Scott D. Sheffield
Chief Executive Officer at Pioneer Natural Resources
Thank you, Neal. Good morning. Obviously, we're very excited after talking about it for 18 months to announce that we are both accelerating our first variable dividend payment into the third quarter this year as well as increasing the payment to reflect 75% of second quarter free cash flow. After payment of the base dividend as our balance sheet continues to strengthen due to higher strip pricing as a result of improved oil demand and a successful vaccine. In addition, we had two highly accretive transactions that also led us to making this decision and accelerating. When combined with the base dividend, total dividend payments in the third quarter will be greater than $2 per share, or a total of approximately $490 million return to shareholders during the third quarter alone. The initiation of our variable dividend payments marks a significant milestone in our investment framework as shareholders will begin receiving material cash return through eight dividend checks per year. Pioneer's strong execution continued during the second quarter, with production near the top end of guidance, delivering over $600 million of free cash flow, driving estimated 2021 free cash flow up to about $3.2 billion. Lastly, Pioneer is the largest producer in the Permian, with the largest inventory of Tier one locations, over 15,000, and the lowest breakeven price in the Lower 48.
Both recent acquisitions were highly accretive and added significant Tier one inventory. We were not looking at any more Midland Basin large acquisitions. We bought the best two available. Apollo, who was the largest shareholder from DoublePoint, our largest shareholder from DoublePoint has sold out from 13 million shares to about two million shares and now less than 1% of the outstanding of the company. Going to slide four. Pioneer's execution remains strong as total production and oil production were in the upper half of our guidance ranges as we successfully integrated DoublePoint's operations into our program. Horizontal lease operating expense dropped by nearly $0.25 per BOE when compared to the first quarter. In total, Pioneer generated approximately $1 billion in free cash flow in the first half of '21. We go on to slide five. Our strong balance sheet underpinned by improved oil price outlook supports both the acceleration and increase of our inaugural variable dividend. The first variable dividend will be paid during the third quarter, and accelerated from 22%, will be based on second quarter free cash flow. Additionally, we are increasing the third quarter variable dividend payment to 75%, post base dividend free cash flow from the previous 50%. The increase up to 75% in our variable dividend program is approximately 18 months sooner than previously planned. These changes result in over $1 billion of incremental cash to be returned to shareholders in 2021, with total dividends to exceed $6 per share.
On slide six, we remain committed to our core investment thesis, predicated on low leverage, strong corporate returns to average over the next five years in the mid-teens, low investment rate, around 50% over the next five years and generating significant free cash flow. This durable combination creates significant value for our shareholders delivering a mid-teens total return through our stable and growing base dividend, compelling variable dividend program and high-return oil growth up to 5%. Obviously, when you look at 2022, the turn on return is much higher because the oil strip over the next five years is about $10 in backwardation. When including the base dividend, approximately 80% of the company's free cash flow is expected to be returned to shareholders through eight separate dividend checks per year, inclusive of both the base and the variable dividend. We will continue to maintain our pristine balance sheet as we allocate the remaining portion of free cash flow to the balance sheet. Going to slide seven. As you can see on slide seven, the product of Pioneer's high-quality assets and top-tier capital efficiency drive significant free cash flow generation amounting to greater than $23 billion through 2026. Again, I want to remind you that the strip is in backwardation. It drops about $10 in backwardation over the next five years. Let's get into free cash flow, which is based on current strip pricing, represents greater than 50% of our enterprise value and more than 65% of our market cap.
Considering the greater than $23 billion of cumulative free cash flow, this program generates over $18 billion of total dividends through 2026, with the remaining free cash flow allocated towards strengthening our balance sheet, driving net debt to EBITDA to less than 0.5. Going to slide eight, positioning a leading dividend yield across all sectors, the combination of Pioneer's expected free cash flow and return on capital framework creates a compelling investment opportunity with a total dividend yield that will exceed all S&P 500 sectors as well as companies and the average yield of the major oil companies and all other energy companies in the S&P 500. Annualized expected dividends paid in the second half of 2021 leads to a dividend yield of approximately 8%, which increases '22 to '26 time period to an average greater than 9% due significant free cash flow. Again, when you look at you just focus on '22, the dividend yield is about 12%. Again, a reminder, the strip with these numbers is about $10 in backwardation. This highly competitive yield is underpinned by the greater than $18 billion of cumulative cash returned to shareholders outlined on the previous slide and speaks to the power and underlying quality of Pioneer's assets.
Let me turn it over to Rich for the outlook.