What happened

Shares of Devon Energy (NYSE:DVN) were in rally mode on Wednesday, surging more than 10% by 10:00 a.m. EST. Fueling the gains in the oil producer's stock were its fourth-quarter results.

So what

On the one hand, Devon Energy's fourth-quarter report was a bit underwhelming. For starters, the oil company's core earnings of $46 million, or $0.10 per share, came in $0.21 per share below the consensus estimate. That miss was due in large part to the company's U.S. operations, where oil production came in below the low end of Devon's guidance range due to timing delays, which pushed high-margin wells into 2019.

The sun setting behind an oil pump.

Image source: Getty Images.

Investors, however, were able to overlook those lackluster results, because the company also unveiled plans to complete its transformation into a U.S.-focused oil growth company. Devon intends to do so by pursuing the separation of its Canadian oil sands properties and its gas-focused Barnett Shale assets through either a spinoff or sale of these businesses. By shedding these operations, Devon will transform into a low-cost, high-growth oil producer focused on four top-tier, oil-rich shale plays.

The company also said that it plans to invest less capital this year in drilling new wells. That budget will enable the company to keep spending to within the cash flow it can produce on $46 oil, which is still enough money to grow its U.S. oil output 13% to 18% from 2017's average. Further, Devon added $1 billion to its share-buyback program, boosting it up to $5 billion, which is enough money to retire 30% of its outstanding shares. Finally, the company increased its dividend by 13%.

Now what

Devon Energy's decision to streamline its operations and focus on four core regions thrilled investors. The new Devon will be able to deliver healthy growth at much lower oil prices, which will enable it to generate even more free cash that it intends to return to shareholders. The company believes that this balance of growth and shareholder returns will create significant value for investors.