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)

Related Docket Nos. 283, 301

Hearing Date: June 3, 2009 at 1:00 p.m. (ET) Committee Objection Deadline: May 27, 2009 at 4:00 p.m. (ET)

LIMITED OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO THE MOTIONS TO COMPEL OF AERA ENERGY LLC AND NOBLE ENERGY, INC. The Official Committee of Unsecured Creditors (the Committee) of the abovecaptioned debtors and debtors-in-possession (the Debtors),1 through its undersigned counsel, hereby submits this limited objection (the Objection) to the Motion by Aera Energy LLC to Compel Pacific Energy Resources LTD. to (I) Segregate and Pay Aeras Production Payments and (II) Provide an Accounting of Production from the Relevant Properties, [Dkt. No. 283 ] (the Aera Motion), and the Motion by Noble Energy, Inc. to Compel Pacific Energy Resources LTD. to (I) Segregate and Pay Nobles Production Payments and (II) Provide an Accounting of Production from the Relevant Properties, [Dkt. No. 301] (the Noble Motion) (together, the Motions). The Motions ask the Court to require one of the debtors, PERL, (i) to commence makeup payments to Aera [Noble] for production payments that have been earned by Aera [Noble] as
The Debtors in these Chapter 11 cases are: Pacific Energy Resources Ltd. (PERL); Petrocal Acquisition Group; Pacific Energy Alaska Holdings, LLC; Carneros Acquisition Corp.; Pacific Energy Alaska Operating LLC (PEAO); San Pedro Bay Pipeline Company; Carneros Energy, Inc.; and Gotland Oil, Inc.
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of this date, as well as timely and properly paying Aera [Noble] all future production payments until PERLs obligation in regards to the production payments is satisfied in full, and (ii) to provide a proper accounting of production to Aera [Noble] in accordance with Aeras [Nobles] reservation of its production payment. Memorandum in Support of Aera Motion (Aera Memorandum) at 2; Memorandum in Support of Noble Motion (Noble Memorandum) at 2. As set forth below, the Committee opposes the Motions with respect to their claims regarding pre-petition production payments. DISCUSSION The Motions largely reiterate earlier claims made by Aera and Noble in their limited objections to the Debtors Emergency Motion for Authority to Pay or Honor Pre-Petition and Post-Petition Obligations to Royalty Interests, [Dkt. No. 15] (the Royalty Motion).2 Aera and Noble assert that they transferred or assigned certain oil and gas leases and associated assets to PERL, but expressly reserved . . . a variable undivided percentage interest in and to the hydrocarbons produced to the existing and new wells drilled on such oil and gas leases located in federal waters offshore California. Further, they claim that [t]hese production payments are . . . an interest in real property which are expressly carved out of [PERLs estate] as the . . . property of Aera [Noble]. Aera Memorandum at 1-2; Noble Memorandum at 1-2 (both citing 11 U.S.C. 541(b)(4)(B)). As an initial matter, the Committee disagrees that it is clear that section 541(b)(4)(B) is applicable to the production payments asserted by Aera and Noble. The text of that section states that it applies to situations in which the debtor has transferred such interest pursuant to a
See Limited Objection by Aera Energy LLC to Debtors Emergency Motion for Authority to Pay or Honor Prepetition and Postpetition Obligations to Royalty Interests, [Dkt. No. 225]; Limited Objection by Noble Energy, Inc. to Debtors Emergency Motion for Authority to Pay or Honor Prepetition and Postpetition Obligations to Royalty Interests, [Dkt. No. 228].
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written conveyance of a production payment . . . . 11 U.S.C. 541(b)(4)(B) (emphasis added).3 In the instant situation, neither Aera nor Noble has shown or for that matter, even averred that PERL transferred an interest in liquid or gaseous hydrocarbons to them. Rather, Aera and Noble repeatedly state that they expressly reserved the asserted production payments. See Aera Memorandum at 1 (In connection with Aeras transfer to PERL . . . Aera expressly reserved for itself a variable undivided percentage in and to the hydrocarbons produced . . . .), id. at 3 (In the Aera Assignment, however, Aera expressly excepted and reserved for itself . . . a production payment on any and all hydrocarbons attributable to the existing and new wells drilled . . . .); Noble Memorandum at 1 (Pursuant to Nobles assignment to [PERL] . . . Noble expressly reserved for itself a variable undivided percentage interest in and to the hydrocarbons produced . . . .); id. at 7 ([T]he production payments reserved by Noble . . . created a new interest that was not included in the real property conveyed to PERL . . . .). Thus, section 541(b)(4)(B) appears to be inapplicable by its own terms. Aera and Noble have also made no effort to demonstrate that the interests in question satisfy the second clause of that section. See 11 U.S.C. 541(b)(4)(B)(ii); n.3, supra (but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only
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Section 541(b)(4)(B) of the Code provides that property of a debtors estate does not include: (4) any interest of the debtor in liquid or gaseous hydrocarbons to the extent that . . . (B)(i) the debtor has transferred such interest pursuant to a written conveyance of a production payment to an entity that does not participate in the operation of the property from which such production payment is transferred; and (ii) but for the operation of this paragraph, the estate could include the interest referred to in clause (i) only by virtue of section 365 or 542 of this title . . . .

by virtue of section 365 or 542 of this title) (emphasis added). In other words, a party attempting to prove that section 541(b)(4)(B) applies to a particular interest must confirm that the debtors estate could have claimed the interest only under sections 365 or 542 not through a different section of the Code: The latter limitation means that the production payment will remain property of the estate if the claim to such production payment arises on some other basis e.g., under section 544(a)(3). 5 Collier on Bankruptcy, 541.22 (15th Ed. Rev.). Neither party has even attempted to address section 541(b)(4)(B)(ii). Therefore, both Aeras and Nobles claims under section 541(b)(4)(B) are necessarily deficient. Assuming section 541(b)(4)(B) does not apply, the status of Aera and Noble is no different from that of holders of other types of overriding royalty interests (ORRI). As the Committee demonstrated in its response to the Royalty Motion (the Committee Response), pre-petition claims of ORRI holders with respect to oil already produced and sold generally constitute unsecured claims against the bankruptcy estate. See Committee Response at 11, 15-16. Thus, as to pre-petition production payment claims, Aeras and Nobles arguments that they hold separate property interests are unavailing.

CONCLUSION
For the reasons stated, the Committee respectfully requests that this Court enter a modified order consistent with the Committees proposed modifications set forth above.

Dated: May 27, 2009

Respectfully submitted,

By: /s/ John H. Schanne II_______________________ David B. Stratton, Esq. (DE No. 960) James C. Carignan, Esq. (DE No. 4230) John H. Schanne II, Esq. (DE No. 5260) PEPPER HAMILTON LLP Hercules Plaza, Suite 5100 1313 N. Market Street P.O. Box 1709 Wilmington, Delaware 19899-1709 Tel: (302) 777-6500 Fax: (302) 421-8390 and Francis J. Lawall, Esq. PEPPER HAMILTON LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103-2799 Tel: (215) 981-4000 Fax: (215) 981-4750 and Filiberto Agusti, Esq. (DC Bar No. 270058) (admitted pro hac vice) Steven Reed, Esq. (DC Bar No. 337501) (admitted pro hac vice) Joshua R. Taylor, Esq. (VA Bar No. 45919) (admitted pro hac vice) STEPTOE & JOHNSON LLP 1330 Connecticut Avenue NW Washington, DC 20036 Tel: (202) 429-3000 Fax: (202) 506-3902 5

and Robbin L. Itkin, Esq. (CA Bar No. 117105) (admitted pro hac vice) Katherine C. Piper, Esq. (CA Bar No. 222828) (admitted pro hac vice) STEPTOE & JOHNSON LLP 2121 Avenue of the Stars Suite 2800 Los Angeles CA 90067 Tel: (310) 734-3200 Fax: (310) 734-3300 Counsel for the Official Committee of Unsecured Creditors of Pacific Energy Resources Ltd., et al.

CERTIFICATE OF SERVICE I, John H. Schanne, II, hereby certify that on May 27, 2009, I caused to be served the Limited Objection of the Official Committee of Unsecured Creditors to the Motions to Compel of Aera Energy LLC and Noble Energy, Inc. upon the following entities in the manner indicated: Laura Davis Jones, Esq. Scotta E. McFarland, Esq. Robert M. Saunders, Esq. James E. ONeill, Esq. Kathleen P. Makowski, Esq. Pachulski Stang Ziehl & Jones LLP 919 N. Market Street, 17th Floor P.O. Box 8705 Wilmington, Delaware 19899-8705 Facsimile: (302) 652-4400 VIA FACSIMILE AND HAND DELIVERY Ira D. Kharasch, Esq. Pachulski Stang Ziehl & Jones LLP 10100 Santa Monica Boulevard Los Angeles, California 90067-4100 Facsimile: (310) 201-0760 VIA FACSIMILE AND FEDEX Joseph R. McMahon, Esq. Office of the United States Trustee J. Caleb Boggs Federal Building 844 King Street, Suite 2207 Lockbox No. 35 Wilmington, Delaware 19801 Facsimile: (302) 573-6497 VIA FACSIMILE AND HAND DELIVERY Tobey M. Daluz, Esq. Joshua E. Zugerman, Esq. Ballard Spahr Andrews & Ingersoll, LLP 919 N. Market Street, 12th Floor Wilmington, Delaware 19801 Facsimile: (302) 252-4466 VIA FACSIMILE AND HAND DELIVERY Rhett G. Campbell, Esq. Mitchell E. Ayer, Esq. Thompson & Knight LLP 333 Clay St., Suite 3300 Houston, Texas 77002 Facsimile: (713) 654-1871 VIA FACSIMILE AND FEDEX Karen M. McKinley, Esq. Cole, Schotz, Meisel, Forman & Leonard, P.A. 500 Delaware Avenue, Suite 1410 Wilmington, Delaware 19801 Facsimile: (302) 652-3117 VIA FACSIMILE AND FEDEX Steven E. Rich, Esq. Mayer Brown LLP 350 S. Grand Avenue, Suite 25th Floor Los Angeles, California 90071-1503 Facsimile: (213) 625-0248 VIA FACSIMILE AND FEDEX Charles S. Kelley, Esq. Andres G. Romay, Esq. Mayer Brown LLP 700 Louisiana St., Suite 3400 Houston, Texas 77002 Facsimile: (713) 238-4634 VIA FACSIMILE AND FEDEX Lorenzo Marinuzzi, Esq. Morrison & Foerster LLP 1290 Avenue of the Americas New York, New York 10104 Facsimile: (212) 468-7900 VIA FACSIMILE AND FEDEX

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Jeffrey D. Landry, Esq. Senior Assistant Attorney General State of Alaska 1031 West 4th Avenue, Suite 200 Anchorage, Alaska 99501-1944 Facsimile: (907) 279-8644 VIA FACSIMILE AND FEDEX

Dated: May 27, 2009 Wilmington, DE

/s/ John H. Schanne, II John H. Schanne, II (DE No. 5260)

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