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Fitting multilevel models in complex survey data with design weights: Recommendations
Multilevel models (MLM) offer complex survey data analysts a unique approach to understanding individual and contextual determinants of public health. However, little summarized guidance exists with regard to fitting MLM in complex survey data with design weights. Simulation work suggests that analysts should scale design weights using two methods and fit the MLM using unweighted and scaled-weighted data. This article examines the performance of scaled-weighted and unweighted analyses across a variety of MLM and software programs.
Using data from the 2005–2006 National Survey of Children with Special Health Care Needs (NS-CSHCN:
Scaled weighted estimates and standard errors differed slightly from unweighted analyses, agreeing more with each other than with unweighted analyses. However, observed differences were minimal and did not lead to different inferential conclusions. Likewise, results demonstrated minimal differences across software programs, increasing confidence in results and inferential conclusions independent of software choice.
If including design weights in MLM, analysts should scale the weights and use software that properly includes the scaled weights in the estimation.
Multilevel models (MLM) offer analysts of large scale, complex survey data a relatively new approach to understanding individual and contextual influences on public health. Complex sampling designs organize populations into clusters (e.g., states or counties) and then collect data
MLM offer a unique solution to this problem. They take into account the clustered nature of the data
However, despite the unique contribution MLM can make to understanding public health,
In this paper, I take a non-mathematical approach and seek to address these issues. First, I briefly summarize the results of simulation studies and suggest a current best practice recommendation with regard to handling design weights in MLM. Second, I compare and contrast the results of different methods for incorporating sampling weights across a series of MLM using continuous and categorical outcomes and level-1 (individual) and level-2 (cluster) predictors in empirical data across three of the main MLM software programs: Mplus,
Incorporating Design Weights in Multilevel Models
Summary of Simulation Work
Complex sampling designs regularly incorporate unequal selection probabilities. Failing to account for this aspect of the design in the standard MLM can lead to biased parameter estimates.
Some consistent themes result from this work. First, simulations indicate that most scaling methods consistently provide better estimates than using
Fourth, the simulations point to a need for
Given that no study will include all possible manifestations of complex survey designs and relations among the data, it is impossible to disentangle these issues and arrive at a single gold standard.
This suggestion, using multiple scaling techniques, points to an important issue. To properly conduct MLM with complex survey data and design weights, analysts need software that can include weights scaled outside of the program and include the "new" scaled weights without automatic program modification. Currently, three of the major MLM software programs allow this: Mplus (5.2)
In sum, simulation work suggests that analysts should fit complex survey data with design weights using a variety of scaling methods (including unweighted) and compare the results of these methods. However, little work provides a comparison of the different scaling methods in real data across a variety of MLM (e.g., continuous vs. categorical outcomes, level-1 predictor models, level-2 predictor models, and models including level-1 and -2 predictors simultaneously) and software programs. Thus, it remains unclear whether real data will reflect simulation work. In the next section, I address this issue. I use data from the 2005–2006 National Survey of Children with Special Health Care Needs
Comparing Scaling Methods and Software in Real Data
To examine the performance of the various scaling methods, I fit two series of MLM. I chose these models because they represent the basic models presented by major texts on MLM (e.g., Raudenbush and Bryk
The first series of MLM I estimated examines a continuous outcome (the number of months CSHCN go without insurance) as a function of a level-1 predictor (family income relative to poverty level, hereafter labeled simply "family income") and a level-2 predictor (the proportion of families in the state with an income no greater than twice the US federal poverty level (i.e., 200% poverty level), here after labeled simply "proportion of families in poverty"). The second series of MLM examines a categorical outcome (whether a CSHCN went uninsured at any time in the previous 12 months) as a function of a level-1 predictor (family income) and a level-2 predictor (proportion of families in poverty). For both series, I fit six models: 1) an unconditional model, 2) a level-1 predictor only model specifying the level-1 slope as fixed, 3) a level-1 predictor only model that allowed the level-1 slope to vary across the states (level-2), 4) a level-2 only predictor model, 5) a model including level-1 and -2 predictors but no cross-level interaction, and, 6) a model including level-1 and -2 predictors and a cross-level interaction. For each series of analyses (continuous and categorical), the unconditional (empty) model examines whether the outcome (average number of months uninsured or odds of going without insurance) varies across states. The level-1 only predictor model asks whether family income predicts the outcome, while the level-2 predictor only model investigates whether the proportion of families in poverty in a state affects the outcome. The model including level-1 and level-2 predictors investigates the contributions of level-1 and level-2 predictors simultaneously, but does not include a cross-level interaction. Among other questions, it asks whether a relationship between family income and the outcome exists, controlling for the effects of the proportion of families in poverty in the state. The final model investigates the level-1 and level-2 predictors simultaneously and includes a cross-level interaction. This model asks several questions as well, including whether the relationship between family income and months without insurance differs according to the proportion of families in poverty in a state. For each series, all models allowed the intercept to vary across the states. Appendix C presents traditional MLM equations for each model I estimate.
For each series I fit the models in Mplus, MLwiN, and GLLAMM using unweighted data, scaling method A and scaling method B. For Mplus, I used MLR for both the continuous and categorical analyses. MLR delivers maximum likelihood parameter estimates with robust standard errors computed using a sandwich estimator. For categorical outcomes, MLR uses numerical integration and adaptive quadrature using 15 integration points per dimension.
First, consider the continuous results presented in Additional File
Additional file 1
Continuous outcome parameter and standard error estimates across level-1, level-2, combined-level models, weight scaling methods, and software programs. The data provided present the multilevel results across continuous models, weight scaling methods, and software programs.
Click here for file
With regard to the weighted analyses, across the fixed and random effects, the programs achieved nearly identical weighted results, with two exceptions. MLwiN estimated a smaller residual variance and residual variance standard error using weight method B than either Mplus or GLLAMM. Likewise, MLwiN's estimate of the slope for state poverty and its standard error diverged slightly (but consistently) from Mplus and GLLAMM at the second decimal point under all scaled weighting analyses. To investigate the source of these differences, I reran these analyses with increasingly stringent convergence criteria. In all cases, MLwiN arrived at the same estimate of the residual variance. This suggests that the discrepancy does not result from convergence issues, but results from estimation differences. In this case, the small difference led to
For the categorical outcome presented in Additional File
Additional file 2
Categorical outcome parameter and standard error estimates across level-1, level-2, combined-level models, weight scaling methods, and software programs (Mplus estimates a threshold rather than an intercept. These differ only in sign.
Click here for file
Somewhat surprisingly, though the standard errors for the scaled-weighted data did range somewhat larger than unweighted analyses, the standard errors for the unweighted and scaled-weighted methods achieved remarkable consistency. This may have occurred because of the large cluster sizes in the NS-CSHCN (approximately 750 individuals in each cluster). It may also have occurred because of a relatively small intraclass correlation coefficient (a measure of the proportion of variance in the outcome attributable to clustering alone) for this outcome (e.g., 0.01 for months uninsured). It also suggests that, in these data, for these outcomes, and these predictors, the sampling weights are not particularly informative (Table
Table 1
Single Level Continuous and Categorical outcome parameter and standard error estimates.
Continuous Single Level Analysis
Mplus (5.1)
Mplus (5.1)
Mplus (5.1)
Fixed Effects
Weight Method A
Weight Method B
(Intercept for MS_UNINS)
(Slope for Family Income)
Random Effects
Residual Variance
(Variation within States)
Categorical Single Level Analysis
Mplus (5.1)
Mplus (5.1)
Mplus (5.1)
Fixed Effects
Weight Method A
Weight Method B
(Intercept for MS_UNINS)
(Slope for Family Income)
In sum, the present results generally agree with simulation work. Scaled weighted findings diverged slightly from unweighted analyses, agreeing more with each other than with unweighted analyses. Also consistent with simulation work, weighted and unweighted data did not diverge greatly in general. However, while estimates and standard errors generally remained comparable, small specific changes did result. Although they did not lead to different inferential decisions in these data, they might in other data.
Software Strengths and Weaknesses
Mplus has several strengths. It has tremendous flexibility and can incorporate numerous statistical models within the MLM framework well beyond "traditional" hierarchical linear and generalized linear models. One can fit factor models, latent class models, structural equation models, mixture models, latent growth curve models, and others within the MLM framework. Second, Mplus will automatically scale the weights for the user using each approach described here and Mplus allows analysts to specify weights scaled outside of Mplus. Third, Mplus offers a wide variety of estimators and link functions. Fourth, Mplus can handle both of the current recommended methods for analyzing subpopulations of complex survey data, the zero-weight approach and the multiple-group approach.
MLwiN also incorporates several strengths. First, MLwiN can fit models with up to five levels, making it quite useful in multistage designs. Second, MLM has an easy point-and-click, windows-based user interface, which makes fitting MLMs easy and straightforward. Third, MLwiN incorporates several estimators. Fourth, like Mplus, MLwiN provides an automatic weight scaling feature, and, like Mplus, it allows the user to specify weights scaled outside of MLwiN. Fifth, MLwiN has numerous features available for evaluating a model's appropriateness. And, sixth, MLwiN includes several graphical features.
Finally, GLLAMM also has some distinct advantages. Like Mplus, GLLAMM offers an astounding array of models that it can fit within the MLM framework.
Despite its strengths, Mplus has some distinct disadvantages. First, it can only fit two-level cross-sectional MLM models. Although one can fit a two-level MLM and use Mplus' complex data analysis feature to properly estimate standard errors for a third level, Mplus does not allow one to investigate what predicts variation at level-3. For multistage surveys, this may be a substantial limit. Second, relative to MLwiN, Mplus offers few analytical tools for investigating model assumptions, model fit, and model diagnostics. Third, relative to MLwiN, Mplus offers few graphical tools, whether these limits outweigh its strengths will depend on the individual users needs.
MLwiN also has limits. Primarily, it cannot fit the wide variety of models that Mplus and GLLAMM can (e.g., latent class models). While MLwiN can fit some models beyond hierarchical linear and generalized linear models (e.g., multilevel confirmatory factor analyses), MLwiN does not have the full flexibility that Mplus and GLLAMM do. For users seeking to fit extremely complex models, this may be a substantial drawback. Second, MLwiN will only automatically scale the weights using method B. And third, while MLwiN does offer several estimators (e.g., iterative generalized least squares (IGLS), restricted IGLS, and Markov chain Monte Carlo (MCMC)), it does not offer as large a range of estimators as Mplus. Again, whether these weaknesses outweigh its strengths will depend primarily on the type of analysis the user expects to conduct.
Finally, GLLAMM has some noteworthy disadvantages. First, GLLAMM has well known problems with computational speed. Models that take seconds to converge in the other programs can take days (literally) to converge in GLLAMM. Aside from some minor adjustments, analysts can do little to increase GLLAMM's speed. Second, although GLLAMM has an advantage with categorical outcomes, it may be less accurate with continuous outcomes.
Although these analyses generally support the use of MLM in complex survey data with design weights, some issues remain unresolved. First, a best practice for scaling weights across multiple levels has yet to be advanced. Though Asparouhov
Third, MLM theoretically allow investigators to examine predictors and variance across naturally occurring clusters within complex sampling design (e.g., creating a three-level model by grouping individuals according to their county of residence using data from a two-level survey that sampled people within states). However, this flexibility may result in cross-classified data structures (e.g., hospital catchment areas overlapping states in a survey that sampled people within states). While MLM can handle cross-classified data,
Fourth, analysts often wish to investigate relationships within a certain subgroup. Although analysts can use interaction terms to investigate hypotheses within the specified subgroup, analysts may wish to examine a subgroup of the sample excluding other sample members entirely. For this situation, where analysts wish to investigate hypotheses among a specific subgroup only, no established guidelines exist regarding a best practice method for estimating MLM in complex survey data with design weights. When using complex surveys, one should include the entire sample in the analyses. This leaves the sample design structure whole and leads to proper estimation of variances and standard errors. However, it presents a problem when analysts would like to select a subgroup and examine a MLM for this subgroup of individuals in a sample. Analysts should
Finally, little work addresses missing data's role in MLM with design weights. It remains unclear how to best handle missing data within the context of MLM, complex survey data, and design weights. Analysts might take a zero-weighting approach for missing data,
While these limits highlight an array of outstanding issues that need investigation, they do not preclude analysts from employing MLM in complex survey data with design weights. Moreover, they demonstrate the need to choose a MLM program that allows flexibility with regard to design weights. Thus, as theory advances, software will not limit analyses.
Applied Summary Recommendations
Given the breadth of findings discussed and presented and the various strengths and weakness of each approach and software program, the reader might now wonder, "what do do in practice?" In my work, I standard approach. First, in terms of software, take the following I generally use Mplus. I do this because Mplus offers the most flexibility relative to speed. I frequently fit models that MLwiN cannot estimate (e.g., MLM multiple group structural equation models) and I rarely fit models with more than two levels (which Mplus currently cannot estimate). Analysts fitting the types of models discussed in this paper will generally find MLwiN more than meets their needs. Second, in terms of scaling the weights, I always fit the models using each scaling technique (methods A and B). I do this to examine any inferential discrepancies. If I find no inferential discrepancies, I generally report the findings from method A. I do this because I frequently work with cluster sizes larger than
Summarily, recent advances in statistical theory and software now allow users of complex survey data with design weights to analyze data in a MLM framework. This paper shows the utility of conducting MLM in complex survey data with design weights across a variety of scaling methods. Survey analysts should incorporate the recommendations offered in this paper and consider MLM when they seek to understand the intricate relations that may exist in complex survey data. MLM allow analysts to better understand and describe individual and contextual (cluster) level differences. This has the potential to profoundly influence public health policy.
Competing interests
The author declares that they have no competing interests.
Authors' contributions
Using publicly available data, I worked individually, conducted the literature searches and summaries of previous related work, undertook the statistical analyses, wrote the manuscript, conducted all revisions, and read and approved the final manuscript.
Appendix A
A.1 Data set creation
To recreate the data used in these analyses, one needs to merge two NCHS files and add the state-level (level-2) variable. The level-1 outcome, months without insurance, is available on the NS-CSHCN "interview" dataset as CQ905. The level-1 covariate (family income) is available on the data file NCHS entitles "multiple imputation". NCHS labels the family income variable POVLEVEL_I. For these analyses, I used a single imputation, imputation 1, as suggested by Pedlow, et al.
NCHS makes both datasets available at
Table 2
Proportion of families in each state falling at or below the 200% poverty line.
North Carolina
North Dakota
New Hampshire
New Jersey
New Mexico
District of Columbia
New York
Rhode Island
South Carolina
South Dakota
West Virginia
A.2 Scaling the Weights
After creating the dataset, one needs to scale the weights. In any analyses, here or otherwise, one should scale the weights before doing
SAS Code
proc sort data = mlm;
by state;
proc summary data = mlm;
by state;
var weight_i;
output out = intermediate
uss = sumsqw
sum = sumw
n = nj;
data mlm;
merge mlm intermediate;
by state;
aw = weight_i/(sumw/nj);
label aw = "Method A";
bw = weight_i/(sumsqw/sumw);
label bw = "Method B";
data mlm; set mlm; drop _freq_ sumsqw sumw nj _type_; run;
To update this code for other datasets, 1) replace "mlm" with the name of the dataset of interest, 2) replace "weight_i" with the level-1 weight from the dataset of interest, and 3) replace "state" with the level-2 cluster variable from the dataset of interest.
Stata Code
gen sqw = WEIGHT_I^2
egen sumsqw = sum(sqw), by(STATE)
egen sumw = sum(WEIGHT_I), by(STATE)
egen nj = count(IDNUMXR), by(STATE)
gen bw1 = WEIGHT_I*(sumw/sumsqw)
gen aw1 = WEIGHT_I*(nj/sumw)
To update the Stata code for other datasets, 1) read the dataset of interest into memory, 2) replace "weight_i" with tje level-1 weight from the dataset of interest, 3) replace "state" with the level-2 cluster variable from the dataset of interest, and, 4) replace "idnumxr" with the level-1 id variable from the dataset of interest.
Appendix B: Equations for Scaling the Weights
B.1 Method A
B.2 Method B
For both,
Appendix C: Traditional MLM Equations
C.1 Continuous Models
C.1.1 Unconditional model
C.1.2 Level-1 Predictor Only (Fixed Effect)
C.1.3 Level-1 Predictor Only (Fixed and Random Effects)
C.1.4 Level-2 Predictor Only (Fixed Effect)
C.1.5 Level-1 and Level-2 Predictors, No Cross-Level Interaction
C.1.6 Level-1, Level-2, and Cross-Level Interaction
C.2 Categorical Models
C.2.1 Unconditional model
C.2.2 Level-1 Predictor Only (Fixed Effect)
C.2.3 Level-1 Predictor Only (Fixed and Random Effects)
C.2.4 Level-2 Predictor Only
C.2.5 Level-1 and Level-2 Predictors, No Cross-Level Interaction
C.2.6 Level-1, Level-2, and Cross-Level Interaction
C.3 Variance Components
In all models,
Appendix D: Original Weights
This appendix briefly summarizes the methodology used to weight the 2005–2006 NS-CSHCN. Generally, the weighting scheme for the sample involved the steps below. Here, I only describe the base weights. Readers interested in more detail should consult Blumberg et al.
1. Compute base sampling weight.
2. Adjustment for nonresolution of released telephone numbers.
3. Adjustment for incomplete age-eligibility screener.
4. Adjustment for incomplete CSHSCN Screener.
5. Adjustment for multiple telephone lines.
6. Raking adjustment of household weights.
7. Raking adjustment of child screener weights.
8. Adjustment for subsampling of CSHCN.
9. Adjustment for nonresponse to the CSHCN interview.
10. Raking of adjustment of the nonresponse-adjusted CSHCN interview weights.
The base weight equals the reciprocal of the selection probability of the
Following computation of the base weight, several adjustments followed. Blumberg, et al.,
I would like to the US Health Resources and Services Administration, Maternal and Child Health Bureau and the US Centers for Disease Control and Prevention, National Center for Health Statistics for making the data publicly available. I would also like to thank Tara J. Carle and Margaret Carle whose unending support and thoughtful comments make my work possible. I am also grateful to Stephen J. Blumberg for his collegial support and his dedication to bridging gaps between advanced methodologies and applications in order to improve children's health. Finally, I would like to thank all four reviewers. Their tireless work and insightful comments vastly improved the original manuscript.
General Multi-Level Modeling with Sampling Weights
Sampling weights in latent variable modeling
Modeling the sampling design in the analysis of health surveys
Model-based variance estimation in surveys with stratified clustered designs
Model-based methods for analysis of data from 1990 NAEP Trial State Assessment
Weighting for unequal selection probabilities in multilevel models
Multilevel modelling of complex survey data
Multilevel analytical approaches in social epidemiology: Measures of health variation compared with traditional measures of association
A brief conceptual tutorial on multilevel analysis in social epidemiology: Interpreting neighbourhood differences and the effect of neighbourhood characteristics on individual health
A brief conceptual tutorial on multilevel analysis in social epidemiology: Investigating contextual phenomena in different groups of people
A brief conceptual tutorial of multilevel analysis in social epidemiology: Using measures of clustering in multilevel logistic regression to investigate contextual phenomena
Multilevel analyses of neighbourhood socioeconomic context and health outcomes: A critical review
SUDAAN User's Manual: Release 8.0
Domain means, regression and multivariate analysis
Weighted estimation in multilevel ordinal and binary models in the presence of informative sampling designs
A user's guide to MLwiN version 2.0
Multilevel modeling of complex survey data
Design and operation of the National Survey of Children With Special Health Care Needs, 2005–2006
Maximum likelihood estimation of limited and discrete dependent variable models with nested random effects
Generalized multilevel structural equation modeling
Estimating variance components by using survey data
Multiple Imputation of Missing Household Poverty Level Values from the National Survey of Children with Special Health Care Needs, 2001, and the National Survey of Children's Health, 2003
Pre-publication history
The pre-publication history for this paper can be accessed here:


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Tensions in the Ukraine pushed stocks lower. Solid earnings sent markets higher. Manufacturing data weighed on equities.
On a day-to-day basis, you'll hear all sorts of explanations for why stocks move one way or another. But what about over the longer term? What factors really drive equity prices over the long haul? And, perhaps most importantly, can we quantify them?
A 2010 study from MSCI Barra, entitled "What Drives Long-Term Equity Returns?", attempted to do just that - and its findings likely aren't what you'd expect.
Barra (whose market indices are widely used by investors around the world) studied equity returns from 1975-2009 in a variety of markets, and broke down those returns into several components. The major ones: inflation; real book value growth (i.e., how much the company's underlying business and assets grow); price-to-book growth (how the amount of money investors are willing to pay for every dollar of that book value changes over time); and dividend income.
The results: According to Barra, the most significant of those components is inflation, which accounted for 4.2 percentage points of the MSCI World Index's 11.1% return from the start of 1975 through Sept. 30, 2009. The second biggest factor: dividend income, which accounted for 2.9 percentage points. Real book value growth and price-to-book growth accounted for 2.1 and 1.5 percentage points, respectively. The results were similar for many of the markets within that world index, including the U.S.
What that indicates is that over the long run, about two-thirds of the stock market's returns are the result of inflation and dividend payments - two un-sexy factors to which many stock investors don't give enough thought.
When it comes to inflation, the work of contrarian guru David Dreman supports just what an impact it can have. Dreman, whose writings are the basis for one of my Guru Strategy computer models, has called inflation a "virus" that permanently entered the investment world after the Second World War. He found that over the long term, inflation eats away tremendously at the return of fixed-income investments like bonds or Treasury bills. Stocks, however, can draw on increasing earnings streams as companies raise prices and increase profits to keep up with inflation. Inflation is thus, to some extent, built into the companies' bottom lines, and, in turn, into stock prices as well.
As for dividend income, the implications are clear: While most investors today focus on stock price appreciation, good ol' dividend yield shouldn't be ignored in any market environment.
Currently, long-dormant inflation has begun to pick up a bit. And, strong yields are tough to come by, both because of the downward trend we've seen in dividends over the past couple decades and because the ultra-low-interest-rate environment has led many yield-hungry investors to bid up the price of high-dividend picks - currently only about 115 stocks in the market get approval from my Guru Strategies and yield 3% or more. With that in mind, here are a few of the high-yielders that do get approval from my models, and which should have the pricing power to capture inflation-driven gains.
Chevron (NYSE:CVX): Energy companies are a good inflation hedge, and my James O'Shaughnessy-based model sees value in this California-based oil and gas giant ($246 billion market cap), which is also involved in the lubricant, petrochemical products, geothermal energy, and biofuels markets. When looking for value plays, O'Shaughnessy targeted large firms with strong cash flows and high dividend yields. Chevron is plenty big enough, and it has an impressive $18.25 per share in cash flow (more than 10 times the market mean). It also sports a solid 3.3% yield, all of which help it pass the O'Shaughnessy-based model.
The Coca-Cola Company (NYSE:KO): The Atlanta-based beverage giant ($172 billion market cap) is a longtime holding of Warren Buffett's, in large part because of its "durable competitive advantage". That advantage is due to its huge brand recognition and size, which give it the sort of pricing power that allows it to raise prices if inflation hits.
While Buffett has long liked Coke, it's my O'Shaughnessy model that is high on its shares right now. The strategy likes Coke's size, $2.36 in cash flow per share, and 3.1% dividend.
Kellogg Co. (NYSE:K): Some have speculated that Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) might be interested in buying this Michigan-based food giant, whose well-known brands and products include Rice Krispies, Eggo, and Pringles. My Buffett-inspired model thinks Berkshire would be wise to give Kellogg (3.3% dividend yield) a long look. The firm ($21-billion market cap) has upped earnings per share in all but one year of the past decade; has averaged a stellar 43.2% return on equity over the past 10 years; and has enough annual earnings that it could pay off its long term debt in less than three years if need be, all of which are very "Buffett-esque" qualities. And, because it sells consumer staples with big brand names, it should have good pricing power.
Unilever (NYSE:UL): This Netherlands-based maker of home goods and food products counts Lipton, Hellmann's, Dove, Slim-Fast, and Vaseline among its big brand names. The O'Shaughnessy-inspired model thinks it's a good value play. The strategy likes Unilever's size ($130 billion market cap), $3.21 in cash flow per share, and solid 3.5% dividend yield.
BASF SE (OTCQX:BASFY): This Germany-based chemical company offers a variety of products for a variety of industries. Its portfolio ranges from chemicals, plastics, and performance products to crop protection products to oil and gas industry products.
BASF gets high marks from my Peter Lynch-based model. Its 16.4% long-term earnings-per-share growth rate (using an average of the three-, four-, and five-year rates) and high sales (nearly $100 billion in the past year) make it a steady "stalwart", according to this model. Lynch famously used the P/E-to-growth ratio to find bargain-priced growth stocks, adjusting the "growth" portion of the equation to include dividend yield for stalwarts. When we divide BASF's 14.1 price/earnings ratio by the sum of its long-term growth rate and dividend (3.6%), we get a PEG of 0.71. Anything under 1.0 is considered a good value to this model.
I'm long K, CVX, and BASFY.
Disclosure: The author is long K, BASFY, CVX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.


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Doctor insights on:
What Level Of Blood Sugar Is Dangerous
I smoke rarely, every few days i would have one. Would i be able to keep a good blood glucose/sugar level if i just have just one cigarette?
Your blood: Sugar depends upon thousands of things, most of which you cannot control. You can, however, control diet, exercise, risk factors, medication, monitoring, glucose control etc. Smoking is one of those thing you an also control. It's not up to me to tell you how much you can get away with before you have trouble, because it's impossible to state with certainty. Your choice. I can't give permission. ...Read more
Blood Sugar (Definition)
The blood sugar concentration or blood glucose level is the amount of glucose (sugar) present in the blood of a human or animal. The body naturally tightly regulates blood glucose levels as a part of metabolic homeostasis. Glucose is the primary source of energy for the body's cells, and blood lipids (in the form of fats and oils) are primarily ...Read more
Want to reduce blood glucose level. Is there any sugar in an apple since it is natural?
There's sugar: in natural, sugar comes from naturalGet a more detailed answer ›
What is making my vision blur? Its worse when i eat sugar or blood glucose goes below 5.0mmol but is sometimes blurred when glucose level is good.Idea
Fluctuating glucose: Patients with fluctuating blood sugar levels often have fluctuations in vision. It could be simply that, something like latent hyperopia and need for glasses, or something more serious. You need a good eye exam to diagnose. Diabetics need to be seen annually at the least. ...Read moreSee 1 more doctor answer
Any truth to the claim that consuming more fat, include trans fat, and little/no sugar will bring blood glucose level to normal range? Exercise too.
Don't get your life: With diabetes, you need to be monitored closely as you experiment. Don't expect miraculous results from swapping calories from one group to another. It's much more to your credit that you're exercising, and this will be a huge help to you -- as will simply being pro-active about your health. Best wishes. ...Read more
• I am diabetic since 5 years,for the last 5 years my fasting blood glucose in between 125-134 mg/dL and my blood sugar level two hours after eati?
No specific question: The fasting blood sugar results you are providing do indeed point to diabetes. Are you under the care of a physician and being treated for the diabetes? If you are on medication I would advise that you follow up with your physician to discuss your results. Heed the lifestyle advice that your doctor gives you, changing your diet and exercising will greatly affect you long term outcome. ...Read moreSee 2 more doctor answers
What should my blood glucose/ blood sugar be at?
70-99mg/dl fasting: Normal blood sugars are between 70-100mg/dl when you are in a fasting state (at least 8hrs). Diabetes is present when the number hits 126mg/dl in the fasting state. When the sugars fall in between these ranges (100-125), this would be considered impaired fasting glucose or pre-diabetes (borderline diabetes). ...Read more
Will 4 grams of sugar affect fasting blood glucose?
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Marathon Petroleum Corporation (NYSE:MPC)
Q4 2012 Earnings Conference Call
January 30, 2013 10:00 AM ET
Pamela Beall - Vice President, Investor Relations and Government & Public Affairs Vice President, Investor Relations
Gary Heminger - President & CEO
Donald Templin - Senior Vice President and Chief Financial Officer
Michael Palmer - Senior Vice President, Supply, Distribution and Planning
Garry Peiffer - Executive Vice President, Corporate Planning and Investor & Government Relations
Chi Chow - Macquarie Capital
Doug Leggate – Bank of America
Edward Westlake - Credit Suisse
Evan Calio - Morgan Stanley & Co. Inc.
Doug Terreson - ISI Group
Blake Hernandez - Howard Weil
Jeff Dietert - Simmons & Company International
Thomas Stinball - Brokerage [ph]
Welcome to the Marathon Petroleum Corporation Fourth Quarter 2012 Earnings Conference Call. My name is John, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Ms. Pam Beall. Ms. Beall, you may begin.
Pamela Beall
Thank you, John. Good morning everybody and welcome to our fourth quarter 2012 earnings webcast and conference call. The synchronized slides that accompany this call can be found on our website. On the call today are Gary Heminger, President and CEO; Garry Peiffer, Executive Vice President of Corporate Planning and Investor & Government Relations; Don Templin, Senior Vice President and Chief Financial Officer; and Mike Palmer, Senior Vice President of Supply, Distribution and Planning.
Now, if you turn to slide two, please read the Safe Harbor statement. It is a reminder that we will be making forward-looking statements during the presentation and during the question-and-answer session today.
Actual results may differ materially from what we expect today and factors that could cause actual results to differ are included here as well as in our filings with the Securities and Exchange Commission.
Now, I will turn the call over to Gary Heminger for some opening remarks.
Gary Heminger
Thanks Pam and good morning. Thank you for joining us. If you please turn to slide three, during our first full calendar year as an independent company, our commitment to safety and operational excellence underpinned our ability to capture value and deliver strong financial results. Our employees and contractors achieved record safety performance across our operations, including the world-class safety record for the DHOUP project.
As a result of MPC's outstanding operational and financial performance in 2012, our continued strong financial position and positive outlook, we were able to allocate capital to value accretive investments and return significant capital to shareholders.
We returned approximately $1.76 billion to shareholders during the year. This was accomplished through two accelerated share repurchase programs totaling $1.35 billion and a 40% increase in our dividend. Earlier today, we announced the board authorized an additional $2 billion share repurchase, augmenting the $650 million remaining authorization that was announced in the first quarter of 2012. This provides a total outstanding authorization of $2.650 billion through 2014.
The expansion of our share repurchase authorization reflects our intent to continue balancing our use of capital and our recognition of the trust that our investors have placed in us to be good stewards of their capital. In 2012, the U.S. energy industry continued to adapt the growing North American crude oil and natural gas resources and to transportation bottlenecks for those resources. These forces will continue to influence the domestic energy market for years to come, and MPC will invest to remain strategically positioned to create value from these shifts, as they reshape our energy landscape.
While we returned substantial capital to our shareholders, we balance that commitment with critical investments that will enhance MPC's ability to benefit from changing market conditions. Most significant among these was the very successful initial public offering of MPLX LP, our new midstream master limited partnership, the completion of the $2.2 billion heavy oil upgrade project at our Detroit refinery and the agreement to acquire a world-class refinery in the Western Gulf Coast of Mexico.
First, I will highlight the strategy for MPLX and how it will add value for MPC shareholders. We believe we have created a premier MLP, one that has some very attractive features. MPLX is a fee-based business with stable cash flows and multiple avenues to grow earnings and distributions over an extended period of time.
With multiple avenues to expand, MPLX will be our primary vehicle to grow our midstream business and to participate in the infrastructure investments needed to meet the changing North American energy landscape. MPLX assets are integral to MPC's integrated logistics and marketing system, providing MPC's refineries access to foreign, Canadian and domestic crude sources and finished products to its wholesale and retail marketing customers. The growing production of crude oil and natural gas liquids and changing supply patterns create opportunities for MPLX to play a vital role in the fast-changing energy landscape. In addition to organic investments, MPC has a significant and growing portfolio of logistics assets that could be acquired by MPLX in the future.
MPC's interest in MPLX, including its ownership of the general partner, will allow MPC shareholders to participate in the value created by growing the fee-based stable cash flow business of MPLX.
Turning to another significant accomplishment for the year, in November, we enhanced our feedstock acquisition economics by completing the Detroit Heavy Oil Upgrade Project known as DHOUP. This project increased our Detroit refinery's heavy oil processing capacity from 20,000 barrels per calendar day to 100,000 barrels per calendar day, while increasing our total crude oil refining capacity at the facility from 106,000 barrels per day to 120,000 barrels per calendar day.
Our Detroit refinery's strong financial prospects are validation of the investment decision we made several years ago that now enables MPC to benefit from discounted Canadian heavy crudes. DHOUP also set a new standard for megaproject execution. The $2.2 billion project was completed on schedule and on budget. And just as importantly, it also achieved extraordinary safety records since we started construction of this project in the mid-2008. Early indication of Detroit's operations and financial performance are promising.
The third accomplishment I wanted to highlight is the agreement we reached last year to purchase BP's Texas City refinery near Galveston Bay. As the North American energy industry continues to adapt to a significant crude supply shifts, we see the Western Gulf Coast as a primary destination for the surge in crude supply. This transaction will expand our presence in this increasingly important region. The agreement includes a world scale refinery, along with related midstream assets and branded job or contract assignments. We plan to complete the transaction on February 1st, 2013. The transaction is expected to be funded with cash on hand and be accretive to earnings in the first year of operation. This acquisition will enhance our ability to refine price advantage crude oil and it expands our distribution options for refined products, including greater export opportunities. They will provide immediate scale to enable further expansion of our Marathon brand presence in the southeast. This refinery is one of the largest and most complex in the U.S., and is considered to be one of the most technologically advanced and flexible refineries in the world.
It will be the most complex refinery in our portfolio and it will increase our overall refinery complexity index and significantly increase our participation in the chemicals value chain. In addition to major accomplishments such as DHOUP, the creation of MPLX, initiation, other refinery acquisition, 2012 was a busy year for other improvements for MPC's operational capabilities.
Our Speedway retail segment increased its store count by about 7% last year, after acquiring 97 convenient stores in Indiana, Ohio and Kentucky. The acquisitions included 87 GasAmerica stores and 10 Road Ranger stores, bringing its total count to now around 1,460 stores. In addition to strengthening its presence in key marketing areas, Speedway also achieved record segment income and EBITDA per store.
At the same time, Speedway grew its merchandise same-store sales for the 15th consecutive quarter and achieved its best ever safety record. Speedway same-store merchandise sales, excluding cigarettes increased 4% compared to the same quarter last year, which achieved a 7.2% same-store increase over the prior year.
And moving on, we strengthened our position as a customer of choice for hydrocarbon liquids productions from the Utica shale by building additional infrastructure at our refinery in Canton, Ohio to received crude oil and condensate deliveries by transports from nearby wells. We entered into a letter of intent to jointly develop infrastructure intended to facilitate transportation of hydrocarbon liquids production from the Utica shale. The project will result and up to 24,000 barrels per day of truck unloading capacity and a terminal capable of loading up to 50,000 barrels per day onto barges on the Ohio River at MPC's current Wellsville, Ohio asphalt terminal.
To increase access to Bakken and Canadian crude, MPC agree to be the anchor shipper on Enbridge's proposed southern access extension with an option to acquire a 25% equity interest in the pipeline.
This line will originate in finding in Illinois, near Chicago and terminate in Patoka, Illinois, a critical crude storage and blending hub and the origination point for crude supply for our four Midwest refineries.
Recently, Marathon pipeline and the owners of Capline have agreed to terms for formalizing a new operating agreement for Marathon pipeline to become the operator of the Capline system effective in September of this year. Capline is a 633-mile 40-inch crude oil pipeline, running from St. James, Louisiana to Patoka, Illinois. It was constructed in the 1967-68 period and has been operated by Shell since that time. Marathon was one of the original owners and today, MPC retains a 32.6% interest.
I have spoken about balance often, and the balance between investing in the business and returning capital to shareholders has been and we expect will continue to be a powerful driver of value. Our share price rose 89% from year-end 2011 to year-end 2012. Combined with dividends, total 2012 shareholder return was approximately 93%.
The value we have provided for our shareholders as a result of our continuous efforts to meet the needs of our customers in the most efficient way as possible, whether it's sourcing the most price advantage crude slate, identifying the most cost-effective transportation for crude oil and finished products, or determining where our products will be needed most at any given time.
We believe our focus on safe and efficient operations strategically located, refining access to virtually just take some multiple marketing options positions us to make the most of opportunities wherever and whenever they may occur.
If you please turn to slide four, and looking ahead to 2013, we remain committed to operating our assets in a safe and reliable manner, with a continuous improvement in our safety record across all of our operations. Our outlook for U.S. gasoline demand for 2013 is flat and U.S. distillate demand to be up about 3.5%. In addition, we expect export opportunities to remain attractive in 2013. Our distillate exports rose to 151,000 barrels per day during the fourth quarter, compared to 94,000 barrels per day in the same quarter last year.
We remain optimistic about the global competitive position of our U.S. Gulf Coast refineries and the prospects for future exports of gasoline and distillate. Our 2013 capital investment plan totals $1.5 billion, excluding the Galveston Bay refinery purchase price. It allocates capital across all our operating segments to capture value from ships in the energy landscape in North America and to increase our exposure to stable cash flow businesses. Don will go into more detail on specific projects, but I want to highlight a few key points.
We will continue our expansion projects in the pipeline transportation segment, including investments in MPLX operations, and we will pursue additional growth opportunities for this critical logistics operation to support both MPC and third-party business. We will continue to invest in our Speedway segment through a combination of selective acquisitions and organic projects for new stores, rebuilds, remodels and site acquisitions.
This channel of distribution generates stable cash flow from crude and merchandise sales inside the store. Our 2013 plan includes high return projects in our refining and marketing segment that will increase higher value distillate yields, expand our export capacity, allow us to process higher volumes of light hydrocarbons expected to be produced in greater volumes from the Utica Shale, and to continue upgrades at the new Galveston Bay refinery.
And all above, we just completed our first year as an independent company in 2012. We celebrated our 125th anniversary, having been founded in this part of Ohio in 1887. Our long-term success will continue to be built on our ability to adapt the changing marketing conditions and a commitment to value us of health and safety, environmental stewardship and integrity.
We look forward to new opportunities in 2013. As we do, we have recognized the trust our shareholders have placed on us. Our mission continues to be value-creation for our investors, incorporating a balance between internal and external investment and return of capital to shareholders through a strong and growing base dividend over the long term and share repurchases.
In all, we were pleased with what we were able to accomplish in 2012 and we remain very enthusiastic about our prospects into 2013. Now, I will turn the call over to Don Templin to review the financial results for the fourth quarter and the full year of 2012. Don?
Donald Templin
Thanks, Gary. Slide five provides earnings both on an absolute and per share basis. Our fourth quarter and full-year 2012 financial performance was very strong. MPC had adjusted earnings of nearly $760 million or $2.26 per share during the fourth quarter of 2012. This was compared to a loss of $75 million in the fourth quarter of 2011.
For the full-year of 2012, our adjusted earnings were $3.3 billion, almost $1 billion over the prior year. Adjusted earnings per share was $9.79 for the full year of 2012, compared to $6.72 for 2011. The waterfall chart on slide six shows by segment the change in adjusted earnings from the fourth quarter of 2011 to the fourth quarter of 2012. The primary driver for the change in our adjusted earnings was the increase in refining and marketing segment income, partially offset by additional income tax expense.
The significant improvement in refining the market segment income was primarily the result of higher crack spreads and wider solid crude differentials in the quarter. The increase in income tax expense is a function of higher 2012 earnings. As shown on slide seven, refining and marketing segment income from operations was almost $1.14 billion in the fourth quarter of 2012. This was compared with a loss of $182 million in the fourth quarter of 2011. In explaining the key components of the refining and marketing gross margin, I will refer to the changes in market indicators applied to MPC actual volumes to arrive at the quarter-over-quarter variances. First, the blended LLS 6321 crack spread. It was $2.73 per barrel higher in the fourth quarter of 2012 than the fourth quarter of 2011, resulting in an estimated favorable variable of $371 million.
Both Chicago and Gulf Coast crack spreads were higher in the fourth quarter of this year compared to the fourth quarter of last year. The most significant variance quarter-over-quarter relates to the sweet-sour differential. The sweet-sour differential for the 2012 fourth quarter was $13.41 per barrel, which was $12.44 per barrel higher than the comparable quarter last year and represents an estimated $809 million favorable variance.
The LLS WTI differential was $21.29 for the fourth quarter of 2012, compared with $16.77 for the fourth quarter of 2011. This increase in our differential resulted in an estimated $81 million favorable gross margin variance between the two quarters.
The first three market indicators are calculated by reference to a LLS Prompt price. Rapid changes in crude prices can cause significant differences between the LLS Prompt prices embedded in the market indicators and the actual amount we pay. On average, the delivered LLS crude cost was $1.36 per barrel less than the prompt LLS price during the fourth quarter of 2012, while the average delivered crude cost for the same quarter last year was $6.52 per barrel higher than the prompt price. This $7.88 difference resulted in an estimated $182 million favorable variance.
You may recall there was a dramatic narrowing of the WTI to LLS crude differential at the end of last year, which had a significant impact on our crude oil acquisition costs in the fourth quarter of 2011. Direct operating costs had an unfavorable quarter-over-quarter effect of $90 million. This was primarily due to higher depreciation expense associated with the completion of DHOUP and higher planned turnaround cost in the fourth quarter of 2012, compared with the fourth quarter of 2011. As you know, we completed the turnaround at our Detroit refinery in the 2012 fourth quarter.
The gross margin column captures a number of other factors that need to be considered when reconciling the market-based metrics to the change in our gross margin. They include items such as actual realized prices, refinery yields, other feedstock costs and crude slate variances compared to the values assumed when we calculate the market indicators.
It also includes refinery volumetric gains and purchase for resale activity. As you can see from the waterfall chart, this combination of factors led to an estimated $24 million unfavorable impact in the fourth quarter of 2012 compared to the fourth quarter of 2011.
Slide eight provides a similar earnings walk for the refining and marketing segment on a year-over-year basis. The blended LLS 6321 crack spread in 2012 was double to $3.35 per barrel of crack spread of 2011, resulting in an estimated favorable variance of almost 1.7 billion. The sweet-sour differential accounted for an estimated favorable variance of $870 million, as the differential was $3.36 per barrel higher than the average for 2011.
The WTI to LLS differential was $0.26 per barrel higher in 2012 compared to 2011, which resulted in estimated of $119 million of favorable gross margin variance between the two years. The LLS Prompt versus Delivered price variance was not significant when comparing the annual results. The total prompt versus delivered LLS crude variance accounted for an approximately $49 million positive impact in the full-year comparison.
Market structure had an estimated unfavorable variance of $126 million, that was $0.39 per barrel less of contango in the NYMEX WTI market structure in 2012 compared to 2011. Our direct-to-operating costs were $197 million higher in 2012 compared to 2011, primarily due to higher planned turnaround expenses and higher depreciation expense in 2012.
With respect to other gross margin, a number of factors impacted the change year-over-year. The mix of crudes we actually processed versus the market indicators was the primary contributor of this difference.
On the next few slides, we include earnings walks for each of our other operating segments. Turning to slide nine, Speedway's income from operations was $77 million in the fourth quarter of 2012 compared to $73 million in the fourth quarter of 2011. Light Product and Merchandise gross margin combined were about $21 million higher in the fourth quarter of 2012, compared with the fourth quarter of 2011.
Life Product margins increased by $8 million as margins averaged $0.1424 per gallon compared to $0.14 in the fourth quarter of 2011. Merchandise margin was $196 million in the fourth quarter of 2012 compared with $183 million in the same period last year. This $13 million increase was primarily due to an increase in the number of stores compared with the same period last year.
On a same-store basis, gasoline sales volumes decreased 0.2% and merchandise sales increased 0.2% in the fourth quarter of 2012 compared with the 2011 fourth quarter. The lower same-store gasoline sales volumes primarily reflect the impact of the higher absolute price of gasoline. Speedway's average retail gasoline price was $3.32 per gallon during the fourth quarter of '12 compared with $3.20 per gallon for the comparable quarter last year. In January 2013 we've seen an increase in demand with an approximately 2% increase in same-store gasoline sales volumes at Speedway.
Speedway's income from operations for all of 2012 was $310 million compared with $271 million for 2011. Light product margins increased by $15 million as margins averaged $13.18 per gallon in 2012 slightly higher than the 2011 average. On a same-store basis, gasoline sales volumes decreased 0.8% in 2012 compared to 2011. The decrease in same-store gasoline sales reflects lower gasoline demand in our market area. Merchandise margins were $795 million in 2012 compared to $719 million in 2011 or an increase of $76 million. The increase in light product and merchandise margins were partially offset by increased expenses of $52 million primarily due to an increase in the number of stores operated in 2012 as compared to 2011.
Slide 10 shows fourth quarter and full year changes in our Pipeline Transportation segment income from operations was $72 million in the fourth quarter of 2012 compared with $38 million in the fourth quarter of 2011. This increase was primarily attributable to an increase in transportation tariffs and earnings from pipeline affiliates offset by slightly higher mechanical integrity costs. Some of the increase in the transportation tariffs were related to the formation of the MPLX, 2012 income from operations was $216 million compared with $199 million in 2011. This improvement is primarily attributable to an increase in transportation tariffs partially offset by higher mechanical integrity costs and a reduction in pipeline affiliate income in 2012.
The chart on Slide 11 provides an analysis of cash flows for the fourth quarter of 2012. At December 31, 2012 our cash balance was nearly $4.9 billion. Operating cash flow before changes in working capital was just over $1.1 billion. The working capital benefit of $919 million noted on the slide primarily relates to the impact of lower refined product prices on our ending receivables and a reduction in our inventory levels at year-end. Capital expenditures and investments during the quarter were $403 million including amounts related to the completion of our Detroit heavy oil upgrade project also shown on this slide is the $500 million of cash used in connection with our second accelerated share repurchase program and the cash we received related to the initial public offering of MPLX.
Slide 12, shows that at the end of the fourth quarter, we had nearly $4.9 billion of cash and approximately $3.4 billion of debt. With EBITDA of over $6.3 billion during the last 12 months. We continue to be in a very manageable debt position with leverage of 0.5 times EBITDA and a debt to total capital ratio of 22%. This strong liquidity position will enable us to fund the Galveston Bay refinery in cash with sufficient remaining balances to support our core liquidity position and continue to focus on capital return.
Turning to Slide 13, during the last 12 months we generated almost $4.5 billion in cash from operations and nearly $3 billion of free cash flow. Consistent with our commitment to return capital to shareholders we distributed 60% of our free cash flow in the form of dividends and share repurchases during this past year. We are committed to being a leader in our peer group in terms of total shareholder return going forward. As Gary mentioned earlier, our strong liquidity position has supported the board's authorization of the repurchase of an additional $2 billion of common stock for a total outstanding authorization of $2.65 billion through 2014. We will periodically update you on the progress of the share repurchase program. Regarding the $500 million accelerated share repurchase program we initiated in November. We expect the program to complete tomorrow. The total shares to be received will be based on the average share price over the three-month period of the program based on share prices to date we expect to receive approximately 930,000 shares in addition to the 7.4 million shares received at the inception of the program. This will bring the total shares acquired under the program to approximately 8.3 million shares or about 2.4% of the shares outstanding when the program began.
Slide 14 provides outlook information on key operating metrics for MPC for the first quarter of 2013. This information assumes the February 1 closing date for the Galveston Bay acquisition. For comparative purposes those same metrics for the first quarter 2012 are also shown.
Slide 15 provides a breakdown by segment of our actual 2012 capital expenditures and investments along with our approved capital budget for 2013.
Slide 16 indicates the significant capital projects that we'll be working on in 2013 and beyond. Total capital spending in 2013 associated with planned upgrading of the Galveston Bay refinery and related assets is expected to be approximately $400 million. We will continue infrastructure investments and complete several programs that are underway at this time. In addition, we've identified synergies that we should begin to capture during our first year of operation. Executing on our commitment to expand our assured sales, we have allocated $255 million for organic and acquisition opportunities within our Speedway segment in 2013. At our Garyville refinery, we are continuing our projects to optimize diesel and gasoline yield through modifications to the older crude unit, hydrocracker and the distillate hydro-treaters. Total capital spending is estimated at $225 million with the hydrocracker revamp to be completed in 2014 and completion of the final phase of the program in 2015. We intend to be a first mover in the Utica Shale play and will position MPC to be the customer of choice for the crude oil and condensate. Total spending is estimated at approximately $300 million through 2014 to accomplish to these objectives. New barges will be purchased to allow Utica production to be transported to Catlettsburg from the Wellsville facility. We plan to invest in condensate splitters at Canton and Catlettsburg to allow the refineries to process up to 60,000 barrels per day of condensate from the Utica field.
In 2013 we should complete our Wellsville truck-to-barge crude system project and begin a condensate gathering line project that will connect production via pipeline to both our Wellsville terminal and the Canton refinery. The Patoka to Catlettsburg crude oil pipeline upgrade project is within MPLX and has been prefunded with a $160 million of proceeds received from the initial public offering. This major upgrade project is expected to increase capacity and reliability and will be completed in September of 2014. The Robinson uni-cracker project is a planned revamp of our distiller hydrocracker to improve margins by processing more feedstock at a lower conversion and shifting approximately 10,000 barrels per day of other products to diesel production.
Estimated total capital spending for the project is $75 million and it should be complete in 2015. With respect to our gasoline and distill export project to Garyville we are progressing well and plan to have the final phase of the project complete ahead of schedule in late 2013. This $40 million capital project along with some minor optimization work has already allowed us to increase our diesel export capacity by 50,000 barrels per day while the addition of a tank will expand our ability to export gasoline as well. The Catlettsburg vacuum cut-point project is a revamp that will recover additional volumes of gas oil from the refinery's residual oil production to be processed in the Cat cracker, thus increasing the production of higher valued gasoline and diesel. This project is expected to be completed in 2014.
Now I'll turn the call back to Pam Beall.
Pamela Beall
Thanks Don. Many of you have asked about the assets in MPC's refining and marketing segment that could potentially be acquired by MPLX in the future. You will find in our 10-K which will be filed next month additional disclosure about those assets that we believe will be useful to investors. Now, as we open up the call for questions we ask that you limit yourself to one question plus a follow-up and then of course you may re-prompt for additional questions as time permits. So, John with that we would like to open the call to questions.
Question-and-Answer Session
Thank you, we will now begin the question and answer session. (Operator Instructions) And our first question comes from Chi Chow from Macquarie Capital, please go ahead.
Chi Chow - Macquarie Capital
Alright. Thanks and good morning. Gary, you mentioned in your remarks the news on Capline and I am wondering with Marathon becoming operator does that change your thoughts at all on a possible reversal of line or are you still happy with the crude supply optionality from the Gulf Coast longer term?
Gary Heminger
Thanks Chi and good morning to you. The operatorship -- this has been under discussion for some time and so I would find that separate from whether or not there is an opportunity to reverse the line. We continue to study those opportunities. As we've said before there were three owners and it takes all of us to agree on which direction that pipeline might flow. So, we will continue to analyze this going forward and determine if there's any change in that direction.
Chi Chow - Macquarie Capital
So, the ownership structure doesn't change at all?
Gary Heminger
No, it does not.
Chi Chow - Macquarie Capital
Okay, and does the upcoming decision on the Keystone XL line influence your thoughts or I guess, all three owners thoughts?
Gary Heminger
Well it's going to be very interesting if Keystone XL gets approved or if its delayed, that is, I think it's going to take longer to get that decision made than we had initially thought. But certainly if something would to happen in that pipeline doesn't get built to the Western Gulf, then that would put I think a different view maybe for some of the owners on Capline, but all remains to be seen.
Chi Chow - Macquarie Capital
Okay, Thanks Gary. And then a second question on DHOUP. Can you talk about how the unit is operating so far? You're in January and I think you have put out a $350 million EBITDA accretion number out there on 2011 pricing. What are your thoughts on handicapping upside or downside on that increase at this point?
Gary Heminger
Right, the numbers that you have quoted are correct that we put out numbers to both the 2006 to 2010 timeframe and 2011. The number you have quoted is correct and Chi we are very pleased, I really congratulate and complement our refining team that built this project and had it up and running. It's running very well. It's been able to meet its stated capacity very early on and so we are in the process now of testing to see, it's too early yet Chi. If I take you back to how we brought Garyville up, we are in some very early stages, so I don't have any of the test data yet on if it can outrun its design capacity, so it's too early. But its running very well, and it came up relatively seamless.
Chi Chow - Macquarie Capital
Great, what type of barrels are you displacing with the increased runs of the heavy Canadian?
Gary Heminger
Let me ask Mike Palmer to answer that.
Michael Palmer
Oh yes Chi, obviously, we talked before about the ability of bringing in an incremental 80,000 barrels a day of heavy Canadian and we've been ramping that up. But basically we've been bringing in the heavy Canadian, which we've been very successful at acquiring and moving, and just backing out a really what is a variety of other lighter in some sweet crudes.
Chi Chow - Macquarie Capital
Okay, great, thanks Mike, appreciate it.
Our next question comes from Doug Leggate from Bank of America, please go ahead.
Doug Leggate – Bank of America
Well, thanks, good morning everybody. I've got a couple as well, hopefully I won't take too long. You guys mentioned that you're getting ready to basically or you'd be able to process increasing amounts of condensate opened from the Utica, have you already got line up sight as to where the supplies are coming from and have you been in negotiations with suppliers already, because obviously volumes are still somewhat fairly sparse, as we understand it?
Michael Palmer
Yes Doug, this is Mike Palmer. You know, you're right. Certainly, the Utica production both the crude oil and condensate has come on more slowly than what the producers originally estimated, but it's very interesting. Just to give you some rough numbers. There have been something on the order of 500 drilling permits that have been issued. There have been about 200 wells that have been drilled and only about 50 wells were actually producing. So, there is lot of wells that have been already drilled that are just waiting to be hooked up to gas processing and takeaway capacity. And we'd certainly expect that that's going to begin to happen around mid-year this year and continue through 2013, '14, and beyond. So we remain very optimistic about the volumes of condensate and some crew that we'll have coming out of the Utica for our operation.
Doug Leggate - Bank of America
Great, thanks. Two quick follow-ups if I may. Gary, the accelerated or rather the step-up in the buyback program, could you give us some idea as to how you're thinking about prioritizing that between competitive dividend growth and buybacks. And perhaps what the likely pace you would anticipate given the cash in your balance sheet of executing that buyback program, and have got one final input?
Gary Heminger
Sure Doug. Let me ask Don to take that one.
Donald Templin
Yes Doug, this Don. With respect to returning capital to shareholders, we've indicated to you on a number of occasions, our bias is to having a strong base dividend, and then to the extent that we have incremental cash like we have currently to use other mechanisms to return the capital to shareholders. So, we've favored share repurchases historically, and we will continue I believe to favor share repurchases going forward. With respect to our base dividend, we view that as a long-term commitment to our shareholders, and we believe that successful companies grow their share, their dividend overtime on a sustained basis and we'd be committed to doing that. But to the extent that we have excess cash and we would look to use tools like a share repurchase program. I think we've historically used accelerated share repurchases, at least for last two times that doesn't necessarily mean that that's how we would plan to do it going forward.
Doug Leggate - Bank of America
Great, thank you. I apologize to squeezing the third one in, but just very quickly on the micro Gary. If I could just ask for your perspective on the outlook for Canadian heavy differentials, I know that you guys are essentially a fairly significant buyer of that, and I'll leave it there, thank you.
Gary Heminger
Yes Doug, there are going to be many changes in the Canadian heavy market this year. Now, of course it depends on what happens with the Excel pipeline, but that won't be completed even if they were approved first half of this year, probably won't be completed into the 15th timeframe or so, somewhere in that arena. But we just brought Detroit up, DHOUP in November, and there is another very large project up in Whiting that will come up, we understand later this year. So we really would expect to have strong differentials through the front half of this year, and then we'll see what happens when those other project comes up. But at the same time you're going to see one or two more fields come on stream. And I still think it's going to come down to the pipelines and the pipeline capacity, and where and what regions that heavy crude can move. And then of course that will be tempered by any turnarounds and not any downtime in any of the Canadian upgraders or Canadian production operations.
Doug Leggate - Bank of America
Got it, thanks for the answers Gary, I appreciate that.
Gary Heminger
Thanks Doug.
Our next question comes from Ed Westlake from Credit Suisse, please go ahead.
Edward Westlake - Credit Suisse
Hey, good morning Gary and everyone and congrats on the results. Just trying to focus in on Texas City, obviously we'll actually see the EBITDA soon enough. But, could you give us any updates on say OpEx per barrel, or the logistics EBITDA within Texas City, or the potential capture rate that you think relative to Gulf Coast margins given that you've got lot of aromatics and propylene production in Texas City?
Gary Heminger
Right, let me ask. Thanks for the comments there Ed, and let me ask Don to cover this.
Donald Templin
Yes. Ed, with respect to I would say the operating expenses or manufacturing costs, we have embedded those manufacturing costs in the outlook information that we have included in our slides. So that includes two months' worth of Galveston Bay or the Texas City refinery in those amounts. So, you can see kind of those numbers as reflected or compared to 2012. With respect to the EBITDA, we don't give specific EBITDA per plant or by refinery, but at the time that we did announce the acquisition last year we used two different price decks and the incremental EBITDA associated with the refinery using those two price decks was between $700 million and $1.2 billion.
Ed Westlake - Credit Suisse Securities
Donald Templin
Ed, the other thing with your question on aromatics, we are just going to take over on Friday. We just received the LP, late in the process here and because the former owner that was their property and we need to make sure the same got to the finish line, as I said, it will on this Friday. So, we just got that LP. We will be refining that and really get into the details of that starting next week. So, we really can't breakout the aromatics yet. But all of that value is embedded in the numbers, the 700 or 1.2, that John just gave you. Those numbers were based on a 12-month and of course, this is going to be an 11-month period.
Ed Westlake - Credit Suisse Securities
Yes. The other question is around gasoline versus diesel. Oversea gasoline prices have been depressed partly because of American demand and partly because refineries in the US are running as hard as they can whereas diesel obviously has been a little bit more profitable. When you think about uses of the free cash flow that you have. What sort of thoughts do you have around making some larger investments to improve the diesel yield at the refinery system?
Donald Templin
Well, Ed, we have made and I think we were a little bit ahead of the curve going back to when built Garyville. We built Garyville to be a balanced refinery about 50% gasoline and 50% diesel. Then when we did DHOUP the same thing to get more diesel output and to be able to lessen the amount of reset in the marketplace and then further investments we made at Garyville to even expand the hydrocracker to make more diesel and with the help of other process units and then lastly to be able to export that diesel out of the marketplace in an efficient manner. So we have made a lot of investments in what I call low hanging fruit early on and probably ahead of some.
Ed Westlake - Credit Suisse Securities
But no plans to do a major sort of hydrocracker build?
Donald Templin
Not at this time, Ed.
Ed Westlake - Credit Suisse Securities
Okay, thanks very much.
Our next question comes from Evan Calio from Morgan Stanley, please go ahead.
Evan Calio - Morgan Stanley & Co. Inc.
Hi, good morning, guys.
Gary Heminger
Good morning, Evan.
Evan Calio - Morgan Stanley & Co. Inc.
Question on your 2013 CapEx. I guess first can you quantify how much of the $1.6 billion is midstream including dock capacity, I am trying to understand the better the organic growth or kind of more of the conventional growth in MLP assets within the portfolio? I have a second question.
Donald Templin
Evan, this is Don. We have not typically broken that out. I mean, you can see what we have included for pipeline transportation but a big piece of that number relates to the Patoka, the Catlettsburg upgrade expansion project. We have not separately detailed the other projects.
Evan Calio - Morgan Stanley & Co. Inc.
Right. But the fact is listed number two would mean it's a pretty big priority item you are spending here? I guess my second question is -- I mean maybe you are just saying you want to answer that but in terms of the Galveston Bay or the Texas City CapEx, I mean, can you mention how much is regulatory maintenance versus growth, just trying to understand how much invested capital could drive incremental returns on a flat crack basis rather than aggregate amount of what's being invested?
Gary Heminger
I think $400 million is our expectation of the spend that we would have related to Galveston Bay this year, Evan. I would say substantially of all that relates to either regulatory or projects that were ongoing. Our view around expansion opportunities actually occurs in subsequent years.
Evan Calio - Morgan Stanley & Co. Inc.
Okay. Maybe finally a question is, obviously, it's very topical around midstream and downstream this quarter but do you see any role for rail in your system or do you really think you are kind of best served by pipe given your location? I would leave with that. Thanks.
Michael Palmer
Evan, this is Mike Palmer. We have looked at rail over and over again. If you look at our system, again, with our plants in the Midwest and the plants in the Gulf Coast, we just don't think that our investing in rail makes a lot of sense. We think that we can accomplish much lower transportation costs through pipeline. We understand why others do it, but what we have looked at it and just can't make sense of it.
Evan Calio - Morgan Stanley & Co. Inc.
Okay. It makes sense. Appreciate you guys.
Our next question comes from Doug Terreson from ISI, please go ahead.
Doug Terreson - ISI Group
Good morning, everybody and congratulations on your great results.
Gary Heminger
Thanks, Doug.
Doug Terreson - ISI Group
Gary, industry exports or net exports seem to have slowed during the past year although I think you pointed out that you didn't have any problems because yours was -- increased further with the expansion in Garyville. My question involves any insights that you may have into the slowdown in the industry exports, meaning, are there supply or demand side features that are present here and what you consider your major advantage is in this area? Also how the new refinery will affect your export capabilities in coming years? Meaning, will you have to make investments or is it readymade for exports. So if you could just comment on couple of those items I would appreciate it?
Gary Heminger
Sure, Doug. Our numbers on exports appear to be about flat for distillate and I can talk about distillate because that's the commodity that we export the most. So about flat to last year. One of the things that I think give us a good position in the market is the quality of the distillate that we are making out of Garyville as a high cetane rate which is sought after in the marketplace. So I think that is, say, it gives us a strong position. You will notice that we substantially increased quarter-over-quarter last year, the numbers were 151 this year to 94 last year. So we substantially increased that and continue to have a strong demand for our distillate.
As we take on Galveston Bay and the way -- part of the synergies and the way that we are going to operate there, the day we move some of our products, I would say we kind of crisscrossed with Galveston Bay because Galveston Bay is a very large supplier into the Florida market as same as Garyville is and then we also both plants were exporters into the Latin America, South America market and some to Europe. So, we will be able to pick up some synergy and be able to optimize how we move those products to marketplace and I think take advantage of some good transportation savings both in distance and in the volume or the metric tons that you are going to ship in one batch. So, that's what we are looking at upfront, Doug.
Doug Terreson - ISI Group
Okay. I had a couple of other questions about inventory. I think you guys mentioned that there was an inventory gain in the quarter, so I want to find out the magnitude? And then Gary, you are (inaudible) for the industry in Washington, so I wanted to see if we could get some updated insights from you on, potential changes in industry tax policy and specifically, while it doesn't sound like there is going to be some type of mandate whereby the refiners migrate from LIFO to FIFO, just want to see what your views might be in that area and also the level of your current LIFO reserves, so there is three question there.
Gary Heminger
Right. Donald, go over the inventory first.
Donald Templin
Yes. So, with respect to inventory I think the comment I made was in the fourth quarter as part of our cash flow or working capital items our inventories at year-end were slightly below or were lower than our inventories at the end of the third quarter. On a year-on-year basis our inventories are just slightly up, maybe $200 million I want to say roughly. So, that's the inventory.
Doug Terreson - ISI Group
And industry tax policy Gary, your view?
Gary Heminger
Right. A couple of things, industry tax policy of course the industry would certainly embrace staying with LIFO and that's the direction that we are working hard and trying to explain in Washington. I would say the biggest item in Washington that we are dealing with short-term will be the renewable fuel standard. It's unworkable in its current approach. You see that there was a decision that came out this week that said that a decision was made that EPA oversteps some boundaries within the biodiesel side of the business. I would say Renewable Fuel Standard because as we come to hit the blend wall and the requirements that are there for blending and the lack of cellulosic and the lack of some other advanced cellulosic type of materials it really puts us in an unworkable solution, or unworkable position, I should say. The next discussion point is going to be around E15 and we don't think that works either and it's going to be something that we continue to work very hard inside the beltway. From a tax position, we certainly embrace staying with LIFO. I will let Don discuss.
Donald Templin
Yes. I think you had asked about LIFO but I don't have the reserve number with me right now. If you are asking about the replacement cost, I mean, fair value exceeds our carrying cost by somewhere around $5.4 billion at the end of the year.
Doug Terreson - ISI Group
Okay, great guys. Thanks a lot.
Gary Heminger
See you, Doug.
Our next question comes from Blake Hernandez from Howard Weil, please go ahead.
Blake Hernandez - Howard Weil
Hi, guys, good morning. I had a question for you on Texas City, understanding you are about to close but just kind of the history of the facility, it's obviously been run somewhat inefficiently I am just curious if you have had a chance to get in there and assess some cost cutting and efficiency opportunities yet?
Gary Heminger
Yes, Blake. First and most important to us is to bring this on a very safe manner, safety to the employees, safety to the community and the environment and that's really where we are focused. We have set up a complete separate team to be able to bring this on and turn this over so that they are not distracted with their job back at one of their other refineries they are there to look after this plant. We have named the new management team and we have confidence in their abilities. We are not going to focus on cost cutting early on. We really need to, as Don outlined a little bit ago, that the capital that is on our plate this year is mainly to this and the next couple of years is to complete the regulatory or consent decree capital if you want to call it then that is required in this plant. Then we will focus on what is the best way in our opinion to operate. Mike Palmer's group is going to focus on the best way to optimize the feedstocks and then how we sell it into the marketplace. I want to be very clear, we are not going to step out and try to reduce operating cost immediately until we totally get this under control and a safe turnover the operation.
Blake Hernandez - Howard Weil
Understood. Thanks, Gary. And then the second question was -- one of your peers yesterday talked about I guess the opportunity to where they have pushed out all the foreign barrels that we are using along the Gulf Coast and replaced it with domestic barrels. I am just curious, do you have a similar opportunity with Garyville and of course Texas City coming online. I don't know if you have a mix offhand of what foreign crude you run, is there a chance to replace those?
Michael Palmer
Yes, Blake. This is Mike Palmer. We certainly believe that here in 2013 that there really won't be any material volume of foreign cargo sweet crude left in the Gulf. We always look to optimize our crude slates and where we can bring in a domestic barrel that's priced better and provides higher profitability than a foreign barrel, we do that. So, there is not a lot of foreign sweet crude that we bring into the Gulf anymore. There may be some at Galveston Bay and once we get the LP and we are looking at that refinery closely will determine what the best crude slate is there. The other thing I would say is, while they won't be any real material light sweet cargo crude coming into the Gulf, there will always be opportunities that various refiners will look at to bring special crudes in that provide value to that refinery. So, it's not as if this crude is going to go completely away.
Blake Hernandez - Howard Weil
Got it. Perfect, thank you.
Our next question comes from Jeff Dietert from Simmons, please go ahead.
Jeff Dietert - Simmons & Company International
Good morning. I know we are late in the hour. My question is regarding barging activity on the Mississippi River. I think historically you have moved something like 50,000 barrels a day and by barged down to Garyville. Are you being impacted by the low water levels and what are the constraints to moving more (inaudible) crude down to Garyville?
Garry Peiffer
Yes, this is Garry Peiffer. Regarding the Mississippi River, at moment it's pretty much operating as normal. We are operating at Wood River dock with 9 foot drafts, so that's pretty much what we normally operate at. So the good news is we had some pretty good precipitation here lately. So from a operation standpoint, other than the incident that occurred down in the southern part of the river here over the weekend that they expect to have up and running in the next couple of days, the river levels are not impeding our flow on the or activity on the Mississippi.
Jeff Dietert - Simmons & Company International
Is the 50,000 barrel a day movement the right ballpark and what's the constraining factor to keep these from moving more?
Michael Palmer
Yes, this is Mike Palmer. Let me answer that. As you well know, the reason for these very wide differentials that we are seeing on the heavy Canadian now is due to pipeline constraints and that's for everybody. What we will do as we go forward is we will have to look at the logistics space, the pipeline space that we have and how we best utilize that space within the system. So, whether or not the heavy barrels that we can get into say the Patoka area, whether those move on to Garyville by barge or whether we move those by pipe down to Galveston Bay or whether we move those to the Midwest system will be part of the optimization process that we will do each and every month. But there are pipeline constraints.
Jeff Dietert - Simmons & Company International
Thanks, Mike. Thanks, Garry.
Pamela Beall
John, we will take one last question and then we will call it a wrap.
(Operator Instructions) We have a question from Thomas Stinball from Brokerage [ph], please go ahead.
Thomas Stinball - Brokerage [ph]
Hi, good morning guys and congratulations on a great year. My question to you is on how you are acting as a blender and producer of gasoline in response to the moves higher and RINs over the last few weeks. You alluded to sort of the structural question on the blend wall, but we have incurred RIN economics and shortage of ethanol after last year's crop year, how are you planning to comply with the renewable mandates for '12 and '13?
Gary Heminger
We don't see that we will have any problem meeting the renewable mandate. Please understand the way that RINs work is you can carry some RINs forward and then we buy RINs on the third party market as well and of course there was a bit of issue a couple of years ago with the validity of some RINs but that has pretty much been all straightened out and we feel confident that it is not going to give us any problem in meeting that window.
Thomas Stinball - Brokerage [ph]
Would you prefer if you could get term ethanol supply agreement or buying RINS from the third party market as a means to fulfill that obligation?
Gary Heminger
We don't have any problem, we have term ethanol agreements already. So that's not a problem to us.
Thomas Stinball - Brokerage [ph]
Alright, thank you.
Gary Heminger
Alright. Pam let me state that, I mentioned something in my speech that I thought afterward, for the folks at Speedway I said 15 straight quarters, it's really 15 straight years that they have increased their merchandise sales and my compliments to them.
Pamela Beall
Okay. Well thank you Gary. Thanks everyone for joining us today. If you have any follow-up questions I will be in the office this afternoon if you want to give us a call. Thank you. Bye, bye.
Thank you. Ladies and gentlemen this concludes today's conference. Thank you for participating. You may now disconnect.
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PARIS – In his masterpiece Diplomacy, Henry Kissinger describes, probably too idyllically, the international balance-of-power system that, following the Congress of Vienna in 1814-1815, produced what came to be called the "Concert of Europe." As Kissinger describes it, after the Napoleonic Wars, "There was not only a physical equilibrium, but a moral one. Power and justice were in substantial harmony." Of course, the concert ended in cacophony with the outbreak of World War I in the summer of 1914.
Today, after the brutality of the first half of the twentieth century, the temporary bipolarity of the Cold War, and America's brief post-1989 hyperpower status, the world is once again searching for a new international order. Can something like the Concert of Europe be globalized?
Unfortunately, global cacophony seems more probable. One obvious reason is the absence of a recognized and accepted international referee. The United States, which best embodies ultimate power, is less willing – and less able – to exercise it. And the United Nations, which best embodies the principles of international order, is as divided and impotent as ever.
But, beyond the absence of a referee, another issue looms: the wave of globalization that followed the end of the Cold War has, paradoxically, accelerated fragmentation, affecting democratic and non-democratic countries alike. From the collapse of the Soviet Union, Yugoslavia's violent self-destruction, and Czechoslovakia's peaceful divorce to today's centrifugal pressures in Europe, the West, and the major emerging countries, fragmentation has been fundamental to international relations in recent decades.