IN THE UNITED STATES BANUPTCY COURT

FOR THE DISTRICT OF DELAWAR

In re

) Chapter 11

PACIFIC ENERGY RESOURCES LTD., et al., 1 ) Case No. 09-10785 (KC)

) (Jointly Administered)

Debtors.

) Related to Docket Nos. 532, 545, 548, 605, 623,

629,631,633,634,635,636,637,638,639,640,
643, 651 and 652

Hearig Date: July 27,2009 at 1:30 p.m. prevailing Eastern time

REPLY TO OBJECTIONS TO DEBTORS' MOTION FOR AN ORDER: (I) APPROVING SALE OF DEBTORS' ALASKA ASSETS FREE AND CLEAR

OF ALL LIENS, CLAIMS, ENCUMBRACES AND OTHER INTERESTS PURSUANT TO SECTIONS 363(b), (f) AND (m) OF THE BANKRUPTCY
CODE; (II) ASSUMING AND ASSIGNING CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES: AND ain GRATING RELATED RELIEF
Pacific Energy Resources Ltd. ("PERL"), Pacific Energy Alaska Holding, LLC

("PEAR") and Pacific Energy Alaska Operating LLC ("PEAO") and the other above-captioned

debtors and debtors in possession (collectively, the "Debtors") hereby reply ("Reply") to each of
the objections and responses (collectively, the "Objections") to the Debtors' motion for an order
(a) approving the sale of the Debtors' Group 1 Assets (defined below) free and clear of all

liens,

claims, encumbrances and other interests (except for certain assumed liabilities); (b) assuming
and assigning certain executory contracts and unexpired leases; and (c) granting related relief.

i The Debtors in these cases, along with the last four digits of each Debtor's federal tax identification number, are:
Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings LLC (tax LD. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operatig LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The address for all of
the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA.

68773-002\DOCS_DE:151152.1

Introduction
1. The Debtors propose to sell their Group 1 AssetsZ to Amadon Limited

and Catherwood Limited (collectively, the "Successful Bidder"), and alternatively in the event the sale to the Successful Bidder does not close, to New Alaska Energy, LLC (the "Back-Up

Bidder"). The Debtors conducted an Auction for the Group 1 Assets on July 20, 2009 in
accordance with the Sale Procedures (defined below) approved by this Cour.3 At such Auction,
the Debtors determined that the Successful Bidder and the Back-Up Bidder submitted the highest

and best offers for the purchase of the Group 1 Assets. The Debtors now urge the Cour to
approve these sale transactions.
2. The Successful Bidder has agreed to purchase the Group 1 Assets for $8.1

milion in cash, plus assumption of certain post-closing decommissioning liabilities,4 royalty

obligations (including obligations to holders of overrding royalty interests but excluding

overrding royalty interests owned by the Lenders (defined below)), environmental

liabilities,

and all other obligations associated with owning and operating the Group 1 Assets. The BackUp Bidder has agreed to purchase the Group 1 Assets on substantially the same material terms,

but at a purchase price of $7 milion.

2 The "Group 1 Assets" generally consist ofPEAO's interests in oil and gas assets located in Alaska that are
operated by PERL or Aurora Gas LLC and PEAR's 50% ownership of the issued and outstanding common stock of nondebtor Cook Inlet Pipeline Company. 3 Capitalized term that are not expressly defined herein have the meanings ascribed to such term in the Sale

Procedures.
4 See PSA (defined below) 1.6(g) (Assumed Liabilities include "(aJll plugging, abandonment, decommssioning,

removal and/or restoration Liabilities associated with, related to or arsing from the Alaska Interests with respect to the periods prior to, from and after the Closing Date.").

68773-00Z\DOCS_DE:15115Z.1

3. As there were no Qualified Bidders for the Debtors' Group 2 Assets5 as of

the Auction on July 20,2009, the Debtors did not conduct an Auction for such assets, which (as
an alternative to a sale) may be abandoned pursuant to a separate motion filed by the Debtors and
curently

also set for hearng on July 27,2009.

Back2round
4. On July 1, 2009, the Court entered its Order (A) Approving Procedures

for

Sale of

the Debtors' Alaska Assets; (B) Scheduling Auction and Hearing to Consider Approval of

Sale; (C) Approving Notice of Respective Dates, Times, and Places for Auction and for Hearing
on Approval of (i) Sale and (ii) Assumption and Assignment of Certain Executory Contracts and
Unexpired Leases; (D) Approving Forms of

Notice; and (E) Granting Related Relief(the "Sale

Procedures Order"). Pursuant to the Sale Procedures Order, the Court approved certain
procedures (the "Sale Procedures") in connection with the proposed sale that included provisions
for an Auction of

the Debtors' Alaska assets (or some portion thereof) and set a hearing on the

Sale Motion (defined below) for July 27,2009 at 1:30 p.m. prevailing Eastern time (the "Sale

Hearng").
5. On July 2,2009, the Debtors filed the Debtors' Motion

for an Order: (i)

Approving Sale of the Debtors' Alaska Assets Free and Clear of All Liens, Claims,
Encumbrances and Other Interests Pursuant to Sections 363(b), (f and (m) of

the Bankruptcy

Code, (ii) Assuming and Assigning Certain Executory Contracts and Unexpired Leases, and (iii)

Granting Related Relief(the "Sale Motion") with this Cour, which is set to be heard at the Sale

5 The "Group 2 Assets" generally consist ofPEAO's oil and gas interests that are operated by Union Oil Company
of Californa.

68773-002\DOCS_DE:151152.1

Hearng, and filed and served their Notice to Counter

parties to Executory Contracts and

Unexpired Leases that May be Assumed and Assigned, which included a list of proposed cure

amounts for each listed contract and lease on its exhibit. On July 17, 2009, the Debtors fied and
served their Amended Notice to Counter

parties to Executory Contracts and Unexpired Leases

that May be Assumed and Assigned (the "Amended Cure Notice"), which included an amended
list of

proposed cure amounts for each listed contract and lease on its exhibit (the "Amended

Cure Exhibit").
6. As set forth in the Notice Of Auction Results for Alaska Assets and Date

and Time of Sale Hearing, filed with by the Debtors this Cour on July 22, 2009 (the "Notice"),
the Debtors held the Auction on July 20, 2009 for the Group 1 Assets. As stated above, there
were no Qualified Bidders for the Debtors' Group 2 Assets and no Auction was held for the
Group 2 Assets.
7. The Debtors, after consultation with their secured lenders (the "Lenders")

and the Official Committee of

Unsecured Creditors in these cases (the "Committee"), selected

the

the $8.1 milion bid (the "Successful Bid," as more fully described in the Notice) of

Successful Bidder, and the $7 milion bid (the "Back-Up Bid") ofthe Back-Up Bidder, for the
Group 1 Assets (the Successful Bidder or the Back-Up Bidder, as the case may be, is also

referred to herein as the "Buyer").

8. In conjunction with the sale of

the Group 1 Assets, the relevant Debtors

proposed to assume and assign related executory contracts and unexpired leases as selected by

the Buyer. Some ofthe Objections raise issues with the cure amounts proposed by the Debtors
in the Amended Cure Exhibit. Under the terms of the proposed Purchase and Sale Agreement

68773-002\DOCS_DE:151152.1

("PSA") between the Debtors and the Successful Bidder (a copy which will be fied with this

Cour prior to the Sale Hearng), the Successful Bidder shall pay all cure amounts for assumed
and assigned contracts and leases, as determined by this Cour. PSA, at 6.2(a) ("Obligations

due to the non-Debtor counterpary of any Assumed Contracts, as determined by the Banptcy
Cour pursuant to Section 365 of the Banptcy Code, if any (the "Cure Amounts"), shall be

paid by Buyer and not by Sellers, and Sellers shall have no liability for such Cure Amounts.").
9. Eleven Objections to the proposed sale and/or assumption and assignent

of specific executory contracts or unexpired leases were filed. In response to each Objection, the
Debtors respectfully state as follows:

Replv to Objections
A. Committee (Docket No. 636)

10. The Committee states that a sale of substantially all of a debtor's assets is
subject to strct scrutiny and objects to the sale of

the Debtors' assets to the Buyer because: (a)

the sale wil not lead to a confirmable plan given than all proceeds of

the sale wil be paid

immediately to the Lenders and there is no carve-out for a wind-down ofthe applicable estates;
(b) the sale proceeds would solely benefit the Lenders and not the estates; (c) the disbursement of

the sale proceeds to the Lenders would impair the ability ofthe Debtors to propose a confirmable plan; and (d) it is improper to approve the sale just to appease the demands ofthe Lenders.

11. The Debtors submit that the proposed sale of the Group 1 Assets is a step
towards a confirmable plan. Indeed, the Debtors are working on a wind-down budget for these

estates with the Lenders (and the Committee). The wind-down budget wil set aside sufficient
fuds to satisfy allowed administrative expenses through the date of the closing of a sale or sales

68773-002\DOCS_DE:151152.1

and additional amounts necessary to confirm a liquidating plan. In addition, as acknowledged in

the Committee's Objection, the Lenders have already cared-out assets for the unsecured
creditors in the form of avoidance actions and the first $2 milion of certain segregated fuds that

are currently the subject of conflcting claims, but may yield value for these estates (see footnote

23 on page 8 ofthe Committee's Objection).

12. It also bears mention that the Debtors' Alaska assets have been thoroughly

marketed and the price obtained is the highest and best offer obtained by the Debtors.

Unfortunately, in today's market, the Debtors' Alaska assets are simply not worth enough to

cover the outstanding secured debt ofthe Lenders. Nonetheless, both the Successful Bid and the
Back-Up Bid provide direct value to unsecured creditors by assuming potential plugging, abandonment and decommissioning liabilities (which could be substantial here) and obligations
under numerous leases and contracts, thereby meaningfully reducing the pool of

unsecured

claims, in addition to directly benefiting those unsecured contract parties whose claims wil be
satisfied in full when their executory contracts and unexpired leases are assumed.

13. The Committee offers no alternatives to the proposed sale and the Debtors
have no other options. The Debtors do not have funding to continue operations beyond August
4,2009. Without funding, the only realistic outcome is abandonment of

the Debtors' assets (as

has already been proposed in the alternative) and conversion of these cases to chapter 7. Under
the circumstances, the Debtors submit that proposed sale should be approved notwithstanding the
Committee's objections.

68773-002\DOCS_DE:151152.1

B. State of Alaska (Docket No. 651)

14. The State of Alaska (the "State") leases oil and gas properties to PEAO

(some on land and some offshore in Cook Inlet near Anchorage). The State requests that: (a) the
sale order condition the sale upon the State's approval of

the Buyer as the successor lessee and

operator; (b) the Successful Bidder provides adequate assurance of futue performance; ( c) a cure
amount of $600,000 (which would increase to $800,000 at the time of

the closing) is paid (the

cure relates to certain potential decommissioning obligations with respect to the Redoubt field);

and (d) as a cure, the Debtors submit to the State a letter resignng as unit operator and agreeing
to termination of

the North Alexander Unit. In its Objection, the State also reserves rights to its

asserted lien in the proceeds ofthe sale for remediating and decommissioning expenses, which
lien (it contends) is senior to all other secured claims, including the secured claims ofthe
Lenders.
15. The Successful Bidder has informed the Debtors that it would: (a) submit

to the State's approval process as lessee and operator (PERL and the Successful Bidder plan to

enter into a Transition Services Agreement for up to 180 days durng which PERL wil remain
operator); (b) demonstrate adequate futue performance by, among other things, complying with
the State's approval process; and (c) pay at closing the cure amount stated in the Objection. The

Debtors wil also provide the requested letter of resignation and wil consider adding appropriate
language to the proposed Sale Order to take into account any reservation of rights with respect to
the State's asserted liens.

68773-002\DOCS_DE:151152.1

C. Cook Inlet Re2ion. Inc. (Docket No. 638). SalamatofNative Association. Inc.
(Docket No. 643) and the United States (Docket No. 640)

16. The Objections filed by Cook Inlet Region, Inc. ("COO"), Salamatof

Native Association, Inc. ("Salamatof') and the Bureau of

Land Management and Minerals

Management Service of

the United States Department of

Interior (the "United States") are, for

the most part, related to the same land for which Salamatofhas the surface rights, COO has the
subsurface rights and the United States acts as administrator for the relevant lease.

1. COO
17. COO states in its Limited Objection that it "does not object to the

proposed sale of the Debtors' Alaska assets and assumption of related contracts and leases,

subject to and conditioned upon the requirements of 11 US.C. 363 and 365 being met,
including CIRI's right to pre- and post-petition cure payments for all amounts due under its contracts and leases, assurances that the purchaser/assignee is financially capable of future

performance under the contracts and leases, and subject to assumption ofthe contracts and leases
in their entirety, including any bonding, insurance, indemnty

and other requirements." CIRI

Objection, at ir 1. COO also states that its rights against PEAO's predecessor in interest Forest

Oil Corporation ("Forest Oil") must be preserved and its royalty interest in Oil and Gas Lease
BLM-A-035017/West Foreland, which it calls the Federal Lease, must be (using PSA
terminology) an Assumed Liability under the PSA.
18. The Debtors' Amended Cure Exhibit states a cure amount for COO of

$47,588.96 for Oil and Gas Lease BLM-A-035017/West Foreland and of$8,483.63 for the West
Foreland General Agreement and related agreements and easements, for a total of$56,072.59.

68773-002\DOCS_DE:151152.1

19. COO contends in its Objection that the cure amount for BLM-A-035017 is

$80,559.54 (plus any royalties for misreported production of as much as $1.78 milion),
$7,366.51 for the West Foreland General Agreement, etc. and $23,991.92 for the Kustatan to

Trading Bay Easement (for a total of$III,917.92 plus any royalties for misreported amounts).
The Debtors submit that certain of these amounts have been paid on a postpetition basis as
administrative expenses.

20. As stated above, the Successful Bidder is responsible for cure amounts
under the PSA, and it is the Debtors' intention that each contract or lease with COO wil be

assumed and assigned in its entirety. However, the Debtors dispute that any royalties for misreported amounts are owed to COO or the United States Bureau of Land Management ("BLM").

Allegations of mis-reported amounts appear to be nothing more than administrative errors. The
Debtors are working diligently with COO and BLM to reconcile any differences in cure amounts.

Also, the Successful Bidder has informed the Debtors that it has commenced discussions with
COO in an attempt to satisfy COO regarding any issues associated with adequate assurance of
futue performance.

21. Finally, nothing in the Debtors' proposed Sale Order wil affect COO's

rights against Forest Oil and the Debtors are wiling to include appropriate language in the Sale
Order to the extent necessary.
11. Salamatof
22. Salamatofjoins in COO's Limited Objection.

23. The Debtors' Amended Cure Exhibit states a cure amount for Salamatof
of$O for the Right of

Way Anual Lease for Airport and of$5,073.59 for the West Foreland

68773-002\DOCS_DE:151152.1

General Agreement and related agreements and easements, for a total of$5,073.59. (The
Debtors now believe that the actual cure amount should be $5,530.87.)
24. Salamatofasserts a cure amount of$8,483.63 for the West Foreland

General Agreement and related agreements and pipeline easements and $7,366.51 for the West

Foreland General Agreement and Subsurface Pipeline Easement, for a total of$15,851.14.

Salamatof also make a claim for an anual payment of $50,000 due on August 27,2009 under
the SalamatofSurface Use Agreement. The Debtors submit that certain of

these amounts have

been paid on a postpetition basis as administrative expenses.

25. As stated above, the Successful Bidder is responsible for cure amounts
under the PSA and wil be responsible for paying any amounts due after the sale closing on any

contracts or leases that it takes by assignent. The Debtors are working diligently with
Salamatof to reconcile any differences in cure amounts. The Successful Bidder has also

informed the Debtors that it wil contact Salamatof prior to the Sale Hearng to attempt to satisfy
Salamatof regarding any issues associated with adequate assurance of futue performance.
111. United States
26. BLM and the Minerals Management Service ("MMS"), each of

the United

States Deparment ofthe Interior, filed an Objection (the "US Objection") regarding the Debtors
proposed assumption oflease BLM-A-035017/West Foreland and assignent of

it to the Buyer.6

The United States references the total of the cure amounts proposed to be paid to COO in the

Amended Cure Exhibit ($56,072.59) as the "alleged amount to cure their default under said
6 The United States also fied an objection (Docket No. 631 filed July 21,2009) to the Debtors' alternative motion
for abandonment of the Debtors' Alaska assets, which would be moot with respect to the Group 1 Assets if

the Sale

Motion is approved and the sale closes.

68773-002\DOCS_DE:151152.1

lease." US Objection, at unumbered first paragraph. The United States recites the history of

BLM-A-035017, stating that it administers the lease for two Native American entities, Salamatof (which has surface rights) and COO (which has subsurface rights). The United States also states
that "COO, through BLM, lease the oil and gas right to the Debtor." US Objection, at ir 3.

27. The United States asserts that the "Debtors canot assume and assign, sell,
exchange or otherwise transfer any interest in the BLM/COO oil and gas lease without the
consent of

the United States, and the United States wil not consent to the assignent ofleases

that have outstanding obligations." US Objection, at ir 8.

28. As discussed above under the Debtors' response to COO's Objection, the

United States asserts that the relevant Debtors may owe a cure amount of

up to approx. $1.78

millon:
Because the Debtors hae (sic) failed to report royalties to MMS on the Compensatory Royalty Agreement since December of 2008, and have not reported royalties on the Royalty Sharng Agreement since first production, sales month December 2004, a preliminary review ofthe MMS records, indicate that the Debtors may owe BLM/CIRI approximately $1,780,308.12 in overdue royalties. See Proof of Claim # _ (sic), fied on or about July 20,2009. However, MMS has not had sufficient time to complete its statutorily mandated audit of the royalty payments from the Debtors, and reserves its right to amend its Proof of Claim accordingly.
Id., at ir 7 (footnote omitted).7

7 The United States is generally subject to the governental bar date of September 8, 2009 at 4:00 p.rn prevailing
Eastern time pursuant to an order of ths Cour. The Departent of

Interior filed a proof of claim (claim no. 431) on

July 17, 2009 assertg an admnistrative expense claim for $4,048,000 for contigent estimated plugging and

abandonment costs of$3,710,000 and surface reclamation cost of$338,000 related to West Foreland #1 and 2, which are gas producing wells on the leased propert referenced by CIRl and the United States in their respective Objections. To date, the United States has filed no other proof of claim related to the claim stated in the proof of claim referenced above (as ofJuly 23,2009 at 1:00 p.rn prevailing Eastern time).

68773-002\DOCS_DE:151152.1

29. As stated above, the Debtors dispute that any royalties for mis-reported
amounts are owed to COO or BLM and are working with COO and BLM to reconcile these

claims. Once any cure amounts payable to BLM are finally determined (the Debtors believe such amounts wil total the amounts set forth in the Amended Cure Exhibit), the Successful
Bidder shall be responsible for payment of such claims in full under the PSA.
D. Di2itel Data Joint Venture (Docket No. 637)
30. In its Response, Digitel Data Joint Ventue ("Digitel") states that it does

not object to the Debtors' assumption and assignent of

its licensing agreement for seismic data

provided that the Buyer executes a licensing agreement that is substantially similar to the
existing agreement and to pay the outstanding cure amount.
31. The Successful Bidder has informed the Debtors that it does not want an

assignent ofDigitel's licensing agreement. It is likely that the Back-Up Bidder also wil not
seek an assignent of this agreement. Hence, the Debtors do not expect to assume and assign

the agreement with Digitel.

E. Medema Familv Trust (Docket No. 639)

32. In its Conditional Objection, Medema Family Trust ("Medema") states

that it owns overrding royalty interests ("ORRs") in West MacArhur and West Foreland oil
and gas leases and states that the "ORR holders do not object to the 363 sale of

the leases,

production facilities and related improvements for the Alaska assets, provided that the buyer

takes the property subject to the ORR holders' interests and with the obligation to honor those

interests on and after the effective date ofthe sale." Medema Objection, at Conclusion.

68773-002\DOCS_DE:151152.1

33. Medema contends that the sale proceeds should not be paid to the Lenders
ahead of the ORR owners and asserts that the sale proceeds are not property of

the estate and

should be reserved for owners of ORRs. Medema also seeks a full accounting and payment for
unsold production (oil in storage), as well as a provision in the sale order stating that the sale
proceeds shall be retained by the Debtors pending the adjudication of

Medema's pending

adversary proceeding against the Debtors filed in the United States Banptcy Cour for the
Distrct of Alaska.

34. Medema's objection should be overrled because the proposed sale to the
Successful Bidder or the Back-Up Bidder is expressly subject to the rights of

the ORR holders

and such rights are preserved as par ofthe sale. Under section 1.16( e) of the PSA, the

Successful Bidder wil assume (as an Assumed Liability) "(a)ll royalty obligations associated
with, relating to or arising from the Alaska Interests that accrue from and after the Closing Date."
Such obligations include the claims of

holders of overrding royalty interests from and after the

Closing Date. Therefore, the PSA already satisfies the principal condition set by Medema for
approval of the sale. The Debtors also propose to pay anypostpetition claims of

the ORR

holders as administrative expenses of

these estates.

35. With respect to any prepetition claims of

the ORR holders, however, such

claims are mere unsecured claims for unpaid royalties, as the Debtors and Committee have
addressed in previous filings in this Court.8 The Alaska statute cited by Medema in its Objection

8 See the Debtors' (Docket No. 349 filed June 12,2009) and Commttee's (Docket No. 347 filed June 12,2009)

objections to the Motion by Medema Properties and Medema Family Trust to Compel Pacifc Energy Alaska Holdings to Segregate and Pay Medema's 1.25% ORR in the West Macarthur Leases and Provide a Full Accounting of Production from the Relevant Properties including Disposition of Cash Proceeds from Sale of
Production (Docket No. 309 fied May 14,2009), which was withdrawn on June 26, 2009 (Docket No. 506). The

68773-002\DOCS _DE: 151152.1

does not grant a holder of an overrding royalty interest any ownership right or a right to fuds
held by the lessee. Alaska statute 31.05.11O(h) grants lien rights only to the "unt" and provides
a holder of an overrding royalty interest with subrogation to the rights of the unit only if the

holder has advanced fuds for payment of an assessment - something the Medema has not done.
Therefore, the Medema's only claim for unpaid prepetition amounts owed under its ORR is a

general unsecured claim. 11 U.S.c. 101(5) ("The term 'claim' means - (A) a right to
payment.. ..").

36. A leading treatise in this area states that:

If... royalty is payable in money, the nonoperator's remedy is an action to recover an unsecured debt.
3 Wiliams & Meyers, Oil & Gas Law 659.1 at 748.13 (2008).9 Similarly, a reputable
commentator states:

In a traditional private-party transaction, the obligation to pay royalty is a contract right and, though it is recognized as an interest in realty, the unpaid royalty owner is, in the ordinary case, an unsecured creditor....
In the usual situation, therefore, a royalty owner is simply an unsecured creditor with respect to unpaid pre-petition royalty.

D. Bennett and R. Campbell, Energy Bankrptcy in the New Milennium: Energy, Insolvency,
And Enron, Rocky Mountain Mineral Law Institute, Proceedings ofthe Rocky Mountain Mineral

Law Forty-Eighth Anual Institute, , at 2.02(5)(a) (2002) (footnotes omitted) (available at on

Westlaw at 48 RMLF-INST 2 (2002)), citing Hurd Enterprises, Ltd. v. Bruni, 828 S.W.2d 101,

the arguents made in their objection to Medema's motion and refer ths Cour to such objection for additional arguent. 9 Tarrant v. Capstone Oil & Gas Co., 178 P .3d 866, 872 (Okla. Civ. App. 2007) ("The failure to pay royalties in
Debtors repeat some of ths case created a debt; it did not result in Royalty Owners being deprived of

tangible personal propert.").

68773-002\DOCS_DE:151152.1

109 (Tex. Ct. App. 1992) and

Atlantic Richfeld Co. v. Farm Credit Bank, 226 F.3d 1138 (10th

Cir. 2000).10
37. Prior to the banptcy and continuing postpetition, the Debtors have

deposited proceeds of oil production into their general ban accounts with other cash and the

Lenders have swept such accounts. These fuds, paricularly those collected prepetition, are no
longer traceable and Medema has not even attempted to identify such proceeds. See EBS

Pension, L.L.c. v. Edison Brothers Stores, Inc. (In re Edison Brothers, Inc.), 268 B.R. 409,413
(Ban. D. DeL. 2001) (citations omitted) ("Courts often use the LIBT (lowest intermediate.

balance test) to identify trust proceeds which have been commingled in a bank account.")
(citations omitted). If

Medema cannot identify and trace its claimed property, the property is
the estate. Banning v. Bozek (In re Bullon Reserve of

presumed to be property of

North

America), 836 F.2d 1214.1217 (9th Cir. 1988) ("fuds from commingled bank account controlled
by debtor presumptively constitute property of debtor's estate"). Accord Asurion Ins. Services,
Inc. v. Amp 'd Mobile, Inc. (In re Amp 'd Mobile, Inc.); 377 B.R. 478, 483 (Ban. D. DeL.

2007).11 Hence, Medema has a nonpriority general unsecured prepetition claim and has no
ownership interest in any of

the Debtors' fuds.

io We have located thee bankptcy cases where the United States as lessor, which retains a royalty by statute and
in its oil and gas leases, has fied general unsecured claims for unpaid royalties. See Proof of Claim filed in In re Dolphin Energy Corp./Galaxy Energy Corp., Case Nos. 08-13164 SBB, 08-13166 SSB (Bankr. D. Colo. Sept. 5, 2008); In re Golden Oil Co., Case No. 03-36974-wws (Bank. S.D. Tex. Dated Sept. 9, 2004 and filed Sept. 13, 2004) (amended claim for $2,523,868.68) In re Orbit Petroleum, Inc., Case No. 11 08-10408 (Bank. D.N.M. dated Aug. 7, 2008 and filed Aug, 8, 2008). i i The Uniform Commercial Code (UCC) provides that a securty interest attaches and remains in any identifable

proceeds of collateraL. UCC 9-315. Ifproceeds are comigled, the UCC states that identification is made
though tracing. Id. Once a transferee receives comigled fuds from a deposit account, however, in the absence
of collusion, proceeds are no longer subject to the creditor's securty interest, even if

they could be traced. UCC

9-322.

68773-002\DOCS_DE:151152.1

38. Nevertheless, the Debtors propose to reserve in an escrow account all

unpaid prepetition amounts owed to ORR owners (including Medama and Donkel, addressed

below). Such payment and escrow addresses Medema's concerns about ORR owner fuds
being paid over to the Lenders without adequate opportnity to assert its rights in the reserved

fuds.
F. Daniel K. Donkel (Docket No. 635)

39. Daniel K. Donkel ("Donkel") states in his Preliminary Objection that he

is the owner of an ORR in the each of five leases comprising the Redoubt Unit of Cook Inlet of

Alaska. Donkel fuher states that he seeks payment of all royalties owed to him since Januar 1,
2009, but does not state the amount owed.12 Donkel also asserts that his ORR is separate
property (not property of

the estate) that would not be subject to divestment in a banptcy

proceeding and that he has an interest in land.

40. Donkel stands in substantially the same position as Medema, addressed

above. For the same reasons set forth above with respect to Medema, the Debtors urge the Court
to overrle Donkel's objection.

G. Marathon Oil Company (Docket No. 634)

41. In its Limited Objection,13 Marathon Oil Company ("Marathon") states

that "Marathon does not object to the sale of

the Debtors' Alaska Assets," Marathon Objection,

12 By the Debtors' calculation, the amount is $1,379.73 though March 2009, with an estiate of approximately
$100 for each of April, May and June 2009. 13 Marathon also fied an objection (Docket No. 633 filed July 21,2009) to the Debtors' alternative motion for

abandonment of the Debtors' Alaska assets, which would be moot with respect to the Group 1 Assets if the Sale Motion is approved and the sale closes.

68773-002\DOCS_DE:151152.1

at ir 1. See id., ati 20, and, "(t)he cure amount for the Purchase and Sale Agreement is not
disputed. Id., at ir 1.14
42. Marathon, however, asserts that the Debtors have proposed an inadequate

cure amount for a Fuel Gas Agreement or to provide adequate assurance of future performance.

Marathon also requests that the Debtors preserve and retain records related to the adversary

proceeding Marathon v. PERL, Adv. Pro. No. 09-51004(KJC), which involves the issue ofthe
relative responsibility and priority of costs associated with decommissioning the Spurr facilities
(as such facilities are defined in the Debtors' filings in such adversary proceeding).

Additionally, Marathon states that all decommissioning obligations must be assumed and
assigned with any contract.
43. Although the Debtors have a definitive agreement in the form of

the

Successful Bid and the Back-Up Bid for the sale ofthe Debtors' Group 1 Assets at this time, the

Fuel Gas Agreement with Marathon relates to the Group 2 Assets and wil not be assumed and
assigned in connection with the proposed sale to the Successful Bidder or the Back-Up Bidder.

Hence, with the exception of retaining and preserving records relating to the adversary

proceeding with Marathon (which the Debtors are prepared to do, absent further Cour order),
Marathon's objection is moot.

H. Union Oil Company of California (Docket No. 605)

44. On July 15, 2009, Union Oil Company of

California ("Union") fied its

Preliminar Objection to the sale. Each ofthe contracts between Union and the Debtors
referenced in the objection relate to the Group 2 Assets, which are not currently the subject of a
14 The cure amount proposed by the Debtors in their Amended Cure Exhbit is $0.

68773-002\DOCS_DE:151152.1

definitive sale agreement. Hence, for the same reasons that Marathon's objection should be
overrled, the Debtors urge the Cour to overrle Union's objection as moot.

I. Whale Buildin2 LLC (Docket No. 629)

45. In its Limited Objection, Whale Building LLC ("Whale Building") asserts

that the cure amount for its offce space lease should be $38,052.58, not $10,993.53 as originally
proposed by the Debtors in their Amended Cure Exhibit.
46. After reviewing the Limited Objection and its attachment, the Debtors

agree that the cure amount should have been listed as $38,052.58 (the amount stated by Whale

Building). It bears mention, however, that neither the Successful Bidder nor the Back-Up Bidder have yet informed the Debtors whether Whale Building's lease wil be assumed and assigned as
par of the sale. The Buyer has until the closing date to make that decision.

(Remainder of page is intentionally blank)

68773-002\DOCS _DE: 151152.1

WHEREFORE, the Debtors respectfully request that this Cour overrle each Objection
to the extent set forth herein and, in accordance with the Sale Procedures Order, (i) grant the Sale

Motion and authorize the sale ofthe Group 1 Assets to the Successful Bidder and, alternatively,
to the Back-Up Bidder; (ii) approve the assumption and assignent of

the Assumed Executory

Contracts (as such term is used in the Sale Motion) to the Successful Bidder and, alternatively,

the Back-Up Bidder; and (iii) grant such other and fuher relief as is just and proper.
Dated: July 24,2009

~(~J
Telephone: 302/652-4100

PACHUSKI STANG ZIEHL & JONES LLP

D. arasch (CA Bar No. 109084)

Maxim B. Litvak (CA Bar No. 215852) Robert M. Saunders (CA Bar No. 226172) James E. O'Neil (DE Bar No. 4042) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705

Facsimile: 310/652-4400
Email: ikharasch~pszjlaw.com

mlitvak~pszyjlaw.com
rsaunders~pszjlaw .com

joneil~pszyjlaw.com
Counsel for Debtors and Debtors in Possession

68773-002\DOCS_DE:151152.1

IN THE UNITED STATES BANUPTCY COURT

FOR THE DISTRICT OF DELAWAR

In re ) Chapter 11
)

PACIFIC ENERGY RESOURCES LTD., et al., 1 ) Case No. 09-10785 (KC)

) (Jointly Administered)

Debtors. )
CERTIFICATE OF SERVICE
I, James E. O'Neil, hereby certify that on the 24th day of July, 2009, I caused a

copy ofthe following document to be served on the individuals on the attached service list in the
maner indicated:

Reply To Objections To Debtors' Motion For An Order: (1) Approving Sale Of Debtors' Alaska Assets Free And Clear Of All Liens, Claims, Encumbrances And Other Interests Pursuant To Sections 363(B), (F) And (M) Of The Bankruptcy
Code; (Ii) Assuming And Assigning Certain Executory Contracts And Unexpired

Leases; And (Iii) Granting Related Relief

Ja

i The Debtors in these cases, along with the last four digits of each Debtor's federal tax identification number, are:
Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings LLC (tax LD. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operatig LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The address for all of
the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA.

68773-002\DOCS_DE:151152.1

ALL BELOW SERVED VIA FACSIMILE

ATTORNY...
Joseph McMahon, Esq. (U.S. Trustee) Ira D. Kharasch, Esq. Robert Saunders, Esq. Scotta McFarland, Esq. (counsel to the Debtors) Jeffrey Sabin, Esq.
(counsel to the Lenders)

.. . ...

.. .. FAX

NUMER .

PHONE

NUER

302-573-6497 310-201-0760

302-573-6491

310-277-6910

212-752-5378
617-345-5001
312-407-8511

212-705-7747
617-951-8288

Amy Kyle, Esq. (counsel to the Lenders)

Seth Jacobson, Esq.

312-407-0889

(counsel for the Lenders)

David B. Stratton, Esq. James C. Carignan, Esq. (counsel for Creditors' Committee)
302-421-8390

302-777-6500

Francis J. Lawall, Esq. (counsel for Creditors' Committee)

Filiberto Agusti, Esq.
Steven Reed, Esq.

215-981-4750 202-429-3902

215-981-4000 202-429-3000

Josehua Taylor, Esq. (counsel for Creditors' Committee)

Robbin Itkin, Esq. Katherine Piper, Esq. Kelly Frazier, Esq. (counsel for Creditors' Committee)
310-734-3300

310-734-3200

Norman M. Monhait, Esquire (counsel for Union Oil Company of CA)

Robert R. Leinwand, Esquire (counsel for Whale Building LLC)
Francis A. Monaco, Jr., Esquire Fevin J. Mangan, Esquire (counsel for Marathon Oil)

302-658-7567

302-656-4433

212-956-2164
302-661-7729

212-603-6300
302-252-4361

Wiliam E. Chipman, Jr., Esquire (counsel for Daniel K. Donkel) (counsel for Medema Family Trust)

302-467-4450

302-467-4400

John C. Siemers, Esquire

907-258-2530
907-279-5358 713-659-2908

907-276-6100
907-276-1711

(counsel for Medema Family Trust)

Christopher M. Brecht, Esquire (counsel for Daniel K. Donkel) Frederick T. Johnson, Esquire (counsel for Digitel Data Joint Venture) Robert W. Mallard, Esquire (counsel for Cook Inlet Region, Inc.)

713-659-2900
302-425-7171

302-425-7177

E. Kathleen Shahan, Esquire (counsel for United States)

Ellen W. Slights, Esquire (counsel for United States)
John C. Smith, Esquire

202-307-0494
302-573-6431
907 -222-0839

202-307-0249
302-573-6277
907-222-7107
602-262-5348 302-425-6412

(counsel for Salamatof)

Gerald K. Smith, Squire

602-734-3834
302-425-6464 610-371-7972
212-468- 7900

(counsel for Salamatof)

Micahel D. DeBaecke, Esquire (counsel for Salamatof)

Joseph H. Huston, Jr., Esquire (counsel for State of Alaska)

302-425-3310

Lorenzo Marinuzzi, Esquire (counsel for State of Alaska)

212-468-8000

DOCS_DE: \50962.\

Pacifc Energy/Objectors to

Alaska Sale Service List

Case No. 09-10785
Document No. 151133

08- Hand Delivery

09 - Overnight Delivery

Hand Delivery (Counsel for Daniel K. Donkel) (Counsel for Medema Family Trust) Wiliam E. Chipman, Jr., Esquire Landis Rath & Cobb LLP 919 Market Street, Ste 1800 Wilmington, DE 19801
Hand Delivery (Counsel for SalamatofNative Ass'n) Michael D. DeBaecke, Esquire
Blan Rome LLP

Hand Delivery (United States Attorney) Ellen W. Slights, Esq. United States Attorney's Office District of Delaware
1007 N. Orange Street, Suite 700

1201 N. Market Street, Ste 800 Wilmington, DE 19801

Wilmington, DE 19801
Hand Delivery (Counsel for J. Aron & Company) Don A. Beskrone, Esquire Amanda M. Winfree, Esquire Ashby & Geddes, P.A.
500 Delaware Avenue, 8th Floor

Hand Delivery (Counsel for State of Alaska) Joseph H. Huston, Jr., Esquire Maria Aprile Sawczu, Esquire Stevens & Lee PC 1105 N. Market Street, Ste 700 Wilmington, DE 19801

Wilmington, DE 19899
Hand Delivery (Counsel for Union Oil Company of California, a California Corporation) Norman M. Monhait, Esquire Rosenthal, Monhait & Goddess, P A Citzens Ban Center, Suite 1401 919 Market Street, P.O. Box 1070 Wilmington, DE 19899

Via Overnight Delivery (Counsel for Union Oil Company of California) Richard L. Epling, Esquire David A. Crichlow, Esquire Roger Elder, Esquire Pilsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036 Via Overnight Delivery (Counsel for Whale Building LLC) Robert R. Leinwand, Esquire Russell P. McRory, Esquire Robinson Brog Leinwand Greene Genovese & Gluck P.C. 1345 Avenue of the Americas New York, NY 10 105 Via Overnight Delivery (Counsel for Daniel K. Donkel) Christopher M. Brecht, Esquire
Banston Gronning O'Hara, P.C. 60 1 West Fifth Avenue, Ste 900

Hand Delivery (Counsel for Marathon Oil Company) Kevin J. Mangan, Esquire Womble Carlyle Sandridge & Rice, PLLC 222 Delaware Avenue, Suite 1501 Wilmington, DE 19801
Hand Delivery (Counsel for Cook Inlet Region, Inc.) Eric Lopez Schnabel, Esquire Dorsey & Whitney (Delaware) LLP
1105 North Market Street, Suite 16th Floor

Wilmington, DE 19801

Anchorage, AK 99501

Via Overnight Delivery

(Counsel for Digitel Data Joint Venture) Frederick T. Johnson, Esquire

Dobrowski L.L.P.
1010 Lamar, Ste 1350

Houston, TX 77002
Via Overnight Delivery (Counsel for Medema Family Trust)
John C. Siemers, Esquire

Burr, Pease & Kurtz 810 N. Street, Ste 300 Anchorage, AK 99501
Via Overnight Delivery

(Counsel for United States) E. Kathleen Shahan, Esquire U.S. Department of Justice
P.O. Box 875, Ben Franlin Station

Washington, DC 20044
Via Overnight Delivery

(Counsel for SalamatofNative Ass'n)

John C. Smith, Esquire

Smith & Smith, PLLC 500 L Street, Ste 300 Anchorage, AK 99501

Via Overnight Delivery (Counsel for SalamatofNative Ass'n) Gerald K. Smith, Esquire Smith & Smith, PLLC 40 N. Central A venue Phoenix, AZ 85004
Overnight Delivery (Counsel for State of Alaska) Lorenzo Marinuzzi, Esquire Samantha Marin, Esquire Morrison & Foerster LLP 1290 Avenue of the Americas New York, NY 10104

68773-002\DOCS_DE: i 5 i i 33. i