash flow.
We have the locations with this. We're happy about it. We also are going to be the largest Haynesville producer is the scale we're looking for. The beautiful thing about this is this is an area that we've already operated in since 2008. We know the area, we can execute, we will execute. We feel great about it. Finally, we talked about our pledge to be RSG in the Haynesville. We talked about it in our own assets. It was very important to us. not just to do it on those assets, but buy an asset. So our pledge extends also to the Vine acreage.
Next page, Page 4. Look, picture is a thousand words. The picture tells you the story, which is the our next door neighbor -- It makes total sense. We have the people in place already to execute, and we feel great.
Next slide, I'm going to keep harping on this about being a good operator. We think it's obviously the right thing to do on ESG. Haynesville is the right place to be. And not only that, we think it is not just right. We also think it is a competitive advantage. It is a smart thing to do. We know that Haynesville gas goes into the LNG complex. We know the buyers of LNG wanted to be certified RSG. We're going to deliver it. We listen to our customers. We want to provide it.
Turning to Page 6 of the deck. Again, back to the picture tells a thousand words. We talk a lot about basis. You guys talk a lot about basis to us. about the Appalachia. It's obviously a hot topic. The basis is this is perfectly situated to take that out. This is the place to be. We're happy to be building here. It is a core strength for us.
Page 7, unit cost savings. Synergies are always sort of -- it feels mostly like a guess. It's not a guess for us. We have operations here. We have expertise. We know we can do. I've already mentioned, I don't think anyone has drilled more Haynesville wells than us. We have the people here to execute. So we think these synergies are absolutely real. Page 7, we talk about cash to shareholders. Like to me, this is put your money where your mouth is. It's one thing you talk about generating a lot of free cash flow and about synergies. It's another thing to actually promise to give it back to shareholders.
First step is we're going to increase our fixed dividend. The synergies that we're talking about, we're going to give to the shareholders. We're going to raise our fixed dividend by 27%. We think it's the right thing to do, and we're happy to do it. Also with the new variable dividend plan that we just discussed, it applies to these assets as well. And so giving that cash to shareholders is what great companies do, and we're happy to be part of it. With that, Nick, why don't you go through the numbers.
Domenic J. Dell'Osso - Executive VP & CFO
Thanks, Mike. Good morning, everyone. Our pro forma outlook that we provided in the presentation, we think sets up really great for the next couple of years. At the end of '21, you can see we've raised our numbers, we're raising our numbers on production. We've pointed in our press release to the fact that we have improved base decline rates. This is really evidence of the great work of our teams and how we've shifted our focus throughout this year, and we're delivering better results better information, better technical understanding of our assets and maturing the way we think about the decline curves and the way we manage them. We've also had great performance out of our wedge we're delivering well in Appalachia and Haynesville. And as we noted before, we're going to bring online some wells in South Texas towards the end of the year, which I think ties well together with the fact that the base is performing very well there.
Some of the biggest moves on the page that we're really pleased to highlight are in the cost structure. When you look just to '21 alone, you can see we've reduced our G&A, and it's a pretty significant move. And you can see that as we move into '22, that's sustained. And so when you look at the aggregate cost structure that's on this page of LOE, GP&T and G&A and you go from where we were in '21, our previous outlook to where we're now guiding pro forma the transaction going forward where we're taking into consideration greater scale and some efficiencies of the transaction.
There's a 20% decrease in the total cost structure. That's a pretty impressive move for a transaction like this and for just the current evolution of our business and how we're taking costs out. That does result in higher EBITDA per barrel equivalent. When you think about how we're investing, again, there's some things that Mike talked about as non-negotiables and important tenets of how we run the company from an M&A perspective. And there are a financial approach perspective as well.
Our reinvestment rate stays well under our 60% to 70% target, but we are able to stem the decline in our oil assets with this investment profile. The rate of return that we're going to target with pretty modest investment to stamina decline is outstanding. And so we're really pleased about being able to lay this out and being able to show a free cash flow profile that's really attractive.
On the right side of the page, you have to pay attention to the fact that this transaction is really accretive to our cash flow metrics. And when you see a transaction that is notably accretive to cash flow metrics and a company can raise their dividend on the heels of that transaction immediately, you know that the confidence level in accretion is high. We feel really good about that. We're pleased to be able to deliver that and look forward to executing on that program to find out what's next.
Going to the next page, we have some stats on just Chesapeake relative to the peer group. Obviously, we're a relatively big company. And so the peer group that we aspire to measure ourselves against are companies that are bigger than us. We've talked about that scale matters. We've talked about that we think there's an advantage to having cost structure benefits from scale. We're evidencing that in our transaction this morning.
And you can see that we're moving along the scale, not where we want to be yet, -- But we are, if you look at the payout ratio, punching at a higher level, we think, than many peers of our size, and so we believe we're headed for a position of greater scale in the industry. That payout ratio is really attractive and it's sustainable. -- given the reinvestment profile and given the low leverage. And so we're really pleased to be able to lay this out and put out the variable dividend that we announced this morning that we know is going to offer a really attractive aggregate yield.
So moving on to the last page that we're going to cover is really just a checklist of how we thought about this acquisition and really what it's delivering to us. This is just a tremendous deal for us. It's accretive. It takes advantage of our scale and our knowledge and our history. Mike talked about we drilled more wells in this basin. We have more data in this basin.
We understand this basin better than any other operator. the position that it gives us around marketing of gas and the proximity to LNG and the fact that we're going to have such a large aggregation of RSG in the market, this close to the Gulf Coast and the industrial and export markets is we think a really significant competitive advantage.
And when you marry that with our balance sheet, which now has a credit profile that's very strong and a much more attractive counter party in these transactions, we think it's a really powerful combination. What it does to our inventory is great. You've seen some of the numbers already. We're increasing our premium locations, and we've measured that for you this morning by talking about locations that are greater than a 50% return at $2.50 gas that's a really robust profile of an incremental 370 million (Sic) [370] locations.
Dividends, we've talked about a bit. And the fact that it strengthens our ESG performance. This is a pretty well-run asset from an ESG perspective. And it offers us an opportunity to showcase and highlight our commitment to continuing to drive our emissions metrics down and improve our ESG profile. Overall, we just are really pleased with this transaction. We think it sets up really well for Chesapeake as we move into 2022, and we think about how to continue to take advantage of our scale and deliver higher returns for shareholders in the form of cash. showing up in dividends. So with that, operator, I think we'll open it up for questions.
Operator
(Operator Instructions) Today's first question comes from Scott Hanold with RBC Capital Markets.
Scott Michael Hanold - MD of Energy Research & Analyst
Good quarter and I guess, congrats on the deal. My first question here is, who's running the combined company. You really didn't discuss that. Obviously, Vine has an established management team, and I know you all are in the process of searching for a CEO. So can you give us some sense of where that process is and whether or not some of the Vine management team are candidates?
Michael A. Wichterich - Interim CEO & Chairman of the Board
Sure, sure. Generally, the CEO search is ongoing. We've had tremendous interest in the position, of course, is what you'd expect. The committee is working in its process. We thought it would take several months. It's on target and so we expect to have answers relatively soon. Certainly, we never thought about who would run the company. We weren't trying to buy a CEO in this transaction. It's absolutely not what's happening here. We wanted to buy the company and the assets. And so we just let that process go. I think what the real question you're sort of answering is on who's the next CEO and what's going to happen is hey, with the strategy change, will we have differences? And the answer is no, strategy is the same. We're telling you we're going to execute this business plan. This is the business plan we're going forward with.
Scott Michael Hanold - MD of Energy Research & Analyst
Okay. Just to clarify, is the Vine management team part of the CEO consideration or the C-suite consideration?
Michael A. Wichterich - Interim CEO & Chairman of the Board
We haven't got that far to think about it.
Scott Michael Hanold - MD of Energy Research & Analyst
Okay. Understood. And my follow-up question is, could you just give us a little bit of color around the inventory additions that you're getting from Vine? I think in their published presentations, they've talked somewhere around 800, 900 locations that have breakeven points close to $2. And I know you all highlighted something on the order of 370 locations that get a 50% rate of return. And then I think in Slide 4, it indicates there may be 600, but there's a little bit of a difference. Could you give us some color on that variance?
Michael A. Wichterich - Interim CEO & Chairman of the Board
Sure. So the 370 are premium locations, and we measure that with showing, again, greater than 50% return at $2.50 gas. On Slide 4, I think we give the total location number. So there are a lot more locations and that it's a big asset. And we're really pleased about how the acreage abuts our position. Generally, we're looking at 4 wells a section here. There are some places we'd probably keep it at 3, and we think there's the potential in the future to down space some areas to 5, but we really haven't baked that into our analysis.
That would be upside. So look, this is a big asset. The acreage gives us some opportunities to drill longer laterals, and that's really important to thinking about how the value is put together here. And so a lot of locations and a lot of really premium locations at that high rate of return and low gas price.
Scott Michael Hanold - MD of Energy Research & Analyst
When you said longer laterals, is some of that difference just extending laterals assumptions with Chesapeake's acreage? Or is that just a comment of their length versus your length?
Michael A. Wichterich - Interim CEO & Chairman of the Board
It's really more the latter. There are a few places where we're going to be able to extend some laterals by combining our acreage position. But Chesapeake has the history of drilling more longer laterals than others. We've done a lot of it. It's a little harder. We have the confidence to do it. We also have the mapping and the seismic and the data to do it well. We can pick our locations very well. And so that's something where you're really bringing an expertise and a technology and a data picture to the equation here that Vine just from a scale perspective, didn't have all of that on their own.
Operator
And our next question today comes from Nitin Kumar with Wells Fargo.
Nitin Kumar - Senior Analyst
I guess my first question is around capital allocation for next year. As I look at your Slide 9, you had a stand-alone number of almost, let's call it, $1 billion or so for next year. You're adding some with Vine. But it seems like you're investing in oil quite a bit just to hold day production flat. So could you comment on what are you -- how are you looking at the capital allocation for next year? And why is it so much higher than this year?
Michael A. Wichterich - Interim CEO & Chairman of the Board
Sure. So first, I would just point out that as you think about our capital allocation year-over-year, we're still at a reinvestment rate that's well below our target. And we think that's really important because we have a commitment and a discipline around how we think about deploying capital in the business. But we're absolutely going to chase return. And the rate of return that's available to us in our South Texas assets today is very attractive. When you think about the fact that we came out with our budget for this year, as we emerged from bankruptcy, and we were wrestling with a $45 to $50 longer-term oil price curve.
The world is a very different place today and the rate of return opportunity for us is very attractive, and we have production that's in decline. There's no reason we shouldn't be drilling our absolute best locations in South Texas bringing on a few wells in our other areas that are also a great rate of return and stemming that decline in a way that is very accretive to cash flow year-over-year.
If you look at what we are ultimately going to deliver, again, we're going to have a more stable, longer lived reinvestment rate relative to the cash flow that we can generate with this investment.
Nitin Kumar - Senior Analyst
Okay. And I guess the second question is Blackstone owns, I think, 70% of Vine. You alluded to their commitment to Chesapeake staff, but just -- is there a lockup or something formal that prevents them from selling their stock?
Michael A. Wichterich - Interim CEO & Chairman of the Board
There is. There's a 60-day lockup that's been negotiated here. They'll be less than 10% of the fully diluted shares. But really, our conversations with them have been about being a long-term shareholder. They're believers in this story, they're believers in the idea of consolidating for scale, they're believers in natural gas. The story for them offers an opportunity for enhanced returns over what they were able to accomplish, which they accomplished quite a bit as a stand-alone company but they've reached a point here after going public where they felt they were offering -- they had a chance for a better rate of return profile through the combination. We expect Blackstone to be shareholders for a while, and we welcome them as shareholders. They're eager to be shareholders in this combined company.
Operator
And our next question today comes from Joshua Silverstein with Wolfe Research.
Joshua Ian Silverstein - MD and Senior Analyst of Oil and Gas Exploration & Production
Mike, you mentioned before on the CEO search, you had some comments there. Between the 2022 outlook that's now set the acquisition, the dividend announcements, the forward outlook for Chesapeake seems pretty clear, and you've clearly been a big part of this. I'm just wondering if you have your hat in the ring here because you had suggested otherwise, differently otherwise, but beforehand. So just wanted to see how you're thinking about your role here at Chesapeake.
Michael A. Wichterich - Interim CEO & Chairman of the Board
Sure. I think of my role as the Chairman of the Board. I have not interviewed for the job of CEO. My goal here is just to help guide the company to a better place where I think we're heading.
Joshua Ian Silverstein - MD and Senior Analyst of Oil and Gas Exploration & Production
Okay. And then you also said you remain pretty active in the A&D market. You did the Vine transaction here. In the past, we've talked about the Eagle Ford being a potential divestiture candidate, but that seems off the table right now with the increased activity there. Can you just give your updated thoughts on the oil portfolio and how you guys view kind of the overall mix of the production profile because you're putting yourself against peers in the slides that are a bit more diversified. So I just wanted to see how you view kind of the overall portfolio construct now.
Michael A. Wichterich - Interim CEO & Chairman of the Board
Sure. Look, number one, we think we have a great gas assets, both in the Marcellus and the Haynesville. We're believers. Eagle Ford is interesting. It's large. It's 1 of our big 3. We think that currently, at the current price is today, it's really attractive to go drill down there. and we're going to do it. We're going to chase returns and that will be sort of our first and foremost goal. Do we have work to do down there? We do. We have costs. We have pipelines we have other stuff that we have to take care of. And that area is going to have to compete for capital. Today, it does. If it ever turns out that we can't compete for capital, then we'll have to do something about it then. But right now, it sure looks good, and we want to keep going.
Operator
And our next question today comes from Charles Meade, Johnson Rice.
Charles Arthur Meade - Analyst
Mike, Nick and the rest of the team there. A little -- going back, I think it was to Nitin's question on the '22 allocation. So if my understanding is right, you guys talked about adding 1 to 2 rigs in all the assets. And Mike, you were just talking about South Texas, but is obviously it seems like 1 rig is going to go there, but is another one maybe going to go to either the PRB or Brazos Valley? Or are we -- should we just be thinking about the uptick being in your Eagle Ford?
Michael A. Wichterich - Interim CEO & Chairman of the Board
No, you shouldn't think about it that way. We're going to go to the best return locations. Clearly, the bigger one is South Texas. That's where the activity is going to be. We're going to probably do a handful of wells in Brazos Valley and its core, we think it's best place. And then we'll sort of go from there. The PRB is a little bit of a tail wagging the dog. We are drilling some obligation wells there this year. And it has to start competing, if it doesn't compete, it won't stay around it very long.
Charles Arthur Meade - Analyst
Got it. Got it. And then kind of on the same point. So -- you haven't been asked but you beat on 2Q oil volumes, right? You guys are talking about adding rig activity, but you've also mentioned that your base declines, your PDP declines are turning out better. So of the -- your oil outlook for '22 is a good bit over where I've been and where consensus is. Do you have a sense of how much of that is related to more activity you're planning? And how much of that is better base declines?
Domenic J. Dell'Osso - Executive VP & CFO
I'll take that, Charles. So really, we're seeing excellent performance in our base in all overall assets. Two biggest drivers are South Texas and Brazos Valley. And so South Texas, really, it stems back to the decision to kind of start to widen space in a couple of years ago. And so we've seen really outperformance of those wells over the last couple of years. and then also the key work by the team to look at optimization and our performance there. BV is a similar story. It's really the transition to that power of our team after we took over that asset, -- And we've really been focused on artificial lift optimization and then accelerating our accretive work-over program. So both those assets have contributed a big piece of it. Powder is also ahead as well. So I think of it as really just a solid performance and really focused on that program by our team.
Operator
And our next question today comes from Apis Shadri with IBI Investments.
Unidentified Analyst
Congrats on the deal. It seems like a win-win for everyone involved. Was just kind of wondering how you guys are thinking about kind of the net debt profile going forward and kind of how you think about the buying debt. Is that going to be brought onto the balance sheet? Or is that going to be taken out?
Michael A. Wichterich - Interim CEO & Chairman of the Board
So Vine has 3 basic pieces of debt. They have their $950 million of bonds. They have a term loan and they have a revolving credit facility. The term loan and the revolving credit facility will go away as a result of the transaction, we'll pay those off in cash, and the bonds will stay outstanding. The bonds are due in 2029, will just stack into our maturity profile. And if we get an opportunity to refinance those at some point where it's attractive to do so, and there's not too much friction in the transaction, we would do that.
Operator
And our next question today comes from Nicholas Pope at Seaport.
Nicholas Paul Pope - Research Analyst
I was trying to reconcile the share count and make sure I have that right with this transaction. What is the -- I guess, what is the Vine share count right now? And what is the total number of new shares of that conversion rate?
Domenic J. Dell'Osso - Executive VP & CFO
Sure. So the Vine share count, you have to take into consideration shares the best as a result of the deal. And so it's almost 77 million shares, just a tick under. And then the share count pro forma the transaction is 135 million Chesapeake shares. So we're issuing about 19.1 million Chesapeake shares in the transaction.
Nicholas Paul Pope - Research Analyst
And the Vine share count that -- and I don't cover Vine. So is there -- is that a different class of shares because I'm just seeing a $41 million number and I'm trying to understand what -- I don't know what I haven't followed them before. So what's that number difference?
Domenic J. Dell'Osso - Executive VP & CFO
There are 2 classes of shares of Vine. It stems from the private equity backing in the IPO. They have 2 classes of shares.
Nicholas Paul Pope - Research Analyst
Got it. And then can you talk a little bit about speed of drilling kind of where you guys are versus where Vine is and what -- because I think you all talked about 30 wells this year, you're running 3 rigs right now. As you kind of ramp that up is that linear? I mean how do you think about what 3 to 6 rigs? What kind of well count are we talking about in the Haynesville for a combined company shift?
Domenic J. Dell'Osso - Executive VP & CFO
We're still assuming 10 wells per rig per year. That's a good pace, and we believe that continues.
Operator
And our next question today comes from Doug Leggate with Bank of America.
Douglas George Blyth Leggate - MD and Head of US Oil & Gas Equity Research
Mike, the -- or maybe this is for Nick -- The capital guidance talks about adding activity back to the oil assets. I think Nitin touched on this earlier. But with the output that stabilizes production. Is that how we should think about the strategy on the oil assets going forward?
Domenic J. Dell'Osso - Executive VP & CFO
I would say, just to think about us targeting returns, Doug. So right now, we see it pretty attractive to bring a rig plus a little bit of additional activity to South Texas. And like Mike noted, we'll take care of some obligation wells in the PRB, see how those do, and then we're going to bring on some really high rate of return wells in the BV as well. So we know that those are really low risk, high rate of return targets. They make sense for us to drill in this environment. And so that's how we're going to chase return with our capital. We think it makes a lot of sense. -- by sending the oil decline, obviously, it puts a boost in our EBITDA, our efficiency of capital turning into cash flow in the near term is great on those assets. And so look, it's a really attractive capital allocation move for us as we think about the fact that EBITDA is growing. We think about our ideal reinvestment rate, we think about the way to maximize cash flow for shareholders -- This is a better answer than not drilling those wells.
Douglas George Blyth Leggate - MD and Head of US Oil & Gas Equity Research
Okay. Brad knows the sustaining capital portion is coming for him as well, I'll pick that offline. Two other quick ones, Nick, if I may. Finally, we did cover Vine over here when had a tax recoverable agreement with its largest shareholder, as you know. What's the status of that going forward to the new company. And what does it mean for the combined company cash tax trajectory?
Domenic J. Dell'Osso - Executive VP & CFO
Sure. Great question, Doug. So the tax receivable agreement that existed between Vine and Blackstone will be terminated as a result of this transaction. And there's been negotiated to be no payment under that agreement at termination. The cash tax position of the combined company going forward is unchanged from where we were before. We're pressuring up against the point where we will project to pay some cash taxes as we have a lot more cash flow as prices rise. But as of right now, we would still project to be -- I think our outlook has a very modest amount of cash taxes forecast we think that's right. We think there's still a chance we end up at 0 for the year. So we're watching that closely. We're going to be right near the line and adding Vine into the mix is effectively neutral to our view on forward cash taxes.
Douglas George Blyth Leggate - MD and Head of US Oil & Gas Equity Research
That sounds like a big one. So last 1 then for me is hedging. I mean obviously, you're kind of locked in for 2022. But if you're generating as much free cash flow and the balance sheet is in such good shape, and now you're thinking about the variable payout, why hedge? What is the purpose and philosophy of hedging? Because you're obviously not protecting necessarily a balance sheet position and you're not protecting growth capital. So why not allow investors the headroom to what might be upside, if you like, going forward, given your lower risk overall portfolio. That's my last one.
Domenic J. Dell'Osso - Executive VP & CFO
Yes, sure. Great question, and I love answering this question. So we did put a lot of hedges on as we exit bankruptcy. It was required in the agreement. And you guys have seen that we did not add any hedges this quarter because we have a pretty robust hedge profile going forward. So we don't disagree with your sentiment that investors should have pretty good exposure to rising commodity prices going forward. The way we do think about it though, is that we're going to spend a lot of money each year.
I mean, if you just think about our capital profile that's here in front of you today on a stand-alone business, we're just over $1 billion and with Vine, we're obviously a little higher than that. And that capital is targeting new drilling, and that new drilling has an expected rate of return that's very attractive at these levels. And we should derisk that capital program over time. So we should still have some hedge profile over time despite the fact that we have a great balance sheet, we won't be able to maintain our cash flow profile, our dividend profile, the attractive high level of variable dividend that we all can project at this point would be at risk if we didn't protect the cash flows that we expect to come out of our capital program.
So what does that really mean over time? I think what that means is that you can expect us to be around 50% hedged in a given year. So if you look forward into '22, we have pretty robust hedge profile. Vine has a good hedge position coming in. They're heavily hedged as well. So we're going to manage through that, but you should expect us to continue to think about matching a hedge program to derisking the decision to either offset decline or have modest growth and the cash flows you expect to come from that. And it all add up to somewhere around 50% in a given year.
Douglas George Blyth Leggate - MD and Head of US Oil & Gas Equity Research
Preference for swaps or collars, Nick?
Domenic J. Dell'Osso - Executive VP & CFO
That always depends a little bit on price, Doug. I mean, as I've been watching the market the last few weeks, some of the collars look absolutely fantastic. So I love the idea of collars when they're priced effectively. As you know, sometimes the SKU on those can make them really unattractive. But when you can lock in a price that's at or above your breakeven levels or ideally well above your breakeven levels and you can maintain some real exposure to the upside.
We love that. And that's a place where really our strong balance sheet gives us a lot more flexibility than in the past where we might have looked at the past and said we need every penny of gas price or dollar of oil price that we can get. The strength of the balance sheet says that you absolutely can take some risk around getting exposure to the upside and still protecting yourself to the downside with some cushion that you're comfortable accepting. So love collars, they just have to be priced effectively.
Operator
And the next question today comes from Neal Dingmann, Truist Securities.
Neal David Dingmann - MD
Good morning, guys. Just a quick follow on why Doug was asking on the hedges. Nick, what's your thoughts on basis hedges. And while we're talking about just the basis, could you talk about just your thoughts on your various regions on how you're seeing sort of basis for the rest of the year. It looks like everything sort of trended in line, but I just would love to hear your thoughts on the hedging around that and kind of where we are.
Domenic J. Dell'Osso - Executive VP & CFO
Yes, absolutely. Great question, Neal. And look, if you're not hedged in basis and you have a lot of production in the Northeast, then you're not hedged. So we think about the percentage of gas that we want to have hedged out of that Northeast production, we should hedge its basis as well. And so we just manage that pretty carefully. Now you can't hedge as far out in the future on basis typically without seeing some slippage in price.
So the timing doesn't always match. But yes, we absolutely want to continue to proactively manage that, but you also manage your transportation profile. We're going to -- as you know, we had a bit of transportation on the Tetco M3 line that's going to expire due to the negotiation of our bankruptcy, we're going to have an opportunity to add back some transportation to that area here, which we can talk more about in the future. But it's a modest amount, but it's going to give us a little bit of tailwind into our realized pricing.
So we feel good about that. And we'll continue to very proactively manage how we expose ourselves to realize prices in the basin through hedging, through transportation and through curtailment of gas when prices just don't work. So we like all those dynamics. There's been a lot of noise about basis in the Northeast to summer. There's been a lot of maintenance. We've navigated all that pretty well. You can see that in our results from today. Our realized price held up pretty well. There's been a lot of intra-basin dynamics that have been interesting.
There have been times where some of the maintenance in other parts of the basin actually lifted our in-basin sales in Northeast PA where we are. And then there have been other times where we had some of the same pressure that others had, too. So it's been a very, very proactive management from our team. Our team does a great job. We've got a marketing team that stays in really close contact with our production team, and they work this every day really hard to maximize the value we receive for our gas.
I think they do a great job, and we expect them to continue to do it. The outlook is pretty good. As much as basis has been wide, the realized price that we're seeing in the field, especially right now this month is out of sight. It's very, very strong. So you can take a wide basis to NYMEX when your realized price is elevated quite a bit and that's what we've seen. But right now, basis looks good this quarter and realized price is very attractive.
Neal David Dingmann - MD
Great detail, Nick. And then maybe just 1 follow-on for you or Mike, just on -- I think I've seen this on Slide 4, I want to make sure I understand, when looking at the Vine deal, where does that overall inventory does it go -- does a good piece of that go to your upper quartile? Or I'm just -- I guess, another way to say that is when you sort of look at what you're going to be drilling will a lot of that fall in the front of the line now once that deal is complete.
Michael A. Wichterich - Interim CEO & Chairman of the Board
Yes, Daniel. Absolutely, the 370 locations that we're talking about, those premium locations absolutely pushed their way to the front of the curve. We have our own in that bucket, too, but those wells will compete on day 1. And I would say they're definitely in a tough quarter.
Operator
And our next question today comes from Jordan Stuart of Golden Tree.
Jordan Stuart
Just somewhat of a follow-up to this last question. Curious how we're thinking about the portfolio as a whole now. Northeast PA versus Haynesville where you guys have obviously made this acquisition versus some of the oilier stuff, just as we think about force ranking, how should we be thinking about that now and going forward, how that might change.
Michael A. Wichterich - Interim CEO & Chairman of the Board
Yes. I mean, look, we're chasing returns. In Appalachia, we have a constraint on how much we can get out. So that's sort of your first baseline best return area. After that, you have to compete and Haynesville gets a bunch of the capital. You can see we'll go from 3 to sort of 6 rigs. And then after that, we'll look at the balance between the 2, between the oil assets. So I would say 3, 6 and then the rest of oil on great cap.
Jordan Stuart
Great. And then obviously, the macros improved materially enough for you guys to add activity in the oilier assets. Curious what type of pull back or what type of volatility would have to be introduced here that maybe we can see moving the other direction down the road?
Michael A. Wichterich - Interim CEO & Chairman of the Board
I think we showed you in bankruptcy coming out that 45 to 50, those oil wells didn't attract any capital. And I think if you guide in the long-term price of that, I think you'd have the same result.
Operator
And our next question today comes from Greg Berty of Bank of America.
Unidentified Analyst
Just quickly, I know you've talked about investment grade before, and I'm just curious if -- how you think this transaction potentially impacts that? And I think in the past, Nick, you've said you were not particularly interested in getting a third rating. Curious if you're thinking a little differently about that as it does seem to help the investment-grade story?
Domenic J. Dell'Osso - Executive VP & CFO
Yes. I think it helps the investment-grade story. And I think -- we absolutely care about our rating. I wouldn't ever want to give you any sense of that. I think one of the things I've said in the past is that we can only put forward great results and ask the agencies to rate us appropriately, and that's what we're going to continue to do. Well we've already spoken to the agencies a little bit about these transactions to try to get them up to speed, and we'll continue to do that over the next few weeks.
This is a pretty big deal for us. It adds some scale, and scale is one of the places that I think the agencies would like to see us be a little stronger. They'd like to see us be bigger, and this does that, which gives us sustainability of cash flows. There's a little bit of debt that comes with this transaction for sure. But on a pro forma basis, we're still well below 1x, and we're generating a ton of free cash flow, which is going to continue to grind net debt lower.
So we feel good about this. And obviously, we're going to use some cash to pay off a bit of their debt at closing. So that again helps the total quantum of debt and net debt will continue to grind lower over time. So we feel really good about what this does for our pro forma credit profile. And then again, one of the reasons why we care about it a lot is that if we're going to have a meaningful seat at the table in talking about long-term gas sales agreements, which we absolutely will with the quantum of gas that we'll have available for supply here, you have to have a strong credit profile and you need to be driving towards investment grade. So it's probably more of a renewed goal to get to investment grade because of the fact that we have that ability to play in a different way in long-term gas marketing. And we're pretty intentional about getting there. We're going to be very focused on it.
Unidentified Analyst
Does that make getting a Fitch rating a little bit more important?
Domenic J. Dell'Osso - Executive VP & CFO
A Fitch rating? Maybe we certainly have a relationship with those guys, and we've talked to them, and we'll continue to think about that.
Unidentified Analyst
And just last one, have you indicated that agencies whether there'd be cross guarantees here from Chesapeake to Vine and vice versa? Or is that still kind of be determined?
Domenic J. Dell'Osso - Executive VP & CFO
Yes, you should think about these bonds is basically becoming a part of the Chesapeake credit profile. It's all going to be one. It will not be held in a separate non-guarantor entity like WildHorse. This is going to be all folded in.
Operator
And our next question comes from [Carl Langdon] Goldman Sachs.
Unidentified Analyst
Just wanted to build on one question that Greg had there on the investment-grade ratings or at least progress toward that. Scale is clearly something the agencies have rewarded and you're doing that here. Are there other considerations maybe specific to Chesapeake. You can talk about the agency sometimes will talk about companies coming out of a restructuring or needing a set management team for them to get more comfortable in moving the ratings quickly. Is there any color on those items you can discuss with this?
Domenic J. Dell'Osso - Executive VP & CFO
Yes, I think both of those items are important to the agencies. Time away from bankruptcy and showing a track record of delivery is important, and we now have 2 quarters where we've done that. So we're on our way, we believe. We expect to continue to deliver. We expect to continue to show strong results. We expect to continue to show disciplined results.
I'll go back to reminding you of what Mike started the call with around the non-negotiables and the fact that this transaction meets those non-negotiables. And one of those is that we will not break the balance sheet and we won't overpay for transactions. You can't do those things and warrant an investment grade credit profile. So this is all aligned and it all hangs together about how we think about what we're trying to accomplish and who we want to be as a company.
So yes, they're going to care about our -- how long we've been out of bankruptcy and our track record since then. We feel great about that concern. They're going to want to know who the CEO is. And as Mike noted, the Board expects to conclude that process in its due course, and it's moving forward. And so we don't think those are long-term concerns, but we know that they are points that the agencies are still thinking about.
Unidentified Analyst
I guess just the one follow-up is, is there room for more transactions like this in the near term? Or does it kind of digest this and then take a look [with precision what] both environment look like?
Michael A. Wichterich - Interim CEO & Chairman of the Board
We're focused on this transaction, and we focused on them one at a time. So we don't think about the next one necessarily right away. But when you have opportunities to beat those non-negotiables, it is our job to look at them. And so we will continue to look. We will continue to participate in all processes in our areas of operation. But again, pretty hard to get them through the hoop because it's a pretty small hoop. We got a pretty big ball.
Operator
And ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.
Michael A. Wichterich - Interim CEO & Chairman of the Board
Yes. Before we leave, I do have a couple of things to say. Number one, I want to congratulate the Vine team. Eric March, you guys did and team have done a beautiful job. They're a good operator, a clean operator. And it's really attributed to the success of that team is where we are today. They've been nothing but professional. And I would tell you, our team is impressed. So congratulations, Eric and team. I'd also like to thank Blackstone. Blackstone is a new shareholder of ours. We're happy to have them as a shareholder. It's great when you have sophisticated investors who want to be in your stock. We have them. We welcome them. I expect to have a great relationship.
Operator
And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation and you may now disconnect your lines. And have a wonderful day.