Oil and Gas Companies Need to Brace for a Tough 2026

Oil and gas companies need to brace for a tough 2026, Wood Mackenzie warned in a statement sent to Rigzone recently.

In the statement, Wood Mackenzie highlighted that, according to its new Corporate Strategic Planner Oil and Gas 2026 report, oil and gas companies “will plan for a tough year in 2026, with capital budgets set to decline as firms prioritize financial strength over long-term growth investments”.

“The comprehensive corporate planning toolkit reveals that companies will maintain disciplined investment criteria whilst navigating significant headwinds,” Wood Mackenzie noted in the statement.

“Reinvestment rates will average 50 percent, enabling firms to return an average of 45 percent of operating cash flow to shareholders and, in some cases, deleverage even at our forecast annual average price of just under $60 per barrel Brent for 2026,” it added.

Wood Mackenzie noted in the statement that companies with gearing above 35 percent will prioritize deleveraging to build resilience against rising price shock risks. It went on to state that those with high reinvestment rates exceeding 80 percent will emphasize net investment after asset sales, deploying disposals to offset higher spending whilst high-grading portfolio quality.

In the statement, Wood Mackenzie warned that low carbon spending “faces deeper cuts”, pointing out that the report “identifies further reductions in low-carbon spending as companies withdraw from marginal projects”.

“Leading European Majors will cap renewable and low-carbon investments at 30 percent of total budgets as companies pull back from low-return projects,” the company said in the statement.

“Most large international oil companies and national oil companies will converge on allocating 10-20 percent of overall budgets to low-carbon initiatives. Capital allocation will swing back towards upstream investments, including exploration and business development,” it added.

The statement also noted that structural cost reductions will be a priority to boost margins and hedge against macro uncertainty.

“Efforts to simplify organizations, reduce headcount, and deploy AI-enabled efficiency measures will intensify,” Wood Mackenzie warned.

Also in the statement, Wood Mackenzie highlighted a “flexible approach to market volatility”, pointing out that its analysis reveals companies will use buybacks as adjustable levers.

“Further cuts are likely under our forecast price,” Wood Mackenzie said in the statement.

“Most firms will suspend share repurchases altogether if oil prices fall below $50 per barrel, whilst protecting base dividends at all costs. Companies will also build flexibility into their investment programmes to rapidly cut spend in response to low prices,” it added.

Wood Mackenzie also warned in the statement that companies may need to get creative to strengthen portfolios.

“Key investment themes include prospect hopper reloading ahead of a renewed exploration drive, opportunistic M&A to extend oil and gas longevity, and vertical integration to unlock additional value whilst enabling fresh opportunities,” the company added.

In the statement, Tom Ellacott, Senior Vice President, 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. Meanwhile, shareholder return of capital and balance sheet discipline will constrain reinvestment rates,” he added.

“Investors will continue to reward near-term priorities such as distributions, stable cash flow and balance sheet strength over long-horizon investments,” he continued.

Neivan Boroujerdi, Head of Corporate NOC analysis at Wood Mackenzie, said in the statement, “some companies will need a more nimble and creative approach to business development to free up capital and build out next-decade portfolios”.

“A growing appetite for Discovered Resource Opportunities will trigger more NOC-IOC partnerships and strategic ventures to create win-win relationships,” Boroujerdi added.

Rigzone has contacted the International Association of Oil & Gas Producers (IOGP) for comment on Wood Mackenzie’s statement. At the time of writing, the IOGP has not responded to Rigzone. The IOGP describes itself as the the global voice of its industry and notes that its “members, integrated energy companies, national oil companies, independent upstream operators, service companies, and industry associations operate around the globe, supplying over 40 percent of the world’s oil and gas demand”.

Wood Mackenzie pointed out in its statement that the Corporate Strategic Planner is part of its Corporate Strategy & Analytics Service (CSAS), which it says is designed to help oil and gas companies, advisors, and shareholders anticipate and navigate the key themes for the 2026 planning and capital allocation cycle.

According to its latest short term energy outlook (STEO), which was released earlier this month, the U.S. Energy Information Administration (EIA) expects the Brent spot price to average $51.43 per barrel in 2026. In a report sent to Rigzone by the Standard Chartered team last week, Standard Chartered projected that the ICE Brent nearby future crude oil price will average $78 per barrel next year. In a BMI report sent to Rigzone by the Fitch Group on September 12, BMI forecast that the front month Brent crude price will average $67 per barrel in 2026.

To contact the author, email andreas.exarheas@rigzone.com