Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36674

USD PARTNERS LP

(Exact Name of Registrant as Specified in Its Charter)


Delaware						30-0831007
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

811 Main Street, Suite 2800

Houston, Texas 77002

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code): (281) 291-0510

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Units Representing Limited Partner Interests	USDP	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2023, there were 33,758,607 common units outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Statements of Operations	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Cash Flows	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Partners’ Capital	5
	Notes to the Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 6.	Exhibits	49
SIGNATURES		51

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q, or this “Report,” to “USD Partners,” “USDP,” “the Partnership,” “we,” “us,” “our,” or like terms refer to USD Partners LP and its subsidiaries.

Unless the context otherwise requires, all references in this Report to (i) “our general partner” refer to USD Partners GP LLC, a Delaware limited liability company; (ii) “USD” refers to US Development Group, LLC, a Delaware limited liability company, and where the context requires, its subsidiaries; (iii) “USDG” and “our sponsor” refer to USD Group LLC, a Delaware limited liability company and currently the sole direct subsidiary of USD; (iv) “Energy Capital Partners” refers to Energy Capital Partners III, LP and its parallel and co-investment funds and related investment vehicles; and (v) “Goldman Sachs” refers to The Goldman Sachs Group, Inc. and its affiliates.

Cautionary Note Regarding Forward-Looking Statements

This Report includes forward-looking statements, which are statements that frequently use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “projection,” “should,” “strategy,” “target,” “will” and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date on which it is made, and we undertake no obligation to publicly update any forward-looking statement. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include: (1) our ability to continue as a going concern; (2) the impact of world health events, epidemics and pandemics, such as the novel coronavirus (COVID-19) pandemic; (3) changes in general economic conditions and commodity prices, including as a result of the invasion of Ukraine by Russia and its regional and global ramifications, inflationary pressures, slowing growth or recession or instability of financial institutions; (4) the effects of competition, in particular, by pipelines and other terminal facilities; (5) shut-downs or cutbacks at upstream production facilities, refineries or other related businesses; (6) government regulations regarding oil production, including if the Alberta Government were to resume setting production limits; (7) the supply of, and demand for, terminalling services for crude oil and biofuels; (8) the price and availability of debt and equity financing, whether through capital markets, lending or sale of assets; (9) actions by third parties, including customers, potential customers, construction-related services providers, our sponsors and our lenders, including with respect to modifications to or waivers under our credit agreement in light of the current uncertainty regarding our ability to remain in compliance with the covenants or to refinance the credit agreement before its maturity; (10) our ability to obtain additional sources of capital and maintain sufficient liquidity; (11) our ability to enter into new contracts for uncontracted capacity and to renew or replace expiring contracts; (12) hazards and operating risks that may not be covered fully by insurance; (13) disruptions due to equipment interruption or failure at our facilities or third-party facilities on which our business is dependent; (14) natural disasters, weather-related delays, casualty losses and other matters beyond our control; (15) changes in laws or regulations to which we are subject, including compliance with environmental and operational safety regulations, that may increase our costs or limit our operations; and (16) our ability to successfully identify and finance potential acquisitions, development projects and other growth opportunities. For additional factors that may affect our results, see “Risk Factors” and the other information included elsewhere in this Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which is available to the public over the Internet at the website of the U.S. Securities and Exchange Commission, or SEC, (www.sec.gov) and at our website (www.usdpartners.com).

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS (1)


	Three Months Ended March 31,
	2023		2022
	(unaudited; in thousands of US dollars, except per unit amounts)
Revenues
Terminalling services	$	19,739	$	33,823
Terminalling services — related party	714		655


Fleet leases — related party	283		912

Fleet services — related party	85		299
Freight and other reimbursables	190		97
Freight and other reimbursables — related party	115		—
Total revenues	21,126		35,786
Operating costs
Subcontracted rail services	3,285		3,991
Pipeline fees	5,473		8,501
Freight and other reimbursables	305		97
Operating and maintenance	1,761		3,486
Operating and maintenance — related party	—		131
Selling, general and administrative	4,400		3,422
Selling, general and administrative — related party	2,184		5,324

Gain on sale of business	(6,202)		—
Depreciation and amortization	1,906		5,839
Total operating costs	13,112		30,791
Operating income	8,014		4,995
Interest expense	4,441		1,502
Loss (gain) associated with derivative instruments	1,850		(6,084)
Foreign currency transaction loss	54		1,647
Other income, net	(34)		(23)
Income before income taxes	1,703		7,953
Provision for (benefit from) income taxes	(272)		480
Net income	$	1,975	$	7,473
Net income attributable to limited partner interests	$	1,975	$	8,842
Net income per common unit (basic and diluted)	$	0.06	$	0.32
Weighted average common units outstanding	33,566		27,440

(1)As discussed in Note 1. Organization and Basis of Presentation, our consolidated financial statements have been retrospectively recast to include the pre-acquisition results of the Hardisty South Terminal which we acquired effective April 1, 2022 because the transaction was between entities under common control.

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (1)


	Three Months Ended March 31,
	2023		2022
	(unaudited; in thousands of US dollars)
Net income	$	1,975	$	7,473
Other comprehensive income — foreign currency translation	86		594
Comprehensive income	$	2,061	$	8,067

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS (1)


	Three Months Ended March 31,
	2023		2022
	(unaudited; in thousands of US dollars)
Cash flows from operating activities:
Net income	$	1,975	$	7,473
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	1,906		5,839
Loss (gain) associated with derivative instruments	1,850		(6,084)
Settlement of derivative contracts	185		(273)
Unit based compensation expense	1,033		1,237
Gain on sale of business	(6,202)		—
Deferred income taxes	5		197
Amortization of deferred financing costs	318		356


Changes in operating assets and liabilities:
Accounts receivable	5		(5,054)
Accounts receivable — related party	17		421
Prepaid expenses, inventory and other assets	375		2,369

Accounts payable and accrued expenses	2,061		4,064
Accounts payable and accrued expenses — related party	(402)		721
Deferred revenue and other liabilities	(3,899)		(2,017)
Deferred revenue and other liabilities — related party	191		(16)
Net cash provided by (used in) operating activities	(582)		9,233
Cash flows from investing activities:
Additions of property and equipment	(375)		(200)

Net proceeds from the sale of business	32,650		—

Net cash provided by (used in) investing activities	32,275		(200)
Cash flows from financing activities:
Distributions	(2,154)		(3,518)
Payments for deferred financing costs	(181)		(13)
Vested phantom units used for payment of participant taxes	(671)		(1,052)


Repayments of long-term debt	—		(6,396)

Net cash used in financing activities	(3,006)		(10,979)
Effect of exchange rates on cash	35		1,165
Net change in cash, cash equivalents and restricted cash	28,722		(781)
Cash, cash equivalents and restricted cash — beginning of period	5,780		12,717
Cash, cash equivalents and restricted cash — end of period	$	34,502	$	11,936

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

CONSOLIDATED BALANCE SHEETS


	March 31, 2023		December 31, 2022
	(unaudited; in thousands of US dollars, except unit amounts)
ASSETS
Current assets
Cash and cash equivalents	$	10,843	$	2,530
Restricted cash	23,659		3,250
Accounts receivable, net	1,716		2,169
Accounts receivable — related party	392		409
Prepaid expenses	2,938		3,188

Other current assets	1,555		1,746

Total current assets	41,103		13,292
Property and equipment, net	82,424		106,894
Intangible assets, net	—		3,526

Operating lease right-of-use assets	1,138		1,508
Other non-current assets	1,376		1,556

Total assets	$	126,041	$	126,776

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable and accrued expenses	$	4,976	$	3,389
Accounts payable and accrued expenses — related party	745		1,147

Deferred revenue	2,572		3,562
Deferred revenue — related party	122		128
Long-term debt, current portion	214,206		214,092
Operating lease liabilities, current	382		700
Other current liabilities	5,163		7,907
Other current liabilities — related party	60		11
Total current liabilities	228,226		230,936




Operating lease liabilities, non-current	694		688
Other non-current liabilities	9,159		7,556
Other non-current liabilities — related party	147		—
Total liabilities	238,226		239,180
Commitments and contingencies
Partners’ capital
Common units (33,758,607 and 33,381,187 outstanding at March 31, 2023 and December 31, 2022, respectively)	(108,130)		(108,263)

Accumulated other comprehensive loss	(4,055)		(4,141)
Total partners’ capital	(112,185)		(112,404)
Total liabilities and partners’ capital	$	126,041	$	126,776

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

THREE MONTHS CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (1)


	Three Months Ended March 31,
	2023			2022
	Units	Amount		Units	Amount
	(unaudited; in thousands of US dollars, except unit amounts)
Common units
Beginning balance at January 1	33,381,187	$	(108,263)	27,268,878	$	16,355

Common units issued for vested phantom units	377,420	(671)		351,031	(1,052)

Net income	—	1,975		—	8,842
Unit based compensation expense	—	983		—	1,149
Distributions	—	(2,154)		—	(3,459)

Ending balance at March 31,	33,758,607	(108,130)		27,619,909	21,835















General Partner units
Beginning balance at January 1	—	—		461,136	5,678
Non-cash contribution to Hardisty South entities from Sponsor prior to acquisition	—	—		—	18,207
Net loss	—	—		—	(1,369)

Distributions	—	—		—	(59)

Ending balance at March 31,	—	—		461,136	22,457
Accumulated other comprehensive income (loss)
Beginning balance at January 1		(4,141)			(178)
Cumulative translation adjustment		86			594
Ending balance at March 31,		(4,055)			416
Total partners’ capital at March 31,		$	(112,185)		$	44,708

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

USD Partners LP and its consolidated subsidiaries, collectively referred to herein as we, us, our, the Partnership and USDP, is a fee-based, growth-oriented master limited partnership formed in 2014 by US Development Group, LLC, or USD, through its wholly-owned subsidiary, USD Group LLC, or USDG. We were formed to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. We generate substantially all of our operating cash flows from multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies, refiners and marketers. Our network of crude oil terminals facilitate the transportation of heavy crude oil from Western Canada to key demand centers across North America. Our 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. We also provide one of our customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons by rail. We do not generally take ownership of the products that we handle, nor do we receive any payments from our customers based on the value of such products.

A substantial amount of the operating cash flows related to the terminal services that we provide are generated from take-or-pay contracts with minimum monthly commitment fees and, as a result, are not directly related to actual throughput volumes at our crude oil terminals. Throughput volumes at our terminals are primarily influenced by the difference in price between Western Canadian Select, or WCS, and other grades of crude oil, commonly referred to as spreads, rather than absolute price levels. WCS spreads are influenced by several market factors, including the availability of supplies relative to the level of demand from refiners and other end users, the price and availability of alternative grades of crude oil, the availability of takeaway capacity, as well as transportation costs from supply areas to demand centers.

On March 31, 2023, we completed our divestiture of all of the equity interests in our Casper Terminal, which included the Casper Crude to Rail, LLC and CCR Pipeline, LLC entities, for approximately $33 million in cash, subject to customary adjustments. Refer to Note 3. Acquisition and Dispositions — Casper Terminal Divestiture for additional details regarding this disposition. The Casper Terminal was included in our Terminalling Services segment.

On April 6, 2022, we completed the acquisition of 100% of the entities owning the Hardisty South Terminal assets from USDG, exchanged our sponsor’s economic general partner interest in us for a non-economic general partner interest and eliminated our sponsor’s incentive distribution rights, or IDRs, for a total consideration of $75 million in cash and 5,751,136 common units, that was made effective as of April 1, 2022. The acquisition was determined to be a business combination of entities under common control. Refer to Note 3. Acquisition and Dispositions — Hardisty South Terminal Acquisition for more information. The entities acquired in the Hardisty South acquisition have been included in our Terminalling Services segment.

Basis of Presentation

Our accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim consolidated financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete consolidated financial statements.

Our unaudited interim consolidated financial statements and related notes for the three months ended March 31, 2022 have been retrospectively recast to include the pre-acquisition results of the Hardisty South Terminal because the acquisition represented a business combination between entities under common control.

In the opinion of our management, our unaudited interim consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, which our management considers necessary to present fairly our financial position as of March 31, 2023, our results of operations for the three months

ended March 31, 2023 and 2022, and our cash flows for the three months ended March 31, 2023 and 2022. We derived our consolidated balance sheet as of December 31, 2022, from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our results of operations for the three months ended March 31, 2023 and 2022 should not be taken as indicative of the results to be expected for the full year due to fluctuations in the supply of and demand for crude oil and biofuels, timing and completion of acquisitions, if any, changes in the fair market value of our derivative instruments and the impact of fluctuations in foreign currency exchange rates. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Going Concern

We evaluate at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Our evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the consolidated financial statements are issued. The maturity date of our Credit Agreement (as defined below) is November 2, 2023. As a result of the maturity date being within 12 months after the date that these financial statements were issued, the amounts due under our Credit Agreement have been included in our going concern assessment. Our ability to continue as a going concern is dependent on the refinancing or the extension of the maturity date of our Credit Agreement. If we are unable to refinance or extend the maturity date of our Credit Agreement, we do not currently have sufficient cash on hand or available liquidity to repay the maturing credit facility debt as it becomes due, nor do we expect cash flow from our current operations to provide sufficient funds for such repayment.

In addition to the above, there is uncertainty in our ability to remain in compliance with the covenants contained in our amended Credit Agreement for a period of 12 months after the date these financials were issued. Although we continue to focus on renewing, extending or replacing expired or expiring customer agreements at the Hardisty and Stroud Terminals, unless we are able to renew, extend or replace such agreements more quickly than we currently expect as of the date of this report, and the pricing environment improves relative to our current expectations, we do not expect that we will be able to remain in compliance with the total leverage ratio and interest coverage covenants in the Credit Agreement for the third quarter of 2023. If we fail to comply with such covenants in the Credit Agreement, we would be in default under the terms of the Credit Agreement, which would entitle our lenders to declare all outstanding indebtedness thereunder to be immediately due and payable. We are currently not projected to have sufficient cash on hand or available liquidity to repay the Credit Agreement should the lenders not provide a further waiver or amendment and declare all outstanding indebtedness thereunder to be immediately due and payable.

The conditions described above raise substantial doubt about our ability to continue as a going concern for the next 12 months.

We are currently in discussions with our lenders and other potential capital providers and pursuing plans to refinance or replace our Credit Agreement or extend and amend the current obligations under the Credit Agreement, however we cannot make assurances that we will be successful in these efforts, or that any refinancing, extension or replacement would be on terms favorable to us. Moreover, our ability to refinance our outstanding indebtedness under, or extend the maturity date of, our Credit Agreement is expected to be negatively impacted to the extent we are unable to renew, extend or replace our customer agreements at the Hardisty and Stroud Terminals or experience further prolonged delays in doing so.

Due to the substantial doubt about our ability to continue as a going concern discussed above, as of March 31, 2023, we have recorded a valuation allowance against our deferred tax asset that is associated with our Canadian entities. These consolidated financial statements do not include any other adjustments that might result from the outcome of this uncertainty, nor do they include adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.

Comparative Amounts

We have made certain reclassifications to the amounts reported in the prior year to conform with the current year presentation. None of these reclassifications have an impact on our operating results, cash flows or financial position.

Foreign Currency Translation

We conduct a substantial portion of our operations in Canada, which we account for in the local currency, the Canadian dollar. We translate most Canadian dollar denominated balance sheet accounts into our reporting currency, the U.S. dollar, at the end of period exchange rate, while most accounts in our statement of operations accounts are translated into our reporting currency based on the average exchange rate for each monthly period. Fluctuations in the exchange rates between the Canadian dollar and the U.S. dollar can create variability in the amounts we translate and report in U.S. dollars.

Within these consolidated financial statements, we denote amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.

US Development Group, LLC

USD and its affiliates are engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and energy-related infrastructure across North America. USD is the indirect owner of our general partner through its direct ownership of USDG and is currently owned by Energy Capital Partners, Goldman Sachs and certain of USD’s management team.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Liabilities — Supplier Finance Programs (ASU 2022-04)

In September 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2022-04, or ASU 2022-04, which amends Accounting Standards Codification Topic 405 to require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. In each annual reporting period, the buyer should disclose the key terms of the program, including a description of the payment terms and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. For the obligations that the buyer has confirmed as valid to the finance provider or intermediary the amount outstanding that remains unpaid by the buyer as of the end of the annual period, a description of where those obligations are presented in the balance sheet and a rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid should be disclosed. In each interim reporting period, the buyer should disclose the amount of obligations outstanding that the buyer has confirmed as valid to the finance provider or intermediary as of the end of the interim period. The pronouncement is effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption was permitted.

We adopted all the provisions of ASU 2022-04 on January 1, 2023. Our adoption of this standard had no significant impact on our financial statements.

3. ACQUISITIONS AND DISPOSITIONS

Hardisty South Terminal Acquisition

partner interest and eliminated our sponsor’s incentive distribution rights, or IDRs, for a total consideration of $75 million in cash and 5,751,136 common units representing non-cash consideration, that was made effective as of April 1, 2022. The cash portion was funded with borrowings from our Credit Agreement. The Hardisty South Terminal, which commenced operations in January 2019, primarily consists of railcar loading facilities with capacity of one and one-half 120-railcar unit trains of transloading capacity per day, or approximately 112,500 barrels per day, of takeaway capacity.

We accounted for our acquisition of the Hardisty South Terminal as a business combination under common control, whereby we recognized the acquisition of identifiable assets at historical costs and recast our prior financial statements for all periods presented. The following tables show the adjustments and resulting balance for each affected line item in our consolidated statements of operations for the periods indicated:


	Three Months Ended March 31, 2022
	USD Partners LP (1)		Hardisty South Acquisition		Eliminations (2)		Consolidated Results
	(in thousands)
Revenues
Terminalling services	$	28,185	$	5,638	$	—	$	33,823
Terminalling services — related party	655		2,075		(2,075)		655


Fleet leases — related party	912		—		—		912

Fleet services — related party	299		—		—		299
Freight and other reimbursables	78		19		—		97

Total revenues	30,129		7,732		(2,075)		35,786
Operating costs
Subcontracted rail services	3,252		739		—		3,991
Pipeline fees	6,060		2,441		—		8,501
Freight and other reimbursables	78		19		—		97
Operating and maintenance	3,034		452		—		3,486
Operating and maintenance — related party	2,206		—		(2,075)		131
Selling, general and administrative	3,223		199		—		3,422
Selling, general and administrative — related party	2,032		3,292		—		5,324

Depreciation and amortization	5,507		332		—		5,839
Total operating costs	25,392		7,474		(2,075)		30,791
Operating income	4,737		258		—		4,995
Interest expense	1,385		117		—		1,502
Gain associated with derivative instruments	(6,084)		—		—		(6,084)
Foreign currency transaction loss	47		1,600		—		1,647
Other income, net	(23)		—		—		(23)
Income (loss) before income taxes	9,412		(1,459)		—		7,953
Provision for income taxes	421		59		—		480
Net income (loss)	$	8,991	$	(1,518)	$	—	$	7,473

(1)As previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

(2)Represents business transactions between USDP and Hardisty South, whereby Hardisty South provided terminalling services for a third-party customer of USDP for contracted capacity that exceeded the transloading capacity that was available.

Casper Terminal Divestiture

On March 31, 2023 we completed our divestiture of 100% of the equity interests in our Casper Terminal, which included the Casper Crude to Rail, LLC and CCR Pipeline, LLC entities, for approximately $33.0 million in cash, subject to customary adjustments.

The Casper Terminal entities had a carrying value of $26.8 million at the time of sale. The Casper Terminal was included in our Terminalling services segment. The Casper crude oil terminal, located in Casper, Wyoming, primarily consists of unit train-capable railcar loading capacity in excess of 100,000 barrels per day, six customer-dedicated storage tanks with 900,000 barrels of total capacity and a six-mile, 24-inch diameter pipeline with a direct connection from the Express Pipeline. We recognized a gain of $6.2 million from the sale of the terminal which we recorded as “Gain on sale of business” in our consolidated statement of operations. The gain on sale of business that resulted from the sale of the Casper Terminal was not subject to income tax as the entity is included within our partnership structure. Therefore, no impact was reflected within the “Provision for (benefit from) income taxes” recognized in the three months ended March 31, 2023 in our consolidated statements of operations.

In connection with our divestiture of the Casper terminal, we entered into a transition services agreement with the buyer, pursuant to which we will provide certain administrative, customer support and information technology support services to the Casper terminal for not more than three months following the closing date, while the buyer transitions such services to their management.

4. NET INCOME PER LIMITED PARTNER INTEREST

Our net income is attributed to limited partners, in accordance with their respective ownership percentages. For periods prior to the cancellation of the IDRs and conversion of the General Partner units to a non-economic General Partner interest that resulted from the acquisition of the Hardisty South entities that became effective April 1, 2022, we used the two-class method when calculating the net income per unit applicable to limited partners, because we had more than one type of participating securities. For the prior periods, the classes of participating securities included Common Units, General Partner Units and IDRs. Prior to the acquisition, our net earnings were allocated between the limited and general partners in accordance with our partnership agreement. As a result of the Hardisty South Terminal acquisition, the general partner units no longer participate in earnings or distributions, including IDRs. Our recast net income includes earnings related to the Hardisty South entities prior to our acquisition, which have been allocated to the General Partner.

We determined basic and diluted net income per limited partner unit as set forth in the following tables:


	For the Three Months Ended March 31, 2023
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income attributable to limited partner interests in USD Partners LP	$	1,975	$	—	$	1,975
Less: Distributable earnings (1)	—		—		—
Excess net income	$	1,975	$	—	$	1,975
Weighted average units outstanding (2)	33,566		—		33,566
Distributable earnings per unit (3)	$	—
Underdistributed earnings per unit (4)	0.06
Net income per limited partner unit (basic and diluted) (5)	$	0.06

(1) There were no distributions payable for the three months ended March 31, 2023. Refer to Note 16. Partner ’ C a pital for further information.

(2) Represents the weighted average units outstanding for the period.

(3) Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.

(4) Represents the additional amount per unit necessary to distribute the excess net income for the period among our limited partners and our general partners according to the distribution formula for available cash as set forth in our partnership agreement.

(5) Our computation of net income per limited partner unit excludes the effects of 1,454,327 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Three Months Ended March 31, 2022
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income attributable to general and limited partner interests in USD Partners LP (1)	$	8,842	$	(1,369)	$	7,473
Less: Distributable earnings (2)	3,633		3		3,636
Excess net income	$	5,209	$	(1,372)	$	3,837
Weighted average units outstanding (3)	27,440		461		27,901
Distributable earnings per unit (4)	$	0.13
Underdistributed earnings per unit (5)	0.19
Net income per limited partner unit (basic and diluted) (6)	$	0.32

(1)Represents net income allocated to each class of units based on the actual ownership of the Partnership during the period.

(2)Represents the distributions paid for the period based upon the quarterly distribution amount of $0.1235 per unit or $0.494 on an annualized basis for the three months ended March 31, 2022. Amounts presented for each class of units include a proportionate amount of the $167 thousand distributed to holders of the Equity classified Phantom Units pursuant to the distribution equivalent rights granted under the Amended LTIP Plan.

(3)Represents the weighted average units outstanding for the period.

(4)Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.

(5)Represents the additional amount per unit necessary to distribute the excess net income for the period among our limited partners and our general partners according to the distribution formula for available cash as set forth in our partnership agreement.

(6)Our computation of net income per limited partner unit excludes the effects of 1,366,747 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.

5. REVENUES

Disaggregated Revenues

We manage our business in two reportable segments: Terminalling services and Fleet services. Our segments offer different services and are managed accordingly. Our chief operating decision maker, or CODM, regularly reviews financial information about both segments in order to allocate resources and evaluate performance. As such, we have concluded that disaggregating revenue by reporting segments appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 14. Segment Reporting for our disaggregated revenues by segment. Additionally, the below tables summarize the geographic data for our revenues:


	Three Months Ended March 31, 2023
	U.S.		Canada		Total
	(in thousands)
Third party	$	2,456	$	17,473	$	19,929
Related party	$	1,140	$	57	$	1,197


	Three Months Ended March 31, 2022
	U.S.		Canada		Total
	(in thousands)
Third party	$	7,336	$	26,584	$	33,920
Related party	$	1,866	$	—	$	1,866

Remaining Performance Obligations

The transaction price allocated to the remaining performance obligations associated with our Terminal and Fleet services agreements as of March 31, 2023 are as follows for the periods indicated:


	Nine months ending December 31, 2023		2024		2025		2026		2027		Thereafter		Total
	(in thousands)
Terminalling Services (1) (2)	$	36,887	$	25,295	$	24,149	$	24,149	$	20,240	$	72,526	$	203,246
Fleet Services	90		—		—		—		—		—		90
Total	$	36,977	$	25,295	$	24,149	$	24,149	$	20,240	$	72,526	$	203,336

(1)A significant portion of our Terminal Services Agreements are denominated in Canadian dollars. We have converted the remaining performance obligations associated with these Canadian dollar-denominated contracts using the year-to-date average exchange rate of 0.7396 U.S. dollars for each Canadian dollar at March 31, 2023.

(2)Includes fixed monthly minimum commitment fees per contracts and excludes constrained estimates of variable consideration for rate-escalations associated with an index, such as the consumer price index, as well as any incremental revenue associated with volume activity above the minimum volumes set forth within the contracts.

We have applied the practical expedient that allows us to exclude disclosure of performance obligations that are part of a contract that has an expected duration of one year or less.

Deferred Revenue

Our deferred revenue is a form of a contract liability and consists of amounts collected in advance from customers associated with their terminal and fleet services agreements and deferred revenues associated with make-up rights, which will be recognized as revenue when earned pursuant to the terms of our contractual arrangements. We currently recognize substantially all of the amounts we receive for minimum volume commitments as revenue when collected, since breakage associated with these make-up rights is currently approximately 99% based on our expectations around usage of these options. Accordingly, we had $0.1 million and $0.4 million deferred revenue at March 31, 2023 and December 31, 2022, respectively, for estimated breakage associated with the make-up rights options we granted to our customers.

We also have deferred revenue that represents cumulative revenue that has been deferred due to tiered billing provisions. In such arrangements, revenue is recognized using a blended rate based on the billing tiers of the agreement, as the services are consistently provided throughout the duration of the contractual arrangement, which we included in “Other current liabilities” and “Other non-current liabilities” on our consolidated balance sheets.

The following table presents the amounts outstanding on our consolidated balance sheets and changes associated with the balance of our deferred revenue for the three months ended March 31, 2023:


	December 31, 2022		Cash Additions for Customer Prepayments		Balance Sheet Reclassification		Revenue Recognized		March 31, 2023
	(in thousands)
Deferred revenue (1)	$	3,562	$	2,572	$	—	$	(3,562)	$	2,572

Other current liabilities (2)	$	5,681	$	—	$	258	$	(2,314)	$	3,625
Other non-current liabilities (2)	$	3,943	$	4	$	(258)	$	—	$	3,689

(1) Includes deferred revenue of $0.1 million and $0.4 million at March 31, 2023 and December 31, 2022, respectively, for estimated breakage associated with the make-up right options we granted our customers as discussed above.

(2) Includes cumulative revenue that has been deferred due to tiered billing provisions included in certain of our Canadian dollar-denominated contracts, as discussed above. As such, the change in “Other current liabilities” has been increased by $6 thousand and “Other non-current liabilities” presented has been increased by $4 thousand due to the impact of the change in the end of period exchange rate between March 31, 2023 and December 31, 2022.

Deferred Revenue — Fleet Leases

Our deferred revenue also includes advance payments from our customer of our Fleet services business, which will be recognized as Fleet leases revenue when earned pursuant to the terms of our contractual arrangements. We have included $0.1 million at March 31, 2023 and at December 31, 2022, in “Deferred revenue — related party” on our consolidated balance sheets associated with our customer’s prepayment for our fleet lease agreements. Refer to Note 8. Leases for additional discussion of our lease revenues.

6. RESTRICTED CASH

We include in restricted cash amounts representing a cash account for which the use of funds is restricted by a facilities connection agreement among us and Gibson Energy Inc., or Gibson, that we entered into during 2014 in connection with the development of our Hardisty Terminal. The collaborative arrangement is further discussed in Note 11. Collaborative Arrangement.

In addition, we have an indemnity escrow account of $2.0 million included in our restricted cash amounts associated with the divestiture of our Casper Terminal that is required to be held for one year from the March 31, 2023 closing date of the sale of the terminal and $19.1 million in restricted cash held for repayment on our Credit Agreement per the covenants that was required to be paid within three days of the closing date of the sale of the Casper Terminal. Refer to Note 3. Acquisitions and Dispositions for a further discussion of the Casper Terminal divestiture and Note 19. Subsequent event for a discussion of payments made on our Credit Agreement subsequent to March 31, 2023.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our consolidated balance sheets to the amounts shown in our consolidated statements of cash flows for the specified periods:


	March 31,
	2023		2022
	(in thousands)
Cash and cash equivalents	$	10,843	$	4,497
Restricted Cash	23,659		7,439
Total cash, cash equivalents and restricted cash	$	34,502	$	11,936

7. PROPERTY AND EQUIPMENT

Our property and equipment is comprised of the following asset classifications as of the dates indicated:


	March 31, 2023		December 31, 2022		Estimated Useful Lives (Years)
	(in thousands)
Land	$	3,225	$	10,110	N/A
Trackage and facilities	99,449		108,325		10-30
Pipeline	6,046		12,759		20-30
Equipment	22,288		22,553		3-20

Furniture	84		84		5-10
Total property and equipment	131,092		153,831
Accumulated depreciation	(48,843)		(47,360)
Construction in progress (1)	175		423
Property and equipment, net	$	82,424	$	106,894

(1)The amounts classified as “Construction in progress” are excluded from amounts being depreciated. These amounts represent property that has not been placed into productive service as of the respective consolidated balance sheet date.

Depreciation expense associated with property and equipment totaled $1.8 million and $2.7 million for the three months ended March 31, 2023 and 2022, respectively.

8. LEASES

Lessee

We have noncancellable operating leases for railcars, buildings, storage tanks, offices, railroad tracks, and land.


	Three Months Ended March 31, 2023
Weighted-average discount rate	4.5	%
Weighted average remaining lease term in years	6.21

Our total lease cost consisted of the following items for the dates indicated:


		Three Months Ended March 31,
		2023		2022
	(in thousands)

Operating lease cost		$	326	$	1,515
Short term lease cost		31		31
Variable lease cost		6		18
Sublease income		(283)		(1,281)
Total		$	80	$	283

The maturity analysis below presents the undiscounted cash payments we expect to make each period for property that we lease from others under noncancellable operating leases as of March 31, 2023 (in thousands):


2023	$	420
2024	115
2025	114
2026	117
2027	121
Thereafter	384
Total lease payments	$	1,271
Less: imputed interest	(195)
Present value of lease liabilities	$	1,076

Lessor

We serve as an intermediary to assist our customers with obtaining railcars. In connection with our leasing of railcars from third parties, we simultaneously enter into lease agreements with our customers for noncancellable terms that are designed to recover our costs associated with leasing the railcars plus a fee for providing this service. In addition to these leases we also have lease income from storage tanks and lease income from our related party terminal services agreement associated with transloading renewable diesel at our West Colton Terminal that commenced in December 2021. Refer to Note 12. Transactions with Related Parties for additional discussion.


	Three Months Ended March 31,
	2023		2022
	(in thousands, except weighted average term)
Lease income (1)	$	1,278	$	2,486
Weighted average remaining lease term in years			3.57

(1)Lease income presented above includes lease income from related parties. Refer to Note 12. Transactions with Related Parties for additional discussion of lease income from a related party. In addition, lease income as discussed above totaling $1.0 million and $1.6 million for the three months ended March 31, 2023 and 2022, respectively, is included in “Terminalling services” and “Terminalling services — related party” revenues on our consolidated statements of operations.

The maturity analysis below presents the undiscounted future minimum lease payments we expect to receive from customers each period for property they lease from us under noncancellable operating leases as of March 31, 2023 (in thousands):


2023	$	2,513
2024	2,944
2025	2,936
2026	2,687


Total	$	11,080

9. INTANGIBLE ASSETS

The composition, gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows as of the dates indicated:


	March 31, 2023		December 31, 2022
	(in thousands)
Carrying amount:
Customer service agreements	$	—	$	3,832
Other	—		—
Total carrying amount	—		3,832
Accumulated amortization:
Customer service agreements	—		(306)
Other	—		—
Total accumulated amortization	—		(306)
Total intangible assets, net	$	—	$	3,526

Our identifiable intangible assets originated from the acquisition of the Casper Terminal and were therefore removed from our consolidated balance sheet effective with the divestiture of our Casper Terminal that occurred in March 2023. Refer to Note. 3 Acquisitions and Disposition s — Casper Terminal Divestiture for further details.

Amortization expense associated with intangible assets totaled $0.1 million and $3.2 million for the three months ended March 31, 2023 and 2022, respectively.

10. DEBT

In November 2018, we amended and restated our revolving senior secured credit agreement, which we originally established in October 2014. We refer to the amended and restated senior secured credit agreement executed in November 2018, and as amended as described below, as the Credit Agreement and the original senior secured credit agreement as the Previous Credit Agreement. Our Credit Agreement amended and restated in its entirety our Previous Credit Agreement.

In October 2021, we entered into an amendment to our Credit Agreement, with a syndicate of lenders. The amendment extended the maturity date of the agreement by one year. The aggregate borrowing capacity of the facility is $275 million and reflects the resignation of Citibank, N.A. as administrative agent and swing line lender under the facility and the appointment of Bank of Montreal as the successor administrative agent and swing line lender under the facility.

In addition, in January 2023, we executed an additional amendment to our Credit Agreement, or the Amendment. Among other things, the Amendment provides us with relief from compliance with our Credit Agreement’s maximum Consolidated Net Leverage Ratio and minimum Consolidated Interest Coverage Ratio. As amended, the maximum Consolidated Leverage Ratio was increased from 4.5x to 5.5x for the first and second quarters of 2023 and 5.25x for the third quarter of 2023, and the minimum Consolidated Interest Coverage Ratio was reduced from 2.5x to 2.25x for the second quarter of 2023 and 2.0x for the third quarter of 2023. Beginning January 31, 2023 and continuing through maturity, our ability to make distributions, other restricted payments and investments will be more limited than prior to closing the Amendment if our Consolidated Net Leverage Ratio, pro forma for such distribution, other restricted payment or investment, exceeds 4.5x, or our pro forma liquidity is less than $20 million. The Amendment also increased the borrowing spreads under our Credit Agreement to be more consistent with current market rates and replaces LIBOR-based borrowing options with Term SOFR-based borrowing options. In connection with the Amendment, we incurred additional deferred financing costs of $203 thousand. The deferred financing costs from the Credit Agreement along with the remaining deferred financing costs from the Credit Agreement prior to the Amendment will be amortized over the remaining term of the Credit Agreement using the straight line method, which approximates the effective interest method.

Our Credit Agreement matures on November 2, 2023. Our Credit Agreement provides us with the ability to request an additional one-year maturity date extension, subject to the satisfaction of certain conditions including consent of the lenders, and allows us the option to increase the maximum amount of credit available up to a total facility size of $390 million, subject to receiving increased commitments from lenders and satisfaction of certain conditions. Our Credit Agreement, contains customary representations, warranties, covenants and events of default for facilities of this type.

Our Credit Agreement and any issuances of letters of credit are available for working capital, capital expenditures, general partnership purposes and continue the indebtedness outstanding under the Previous Credit Agreement. The Credit Agreement includes an aggregate $20 million sublimit for standby letters of credit and a $20 million sublimit for swingline loans. Obligations under the Credit Agreement are guaranteed by our restricted subsidiaries (as such term is defined therein) and are secured by a first priority lien on our assets and those of our restricted subsidiaries, other than certain excluded assets.

Our long-term debt balances included the following components as of the specified dates:


	March 31, 2023		December 31, 2022
	(in thousands)

Credit Agreement	$	215,000	$	215,000
Less: Deferred financing costs, net	(794)		(908)
Less: Long-term debt, current portion	(214,206)		(214,092)
Total long-term debt, net	$	—	$	—

We determined the capacity available to us under the terms of our Credit Agreement was as follows as of the specified dates:


	March 31, 2023		December 31, 2022
	(in millions)
Aggregate borrowing capacity under Credit Agreement	$	275.0	$	275.0
Less: Amounts outstanding under the Credit Agreement	215.0		215.0

Available under the Credit Agreement based on capacity	$	60.0	$	60.0
Available under the Credit Agreement based on covenants (1)	$	30.2	$	53.0

(1) Pursuant to the terms of our amended Credit Agreement, as discussed above, our borrowing capacity is currently limited to 5.5 times (5.0 times at December 31, 2022) our trailing 12-month consolidated EBITDA, which equates to $30.2 million and $53.0 million of borrowing capacity available based on our covenants at March 31, 2023 and December 31, 2022, respectively.

The weighted average interest rate on our outstanding indebtedness was 7.81% and 6.92% at March 31, 2023 and December 31, 2022, respectively, without consideration to the effect of our derivative contracts. In addition to the interest we incur on our outstanding indebtedness, we paid commitment fees of 0.5% on unused commitments at March 31, 2023, which rate will vary based on our consolidated net leverage ratio, as defined in our Credit Agreement. At March 31, 2023, we were in compliance with the covenants set forth in our Credit Agreement.

Interest expense associated with our outstanding indebtedness was as follows for the specified periods:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Interest expense on the Credit Agreement	$	4,123	$	1,146

Amortization of deferred financing costs	318		356
Total interest expense	$	4,441	$	1,502

11. COLLABORATIVE ARRANGEMENT

We entered into a facilities connection agreement in 2014 with Gibson under which Gibson developed, constructed and operates a pipeline and related facilities connected to our Hardisty Terminal. Gibson’s storage terminal is the exclusive means by which our Hardisty Terminal receives crude oil. Subject to certain limited exceptions regarding manifest train facilities, our Hardisty Terminal is the exclusive means by which crude oil from Gibson’s Hardisty storage terminal may be transported by rail. We remit pipeline fees to Gibson for the transportation of crude oil to our Hardisty Terminal based on a predetermined formula. Pursuant to our arrangement with Gibson, we incurred pipeline fees of $5.5 million and $8.5 million for the three months ended March 31, 2023 and 2022, respectively, which are presented as “Pipeline fees” in our consolidated statements of operations.

12. TRANSACTIONS WITH RELATED PARTIES

Nature of Relationship with Related Parties

USD is engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and other energy-related infrastructure across North America. USD is also the sole owner of USDG and the ultimate parent of our general partner. USD is owned by Energy Capital Partners, Goldman Sachs and certain members of its management.

USDG is the sole owner of our general partner and at March 31, 2023, owns 17,308,226 of our common units representing a 51.3% limited partner interest in us. As of March 31, 2023, a value of up to $10.0 million of these common units were subject to a negative pledge supporting USDG’s revolving line of credit for working capital. USDG also provides us with general and administrative support services necessary for the operation and management of our business.

USD Partners GP LLC, our general partner, pursuant to our partnership agreement, is responsible for our overall governance and operations. However, our general partner has no obligation to, does not intend to and has not implied that it would provide financial support to or fund cash flow deficits of the Partnership.

USD Marketing LLC, or USDM, is a wholly-owned subsidiary of USDG organized to promote contracting for services provided by our terminals and to facilitate the marketing of customer products.

USD Clean Fuels LLC, or USDCF, is a subsidiary of USD organized for the purpose of providing production and logistics solutions to the growing market for clean energy transportation fuels.

Omnibus Agreement

We are party to an omnibus agreement with USD, USDG and certain of their subsidiaries, or the Omnibus Agreement, including our general partner, pursuant to which we obtain and make payments for specified services provided to us and for out-of-pocket costs incurred on our behalf. We pay USDG, in equal monthly installments, the annual amount USDG estimates will be payable by us during the calendar year for providing services for our benefit. The Omnibus Agreement provides that this amount may be adjusted annually to reflect, among other things, changes in the scope of the general and administrative services provided to us due to a contribution, acquisition or disposition of assets by us or our subsidiaries, or for changes in any law, rule or regulation applicable to us, which affects the cost of providing the general and administrative services. We also reimburse USDG for any out-of-pocket costs and expenses incurred on our behalf in providing general and administrative services to us. This reimbursement is in addition to the amounts we pay to reimburse our general partner and its affiliates for certain costs and expenses incurred on our behalf for managing our business and operations, as required by our partnership agreement.

The total amounts charged to us under the Omnibus Agreement for the three months ended March 31, 2023 and 2022 was $2.2 million and $2.0 million, respectively, which amounts are included in “Selling, general and administrative — related party” in our consolidated statements of operations. We had a payable balance of $0.4 million and $0.8 million with respect to these costs at March 31, 2023 and December 31, 2022, respectively, included in “Accounts payable and accrued expenses — related party” in our consolidated balance sheets.

USD Services Agreement

Prior to our acquisition of the Hardisty South entities, USD and the Hardisty South entities entered into a services agreement for the provision of services related to the management and operation of transloading assets. Services provided consisted of financial and administrative, information technology, legal, management, human resources, and tax, among other services. The Hardisty South entities incurred $3.2 million pursuant to the agreement for the three months ended March 31, 2022 and these amounts are included in “Selling, general, and administrative — related party” in our consolidated statements of operations. Upon our acquisition of the Hardisty South entities effective April 1, 2022, this services agreement was canceled and a similar agreement was established with us. As such, there was no associated expense for the three months ended March 31, 2023 related to the agreement included in “Selling, general, and administrative — related party” in our consolidated statements of operations.

Marketing Services Agreement — Stroud Terminal

In connection with our purchase of the Stroud Terminal, we entered into a Marketing Services Agreement with USDM, or the Stroud Terminal MSA, in May 2017, whereby we granted USDM the right to market the capacity at the Stroud Terminal in excess of the original capacity of our initial customer in exchange for a nominal per barrel fee. USDM is obligated to fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additional throughput. Upon expiration of our contract with the initial Stroud customer in June 2020, the same marketing rights now apply to all throughput at the Stroud Terminal in excess of the throughput necessary for the Stroud Terminal to generate Adjusted EBITDA that is at least equal to the average monthly Adjusted EBITDA derived from the initial Stroud customer during the 12 months prior to expiration. We also granted USDG the right to develop other projects at the Stroud Terminal in exchange for the payment to us of market-based compensation for the use of our property for such development projects. Any such development projects would be wholly-owned by USDG and would be subject to our existing right of first offer, or ROFO, with respect to midstream projects developed by USDG. There were no payments made under the Stroud Terminal MSA during the periods presented in this Report.

Marketing Services Agreement — West Colton Terminal

In June 2021, we entered into a Terminal Services Agreement with USDCF 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 our West Colton Terminal and the outbound shipment of the product on tank trucks to local consumers. The Terminal Services Agreement has an initial term of five years and commenced on December 1, 2021. We have modified our existing West Colton Terminal so that it now has the capability to transload renewable diesel in addition to the ethanol that it has been transloading.

In exchange for the Terminal Services Agreement at our West Colton Terminal with USDCF discussed above, we also entered into a Marketing Services Agreement in June 2021, or the West Colton MSA, with USDCF pursuant to which we agreed to grant USDCF marketing and development rights pertaining to future renewable diesel opportunities associated with the West Colton Terminal in excess of the initial renewable diesel Terminal Services Agreement simultaneously executed in June 2021 between us and USDCF. These rights entitle USDCF to market all additional renewable diesel opportunities at the West Colton Terminal during the initial term of the USDCF agreement, and following the initial term of that agreement, all renewable diesel opportunities at the West Colton Terminal in excess of the throughput necessary to generate Adjusted EBITDA for the West Colton Terminal that is at least equal to the average monthly Adjusted EBITDA derived from the initial USDCF agreement during the 12 months prior to expiration of that agreement’s initial five-year term. Pursuant to the West Colton MSA, USDCF will fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additional renewable diesel opportunities. In addition, we granted USDCF the right to develop other renewable diesel projects at the West Colton Terminal in exchange for a per barrel fee covering our associated operating costs. Any such development projects would be wholly-owned by USD and would be subject to the terms and conditions

of the ROFO with respect to midstream infrastructure developed by USD. There have been no payments made under the West Colton MSA during the periods presented in this Report.

Related Party Revenue and Deferred Revenue

As previously discussed, we entered into a Terminal Services Agreement at our West Colton Terminal with USDCF that became effective in December 2021. We include amounts received pursuant to the arrangement as revenue in the table below under “Terminalling services — related party” in our consolidated statements of operations.

We also have agreements to provide fleet services for USDM, which includes reimbursement to us for certain out-of-pocket expenses we incur. We received revenue from USDM for the lease of 200 railcars pursuant to the terms of an existing agreement with us, which is included in the table below under “Fleet leases — related party” and “Fleet services — related party” and in our consolidated statements of operations.

Our related party revenues from USD and affiliates are presented below in the following table for the indicated periods:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Terminalling services — related party	$	714	$	655
Fleet leases — related party	283		912
Fleet services — related party	85		299
Freight and other reimbursables — related party	115		—
	$	1,197	$	1,866

We had the following amounts outstanding with USD and affiliates on our consolidated balance sheets as presented below in the following table for the indicated periods (1) :


	March 31, 2023		December 31, 2022
	(in thousands)
Accounts receivable — related party	$	392	$	409
Accounts payable and accrued expenses — related party (1)	$	326	$	382

Other current and non-current liabilities — related party (2)	$	207	$	11
Deferred revenue — related party (3)	$	122	$	128

(1)The table presented above does not include amounts payable to related parties associated with the Omnibus Agreement that are recorded to “Accounts payable and accrued expenses — related party” as discussed above.

(2)Represents contract liabilities associated with lease agreements with USDM and USDCF.

(3)Represents deferred revenues associated with our fleet services agreement with USD and affiliates for amounts we have collected from them for their prepaid leases.

13. COMMITMENTS AND CONTINGENCIES

From time to time, we may be involved in legal, tax, regulatory and other proceedings in the ordinary course of business. We do not believe that we are currently a party to any such proceedings that will have a material adverse impact on our financial condition or results of operations.

14. SEGMENT REPORTING

We manage our business in two reportable segments: Terminalling services and Fleet services. The Terminalling services segment charges minimum monthly commitment fees under multi-year take-or-pay contracts to load and unload various grades of crude oil into and from railcars, as well as fixed fees per gallon to transload

ethanol and renewable diesel from railcars, including related logistics services. We also facilitate rail-to-pipeline shipments of crude oil. Our Terminalling services segment also charges minimum monthly fees to store crude oil in tanks that are leased to our customers. The Fleet services segment provides our customer with railcars and fleet services related to the transportation of liquid hydrocarbons under take-or-pay contracts. Corporate activities are not considered a reportable segment, but are included to present shared services and financing activities which are not allocated to our established reporting segments.

Our segments offer different services and are managed accordingly. Our CODM regularly reviews financial information about both segments in order to allocate resources and evaluate performance. Our CODM assesses segment performance based on the cash flows produced by our established reporting segments using Segment Adjusted EBITDA. Segment Adjusted EBITDA is a measure calculated in accordance with GAAP. We define Segment Adjusted EBITDA as “Net income (loss)” of each segment adjusted for depreciation and amortization, interest, income taxes, changes in contract assets and liabilities, deferred revenues, foreign currency transaction gains and losses and other items which do not affect the underlying cash flows produced by our businesses. As such, we have concluded that disaggregating revenue by reporting segments appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.


	Three Months Ended March 31, 2023
	Terminalling services		Fleet services		Corporate		Total
	(in thousands)
Revenues
Terminalling services	$	19,739	$	—	$	—	$	19,739
Terminalling services — related party	714		—		—		714

Fleet leases — related party	—		283		—		283

Fleet services — related party	—		85		—		85
Freight and other reimbursables	190		—		—		190
Freight and other reimbursables — related party	115		—		—		115
Total revenues	20,758		368		—		21,126
Operating costs
Subcontracted rail services	3,285		—		—		3,285
Pipeline fees	5,473		—		—		5,473
Freight and other reimbursables	305		—		—		305
Operating and maintenance	1,466		295		—		1,761
Selling, general and administrative	1,390		22		5,172		6,584

Gain on sale of business	—		—		(6,202)		(6,202)
Depreciation and amortization	1,906		—		—		1,906
Total operating costs	13,825		317		(1,030)		13,112
Operating income	6,933		51		1,030		8,014
Interest expense	—		—		4,441		4,441
Loss associated with derivative instruments	—		—		1,850		1,850
Foreign currency transaction loss	23		—		31		54
Other income, net	(32)		—		(2)		(34)
Provision for (benefit from) income taxes	(278)		6		—		(272)
Net income (loss)	$	7,220	$	45	$	(5,290)	$	1,975


	Three Months Ended March 31, 2022
	Terminalling services		Fleet services		Corporate		Total
	(in thousands)
Revenues
Terminalling services	$	33,823	$	—	$	—	$	33,823
Terminalling services — related party	655		—		—		655

Fleet leases — related party	—		912		—		912

Fleet services — related party	—		299		—		299
Freight and other reimbursables	97		—		—		97
Freight and other reimbursables — related party	—		—		—		—
Total revenues	34,575		1,211		—		35,786
Operating costs
Subcontracted rail services	3,991		—		—		3,991
Pipeline fees	8,501		—		—		8,501
Freight and other reimbursables	97		—		—		97
Operating and maintenance	2,624		993		—		3,617
Selling, general and administrative	4,787		57		3,902		8,746

Depreciation and amortization	5,839		—		—		5,839
Total operating costs	25,839		1,050		3,902		30,791
Operating income (loss)	8,736		161		(3,902)		4,995
Interest expense	117		—		1,385		1,502
Gain associated with derivative instruments	—		—		(6,084)		(6,084)
Foreign currency transaction loss (gain)	1,698		—		(51)		1,647
Other income, net	(23)		—		—		(23)
Provision for income taxes	416		64		—		480
Net income	$	6,528	$	97	$	848	$	7,473

Segment Adjusted EBITDA

The following tables present the computation of Segment Adjusted EBITDA, which is a measure determined in accordance with GAAP, for each of our segments for the periods indicated:


	Three Months Ended March 31,
Terminalling Services Segment	2023		2022
	(in thousands)
Net income	$	7,220	$	6,528

Interest expense (income), net (1)	(31)		116
Depreciation and amortization	1,906		5,839
Provision for (benefit from) income taxes	(278)		416
Foreign currency transaction loss (2)	23		1,698




Non-cash deferred amounts (3)	(1,651)		(1,557)
Segment Adjusted EBITDA attributable to Hardisty South entities prior to acquisition (4)	—		(258)
Segment Adjusted EBITDA	$	7,189	$	12,782

(1) Represents interest expense associated with the construction loan agreement that existed prior to our acquisition of the Hardisty South Terminal entities and interest income associated with our Terminalling Services segment that is included in “Other income, net” in our consolidated statements of operations.

(2) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.

(3) Represents the change in non-cash contract assets and liabilities associated with revenue recognized at blended rates based on tiered rate structures in certain of our customer contracts and deferred revenue associated with deficiency credits that are expected to be used in the future prior to their expiration. Amounts presented are net of the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue.

(4) Segment adjusted EBITDA attributable to the Hardisty South entities for the three months ended March 31, 2022 was excluded from the Terminalling Services Segment Adjusted EBITDA, as these amounts were generated by the Hardisty South entities prior to the Partnership’s acquisition.


	Three Months Ended March 31,
Fleet Services Segment	2023		2022
	(in thousands)
Net income	$	45	$	97
Provision for income taxes	6		64


Segment Adjusted EBITDA	$	51	$	161

15. DERIVATIVE FINANCIAL INSTRUMENTS

Our net income, or loss, and cash flows are subject to fluctuations resulting from changes in interest rates on our variable rate debt obligations and from changes in foreign currency exchange rates, particularly with respect to the U.S. dollar and the Canadian dollar. We use interest rate derivative instruments, specifically swaps, on our variable rate debt and to manage the risks associated with market fluctuations in interest rates to reduce volatility in our cash flows. We have not historically designated, nor do we expect to designate, our derivative financial instruments as hedges of the underlying risk exposure. All of our financial instruments are employed in connection with an underlying asset, liability and/or forecasted transaction and are not entered into for speculative purposes.

Interest Rate Derivatives

In October 2022, we terminated and settled our existing interest rate swap and simultaneously entered into a new interest rate swap. The new interest rate swap is a five-year contract with a $175.0 million notional value that

fixes SOFR to 3.956% for the notional value of the swap agreement instead of the variable rate that we pay under our Credit Agreement. The swap settles monthly through the termination date in October 2027.

Derivative Positions

We record all of our derivative financial instruments at their fair values in the line items specified below within our consolidated balance sheets, the amounts of which were as follows at the dates indicated:


	March 31, 2023		December 31, 2022
	(in thousands)
Other current assets	$	1,265	$	1,448


Other non-current liabilities	(5,439)		(3,587)
	$	(4,174)	$	(2,139)

We have not designated our derivative financial instruments as hedges of our interest rate exposure. As a result, changes in the fair value of these derivatives are recorded as “Loss (gain) associated with derivative instruments” in our consolidated statements of operations. The gains or losses associated with changes in the fair value of our derivative contracts do not affect our cash flows until the underlying contract is settled by making or receiving a payment to or from the counterparty. In connection with our derivative activities, we recognized the following amounts during the periods presented:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Loss (gain) associated with derivative instruments	$	1,850	$	(6,084)

We determine the fair value of our derivative financial instruments using third party pricing information that is derived from observable market inputs, which we classify as level 2 with respect to the fair value hierarchy.

The following table presents summarized information about the fair values of our outstanding interest rate contracts for the periods indicated:


					March 31, 2023		December 31, 2022
	Notional		Interest Rate Parameters		Fair Value		Fair Value
					(in thousands)
Swap Agreements
Swap maturing October 27	$	175,000,000	3.956	%	$	(4,174)	$	(2,139)

16. PARTNERS’ CAPITAL

Our common units represent limited partner interests in us. The holders of common units are entitled to participate in partnership distributions and to exercise the rights and privileges available to limited partners under our partnership agreement.

Pursuant to the terms of the First Amendment to the USD Partners LP Amended and Restated 2014 Long-Term Incentive Plan, which we refer to as the Amended LTIP Plan, our phantom unit awards, or Phantom Units, granted to directors and employees of our general partner and its affiliates, which are classified as equity, are converted into our common units upon vesting. Equity-classified Phantom Units totaling 566,856 vested during the first three months in 2023, of which 377,420 were converted into our common units after 189,436 Phantom Units were withheld from participants for the payment of applicable employment-related withholding taxes. The conversion of these Phantom Units did not have any economic impact on Partners’ Capital, since the economic impact is recognized over the vesting period. Additional information and discussion regarding our unit based compensation plans is included below in Note 17. Unit Based Compensation.

Our partnership agreement does not require us to pay cash distributions on a quarterly or other basis. The amount of distributions we pay under our cash distribution policy and the decision to make any distribution are determined by our general partner. On May 3, 2023, the board of directors of our general partner determined to suspend our quarterly cash distribution, effective for the quarter ended March 31, 2023. The board of directors of our general partner will continue to evaluate our distribution policy on a quarterly basis and will take into consideration commercial progress, including our ability to renew, extend or replace our customer agreements, our compliance with the covenants under the Credit Agreement and our liquidity position, as well as broader market conditions and the overall performance of our business. There can be no assurance that the reinstatement of distributions will occur in the near term, if at all.

17. UNIT BASED COMPENSATION

Long-term Incentive Plan

In 2023 and 2022, the board of directors of our general partner, acting in its capacity as our general partner, approved the grant of 714,725 and 625,732 Phantom Units, respectively, to directors and employees of our general partner and its affiliates under our Amended LTIP Plan. At March 31, 2023, we had 3,180,760 Phantom Units remaining available for issuance. The Phantom Units are subject to all of the terms and conditions of the Amended LTIP Plan and the Phantom Unit award agreements, which are collectively referred to as the Award Agreements. Award amounts for each of the grants are generally determined by reference to a specified dollar amount based on an allocation formula which included a percentage multiplier of the grantee’s base salary, among other factors, converted to a number of units based on the closing price of one of our common units preceding the grant date, as determined by the board of directors of our general partner and quoted on the NYSE.

Phantom Unit awards generally represent rights to receive our common units upon vesting. However, with respect to the awards granted to directors and employees of our general partner and its affiliates domiciled in Canada, for each Phantom Unit that vests, a participant is entitled to receive cash for an amount equivalent to the closing market price of one of our common units on the vesting date. Each Phantom Unit granted under the Award Agreements includes an accompanying distribution equivalent right, or DER, which entitles each participant to receive payments at a per unit rate equal in amount to the per unit rate for any distributions we make with respect to our common units. The Award Agreements granted to employees of our general partner and its affiliates generally contemplate that the individual grants of Phantom Units will vest in four equal annual installments based on the grantee’s continued employment through the vesting dates specified in the Award Agreements, subject to acceleration upon the grantee’s death or disability, or involuntary termination in connection with a change in control of the Partnership or our general partner. Awards to independent directors of the board of our general partner and an independent consultant typically vest over a one year period following the grant date.

The following tables present the award activity for our Equity-classified Phantom Units:


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2022	39,408	1,328,964	$	6.91
Granted	39,408	616,758	$	3.54
Vested	(39,408)	(527,448)	$	7.85
Forfeited	—	(3,355)	$	4.43
Phantom Unit awards at March 31, 2023	39,408	1,414,919	$	5.02


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2021	26,272	1,317,493	$	8.21
Granted	39,408	514,434	$	5.85
Vested	(26,272)	(504,588)	$	9.07
Forfeited	—	—	$	—
Phantom Unit awards at March 31, 2022	39,408	1,327,339	$	6.92

The following tables present the award activity for our Liability-classified Phantom Units:


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2022	13,136	56,847	$	6.27
Granted	13,136	45,423	$	3.54
Vested	(13,136)	—	$	5.85

Phantom Unit awards at March 31, 2023	13,136	102,270	$	4.93


	Director and Independent Consultant Phantom Units	Employee Phantom Units	Weighted-Average Grant Date Fair Value Per Phantom Unit
Phantom Unit awards at December 31, 2021	13,136	63,730	$	7.26
Granted	13,136	36,459	$	5.85
Vested	(13,136)	—	$	4.82

Phantom Unit awards at March 31, 2022	13,136	100,189	$	6.92

The fair value of each Phantom Unit on the grant date is equal to the closing market price of our common units on the grant date. We account for the Phantom Unit grants to independent directors and employees of our general partner and its affiliates domiciled in Canada that are paid out in cash upon vesting, throughout the requisite vesting period, by revaluing the unvested Phantom Units outstanding at the end of each reporting period and recording a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of operations and recognizing a liability in “Other current liabilities” in our consolidated balance sheets. With respect to the Phantom Units granted to consultants, independent directors and employees of our general partner and its affiliates domiciled in the United States, we amortize the initial grant date fair value over the requisite service period using the straight-line method with a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of operations, with an offset to common units within the Partners’ Capital section of our consolidated balance sheet.

We recognized $1.0 million and $1.2 million, respectively, of compensation expense associated with outstanding Phantom Units for the three months ended March 31, 2023 and 2022. As of March 31, 2023, we have unrecognized compensation expense associated with our outstanding Phantom Units totaling $7.2 million, which we expect to recognize over a weighted average period of 2.62 years. We have elected to account for actual forfeitures as they occur rather than using an estimated forfeiture rate to determine the number of awards we expect to vest.

We made payments to holders of the Phantom Units pursuant to the associated DERs we granted to them under the Award Agreements as follows:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Equity-classified Phantom Units (1)	$	169	$	163
Liability-classified Phantom Units	9		9
Total	$	178	$	172

(1) We reclassified $1 thousand to unit based compensation expense for DERs paid in relation to Phantom Units that have been forfeited for the three months ended March 31, 2023. We had no reclassifications for the three months ended March 31, 2022.

18. SUPPLEMENTAL CASH FLOW INFORMATION

The following table provides supplemental cash flow information for the periods indicated:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Cash paid for income taxes, net	$	821	$	533
Cash paid for interest	$	4,099	$	1,175
Cash paid for operating leases	$	296	$	1,838

Non-cash Investing Activities

For the three months ended March 31, 2023 and 2022, we had non-cash investing activities for capital expenditures for property and equipment that were financed through “Accounts payable and accrued expenses” and “Accounts Payable and accrued expenses — related party” as presented in the table below for the periods indicated:


	Three months ended March 31,
	2023		2022
	(in thousands)
Property and equipment financed through accounts payable and accrued expenses	$	(336)	$	(155)

There were no new, extended, canceled or declassified right-of-use lease assets and associated liabilities recorded as of March 31, 2023 and 2022. See Note 8. Leases for further discussion.

Non-cash contribution to Hardisty South Entities

Prior to our acquisition, the Hardisty South entities had non-cash activities associated with related party accounts payable and equity balances. The Hardisty South entities received a non-cash contribution of $18.2 million in March 2022 from USD North America LP, a wholly-owned subsidiary of our Sponsor, in exchange for its assumption of an aggregate amount of related party debt.

19. SUBSEQUENT EVENTS

Revolving Credit Agreement Activity

On April 6, 2023, we repaid $19.1 million under the terms of our existing $275.0 million Credit Agreement from the proceeds of the sale of the Casper Terminal. As of April 30, 2023, we had amounts outstanding of $195.9 million under the Credit Agreement and $79.1 million available for borrowings under the Credit Agreement based on capacity, that is subject to certain covenants. Refer to Note 10 . Debt for more information.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with the unaudited consolidated financial statements and accompanying notes in “Item 1. Financial Statements” contained herein and our audited consolidated financial statements and accompanying notes included in “Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Among other things, those consolidated financial statements include more detailed information regarding the basis of presentation for the following discussion and analysis. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q. Please also read the “Cautionary Note Regarding Forward-Looking Statements” following the table of contents in this Report.

We denote amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.

The financial information for the three months ended March 31, 2022 has been retrospectively recast to include the pre-acquisition results of the Hardisty South Terminal because the acquisition represented a business combination between entities under common control. Refer to Part I. Item 1. Financial Statements, Note 3. Acquisitions and Dispositions of this Quarterly Report for more information.

Overview

We are a fee-based, growth-oriented master limited partnership formed by our sponsor, USD, to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. We generate substantially all of our operating cash flows from multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies, refiners and marketers. Our network of crude oil terminals facilitates the transportation of heavy crude oil from Western Canada to key demand centers across North America. Our 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. We also provide one of our customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons by rail. We generally do not take ownership of the products that we handle nor do we receive any payments from our customers based on the value of such products.

We believe rail will continue as an important transportation option for energy producers, refiners and marketers due to its unique advantages relative to other transportation means. Specifically, rail transportation of energy-related products provides flexible access to key demand centers on a relatively low fixed-cost basis with faster physical delivery, while preserving the specific quality of customer products over long distances.

USDG, a wholly-owned subsidiary of USD, and the sole owner of our 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. Among other projects, USDG is currently 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.

USD’s Diluent Recovery Unit and Port Arthur Terminal Projects

During 2021, USD, along with its joint venture partner, Gibson, successfully completed construction on and placed into service a diluent recovery unit, or DRU, at the Hardisty Terminal, as a part of a long-term solution to transport heavier grades of crude oil produced in Western Canada by rail. USD also placed into service a new destination terminal in Port Arthur, Texas, or PAT. Refer to the Growth Opportunities for our Operations section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for further information.

Casper Terminal Divestiture

On March 31, 2023, we completed our divestiture of all of the equity interests in our Casper Terminal, which included the Casper Crude to Rail, LLC and CCR Pipeline, LLC entities, for approximately $33 million in cash, subject to customary adjustments. Refer to Part I. Item 1. Financial Statements, Note 3. Acquisition and Dispositions — Casper Terminal Divestiture for additional details regarding this disposition. The Casper Terminal was included in our Terminalling Services segment.

Recent Developments

Market Update

Substantially all of our operating cash flows are generated from take-or-pay contracts and, as a result, are not directly related to actual throughput volumes at our crude oil terminals. Throughput volumes at our terminals are primarily influenced by the difference in price between Western Canadian Select, or WCS, and other grades of crude oil, commonly referred to as spreads, rather than absolute price levels. WCS spreads are influenced by several market factors, including the availability of supplies relative to the level of demand from refiners and other end users, the price and availability of alternative grades of crude oil, the availability of takeaway capacity, as well as transportation costs from supply areas to demand centers.

Impact of Current Market Events

Given that crude oil prices have recovered and are higher than pre-COVID levels, Canadian production that was temporarily shut-in due to COVID-19 has also returned to pre-COVID levels. According to the Canadian Energy Regulator, or CER, the Canadian production forecast for 2023 is projected to grow which indicates another year of growth for Canadian production. Additionally, in March 2023, the Canadian Association of Petroleum Producers, or CAPP, announced that they are forecasting oil and natural gas investment in upstream production will hit C$40 billion in 2023, surpassing pre-COVID investment levels. This includes a planned investment of C$11.5 billion in the oil sands.

In the fourth quarter of 2022, TC Energy had a pipeline outage on the entire Keystone pipeline system. The entire pipeline was offline for a significant amount of time, which led to inventory builds in Canada. Given this event, Canadian crude oil inventory levels increased in the fourth quarter of 2022 and were at the higher end of the five year average. In the first quarter of 2023, the Keystone pipeline system came back online, which led to a minor storage draw and then storage levels stabilized and have remained at the higher end of the five year average through the end of the quarter.

Additionally, the U.S. government released approximately 260 million barrels of crude oil from the U.S. Strategic Petroleum Reserve, or SPR, starting in October 2021 and ending in January 2023. The impact of these emergency releases weakened replacement costs in the U.S. Gulf Coast for all sour crude oil alternatives. As replacement costs have weakened, WCS Houston crude prices have done the same, which has driven WCS Hardisty prices at origin to weaken in response. There are no further emergency SPR releases announced in the near term. However, regular planned releases started earlier than anticipated in the week ended March 31, 2023. The U.S government has announced plans to replenish the reserves by implementing a three-part strategy to refill the reserve in the long term, which includes repurchases, returns from previous exchanges and working with congress to avoid unnecessary sales. In early April 2023, the Organization of the Petroleum Exporting Countries and other oil producing countries, or OPEC+, announced unanticipated oil output cuts of around 1.16 million barrels per day. This action is expected to increase oil prices in the U.S.

Given the supply and demand events discussed above, and based on the forecasted production increases in Canada we expect that inventory levels in 2023 will remain at the higher end of the five year average. At these levels and as inventories continue to build, expectations are that pipeline apportionment levels will grow in the later part of 2023, which will potentially lead to higher demand for a crude by rail egress solution toward the end of 2023. However, the demand for crude by rail egress will be low in the near term due to planned and unplanned maintenance on both oil sands production assets and refineries and increased pipeline egress availability due to drag

reducing agent usage and favorable pipeline summer blending ratio requirements. The extent and duration of any increases in apportionment or inventory levels are difficult to predict, if such increases occur at all.

Another factor that may contribute to the demand for a crude by rail egress solution is the significant regulatory and legal obstacles that pipeline projects and existing pipelines experience in the U.S and Canada. For example, it was recently announced by Trans Mountain Corporation, or TMC, that the total cost of the Trans Mountain Pipeline expansion project is now estimated to be $30.9 billion. TMC is currently working to secure external financing to fund the remaining cost of the project. The timeline for completing the project is now extended out further into the end of 2023, with in-service announced to be in early 2024. As environmental, regulatory and political challenges to increase pipeline export capacity remain, we believe crude by rail exports will remain a valuable egress solution.

Our Hardisty terminal, with established capacity and scalable designs, is well-positioned as strategic outlets to meet takeaway needs when Western Canadian crude oil supplies continue to exceed available pipeline takeaway capacity. Also, as previously discussed, USD along with its partner, successfully completed construction of and placed into service a diluent recovery unit, or DRU, at the Hardisty Terminal, as a part of a long-term solution to transport heavier grades of crude oil produced in Western Canada by rail. Additionally, we believe our 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. Rail also generally provides a greater ability to preserve the specific quality of a customer’s product relative to pipelines, providing value to a producer or refiner. Although in the long-term we expect that these advantages could result in contract extensions and expansion opportunities across our terminal network, we have not been able to renew or replace contracts that expired in June 2022 and may not be able to renew or replace contracts that are expiring in June 2023 and January 2024. This will make it challenging for us to renew, extend or replace our amended Credit Agreement that expires in early November 2023.

How We Generate Revenue

We conduct our business through two distinct reporting segments: Terminalling services and Fleet services. We have established these reporting segments as strategic business units to facilitate the achievement of our long-term objectives, to assist in resource allocation decisions and to assess operational performance.

Terminalling Services

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. Substantially all of our cash flows are generated under multi-year, take-or-pay Terminal Services Agreements that include minimum monthly commitment fees. We generally have no direct commodity price exposure, although fluctuating commodity prices could indirectly influence our activities and results of operations over the long term.

Our combined Hardisty Terminal is an origination terminal where various grades of Canadian crude oil received from Gibson’s Hardisty storage terminal and DRUbitTM from our Sponsor’s DRU facility are loaded into railcars. Our combined Hardisty Terminal can load up to three and one-half 120-railcar unit trains per day and consists of a fixed loading rack with approximately 60 railcar loading positions, and unit train staging with loop tracks capable of holding five unit trains simultaneously.

Our Stroud Terminal is a crude oil destination terminal in Stroud, Oklahoma, which we use to facilitate rail-to-pipeline shipments of crude oil from our Hardisty Terminal 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. Our Stroud Terminal was purchased in June 2017 and commenced operations in October 2017.

Our West Colton Terminal 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. The West Colton Terminal has 20 railcar offloading positions and four truck loading positions.

Fleet Services

We provide one of our customers with leased railcars and fleet services related to the transportation of liquid hydrocarbons by rail on take-or-pay terms under a master fleet services agreement. We do not own any railcars. As of March 31, 2023, our railcar fleet consisted of 200 railcars, which we lease from a railcar manufacturer, all of which are coiled and insulated, or C&I, railcars. The weighted average remaining contract life on our railcar fleet is three months as of March 31, 2023. The Partnership is currently working on extending the fleet agreements for the 200 railcars beyond the current June 30, 2023 end date through December 2023, which we anticipate could be executed sometime in the second quarter of 2023.

Under the master fleet services agreement, we provide our 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. Our customer typically pays us and our assignees monthly fees per railcar for these services, which include a component for fleet services.

Historically, we contracted with railroads on behalf of some of our customers to arrange for the movement of railcars from our terminals to the destinations selected by our customers. We were the contracting party with the railroads for those shipments and were responsible to the railroads for the related fees charged by the railroads, for which we were reimbursed by our customers. Both the fees charged by the railroads to us and the reimbursement of these fees by our customers are included in our consolidated statements of operations in the revenues and operating costs line items entitled “Freight and other reimbursables.”

Also, we have historically assisted our customers with procuring railcars to facilitate their use of our terminalling services. Our wholly-owned subsidiary USD Rail LP has historically entered into leases with third-party manufacturers of railcars and financial firms, which it has then leased to customers. Although we expect to continue to assist our customers in obtaining railcars for their use transporting crude oil to or from our terminals, we do not intend to continue to act as an intermediary between railcar lessors and our customers as our existing lease agreements expire, are otherwise terminated, or are assigned to our existing customers. Should market conditions change, we could potentially act as an intermediary with railcar lessors on behalf of our customers again in the future.

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to evaluate our operations. When we evaluate our consolidated operations and related liquidity, we consider these metrics to be significant factors in assessing our ability to generate cash and pay distributions and include: (i) Adjusted EBITDA and DCF; (ii) operating costs; and (iii) volumes. We define Adjusted EBITDA and DCF below. When evaluating our operations at the segment level, we evaluate using Segment Adjusted EBITDA. Refer to Part I. Item 1. Financial Statements, Note 14. Segment Reporting of this Quarterly Report.

Adjusted EBITDA and Distributable Cash Flow

We define Adjusted EBITDA as “Net cash provided by operating activities” adjusted for changes in working capital items, interest, income taxes, foreign currency transaction gains and losses, and other items which do not affect the underlying cash flows produced by our businesses. Adjusted EBITDA is a non-GAAP, supplemental financial measure used by management and external users of our financial statements, such as investors and commercial banks, to assess:

•our liquidity and the ability of our business to produce sufficient cash flow to make distributions to our unitholders; and

•our ability to incur and service debt and fund capital expenditures.

We define Distributable Cash Flow, or DCF, as Adjusted EBITDA less net cash paid for interest, income taxes and maintenance capital expenditures. DCF does not reflect changes in working capital balances. DCF is a non-GAAP, supplemental financial measure used by management and by external users of our financial statements, such as investors and commercial banks, to assess:

•the amount of cash available for making distributions to our unitholders;

•the excess cash flow being retained for use in enhancing our existing business; and

•the sustainability of our current distribution rate per unit.

We believe that the presentation of Adjusted EBITDA and DCF in this Report provides information that enhances an investor’s understanding of our ability to generate cash for payment of distributions and other purposes. The GAAP measure most directly comparable to Adjusted EBITDA and DCF is “Net cash provided by operating activities.” Adjusted EBITDA and DCF should not be considered alternatives to “Net cash provided by operating activities” or any other measure of liquidity presented in accordance with GAAP. Adjusted EBITDA and DCF exclude some, but not all, items that affect “Net cash provided by operating activities,” and these measures may vary among other companies. As a result, Adjusted EBITDA and DCF may not be comparable to similarly titled measures of other companies.

The following table sets forth a reconciliation of “Net cash provided by (used in) operating activities,” the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA and DCF:


	Three Months Ended March 31,
	2023		2022 (1)
	(in thousands)
Reconciliation of Net cash provided by (used in) operating activities to Adjusted EBITDA and Distributable cash flow:
Net cash provided by (used in) operating activities	$	(582)	$	9,233
Add (deduct):
Amortization of deferred financing costs	(318)		(356)
Deferred income taxes	(5)		(197)
Changes in accounts receivable and other assets	(397)		2,264
Changes in accounts payable and accrued expenses	(1,659)		(4,785)
Changes in deferred revenue and other liabilities	3,708		2,033

Interest expense, net	4,408		1,501
Provision for (benefit from) income taxes	(272)		480
Foreign currency transaction loss (2)	54		1,647


Non-cash deferred amounts (3)	(1,651)		(1,557)
Adjusted EBITDA attributable to Hardisty South entities prior to acquisition (4)	—		(258)
Adjusted EBITDA	3,286		10,005
Add (deduct):
Cash paid for income taxes	(821)		(533)
Cash paid for interest	(4,099)		(1,175)

Cash paid for interest attributable to Hardisty South entities prior to acquisition (5)	—		59
Distributable cash flow	$	(1,634)	$	8,356

(1) As discussed in Part I. Item 1. Financial Statements, Note 1. Organization and Basis of Presentation of this Quarterly Report, our consolidated financial statements have been retrospectively recast to include the pre-acquisition results of the Hardisty South Terminal which we acquired effective April 1, 2022 because the transaction was between entities under common control.

(2) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.

(4) Adjusted EBITDA attributable to the Hardisty South entities for the three months ended March 31, 2022 was excluded from our Adjusted EBITDA, as these amounts were generated by the Hardisty South entities prior to the our acquisition and therefore, they were not amounts that could be distributed to our unitholders. Refer to the table provided below for a reconciliation of “Net cash provided by operating activities” to Adjusted EBITDA for the Hardisty South entities prior to acquisition.

(5) Cash payments made for interest of $59 thousand attributable to the Hardisty South entities for the three months ended March 31, 2022 was excluded from the Partnership’s DCF calculations, as these amounts were generated by the Hardisty South entities prior to the Partnership’s acquisition.

Adjusted EBITDA and DCF presented above for the three months ended March 31, 2022 includes the impact of $0.5 million of expenses incurred during the period associated with our drop down acquisition of the Hardisty South Terminal assets from our Sponsor and for the three months ended March 31, 2023 includes expenses incurred of $1.9 million associated with the divestiture of our Casper Terminal. Refer to Part I. Item 1. Financial Statements, Note 3. Acquisition and Dispositions of this Quarterly Report for more information.


	Three Months Ended March 31, 2022
	(in thousands)
Reconciliation of Net cash provided by (used in) operating activities to Adjusted EBITDA:
Net cash used in operating activities	$	(1,475)
Add (deduct):
Amortization of deferred financing costs	(84)
Deferred income taxes	(53)
Changes in accounts receivable and other assets	(217)
Changes in accounts payable and accrued expenses	155
Changes in deferred revenue and other liabilities	488
Interest expense, net	117
Provision for income taxes	59
Foreign currency transaction loss	1,600
Non-cash deferred amounts (1)	(332)
Adjusted EBITDA (2)	$	258

(1) Represents the change in non-cash contract assets and liabilities associated with revenue recognized at blended rates based on tiered rate structures in certain of the customer contracts.

(2) Adjusted EBITDA associated with the Hardisty South entities prior to our acquisition includes the impact of expenses pursuant to a services agreement with USD for the provision of services related to the management and operation of transloading assets. These expenses totaled $3.2 million for the three months ended March 31, 2022. Upon our acquisition of the entities effective April 1, 2022, the services agreement with USD was canceled and a similar agreement was established with us. Refer to Part I. Item 1. Financial Statements, Note 12. Transactions with Related Party of this Quarterly Report for more information.

Operating Costs

Our operating costs are comprised primarily of subcontracted rail services, pipeline fees, repairs and maintenance expenses, materials and supplies, utility costs, insurance premiums and lease costs for facilities and equipment. In addition, our operating expenses include the cost of leasing railcars from third-party railcar suppliers and the shipping fees charged by railroads, which costs are generally passed through to our customers. We expect our expenses to remain relatively stable, but they may fluctuate from period to period depending on the mix of activities performed during a period and the timing of these expenditures. In addition, we have experienced an increase in certain costs associated with the increased inflation rate and expect such costs to remain at elevated levels for at least the near future. We expect to incur additional operating costs, including subcontracted rail services and pipeline fees, when we handle additional volumes at our terminals.

Our management seeks to maximize the profitability of our operations by effectively managing both our operating and maintenance expenses. As management has done in the past when contracted capacity is less than the

available operating capacity of our terminals, management is focused on optimizing our cost structure through reductions in subcontracted rail services costs and all variable costs. As our terminal facilities and related equipment age, we expect to incur regular maintenance expenditures to maintain the operating capabilities of our facilities and equipment in compliance with sound business practices, our contractual relationships and regulatory requirements for operating these assets. We record these maintenance and other expenses associated with operating our assets in “Operating and maintenance” costs in our consolidated statements of operations.

Volumes

The amount of Terminalling services revenue we generate depends on minimum customer commitment fees and the throughput volume that we handle at our terminals in excess of those minimum commitments. These volumes are primarily affected by the supply of and demand for crude oil, refined products and biofuels in the markets served directly or indirectly by our assets. Additionally, these volumes are affected by the spreads between the benchmark prices for these products, which are influenced by, among other things, the available takeaway capacity in those markets. Although customers at our terminals have committed to minimum monthly fees under their terminal services agreements with us, which will generate the majority of our Terminalling services revenue, our results of operations will also be affected by:

•our customers’ utilization of our terminals in excess of their minimum monthly volume commitments;

•our ability to identify and execute accretive acquisitions and commercialize organic expansion projects to capture incremental volumes; and

•our ability to renew contracts with existing customers, enter into contracts with new customers, increase customer commitments and throughput volumes at our terminals, and provide additional ancillary services at those terminals.

General Trends and Outlook

We expect our business to continue to be affected by the key trends and recent developments discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition — Factors that May Impact Future Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our actual results may vary materially from our expected results. The unprecedented nature of the COVID-19 pandemic, as well as the ongoing situation in Ukraine and their impact on world economic conditions, along with inflationary pressures, instability in certain financial institutions and the volatility in the oil and natural gas markets, have created increased uncertainty with respect to future conditions and our ability to accurately predict future results.

Conversion to DRU Solution

The successful completion of USD’s Hardisty DRU project enhanced the sustainability and quality of our cash flows by significantly increasing the average tenor of a portion of the Terminal Services Agreements at our Hardisty Terminal to 10-year agreements. The Partnership is focused on converting the Hardisty Terminal’s available capacity from transloading dilbit to the longer-term sustainable DRUbit™ by Rail™ program.

USD is currently in advanced discussions with multiple existing customers regarding the expansion of its DRUbit™ by Rail™ program. If USD is successful, we expect that future customers of the Hardisty DRU project will enter into similar long-term, more sustainable commitments for terminalling services at our Hardisty Terminal. However, the timing and terms of any such commitments are difficult to predict, if such commitments occur at all.

Refer to the Growth Opportunities for our Operations section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for further information on USD’s DRU program.

Hardisty and Stroud Terminals Customer Contract Renewals and Expirations

In early April 2022, we completed the acquisition of 100% of the entities owning the Hardisty South Terminal assets from USDG. The new combined Hardisty Terminal, which includes our 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. Contracts representing approximately 26% of the combined Hardisty Terminal’s capacity expired in June 2022. Contracts representing approximately 23% of the combined capacity are expiring June 30, 2023; approximately 14% are expiring January 31, 2024; and the remaining 17% is expiring in mid-2031.

Impacts on Customer Contracts From 2021 DRU Conversion

As previously discussed, construction of USD’s DRU project was completed in July 2021 and was declared fully operational in December 2021. Effective August 2021, the maturity date of three terminalling services agreements that are with the existing DRU customer at our Hardisty Terminal were extended through mid-2031, representing approximately 17% of the combined Hardisty Terminal’s capacity. Due to the significantly longer contract tenor of the terminalling services agreements associated with the DRU volumes, contracted rates on an annual basis are lower as compared to the contracted rates associated with the historical, shorter-term, agreements, which results in lower cash flows to the Partnership on an annual basis, but support a higher net present value to the Partnership and provide a more predictable cash flow profile.

Effective August 2021, the existing DRU customer elected to reduce its volume commitments at the Stroud Terminal attributable to the Partnership by one-third of the previous commitment through June 2022, at which point the agreement terminated. This agreement represented our sole third-party customer contract for our Stroud Terminal and as such none of the capacity of the Stroud Terminal has been contracted since July 1, 2022.

Hardisty and Stroud Contract Expirations

At the end of June 2022, contracts representing approximately 26% of the combined Hardisty Terminal’s capacity expired. In addition, the remaining contracted capacity at the Stroud Terminal also expired at the end of June 2022. The expired contracted capacity at the combined Hardisty and Stroud Terminals represented approximately $24.7 million of our terminalling services revenues for the year ended December 31, 2022, which represented approximately 23% of terminalling services revenues for that period.

At the end of June 2023, contracts representing approximately 23% of the combined Hardisty Terminal’s capacity are set to expire. These contracts represented approximately $8.5 million of our terminalling services revenues for the three months ended March 31, 2023, which represents approximately 42% of terminalling services revenue for the period.

Management is focused on renewing, extending or replacing the agreements that have expired or are set to expire at the Hardisty and Stroud Terminals with new, multi-year take or pay commitments and is actively engaging with current and new customers. We have not been able to renew and extend or replace the agreements that expired at the end of the second quarter of 2022, and believe it will be challenging to renew or replace such contracts, as well as those expiring in June 2023, during the second half of 2023. However, management believes that there is a potential opportunity to enter into shorter term agreements at the Hardisty Terminal with customers in late 2023. Additionally, management is marketing terminalling services at the Stroud Terminal to potential customers that may be in need of access to the numerous markets connected to the Cushing oil hub, and management believes that we will have the potential opportunity to increase utilization at the terminal sometime by the end of 2023. However, the timing of such renewals or replacements, as well as the expected contracted rates are uncertain and difficult to predict, if such renewals or replacements occur at all. If and to the extent we continue to be unable to renew, extend or replace our customer agreements at the Hardisty and Stroud Terminals or experience continued delays in doing so, our revenue, cash flows from operating activities and Adjusted EBITDA will continue to be materially adversely impacted. This has adversely impacted and is expected to continue to adversely impact our ability to make distributions to our unitholders, and on May 3, 2023, the board of directors of our general partner determined to suspend our quarterly cash distribution, effective for the quarter ended March 31, 2023. Additionally, continued delays to renew, extend or replace our customer agreements at the Hardisty and Stroud Terminals will adversely impact our ability to comply with financial covenants in our Credit Agreement and, as discussed below, unless we are able to renew, extend, or replace such customer agreements more quickly than we currently expect as of the date of this report, and the pricing environment improves relative to our current expectations, we are uncertain that we will be able to remain in compliance with the total leverage ratio and interest coverage covenants in the Credit

Agreement for the third quarter of 2023. Moreover, our ability to refinance our outstanding indebtedness under, extend the maturity date of, or obtain a covenant waiver under, our Credit Agreement will be negatively impacted. Refer to the discussion in Liquidity and Capital Resources below for further information. Refer to Part I. Item 1A. in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for further discussion of certain risks relating to our customer contract renewals.

Potential Impact of Hardisty and West Colton Deficiency Credit Usage by Our Customers

As previously discussed, customers of our Hardisty and West Colton Terminals are obligated to pay a minimum monthly commitment fee for the capacity to load an allotted number of unit trains, representing a specified number of barrels per month. If a customer loads fewer unit trains than its allotted amount in any given month, that customer will receive a credit for up to 12 months, also referred to as a deficiency credit. This credit may be used to offset fees on throughput volumes in excess of the customer’s minimum monthly commitments in future periods to the extent capacity is available for the excess volume. Additionally, we could incur incremental costs associated with loading the additional trains for our customers if they have and use their accrued deficiency credits, but such costs are not expected to be material. Based on current circumstances and conversations with our customers, as of March 31, 2023, we deferred revenues of $0.1 million associated with the expected future usage of deficiency credits. As of December 31, 2022, we deferred revenues of $0.4 million that were associated with the expected usage of the deficiency credits during 2022.

Going Concern

We evaluate at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Our evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the consolidated financial statements are issued. The maturity date of our Credit Agreement is November 2, 2023. As a result of the maturity date being within 12 months after the date that these financial statements were issued, the amounts due under our Credit Agreement have been included in our going concern assessment. Our ability to continue as a going concern is dependent on the refinancing or the extension of the maturity date of our Credit Agreement. If we are unable to refinance or extend the maturity date of our Credit Agreement, we do not currently have sufficient cash on hand or available liquidity to repay the maturing Credit Agreement debt as it becomes due, nor do we expect cash flow from our current operations to provide sufficient funds for such repayment.

The condition described above raise substantial doubt about our ability to continue as a going concern for the next 12 months.

are unable to renew, extend or replace our customer agreements at the Hardisty and Stroud Terminals or experience further prolonged delays in doing so.

Due to the substantial doubt about our ability to continue as a going concern discussed above, as of March 31, 2023, we have recorded a valuation allowance against our deferred tax asset that is associated with our Canadian entities. The consolidated financial statements contained herein do not include any other adjustments that might result from the outcome of this uncertainty, nor do they include adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.

Refer to Part I. Item 1A. in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Part II. Item 1A.Risk Factors in this Report for a discussion of risks associated with a default under our Credit Agreement.

Liquidity Position

Our Credit Agreement, under which we had $195.9 million outstanding as of April 30, 2023, expires in early November 2023. We had unrestricted cash and cash equivalents of approximately $8.8 million as of April 30, 2023. If we are unable to renew or replace the revenue from customer contracts expiring in June 2023, our liquidity position will become more challenged in the second half of 2023. In light of these factors, our board of directors has approved the engagement of financial advisors and counsel to assist with evaluating and pursuing strategic options and financing sources for the Partnership. Our board of directors also suspended our cash distribution policy for the quarter ended March 31, 2023. In addition, we may find it necessary or appropriate to borrow under our Credit Agreement to fund working capital rather than relying on cash from operations and investing activities.

Factors Affecting the Comparability of Our Financial Results

The comparability of our current financial results in relation to prior periods are affected by the factors described below.

Impact of Hardisty and Stroud Terminals Contract Changes

As a result of the successful commencement of the DRU as previously discussed, effective August 1, 2021, the maturity date of three terminal services agreements that are with the existing DRU customer at our Hardisty Terminal were extended through mid-2031. Due to the significantly longer contract tenor of the terminalling services agreements associated with the DRU volumes, contracted rates on an annual basis are lower as compared to the contracted rates associated with the historical, shorter-term, agreements, which results in lower cash flows to the Partnership on an annual basis, but support a higher net present value to the Partnership and provide a more predictable cash flow profile. Additionally, effective August 1, 2021, the existing DRU customer elected to reduce its volume commitments at the Stroud Terminal attributable to the Partnership by one-third of the previous commitment through June 2022, at which point the agreement was terminated. The agreement represented our sole third-party customer contract for our Stroud Terminal and as such none of the capacity of the Stroud Terminal has been contracted since July 1, 2022. For further discussion of the impacts of these contract changes on our financial results, refer to Results of Operations — By Segment, Terminalling Services below.

Casper Terminal Impairment and Disposition

In September 2022, we determined that recurring periods where cash flow projections were not met due to adverse market conditions at our Casper Terminal was an event that required us to evaluate our Casper Terminal asset group for impairment. Accordingly, we measured the fair value of our Casper terminal asset group. As a result of the impairment analysis, we determined that the carrying value of the Casper Terminal asset group exceeded the fair value of the Casper terminal as of September 30, 2022, the date of our evaluation and recognized an impairment loss of $71.6 million. In January 2023 we deemed these assets as held for sale and, on March 31, 2023, we sold our Casper Terminal to a third party. See Note 3. Acquisitions and Dispositions for a more comprehensive discussion of the sale of our Casper Terminal.

RESULTS OF OPERATIONS

We conduct our business through two distinct reporting segments: Terminalling services and Fleet services. We have established these reporting segments as strategic business units to facilitate the achievement of our long-term objectives, to aid in resource allocation decisions and to assess operational performance.

The following table summarizes our operating results by business segment and corporate charges for each of the periods indicated:


	Three Months Ended March 31,
	2023		2022 (1)
	(in thousands)
Operating income
Terminalling services	$	6,933	$	8,736
Fleet services	51		161
Corporate and other	1,030		(3,902)
Total operating income	8,014		4,995
Interest expense	4,441		1,502
Loss (gain) associated with derivative instruments	1,850		(6,084)
Foreign currency transaction loss	54		1,647
Other income, net	(34)		(23)
Provision for (benefit from) income taxes	(272)		480
Net income	$	1,975	$	7,473

Summary Analysis of Operating Results

Changes in our operating results for the three months ended March 31, 2023, as compared with our operating results for the three months ended March 31, 2022, were primarily driven by:

•activities associated with our Terminalling services business including:

–lower revenues at our combined Hardisty Terminal due to a reduction in contracted capacity at our combined Hardisty terminals that was effective July 1, 2022 ;

–lower revenue at our Stroud Terminal associated with the conclusion of the sole customer contract effective July 1, 2022, as discussed in more detail below;

–lower pipeline fee expenses resulting from lower revenues at our combined Hardisty Terminal as previously discussed;

–lower subcontracted rail services costs and operating and maintenance expenses due primarily to decreased throughput at our terminals;

–lower selling, general and administrative expenses at the Hardisty South Terminal associated with lower service fees that were paid to our Sponsor for the periods prior to our acquisition of the assets, as discussed in more detail below; and

–lower depreciation and amortization expense associated with a decrease in the carrying value of the assets at our Casper terminal due to an impairment that was recognized in September 2022 coupled with the discontinuation of depreciation and amortization for our Casper Terminal as the assets were classified as held for sale in January 2023.

•non-cash loss on our interest rate derivatives associated with decreases in the fair value of our interest rate derivatives resulting from decreases in the interest rate index upon which the derivative values are based in 2023 as compared to a gain in 2022;

•higher corporate selling, general and administrative expense primarily due to transaction costs incurred during the first quarter of 2023 related to our divestiture of the Casper terminal as discussed in more detail below; and

•an increase in corporate interest expense primarily due to higher interest rates and additionally an increase in the balance of debt outstanding.

A comprehensive discussion of our operating results by segment is presented below.

RESULTS OF OPERATIONS — BY SEGMENT

TERMINALLING SERVICES

The following table sets forth the operating results of our Terminalling services business and the approximate average daily throughput volumes of our terminals for the periods indicated:


	Three Months Ended March 31,
	2023		2022 (1)
	(in thousands)
Revenues
Terminalling services	$	20,453	$	34,478
Freight and other reimbursables	305		97
Total revenues	20,758		34,575
Operating costs
Subcontracted rail services	3,285		3,991
Pipeline fees	5,473		8,501
Freight and other reimbursables	305		97
Operating and maintenance	1,466		2,624
Selling, general and administrative	1,390		4,787

Depreciation and amortization	1,906		5,839
Total operating costs	13,825		25,839
Operating income	6,933		8,736
Interest expense	—		117

Foreign currency transaction loss	23		1,698
Other income, net	(32)		(23)
Provision for (benefit from) income taxes

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