USDP - Earnings call transcript Q2 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the USD Partners LP, Second Quarter 2019 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Jennifer Waller, Associate Director of Financial Reporting and Investor Relations for opening remarks. Please go ahead.

Jennifer Waller

Good morning and thank you for joining us. Welcome to our second quarter 2019 earnings call. other Dan Financial Chief Chief Officer; as as are Altsuler, Officer; Commercial today senior well Chief our our Brad several me Borgen, Executive our Adam Officer management With team. of members Sanders, our announcing issued X X June XXXX. release ended for the Yesterday evening, press results we XX, a and months

find our website at you a of copy on If the press one would like release, you can usdpartners.com.

today’s transcript. on press no XXXX. statements longer release as or that the to of today, may Safe Any at accurate disclosure and August Before replay last the on time proceed, forward-looking night’s presented call X, management only speaks please please note be any of we Also, provided note applies the time-sensitive information statement statements of Harbor information webcast call. regarding this of reading that

of Finally, most to financial non-GAAP measures. today’s Please GAAP reconciliations comparable include financial will last for the press call release discussion night’s see measures.

would the like And with to to that, call Dan turn I Borgen. over

Dan Borgen

Thank and today. us Thanks everybody. you, for good Jennifer joining morning

are which previously the stated positive XXth the quarterly investment XXth quarter, guidance, and at of our of to multi-year terminals grade guidance. both again, with Stroud we contract customers. consistent our announce XXXX partnership increase, quarter quarterly say distribution consecutive the another pleased distribution to are one partnership consecutive our let excited distribution with at me We our is extensions Also this successful announce execution Hardisty and that

and our customer. first of today, we remaining have at are renewed of XXX% our Hardisty As contracted phase

into Partnership’s was usual back and financial results we recent the development. liquidity latest re-contracting in going to more off market as on will up commercial Adam in position, from momentum renewed these We on We showing the next to jump begin look associated continued expect then the and results. the an with our rates near efforts to higher quarter’s us update the reporting financial forward with contracts start these future.

and Adam, go take it. ahead

Adam Altsuler

afternoon, and our our financial on for quarter the with plan earnings you, quarter Yesterday XXXX quarter results joining issued second we details and thank the morning. our additional close included the after this issue market of for Thank second we us and operating of which to Dan XX-Q you details the today. call release

influenced customer to For the terminal, by The revenues net conclusion in quarter resulting the $X $XX.X distributable net of higher $X.X million, operating relative this provided Casper reduction rate EBITDA Stroud the of we were XXXX. end escalations. terminal of partnership’s $X.X same quarter, second the the during million. of reported due Partially income results second million, quarter of in lower to activities cash the were cash offsetting at million revenues adjusted by primarily and at from the flow the XXXX agreement revenues at of

Additionally, by the associated partnership during fees. and pipeline operating volumes experienced in offset its partially reduction variable the terminals Stroud with which higher were costs quarter Hardisty at higher

higher rates XX% by higher of associated cash interest relative flow activities operating quarter Also factors decreased the for operating and result already by relative decreased mentioned, during quarter second in XXXX as second well quarter higher EBITDA of provided paid average derivative factors higher interest non-cash and higher weighted rates the debt of X-year with a of compared cash coupled cash Net expense of quarter quarter. quarter. by already income distributable as XX% a the a result interest November the decreased interest resulting XXXX XXXX for into with the entered to the with as adjusted as primarily second the balance of as Net to from that a mentioned. result both the associated partnership XXXX as loss operating the instrument to during rate interest outstanding of

approximately As based including EBITDA and had on $XXX secured liquidity subject XX, its borrowing financial capacity on The of Partnership of cash X of of financial covenants million partnership adjusted senior is available million net leverage covenants. LTM times million, compliance cash and undrawn XXX its XXX to June X.X credit and million unrestricted compliance with equivalents quarter its represents facility distribution unit over the in per of basis, and covenants. July per The today, second growth quarter of the On business the with XX Partnership of XXXX. cash close of unitholders annualized the at distribution $X.XXX or is of X. record August declared quarterly X.X% financial an to on which $X.XX XX, a the on over of unit prior payable August X.X% continue

grade original contains are excess its the the Dan which Hardisty is to multiyear and at quarter, remaining as monthly to fees also the distribution guidance. our from stated quarterly previously we this expansion. the pleased We our consistent by higher. were terminal announce consistent successful our service and consecutive using that generally Hardisty slightly were increase capacity as pleased of Partnership’s to distribution agreements are mentioned, both the As investment extensions our Hardisty expects capacity renewal South announce one take-or-pay The sponsor’s terminals XXXX by available Partnership of arrangements with execution at customers. limited with with that subletting contract XXth Stroud payments well

at has and year. the expect To-date, Casper, update believe pipeline the of and of connection. and Brad on and will the Dan growth that Casper’s the this the forward Once exciting developments project announced increase we networks outbound to around the flows. the to connection the pipeline connection about of will November million the complete pipeline talk more additional and we end As outbound Casper associated the connection growth refineries a enhancing $XX.X to with ultimately access by move partnership construction spent continue regarding terminal’s quick completed, approximately potential sustainability organic new our cash previously of

for with we transition had this of somewhat WTI remained to of narrower lower quarter our forward oil That transition third end a the possibly a between the spread previously barrel the half as today to on the That of extend are to contracted crude today is a fourth suggest be customers partnership than could where than Also, being period and and said, this experienced. however given continue case period year longer incentives utilize first of communicated, spreads distribution the for the curves quarter. time typically of the still the through spot WCS and has terminals for expected our took basis. the given expected that increased the we period

turn Dan. And to back with the over I will that,

Dan Borgen

on some of our quick market now we and ask Appreciate late. the current will have it, us I Adam. update Brad a here successes of to had give commercial Brad?

Brad Sanders

Yes. Thanks, Dan.

is are well, conditions the remained narrow. and have the consistent the less that between and market is, spreads are program than $XX has the current beginning with the summer supply year. of Houston to what been the $XX we in The which is blends levels drivers those the So since level. Hardisty curtailment current This summer create a remained market now government as same and of a in store

turnarounds year balance move is winter reduce and the into forward as as we through going expectation standpoint. levels likelihood continue we blends from and move of the the curtailment of to demand a Our

It’s would the a move to their and our as near is through a the these then go we in $XX fall, in standpoint spread at periods the here $XX, U.S. facility. record fall expectations capacity turnaround refiners matter our winter. into at current that we widen spreads from be So remain of which from utilization will Hardisty

Canada. out an strongly continue solution to we of egress perform industry as for So

the say Moving again commercial executed customers with one I the it this Hardisty are already on terminal. to discussions renewal year, previous in it’s higher consistent but specifically of investment July at rail Hardisty around of The remaining renewed the extended partnership will that contracts. fees and and and Stroud, take-or-pay our at and terms was with been mentioned, grade capacity than

with customer and as Additionally, on look Stroud, to renew reporting to share. of in year. of the next this July February to this have we in we and remaining that the balance Hardisty progress and more slots can extend future forward the come due work updated at We we which continue

recently, This terminalling Hardisty USDG’s been a engaged is negative APMC, Hardisty terminal. the executed Marketing rail announced agreement at the program government starting crude to discussed, further the not in sponsor Last Petroleum to agreement the currently that standpoint sector. This CIBC be completed of expansion its will Alberta to and at that’s private of development South transition point, Alberta process its economic as out this Hardisty rail Capital capacity terminal of to from transloading January funded have growth the impact month, expects At support will season Regarding they by value an do by this take-or-pay with XXXX. this APMC. the USDG. a oversee fall rights Canada and be is agreement pursuant this and to for The Alberta here in agreement any at we this or our relates open it certainly sponsor service we help year. our the divestment have Commission, multiyear government previously Markets by of headline anticipate to as

August. to Express terminal outbound capacity delivered capacity. at of announced reducing currently capacity concluded of addition be XXXX in and first if most stations. recently with incremental to the open resulting from that is pump as could increase pipeline be a agent the by We the anticipate barrels of nearby the season a from partnership’s to an the to program in additional the the and Enbridge and additional near XX,XXX terminals Casper, late the drag not expected is a Express are to of on quarter some, or connections use pipeline moving Finally, increased active day full of up This pipeline volumes Casper

get some Casper hopefully of development half excited rail share news and here are we terminal second at and by we as August. benefit the that to our we expect will So, time

Dan Borgen

the about you Alright, and those sponsor commercial are of of the now Brad. Could of a the statuses what updates please? few talk Thank.

Brad Sanders

reported day barrels Channel about as that lion’s additional day volumes about said which in is about egress of throughput. doing Yes, and have we seek Express Hardisty takeaway a to facility, has talk Canada rail that capacity a of barrels will a our of XX,XXX we at about before share when think new have we the are XXX,XXX potentially we which Ship will talk got total, I APMC what as talk creating where in Houston this

those they origin given U.S. CBR of crude Coast rail seek volumes will those to destination their the All of seek Coast logical ability upgrade refineries heavy Gulf by takeaway sour the have is in the as all The and complexity and most to will destinations. need or crude. Gulf

for any and a very our – for and a Houston bit the future So, potential to destination a at related solving in rail Ship Dilbit our but out bitumen about about talk Channel purposed we here at as are will DRUBIT facility. solve production second, that Canada of we by

who are barrel progressing customers origin. at the we So with control nicely

the potential and to We particular Similarly, later. a are hard Houston our on into a work Channel meet rail from the The solutions of on for that. and the to that excited Mexico competitive we incremental Texas volume. bulk, solution sustainable imports for share import in to of create going logic The now U.S. Ship than about of needs to continue are build from and in hopeful dynamics Deepwater need is export help what’s or that light Mexico delivery products is facility at industrial are rail, create sooner updates Mexico’s origin and demand their real. by to we

we options continue all our NGLs, things on at on Channel, to export nat or Ship phone things of gas things petrochemicals for export oil talked associated new production. to this find gas Every Houston to before have Finally, that that oil, in call. liquids have crude fashion some egress customers and/or for potential support work with all nat with to reasons crude all we production and/or opportunities form

work So, potential here that are later. sharing of closely again than the we customers announcements on enough far we the continue with about are sooner along excited to that and

in is currently terminals in strategy supported build-bulk that in Quick Ship by Houston Mexico, our we update on Mexico. destination our and are rail terminal Channel our clearly developed Mexico have

have we two We currently that have.

to that other on Our throughput, and incrementally in them strategy then development terminals switching. there those full we are levels final and is to various grow storage include three of and currently keep

our mentioned of our growth I supports excited uniquely of DRUs. Mexico, to Texas it DRUBIT, how lots are lots about Deepwater, interfaces about we channel but DRU, opportunities type folks and So, Ship talking specific of our Houston information, activity.

on and got opportunity add to on reporting more that? unit, value to this Dan, We continue the you more and with work in the diluent look our future. on to forward recovery partners near

Dan Borgen

Yes, thanks, Brad.

three on currently the we DRU, DRU our process. hold reminder a patents on Just

that very as hold to And level have as highest the have look are forward had. best we late in But I the for trademark out announcing around the and summer feel those previously a the still we said, Gulf of to as to more, very the Canada coming strategic we good on conversations we completed. the pipes, there. have through as with stated positive markets the solution heavy our customers got we lighter more relieve say existing in some steps than deliver pipeline that Brad say we have and flow take that ever Brad that the other will We DRUBIT. perhaps allow heavies of crudes proud of and talking We places. to as project barrel to for DRU ever that. have some is We the about about said, momentum through early that deep We been DRU Coast pressure, fall system believe

I any now. will up it that, to be and with happy for open entertain questions So,

Operator

Bank question the will Walker Derek And first Instructions] America. from of [Operator come with

Derek Walker

good guys. Hi, morning

Dan Borgen

Derek. morning Hey,

Derek Walker

leasing for how like that USDP? than little couple the to sponsor the the can maybe a Dan, higher contract, is with compared starting lease were more as other to and you and how granular Hardisty for sounds it between rates little me, works just a a renewals Just prior the Hardisty get at the contracting, agreement bit the

Dan Borgen

Yes.

little price. far renewals, the So and would right, you higher than are both are term Derek, a I say they more bit as in as

activity towards So Brad we for that. the a of good trending the renewals as of have for that, extensions, growth those good at ongoing around feel assets, you about very obviously at obviously We currently capacity say, very we the of we that feel have are good about that it’s with that and full because demand heard assets. and who line time we good are a

to on think the we the – more don’t I we of continuing speak Adam, – that assets that look pass-through? just I have we the the look shows as obviously partnership and renewal that we in demand increased pass-through comment the are getting the but forward and you agreement, getting. we extensions to basis nature capacity with at Adam that that are continued the commitments have to the want

Adam Altsuler

Yes, you bet.

of doing really customers commitment based these some the as on and to this the today. renewal Derek, basically the capacity just of and renewals some So cycle, timing during in got to in initial so full their cases increase of terminal

revert it’s to as partnership. there customer slots at we the remaining will the subletting renewals spots if those to partnership those have Hardisty at – to actually then a back is Hardisty we X really from and X, in and X Hardisty when nature, just overflowing is and that South Hardisty becomes available those but capacity are south with then pass-through so the of as some these so those sign Stroud order service And now

Brad Sanders

to going build a are You schedule?

Adam Altsuler

Brad, on our going Yes. are and thanks, plan we our presentation. contract that to also, simplify to we MLP will to try And Conference Citibank next we in summary also investor update week

Derek Walker

how Thank you. little on great job Maybe so should as half have mentioned, around you second around about re-contracted? the I X.X done guess the just Hardisty, think coverage just was re-contracting, a sort in transition, the fully and coverage a of the with bit we

Dan Borgen

open And be back have kind is kind see it’s of in as kick X.XXx announced. that mentioned, so to time still towards well push and and just to as the of regard a of higher QX. of to coverage Express, Yes, Brad confidence January there, target will, lot our Casper, as with impact then year. push the rates an I I to going would is in on been it’s that QX, really discuss of think of of more in distribution It’s next trend say season we a you and couple there publicly a in will one things the there

just going to towards a X.XXx we turn it’s So believe happen, towards to that’s going also the later back that little happen bit while help will so still coverage.

Adam Altsuler

spreads Fall at and spreads should Casper. with throughput our winter various help and certainly terminals

Dan Borgen

answer for that you, Derek? that Did

Derek Walker

may. just thank Maybe Yes, I if you. another follow-up

are the of Just think around still side, just that any your is be that’s government – is of but as your have will on what how you the how it there – know contract Alberta still you do like in involvement and and that that but involvement that may process contract, transition I sounds ongoing, as far any negative how in process will? you sort impact

Dan Borgen

Yes.

you question. Good Let Derek. help there, me

APMC, out voiced that to private his new those government Premier, government obviously willingness that and change, transfer market and there will So, sector. get if transition Premier was the transfer of you a the Kenney to desire has and into

been I are customers are there that think the multi-year in that by existing contracted that government. have not announcements interested some in you of many and that – have very those customers we spots our those with today seen our slots public has

reminder, our crown have with phase approval and a the to. government rights agreement, part by full of as Just for of contract the the we goes that backed whoever well as that is

have that and with are through the closely and working CIBC their So us acknowledged process. government

slots those those approval those So we in sector. rights to or in private part, terms the to of see in to go transition approving who whole have

stand and the behind through to their Also as government those. process, stated government publicly by continues the

government. a have our rates the were market We – rate with

publicly to multiple that the those be if behind little government of as those transfer any agreements partnership. certainly, they There there sector. those would over is parts any standing And agreements. private that would change has be said economic the So the results to in we have very the also concern

that. a a those. is just one We a There is different is of component. There component. There of railcar rail are of number agreement. freight terminalling is pieces There

So multifaceted. complex, it’s multifaceted, but not necessarily

that, you from into and out have that but seen to clear utilize intent the that, say rail of because the barrels. allowing I to to sense, barrels government were curtailed that them the publicly was slots and makes that’s dip minister say to the of comments set barrels those that additional and energy of going additional I what have around slots move government the positiveness market. industry’s barrels the further think others would that, their in doesn’t out being able voiced is more move of The the by to happen,

very that all it remain agreement. around strong been and whether has that extremely on those about agreements this as their or said, way we So of the ours railcar bullish acting APMC, terminalling and full customer a intent the through process around all activities. forward government leaning be

we see And forward again customers that, bullish so Canada. around private very very, that those successful Does those working of to existing sector and hopefully overall a Derek? transfer new agreements remain egress out help and and barrel look the customers helps of that into the with of with to the

Derek Walker

you a half helpful? potential any better of the It last just see maybe around one conversations update projects sense of with the for there on of just little but color get may you FID look some would sort thoughts appreciate do me, would gone does. of like, customers, second be maybe potential I a the the Thanks, potential scope have how Dan. If have those perhaps DRU, the year, of what this in do

Dan Borgen

Sure.

multi-years, sign-offs very project implementation customers Let at authority. take generally customers. levels. we level the – call commitment. the the would this and take on multi-level and certainly, I sensitive customers of customers in commitments the senior is a me my going plus Obviously, discussions of said senior discussions are very I as a new like success strong there Around comments, with the that engaged year the and is with types DRU XX in early there existing I’ll DRU, it customers are say would Those most today. of say of

publicly approximately with customers discussions to XX relates in and levels time active agreements it various are those that. finalizing for around the months. stated We is as build project are We multiple

agreements that ground that and said a barrel barrels looking to pipeline. Dilbit DRU. We we last first putting existing But also the that an of have to which over and finalize covered be need Reminder, out a of around obviously getting barrels lot are years a the done. day of project XXX,XXX their that build of a engineering commercial that of success standpoint the to XX,XXX in phase up underpin would free starting commercial from and the that would couple the of day DRU – we out, an XXX,XXX

a makes put barrel that are into then build. you capacity logic. you go-to-market more that DRU and and that a if have free It’s that from DRUBIT be can efficient So that customer and kinds – barrel new the a up have – pipe need industrial you just most of move into DRUBIT all and pipeline that and a and makes

that these market talking anytime for lot see think of our to in takes conditions had are but happen, to the a customers destiny you right it multiple we we some have who We during of and more. own this control that a industry, take bit saying cycles got time have about new have I the and for some you time been plow ground,

gained success late that with we feel there forward and opportunities got in produced those future again the discussions fall at customers. as in takeaway And have announcing our create barrel. commercialization invest And we to we for stated We to our in have have that are ever early summer, as best felt of at commercial strategically we Does that. multi-levels a help netbacks the look that? of tremendous good we completion prior, those where as with have we discussions, around

Derek Walker

That’s it. Appreciate me. Dan. for it Thanks,

Dan Borgen

means Look lot. to when can seeing support. you. a Derek. Thank and It you your all it, we again forward Appreciate appreciate

Operator

closing conference comments. there I like to turn time, further back questions. are no the over Borgen to this for at And any would Dan

Dan Borgen

Okay, thanks. it. Appreciate

support. Derek usual, and As the appreciate questions great again has

very successful announcement our recent today discussions of last have of renewal remaining the been customer. renewal first contract representing with and Stroud at completed the Our phase our Hardisty

to been have support the We able and strong where headed. at for evidencing again and higher so multi-year that terms do that’s in terms assets

have we scope cash remain of business the that, storage future. possible and previously add partnership flows, let commercially seeing there could we or we investment just and Today, candidates the selected agreements that to at tenure in them successful. that of at really discussed covered are from to addition, drop-down many Mexico and our globals several America projects North from in In me rates that sponsor. the operating be our dollar-based for both agreements grade bullish markets done are down nationals underpin continue distribution there those are getting those We that

I we in connectivity well, a major things have that that are we – in of we does biggest announcing to those barrels We great completed have strategic. destination and asset, needs see Coast got but for Brad and gaining – on to have short-term, for consumption a for in talking it future, we good so America overnight, the it’s The Obviously, we as the look Channel am the that agreement. again And weary about that are barrel the for there. have type leaves and it’s the mentioned demand that to Canada Houston point Gulf every North in high continue we it’s on barrel right Ship that. asset are and heavy momentum forward happen around also that good connectivity – as ground not that now, gotten activity agreements very new

have to now strong of we lot are since continue the and a to seeing very that that confirmed from the done day can flow have X with getting we cash are we and get nature work point the cash reminder, its feel we expand we to A agreements have to flow. We continue asset where that strategic owned about commercial customers. positive that

addition kinds the that, to next those months. of hope things we of couple to announce In in

contracted And remain certainly let our the diligent on to this, the assets to and utilization. at at that. And are contracted partnership assets down capacity .As me trend into assets as continue dropping we you extremely full heard the partnership say or our sponsorship and for efforts trend full just in into upstairs we

grow to for those partnership We strongly flows be to are we are counterparties and going about as able with that. mid investment to long-term contracted grade it cash looking we efficiently the to want appropriate feel by do opportunities. and long-term, We our very

more our very at business have ever activities, elsewhere with so extensions, we growth forward had our renewal things momentum and we We the huge got than look announcing in have our very, sponsor Deepwater, in today DRU soon. to and the Mexico those

with thanks the on are people we Thank talking again know the call. you. very say exciting forward announcing the time I I you new So and and look that, will some soon for to in busy with all business. development

Operator

in participating conference Ladies you for and gentlemen, thank call. today’s

You may now disconnect.

USD Partners (USDP) 6 Aug 192019 Q2 Earnings call transcript