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Will Origin Energy Ltd shares rebound in 2016?

What: With the share price of leading vertically integrated energy company Origin Energy Ltd (ASX: ORG) falling a whopping 62.5% to $4.38 over the course of calendar year 2015, any investors with a contrarian mind-set who focus on seeking out value will wonder if the fallout from the rout in oil prices is approaching a bottom.

So What: Of course Origin Energy hasn’t been the only oil and gas company affected by the crash in the oil market with peers such as Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO) down 28% and 55% respectively. That means there are a number of oil and gas stocks to wade through in search of value investment opportunities. However, an announcement on Tuesday could be a reason to favour Origin.

In an announcement to the ASX titled ‘Origin reduces exposure to low oil prices’ the company advised that it had taken steps to reduce its exposure to low oil prices by purchasing put options on oil for financial year (FY) 2017 and by forward selling LNG cargos at a fixed price.

Now What: The cost of entering these arrangements to limit Origin’s downside risk is $82 million (after tax). That will certainly affect Origin’s bottom line however it also provides investors with some clarity regarding the base level of earnings for the group. It also provides clarity for investors around the potential requirement for Origin to make additional contributions to the Australia Pacific LNG business.

While there are still many unknowns and the investment case is far from clear cut nor without risks, based on consensus data the stock is trading on a FY 2017 price to earnings multiple of under 9 times.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.

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