UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE : In re : PACIFIC ENERGY RESOURCES LTD., et al., Debtors.

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Hearing Date: April 8, 2009 at 11:00 A.M .

Chapter 11

Case Number 09-10785 (KJC) (Jointly Administered)

RESPONSE OF THE UNITED STATES TRUSTEE TO THE DEBTORS MOTION FOR A FINAL ORDER ESTABLISHING PROCEDURES AND RESTRICTIONS ON CLAIMS AND EQUITY TRANSFERS (DOCKET ENTRY #s 14, 43) In support of the United States Trustees response to the Debtors motion for an order establishing procedures and restrictions on claims and equity transfers (the Motion), Roberta A. DeAngelis, Acting United States Trustee for Region 3 (U.S. Trustee), by and through her counsel, submits: INTRODUCTION 1. Under (i) 28 U.S.C. 1334, (ii) (an) applicable order(s) of the United States District

Court for the District of Delaware issued pursuant to 28 U.S.C. 157(a) and (iii) 28 U.S.C. 157(b)(2)(A), this Court has jurisdiction to hear and determine the Motion. 2. Under 28 U.S.C. 586, the U.S. Trustee has an overarching responsibility to enforce See United States Trustee v.

the laws as written by Congress and interpreted by the courts.

Columbia Gas Sys., Inc. (In re Columbia Gas Sys., Inc.), 33 F.3d 294, 295-96 (3d Cir. 1994) (noting that U.S. Trustee has public interest standing under 11 U.S.C. 307 which goes beyond mere pecuniary interest); Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 500 (6th

Cir. 1990) (describing the U.S. Trustee as a watchdog). 3. Under 11 U.S.C. 307, the U.S. Trustee has standing to be heard on the Motion

and the issues raised in this response. RESPONSE 4. The Debtors are proceeding by way of motion filed pursuant to Federal Rules of

Bankruptcy Procedure 9013 and 9014. Putting aside the question of whether the Debtors chosen procedure would be appropriate if the Debtors were moving to enforce an existing injunction, the Debtors do not cite any authority supporting the proposition that claims trading violates the automatic stay. Absent such a showing, the Debtors would have to obtain an injunction which restricts claims trading. In order to obtain an injunction, the Debtors would have to file an adversary proceeding under the 7000-series of the Federal Rules of Bankruptcy Procedure. They have not taken such action. 5. Second, the Debtors have not established that, as a substantive matter, they can

preserve their net operating losses by entry of the proposed form of order. Equity security holders are unlikely to obtain anything on account of their interests in these cases, so the Debtors must demonstrate that qualified creditors would own at least half of the new loss corporation upon emergence to preserve their NOLs. Qualified creditors, by definition, hold qualifying

indebtedness, and there are two ways in which indebtedness can be qualifying indebtedness: (1) first, the indebtedness has been owned by the same beneficial owner for at least eighteen months prior to the Debtors bankruptcy filings; or (2) second, the indebtedness arose in the ordinary course of the trade or business of the loss corporation and has been owned at all times by the same beneficial owner. 2

There are two key problems with the Debtors proposal. First, as the U.S. Trustee noted at the first day hearing, the Debtors carve out of their pre-/post-petition lenders from the order means that creditors owning more than half of the Debtors debt will be free to trade their claims without consideration of the Debtors interests in preserving its NOLs. Accordingly, there is no justification for restricting the rights of other creditors to preserve NOLs under the 18-month part of the qualifying indebtedness definition, given that the Debtors are prepared to let their secured lenders trade that prospect away. Second, the Debtors have not demonstrated that the indebtedness incurred under their pre-petition lending facilities (said indebtedness being necessary to meet the 50% new equity ownership requirement for preserving the NOLs) is ordinary course indebtedness which satisfies the second prong of the qualified indebtedness definition under applicable tax law. CONCLUSION WHEREFORE the U.S. Trustee requests that this Court issue an order consistent with this Response. Respectfully submitted, ROBERTA A. DeANGELIS ACTING UNITED STATES TRUSTEE

Date: April 7, 2009

BY: /s/ Joseph J. McMahon, Jr. Joseph J. McMahon, Jr., Esquire (# 4819) Trial Attorney United States Department of Justice Office of the United States Trustee J. Caleb Boggs Federal Building 844 King Street, Room 2207, Lockbox 35 Wilmington, DE 19801 (302) 573-6491 (302) 573-6497 (Fax) 3