IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In Re: PACIFIC ENERGY RESOURCES, LTD., et al., Debtors.

) ) ) ) ) )

Chapter 11 Case No. 09-10785 (KJC) (Jointly Administered)

FEE AUDITORS FINAL REPORT REGARDING SEVENTH AND EIGHTH INTERIM AND FINAL FEE APPLICATIONS OF RUTAN & TUCKER, L.L.P., FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES FOR THE PERIOD OF MARCH 9, 2009 THROUGH DECEMBER 23, 2010 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 Seventh and Eighth Interim and Final Fee Applications of Rutan & Tucker, L.L.P., for Compensation and Reimbursement of Expenses for the Period of March 9, 2009 through December 23, 2010 (the Application). BACKGROUND 1. Rutan & Tucker, L.L.P. (Rutan), was retained as special corporate and litigation In the Application, Rutan seeks approval of fees and

counsel for the debtors-in-possession.

expenses in the following amounts: fees totaling $11,055.50 and expenses totaling $98.20 for its services from September 1, 2010 through December 23, 20101 (the Seventh & Eighth Interim Periods); and final approval of fees totaling $1,561,625.272 and expenses totaling $16,794.043 for
Rutan filed a monthly application for September 2010 and another monthly application for October 1 through December 23, 2010. Rutan then filed one interim application encompassing both periods. We note that the total of the fees requested in Rutans prior interim applications, plus the compensation requested for the Seventh and Eighth Interim Periods, plus an additional $3,000 in fees for preparation of the Application, is $1,565,827.00. Rutan apparently intended to deduct from this amount the $4,201.75 in reductions ordered by the Court for the Second, Fourth, Fifth, and Sixth Interim Periods
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2 1

its services from March 9, 2009 through December 23, 2010 (the Final 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, 2011, 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 Rutan an initial report based on our review, and received a response from Rutan, portions of which response are quoted herein. DISCUSSION Seventh & Eighth Interim Periods 3. In our initial report, we noted that of the $4,522 in fees billed for September 2010,

$1,950 related to Rutans own fee applications. The fees in question result from 3.90 hours of work performed by a partner billing at $500 per hour. We asked Rutan to provide further explanation

to arrive at the figure for which it seeks final approval in the Application. The amount actually deducted, however, was two cents less than the total of the reductions. These prior interim periods are discussed in more detail in paragraph 9. We note that the Court has ruled on the First through Sixth Interim Periods but has not ruled on the Seventh and Eighth Interim Periods. We note that the total of the expenses requested in Rutans prior interim applications, plus the expenses requested for the Seventh and Eighth Interim Periods, is $16,732.37. Rutan does not appear to have deducted from this amount the $435.20 in reductions ordered by the Court for the Third, Fourth, and Fifth Interim Periods, which periods are discussed in more detail in paragraph 9, to arrive at the figure for which it seeks final approval in the Application. We note that the Court has ruled on the First through Sixth Interim Periods but has not ruled on the Seventh and Eighth Interim Periods.
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regarding these fees. Rutan provided the following response: In paragraph 3 of the Report, the Fee Auditor asks that Rutan explain why a Rutan lawyer billing $500 per hour prepared Rutan's September 2010 fee application. This was done due to work issues as the person that would otherwise have done the work was on medical leave. Nonetheless, in light of the Court's prior rulings, Rutan will discount the hourly rate for the work to the amount that one of Rutan's third year associates would have charged, which is $275. As such, Rutan amends its request to seek $1,072.50 (3.9 hours x $275) for preparing its September 2010 fee application. We appreciate this response and the offer of a voluntary reduction to an hourly rate of $275, but we believe that a rate of $215 (representing the rate of paralegals in Rutan's Financial Practices Group) is more appropriate. In this regard, we note that the Third Circuit held 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 and n.34 (3rd Cir. 1994). Busy Beaver lists 15 cases in support of the statement [w]hen an experienced attorney does clerk's work, he or she should be paid clerk's wages. Id. While we do not mean to imply that the preparation of a fee application is a clerical task, the principle underlying these rulings supports a conclusion that the rate of an attorney may be reduced to a paralegal rate, even if there was no paralegal available to perform the task in place of the attorney. In this instance, we believe the fee application could have been prepared by a paralegal at a rate of $215 per hour and will recommend that fees for this activity be allowed at that rate. Accordingly, we recommend a reduction of $1,111.504 in fees. 4. In our initial report, we noted that the amount of fees requested on the face of the

3.9 hours x $215 = $838.50. $1,950.00 - $838.50 = $1,111.50.

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monthly application for September 1 through December 23, 2010, is $6,533.50. The chart on page 4 of the summary of the application, however, contains figures that add up to $7,853.50, although the total for the chart is given as $6,533.50. Similarly, the chart on page 10 of the Application contains figures that add up to $7,383.50, although again the total for the chart is given as $6,533.50. However, the time entries included in the fee detail appear to support a total of $6,698.50 in fees. We asked Rutan to clarify the amount for which approval is sought for this period. Rutan provided the following response: In paragraph 4 of the Report, the Fee Auditor asks that Rutan explain a discrepancy in two of the charts contained in its Twentieth Monthly Fee Application. After review, it appears that there are typographical errors in the charts on pages 4 and 10 of that monthly application. Rutan amends the charts as follows: Project Categories Fee Application Corporate Governance Public Reporting General Case Administration Total Total Hours 2.2 2.3 .4 9.7 14.6 Total Fees $1,100.00 $494.50 $86.00 $5,018.00 $6,698.50

We appreciate this response and note that it appears that Rutan has understated its fees by $165. We recommend that this amount be credited against the reduction recommended in paragraph 4 above. 5. Thus we recommend approval of fees totaling $10,109.00 ($11,055.50 minus

$946.505) and expenses totaling $98.20 for Rutans services for the Seventh and Eighth Interim Periods.

$1,111.50 - $165.00 = $946.50.

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Final Application Period 6. Footnote 2 on page 1 of the Application states that the total for which final allowance

is requested includes $3,000 in fees for preparing Rutans Seventh Interim Fee Application and this Final Fee Application. The Application, however, does not include the relevant time entries for this work. We asked Rutan to provide the time entries for this work. Rutan provided the following response: The relevant invoice is included. Rutan notes that it sought $3,000 in fees for the work. As the attached invoice indicates, the actual charge for the work totaled $3,034. Rutan is only seeking payment of $3,000. We appreciate this response and have attached the referenced exhibit hereto as Response Exhibit 1. We note that the fees in question relate to the following time entries of Matthew Grimshaw ($410 per hour): 02/16/11 02/17/11 02/18/11 Matthew Grimshaw Matthew Grimshaw Matthew Grimshaw 1.40 4.20 1.80 Draft and revise Rutan's Seventh Interim Fee Application. Draft and revise Rutan's final fee application. Draft and revise Rutan's final fee application.

Because these fees are for work performed after the effective date for this estate, or December 23, 2010, payment must be sought from the reorganized Debtors outside of the fee application process. Thus, we recommend an exclusion of this $3,000.00 in fees. 7. In our initial report, we noted that the total of the expenses requested in Rutans prior

interim applications, plus the expenses requested for the Seventh and Eighth Interim Periods, is $16,732.37. The Application, however, requests final allowance of $16,794.04 in expenses. We asked Rutan to explain this discrepancy. Rutan provided the following response: After review, it appears there may be a typographical error in Rutan's Final Application. Rutan clarifies that it is seeking reimbursement of $16,732.37 in expenses.
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We appreciate this response and recommend a reduction of $61.67 in expenses. 8. In our initial report, we noted that page 6 of the summary of the Application

reflects the inclusion of $902.00 in fees for Brendt Butler at an hourly rate of $225.50. The hourly rate, however, was only approximate, and the actual amount billed for the time in question in the August 2010 monthly application was $901.98. Thus we recommend a reduction of $0.02 in fees. Prior Interim Periods 9. We note that we previously filed the following final reports for Rutans prior interim

applications, which final reports we incorporate by reference herein, and we also note the following orders that ruled on Rutans prior interim fee applications: 1st Period: Fee Auditors Final Report Regarding Interim Fee Application of Rutan & Tucker, LLP, for the First Interim Period (Docket #1108) filed on or about November 6, 2009, in which we recommended approval of fees totaling $348,269.50 and expenses totaling $12,304.78. The recommendations for fees and expenses were adopted in the Omnibus Order Approving First Interim Fee Application Requests, dated December 8, 2009 (Docket #1198). 2nd Period: Fee Auditors Final Report Regarding Interim Fee Application of Rutan & Tucker, LLP, for the Second Interim Period (Docket #1376) filed on or about March 3, 2010, in which we recommended approval of fees totaling $620,238.50 and expenses totaling $1,047.04 reflecting our recommended reduction of $470.00 in fees, as further explained in paragraph 4 of that

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final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Second Interim Fee Application Requests, dated March 29, 2010 (Docket #1455). 3rd Period: Fee Auditors Final Report Regarding Interim Fee Application of Rutan & Tucker, LLP, for the Third Interim Period (Docket #1605) filed on or about May 24, 2010, in which we recommended approval of fees totaling $250,597.00 and expenses totaling $892.38 reflecting our recommended reduction of $59.28 in expenses, as further explained in paragraph 6 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Third Interim Fee Application Requests, dated June 23, 2010 (Docket #1656). 4th Period: Fee Auditors Final Report Regarding Interim Fee Application of Rutan & Tucker, LLP, for the Fourth Interim Period (Docket #1763) filed on or about August 10, 2010, in which we recommended approval of fees totaling $280,828.00 and expenses totaling $1,807.99 reflecting our recommended reductions of $162.50 in fees and $372.34 in expenses, as further explained in paragraphs 3, 4 and 6 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Fourth Interim Fee Application Requests, dated October 12, 2010 (Docket #1949). 5th Period: Fee Auditors Final Report Regarding Interim Fee Application of Rutan & Tucker, LLP, for the Fifth Interim Period (Docket #2111) filed on or about

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December 23, 2010, in which we recommended approval of fees totaling $28,583.75 and expenses totaling $95.87 reflecting our recommended reductions of 2,969.25 in fees and $3.58 in expenses, as further explained in paragraphs 3 and 4 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Sixth Interim Fee Application Requests, dated March 28, 2011 (Docket #2257). 6th Period: Fee Auditors Final Report Regarding Interim Fee Application of Rutan & Tucker, LLP, for the Sixth Interim Period (Docket #2187) filed on or about January 26, 2011, in which we recommended approval of fees totaling $19,053.00 and expenses totaling $50.91 reflecting our recommended reductions of $600.00 in fees, as further explained in paragraph 3 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Sixth Interim Fee Application Requests, dated March 28, 2011 (Docket #2257). 10. We have reviewed the final reports and orders allowing fees and expenses for the

prior interim periods, and we do not believe there is any reason to change the amounts awarded for those periods.

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CONCLUSION 11. Thus we recommend final approval of fees totaling $1,557,678.75 ($1,561,625.276

minus $946.527 and excluding $3,000.008) and expenses totaling $16,297.17 ($16,794.049 minus $496.8710) for Rutans services for the Final Application Period.

We note that the total of the fees requested in Rutans prior interim applications, plus the compensation requested for the Seventh and Eighth Interim Periods, plus an additional $3,000 in fees for preparation of the Application, is $1,565,827.00. Rutan apparently intended to deduct from this amount the $4,201.75 in reductions ordered by the Court for the Second, Fourth, Fifth, and Sixth Interim Periods to arrive at the figure for which it seeks final approval in the Application. The amount actually deducted, however, was two cents less than the total of the reductions. These prior interim periods are discussed in more detail in paragraph 9. We note that the Court has ruled on the First through Sixth Interim Periods but has not ruled on the Seventh and Eighth Interim Periods.
7

See paragraphs 5 and 8 supra. See paragraph 6 supra.

We note that the total of the expenses requested in Rutans prior interim applications, plus the expenses requested for the Seventh and Eighth Interim Periods, is $16,732.37. Rutan does not appear to have deducted from this amount the $435.20 in reductions ordered by the Court for the Third, Fourth, and Fifth Interim Periods, which periods are discussed in more detail in paragraph 9, to arrive at the figure for which it seeks final approval in the Application. We note that the Court has ruled on the First through Sixth Interim Periods but has not ruled on the Seventh and Eighth Interim Periods.
10

See paragraphs 7 and 9 supra.

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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 20th day of May 2011.

Warren H. Smith

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SERVICE LIST Notice Parties The Applicant Penelope Parmes Matt 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 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 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

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TAXPAYERS ACCOUNT NO 95-3519027

RUTAN & TUCKER, LLP

ATTORNEYS AT LAW A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS 611 ANTON BOULEVARD SUITE 1400 POST OFFICE BOX 1950 COSTA MESA, CALIFORNIA 92628-1950 (714) 641-5100

Pacific Energy Resources Ltd. Attn: Gerry Tywoniuk, Sr. VP and CFO 111 West Ocean Boulevard, Suite 1240 Long Beach, CA 90802

Invoice No. Account No. Billing Atty, Date Page

607722 023353 0031 James O'Neal April 20, 2011 1

RE: Fee Application FOR PROFESSIONAL SERVICES RENDERED THROUGH FEBRUARY 18, 2011 02/16/11 Matthew Grimshaw Application. Matthew Grimshaw Matthew Grimshaw 1.40 Draft and revise Rutan's Seventh Interim Fee

02/17/11 02/18/11

4.20 Draft and revise Rutan's final fee application. 1.80 Draft and revise Rutan's final fee application. Total Hours Total Professional Services 7.40 $3,034.00

Total Current Fees Previous Balance Due Payments and Adjustments Prior Balance Due Total Balance Due

$3,034.00 3,900.00 (3,900.00) 0.00 $3,034.00

Additional disbursements may have been paid or incurred on your behalf and are not reflected in this statement. An additional statement covering such disbursements will be furnished to you. The abbreviation (PA), (LC),or (DC) following an individual's name denotes paralegal, law clerk or document clerk.

RUTAN & TUCKER, LLP

ATTORNEYS AT LAW

Pacific Energy Resources Ltd. Fee Application 023353-0031

April 20, 2011 Invoice No. 607722 Page No. 2

ACCOUNTS RECEIVABLE 0 - 30 DAYS

$3,034.00

31- 60 DAYS
$0.00

61 - 90 DAYS
$0.00

91 - 180 DAYS
$0.00

OVER 180
$0.00

Additional disbursements may have been paid or incurred on your behalf and are not reflected in this statement. An additional statement covering such disbursements will be furnished to you. The abbreviation (PA), (LC),or (DC) following an individual's name denotes paralegal, law clerk or document clerk.

TAXPAYERS ACCOUNT
NO 95-3519027

RUTAN & TUCKER, LLP

ATTORNEYS AT LAW A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS

611 ANTON BOULEVARD SUITE 1400 POST OFFICE BOX 1950 COSTA MESA, CALIFORNIA 92628-1950 (714) 641-5100

Pacific Energy Resources Ltd. Attn: Gerry Tywoniuk, Sr. VP and CFO 111 West Ocean Boulevard, Suite 1240 Long Beach, CA 90802

Invoice No. 607722 Account No. 023353 - 0031 Billing Atty. James O'Neal Date April 20, 2011

Fee Application

INVOICE SUMMARY CURRENT INVOICE SUMMARY: Professional Fees Fees and Costs Due This Invoice

3,034.00 3,034.00

Wire Instructions
Union Bank of California 18300 Von Karman Irvine, CA 92612 ABA #: 122000496 Swift Code: BOFCUS33MPK Account Number: 0630133009 Account Name: Rutan & Tucker LLP Reference: Please refer to the invoice number listed above.

Additional disbursements may have been paid or incurred on your behalf and are not reflected in this statement, An additional statement covering such disbursements will be furnished to you. The abbreviation (PA), (LC),or (DC) following an individual's name denotes paralegal, law clerk or document clerk.

TAXPAYERS ACCOUNT
NO 95-3519027

RUTAN & TUCKER, LLP

ATTORNEYS AT LAW A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS

611 ANTON BOULEVARD SUITE 1400 POST OFFICE BOX 1950 COSTA MESA, CALIFORNIA 92628-1950 (714) 641-5100

Pacific Energy Resources Ltd. Attn: Gerry Tywoniuk, Sr. VP and CFO 111 West Ocean Boulevard, Suite 1240 Long Beach, CA 90802

Invoice No. 607722 Account No. 023353 - 0031 Billing Atty. James O'Neal Date April 20, 2011

Fee Application

REMITTANCE COPY *** PLEASE RETURN THIS PAGE WITH YOUR REMITTANCE *** CURRENT INVOICE SUMMARY: Professional Fees Fees and Costs Due This Invoice $ 3,034.00 3,034.00

Wire Instructions
Union Bank of California 18300 Von Karman Irvine, CA 92612 ABA #: 122000496 Swift Code: BOFCUS33MPK Account Number: 0630133009 Account Name: Rutan & Tucker LLP Reference: Please refer to the invoice number listed above.

Additional disbursements may have been paid or incurred on your behalf and are not reflected in this statement. An additional statement covering such disbursements will be furnished to you. The abbreviation (PA), (LC),or (DC) following an individual's name denotes paralegal, law clerk or document clerk.