The Alaska Film Office has removed the stamp of secrecy from the financial information about movies and TV shows subsidized in Alaska.

This is a positive development. It provides a more accurate picture of the economics and points to ways in which the program can be improved.

Encouraging the development of a film industry in Alaska does not come without cost. The evidence may show that the cost is worthwhile, given the prospects for new jobs, businesses, tourism, etc.

The data released Friday demonstrates that some productions deserve a thumbs up for spending in Alaska. Others don't.

The Legislature and the Parnell administration need to tighten the rules and find ways to keep more of the benefits in Alaska.

For instance, the California producer responsible for the "Baby Genius" series and a Jon Voight thriller, made a minimal investment in Alaska and collected $8 million in subsides over the last couple of years.

Had the Parnell administration acted more promptly in releasing the wage and salary data, perhaps the Baby Geniuses could have been stopped in their tracks.

But now the ingenious work of Steven Paul is going to become the poster child for more state controls or for those who want to do away with film subsidies.

The "Big Miracle" whale movie has a better performance record.

The LLC paid $4 million in wages to Alaska residents and $13 million in wages to people from Outside. It qualified for a subsidy of $9.6 million.

The wages paid to people Outside, including the stars and the production people, are counted as an Alaska expenditure.

The "Big Miracle" paperwork says that 140 full-time equivalent Alaska jobs were created by the movie. (Just using the direct wage data, excluding other spending, the jobs would have been in the $30,000-a-year range.)

Now that this information is in the public realm, the state can refine its reporting forms to show that those Outside wages are not really an Alaska expenditure, though for purposes of the tax credits, they are a qualifying expense.

Allowing the movie star and executive money to be counted as an Alaska expense is what attracts the productions here in the first place.

Of the $29 million listed as the "Alaska spend" for the whale picture, $13.5 million went to people Outside directly. In addition, the movie producers spent $593,000 on interstate transportation and $100,000 on  instate transportation.

The other big expenses include $7.1 million on "location fees, facility rental purchase, equipment rental/purchase" and $2.7 million on food and lodging.

The "Big Miracle" tax credit translates into a reduction in state general funds of $9.6 million, as the tax credit can be sold, at some discount, to a company that pays state taxes.

A solid analysis of the economic impact of the "Big Miracle" filming in Alaska has yet to be made. I hope that the McDowell Group updates the document it released a year ago about the economic impact of the film, as that report was prepared without including the cost of the subsidy.

On "Baby Geniuses 5," the wages paid to people Outside totaled  $5.2 million, while $235,000 was paid to Alaskans, with 14 days of production in Alaska. On "Baby Geniuses 4," the wages to Outsiders hit $5.4 million, while $191,000 went to Alaskans. On "Baby Geniuses 3," they paid $6 million to Outsiders and $320,000 to Alaskans. The same producer made the Jon Voight picture "Ghost Vision," a film that generated $5.6 million in wages to Outsiders and $275,000 to Alaskans.

On those productions in total, more than $21 million in wages went to people Outside, while about $1 million was paid to Alaskans. The total subsidy for those productions was about $8 million. The rules need to be changed to improve the economics for Alaskans.

The "Baby Geniuses" films, at least the portions made in Alaska, were done in a converted Anchorage warehouse in front of a green screen, according to news reports last year.

I suspect that the reason the most recent two proposals for additional subsidized projects from producer Steven Paul were rejected by the Parnell administration late last year was because of that low level of real spending in Alaska on his earlier films.

"At this time it is not in the best interest of the Alaska film industry, Alaska workers and the Alaska economy to extend a production incentive," Dave Worrell of the Alaska Film Office wrote to Steven Paul of Kid Play Entertainment LLC on Dec. 16.

Paul had applied for the tax credits for these two new unnamed productions on Nov. 16 and Dec. 1. He withdrew a request for a third unnamed production in November.

One TV show in which the wages paid to Alaska residents exceeded the wages paid to Outsiders is "Sarah Palin's Alaska," in which $1.1 million was paid to Alaska residents and $1 million was paid to Outsiders. The subsidy to "Sarah Palin's Alaska" was $1.2 million. 

The producers spent $367,000 on instate transportation and $424,000 on food and lodging. 

On "Deadliest Catch," there is little money paid to Alaska residents. The state subsidy for season seven was $786,000, but only $44,000 was paid in wages to Alaskans. The wages to Outsiders were $1.3 million. The TV show spent close to $1 million more on food, lodging, locations, transportation and "other expenses."

On "Deadliest Catch," season six, the wages paid to Alaskans totaled $19,000, while $1 million was paid to people from Outside.

The first season of "Alaska State Troopers" qualified for a subsidy of $30,709. The show paid no money to Alaska residents and $66,204 to people who are not from Alaska. The second season also shows no wages and salaries to Alaskans and a subsidy of $93,000.

The state subsidy for "ice Road Truckers," season five,  was $492,000. The Alaska wages were $295,000. The show spent more than a half-million on location expenses, food and lodging, etc. For season four, the show received a subsidy of $899,000 and paid $103,000 in wages to Alaskans and $1.3 million to Outsiders.

On every production there are expenses for food, lodging, transportation and locations, but the major costs are wages and salaries.

The additional information that the state needs to make sound decisions about oil industry economics in Alaska falls into three main categories, according to attorneys Robin Brena and Craig Richards, who gave a list to the Senate Resources Committee this week.


Until the state acquires the data companies use for internal decisions, the plans they present to regulators, and the analysis they offer to potential purchasers to place a value on North Slope assets, the state will continue to play a guessing game, which increases the chances of guessing wrong.



Brena and Richards, who worked on the recent pipeline valuation case, said it would make no sense for the state to create incentives for companies to do things they are already planning to do. Likewise, it does make sense for the state to offer incentives for investments that would not take place without offering incentives.

Without being able to get a look at such items as field development and budget plans, the state has no way of knowing which is which. The logical question that arises out of this for state leaders is why don't they already know what the development plans are for the North Slope?

If increasing production is a sensible goal, and it is, then the state needs to end the information blackout.

It may be that a lot of the details the lawyers describe should not be made available to the general public, but should be reviewed in confidence by state officials who need a higher level of knowledge to make sound decisions. 

There are many precedents in court cases and administrative proceedings. 
With the degree of complexity in the  oil tax laws, consider this a way to move past advertising mantras and closer to the truth.



Here is the list from Brena and Richards:



Information Used for Internal Decisions: The complete version of the last three field development plans, for each field, provided to the working interest owners. The resource support package for each field.


All authorization for expenditures, “AFE”, or proposed AFEs that are for amounts over $25 million and that were drafted in the last three years.
All annual and quarterly strategic and budget reporting documents (e.g., strategic planning unit and group financial outlooks), for the last two years, for each producer’s Alaska operations.


All financial analysis and internal planning documents relating to heavy or viscous oil drafted in the last two years, including each producer’s long term budget plan and production forecast for heavy oil and viscous oil development.


A list of all projects made uneconomic by ACES, including the financial analysis supporting that conclusion.


Information Developed for Regulatory Purposes: Everything provided to the BP Prudhoe Bay Royalty Trust or its auditors for yearend 2010 and 2011.  The last two yearend review packages for each field.


Information Provided to Potential Purchasers: In 2010, after the Gulf well blowout, BP considered selling its Alaska assets. BP set up electronic data rooms containing the documents about its Alaska operations that were necessary for potential purchasers to conduct their due diligence reviews. It would require little effort for BP to allow the Legislature access to those data rooms.

The Alaska Railroad plans to resume work on the Tanana River levee in March, according to a presentation to the Senate Finance Committee, part of the groundwork on the $188 million railroad bridge.

The railroad said the Salcha levee construction is expected to be complete on the north bank in July. The on-site work to produce piling and fabricate girders is expected to start in March.

An ice bridge is to be built to get equipment to the south side to clear trees before spring.

About 2,500 feet of levee construction was completed in the last quarter of 2011 and rip rap has been stockpiled. The trees on the north side have been cleared to allow construction to proceed.

The substructure and super structure of the bridge are scheduled to be installed by March 2014, with project completion due by the end of that summer. 

The railroad says that of the $188 million designated for the job, it has spent nearly $29 million of the $76 million in federal funds and $2 million of the $82 million in state funds appropriated for the project.

Meanwhile, the state-owned railroad is predicting a spike in passenger traffic this summer, with ridership expected to increase from 412,000 to about 450,000.

The train operations of the railroad may show a profit for 2011, which would be the first time since 2005. The railroad has been losing money on trains in recent years, while making money on real estate.

 According to unaudited numbers, freight revenue in 2011 was $98 million, up from $87 million in 2010, while passenger revenue was $22.4 million, up from $20.8 million.

About 30 percent of its freight revenue is from shipping petroleum products, while coal exports are 16 percent and in-state coal transportation is 8 percent. Gravel is 7 percent.

Coal exports to Chile, Japan and Korea from Healy are expected to total 1.2 million metric tons, which is more than double the rate five years ago. About 800,000 short tons of coal are expected to be moved to Clear, UAF, Fairbanks, Fort Wainwright and Eielson.

The number of railcars going to and from the Flint Hills Refinery is expected to be about the same as last year, which is still down considerably from 2003. Petroleum shipments topped 800 million gallons that year, while they are expected to be about 400 million this year.

The railroad says its financial situation is "still fragile," and while revenues are expected to climb, there  is market uncertainty and pressure on expenses. One of the big uncertainties is federal railroad funding.

About $36 million a year is at risk and "draconian changes" will be necessary if certain proposals in Congress are approved.

Federal funds are a key source for keeping the railroad going in its current form.

 

Claude Klaver is the volunteer chaplain who ministers to people at the Pioneer Home and Denali Center.

Here is a chance to help support the great work he has done for decades.

There is to be a musical benefit Sunday at 4 p.m. at Fairbanks Lutheran Church across from the Noel Wien Library. Proceeds will help assist with the expenses of providing chaplaincy services. The public is invited.

The children's choir of the Fairbanks Christian Center will sing, along with the  Lilly of the Valley praise team.

Three harpists, the Fairbanks Accordion Club, a guitar duo and others will also perform.

To top things off, there will be a freewill offering and a reception with cookies baked by the residents of Denali center and Pioneer Home.

Anthea Craven, Paula Long and Rich Seifert—appearing as the 'Svelte Spelts'—won the 20th Biz Bee at the Westmark Thursday night.

As a judge, working alongside Nicole Stewart and Betsy Robertson, I watched as the Spelts battled for supremacy with the "Bookends" of the Noel Wien Library, who finished  a strong second.

There were nearly two dozen library supporters, most of them employees and spouses, who cheered on the Bookends—Tom Yenchesky, Gabrielle Kiele and Susan Seefeldt.

The library had the best supporting group in attendance, followed by the CRAYons of the supercomputing center— Greg Newby, Dale Clark and Kate Hedstrom. The "Joy Spellerifics," consisting of Shane Wiegand, Sally Kieper and Susie Brainard, also had a solid cheering section, as did several other teams.

The pronouncer was Duff Johnston of the UAF English Department, whose job was almost as hard as that of the spellers. The final word was easy—sacristy, but it was preceded by the likes of filasse, etesian, frangible, iridaceous, woad and many a challenging selection.

Jim Matherly was the master of ceremonies, while Cynthia Klepaski and Karen Lundquist were the scorekeepers. Dan Darrow kept track of time.

The team of Craven, Long and Seifert has been a top finisher many times, sponsored in the past by Superior Hardwoods. This year they were sponsored by the Fairbanks Community Cooperative Market.

The Bookends, who also have done well over the years, are sponsored by Kohler, Schmitt & Hutchison.

All told, the 16 teams and supporters raised $20,693 during the evening for the Literacy Council of Alaska.

The Rotary Club of Fairbanks, the Daily News-Miner and Ken Murray Insurance were honored for sponsoring teams all 20 years.

This is the third time Seifert has been on a winning team, dating back to 1993. While he celebrated his spelling victory, his wife, Patty, was a winner as well, taking home the first-place raffle prize of two tickets on Alaska Airlines.

 

Brad Keithley, an oil and gas attorney in Anchorage, gave a presentation last month to the Alaska Support Industry Alliance in which he quoted some columns of mine about a recent court decision on the pipeline value, characterized them as "spin" and concluded, with a nod to James Carville, "it's the production rate, stupid."

Keithley is a partner in Perkins Coie and the co-head of the oil and gas practice. From 1990 to 2008 he was  a partner in the Jones Day law firm in Dallas and Houston.

He contends that the only thing that matters in Alaska is the oil production rate and that the court decision saying the pipeline has more than a half-century of life left in it and that it could operate at much lower flow rates than advertised is irrelevant to the current debate over oil taxes.

Everyone agrees that production is at the top of the priority list. But production is dependent on several factors that are relevant to Alaska.

A better way to look at this, in the spirit of the Ragin' Cajun, is for Keithley to acknowledge that "It's the production, the reserves, the profits, the taxes, the access to North Slope facilities, the competition, the permitting, the research and the operating life of the pipeline, stupid."

Keithley testified before the Senate Resources Committee this afternoon, a followup to the testimony of  attorneys Robin Brena and Craig Richards, who worked on the pipeline valuation case. Keithley did not work on that case or have access to the large number of confidential documents entered as evidence. Sen. Tom Waggoner, a Kenai Republican and co-chair of the committee with Sen. Joe Paskvan, wanted him to testify.

Keithley gave a PowerPoint presentation similar to the one he gave the Alliance, though he removed the word "stupid," from his line about the importance of the production rate.

He should have left it in.

After the release of the ruling, a document that says the pipeline should be running at least until 2065 with today's proven and economic reserves, I wrote here that "the good news for Alaskans is that numerous oil company documents and expert testimony shows there is no reason to believe the pipeline will be shut down this decade or for a long time after. To the contrary, the oil companies are booking reserves far into the future and making plans to run the pipeline at lower rates, which means more decades of operation for the pipeline."

I also quoted Paskvan in a column about the ruling.

"This should ease the minds of many Alaskans as to the imminent demise of the pipeline. This indicates that we have a 50-year minimum operation without considering many of the resources that are likely to be harvested from the North Slope," Paskvan said, another statement that Keithley claims is "spin."

I had an e-mail exchange with Keithley after his Alliance presentation and challenged the "spin" claim. He recounted this in his blog about oil and gas matters. He's an articulate and knowledgeable person.

I disagree with him that the Gleason decision has no relevance to the current debate over the ACES tax system in Alaska.

One of the most relevant particulars is that internal documents from BP and the reports it has filed with the Securities and Exchange Commission, even those after the passage of ACES, show that it expects the pipeline to be operating for many decades.

And yet the fear factor that a pipeline shutdown is imminent continues to circulate in Alaska.

There are still people going around saying that the pipeline may be shut down in a decade or less, using that argument to amplify the claims in the oil tax debate and add to the sense of alarm.

For instance, this week Keithley appeared on Dan Fagan's talk show in Anchorage.

Fagan brought up the fear factor when he asked Keithley:

"But just the whole idea of keeping the pipeline flowing, because it is cost prohibitive or it gets more expensive, the less oil. Talk about that scenario and when we could run against a wall there, the oil companies just say, OK, we’re shutting it down, it’s just not worth it.”

This is the point at which Keithley should have put Fagan's worries to rest, by quoting BP's internal documents, at least those that are now public.

Instead, Keithley said that the companies will have to make "significant investments" to operate below 300,000 barrels a day by adding heat to the pipeline and they may not do it.

(One of the serious contradictions that continues to concern me is that despite the internal statements by BP, the companies argued in court as a group that 300,000 barrels was the lower limit of pipeline operation.)

Regarding those "significant investments" and Gleason's ruling, Keithley said:

“What she assumed was that they would make those investments and keep the oil flowing. It would be appropriate or it would be cost beneficial to make those investments. But that's based upon projections of oil prices, it's based upon projections of operating costs, it's based on a whole variety of projections that may or may not come to pass. At each of these gates the companies have to make the investment decision to make the investments in TAPS to keep it flowing below those levels. And that’s not guaranteed."

Nothing is guaranteed, that's correct.

But BP is projecting that Prudhoe Bay has another half-century of profitable production yet to come. That's not a guarantee. It's a judgement that should wipe out the fear factor of a shutdown. Does that mean that we have nothing to worry about? No.

Declining production is a problem that must be addressed. What it takes to increase production is the key.

Fagan asked if the "gates" are at 500,000 and 300,000 barrels a day, again raising the scary prospect of pulling the plug on TAPS. Keithley agreed that those are gates at which decisions will be made and there are additional ones below 300,000.

Now i's not just an Alaska judge and attorneys for Fairbanks and Valdez who are saying those gates are already open for economic reasons.

It's one of the major oil companies in Alaska. But Fagan continued to voice worries about a pipeline shutdown at 500,000 barrels a day.

“Would there be any repercussions regarding their leases, if at say, 500,000 barrels per day in the pipeline, they just said, OK, that’s it, we don’t see this as a wise investment. Would they suffer any kind of consequences other than they just would not get the oil to market?”

Keithley should have said that the oil executives would find themselves on the unemployment line if they abandoned anything as profitable as the trans-Alaska oil pipeline and seven billion barrels of proven reserves.

Instead he said that the companies would run afoul of state lease requirements and face the big costs of removing facilities, etc., which is true enough. He should have responded that the economics favor keeping the pipeline running for as long as possible, which is the main point of the Gleason decision.

Production is important. An informed discussion is also important.

There are lessons to be learned in the presentations that attorneys Robin Brena and Craig Richards have been giving this week to the Senate Resources Committee in Juneau.

One of the most important, perhaps the most important, is contained on the 98th slide of their 101-slide summary. It's about information.

Brena has worked on major pipeline tariff and other oil cases for many years, representing Tesoro, Anadarko and lately, the Fairbanks North Star Borough. Through his work in court and before agencies such as the Federal Energy Regulatory Commission and the Regulatory Commission of Alaska, he has helped uncover key documents about the inner workings of the oil industry in Alaska that lawmakers have not been exposed to.

I'd wager that Brena knows more than anyone in Alaska about what information the oil companies strive to keep secret. The companies are looking out for their shareholders, which is what they are supposed to do.

For decades the state of Alaska has not pushed the companies to provide crucial internal information, which is a big reason why, as one state oil consultant  put it  last year, Alaska is like a man who goes into a dark room to throw darts, not knowing which wall contains the dartboard.

In the recent property tax pipeline case, Brena argued that the state has the right to require the release of more information from the oil companies, but it doesn't exercise that power.

It's a tradition to keep it voluntary and refrain from using legal authority to compel the release of important data. This is why the state doesn't get far beyond the public relations level of corporate understanding.

It's also a tradition to keep most of what is provided secret, which led Brena to an exaggerated question in court to the state assessor. He asked whether a McDonald's menu  could be submitted as an oil company document and stamped confidential. Would it be treated by the Department of Revenue as a confidential document? 

“It’s an extreme hypothetical. If they stamped ‘taxpayer confidential’ on it, you know, I’m not sure that would pass muster, but again, that’s not part of my purview,” State Assessor James Greeley said.

But just about anything short of the McDonald's menu qualifies as not being fit for public consumption.

The result, according to Brena's slide 98, is that the Department of Revenue and the "Legislature do not have access to information necessary to be informed about oil and gas tax issues in Alaska."

One example of knowledge that the state should have had, but didn't,  was that BP, for the past seven years, has been working on the assumption that the pipeline would be able to run at much lower flow rates than those officially planned for by Alyeska, of which it is the largest owner.

The state did not have the internal reports that BP used to justify that decision and did not know the reports existed, though the knowledge should have been a factor in making judgments about the future of oil production in Alaska.

Another example of information that should have been known to policy makers is a concise statement contained in a Feb. 9, 2004 BP document in which the Alaska branch of BP was recommending that the company move ahead with electrification for four pump stations.

The document described BP's Alaska holdings by saying,  "Alaska's role in BP's portfolio is to provide a stable production base and cash flow to fuel growth elsewhere in the business while improving margins and returns. Driving cost savings in TAPS is a key element in delivering margin improvement of BP's North Slope production."

This is the kind of statement that should have been part of the information mix for the executive and legislative branches in Alaska, and it should have led to a serious discussion about Alaska's role in BP's portfolio.

The report came to light as a state exhibit in a case now before FERC on pipeline tariff rates.

In a Jan. 30 presentation before the Senate Resources Committee, Revenue Commissioner Bryan Butcher and Deputy Commissioner Bruce Tangeman showed a slide that asked if those who wanbt more information before cutting oil taxes are employing an "obvious double standard."

"The rally cry has been 'need more information' & 'must have better systems in place in order to make such significant changes to the tax structure," their slide said, "An obvious double standard in place?"

They assert that today the state has a good deal of "actual information" about oil industry operations, whereas the Legislature only had modeling, projections and theoretical assumptions during the PPT tax debate and the ACES debate in 2006-2007.

The information that really matters, Butcher and Tangeman said, is that Alaska oil production is declining, while Alberta, North Dakota and Texas are booming.

They are correct in part. That is part of the information that matters. 

But nothing would beat a solid justification for specific tax cut numbers, a credible analysis of what the consequences would be at various prices, a review of what steps the companies plan to take with tax cuts or without tax cuts and research that shows the many ways Alaska is different from those other places.

That is the type of "actual information" that has been missing since last year.

The revenue department should focus on filling this part of the information gap. That would shift the debate away from the over-simplistic claims and elevate the discussion.

Brena is right. The Department of Revenue and the Legislature do not have the information they need to be informed about oil and gas tax issues. But it doesn't have to stay that way.

Anchorage Sen. Cathy Giessel, who grew up in Fairbanks and graduated from Lathrop High School, is to be the guest speaker Sunday at the annual Lincoln Day Dinner.

It is to start in the Binkley Room at Pike's Waterfront Lodge with a reception at 5 p.m., followed by a dinner and auction from 6 p.m. to 8 p.m.

She is the daughter of the late Jerry Bohms, a Wien Airlines captain for many years, and Fairbanks resident and lawyer Ruth Bohms.

For reservations call Cheryl Markwood at 347-4720 or email vany@mosquitonet.com.

Another report by the Government Accountability Office has concluded that Alaska Native corporations participating in the 8(a) contracting program need more oversight and monitoring.

The report says: