December 9, 2014 / 6:27 PM / 5 years ago

UPDATE 3-Famed oil trader Phibro nears end of a long, winding road

(Adds Astenbeck historical fund value and year-to-date gains, paragraphs 2 and 12)

By Jessica Resnick-Ault and Jonathan Leff

NEW YORK, Dec 9 (Reuters) - Phibro, the storied energy trading firm run by famed oil investor Andrew Hall, is winding down in its current form, laying off some U.S. employees and pursuing a sale of some overseas operations, sources said on Tuesday.

The divestment by Occidental Corp, which bought Westport, Connecticut-based Phibro from Citigroup Inc five years ago, will allow Hall to focus more squarely on his $3 billion Astenbeck hedge fund, one of the world’s largest oil-focused funds. Astenbeck managed about $5 billion at its peak before being hit by dismal returns as Hall’s bullish bets on oil were hurt by a downturn in crude prices.

One source familiar with the change at Phibro said around a dozen U.S. employees had been informed of the job cuts earlier in the day, with more departures possible, although the group’s London and Singapore desks might yet be sold. A second source also said Occidental was pursuing a partial sale of overseas units.

Other traders working at the firm’s headquarters, on the site of a former dairy farm along the Connecticut coast, have been retained to help run Astenbeck, the first source said.

Phibro, which was born as metals and grains trader Philipp Brothers in 1901, was once a powerhouse in global oil markets, owning a string of U.S. refineries and routinely shipping millions of a barrels of oil around the world.

But in recent years it adopted a much leaner approach, focusing its trading on a small handful of strategically important physical crude oil benchmarks and squeezing profits from small pricing discrepancies. Hall delved deeper into derivatives with his Astenbeck fund, which once managed over $5 billion.

The wind-down will not be a big surprise to rivals. Occidental signaled early this year it was planning to pare back proprietary trading, and Phibro was quietly put up for sale. In an SEC filing last week, Occidental said it expected Phibro to “cease to be an affiliate” by the middle of next year.

An Occidental spokesperson on Monday reiterated the company’s previous statement that it was reducing prop trading as part of a strategic review to focus on core businesses.

It’s been a tough period for asset-light proprietary traders, with volatility in international crude markets waning and big rivals like Vitol and Glencore investing heavily in logistics and other assets to give them an edge.

Other similar companies have also sought new backers. Hess Corp. sold its half-share of New York-based Hetco, a proprietary energy trading house, to a California-based distressed asset firm last month.

Hall, a UK-born Oxford graduate and avid art collector, burst into wider public view in 2009 for refusing to give up a $100 million bonus from Citi, which caused a furor following the financial crisis.

Following the sale to Occidental, however, his bias for bullish oil bets has not panned out. Phibro suffered its first annual loss in over a decade in 2011. Hall has managed to sidestep the worst of the oil price rout in recent months, leaving Astenbeck with a 1 percent gain in November and a 7 percent rise year-to-date, according to his Dec. 1 letter to investors seen by Reuters on Tuesday. (Reporting by Jonathan Leff, Jessica Resnick-Ault and Barani Krishnan; Editing by Alden Bentley, Chris Reese and David Gregorio)

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