The fourth quarter was a challenging one for the oil industry because crude prices plunged 40% from their peak at the beginning of the period. That slump, however, didn't have much impact on ConocoPhillips' (NYSE:COP) operations or financial results, which easily exceeded expectations as the oil giant delivered another gusher of production and profitability. Those solid results capped a strong year for the leading oil and gas producer.

Drilling down into the numbers

Metric

Q4 2018

Guidance or Expectations

Difference 

Production

1.313 million BOE/D

1.295 million BOE/D (at the midpoint)

1.4%

Adjusted earnings (loss)

$1.13 per share

$1.00 per share

13%

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

Heading into the quarter, ConocoPhillips expected to produce between 1.275 million and 1.315 million BOE/D. Actual production, however, came in near the top end of that range, pushing its output up 7% year over year after adjusting for acquisitions and asset sales. Driving this high-end growth was strong production in the lower 48 states -- led by its big three shale plays (Bakken, Eagle Ford, and Permian) -- and the restart of gas exports from its KBB Field in Malaysia. The company also started up production at three major projects during the quarter.

That high-end production result enabled ConocoPhillips to deliver stronger-than-expected adjusted earnings, which came in at $1.3 billion, or $1.13 per share. This number isn't that far off from the $1.6 billion, or $1.36 per share, the company hauled in during the third quarter, when it produced more profits than it had when crude was over $100 a barrel.

Cash generation was even stronger; ConocoPhillips tallied $3.2 billion in cash flow from operations, pushing its full-year total to $12.3 billion. After capital expenses, the company made $5.5 billion in free cash last year. It spent $3 billion of the money on share repurchases, paid $1.4 billion in dividends, and used the rest, as well as proceeds from asset sales and other inflows, to bolster its balance sheet. Overall, the company paid off $4.7 billion in debt during the year, hitting its target of getting it down to $15 billion, while still ending the year with $6.2 billion in cash.

For the full year, ConocoPhillips produced an average of 1.242 million BOE/D. After adjusting for asset sales, production rose 5%, driven by a 37% surge from the big three. Meanwhile, after factoring in the impact of share repurchases and debt reduction, production per debt-adjusted share rose 18% year over year.

An oil pump with the sun glowing behind it.

Image source: Getty Images.

A look at what's ahead

CEO Ryan Lance commented on the company's results and what lies ahead by saying,

Our accomplishments reflect our clear commitment to a value proposition that is focused on returns and free cash flow generation, and that balances investments with returning cash flow to shareholders through price cycles. This is our formula for offering investors a compelling way to invest in our sector. We look forward to delivering another strong year of performance in 2019.

ConocoPhillips plans to follow its successful formula again this year. The company reaffirmed its capital budget for 2019, which will see it spend $6.1 billion on high-return growth projects this year, flat with last year's level. That investment level should enable the oil company to produce between 1.3 million and 1.35 million BOE/D for the full year, which, at the midpoint, puts its output on track to rise 7%.

In addition to that, ConocoPhillips expects to continue returning cash to shareholders through both its dividend and additional share repurchases, with it aiming to buy back another $3 billion in stock this year. Those repurchases will enable the company to grow production at an even faster rate on a per-share basis. That balance between investing in high-return growth projects while also sending significant cash flow back to shareholders proved to be a winning formula in last year's turbulent oil market, which is why the company expects more of the same in 2019.

A well-oiled machine

ConocoPhillips delivered exceptional results last year, as it focused on investing in projects that earn high investment returns as opposed to those that merely grow production. That differentiated approach enabled the company to generate a gusher of profits and cash flow last year, which gave it the funds to return boatloads of cash to shareholders. With ConocoPhillips planning to continue with that winning formula, the company appears well positioned to deliver a repeat performance in 2019, which makes it one of the top oil stocks to consider buying. 

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