Breakingviews: Chevron is M&A-ready. Exxon, not so much.

Hundreds of U.S. oil drillers may soon be getting a bailout from Uncle Sam. But major player Chevron looks more like a buyer than a pleader. Sure, the $170 billion oil giant has been whacked by the rout in the price for black gold, too, as first-quarter results due on Friday are likely to show. But it’s in better shape than not just smaller industry firms, but Exxon Mobil, too.

For starters shareholders appear to have more faith in Chevron: Its market capitalization has halved the gap with Exxon’s over the past two years, and its stock has fallen by only a fifth during the 2020 rout; Exxon’s has lost a third of its value. As an acquisition currency, Chevron shares are more stable.

The company also went into the oil crisis with a sturdier balance sheet, which it’s likely to maintain. Granted, Chevron could burn through $17 billion of cash by the end of next year, according to Scotiabank, given its current plans for capital expenditure and dividends. But some $45 billion could go up in smoke at Exxon, forcing it to as much as double its debt to $90 billion by the end of 2021. Even if earnings rebound to limit its debt to 4 times EBITDA, its leverage would still be double Chevron’s.

That all gives the oil major run by Mike Wirth an advantage in any Covid-19-driven industry consolidation. The goal would be to grab prime assets on the cheap while also cutting overall costs. There are plenty of potential targets, from Apache to ConocoPhillips.

But perhaps the most tantalizing for Wirth is Occidental Petroleum, whose chief executive, Vicki Hollub, beat him in last year’s battle for Anadarko Petroleum and still holds many of the assets he coveted. Oxy’s debt load is more than 11 times 2020 EBITDA, estimates Scotiabank. Its liquidity is drying up and its shares have fallen nearly 70% over the past 12 months. Chevron’s current relative health means it could take on Oxy’s debt in a takeover and keep its leverage ratio within shooting distance of Exxon.

Warren Buffett could be a stumbling block. His firm Berkshire Hathaway owns $10 billion of preferred Oxy stock that makes up a big chunk of the company’s overall value. He may drive a hard bargain. That, though, is luxury problem for Chevron – and one Exxon may not be in a position to face.

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