Oil and gas firms are preparing for a challenging 2026, with capital budgets expected to contract as companies focus on financial resilience rather than long-term expansion, according to Wood Mackenzie’s Corporate Strategic Planner Oil and Gas 2026.
The report indicates that firms will continue to apply strict investment criteria amid ongoing market pressures. Average reinvestment rates are projected at 50%, which will allow companies to return about 45% of operating cash flow to shareholders. Some companies may also reduce debt, even if Brent crude averages just under US$60 per barrel next year.
Tom Ellacott (pictured above), senior vice president of corporate research at Wood Mackenzie, said, “Oil and gas companies are caught between competing pressures as they plan for 2026. Near-term price downside risks clash with the need to extend hydrocarbon portfolios into the next decade.”
He noted that shareholder returns, stable cash flow, and balance sheet discipline will continue to take precedence over long-term investments.
Firms with gearing above 35% are expected to prioritise reducing leverage to guard against potential price shocks. Companies with reinvestment rates over 80% will focus on net investment after asset sales, using disposals to balance higher spending and improve portfolio quality.
Globally, oil and gas companies have distributed nearly US$213 billion in dividends and US$136 billion in share buybacks between January and November 2024, underscoring a continued emphasis on returning value to shareholders. This trend reflects a broader industry shift, where capital allocation is increasingly directed towards shareholder distributions rather than aggressive growth.
The report also highlights a further reduction in low-carbon spending, as companies pull back from marginal projects. Leading European majors are set to limit renewable and low-carbon investments to 30% of total budgets.
Most large international and national oil companies are expected to allocate 10–20% of their budgets to low-carbon initiatives. As a result, capital is likely to shift back towards upstream activities, including exploration and business development.
The oilfield services sector has experienced a notable turnaround, with cumulative net income exceeding US$50 billion over the past three years. Mergers and acquisitions activity in this segment has reached its highest level since 2018, driven by a combination of financial strength and a fragmented market.
Wood Mackenzie’s analysis finds that share buybacks will serve as a flexible tool for companies. If oil prices fall below US$50 per barrel, most firms are likely to halt share repurchases, while maintaining base dividends. Investment programmes will be designed with the flexibility to reduce spending quickly in response to market volatility.
Structural cost reductions remain a priority, with companies aiming to boost margins and manage macroeconomic uncertainty. This will involve organisational simplification, workforce reductions, and increased use of AI-enabled efficiency measures.
European energy policy developments are also influencing capital allocation decisions. The Renewable Energy Directive III aims to raise the share of renewables in total energy consumption to 42.5% by 2030, with mandates for sustainable aviation fuel and advanced biofuels. These regulatory targets are prompting oil and gas companies, particularly in Europe, to balance investments between traditional upstream projects and low-carbon initiatives.
Investment strategies will include replenishing exploration prospects, pursuing opportunistic mergers and acquisitions, and integrating operations vertically to unlock value and create new opportunities.
Neivan Boroujerdi, head of corporate NOC analysis at Wood Mackenzie, commented that some companies will need to adopt “a more nimble and creative approach to business development to free up capital and build out next-decade portfolios.”
He also said that a rising interest in Discovered Resource Opportunities is likely to drive more partnerships and strategic ventures between national and international oil companies.
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