Australian investors in oil and gas companies who have been watching in dismay the collapse in value of their holdings are unlikely to be comforted to know the businesses are still way overvalued compared to current spot prices.

This may be hard to fathom given the outsized hit Australian drillers have taken since the news that unity in the OPEC cartel had fractured and there would be no action to rein in production.

In a world already awash with oil and facing the prospect of a sanctions-free Iran re-entering the market with another 700,000 barrels a day, OPEC's failure to take action last week saw prices crash to levels not seen since late 2008.

As Brent crude tumbled 7 per cent to just around $US40 a barrel, the likes of Santos and Oil Search fell more than 20 per cent in just two days, while Woodside was down 8 per cent.

Oil Search's fall was exacerbated by Woodside's decision to abandon take over plans.

On the other side of the failed deal, there was relief that Woodside was not about to do anything stupid by over paying for the PNG focussed producer, which probably protected it from far more acute pain.

Current share prices justify oil at $US60 a barrel: UBS

However the market is still valuing the companies on oil prices of around $US60 a barrel, 50 per cent above current spot prices.

On UBS figures, Oil Search trading at its current value of around $6.34 implies an oil price of $US63 a barrel.

Woodside's current price implies oil at $US58 a barrel and Santos $US56 a barrel.

Alternatively, UBS finds at the current spot price, the Santos share price of $3.31 crashes 89 per cent to 37 cents per share with a protracted period at $US40 a barrel.

Oil Search does not fare much better with its value tumbling 83 per cent from current levels of around $6.29 per share to a fair value of $1.04.

Woodside appears to be less leveraged to movements in oil prices, but would still decline 42 per cent from around $27 a share to $15.50.

'$US40 a barrel generates small earnings for Oil Search'

Morgan Stanley's Stuart Baker approached the same question from a different angle, looking at the impact of a $US40 a barrel price on balance sheets and cash flows and the news was not much better.

For Santos, the news would be bleak — no earnings or dividends.

Woodside — which does not face significant debt repayments until 2019 — would also still be in a tight spot.

Mr Baker said under his modelling Woodside would be loss making and pay no dividends.

However, Woodside could become cash flow positive in 2017 once its current spending on the Wheatstone project is complete.

Mr Baker found Oil Search would be slightly cash-flow negative, but does have spare liquidity of $US1.6 billion to help battle through a prolonged downturn.

"At $US40 a barrel (Oil Search) generates small earnings — $US95m in 2016 and $US51m in 2017 — [while] dividends would be negligible," he said.

Mr Baker also threw Origin Energy into the mix and found that it is defensive income stream from power and energy retailing would help service dividends while production in the $25 billion APLNG program was still two years away from reaching its cash flow potential.

However, after paying APLNG's debt and interest, the project's breakeven position for positive cash flows is between $US38 and $US42 a barrel.

UBS, Morgan Stanley expect oil price to recover

Neither UBS nor Morgan Stanley have $US40 as a base case and both expect the price to recover.

UBS analyst Nik Burns said with OPEC not providing any assistance, the market is likely to remain physically oversupplied with oil until late 2016.

It is a view shared by the International Energy Agency which recently cut its forecast for global demand by 150,000 barrels a day.

Mr Burns said if OPEC returned to being a cohesive cartel, prices could rebound to around $70 a barrel, but this was unlikely.

There are still significant headwinds that could push the price lower.

Storage in both the US and China is almost at capacity as super-tankers park for days off refineries to unload the increasingly less precious cargoes.

A 1 per cent stumble in Global GDP would cut global demand by about 500,000 barrels a day and probably add another year to rebalancing the out-of-whack supply and demand equation.

Iran returning to the market faster than expected could also push the oil glut well into 2017.

Mr Burns said based on UBS figures, if Chinese GDP growth came in at 4 to 5 per cent rather than 6 per cent and above, the decrease in demand would be enough to push down prices by $US5 to $US10 a barrel.

"This means there could be more oil price pain in the short term, but the incentive price for new oil investment is above $US60 per barrel in our view," Mr Burns said.

"So there is light at the end of the tunnel."

'Oil could drop another 50 per cent'

However all this is positively rosy compared to the view across the road from rival investment bank Goldman Sachs which recently forecast oil could drop by another 50 per cent to $US20 a barrel.

Goldman Sachs' reasoning argues a mild northern winter, slowing emerging market growth and Iran maybe enough for the surplus to breach storage capacity.

An additional problem is that with technological advances continuing to cut oil producers' cash and break-even costs, there is less of an incentive to throttle back on production as the price falls.

With capacity breached and oil splashing around everywhere the price would seriously crash.

That could break balance sheets, undermine financing deals and destroy investors' faith, then the whole question of weathering the storm become a whole lot tougher.