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

FEE AUDITOR’S FINAL REPORT REGARDING INTERIM FEE APPLICATION OF SCHULLY, ROBERTS, SLATTERY & MARINO PLC FOR THE FIFTH 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 Fifth 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 $36,870.00 and costs totaling $1,507.07 for its services from March 1, 2010, through May 31, 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
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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. Guideline II.C.1 provides that fee applications shall include a summary sheet

indicating all amounts previously requested. The monthly invoices include this information only through November 2009. We asked SRSM to forward an updated chart, and include fully updated charts in all future applications. SRSM subsequently filed an amended application containing this information. 4. Of the $36,870 in fees requested, $6,270 relates to SRSM’s preparation and

prosecution of its fee applications, and the balance ($30,600) relates to substantive work. Thus, the fee application fees amount to 20.49% of the fees for substantive work. We asked SRSM to explain why this should be considered reasonable. SRSM provided the following response: As discussed in our conversation last week, the time spent reviewing and recalculating fee applications was occasioned by requests from bankruptcy counsel, the Debtor, and the fee auditor. We appreciate this response and have no objection to the fees billed in March and April 2010 for fee application preparation. The May fee detail, however, reflects an inordinate amount of time spent on the preparation of the March 2010 invoice, which covered $19,665.00 in fees and $1,303.86 in expenses: 5/5/2010 5/10/2010 LGW 3.00 LGW 2.50 900.00 750.00 Prepare interim fee application for March 2010 and submit. Continued work on March fee application per Mr. Tywoniuk and Ms. McFarland; prepare and transmit for filing; receive email requesting objections and verify to Ms. McFarland that there are none;

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LGW 1.20


Re-work March fee application per Mr. Tywoniuk and resubmit to Ms. McFarland; move certain activities to Rise offshore account.

We employ a general guideline that holds that fee-application fees should not exceed more than 5% of the amount requested. The figure is flexible to accommodate applicants whose fees are minimal, as the time attributable to certain aspects of the fee application process is not necessarily proportional to the size of the application. We also not that the 5% figure is an aggregate figure intended to account for fees associated with the monthly invoice and the quarterly interim application. Here, we see $2,010 in fees associated with preparation of the monthly invoice alone, where the figure represents 9.59% of the fees and expenses requested for the month. Moreover, it appears that more than half of this amount is due to problems with the original invoice that required correction and additional fees totaling $1,110.00. Under the circumstances, we do not believe SRSM has met its burden of showing that this amount is reasonably charged to the estate, and we accordingly recommend a reduction of $1,110.00 in fees. 5. In our initial report for the second 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. The firm 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 applicant’s 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 SRSM’s response, we concluded that an ad-hoc rate increase cannot

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be justified by the work entailed by an engagement after the firm is retained with a different fee structure.1 For the current Application, we asked SRSM to comment on this issue, and SRSM provided the following response: All fees for this reporting period are based on the lower rates originally filed with the court. I have attached the back-up necessary to demonstrate this point. We appreciate this response and note that the Application reflects the earlier, lower rates. 6. The April 2010 invoice includes a $154.87 expense item for Edgar research charges.

This expense, however, appears to represent an allocation rather than an actual attribution of specific out-of-pocket charges to the client. We asked SRSM to explain how this expense was calculated. SRSM provided the following response: The April 2010 invoice of $154.87 for EDGAR Online research relative to the adversary actions brought against the Debtor by Chevron and Marathon Oil were paid for by credit card by Ms. Wolf and were submitted for reimbursement to the Firm. The research into transactions on these publicly traded entities was employed to locate documents that were filed with the SEC and provided a considerably less expensive alternative to filing discovery motions in the bankruptcy court. We appreciate this response, but it does not address the issue we raised. The expense detail shows a $309.75 charge that was split 50-50 between this and another matter. This rough allocation suggests that the amount allocated to this matter is not based on the amount of usage attributable to this matter. In the absence of a further explanation, we recommend a reduction of $154.87 in expenses.

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 2009. Time entries reflecting the increased rates were sometimes followed by entries reflecting the original lower rates.
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CONCLUSION 7. Thus, we recommend approval of fees in the amount of $35,760.00 ($36,870.00

minus $1,110.00) and expenses in the amount of $1,352.20 ($1,507.07 minus $154.87) for SRSM’s 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) 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 22nd day of December 2010.

Warren H. Smith

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SERVICE LIST Notice Parties 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. O’Neill, 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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