The first quarter was an excellent one for the U.S. oil industry. Not only were crude prices at their highest level in years, but shale drillers completed gusher after gusher, enabling most to produce more oil and earnings than expected. EOG Resources (NYSE:EOG) was no different, as it joined several large peers in delivering expectation-beating first-quarter results.

Drilling down into the numbers

Metric

Q1 2018

Guidance or Expectations

Difference

U.S. oil production

359,700 barrels per day

350,000 to 360,000 barrels per day

1.3%

Adjusted earnings per share

$1.19

$1.00

19%

Data source: EOG Resources.

Rows of oil pumps under a twilight sky.

Image source: Getty Images.

As expected, EOG Resources' U.S. oil output came in above the midpoint of its forecast and was up 15% year over year. Fueling that high-end result were the many wells EOG completed across its vast shale portfolio. The company completed 70 wells in the Delaware Basin during the quarter, with several producing more than 2,000 barrels of oil equivalent per day (BOE/D) in their first month. While the company didn't match Devon Energy's (NYSE:DVN) record-smashing 24,000 BOE/D two-well gusher, its wells were highly productive and generated excellent returns.

EOG Resources also delivered strong drilling results in the Eagle Ford Shale, where it completed several high-rate wells, including one in the Austin Chalk formation that produced more than 4,300 BOE/D in its first month.

The company's Powder River Basin assets also generated strong drilling results, with several wells topping 1,000 BOE/D. Finally, while the company did drill four wells in the Bakken, it has deferred completing them until later this year. That program is one to keep an eye on given the results Marathon Oil (NYSE:MRO) delivered last quarter, when it completed record-setting wells in the Three Forks and Middle Bakken formations.

These strong drilling results, when combined with higher oil prices and EOG's continued efforts to drive down costs, enabled it to earn $689.5 million, or $1.19 per share, in adjusted net income. That result not only blew past expectations, but was significantly higher than the year-ago adjusted profit of $89.4 million, or $0.15 per share. Meanwhile, EOG Resources generated nearly $1.9 billion of discretionary cash flow during the quarter, up 73% year over year. After investing roughly $1.5 billion in capital expenditures and paying almost $100 million in dividends, the company was able to produce $285 million in free cash flow.

Sunlight fading on an oil pump in Texas.

Image source: Getty Images.

A look at what's ahead

EOG's strong start to 2018 has it on pace to increase its oil output 16% to 20% this year while staying within its planned $5.4 billion to $5.8 billion capital expenditure budget. While that's good to see, it is a bit underwhelming compared to Devon and Marathon, which both increased their full-year production guidance while maintaining their capex budgets. However, another strong quarter could see EOG boost its forecast as well.

EOG Resources also revealed its plans for the growing stream of excess cash it's producing at higher oil prices. First, the company said it intends on repaying bonds as they mature over the next four years, with an aim to reduce debt by $3 billion, which would be a nearly 50% reduction from its current level of $6.4 billion. That would improve an already top-notch balance sheet.

In addition to that, the company plans to return more cash to investors by accelerating its dividend growth rate. While EOG kept its dividend flat during the oil market downturn, the company had increased it at a 19% compound annual growth rate since 1999 and recently restarted growth by raising it 10% for 2018. However, even with that fast-paced historical growth, the payout currently yields a paltry 0.64%. That should change in the coming years given the EOG's new desire to expand the dividend at a higher rate than its historical average.

Several of its peers have announced similar increases in cash returns to investors this year, including Devon, which recently boosted its dividend 33% while also planning to repurchase $1 billion in its shares. Marathon Oil, meanwhile, has a $1.5 billion share repurchase authorization in place and is looking at possibly increasing the dividend. These increasing cash returns by oil companies show their rising confidence in the oil market recovery.

Off to a fantastic start

EOG Resources' first-quarter results came in better than expected due in large part to its drilling prowess. While the company didn't deliver notable gushers like Devon and Marathon, it did produce strong results across its portfolio. As a result, it's on pace to produce more than enough cash at current oil prices to fuel high-rate growth, giving it the money to firm up an already strong balance sheet while sending more of it back to investors. These factors make it even more evident that EOG is one of the top oil stocks for the long haul.

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.