Caution ahead. Yellow lights blinking. Step on the brakes. Cash flow falling. The three-year strip is only about $70/bbl and phones are ringing off the hook all over the oil patch.

As Warren Buffet likes to say, “It’s only when the tide goes out that you learn who’s been swimming naked.”

Any company burdened by high debt that is vastly outspending cash flow and trying to swing above its weight is being slapped back to reality. But the fallout in every play will be different, and it also depends on the operator. Range Resources has said its Mississippi Lime play generates 50% IRR at $80 oil. Parsley Energy says its assets in the Midland Basin core can deliver 49% IRR at $80 because the type curves are better than expected.

This nasty oil price correction was inevitable, probably even needed, though it is going to be painful for a while.

Just contemplate this number: 9,083,000. That’s how many barrels of oil the U.S. was producing on average—every day—as of November 28, 2014, according to the EIA. Aggregate output from the Lower 48, Alaska and the Gulf of Mexico has increased by 13.3% in the past year, and soared 63% in the past five years! Crude oil imports are down 13% in those five years. Imports from OPEC alone have fallen by a third.

This is a remarkable feat for us but a bombshell for the cartel, so how could we not expect some kind of big fallout from this trend?

Even before OPEC’s meeting in November, the price of crude had been falling steadily, taking energy stocks along for the ride. Washington, D.C., analyst Terry Higgins, executive director of Hart’s World Refining & Fuels Service, told me, “I’ve been tired of hearing myself say this for months: ‘It’s gonna happen; it’s gonna happen.’”

He thinks Middle East turmoil delayed this inevitable price correction, painful but necessary to weed out the marginal sources: some (but not all) shales, Canadian tar sands, Brazilian production. He thinks it will be temporary. So does T. Boone Pickens, who told Jim Cramer on “Mad Money” that we’ll see $100 oil again, possibly in 12 to 18 months.

“Our long-term view is based on marginal lifting costs of $80 Brent oil, and if the export ban is lifted, WTI would revert back to its historic pre-2011 average premium of $1 to $1.50 over Brent,” said Ken Medlock, senior director of energy studies at Rice University’s James A. Baker III Institute of Public Policy. “I think this is going to come out in the spring at $80 and I think that is the long-term equilibrium price.”

Every expert has a different magic number—the key is, what is OPEC’s? Some predict oil will fall further to $35; others say it will soon rebound. In any case, the cure for low prices is happening already, setting the stage for the best companies to be screaming buys soon. For now, most investors are on the sidelines waiting to see how capex and rig counts react, and when a production response will follow.

Meanwhile, OPEC is hurting too, even as it fired its shot in the shale revolution, sending many U.S. producers scampering back behind the trees, cutting their capex for 2015. You’ll read more about this elsewhere in this issue and in coming months.

Here we are, 10 years on since the shale revolution began in the Fort Worth Basin. U.S. natural gas production is now 40% from so-called unconventional plays, driving the gas price down. Now oil is following suit.

It’s ironic that so many E&Ps made a stressful and expensive transition to become more oil-weighted over the past three years, only to get kicked again. By that I mean those E&P companies that have made the trek from being weighted to natural gas to become more liquids-rich. Their transition prompted a lot of asset divestitures along the way, opening up new opportunities for buyers. We’ll see more M&A now.

Experienced observers are fairly sanguine, knowing this scary time is part of the commodity cycle. As Medlock said, “The core of increased production is still going to be there. When you have majors saying they’ll cut back in deepwater or overseas, that’s a different discussion. We’ll get price softness initially, but this injects discipline among marginal players.”

Before the fourth-quarter 2014 oil price crash, many E&Ps were swimming along just fine, growing through the drillbit or by deal making. You can participate in honoring the best of them by nominating individuals and companies for the annual Oil and Gas Investor Excellence Awards. Nominations are due February 20, either to me by email, or see our home page’s awards box at OilandGasInvestor.com.

Mark your calendars, also, to please join us for DUG Midcontinent this year at our new venue, Oklahoma City’s Cox Convention Center, on February 25 and 26. See you there!