The weak commodities environment won’t be the death knell of shale’s success story, but North American energy industry has hit the reset button, Jim Baker, senior managing director at Kayne Anderson in Houston, told a crowd of industry insiders in New York recently.

What happens next, Baker said, is that the sector has to recalibrate its activity levels consistent with the price environment of $50 per barrel of crude oil.

“That means a significant reduction in activity levels for domestic exploration and production; the process is painful, but unfortunately, it’s absolutely necessary for the market to rebalance,” he said.

The market’s response to dramatically dropped prices has been faster than expected, and the cuts have been deeper, he said. On average, North American-focused upstream companies have announced capex budgets that are slashed by 40%. In addition, the rig count has been reduced by about 40% from its peak.

“The rig count, of course, is the proxy for activity levels, and the decline in rig count is unprecedented relative to anything we’ve seen in recent history,” Baker told the crowd.

Baker’s speech kicked off the 2nd annual Capital Link MLP Investing Forum in March, which drew a crowd of more than 800 executives and experts. In its inaugural year, about 700 people attended the daylong forum.

Baker said the key takeaways for investors are to expect commodity prices to recover in the next 12 months; believe the shale opportunities today present a once-in-a-lifetime event for the energy sector; and know that Kayne Anderson is very optimistic about long-term outlook for MLPs.

Still, he said, it’s likely the industry will see tangible signs of lower drilling in the second half of the year. Year-over-year (yoy) production growth is expected to decline throughout the year, and it’s possible that total production at the end of 2015 could be less than 2014.

“As the market starts to see these signs, we think that sets the stage for a slow and steady recovery. We do not believe that $50 oil works for the domestic energy industry,” he said. “Certainly as we’re all trying to figure out what the new ‘normal’ is for commodities prices, we’re of the opinion—in the intermediate term—that the new normal is somewhere north of $70 per barrel. Certainly it’s very trendy to forecast low crude oil prices, but we at Kayne Anderson are not in that camp.”

For the last 15 years, MLPs have had a “can’t be beat” record, Baker said. The sector has generated a steady return for investors with regular growth in its distributions.

“Today there are over 125 MLPs with an aggregate market cap of over $560 billion. In 2000, there were 20 MLPs with an aggregate market cap of $16 billion,” he noted.

Rather, the recent downturn is just a speed bump in shale’s road to success. Baker expects activity levels to recover in 2016 when commodity prices rebound, that MLPs will spend tremendous amounts of capital during the next 10 to 20 years to facilitate the development of these domestic shale resources.

Contact the author, Deon Daugherty, at ddaugherty@hartenergy.com.