What happened

Shares of Diamondback Energy (FANG 0.43%) took off on Wednesday, rising more than 10% by noon EDT. Driving up the Permian Basin driller's stock was its strong first-quarter report.

So what

Diamondback Energy posted $229 million, or $1.39 per share, of adjusted net income for the first quarter, which came in $0.04 per share ahead of the consensus estimate. Driving that expectation-beating result was the company's acquisition of rival Energen as well as its continued strong drilling results in the Permian Basin. Those dual fuels drove the company's production up 156% year over year -- including 44% from the fourth quarter -- to an average of 262,600 barrels of oil equivalent per day.

The sun setting behind an oil pump.

Image source: Getty Images.

With the Energen deal closed and delivering results, Diamondback Energy is entering the next stage of its evolution, which will see the company produce and return free cash flow to investors. The company already initiated a dividend last year, which it boosted by 50% for 2019.  Diamondback Energy intends on returning more money to shareholders through a $2 billion stock repurchase program. That's enough to retire 12% of the company's outstanding shares at the current price. Diamondback intends to use a combination of cash flow and the proceeds from asset sales to fund the buyback. As part of that strategy, the company agreed to sell several noncore assets acquired in the Energen deal during the quarter, which should bring in $322 million in cash.

Now what

Diamondback Energy has quickly evolved from a small driller into a large-scale producer capable of growing quickly even as it returns increasing amounts of cash to its investors. Its balanced strategy has the potential to generate meaningful total returns for its investors without much help from oil prices, since it can produce $750 million in free cash flow next year at $55 oil, which is below its current level in the low $60s. That makes Diamondback Energy look like an even more compelling oil stock to consider buying for the long term.