UPDATE 5-Citigroup to offload Phibro, Hall to Occidental

* Andrew Hall to stay with Phibro

* Citi says Phibro execs' 2009 compensation deferred

* Occidental's net investment to be about $250 mln

* Citi shares off 0.9 pct, Occidental down 1.2 pct (Adds background on Hall, Phibro, Citigroup)

By Paritosh Bansal and Dan Wilchins

NEW YORK, Oct 9 (Reuters) - Citigroup Inc (C.N) agreed to sell its Phibro energy trading business to Occidental Petroleum Corp (OXY.N) for a pittance, allowing the bank to calm regulators who were outraged over a $100 million pay package the unit was obliged to pay a star trader.

Citigroup is shedding a unit that has generated big profit by taking big risk, while oil and gas producer Occidental Petroleum is venturing into new territory. Occidental has historically been conservative in its trading.

Phibro has been profitable in recent years but has lost money in the past. In 1998, the bank put Phibro on the auction block because of its wildly fluctuating profits, but it never found a buyer.

Occidental did not disclose the terms of the deal but said its net investment would be about $250 million and that it was paying roughly the net asset value of the business. Andrew Hall, the unit's star trader, will invest in the business, as will other executives.

Hall became a lightning rod for criticism over Wall Street compensation. "Pay czar" Kenneth Feinberg, appointed by U.S. President Barack Obama to review executive compensation at banks that received the biggest government bailouts, would have struggled to change Hall's pay package because he does not have the legal authority to tinker with a long-standing contract, according to people familiar with the matter.

If that outsized contract had been unchanged, Feinberg would have appeared toothless. Feinberg pressed Citigroup to fix the problem, although he didn't propose a specific solution, people familiar with the matter said.

Last month Citigroup Chief Executive Vikram Pandit said publicly that $100 million was too much for an employee to earn, given the bank's circumstances.

Government regulators have particular sway over Citigroup, which has not yet repaid a $45 billion taxpayer bailout and is roughly one-third owned by taxpayers.

"When the government is an owner and Congress and regulators are looking over (CEO Pandit's) shoulder when he writes a check, then he has to be trembling if he writes a $100 million check," said Holland & Co President Michael Holland, who worked with Hall in the 1990s.

Citigroup said the sale of Phibro was not material to its earnings. Hall makes trades out of a former dairy farm in Connecticut, and the Phibro unit operates almost completely separately from the rest of Citigroup, meaning that removing it should have no impact on the bank's other businesses, people familiar with the matter said.

HIGH PAY