UNITED STATES BANKRUPTCY COURT 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)

FEE AUDITORS FINAL REPORT REGARDING INTERIM FEE APPLICATION OF STEPTOE & JOHNSON LLP FOR THE FIRST INTERIM PERIOD This is the final report of Warren H. Smith & Associates, P.C., acting in its capacity as fee auditor in the above-captioned bankruptcy proceedings, regarding the Fee Application of Steptoe & Johnson LLP for the First Interim Period (the Application). BACKGROUND 1. Steptoe & Johnson LLP (S&J) was retained as counsel to the Official Committee

of Unsecured Creditors. In the Application, S&J seeks approval of fees totaling $397,032.75, and costs totaling $13,906.11 for its services from March 19, 2009, through May 31, 2009 (the Application Period). 2. In conducting this audit and reaching the conclusions and recommendations

contained herein, we reviewed in detail the Application in its entirety, including each of the time and expense entries included in the exhibits to the Application, for compliance with Local Rule 2016-2 of the Local Rules of the United States Bankruptcy Court for the District of Delaware, Amended Effective February 1, 2009, and the United States Trustee Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses Filed Under 11 U.S.C. 330, Issued January 30, 1996 (the Guidelines), as well as for consistency with precedent established in the United States
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Bankruptcy Court for the District of Delaware, the United States District Court for the District of Delaware, and the Third Circuit Court of Appeals. We served on S&J an initial report based on our review, and received a response from S&J, portions of which response are quoted herein. DISCUSSION 3. following: 03/31/2009 C.L. Quarterman Partner Review MMS rules and website re bankruptcy and plugging and abandonment; research same via LEXIS; review cases; draft and send email to Mr. Reed re same. 03/31/2009 S.A. Harman Of Counsel Begin preparing time line of pre- petition credit documents; begin reviewing Forbearance Agreement for Credit and Guaranty Agreement; research change in interest rates under First Lien Credit Agreement and Second Lien credit Agreement at request of Mr. Agusti. 05/06/2009 S.A. Harman Of Counsel Review and respond to K. Piper's comments and questions on preliminary analysis of application of proceeds of First Lien Credit Agreement and Second Lien Credit Agreement; meet with Josh Taylor to discuss preliminary analysis and review pre-petition financing documents to respond to his questions; review additional pre-petition financing documents provided by PERL in response to document request. Guideline II.D.5 provides that [s]ervices should be noted in detail and not combined or "lumped" together, with each service showing a separate time entry; however, tasks performed in a project which total a de minimis amount of time can be combined or lumped together if they do not exceed .5 hours on a daily aggregate. We asked S&J to ensure that its timekeepers uniformly comply with this Guideline in the future, as lumping may be cause for us to recommend a reduction in fees.
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In our initial report, we noted quite a few instances of lumping, such as the

1.80

999.00

7.30

3,686.50

2.75

1,388.75

4.

In our initial report, we noted that one timekeeper sometimes billed in increments of

a quarter hour. Guideline II.D.5 provides, Time entries should be kept contemporaneously with the services rendered in time periods of tenths of an hour. We asked S&J to ensure that all timekeepers do so in the future. 5. In our initial report, we noted a number of time entries for which the amount of time

ascribed to the time entry as a whole differed from the sum of the amounts within the parentheses. Sometimes the stated total was more than the sum of the subparts; sometimes it was less. See Exhibit A. We asked S&J to review Exhibit A and reconcile or otherwise explain the discrepancies. S&J provided a response that is attached hereto as Response Exhibit 1. We appreciate this response but note that one of the revised time entries still presents a discrepancy between the total ascribed to the entry as a whole and the amounts of time ascribed to its subparts. Specifically, the third entry still contains two parentheticals of 0.4 each, while the total ascribed to the time entry is also 0.4. We note, however, S&Js general statement that [i]n each of the time entries set forth on Exhibit A, the stated total was accurate and the subparts were in error. Thus, we conclude that no adjustment to the associated fees is necessary. 6. In our initial report, we noted two time entries for research regarding topics that, as

described, would appear to involve issues that one might expect an attorney billing at $480 an hour to know without the need for research: 04/09/2009 J.R. Taylor SP Counsel Research re bankruptcy court is court of equity and must look at substance over form. 04/09/2009 J.R. Taylor SP Counsel Research re property of estate and proceeds; research re property of estate and bank accounts.
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1.00

480.00

1.00

480.00

We asked S&J to provide a further description of this research and why it was necessary. S&J provided the following response: Research was necessary in order to obtain case law in support of the Committee's objection to certain parties' motions for immediate payment of royalties. The argument had been made that the form of the royalty agreements controlled and it was necessary to obtain case law to counter that argument. We accept this response and recommend no reduction in this regard. 7. In our initial report, we noted one time entry for travel time that does not appear to

have been reduced to 50% of the normal hourly rate: 04/07/2009 J.R. Taylor SP Counsel Travel to/from 341 meeting. 0.70 336.00

We asked S&J to explain this entry, or confirm that a reduction is warranted. S&J provided the following response: The time entry for this travel was reduced by 50%. The actual travel time was 1.4 hours. We appreciate this response and have no objection to these fees. 8. of a taxi: 03/31/2009 DCX, INC. Inv. 0025-4/09 dated 05/01/09 Voucher Scott Harman from 1330 Connecticut Ave, NW to Savage, MD MARC station on March 31, 2009 04/24/2009 Taxis - UTOG 2 WAY RADIO INC. Invoice No. 451988 dated 04/17/09, F. Agusti on 04/10/09, re travel from 750 7th Ave New York to 399 Park Ave New York. 05/20/2009 DCX, INC. Inv. 0025-5/09 dated 06/01/09 Voucher Debbie Johnson from 1330 Connecticut Ave, NW to Bryans Road Park and Ride on May 20, 2009
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In our initial report, we noted three instances in which a car service was used in place

57.20

24.48

69.30

We asked S&J to explain why a lower-cost taxi could not be used in these instances. S&J provided the following response: In an effort to maintain cost efficiency, S&J attorneys take taxi's as often as possible. The entries referring to DCX, INC. in Paragraph 9 are charges for the use of taxis, Diamond Cab company, and not a car service. However, in certain locations and circumstances taxis are not readily available, timely, reliable or less expensive. Therefore, under certain circumstances car services are used as was the case in the remaining entry in Paragraph 9. We appreciate the response and have no objection to the first and third charges. The justification for the second charge, however, is that in certain locations and circumstances taxis are not readily available. The location, however, was Seventh Avenue between 49th and 50th Streets in Manhattan, a location where taxis are generally available. The response does not state any other relevant circumstances, and we accordingly believe a 50% reduction is appropriate. We recommend a reduction of $12.24 in expenses. 9. In our initial report, we noted three expense items consisting of charges for online

research or information retrieval:

March 2009 On-Line Research/Information Retrieval April 2009 May 2009 On-Line Research/Information Retrieval On-Line Research/Information Retrieval

1,453.05 7,387.99 2,048.59

We asked S&J to itemize each Westlaw or Lexis charge and indicate the date and the identity of the person performing the research. S&J provided the following response: In an effort to reduce costs to these estates, S&J has decided to take a voluntary reduction for each of these charges. Therefore, they will not be included in S&J's final fee application in these cases.

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We appreciate this response and recommend a reduction of $10,889.63 in expenses. 10. 05/06/09 In our initial report, we noted six inadequately detailed travel-related expense items: Air Fare - FILIBERTO AGUSTI- Travel to New York, N Y on 04/10/09 - 04/13/09 re Meeting with Pacific Energy Committee (fee included) Taxis - FILIBERTO AGUSTI-- Travel to Wilmington, DE on 04/15/09 - 04/17/09 re Pacific Energy hearing Taxis - FILIBERTO AGUSTI- Travel to New York, N Y on 04/10/09 - 04/13/09 re Meeting with Pacific Energy Committee Train Fare - FILIBERTO AGUSTI-- Travel to Wilmington, DE on 04/15/09 - 04/17/09 re Pacific Energy hearing Taxis - FILIBERTO AGUSTI Travel to Wilmington, DE for Pacific Energy Hearing on 5/01/09 Train Fare - FILIBERTO AGUSTI Travel to Wilmington, DE for Pacific Energy Hearing on 5/01/09 863.09

05/06/09 05/06/09 05/06/09 05/13/09 05/13/09

70.00 150.00 249.00 70.00 157.00

We asked S&J to provide further explanation regarding these expense items. S&J provided a response for each expense entry, represented in bold and italics below each entry: 05/06/09 Air Fare - FILIBERTO AGUSTI- Travel to New York, N Y on 04/10/09 04/13/09 re Meeting with Pacific Energy Committee (fee included) 863.09 Response: Travel to/from Washington, D.C. 05/06/09 Taxis - FILIBERTO AGUSTI-- Travel to Wilmington, DE on 04/15/09 04/17/09 re Pacific Energy hearing 70.00 Response: Travel to/from train station in Washington, D.C., train station in Wilmington, DE, and Courthouse in Wilmington, DE. 05/06/09 Taxis - FILIBERTO AGUSTI- Travel to New York, N Y on 04/10/09 04/13/09 re Meeting with Pacific Energy Committee 150.00 Response: Travel to/from airport in NYC. 05/06/09 Train Fare - FILIBERTO AGUSTI-- Travel to Wilmington, DE on 04/15/09 - 04/17/09 re Pacific Energy hearing 249.00 Response: Travel to/from Washington, D.C. 05/13/09 Taxis - FILIBERTO AGUSTI Travel to Wilmington, DE for Pacific Energy
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Hearing on 5/01/09 70.00 Response: Travel to/from train station in Washington, D.C., train station in Wilmington, DE, and Courthouse in Wilmington, DE. 05/13/09 Train Fare - FILIBERTO AGUSTI Travel to Wilmington, DE for Pacific Energy Hearing on 5/01/09 157.00 Response: Travel to/from Washington, D.C. We appreciate this response and have no objection to any of the items other than the third one, which is a charge for $150 for round-trip travel from LaGuardia to Manhattan. This significantly exceeds the cost of a taxi, which should be no more than $75 for the round trip. Accordingly, we recommend a reduction of $75.00 in expenses. CONCLUSION 11. Thus we recommend approval of fees in the amount of $397,032.75 and expenses in

the amount of $2,929.24 ($13,906.11 minus $10,976.87) for S&Js services for the Application Period.

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Respectfully submitted, WARREN H. SMITH & ASSOCIATES, P.C.

By: Warren H. Smith Texas State Bar No. 18757050 Mark W. Steirer Texas State Bar No. 19139600 325 N. St. Paul Street, Suite 1250 Republic Center Dallas, Texas 75201 214-698-3868 214-722-0081 (fax) whsmith@whsmithlaw.com FEE AUDITOR

CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been served via First-Class United States mail to the attached service list on this 9th day of November 2009.

Warren H. Smith

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SERVICE LIST The Applicant Filiberto Agusti, Esq. STEPTOE & JOHNSON LLP 1330 Connecticut Ave., N.W. Washington, D.C. 20036 Robbin L. Itkin, Esq. STEPTOE & JOHNSON LLP 2121 Avenue of the Stars, Suite 2800 Los Angeles, California 90067 United States Trustee Office of the United States Trustee 844 N. King Street, Room 2207 Lock Box 35 Wilmington, DE 19801 Counsel to the Debtors Laura Davis Jones, Esq. Ira D. Kharasch, Esq. Scotta E. McFarland, Esq. Robert M. Saunders, Esq. James E. ONeill, Esq. Kathleen P. Makowski, Esq. Pachulski Stang Ziehl & LLP 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington DE 19899-8705 Counsel to the Debtors Ian S. Fredericks, Esq. Skadden Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899 Special Counsel to the Debtors Penelope Parmes, Esq. Rutan & Tucker, LLP 611 Anton Boulevard 14th Floor Costa Mesa, CA 92626
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Canadian Counsel to the Debtors Jensen Lunny MacInnes Law Corporation H.C. Ritchie Clark, Q.C. P.O. Box 12077 Suite 2550 555 West Hastings Street Vancouver, BC V6B 4N5 Engineering Consultant to the Debtors Mark A. Clemans Millstream Energy, LLC 4918 Menlo Park Drive Sugarland, TX 77479 Special Oil and Gas Transactional Counsel to the Debtors Anthony C. Marino, Esq. Schully, Roberts, Slattery & Marino PLC Energy Centre 1100 Poydras Street, Suite 1800, New Orleans, LA 70163 Financial Advisor to the Debtors Curtis A. McClam Deloitte Financial Advisory Services LLP 350 South Grand Ave, Ste. 200 Los Angeles, CA 90071 Financial Advisor to the Debtors John Rutherford Lazard Freres & Co. LLC 30 Rockefeller Plaza, 61st Floor New York, NY 10020

Co-Counsel to the Official Committee of Unsecured Creditors David B. Stratton, Esq. James C. Carignan, Esq. Pepper Hamilton LLP Hercules Plaza, Suite 1500 1313 Market Street Wilmington, DE 19899 Co-Counsel to the Official Committee of Unsecured Creditors Filiberto Agusti, Esq. Steven Reed, Esq. Joshua Taylor, Esq. Steptoe & Johnson LLP 1330 Connecticut Avenue NW Washington, DC 20036

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Exhibit A 03/31/2009 K.C. Piper Associate Correspond with Debtors' counsel re outstanding issues for April 8 hearing (.5); teleconferences with J. Taylor re same (.4). 04/01/2009 K.C. Piper Associate Correspondence with Debtors' counsel re status of various information requests and objection deadlines for matters up for hearing (.3); correspondence with team re same (.2). 04/01/2009 K. Hollingsworth Paralegal Draft and prepare pro hac vice for K. Frazier (.40); review E-mails for signature pages re confidentiality agreement and bylaws (.40); and prepare final confidentiality agreement with the Debtors (.10). 04/01/2009 K. Hollingsworth Paralegal Review and respond to group E-mails re case management (.30) and update calendar re Compulaw (.40). 04/01/2009 K.C. Piper Associate Teleconference with J. Carignan re coordination of service and other case management issues (.2); teleconference with Omni Management re same (.2). 04/01/2009 K.C. Piper Associate Teleconference with J. Taylor re equity trading restrictions motions and various retention matters still unresolved with Debtors (.4); review objection re same and correspondence with J. Taylor re same (.3). 1.00 480.00

0.30

144.00

0.40

82.00

0.30

61.50

0.20

96.00

0.30

144.00

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Response Exhibit 1 Reconciliation of Exhibit A: Response: In each of the time entries set forth on Exhibit A, the stated total was accurate and the subparts were in error. Accordingly, the entries should read as follows: 03/31/2009 K.C. Piper Associate Correspond with Debtors' counsel re outstanding issues for April 8 hearing (.5); teleconferences with J. Taylor re same (.5). 1.00 480.00 04/01/2009 K.C. Piper Associate Correspondence with Debtors' counsel re status of various information requests and objection deadlines for matters up for hearing (.3). 0.30 144.00 04/01/2009 K. Hollingsworth Paralegal Draft and prepare pro hac vice for K. Frazier (.40); review E-mails for signature pages re confidentiality agreement and bylaws (.40) 0.40 82.00 04/01/2009 K. Hollingsworth Paralegal Review and respond to group E-mails re case management (.30) 0.30 61.50 04/01/2009 K.C. Piper Associate Teleconference with J. Carignan re coordination of service and other case management issues (.2) 0.20 96.00 04/01/2009 K.C. Piper Associate Teleconference with J. Taylor re equity trading restrictions motions and various retention matters still unresolved with Debtors (.3) 0.30 144.00

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