Shares in vertically integrated energy major Origin Energy Ltd (ASX: ORG) have experienced a rally of 35% in the past three months.

Despite the recent gains however, the stock remains down close to 60% in the past 12 months.

The primary cause of the fall and subsequent rebound in Origin’s share price has of course been the plunge and then partial recovery in the oil price.

For investors wondering whether there are still gains to be made from an investment in Origin at Monday’s closing price of $5.41, here are three reasons to remain bullish.

  1. Origin’s March quarter production saw a 12% increase in production on the prior quarter and a massive 65% increase on the prior corresponding period. The growth in production volumes was primarily due to the beginning of shipments of LNG from the Australia Pacific LNG (APLNG) operation.
  2. Despite the subdued oil price, the increase in production volumes resulted in a 40% quarter-on-quarter increase in revenue to $316.4 million. Like counterparts Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: STO) which also recently on-streamed their respective LNG projects, Origin is now set to benefit from many years of LNG-backed cash flow after a huge initial outlay to fund its share of APLNG.
  3. Daily production rates achieved from Train 1 of APLNG are exceeding the design nameplate capacity of 4.5 million tonnes per annum. This has the potential to improve the payback on the project – a scenario which is particularly important considering the lower-than-anticipated oil price.

Is it a buy?

While the market has been focussed on the negatives facing Origin which include specific issues such as its heavily indebted balance sheet and industry wide issues such as the low oil price there is a very real possibility that the market has excessively discounted the stock.

While the headline concerns are real and need to be factored in to a valuation of the company, investors should consider if these concerns are more than reflected in the current share price.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.