Oil and gas companies face heightened capital allocation pressure in 2026, according to Wood Mackenzie's latest corporate outlook. Lower oil prices will force more structural cost reductions and cuts to buybacks. But the pressure will intensify to lay stronger foundations for next decade.
Companies could cut buybacks by over 40% to balance the books at lower prices. Investment will continue shifting from low carbon towards upstream projects. All peer groups would need to lean on balance sheets, cut discretionary spending or sell assets to fund dividends if prices average US$50/bbl.
"Companies face a tricky strategic balancing act between short-term shareholder returns and long-term competitiveness," said Tom Ellacott, senior vice president, corporate research at Wood Mackenzie. "The winners will be those who can navigate this tension whilst building resilience for the next commodity cycle."
Wood Mackenzie identifies five key capital allocation trends for Majors, US and International Independents and NOCs in 2026:
Capital allocation tension will ratchet up with buybacks the first casualty
Companies will brace for strong macro headwinds in 2026. The threat of lower prices and pressure to return capital to shareholders will create strategic tension for companies needing to invest in long-term upstream portfolio depth.
Companies will allocate capital more rigorously to their best returning projects. Re-investment rates will average around 55% but some players will outspend operating cash flow. The largest companies will be at the forefront of figuring out where AI/digitalisation can cut costs, increase productivity and drive efficiency.
Majors face tricky choices balancing near and long-term pressures
Production growth of over 3% and margin expansion will offset lower prices. The group will broaden resource capture strategies as pressure increases to sustain oil and gas production next decade. US gas could emerge as an M&A hotspot. They will also expand geographically into resource-rich regions including the Middle East and North Africa and into higher-risk exploration plays.
NOCs' balance domestic growth against international ambition
NOCs will leverage financial strength and existing partnerships to tackle challenges next decade. Domestic expansion remains the priority. ADNOC approaches its ambitious target to increase oil production capacity to five million barrels per day by 2027 while Saudi Aramco will ramp up production at its giant unconventional Jafurah project. This represents a major step toward an 80% or seven billion cubic feet per day gas production increase by 2030. Both Middle East NOCs are expected to lead international M&A activity but 2026 provides opportunity for others to address maturing domestic production.
US Independents see power shift as gas gets its moment
The balance of power shifts from oil to gas across US markets. Gas-heavy companies will focus on capturing demand tailwinds. Oil-weighted companies will prioritise high-return wells, balance sheet strength and shareholder distributions.
Data centre gas supply deals will trump LNG supply agreements in importance. EQT was first mover in 2025, agreeing to send 1.5 billion ft3/d into two Pennsylvania data centres. Wood Mackenzie expects competitors to sign similar deals in 2026, including Expand and Range Resources.
Oil-focused companies with significant associated gas production could also sign data centre deals in west Texas. These include EOG, Devon, Coterra and APA. Large-scale oil consolidation will slow following late 2025's mini surge.
International Independents gain fresh momentum from strategic ventures
International Independents will confront opposing forces in 2026. Incumbents with long-life profiles will diverge from those with high gearing and weak development pipelines. More strategic ventures will emerge, expanding the Mid-Cap landscape. North Sea trio Adura, Ithaca and NEO NEXT+, BP and ADNOC's Egypt joint venture Arcius, and Eni and PETRONAS' Southeast Asia-focused NewCo will deepen the strategic venture pool in 2026.
"New business models will provide part of the solution to capital constraints," concludes Ellacott. "Strategic ventures will inject fresh momentum to offset further consolidation of weaker players."