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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 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 Fee Application of Schully, Roberts, Slattery & Marino PLC for the Third 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 $312,231.25 and costs totaling $2,148.09 for its services from September 1, 2009 through November 30, 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 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 prior 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. They 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 by an engagement after the firm is retained with a different fee structure.1 We note that the increased rates remained in effect for the current Application Period. We asked SRSM to explain why SRSM should be compensated at these rates for this Application Period. SRSM provided the following response: Fee increases were made on a yearly basis for the firm and the billing reflects those increases. The increases were made after review of what firms with similar expertise are charging in similar settings. While we believe our fees are justified, we have, however, reduced our fees to the original dollar amounts for our billing in recent months and understand if the fee auditor does so for these invoices.

The ad-hoc nature of the rate increase is further underscored by the fact that the new rates were not consistently applied during the month of July. Time entries reflecting the increased rates were sometimes followed by entries reflecting the original lower rates.
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We appreciate this response and will recommend the same downward adjustment that we recommended in the prior interim period, when we recommended allowance of the fees at the rates that were in effect as of June 30, 2009. For 48.30 hours billed by ACM at $550 per hour (formerly $450), the appropriate reduction is $4,830.00 (48.30 x $100). For 674.76 hours billed by Lynn Wolf at $375 per hour (formerly $300), the appropriate reduction is $50,607.00 (674.76 x $75). For 8.90 hours billed by paralegal Joan Seelman at $275 per hour (formerly $220), the appropriate reduction is $489.50 (8.90 x $55). And for 86.40 hours billed by paralegal Diane Castle at $225 per hour (formerly $200), the appropriate reduction is $2,160.00 (86.40 x $25). Accordingly, we recommend a reduction of $58,086.50. 4. In our initial report, we noted several time entries for SAH ($200 per hour) and CCB

($150 per hour) that appear to be for clerical tasks that do not appear appropriate for the professional's full hourly rate: 09/04/2009 09/08/2009 SAH SAH 0.75 0.90 150.00 180.00 (AD)Create labels for the closing folders for the assignments; print same and affix to folders; (AD)Create two additional sets of labels for assignment folders and preliminary drafting of closing documents; Indexing of pleading files for review by Mr. Landry; Index of pleading files for review by Mr. Landry; Indexing of pleading files for review by Mr. Landry; Indexing of pleading files for review by Mr. Landry; Indexing of pleading files for review by Mr. Landry; Pull newly filed pleadings from Pacer; create index for these files for review by Mr. Landry; Indexing of pleading files for review by Mr. Landry; Retrieved and indexed newly filed pleadings from pacer for review by Mr. Landry;

10/15/2009 10/16/2009 10/19/2009 10/20/2009 10/22/2009 10/23/2009 10/26/2009 10/27/2009

CCB 3.00 CCB 2.00 CCB 2.00 CCB 0.10 CCB 3.00 CCB 4.50 CCB CCB 4.00 4.50

450.00 300.00 300.00 15.00 450.00 675.00 600.00 675.00

On the issue of adjusting rates downward for certain tasks, the Third Circuit seems fond, in the bankruptcy context, of quoting its opinion in Ursic v. Bethlehem Mines, 719 F.2d 670, 677 (3d Cir.
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1983) 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 n.34 (3rd Cir. 1994). Busy Beaver, in footnote 34 on page 855, lists 15 cases in support of the statement [w]hen an experienced attorney does clerks work, he or she should be paid clerks wages. We consistently recommend that clerical tasks be compensated at $80 per hour. We asked SRSM to explain why a reduction is not in order and why the indexing of pleadings required so much time. SRSM replied, We agree with the fee auditors assessment of these entries and accept the reductions. We appreciate this response and recommend a reduction of $1,815.002 in fees. 5. 09/08/2009 In our initial report, we noted four inadequately detailed time entries: DMC 0.90 202.50 (AD) Continue with preparation of assignments Cook Inlet Energy (AD) Continue with preparation of assignments Cook Inlet Energy (AD) Continue with preparation of assignments Cook Inlet Energy (AD) Continue with preparation of assignments Cook Inlet Energy

09/08/2009

DMC 0.90

202.50

09/08/2009

DMC 0.90

202.50

09/08/2009

DMC 0.90

202.50

We asked SRSM to provide a further description of the referenced assignments. SRSM provided the following response: Further explanation of the preparation of assignments of leases and overriding royalty interests - every assignment is an individual assignment that must be

This amounts equals the sum of a $198 reduction for the time of SAH (1.65 hours x $120 per hour) and a $1,617 reduction for the time of CCB (23.1 hours times $70 per hour).
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researched on the Alaska Department of Natural Resources website for accuracy and for pertinent information. Each assignment is different and requires careful review of property descriptions and legal descriptions. The assignment must contain the accurate legal description of the property to be assigned and in each instance, the percentage to be assigned must be calculated and checked against previous assignments. In some instances, the assignments arise out of earlier transfers and the agreements conveying those interests must be check. In total, there were 90 unique assignments: 09/08/2009 DMC 0.90 202.50 (AD) Continue with preparation of assignments - Cook Inlet Energy ADL leases -Cosmopolitan Unit proportionately reduced overrides. Review also Pioneer PSA. (AD) Continue with preparation of assignments - Cook Inlet Energy- ADL leases nonunitized acreage of Trading Bay Unit leases. Review also Forest Oil assignments. (AD) Continue with preparation of assignments - Cook Inlet Energy continued work on nonunitized acreage of Trading Bay Unit leases. Check against Chevron backup material. (AD) Continue with preparation of assignments - Cook Inlet Energy Mental Health Trust leases inquire as to whether all acreage is being assigned.

09/08/2009 DMC

0.90

202.50

09/08/2009 DMC

0.90

202.50

09/08/2009 DMC

0.90

202.50

We appreciate this response and recommend no reduction in this regard. 6. In our initial report, we noted that the Application states that SRSM seeks

reimbursement of $30.89 in expenses for September 2009. Exhibit A to the September invoice, however, indicates that the total is $31.19. We asked SRSM to explain this discrepancy. SRSM explained, Exhibit A to the September invoice reflects the correct amount: total is $31.19. The

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application contains a clerical error. We appreciate this response and note that the de minimis clerical error inures to the benefit of the estate. 7. Local Rule 2016-2(d)(viii) states that [t]ravel time during which no work is

performed shall be separately described and may be billed at no more than 50% of regular hourly rates. In our initial report, we noted two entries reflecting non-working travel time that did not appear to have been discounted by 50% of the normal hourly rate: 10/29/2009 JGS 2.50 687.50 Travel to Pisces; conference with Mr. Jones regarding executing assignments for OCS-G 3428 and 4277; travel to MMS to file same; e-mail Mr. Jones and Ms. Atwood with file stamped copies of assignments; (OP) Travel to MMS to file OSFR 1019 and 1022 forms with Mr. Clancy; scanned and sent same to Ms. Hazen;

11/09/2009

JGS

1.00

275.00

We asked SRSM to please provide further explanation regarding these fees. SRSM provided the following response: [The first] entry is an accounting department error and does not pertain to this client. Please adjust accordingly. 20 minutes of [the second] entry is travel time. Please adjust accordingly. The remainder of the time was spent working with Mr. Clancy at the MMS regional office to determine proper dollar amounts for financial responsibility oil spill responsibility for the Debtor and to assure that Debtor could continue to operate the estates property. Once discussions were completed satisfactorily, those determinations were made and were accepted for filing with the MMS. They then had to be forwarded with detailed explanation to Debtors insurer and to the MMS Pacific Region. We appreciate this response and calculate an appropriate reduction of $41.253 for the second entry in addition to the $687.50 voluntary reduction for the first item. Accordingly, we recommend a reduction of $728.75 in fees.

$275 times.3 hours divided by 2.

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8.

In our initial report, we noted a time entry that appears to have been cut off in mid-

sentence at a page break: 10/31/2009 LGW (AD)Follow-up emails with Mr. Tywoniuk regarding closing and issues surrounding; continued work on drafting documents for

We asked SRSM to complete this entry. Additionally, we note that the total time for LGW for October is stated as 173.70 hours, but the time ascribed to the time entries in the October invoice totals just 171.90 hours. If the amount of time attributable to the above time entry is less than 1.80 hours, there must be at least one additional time entry that was also cut off. If so, we asked SRSM to supply the additional entry or entries. SRSM provided the following response: The proper entries are as follows: (AD) Follow-up emails with Mr. Tywoniuk regarding closing and issues surrounding. Continued work on drafting documents for closing. .90

(AD) Continued work addressing issues relative to reconveyances from .90 lenders and how to address lien issues. Discussion of assignments and recordation to avoid creating title problems for new purchaser and Debtor. Address issues put forth by DNR and concerns that if not handled properly valuable property rights will be extinguished. We appreciate this response and have no objection to the associated fees. CONCLUSION 9. Thus we recommend approval of fees in the amount of $251,601.00 ($312,231.25

minus $60,630.25) and expenses in the amount of $2,148.09 for SRSMs 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 3rd day of June, 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 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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