What happened

Shares of Extraction Oil & Gas (NASDAQ:XOG) surged on Friday, rallying more than 19% by 12:30 p.m. EST. Driving the oil stock higher were its impressive fourth-quarter results.

So what

Extraction Oil & Gas reported $99.9 million, or $0.51 per share, of net income during the fourth quarter. Not only was that a huge reversal from its year-ago loss of $0.20 per share, but it beat the consensus estimate by an impressive $0.43 per share. The company drove its strong results by delivering oil and gas production that exceeded the high end of its guidance range even as capital expenses came in at the low end of its forecast.

An oil pump jack with the mountains in the background.

Image source: Getty Images.

In addition to reporting earnings, Extraction Oil & Gas also unveiled its outlook for 2019. The company set its drilling budget to between $585 million and $675 million, which it can fund within cash flow at $50 oil. That's a 19% reduction from 2018's level and 7% below its initial 2019 guidance from October. Despite that spending cut, Extraction Oil & Gas expects to grow its production at a low-double-digit annual rate.

Check out the latest Extraction Oil & Gas earnings call transcript.

Now what

Extraction Oil & Gas delivered what investors wanted to see during the fourth quarter. Not only did it make more money than expected despite plunging oil prices in the quarter, but it aims to live within the cash flow it can produce at a lower oil price point this year. That plan will enable the company to generate excess cash if oil remains above its budget level, and it could use that cash to pay down debt or return it to investors.