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 PACHULSKI STANG ZIEHL & JONES, LLP, FOR THE FOURTH 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 Pachulski Stang Ziehl & Jones, LLP, for the Fourth Interim Period (the Application). BACKGROUND 1. Pachulski Stang Ziehl & Jones, LLP (Pachulski), was retained counsel to the

Debtors. In the Application, Pachulski seeks approval of fees totaling $345,244.50 and costs totaling $34,037.46 for its services from December 1, 2009, through February 28, 2020 (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, 2010, 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,
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1996 (the Guidelines), as well as for consistency with precedent established in the United States 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 Pachulski an initial report based on our review, and received a response from Pachulski, portions of which response are quoted herein. DISCUSSION 3. In our initial report, we noted that on December 8, 2009, partners IDK ($750 per

hour), MBL ($550 per hour), and JEO ($535 per hour) participated in a telephonic hearing: 12/08/09 12/08/09 12/08/09 IDK 0.70 525.00 275.00 428.00 Attend todays Omnibus Hearing telephonically (.5);.... Attend hearing telephonically. Prepare for and attend omnibus hearing.

MBL 0.50 JEO 0.80

Together they billed 1.80 hours and $1,078.00. Guideline II.D.5 provides that [i]f more than one professional from the applicant firm attends a hearing or conference, the applicant should explain the need for multiple attendees. Furthermore, Delaware Local Rule 2016-2(d)(ix) states that [t]he activity descriptions shall individually identify all meetings and hearings, each participant, the subject(s) of the meeting or hearing, and the participants role. We asked Pachulski to provide further information for this hearing. Pachulski provided the following response: As stated in paragraph 3 of the Report, PSZ&J billed $1,078.00 for 1.8 hours of professional services rendered by multiple attorneys attending the December 8, 2009 hearing (the "Hearing"). The First Quarterly Fee Applications were heard at the Hearing. Also, there was a status conference at the Hearing regarding the sale of the Beta Assets, which was a complicated credit bid sale of the most valuable assets in the estates and also involved global settlements of many of the major issues in the cases. Mr. O'Neill handled the agenda for the hearing and responded to the questions of the Court regarding the First Interim Fee Applications. Mr. O'Neill was also the attorney present with a license to practice law in Delaware as required by Rule 9010-1(c) of
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the Local Rules for the United States Bankruptcy Court for the District of Delaware. Mr. Litvak and I were actively involved on behalf of the Debtors in the negotiations of the terms of the Beta Sale and the related settlement agreements with various major creditors in these cases. We both appeared at the Hearing in order to be available in the event that our particular knowledge of these negotiations was needed to respond to questions or comments from other interested parties or the Court. Mr. Litvak and I attended the Hearing telephonically in order to save the estates travel time and expenses. PSZ&J believes that this description establishes the bases for why multiple attorneys attended the Hearing in order to properly represent the Debtors and protect the Debtors' interests for the benefit of their estates and all of their creditor constituencies. Accordingly, I submit that the attendance of Mr. O'Neill, Mr. Litvak and myself at the December 8, 2009 Hearing was appropriate and that the time entries are compensable. While we appreciate this response, we do not believe that this response bears Pachulskis burden that both associates were necessary at this hearing. As Mr. ONeal participated in person and had an active roll at the hearing, we recommend a reduction for the 0.5 hours spent at the hearing by Mr. Litvak. Thus, we recommend a reduction of $275.001 in fees. 4. In our initial report, we noted three instances in which Pachulski billed the time of

its law library director at $250 per hour: 01/07/10 02/03/10 02/08/10 LAF LAF LAF 0.80 0.50 0.50 $200.00 $125.00 $125.00 Update memo with 9th circuit law Legal research re: Section 507(a)(8) Legal research re: Proof of claim v. proof of interest

We asked Pachulski to provide additional information regarding these fees. Pachulski provided the following response: Ms. Forrester, in addition to serving as the Firm's library director also serves as a research assistant to the attorneys in the Firm. On February 3, 2010, she researched and found case law on the issue of the priority of a penalty on certain taxes and on

$550 x 0.50 = $275.00.

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February 8, 2010, she researched and found case law on the issue of a stock holder not holding a claim against the estate for the decline in value of the stock. In both instances, the research was done at the request of one of the Firm's attorneys and was needed for pleadings the attorney was preparing. If Ms. Forrester had not done the research, the attorney would have had to do it at a much higher billable rate. The January 7, 2010 entry was billed to the incorrect file and, therefore, the Firm agrees to a $200.00 reduction in the amount of its expenses for which it is seeking reimbursement. Based upon the above explanation, PSZ&J submits that the billable rate for the work done by Ms. Forrester is reasonable, that the fees were incurred for the benefit of the Debtors, and that the Firm should be compensated in the amount of $250.00 for such work. We appreciate this response and have no objection to these fees other than the $200.00 of fees billed to this case by mistake. We accordingly recommend a reduction of $200.00 in fees. 5. In our initial report, we noted one instance in which Kathe Finlayson billed the estate

$225 per hour to scan and PDF documents: 02/12/10 KFF 0.60 $135.00 Scan and pdf copies of transcripts from June 3, August 4 and August 12 hearings to Scotta

We asked Pachulski to explain why these activities should be compensated at this rate. In its response, Pachulski stated that it would agree to a reduction for the above-referenced work done by Ms. Finlayson and thus we recommend a reduction of $135.00 in fees. 6. In our initial report, we noted two expense entries for invoices from Legal Vision

Consulting Group: 11/13/2009 11/30/2009 OS OS Legal Vision Consulting Group, Inc. Invoice #1178 Legal Vision Consulting Group, Inc. Invoice #1185 $3,097.61 $698.42

We asked Pachulski to explain the nature of these expenses. Pachulski provided the following response: The charges incurred on 11/13/2009 relate to the copying and mailing charges for the service of a fairly complicated settlement motion regarding a settlement of issues
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with hundreds of parties. There were approximately 15,680 pages copied and 529 envelops mailed. The charges include the copy charges, the label preparation charges, the postage cost, and the labor costs. The 11/30/2009 charge relate to the copying and mailing charges for the notice of a rescheduled auction of the Beta Assets, the most valuable assets in the estates. There were approximately 1,164 pages copied and 387 envelops mailed. The charges include the copy charges, the label preparation charges, the postage cost, and the labor costs. Based on the above explanations, PSZ&J submits that the charges are reasonable and necessary and are reimbursable from the estates. We appreciate this response and have no objection to these expenses. 7. explanation: In our initial report, we noted the following car service charges requiring further

12/21/2009 Auto Travel Expense [E109] Eagle-17824-IDK from Phila airport to Hotel Dupont 12/21/2009 Auto Travel Expense [E109] Eagle-17824-Gerry Tywoniuk from Phila airport to Hotel Dupont 12/23/2009 Auto Travel Expense [E109] - AMS/Pacific Limousine & Transportation, Inc. Invoice #: 150932 (MBL) 12/23/2009 Auto Travel Expense [E109] - AMS/Pacific Limousine & Transportation, Inc. Invoice #: 150935 (MBL)

$98.70 $100.70 $165.72 $158.72

We asked Pachulski to provide additional information for these charges. Pachulski provided the following response: Two of the charges are for car service used to transport the Firm's attorneys from the Philadelphia airport and Wilmington, Delaware for the December 22, 2009 hearing, one of the charges is for the return trip to the airport for one of the attorneys and one of the charges is for car service for the Debtors' acting CEO from the Philadelphia airport the Wilmington, Delaware. Regarding the car services for Gerry Tywoniuk, the Firm arranged for car service for one of the Debtors' employees from the Philadelphia airport to Wilmington, Delaware to attended a hearing and passed this cost to the estate. Car service is used instead of taxi service for the attorneys of the Firm because car service is more reliable than taxis. If an attorney has to wait for a taxi, the attorney time spent waiting will often amount to more costs that the additional small cost of using the car service. Also, the cars offer a better work environment than taxis. PSZ&J believes the use of a car service is reasonable and justified under the circumstances and submits that the charges should be allowed. We appreciate this response and note that we believe that the use of a car service in place of a taxi

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is reasonable for trips from Wilmington to the Philadelphia airport. Accordingly, we have no objection to the third charge cited above in the amount of $165.72. However, taxis are readily available at Philadelphia International Airport, and a taxi can be obtained for the trip to Wilmington for approximately $75 to $862. Thus, with respect to the other 3 charges, we recommend reductions of $12.70, $14.70 and $72.72, respectively3. Accordingly, we recommend a reduction of $100.12 in expenses. 8. We note several inadequately detailed Business Meal charges for working meals:

Business Meal [E111] Rodney Grill- Working Lunch- 6) Attys; 90.08 Clients (12/22/09) 1/7/2010 Business Meal [E111] Rodney Grill- Working Breakfast- (6) $63.32 Attys; Clients (12/22/09) 1/14/2010 Business Meal [E111] Johnnies Pizza; working meal; G. Meza $15.93 12/21/2009 Business Meal [E111] - Dinner at Domaine Hudson Wine Bar $232.00 with MBL and client (IDK) 12/22/2009 Business Meal [E111] - Dinner at Vino Volo (IDK) $38.74 12/23/2009 Business Meal [E111] - Johnnies N.Y. Pizzeria (Myra Kulick) $8.30 12/23/2009 Business Meal [E111] - Deep Blue Bar and Grill (Wilmington, $50.00 DE) MBL We asked Pachulski to provide additional information for these charges. Pachulski provided the following response: The Report, at paragraph 8, questions seven (7) business meals. The two charges incurred on 12/22/2009 (dated 1/7/2009) were for breakfast ($63.32) and lunch ($90.08) for six persons, including Max Litvak, Jamie O'Neill and me from PSZ&J and Gerry Tywoniuk, the representative of the Debtors, as well as other parties involved in the sale of the Beta Assets. The meals were eaten in the Firm's Delaware office. These attorneys and client representatives were preparing for the hearing to be held on December 22, 2009, regarding the sale of the Beta Assets, a very complicated credit bid sale transaction involving the most valuable

1/7/2010

We contacted two cab companies: Yellow Cab and Philly PHL Taxi. Yellow Cab quoted us $75, plus a 15% tip, which equals $86.25. Philly PHL Taxi quoted us $65 - $70, and with a 15% tip, that totals $75 to $80.
3

Based on a cost of $86.00.

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assets in the cases. The charge incurred on December 21, 2009 in the amount of $232.00, was a dinner meal in a restaurant in Wilmington, Delaware for three people, Max Litvak, an attorney with the Firm, Gerry Tywoniuk, the acting CEO of the Debtors, and me. We were in Wilmington for the December 22, 2009, hearing on the sale of the Beta Assets and discussed the handling and strategy for the upcoming hearing at this dinner. The 12/23/2009 charge for the meal at Deep Blue, a restaurant in Wilmington, Delaware, was a meal for Max Litvak who was in Wilmington from San Francisco for the December 22, 2009 hearing. The Firm cannot determine to what the 12/22/2009, 12/23/2009 and 1/14/2010, meal charges of $38.74, $8.30, and $15.93, respectively, related and agrees to write-off those amounts. Based on these facts, PSZ&J submits that the business meal charges (other than the ones the Firm has agreed to write off) are reasonable and necessary expenses that are reimbursable by the estates. We appreciate this response and note that the voluntary reduction relating to three specified meals totals $62.97. Furthermore, we note that the $232.00 dinner charge for three persons on 12/21/09 exceeds our guidelines (which limit dinner charges to $55 per person for Wilmington) by $67.00. Accordingly, we recommend a reduction of $129.97 in expenses. 9. In our initial report, we noted an inadequately detailed travel expense:

12/18/2009 Travel Expense [E110] - IDK Travel expense (LA - pc) $300.00 We asked Pachulski to explain this charge. Pachulski provided the following response:

We are unable to determine the purpose of travel expense in the amount of $300.00 and the hotel expense We appreciate this response and recommend a reduction of $300.00 in expenses. 10. In our initial report, we noted an inadequately detailed hotel expense:

12/18/2009 Hotel Expense [E110] - Hotel Dupont (Wilmington; DE) MBL $29.85 We asked Pachulski to explain this charge. Pachulski provided a response, quoted in paragraph 9 above, that addresses this issue as well as the one raised in the previous paragraph. We appreciate this response and recommend a reduction of $29.85 in expenses. 11. In our initial report, we noted the following airfare charges that require further

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explanation: 12/18/2009 Air Fare [E110] - US Airways Ticket #: 0377723638 - LAX to Philadelphia; PA (roundtrip) 12/21 trip to DE (discounted first class; cheaper than coach) IDK Air Fare [E110] - United Airlines Ticket #: 0167725766257 San Francisco; CA to Philadelphia; PA (roundtrip) MBL $2,617.20

12/19/2009

$3,134.20

We asked Pachulski to provide further information for these charges. Pachulski provided the following response: The Report requests further information as to the cost of first class air fare that was "cheaper than coach". The Firm has researched this issue and understands that in some markets, when one pays a refundable full coach fare, it is the same as or less than a discounted first class seat. Some airlines call it a Y-Up fare, however there is apparently no difference between a Y-Up and a Y fare. For example, based on information the Firm has been able to obtain, the refundable last minute roundtrip coach fare from LAX to Philadelphia for my December 21, 2009 trip to Wilmington to attend the December 22, 2009 hearing would have been $2,827.40, whereas a refundable first class ticket was $2,617.20. Thus, certain first class tickets are "discounted" and cost less than last minute coach fare. The refundable last minute roundtrip coach fare from San Francisco to Philadelphia for Max Litvak's trip to Wilmington for the December 22, 2009 hearing would have been approximately $2,954. The first class ticket for that trip cost $3,134.20. Based upon the above explanations, PSZ&J submits that the air fare charged for my roundtrip for the December 22, 2009 hearing and $2,954.00 of the air fare charged for the roundtrip of Max Litvak to attend that same hearing is reasonable, was incurred for the benefit of the Debtors and should be reimbursed to the Firm. We appreciate this response, but our research indicates that fully refundable roundtrip fares with no advance-purchase requirement are available for $1,900 on United Airlines for travel between LAX and PHL and travel between SFO and PHL. Similar non-stop roundtrip fares on US Airways are $2,560 for LAX-PHL and $2,574 for SFO-PHL. Because the travel occurred during the holiday season, we recognize the possibility that seats might not be available on United at the $1,900

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roundtrip fare (as well as the possibility that the $1,900 United fare may not have been offered at the time), and we will use the current US Airways fares as our standard, which would indicate a $57.20 reduction for the first charge and a $560.20 reduction for the second charge. Accordingly, we recommend a reduction of $617.40 in expenses. CONCLUSION 12. Thus, we recommend approval of fees in the amount of $344,634.50 ($345,244.50

minus $610.00) and expenses in the amount of $32,860.12 ($34,037.46 minus $1,177.34) for Pachulskis services for the Application Period. 344,634.50 Respectfully submitted, WARREN H. SMITH & ASSOCIATES, P.C.

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

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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 20th day of September 2010.

Warren H. Smith

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SERVICE LIST The Applicant 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 Notice Parties 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 Canadian Counsel to the Debtors Jensen Lunny MacInnes Law Corp. 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

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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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