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 SCHULLY, ROBERTS, SLATTERY & MARINO PLC 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 Schully, Roberts, Slattery & Marino PLC for the Fourth Interim Period (the Application). BACKGROUND 1. Schully, Roberts, Slattery & Marino PLC (SRSM) was retained as special oil and

gas and transactional counsel to the debtors-in-possession. In the Application, SRSM seeks approval of fees totaling $190,025.251 and costs totaling $3,203.571 for its services from December

In our initial report, we noted that while the Application seeks allowance of $190,025.25 in fees and $3,203.57 in expenses, the monthly invoices for the period reflect $190,325.00 in total fees and $3,381.56 in total expenses, for a discrepancy of $477.74 in the estates favor. We asked Schully about this discrepancy, and Schully confirmed that the Application correctly reflects its fee and expense request:

The invoices contain errors in favor of the Debtor. The Firm submitted the correct amount ($190,025.35 in fees and $3,203.27 in expenses). The confusion occurred because certain expenses were to be charged to the purchasers of the Beta assets and not to the Debtor and were adjusted accordingly. We accept Schullys response and recommend no adjustment in fees or expenses.

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1, 2009, through February 28, 2010 (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, 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 SRSM an initial report based on our review, and received a response from SRSM, portions of which response are quoted herein. DISCUSSION 3. In our initial report for the third interim period, we noted that SRSM had substantially

increased the billing rates of several of its timekeepers during July 2009. These increases included a 22% increase (from $450 to $550) for an attorney (Anthony Marino) who has been a partner at SRSM since 1996 and has been licensed in Louisiana since 1985. The firm also included a 25% increase for an associate (Lynn Wolf) who has been licensed in Louisiana since 1987. Guideline II.A.3 calls for disclosure of the [n]ames and hourly rates of all applicants professionals and paraprofessionals who billed time and for an explanation of any changes in hourly rates from those previously charged. We accordingly asked SRSM to explain these increases. After considering SRSMs response, we concluded that an ad-hoc rate increase cannot be justified by the work entailed

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by an engagement after the firm is retained with a different fee structure.2 In our initial report for this Application Period, we noted that the increased rates remained in effect for part of the current Application Period. We asked SRSM to explain why SRSM should be compensated at these rates for this portion of the Application Period. SRSM, however, has indicated that a smaller firm-wide rate increase has gone into effect and believes that it may be appropriate to adjust its fees on that basis. Rather than file an amended interim application, SRSM has expressed its desire to reserve the right to seek such an adjustment for this period in the context of its final fee application in this case. Specifically, SRSM has stated the following: The Firm requests that the Fee Auditor permit the Firm to submit proof of its ordinary course yearly fee increases beginning June 2009 and June 2010. This Chapter 11 action has been on-going since March 2009 and continues. Although the Firms request for an increase in fees to accommodate its ordinary course yearly increases and its preclusion of employment by other potential clients during the pendency of these matters due to the magnitude of these matters (one of twelve relevant factors enumerated in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714. 717-719 (5th Cir. 1974)) was rejected, the Firm wishes to reserve the right to submit reasonable partial adjustments to reflect its ordinary course yearly increases in the Final Application to be filed with the Court.

We appreciate this response and will consider SRSMs argument regarding the referenced ordinary course, firm-wide increases if it is raised by SRSM with respect to its future interim applications or its final fee application in the case. For the current Application Period, however, we will recommend reductions based on the reasoning stated in our prior final reports. Using that reasoning, we calculate that for 77.50 hours billed by ACM at $550 per hour (formerly $450), the appropriate reduction is $7,750 (77.50 x $100). For 259.40 hours billed by Lynn Wolf at $375 per hour

The ad-hoc nature of the rate increase is further underscored by the fact that the new rates were not consistently applied during the Application Period. Time entries reflecting the increased rates were sometimes followed by entries reflecting the original lower rates.
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(formerly $300), the appropriate reduction is $19,455.00 (259.40 x $75). For 38.90 hours billed by paralegal Joan Seelman at $275 per hour (formerly $220), the appropriate reduction is $2,139.50 (38.90 x $55). And for 20.80 hours billed by paralegal Diane Castle at $225 per hour (formerly $200), the appropriate reduction is $520.00 (20.80 x $25). Accordingly, we recommend a total reduction of $29,864.50. 4. In our initial report, we noted the following inadequately detailed expense entry in

the December invoice: Miscellaneous [JGS:Debit-Seal] 153.50

We asked SRSM to provide a further description of this item. SRSM advised us by telephone that this charge was billed in error. We appreciate this response and recommend a reduction $153.50 in expenses. 5. In our initial report, we noted the following inadequately detailed expense entry in

the February invoice: Miscellaneous [Keller & Heckman; 25229] We asked SRSM to provide a further description of this item, and SRSM did so: At the request of the Debtor, the firm was requested to acquire information related to the transfer of certain FCC licenses held by prior lessees and necessary to the successful sale of the Beta assets. Time was of the essence as the transaction had to close by the end of calender year 2009. The Firm sought the services of the firm that had previously handled the transfer of such licenses at the request of the Debtor. The invoice for such services is attached hereto. We appreciate this response and note that SRSM also provided copies of Keller & Heckmans invoice to SRSM and SRSMs check to Keller & Heckman, which are attached collectively hereto as Response Exhibit 1. We have reviewed the fee detail included in the invoice and have no objection to reimbursement of this expense item.
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2,112.50

CONCLUSION 6. Thus, we recommend approval of fees in the amount of $160,160.75 ($190,025.25

minus $29,864.50) and expenses in the amount of $3,050.07 ($3,203.57 minus $153.50) for SRSMs 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 21st day of September 2010.

Warren H. Smith

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SERVICE LIST The Applicant Anthony C. Marino, Esq. Lynn G. Wolf, Esq. Schully, Roberts, Slattery & Marino PLC 1100 Poydras Street, Suite 1800 New Orleans, LA 70163-1800 also sent by e-mail: amarino@schullyroberts.com lwolf@schullyroberts.com 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 Sugar Land, 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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