EOG Resources (NYSE:EOG) proved once again why it's a top-tier shale driller by delivering high-end fourth-quarter results. Not only did oil production come in toward the upper end of its guidance range, but earnings came in well ahead of expectations. That sets the company up for continued success in 2018, with it expecting to deliver fast-paced growth along with a gusher of free cash flow.

 Drilling down into the numbers

Metric

Q4 2017

Guidance or Expectations

Difference

Oil production

368,100 barrels per day (BPD)

362,000 to 370,000 (BPD)

0.6%

Core earnings per share

$0.69

$0.52

32.7%

Data source: EOG Resources and Seeking Alpha.

Oil pump with the sun going down.

Image source: Getty Images.

EOG Resources delivered a torrent of oil production during the quarter, with output rising more than 40,000 BPD from just the third quarter. While some of that stems from the fact that Hurricane Harvey held back 15,000 BPD in the third quarter, increased development activity in the Eagle Ford shale and Delaware Basin fueled the bulk of the growth during the quarter.

Last year was a "watershed year" for the company in the Delaware Basin. EOG completed its integration of Yates, identified 1,240 more premium return drilling locations, and reduced drilling costs by $800,000 per well. Those factors helped fuel an 80% increase in output from that play over the course of the year, with it exceeding 100,000 BPD in the fourth quarter.

EOG's position in the Eagle Ford also performed well during the quarter. One of the highlights was a four-well package that averaged more than 2,500 BPD apiece in the first month online. In addition to the strong well productivity, EOG also continued pushing down costs in the region last year.

The gusher of new output in the quarter drove its U.S. oil production up 20% for the year, which matched its revised forecast and was above the initial outlook for 18% growth. Expenses, meanwhile, came in below the company's targets, which enabled it to post stronger-than-expected earnings.

A pumpjack on the middle of the corn field.

Image source: Getty Images.

A look at what lies ahead

EOG Resources expects to maintain its momentum in 2018. The company currently anticipates that it will spend between $5.4 billion to $5.8 billion to complete 690 new wells, which should boost its oil production 18% this year. What's noteworthy about that plan is that while the company will spend more money than the $4.44 billion it invested last year and bring more wells online than the 536 completed in 2017, output will grow at a slightly slower pace. However, that's because EOG is growing from a larger base, facing some headwinds from service cost inflation, and isn't spending as much as it can, with the company expecting to finance that capital plan as well as its dividend outlay within the cash flows generated at oil prices below $50 a barrel. As such, the company believes it can produce "significant free cash flow at a $60 oil price."

That said, the company hasn't announced what it plans to do with that excess cash other than increase its dividend 10.4% for this year. On one hand, the dividend increase does put it above rivals like Devon Energy and Marathon Oil, which have yet to announce any plan to return more money to investors above their current dividend levels. While both Devon and Marathon expect to generate free cash flow this year, they're taking a much more cautious approach than rivals like Pioneer Natural Resources (NYSE:PXD) and Anadarko Petroleum (NYSE:APC). In Pioneer's case, it boosted its dividend fourfold while also announcing a $100 million buyback that should at least offset the dilution from its employee compensation plan. Meanwhile, Anadarko recently increased its dividend five-fold -- putting it nearly back to the level it was before the oil market downturn -- while also adding another $500 million to its $2.5 billion repurchase program. EOG, on the other hand, seems to be taking a more middle-of-the-road approach by raising the dividend but holding off on a stock buyback for now.

Set up for a strong year

EOG Resources finished 2017 well, delivering high-end production and strong earnings growth. That sets the company up to continue growing briskly in 2018 even if oil prices tumble while producing a gusher of free cash if they don't. While some investors might be disappointed by that guidance since the company didn't announce plans to return the excess money it might produce this year via a buyback, it's hard to argue with taking a more conservative approach for now after what the industry has been through the past few years. 

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.