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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 June 30, 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 July 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	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59
Item 4.	Controls and Procedures	59

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 5.	Other Information	62
Item 6.	Exhibits	62
SIGNATURES		64

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, potential transaction counterparties, our sponsors and our lenders, including with respect to rights and remedies or modifications to or waivers under our credit agreement; (10) our ability to comply with the terms under our credit agreement and to refinance, extend or replace our credit agreement on or prior to the end of the forbearance period on October 10, 2023; (11) our ability to obtain additional sources of capital, improve liquidity through strategic initiatives and maintain sufficient liquidity; (12) our ability to enter into new contracts for uncontracted capacity, to renew expiring contracts and to replace expired contracts; (13) hazards and operating risks that may not be covered fully by insurance; (14) disruptions due to equipment interruption or failure at our facilities or third-party facilities on which our business is dependent; (15) natural disasters, weather-related delays, casualty losses and other matters beyond our control; (16) 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; (17) our ability to successfully identify and finance potential acquisitions, development projects and other growth opportunities; and (18) our pursuit of and ability to develop

a plan to regain compliance with the New York Stock Exchange listing standards. For additional factors that may affect our results, see “Risk Factors” and the other information included elsewhere in this Report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which are 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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(unaudited; in thousands of US dollars, except per unit amounts)
Revenues
Terminalling services	$	18,364	$	31,704	$	38,103	$	65,527
Terminalling services — related party	732		662		1,446		1,317


Fleet leases — related party	287		913		570		1,825

Fleet services — related party	86		299		171		598
Freight and other reimbursables	—		163		190		260
Freight and other reimbursables — related party	2		—		117		—
Total revenues	19,471		33,741		40,597		69,527
Operating costs
Subcontracted rail services	2,323		3,604		5,608		7,595
Pipeline fees	5,834		8,389		11,307		16,890
Freight and other reimbursables	2		163		307		260
Operating and maintenance	1,015		3,090		2,776		6,576
Operating and maintenance — related party	—		127		—		258
Selling, general and administrative	2,358		4,830		6,758		8,252
Selling, general and administrative — related party	1,795		2,565		3,979		7,889

Gain on sale of business	—		—		(6,202)		—
Depreciation and amortization	1,723		5,765		3,629		11,604
Total operating costs	15,050		28,533		28,162		59,324
Operating income	4,421		5,208		12,435		10,203
Interest expense	4,479		2,097		8,920		3,599
Gain associated with derivative instruments	(4,755)		(812)		(2,905)		(6,896)
Foreign currency transaction loss	48		143		102		1,790
Other income, net	(82)		(4)		(116)		(27)
Income before income taxes	4,731		3,784		6,434		11,737
Provision for (benefit from) income taxes	96		(21)		(176)		459
Net income	$	4,635	$	3,805	$	6,610	$	11,278
Net income attributable to limited partner interests	$	4,635	$	3,805	$	6,610	$	12,647
Net income per common unit (basic and diluted)	$	0.14	$	0.12	$	0.20	$	0.42
Weighted average common units outstanding	33,759		33,378		33,663		30,426

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

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(unaudited; in thousands of US dollars)
Net income	$	4,635	$	3,805	$	6,610	$	11,278
Other comprehensive income (loss) — foreign currency translation	1,183		(1,788)		1,269		(1,194)
Comprehensive income	$	5,818	$	2,017	$	7,879	$	10,084

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

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2023		2022
	(unaudited; in thousands of US dollars)
Cash flows from operating activities:
Net income	$	6,610	$	11,278
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	3,629		11,604
Gain associated with derivative instruments	(2,905)		(6,896)
Settlement of derivative contracts	611		(608)
Unit based compensation expense	1,912		2,520
Gain on sale of business	(6,202)		—
Loss associated with disposal of assets	—		3
Deferred income taxes	1		(114)
Amortization of deferred financing costs	658		628


Changes in operating assets and liabilities:
Accounts receivable	(4)		398
Accounts receivable — related party	91		1,717
Prepaid expenses, inventory and other assets	1,032		(2,727)

Accounts payable and accrued expenses	(97)		3,361
Accounts payable and accrued expenses — related party	(526)		(1,038)
Deferred revenue and other liabilities	(6,747)		(5,044)
Deferred revenue and other liabilities — related party	49		366
Net cash provided by (used in) operating activities	(1,888)		15,448
Cash flows from investing activities:
Additions of property and equipment	(375)		(288)

Internal-use software development costs	(55)		—
Net proceeds from the sale of business	32,650		—
Acquisition of Hardisty South entities from Sponsor	—		(75,000)
Net cash provided by (used in) investing activities	32,220		(75,288)
Cash flows from financing activities:
Distributions	(2,154)		(7,154)
Payments for deferred financing costs	(203)		(13)
Vested phantom units used for payment of participant taxes	(671)		(1,091)

Proceeds from long-term debt	—		75,000
Repayments of long-term debt	(19,100)		(12,396)

Net cash provided by (used in) financing activities	(22,128)		54,346
Effect of exchange rates on cash	90		1,057
Net change in cash, cash equivalents and restricted cash	8,294		(4,437)
Cash, cash equivalents and restricted cash — beginning of period	5,780		12,717
Cash, cash equivalents and restricted cash — end of period	$	14,074	$	8,280

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

USD PARTNERS LP

CONSOLIDATED BALANCE SHEETS


	June 30, 2023		December 31, 2022
	(unaudited; in thousands of US dollars, except unit amounts)
ASSETS
Current assets
Cash and cash equivalents	$	10,291	$	2,530
Restricted cash	3,783		3,250
Accounts receivable, net	1,766		2,169
Accounts receivable — related party	318		409
Prepaid expenses	2,566		3,188
Assets held for sale	19,141		—

Other current assets	2,560		1,746

Total current assets	40,425		13,292
Property and equipment, net	62,847		106,894
Intangible assets, net	55		3,526

Operating lease right-of-use assets	1,578		1,508
Other non-current assets	1,303		1,556

Total assets	$	106,208	$	126,776

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable and accrued expenses	$	2,852	$	3,389
Accounts payable and accrued expenses — related party	631		1,147

Deferred revenue	1,746		3,562
Deferred revenue — related party	—		128
Long-term debt, current portion	195,447		214,092
Operating lease liabilities, current	847		700
Liabilities held for sale	221		—
Other current liabilities	3,182		7,907
Other current liabilities — related party	55		11
Total current liabilities	204,981		230,936




Operating lease liabilities, non-current	702		688
Other non-current liabilities	5,894		7,556
Other non-current liabilities — related party	133		—
Total liabilities	211,710		239,180
Commitments and contingencies
Partners’ capital
Common units (33,758,607 and 33,381,187 outstanding at June 30, 2023 and December 31, 2022, respectively)	(102,630)		(108,263)

Accumulated other comprehensive loss	(2,872)		(4,141)
Total partners’ capital	(105,502)		(112,404)
Total liabilities and partners’ capital	$	106,208	$	126,776

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

USD PARTNERS LP

THREE MONTHS CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL


	Three Months Ended June 30,
	2023			2022
	Units	Amount		Units	Amount
	(unaudited; in thousands of US dollars, except unit amounts)
Common units
Beginning balance at April 1,	33,758,607	$	(108,130)	27,619,909	$	21,835

Common units issued for vested phantom units	—	—		8,386	(39)

Net income	—	4,635		—	3,805
Unit based compensation expense	—	865		—	1,205
Distributions	—	—		—	(3,636)
Acquisition of Hardisty South entities from Sponsor and conversion of General Partner units	—	—		5,751,136	(52,543)
Ending balance at June 30,	33,758,607	(102,630)		33,379,431	(29,373)















General Partner units
Beginning balance at April 1,	—	—		461,136	22,457




Acquisition of Hardisty South entities from Sponsor and conversion of General Partner units	—	—		(461,136)	(22,457)
Ending balance at June 30,	—	—		—	—
Accumulated other comprehensive income (loss)
Beginning balance at April 1,		(4,055)			416
Cumulative translation adjustment		1,183			(1,788)
Ending balance at June 30,		(2,872)			(1,372)
Total partners’ capital at June 30,		$	(105,502)		$	(30,745)

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

USD PARTNERS LP

SIX MONTHS CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL


	Six Months Ended June 30,
	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)		359,417	(1,091)

Net income	—	6,610		—	12,647
Unit based compensation expense	—	1,848		—	2,354
Distributions	—	(2,154)		—	(7,095)
Acquisition of Hardisty South entities from Sponsor and conversion of General Partner units	—	—		5,751,136	(52,543)
Ending balance at June 30,	33,758,607	(102,630)		33,379,431	(29,373)















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)
Acquisition of Hardisty South entities from Sponsor and conversion of General Partner units	—	—		(461,136)	(22,457)
Ending balance at June 30,	—	—		—	—
Accumulated other comprehensive income (loss)
Beginning balance at January 1,		(4,141)			(178)
Cumulative translation adjustment		1,269			(1,194)
Ending balance at June 30,		(2,872)			(1,372)
Total partners’ capital at June 30,		$	(105,502)		$	(30,745)

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 and other high credit quality 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.

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.

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 June 30, 2023, our results of operations for the three and six months ended June 30, 2023 and 2022, and our cash flows for the six months ended June 30, 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 and six months ended June 30, 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, 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 financial statements were issued. Although we continue to focus on renewing, extending or replacing expired or expiring customer agreements at the Hardisty and Stroud Terminals, based on our current expectations regarding timing of any renewals, extensions or replacement of such agreements and the related pricing environment, we currently 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 agree to a forbearance or provide a further waiver or amendment and declare all outstanding indebtedness thereunder to be immediately due and payable. In August 2023, we entered into an amendment to our Credit Agreement, pursuant to which, among other things, the lenders have agreed to forbear through and including October 10, 2023, from exercising any rights or remedies arising from certain defaults or events of default asserted by the Administrative Agent, which we disputed, or certain prospective defaults or events of default under the Credit Agreement and other loan documents arising from, among other things, any failures to disclose certain events that give or may give rise to a Material Adverse Effect, as defined in the Credit Agreement. Refer to Note 19. Subsequent Events — Credit Agreement Amendment for more information.

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 June 30, 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Assets Held For Sale

We classify long-lived assets intended to be sold as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; (2) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; (4) the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; (5) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. For the three and six months ended June 30, 2023 and 2022, there were no losses recorded on our held for sale assets.

Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, we discontinue depreciation and amortization and report long-lived assets and liabilities of the disposal group in the line items “Assets held for sale” and “Liabilities held for sale” in our consolidated balance sheets.

Internal-use Software

We capitalize certain internal-use software costs in accordance with Accounting Standard Codification, or ASC, 350-40, which are included in intangible assets. ASC 350-40 requires assets to be recorded at the cost to develop the asset and requires an intangible asset to be amortized over its useful life and for the useful life to be evaluated every reporting period to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. We currently are amortizing these assets over a useful life of five years in the line item “Depreciation and amortization” in our consolidated statement of operations. Maintenance of and minor upgrades to internal-use software are classified as selling, general, and administrative expenses as incurred.

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. Refer to Note 10. Debt for additional details regarding our adoption of ASU 2022-04.

3. ACQUISITIONS AND DISPOSITIONS

Hardisty South Terminal Acquisition

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 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.

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 six months ended June 30, 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.

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


	For the Three Months Ended June 30, 2023
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income attributable to limited partner interests in USD Partners LP	$	4,635	$	—	$	4,635
Less: Distributable earnings (1)	—		—		—
Excess net income	$	4,635	$	—	$	4,635
Weighted average units outstanding (2)	33,759		—		33,759
Distributable earnings per unit (3)	$	—
Underdistributed earnings per unit (4)	0.14
Net income per limited partner unit (basic and diluted) (5)	$	0.14

(1) There were no distributions payable for the three months ended June 30, 2023. Refer to Note 16. Partners’ Capital 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.

(5) Our computation of net income per limited partner unit excludes the effects of 1,445,757 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Three Months Ended June 30, 2022
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income attributable to limited partner interests in USD Partners LP	$	3,805	$	—	$	3,805
Less: Distributable earnings (1)	4,292		—		4,292
Distributions in excess of earnings	$	(487)	$	—	$	(487)
Weighted average units outstanding (2)	33,378		—		33,378
Distributable earnings per unit (3)	$	0.13
Overdistributed earnings per unit (4)	(0.01)
Net income per limited partner unit (basic and diluted) (5)	$	0.12

(1)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 June 30, 2022. Amounts presented for each class of units include a proportionate amount of the $170 thousand distributed to holders of the Equity classified Phantom Units pursuant to the distribution equivalent rights granted under the Amended LTIP Plan.

(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 distributions in excess of earnings divided by the weighted average number of units outstanding.

(5)Our computation of net income per limited partner unit excludes the effects of 1,373,347 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Six Months Ended June 30, 2023
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income attributable to limited partner interests in USD Partners LP	$	6,610	$	—	$	6,610
Less: Distributable earnings (1)	—		—		—
Excess net income	$	6,610	$	—	$	6,610
Weighted average units outstanding (2)	33,663		—		33,663
Distributable earnings per unit (3)	$	—
Underdistributed earnings per unit (4)	0.20
Net income per limited partner unit (basic and diluted) (5)	$	0.20

(1)There were no distributions paid or payable for the six months ended June 30, 2023. Refer to Note 16. Partners’ Capital 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.

(5)Our computation of net income per limited partner unit excludes the effects of 1,445,757 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Six Months Ended June 30, 2022
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income (loss) attributable to general and limited partner interests in USD Partners LP (1)	$	12,647	$	(1,369)	$	11,278
Less: Distributable earnings (2)	7,925		3		7,928
Excess net income (distributions)	$	4,722	$	(1,372)	$	3,350
Weighted average units outstanding (3)	30,426		229		30,655
Distributable earnings per unit (4)	$	0.26
Underdistributed earnings per unit (5)	0.16
Net income per limited partner unit (basic and diluted)(6)	$	0.42

(1)Represents net income allocated to each class of units based on the actual ownership of the Partnership during the period. There were no amounts attributed to the general partner for its incentive distribution rights.

(2)Represents the per unit distribution paid of $0.1235 per unit for the three months ended March 31, 2022 and June 30, 2022. Amounts presented for each class of units include a proportionate amount of the $337 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 1,373,347 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 June 30, 2023
	U.S.		Canada		Total
	(in thousands)
Third party	$	1,158	$	17,206	$	18,364
Related party	$	1,106	$	1	$	1,107


	Three Months Ended June 30, 2022
	U.S.		Canada		Total
	(in thousands)
Third party	$	5,971	$	25,896	$	31,867
Related party	$	1,874	$	—	$	1,874


	Six Months Ended June 30, 2023
	U.S.		Canada		Total
	(in thousands)
Third party	$	3,614	$	34,679	$	38,293
Related party	$	2,246	$	58	$	2,304


	Six Months Ended June 30, 2022
	U.S.		Canada		Total
	(in thousands)
Third party	$	13,307	$	52,480	$	65,787
Related party	$	3,740	$	—	$	3,740

Remaining Performance Obligations

The transaction price allocated to the remaining performance obligations associated with our Terminal Service Agreements as of June 30, 2023 are as follows for the periods indicated:


	Six months ending December 31, 2023		2024		2025		2026		2027		Thereafter		Total
	(in thousands)
Terminalling Services (1) (2)	$	19,338	$	26,125	$	24,976	$	24,976	$	21,066	$	75,488	$	191,969

(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 0.7421 U.S. dollars for each Canadian dollar at June 30, 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 100% based on our expectations around usage of these options. Accordingly, we had no deferred revenue at June 30, 2023 and $0.4 million deferred revenue at December 31, 2022, 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 six months ended June 30, 2023:


	December 31, 2022		Cash Additions for Customer Prepayments		Balance Sheet Reclassification		Revenue Recognized		June 30, 2023
	(in thousands)
Deferred revenue (1)	$	3,562	$	1,746	$	—	$	(3,562)	$	1,746

Other current liabilities (2)	$	5,681	$	—	$	392	$	(4,613)	$	1,460
Other non-current liabilities (2)	$	3,943	$	88	$	(392)	$	—	$	3,639

(1) Includes deferred revenue of $0.4 million at December 31, 2022, for estimated breakage associated with the make-up right options we granted our customers as discussed above. We had no deferred revenue at June 30, 2023 associated with make-up right options.

(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 $127 thousand and “Other non-current liabilities” presented has been increased by $88 thousand due to the impact of the change in the end of period exchange rate between June 30, 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 December 31, 2022, in “Deferred revenue — related party” on our consolidated balance sheets associated with our customer’s prepayment for our fleet lease agreements. We had no deferred revenue associated with customer prepayments at June 30, 2023. 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. Refer to Note 3. Acquisitions and Dispositions for a further discussion of the Casper Terminal divestiture.

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:


	June 30,
	2023		2022
	(in thousands)
Cash and cash equivalents	$	10,291	$	4,333
Restricted cash	3,783		3,947
Total cash, cash equivalents and restricted cash	$	14,074	$	8,280

7. PROPERTY AND EQUIPMENT

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


	June 30, 2023		December 31, 2022		Estimated Useful Lives (Years)
	(in thousands)
Land	$	2,877	$	10,110	N/A
Trackage and facilities	86,252		108,325		10-30
Pipeline	—		12,759		20-30
Equipment	14,600		22,553		3-20

Furniture	65		84		5-10
Total property and equipment	103,794		153,831
Accumulated depreciation	(41,126)		(47,360)
Construction in progress (1)	179		423
Property and equipment, net	$	62,847	$	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 $1.7 million and $2.6 million for the three months ended June 30, 2023 and 2022, respectively, and $3.5 million and $5.3 million, for the six months ended June 30, 2023 and 2022.

Stroud Terminal

During the second quarter of 2023 the board of directors of our general partner approved the sale of the Stroud Terminal and we classified it as held for sale in our consolidated balance sheets. We currently expect that a sale of the Stroud Terminal could occur in late 2023. The Stroud Terminal is included in our Terminalling Services Segment.

As a result of classifying our Stroud Terminal as held for sale, we evaluated the terminal’s fair value. We measured the fair value of our Stroud Terminal long-lived assets using an income analysis approach. Under this approach the fair value of the long-lived assets exceeded the carrying value at May 31, 2023, the date of our evaluation. Our estimate of fair value for the Stroud Terminal required us to use significant unobservable inputs representative of Level 3 fair value measurements, including assumptions related to the future performance of our Stroud Terminal. We have not observed any events or circumstances subsequent to our analysis that would suggest the fair value of our Stroud Terminal is below the carrying amount as of June 30, 2023.

8. LEASES

Lessee

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


	June 30, 2023		December 31, 2022
Weighted-average discount rate	6.7	%	4.1	%
Weighted average remaining lease term in years	4.44 years		5.07 years

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


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
	(in thousands)

Operating lease cost		$	327	$	1,390	$	653	$	2,905
Short term lease cost		30		130		61		161
Variable lease cost		1		13		7		31
Sublease income		(287)		(1,281)		(570)		(2,562)
Total		$	71	$	252	$	151	$	535

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 June 30, 2023 (in thousands):


2023	$	895
2024	115
2025	114
2026	117
2027	121
Thereafter	384
Total lease payments	$	1,746
Less: imputed interest	(197)
Present value of lease liabilities	$	1,549

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except weighted average term)
Lease income (1)	$	1,020	$	2,494	$	2,298	$	4,980
Weighted average remaining lease term in years							3.21

(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 $0.7 million and $1.6 million for the three months ended June 30, 2023 and 2022, respectively, and $1.7 million and $3.2 million for the six months ended June 30, 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 June 30, 2023 (in thousands):


2023	$	2,262
2024	2,947
2025	2,936
2026	2,687


Total	$	10,832

9. INTANGIBLE ASSETS

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


	June 30, 2023		December 31, 2022
	(in thousands)
Carrying amount:
Customer service agreements	$	—	$	3,832
Other	56		—
Total carrying amount	56		3,832
Accumulated amortization:
Customer service agreements	—		(306)
Other	(1)		—
Total accumulated amortization	(1)		(306)
Total intangible assets, net	$	55	$	3,526

Our current intangible assets at June 30, 2023, originated as internally developed software for internal use. Refer to Note 2. Summary of Significant Accounting Policies — Internal-use Software for further details.

Our identifiable intangible assets through December 31, 2022, 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 Dispositions — Casper Terminal Divestiture for further details.

Amortization expense associated with intangible assets totaled $0.1 million for the six months ended June 30, 2023 and $3.2 million and $6.3 million for the three and six months ended June 30, 2022, respectively. We had no significant amortization expense for the three months ended June 30, 2023.

10. DEBT

Credit Agreement

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 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:


	June 30, 2023		December 31, 2022
	(in thousands)

Credit Agreement	$	195,900	$	215,000
Less: Deferred financing costs, net	(453)		(908)
Less: Long-term debt, current portion	(195,447)		(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:


	June 30, 2023		December 31, 2022
	(in millions)
Aggregate borrowing capacity under Credit Agreement	$	275.0	$	275.0
Less: Amounts outstanding under the Credit Agreement	195.9		215.0

Available under the Credit Agreement based on capacity	$	79.1	$	60.0
Available under the Credit Agreement based on covenants (1)	$	1.7	$	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 $1.7 million and $53.0 million of borrowing capacity available based on our covenants at June 30, 2023 and December 31, 2022, respectively.

The weighted average interest rate on our outstanding indebtedness was 8.25% and 6.92% at June 30, 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 June 30, 2023, which rate will vary based on our consolidated net leverage ratio, as defined in our Credit Agreement. At June 30, 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Interest expense on the Credit Agreement	$	4,139	$	1,825	$	8,262	$	2,971

Amortization of deferred financing costs	340		272		658		628
Total interest expense	$	4,479	$	2,097	$	8,920	$	3,599

Subsequent to June 30, 2023, we amended the terms of our Credit Agreement. Refer to Note 19. Subsequent Event s — Credit Agreement Amendment for more information.

Supplier Financing Agreement

We have agreements with a third party that allows a provider of some of our received services to finance payment obligations from us with a designated third-party financial institution associated with insurance for certain of our terminals. The extended payment terms that we have with this supplier for these arrangements is nine months from the execution of the insurance contract. We are not required to provide collateral to the financial institution.

Our outstanding payment obligation under these arrangements was $361 thousand and $19 thousand at June 30, 2023 and December 31, 2022, respectively, recorded in “Other current liabilities” on our consolidated balance sheets.

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 $5.8 million and $8.4 million, for the three months ended June 30, 2023 and 2022, respectively, and $11.3 million and $16.9 million for the six months ended June 30, 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 June 30, 2023, owns 17,308,226 of our common units representing a 51.3% limited partner interest in us. As of June 30, 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 June 30, 2023 and 2022 was $1.8 million and $2.6 million, respectively, and for the six months ended June 30, 2023 and 2022 was $4.0 million and $4.6 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 $0.3 million and $0.8 million with respect to these costs at June 30, 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 six months ended June 30, 2022 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 and six months ended June 30, 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Terminalling services — related party	$	732	$	662	$	1,446	$	1,317
Fleet leases — related party	287		913		570		1,825
Fleet services — related party	86		299		171		598
Freight and other reimbursables — related party	2		—		117		—
	$	1,107	$	1,874	$	2,304	$	3,740

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) :


	June 30, 2023		December 31, 2022
	(in thousands)
Accounts receivable — related party	$	318	$	409
Accounts payable and accrued expenses — related party (1)	$	342	$	382

Other current and non-current liabilities — related party (2)	$	188	$	11
Deferred revenue — related party (3)	$	—	$	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 June 30, 2023
	Terminalling services		Fleet services		Corporate		Total
	(in thousands)
Revenues
Terminalling services	$	18,364	$	—	$	—	$	18,364
Terminalling services — related party	732		—		—		732

Fleet leases — related party	—		287		—		287

Fleet services — related party	—		86		—		86
Freight and other reimbursables	—		—		—		—
Freight and other reimbursables — related party	—		2		—		2
Total revenues	19,096		375		—		19,471
Operating costs
Subcontracted rail services	2,323		—		—		2,323
Pipeline fees	5,834		—		—		5,834
Freight and other reimbursables	—		2		—		2
Operating and maintenance	717		298		—		1,015
Selling, general and administrative	746		20		3,387		4,153

Gain on sale of business	—		—		—		—
Depreciation and amortization	1,723		—		—		1,723
Total operating costs	11,343		320		3,387		15,050
Operating income	7,753		55		(3,387)		4,421
Interest expense	4		—		4,475		4,479
Gain associated with derivative instruments	—		—		(4,755)		(4,755)
Foreign currency transaction loss	20		4		24		48
Other income, net	(58)		—		(24)		(82)
Provision for (benefit from) income taxes	124		(28)		—		96
Net income (loss)	$	7,663	$	79	$	(3,107)	$	4,635


	Three Months Ended June 30, 2022
	Terminalling services		Fleet services		Corporate		Total
	(in thousands)
Revenues
Terminalling services	$	31,704	$	—	$	—	$	31,704
Terminalling services — related party	662		—		—		662

Fleet leases — related party	—		913		—		913

Fleet services — related party	—		299		—		299
Freight and other reimbursables	163		—		—		163
Freight and other reimbursables — related party	—		—		—		—
Total revenues	32,529		1,212		—		33,741
Operating costs
Subcontracted rail services	3,604		—		—		3,604
Pipeline fees	8,389		—		—		8,389
Freight and other reimbursables	163		—		—		163
Operating and maintenance	2,245		972		—		3,217
Selling, general and administrative	1,650		33		5,712		7,395

Gain on sale of business	—		—		—		—
Depreciation and amortization	5,765		—		—		5,765
Total operating costs	21,816		1,005		5,712		28,533
Operating income (loss)	10,713		207		(5,712)		5,208
Interest expense	1		—		2,096		2,097
Gain associated with derivative instruments	—		—		(812)		(812)
Foreign currency transaction loss	41		1		101		143
Other income, net	(1)		(2)		(1)		(4)
Benefit from income taxes	(5)		(16)		—		(21)
Net income (loss)	$	10,677	$	224	$	(7,096)	$	3,805


	Six Months Ended June 30, 2023
	Terminalling services		Fleet services		Corporate		Total
	(in thousands)
Revenues
Terminalling services	$	38,103	$	—	$	—	$	38,103
Terminalling services — related party	1,446		—		—		1,446

Fleet leases — related party	—		570		—		570

Fleet services — related party	—		171		—		171
Freight and other reimbursables	190		—		—		190
Freight and other reimbursables — related party	115		2		—		117
Total revenues	39,854		743		—		40,597
Operating costs
Subcontracted rail services	5,608		—		—		5,608
Pipeline fees	11,307		—		—		11,307
Freight and other reimbursables	305		2		—		307
Operating and maintenance	2,183		593		—		2,776
Selling, general and administrative	2,136		42		8,559		10,737

Gain on sale of business	—		—		(6,202)		(6,202)
Depreciation and amortization	3,629		—		—		3,629
Total operating costs	25,168		637		2,357		28,162
Operating income (loss)	14,686		106		(2,357)		12,435
Interest expense	4		—		8,916		8,920
Gain associated with derivative instruments	—		—		(2,905)		(2,905)
Foreign currency transaction loss	43		4		55		102
Other income, net	(90)		—		(26)		(116)
Benefit from income taxes	(154)		(22)		—		(176)
Net income (loss)	$	14,883	$	124	$	(8,397)	$	6,610


	Six Months Ended June 30, 2022
	Terminalling services		Fleet services		Corporate		Total
	(in thousands)
Revenues
Terminalling services	$	65,527	$	—	$	—	$	65,527
Terminalling services — related party	1,317		—		—		1,317

Fleet leases — related party	—		1,825		—		1,825

Fleet services — related party	—		598		—		598
Freight and other reimbursables	260		—		—		260
Freight and other reimbursables — related party	—		—		—		—
Total revenues	67,104		2,423		—		69,527
Operating costs
Subcontracted rail services	7,595		—		—		7,595
Pipeline fees	16,890		—		—		16,890
Freight and other reimbursables	260		—		—		260
Operating and maintenance	4,869		1,965		—		6,834
Selling, general and administrative	6,437		90		9,614		16,141

Gain on sale of business	—		—		—		—
Depreciation and amortization	11,604		—		—		11,604
Total operating costs	47,655		2,055		9,614		59,324
Operating income (loss)	19,449		368		(9,614)		10,203
Interest expense	118		—		3,481		3,599
Gain associated with derivative instruments	—		—		(6,896)		(6,896)
Foreign currency transaction loss	1,739		1		50		1,790
Other income, net	(24)		(2)		(1)		(27)
Provision for income taxes	411		48		—		459
Net income (loss)	$	17,205	$	321	$	(6,248)	$	11,278

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 June 30,				Six Months Ended June 30,
Terminalling Services Segment	2023		2022		2023		2022
	(in thousands)
Net income	$	7,663	$	10,677	$	14,883	$	17,205

Interest expense (income), net (1)	(52)		(1)		(83)		115
Depreciation and amortization	1,723		5,765		3,629		11,604
Provision for (benefit from) income taxes	124		(5)		(154)		411
Foreign currency transaction loss (2)	20		41		43		1,739
Loss associated with disposal of assets	—		3		—		3



Non-cash deferred amounts (3)	(1,651)		(329)		(3,302)		(1,886)
Segment Adjusted EBITDA attributable to Hardisty South entities prior to acquisition (4)	—		—		—		(258)
Segment Adjusted EBITDA	$	7,827	$	16,151	$	15,016	$	28,933

(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 June 30,				Six Months Ended June 30,
Fleet Services Segment	2023		2022		2023		2022
	(in thousands)
Net income	$	79	$	224	$	124	$	321
Interest income (1)	—		(2)		—		(2)
Foreign currency transaction loss (2)	4		1		4		1
Provision for (benefit from) income taxes	$	(28)	$	(16)	$	(22)	$	48
Segment Adjusted EBITDA	$	55	$	207	$	106	$	368

(1) Represents interest income associated with our Fleet 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.

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:


	June 30, 2023		December 31, 2022
	(in thousands)
Other current assets	$	2,383	$	1,448


Other non-current liabilities	(2,229)		(3,587)
	$	154	$	(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 “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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Gain associated with derivative instruments	$	(4,755)	$	(812)	$	(2,905)	$	(6,896)

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:


					June 30, 2023		December 31, 2022
	Notional		Interest Rate Parameters		Fair Value		Fair Value
					(in thousands)
Swap Agreements
Swap maturing October 2027	$	175,000,000	3.956	%	$	154	$	(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 six 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 August 8, 2023, the board of directors of our general partner determined to continue the suspension of our quarterly cash distribution, through the quarter ended June 30, 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 June 30, 2023, we had 3,192,352 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	—	(11,925)	$	5.60
Phantom Unit awards at June 30, 2023	39,408	1,406,349	$	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	536,729	$	5.85
Vested	(26,272)	(519,342)	$	9.01
Forfeited	—	(941)	$	5.37
Phantom Unit awards at June 30, 2022	39,408	1,333,939	$	6.91

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)	(3,022)	$	5.67

Phantom Unit awards at June 30, 2023	13,136	99,248	$	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 June 30, 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 $0.9 million and $1.3 million, respectively, for the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, we recognized $1.9 million and $2.5 million of compensation expense associated with outstanding Phantom Units. As of June 30, 2023, we have unrecognized compensation expense associated with our outstanding Phantom Units totaling $6.1 million, which we expect to recognize over a weighted average period of 2.47 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Equity-classified Phantom Units (1)	$	—	$	167	$	169	$	330
Liability-classified Phantom Units	—		14		9		23
Total	$	—	$	181	$	178	$	353

(1) We reclassified $7 thousand and $8 thousand to unit based compensation expense for DERs paid in relation to Phantom Units that have been forfeited for the three and six months ended June 30, 2023, respectively. We had no significant amounts reclassified for the three and six months ended June 30, 2022, respectively, for forfeitures.

18. SUPPLEMENTAL CASH FLOW INFORMATION

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


	Six Months Ended June 30,
	2023		2022
	(in thousands)
Cash paid for income taxes, net (1)	$	1,196	$	680
Cash paid for interest	$	8,406	$	2,360
Cash paid for operating leases	$	587	$	3,576

(1) Includes the net effect of tax refunds of $11 thousand received in the second quarter of 2023 associated with prior period Canadian taxes and $84 thousand received in the second quarter of 2022 associated with carrying back U.S. net operating losses incurred during 2020 and prior periods allowed for by the provisions of the CARES Act.

For the six months ended June 30, 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” and an accrued reimbursement associated with our collaborative arrangement included in “Accounts receivable, net” as presented in the table below for the periods indicated:


	Six months ended June 30,
	2023		2022
	(in thousands)
Property and equipment financed through accounts payable and accrued expenses	$	(302)	$	(1,941)
Accrued reimbursement of property and equipment	$	(12)	$	—

We recorded $0.8 million and $0.7 million as of June 30, 2023 and 2022, respectively, for new, extended, canceled or declassified right-of-use lease assets and associated liabilities. 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

Credit Agreement Amendment

On August 8, 2023 we entered into an amendment, or the Amendment, to our Credit Agreement, with the lenders party thereto and Bank of Montreal, as administrative agent, or the Administrative Agent.

Pursuant to the Amendment, subject to certain terms and conditions, the lenders have agreed to forbear through and including October 10, 2023, from exercising any rights or remedies arising from certain defaults or events of default asserted by the Administrative Agent, which we disputed, or certain prospective defaults or events of default under the Credit Agreement and other loan documents arising from, among other things, any failure to disclose certain events that give or may give rise to a Material Adverse Effect. Upon any occurrence of events of default under the Credit Agreement other than those that are the subject of the Amendment or the failure by the Borrowers to perform under the terms of the Amendment, the forbearance under the Amendment may be terminated earlier than October 10, 2023. On October 10, 2023, or upon the earlier termination of the forbearance under the Amendment, the Borrowers will be deemed to have waived any defenses to the defaults or events of default asserted by the Administrative Agent.

Pursuant to the Amendment, among other things, we agreed that we will not make any additional requests for new borrowings or letters of credit, or convert outstanding loans from one type to another, in each case under the Credit Agreement. In addition, among other things, the Amendment requires us to provide additional financial and operational reporting to the Administrative Agent and the lenders, and further restricts the ability for us, without the consent of the Administrative Agent and lenders holding at least a majority of outstanding loans under the Credit Agreement, to incur additional indebtedness, to make additional investments or restricted payments, to sell additional assets or to incur growth capital expenditures. In addition, unless otherwise agreed by the Administrative Agent and lenders holding at least a majority of outstanding loans under the Credit Agreement, we are required to apply 100% of the net cash proceeds from any asset sales to repay borrowings outstanding under the Credit Agreement.

Continued Listing Standard Notice from New York Stock Exchange

On July 26, 2023, we received a notice from the New York Stock Exchange, or NYSE, that we are not in compliance with the continued listing criteria under Section 802.01C of the NYSE’s Listed Company Manual, or Section 802.01C, because the average closing price of our common units was less than $1.00 over a consecutive 30 trading-day period. Pursuant to Section 802.01C, we have six months from the date of the receipt of the non-compliance notice to cure the deficiency and regain compliance by having a closing price of at least $1.00 per unit on the last trading day of any calendar month during the six-month cure period and an average closing unit price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month or by meeting such standards on the last trading day of the cure period. The notification has no immediate effect on the listing of our common units on the NYSE.

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.

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 and other high credit quality 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.

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, which led to significant 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. However, in the second quarter of 2023 the storage levels in Canada significantly decreased due to multiple supply and demand events. In May 2023, production levels for light oil grades were negatively impacted by the early onset of the Alberta wildfires. Additionally, production was also negatively impacted by planned oil sands maintenance on production facilities. Another factor that contributed to the decrease in Canadian inventories was the increase in U.S. refinery demand, as certain refineries came back online after an extended shut down period. The combination of these supply and demand events led to extraordinary inventory draws in the second quarter that resulted in historically low inventory levels beyond the five year range.

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 increased pipeline egress availability due to drag reducing agent usage and favorable pipeline summer blending ratio requirements. However, given the supply and demand events discussed above, and based on the forecasted production increases in Canada we anticipate that inventory levels at the end of 2023 will continue to build through the balance of the year towards the higher end of the five year range. As inventory levels begin to build, we expect that pipeline apportionment levels will in turn grow which will potentially lead to higher demand for a crude by rail egress solution. The extent and duration of any increases in apportionment or inventory levels as well as higher demand for a crude by rail egress solutions 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 and viable egress alternative.

Our Hardisty terminal, with established capacity and scalable designs, is well-positioned as a strategic outlet to meet takeaway needs when Western Canadian crude oil supplies 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, adjacent to the Hardisty Terminal, as a part of a long-term solution to transport non-hazardous and non-flammable 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. However, as another alternative, during the second quarter of 2023, our board of directors of our general partner approved the potential sale of the Stroud Terminal and we classified it as held for sale in our consolidated balance sheets as of June 30, 2023. We currently expect that a sale of the Stroud Terminal could occur in late 2023. 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 June 2023 and may not be able to renew or

replace contracts that are expiring in January 2024. This will make it challenging for us to renew, extend or replace our amended Credit Agreement that expires in early November 2023.

Commercial Update

In June 2023, we entered into a three-month rail-to-truck terminalling services agreement with a new third-party customer at the Stroud Terminal. The short-term agreement includes take-or-pay provisions with a minimum volume commitment. The customer is entering into the agreement as a trial period to test the Stroud Terminal as a destination for its waxy crude oil production out of the Uinta Basin. If the testing period is successful, it is expected that a longer-term terminalling services agreement could be executed with the customer. The trial period commenced in August 2023.

Continued Listing Standard Notice from New York Stock Exchange

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. We extended our master fleet services agreement through December 31, 2023. As of June 30, 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 six months as of June 30, 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 (used in) provided by operating activities,” the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA and DCF:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(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	$	(1,306)	$	6,215	$	(1,888)	$	15,448
Add (deduct):
Amortization of deferred financing costs	(340)		(272)		(658)		(628)
Deferred income taxes	4		311		(1)		114
Changes in accounts receivable and other assets	(722)		(1,652)		(1,119)		612
Changes in accounts payable and accrued expenses	2,282		2,462		623		(2,323)
Changes in deferred revenue and other liabilities	2,990		2,645		6,698		4,678

Interest expense, net	4,399		2,092		8,807		3,593
Provision for (benefit from) income taxes	96		(21)		(176)		459
Foreign currency transaction loss (1)	48		143		102		1,790


Non-cash deferred amounts (2)	(1,651)		(329)		(3,302)		(1,886)
Adjusted EBITDA attributable to Hardisty South entities prior to acquisition (3)	—		—		—		(258)
Adjusted EBITDA	5,800		11,594		9,086		21,599
Add (deduct):
Cash paid for income taxes, net (4)	(375)		(147)		(1,196)		(680)
Cash paid for interest	(4,307)		(1,185)		(8,406)		(2,360)
Maintenance capital expenditures	—		(50)		—		(50)
Cash paid for interest attributable to Hardisty South entities prior to acquisition (5)	—		—		—		59
Distributable cash flow	$	1,118	$	10,212	$	(516)	$	18,568

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

(2) 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.

(3) 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 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.

(4) Includes the net effect of tax refunds of $11 thousand received in the second quarter of 2023 associated with prior period Canadian taxes and $84 thousand received in the second quarter of 2022 associated with carrying back U.S. net operating losses incurred during 2020 and prior periods allowed for by the provisions of the CARES Act.

(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 our DCF calculations, as these amounts were generated by the Hardisty South entities prior to our acquisition.

Adjusted EBITDA and DCF presented above for the three and six months ended June 30, 2022 includes the impact of $2.6 million and $3.1 million of expenses incurred during the period associated with our drop down acquisition of the Hardisty South Terminal assets from our Sponsor, respectively, and for the six months ended June 30, 2023 includes expenses incurred of $1.9 million associated with the divestiture of our Casper Terminal. We did not incur any additional expenses associated with the divestiture of our Casper Terminal during the three months ended June 30, 2023. Refer to Part I. Item 1. Financial Statements, Note 3. Acquisition and Dispositions of this Quarterly Report for more information.

The following table sets forth a reconciliation of “Net cash used in operating activities,” the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA attributable to the Hardisty South entities prior to our acquisition of the entities:


	Three Months Ended March 31, 2022
	(in thousands)
Reconciliation of Net cash 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 and as discussed in Overview and Recent Developments — Recent Developments. 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. We are 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. Currently approximately 31% of the combined Hardisty Terminal’s capacity is contracted and generating revenue. Contracts representing approximately 26% of capacity expired in June 2022, and 23% expired June 30, 2023. Contracts representing approximately 14% of the capacity 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

As discussed above, at the end of June 2022, contracts representing approximately 26% of the combined Hardisty Terminal’s capacity and the remaining contracted capacity at the Stroud Terminal expired. This 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 expired. These contracts represented approximately $8.6 million and $17.2 million of our terminalling services revenues for the three and six months ended June 30, 2023, respectively, which represented approximately 45% and 43% of terminalling services revenue for the periods, respectively.

Management is focused on 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 or at the end of the second quarter of 2023. We believe it will be challenging to replace such contracts during the second half of 2023 and to renew the Hardisty contract expiring in January 2024. 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. In June 2023, we entered into a three-month rail-to-truck terminalling services agreement with a new third-party customer at the Stroud Terminal. The short-term agreement includes take-or-pay provisions with a minimum volume commitment. The customer is entering into the agreement as a trial period to test the Stroud Terminal as a destination for its waxy crude oil production out of the Uinta Basin. If the testing period is successful, it is expected that a longer-term terminalling services agreement could be executed with the customer. The trial period commenced in August 2023. Also, as another alternative, during the second quarter of 2023, our board of directors of our general partner approved the sale of the Stroud Terminal and we classified it has held for sale in our consolidated balance sheet. We currently expect that a sale of the Stroud Terminal could occur in late 2023.

The timing of any 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 August 8, 2023, the board of directors of our general partner determined to continue the suspension of our quarterly cash distributions to include the current quarter ended June 30, 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, 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. Refer to the discussion in Liquidity and Capital Resources below for further information. Refer to Part II. Item 1A. Risk Factors in this Quarterly Report on Form 10-Q and 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 June 30, 2023, we had no deferred revenues 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 2023.

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.

lenders have agreed to forbear through and including October 10, 2023, from exercising any rights or remedies arising from certain defaults or events of default asserted by the Administrative Agent, which we disputed, or certain prospective defaults or events of default under the Credit Agreement and other loan documents arising from, among other things, any failure to disclose certain events that give or may give rise to a Material Adverse Effect, as defined in the Credit Agreement. On October 10, 2023, or upon the earlier termination of the forbearance under the Amendment, the Borrowers will be deemed to have waived any defenses to the defaults or events of defaults asserted by the Administrative Agent. Refer to Liquidity and Capital Resources — Credit Agreement Amendment for more information.

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 June 30, 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 July 28, 2023, expires in early November 2023. We had unrestricted cash and cash equivalents of approximately $9.2 million as of July 28, 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. We are actively pursuing these strategic options. Our board of directors also continued the suspension of our cash distribution policy to include the current quarter ended June 30, 2023. In August 2023, we amended our Credit Agreement as further discussed under Liquidity and Capital Resources — Credit Agreement Amendment.

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Operating income
Terminalling services	$	7,753	$	10,713	$	14,686	$	19,449
Fleet services	55		207		106		368
Corporate and other	(3,387)		(5,712)		(2,357)		(9,614)
Total operating income	4,421		5,208		12,435		10,203
Interest expense	4,479		2,097		8,920		3,599
Gain associated with derivative instruments	(4,755)		(812)		(2,905)		(6,896)
Foreign currency transaction loss	48		143		102		1,790
Other income, net	(82)		(4)		(116)		(27)
Provision for (benefit from) income taxes	96		(21)		(176)		459
Net income	$	4,635	$	3,805	$	6,610	$	11,278

Summary Analysis of Operating Results

Changes in our operating results for the three and six months ended June 30, 2023, as compared with our operating results for the three and six months ended June 30, 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 and then sold in March 2023.

•lower non-cash gain year-to-date 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;

•lower corporate selling, general and administrative expense primarily due to transaction costs incurred during the first half of 2022 related to our Hardisty South acquisition with no similar occurrence for the same period in

2023, partially offset by costs related to our divestiture of the Casper terminal in the current year as discussed in more detail below; and

•an increase in corporate interest expense primarily due to higher interest rates.

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Revenues
Terminalling services	$	19,096	$	32,366	$	39,549	$	66,844
Freight and other reimbursables	—		163		305		260
Total revenues	19,096		32,529		39,854		67,104
Operating costs
Subcontracted rail services	2,323		3,604		5,608		7,595
Pipeline fees	5,834		8,389		11,307		16,890
Freight and other reimbursables	—		163		305		260
Operating and maintenance	717		2,245		2,183		4,869
Selling, general and administrative	746		1,650		2,136		6,437

Depreciation and amortization	1,723		5,765		3,629		11,604
Total operating costs	11,343		21,816		25,168		47,655
Operating income	7,753		10,713		14,686		19,449
Interest expense	4		1		4		118

Foreign currency transaction loss	20		41		43		1,739
Other income, net	(58)		(1)		(90)		(24)
Provision for (benefit from) income taxes	124		(5)		(154)		411
Net income	$	7,663	$	10,677	$	14,883	$	17,205
Average daily terminal throughput (bpd)	40,994		77,112		48,164		80,599

Three months ended June 30, 2023, compared with the three months ended June 30, 2022

Terminalling Services Revenue

Revenue generated by our Terminalling services segment decreased $13.4 million to $19.1 million for the three months ended June 30, 2023, as compared with $32.5 million for the three months ended June 30, 2022. This decrease was primarily due to lower revenues at our combined Hardisty Terminal due to a reduction in contracted capacity at our combined Hardisty terminal that was effective July 1, 2022, as discussed above in General Trends and Outlook. Revenue was also lower at our Stroud Terminal due to the conclusion of our sole customer contract that was also effective July 1, 2022, as discussed above in Factors Affecting the Comparability of our Financial Results. In addition, we had a decrease in revenue due to the sale of our Casper Terminal that occurred at the end of the first quarter of 2023.

Our average daily terminal throughput decreased 36,118 bpd to 40,994 bpd for the three months ended June 30, 2023, as compared with 77,112 bpd for the three months ended June 30, 2022. Our throughput volumes decreased primarily due to a decrease in throughput volumes at our Hardisty Terminal volumes resulting from a reduction in the contracted capacity at our terminals effective July 1, 2022, as discussed above. Additionally, our volumes decreased at our Stroud Terminal resulting from the previously discussed conclusion of our sole customer contract effective July 1, 2022, which also lead to an additional decrease in volumes at our combined Hardisty

Terminal, as it is the origination terminal for volumes delivered to our Stroud Terminal. Our terminalling services revenues are recognized based upon the contractual terms set forth in our agreements that contain primarily “take-or-pay” provisions, where we are entitled to the payment of minimum monthly commitment fees from our customers, which are recognized as revenue as we provide terminalling services.

Our terminalling services revenue for the three months ended June 30, 2023, would have been $0.6 million more if the average exchange rate for the Canadian dollar in relation to the U.S. dollar for the three months ended June 30, 2023, was the same as the average exchange rate for the three months ended June 30, 2022. The average exchange rate for the Canadian dollar in relation to the U.S. dollar was 0.7446 for the three months ended June 30, 2023 as compared with 0.7837 for the three months ended June 30, 2022.

Operating Costs

The operating costs of our Terminalling services segment decreased $10.5 million to $11.3 million for the three months ended June 30, 2023, as compared with $21.8 million for the three months ended June 30, 2022. The decrease was primarily attributable to lower subcontracted rail service costs, pipeline fees, operating and maintenance expenses, selling, general, and administrative expenses and depreciation and amortization.

Our terminalling services operating costs for the three months ended June 30, 2023, would have been $0.5 million more if the average exchange rate for the Canadian dollar in relation to the U.S. dollar for the three months ended June 30, 2023, was the same as the average exchange rate for the three months ended June 30, 2022.

Subcontracted rail services. Our costs for subcontracted rail services decreased $1.3 million to $2.3 million for the three months ended June 30, 2023, as compared with $3.6 million for the three months ended June 30, 2022, primarily due to decreased throughput at our terminals as discussed above.

Pipeline fees. We incur pipeline fees related to a facilities connection agreement with Gibson for the delivery of crude oil from Gibson’s Hardisty storage terminal to our combined Hardisty Terminal via pipeline. The pipeline fees we pay to Gibson are based on a predetermined formula, which includes amounts collected from customers at our combined Hardisty Terminal less direct operating costs. Our pipeline fees decreased $2.6 million to $5.8 million for the three months ended June 30, 2023 as compared with $8.4 million for the three months ended June 30, 2022, primarily due to lower revenues at the combined Hardisty Terminal as discussed above.

Operating and maintenance. Operating and maintenance expense decreased $1.5 million to $0.7 million for the three months ended June 30, 2023, as compared with $2.2 million for the three months ended June 30, 2022. The decrease is primarily due to lower costs incurred associated with our Stroud and combined Hardisty Terminals primarily resulting from the decreased throughput at the terminals, as previously discussed. In addition, we had a decrease in operating and maintenance expenses due to the sale of our Casper Terminal that occurred at the end the first quarter of 2023.

Selling, general and administrative. Selling, general and administrative expense decreased $0.9 million to $0.7 million for the three months ended June 30, 2023, as compared with the three months ended June 30, 2022. The decrease is primarily attributable to the sale of our Casper Terminal that occurred at the end of the first quarter of 2023.

Depreciation and amortization. Depreciation and amortization expense decreased $4.0 million to $1.7 million for the three months ended June 30, 2023, as compared with the three months ended June 30, 2022. This decrease is associated primarily with the decrease in the carrying value of our intangible assets coupled with a decrease in the carrying value of the assets at the Casper Terminal due to the impairment that was recognized in September 2022. In addition, we discontinued the depreciation and amortization of our Casper Terminal assets for the current quarter as the assets were sold on March 31, 2023.

Six months ended June 30, 2023, compared with the six months ended June 30, 2022

Terminalling Services Revenue

Revenue generated by our Terminalling services segment decreased $27.3 million to $39.9 million for the six months ended June 30, 2023, as compared with the six months ended June 30, 2022. This decrease was primarily lower due to a reduction in contracted capacity at our combined Hardisty Terminal that was effective July 1, 2022, as discussed above in General Trends and Outlook. Revenues were also lower at our Hardisty Terminal due to an unfavorable variance in the Canadian exchange rate on our Canadian-dollar denominated contracts to date during 2023 as compared to the same period in 2022, discussed in more detail below. Revenue was also lower at our Stroud Terminal due to the conclusion of our sole customer contract that was effective July 1, 2022, as discussed above in Factors Affecting the Comparability of our Financial Results. In addition, we recognized deferred revenues at our Stroud Terminal that were previously deferred in 2022 associated with the make-up right options we granted to our customers with no similar occurrence in the current year.

Our average daily terminal throughput decreased 32,435 bpd to 48,164 bpd for the six months ended June 30, 2023, as compared with 80,599 bpd for the six months ended June 30, 2022. Our throughput volumes decreased primarily due to a decrease in throughput volumes at our Hardisty Terminal volumes resulting from a reduction in the contracted capacity at our terminals effective July 1, 2022, Additionally, our volumes decreased at our Stroud Terminal due to the previously discussed conclusion of our sole customer contract effective July 1, 2022, which also lead to a decrease in volumes at our combined Hardisty Terminal, as it is the origination terminal for volumes delivered to our Stroud Terminal. Our terminalling services revenues are recognized based upon the contractual terms set forth in our agreements that contain primarily “take-or-pay” provisions, where we are entitled to the payment of minimum monthly commitment fees from customers, which are recognized as revenues as we provide terminalling services.

Our terminalling services revenue for the six months ended June 30, 2023, would have been $1.4 million more if the average exchange rate for the Canadian dollar in relation to the U.S. dollar for the six months ended June 30, 2023, was the same as the average exchange rate for the six months ended June 30, 2022. The average exchange rate for the Canadian dollar in relation to the U.S. dollar was 0.7421 for the six months ended June 30, 2023 as compared with 0.7865 for the six months ended June 30, 2022.

Operating Costs

The operating costs of our Terminalling services segment decreased $22.5 million to $25.2 million for the six months ended June 30, 2023, as compared with $47.7 million for the six months ended June 30, 2022. The decrease was primarily attributable to lower subcontracted rail services costs, pipeline fees, operating and maintenance expenses, selling, general and administrative expenses and depreciation and amortization for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Our terminalling services operating costs for the six months ended June 30, 2023, would have been $1.2 million more if the average exchange rate for the Canadian dollar in relation to the U.S. dollar for the six months ended June 30, 2023, was the same as the average exchange rate for the six months ended June 30, 2022.

Subcontracted rail services. Our costs for subcontracted rail services decreased $2.0 million to $5.6 million for the six months ended June 30, 2023, as compared with $7.6 million for the six months ended June 30, 2022, primarily due to decreased throughput at our terminals as discussed above.

Pipeline fees. We incur pipeline fees related to a facilities connection agreement with Gibson for the delivery of crude oil from Gibson’s Hardisty storage terminal to our Hardisty Terminal via pipeline. The pipeline fees we pay to Gibson are based on a predetermined formula, which includes amounts collected from customers at our Hardisty and Hardisty South terminals less direct operating costs. Our pipeline fee decreased $5.6 million to $11.3 million for the six months ended June 30, 2023 as compared with $16.9 million for the six months ended June 30, 2022, primarily due to lower revenues at our combined Hardisty Terminal as discussed above.

Operating and maintenance. Operating and maintenance expense decreased $2.7 million to $2.2 million for the six months ended June 30, 2023, as compared with $4.9 million for the six months ended June 30, 2022. The decrease is primarily due to lower costs incurred associated with the Stroud and combined Hardisty Terminals primarily resulting from decreased throughput at the terminals, as previously discussed. In addition, we had a decrease in operating and maintenance expenses due to the sale of the Casper Terminal in the first quarter of 2023.

Selling, general and administrative. Selling, general and administrative expense decreased $4.3 million to $2.1 million for the six months ended June 30, 2023, as compared with $6.4 million for the six months ended June 30, 2022. The decrease is primarily attributable to lower costs at the Hardisty South Terminal associated with services fees paid to our Sponsor in the first quarter of 2022. 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. Upon our acquisition of the entities effective April 1, 2022, this services agreement was canceled and a similar agreement was established with us. This results in the service fee income being allocated to us, and therefore offsetting the expense in the Hardisty South Terminal entity subsequent to the acquisition date of April 1, 2022. Refer to Part I. Item 1. Financial Statements, Note 12. Transactions with Related Party of this Quarterly Report for more information. In addition, selling, general and administrative expenses decreased due to the sale of our Casper Terminal that occurred at the end of the first quarter of 2023.

Depreciation and amortization. Depreciation and amortization expense decreased $8.0 million to $3.6 million for the six months ended June 30, 2023, as compared with $11.6 million for the six months ended June 30, 2022. This decrease is associated primarily with the decrease in carrying value of the assets at the Casper Terminal due to the impairment that was recognized in September 2022. In addition, we discontinued the depreciation and amortization of our Casper Terminal assets for the current year as the assets were classified as held for sale in January 2023 and sold on March 31, 2023.

Other Expenses (Income)

Interest Expense. Interest expense decreased $114 thousand for the six months ended June 30, 2023, as compared with the six months ended June 30, 2022. Prior to our acquisition, the Hardisty South entities had a Construction Loan Agreement which was assumed in March 2022 by a related party subsidiary of our Sponsor. The decrease in interest expense associated with the Hardisty South Construction Loan Agreement is due to no outstanding balance during 2023 as compared to a balance during most of the first quarter of 2022.

FLEET SERVICES

The following table sets forth the operating results of our Fleet services segment for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Revenues
Fleet leases	$	287	$	913	$	570	$	1,825
Fleet services	86		299		171		598
Freight and other reimbursables	2		—		2		—
Total revenues	375		1,212		743		2,423
Operating costs
Freight and other reimbursables	2		—		2		—
Operating and maintenance	298		972		593		1,965
Selling, general and administrative	20		33		42		90
Total operating costs	320		1,005		637		2,055
Operating income	55		207		106		368
Foreign currency transaction loss	4		1		4		1
Other income, net	—		(2)		—		(2)
Provision for (benefit from) income taxes	(28)		(16)		(22)		48
Net income	$	79	$	224	$	124	$	321

Three months ended June 30, 2023, compared with the three months ended June 30, 2022

Operating Results

Revenues generated by our Fleet services segment decreased by $0.8 million to $0.4 million for the three months ended June 30, 2023, as compared with $1.2 million for the three months ended June 30, 2022. This revenue decrease was primarily due to a master fleet service agreement that was renewed and extended in the fourth quarter of 2022 at a reduced market rate compared to the prior year, while the volume of rail cars remained constant throughout the same period.

Operating and maintenance expenses decreased $0.7 million to $0.3 million for the three months ended June 30, 2023, as compared with $1.0 million for the three months ended June 30, 2022. The decrease is primarily due to lower rent costs negotiated with the renewed and extended master fleet service agreement referenced above.

Six months ended June 30, 2023, compared with the six months ended June 30, 2022

The results for our Fleet services segment for the six months ended June 30, 2023, as compared to the same period in 2022, changed for the same reasons as noted in the three month analysis above.

CORPORATE ACTIVITIES

The following table sets forth our corporate charges for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Operating costs
Selling, general and administrative	$	3,387	$	5,712	$	8,559	$	9,614
Gain on sale of business	—		—		(6,202)		—
Operating loss	(3,387)		(5,712)		(2,357)		(9,614)
Interest expense	4,475		2,096		8,916		3,481
Gain associated with derivative instruments	(4,755)		(812)		(2,905)		(6,896)
Foreign currency transaction loss	24		101		55		50
Other income, net	(24)		(1)		(26)		(1)

Net loss	$	(3,107)	$	(7,096)	$	(8,397)	$	(6,248)

Three months ended June 30, 2023, compared with the three months ended June 30, 2022

Costs associated with our corporate activities decreased $4.0 million to $3.1 million for the three months ended June 30, 2023, as compared to $7.1 million for the three months ended June 30, 2022.

Our corporate selling, general and administrative expenses decreased $2.3 million to $3.4 million for the three months ended June 30, 2023, compared with $5.7 million for the three months ended June 30, 2022. The decrease is primarily due to expenses incurred in the second quarter of 2022 associated with the Hardisty South acquisition, with no acquisition expense incurred in 2023, partially offset by legal costs incurred in connection with an internal corporate jurisdictional reorganization in the second quarter of 2023.

Interest expense costs increased $2.4 million to $4.5 million for the three months ended June 30, 2023, as compared with $2.1 million for the same period in 2022. The primary factor driving the increase in interest expense was an increase in interest rates during the period as compared to the same period in 2022. In addition, we had a non-cash gain of $4.8 million recognized on our interest rate derivatives for the three months ended June 30, 2023, as compared to a non-cash gain of $0.8 million for the same period in 2022.

Six months ended June 30, 2023, compared with the six months ended June 30, 2022

Costs associated with our corporate activities increased $2.2 million to $8.4 million for the six months ended June 30, 2023, as compared to $6.2 million for the six months ended June 30, 2022.

Our corporate selling, general and administrative expenses decreased $1.0 million to $8.6 million for the six months ended June 30, 2023, as compared with $9.6 million for the six months ended June 30, 2022. The decrease is primarily due to transaction costs incurred in 2022 associated with the Hardisty South acquisition, with no acquisition expenses incurred in 2023, partially offset by expenses incurred during the six months ended June 30, 2023 related to the divestiture of our Casper Terminal and legal costs incurred in connection with an internal corporate jurisdictional reorganization. Our results for the first six months of 2023 also included a gain on sale of business of $6.2 million associated with our sale of the Casper Terminal, with no occurrence in 2022. Refer to Part I. Item 1. Financial Statements, Note 3. Acquisitions and Dispositions of this Quarterly Report for more information.

Interest expense costs increased $5.4 million to $8.9 million for the six months ended June 30, 2023, as compared with $3.5 million for the same period in 2022. The primary factor driving the increase in interest expense was an increase in interest rates during the period as compared to the same period in 2022. In addition, we recognized a lower non-cash gain in our interest rate derivatives of $2.9 million for the six months ended June 30, 2023, as compared to a non-cash gain of $6.9 million for the same period in 2022.

LIQUIDITY AND CAPITAL RESOURCES

Our principal liquidity requirements include:

•financing current operations;

•servicing our debt;

•funding capital expenditures, including potential acquisitions and the costs to construct new assets; and

•making distributions to our unitholders.

We have historically financed our operations with cash generated from our operating activities, borrowings under our Credit Agreement and loans from our sponsor.

Liquidity Sources and Available Liquidity

We have historically expected our sources of liquidity to include borrowings under our Credit Agreement, issuances of debt securities and additional partnership interests as well as cash generated from our operating activities. If we are able to refinance and/or extend the maturity of our Credit Agreement and recontract the capacity subject to expired and expiring contracts, then we believe that cash generated from these sources will be sufficient to meet our ongoing working capital and capital expenditure requirements for the next 12 months following the filing of this Report. If we are not able to refinance or extend the maturity of our Credit Agreement, or we fail to recontract the capacity subject to expired contracts, then, as discussed below, there is substantial doubt about our ability to continue as a going concern, and we would not expect to have liquidity sufficient to meet our ongoing working capital and capital expenditure requirements for the next 12 months following the filing of this Report.

Our Credit Agreement, under which we had $195.9 million outstanding as of July 28, 2023, expires in early November 2023. We had unrestricted cash and cash equivalents of approximately $9.2 million as of July 28, 2023. Thus far, we have been unable to renew or replace the revenue from customer contracts that expired in June 2022 and June 2023, which is expected to make our liquidity position more challenged in the second half of 2023 to the extent we continue to face challenges renewing or replacing such contracts. 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 continued with suspension of our cash distribution policy to include the current quarter ended June 30, 2023. In August 2023, we amended our Credit Agreement as further discussed under Liquidity and Capital Resources — Credit Agreement Amendment.

We do not currently expect to be in compliance with the total leverage ratio and interest coverage covenants under our Credit Agreement for the third quarter of 2023, in which case the lenders under the Credit Agreement can accelerate and all borrowings outstanding under the Credit Agreement would become due and payable. For information regarding our Credit Agreement see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Agreement in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Part I. Item 1. Financial Statements, Note 10. Debt of this Quarterly Report and Credit Agreement Amendment below.

Credit Agreement Amendment

On August 8, 2023 we entered into an amendment, or the Amendment, to our existing revolving credit agreement, dated as of November 2, 2018, as so amended and as previously amended, the Credit Agreement, with the lenders party thereto and Bank of Montreal, as administrative agent, or the Administrative Agent.

Amendment, the Borrowers will be deemed to have waived any defenses to the defaults or events of default asserted by the Administrative Agent.

We intend to continue to work constructively with our lenders and other potential capital providers to refinance, extend or replace our Credit Agreement on or prior to October 10, 2023. 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.

The above description of the terms of the Amendment does not purport to be complete and is qualified in its entirety by the full text of the Amendment, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated by reference herein.

Going Concern

Refer to General Trends and Outlook - Going Concern above for discussion on our ability to continue as a going concern, as of the date of this report.

The following table presents our available liquidity as of the dates indicated:


	June 30, 2023		December 31, 2022
	(in millions)
Cash and cash equivalents (1)	$	10.3	$	2.5
Aggregate borrowing capacity under the Credit Agreement	275.0		275.0

Less: Amounts outstanding under Credit Agreement	195.9		215.0

Available liquidity based on Credit Agreement capacity	$	89.4	$	62.5
Available liquidity based on Credit Agreement covenants (2)	$	12.0	$	55.5

(1) Excludes amounts that are restricted pursuant to our collaborative agreement with Gibson and amounts restricted that were associated with the divestiture of our Casper Terminal. Refer to Part I. Item 1. Financial Statements, Note 6. Restricted Cash of this Quarterly Report for more information.

(2) Pursuant to the terms of our amended Credit Agreement, as discussed in Part I. Item 1. Financial Statements, Note 10. Debt of this Quarterly Report, our borrowing capacity is limited to 5.5 times (5.0 times at December 31, 2022 ) our trailing 12-month consolidated EBITDA, which equates to $1.7 million and $53.0 million of borrowing capacity available based on our covenants at June 30, 2023 and December 31, 2022, respectively.

Energy Capital Partners must approve any additional issuances of equity by us, and such determinations may be made free of any duty to us or our unitholders. Members of our general partner’s board of directors appointed by Energy Capital Partners must also approve the incurrence by us of additional indebtedness or refinancing outside of our existing indebtedness that is not in the ordinary course of business.

Cash Flows

The following table and discussion summarize the cash flows associated with our operating, investing and financing activities for the periods indicated:


	Six Months Ended June 30,
	2023		2022
	(in thousands)
Net cash provided by (used in):
Operating activities	$	(1,888)	$	15,448
Investing activities	32,220		(75,288)
Financing activities	(22,128)		54,346
Effect of exchange rates on cash	90		1,057
Net change in cash, cash equivalents and restricted cash	$	8,294	$	(4,437)

Operating Activities

We had net cash used in operating activities of $1.9 million for the six months ended June 30, 2023, as compared with net cash provided by operating activities of $15.4 million for the six months ended June 30, 2022. The decrease in cash from operating activities is primarily attributable to the changes in cash flow derived from our operating results as discussed above in Results of Operations. The net change in net cash provided by operating activities was also impacted by the timing of receipts and payments on accounts receivable, accounts payable and deferred revenue balances.

Investing Activities

Net cash provided by investing activities increased to $32.2 million for the six months ended June 30, 2023 as compared to a cash use of $75.3 million for the six months ended June 30, 2022. The amounts provided by investing activities in 2023 is primarily due to the net proceeds received in the first quarter of 2023 from the divestiture of our Casper Terminal that occurred in March 2023. The amounts used in investing activities for 2022 is primarily due to the acquisition of Hardisty South Terminal from USD, which included a cash payment of $75 million. Refer to Part I. Item 1. Financial Statements, Note 3. Acquisition and Dispositions of this Quarterly Report for more information.

Financing Activities

Net cash used by financing activities decreased to $22.1 million for the six months ended June 30, 2023 as compared with net cash provided by financing activities of $54.3 million for the six months ended June 30, 2022. Our payments on our long-term debt increased $6.7 million during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Additionally, there were proceeds from our long-term debt of $75.0 million in the six months ended June 30, 2022 used for the acquisition of Hardisty South compared with no borrowings in the same period of 2023. There was also a significant decrease in cash paid for distributions and a decrease in cash paid for participant withholding taxes associated with vested Phantom Units during the six months ended June 30, 2023, as compared to the same period in 2022.

Cash Requirements

Our primary requirements for cash are: (1) financing current operations, (2) servicing our debt, (3) funding capital expenditures, including potential acquisitions and the costs to construct new assets, and (4) making distributions to our unitholders. We expect to fund future cash requirements from cash on our balance sheet, cash flow generated from our operating activities, borrowings under our Credit Agreement and the issuance of additional partnership interests or long-term debt.

Capital Requirements

Our historical capital expenditures have primarily consisted of the costs to construct and acquire energy-related logistics assets. Our operations are expected to require investments to expand, upgrade or enhance existing facilities and to meet environmental and operational regulations. We also occasionally invest in our assets to expand their capacity or capability. We may incur unanticipated costs in connection with any expansion projects, which costs could be material or be incurred in periods after the project is completed.

Our partnership agreement requires that we categorize our capital expenditures as either expansion capital expenditures, maintenance capital expenditures, or investment capital expenditures. Although we have not experienced significant maintenance capital expenditures in prior years, as the age and usage of our assets increase, we expect that costs we incur to maintain them in compliance with sound business practice, our contractual relationships and applicable regulatory requirements will likely increase. Some of these costs will be characterized as maintenance capital expenditures. We incurred no maintenance capital expenditures during the six months ended June 30, 2023. Our total expansion capital expenditures for the six months ended June 30, 2023 was $0.4 million.

Debt Service

We anticipate reducing our outstanding indebtedness to the extent we generate cash flows in excess of our operating and investing needs. During the six months ended June 30, 2023, we received no proceeds from borrowings and made $19.1 million repayments on our Credit Agreement.

Refer to Part I. Item 1. Financial Statements, Note 10. Debt of this Quarterly Report for more information.

Distributions

Our partnership agreement does not require us to pay cash distributions on a quarterly or other basis, and we do not have a legal obligation to distribute any particular amount per common unit.

On August 8, 2023, the board of directors of our general partner determined to continue the suspension of our quarterly cash distribution, effective for the quarter ended June 30, 2023 and utilize free cash flow to support our operations and to potentially pay down debt. The Board 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.

In January 2023, we executed an amendment to our Credit Agreement. Under the Credit Agreement beginning January 31, 2023 and continuing through the current maturity of our Credit Agreement on November 3, 2023, 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. Although the board of directors of our general partner determined to continue the suspension of our quarterly cash distribution for the quarter ended June 30, 2023, we were not prohibited by the terms of our Credit Agreement from paying a distribution. Refer to Part I. Item 1. Financial Statements, Note 10. Debt of this Quarterly Report for more information.

Members of our general partner’s board of directors appointed by Energy Capital Partners, must approve any distributions made by us.

Other Items Affecting Liquidity

Credit Risk

Our exposure to credit risk may be affected by the concentration of our customers within the energy industry, as well as changes in economic or other conditions. Our customers’ businesses react differently to changing

conditions. We believe that our credit-review procedures, customer deposits and collection procedures have adequately provided for amounts that may become uncollectible in the future.

Foreign Currency Exchange Risk

We currently derive a significant portion of our cash flow from our Canadian operations, particularly our combined Hardisty Terminal. As a result, portions of our cash and cash equivalents are denominated in Canadian dollars and are held by foreign subsidiaries, which amounts are subject to fluctuations resulting from changes in the exchange rate between the U.S. dollar and the Canadian dollar. We employ derivative financial instruments to minimize our exposure to the effect of foreign currency fluctuations, as we deem necessary, based upon anticipated economic conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no changes to our critical accounting policies and estimates described in the Annual Report on Form 10-K for the year ended December 31, 2022, that have had a material impact on our consolidated financial statements and related notes, other than as discussed below.

Assets Held For Sale

Assets held for sale are initially measured at the lower of the carrying value or fair value less cost to sell. We recognize a loss for any initial adjustment of the carrying amount of the long-lived assets to its fair value less cost to sell in the period the held for sale criteria are met. We assess the fair value less cost to sell in each period that it remains classified as held for sale. Subsequent changes in the long-lived asset’s fair value less cost to sell, increase or decrease, is reported as an adjustment to the carrying value, as long as the adjustment does not exceed the carrying value of the asset at the time it was initially classified as held for sale.

Stroud Terminal

During the second quarter of 2023 our board of directors of our general partner approved the sale of the Stroud Terminal and we classified it has held for sale in our consolidated balance sheets. We currently expect that a sale of the Terminal could occur sometime before the end of the year. The Stroud terminal is included in our Terminalling Services Segment.

As a result of classifying our Stroud Terminal as held for sale, we evaluated the terminal’s fair value. We measured the fair value of our Stroud terminal long-lived assets using an income analysis approach. The critical assumptions used in our analysis include the following:

•no capital expenditures for additional terminalling connectivity;

•incremental volumes expected at our Stroud Terminal of approximately 27,500 bpd on an annual basis for terminalling services;

•a weighted average cost of capital of 22%; and

•a capital structure consisting of approximately 45% debt and 55% equity.

The key assumptions listed above were based upon economic and other operational conditions existing at or prior to the May 31, 2023 valuation date. Our weighted average cost of capital is subject to variability and is dependent upon such factors as changes in benchmark rates of interest established by the Federal Open Market Committee of the Federal Reserve Board and other central banking regulatory authorities, as well as perceptions of risk and market uncertainty regarding our business, industry and those of our peers and our underlying capital structure. Each of the above assumptions are likely to change due to economic uncertainty surrounding global and North American energy markets that are highly correlated with crude oil, natural gas and other energy-related commodity prices and other market factors.

Assumptions we make under the income approach include our projections of future financial performance of the Stroud Terminal, which include our ability

USD Partners LP 10-Q