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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 AUDITORS FINAL REPORT REGARDING SEVENTH AND EIGHTH INTERIM AND FINAL FEE APPLICATIONS OF PEPPER HAMILTON LLP 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 Pepper Hamilton LLP for Compensation and Reimbursement of Expenses for the Period of March 19, 2009 through December 23, 2010 (the Application). BACKGROUND 1. Pepper Hamilton LLP (Pepper Hamilton) was retained as counsel to the Official

Committee of Unsecured Creditors. In the Application, Pepper Hamilton seeks approval of fees and expenses in the following amounts: fees totaling $27,538.50 and expenses totaling $823.72 for its services from September 1, 2010 through November 30, 2010 (the Seventh Interim Period); fees totaling $9,500.50 and expenses totaling $347.30 for its services from December 1, 2010 through December 23, 2010 (the Eighth Interim Period), and final approval of fees totaling $229,457.001

We note that the total amount of fees requested in Pepper Hamiltons prior interim applications, plus the compensation requested for the Seventh and Eighth Interim Periods is $232,631.50. Pepper Hamilton has deducted from this amount the $3,174.50 in reductions ordered by the Court for the Fifth Interim Period but has not deducted the $41.00 in reductions ordered for the Sixth Interim Period, to arrive at the figure for which it seeks final approval in
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and expenses totaling $11,990.202 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 Pepper Hamilton an initial report based on our review, and received a response from Pepper Hamilton, portions of which response are quoted herein.

the Application. These prior periods are discussed in more detail in paragraph 8. We note that the Court has ruled on the First through Sixth Interim Periods, but that no rulings have been made on the Seventh and Eighth Interim Periods. We note that the total amount of expenses requested in Pepper Hamiltons prior interim applications, plus those requested for the Seventh and Eighth Interim Periods is $12,087.26. Pepper Hamilton has deducted from this amount the $97.06 in reductions ordered by the Court for the Second and Third Interim Periods, which periods are discussed in more detail in paragraph 8, 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 and Eighth Interim Periods.
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DISCUSSION Seventh Interim Period 3. We have no objections to, or issues with, any of the fees and expenses requested for

the Seventh Interim Period. 4. Thus we recommend approval of fees totaling $27,538.50 and expenses totaling

$823.72 for Pepper Hamiltons services for the Seventh Interim Period. Eighth Interim Period 5. We have no objections to, or issues with, any of the fees and expenses requested for

the Eighth Interim Period. 6. Thus we recommend approval of fees totaling $9,500.50 and expenses totaling

$347.30 for Pepper Hamiltons services for the Eighth Interim Period. Final Application Period 7. In our initial report, we noted that, of the $229,457.00 in fees for which the

Application seeks approval, $37,818.50 relate to Pepper Hamiltons preparation of fee applications and other work related to the securing of its own compensation. This amount constitutes 16.48% of the total requested, an unusually high proportion. In our final reports regarding the second, fourth, and fifth interim applications of Pepper Hamilton, we addressed this issue without recommending reductions on an interim basis, but at the same time we advised Pepper Hamilton that we would continue to monitor the issue and that we might revisit it in the context of its final fee application. We asked Pepper Hamilton explain why the amount of these compensation-related fees should be considered reasonable. Pepper Hamilton provided the following response: As you know, Pepper Hamilton acted as local counsel to the Committee in these proceedings (with the exception of some issues with which lead counsel
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had a conflict of interest). Local counsel work, as opposed to lead counsel work, often involves rendering supplementary, rather than primary, advice and assistance, often focused upon venue-specific issues that are only a subset of the larger group of issues over which lead counsel takes primary responsibility. For example, lead counsel might take primary responsibility in drafting a pleading or objection. Local counsel will then review and revise such document with a view toward local precedent, procedures, etc. While local counsel's role is no less important, it does take less time than creating the initial draft from "whole cloth," which is lead counsel's role. Of course drafting fee applications takes the same amount of time regardless of whether the firm is acting as lead or local counsel. It therefore stands to reason that the percentage of time PH spent on its fee applications (out of time spent on all matters) will be greater in those representations where, as here, it serves largely as local counsel. In any event, a review of the itemized entries on the fee applications will show you that our paralegals, rather than attorneys, draft fee applications and the attorneys only review and revise them as needed. This minimizes costs based on the paralegals' lower billing rates. I would also note that the required applications in this case numbered several dozen for monthlies and 8 interim applications. We appreciate this response and note that the fee detail does not reveal any specific instances of excessive time devoted to specific activities. Moreover, less than 15% of the fee total ($5,226.00) is attributable to attorney time, and generally that time consisted of review of drafts prepared by paralegals and communications with, and responses to initial reports from, the fee auditor. In light of these facts, we have no objection to these fees. Prior Interim Periods 8. We note that we previously filed the following final reports for Pepper Hamiltons

prior interim applications, which final reports we incorporate by reference herein, and we also note the following orders that ruled on Pepper Hamiltons prior interim fee applications: 1st Period: Fee Auditors Final Report Regarding Those Interim Fee Applications With No Fee or Expense Issues for the First Interim Period (docket #1118) filed on or about November 10, 2009, in which we recommended approval of fees
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totaling $68,273.00 and expenses totaling $1,961.74. 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 Auditors Final Report Regarding the Fee Application of Pepper Hamilton LLP, for the Second Interim Period (docket #1312) filed on or about February 5, 2010, in which we recommended approval of fees totaling $42,241.50 and expenses totaling $4,054.53 reflecting our recommended reduction of $23.06 in expenses, as further explained in paragraph 6 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 Auditors Final Report Regarding Interim Fee Application of Pepper Hamilton LLP, for the Third Interim Period (docket #1606) filed on or about May 25, 2010, in which we recommended approval of fees totaling $21,335.00 and expenses totaling $1,023.80 reflecting our recommended reduction of $74.00 in expenses, as further explained in paragraph 3 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 Auditors Final Report Regarding Interim Fee Application of Pepper Hamilton LLP, for the Fourth Interim Period (docket #1887) filed on or about September 17, 2010, in which we recommended approval of fees totaling

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$19,459.00 and expenses totaling $1,471.48. 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 Auditors Final Report Regarding Interim Fee Application of Pepper Hamilton LLP, for the Fifth Interim Period (docket #2106) filed on or about December 22, 2010, in which we recommended approval of fees totaling $18,060.00 and expenses totaling $1,277.22 reflecting our recommended reductions of $3,174.50 in fees, as further explained in paragraph 4 of that final report. 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 Auditors Combined Final Report Regarding Those Interim Fee Applications with De Minimis or No Fee or Expense Issues for the Sixth Interim Period (docket #2240) filed on or about March 7, 2011, in which we recommended approval of fees totaling $23,008.50 and expenses totaling $1,030.41 reflecting our recommended reductions of $41.00 in fees, as further explained in paragraph 1 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). 9. 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 10. Thus we recommend final approval of fees totaling $229,416.00 ($229,457.003

minus $41.004) and expenses totaling $11,990.205 for Pepper Hamiltons services for the Final Application Period.

We note that the total amount of fees requested in Pepper Hamiltons prior interim applications, plus the compensation requested for the Seventh and Eighth Interim Periods is $232,631.50. Pepper Hamilton has deducted from this amount the $3,174.50 in reductions ordered by the Court for the Fifth Interim Period but has not deducted the $41.00 in reductions ordered for the Sixth Interim Period, to arrive at the figure for which it seeks final approval in the Application. These prior periods are discussed in more detail in paragraph 8. We note that the Court has ruled on the First through Sixth Interim Periods, but that no rulings have been made on the Seventh and Eighth Interim Periods.
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See paragraph 8 supra.

We note that the total amount of expenses requested in Pepper Hamiltons prior interim applications, plus those requested for the Seventh and Eighth Interim Periods is $12,087.26. Pepper Hamilton has deducted from this amount the $97.06 in reductions ordered by the Court for the Second and Third Interim Periods, which periods are discussed in more detail in paragraph 8, 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 and 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 31st day of May 2011.

Warren H. Smith

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SERVICE LIST Notice Parties The Applicant David B. Stratton, Esq. James C. Carignan, Esq. Pepper Hamilton, LLP Hercules Plaza, Suite 5100 1313 N. Market Street P.O. Box 1709 Wilmington, DE 19899-1709 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 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 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

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