Know When to Hold ’Em – U.S. E&Ps Eschew Capex Increases Despite Oil Price Surge

Declining cash flows from lower commodity prices in the latter half of 2023 meant producers couldn’t fund continued capex increases while also sustaining dividends and share buybacks without resuming the deficit spending that had rocked their financial stability a decade before. Maximizing free cash flow was the top priority. Total 2024 investment fell 3% to $62.8 billion and drifted moderately higher to $63.4 billion in 2025. But oil prices continued to fall throughout 2025, leading to five-year-low returns in Q4. E&P managements retained their commitment to financial discipline by slashing its original 2026 capex guidance by 7% to $59.2 billion. After a 7% output increase to 5.8 billion boe in 2025, partially because of the wave of M&A activity, producers forecast output to increase 1% to 5.9 billion boe for the coming year (right end of orange line and right axis).

Then oil prices soared from about $60/bbl in February to nearly $100/bbl in March and hovered around that level as a stalemate in negotiations to end the Iran conflict and the continued closure of the Strait of Hormuz disrupted the global oil trade. Just one month of higher prices spurred a 25% increase in Q1 2026 realizations for the companies we cover and the continuing impact of the disruption offered the prospect of even fatter cash flows in Q2 2026. The urgent issue for E&P managements was the decision to loosen the reins on very tight capital investment to boost production to garner even higher returns. The pain inflicted on consumers by much higher fuel prices, especially gasoline, diesel and jet fuel, added some level of urgency to the decisions as political pressure rose.

But producers overwhelmingly chose to stand pat. Remarkably, 31 of the 36 companies we cover left their 2026 capital investment guidance unchanged as total projected spending increased by less than 1% to $59.7 billion. That’s 7% below the post-pandemic peak in 2023 and 10% lower than the average $66.3 billion annual investment in 2014-19. Capex guidance for the Oil-Weighted peer group, the companies most likely to benefit from higher prices, rose just 2%, while investment forecasts for the Diversified and Gas-Weighted companies were unchanged. The total 2026 production forecast for our universe held steady at 5.9 billion boe, just 1% higher than 2025.

The steadfast guidance spoke volumes about the industry’s deep reluctance to abandon the commitment to financial discipline that triggered its resurgence after investors virtually abandoned the sector in 2015-20. In Q1 conference calls, the companies — with one notable exception we’ll discuss below — continued to emphasize their long-term focus on lowering costs and increasing efficiencies to sustain shareholder returns and expressed reluctance to alter their long-term strategy without clear evidence that the current higher price deck would be sustained over the long term. After outspending cash flow for decades, U.S. producers retreated to a reinvestment rate of just 60% of cash flow in 2023-25.

More tellingly, as shown in Figure 2 above, the criteria for allocating E&P exploration and development capital spending has changed. Pre-pandemic capex per boe of production (blue line and left axis) rose and retreated with changes in the WTI oil price (orange layer and right axis). Post-pandemic, the ratio steadied at a much lower rate of approximately $10/boe of production as the goal shifted to long-term sustaining of breakeven pricing in the $50/boe range. This supports current levels of profitability and shareholder returns that are crucial to maintaining investor support.

Let’s look at investment trends by peer group.

Oil-Weighted E&Ps

In their Q1 earnings releases, the 11 Oil-Weighted companies in our universe guided to total 2026 capital expenditures of $28.9 billion. As shown in Figure 3 below, estimated Q1 2026 investment (far-right blue bar and left axis) is 2%, or $600 million, higher than initial 2026 guidance but 7% lower than the $31.3 billion invested in 2025. The overall production guidance was unchanged from the initial 2.4 billion boe announced with year-end 2025 results, which was flat with 2025 actual output. 

As shown in Figure 4 below, capital spending per boe of production ranged from $9/boe to $17/boe. Major Permian producers such as Diamondback Energy (FANG), Occidental Petroleum (OXY) and Devon Energy (DVN) were near the lower end of the cost spectrum, while Gulf producer Talos Energy (TALO) had the highest cost.

Diamondback and ConocoPhillips (COP) were responsible for the lion’s share of the increase capital guidance in this peer group. Diamondback was the only U.S. E&P we cover that explicitly said it was increasing drilling-and-completion activity to take advantage of higher oil prices and tight global supply. The company is adding two or three rigs and a frac crew with a modest $150 million, or 4%, increase in capital spending. It also lifted production guidance by 5%, framing the move as a disciplined, price‑responsive strategy focused largely on bringing online some of its inventory of drilled uncompleted wells (DUCs) rather than a permanent shift toward growth. ConocoPhillips upped its guidance by 2%, or $250 million, to add a Permian rig to keep up with faster completion efficiencies and changes in the timing of major international projects. The company slightly lowered its 2026 production guidance on disruptions caused by the conflict in the Middle East.

Diversified Peer Group

All 15 companies in the Diversified peer group left their initial 2026 capital spending guidance unchanged at $19.2 billion (far-right blue bar and left axis in Figure 5). This year’s investment is a significant 9% lower than the $21 billion allocated in 2025. Production (right end of orange line and right axis) was also unchanged at 1.52 billion boe.

Figure 6 below shows a wider range of capital spending per boe for the Diversified Peer Group than for the Oil-Weighted companies. The four producers that account for two-thirds of the total investment, EOG Resources (EOG; $5.7 billion), SM Energy (SM; $2.4 billion), Ovintiv (OVV; $2.3 billion) and APA Corp. (APA; $2.1 billion) have relatively high liquids weightings and are clustered in the $10-$15 per boe range. Although EOG’s total budget is unchanged, the company announced it was shifting the allocation within its portfolio from the dry gas Dorado play in South Texas to add five net completions in the Delaware Basin and 10 net completions in the Ohio Utica play. The result is slight upticks in its oil and NGL production guidance.

The relatively high ratio for Infinity Natural Resources (INR) reflects accelerated spending following the February close of its transformative $1.2 billion acquisition from Antero Resources. Steady acquisition activity by non-operated asset focused Northern Oil & Gas (NOG) and Granite Ridge Natural Resources (GRNT) reflects higher investment that is expected to produce 5%-6% output growth this year.

Gas-Weighted E&Ps

All 10 Gas-Weighted producers left their initial 2026 investment guidance unchanged. The total capex of $11.6 billion (far-right blue bar and left axis) represents a 4% increase over 2025, reflecting last year’s higher gas prices. Also unchanged is a 3% increase in production to 1.97 billion boe (right end of orange line and right axis). 

As shown in Figure 8 below, the tight range of capex per boe for most of the peer group reflects the tight rein on investment producers instituted to maximize free cash flows with very weak gas pricing over most of the post-pandemic period. While geopolitical turmoil has clouded the outlook for crude realizations, increased LNG exports, higher industrial demand, and data center development have resulted in an optimistic outlook for long-term natural gas pricing. However, almost all gas companies are still investing conservatively. 

The notable outlier is Comstock Resources (CRK). The company, which is controlled by majority stockholder Jerry Jones, drastically slashed capital spending, shut-in wells and eliminated its dividend in response to very weak Haynesville gas pricing in 2023-24. However, rising prices triggered a 37% increase in the company’s capital investment in 2026 to rapidly accelerate development in the Western Haynesville, which will eventually translate to higher output.

Looking Forward

Crude prices have remained elevated on the continued stalemate in the Middle East. Although no producers have formally announced higher capex guidance, rig counts have been rising. According to Baker Hughes, 10 oil-directed rigs were added in the week ended May 22, the largest increase in four years. On the other hand, logistical obstacles to increasing production include the current near-100% utilization of frac fleets. Meanwhile, Appalachian gas prices have collapsed in Q2 2026 after a robust Q1 2026, which should keep Gas-Weighted E&Ps from raising capex guidance. We will continue to monitor spending trends, including changes when E&Ps release their Q2 2026 reports this summer.