Image Source: Total investor presentation.

Last quarter, Total (NYSE:TTE) completely knocked it out of the park with better-than-expected earnings. A combination of a favorable environment for refining and retail sales and some timely increases in low-cost production helped the company offset the steep declines in oil prices. When a company like Total outperforms larger peers such as ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), one assumption is that it's a fluke. Looking at some of the reasons Total outperformed, though, it shouldn't be surprising if the company does it again. Let's look at what Total has working for and against it this coming quarter when it reports earnings

What's working in its favor
So far in 2015, the company has brought several major capital projects online that have helped to boost overall production. If we were to simply assume that Total's net production is equal to last quarter's 2.3 million barrels of oil equivalent per day, then it would represent a 8% increase compared with the third quarter of 2015.

Chances are, though, production will increase, as this past quarter saw the startup of several projects. Also, Total is still ramping up production with is concessionary contract with the Abu Dhabi Company for Onshore Petroleum; a source of much cheaper crude than other offshore and shale projects. With this in mind, it's not out of the question that the company could see another 12% increase in production year over year.

On the refining and chemical side of business, it looks as though the company will benefit from similar tailwinds to what it saw last quarter. The European Refining Margin Indicator -- similar to crack spread in the U.S. and a gauge of refining strength -- is at $58.80 per ton, the highest it's been in over a decade. Strong refining margins coupled with Total's efforts to right-size its refining operations in Europe and the continued ramp-up of its Jubail, Saudi Arabia, facility should lead to another fantastic quarter of downstream operations. 

What's the big challenge?
This third quarter is what you would call the last tough comp quarter. In the third quarter of 2014, the average price for Brent was still north of $100. This price led to upstream production profits that were quite favorable. This quarter, though, Total reported that the average realized price for Brent in the quarter was $50 per barrel. This price is even lower than the first quarter of the year, when upstream profits were at some of their lowest since the financial crisis.

Another aspect of the business that could affect Total ever so slightly is the strong American dollar. Pretty much all crude oil trading is done in U.S. currency, but many of Total's refining and retail segments are in either Europe or Africa -- two regions where local currencies have lost value compared with the dollar over the past year. 

Currency Pair Current 1 Year Ago % Change
USD/euro 0.907 0.785 15.5%
USD/Angolan kwanza 135.2 98.9 37%
USD/Nigerian kaira 199.2 164.5  21%
USD/Algerian dinar 105.8 83.4 27%


These two issues aren't the worst things that could happen to the company. Total has been very good at cutting operational costs, which has helped to offset the lower price of oil. Also, many of the projects Total is bringing online were budgeted using an oil price assumption of $60 Brent, second only to ExxonMobil's $55 Brent. All you need to do is look at the declines in upstream production profits to see how much more effective Total has been at increasing profitable production compared with its peers.

Company Production Change (Q2 2015 vs. Q2 2014Upstream earnings (Q2 2015, in millions)Upstream Earnings (Q2 2014)% Change
Total 12% $1,560 $3,051 (49%)
Chevron 1.6% $(2,219) $5,264 (142%)
ExxonMobil 3.6% $2,031 $7,881 (74%)
BP (NYSE:BP) 0.3% $228 $4,049 (94%) 
Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B)  (11.2%) $1,037 $4,722 (78%)

Source: Quarterly earnings results.

No investor should expect Total to continue to increase production at a double-digit clip. At the company's current size, that's too much to ask. A more realistic goal would be to see the company continue to bring on new production that's profitable at low oil prices. If it can keep doing that, then Total will continue to look strong.

What a Fool believes
Total is having a pretty good year, considering the environment for oil and gas companies. It may not be the most profitable time to be in the industry, but the company's cost-cutting efforts and suite of new production slated to come online in the next three to four years make it look like the best of the Big Oil stocks right now. If Total can muster another quarter like its last one, it could really separate itself from the pack. Total reports its third-quarter earnings on Oct. 29.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.