REFILE-Oil trader Phibro owner Occidental says reducing prop trade

Fri Feb 14, 2014 5:50pm EST

NEW YORK Feb 14 (Reuters) - Occidental Petroleum, the global oil firm that bought Connecticut-based hedge fund and trading house Phibro nearly five years ago, said on Friday that it is cutting back on proprietary trading.

Oxy, as it is known, is working to streamline its business to sharpen its focus on booming U.S. oil patches like the Permian Basin of Texas. It bought Phibro, the trading house run by renowned oil bull Andy Hall, from Citigroup in 2009.

"Consistent with Occidental's strategic review to focus in core businesses, it also plans to reduce its exposure to proprietary trading activities related to crude oil and other commodities," Oxy said in a press statement to announce a restructuring of its oil business.

A spokeswoman did not immediately reply to an email seeking comment. It was unclear how much of Occidental's proprietary trading is done by the company itself rather than Westport, Connecticut-based Phibro, or Hall's $3.5 billion hedge fund Astenbeck.

When Oxy made its purchase, Hall, 63, was in the midst of a more than decade-long profit streak, reaping billions of dollars by betting on a long-term rise in crude oil prices. The century-old trading firm, formerly known as Philipp Brothers, had sold its refineries and focused on proprietary trading.

More recently, however, he has struggled, like many other traders, to profit from a U.S. shale oil boom that has flattened U.S. crude oil prices. Astenbeck's fund lost 8 percent in 2013, its second loss in three years, Reuters reported last week. It also suffered notable investor redemptions, reducing its assets.

Astenbeck, named for a village near the 1,000-year-old German castle that Hall owns, was initially set up in 2007 as a way for investors to profit from trades that mirrored Phibro's strategies. Occidental owns 20 percent of Astenbeck, which allows it to share in Hall's management fees.

But times have changed, both for energy hedge funds in general that are struggling to thrive amid range-bound oil prices, and for Occidental, whose shareholders ousted long-time chairman Ray Irani last year.

Peers like Hess Corp. have come under pressure to break themselves up, unlocking shareholder value and jettisoning non-core businesses. Hess is in the midst of attempting to sell its proprietary oil trading joint-venture Hetco, a company similar to Phibro.

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 he made while at Citi, which had owned the small trading company for a decade.

Initially at least, the unit added to Oxy's bottom line.

For 2010, Occidental reported $293 million in "gains from derivatives not designated as hedging instruments", according to its annual report, a category that is likely to be heavily influenced by proprietary trading results, analysts say. It had only $64 million such gains in 2009, before Phibro. More recent figures were not immediately available.