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

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Chapter 11 Case No. 09-10785 (KJC) (Jointly Administered)

Final Hearing Date: July 1, 2009 at 10:00 a.m. (ET) Committee Objection Deadline: June 26, 2009 at 4:00 p.m. (ET)

RESPONSE OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO DEBTORS MOTION TO APPROVE BID PROCEDURES FOR THE SALE OF THE BETA ASSETS AND ALASKA ASSETS [DOCKET Nos. 453 and 478] The Official Committee of Unsecured Creditors (the Committee) of the abovecaptioned debtors and debtors-in-possession (the Debtors),1 submits this response (the Response) to the Debtors Bid Procedures Motions2 pursuant to which the Debtors seek court approval of auction processes for the sale of the Alaska Assets and Beta Assets, respectively, and court approval of the sale of those assets.3 In light of the schedule for the sale of the Debtors assets imposed upon the Debtors by the Secured Lenders pursuant to the DIP Financing Agreement, the Committee does not object to
The Debtors in these chapter 11 cases are: Pacific Energy Resources Ltd., Petrocal Acquisition Corp., Pacific Energy Alaska Holdings, LLC, Carneros Acquisition Corp., Pacific Energy Alaska Operating LLC, San Pedro Bay Pipeline Company, Carneros Energy, Inc., and Gotland Oil, Inc. The Bid Procedures Motions include (i)Debtors' Motion for an Order (A) Approving Procedures for Sale of the Debtors' Alaska Assets; (B) Scheduling Auction and Hearing to Consider Approval of Sale; (C) Approving Notice of Respective Dates, Times and Places for Auction and for Hearing on Approval of (I) Sale and (II) Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; (D) Approving Forms of Notice; and (E) Granting Related Relief [Dkt. No. 453] (The Alaska Bid Procedures Motion) and (ii) Debtors' Motion for an Order (A) Approving Procedures for Sale of the Debtors' Beta Assets; (B) Scheduling Auction and Hearing to Consider Approval of Sale; (C) Approving Notice of Respective Dates, Times and Places for Auction and for Hearing on Approval of (I) Sale and (II) Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; (D) Approving Forms of Notice; and (E) Granting Related Relief [Dkt. No. 478] (the Beta Bid Procedures Motion and collectively with the Alaska Bid Procedures Motion, the Bid Procedures Motions). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Bid Procedures Motions.
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the proposed auction procedures set forth in the Bid Procedures Motions.4 However, in light of the rapid pace in which this sale process is proceeding, the Committee continues to have serious concerns regarding whether this quick sale in a depressed economic market is truly in the best interests of the bankruptcy estates or is instead simply a foreclosure process for the sole benefit of the Secured Lenders. Further, the Committee is gravely concerned that this rushed sale process will not lead to a confirmable plan. It is imperative that the sale process in these cases lead to a confirmable plan and not simply operate as a means for the Secured Lenders to seize the Debtors assets while leaving the estates with nothing. At the final DIP Financing Hearing on June 3, 2009, this Court cautioned the Debtors and Secured Lenders that when it gets to the sale hearing, I expect a showing that any 363 sale you ask me to approve is a step toward achieving a confirmable plan. . . . Transcript of Hearing held June 6, 2009 at p. 72 lines 10-14 [Docket No. 437]. Similarly, case law holds that a debtor in Chapter 11 cannot use 363(b) to sidestep the protection creditors have when it comes time to confirm a plan of reorganization.5 As a result, [w]here a debtor attempts to sell substantially all of its assets pursuant to 11 U.S.C. 363(b), instead of waiting for confirmation of a reorganization plan and the safeguards that that process provides, more than cursory scrutiny is required by the bankruptcy court.6 Such a sale requires a careful review7 and should be closely scrutinized.8

The Committee reserves any and all of its rights to object to the proposed sale(s), purchaser(s) and/or aspect of the sale(s) at the hearing to approve the sale(s). The Committee has presented a number of questions to the Debtors to clarify certain terms of the Asset Purchase Agreement(s) which the Debtors are working to resolve. The Committee believes these concerns will be resolved consensually. In re Continental Air Lines, Inc., 780 F.2d 1223, 1227 (5th Cir. 1986); see also In re Braniff Airways, Inc., 700 F.2d 935, 939-940 (5th Cir. 1983).
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In re Enron Corp., 291 B.R. 39, 43 (S.D.N.Y. 2003). In re Exaeris Inc., 380 B.R. 741, 744 (Bankr. D. Del. 2008). In re Weatherly Frozen Food Group Inc., 149 B.R. 480, 483-84 (Bankr. N.D. Oh. 1992).

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Unfortunately, no one has explained how the proposed bid procedures and hurried sale process will lead to a confirmable plan. Despite raising concerns since the beginning of these bankruptcy cases that an expedited sale process in the current economy will likely result in depressed purchase prices from bidders, the Committee has not received any explanation as to why such a quick sale is beneficial to the estates. In fact, the only response the Committee has received is that the Secured Lenders have required the sales proceed on an expedited schedule. Indeed, despite continuing concern by the Committee regarding the speed of the sale process, the Secured Lenders decided that the sales should happen even quicker than originally contemplated, approximately one month earlier than proposed in the original DIP Facility. In order to prevent any objections by the Committee or others to further expediting the sale process, the Secured Lenders required the Debtors to sign an amendment to the DIP Financing Agreement that made it a default under the DIP Financing if the sales were not completed on a more expedited time table. This compressed schedule was submitted to the Committee and Court for the first time at the June 6, 2009, hearing and was approved as part of the DIP Financing. As expressed at the DIP Financing Hearing, the Committee is deeply concerned that the Secured Lenders are simply using the bankruptcy process as a means to foreclose upon the Debtors assets without any concern for the rights of other creditors of these estates or any regard for whether a plan can ultimately be confirmed. Accordingly, in light of the sale schedule that was approved as part of the DIP Financing, the Committee does not object to the sale procedures set forth in the Bid Procedures Motions. However, the Committee continues to have grave concerns that this expedited sale process is not in the best interests of the estates and will not lead to a confirmable plan. Prior to approval of the sale(s), the Debtors should be required to establish that the sale(s) both (i) are in the best interests of these estates and (ii) will lead to a confirmable plan. For the reasons set forth above, the Committee does not object to the Debtors proceeding with the sale and auction processes outlined in the Bid Procedures Motions. However, the Committee reserves all rights to object to the final sale(s) of the Debtors assets for any reason -3#11177057 v1

including, without limitation, if the sale(s) are not in the best interests of the estates, the agreements contain terms that do not benefit the estates and/or do not appear to lead to a confirmable plan in these cases. Dated: June 26, 2009 PEPPER HAMILTON LLP /s/ James C. Carignan David B. Stratton, Esq. (DE No. 960) James C. Carignan, Esq. (DE No. 4230) Hercules Plaza, Suite 5100 1313 N. Market Street P.O. Box 1709 Wilmington, Delaware 19899-1709 Tel: (302) 777-6500 Fax: (302) 421-8390 and Francis J. Lawall, Esq. 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103-2799 Tel: (215) 981-4000 Fax: (215) 981-4750 and Filiberto Agusti, Esq. (DC Bar No. 270058) (admitted pro hac vice) Joshua R. Taylor, Esq. (VA Bar No. 45919) (admitted pro hac vice) STEPTOE & JOHNSON LLP 1330 Connecticut Avenue NW Washington, DC 20036 Tel: (202) 429-3000 Fax: (202) 506-3902 and

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Robbin L. Itkin, Esq. (CA Bar No. 117105) (admitted pro hac vice) Katherine C. Piper, Esq. (CA Bar No. 222828) (admitted pro hac vice) STEPTOE & JOHNSON LLP 2121 Avenue of the Stars, Suite 2800 Los Angeles CA 90067 Tel: (310) 734-3200 Fax: (310) 734-3300 Counsel for the Official Committee of Unsecured Creditors of Pacific Energy Resources Ltd., et al.

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