Despite lower oil and gas prices, 2023 was one of Chevron's (CVX 0.37%) best-ever years. The global oil and gas behemoth pumped a record 3.1 million barrels of oil equivalent per day (BOE/d) last year. On top of that, it sent shareholders a record $26 billion in cash via dividends and share repurchases.

The company could smash both records this year. Here's a look at what's fueling the oil stock's strong operational performance and ability to return more cash to investors.

A great year for the oil giant

Chevron has focused on investing in its highest-return and lowest-cost opportunities over the past few years. That strategy paid big dividends last year. The oil giant was able to produce strong earnings and free cash flow despite significantly lower oil and gas prices. For the year, Chevron produced nearly $25 billion of adjusted earnings and over $35 billion in cash flow from operations.

While those numbers were down from $36.5 billion and almost $50 billion, respectively, in 2022, that was entirely due to changes in oil and gas prices. For example, Chevron's average price for natural gas sold in the U.S. declined from $5.55 per million cubic feet (MCF) in 2022 to only $1.67 per MCF in 2023. Meanwhile, the price fetched for its U.S. liquids output (oil and natural gas liquids) declined from $76.71 a barrel in 2022 to $59.19 per barrel last year. The company also saw price declines for its international gas ($9.75 per MCF to $7.69 per MCF) and international liquids output ($90.71 per barrel to $71.70 per barrel).

Chevron was able to mute some of the impacts of lower prices by increasing its higher-margin output. The company's total production rose 4% to a record of over 3.1 million BOE/d. The energy company grew its U.S. output by 14%, driven by its acquisition of PDC Energy and investments to expand its output in the low-cost Permian Basin, where production rose by 10%.

Chevron used its solid cash flows and strong balance sheet to return a record $26.3 billion to its shareholders last year. It paid $11.3 billion in dividends (3% higher than 2022 on an absolute basis and 6% higher per share) while repurchasing $14.9 billion in shares (a 32% increase).

2024 could be another record year for the oil giant

Chevron should smash both records in 2024. The company's production should continue rising this year, fueled by organic investments to expand its output in places like the Permian and from acquisitions. In addition to continuing to benefit from its $7.6 billion acquisition of PDC Energy, the oil giant should get an even bigger boost from its pending $60 billion acquisition of Hess.

Hess ended last year producing 418,000 BOE/d, an 11% increase from 2022's year-end average. The company's output should continue to rise in 2024. Hess and its partners completed their Payara project off the coast of Guyana in November. It only contributed 14,000 net barrels of oil per day (BPD) to Hess' total during the fourth quarter. However, it reached full production capacity last month (Hess has a 30% interest in the 220,000-BPD project).

Chevron's rising production from high-margin regions should increase its free cash flow. That will give the company more money to return to shareholders in 2024 and beyond. Chevron has already increased its dividend by 8% this year. That's the oil giant's 37th consecutive year of dividend growth. Meanwhile, the company expects to boost its annual share-repurchase rate by $2.5 billion following its acquisition of Hess. That will push it to the top end of its annual target range ($10 billion to $20 billion). The combination of a higher dividend and share-repurchase rate suggests Chevron should top last year's record for cash returns to shareholders.

An all-weather oil stock

Chevron can thrive without higher oil and gas prices. The company showcased the strength of its portfolio and investment strategy last year by delivering record production and cash returns to shareholders. It could smash both records this year, fueled by high-return organic-growth investments and value-enhancing acquisitions. Those features make Chevron stand out as a top oil stock to own in any environment.