IN THE UNITED STATES BANKRUPTCY COURT

In re: )
cases (the "Cases") hereby object to the Motion for Relief

FOR THE DISTRICT OF DELA WARE

Chapter 11

PACIFIC ENERGY RESOURCES LTD., et aI., 1 )

Debtors. )
)

Case No. 09-10785 (KJC) (Jointly Administered)

Related Docket No. i 00

OBJECTION OF THE DEBTORS TO MOTION OF UNION OIL COMPANY OF CALIFORNIA FOR RELIEF FROM THE AUTOMATIC STAY
The debtors and debtors in possession (the "Debtors") in the above-captioned chapter 11

from Automatic Stay (the "Motion")

filed by Union Oil Company of California ("Union"). The factual allegations contained herein
are supported by the Affdavit of Gerald A. Tywoniuk, submitted concurrently herewith in
accordance with Delaware Banruptcy Rule 4001-1 (c)(ii). In further support of

this objection,

the Debtors respectfully state as follows:

Preliminary Statement
i. As stated in the Motion, Union and Pacific Energy Alaska Operating, LLC

("PEAO") share working interests in certain oil and gas leases with the State of Alaska in an area
commonly referred to as "Trading Bay." Union is the designated operator for purposes of

these

i The Debtors in these cases, along with the last four digits of each of the Debtors' federal tax identification number, are: Pacific Energy Resources Ltd. (3442) ("PERL"); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax I.D. # not available) ("PEAH"); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021) ("PEAO"); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487);
and Gotland Oil, Inc. (5463). The mailing address for all of the Debtors is 111 W. Ocean Boulevard, Suite

1240,

Long Beach, CA.

68773-002\DOCS_SF:64717.1

properties. (As a result of recent volcanic activity in the area, Union has ceased oil production at
Trading Bay for the time being.)
2. By the Motion, Union seeks relief from stay to (1) exercise its asserted
lien rights as to PEAO's share of production from Trading Bay (as of

March 31, 2009, the

proceeds of such production owed to PEAO total nearly $4 milion); and (2) enforce certain
unspecified rights under a Fuel Gas Supply Agreement between the parties.
3. The Debtors object to the Motion on the basis that Union has failed to

carry its burden to establish "cause" to lift the automatic stay under section 362( d) of title 11 of
the United States Code (the "Bankptcy Code"). Specifically, the Debtors question whether
Union has a perfected security interest in PEAO's share of the proceeds of

production from

Trading Bay, as posited in the Motion. Union has not made the requisite filings in Alaska
necessary to perfect Union's asserted liens against PEAO's working interest in Trading Bay or

oil extracted therefrom. In fact, the Debtors are not aware of a single filing by Union in the State
of Alaska that references PEAO by name.
4. Moreover, the Debtors dispute the reasonableness of

the amounts that

Union, as operator, seeks to charge PEAO on account of expenses relating to the operation of

the

wells in Trading Bay. For years, Union has been involved in litigation with PEAO's predecessor

in interest in Trading Bay over Union's biling practices. There are questions about Union's
practice of allocating (or over-allocating) internal employee time to operations in Trading Bay,

and failing to consult prior to incurring material expenses. Union has also continued to incur

68773-002\DOCS_SF:647 i 7.1

unnecessary and duplicative operational expenses despite the precipitous decline in the price of
oil last year.
5. In sum, the Court should not lift the automatic stay to allow Union to

exercise its disputed lien rights on account of disputed claims. There is also no basis to lift the

automatic stay as to the Fuel Gas Supply Agreement -- if Union is correct that such agreement is
an executory contract, then the Debtors should have a reasonable opportunity to assume or reject
it.
6. Alternatively, to the extent Union establishes an entitlement to adequate

protection under section 361 of

the Bankptcy Code, the Debtors are prepared to segregate

production from Trading Bay in an interest-bearing account,

PEAO's share of

the proceeds of

pending further order of

the Court. By setting aside such funds, Union wil be adequately

protected while the Debtors (and any other party in interest) are afforded sufficient time to
consider the validity (and priority) of

Union's asserted liens and claims. (As noted above, given

the recent cessation of oil production at Trading Bay, there wil be no additional proceeds from
operations at Trading Bay payable to PEAO for the time being.)

Back2round
7. On March 9, 2009 (the "Petition Date"), the Debtors commenced these

cases by each fiing a voluntary petition in this Court. The Debtors have continued in the
possession of

their property and have continued to operate and manage their business as debtors

in possession pursuant to sections 1107(a) and 1108 of

the Bankptcy Code. No request has

been made for the appointment of a trustee or an examiner in these cases.

68773-002\DOCS _ SF:64717. i

A. Description of the Debtors

8. The Debtors are a group of independent energy companies engaged in the

acquisition, development and exploitation of oil and gas properties in the western United States.

The Debtors' intent is to provide the operational focus necessary to their properties to exploit their full potential, and are focused on applying their extensive engineering, operating, geologic,
and geophysical expertise to provide significant proved reserve and production growth.
B. The Debtors' Relationship With Union

9. As mentioned above, PEAO shares a working interest with Union in

certain oil and gas properties in Alaska. The two offshore properties that are relevant for
purposes of the Motion are commonly referred to as the Trading Bay Field and the Trading Bay

Unit in Cook Inlet, Alaska (together, "Trading Bay"). The Trading Bay Field consists of 5,840
developed acres with one offshore platform and twenty-five producing wells. The Trading Bay
Unit consists of 16,179 developed acres with four offshore platforms and sixty-six producing

wells. PEAO has a 46.8% working interest and Union has a 53.2% working interest in each of
the properties in Trading Bay. Union is the operator of each of these properties. All of

the

production from Trading Bay is currently sold to a single customer on a monthly basis, Tesoro

Alaska Company or an affiliate ("Tesoro"). (As a result of recent volcanic activity in the area,
Union has suspended oil production at Trading Bay, and Tesoro was required to make a special

2 PEAO also sells Tesoro certain production generated from properties outside Trading Bay. Such production (and the proceeds therefrom) are not covered by the Motion and Union has not asserted any claim to production unrelated to Trading Bay. Tesoro has requested that the form of order resolving the Motion address the status offuture payments to be made by Tesoro to PEAO and Union, respectively. The Debtors intend to negotiate acceptable language with Tesoro to address this point.

68773-002\DOCS_SF:64717. i

purchase of available oil production outside its regular monthly cycle.) For oil deliveries that
have occurred since the Petition Date through March 31, 2009, Tesoro owes PEAO the sum of
$3,946,033.62 on account ofPEAO's share of

oil production attributable to Trading Bay.

10. As operator, Union allocates a portion of the revenues and the costs of
production to PEAO based upon its working interest in the underlying assets. According to the
Motion, the accrued and unpaid expenses (net of

production) assessed by Union against PEAO

on account of its working interests in Trading Bay total $26,201,128.48 as of the end of February

2009. Union also asserts a first priority lien in PEAO's working interests and the proceeds
thereof

to secure PEAO's obligations. The Debtors dispute (a) whether Union has a prior
expenses

perfected security interest in PEAO's interests in Trading Bay, and (b) the amount of

incurred and allocated to PEAO by Union.

c. Union's Asserted Lien Ri2hts A2ainst PEAO are Disputed

11. As set forth in the Motion, Union's asserted lien rights against PEAO arise

under the (a) the Unit Operating Agreement - Trading Bay Unit ("TBUOA"), and (b) the Trading Bay Field Joint Operating Agreement ("TBFJOA").3 Union takes the position in the
Motion that working interests constitute an interest in land and that Union perfected its liens in
PEAO's working interests in Trading Bay by recording the TBUOA and the TBFJOA in the
applicable real property records in the State of Alaska (i. e., the Anchorage Recording District) on
January 26, 1999.

3 There is another agreement mentioned in the Motion, the Unit Agreement for the Development and Operation of

the leases in Trading Bay into a single unit for purposes of oil and gas exploration and development. It does not appear from the Motion that Union is relying on
the Trading Bay Unit Area, State of Alaska, that combined certain of

this agreement to establish its asserted lien rights.

68773-002\DOCS_SF:64717. i

12. PEAO did not exist in 1999 and did not acquire its interests in Trading

Bay until eight years later. As set forth in the Motion and summarized below, from and after
1999, there were various transfers of

the working interests in Trading Bay that ultimately were

acquired by PEAO:
. In 1999, such interests were held by Forcenergy, Inc. ("Forcenergy"),

which subsequently fied for bankptcy. In 2000, as part of its bankptcy proceedings, Forcenergy conveyed its interests in Trading Bay
to Forest Oil Corporation ("Forest").
. Effective November 1,2006, Forest transferred its interests in Trading

Bay to a subsidiary, Forest Alaska Holding LLC, which then transferred those interests to Forest Alaska Operating LLC ("F AO"), another subsidiary of Forest.
. Effective January 1, 2007, Pacific Energy Resources, Ltd. purchased the

membership interest in FAO, and then in August 2007, changed the name
of

that entity to PEAO.

13. The Debtors are not aware of any lien filings by Union in Alaska that

reference PEAO by name. Rather, as reflected in the Motion, Union appears to rely solely on the

fiing ofTBUOA and the TBFJOA against Forcenergy in 1999, an entity that is at least three
times removed from PEAO, as the basis for its assertion of a perfected security interest against
PEAO.
14. In 2002, presumably as a result of

Forcenergy's prior assignment of its

working interests in Trading Bay to Forest, Union fied financing statements (including oil and
gas fixture filings) and a noticc of licn against Forest in the Anchorage Recording District

relating to its asserted lien rights in Trading Bay. These filings were likely made to perfect an
asserted lien against Forest's share of

production under Alaska's Uniform Commercial Code.

68773-002\DOCS_SF:6471 7. i

Such production would be "as extracted collateral" as defined in Alaska Statute

45.29.102(a)(7).4 Security interests in such collateral are perfected by fiing under the rules of
Article 9 of

the Uniform Commercial Code. See Alaska Statutes 45.29.109(a)(1);

45.29.501

(a)(1)(A); 45.29.502(c). However, Union did not make any subsequent fiings in the

State of Alaska after the transfers to F AO or PEAO referenced above, and none to reflect or

assert a security interest against PEAO.

15. Notably, on June 5, 2008, Union fied an amended financing statement

against PEAO in the State of Delaware, but failed to make the requisite fiings in the real
property records of the State of Alaska.
D. Union's Asserted Claims A2ainst PEAO are Disputed

16. Under the TBUOA, Union charges a portion of its expenses in operating

the Trading Bay Unit to PEAO. The TBUOA provides that these expenses are subject to audit
by PEAO. By letter dated January 19, 2009, PEAO notified Union of its intention to audit the
costs incurred by Union under the TBUOA for the period August 2007 through the date of

the

audit. As of the Petition Date, such audit had not yet commenced.
17. For the years 1997 through 2004, PEAO's predecessor in interest under

the TBUOA, Forest or its affiliates, conducted an audit of

the costs incurred by Union. Forest

has taken the position that such audit produced evidence of Union overcharging the unit owners,
4 Alaska Statute 45.29.102(a)(7) defines "as-extracted collateral" as either of

the following: (A) oil, gas, or other minerals that are subject to a security interest that
(i) is created by a debtor having an interest in the minerals before

extraction. (ii) attaches to the minerals as extracted; or (B) accounts arising out of the sale at the wel1head or the minehead of oil, gas, or other minerals in which the debtor had an interest before extraction.

68773-002\DOCS_SF:6471 7. I

and failing to obtain prior approval for expenditures in violation of

the TBUOA. Forest

commenced a lawsuit against Union (which remains pending) alleging that Union overcharged

Forest by more than $9,000,000 through 2004. Forest now asserts claims arising from audits of

later years that accrued after the suit was fied.

18. According to Forest, examples of inflated charges allegedly made by

Union include: (a) "Time Writing," where Union employees' time spent on the Trading Bay
Unit were allocated to the unit; (b) over-allocating employee time, administrative time and

expense to the unit; (c) biling the unit for Union's own membership in a spil response
organization, even though it was a requirement of every unit member to join, and Forest was also

a member; and (d) biling Union's individual expenses for its own responsibilities to the unit.
Union also allegedly violated the TBUOA by expending more than $100,000 on items without
consulting with Forest.
19. Although no audits have been conducted for the period after PEAO

acquired its interest in the Trading Bay Unit, there is no reason to believe that Union has changed

the practices that led to Forest's lawsuit. In fact, the Debtors believe that Union has repeatedly
(a) incurred substantial expenses without adequate notice to PEAO; (b) submitted misleading or incomplete accounting information to PEAO; and (c) charged PEAO for various duplicative and
unnecessary

expenditures. It also appears that Union has failed to act as a prudent operator

during times of extreme oil price volatility. When the price of oil declined to as low as $35 per
barrel in late 2008 and early 2009, Union continued to incur expenses at the same or even at an increased rate, despite the substantial negative cash flows that have since resulted from

68773-002\DOCS_SF:647 I 7. i

operations at Trading Bay.

20. Finally, as set forth in the Motion, Union asserts that it entered into the

Fuel Gas Supply Agreement with Forest on November 25, 2002. Union takes the position in the

Motion that the Fuel Gas Supply Agreement is an executory contract. Union provides no basis
to lift the automatic stay with regard to this agreement (or to compel the Debtors to assume or
reject it on an expedited basis).

Ar2uments & Authorities

21. Pursuant to section 362(d) of

the Bankuptcy Code, a court may grant

relief

from the automatic stay only "for cause." See 11 US.C. 362(d)(1). The burden to make
"cause," however, is on the moving party, and "absent a showing of cause,

an initial showing of

the court should simply deny relief from the stay." See Mazzeo v. Lenhart (In re Mazzeo), 167

F.3d 139, 142 (2d Cir. 1999). Union has not met its burden to establish that "cause" exists to
grant relief from the stay to allow Union to exercise its asserted lien or contractual rights against
PEAO.

22. Although the Bankptcy Code does not explicitly define the term "cause"
in the context of relief

from the automatic stay, "courts generally consider the policies

the debtor and the Movants."

underlying the automatic stay (and) ... the competing interests of

In re Continental Airlines, Inc., 152 B.R. 420,424 (D. DeL. 1993). In this District, courts
generally consider the following three factors in balancing the competing interests of

the parties:

. the prejudice that would be suffered by the debtors should

the stay be lifted;

68773-002\DOCS_SF:647 I 7.1

. the balance of hardships facing the parties if the stay is

lifted; and

. the probabilty of success on the merits if the stay is lifted.

See Continental Airlines, 152 B.R. at 424; see also Izzarell v. Rexene Prods. Co. (In re Rexene
Prods. Co.), 141 B.R. 574, 576 (Bankr. D. DeL. 1992). The first two of

these factors clearly

weigh in favor of denying Union's request for relief

from the automatic stay, and the last factor

does not apply.

23. The Debtors would suffer substantial prejudice if

the stay were lifted

because it is not at all clear that Union has a valid lien on PEAO's share of

the proceeds of

production from Trading Bay. Although Union takes the position in the Motion that the working
interests at issue here constitute interests in land, Union failed to make any of the requisite lien

fiings in Alaska necessary to perfect a security interest in PEAO's real property or the oil and
gas extracted therefrom.
24. Union relies solely in the Motion on the recording of

the TBUOA and the

TBFJOA in the Anchorage Recording District on January 26, 1999. However, PEAO did not exist at that time and Union did not update its fiings to assert a secured claim against PEAO
anywhere in Alaska. Notably, Union filed a notice of lien in the Anchorage Recording District

against Forest in 2002, but did not make any such fiing against PEAO.
25. Perfection of a security interest in "as-extracted collateral," regardless of
the form of

the transaction, is governed by Alaska's Uniform Commercial Code, Article 9.

Alaska Statute 45.29.109(a)(1). In order to perfect an interest in as-extracted collateral, a

financing statement (which may be in the form of a mortgage) must be fied in the real property

68773-002\DOCS_SF:647I 7. I

10

records where the property is located. Under Alaska Statute 45.29.502, a financing statement

that covers as-extracted collateral must, among other items: (a) provide the name o/the debtor;
(b) indicate that the financing statement covers this type of collateral; (c) indicate that the

financing statement is to be fied for record in the real property records; and (d) provide a
description of

the real property to which the collateral is related sufficient to give constructive
the description were contained in the mortgage of

notice under Alaska law if

the real property.

The one case cited by Union in the Motion substantiates the point that a financing statement

recorded as a fixture fiing is required to perfect a security interest in "minerals or the like
(including oil and gas)." See Exhibit A to the Motion, The Aleut Corp. v. Stewart Petroleum Co.

(In re Stewart Petroleum Co.), 5 ABR 376,392 (Bank. D. Alaska 1998) (quoting Alaska Statute
45.09.404, the predecessor statute to Alaska Statute 45.29.502).
26. The Debtors are not aware of any filings by Union in the State of Alaska

that satisfy the requirements of Alaska Statute 45.29.502 as to PEAO. Indeed, it appears that
Union has not recorded any financing statements (or any other documents) that reference PEAO
by name in the State of Alaska.

27. In 2002, Union made fixture filings against Forest relating to Trading Bay,

but those fiings were never amended or supplemented to reference PEAO (and have now
presumably

expired). See Alaska Statute 45.29.515(a). Under Alaska Statutes 45.209.507

the debtor changes its name suffciently to cause, or the difference between

and 45.29.508, if

the name of the original debtor and that of the new debtor causes, a fied financing statement to
be seriously misleading, such financing statement is not effective to perfect a security interest in

68773-002\DOCS_SF:64717.1

i 1

collateral acquired by the new debtor more than four months after the name change, or the new
debtor becomes bound, unless an updated or new financing statement is fied. Here, Union

updated its financing statement against PEAO in Delaware, but failed to do so where the "as
extracted" collateral (i.e., the oil at issue) is located in violation Alaska Statute 45.29.502.
28. In sum, it is highly questionable whether Union has a valid, perfected

security interest in any oil proceeds generated by PEAO from Trading Bay. Union appears not

to have made the requisite fiings to perfect its asserted liens in PEAO's working interests in
Trading Bay or the oil extracted therefrom.
29. Union's underlying claims against PEAO are also disputed. The Debtors

have yet to undertake a thorough audit of

the operational expenses that Union seeks to allocate to

PEAO, but there is evidence that Union has potentially (a) over-allocated expenses to Trading Bay; (b) incurred material unnecessary and duplicative expenses, in some instances without prior
notice to PEAO; and (c) failed to take into account the volatility in market prices in operating the
property at a significant loss.
30. Taken together, given the disputes that exist as to the validity of

Union's
Union were granted relief

liens and claims, the Debtors would be severely prejudiced if

from

stay to assert its claims and exercise its lien rights against PEAO's share of

production from

Trading Ray. There is also no assertion (nor can there he) that Union needs PRAO's oil proceeds
right now. Union wil suffer no harm by denial of

the Motion pending a thorough analysis and

resolution of Union's liens and claims in these cases, just like any other creditor. (The lack of

68773-002\DOCS_SF:64717. I

12

urgency to the relief

requested in the Motion is further buttressed by the fact that Union has

ceased oil production at Trading Bay due to recent volcanic activity in the area.)
31. Alternatively, if the Court so requires as a matter of adequate protection

under section 361 of

the Bankptcy Code, the Debtors are prepared to segregate PEAO's oil
the
the stay is

revenues from Trading Bay in a separate interest-bearing account pending further order of

Court. In this way, there can be no question that Union wil be adequately protected if

to remain in place.

32. With respect to Union's request for relief as to the Fuel Gas Supply
Agreement, Union has not carried its burden in terms of establishing "cause" warranting relief

from stay. As characterized by Union, this agreement is an executory contract. Union makes no
showing to support relief from stay at this time. To the extent that the Fuel Gas Supply
Agreement is an executory contract, the Debtors should have a reasonable opportunity to assume
or reject it.

Conclusion
33. For the reasons set forth above, the Debtors urge the Court to deny the

Motion.

68773-002\DOCS_SF:64717. i

13

Dated: April 8, 2009

PACHULSKI STANG ZIEHL & JONES LLP

a ra Davis Jones (DE Bar No. 2436)

J es E. O'Neil (DE Bar No. 4042) aD. Kharasch (CA Bar No. 109084)

J~

Maxim B. Litvak (CA BarNo. 215852) Kathleen P. Makowski (DE Bar No. 3648) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705
Telephone: (302) 652-4100

Facsimile: (302) 652-4400

Email: ldjonespszjlaw.com
ikharaschpszj law .com

mlitvakpszj law.com kmakowskipszj law. com

(Proposed) Counsel for the Debtors and Debtors in Possession

68773-002\DOCS_SF:64717. i

14

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELA WARE
In re:
) ) ) ) ) )
Chapter 11

PACIFIC ENERGY RESOURCES LTD., et al., 1 Debtors.

Case No. 09-10785 (KJC) (Jointly Administered)

Related Docket No. i 00

AFFIDAVIT OF GERALD A. TYWONIUK IN SUPPORT OF OBJECTION OF THE DEBTORS TO MOTION OF UNION OIL COMPANY OF CALIFORNIA FOR RELIEF FROM THE AUTOMATIC STAY
I, Gerald A. Tywoniuk, hereby declare and state as follows:
1. I am a Senior Vice President and Chief Financial Offcer of Pacific

Energy Resources Ltd. ("PERL"), one of

the above-captioned debtors (together, the

"Debtors"). I have held the positions of Senior Vice President, Chief Financial Offcer and
Secretary at the various Pacific Energy subsidiaries since August, 13,2008. Effective June 30,
2008, I was appointed Senior Vice President of PERL. I became Chief Financial Officer of
PERL effective at the closing of

the financial records for the second quarer of2008 and

certification thereof by the prior Chief Financial Officer. I was appointed Secretary of PERL
on October 8, 2008.

i The Debtors in these cases, along with the last four digits of each of

the Debtors' federal tax identification

number, are: Pacific Energy Resources Ltd. (3442) ("PERL"); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax I.D. # not available) ("PEAH"); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (702 i) ("PEAO"); San Pedro Bay Pipeline Company (\234); Cameros Energy, Inc. the Debtors is i i i W. Ocean Boulevard, (9487); and Gotland Oil, Inc. (5463). The mailng address for all of
Suite i 240, Long Beach, CA.

68773-002\DOCS_ SF:6484

1. I 1

2. In my capacity as Senior Vice President and Chief Financial Officer of

the Debtors, I am familar with the Debtors' day-to-day operations, business affairs, and books
and records.
3. I submit this affidavit (the "Affidavit") in support of the Objection of

the

Debtors to Motion of

Union Oil Company of

California

for Relieffrom the Automatic Stay (the

"Objection")? Except as otherwise indicated, all statements set forth in this affidavit are based
upon: (i) my personal knowledge, (ii) documents and other information prepared or collected
by other members of

the Debtors' management, their employees, or their professionals, (iii) my

review of relevant documents, or (iv) my opinion based upon my experience and knowledge of
the Debtors' operations and financial condition. If

I were called upon to testify, I could and

would testify competently to the facts set forth herein based upon my personal knowledge,

review of documents, or opinion. I am authorized to submit this Affidavit on behalf of the

Debtors.

4. Union Oil Company of California ("Union") and Pacific Energy Alaska

Operating, LLC ("PEAO") share working interests in certain oil and gas leases with the State

of Alaska in an area commonly referred to as "Trading Bay." Union is the designated operator
for purposes of these properties. (As a result of

recent volcanic activity in the area, Union has

ceased oil production at Trading Bay for the time being.)

5. By the Motion, Union seeks relief from stay to (1) exercise its asserted
lien rights as to PEAO's share of production from Trading Bay (as of

March 31, 2009, the

2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Objection.

proceeds of such production total nearly $4 milion); and (2) enforce certain unspecified rights
under a Fuel Gas Supply Agreement between the paries.
6. The two offshore properties that are relevant for purposes ofthe Motion

are commonly referred to as the Trading Bay Field and the Trading Bay Unit in Cook Inlet,

Alaska (together, "Trading Bay"). The Trading Bay Field consists of 5,840 developed acres
with one offshore platform and twenty-five producing wells. The Trading Bay Unit consists of

16,179 developed acres with four offshore platforms and sixty-six producing wells. PEAO has
a 46.8% working interest and Union has a 53.2% working interest in each of

the properties in

Trading Bay. All of the production from Trading Bay is currently sold to a single customer on
a monthly basis, Tesoro Alaska Company or an affiiate ("Tesoro,,).3 (As a result of

recent

volcanic activity in the area, Union has suspended oil production at Trading Bay, and Tesoro

was required to make a special purchase of available oil production outside its regular monthly

cycle.) For oil deliveries that have occurred since the Petition Date through March 31, 2009,
Tesoro owes PEAO the sum of$3,946,033.62 on account ofPEAO's share of

oil production

attributable to Trading Bay.

7. As operator, Union allocates a portion of

the revenues and the costs of

production to PEAO based upon its working interest in the underlying assets. According to the
Motion, the accrued and unpaid expenses (net of

production) assessed by Union against PEAO

the end of .

on account of

its working interests in Trading Bay total $26,201,128.48 as of

3 PEAO also sells Tesoro certain production generated from properties outside Trading Bay. Such production
(and the proceeds therefrom) are not covered by the Motion and Union has not asserted any claim to production unrelated to Trading Bay. Tesoro has requested that the form of order resolving the Motion address the status of future payments to be made by Tesoro to PEAO and Union, respectively. The Debtors intend to negotiate acceptable language with Tesoro to address this point.

February 2009. Union also asserts a first priority lien in PEAO's working interests and the
proceeds thereof

to secure PEAO's obligations. The Debtors dispute (a) whether Union has a

prior perfected security interest in PEAO's interests in Trading Bay, and (b) the amount of
expenses incurred and allocated to PEAO by Union.
8. As set forth in the Motion, Union's asserted lien rights against PEAO

arise under the (a) the Unit Operating Agreement - Trading Bay Unit ("TBUOA"), and (b) the
Trading Bay Field Joint Operating Agreement ("TBFJOA,,).4 Union takes the position in the
Motion that working interests constitutes an interest in land and that Union perfected its liens in PEAO's working interests in Trading Bay by recording the TBUOA and the TBFJOA in the applicable real property records in the State of Alaska (i.e., the Anchorage Recording District)
on January 26, 1999.

9. PEAO did not exist in 1999 and did not acquire its interests in Trading

Bay until eight years later. As set forth in the Motion and summarized below, from and after
1999, there were various transfers of the working interests in Trading Bay that ultimately were
acquired by PEAO:
. In 1999, such interests were held by Forcenergy, Inc. ("Forcenergy"),

which subsequently fied for banptcy. In 2000, as part of its banptcy proceedings, Forcenergy conveyed its interests in Trading
Bay to Forest Oil Corporation ("Forest").
. Effective November 1,2006, Forest transferred its interests in Trading

Bay to a subsidiary, Forest Alaska Holding LLC, which then transferred those interests to Forest Alaska Operating LLC ("F AO"), another subsidiary of Forest.
4 There is another agreement mentioned in the Motion, the Unit Agreement for the Development and Operation
of the Trading Bay Unit Area, State of Alaska, that combined certain of the leases in Trading Bay into a single unit for purposes of oil and gas exploration and development. It does not appear from the Motion that Union is relying

on this agreement to establish its asserted lien rights.

. Effective Januar 1,2007, Pacific Energy Resources, Ltd. purchased the

membership interest in FAO, and then in August 2007, changed the

name of

that entity to PEAO.

10. The Debtors are not aware of any lien fiings by Union in Alaska that
reference PEAO by name. Rather, as reflected in the Motion, Union appears to rely solely on

the fiing ofTBUOA and the TBFJOA against Forcenergy in 1999, an entity that is at least
three times removed from PEAO, as the basis for its assertion of a perfected security interest
against PEAO.
11. In 2002, presumably as a result of Forcenergy's prior assignment of

its

working interests in Trading Bay to Forest, Union fied financing statements (including oil and
gas fixture filings) and a notice of lien against Forest in the Anchorage Recording District

relating to its asserted lien rights in Trading Bay. However, Union did not make any
subsequent fiings in the State of Alaska after the transfers to F AO or PEAO referenced above,

and none to reflect or assert a security interest against PEAO.

12. Notably, on June 5, 2008, Union filed an amended financing statement

against PEAO in the State of Delaware, but failed to make the requisite filings in the real
property records of the State of Alaska.
13. Under the TBUOA, Union charges a portion of

its expenses in operating

the Trading Bay Unit to PEAO. The TBUOA provides that these expenses are subject to audit
by PEAO. By letter dated January 19, 2009, PEAO notified Union of its intention to audit the
costs incurred by Union under the TBUOA for the period August 2007 through the date of the

audit. As of the Petition Date, such audit had not yet commenced.

14. For the years 1997 through 2004, PEAO's predecessor in interest under

the TBUOA, Forest or its affiiates, conducted an audit of

the costs incurred by Union. Forest

has taken the position that such audit produced evidence of Union overcharging the unit
owners, and failing to obtain prior approval for expenditures in violation of

the TBUOA.

Forest commenced a lawsuit against Union (which remains pending) alleging that Union

overcharged Forest by more than $9,000,000 through 2004. Forest now asserts claims arising

from audits of later years that accrued after the suit was fied.
15. According to Forest, examples of inflated charges allegedly made by

Union include: (a) "Time Writing," where Union employees' time spent on the Trading Bay
Unit were allocated to the Trading Bay Unit; (b) over-allocating employee time, administrative

time and expense to the unit; (c) billng the unit for Union's own membership in a spil
response organization, even though it was a requirement of every unit member to join, and

Forest was also a member; and (d) biling Union's individual expenses for its own
responsibilities to the unit. Union also allegedly violated the TBUOA by expending more than
$100,000 on items without consulting with Forest.
16. Although no audits have been conducted for the period after PEAO

acquired its interest in the Trading Bay Unit, there is no reason to believe that Union has

changed the practices that led to Forest's lawsuit. In fact, the Debtors believe that Union has
repeatedly (a) incurred substantial expenses without adequate notice to PEAO; (b) submitted
inisleading or incomplete accounting information to PEAO; and (c) charged PEAO for various

duplicative and unnecessary expenditures. It also appears that Union has failed to act as a

prudent operator during times of extreme oil price volatility. When the price of oil declined to
as low as $35 per barrel in late 2008 and early 2009, Union continued to incur expenses at the same or even at an increased rate, despite the substantial negative cash flows that have since
resulted from operations at Trading Bay.
17. Finally, as set forth in the Motion, Union asserts that it entered into the

Fuel Gas Supply Agreement with Forest on November 25,2002. Union takes the position in
the Motion that the Fuel Gas Supply Agreement is an executory contract. Union provides no
basis to lift the automatic stay with regard to this agreement (or to compel the Debtors to
assume or reject it on an expedited basis).
18. The Debtors would suffer substantial prejudice if the stay were lifted
because it is not at all clear that Union has a valid lien on PEAO's share of

the proceeds of

production from Trading Bay. Although Union takes the position in the Motion that the
working interests at issue here constitute interests in land, Union failed to make any of the requisite lien filings in Alaska necessary to perfect a security interest in PEAO's real property
or oil and gas extracted therefrom.
19. Union's underlying claims against PEAO are also disputed. The

Debtors have yet to undertake a thorough audit of the operational expenses that Union seeks to allocate to PEAO, but there is evidence that Union has potentially (a) over-allocated expenses

to Trading Bay; (b) incurred material unnecessary and duplicative expenses, in some instances

without prior notice to PEAO; and (c) failed to take into account the volatilty in market prices
in operating the property at a significant loss.

20. Taken together, given the disputes that exist as to the validity of

Union's
Union were granted relief

liens and claims, the Debtors would be severely prejudiced if

from

stay to assert its claims and exercise its lien rights against PEAO's share of

production from

Trading Bay. There is also no assertion (nor can there be) that Union needs PEAO's oil
proceeds right now. Union wil suffer no harm by denial of

the Motion pending a thorough

analysis and resolution of Union's liens and claims in these cases, just like any other creditor.

(The lack of urgency to the relief requested in the Motion is further buttressed by the fact that Union has ceased oil production at Trading Bay due to recent volcanic activity in the area.)
21. Alternatively, the Debtors are prepared to segregate PEAO's oil

revenues from Trading Bay in a separate interest-bearing account pending further order of

the
the stay

Court. In this way, there can be no question that Union wil be adequately protected if

is to remain in place.

22. With respect to Union's request for relief as to the Fuel Gas Supply
Agreement, there is also no basis to grant relief

from stay. As characterized by Union, this

agreement is an executory contract. To the extent that the Fuel Gas Supply Agreement is an
executory contract, the Debtors should have a reasonable opportunity to assume or reject it.

23. In sum, because Union has not established any legitimate basis to lift the
automatic stay, the Debtors urge the Court to deny the Motion.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

I declare under penalty of peijury under the laws of the United States of

America that the foregoing is tre and correct.

Executed this 8th day of April

2009, at Long Beach, California.

County of Los Angeles )

State of California )
Subscribed and sworn to (or affirmed) before me

on this ~ day of April

2009, by GIl/L R.oPP i NOTlY

GERflLD A. rYWON IUK, CH-/F FiN ItCIA-L OFP1Ce proved to me on the basis of satisfactory evidence to be the person(s) who appeared before mf'- _ _
- .. -GA~R;PP- ~ f

Seal

COMMISSION II 1757533 n

Notar PiJblic . Caiiromia ~

LOS ANGELES COUNTY ..

Signture f6~ ~

_ M!C,:m~~p:$J~Y ':2~f

IN THE UNITED STATES BANKRUPTCY COURT

In re: )
STATE OF DELAWARE )
) ss:

FOR THE DISTRICT OF DELA WARE

Chapter 11

) )

PACIFIC ENERGY RESOURCES LTD., et al., i )

Debtors. )

Case No. 09-10785 (KJC) (Jointly Administered)

AFFIDAVIT OF SERVICE

COUNTY OF NEW CASTLE )

Kathleen Forte Finlayson, being duly sworn according to law, deposes and says
that she is employed by the law firm of

Pachulski Stang Ziehl & Jones LLP, attorneys for the

Debtors in the above-captioned action, and that on the 8th day of April, 2009 she caused a copy
of

the following document(s) to be served upon the parties on the attached service lists in the

manner indicated:

Objection of the Debtors to Motion of Union Oil Company of California for Relief from Stay

DEBRA L. YOUNG NOTARY PUBUC

Zv
Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The mailng address for all of

t. o

Sl~l~ ~e~~~~~~~OO

i The Debtors in these cases, along with the last four digits of each of the Debtors' federal tax
identification number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros
the Debtors is i 1 i W.
Ocean Boulevard, Suite 1240, Long Beach, CA 90802.

SPECIAL SERVICE LIST APRIL 8, 2009

Via Hand Delivery

(counsel to Union Oil) Norman M. Monhait, Esquire Rosenthal, Monhait & Goddess, P .a. 919 N. Market Street, Ste 1401 Wilmington, DE 19801

Via First Class Mail (counsel to Union Oil) Cabot Christianson, Esquire Christianson & Spraker
911 West 8th Avenue, Ste 201

Anchorage, AK 99501
DOCS_DE: 146897.1

Pacifc Energy Resources Ltd.

2002 Service List Case No. 09-10785

Document No. 145745

11 - Hand Delivery
35 - First Class Mail 02 - FOREIGN First Class Mail

Hand Delivery (United States Attorney) Ellen W. Slights, Esq. United States Attorney's Office District of Delaware
1007 N. Orange Street, Suite 700

Wilmington, DE 19801
Hand Delivery (Counsel for the Debtors and Debtors in Possession) Ian S. Fredericks, Esquire Skadden Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899 Hand Delivery (Counsel for 1. Aron & Company) Don A. Beskrone, Esquire Amanda M. Winfree, Esquire Ashby & Geddes, P.A.
500 Delaware Avenue, 8th Floor

((Proposed) Counsel for Debtors) Laura Davis Jones, Esquire James E. O'Neil, Esquire Kathleen P. Makowski, Esquire Pachulski Stang Ziehl & Jones LLP 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705

Interoffice Pouch to Los Angeles ((Proposed) Counsel for Debtors) Robert M. Saunders, Esquire Ira D. Kharasch, Esquire Scotta E. McFarland, Esquire Pachulski Stang Ziehl & Jones LLP
10100 Santa Monica Blvd., 11 th Floor

Wilmington, DE 19899
Hand Delivery (Counsel for Union Oil Company of California, a California Corporation) Norman M. Monhait, Esquire
Rosenthal, Monhait & Goddess, P A
Citzens Bank Center, Suite 1401

Los Angeles, CA 90067

Hand Delivery (United States Trustee) Joseph McMahon, Esquire Office of the United States Trustee 1. Caleb Boggs Federal Building 844 North King Street, Suite 2207
Lockbox 35

919 Market Street, P.O. Box 1070 Wilmington, DE 19899

Hand Delivery (Counsel for Westchester Fire Insurance Company and Noble Energy Inc.) Tobey M. Daluz, Esquire Joshua E. Zugerman, Esquire Ballard Spahr Andrews & Ingersoll, LLP 919 N. Market Street, 1 th Floor Wilmington, DE 19801

Wilmington, DE 19801
Hand Delivery (Copy Service)
Parcels, Inc.

Vito i. DiMaio 230 N. Market Street Wilmington, DE 19801

Hand Delivery (Counsel for Oxy Long Beach Inc.) David L. Finger, Esquire
Finder, Slanina Liebesman, LLC

First Class Mail

Secretary of Treasury P.O. Box 7040 Dover, DE 19903

One Commerce Center 1201 N. Orange St., ih Floor Wilmington, DE 19801

Hand Delivery (Official Committee of Unsecured Creditors) David B. Stratton, Esquire James C. Carignan, Esquire Pepper Hamilton LLP
Hercules Plaza, Suite 1500

First Class Mail

Secretary of Treasury 15th & Pennsylvania Avenue, N.W. Washington, DC 20220

First Class Mail

Attn: Insolvency

1313 Market Street Wilmington, DE 19899

District Director Internal Revenue Service 31 Hopkins Plaza, Room 1150 Baltimore, MD 21201

Hand Delivery (Counsel for Marathon Oil Company) Kevin J. Mangan, Esquire Womble Carlyle Sandridge & Rice, PLLC
222 Delaware Avenue, Suite 1501

First Class Mail

Internal Revenue Service P.O. Box 21126 Philadelphia, P A 19114-0326

Wilmington, DE 19801
Hand Delivery (Counsel for Cook Inlet Region, Inc.) Eric Lopez Schnabel, Esquire Dorsey & Whitney (Delaware) LLP
1105 North Market Street, Suite 16th Floor

First Class Mail

Attn: Insolvency Internal Revenue Service
1352 Marrows Road, 2nd Floor
Newark, DE 19711-5445

First Class Mail

Mark Schonfeld, Esq. Regional Director Securities & Exchange Commission
New Y or~ Regional Offce

Wilmington, DE 19801

First Class Mail

(United States Attorney General)
EriC H. Holder, Jr.

Offce of the Attorney General U.S. Department of Justice 950 Pennsylvania Avenue, N.W. Washington, DC 20530-0001

3 World Financial Center, Suite 400 New York, NY 10281-1022

First Class Mail

Michael A. Berman, Esq. Securities & Exchange Commission Office of General Counsel-Bankptcy
100 F Street, N .E.

First Class Mail

Secretary of State Division of Corporations
Franchise Tax

Washington, DC 20549

P.O. Box 7040 Dover, DE 19903

First Class Mail

Matthew Berry, Esquire Office of General Counsel Federal Communications Commission
445 ith Street, S.W.

First Class Mail

(Counsel to Silver Point Finance) Seth Jacobs, Esquire

Ana Meresidis, Esquire

Skadden, Arps, Slate, Meagher & Flom, LLP 333 West Wacker Drive Chicago, IL 60606-1285

Washington, DC 20554

First Class Mail

POLLARD WIRELINE P.O. Box 1360 Kenai, AK 99611

First Class Mail

(Counsel to Goldman Sachs and J.Aron &
Company) .

First Class Mail

Chevron Oil Company
Attn: Steven Lastraps

3800 Centerpoint Drive, Suite 100 Anchorage, AK 99503

Jeffrey Sabin, Esquire Steven Wilamowsky, Esquire Scott K. Seamon, Esquire Bingham McCutchen LLP 399 Park Avenue New York, NY 10022

First Class Mail

California Franchise Tax Board
Bankptcy, BE MSA 345

First Class Mail

(Counsel to Goldman Sachs and 1.Aron & Company) Amy Kyle Bingham McCutchen (Boston) One Federal Street Boston, MA 01221-1726

P.O. Box 2952 Sacramento, CA 95812-2952

First Class Mail

Aera Energy LLC 10000 Ming Avenue Bakersfield, CA 93311-1164

First Class Mail First Class Mail

SWEPI LP

P.O. Box 576 Houston, TX 77001-0576

(Counsel for Union Oil Company of California, a California Corporation) Cabot Christianson, Esquire Christianson & Spraker
911 West 8th Avenue, Suite 201

First Class Mail

Noble Energy, Inc.

Anchorage, AK 99501

100 Glenborough, Suite 100 Houston, TX 77067

First Class Mail

Linda Lautigar

Banptcy Coordinator
MMS / Denver Federal Center POBox 25165 Mail Stop 370B2 Denver, CO 80225

First Class Mail

Kristina Engelbert RDI Royalty Distributors, Inc. PO Box 24116 Tempe, AZ 85285

First Class Mail

(Counsel for Rosecrans Energy, Ltd. And
Sherwin D. Y oelin)

First Class Mail

MTGLQ Investors, L.P. 85 Broad Street New York, New York 10004

John J. Haris, Esquire Rachel M. Feiertag, Esquire Meyers, Nave, Riback, Silver & Wilson 333 South Grand Avenue, Suite 1670 Los Angeles, CA 90071

First Class Mail

(Counsel for Oxy Long Beach Inc.) Richard M. Kremen, Esquire
Jodie E. Buchman, Esquire

First Class Mail

Goldman Sachs E&P Capital Attn: John K. Howie 1000 Louisiana, Suite 550 Houston, Texas 77002

DLA Piper LLP (US)

6225 Smith Avenue

Baltimore, MD 21209

First Class Mail

SPCP Group, L.L.C.
Two Greenwich Plaza, 1 st Floor

First Class Mail

(Counsel for Noble Energy Inc.) Rhett G. Campbell, Esquire Mitchell E. Ayer, Esquire Thompson & Knight LLP 333 Clay Street, Suite 3300 Houston, TX 770022

Greenwich, CT 06830

First Class Mail

Seth E. Jacobson, Esquire L. Byron Vance III, Esquire
Skadden, Ars, Slate, Meagher & Flom LLP

First Class Mail

Unsecured Creditors) Francis J. Lawall, Esquire Pepper Hamilton LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, P A 19103
(Official Committee of

333 West Wacker Drive, Suite 2100 Chicago, IL 60606

First Class Mail

(Counsel to United States Department of Interior, including the Minerals
Management Service)

E. Kathleen Shahan, Esquire U.S. Department of Justice 1100 L Street, NW Washington, D.C. 20005

First Class Mail

(Official Committee of Unsecured Creditors) Filiberto Agusti, Esquire
Steven Reed, Esquire

First Class Mail

(Counsel for Westchester Fire Insurance Company) Robert McL. Boote, Esquire Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51 st Floor

Joshua Taylor, Esquire Steptoe & Johnson LLP 1330 Connecticut Avenue NW Washington, DC 20036

Philadelphia, P A 19103

First Class Mail

(Offcial Committee of

Unsecured

Creditors) Robbin Itkin, Esquire Katherine Piper, Esquire Kelly Frazier, Esquire Steptoe & Johnson LLP 2121 Avenue of the Stars, 28th Floor Los Angeles, CA 90067

First Class Mail

(Counsel for Cook Inlet Region, Inc.)
Michael R. Mils, Esquire

Dorsey & Whitney LLP

1031 W. 4th Ave., Suite 600

Anchorage, AK 99501

FOREIGN First Class Mail

TSX Kerry D. Krochak, B.A., LL.B. Manager, Listed Issuer Services Toronto Stock Exchange 300 Fifth Avenue SA, 10th Floor Calgary, AB T2P 3C4

FOREIGN First Class Mail

(Transfer Agents)

Bernadette Villarica Relationship Manager, Client Services

Computershare Investor Services Inc. 510 Burrard Street, 3 rd Floor

Vancouver, BC V6C 3B9