USD Partners LP (NYSE: USDP) (the “Partnership”) announced today
its operating and financial results for the three and twelve months
ended December 31, 2017. Highlights with respect to the fourth
quarter of 2017 include the following:
- Successfully commenced operations at
the Stroud destination terminal near Cushing, Oklahoma
- Generated Net Cash Provided by
Operating Activities of $9.5 million, Adjusted EBITDA of $12.5
million and Distributable Cash Flow of $9.8 million
- Reported Net Income of $2.2
million
- Increased quarterly cash distribution
to $0.35 per unit ($1.40 per unit on an annualized basis),
delivering distribution growth of 7.5% for the full year 2017
- Ended quarter with $205.9 million of
available liquidity and distribution coverage of 1.1x
“Recently, the price of Western Canadian Select has
significantly declined relative to the price of alternative grades
of crude oil as a result of increased oil sands production,
apportionment on pipelines, and full utilization of storage at the
Hardisty hub,” said Dan Borgen, the Partnership’s Chief Executive
Officer. “Given the value that our terminals can deliver to our
customers in this environment, we are well-positioned to execute on
multiple near-term opportunities for contract extensions, new
customer agreements and potential expansions to our existing
network. As these opportunities materialize, we expect to deliver
mid-single digit distribution growth in 2018 relative to 2017.”
Market Update
Over the last several months, oil sands production facilities in
Western Canada have returned to normal operating levels and
meaningful new production capacity has been brought online.
Additionally, one of the major export pipelines to the United
States experienced a disruption. The resulting balance of growing
crude oil supply versus available pipeline infrastructure caused
the price of Western Canadian Select (“WCS”) crude oil in Hardisty,
Alberta, to discount meaningfully relative to key benchmarks and
alternative heavy feedstocks for refiners, such as Maya in the Gulf
Coast.
This dislocation in prices incentivizes producers to find
additional modes of transportation to reach other markets where
they might achieve better pricing and attracts refiners that seek
access to a cheaper feedstock. In this environment,
strategically-located rail terminals, such as the Partnership’s
Hardisty, Casper and Stroud terminals, deliver critical takeaway
capacity and can preserve substantial value for Western Canadian
crude oil.
Production from the oil sands in Western Canada is projected to
continue to grow, and the expected timing of proposed export
pipeline additions remains uncertain. As such, forward curves in
the market currently reflect a discount for WCS relative to West
Texas Intermediate of approximately $20 for the next several years.
Combined, these dynamics create opportunities for market
participants to utilize rail transportation to capture incremental
value over that period.
Recent Developments
Customer activity at the Hardisty origination terminal has
increased substantially over the last several months. Current
market demand for the services provided at the Hardisty terminal
exceeds the available capacity, as substantially all of the
terminal’s capacity was previously contracted for by customers
under multi-year agreements through mid-2019 or mid-2020. As such,
the Partnership’s sponsor is evaluating a potential expansion to
meet near-term demand. The Partnership is also actively negotiating
with current customers to extend the terms of the existing
take-or-pay agreements.
The Stroud terminal successfully commenced operations on October
1, 2017, after the planned retrofit work necessary to handle
heavier grades of crude oil was completed on time and under the
Partnership’s initial budget. Concurrent with the acquisition of
the Stroud terminal in June of 2017, the Partnership entered into a
new multi-year, take-or-pay terminalling services agreement with an
investment grade rated, multi-national energy company (the “Stroud
customer”) for the use of approximately 50% of the Stroud
terminal’s available capacity through June 30, 2020. Per the
original agreement, the contracted take-or-pay volumes with the
Stroud customer increased to 30,000 barrels per day on January 1,
2018, up from 20,000 barrels per day during the fourth quarter of
2017.
The Partnership’s sponsor is currently negotiating with
potential customers for both the remaining capacity at the Stroud
terminal, as well as potential expansion capacity. These
initiatives could grow the Partnership’s existing comprehensive
origin-to-destination solution from Hardisty to the Stroud terminal
near the Cushing storage hub and represent potential drop down
acquisition opportunities for the Partnership.
During the first quarter of 2018, the Partnership used
recently-available tank capacity at the Casper terminal to support
spot shipments for a large international oil and gas company, as
well as for a local producer’s heavy sour crude oil production. The
Partnership is actively pursuing term agreements with these spot
customers for ongoing use of the Casper terminal. Additionally, the
Partnership is exploring the potential to establish
rail-to-pipeline capabilities at the Casper terminal, similar to
the current activity at the Stroud terminal.
Fourth Quarter 2017 Operational and Financial Results
Substantially all of the Partnership’s cash flows are generated
from multi-year, take-or-pay terminal service agreements related to
its crude oil terminals, which include minimum monthly commitment
fees. The Partnership’s customers include major integrated oil
companies, refiners and marketers, the majority of which are
investment grade rated.
The Partnership’s results during the fourth quarter of 2017
relative to the same quarter in 2016 were primarily influenced by
the conclusion of customer contracts at the Casper and San Antonio
terminals, as well as revenues and costs associated with the
commencement of operations at the Stroud terminal. The Partnership
also incurred additional operating costs to support a substantial
increase in customer activity at its Hardisty terminal during the
quarter.
The Partnership utilizes derivative contracts to mitigate the
exposure to fluctuations in the value of the Canadian dollar
relative to the U.S. dollar on the Partnership’s results of
operations. These derivative contracts secured an exchange rate of
0.78 U.S. dollars per Canadian dollar in 2017 versus 0.84 U.S.
dollars per Canadian dollar in 2016, which resulted in a cash
outflow of $0.2 million upon settlement in the fourth quarter of
2017 versus a cash inflow of $0.8 million in the same quarter of
the prior year.
During the fourth quarter of 2016, the Partnership benefitted
from the receipt of a tax refund totaling $1.3 million, whereas the
Partnership did not receive a refund nor pay cash taxes during the
fourth quarter of 2017. Partially offsetting the items previously
discussed, the Partnership recorded a lower provision for income
and withholding taxes of approximately $0.2 million in the fourth
quarter of 2017 versus $1.1 million in the same quarter of the
previous year.
As a result, Net Cash Provided by Operating Activities decreased
by 41%, while Adjusted EBITDA and Distributable Cash Flow decreased
by 26% and 39%, respectively, relative to the fourth quarter of
2016. Net income for the quarter decreased by 44% as compared to
the fourth quarter of 2016.
As of December 31, 2017, the Partnership had total available
liquidity of $205.9 million, including $7.9 million of unrestricted
cash and cash equivalents and undrawn borrowing capacity of $198.0
million on its $400.0 million senior secured credit facility,
subject to continued compliance with financial covenants. The
Partnership is in compliance with its financial covenants and has
no maturities under its senior secured credit facility until
October 2019.
On February 1, 2018, the Partnership declared a quarterly cash
distribution of $0.35 per unit ($1.40 per unit on an annualized
basis), which represents growth of 1.4% relative to the third
quarter of 2017 and 6.1% relative to the fourth quarter of 2016.
The distribution was paid on February 16, 2018, to unitholders of
record as of February 12, 2018.
Fourth Quarter 2017 Conference Call Information
The Partnership will host a conference call and webcast
regarding fourth quarter 2017 results at 11:00 a.m. Eastern Time
(10:00 a.m. Central Time) on Friday, March 9, 2018.
To listen live over the Internet, participants are advised to
log on to the Partnership’s website at www.usdpartners.com and
select the “Events & Presentations” sub-tab under the
“Investors” tab. To join via telephone, participants may dial (877)
266-7551 domestically or +1 (339) 368-5209 internationally,
conference ID 6682828. Participants are advised to dial in at least
five minutes prior to the call.
An audio replay of the conference call will be available for
thirty days by dialing (800) 585-8367 domestically or +1 (404)
537-3406 internationally, conference ID 6682828. In addition, a
replay of the audio webcast will be available by accessing the
Partnership's website after the call is concluded.
About USD Partners LP
USD Partners LP is a fee-based, growth-oriented master limited
partnership formed in 2014 by US Development Group, LLC (“USDG”) to
acquire, develop and operate midstream infrastructure and
complementary logistics solutions for crude oil, biofuels and other
energy-related products. The Partnership generates substantially
all of its operating cash flows from multi-year, take-or-pay
contracts with primarily investment grade customers, including
major integrated oil companies, refiners and marketers. The
Partnership’s network of crude oil terminals facilitates the
transportation of heavy crude oil from Western Canada to key demand
centers across North America. The Partnership’s operations include
railcar loading and unloading, storage and blending in on-site
tanks, inbound and outbound pipeline connectivity, truck
transloading, as well as other related logistics services. In
addition, the Partnership provides customers with leased railcars
and fleet services to facilitate the transportation of liquid
hydrocarbons and biofuels by rail.
USDG, which owns the general partner of USD Partners LP, is
engaged in designing, developing, owning, and managing large-scale
multi-modal logistics centers and energy-related infrastructure
across North America. USDG 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. For
additional information, please visit texasdeepwater.com.
Non-GAAP Financial Measures
The Partnership defines Adjusted EBITDA as Net Cash Provided by
Operating Activities adjusted for changes in working capital items,
changes in restricted cash, interest, income taxes, foreign
currency transaction gains and losses, adjustments related to
deferred revenue associated with minimum monthly commitment fees
and other items which do not affect the underlying cash flows
produced by the Partnership’s businesses. Adjusted EBITDA is a
non-GAAP, supplemental financial measure used by management and
external users of the Partnership’s financial statements, such as
investors and commercial banks, to assess:
- the Partnership’s liquidity and the
ability of the Partnership’s businesses to produce sufficient cash
flows to make distributions to the Partnership’s unitholders;
and
- the Partnership’s ability to incur and
service debt and fund capital expenditures.
The Partnership defines 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 the
Partnership’s financial statements, such as investors and
commercial banks, to assess:
- the amount of cash available for making
distributions to the Partnership’s unitholders;
- the excess cash being retained for use
in enhancing the Partnership’s existing businesses; and
- the sustainability of the Partnership’s
current distribution rate per unit.
The Partnership believes that the presentation of Adjusted
EBITDA and DCF in this press release provides information that
enhances an investor's understanding of the Partnership’s 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 or
performance presented in accordance with GAAP. Adjusted EBITDA and
DCF exclude some, but not all, items that affect cash from
operations 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.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of U.S. federal securities laws, including statements
with respect to the ability of the Partnership to achieve contract
extensions, new customer agreements and expansions; the ability of
the Partnership’s Sponsor to develop additional projects and
expansion opportunities and whether those projects and
opportunities would be made available for acquisition, or acquired,
by the Partnership; and the amount and timing of future
distribution payments and distribution growth. Words and phrases
such as “is expected,” “is planned,” “believes,” “projects,” and
similar expressions are used to identify such forward-looking
statements. However, the absence of these words does not mean that
a statement is not forward-looking. Forward-looking statements
relating to the Partnership are based on management’s expectations,
estimates and projections about the Partnership, its interests and
the energy industry in general on the date this press release was
issued. These statements are not guarantees of future performance
and involve certain risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecast in such
forward-looking statements. Factors that could cause actual results
or events to differ materially from those described in the
forward-looking statements include those as set forth under the
heading “Risk Factors” in the Partnership’s most recent Annual
Report on Form 10-K and in our subsequent filings with the
Securities and Exchange Commission. The Partnership is under no
obligation (and expressly disclaims any such obligation) to update
or alter its forward-looking statements, whether as a result of new
information, future events or otherwise.
USD
Partners LP Consolidated Statements of Income For the
Three Months and the Year Ended December 31, 2017 and 2016
(unaudited) For the Three Months Ended For
the Year Ended December 31, December 31,
2017 2016 2017 2016 (in thousands)
Revenues
Terminalling services $ 19,875 $ 23,454 $ 87,210 $ 93,014
Terminalling services — related party 5,218 1,791 14,192 6,933
Railroad incentives (3 ) 15 22 76 Fleet leases 211 644 2,140 2,577
Fleet leases — related party 1,607 889 4,401 3,560 Fleet services
449 471 1,854 1,084 Fleet services — related party (124 ) 279 652
1,926 Freight and other reimbursables 380 1,011 863 1,955 Freight
and other reimbursables — related party 1 —
2 —
Total revenues
27,614 28,554
111,336 111,125
Operating costs
Subcontracted rail services 2,805 2,004 8,953 8,077 Pipeline fees
6,267 5,255 23,420 20,799 Fleet leases 1,816 1,569 6,539 6,174
Freight and other reimbursables 381 1,011 865 1,955 Operating and
maintenance 1,183 562 3,233 2,962 Selling, general and
administrative 2,316 2,187 9,214 9,658 Selling, general and
administrative — related party 1,562 1,399 5,867 5,768 Depreciation
and amortization 6,968 8,367
22,132 23,092
Total operating costs
23,298 22,354
80,223 78,485
Operating income
4,316 6,200 31,113 32,640 Interest
expense 2,417 2,559 9,925 9,847 Loss (gain) associated with
derivative instruments (342 ) (781 ) 937 140 Foreign currency
transaction loss (gain) 71 (630 ) (456 ) (750 ) Other income, net
(268 ) (10 ) (308 ) (10 )
Income
before income taxes 2,438 5,062 21,015
23,413 Provision for (benefit from) income taxes 235
1,106 (1,192 ) (759 )
Net income
$ 2,203 $ 3,956 $
22,207 $ 24,172
USD Partners LP Consolidated Statements of Cash Flows
For the Three Months and the Year Ended December 31, 2017 and
2016 (unaudited)
For the Three Months Ended For the
Year Ended December 31, December 31, 2017
2016 2017 2016
Cash flows from operating
activities:
(in thousands) Net income $ 2,203 $ 3,956 $ 22,207 $ 24,172
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 6,968 8,367
22,132 23,092 Loss (gain) associated with derivative instruments
(342 ) (781 ) 937 140 Settlement of derivative contracts (196 ) 759
46 2,399 Unit based compensation expense 1,181 1,250 4,143 4,074
Other (121 ) 259 629 907 Changes in operating assets and
liabilities: Accounts receivable (11 ) (89 ) 256 79 Accounts
receivable – related party (2 ) 1,683 (226 ) 1,750 Prepaid expenses
and other assets 2,837 3,067 4,656 30 Other assets – related party
(253 ) — (253 ) — Accounts payable and accrued expenses (613 ) (520
) 377 (1,897 ) Accounts payable and accrued expenses – related
party 63 (1,487 ) 20 (20 ) Deferred revenue and other liabilities
(903 ) (430 ) (7,636 ) 1,854 Deferred revenue – related party (535
) (67 ) 531 (2,850 ) Change in restricted cash (779 )
10 (94 ) (654 ) Net cash provided by operating
activities
9,497 15,977
47,725 53,076 Cash
flows from investing activities: Additions of property and
equipment (872 ) (3 ) (27,580 ) (474 ) Proceeds from settlement of
purchase price — 381 —
381 Net cash provided by (used in) investing
activities
(872 ) 378
(27,580 ) (93 ) Cash
flows from financing activities: Distributions (9,543 ) (7,722
) (35,075 ) (29,665 ) Vested phantom units used for payment of
participant taxes (1 ) — (1,073 ) (77 ) Net proceeds from issuance
of common units — — 33,700 — Proceeds from long-term debt 6,000
5,000 50,000 20,000 Repayments of long-term debt (5,000 )
(10,725 ) (71,342 ) (41,556 ) Net cash used in
financing activities
(8,544 )
(13,447 ) (23,790 )
(51,298 ) Effect of exchange rates on cash (38
) (1,039 ) (186 ) (480 ) Net change in cash
and cash equivalents 43 1,869 (3,831 ) 1,205 Cash and cash
equivalents – beginning of period 7,831 9,836
11,705 10,500 Cash and cash
equivalents – end of period
$ 7,874 $
11,705 $ 7,874 $
11,705 USD
Partners LP Consolidated Balance Sheets
(unaudited) December 31, December 31,
2017 2016 ASSETS (in thousands) Current assets
Cash and cash equivalents $ 7,874 $ 11,705 Restricted cash 5,914
5,433 Accounts receivable, net 4,137 4,321 Accounts receivable —
related party 410 219 Prepaid expenses 8,957 10,325 Other current
assets 226 2,562 Other current assets — related party 79
— Total current assets 27,597 34,565 Property
and equipment, net 146,573 125,702 Intangible assets, net 99,312
111,919 Goodwill 33,589 33,589 Other non-current assets 145 192
Other non-current assets — related party 174 —
Total assets $ 307,390 $
305,967 LIABILITIES AND PARTNERS’
CAPITAL Current liabilities Accounts payable and accrued
expenses $ 2,670 $ 2,221 Accounts payable and accrued expenses —
related party 244 214 Deferred revenue, current portion 22,011
26,928 Deferred revenue, current portion — related party 5,115
4,292 Other current liabilities 2,339 3,513
Total current liabilities 32,379 37,168 Long-term debt, net
200,627 220,894 Deferred revenue, net of current portion — 264
Deferred income tax liability, net 614 823 Other non-current
liabilities 475 —
Total
liabilities 234,095 259,149
Commitments and contingencies Partners’ capital Common units
131,169 122,802 Class A units 1,356 1,811 Subordinated units
(60,820 ) (76,749 ) General partner units (50 ) 111 Accumulated
other comprehensive income (loss) 1,640 (1,157
)
Total partners’ capital 73,295
46,818 Total liabilities and partners’ capital
$ 307,390 $ 305,967
USD Partners LP GAAP to Non-GAAP Reconciliations
For the Three Months and the Year Ended December 31, 2017 and
2016 (unaudited) For the Three Months
Ended For the Year Ended December 31, December
31, 2017 2016 2017 2016 (in
thousands)
Net cash provided by operating activities
$ 9,497 $ 15,977 $ 47,725
$ 53,076 Add (deduct): Amortization of deferred
financing costs (215 ) (215 ) (861 ) (861 ) Deferred income taxes
336 (44 ) 250 (46 ) Changes in accounts receivable and other assets
(2,571 ) (4,661 ) (4,433 ) (1,859 ) Changes in accounts payable and
accrued expenses 550 2,007 (397 ) 1,917 Changes in deferred revenue
and other liabilities 1,438 497 7,105 996 Change in restricted cash
779 (10 ) 94 654 Interest expense, net 2,417 2,549 9,917 9,837
Provision for (benefit from) income taxes 235 1,106 (1,192 ) (759 )
Foreign currency transaction loss (gain) (1) 71 (630 ) (456 ) (750
) Non-cash lease items (2) 341 - 341 - Deferred revenue associated
with minimum monthly commitment fees (3) (386 ) 255
(1,717 ) 1,485
Adjusted EBITDA
12,492 16,831 56,376 63,690 Add
(deduct): Cash received (paid) for income taxes (4) - 1,315 1,250
(845 ) Cash paid for interest (2,652 ) (2,164 ) (9,754 ) (8,722 )
Maintenance capital expenditures (74 ) 7
(546 ) (238 )
Distributable cash flow $
9,766 $ 15,989 $
47,326 $ 53,885 (1)
Represents foreign exchange transaction amounts associated
with activities between our U.S. and Canadian subsidiaries. (2)
Represents non-cash lease revenues and expenses associated with the
recognition of our lease contracts. (3) Represents deferred revenue
associated with minimum monthly commitment fees in excess of
throughput utilized, which fees are not refundable to the
Partnership's customers. Amounts presented are net of: (a) the
corresponding prepaid Gibson pipeline fee that will be recognized
as expense concurrently with the recognition of revenue; (b)
revenue recognized in the current period that was previously
deferred; and (c) expense recognized for previously prepaid Gibson
pipeline fees, which correspond with the revenue recognized that
was previously deferred. (4) Includes amounts we received as a
refund of approximately $2.6 million (representing C$3.4 million)
received in 2017 for our 2016 foreign income taxes and $3.7 million
(representing C$4.9 million) in 2016 and $0.7 million (representing
C$0.9 million) received in 2017 for our 2015 foreign income taxes.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180308006337/en/
USD Partners LPAdam Altsuler, 281-291-3995Senior Vice President,
Chief Financial Officeraaltsuler@usdg.comorAshley Means Zavala,
281-291-3965Senior Director, Finance & Investor
Relationsazavala@usdg.com
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