Oil and gas companies will plan for a tough year in 2026, with capital budgets set to decline as firms prioritise financial strength over long-term growth investments, according to Wood Mackenzie's new Corporate Strategic Planner Oil and Gas 2026.
The comprehensive corporate planning toolkit reveals that companies will maintain disciplined investment criteria whilst navigating significant headwinds. Reinvestment rates will average 50%, enabling firms to return an average of 45% of operating cash flow to shareholders and, in some cases, deleverage even at our forecast annual average price of just under US$60/bbl Brent for 2026.
"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,” said Tom Ellacott, Senior Vice President, Corporate Research at Wood Mackenzie. "Investors will continue to reward near-term priorities such as distributions, stable cash flow and balance sheet strength over long-horizon investments."
Companies with gearing above 35% will prioritise deleveraging to build resilience against rising price shock risks. Those with high reinvestment rates exceeding 80% will emphasise net investment after asset sales, deploying disposals to offset higher spending whilst high-grading portfolio quality.
Low-carbon spending faces deeper cuts
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% of total budgets as companies pull back from low-return projects. Most large international oil companies and national oil companies will converge on allocating 10 - 20% of overall budgets to low-carbon initiatives. Capital allocation will swing back towards upstream investments, including exploration and business development.
Flexible approach to market volatility
The analysis reveals companies will use buybacks as adjustable levers. Further cuts are likely under our forecast price. Most firms will suspend share repurchases altogether if oil prices fall below US$50/bbl, 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.
Structural cost cuts and AI efficiency gains
Structural cost reductions will be a priority to boost margins and hedge against macro uncertainty. Efforts to simplify organisations, reduce headcount, and deploy AI-enabled efficiency measures will intensify.
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.
"Some companies will need a more nimble and creative approach to business development to free up capital and build out next-decade portfolios," adds Neivan Boroujerdi, Head of Corporate NOC analysis at Wood Mackenzie. "A growing appetite for Discovered Resource Opportunities will trigger more NOC-IOC partnerships and strategic ventures to create win-win relationships”.
The Corporate Strategic Planner is part of Wood Mackenzie's Corporate Strategy & Analytics Service (CSAS), designed to help oil and gas companies, advisors and shareholders anticipate and navigate the key themes for the 2026 planning and capital allocation cycle.
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