USD Partners LP Stock

USD Partners LP (USD or the Partnership) acquires, develops and operates midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. USD Partners GP LLC (USDG) serves as the general partner of the company.

The company’s network of crude oil terminals facilitates the transportation of heavy crude oil from Western Canada to key demand centers across North America.

The company’s operations include railcar loading and unloading, storage and blending in onsite tanks, inbound and outbound pipeline connectivity, truck transloading, as well as other related logistics services. The company also provides its customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons by rail.

On occasion the company enters into buy-sell arrangements in which the company takes temporary title to commodities while in the company’s terminals.

USD Group LLC, or USDG, a wholly-owned subsidiary of USD and the sole owner of the company’s general partner, is engaged in designing, developing, owning, and managing large-scale multi-modal logistics centers and energy-related infrastructure across North America. USDG’s solutions create flexible market access for customers in significant growth areas and key demand centers, including Western Canada, the U.S. Gulf Coast and Mexico.

During 2021, USD, along with its joint venture partner, successfully completed construction on and placed into service a diluent recovery unit, or DRU, near Hardisty, Alberta, Canada, as a part of a long-term solution to transport heavier grades of crude oil produced in Western Canada by rail. DRU project will maximize benefits to producers, refiners and railroads. Additionally, in January 2019, USDG completed an expansion project at the Partnership’s Hardisty Terminal, or Hardisty South, which added one and one-half 120-railcar unit trains of transloading capacity per day, or approximately 112,500 barrels per day, or bpd, which the company acquired in April 2022. USDG is also pursuing the development of a premier energy logistics terminal on the Houston Ship Channel with capacity for substantial tank storage, multiple docks (including barge and deepwater), inbound and outbound pipeline connectivity, as well as a rail terminal with unit train capabilities. In addition, USD Clean Fuels LLC, or USDCF, a subsidiary of USD, was organized in 2021 for the purpose of providing production and logistics solutions to the growing market for clean energy transportation fuels, as discussed below in further detail.

The company offers its terminalling services pursuant to multi-year, take-or-pay agreements primarily with high quality, investment grade customers. The company’s agreements typically range in term between three and ten years and include renewal options. As of December 31, 2022, the volume-weighted average remaining contract life of the company’s take-or-pay terminal service agreements was 7.1 years.

In addition to terminalling services, the company provides a customer with leased railcars and fleet services related to the transportation of liquid hydrocarbons by rail on a take-or-pay basis. In the aggregate, the company’s master fleet services agreement had a remaining contract life of six months as of December 31, 2022.

USD, through its direct ownership of USDG, has stated that it intends for the company to be its primary growth vehicle in North America. The company intends to strategically expand its business by acquiring energy-related logistics assets related to the storage and transportation of liquid hydrocarbons and biofuels from both USDG and third parties, to the extent opportunities exist that are accretive to the company’s unitholders. The company also intends to grow organically by opportunistically pursuing growth projects and enhancing the profitability of the company’s existing assets.

Business Strategy

The company’s business strategies are to pursue accretive acquisitions; pursue organic growth initiatives and expansions; and maintain safe, reliable and efficient operations,

Business Segments

The company operates through two distinct reporting segments: Terminalling Services and Fleet Services.

Terminalling Services segment

The Terminalling services segment includes a network of strategically-located terminals that provide customers with railcar loading and/or unloading capacity, as well as related logistics services, for crude oil and biofuels. These services are primarily provided under multi-year, take-or-pay agreements that include minimum monthly commitment fees.

The company’s Terminalling Services business consists of the following operations:

Hardisty Terminal

The company’s Hardisty Terminal is an origination terminal where the company loads various grades of Canadian crude oil onto railcars for transportation to end markets. Hardisty is one of the major crude oil hubs in North America and is an origination point for several major export pipelines to the United States. In April 2022, the company completed the acquisition of 100% of the entities owning the Hardisty South Terminal assets from USDG. The new combined Hardisty Terminal, which includes the company’s legacy Hardisty Terminal and the newly acquired Hardisty South Terminal, now has the designed takeaway capacity of three and one-half unit trains per day, or approximately 262,500 barrels per day and consists of a fixed loading rack with approximately 60 railcar loading positions, a unit train staging area and loop tracks capable of holding five unit trains simultaneously. The terminal is also equipped with an onsite vapor management system that allows the company’s customers to minimize hydrocarbon loss while improving safety during the loading process.

The company’s Hardisty Terminal receives inbound deliveries of crude oil through a direct pipeline connection from Gibson Energy Inc.’s, or Gibson’s, Hardisty storage terminal. Gibson is one of the largest independent midstream companies in Canada with almost 14 MMbbls of crude oil storage facilities at Hardisty plus the greatest number of connections to inbound and outbound pipelines in the Hardisty hub. The company’s Hardisty Terminal’s strategic location and direct pipeline connection to substantial storage capacity provides efficient access to the major producers in the region. The company’s Hardisty Terminal is also connected to the Canadian Pacific Railway’s North Main Line, a high capacity line with the ability to service key refining markets across North America.

The company has a facilities connection agreement with Gibson under which Gibson operates and maintains a 24-inch diameter pipeline and related facilities connecting Gibson’s storage terminal with the company’s Hardisty Terminal, which the company operates and maintains. Gibson is responsible for transporting product through the pipeline to the company’s Hardisty Terminal. This pipeline from Gibson’s storage terminal is the exclusive means by which the company’s Hardisty Terminal receives crude oil. Subject to certain limited exceptions regarding manifest train facilities, the company’s Hardisty Terminal is also the exclusive means by which crude oil from Gibson’s Hardisty storage terminal may be transported by rail. The company remits pipeline fees to Gibson for the transportation of crude oil to the Hardisty Terminal based on a predetermined formula. The facilities connection agreement also gives Gibson a right of first refusal in the event of a sale of the company’s Hardisty Terminal to a third party. The agreement will expire in 2034 unless renewed. The company’s and Gibson’s obligations under this facilities connection agreement may be suspended in the case of a force majeure event. Additionally, the agreement may be terminated by the non-defaulting party in the case of specified events of default.

The combined contracted terminalling capacity at the company’s Hardisty Terminal is contracted under multi-year, take-or-pay Terminal Services Agreements with four customers, including major integrated oil companies, refiners and marketers. Contracts representing approximately 26% of the combined Hardisty Terminal’s capacity expired in June 2022. Approximately 54% of the capacity is contracted through June 30, 2023 and approximately 31% is contracted through January 2024. Additionally, due to the successful commencement of USD’s DRU and Port Arthur Terminal, or PAT, projects, approximately 17% of the combined capacity of the Hardisty Terminal was contracted through mid-2031.

Stroud Terminal

The company’s Stroud Terminal, which the company purchased in June 2017, is a crude oil destination terminal in Stroud, Oklahoma. The company uses the terminal to facilitate rail-to-pipeline shipments of crude oil from the company’s Hardisty Terminal in Western Canada to the crude oil storage hub located in Cushing, Oklahoma. The Stroud Terminal includes 76-acres with current unit train unloading capacity of approximately 50,000 bpd, two onsite tanks with 140,000 barrels of capacity, one truck bay and a 12-inch diameter, 17-mile pipeline with a direct connection to the crude oil storage hub in Cushing, Oklahoma. The company has also secured 300,000 bbls of crude oil tank storage at the Cushing hub to facilitate outbound shipments of crude oil from the Stroud Terminal. Inbound product is delivered by the Stillwater Central Rail, which handles deliveries from both the BNSF Railway, or BNSF, and the Union Pacific Railroad, or UP.

The company’s Stroud Terminal is the only rail facility connected to the Cushing storage hub. The Cushing storage hub has approximately 78 million barrels of working storage capacity. There is also a pipeline infrastructure that connects into and out of the Cushing hub. Because of the vast connectivity that Cushing offers, crude oil that is delivered into Cushing can then be delivered to either local refineries or it can be shipped to other markets, such as the United States Gulf Coast, which is the largest refinery complex in the U.S. As such, the company’s Stroud Terminal provides an advantageous rail destination for Western Canadian crude oil given the optionality provided by its connectivity to the Cushing hub and multiple refining centers across the United States.

The company owns 50% of the Stroud Terminal’s current capacity. USD Marketing LLC, or USDM, a wholly-owned subsidiary of USDG, owns the rights to the other 50% of the Stroud Terminal’s current capacity, pursuant to the Marketing Services Agreement, or MSA, that the company entered into in May 2017 at the time of the acquisition of the terminal. Under the MSA, the company granted USDM the right to market the capacity at the Stroud Terminal in excess of the original capacity of the company’s initial customer in exchange for a nominal per barrel fee. The company also granted USDG the right to develop other projects at the Stroud Terminal in exchange for the payment to the company of market-based compensation for the use of the company’s property for such development projects.

To facilitate marketing the capacity that is available at the Stroud Terminal, USDM has expanded the downstream connectivity at the company’s Stroud Terminal and added a pipeline connection to a second storage tank at a third-party facility at the Cushing, Oklahoma crude oil hub, or the Cushing Hub. The expanded connectivity facilitates incremental rail-to-pipeline shipments of crude oil to the Cushing Hub by giving the Stroud Terminal better capability to service multiple customers and/or grades of crude oil simultaneously, including the unloading of multiple grades of dilbit. Additionally, this development project is wholly-owned by USDG and is subject to the terms and conditions of the company’s existing ROFO, should USDG propose to sell or transfer the asset.

Casper Terminal

The Casper Terminal, which the company acquired in November 2015, is a crude oil storage, blending and railcar loading terminal located in Casper, Wyoming, where the Express pipeline from Western Canada (~280,000 bpd of capacity) interconnects with the Platte Pipeline to Wood River, Illinois (~145,000 bpd of capacity). The Casper Terminal offers six storage tanks with 900,000 bbls of total capacity, unit train-capable railcar loading capacity in excess of 100,000 bpd, as well as truck transloading capacity. The terminal’s approximately 300-acre footprint and modular design allow for the addition of a second loading station and an additional 1.1 MMbbls of storage capacity with minimal disruption to existing operations and relatively low incremental capital costs.

Inbound crude oil is delivered to the Casper Terminal primarily through the company’s dedicated 24-inch diameter, six-mile direct pipeline connection from the Express pipeline, which provides the company’s customers with access to multiple grades of Canadian crude oil. Additionally, the Casper Terminal has a connection from the Platte Terminal, where it has access to other pipelines and can receive other grades of crude oil, including locally sourced Wyoming sour crude oil. The Casper Terminal can also receive volumes through one truck unloading station and is also equipped with one truck loading station. Inbound volumes are typically fed directly into the customer’s dedicated storage tank(s), which enhances their ability to control the quality of the product from origin to end market. This also allows customers to blend multiple grades of crude oil to optimize the economics associated with refining varying grades of crude oil.

Outbound crude oil from the company’s Casper Terminal is loaded onto railcars and is then transported to end markets by BNSF, in either manifest or unit train shipments. The terminal’s location on BNSF’s main line offers advantageous transportation costs to key U.S. refining markets where several customer-preferred destinations are also served by BNSF. Shipping with a single Class 1 railroad reduces railroad switching fees and enables faster train turn-times, thus improving railcar fleet utilization. Additionally, to supplement the rail loading options from the terminal, the company constructed an outbound pipeline connection from the Casper Terminal to the nearby Platte Terminal located at the termination point of the Express pipeline that was placed into service in December 2019.

The company provides service at the Casper Terminal under a Terminal Services Agreement with a midstream customer. The agreement contains take-or-pay terms for storage services and variable fees associated with actual throughput volumes and other services. Additionally, the company is utilizing its available storage and throughput capacity to support the company’s customers’ spot activity through buy-sell agreements that generate cash flows in addition to those provided by the company’s agreements.

West Colton Terminal

The company’s West Colton Terminal, which was initially completed in November 2009, is a unit train-capable destination terminal that can transload up to 13,000 bpd of ethanol and renewable diesel received from producers by rail onto trucks to meet local demand in the San Bernardino and Riverside County-Inland Empire region of Southern California. During 2021, the company completed a modification project at its West Colton Terminal so that it has the capability to transload renewable diesel in addition to the ethanol that it is was initially capable of transloading. The West Colton Terminal has 20 railcar offloading positions and four truck loading positions. The company’s terminal receives inbound deliveries exclusively by rail on the UP high speed lines.

Ethanol Transloading

The company receives fixed fees per gallon of ethanol transloaded at the company’s terminal pursuant to a Terminal Services Agreement with one of the world’s largest producers of biofuels. Effective January 2022, the company entered into a new five-year agreement with the existing West Colton ethanol customer that has a minimum monthly throughput commitment. This new agreement replaced the previous short-term agreement at the terminal that had been in place since July 2009.

Renewable Diesel Transloading

In June 2021, the company entered into a new Terminal Services Agreement with USD Clean Fuels LLC, or USDCF, a subsidiary of USD, that is supported by a minimum throughput commitment to USDCF from an investment-grade rated, refining customer, as well as a performance guaranty from USD. The Terminal Services Agreement provides for the inbound shipment of renewable diesel on rail at the company’s West Colton Terminal and the outbound shipment of the product on tank trucks to local consumers. The new Terminal Services Agreement has an initial term of five years and commenced on December 1, 2021.

In exchange for the new Terminal Services Agreement at the company’s West Colton Terminal with USDCF, the company also entered into a Marketing Services Agreement with USDCF in June 2021, or the West Colton MSA, pursuant to which the company agreed to grant USDCF marketing and development rights pertaining to future renewable diesel opportunities associated with the West Colton Terminal in excess of the Terminal Services Agreement with USDCF.

Fleet Services segment

This segment provides one of the company’s customers with leased railcars and fleet services related to the transportation of liquid hydrocarbons by rail on a take-or-pay basis under a master fleet services agreement. The company does not own any railcars. As of December 31, 2022, the company’s railcar fleet consisted of 200 railcars, which the company leases from a railcar manufacturer, all of which are coiled and insulated, or C&I, railcars. The company’s C&I railcars can reheat heavy viscous grades of crude oil, reducing the need to blend these heavier grades with diluents. The company’s master fleet services agreement has a remaining contract life of six months as of December 31, 2022.

Under the master fleet services agreement, the company provides a customer with railcar-specific fleet services, which may include, among other things, the provision of relevant administrative and billing services, the repair and maintenance of railcars in accordance with standard industry practice and applicable law, the management and tracking of the movement of railcars, the regulatory and administrative reporting and compliance as required in connection with the movement of railcars, and the negotiation for and sourcing of railcars.

All of the company’s railcars in service were constructed in 2013 or later. The average age of the company’s fleet in service is nine years, as compared with the estimated 50-year life associated with these types of railcars. The company’s railcars are designed at a minimum to be compliant with all regulatory railcar standards in effect. The company has partnered with leaders in the railcar supply industry, such as CIT Rail, Union Tank Car Company and others. The company’s relationships with these industry leaders enable the company to obtain railcar market insight and to procure railcars for the company’s terminalling customers on beneficial terms, with shorter lead times than some of the company’s competitors.

Impact Of Regulation

The company’s operations are subject to and affected by the Clean Air Act, or CAA, and its implementing regulations, as well as comparable state and local statutes and regulations.

The company’s operations generate solid wastes, including some hazardous wastes, which are subject to the requirements of RCRA and analogous state and Canadian federal and provincial laws that impose requirements on the handling, storage, treatment and disposal of hazardous wastes.

The company is in substantial compliance with applicable Oil Pollution Act of 1990 requirements. The company is in substantial compliance with all such federal, state and Canadian requirements. The company is in substantial compliance with the Endangered Species Act.

In connection with the company’s acquisition of the Casper Terminal and Stroud Terminal and related facilities, the company became subject to regulation by the Federal Energy Regulatory Commission, or FERC, the DOT through PHMSA, as well as other federal, state and local laws and regulations relating to the operation of the company’s dedicated crude oil pipelines, rates charged for transportation service, and protection of health, property and the environment. DOT has adopted safety regulations with respect to the design, construction, operation, maintenance, inspection and management of the company’s crude oil pipeline and related assets.

The company is subject to regulation by the DOT under the Hazardous Liquid Pipeline Safety Act of 1979, or the HLPSA. The company is also subject to the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, which reauthorized funding for federal pipeline safety programs through 2015, increased penalties for safety violations, established additional safety requirements for newly constructed pipelines, and required studies of certain safety issues that could result in the adoption of new regulatory requirements for existing pipelines.

The company conducts all cathodic protection work in accordance with National Association of Corrosion Engineers standards.

FERC regulates the transportation of crude oil on the company’s dedicated Casper and Stroud pipelines under the Interstate Commerce Act, or ICA, Energy Policy Act of 1992, or EPAct 1992, and the rules and regulations promulgated under those laws.

Intrastate services provided by the company’s pipeline are subject to regulation by the Wyoming Public Service Commission.

The company is subject to the requirements of the U.S. federal Occupational Safety and Health Act, or OSHA, and comparable state and Canadian federal and provincial statutes that regulate the protection of the health and safety of workers. the company’s operations are in substantial compliance with OSHA in the United States and comparable state and Canadian federal and provincial requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.

History

USD Partners LP was founded in 2014. The company was incorporated in 2014.