USD Partners LP Announces Fourth Quarter and Full Year 2017 Results

HOUSTON–(BUSINESS WIRE)–USD Partners LP (NYSE: USDP) (the “Partnership”) announced today its
operating and financial results for the three and twelve months ended
December 31, 2017. Highlights with respect to the fourth quarter of 2017
include the following:

• Successfully commenced operations at the Stroud destination terminal
  near Cushing, Oklahoma
• Generated Net Cash Provided by Operating Activities of $9.5 million,
  Adjusted EBITDA of $12.5 million and Distributable Cash Flow of $9.8
  million
• Reported Net Income of $2.2 million
• Increased quarterly cash distribution to $0.35 per unit ($1.40 per
  unit on an annualized basis), delivering distribution growth of 7.5%
  for the full year 2017
• Ended quarter with $205.9 million of available liquidity and
  distribution coverage of 1.1x

“Recently, the price of Western Canadian Select has significantly
declined relative to the price of alternative grades of crude oil as a
result of increased oil sands production, apportionment on pipelines,
and full utilization of storage at the Hardisty hub,” said Dan Borgen,
the Partnership’s Chief Executive Officer. “Given the value that our
terminals can deliver to our customers in this environment, we are
well-positioned to execute on multiple near-term opportunities for
contract extensions, new customer agreements and potential expansions to
our existing network. As these opportunities materialize, we expect to
deliver mid-single digit distribution growth in 2018 relative to 2017.”

Market Update

Over the last several months, oil sands production facilities in Western
Canada have returned to normal operating levels and meaningful new
production capacity has been brought online. Additionally, one of the
major export pipelines to the United States experienced a disruption.
The resulting balance of growing crude oil supply versus available
pipeline infrastructure caused the price of Western Canadian Select
(“WCS”) crude oil in Hardisty, Alberta, to discount meaningfully
relative to key benchmarks and alternative heavy feedstocks for
refiners, such as Maya in the Gulf Coast.

This dislocation in prices incentivizes producers to find additional
modes of transportation to reach other markets where they might achieve
better pricing and attracts refiners that seek access to a cheaper
feedstock. In this environment, strategically-located rail terminals,
such as the Partnership’s Hardisty, Casper and Stroud terminals, deliver
critical takeaway capacity and can preserve substantial value for
Western Canadian crude oil.

Production from the oil sands in Western Canada is projected to continue
to grow, and the expected timing of proposed export pipeline additions
remains uncertain. As such, forward curves in the market currently
reflect a discount for WCS relative to West Texas Intermediate of
approximately $20 for the next several years. Combined, these dynamics
create opportunities for market participants to utilize rail
transportation to capture incremental value over that period.

Recent Developments

Customer activity at the Hardisty origination terminal has increased
substantially over the last several months. Current market demand for
the services provided at the Hardisty terminal exceeds the available
capacity, as substantially all of the terminal’s capacity was previously
contracted for by customers under multi-year agreements through mid-2019
or mid-2020. As such, the Partnership’s sponsor is evaluating a
potential expansion to meet near-term demand. The Partnership is also
actively negotiating with current customers to extend the terms of the
existing take-or-pay agreements.

The Stroud terminal successfully commenced operations on October 1,
2017, after the planned retrofit work necessary to handle heavier grades
of crude oil was completed on time and under the Partnership’s initial
budget. Concurrent with the acquisition of the Stroud terminal in June
of 2017, the Partnership entered into a new multi-year, take-or-pay
terminalling services agreement with an investment grade rated,
multi-national energy company (the “Stroud customer”) for the use of
approximately 50% of the Stroud terminal’s available capacity through
June 30, 2020. Per the original agreement, the contracted take-or-pay
volumes with the Stroud customer increased to 30,000 barrels per day on
January 1, 2018, up from 20,000 barrels per day during the fourth
quarter of 2017.

The Partnership’s sponsor is currently negotiating with potential
customers for both the remaining capacity at the Stroud terminal, as
well as potential expansion capacity. These initiatives could grow the
Partnership’s existing comprehensive origin-to-destination solution from
Hardisty to the Stroud terminal near the Cushing storage hub and
represent potential drop down acquisition opportunities for the
Partnership.

During the first quarter of 2018, the Partnership used
recently-available tank capacity at the Casper terminal to support spot
shipments for a large international oil and gas company, as well as for
a local producer’s heavy sour crude oil production. The Partnership is
actively pursuing term agreements with these spot customers for ongoing
use of the Casper terminal. Additionally, the Partnership is exploring
the potential to establish rail-to-pipeline capabilities at the Casper
terminal, similar to the current activity at the Stroud terminal.

Fourth Quarter 2017 Operational and Financial Results

Substantially all of the Partnership’s cash flows are generated from
multi-year, take-or-pay terminal service agreements related to its crude
oil terminals, which include minimum monthly commitment fees. The
Partnership’s customers include major integrated oil companies, refiners
and marketers, the majority of which are investment grade rated.

The Partnership’s results during the fourth quarter of 2017 relative to
the same quarter in 2016 were primarily influenced by the conclusion of
customer contracts at the Casper and San Antonio terminals, as well as
revenues and costs associated with the commencement of operations at the
Stroud terminal. The Partnership also incurred additional operating
costs to support a substantial increase in customer activity at its
Hardisty terminal during the quarter.

The Partnership utilizes derivative contracts to mitigate the exposure
to fluctuations in the value of the Canadian dollar relative to the U.S.
dollar on the Partnership’s results of operations. These derivative
contracts secured an exchange rate of 0.78 U.S. dollars per Canadian
dollar in 2017 versus 0.84 U.S. dollars per Canadian dollar in 2016,
which resulted in a cash outflow of $0.2 million upon settlement in the
fourth quarter of 2017 versus a cash inflow of $0.8 million in the same
quarter of the prior year.

During the fourth quarter of 2016, the Partnership benefitted from the
receipt of a tax refund totaling $1.3 million, whereas the Partnership
did not receive a refund nor pay cash taxes during the fourth quarter of
2017. Partially offsetting the items previously discussed, the
Partnership recorded a lower provision for income and withholding taxes
of approximately $0.2 million in the fourth quarter of 2017 versus $1.1
million in the same quarter of the previous year.

As a result, Net Cash Provided by Operating Activities decreased by 41%,
while Adjusted EBITDA and Distributable Cash Flow decreased by 26% and
39%, respectively, relative to the fourth quarter of 2016. Net income
for the quarter decreased by 44% as compared to the fourth quarter of
2016.

As of December 31, 2017, the Partnership had total available liquidity
of $205.9 million, including $7.9 million of unrestricted cash and cash
equivalents and undrawn borrowing capacity of $198.0 million on its
$400.0 million senior secured credit facility, subject to continued
compliance with financial covenants. The Partnership is in compliance
with its financial covenants and has no maturities under its senior
secured credit facility until October 2019.

On February 1, 2018, the Partnership declared a quarterly cash
distribution of $0.35 per unit ($1.40 per unit on an annualized basis),
which represents growth of 1.4% relative to the third quarter of 2017
and 6.1% relative to the fourth quarter of 2016. The distribution was
paid on February 16, 2018, to unitholders of record as of February 12,
2018.

Fourth Quarter 2017 Conference Call Information

The Partnership will host a conference call and webcast regarding fourth
quarter 2017 results at 11:00 a.m. Eastern Time (10:00 a.m. Central
Time) on Friday, March 9, 2018.

To listen live over the Internet, participants are advised to log on to
the Partnership’s website at www.usdpartners.com
and select the “Events & Presentations” sub-tab under the “Investors”
tab. To join via telephone, participants may dial (877) 266-7551
domestically or +1 (339) 368-5209 internationally, conference ID
6682828. Participants are advised to dial in at least five minutes prior
to the call.

An audio replay of the conference call will be available for thirty days
by dialing (800) 585-8367 domestically or +1 (404) 537-3406
internationally, conference ID 6682828. In addition, a replay of the
audio webcast will be available by accessing the Partnership's website
after the call is concluded.

About USD Partners LP

USD Partners LP is a fee-based, growth-oriented master limited
partnership formed in 2014 by US Development Group, LLC (“USDG”) to
acquire, develop and operate midstream infrastructure and complementary
logistics solutions for crude oil, biofuels and other energy-related
products. The Partnership generates substantially all of its operating
cash flows from multi-year, take-or-pay contracts with primarily
investment grade customers, including major integrated oil companies,
refiners and marketers. The Partnership’s network of crude oil terminals
facilitates the transportation of heavy crude oil from Western Canada to
key demand centers across North America. The Partnership’s operations
include railcar loading and unloading, storage and blending in on-site
tanks, inbound and outbound pipeline connectivity, truck transloading,
as well as other related logistics services. In addition, the
Partnership provides customers with leased railcars and fleet services
to facilitate the transportation of liquid hydrocarbons and biofuels by
rail.

USDG, which owns the general partner of USD Partners LP, is engaged in
designing, developing, owning, and managing large-scale multi-modal
logistics centers and energy-related infrastructure across North
America. USDG solutions create flexible market access for customers in
significant growth areas and key demand centers, including Western
Canada, the U.S. Gulf Coast and Mexico. Among other projects, USDG is
currently pursuing the development of a premier energy logistics
terminal on the Houston Ship Channel with capacity for substantial tank
storage, multiple docks (including barge and deepwater), inbound and
outbound pipeline connectivity, as well as a rail terminal with unit
train capabilities. For additional information, please visit
texasdeepwater.com.

Non-GAAP Financial Measures

The Partnership defines Adjusted EBITDA as Net Cash Provided by
Operating Activities adjusted for changes in working capital items,
changes in restricted cash, interest, income taxes, foreign currency
transaction gains and losses, adjustments related to deferred revenue
associated with minimum monthly commitment fees and other items which do
not affect the underlying cash flows produced by the Partnership’s
businesses. Adjusted EBITDA is a non-GAAP, supplemental financial
measure used by management and external users of the Partnership’s
financial statements, such as investors and commercial banks, to assess:

• the Partnership’s liquidity and the ability of the Partnership’s
  businesses to produce sufficient cash flows to make distributions to
  the Partnership’s unitholders; and
• the Partnership’s ability to incur and service debt and fund capital
  expenditures.

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

• the amount of cash available for making distributions to the
  Partnership’s unitholders;
• the excess cash being retained for use in enhancing the Partnership’s
  existing businesses; and
• the sustainability of the Partnership’s current distribution rate per
  unit.

The Partnership believes that the presentation of Adjusted EBITDA and
DCF in this press release provides information that enhances an
investor's understanding of the Partnership’s ability to generate cash
for payment of distributions and other purposes. The GAAP measure most
directly comparable to Adjusted EBITDA and DCF is Net Cash Provided by
Operating Activities. Adjusted EBITDA and DCF should not be considered
alternatives to Net Cash Provided by Operating Activities or any other
measure of liquidity or performance presented in accordance with GAAP.
Adjusted EBITDA and DCF exclude some, but not all, items that affect
cash from operations and these measures may vary among other companies.
As a result, Adjusted EBITDA and DCF may not be comparable to similarly
titled measures of other companies.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of U.S. federal securities laws, including statements with
respect to the ability of the Partnership to achieve contract
extensions, new customer agreements and expansions; the ability of the
Partnership’s Sponsor to develop additional projects and expansion
opportunities and whether those projects and opportunities would be made
available for acquisition, or acquired, by the Partnership; and the
amount and timing of future distribution payments and distribution
growth. Words and phrases such as “is expected,” “is planned,”
“believes,” “projects,” and similar expressions are used to identify
such forward-looking statements. However, the absence of these words
does not mean that a statement is not forward-looking. Forward-looking
statements relating to the Partnership are based on management’s
expectations, estimates and projections about the Partnership, its
interests and the energy industry in general on the date this press
release was issued. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions
that are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecast in such
forward-looking statements. Factors that could cause actual results or
events to differ materially from those described in the forward-looking
statements include those as set forth under the heading “Risk Factors”
in the Partnership’s most recent Annual Report on Form 10-K and in our
subsequent filings with the Securities and Exchange Commission. The
Partnership is under no obligation (and expressly disclaims any such
obligation) to update or alter its forward-looking statements, whether
as a result of new information, future events or otherwise.

Contacts

USD Partners LP
Adam Altsuler, 281-291-3995
Senior Vice
President, Chief Financial Officer
[email protected]
or
Ashley
Means Zavala, 281-291-3965
Senior Director, Finance & Investor
Relations
[email protected]