As yet another manifestation of government involvement in U.S. business, Occidental Petroleum (NYSE: OXY) closed out last week by announcing that it would buy Phibro LLC, an energy trading unit of Citigroup (NYSE: C). On that basis alone, Occidental will be altered from a minor trader of oil and gas to one of the key players in the energy trading game.

The deal, for which Oxy will ante up about $250 million, apparently was put in motion to prevent a showdown between Citi and the Obama administration's pay czarover the amount of compensation that was to be paid to Phibro's top trader, Andrew Hall.

It appears that Hall's take from the bank would have been in the vicinity of $100 million. That amount would have followed the $45 billion in capital that Citigroup had received from U.S. bailout programs. As a result, the total contracted to Hall ran into opposition from the Treasury Department's Kenneth Feinberg, the administration's top pay official, and ultimately brought about the sale.

The amount being paid for Phibro by the fourth-largest U.S. oil company represents only the amount of the trading entity's assets, its book value. The lack of a premium indicates that the bank had little choice in the sale. Of Citigroup's $53 billion in revenues in 2008, a relatively tiny $667 million was brought in by Phibro. Nevertheless, the commodities trading unit was one of the few segments in the bank that has been consistently profitable.

Since the first half of last year, when crude oil prices rose like bottle rockets, energy traders and speculators have been under fire. As my Foolish colleague David Williamson told you not long ago, other banks involved in energy tradinginclude JPMorgan Chase (NYSE: JPM) and Morgan Stanley (NYSE: MS). BP (NYSE: BP) and Shell (NYSE: RDS-A) are among the major oil companies whose earnings have benefited from oil and gas trading.

Among other things, Phibro will provide market intelligence to its new parent. At the same time, while Occidental has long been a conservatively run company that generally kept the futures market at arm's length, Occidental won't force Phibro to trade more conservatively than it previously has. Phibro has, for instance, traditionally avoided short positions.

I must admit to being an admirer of Oxy. It is picking up a premier trading unit for a mere 0.7 times its past 5 year's averageearnings of $371 million. A unit the Financial Timessuggested could be worth more than $2 billion. Furthermore, it picks up an energy guru in Phibro's top trader, someone Oxy President Stephen Chazen recently said this about: "I would pay my own money to talk with Andy Hall every day about oil markets."

And while some might disagree, I'm not the only one betting that the addition of Phibro stands to benefit the company substantially. Of 1,264 Motley Fool CAPSplayers offering an opinion on Occidental, 97% gave it a thumbs-up. I'd suggest that you add your reading on the company.

This article was originally published as Pay Czar Helps Oxy Steal From Citigroupon Fool.com

Copyright © 2009 The Motley Fool, LLC. All rights reserved.