Jake Gomolinski's questions to USD Partners (USDP) leadership • Q3 2022
Question
Jake Gomolinski of Ellington Management Group asked for an update on recontracting efforts given the widening crude differentials, sought clarification on how the SPR release impacts the net differential for rail, and questioned at what price point the company would see full utilization. He also inquired about the tariff structure and revenue split for the DRUbit value chain across different company entities and asked for the latest outlook on the 2023 EBITDA guidance for Hardisty South.
Answer
CCO Brad Sanders and CEO Dan Borgen explained that while gross differentials have widened, the effective net spread for rail is narrower due to a temporary $10-$15 discount on Canadian heavy sour crude in the Gulf Coast caused by SPR releases. They pointed to forward curves suggesting an $18-$20 differential in Q2 2023, which would signal crude-by-rail parity and drive utilization at Hardisty, Stroud, and Casper. Regarding the DRUbit tariff, CEO Dan Borgen stated the goal is to convert all assets to the more profitable, long-term DRUbit model, ensuring any deal is a net positive for the partnership as reviewed by a conflicts committee, but did not detail the specific revenue split. CFO Adam Altsuler noted that while the company is optimistic about 2023, the prior EBITDA guidance for Hardisty South has likely been revised down due to market volatility and the timing of contract signings.