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 SECOND 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 Second 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 $265,357.75, and costs totaling $15,421.99 for its services from June 1, 2009, through August 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. In our initial report we noted the following 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.

a.

On June 12, 2009, KH (205) (Paralegal) billed under one time entry 2.20 hours for a total fee of $451.00. The total of the sub-parts in the time entry is 2.10 hours and $430.50, for a difference of $20.50. K. Hollingsworth Paralegal Review amended schedules and SOFAS for amounts and updates (.80); update chart comparison to schedules (1.10); and in-office conference with K. Piper (.20). 2.20 451.00

06/12/2009

b.

On June 11, 2009, KH (205) (Paralegal) billed under one time entry 1.50 hours for a total fee of $307.50. The total of the sub-parts in the time entry is 1.40 hours and $287.00, for a difference of $20.50. K. Hollingsworth Paralegal Review filed fee applications (.80) and update fees/expenses chart for K. Piper (.60). 1.50 307.50

06/11/2009

We asked S&J to explain these discrepancies. In its response, S&J agreed that reductions were warranted in both instances. Thus, we recommend a reduction of $41.00 in fees. 4. We noted a few instances in which more than one professional participated in a

meeting, conference call, or hearing. See Exhibit A. Paragraph II.D.5 of the Guidelines 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. Additionally, Rule 2016-2(d)(ix) states the activity descriptions shall individually identify all meetings and hearings, each participant, the
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subject(s) of the meeting or hearing, and the participants role. We asked S&J to provide additional information for these occasions. S&Js general response is provided below, and its specific responses are provided beneath each cited instance in Exhibit A. In general response to the inquiry above, the time entries referenced on Exhibit A were almost exclusively related to the preparation, witness and evidence presentation, negotiation and ultimate participation in the Debtors' heavily contested DIP financing hearing. Each counsel involved had unique and critical responsibilities in representing the Committee in its strong opposition to the proposed DIP financing and in negotiations with the Debtors and the Lenders with respect thereto. Ultimately, as the Committee had identified from the very beginning of these cases, the DIP financing set the entire path for the rest of these cases and was, therefore, absolutely critical to the Committee and its constituents. For additional details, please see the attached Exhibit A for an interlineated response. We appreciate S&Js specific responses to such occasions,1 and, based on such responses, have no objection to these fees. 5. We noted the following time entry by K Hollingsworth ($205) that appears to

describe a non-reimbursable overhead activity. 08/27/09 K Hollingsworth Paralegal . . . coordinate payments to J. Defini (.10)

We asked S&J to explain this entry. In its response, S&J stated that it would agree to a fee reduction. Thus, we recommend a reduction of $20.50 in fees. 6. We noted the following time entry by JR Taylor ($480) for travel time that does not

appear to have been appropriately reduced. 08/04/09 JR Taylor SP Counsel 1.3 624 Travel from sale hearing

Delaware Local Rule 2016-2(d)(viii) states, [t]ravel time during which no work is performed shall

Concerning the June 3, 2009 hearing, we note that 3 professionals attended in person and 1 attended by telephone. We note that the 3 professionals who attended in the hearing in person each had speaking roles.
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be separately described and may be billed at no more than 50% of regular hourly rates. We asked S&J to explain whether a reduction is in order for this time entry. In its response, S&J agreed that a reduction was warranted and we recommend a reduction of $312.00 in fees. 7. 06/26/09 We noted the following cell phone charge that appears excessive. Blackberry/cell charge - t-mobile use - inv. Fagusti 060609 date 6/6/09 re mobile 202-253-8233 acct 403691598 389.07

We asked S&J to further explain this expense. S&Js response is provided below: The cell phone charges identified in Paragraph 7 were incurred for participation in conference calls with Committee Members while counsel was traveling. However, in an effort to reduce costs to these estates, S&J has decided to take a voluntary reduction for these charges. Therefore, they will not be included in S&J's final fee application in these cases. We appreciate S&Js response, and thus recommend a reduction of $389.07 in expenses. 8. 06/22/09 07/13/09 07/24/09 We noted the following ground transportation charges which appear excessive. Taxis - Robbin Itkin - Travel to Delaware re hearings/client meetings 6/2/09 Train Fare - Joshua Taylor - Travel to Wilmington, DE on 6/02/09-6/03/09 re hearing Taxis - Filiberto Agusti - Travel to NYHC on 7/20/09 re meeting with client $105.53 $400.00 $137.61

We asked S&J to provide additional information for these charges. S&J responded as follows: 6/22/2009 Taxis - Robbin Itkin - Travel to Delaware re hearings/client meetings 6/2/09 Response: Travel from airport in PA to Courthouse in Wilmington, Delaware 7/13/2009 Train Fare - Joshua Taylor - Travel to Wilmington, DE on 6/02/09-6/03/09 re hearing $400.00 $105.53

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Response: This expense entry was inadvertently labeled. It represents several travel expenses incurred for the June 3, 2009 hearing: (a) coach train fare for Joshua Taylor to/from ($143 and $114) and Steven Reed from ($143) Washington, D.C. to Wilmington, Delaware for hearings; (b) hotel for Joshua Taylor ($125.44); and (c) meals while traveling for Joshua Taylor ($25). 7/24/2009 Taxis - Filiberto Agusti - Travel to NYHC on 7/20/09 re meeting with client Response: Travel to/from JFK to offices of Debtors' counsel (Pachulskis NYC office) for Auction of Alaska assets. 137.61

We appreciate S&Js response and have no objection to these charges, except as follows: June 2, 2009, travel from Philadelphia Airport to Delaware $105.53: Taxi service is readily available at the Philadelphia airport for travel to Wilmington, Delaware. Our research indicates that the fare for this trip cost approximately $60.002 and thus, we recommend a reduction of $45.53 in expenses. July 20, 2009 travel to/from JFK offices of Debtors counsel3 $137.61: Taxi service is also readily available at JFK for travel to Manhattan for approximately $55.004. reduction of $82.61 in expenses. Thus, for this paragraph 8, we recommend a total reduction of $128.14 in expenses. CONCLUSION Thus we recommend a

This amount is based on our research at www.taxifarefinder.com and includes a 15% gratuity.

Upon further inquiry, a representative from S&J stated that debtors counsel in this instance was Pachulski Stang Ziehl & Jones with offices at 780 Third Ave. in NYC.
4

See FN 2 supra.

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9.

Thus we recommend approval of fees totaling $264,984.25 ($265,357.75 minus

$373.50) and expenses totaling $14,904.78 ($15,421.99 minus $517.21) for S&Js services for the Application Period. 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

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 5th day of February, 2010.

Warren H. Smith

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SERVICE LIST Notice Parties The Applicant Filiberto Agusti, Esq. STEPTOE & JOHNSON LLP 1330 Connecticut Ave., N.W. Washington, D.C. 20036 Robbin L. Itkin, Esq. Katherine C. Piper, 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 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

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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

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Exhibit A On June 3, 2009, JRT (480), KCP (480), RLI (740), and SGR (645) attended a hearing. The total time spent including any preparation and non-working travel time was 44.90 hours5 for a total fee of $25,866.50. 06/01/2009 J.R. Taylor SP Counsel Call with Expert to prepare for DIP hearing. 1.30 624.00 Prepare and revise cross examination re DIP hearing. 2.10 1,008.00 Prepare exhibits for hearing. 1.10 528.00 Prepare for DIP objection hearing. 2.70 1,296.00 Review motions and prepare for hearing on matters other than DIP. 1.30 624.00 Correspond with R. Itkin in preparation for DIP hearing. 0.50 240.00 Review materials for DIP hearing on June 3 and prepare hearing notes and script for oral argument. 3.50 1,680.00 Teleconference with J. Taylor and F. Agusti re DIP hearing preparation for tomorrow. 0.30 144.00 Discuss preparations for hearing with Mr. Taylor and exchange emails re same. 0.40 258.00 Review pleadings and legal research and outline arguments for hearing on royalty motion. 4.90 3,160.50

06/02/2009

J.R. Taylor

SP Counsel

06/02/2009

J.R. Taylor

SP Counsel

06/02/2009

J.R. Taylor

SP Counsel

06/02/2009

J.R. Taylor

SP Counsel

06/02/2009

K.C. Piper

Associate

06/02/2009

K.C. Piper

Associate

06/02/2009

K.C. Piper

Associate

06/02/2009

S.G. Reed

Partner

06/02/2009

S.G. Reed

Partner

Time for this entry was located in the following project categories - (i) Hearings and (ii) Travel.

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06/03/2009

J.R. Taylor

SP Counsel

Attend DIP hearing. 3.00 1,440.00 Prepare for hearing on DIP motion. 3.70 1,776.00 Prepare witness for hearing on DIP motion. 2.10 1,008.00 Attend DIP Hearing via phone and participate in revisions to Final DIP Order. 3.10 1,488.00 Correspond with R. Itkin in preparation for DIP Hearing. 0.50 240.00 Attend DIP Financing hearing, meeting with parties thereafter to confirm consistency in terms in order ordered by Court. 3.20 2,368.00 Final preparation for DIP financing hearing, meet with witness and team. 5.00 3,700.00 Participate in hearing on royalty and DIP motions and follow-up re same. 3.20 2,064.00 Travel back from Delaware hearings (equals one-half of travel time). 3.00 2,220.00

06/03/2009

J.R. Taylor

SP Counsel

06/03/2009

J.R. Taylor

SP Counsel

06/03/2009

K.C. Piper

Associate

06/03/2009

K.C. Piper

Associate

06/03/2009

R.L. Itkin

Partner

06/03/2009

R.L. Itkin

Partner

06/03/2009

S.G. Reed

Partner

06/03/2009

R.L. Itkin

Partner

Response: With respect to the hearing regarding the Debtors proposed DIP financing, which the Committee strongly opposed, and the other matters set for hearing on June 3, 2009, counsel had the following roles and participations at the hearing: (a) Ms. Itkin is a partner in the Business & Financial Restructuring Group at S&J and was responsible for oral argument with respect to the DIP financing motion at the hearing; (b) Mr. Reed is a partner in the Energy Practice Group, with a primary focus in the area of federal energy regulation, particularly for oil and gas pipelines, and was
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responsible for oral argument with respect to each of the contested matters at the hearing regarding the overriding royalty interests (ORRIs) in the Debtors oil and gas lease interests, including those matters as they related to the DIP financing arrangement with the Lenders; (c) Mr. Taylor is a Special Counsel in the Litigation Practice Group, with a special focus on bankruptcy litigation, and was responsible for the preparation of witnesses, direct and cross-examination of witnesses, all evidentiary issues and objections, and the other non-contested matters that were set for hearing; and (d) Ms. Piper is an associate in the Business & Financial Restructuring Group at S&J and was responsible for the preparation of oral argument with respect to the DIP financing motion and the negotiation of the final DIP financing order. On June 2, 2009, FA (650), JRT (480) and KCP (480) (Partner, SP Counsel and Associate) attended a Committee meeting. The total time spent including any preparation time was 7.20 hours for a total fee of $3,932.00. 06/02/2009 F. Agusti Partner Participate in creditors' committee meeting re DIP possible settlement (2.5). 2.50 1,625.00 Prepare instructions to others re next steps for today's committee meeting. 0.30 195.00 Attend Committee meeting. 2.10 1,008.00 Attend Committee Meeting re proposal from DIP Lenders re potential settlement. 2.30 1,104.00

06/02/2009

F. Agusti

Partner

06/02/2009

J.R. Taylor

SP Counsel

06/02/2009

K.C. Piper

Associate

Response: The Committee Meeting on June 2, 2009, involved lengthy discussions with the Committee Members regarding the contested DIP financing hearing, preparation for the DIP financing hearing and settlement options. Each of Mr. Agusti, Mr. Taylor and Ms. Piper, consulted with the Committee Members with respect to various aspects of possible settlement options and preparation for the contested hearing that ultimately went forward the next day.

On July 1, 2009, FA (650), KCP (480), and RLI (740) (two Partners and Associate) attended a Committee meeting. The total time spent including any preparation time was 2.90 hours for a
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total fee of $1,805.00. 07/01/2009 F. Agusti Partner Participate in creditors' committee meeting. 0.90 585.00 Attend Committee Meeting. 1.00 480.00 Review revised offer for possible plan and prepare for committee call and participate in committee call. 1.00 740.00

07/01/2009

K.C. Piper

Associate

07/01/2009

R.L. Itkin

Partner

Response: The Committee Meeting on July 1, 2009, involved significant discussions with the Committee Members regarding winddown and other options for the Debtors estates. Each of Mr. Agusti, Ms. Itkin and Ms. Piper, consulted with the Committee Members with respect to various aspects of possible options for the Debtors estates.

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