UNITED STATES BANKRUPTCY COURT 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 INTERIM FEE APPLICATION OF STEPTOE & JOHNSON LLP FOR THE THIRD 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 Interim Fee Application of Steptoe & Johnson LLP for the Third 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 $48,848.75 and costs totaling $1,423.20 for its services from December 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
FEE AUDITORS FINAL REPORT - Page 1 pac FR Steptoe 4th int 12.09-2.10 v2.wpd

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 one time entry for travel time that does not appear to

have been billed at 50% of the normal hourly rate1: 12/08/2009 J.R. Taylor SP Counsel Travel to and from Wilmington, DE for hearing. 1.80 864.00

We asked S&J to explain this entry or confirm that a reduction is warranted. S&J responded, This travel time entry was billed at 50% through the reduction of the time entry by 50%. We appreciate this response and have no objection to the associated fees. 4. In our initial report, we noted that, during the Application Period, S&J billed

$4,965.00 in fees for preparation and prosecution of its fee applications, compared to $43,883.75 for substantive work. The amount billed for fee applications thus equals 11.31% of the amount billed for substantive work. We asked S&J to explain why the $4,965.00 in fees for preparation and prosecution of S&Js fee applications during the Application Period should be considered reasonable. S&J provided the following response: In general response to the inquiry above, we note that the approximate amount spent on the preparation of S&J's fee applications during the relevant time period has remained exceedingly low, which is concomitant with S&J's commitment to performing tasks in an efficient and cost sensitive manner. More specifically, however, with respect to the above, Task Code 107, is not solely used for the preparation of the S&J's fee applications, but with respect to all tasks associated with

Pursuant to Local Rule 2016-2(d)(viii): Travel time during which no work is performed shall be separately described and may be billed at no more than 50% of regular hourly rates.
FEE AUDITORS FINAL REPORT - Page 2 pac FR Steptoe 4th int 12.09-2.10 v2.wpd

the Committee's professionals' fee applications. Therefore, in December 2009, the time included not only preparation and filing of S&J's November 2009 Monthly Fee Application, but also reviewing the proposed final orders for S&J's and Deloitte's First Interim Fee Applications. Similarly, in January 2010, the time included not only preparation and filing of S&J's December 2009 Monthly Fee Application, but also drafting S&J's Second Interim Fee Application, review and response to the Fee Auditor's final report for the Second Interim period in preparation for such hearing. Finally, in February 2010, the time included not only preparation and filing of S&J's January 2010 Monthly Fee Application. We appreciate this response but note that no more than $280 of the fees in question relate to the fee applications of the Committees other professionals.2 At the same time, however, we note that attorney time accounts for just 3.4 of the 19.5 hours billed in the fee application category, and thus it appears that S&J was efficient in its use of professionals for these tasks. Therefor, while we remain concerned about the amount of fee application fees requested by S&J, we will not make any

Specifically, we note the following fee entries in this regard: K. Hollingsworth Paralegal Compare Deloitte and Steptoe interim fee applications to fee auditors proposed order. K. Hollingsworth Paralegal Review January 2010 invoice and revise Eleventh monthly fee application for K. Piper. 0.40 82.00

12/02/2009

02/19/2010

0.90

198.00

Each of these entries reflects both work on behalf of S&J and work on behalf of another applicant. If we attribute half the time and fees to the other applicants, the $4,965 in fees for preparation and prosecution of S&Js fee applications is reduced by $140 to $4,825, and the amount of substantive work increases by $140 from $43,883.75 to $44,023.75. However, despite the adjustments, the amount of S&J-related fee application fees ($4,825) still equals 10.96% of the adjusted total for substantive work ($44,023.75). Moreover, in looking at the fees for the prior period (to which much of this Application Periods work related), we see that the amount of fees requested for September through November 2009 was considerably less ($29,340.50) than the amount requested for this period ($48,848.75).

FEE AUDITORS FINAL REPORT - Page 3 pac FR Steptoe 4th int 12.09-2.10 v2.wpd

recommendation regarding this issue at the present time, but rather will continue to monitor the issue and re-examine it at the end of the case. CONCLUSION 5. Thus, we recommend approval of fees in the amount of$48,848.75 and expenses in

the amount of $1,423.20 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

FEE AUDITORS FINAL REPORT - Page 4 pac FR Steptoe 4th int 12.09-2.10 v2.wpd

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 15th day of September 2010.

Warren H. Smith

FEE AUDITORS FINAL REPORT - Page 5 pac FR Steptoe 4th int 12.09-2.10 v2.wpd

SERVICE LIST

The Applicant Filiberto Agusti, Esq. STEPTOE & JOHNSON LLP 1330 Connecticut Ave., N.W. Washington, D.C. 20036 Robbin L. Itkin, Esq. STEPTOE & JOHNSON LLP 2121 Avenue of the Stars, Suite 2800 Los Angeles, California 90067 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 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

FEE AUDITORS FINAL REPORT - Page 6 pac FR Steptoe 4th int 12.09-2.10 v2.wpd

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

FEE AUDITORS FINAL REPORT - Page 7 pac FR Steptoe 4th int 12.09-2.10 v2.wpd