Investment shift from low carbon toward upstream to continue in 2026

January 2, 2026, by Melisa Cavcic

After the portfolio recalibrations and restructuring marked the oil and gas industry’s landscape in 2025, Wood Mackenzie, an energy intelligence group, has outlined that the trend will continue in 2026, with oil and gas corporates expected to face “an even tougher strategic balancing act” this year.

Wood Mackenzie underlines in its ‘Corporate oil & gas: 5 things to look for in 2026’ report that capital allocation tension will ratcheted up, majors will keep juggling near and long-term pressures, national oil companies (NOCs) will work to balance domestic and international ambitions, U.S. independents are anticipated to experience a power shift, as strategic ventures proliferate.

Tom Ellacott, Senior Vice President of Corporate Research at Wood Mackenzie, and Greig Aitken, Wood Mackenzie’s Director of Corporate Research, emphasize capital allocation trends and what to look for from the majors, the U.S. and international independents, and the NOCs in the year ahead.

They point out that companies will continue to shift investment from low carbon toward upstream, while resource capture strategies will broaden out, with a potential for U.S. gas to emerge as a potential merger and acquisition (M&A) hotspot. The company claims that buybacks are poised to be the first casualty as capital allocation tension ratchets up for oil and gas companies.

Wood Mackenzie elaborated: “The bottom line is that oil and gas companies can’t do it all in 2026. They must make critical capital allocation choices that will shape their competitive positioning for the next decade.

“Oil and gas companies will be bracing themselves for strong macro headwinds. 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.”

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Outlook & Strategy

The firm underscores that majors will be split on what are anticipated to be “tricky choices in balancing near and long-term pressures,” as production growth and margin expansion are anticipated to take the sting out of lower prices.

However, the majors are divided on their ability to sustain oil and gas production next decade, with ExxonMobil and BP having more post-2030 options in the tank, as other majors are under pressure to step up upstream portfolio renewal.

While pondering how the NOCs will tackle the dual challenge of managing domestic growth versus international ambition and how strategic ventures inject fresh momentum into the corporate sector, Wood Mackenzie also underlines four critical fiscal trends that are set to influence upstream petroleum investment next year within its ‘Upstream fiscal systems: 4 things to look for in 2026’ report.

This report notes that there will be fiscal sweeteners ahead of 2026 licensing rounds and elections, fiscal stability legislation could become more common, there could be new terms for incremental production and mature assets, with direct negotiations and other hybrid offerings on the rise.

Kartik Sahni, Wood Mackenzie’s Principal Analyst of Fiscal & Valuations, and Graham Kellas, Wood Mackenzie’s Senior Vice President at Global Fiscal Research, believe that upstream investment is refocusing on core projects, as Brent hovers around $60/bbl and companies maintain strict capital discipline. As a result, fiscal terms are set to become decisive in this environment.

Wood Mackenzie noted: “Companies remain cautious in a low-price environment. A handful of countries are betting that improved fiscal terms – not just prospectivity – will be needed to attract scarce capital. Kuwait, for instance, is preparing for its first licensing round in Q2 2026 – a landmark moment.

“Over 24 billion boe sits undeveloped and international participation will be pivotal. An apt fiscal balance between enhanced technical services agreements and other frameworks will determine whether Kuwait attracts the right partners.”

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Exploration & Production

The company states that maximizing recovery from producing fields is the lowest-risk upstream investment, but fiscal terms can be obstacles when government’s share hits maximum levels in late field life. Governments are introducing bespoke fiscal frameworks for mature assets in recognition that standard fiscal terms do not work for late-life field economics.

Wood Mackenzie said: “The trend is exemplified by Malaysia’s Late Life Asset (LLA) PSC – introduced in 2020 – to preserve production continuity and maximise recovery in mature fields.

“These LLA PSCs empower contractors with some share of government’s entitlement until they fulfil their share of abandonment costs. Moreover, strict capital discipline and energy security concerns are forcing innovation in fiscal design.”