Has oil bottomed out yet and what would the picture in the Middle East look like if it has? Oppenheimer suggests that there will be an increased wave of mergers and acquisitions (M&A) among other things. Companies looking to benefit the most from this would seemingly be Exxon Mobil Corp. (NYSE: XOM).

24/7 Wall St. has noted that Exxon Mobil has been one of the greatest stock buyback outfits in history, and the company has been cited by many sources in recent weeks and months as the most likely acquirer ahead.

Saudi Arabia considers letting oil prices exceed $100 was a mistake because it led to the accelerated growth of shale production. Currently, shale production exceeds that of Kuwait and the United Arab Emirates (UAE). Iran and Russia are considered more of a serious threat to its national security than low oil prices. Oppenheimer believes that Saudi Arabia is determined to use oil as a weapon to achieve its geopolitical objectives.

Although low oil prices make it difficult for highly leveraged marginal producers to survive, Oppenheimer expects spending cuts, cost reductions and ultimately a wave of M&A.

The brokerage firm also believes that oil prices are at or near the bottom with upside potential significantly greater than any near-term correction from tighter storage capacity, refinery outages or a nuclear agreement with Iran.

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Barring an unlikely rebound in oil prices in the next six months, Oppenheimer also expects M&A activity to accelerate, with potential sellers significantly outnumbering buyers, which should keep takeover premiums near the bottom of the 30% to 40% historical range.

According to Oppenheimer:

Although we believe energy stocks are currently discounting crude oil prices >$75 Brent, most have outperformed the S&P 500 YTD and in the last 60 dates on rising oil prices. But, despite the recent strong relative performance, energy stocks are still trading significantly below their 12-month highs and not by as much above their 12-month lows. We believe oil prices have bottomed with upside potential significantly greater than any near-term correction, but we also don’t expect a sharp rebound in oil prices anytime soon. We put equally low probability on Brent oil prices below $50 or above $90 with greater probability on oil prices in the $65-$75 range. We think the energy industry is beyond the initial shock and denial phase and will soon enter the panic and capitulation phase, which could trigger what we believe is a much-needed industry consolidation. Given Exxon Mobil’s $300 billion treasury shares, no acquisition is too big in our view.

Shares of Exxon were relatively flat at $85.76 on Monday afternoon, against a 52-week trading range of $82.68 to $104.76. The stock has a consensus analyst price target of $93.10.

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As a reminder, many other oil stocks have been pointed to in the oil and gas rumor mill as well. Exxon was just the one cited but Oppenheimer, but any of the other large oil or gas giants would be considered potential deal-makers.

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