What: Shares of Kosmos Energy (NYSE:KOS) rallied more than 12% by mid-afternoon on Monday. Fueling the surge was the company's third-quarter report, which was better than expected.

So what: Kosmos Energy reported adjusted net income of $7.4 million, or $0.02 per share. That was well ahead of the $0.03 per share loss analysts were expecting. Fueling the company's unexpected profit was a combination of strong production growth and solid cost reductions.

Production increased from 1.4 million barrels in the third quarter of last year to 1.9 million barrels of oil during the third quarter of this year. Production would have been even higher if it wasn't for unplanned downtime at the company's Jubilee field, which it co-owns with Anadarko Petroleum (NYSE:APC) and other partners. The field only produced 93,000 barrels of oil per day during the quarter, which is down from the 108,000 barrels per day the field would have otherwise averaged.

That downtime actually affected the company on the cost side, increasing its production expense from $10.46 per barrel in the year-ago quarter to $12.52 per barrel this past quarter. However, Kosmos Energy's general and administrative expenses fell from $41.2 million last quarter to just $26.7 million during the current quarter.

Also worth noting is the progress the company and its partners, including Anadarko Petroleum, made on the TEN project in Ghana. The project is now 75% complete and is on budget and on track to deliver first oil for Kosmos and Anadarko in the third quarter of next year.

Now what: Kosmos Energy overcame a significant obstacle to deliver a solid quarter thanks to its ability to deliver strong production growth while also lowing its costs. Given the persistent weakness in oil prices, it will need to continue delivering on both fronts. The continued progress on its TEN project certainly will help with production growth, while repairs at Jubilee should help improve its production costs.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.