Chief Executive Officer And Director at EOG Resources
Thanks, Tim. Good morning, everyone. 2021 was a record-setting year for EOG. We earned record net income of $4.7 billion, generated a record $5.5 billion of free cash flow, which funded record cash return of $2.7 billion to shareholders. We doubled our regular dividend rate and paid two special dividends, paying out about 30% of cash from operations. And we are continuing to deliver on our free cash flow priorities this year with an additional special dividend announced yesterday of $1 per share. The last time we set an earnings record was in 2014. We earned $5.32 per share while oil averaged $93. Last year, we shattered that record earning $7.09 per share with $68 oil. That's 50% higher earnings with a 27% lower oil price. The catalyst for that improvement was our shift to premium six years ago. Premium is our internal investment hurdle rate that uses low fixed commodity prices to calculate the returns that drive our capital allocation decisions, $40 and $2.50 natural gas for the life of the well.
While our premium strategy ensures high well-level returns and quick payouts in any given year, the more significant and durable impact is to our full-cycle development cost. The benefit of making investment decisions using fixed low commodity prices has the enduring impact of steadily improving corporate level operating and cash margins over time. That impact is now directly observable on the face of our financial statements. And last year, we raised the bar again to double premium. Our hurdle rate increased from 30% to a minimum of 60% direct after-tax rate of return using the same low fixed prices of $40 oil and $2.50 natural gas. The switch promises to further improve financial performance in the years ahead and is what gives us great confidence in our ability to continue delivering shareholder value through commodity price cycles. We expect to look back on 2021 like we do on 2016 as the year we made a permanent increase to our return hurdle that drove another step change in the financial performance of EOG.
We also delivered as we promised operationally in 2021 with production volumes, capex and operating costs in line or better than target set at the beginning of the year. We were able to successfully offset emerging inflationary pressures during the year to lower well costs by 7%. 2021 was also a big year for ESG performance. We reduced our methane emissions percentage and injury rates and increased water reuse. We announced our 2040 net-zero ambition and added our goal to eliminate routine flaring by 2025 to our existing near-term targets for greenhouse gas and methane emissions rates. We continue to develop creative solutions, leveraging existing technology to make progress on our path towards our net-zero ambition. There's growing recognition that oil and gas will have a role to play in the long-term energy solution. We know that to be part of that solution, we not only have to produce low-cost, high-return barrels, we also have to do it with one of the lowest environmental footprints.
As we look into 2022, the global oil market is in a position to rebalance during the year. Our disciplined capital plan aims to increase long-term shareholder value through high-return reinvestment that optimizes both near-term and long-term free cash flow. The plan also funds exploration and infrastructure projects to improve the future cost structure of the business. With the improvements we made in the business last year, combined with a higher commodity price environment, EOG is positioned to once again generate significant free cash flow. We continue to follow through on our free cash flow priorities. Our stellar fourth quarter performance allowed us to further strengthen the balance sheet, and we are returning cash to shareholders with the $1 per share special dividend declared yesterday. Combined with our $3 per share regular dividend, we have already committed to return $2.3 billion of cash to shareholders in 2022.
We remain firmly committed to our long-standing free cash flow and cash return priorities, and you can expect EOG to continue to deliver on them as the year unfolds. EOG has exited the downturn a much better company than when we entered it. Higher returns with the shift to double premium, a lower cost structure, more free cash flow, a smaller environmental footprint and a culture strengthened by the challenges we have overcome together. Our culture is the number one value driver of EOG's success. By remaining humble and intellectually honest, we sustained the cycle of constant improvement that drives our technology leadership. Of all the fundamentals that consistently create long-term value, none of them matter without the commitment, resiliency and execution from our employees.
Now here's Tim to review our financial position.