S&P Global Energy
Charting the Future
Top 5 trends shaping Upstream in 2026
Introduction
In 2026, the upstream oil and gas sector stands at a strategic crossroads, where financial discipline, technological innovation, and shifting global dynamics are converging to reshape the industry’s future. Large-cap companies with strong balance sheets and scale are emerging as leaders, driving a flight to quality and accelerating consolidation, while national oil companies (NOCs) recalibrate their international ambitions.
At the same time, exploration strategies are being transformed by digitalization and data-driven decision-making, enabling faster, more efficient resource development and unlocking new growth opportunities in frontier basins. Geopolitical shifts and supply-chain localization will also prompt operators to invest in resilience, while the evolving energy transition is pushing companies to prioritize decarbonization and low-carbon solutions to meet tightening regulations and stakeholder expectations.
As disruption accelerates, upstream companies that cling to old models risk being left behind. Adaptability and innovation are now the price of admission for long-term success.
Scale matters: Flocking to safe havens
In 2026, the energy sector is expected to experience a pronounced “flight to quality,” with investors favoring large-cap companies supported by strong balance sheets and diversified portfolios.
A more optimistic outlook for natural gas compared to oil will benefit operators with a higher proportion of gas production, extensive portfolios, and lower leverage, enabling them to surpass competitors. Meanwhile, M&As among North American and International exploration and production companies (E&Ps) will likely be opportunistic, driven by the pursuit of scale and efficiency amid a challenging macroeconomic environment. At the same time, Gulf-based NOCs are expected to cautiously pursue selective international expansion.
Flight to quality — Bigger, safer, stronger
In today’s volatile macroeconomic environment—shaped by inflation, geopolitical uncertainty, and the inconsistent pace of energy transition—investors are gravitating toward companies with scale, strong balance sheets, and resilient free cash flow. This trend is especially pronounced in the US, where majors like Exxon and Chevron command premium valuations thanks to robust portfolios and low leverage. Among North American independents, large-cap oil producers (EOG, Diamondback, ConocoPhillips) and gas-focused firms (Expand Energy, EQT) are poised to outperform smaller peers, particularly as the outlook for natural gas brightens. Internationally, the landscape is more fragmented. The pool of mid-to-large independent operators has shrunk, and few companies combine the attributes of size, high gas exposure, and low debt. Those that do, however, are likely to attract outsized investor interest.
NOCs — Uneven strength, diverging strategies
Financial firepower will shape divergent NOC strategies. Gulf NOCs — notably ADNOC — could pursue select international expansion to diversify portfolios, as seen in the ADNOC-Santos Ltd. deal, which was eventually abandoned, but the intent was clear. Broader outbound M&As by Chinese, Indian and other state players are likely to remain subdued amid limited risk appetite and few quality assets available for sale. We expect low-cost licensing awards will be the main avenue for international expansion in 2026 for the low-risk appetite group.
Capital discipline — Holding the line
We anticipate continued reductions in both capital spending and returns to shareholders for global majors and oil-weighted US E&Ps. More generally, spending cuts will likely disproportionately impact exploration over development activity. Companies will prioritize maintaining their fixed dividends over share buybacks and may even leverage their strong balance sheets to do so, particularly those that have relatively low debt ratios (Exxon, Chevron and ConocoPhillips). Nevertheless, we believe US gas-weighted E&Ps’ spending will likely remain much more resilient than that of their oil peers in light of a relatively bullish gas outlook. US gas names will have the ability to continue deleveraging efforts, bringing their balance sheets into a position of newfound strength. Consequently, excess free cash flow will be redirected to investors through higher dividends and buybacks. Internationally, smaller operators in the size of Tullow and Kosmos will probably see steeper capex cuts compared to larger, more established companies like Var or Aker-Bp.
M&A — Still in the doldrums
Upstream M&As are expected to remain subdued, constrained by macroeconomic uncertainty, price volatility and a limited pool of attractive targets. Consolidation will continue among North American E&Ps, as weaker commodity prices put pressure on smaller and mid-cap players. Opportunistic, similarly sized mergers focused on achieving scale and efficiency are likely to prevail in North America & abroad, rather than large, transformative takeovers. The scarcity of larger, high-quality international assets will intensify competition among a select group of buyers.
Exploration green shoots:
Unlocking new models
Oil and gas exploration is experiencing a sustained decline, with 2025 projected to reach record lows in resources discovered, new-field wildcats drilled, and seismic surveys conducted.
But all is not doom and gloom. Several green shoots point to the emergence of new models for exploration: a modest rise in global acreage awards, increasing early-stage exploration activities and heightened investment in AI-enabled subsurface modeling and seismic processing and interpretation methods. These trends suggest development of new exploration models that prioritize rapid evaluation of large data sets to quickly identify promising prospects. As a result, more targeted exploration efforts are likely to increase in the near to medium term.
Exploration headlines continue downward trend
A quick look at headline figures for oil and gas exploration suggests the industry remains in a steep decline. The 10.2 billion barrels of oil equivalent discovered in 2024 marks the lowest annual total in decades, and 2025 is on track to reach even lower levels. Similarly, the number of new-field wildcat wells drilled in 2025 is trending below even the pandemic lows of 2020, with seismic acquisition activity also reduced. One positive development is the upward trend in global acreage awards since 2020, with 2025 expected to match levels last seen in the late 2010s.
A new exploration model
Although the increase in global acreage awards may appear minor, the Upstream team at S&P Global Energy CERA views it as further evidence of a new approach to exploration emerging among a growing number of international oil companies (IOCs). These new exploration strategies focus on faster workflows, cost efficiency, and risk reduction. By signing multiple memorandums of understanding, acquiring large acreage tracts at relatively low costs and conducting rapid technical evaluations and other early-stage exploration activities, allowing companies to quickly make go/no-go decisions and concentrate on areas of greatest prospectivity. These companies alone won’t be able to move the global metric needles, but it is a model for wider industry adoption.
Technology and AI enablers
Partially enabling these new exploration approaches are continuing advances in both established and emerging subsurface technologies. Industry investment in exploration technologies such as seismic and subsurface modeling has increased by 22% over the past three years, with an even stronger shift toward digitalization and AI- and machine learning (ML)-driven seismic processing and interpretation. These new capabilities have demonstrated the potential to improve workflow efficiency by 95% to 98%, closely supporting the more agile and active exploration models that companies are adopting.
Rocks to revenue:
Accelerating monetization
In 2026, the oil and gas sector faces an important crossroads: its biggest opportunity — and risk — hinges on the ability to turn constrained exploration into a pipeline of resilient, high-value molecules.
The winners will be those who crack the code on deepwater breakthroughs, fast-track project development, and harness data-driven strategies, all while capitalizing on government reforms to push into uncharted frontier basins and terrains. Companies bold enough to pair infrastructure-led efficiency with aggressive moves into frontier basins, coupled with deployment of cutting-edge technologies, will seize the next wave of competitive, advantaged molecules. In a global market that’s evolving at breakneck speed, portfolio resilience will belong to the innovators, not the followers.
Running room
As companies zero in on select basins and chase high-impact wells, the stakes are rising in the tug-of-war between frontier risk, strategic hub development and infrastructure-led exploration (ILX). ILX may offer quick wins and immediate returns, but its power to fuel transformative growth and lasting resilience is fading, with mature basins coughing up ever-smaller discoveries. The real game-changer lies in frontier exploration, where the risks are higher but the rewards can be massive: bold moves into uncharted territory promise larger, concentrated finds that could redefine growth trajectories. In this new era, playing it safe may mean getting left behind.
The race to convert to molecules
The energy sector is rapidly shifting its focus from traditional exploration toward accelerated resource conversion, powered by cutting-edge technology, innovative drilling designs, and digital breakthroughs. While mature basins still lure companies with quick commercialization and low-risk returns, the industry’s gaze is increasingly fixed on frontier hotspots, where recent significant discoveries are rewriting the rules. However, while backdropped by oil prices predicted to hover at $55–$60 per barrel, the appetite for deep and remote water exploration will be challenged. All eyes are on the maturation of game-changing projects in key basins like Namibia’s Venus discovery, where delivering competitive, advantaged molecules will separate the winners from the also-rans. The harsh reality remains that only a handful of deepwater finds have made it to production, as supply chain realities threaten to derail even the most promising prospects. Those who master project execution risk and efficiency will unlock the key to production growth.
Government levers shape future exploration
Government support and policy innovation will become the linchpin for the next wave of exploration. Licensing rounds are picking up speed, with countries offering more flexible terms, reducing exploratory commitments and granting early access to data in a bid to lure investment and ignite offshore development. South America and Africa are leading the charge, but environmental permitting and mounting social pressures threaten to slow momentum. As the exploration window narrows heading into 2026, nations will need to tear down entry barriers and build a pipeline of investor-ready opportunities. The industry’s pivot from “Energy Transition” to “Energy Expansion/Addition” signals a new era where society must race to keep up with breakneck change, and governments and operators join forces to deliver molecules in a market that refuses to stand still.
Supply chain reset: No going back
The rewriting of trade rules, growing localization trends and heightened geopolitical uncertainty are all set to affect the upstream supply chain and prompt upstream players to reconsider their strategies.
The key question is whether companies will remain reactive and hope for a return to “normalcy,” or proactively invest now to build supply chains better suited to a more turbulent future.
No respite in rising costs
Despite the expected slowdown in project activity, upstream costs will continue to increase in 2026. Although tariffs are a major driver, in some service segments, costs have increased more due to supply chain disruptions and switching costs than tariffs themselves. In other segments, such as oilfield equipment and services, persistent inflation is driven by tariffs on steel and long lead times for specialized equipment.
Partnerships hold the key
Service companies are adapting to tariffs by negotiating with customers and revising sourcing strategies. Trade barriers will continue to strain supply chain relationships, particularly between the US, China, Mexico and Canada. Even with an expected slowdown in project activity in 2026, prices are likely to remain elevated. The oilfield service sector continues to experience consolidation, and partnerships with operators to diversify and expand their offerings is a critical strategy for survival since oil prices declined in 2014. With fewer competitors in some segments and less equipment, companies will likely maintain pricing and focus on utilization. For operators, forging long-term partnerships will be essential to secure capacity, rather than expecting a reduction in costs.
The Big Four reinvent themselves
The Big Four oilfield service companies — SLB NV, Baker Hughes Co., Halliburton Co. and Weatherford International plc — are actively reinventing themselves to compete in a changing energy landscape by focusing on electrons and molecules. Diversification into gas monetization, power infrastructure, clean energy technology and digital services reduces reliance on the traditional oil and gas industry, and future-proofs their businesses by expanding to support the energy transition.
Show me the molecules: Future-proofing
upstream assets
In 2026, two key trends will increasingly shape the energy transition strategies of oil and gas companies —
Intensified scrutiny of both the financial returns from low-carbon businesses and the growth prospects of low-carbon product markets, such as blue hydrogen and greater awareness of the potential impacts of cross-border emissions regulations like the EU Methane Regulation and the Carbon Border Adjustment Mechanism (CBAM) — as well as broader stakeholder actions affecting core oil and gas operations. These factors will drive oil companies to further prioritize decarbonizing their own assets and to explore low-carbon opportunities where their portfolios can serve as “anchor clients.”
Electrons to molecules
Oil and gas companies are making a bold pivot by shifting their sights from low-carbon “electrons” to low-carbon “molecules.” The numbers tell the story: in just three years, asset transactions with immediate portfolio impact have exploded, with electron-related divestments (renewable generation, retail electricity, EVs) surging 325%, while molecule-focused acquisitions (low-carbon fuels, hydrogen, CCS) have jumped 133%. The latest estimates from S&P Global Energy’s CERA Upstream team show global IOCs reducing organic low-carbon investments by 23% compared to two years ago, with the remaining projected spend shifting from 50% to 58% toward molecule-related investments. The retreat is even more pronounced in tech startup investments, as oil majors pull back sharply from renewables and electric mobility, signaling a dramatic shift. Looking ahead, the industry is betting big on low- and zero-carbon baseload power (think gas-fired generation with CCS and geothermal), rather than intermittent renewables, as they race to meet hyperscaler demand and secure their place in the new energy order.
Incremental decarbonization over transformative investment
The growing recognition of natural gas as a destination fuel rather than merely a bridge, combined with stricter emissions regulations on imports, is expected to shift investment, including both organic capital expenditure and venture capital, more substantially toward methane abatement solutions. However, the constraints of capital discipline will continue to steer investment toward relatively lower-cost operational emission reduction measures, such as vapor recovery units, low- and zero-bleed pneumatic controllers, and sensors, which offer economic benefits compared to more expensive options like electrification or offshore field-based renewables. Incremental improvements can have a significant impact: S&P Global Energy’s Permian Basin upstream methane emissions benchmark estimates that intensity in 2024 was 0.44% per barrel of oil equivalent, representing a 28% decrease from 2023. Where field-based renewables are implemented, increasing grid connectivity challenges and competition from data centers for power are likely to favor the deployment of onshore, onsite solar power.
Contributors: Clare Barker-White, David Vaucher, Hassan Eltorie, Jon Tarris, Judson Jacobs, Juliana Abella, Nick Sharma, Pritesh Patel, Rachel Nicole Calvert
Editor: Beth Evans, Samantha Humphreys
Design: Content Design