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 ZOLFO COOPER MANAGEMENT, LLC, 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 Zolfo Cooper Management, LLC, for the Fourth Interim Period (the Application). BACKGROUND 1. Zolfo Cooper Management, LLC (Zolfo Cooper), was retained to provide

restructuring management services to the debtors-in-possession. In the Application, Zolfo Cooper seeks approval of fees totaling $133,492.00 and costs totaling $2,830.82 for its services from December 1, 2009, through February 28, 2020 (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,
FEE AUDITORS FINAL REPORT - Page 1 pac FR Zolfo 4th int 12.09-2.10.wpd

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 Zolfo Cooper an initial report based on our review and received a response from Zolfo Cooper , portions of which response are quoted herein. DISCUSSION 3. 12/18/2009 12/23/2009 In our initial report, we noted two inadequately detailed cell phone charges: KT JDC Phone - Cellphone Phone - Cellphone 93.79 19.10

We asked Zolfo Cooper to explain these charges further. Zolfo Cooper provided the following response: In response to Discussion item No. 3, a. 12/18/2009 - Cellphone $93.79 Cost of Kevin Tomossonie's monthly cell phone and blackberry charges. This cellphone charge was identified by the Fee Examiner as an expense of Kevin Tomossonie's, however, this charge was detailed by Zolfo Cooper as a cell phone expense for Mark Cervi. No allocation is being made, as 100% of Mr. Cervi's billable hours related to Pacific Energy during the relevant period. 12/23/20009 - Cellphone $19.10 Cost of Jesse DelConte's monthly cell phone and blackberry charges. An allocation of 25% is being made based on Mr. DelConte's billable hours related to Pacific Energy during the relevant period.

b.

We appreciate this response. However, while we accept Zolfos representation that the percentage of each professionals billable time during the relevant period was related to the Pacific Energy matter, there is no indication that each professionals cell phone was utilized solely for professional purposes for this estate. Thus, we believe that Zolfo has not carried its burden of showing that these

FEE AUDITORS FINAL REPORT - Page 2 pac FR Zolfo 4th int 12.09-2.10.wpd

expenses should be reimbursed by the estate. We accordingly recommend a reduction of $112.89 in expenses. 4. In our initial report, we noted two inadequately detailed expense items described as

Air Transportation: 12/13/2009 12/17/2009 KT KT Air Transportation Air Transportation 629.60 629.60

We asked Zolfo Cooper to provide additional information for these charges. Zolfo Cooper provided the following response: In response to Discussion Item No. 4, please see Exhibit A, appended hereto, for further detail of Kevin Tomossonie's Air Transportation Charges, including the class of carriage, the airport of origin and the destination, and whether the fare was for one-way or round-trip travel. The referenced exhibit is attached hereto as Response Exhibit 1-A. We accept this response and have no objection to these expense items. 5. In our initial report, we noted two inadequately detailed expense items described as

"Ground Transportation": 12/14/2009 12/17/2009 KT KT Ground Transportation Ground Transportation 121.20 115.20

We asked Zolfo Cooper to provide additional information for each of these charges. Zolfo Cooper provided the following response: In response to Discussion Item No. 5, please see Exhibit B, appended hereto, for further detail of Kevin Tomossonie's Ground Transportation - Car Service, including the points between which Mr. Tomossonie traveled. These charges are actual expenses charged by third parties without mark up, they are market rates and are reasonable. The referenced exhibit is attached hereto as Response Exhibit 1-B. We appreciate this response but do not believe it justifies the use of a car service instead of a taxi. As is stated in paragraph 5
FEE AUDITORS FINAL REPORT - Page 3 pac FR Zolfo 4th int 12.09-2.10.wpd

(footnote 3) of our final report regarding Zolfo Coopers fee application for the third interim period, we have determined that taxi fare between LAX and the Debtors offices should ordinarily be about $70.87, and where we are not advised of unusual circumstances we consider this the reasonable cost of ground transportation between these two points. Accordingly, we recommend a reduction of $94.96 in expenses. 6. 12/17/2009 In our initial report, we noted one inadequately detailed parking expense item: KT Ground Transportation - Parking 150.00

We asked Zolfo Cooper provide additional information for this expense. Zolfo Cooper provided the following response: In response to Discussion Item No. 6, please see Exhibit C, appended hereto, for further detail of Kevin Tomossonie's Ground Transportation - Parking, including the location of parking and duration. The referenced exhibit is attached hereto as Response Exhibit 1-C. We appreciate this response and recommend no reduction for this expense. 7. 12/7/2009 12/12/2009 12/15/2009 12/15/2009 12/29/2009 In our initial report, we noted several inadequately detailed expense items: JDC JDC JDC JDC JDC Meals - Lunch (1) Meals - Lunch (1) Meals - Lunch (1) Meals - Dinner (1) Meals - Lunch (1) 15.13 23.34 12.97 39.75 13.90

We asked Zolfo Cooper to provide further information for these meals. Zolfo Cooper provided the following response: In response to Discussion Item No. 7, please see Exhibit D, appended hereto, for further detail of Zolfo Cooper's Meal Charges, including the number of diners, the reason the cost of the meal was charged, and the city in which the meal was consumed. Note that our Firm's internal employee policy establishes a meal cap at thirty dollars ($30.00) for lunch and fifty dollars ($50.00) for dinner for Zolfo Cooper diners (absent unusual circumstances.) As such, all of the meals charged are
FEE AUDITORS FINAL REPORT - Page 4 pac FR Zolfo 4th int 12.09-2.10.wpd

reasonable and are subject to our Firm's policy on meal caps. We appreciate this response and have attached the referenced exhibit hereto as Response Exhibit 1D. We note that the exhibit describes these meals as working meals, two of which (the lunch on Saturday, December 12, 2009, and the dinner on Tuesday, December 15, 2009) appear to be for overtime meals. We note that on these days JDC billed 3.5 and 8.3 hours, respectively, and thus exceeded the minimum time (three hours) necessary to justify billing an overtime meal to the estate. The other three meals1, however, appear to be working lunches during the work week, and in the absence of specific circumstances justifying the charging of a working meal to the estate, we cannot recommend reimbursement of such meals. Zolfo Cooper has not described such circumstances, and we accordingly recommend a reduction of $42.00 in expenses. 8. In our initial report, we noted one instance in which Zolfo Cooper billed the estate

for time spent preparing an invoice to the Debtors: 12/26/2009 JCD 2.0 790.00 Prepared invoice for ZC accounting in order to provide a bill to the Company for payment

While a firms activities in preparing a fee application, including drafting the narrative, may be compensable, we believe that the compensable activities are limited to those necessary to conform an ordinary invoice (of the sort that would be issued in a non-bankruptcy matter) to the requirements of applicable bankruptcy law and applicable bankruptcy court orders. We interpret the above time entry as reflecting non-compensable administrative activities. We asked Zolfo Cooper to provide further information regarding this time entry. Zolfo Cooper provided the following response: In response to Discussion Item No. 8, for the 2.0 hour time block, the work performed is fully compensable in accordance with the standards set forth in the

Lunches on 12/7, 12/15 and 12/29/2010.

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

Initial Report. The work performed by Jesse DelConte was done precisely to take the invoice generated from accounting and conform it to the requirements of a monthly fee statement. Those specific task performed by Mr. DelConte are as follows: - Gather all professional time descriptions and consolidate into a single file; - Review all time descriptions and associated matter codes to ensure that work is being categorized consistently by all professionals; - Determine hours worked and compensation earned by each professional by service provided; - Create summary charts that describe the time incurred and services provided by each executive officer and staff employee; and - Prepare a staffing report summarizing the roles of each Zolfo Cooper employee assigned to the Pacific Energy project. While we appreciate this response, we believe that Zolfo Cooper has failed to meet its burden of showing why these entries do not reflect non-compensable administrative activities.2 Accordingly, we recommend a reduction of $790.00 in fees. CONCLUSION 9. Thus, we recommend approval of fees in the amount of $132,702.00 ($133,492.00

minus $790.00) and expenses in the amount of $2,580.97 ($2,830.82 minus $249.85) for Zolfo Coopers services for the Application Period.

We note that we raised the same issue in the third interim period, received a similar response from Zolfo Cooper, and recommended a corresponding reduction, which was adopted by the Court in its Order (Omnibus) Approving Third Quarterly Fee Applications of Professionals for the Period September 1, 2009 - November 30, 2009 [docket #1656]. FEE AUDITORS FINAL REPORT - Page 6 pac FR Zolfo 4th int 12.09-2.10.wpd

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 September 2010.

Warren H. Smith

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

SERVICE LIST The Applicant: Scott Winn Mark Cervi Zolfo Cooper Management, LLC 101 Eisenhower Parkway Roseland, NJ 07068 swinn@zolfocooper.com mcervi@zolfocooper.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 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 8 pac FR Zolfo 4th int 12.09-2.10.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 9 pac FR Zolfo 4th int 12.09-2.10.wpd

Exhibit A Pacific Energy Resources

Fee Application Detail for the Fourth Interim Period Response to Paragraph 4 of the Preliminary Fee Auditor Report - Air Transportation Expense Billed Amount 629.60 629.60 Coach Coach One Way or (1) Round Trip One Way One Way

Date Kevin Tomossonie 12/13/2010 12/17/2010 Footnotes

Class JFK LAX

Origin

Destination LAX JFK

(1) Our research consistently demonstrated that for these flights there is no price difference between round trip and one-way fares.

Exhibit B Pacific Energy Resources

Fee Application Detail for the Fourth Interim Period Response to Paragraph 5 of the Preliminary Fee Auditor Report - Ground Transportation Expense Billed Amount 121.20 115.20 Mode of Transportation Car Service Car Service NA NA

Date Kevin Tomossonie 12/14/2010 12/17/2010

Class

Origin LAX Airport, CA Pacific Energy

Destination Pacific Energy LAX Airport, CA

Exhibit C Pacific Energy Resources

Fee Application Detail for the Fourth Interim Period Response to Paragraph 6 of the Preliminary Fee Auditor Report - Parking Expense Billed Amount 150.00

Date Kevin Tomossonie 12/17/2009

Location JFK Airport

Start Date 12/13/2009

End Date 12/17/2009

Exhibit D Pacific Energy Resources

Fee Application Detail for the Fourth Interim Period Response to Paragraph 7 of the Preliminary Fee Auditor Report - Meal Expense Billed Amount 15.13 23.34 12.97 39.75 13.90 Number of Diners 1 1 1 1 1

Date Jesse DelConte 12/7/2009 12/12/2009 12/15/2009 12/15/2009 12/29/2009

Location New York, NY New York, NY New York, NY New York, NY New York, NY

Meal Lunch Lunch Lunch Dinner Lunch

Reason Working Meal Working Meal Working Meal Working Meal Working Meal