HOUSTON—Gary C. Evans, chairman and CEO of Magnum Hunter Resources (NYSE: MHR), offered no coating, sugar or otherwise, at a Feb. 11 presentation on the oil and gas industry.

Evans said with nearly 35,000 layoffs already announced, the oil and gas industry may see as many as 250,000 lost jobs.

“There’s definitely going to be a whole lot of blood in the streets before things get better,” Evans said at the NAPE expo.

But Evans also has a strong faith in the U.S. oil and gas industry to pull through, as it has so many times before in down cycles.

Evans frequently referenced the oil crash of the 1980s, drawing parallels to another down period in the industry’s past. Evans said shale is different, and that production will scale back much faster than many believe. He also expects reduced service prices and a strong pullback in oil production as companies pull back to the core of their plays.

The ultimate key to survival: good rock.

“In downturns like we’re experiencing, world class assets will always prevail and rock characteristics are absolutely critical because you have to lower your costs in order to survive,” he said.

In January, Evans suspended new spending on drilling, completion and fracking services. He’s counting on lower service costs, and he said that he will not resume activity until service companies are ready to work with him at 40% discounts to December rates.

The company has reduced its capex by $300 million.

Evans noted that in late 1985, nearly 2,500 rigs were drilling wells in the U.S. One year later, barely 1,000 were operating.

That’s happening again, he said. Last week the U.S. drilling rig count slid another 83 rigs to 1,140, the ninth consecutive weekly decline.

“I don’t see that changing,” Evans said. “I think you’ll see weekly drops every week for at least the next two or three months.”

But that plays into his scenarios for lower service costs.

“As the rig count drops, all the other service companies get affected as well,” he said.

While Magnum Hunter abandoned its oil properties for the Marcellus and Utica, Evans said experience tells him the current fall in commodity prices is different this time.

Between November 1985 and 1986, oil prices plunged 67%. Between June 2014 and January 2015, oil prices fell 57%.

And crude oil capped the biggest two-week rally in 17 years on the speculation that the rig counts’ steep drop will eventually curb U.S. production growth.

But that’s where things start to splinter from the 1980s.

“The prior downturns we’ve witnessed were because of too much production from vertical wells,” he said.

The horizontal drilling, the fracture stimulation technology we’ve all learned in the shale plays, is different.

“The decline rates of these shale plays are dramatic,” he said. “Some are as much as 70% per year,” he said. “I think that’s the one thing we will witness different in this downturn is that we will see a drop in U.S. domestic production much, much quicker. I’m predicting in weeks, and less than a month and we’ll start seeing production fall.”

That should give Wall Street and the rest of the world some comfort that the drilling rig drop in the United States does have a meaningful impact, Evans said. But for now, U.S. infrastructure is bursting at the seams as oil stocks continue to climb and build to record levels.

A few bright spots are emerging, though. Crude prices at lower levels should increase domestic demand. “We will continue to see demand growth,” Evans said.

However, the U.S. is unlikely to veer from conservation.

“All the E&P operators will learn how to operate in this lower price environment, however long it lasts,” he said.

No one knows when oil prices will recover.

“I think you need to be prepared to deal with $40 to $50 oil for a sustained period of time. Unlike the last downturn, we’re not seeing OPEC budge,” Evans said. “Nothing on the horizon reflects otherwise.”

Quality Rock

When Magnum Hunter was created in 2009, its founders decided to focus on shale.

But the company was also trying to figure out which plays it should be in as it started anew. Evans’ first company began with a $1,000 investment and later sold for $2.2 billion.

The company bought assets in the Marcellus, Utica, Bakken and Eagle Ford.

But as Magnum Hunter developed its oil plays, it decided to divest.

“Not that I’m such a great predictor of drop in crude oil prices,” he said. “And we had decent property in the Bakken. We had excellent property in the Eagle Ford but we had phenomenal properties in the Marcellus and Utica.”

But from 2012 to 2014, Magnum Hunter divested $700 million worth of oil properties, the bulk of the company’s oil assets to reinvest in the Marcellus/Utica, for one reason.

“We were really targeting the best rock,” he said.

Evans is a big believer in the gas story and he said the industry has underestimated the demand that will come from coal conversions to natural gas for power generation.

In Appalachia, the company is seeing strong demand for natural gas. And while the country has plentiful stocks of natural gas, the drop in rig count will have repercussions, including the associated gas produced by oil wells in the Eagle Ford, Bakken and elsewhere.

Best in class operators will drive down expenses through operation, drilling and completion techniques. Raking up good, solid returns and production growth will make those companies not just survivors, but better.

But without doubt, the hunker-down mode has arrived.

“We’ve been there before. You’ve got to be positioned so you can withstand the downturn and capitalize on the opportunities that exist,” he said. “We’ll do it. This industry is very resilient.

“That’s the one thing OPEC has kind of missed. The oil and gas industry in the United States is the best industry I think anywhere in the world. We’re very resilient, very adaptable, and we’ll figure out how to be better players during the downturn.”