HOUSTON--(BUSINESS WIRE)--USD Partners LP (NYSE:USDP) (the “Partnership”) announced today its acquisition of a crude oil terminal in Stroud, Oklahoma, (the “Stroud terminal”) to facilitate rail-to-pipeline shipments of crude oil from the Partnership’s Hardisty terminal in Western Canada to the Cushing, Oklahoma, crude oil hub (the “Cushing hub”). As part of the transaction, the Partnership has extended the term of take-or-pay terminalling services agreements related to 25% of the Hardisty terminal’s available capacity by approximately one year.
Concurrent with the acquisition, 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. The term of this agreement is scheduled to begin on October 1, 2017, and to conclude on June 30, 2020.
The all-in $25.0 million purchase price represents approximately 2.5x the estimated 2018 Adjusted EBITDA to be generated by the 33-month take-or-pay contract with the Stroud customer and includes approximately $2.2 million of one-time costs and anticipated growth capital expenditures to retrofit the Stroud terminal to handle heavy grades of Canadian crude oil. The transaction is expected to be accretive to the Partnership’s 2018 and 2019 distributable cash flow per limited partner unit. The Partnership funded the transaction with available capacity on its revolving credit facility.
“We are proud to announce the successful repositioning of an underutilized asset to create a competitive network solution for our new customer’s growing oil sands production,” said Dan Borgen, the Partnership’s Chief Executive Officer. “Our Hardisty to Stroud rail solution delivers immediate takeaway capacity, preserves the integrity of our customer’s heavy barrels and enables substantial end market optionality at Cushing with available pipeline capacity to the Gulf Coast.”
“This transaction reinforces the strategic positioning of our Hardisty asset and confirms our long-held view that rail will continue as an important component of midstream transportation infrastructure in Western Canada,” said Jim Albertson, Vice President, Commercial Development – Canada. “We expect the pairing of the Stroud destination terminal with our advantaged origination terminals will drive additional commercial opportunities, particularly as we approach another cycle where growing crude oil production from Western Canada will exceed available takeaway capacity.”
The Stroud terminal is located on 76-acres and includes 104 railcar spots with the ability to unload one unit train per day, two 70,000 barrel onsite storage tanks and one truck bay. Additionally, the terminal includes a 12-inch diameter, 17-mile pipeline directly connected to the Cushing hub. Inbound product is delivered by the Stillwater Central Rail, which handles deliveries from both the BNSF and the Union Pacific railways. The Partnership also obtained a lease for 300,000 barrels of crude oil tank storage at the Cushing hub to receive outbound shipments of crude oil from the Stroud terminal.
To facilitate the origination of barrels from the Partnership’s Hardisty terminal, USD Marketing LLC (“USDM”), a wholly-owned subsidiary of USD Group LLC (“USDG”), assumed the terminalling services agreement the Partnership previously had with J. Aron & Company at the Hardisty terminal and entered into an agreement with the Stroud customer to provide access to the combined monthly loading slots previously held by both USDM and J. Aron. Additionally, the contracted term for this capacity has been extended to June 30, 2020.
In exchange for contributing its Hardisty rail slots to facilitate the origination of barrels for the Stroud customer, the Partnership granted USDM the right to market the remaining capacity at the Stroud terminal in exchange for a per barrel marketing fee. USDM will fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additional barrels. Management anticipates that the fees from USDM for any incremental barrels will be accretive to the Partnership’s cash flows from operating activities and distributable cash flow. Upon expiration of the Stroud customer’s contract in June 2020, the same marketing rights will apply to throughput 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 from the Stroud customer during the 12 months prior to expiration. The Partnership also granted USDG the right to develop other projects at the Stroud terminal in exchange for the payment of market compensation for the use of the Partnership’s property for such development projects. Any such development projects would be wholly-owned by USDG and would be subject to the Partnership’s right of first offer with respect to midstream projects developed by USDG.
The Partnership has posted a presentation on its website with additional information regarding its acquisition of the Stroud terminal. The presentation can be accessed from the Partnership’s website at http://investor.usdpartners.com/events-and-presentations.
About USD Partners LP
USD Partners LP is a fee-based, growth-oriented master limited partnership formed in 2014 by US Development Group LLC to acquire, develop and operate energy-related logistics assets, including rail terminals and other high-quality and complementary midstream infrastructure. The Partnership’s assets consist primarily of: (i) a crude oil origination terminal in Hardisty, Alberta, Canada, with capacity to load up to two 120-railcar unit trains per day, (ii) a crude oil terminal in Casper, Wyoming, with unit train-capable railcar loading capacity in excess of 100,000 barrels per day and six customer-dedicated storage tanks with 900,000 barrels of total capacity and (iii) a unit train-capable ethanol destination rail terminal in West Colton, California. In addition, the Partnership provides railcar services through the management of a railcar fleet that is committed to customers on a long-term basis.
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 acquisition of the Stroud terminal and its impact on our cash flows and Adjusted EBITDA, the growth and sustainability of Canadian crude oil production relative to takeaway capacity, our ability to grow business at the Stroud terminal, the creditworthiness of our customers and their ability to pay, and the ability of our network of terminals to drive additional commercial opportunities. 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.