The “new normal” for U.S. unconventional developments may be more caution and less enthusiasm when it comes to spending, Schlumberger Ltd. CEO Paal Kibsgaard told a New Orleans audience on Monday.

Speaking at the Scotia Howard Weil Energy Conference, Kibsgaard said “going forward, we believe financial prudence, where investments are limited to the cash flow generated by production, will be the new normal for U.S. tight oil developments.”

The world’s largest oilfield services provider has seen a sharp reduction in U.S. deepwater exploration activity also, with pricing pressure in the Gulf of Mexico. The current commodity prices indicate that “the global oil market is clearly heading for a tightening” by the last half of the year, said the CEO.

“In the short term, activity visibility still remains limited as many of our customers are making drastic and sometimes unpredictable cuts to protect margins and cash flow.”

Most of Kibsgaard’s comments focused on macro oil fundamentals “as the current dynamics in the gas markets are not expected to change significantly in the coming years.”

A “steady recovery remains intact” worldwide, he told the audience. Global gross domestic product growth is forecast to stabilize above 3%, “with an expectation that lower oil prices may serve to stimulate economic growth and thereby reinforce demand. Based on this, we do not see any reason to question the resilience of global oil demand in the years to come.”

Two “clearly diverging trends” have emerged in recent years, he said. In North America, the “extraordinary rise in tight oil activity propelled U.S. crude production to a 41-year high last December. This equates to an average annual growth of 1 million b/d over the past four years…”

However, the “picture is quite different” internationally. Even with a continued increase in exploration and production (E&P) activity since 2009, total supply capacity has remained flat.

“So, on the supply side, the growth in North America in the past four years has been sufficient to match the increase in global demand, while production capacity in the rest of the world has remained flat, and hence steadily represented a lower share of global supply.”

That trend is what ultimately triggered OPEC last fall to shift its focus from protecting oil prices to protecting market share, said Kibsgaard.

“The drop in oil prices is therefore not primarily driven by global overcapacity, but is instead a result of the ongoing market share battle.”

Meanwhile, North American E&P capital expenditures have doubled in the past six years, but those investments have “clearly exceeded the cash flow coming from production, even at $100 oil…”

Now that external financing is tighter and oil prices have been cut in half, North American operators are forced to cut investments to balance spending with cash flow. That has sent the rig count crashing.

Because of the lag between starting a new well and first production, the huge drop in rig activity “has yet to appear in the production numbers,” but the impact should materialize in the coming months, “first as a reduction in monthly sequential production around mid-year, and by a flattening in year-over-year monthly production toward the end of the year.”

Schlumberger still sees North American production increasing this year but expects a decline in 2016, which would leave a supply gap that would need to be filled.

“Based on this, the global oil market is clearly heading for a tightening, which could lead to an increase in Brent prices in the second half of this year,” said Kibsgaard. A widening gap also is seen between West Texas Intermediate (WTI) and Brent prices until North American output and stock levels normalize.

Schlumberger management sees the current industry challenges, and the subsequent need for the industry to change, as a huge opportunity, he said. If financial “prudence” becomes the new normal, drilling activity likely would be focused on acreage “still viable at lower oil prices, and that a further reduction in cost-per-barrel will be critical going forward…”

Increasing production per well represents to Schlumberger “the biggest opportunity going forward,” Kibsgaard said.

Waiting out the down market is challenging, however. Even if oil prices were to make a partial recovery in the second half of 2014, international E&P spend still is expected to be down by 10-15% from 2014.

“This reduction in spend will include an element of pricing concession but will still largely be made up of activity reductions, in particular for exploration-related services,” said the CEO.

“Our North America outlook assumes a widening gap between WTI and Brent prices in the coming year, and furthermore that future U.S. tight oil activity will be constrained by the available cash flow from production. Furthermore, we expect that a recovery in U.S. land drilling activity will be pushed out in time as the inventory of uncompleted wells builds and the refracturing market develops.”

The recovery is expected to be “significantly short of reaching previous activity levels…Lower rig activity in the medium term also means that we are facing an extended period of overcapacity for drilling and fracturing services, and likely a weak pricing environment for the foreseeable future.”

Tudor, Pickering, Holt & Co.’s Jeff Tillery and Byron Pope said Kibsgaard’s speech was sobering. However, “this type of caution doesn’t mean companies like Schlumberger will just watch idly the cyclical contraction. Rather, this commentary fits with our view that the oil service industry will be sizing its businesses for the near term and not making a hope bet on late 2015/early 2016 activity recovery.”

Technology for well completions “is still in its infancy as the strategy of ‘more’ has been the industry focus (more sand, more stages, more horsepower),” said the analysts. “Now is likely not the time to see a bunch of technology adoption given E&Ps minimizing capex/costs (anecdotes such as switching to cheaper sands, pumping fewer/smaller stages).”

However, Schlumberger is doing it right, they said, talking with higher-level management about how its land customers can benefit from better technology, versus only marketing its services to completion engineers.