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North American energy firm Williams Companies Inc. (WMB - Analyst Report) announced that it is planning to spend up to C$900 million to construct a propane dehydrogenation (PDH) plant in Alberta, Canada. The new facility is expected to boost Williams’ Canadian production of polymer-grade propylene.

Propylene is an important petrochemical raw material used for manufacturing plastic. The upcoming PDH plant – touted as Canada’s first – will be capable of producing up to roughly 1.1 billion pounds of polymer-grade propylene per year initially that can be doubled at a later stage. The facility is scheduled to start operation from the second quarter of 2016, subject to regulatory approvals.

Management revealed that propane, which will be used as a feedstock for producing polymer-grade propylene in the new PDH plant, will be recovered from the oil sands offgas processing operations of Williams, and also purchased locally.

The high-grade propylene will then be carried to the U.S. Gulf Coast for selling to the petrochemical producers. Williams expects the new PDH plant to manufacture one of the cheapest propylene feedstocks in entire North America.  

Tulsa, Oklahoma-based Williams is a premier energy infrastructure provider in North America. The company’s core operations include finding, producing, gathering, processing and transportation of natural gas. Williams divides its business into four segments: Williams Partners, Williams NGL & Petchem Services, Access Midstream Partners and Other.

We remain concerned about Williams Companies’ high debt level, which leaves it vulnerable to an extended drop in commodity prices. As of Dec 31, 2012, Williams had long-term debt of more than $10.7 billion, representing a debt-to-capitalization ratio of 69.3%.

Williams currently retains a Zacks Rank #5 (Strong Sell), implying that it is expected to underperform the broader U.S. equity market over the next 1 to 3 months.

In the energy sector, Helmerich & Payne Inc (HP - Analyst Report),  Range Resources Corporation (RRC - Analyst Report) and Calumet Specialty Products Partners LP (CLMT - Snapshot Report) display better fundamentals and currently carry a Zacks Rank #1 (Strong Buy).

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