I told Jim that the source of this rumor seemed to be coming from the camp of mega-hedge funder John Paulson, whose fund owns 2.4 million shares of Pioneer, a stake at current levels worth almost half a billion dollars. Paulson has had less than a stellar year in his fund and a takeover of Pioneer would help boost share price by another 30% to 50%.
There are legitimate reasons why Pioneer could be bought out. It is the largest driller in the Sprayberry area of the Permian, with estimated reserves of almost five billion barrels of oil, a number that would challenge the mega Ghawar oil field in Saudi Arabia. Pioneer has reached the limits of its growth, however, and would need a very deep-pocketed partner to take full advantage of their 650,000 acres.
The major oil companies have certainly experienced a drop in production, and potential buyouts of other producers are an easier way to develop new production sources.
But a lot would have to go right for a buyout the nature of this one to take place. You'd have to believe the price of crude oil would stay above $90 a barrel for several years -- the costs for recovery in the Sprayberry are higher than in other U.S. shale plays. Also, you'd have to be willing to deliver a healthy premium to the company to buy it, putting the share price in the $275 range with a market cap of close to $40 billion -- a hefty sum.
I talk more about the possibility of a takeover of Pioneer Natural Resources with Jim in the video above.
At the time of publication the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 25 years of oil trading experience. He is a licensed commodities trade adviser.
Dan is currently President of
a wealth management firm and is the author of
published in March of 2011 by John Wiley and Sons.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts on
US and UK and
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.