Oil & Gas in 2026: Pursuing Capital for Growth

New Frontiers for Partnering with Private Capital

This article is part of the "Oil & Gas in 2026: Emerging Trends & Predictions" report. For the full report, click here. 

In a quieter deal market characterized by global regulatory and geopolitical uncertainty, oil & gas companies were generally well capitalized with strong balance sheets. Recent consolidation, alongside market-imposed capital discipline, meant that key players are for the most part profitable and generating significant free cash flow, reducing the need for external capital or divestitures.

The U.S. LNG industry is rapidly expanding along the Gulf Coast as the Trump administration prioritizes export capacity and replacing Russian gas in Europe. Most of the LNG produced in the U.S. is expected to be imported into Europe, as Europe gradually weans itself off of Russian gas and LNG, which will no longer be permitted to be imported into the EU beginning January 1, 2027. Private equity investors increasingly see oil & gas infrastructure as a high-return, long-duration opportunity as they shift away from upstream deployment.

Private Equity

With Fewer Active Sponsors, Larger Funds Target Midstream and Downstream Assets 

In recent years, we have seen a general reduction in the amount of capital flowing into private funds for oil & gas investment. Still, a small number of successful and proven managers raised capital in 2025 and are eyeing new deployment opportunities.

• Fundraising Favors Well-Established GPs: Institutional limited partners, such as college endowments and public pension plans, have in many cases scaled back their allocations to hydrocarbon investments in recent years to avoid backlash from various constituencies. Those that continue to invest in the industry are also increasingly selective, meaning those able to raise funds are typically the largest GPs with proven track records and fundraising is challenging for new entrants.
  
  In 2025, despite a generally tight fundraising market for private equity, new capital continued to flow to specialist investors like Quantum Energy Partners, EnCap Investments and NGP Energy Capital. Family offices stepped up as direct investors in certain deals, capable of deploying at pace and less constrained than larger LPs.
  
  With sovereign wealth funds also increasingly showing up as active investors, frequently in partnership with PE, private funds have often shown themselves to be more inclined towards oil & gas investments than the equity markets and better able to navigate environmental and social impact concerns.
  
  

• Deployment Shifts Away from Upstream Assets: With fewer dollars flowing into fewer funds, PE deployment in 2025 was limited only to management teams that have shown an ability to make money. With a general paucity of M&A transactions, PE sponsors were less active in upstream deals and instead turned their attention to the midstream sector. After years of consolidation among the majors that led to divestments to private funds, fewer upstream assets were up for sale and the focus shifted to gas pipelines and other infrastructure.
  
  While a lot of the 2025 midstream activity involved joint ventures and extensions of joint ventures, rather than large amounts of capital being invested in new ventures, several large infrastructure deals got done. Carlyle acquired Altera Infrastructure Group’s floating production storage and offloading (FPSO) business, for example, while Apollo Global paid $1 billion for a 25% stake in U.K.-based BP Pipelines. Funds are attracted to pipeline and storage assets by their high-return, reliable long-term nature.
  
  

• Middle East Asset Monetization Creates Opportunities: Several Middle Eastern governments have opted to open up their oil & gas pipeline networks to foreign capital as they move to attract overseas investment, driven primarily by the need to free up capital for upstream capital projects and wider diversification efforts, including international expansion plans.  
  
  KKR acquired a minority stake in ADNOC Gas Pipeline Assets, the gas pipeline network of Abu Dhabi in late 2025. That followed Saudi Arabia’s Aramco signing a deal for its Jafurah gas processing facilities earlier in the year, with funds managed by Global Infrastructure Partners. Similar deals look set to continue across the Gulf, potentially extending to include power plants, and may prove a blueprint for the international majors to start monetizing their pipeline and storage assets in deals with private capital.

Private Credit

Growth Continues as Private Debt Offers Advantages to Borrowers

Private credit continues to step into the gap being left by traditional lenders as it expands to meet the oil & gas industry’s demand for alternative financing solutions.

• Private Credit Fills a Void: Over the past decade, we have witnessed a gradual retreat by traditional bank lenders from providing capital to fossil fuel businesses, in part as a result of changing risk appetite and tighter underwriting standards, but also because of reputational concerns. Reserve-based lending from traditional bank lenders has been in decline and private credit has stepped up to fill the gap, sometimes coming at a higher cost but with the added advantages of faster execution and greater flexibility in terms of deal structuring and covenants, and with less exposure to fluctuations in crude oil prices. As the oil & gas sector also increasingly looks for creative financing solutions in the face of higher interest rates and lower oil prices, credit funds also sense an opportunity to step up with opportunistic and hybrid capital solutions.
  
  

• Asset-Backed Securitizations (ABS): Upstream oil & gas companies are continuing to pursue ABS financings as an alternative to traditional reserve-based lending. In fact, there have been a number of recent upstream oil & gas companies that have utilized ABS structures to fund an acquisition. For example, Jonah Energy utilized ABS financing to acquire Tap Rock Resources in January 2025 and later in its subsequent acquisition of High Plains Natural Resources. In September 2025, Diversified Energy acquired Canvas Energy, which was funded primarily by a $400 million ABS financing.

Hybrid Capital Solutions

Stepping Up to Address Bespoke Capital Needs

In the face of continued interest-rate pressure and shifting investor mandates, companies are increasingly looking to hybrids (like preferred equity and structured convertible instruments) to address bespoke financing needs that fall between senior debt and common equity. No longer confined to the realm of distress-driven financings, these solutions are becoming strategic tools for well-capitalized operators seeking to fund growth or optimize balance sheets without the immediate dilution traditional common equity issuances.

• Joint Ventures and Asset-Level Partnerships for Deleveraging: Large-scale operators are using hybrid joint-venture structures to monetize infrastructure assets while retaining operational control. For example, Blackstone Credit & Insurance (BXCI) provided $3.5 billion in cash to EQT Corporation for a noncontrolling interest in a midstream portfolio and a contractual minimum return. The deal allowed EQT to aggressively pay down debt and preserve its investment-grade rating following its Equitrans merger.
  
  
• Bridge Financing for Long-Duration Infrastructure: Hybrid capital can also be deployed to navigate the gap between FID and first cash flow for projects. For example, NextDecade secured a $175 million senior secured hybrid facility from General Atlantic Credit for its Rio Grande LNG project. The facility includes a PIK toggle, allowing deferral of cash interest payments during the capital-intensive construction phase, preserving liquidity for operational development.
  
  
• Convertible Structures to Fund Transformative M&A: Preferred equity can be used for inventory capture in the upstream sector too. Prairie Operating Co. (PROP) issued convertible preferred equity to fund its acquisition of Bayswater’s DJ Basin assets, providing the necessary scale to secure 10 years of drilling inventory while mitigating the immediate dilutive impact on the common shareholders.
  
  
• Supporting Midstream Buildouts for Emerging Demand: Private equity-backed midstream firms are using preferred equity facilities to fund infrastructure expansions in prolific basins. Brazos Midstream secured a preferred equity investment from a consortium led by EOC Partners and Elda River Capital to construct natural gas gathering and processing infrastructure in the Midland Basin. These PIK-structured instruments allow operations to be scaled efficiently, building out the foundational infrastructure that will ultimately support the growing electricity demand from the digital economy and AI data centers.
  
  
• Flexible Exit Paths and Capital Optimization: While these instruments provide essential flexibility, they are often designed as temporary bridges within the capital structure. Once assets are de-risked and cash flowing, companies can often leverage their improved credit profiles to refinance these higher-cost positions. For instance, Targa Resources recently repurchased a preferred equity interest originally issued to Blackstone, replacing it with lower-cost public debt to enhance common shareholder value.

Traditional Lending and Debt Capital Markets

Refinancings to Absorb Investment Grade Debt Capital

• A Refinancing Challenge Ahead: More than $440 billion of investment grade and speculative grade debt maturities are expected to come due in the oil & gas sector globally before 2030, according to S&P Global. That will present both challenges to the traditional lending and debt capital markets, as well as opportunities for creative refinancings.
  
  
• More Public Capital Available: There is more public capital available to hydrocarbon businesses now than there has been in the recent past, with ample debt capital accessible to companies with investment grade credit ratings. While this capital is currently most often deployed to refinance maturing issues, in some cases it is being used to fund acquisitions. Access to debt capital is more challenging for high-yield issuers, with investors cautious and the cost of this capital more expensive for lower-credit oil & gas companies.

Equity Capital Markets

Some IPOs Get Done, Fewer Follow-on Issues

• U.S. Equity Capital Markets Receptive: The U.S. equity capital markets remain open and moderately receptive to well-performing oil & gas companies, with public market appetite for hydrocarbon businesses stronger than it was a few years ago. Several IPOs got done in 2025, though not a flood, with the most notable debut being that of LNG exporter Venture Global, which raised $1.75 billion in the first big IPO of the new presidential term.
  
  January also saw listings by Infinity Natural Resources, a business focused on hydrocarbons in the Appalachian Basin, and Flowco, a provider of equipment and services to the oil & gas industry. In September, WaterBridge Infrastructure, which delivers oilfield water management services in the Delaware Basin, raised $634 million in its IPO, valuing the business at $2.3 billion.
  
  There was far less activity in the European IPO markets, which remain largely closed for significant IPOs of oil & gas companies as a result of heightened ESG concerns and regulatory pressures.  
  
  

• Reduced Need for Equity Capital: With most large oil & gas companies sitting on strong balance sheets and robust free cash flow, there was a reduced demand for equity capital in 2025 given their ability to self-finance their capex needs. Equity is still being used for acquisitions and occasionally, in debt refinancings, but we observed a decrease in follow-on offerings compared to previous years as repeat players opted against hitting the market in the same way as in the past.

Conclusion

A Quiet 2025, Private Capital May Be More Active in the Year Ahead

With many oil & gas companies well capitalized and generating healthy cashflows that allowed them to self-finance their capex needs through 2025, the past year saw limited activity in the public markets despite what appears to be strengthening investor appetite for hydrocarbons.

Private equity faced its own challenges around fundraising and returning capital to LPs in tough exit markets, but capital did continue to flow to the most active managers. Those sitting on large amounts of dry powder going into 2026 will be on the hunt for deals, increasingly turning their attention to midstream and downstream assets and anxious to capitalize on the need for more natural gas infrastructure.

With private credit stepping up with flexible financing solutions and hybrid capital solutions also available to address balance sheet deleveraging, fund growth or help return capital to LPs, we expect to see more private capital deployed in 2026.

Meanwhile, U.S. players that have already put huge amounts of capital to work in domestic basins may focus more on cross-border growth in the year ahead. Asset monetization programs are creating opportunities in the Middle East, where capital has also proven to be readily available to support oil & gas businesses in their outbound endeavors.