While Devon Energy (NYSE:DVN) limped into 2018 after running into some production problems at the end of 2017 and bad weather to start this year, it was able to put those issues in the rearview mirror by the end of the first quarter. That's evident by looking over its results for the period where the oil giant beat its production guidance, putting it on track to exceed its full-year forecast. The company did that by drilling some of the best wells ever completed in the legendary Permian Basin.

Drilling down into the results

Metric

Q1 2018

Guidance or Expectations

Difference

Production

544,000 BOE/D

530,000 to 554,000 BOE/D

0.4%

Core earnings per share

$0.20

$0.19

5.3%

Data source: Devon Energy. BOE/D = barrels of oil equivalent per day.

A silhouette of an oil pump in an oil field at sunset

Image source: Getty Images.

While Devon Energy's total output was just above the mid-point of its guidance range, oil production came in toward the top end of the forecast at 251,000 barrels per day thanks to strong drilling results. Fueling that performance was an absolute gusher in the Permian Basin where two wells in the Delaware side combined to achieve a stunning initial 24-hour production rate of 24,000 BOE/D. They were the highest-rate wells ever brought online in the region's nearly 100-year history. Those were just two of several high-rate wells that Devon brought online in the Delaware and STACK shale plays in the quarter.

Another highlight was the company's Showboat project, which came online 40 days ahead of schedule thanks to efficiency gains. The company achieved a 30% improvement in drill time and doubled the number of completion stages per day versus prior activity in the area. Those operating improvements enabled Devon to save $1.5 million per well.

The company's strong well performance, when combined with higher oil prices and solid cost controls, enabled it to produce $804 million in operating cash flow, which was an 11% improvement from the fourth quarter. That was more than enough money to cover capital expenses, which came in at $664 million. The company used the remaining cash, along with some from its balance sheet, to increase its dividend 33%, buy back $204 million in stock, and retire $807 million in debt. The company ended the quarter with $1.4 billion in cash that it plans on using to pay off another $277 million in maturing debt over the next nine months and repurchase about $800 million of additional shares.

A look at what's ahead

Devon's strong start to the year has it on pace to produce more than it initially expected. Because of that, the company raised its forecast and now sees U.S. oil production growing 16% this year versus its prior view of a 14% increase from 2017. Meanwhile, the company anticipates cash flow rising 35%, assuming oil averages $65 a barrel, as it increases the output of higher-margin oil from the Delaware and STACK.

Devon's focus going forward will be increasing output from those two core plays. Because of that, the company plans to continue simplifying its portfolio by selling off non-core assets. It sees the potential to sell more than $5 billion of assets and currently has $1 billion on the market. That's in addition to the roughly $1.1 billion in assets it has unloaded over the past year. One of the most recent involved selling half its working interest in 116 undrilled locations in the Barnett Shale to chemicals giant DowDupont (NYSE:DWDP) for $75 million spread over the next five years. In exchange, Devon has agreed to drill up to 24 wells per year. This transaction will help DowDupont offset some of its natural gas costs with the production from these new wells. Meanwhile, the sale enables Devon to pull some value forward, and it could serve as a model for future deals.

Every bit as good as hoped

After stumbling at the end of last year, Devon needed to deliver a bounce-back quarter, which it did thanks to its strong well performance in the Permian. That eliminates any concerns about the company's ability to hit its forecast in 2018 since it now sees production coming in above its expectations. Because of that, 2018 looks like it will be an excellent year for the oil and gas giant.

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.