Oil firms sit on $500 billion windfall, spending stays flat: Wood Mackenzie

By Romel S. Gurky

The global oil and gas industry is on track to generate an unexpected cash windfall of nearly $500 billion this year as crude prices remain well above initial forecasts, but companies have largely resisted increasing spending or shareholder payouts, consultancy Wood Mackenzie said on Tuesday.

Global upstream producers could accumulate an additional $495 billion in cash in 2026, assuming Brent crude averages $90 a barrel, more than double the cash flow expected when companies based their budgets on oil prices of around $60 a barrel, Wood Mackenzie said in its mid-year upstream and corporate outlook.

The consultancy said 49 of the world's largest international and national oil companies covered in its analysis would account for about $272 billion of that windfall, equivalent to roughly 70% of their combined capital expenditure for the year.

Despite Brent crude averaging $91 a barrel during the first half, companies have largely maintained their original investment budgets and shareholder return plans.

Wood Mackenzie forecasts share buybacks among the peer group will decline about 5% this year based on announced plans ahead of second-quarter earnings reports.

"Most players have adopted a wait-and-see approach to the market turmoil, preferring to accumulate cash on the balance sheet rather than return it to shareholders or increase investment," Tom Ellacott, senior vice president for corporate research at Wood Mackenzie, said in the report.

The consultancy said global upstream development spending is set to decline for a second straight year as operators focus on maintenance deferrals, operational optimisation and lower-capital activities instead of approving major new projects.

Wood Mackenzie also warned the industry faces a significant longer-term production challenge. It estimates 155 oil and gas companies will experience an average 30% decline in production between 2030 and 2040, equivalent to 32 million barrels of oil equivalent per day, excluding Middle Eastern national oil companies. More than 70 companies face production declines of at least 50% over the same period.

The report said merger and acquisition activity had remained robust despite volatile markets, with first-half deal values reaching their highest level in two years. Major transactions included Shell's $16 billion acquisition of ARC, Devon Energy's $25 billion merger with Coterra and Mitsubishi Corp's $7.5 billion acquisition of Aethon Energy.

Wood Mackenzie also lowered its global supply outlook, saying oil production is now expected to decline by at least 3% in 2026 compared with its earlier forecast for similar growth, largely because of geopolitical conflicts.

Iraq has been the hardest-hit producer in the Middle East, with as much as 3 million barrels per day of production offline, while global liquefied natural gas (LNG) supply is now projected to fall at least 2% this year instead of increasing 8% as previously forecast, with Qatar accounting for much of the disruption.

"The price surge reflects geopolitical conflict, not underlying demand," Fraser McKay, head of upstream analysis at Wood Mackenzie, said. "If prices hold through the second half, the pressure to deploy capital via buybacks, M&A or new investment will intensify."

Editing by Reiner Simanjuntak