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 PEPPER HAMILTON LLP 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 Pepper Hamilton LLP for the Fourth Interim Period (the Application). BACKGROUND 1. Pepper Hamilton LLP (Pepper Hamilton) was retained as counsel to the Official

Committee of Unsecured Creditors. In the Application, Pepper Hamilton seeks approval of fees totaling $19,459.00 and costs totaling $1,471.48 for its services from December 1, 2009, through February 28, 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 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
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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 Pepper Hamilton an initial report based on our review, and received a response from Pepper Hamilton, portions of which response are quoted herein. DISCUSSION 3. In our initial report, we noted that Pepper Hamilton seeks approval of $4,751.00 in

fees for efforts to secure their own compensation. This amount equals 24.42% of the total fees requested for the Application Period, which is relatively high. We asked Pepper Hamilton to explain why it was necessary to spend so much time on these activities. Pepper Hamilton provided the following response: As you know, Pepper Hamilton is local counsel to the Committee in these proceedings (with the exception of some issues with which lead counsel has a conflict of interest). Local counsel work, as opposed to lead counsel work, often involves rendering supplementary, rather than primary, advice and assistance, often focused upon venue-specific issues that are only a subset of the larger group of issues over which lead counsel takes primary responsibility. For example, lead counsel might take primary responsibility in drafting a pleading or objection. Local counsel will then review and revise such document with a view toward local precedent, procedures, etc. While local counsel's role is no less important, it does take less time than creating the initial draft from "whole cloth," which is lead counsel's role. Of course drafting fee applications takes the same amount of time regardless of whether the firm is acting as lead or local counsel. It therefore stands to reason that the percentage of time PH spent on its fee applications (out of time spent on all matters) will be greater in those representations where, as here, it serves largely as local counsel. In any event, a review of the itemized entries on the fee applications will show you that our paralegals, rather than attorneys, draft fee applications and the attorneys only review and revise them as needed. This minimizes costs based on the paralegals' lower billing rates. We appreciate this response and note that attorney time accounts for just 2.2 of the 24.6 hours billed in the fee application category. While we are concerned about the amount of fee application fees requested in the Application, we will reserve judgment until the end of the case and continue to
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monitor the issue. 4. In our initial report, we noted one instance in which a professional performed tasks

that appear unbefitting of his hourly rate: 12/18/09 J. Carignan 0.80 375.00 300.00 File and serve objection to Beta assets sale motion

We asked Pepper Hamilton to explain why these activities justify a rate of $375 per hour. Pepper Hamilton provided the following response: My rate for filing and serving the BETA sale objection. This task needed to be completed by an attorney because it was a confidential (redacted) document that we filed under seal. If a mistake had been made, and we had made public confidential information, it could have endangered the Chapter 11 process and exposed PH (and perhaps the Committee) to sanctions for violating a confidentiality agreement. Our paralegals are very talented and diligent, but the risks attendant to any filing errors meant that this task could not be left to staff - an attorney had to handle it. We accept this response and recommend no reduction in this regard. CONCLUSION 5. Thus, we recommend approval of fees in the amount of $19,459.00 and expenses in

the amount of $1,471.48 for Pepper Hamiltons 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 17th day of September 2010.

Warren H. Smith

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SERVICE LIST The Applicant David B. Stratton, Esq. James C. Carignan, Esq. Pepper Hamilton, LLP Hercules Plaza, Suite 5100 1313 N. Market Street P.O. Box 1709 Wilmington, DE 19899-1709 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

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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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