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 RUTAN & TUCKER, 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 Rutan & Tucker, LLP, for the Second Interim Period (the Application). BACKGROUND 1. Rutan & Tucker, LLP (Rutan), was retained as special corporate and litigation

counsel for the debtors-in-possession. In the Application, Rutan seeks approval of fees totaling $620,708.50, and costs totaling $1,047.04 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 Rutan an initial report based on our review, and received a response from Rutan, portions of which response are quoted herein. DISCUSSION 3. We noted that Cristy G Parker, a partner billing at $450 per hour, spent 44.7 hours

and $20,115.00 in fees on work which does not appear appropriate for the professional's full hourly rate. 07/28/09 CGP 1.10 495 Assemble bank account, income statement and other information requested by unsecured creditor Rosecrans Energy re Universal Trust Lease (1.1);............. ...........; prepare schedules and exhibits to purchase and sale agreement (5.1);......................... Prepare and distribute schedules and exhibits to purchase and sale agreement (5.3);................ . . . draft form of Group 1 PSA, exhibits and schedules (0.9); revise Ocar PSA, exhibits and schedules (7.2). . . Draft and revise Group 1 PSA, exhibits and schedules (5.7); revise Ocar PSA and exhibits (0.8) . . . . . . revise Group 1 PSAs, schedules and exhibits (2.7) . . . . . . revise schedules to Group 1 PSA (0.5) . . . . . . prepare numerous revised schedules and exhibits and redlines of same for purchase and sale agreements and abandonment motions (4.5) . . . Prepare numerous revised clean and redline versions of exhibits and schedules for Group 1 and Group 2 PSAs and abandonment orders (5.7) . . . Revise numerous exhibits, schedules and ancillary documents for Group 1 and Group 2 purchase and sale agreements and abandonment motions (4.1) . . . Revise multiple sets of schedules and exhibits for Group 1 sale, Group 2 sale, for abandonment motions for Group 1 and Group 2, and other motions (8.3) . . .

07/01/09 07/02/09 08/07/09 8/08/09 8/26/09 8/27/09 8/28/09

CGP CGP CGP CGP CGP CGP CGP

5.10 5.30 0.9 6.5 2.7 .5 4.5

2295 2385 405 2925 1215 225 2025

8/29/09

CGP

5.7

2565

8/30/09

CGP

4.1

1845

8/31/09

CGP

8.3

3735

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On the issue of adjusting rates downward for certain tasks, the Third Circuit in Ursic v. Bethlehem Mines opined 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). We asked Rutan to provide further explanation regarding these fees and it responded: Simply put, the schedules/exhibits that Ms. Parker worked on were not clerical tasks, nor were they tasks that could have been effectively or efficiently handled by a junior attorney. Rather, the extensive exhibits and schedules reflected the heart of the deals being negotiated and were an integral part of the purchase agreements. As reflected in the time entries, Ms. Parker was simultaneously negotiating purchase agreements and related schedules/exhibits with multiple bidders on multiple sets of assets, some of which bidders and sets of assets partially or wholly overlapped. The Debtors requested that Ms. Parker be the one to work on all of the various purchase agreements, schedules, and exhibits to maintain consistency amongst the multiple deals that were being simultaneously negotiated, and to provide the Debtors representative (who was traveling extensively at the time) with one point of contact who was up to speed on the entire complex and intensive negotiation process that took place over an extended period of time and at all hours and days of the week. We appreciate Rutans response and have no objection to these fees. 4. Similarly, we noted the following time entries that appear to be for work which does

not appear appropriate for each professional's full hourly rate. 8/17/09 6/3/09 6/4/09 GS GA GA 1.3 .50 .50 487.5 Management of datasite and upload due diligence documents 275 Assemble all senior credit documents at D. Katic request 275 Assemble and organize all senior credit documents at D. Katic request

The U.S. Trustee Guidelines Rule, I.E. states . . . [i]n evaluating fees for professional services, it is relevant to consider various factors including the following: the time spent; the rates charged . . . We asked Rutan to provide further explanation regarding these fees and it responded:
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As to the work performed by Garrett Sleichter, at the Debtors request, he has been the person responsible for maintaining the referenced datasite from its inception in approximately January 2009. The datasite is designed, among other things, to organize information regarding the Debtors various assets into categories for due diligence purposes. In other words, the information is categorized, among other things, to facilitate a potential purchasers review of the Debtors assets. Maintaining this site requires that Mr. Sleichter review each document before it is uploaded, analyze whether it contains information that can be disclosed to thirdparties, and if so, how to categorize the document and its content to facilitate the due diligence being conducted by third-parties. Making these decisions requires legal analysis and a significant amount of knowledge regarding the Debtors business, and Mr. Sleichter has been performing work for the Debtors for more than four years. As to the work performed by Mr. Amber, in each instance the work was performed on a rush basis at the request of the Debtors president, and Mr. Amber could not have found a more junior attorney to perform the work within the time constraints imposed by the Debtors. Additionally, it is likely that it would have taken a more junior attorney significantly longer because a certain amount of time would have been required to explain the job that needed to be done. We appreciate Rutans response, and accept the explanation regarding Mr. Sleichter. However, the tasks performed by Mr. Amber, regardless of whether they were on a rush basis or not, were not tasks that required the skills inherent in his hourly rate. As assembling and organizing documents are clerical functions (for which we recommend billing at $80 per hour), we must recommend a reduction for these two instances. Thus, we recommend a reduction of $470.001 in fees. 5. We noted that professionals Catherine Parsons and Gregg Amber spent 3.60 hours

and $1,260 in fees on what appears to be the same task. 8/3/09 8/4/09 8/5/09 8/5/09 CP GA GA CP 1.00 .60 .60 1.40 250 330 330 350 Draft minutes for special meeting of the board of directors Work on minutes of July 23 board meeting work on minutes of August 3 board meeting draft minutes for various Pacific Energy Board and Committee meetings

$80 per hour times .5 equals $40.00. $40 times 2 equals $80.00 (fees allowed). $550 (fees charged) minus $80 equals $470.
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We asked Rutan to further explain these time entries. Rutan responded: The work is not duplicative. At the request of the Debtors Board of Directors, Mr. Amber attends the Debtors various Board meetings and takes notes. Then, using Mr. Ambers notes, Ms. Parsons prepares the first draft of the meeting minutes, which Mr. Amber reviews and revises to ensure the accuracy of the minutes. This two-step process is used to help reduce costs. We appreciate Rutans response and have no objection to these fees. 6. We noted that Rutan seeks reimbursement in the amount of $380.90 for Long

Distance Charges and $222.11 for Direct Long Distance incurred during the Application Period. We asked Rutan to further explain these costs and it stated that these charges were not allocations and that its . . long distance charges are billed per call. We appreciate Rutans response and have no objection to these expenses. CONCLUSION 7. Thus, we recommend approval of fees totaling $620,238.50 ($620,708.50 minus

$470.00) and expenses totaling $1,047.04 for Rutans 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 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 3rd day of March, 2010.

Warren H. Smith

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SERVICE LIST Notice Parties The Applicant Penelope Parmes Matthew Grimshaw Rutan & Tucker, LLP 611 Anton Blvd., 14th Floor Costa Mesa, CA 92626 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 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

Canadian Counsel to the Debtors

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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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