Shell gets another extension on Horsehead property

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Horsehead Corp. and Shell Chemical LP, a division of Royal Dutch Shell, have extended their land option agreement for a third time, giving the energy company more time to decide whether to build an ethane cracker on the site of Horsehead's smelter in Potter, Beaver County.

But the new agreement is different from the prior two. Its expiration date is confidential, according to the companies, whereas the previous extensions have been for six-month stretches. Plus, it includes a provision that Horsehead will begin demolition activities at the site during the first quarter of 2014, and that Shell will foot the bill.

"I wouldn't be surprised if it were the last extension," said Ali Alavi, a senior vice president with Horsehead.

Mr. Alavi said Horsehead's current smelter operation takes up about 60 acres in the middle of the 340-acre property, so demolition would begin on the outskirts and move into the center.

"What Shell would plan to do is build from scratch, so the first phase of what they would need to do if they exercise the option is to take all the buildings to ground. This would give them a head start," he said.

In the past several months, Shell has intensified negotiations with landowners around Horsehead's plant to buy their property. For example, the company plans to buy the space currently occupied by the Midway Bar & Grill, according its owner Mark Petrik.

On Dec. 18, Shell closed the first such transaction when it bought a 5.5-acre property across from the smelter plant owned by Gay's American Hardware. The price listed on the deed was $1.87 million.

Shell still hasn't made a final decision to purchase the land in Beaver County, Shell spokeswoman Kim Windon said.

"The demolition work is being initiated to begin preparation of the site for potential construction," she said.

The cost of the demolition and how the contractor will be selected to perform it are confidential.

Horsehead and Shell first entered into a land option agreement in March 2012. Since then, Shell has extended the option agreement twice to buy more time as it considers environmental, site and economic factors. The last extension came in June.

In August, the company initiated a two-month open bidding season for oil and gas companies that would supply ethane to the cracker, if built. At the time, Shell revealed it already had negotiated commitments from Consol Energy Inc., Noble Energy Inc., Seneca Resources Corp. and Hilcorp Energy Co. but has not disclosed the results of its open bidding season.

On a site devoted to tracking Shell's progress in evaluating the site in Beaver County, the company provides a generic timeline with steps necessary to bring a cracker plant into operation. After selecting a site, the timeline estimates it should take one to two years to make a final investment decision. The two-year mark would be the end of the first quarter next year.

The latest contract extension announcement drew optimistic statements from the Pittsburgh Regional Alliance and Gov. Tom Corbett, who said the move means Shell is one step closer to pulling the trigger on the multi-billion dollar project.

Anya Litvak: or 412-263-1455.

Anya Litvak: or 412-263-1455. First Published December 26, 2013 10:12 AM

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