US oil activity slows as gas drives M&A rebound in 2026

The year 2026 will mark a significant shift in the United States Lower 48 energy sector, according to forecasts by Wood Mackenzie. Oil-focused regions will experience reduced activity due to price pressures, while gas-driven areas will benefit from increasing demand linked to liquefied natural gas (LNG) exports and power sector expansion.

Fewer rigs, but greater efficiency

The number of active horizontal rigs is expected to fall below 500. This drop is attributed to macroeconomic uncertainty, particularly in the first half of the year. However, operators are offsetting this decline through operational efficiency gains: Diamondback is now achieving 26 wells per rig annually, up from 24 in 2024, while Expand Energy maintains its Haynesville output using seven rigs, compared to 13 two years earlier.

The reduced activity is expected to apply downward pressure on drilling and completion costs, including tariffs. These conditions allow over 90% of Lower 48 oil assets to cover capital expenditure requirements at a Brent price of $60 per barrel. All assets are expected to meet their operating cost obligations.

Permian Basin remains dominant

Lower 48 oil production will stagnate in 2026 for the first time since the pandemic. This trend results from the consistent decline in rig counts throughout 2025. Despite this, the Permian Basin remains the backbone of U.S. oil supply.

The Delaware Wolfcamp, Bone Spring, Midland Wolfcamp, and Midland Spraberry formations will collectively account for over 50% of onshore U.S. oil production. While Delaware Wolfcamp oil production is projected to plateau, associated gas output will exceed 10 billion cubic feet per day (bcfd), driven by rising gas-oil ratios and a shift toward gas-prone areas within the basin.

Gas-weighted M&A activity accelerates

After a slow first half in 2025, the mergers and acquisitions (M&A) market regained momentum by year-end, with gas assets at the centre of activity. International investors are targeting U.S. gas for three main reasons: growing domestic demand, physical hedging for LNG exports, and alignment with U.S. trade objectives.

Valuations are expected to stabilise with a firm floor near $4 per thousand cubic feet (mcf). Haynesville will surpass 16 billion cubic feet per day (bcf/d) in annual production, with cumulative output reaching 50 trillion cubic feet (tcf). Encap’s recent $2bn funding of Penn Energy to expand Marcellus development highlights private equity’s increasing appetite for gas investment.

Emerging basins gain strategic value

Operators will focus on appraising emerging areas to build supply inventory for long-term LNG and power contracts. Targeted zones include Western Haynesville, southwest Eagle Ford, deep Pennsylvania Utica, and several Rockies gas plays.

Western Haynesville is expected to become a key new supply node, with the established fairway set to deliver over 2 bcfd by 2035. Meanwhile, development in deep Utica has progressed slowly since CNX’s Gaut well in 2015. Localised demand growth in the Northeast may create a premium market for high-pressure Utica gas.