Devon Energy (DVN 7.71%) recently closed the book on a record year. The oil company reported record production volumes in the fourth quarter and full year. That enabled it to produce strong free cash flow, a majority of which it returned to shareholders through dividends and share repurchases.

The oil company expects to continue growing its production this year, which should enable it to generate a lot of cash and return the bulk of it to shareholders.

An outstanding year

Devon Energy achieved record oil production of 398,000 barrels of oil per day during the fourth quarter, exceeding its guidance by 3%. Add in natural gas and natural gas liquids, and the company's total output averaged 848,000 barrels of oil equivalent (BOE) per day, a 16% increase from the previous quarter. The company benefited from its acquisition of Grayson Mill Energy, which closed in late September and added 117,000 BOE/d and 63,000 barrels of oil per day to its quarterly total. Devon also benefited from the strength of its legacy assets, led by a 23% output surge in the Eagle Ford of South Texas, which reached 92,000 BOE/d.

That strong production enabled the company to generate robust cash flows. It produced $1.7 billion in cash from operating activities and $738 million in free cash flow after capital expenses. Devon returned $444 million of that cash to shareholders through dividends and share repurchases. It bought back 7.7 million shares for $301 million in the period.

For the full year, Devon produced a record 737,000 BOE/d. That enabled it to generate $6.6 billion in operating cash flow and $3 billion in free cash flow. Devon returned $2 billion of that cash to investors. It used the remaining money to help maintain a strong balance sheet. The company retired $474 million of maturing debt last year, ending the year with $846 million in cash and a 1.0 net leverage ratio.

Set up for another strong year

Devon Energy has a lot of momentum as it heads into 2025. The company should continue to benefit from its highly accretive Grayson Mill Energy deal. In addition, the oil producer expects to continue investing heavily in organically developing its assets. Devon anticipates its capital spending to be between $3.8 billion and $4 billion, 50% of which it intends to invest in its world-class Delaware Basin asset across western Texas and southeast New Mexico. While that's an increase from about $3.6 billion last year, mainly related to the acquisition of Grayson Mill, it's about $200 million lower than its initial guidance because of continued efficiency gains.

A full year of Grayson Mill plus that capital spending level should enable Devon Energy to produce an average of 805,000 to 825,000 BOE/d. That's a more than 10% increase from last year's average. It's also 2% higher than the company's initial outlook, even though it lowered its capital spending outlook, showing just how efficient it has become.

That efficiency positions Devon Energy to produce more than $3 billion in free cash flow this year, assuming oil averages around $70 a barrel. It's currently slightly above that level. The company plans to return up to 70% of that money to shareholders. Devon has already announced that it will increase its dividend by 9% this year. It also intends to buy back between $200 million to $300 million of stock each quarter. The oil company will use the remaining excess free cash to strengthen its balance sheet by building cash and retiring debt as it matures. It has a $485 million debt maturity in 2025 and a $1 billion two-year term loan due in 2026.

A well-oiled machine

Devon Energy delivered record production last year, which helped it produce gushing free cash flow, the bulk of which it returned to investors. It's on track to deliver another production record this year, which should enable it to continue producing robust free cash flow and returning lots of money return to investors. That combination of growth and cash returns could give Devon the fuel to deliver attractive total returns this year, making it a top oil stock to consider buying.