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IN THE UNITED STATES BANKRUPTCY COURT FOR THE 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 AUDITOR’S FINAL REPORT REGARDING SEVENTH AND EIGHTH INTERIM AND FINAL FEE APPLICATIONS OF STEPTOE & JOHNSON L.L.P. FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES FOR THE PERIOD OF MARCH 19, 2009 THROUGH DECEMBER 23, 2010 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 Seventh and Eighth Interim and Final Fee Applications of Steptoe & Johnson L.L.P. for Compensation and Reimbursement of Expenses for the Period of March 19, 2009 through December 23, 2010 (the “Application”). BACKGROUND 1. Steptoe & Johnson L.L.P. (“S&J”) was retained as counsel to the Official Committee In the Application, S&J seeks approval of fees and expenses in the

of Unsecured Creditors.

following amounts: fees totaling $32,567.50 and expenses totaling $343.44 for its services from September 1, 2010 through November 30, 2010 (the “Seventh Interim Period”); fees totaling $5,836.00 and expenses totaling $346.65 for its services from December 1, 2010 through December 23, 2010 (the “Eighth Interim Period”); and final approval of fees totaling $852,547.251 and

We note that the total of the fees requested in S&J’s prior interim applications, plus the compensation requested for the Seventh and Eighth Interim Periods, plus an additional $960 in fees requested in the Application (for preparation of the Application) is $854,293.25. S&J has deducted from this amount the $1,746.00 in fee reductions ordered by the Court for the Second, Third, and Sixth Interim Periods, which periods are discussed in more detail in paragraph 11, to
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expenses totaling $21,017.142 for its services from March 19, 2009 through December 23, 2010 (the “Final 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, 2011, 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 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 Seventh Interim Period 3. In our initial report, we noted two time entries that appear to reflect time spent on the

arrive at the figure for which it seeks final approval in the Application. We note that the Court has ruled on the First through Sixth Interim Periods, but that no rulings have been made on the Seventh or Eighth Interim Periods. We note that the total of the expenses requested in S&J’s prior interim applications, plus those requested for the Seventh and Eighth Interim Periods is $32,511.22. S&J has deducted from this amount the $11,494.08 in reductions ordered by the Court for the First and Second Interim Periods, which periods are discussed in more detail in paragraph 11, to arrive at the figure for which it seeks final approval in the Application. We note that the Court has ruled on the First through Sixth Interim Periods, but that no rulings have been made on the Seventh or Eighth Interim Periods.
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review of pre-bills: 09/08/10 KH 0.30 66.00 Request pro forma from G. Gee (.1) and expedite recap of time detail from S. Tehranizadeh for L. Martinez (.2). Review time detail for services rendered September 130, 2010.

10/12/2010

KH

0.40

88.00

We note the following relevant case law: While time spent on preparing a fee application, including drafting the narrative, is compensable, time expended to review and edit time entries is not. Where the time entries require revision to conform to the court's standards, the editing services are administrative functions that are not compensable even if they are performed by a professional. In re Sonicblue Inc., 2006 WL 2067882, at *7 (Bankr. N.D. Cal. 2006) (citing In re CF & I Fabricators of Utah, Inc., 131 B.R. 474, 485 (D. Utah 1991)). A professional firm is traditionally tasked with reviewing prebills or proformas regardless of whether its client is a bankruptcy client (and therefore subject to the fee application process) or a non-bankruptcy client. Thus, we believe that time spent on prebills or proformas is generally noncompensable overhead. We asked S&J to explain why the cited activities should be compensated by the estate. S&J provided the following response: S&J has no objection to the Fee Auditor's comment or the proposed reduction of the fees for each of the 2 above entries. We appreciate this response and thus recommend a reduction of $154.00 in fees. 4. In our initial report, we noted two time entries that appear to relate to non-working

travel between Washington and Wilmington for the confirmation hearing. The time entries, however, did not appear to reflect the appropriate 50% travel discount: 10/12/2010 JRT 1.40 714.00 Travel to hearing.

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10/12/2010

JRT

1.40

714.00

Return travel from hearing.

We asked S&J to provide further explanation regarding these time entries. S&J responded, “The time entries for the above two entries were already reduced by 50%.” We appreciate this response and have no objection to the associated fees. 5. Thus, we recommend approval of fees totaling $32,413.50 ($32,567.50 minus

$154.00) and expenses totaling $343.44 for S&J’s services for the Seventh Interim Period. Eighth Interim Period 6. We have no objections to, or issues with, any of the fees and expenses requested for

the Eighth Interim Period. 7. Thus, we recommend approval of fees totaling $5,836.00 and expenses totaling

$346.65 for S&J’s services for the Eighth Interim Period. Final Application Period 8. In our initial report, we noted several unexplained discrepancies between the figures

for which interim approval was sought and the figures for which final approval is sought for the months of August and November 2010. For August 2010, the interim application requested interim allowance of $17,964.00, while the Application now seeks final allowance of $17,071.50 for that month. For November 2010, the interim application requested interim allowance of $2,770.50, while the Application now seeks final allowance of $2,216.40 for that month. We asked S&J to explain these discrepancies. S&J provided the following response: For August 2010, the agreed reduced amount for fees of $892.50 was included in the final allowance sought in the Final Application, which reduces the August 2010 fees to $17,071.50 (see Court Docket No. 2188). On 3/28/10, the order was entered (see Court Docket No. 2257). For November 2010, there was a typographical error and the

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final allowance should remain the same as originally requested, which is $2,770.50. We appreciate S&J’s clarification. 9. In our initial report, we noted that the total of the fees requested in the interim

applications for the First through Eighth Interim Periods is $853,333.25 and that the total for which final allowance is sought is $852,547.25. The difference of $786.00 is less than the amount of interim fee reductions ordered by the Court ($1,746.00). We asked S&J to explain how it arrived at the $852,547.25 figure. S&J provided the following response: The aggregate amount of $852,547.25 requested in the Final Application includes (1) the total fees requested ($853,333.25), less (2) the court ordered reductions for the 2nd and 3rd Interim Fee periods ($853.50), less (3) the reduction agreed upon for the 6th Interim Fee period ($892.50), plus (4) the fees incurred for the preparation of the final fee application ($960). S&J also provided a relevant response specifically relating to our statements in footnote 1: The aggregate amount of fees requested in this Final Application is $852,547.25, which is inclusive of the prior Court-ordered reductions. The "Compensation by Category" table on page 7 of the Final Fee Application, only reflects the monthly and interim previously requested fees and hours by task code, which reflects the prior monthly details sent by email to the fee auditor for the period 3/19/09 - 12/23/10 and totals the amount of $853,333.25. We appreciate this response and note that the $960 discrepancy between the $786 figure (amount of fees actually deducted) and the $1,746 figure (amount of reductions ordered by the Court) is accounted for by fees incurred for the preparation of the final fee application. The time entries giving rise to these fees were not included in the Application. 10. following: Having received this response, we requested the relevant time entries and received the

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02/11/2011

K. Hollingsworth Paralegal Analyze and draft S&J's final fee application request for reimbursement of compensation and fees.

2.00

440.00

K.C. Piper Of Counsel 1.00 520.00 Finalize Final Fee Application for filing. We appreciate S&J’s response. However, because these time entries are for work performed after the effective date of December 23, 2010, we must exclude these fees totaling $960 from our recommendations for this Application. Prior Interim Periods 11. We note that we previously filed the following final reports for S&J’s prior interim

02/17/2011

applications, which final reports we incorporate by reference herein, and we also note the following orders that ruled on S&J’s prior interim fee applications: 1st Period: Fee Auditor’s Final Report Regarding Interim Fee Application of Steptoe & Johnson LLP, for the First Interim Period (docket #1115) filed on or about November 9, 2009, in which we recommended approval of fees totaling $397,032.75 and expenses totaling $2,929.24, reflecting our recommended reduction of $10,976.87 in expenses, as further explained in paragraphs 8, 9 and 10 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving First Interim Fee Application Requests, dated December 8, 2009 (docket #1198). 2nd Period: Fee Auditor’s Final Report Regarding Interim Fee Application of Steptoe & Johnson LLP, for the Second Interim Period (docket #1315) filed on or about February 5, 2010, in which we recommended approval of fees totaling

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$264,984.25 and expenses totaling $14,904.78 reflecting our recommended reduction of $373.50 in fees and $517.21 in expenses, as further explained in paragraphs 3, 5,6, 7 and 8 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Second Interim Fee Application Requests, dated March 29, 2010 (docket #1455). 3rd Period: Fee Auditor’s Final Report Regarding Interim Fee Application of Steptoe & Johnson LLP for the Third Interim Period (docket #1579) filed on or about May 14, 2010, in which we recommended approval of fees totaling $28,860.50 and expenses totaling $721.87 reflecting our recommended reduction of $480 in fees, as further explained in paragraph 5 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Third Interim Fee Application Requests, dated June 23, 2010 (docket #1656). 4th Period: Fee Auditor’s Final Report Regarding Interim Fee Application of Steptoe & Johnson LLP, for the Fourth Interim Period (docket #1883) filed on or about September 15, 2010, in which we recommended approval of fees totaling $48,848.75 and expenses totaling $1,423.20. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Fourth Interim Fee Application Requests, dated October 12, 2010 (docket #1949). 5th Period: Fee Auditor’s Combined Final Report Regarding Those Interim Fee Applications with No Fee or Expense Issues for the Fifth Interim Period

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(docket #2108) filed on or about December 22, 2010, in which we recommended approval of fees totaling $20,559.00 and expenses totaling $9.00. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Fifth Interim Fee Application Requests, dated January 18, 2011 (docket #2141). 6th Period: Fee Auditor’s Final Report Regarding Interim Fee Application of Steptoe & Johnson LLP, for the Sixth Interim Period (docket #2188) filed on or about January 26, 2011, in which we recommended approval of fees totaling $52,898.50 and expenses totaling $338.96 reflecting our recommended reductions of $892.50 in fees, as further explained in paragraph 3 of that final report. The recommendations for fees and expenses were adopted in the Omnibus Order Approving Sixth Interim Fee Application Requests, dated March 28, 2011 (docket #2257). 12. We have reviewed the final reports and orders allowing fees and expenses for the prior

interim periods, and we do not believe there is any reason to change the amounts awarded for those periods.

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CONCLUSION 13. Thus we recommend final approval of fees totaling $851,433.25 ($852,547.253 minus

$154.004 and excluding $960.005) and expenses totaling $21,017.146 for S&J’s services for the Final Application Period.

We note that the total of the fees requested in S&J’s prior interim applications, plus the compensation requested for the Seventh and Eighth Interim Periods, plus an additional $960 in fees requested in the Application (for preparation of the Application) is $854,293.25. S&J has deducted from this amount the $1,746.00 in fee reductions ordered by the Court for the Second, Third, and Sixth Interim Periods, which periods are discussed in more detail in paragraph 11, to arrive at the figure for which it seeks final approval in the Application. We note that the Court has ruled on the First through Sixth Interim Periods, but that no rulings have been made on the Seventh or Eighth Interim Periods.
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See paragraph 5 supra. See paragraph 10 supra.

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We note that the total of the expenses requested in S&J’s prior interim applications, plus those requested for the Seventh and Eighth Interim Periods is $32,511.22. S&J has deducted from this amount the $11,494.08 in reductions ordered by the Court for the First and Second Interim Periods, which periods are discussed in more detail in paragraph 11, to arrive at the figure for which it seeks final approval in the Application. We note that the Court has ruled on the First through Sixth Interim Periods, but that no rulings have been made on the Seventh or Eighth Interim Periods.

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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 May 2011.

Warren H. Smith

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SERVICE LIST Notice Parties 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 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 Corporation 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

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Financial Advisor to the Debtors John Rutherford Lazard Freres & Co. LLC 30 Rockefeller Plaza, 61st Floor New York, NY 10020 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

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