Saudi Arabia gave the oil market a shot in the arm earlier this week by unexpectedly unveiling a production cut. That move sent oil prices in the U.S. soaring above $50 a barrel for the first time since last February. It's a critical threshold for many oil producers, since it should supply them with a gusher of excess cash after they spent the past year driving down costs. Usually, the industry redirects most of its free cash toward drilling new wells and boosting production. However, producers appear to be taking a different approach this time. That's excellent news for oil stock investors. Image source: Getty Images. Holding firm Several oil industry executives recently discussed their plans following the rebound in oil prices above $50 a barrel. Most pledged restraint since past production growth hasn't paid off. For example, Rick Muncrief, the new CEO of Devon Energy (NYSE: DVN) -- which recently closed its merger with WPX Energy -- said that his company plans to maintain its fourth-quarter 2020 production level in 2021. That echoed the sentiments of peers Pioneer Natural Resources (NYSE: PXD) and Occidental Petroleum (NYSE: OXY), which also pledged restraint in light of the recent rally in crude oil. Doug Suttles, CEO of Ovintiv (NYSE: OVV), summed up the current industry sentiment: "Flat is the new growth right now." He also noted that his company wants to "see the global markets recover and our industry needs to show discipline, and that's what we're going to do." That's a big departure from the sector's former approach. Oil companies tended to add rigs to their drilling programs at the first sign of higher oil prices, with most targeting double-digit growth at $50 oil. However, that strategy failed miserably over the years, so they're now planning to allocate that excess cash toward other opportunities. What this means for oil stock investors Many oil companies put out their framework for allocating capital this year based on different oil price levels. For example, Devon Energy has three tiers: Sub-$40 oil: Invest enough capital to keep production flat, protect its liquidity and financial strength, and maintain its fixed base quarterly dividend. $40-$45 oil: Prioritize free cash flow growth, pay a variable dividend, and improve its financial strength. More than $45 oil: Evaluate select growth projects, but limit reinvestment to a 5% production increase. However, given how fragile the oil market is right now, Devon doesn't plan to allocate capital toward expansion just yet. Instead, it intends to keep its production flat, enabling it to produce more excess cash. That will enhance its financial strength and allow it to pay a higher variable dividend if oil prices continue to cooperate. Pioneer Natural Resources has a similar framework. Its near-term priority is reducing its leverage. On top of that, it plans to adopt a variable dividend framework this year. Meanwhile, it only intends to reinvest 65% to 75% of its cash flow while limiting production growth to 5%. However, pledging to forgo growth for now should help it achieve its leverage target sooner. That could yield a bigger future variable dividend for its investors. On the other hand, Occidental Petroleum will likely earmark all its excess cash for debt reduction. The company borrowed a hefty sum to acquire Anadarko Petroleum right before oil prices collapsed, which saddled it with a burdensome amount of debt. However, with oil prices rallying, it will be able to pay down its debt much quicker, which will help lift the weight holding down its stock price. Debt reduction is also Ovintiv's priority at the moment. The company hopes to pay off $1 billion of debt this year to hit its leverage target. Once that happens, it will have greater flexibility to return cash to shareholders through stock buybacks and possibly a higher dividend. Enjoying the gusher while it lasts Oil companies are taking a different approach to higher oil prices this time around. Instead of immediately spending their windfall on drilling new wells to grow at all costs, they're planning to hold firm for the time being. That will enable them to use their cash flow gusher toward repaying debt and returning cash to their long-suffering shareholders. That could give their stocks the fuel to rally in 2021 if oil prices keep improving. 10 stocks we like better than Occidental PetroleumWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Occidental Petroleum wasn't one of them! That's right -- they think these 10 stocks are even better buys. See the 10 stocks *Stock Advisor returns as of November 20, 2020 Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.Source