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 MILLSTREAM ENERGY, LLC, 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 Millstream Energy, LLC, for the Second Interim Period (the Application). BACKGROUND 1. Millstream Energy, LLC (Millstream), was retained as engineering consultants to

the debtors. In the Application, Millstream seeks approval of fees totaling $69,231.00 and costs totaling $4,485.35 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 December 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 Millstream an initial report based on our review, and received a response from Millstream, portions of which response are quoted herein. DISCUSSION 3. Guideline II.D.5 provides, in part, that [t]ime entries should be kept

contemporaneously with the services rendered in time periods of tenths of an hour. The Application, however, reflects many time entries billed in quarter-hour increments. In our initial report, we asked Millstream to be sure to comply with this Guideline consistently in the future. 4. Guideline II.D.5 further 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. In our initial report, we noted several instances of lumping, such as the following: 6-Jun-09 17-Jun-09 Clemans Clemans 6.80 5.20 $2,040 $1,560 Continue updates in Ph D Win, set up Excel MMS royalty nps side model Travel from LB to LAX and flight to Houston, and work on outline for Beta timing and MMS royalty runs. Format database for such

We asked Millstream to be sure to comply with this Guideline in the future. 5. In our initial report, we noted one time entry reflecting what appears to be activities

unbefitting the professionals billing rate: 10-Jun-09 Clemans 0.30 $90 Scan and deliver reserve report leters for Lazard

We asked Millstream to explain why these activities are appropriately billed at $300 per hour.

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Millstream provided the following response: Clemans was the only Millstream representative available to full fill the data request of Lazard to prepare for the marketing of the Debtors assets. All consulting services are billed are the rate initially agreed upon by the Debtors and approved by the Court. We appreciate this response, but believe that the activities in question are clerical activities, which should be billed at no more than $80 per hour. On the issue of adjusting rates downward for certain tasks, the Third Circuit seems fond, in the bankruptcy context, of quoting its opinion in Ursic v. Bethlehem Mines, that "[r]outine tasks, if performed by senior partners in large firms, should not be billed at their usual rates. A Michelangelo should not charge Sistine Chapel rates for painting a farmer's barn. 719 F.2d 670, 677 (3d Cir. 1983); see also Zolfo, Cooper & Co. v. Sunbeam-Oster Co., Inc., 50 F.3d 253, 260 (3rd Cir. 1995), and In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 855 n.34 (3rd Cir. 1994). Busy Beaver, in fact, lists 15 cases in support of the statement [w]hen an experienced attorney does clerks work, he or she should be paid clerks wages. Id. We accordingly recommend a reduction of $66.001 in fees. 6. In our initial report, we noted two travel-related time entries for which it is not clear

that non-working travel time, if any, was appropriately discounted: 11-Jun-09 Clemans 2.75 $825 Travel from Houston to LB for Silverpoint meetings, prepared presentation and summarized engineering runs for such. Travel from LB to LAX and flight to Houston, and work on outline for Beta timing and MMS royalty runs. Format database for such

17-Jun-09

Clemans

5.20

$1,560

We asked Millstream to indicate the amount of non-working travel time, if any, and state whether that time was billed at half the normal rate. Millstream provided the following response:

$80 times .3 equals $24.00. $90 minus $24 equals $66.

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Travel time from Houston to Long Beach (LB), CA is approximately 6 hours including travel from the Millstream office to Houston IAH, airport wait time, flight time, plus travel time from LAX to the Debtors office in LB. On 11-Jun-09, Clemans traveled to LB at the request of Silverpoint Energy to present engineering reserves and financial valuations of the Debtors assets. 2.75 hours of the 6.00 hours of travel time was spent as productive working time to prepare for the subject presentations. On 11-Jun-09, Clemans was traveling back from LB to Houston and spent 5.20 hours of total travel time working productively on the Debtors internal engineering evaluation of the Beta assets as noted in the time sheet records. In neither case did Clemans bill for non-working time during travel. We appreciate this response and have no objection to the associated fees. 7. In our initial report, we noted a charge for mobile phone usage which appears to be

an allocated expense: 20-May-09 Mobile Phone 317.94 PEC portion of mobile phone 75% allocation

We asked Millstream to explain the basis for the allocation and to indicate specifically whether it is based on the amount of time spent on the client. Millstream provided the following response: Mobile phone was the sole communication device for contact with the Debtors. Millstream does not have a business land line. 75% of the airtime for the month's bill was spent on Debtors related business. We note that, based on Millstreams response, this charge is based on usage rather than an arbitrary allocation, and thus we have no objection to this expense item. 8. 8-Jun-09 16-Aug-09 In our initial report, we noted two charges for first-class airfare: Airfare (Cont) Airfare (Cont) 1198.00 627.70 Round Trip Air- IAH- LA Airfare from Houston to Longbeach, CA (return was to Denver for other client meeting)

Guideline II.E.1 instructs us to consider whether an expense is reasonable and economical. For
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example, first class and other luxurious travel mode or accommodations will normally be objectionable. We asked Millstream to indicate the price difference between these fares and available coach fares and to explain why these charges should be considered reasonable. Millstream provided the following response: The 8-Jun-09 and 16-Aug-09 airfares were Y-Class upgradable fares to first class with no premium change for the regular coach fares. Millstream was given short notice to set up travel arrangements for the requested meetings in LB. There was no material difference in airfare between the Y-Class fare and the regular coach fare. The 16-Aug-09 only covered airfare applicable to the Debtors business and was the same Y-Class fare mentioned above. We appreciate this response , but our review of available fares indicates that upgradable Y fares for this itinerary are currently $163 higher than the regular coach fare. We have no basis for concluding that the differential was different at the time of Millstreams travel. Accordingly, we recommend a reduction of $244.50 in expenses. 9. In our initial report, we noted a Business Meal expense that is charged to the estate

without explanation: 18-Jun-09 Business Meal 28.65 Energy Capital Solutions-R. Montabalno

The time entries for June 18, which total 2.40 hours, do not reflect any meetings, nor do they suggest that this meal would have been a late-night overtime meal. We asked Millstream to explain the basis for this charge. Millstream provided the following response: The 18-Jun-09 business meal was with Energy Capital Solutions, a boutique investment bank in Houston, TX. Millstream met with this firm to discuss potential refinancing and potential buyers for the debtor's assets that were currently being marketed. Millstream did not charge for the short duration of the lunch meeting and instead submitted only an expense for the meal. We appreciate this response and have no objection to this charge.

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CONCLUSION 10. Thus, we recommend approval of fees totaling $69,165.00 ($69,231.00 minus $66.00)

and expenses totaling $4,240.85 ($4,485.35 minus $244.50) for Millstreams services from June 1, 2009, through August 31, 2009.

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 26th day of February 2010.

Warren H. Smith

SERVICE LIST
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The Applicant Mark A. Clemans Millstream Energy, LLC 4918 Menlo Park Drive Sugar Land, TX 77479 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 & 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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