Williams Companies (WMB) announced plans to expand the production capacity at its Geismar olefins plant. With this move, the facility’s ethylene production capacity will go up by 600 million pounds annually to 1.95 billion pounds.
With an 83.3% interest in the Geismar plant, Williams acts as the operator for the facility and expects to incur about $350 million to $400 million for the expansion program in 2012–13. The unit is slated to be operational in the third quarter of 2013.
The Geismar facility is situated to the south of Baton Rouge, Louisiana and produces natural gas liquid (NGL) along with propylene, butadiene and debutanized aromatic concentrate (DAC). The plant currently has a production capacity of 37,000 barrels of ethane per day and 3,000 barrels of propane per day and produces 1.35 billion pounds of ethylene annually.
Williams’ management stated that this increased production capacity will be highly effective in the light of the shale gas revolution in the United States and continued strength in crude oil prices that have given an upward momentum to the ethylene manufacturing industry. The company expects to serve a larger customer base as well as strengthen its position in the industry.
Williams is an integrated energy firm that primarily explores, produces, gathers, processes and transports natural gas n the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard and the Marcellus Shale in Pennsylvania. The company operates through four business segments: Williams Partners –– that includes the company’s 84% owned master limited partnership Williams Partners L.P. (WPZ), Exploration & Production, Midstream Canada & Olefins, and Other.
We remain optimistic about Williams’ midstream and pipeline sectors and expect growing cash flows from these assets. The company is poised to benefit from the rebound in industrial activity that will see greater natural gas demand in the form of NGL.
However, Williams’ leveraged balance sheet and exposure to volatility in natural gas and natural gas liquids prices remain key areas of concern. We expect the company’s growth potential to be restrained with little room for meaningful upside from current levels. Hence, we expect the company to perform at par with other industry players and maintain a long-term Neutral recommendation. Williams currently retains a Zacks #3 Rank (short-term Hold rating).
WILLIAMS COS (WMB): Free Stock Analysis Report
WILLIAMS PTNRS (WPZ): Free Stock Analysis Report
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