Via The Financial Times, an examination of Russia’s oil industry and its latest evolution under Putin:

Russia’s oil industry has been through two great evolutions since the collapse of communism. Now it is entering its third.

First, in the 1990s, former state-owned oil assets were parcelled into vertically-integrated groups and sold off at bargain prices to investors or former managers, creating some of Russia’s first “oligarchs”.

The following decade saw a twofold process. First, partly under pressure from new president Vladimir Putin, private oil company owners brought in foreign technology that boosted production and profits. Then, mostly in Mr Putin’s second term, state-controlled groups started taking back some of these revitalised assets. Rosneft, the state oil company, controversially acquired much of Mikhail Khodorkovsky’s former Yukos. Gazprom, the natural gas monopoly, bought Roman Abramovich’s Sibneft.

Now, notes Moscow investment bank Renaissance Capital, in a recent report, Russian oil is at a new crossroads. Output from onshore fields, some producing for almost 50 years, is declining. To maintain output – and the oil sector’s crucial contribution to budget revenues – it must set about the expensive and challenging development of offshore fields, many of them in the hard-to-access Arctic region.

Yet despite the past decade’s partial reconsolidation, Russia’s industry remains fragmented among seven players. They lack, individually, the expertise and capital needed for the push into frontier territory.

Meanwhile, says Renaissance, a five-year “derating” of Russian oil companies by investors, thanks to an unpredictable regulatory environment, has reduced the sector’s average 2012 price/earnings ratio to less than 5 times. That is roughly where it was before the last consolidation wave. It represents a value gap of $300bn compared with a rating similar to global peers of, say, 8 times earnings – a huge potential opportunity for strategic buyers.

Theoretically, one way forward would be for Russia to allow foreign majors to merge with or buy into Russia’s producers, providing capital and knowhow and stimulating competition. Far more likely, given Mr Putin’s well-known belief that Moscow should control strategic sectors, is that Russia’s state giants will lead the new consolidation.

This is where Igor Sechin, former deputy prime minister in charge of energy, and long-time Putin confidant, seems to come in. Since Mr Putin’s presidential return, Mr Sechin has not only been made chief executive of Rosneft, but intriguingly he has also been named chairman of Rosneftegaz, holding company of the state’s Rosneft stake and 11 per cent of Gazprom. And he has become executive secretary of a Kremlin energy strategy commission, chaired by Mr Putin himself.

Chris Weafer, chief strategist at Troika Dialog, another investment bank, believes Mr Putin aims ultimately to create a vast energy holding company, on the scale of Brazil’s Petrobras. The Russian president has given this task to his trusted lieutenant Mr Sechin and to Rosneftegaz.

“Putin sees energy as the basis of Russia’s geopolitical bargaining power, and that has to stay under Kremlin control,” says Mr Weafer.

The speculation is that Rosneftegaz could become an umbrella for stakes in oil producers; Zarubezhneft, the overseas exploration and production company; Transneft, the oil pipeline monopoly; and even some strategic electricity assets.

Mr Sechin may not have things all his own way. He famously failed to deliver a planned alliance between Rosneft and BP last year after a legal challenge from BP’s partners in TNK-BP. He has clashed with government liberals who are pushing an ambitious privatisation programme – including some assets Rosneftegaz is thought to be targeting. Assuming he is doing Mr Putin’s bidding, however, it would be foolish to bet against Mr Sechin.

So what role will international oil companies play in the new consolidation? The model is almost certainly the kind of alliance ExxonMobil formed with Rosneft last year, and which the latter had earlier sought with BP. Indeed, a Rosneft-BP venture is still possible now the UK group is trying to sell its TNK-BP stake.

Russia will need foreign partners, particularly to develop its Arctic waters, a challenge some see as comparable in technical difficulty to space exploration. But it will be through minority stakes, or asset and share swaps, mainly with state-controlled players.

That will probably suit oil majors, desperate for access to such resources. For Russia, however, it is a suboptimal economic model. State control can mean greater inefficiency and corruption – and increase the danger that projects such as pipelines will be pursued for political reasons. But the lesson of the past decade is that in Mr Putin’s view of Russia, oil, and the world, the politics come first.