USD Partners
Annual Report 2017

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KUSD Partners LP - USDPFiled: March 09, 2018 (period: December 31, 2017)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-KxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 001-36674 USD PARTNERS LP(Exact name of registrant as specified in its charter)Delaware30-0831007(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)811 Main Street, Suite 2800Houston, Texas 77002(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code (281) 291-0510Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Units Representing Limited Partner Interests New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 preceding12 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 x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained,to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growthcompany. 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 xNon-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company xIf 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 financialaccounting standards provided pursuant to Section 13(a) of the exchange Act. xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xAs of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s Common Units held bynon-affiliates was $133,789,085 computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity.As of March 6, 2018, the registrant has outstanding 21,914,224 common units; 4,185,418 subordinated units; 38,750 Class A units; and 461,136 general partner units.DOCUMENTS INCORPORATED BY REFERENCE: NONE Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS Page PART I Item 1.Business1Item 1A.Risk Factors20Item 2.Properties47Item 3.Legal Proceedings47Item 4.Mine Safety Disclosures47 PART II Item 5.Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities48Item 6.Selected Financial Data49Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations51Item 7A.Quantitative and Qualitative Disclosures About Market Risk86Item 8.Financial Statements and Supplementary Data89Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure141Item 9A.Controls and Procedures141Item 9B.Other Information142 PART III Item 10.Directors, Executive Officers and Corporate Governance143Item 11.Executive Compensation151Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters155Item 13.Certain Relationships and Related Transactions, and Director Independence158Item 14.Principal Accountant Fees and Services162 PART IV Item 15.Exhibits and Financial Statement Schedules163Item 16.Form 10-K Summary163Exhibits 164Signatures 166Unless the context otherwise requires, all references in this Annual Report on Form 10-K, or this “Annual Report” or this “Form 10-K” to “USD Partners,” “USDP,” “thePartnership,” “we,” “our,” “us,” or like terms used in the present tense or prospectively (beginning October 15, 2014) refer to USD Partners LP and its subsidiaries. References in thisAnnual Report to “the Predecessor,” “we,” “our,” “us,” or like terms, when used in a historical context (periods prior to October 15, 2014), refer to the following subsidiaries,collectively, that were contributed to USD Partners in connection with our Initial Public Offering of 9,120,000 common units that we completed on October 15, 2014, the “IPO”: SanAntonio Rail Terminal LLC, USD Logistics Operations GP LLC, USD Logistics Operations LP, USD Rail Canada ULC, USD Rail International S.A.R.L., USD Rail LP, USD TerminalsCanada ULC, USD Terminals International S.A.R.L. and West Colton Rail Terminal LLC. The Predecessor also includes the membership interests in the following five subsidiaries ofUSD which operated crude oil rail terminals that were sold in December 2012: Bakersfield Crude Terminal LLC, Eagle Ford Crude Terminal LLC, Niobrara Crude Terminal LLC, St.James Rail Terminal LLC, and Van Hook Crude Terminal LLC, collectively known as the “Discontinued Operations.”Unless the context otherwise requires, all references in this Annual 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 USDGroup 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 itsparallel and co-investment funds and related investment vehicles; and (v) “Goldman Sachs” refers to The Goldman Sachs Group, Inc. and its affiliates.This Annual 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-lookingstatements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Futureactions, 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 usin this Annual 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 willdetermine 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) changes in general economic conditions; (2) the effects of competition, in particular, by pipelines and other terminalling facilities; (3) shut-downs or cutbacks at upstreamproduction facilities, or refineries, petrochemical plants or other businesses to which we transport products; (4) the supply of, and demand for, crude oil and biofuel rail terminallingSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.services; (5) our limited history as a separate public partnership; (6) the price and availability of debt and equity financing; (7) hazards and operating risks that may not be coveredfully by insurance; (8) disruptions due to equipment interruption or failure at our facilities or third-party facilities on which our business is dependent; (9) natural disasters, weather-related delays, casualty losses and other matters beyond our control; (10) changes in laws or regulations to which we are subject, including compliance with environmental andoperational safety regulations that may increase our costs; and (11) our ability to successfully identify and finance acquisitions and other growth opportunities. For additional factorsthat may affect results, see “Item 1A. Risk Factors” included elsewhere in this Annual Report and our subsequently filed Quarterly Reports on Form 10-Q, which are available to thepublic from the U.S. Securities and Exchange Commission, or SEC, at their website www.sec.gov and from our website at www.usdpartners.com.iiSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GlossaryThe following abbreviations, acronyms and terms used in this Form 10-K are defined below:AOCI Accumulated other comprehensive incomeAPI Gravity American Petroleum Institute GravityBbls or bbls Barrels, common unit of measure in the oil industry, which equates to 42 U.S. gallonsBitumen A dense, highly viscous, petroleum-based hydrocarbon that is found in deposits such as oil sandsBpd or bpd Barrels per dayCAA Clean Air Act, as amendedCAD or C$ Amount denominated in Canadian dollarsCWA Clean Water Act, as amendedDiluent Refers to lighter hydrocarbon products such as natural gasoline or condensate that are blended with heavy crude oil toallow for pipeline transportation of heavy crude oilDOT U.S. Department of TransportationEBITDA Earnings before Interest, Taxes, Depreciation and AmortizationEPA Environmental Protection AgencyEthanol A clear, colorless, flammable oxygenated liquid typically produced chemically from ethylene, or biologically fromfermentation of various sugars from carbohydrates found in agricultural crops and cellulosic residues from crops or wood,which is used in the United States as a gasoline octane enhancer and oxygenateExchange Act Securities Exchange Act of 1934, as amendedFERC Federal Energy Regulatory CommissionGAAP U.S. Generally Accepted Accounting PrinciplesGeneral Partner USD Partners GP LLC, the general partner of the PartnershipGHG Greenhouse gases such as carbon dioxideHeavy crude A crude oil with a low API Gravity characterized by high relative density and viscosity. Heavy crude oils require greaterlevels of processing to produce high value products such as gasoline and dieselHydrocarbon-by-rail The transportation of hydrocarbons, such as crude oil and ethanol, by rail, particularly through the use of unit trainsIPO The initial public offering of 9,120,000 of our common units which priced on October 8, 2014 and closed on October 15,2014Legacy railcar A DOT Specification 111 railcar that does not comply with the Association of American Railroads (AAR) CasualtyPrevention Circular (CPC) letter known as CPC-1232 which specifies requirements for railcars built for the transportationof certain hazardous materials, including crude oil and ethanolLIBOR London Interbank Offered Rate—British Bankers’ Association’s average settlement rate for deposits in United StatesdollarsManifest train Trains that are composed of mixed cargos and often stop at several destinationsMbpd A thousand barrels per dayMMbbls A million barrelsMMbpd A million barrels per dayNGA Natural Gas ActNGL or NGLs Natural gas liquidsNYMEX The New York Mercantile Exchange where commodity futures, options contracts and other energy futures are tradedNYSE New York Stock ExchangeOil sands Deposits of loose sand or partially consolidated sandstone that are saturated with highly viscous bitumen, such as thosefound in Western CanadaPADD III Petroleum Administration for Defense District consisting of Alabama, Arkansas, Louisiana, Mississippi, New Mexico andTexasPartnership Agreement Second Amended and Restated Agreement of Limited Partnership of USD Partners LPPartnership USD Partners LP and its consolidated subsidiariesSEC U.S. Securities and Exchange CommissionThroughput The volume processed through a terminal or refineryUnit train Refers to trains comprised of up to 120 railcars and are composed of one cargo shipped from one point of origin to onedestinationiiiSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IItem 1. BusinessOVERVIEWWe are a fee-based, growth-oriented master limited partnership formed by US Development Group LLC, or USD, to acquire, develop and operatemidstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. We generate substantially all of ouroperating cash flows from multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies, refiners andmarketers. Our principal assets include a network of crude terminals that facilitate the transportation of heavy crude oil from Western Canada to key demandcenters across North America. Our operations include railcar loading and unloading, storage and blending in onsite tanks, inbound and outbound pipelineconnectivity, truck transloading, as well as other related logistics services. We also provide our customers with leased railcars and fleet services to facilitatethe transportation of liquid hydrocarbons and biofuels 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 suchproducts. We may on occasion enter into buy-sell arrangements in which we take temporary title to commodities while in our terminals. We expect any sucharrangements to be at fixed prices where we do not take commodity price exposure.We believe rail will continue as an important transportation option for energy producers, refiners and marketers due to its unique advantages relativeto other transportation means. Specifically, rail transportation of energy-related products provides flexible access to key demand centers on a relatively lowfixed-cost basis with faster physical delivery, while preserving the specific quality of customer products over long distances.USD Group LLC, or USDG, which owns our general partner, is engaged in designing, developing, owning, and managing large-scale multi-modallogistics centers and energy-related infrastructure across North America. USDG’s solutions create flexible market access for customers in significant growthareas and key demand centers, including Western Canada, the U.S. Gulf Coast and Mexico. Among other projects, USDG is currently pursuing thedevelopment of a premier energy logistics terminal on the Houston Ship Channel with capacity for substantial tank storage, multiple docks (including bargeand deepwater), inbound and outbound pipeline connectivity, as well as a rail terminal with unit train capabilities.The following table summarizes information about our current terminalling facility assets:Terminal Name Location Designed Capacity (Bpd) CommodityHandled PrimaryCustomers TerminalType Hardisty terminal Alberta, Canada ~150,000(1) Crude Oil Producers/Refiners/Marketers OriginationCasper terminal Wyoming, U.S. ~105,000(2) Crude Oil Refiners OriginationStroud terminal Oklahoma, U.S. ~ 50,000 (3) Crude Oil Producers DestinationWest Colton terminal California, U.S. 13,000 Ethanol Refiners/Blenders Destination (1)Based on two 120-railcar unit trains comprised of 28,371 gallon (approximately 675.5 bbls) railcars being loaded at 92% of volumetric capacity per day. Actual amount ofcrude oil loading capacity may vary based on factors including the size of the unit trains, the size, type and volumetric capacity of the railcars utilized and the type andspecifications of crude oil loaded, among other factors.(2)Based on one 112-railcar unit train comprised of 28,371 gallon (approximately 675.5 bbls) railcars being loaded at 92% of volumetric capacity per day and up to 56 manifestrailcars per day. Actual amount of crude oil loading capacity may vary based on factors including the size of the unit train, the size, type and volumetric capacity of the railcarsutilized and the type and specifications of crude oil loaded, among other factors.(3)Our current Stroud terminal capacity of approximately 50,000 Bpd includes pipeline pumping capacity constraints on the pipeline that is utilized to move crude oil between ourStroud terminal storage tanks and third-party storage tanks at Cushing. With pump modifications, the 104-railcar unit train could unload up to 64,376 Bpd based on 28,371gallon (approximately 675.5 bbls) railcars being unloaded at 92% of volumetric capacity per day. Actual amount of crude oil loading capacity may vary based on factorsincluding the size of the unit train, the size, type and volumetric capacity of the railcars utilized and the type and specifications of crude oil unloaded, among other factors.1Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The terminal services agreements with customers of our Hardisty terminal have an initial term of five years. Five of these agreements extend throughmid-2019, and the sixth was extended through mid-2020. The two multi-year terminal services agreements with customers of our Casper terminal have initialterms of four and five years and extend through October 2018 and September 2019, respectively. The terminal services agreement with the customer of ourStroud terminal has a term of approximately three years and expires in June 2020. As of December 31, 2017, the volume-weighted average remaining contractlife of our take-or-pay terminal service agreements was approximately 2.0 years.In addition to terminalling services, we provide customers with leased railcars and fleet services related to the transportation of liquid hydrocarbons andbiofuels by rail on a multi-year, take-or-pay basis for periods ranging from five to nine years. In the aggregate, our master fleet services agreements have aweighted-average remaining contract life of 3.2 years as of December 31, 2017.One of our key strengths is our relationship with our sponsor, USDG, the sole direct subsidiary of USD. USD was among the first companies tosuccessfully develop the hydrocarbon-by-rail concept and has built or operated unit train-capable terminals with an aggregate capacity of over 900,000 bpd.Ten of these terminals were subsequently sold in multiple transactions for an aggregate sales price in excess of $740 million. From January 2006 throughDecember 2017, USD has loaded or handled through its terminal network a total of approximately 200 million barrels, or MMbbls, of liquid hydrocarbonsand biofuels. USD also has a nationally recognized safety record with no reportable spills at any of its terminals since its inception, as defined by the U.S.Department of Transportation, or DOT, Pipeline and Hazardous Materials Safety Administration, or PHMSA. USD is currently owned by Energy CapitalPartners, Goldman Sachs and certain of USD’s management team members.In September 2014, Energy Capital Partners made a significant investment in USD and indicated an intention to invest an additional $1.0 billion ofequity capital in USD, subject to market and other conditions, to support future growth and expansion plans. Energy Capital Partners, together with itsaffiliates and affiliated funds, is a private equity firm with over $16.0 billion in capital commitments that primarily invests in North America’s energyinfrastructure. Energy Capital Partners has significant energy infrastructure, midstream, master limited partnership and financial expertise to complement itsinvestment in USD. To date, Energy Capital Partners and its affiliated funds have 24 investment platforms with investments in the power generation, electrictransmission, midstream and renewable sectors of the energy industry.USD, through its direct ownership of USDG, has stated that it intends for us to be its primary growth vehicle in North America. We intend to strategicallyexpand our business by acquiring energy-related logistics assets related to the storage and transportation of liquid hydrocarbons and biofuels from bothUSDG and third parties. We also intend to grow organically by opportunistically pursuing growth projects and enhancing the profitability of our existingassets. We believe that our relationship with USD and its successful project development and operating history, safety track record and industry relationshipsprovide us with many avenues to execute our growth strategy.The following chart depicts a simplified organization and ownership structure as of December 31, 2017. The ownership percentages referred to belowillustrate the relationships among us, our general partner, USDG, USD, Energy Capital Partners and Goldman Sachs, and excludes 1,172,975 phantom unitsoutstanding under our Long-Term Incentive Plan at December 31, 2017.2Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.3Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BUSINESS STRATEGYOur primary business objective is to continue increasing the quarterly cash distributions we make to our unitholders over time. We intend toaccomplish this objective by executing the following business strategies:•Generate stable and predictable fee-based cash flows. Substantially all of the operating cash flow we expect to generate is attributable to multi-year, take-or-pay agreements. We intend to continue to seek stable and predictable cash flows by extending the term of our agreements with existingcustomers, as well as executing additional multi-year, take-or-pay agreements with existing and new customers across our terminal network.•Pursue accretive acquisitions. We intend to pursue strategic and accretive acquisitions of energy-related logistics assets related to the storage andtransportation of liquid hydrocarbons and biofuels from both USD and third parties. We regularly evaluate and monitor the marketplace to identifyacquisitions within our existing geographies and in new regions that may be pursued independently or jointly with USD.•Pursue organic growth initiatives. We intend to pursue organic growth opportunities and seek operational efficiencies that complement, optimizeor improve the profitability of our assets. For example, our Casper terminal includes the foundation for two additional storage tanks, which ifconstructed, may result in additional long-term volume commitments and cash flows.•Maintain a conservative capital structure. We intend to maintain a conservative capital structure which, when combined with our focus on stable,fee-based cash flows, should afford us access to capital at a competitive cost. Consistent with our disciplined financial approach, we intend to fundthe capital required for expansion and acquisition projects through a balanced combination of equity and debt financing. We believe this approachprovides us the flexibility to effectively pursue accretive acquisitions and organic growth projects as they become available.•Maintain safe, reliable and efficient operations. We are committed to safe, efficient and reliable operations that comply with environmental andsafety regulations. We strive to continually improve operating performance through our commitment to technologically-advanced logistics andoperations systems, employee training programs and other safety initiatives and programs with railroads, railcar producers and first responders. All ofour facilities currently meet or exceed applicable government safety regulations and are in compliance with recently enacted orders regarding themovement of liquid hydrocarbons and biofuels by rail. We believe these objectives are integral to the success of our business as well as to our accessto growth opportunities.BUSINESS SEGMENTSWe conduct our business through two distinct reporting segments: Terminalling services and Fleet services.These segments have unique business activities that require different operating strategies. For information relating to revenues from externalcustomers, operating income and total assets for each segment, as well as by geographic area, refer to Note 15. Segment Reporting of our consolidatedfinancial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report. For information relating to revenues frommaterial customers, refer to Note 17. Major Customers and Concentration of Credit Risk of our consolidated financial statements included in Item 8.Financial Statements and Supplementary Data of this Annual Report.Terminalling servicesThe Terminalling services segment includes a network of strategically-located terminals that provide customers with railcar loading and/or unloadingcapacity, as well as related logistics services, for crude oil and biofuels. These services are primarily provided under multi-year, take-or-pay agreements thatinclude minimum monthly commitment fees. We generally have no direct exposure to risks associated with fluctuating commodity prices, although changesin crude oil prices could indirectly influence our activities and results of operations over the long term. We may on occasion enter into buy-sell and otherarrangements in which we take temporary title to commodities while held in our terminals. We expect any such agreements to be at fixed prices where we donot take commodity price exposure.4Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our Terminalling services business consists of the following operations:Hardisty TerminalOur Hardisty terminal, which commenced operations in June 2014, is an origination terminal where we load various grades of Canadian crude oil ontorailcars for transportation to end markets. Hardisty is one of the major crude oil hubs in North America and is an origination point for over 90% of the exportpipeline capacity to the United States. The Hardisty terminal can load up to two 120-railcar unit trains per day and consists of a fixed loading rack withapproximately 30 railcar loading positions, a unit train staging area and loop tracks capable of holding five unit trains simultaneously. The terminal is alsoequipped with an onsite vapor management system that allows our customers to minimize hydrocarbon loss while improving safety during the loadingprocess. Our Hardisty terminal receives inbound deliveries of crude oil through a direct pipeline connection from Gibson Energy Inc.’s, or Gibson’s, Hardistystorage terminal. Gibson is one of the largest independent midstream companies in Canada with 8.9 MMbbls of crude oil storage facilities at Hardisty andanother 1.1 MMbbls under construction, plus the greatest number of connections to inbound and outbound pipelines in the Hardisty hub. The terminal’sstrategic location and direct pipeline connection to substantial storage capacity provides efficient access to the major producers in the region. Our Hardistyterminal is also connected to the Canadian Pacific Railway’s North Main Line, a high capacity line with the ability to service key refining markets acrossNorth America.We have a facilities connection agreement with Gibson under which Gibson operates and maintains a 24-inch diameter pipeline and related facilitiesconnecting Gibson’s storage terminal with our Hardisty terminal, which we operate and maintain. Gibson is responsible for transporting product through thepipeline to our Hardisty terminal. This pipeline from 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 also the exclusive means by which crude oil from Gibson’sHardisty storage terminal may be transported by rail. We remit pipeline fees to Gibson for the transportation of crude oil to the Hardisty terminal based on apredetermined formula. The facilities connection agreement also gives Gibson a right of first refusal in the event of a sale of our Hardisty terminal to a thirdparty. The agreement has a 20-year term and will expire in 2034 unless renewed. Our and Gibson’s obligations under this facilities connection agreement maybe suspended in the case of a force majeure event. Additionally, the agreement may be terminated by the non-defaulting party in case of specified events ofdefault.Substantially all of the capacity at our Hardisty terminal is contracted under multi-year, take-or-pay terminal services agreements with six customers,including major integrated oil companies, refiners and marketers. Five of the terminal services agreements have an initial contract term of five years andextend through mid-2019, and the sixth was extended through mid-2020. Five of the six Hardisty terminal service agreements have automatic one-yearrenewal provisions and will terminate only if written notice is given by either party within a specified time period before the end of the initial term or arenewal term. One agreement will renew upon written agreement at least six months prior to the end of the initial term or the then current renewal term. Eachof our terminal services agreements contain annual inflation-based rate escalators based upon the consumer price index of either Canada or Alberta. If a forcemajeure event occurs, a customer’s obligation to pay us may be suspended, in which case the length of the contract term will be extended by the sameduration as the force majeure event. We will not be liable for any losses of crude oil handled at our Hardisty terminal unless due to our negligence.Under the terminal services agreements we have entered into with customers of our Hardisty terminal, our customers are obligated to pay the greater of aminimum monthly commitment fee or a throughput fee based on the actual volume of crude oil loaded at our Hardisty terminal. If a customer loads fewer unittrains or barrels than its allotted amount in any given month, that customer will receive a credit for up to six months, which may be used to offset fees onthroughput volumes in excess of its minimum monthly commitments in future periods, to the extent capacity is available for the excess volume.Current market demand for the services provided at our Hardisty terminal exceeds our available capacity as substantially all of the terminal’s capacitywas previously contracted for by customers under multi-year agreements through mid-2019 or mid-2020. As such, our sponsor is currently evaluating apotential expansion of the Hardisty terminal to meet near-term customer demand, which our sponsor estimates could be constructed in less than one year.5Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our sponsor is also pursuing long-term solutions to transport heavier grades of crude oil produced in Western Canada, which our sponsor believes willmaximize benefits to producers, refiners and railroads. Any such development project would be wholly-owned by USDG and would be subject to our existingright of first offer with respect to midstream projects developed by USDG. We are also undergoing efforts to extend the terms of our agreements with existingcustomers, including offering an origin-to-destination solution from Hardisty to our Stroud terminal near the storage hub in Cushing, Oklahoma.Stroud TerminalOur Stroud terminal, which we purchased in June 2017, 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 in Western Canada to the crude oil storage hub located in Cushing, Oklahoma. The Stroudterminal includes 76-acres with current unit train unloading capacity of approximately 50,000 bbls per day, two onsite tanks with 140,000 barrels of capacityand one truck bay. Additionally, the terminal includes a 12-inch diameter, 17-mile pipeline with a direct connection to the crude oil storage hub located inCushing, Oklahoma. We have also secured 300,000 bbls of crude oil tank storage at the Cushing hub to facilitate outbound shipments of crude oil from theStroud terminal. Inbound product is delivered by the Stillwater Central Rail, which handles deliveries from both the BNSF Railway, or BNSF, and the UnionPacific Railroad, or UP. Concurrent with the Stroud acquisition, we entered into a new multi-year, take-or-pay terminalling services agreement with an investment grade multi-national energy company for the use of approximately 50% of the available capacity at the Stroud terminal. The term of this agreement is scheduled toconclude on June 30, 2020, unless otherwise renewed or extended. Our customer is obligated to pay a minimum monthly commitment fee and can load anallotted number of barrels per month. If our customer loads fewer barrels than its allotted amount in any given month, the customer will receive a credit for upto six months. This credit may be used to offset fees on throughput volumes in excess of our customer’s minimum monthly commitments in future periods tothe extent capacity is available for the excess volume. We will receive a per-barrel fee on any volumes handled in excess of our customer’s allowed amount,to the extent the additional volume is not subject to the credit discussed above.In addition, we entered into a Marketing Services Agreement, effective as of May 31, 2017, with USDM, whereby we granted USDM the right to marketthe capacity at the Stroud terminal in excess of the capacity of our initial customer in exchange for a nominal per barrel fee. USDM is obligated to fund anyrelated capital costs associated with increasing the throughput or efficiency of the terminal to handle additional throughput. Upon expiration of our contractwith the initial Stroud customer in June 2020, the same marketing rights will apply to all throughput at the Stroud terminal in excess of the throughputnecessary for the Stroud terminal to generate Adjusted EBITDA that is at least equal to the average monthly Adjusted EBITDA derived from the initial Stroudterminal customer during the 12 months prior to expiration. We also granted USDG the right to develop other projects at the Stroud terminal in exchange forthe payment to us of market-based compensation for the use of our property for such development projects.Approximately 50% of the Stroud terminal’s current capacity is available as a destination point for new or existing customers, with whom our sponsoris actively negotiating. Our sponsor is also evaluating a potential expansion of the Stroud terminal to meet incremental demand. If successful, these effortswould provide us with cash flows incremental to those provided by our currently-contracted capacity. Additionally, any such development projects would bewholly-owned by USDG and would be subject to our existing right of first offer with respect to midstream projects developed by USDG.Casper TerminalThe Casper terminal, which we acquired in November 2015, is a crude oil storage, blending and railcar loading terminal located in Casper, Wyoming,where Spectra Energy Partners’ Express Pipeline from Western Canada (~280,000 bpd of capacity) interconnects with the Platte Pipeline to Wood River,Illinois (~145,000 bpd of capacity). The Casper terminal currently offers six storage tanks with 900,000 bbls of total capacity, unit train-capable railcarloading capacity in excess of 100,000 bpd, as well as truck transloading capacity. The terminal’s approximately 300-acre footprint and modular design allowfor the addition of a second loading station and an additional 1.1 MMbbls of storage capacity with minimal disruption to existing operations and relativelylow incremental capital costs.6Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Inbound crude oil is delivered to the Casper terminal primarily through our dedicated 24-inch diameter, six-mile direct pipeline connection from theExpress Pipeline, which provides our customers with access to multiple grades of Canadian crude oil. Additionally, the Casper terminal has a connectionfrom the Platte terminal, where it has access to other pipelines and can receive other grades of crude oil. The Casper terminal can also receive volumesthrough one truck unloading station and is also equipped with one truck loading station. Inbound volumes are typically fed directly into the customer’sdedicated storage tank(s), which enhances their ability to control the quality of the product from origin to end market. This also allows customers to blendmultiple grades of crude oil to optimize the economics associated with refining varying grades of crude oil.Outbound crude oil is generally loaded onto railcars and then transported to end markets by the BNSF, in either manifest or unit train shipments. Theterminal’s location on the BNSF’s main line offers advantaged transportation costs to key U.S. refining markets where several customer-preferred destinationsare also served by the BNSF. Shipping with a single Class 1 railroad reduces railroad switching fees and enables faster train turn-times, thus improving railcarfleet utilization.The Casper terminal commenced operations in September 2014 and includes two multi-year, take-or-pay terminal services agreements with highquality investment grade refiners. The initial term of these agreements varies from four to five years, with extension or renewal options for one or twoadditional 12 month periods. Under these terminal services agreements, our customers are obligated to pay the greater of a minimum monthly commitmentfee or a throughput fee based on the actual volume of crude oil loaded. If a customer loads fewer unit trains or barrels than its allotted amount in any givenmonth, that customer will receive a credit which may be used to offset future throughput fees in excess of the minimum monthly commitment fees, to theextent capacity is available for the excess volume. Unused credits generally expire if not used by the end of each calendar quarter. Additionally, we may onoccasion utilize our available storage and throughput capacity to support our customers’ spot activity through buy-sell agreements that generate cash flowsin addition to those provided by our multi-year agreements.Following the expiration of a customer contract with us in August 2017, we have available tank capacity to accommodate spot activity and newcustomer agreements, both of which we are currently pursuing. Recently, the terminal supported spot shipments for a large international oil and gas company,as well as for a local producer’s heavy sour crude oil production. We are actively pursuing term agreements with these spot customers.We are also exploring the potential to establish a rail-to-pipeline solution at the Casper terminal, similar to the current activity at our Stroud terminal.This would require us to make additional capital investments of up to $12 million dollars to establish outbound pipeline connectivity and railcar unloadingcapabilities. We cannot make any assurances regarding the outcome or timing of these efforts.West Colton TerminalOur West Colton terminal, completed in November 2009, is a unit train-capable destination terminal that can transload up to 13,000 bpd of ethanolreceived 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 three truck loading positions. Our terminal receives inbound deliveries exclusively by railon the UP high speed lines.Due to corrosion concerns unique to biofuels such as ethanol, the long-haul transportation of biofuels by multi-product pipelines is less efficient andless economical than transportation by rail. We believe these corrosion concerns, combined with the proximity of our terminals to local demand markets,strategically positions our terminal to benefit from anticipated changes in environmental and gasoline blending regulations that are expected to increase theuse of ethanol in the market for transportation fuel.We receive fixed fees per gallon of ethanol transloaded at our terminal pursuant to a terminal services agreement with a subsidiary of an investmentgrade company. Our West Colton terminal operates under a minimum monthly7Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.commitment fee agreement that has been in place since July 2009 and is terminable at any time by either party upon 150 days’ notice.San Antonio TerminalOur historical operations include a unit train-capable ethanol destination terminal in San Antonio, Texas, that we ceased operating in the secondquarter of 2017 following the conclusion of our customer’s agreement with us.Fleet ServicesWe provide our customers with leased railcars and fleet services related to the transportation of liquid hydrocarbons and biofuels by rail on a multi-year, take-or-pay basis under master fleet services agreements for initial terms ranging from five to nine years. We do not own any railcars. As ofDecember 31, 2017, our fleet consisted of 2,813 railcars, which we leased from various railcar manufacturers and financial entities, including 2,108 coiledand insulated, or C&I, railcars. We have assigned certain payment and performance obligations under the leases and master fleet services agreements for2,613 of the railcars to other parties, but we have retained certain rights and obligations with respect to the provision of fleet services regarding these railcars.Approximately 88% of our current railcar fleet is dedicated to customers of our Hardisty terminal, including an affiliate of USDG. The remaining 12% of ourrailcar fleet is dedicated to a customer of terminals belonging to subsidiaries previously sold by our predecessor. The master fleet services agreements wehave with certain of our Hardisty terminal customers have a weighted-average remaining contract life of 3.6 years as of December 31, 2017. In the aggregate,our master fleet services agreements have a weighted-average remaining contract life of 3.2 years as of December 31, 2017.Under the master fleet services agreements, we provide customers with railcar-specific fleet services, which may include, among other things, theprovision of relevant administrative and billing services, the repair and maintenance of railcars in accordance with standard industry practice and applicablelaw, the management and tracking of the movement of railcars, the regulatory and administrative reporting and compliance as required in connection with themovement of railcars, and the negotiation for and sourcing of railcars. Our customers typically pay us and our assignees monthly fees per railcar for theseservices, which include a component for railcar use and a component for fleet services. The master fleet services agreements will expire unless notice to renewis provided by our customers.All of our railcars currently in service were constructed in 2013 or later. The average age of our fleet currently in service is approximately four years, ascompared with the estimated 50-year life associated with these types of railcars. We have partnered with leaders in the railcar supply industry, such as CITRail, Union Tank Car Company and others. We believe that our relationships with these industry leaders enable us to obtain railcar market insight and toprocure railcars for our terminalling customers on beneficial terms, with shorter lead times than some of our competitors. Our current railcars are designed at aminimum to be compliant with all railcar standards currently in effect.As of December 31, 2017, our railcar fleet consisted of a mix of 2,108 C&I railcars and 705 non-coiled, non-insulated railcars. Our C&I railcars canreheat heavy viscous grades of crude oil, reducing the need to blend these heavier grades with diluents.Through the end of 2018, we expect the leases on approximately 970 railcars to expire. However, we do not expect the expiration of these railcar leasesto have a significant impact on our operating income or cash flows. For certain customers, our ability to provide access to high-quality railcars provides anincentive to secure terminalling capacity at our facilities. However, as our customers have become more accustomed to shipping crude oil by rail, we expectto reduce the size of our railcar fleet. Should market conditions change, we would potentially assist with the procurement and management of railcars onbehalf of our customers again in the future.BENEFITS OF RAILThe following benefits of rail have established, or have the potential to establish, rail as a preferred mode of transportation for crude oil, biofuels, andother energy-related products:8Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Market access for areas without adequate pipeline transportation infrastructure. Certain producing regions, such as the Western Canadian oil sands,have concentrated production in areas without adequate existing pipeline takeaway capacity. The extensive existing rail infrastructure network providesadditional takeaway capacity to these producing regions and flexible access to multiple demand centers.Faster deployment. Rail terminals can be constructed at a fraction of the time required to lay a long-haul pipeline, providing a timely solution to meetnew and evolving market demands. Relative to rail, new pipeline construction faces challenges such as lengthier build times and more extensiveenvironmental permitting processes, geographic constraints and, in some cases, the lack of required political and regulatory support.Flexibility to deliver to different end markets. Unlike pipelines, which typically transport product to a single demand market, rail offers customersaccess to many of the most advantageous demand centers throughout North America, enabling producers and shippers to obtain competitive prices for theirproducts and to retain the flexibility to determine the ultimate destination until the time of transportation.Comprehensive solution for refiners. Rail provides refiners flexible access to multiple qualities and grades of crude oil (feedstock) from multipleproduction sources. Additionally, shipping in railcars improves the customer’s ability to preserve the specific quality of the product over long distancesrelative to pipelines.Faster delivery to demand markets. Rail can transport energy-related products to end markets much faster than pipelines, trucks or waterborne tankers.While a pipeline can take 30-45 days to transport crude oil to the Gulf Coast from Western Canada, unit trains can move crude oil along a similar path inapproximately nine days.Reduced shipper commitment requirements. Whereas all of the pipeline transportation fee is typically subject to long-term shipper commitments, onlya portion of rail transportation costs require long-term shipper commitments (railroads have historically been contracted on a spot basis or only require partialterm commitments). Consequently, pipeline customers bear greater risk of shifts in regional price differentials and the location of demand markets.Reduced shipper transportation cost. Rail provides shippers a competitive transportation option, particularly in situations where either (i) the amountof diluent required for the transportation of crude oil by pipeline is high, which is generally the case for production from the Canadian oil sands, or (ii)multiple modes of transportation are required to reach a particular end market.RIGHT OF FIRST OFFERIn connection with our IPO, we entered into an omnibus agreement with USD and USDG, pursuant to which we were granted a right of first offer on anymidstream infrastructure assets that they may develop, construct, or acquire for a period of seven years after the October 15, 2014, closing of our IPO.Additional information about the omnibus agreement and the right of first offer are included in Note 13. Transactions with Related Parties of ourconsolidated financial statements at Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.We cannot assure you that USD will be able to develop or construct, or that we or USD will be able to acquire, any additional midstream infrastructureprojects. Among other things, the ability of USD to further develop the Hardisty and Stroud terminals, or any other project, and our ability to acquire suchprojects, will depend upon USD’s and our ability to raise additional equity and debt financing. We are under no obligation to make any offer, and USD andUSDG are under no obligation to accept any offer we make, with respect to any asset subject to our right of first offer. Additionally, the approval of EnergyCapital Partners is required for the sale of any assets by USD or its subsidiaries, including us (other than sales in the ordinary course of business), acquisitionsof securities of other entities that exceed specified materiality thresholds and any material unbudgeted expenditures or deviations from our approvedbudgets. Energy Capital Partners may make these decisions free of any duty to us and our unitholders. This approval would be required for the potentialacquisition by us of any projects to expand the Hardisty and Stroud terminals, as well as any other projects or assets that USD may develop or acquire in thefuture or any third-party acquisition we may pursue independently or jointly with USD. Energy Capital Partners is under no obligation to approve any suchtransaction.9Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Please refer to the discussion under Item 10. Directors, Executive Officers and Corporate Governance-Special Approval Rights of Energy Capital Partnersregarding the rights of Energy Capital Partners. If we are unable to acquire any projects to expand the Hardisty and Stroud terminals from USD, theseexpansions may compete directly with our existing business for future throughput volumes, which may impact our ability to enter into new terminal servicesagreements, including with our existing customers, following the termination of our existing agreements, or the terms thereof, and our ability to compete forfuture spot volumes. Furthermore, cyclical changes in the demand for crude oil and other liquid hydrocarbons may cause USD, or us, to further re-evaluateany future expansion projects, including expansion of the Hardisty and Stroud terminals.COMPETITION The energy-related logistics infrastructure business is highly competitive. The ability to secure additional agreements for rail terminalling and railcarfleet services is primarily based on the availability of alternative means of transportation, primarily pipelines, as well as the reputation, efficiency, flexibility,location, market economics and reliability of the services provided and pricing for those services.Our crude oil terminals face competition from other logistics services providers, such as pipelines and other terminalling service providers. In addition,our customers may also choose to construct or acquire their own terminals. If our customers choose to ship crude oil via alternative means, we may onlyreceive the minimum monthly commitment fees at our terminals and may be unable to renew, extend or replace customer agreements following expiration oftheir terms. Our West Colton terminal business faces competition from other terminals and trucks that may be able to supply end-user markets with ethanoland other biofuels on a more competitive basis due to terminal location, price, rail rates, versatility or services provided. The West Colton terminal is servedby the UP and competes directly with ethanol facilities in the Fontana, Carson and San Diego areas, which are served by the BNSF. A combination of railfreight and trucking economics, which comprise the largest share of the value chain, make it very difficult to compete with other facilities in this marketbased on terminalling throughput fees alone.Our railcar fleet services face competition from other providers of railcars. This competition may limit our ability to increase the number of railcarsunder contract. However, we believe our relationships with leaders in the railcar supply industry, such as CIT Rail, Union Tank Car Company and ProcorAlberta, would enable us to procure railcars on beneficial terms on behalf of our customers, if required in the future. Through the end of 2018, we expect theleases on approximately 970 railcars to expire. However, we do not expect the expiration of these railcar leases to have a significant impact on our operatingincome or cash flows.We believe that we are favorably positioned to compete in our industry due to the strategic location of our terminals, quality of service provided at ourterminals, our independent strategy, our reputation and industry relationships, and the versatility and complementary nature of our services. Thecompetitiveness of our service offerings could be significantly impacted by the entry of new competitors into the markets in which we operate. However, webelieve that significant barriers to entry exist in the energy-related logistics business. These barriers include significant costs and execution risk, a lengthypermitting and development cycle, financing challenges, shortage of personnel with the requisite expertise, and a finite number of sites suitable fordevelopment.SEASONALITYThe amount of throughput at our terminals is affected by the level of supply and demand for crude oil, refined products and biofuels, as well as, to alesser extent, seasonality. Demand for gasoline is generally higher during the summer months than during the winter months due to seasonal increases inhighway traffic and construction work. Production in Western Canada may be impeded by severe winter conditions that reduce production and volumes.However, many effects of seasonality on our revenues are substantially mitigated due to our terminal service agreements with our customers that includeminimum monthly commitment fees, as well as our master fleet services agreements which require our customers to pay a base monthly fee per railcar.Furthermore, because there are multiple end markets for the crude oil and biofuels handled at our terminals, the effect of seasonality otherwise attributable toone particular end market is mitigated.10Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.IMPACT OF REGULATIONGeneralOur operations are subject to complex and frequently-changing federal, state, provincial and local laws and regulations regarding the protection ofhealth, property and the environment, including laws and regulations that govern the handling and release of crude oil and other liquid hydrocarbonmaterials. Compliance with existing and anticipated environmental and safety laws and regulations increases our overall cost of business, including ourcapital costs to construct, maintain, operate, and upgrade equipment and facilities. While these laws and regulations may affect our maintenance capitalexpenditures and net income, customers typically place additional value on utilizing established and reputable third-party providers to satisfy theirterminalling and logistics needs. As a result, we expect increased regulations to provide opportunities to increase our market share in relation to customer-owned operations or smaller operators that lack an established track record of safety and environmental compliance.Violations of environmental or safety laws or regulations can result in the imposition of significant administrative, civil and criminal fines andpenalties and, in some instances, injunctions banning or delaying certain activities. We believe our facilities are in substantial compliance with applicableenvironmental and safety laws and regulations. However, these laws and regulations are subject to frequent change at the federal, state, provincial and locallevels, and the legislative and regulatory trend has been to place increasingly stringent limitations on activities that may affect the environment.Our operations contain risks of accidental releases into the environment, such as releases of crude oil, ethanol or hazardous substances from ourterminals. To the extent an event is not covered by our insurance policies, such accidental releases could subject us to substantial liabilities arising fromenvironmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage, andfines or penalties for any related violations of environmental or safety laws or regulations.Air EmissionsOur operations are subject to and affected by the Clean Air Act, or CAA, and its implementing regulations, as well as comparable state and localstatutes and regulations. Our operations are subject to the CAA’s permitting requirements and related emission control requirements relating to specific airpollutants, as well as the requirement to maintain a risk management program to help prevent accidental releases of certain regulated substances. We arecurrently required to obtain and maintain various construction and operating permits under the CAA and have incurred capital expenditures to maintaincompliance with all applicable federal and state laws regarding air emissions. We may, nonetheless, be required to incur additional capital expenditures inthe near future for the installation of certain air pollution control devices at our terminals when regulations change, when we add new equipment, or when wemodify our existing equipment. Our Canadian operations are similarly subject to federal and provincial air emission regulations.Our customers are also subject to, and similarly affected by, environmental regulations restricting air emissions. These include U.S. and Canadianfederal and state or provincial actions to develop programs for the reduction of greenhouse gas, or GHG, emissions such as proposals to create a cap-and-tradesystem that would require companies to purchase carbon dioxide emission allowances for emissions at manufacturing facilities and emissions caused by theuse of the fuels sold. In addition, the U.S. Environmental Protection Agency, or EPA, has begun to regulate carbon dioxide emissions. As a result of theseregulations, our customers could be required to undertake significant capital expenditures, operate at reduced levels, and/or pay significant penalties. We areuncertain what our customers’ responses to these emerging issues will be. Those responses could reduce throughput at our terminals, as well as impact ourcash flows and our ability to make distributions or satisfy debt obligations.Climate ChangeFollowing its December 2009 “endangerment finding” that GHG emissions pose a threat to public health and welfare, the EPA has begun to regulateGHG emissions under the authority granted to it by the federal CAA. Based on these findings, the EPA has adopted regulations under existing provisions ofthe federal CAA that require Prevention of Significant Deterioration, or PSD, pre-construction permits and Title V operating permits for GHG emissions fromcertain large stationary sources. Under these regulations, facilities required to obtain PSD permits must meet “best11Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.available control technology” standards for their GHG emissions established by the states or, in some cases, by the EPA on a case-by-case basis. The EPA hasalso adopted rules requiring the monitoring and reporting of GHG emissions from specified sources in the United States, including, among others, certainonshore oil and natural gas processing and fractionating facilities and, starting in October 2015, onshore petroleum and natural gas gathering and boostingactivities as well as natural gas transmission pipelines. We believe we are in substantial compliance with all GHG emissions permitting and reportingrequirements applicable to our operations.In response to studies suggesting that emissions of CO2, methane and certain other gases may be contributing to warming of the Earth’s atmosphere,over 190 countries, including the United States and Canada where we operate, committed to a legally binding treaty to reduce GHG emissions, the terms ofwhich were defined at the Paris climate conference in December 2015. The terms of the Paris treaty to reduce GHG emissions are to become effective in 2020.In June 2017, however, President Trump stated that the United States intends to withdraw from the Paris treaty, but may enter into a future internationalagreement related to GHGs. In August 2017, the U.S. State Department officially informed the United Nations of its intent to withdraw from the Paris treatyunless it renegotiated. The Paris treaty provides for a four-year exit process beginning when it took effect in November 2016, which would result in aneffective exit date of November 2020. The United States’ adherence to the exit process is uncertain and the terms on which the United States may reenter theParis treaty or a separately negotiated agreement are unclear at this time. With regard to the oil and gas industry, it is unclear at this time what direction thegovernment of the United States plans to take. Increased costs associated with compliance with any future legislation or regulation of GHG emissions, if itoccurs, may have a material adverse effect on our results of operations, financial condition and cash flows. In addition, climate change legislation andregulations may result in increased costs not only for our business but also for our customers, thereby potentially decreasing demand for our services.Decreased demand for our services may have a material adverse effect on our results of operations, financial condition and cash flows. Finally, many scientistsbelieve that increasing concentrations of GHGs in the Earth’s atmosphere produce climate changes that can have significant physical effects, such asincreased frequency and severity of storms, droughts and floods, as well as other climatic events. If any such effects were to occur, it is uncertain if they wouldhave an adverse effect on our financial condition and results of operations.Waste Management and Related LiabilitiesTo a large extent, the environmental laws and regulations affecting our operations relate to the release of hazardous substances or solid wastes intosoils, groundwater, and surface water, and include measures to control pollution of the environment. These laws generally regulate the generation, storage,treatment, transportation, and disposal of solid and hazardous waste. They also require corrective action, including investigation and remediation, at afacility where such waste may have been released or disposed.Site Remediation. The federal Comprehensive Environmental Response, Compensation, and Liability Act, commonly referred to as CERCLA or theSuperfund law, and comparable state laws impose liability without regard to fault or to the legality of the original conduct on certain classes of personsregarding the presence or release of a “hazardous substance” in (or into) the environment. Those persons include the former and present owner or operator ofthe site where the release occurred and the transporters and generators of the hazardous substance found at the site. Under CERCLA, these persons may besubject to joint and several liability for the costs of cleaning up the hazardous substances and for damages to natural resources. CERCLA also authorizes theEPA and, in some instances, third parties, to act in response to threats to the public health or the environment and to seek to recover the costs they incur fromthe responsible classes of persons. Claims filed for personal injury and property damage allegedly caused by hazardous substances or other pollutantsreleased into the environment are not uncommon from neighboring landowners and other third parties. Petroleum products are typically excluded fromCERCLA’s definition of “hazardous substances.” In the ordinary course of operating our business, we do not handle wastes that are designated as hazardoussubstances and, as a result, we have limited exposure under CERCLA for all or part of the costs required to clean up sites at which hazardous substances havebeen released into the environment. Costs for any such remedial actions, as well as any related claims, could have a material adverse effect on ourmaintenance capital expenditures and operating expenses to the extent not covered by insurance. Canadian and provincial laws also impose liabilities forreleases of certain substances into the environment. 12Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We currently own or lease properties where hydrocarbons are currently handled or have been handled for many years. Although we have utilizedoperating and disposal practices that were standard in the industry at the time, petroleum hydrocarbons or other wastes may have been disposed of or releasedon or under the properties owned or leased by us, or on or under other locations where these wastes have been taken for disposal. These properties and wastesdisposed thereon may be subject to CERCLA, the federal Resource Conservation and Recovery Act, as amended, or RCRA, and comparable state andCanadian federal and provincial laws and regulations. Under these laws and regulations, we could be required to remove or remediate previously disposedwastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated groundwater), orto perform remedial operations to prevent future contamination. We have not been identified by any state or federal agency as a Potentially ResponsibleParty under CERCLA in connection with the transport and/or disposal of any waste products to third-party disposal sites. We maintain insurance of varioustypes with varying levels of coverage that we consider adequate under the circumstances to cover our operations and properties. The insurance policies aresubject to deductibles and retention levels that we consider reasonable and not excessive. Consistent with insurance coverage generally available in theindustry, in certain circumstances our insurance policies provide limited coverage for losses or liabilities relating to certain pollution events, includinggradual pollution or sudden and accidental occurrences.Solid and Hazardous Wastes. Our operations generate solid wastes, including some hazardous wastes, which are subject to the requirements of RCRAand analogous state and Canadian federal and provincial laws that impose requirements on the handling, storage, treatment and disposal of hazardous wastes.Many of the wastes that we generate are not subject to the most stringent requirements of RCRA because our operations generate primarily oil and gas wastes,which currently are excluded from consideration as RCRA hazardous wastes. Specifically, RCRA excludes from the definition of hazardous waste producedwaters and other wastes intrinsically associated with the exploration, development, or production of crude oil and natural gas. However, these oil and gasexploration and production wastes may still be regulated under state solid waste laws and regulations. Oil and gas wastes may be included as hazardouswastes under RCRA in the future, in which event our wastes as well as the wastes of our competitors will be subject to more rigorous and costly disposalrequirements, resulting in additional capital expenditures or operating expenses. WaterThe Federal Water Pollution Control Act, as amended, also known as the Clean Water Act, or CWA, and analogous state and Canadian federal andprovincial laws impose restrictions and strict controls regarding the discharge of pollutants into navigable waters of the United States or into any type ofwater body in Canada, as well as state and provincial waters. Federal, state and provincial regulatory agencies can impose administrative, civil and/orcriminal penalties for non-compliance with discharge permits or other requirements of the CWA and comparable laws, in addition to requiring remedialaction to clean up such water body and surrounding land. The Oil Pollution Act of 1990, or OPA, amended certain provisions of the CWA, as they relate to the release of petroleum products into navigablewaters. OPA subjects owners of facilities to strict, joint and potentially unlimited liability for containment and removal costs, natural resource damages, andcertain other consequences of an oil spill. These laws impose regulatory burdens on our operations. We believe that we are in substantial compliance withapplicable OPA requirements. State and Canadian federal and provincial laws also impose requirements relating to the prevention of oil releases and theremediation of areas affected by releases when they occur. We believe that we are in substantial compliance with all such federal, state and Canadianrequirements.Endangered Species ActThe Endangered Species Act restricts activities that may affect endangered species or their habitats. While some of our facilities are in areas that may bedesignated as habitat for endangered species, we believe that we are in substantial compliance with the Endangered Species Act. However, the discovery ofpreviously unidentified endangered species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected area. Rail SafetyWe facilitate the transport of crude oil and related products by rail in the United States and Canada. We do not own or operate the railroads on whichcrude oil carrying railcars are transported; however, we currently lease or manage13Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.a large railcar fleet on behalf of our customers. Accordingly, we are indirectly subject to regulations governing railcar design and manufacture, andincreasingly stringent regulations pertaining to the shipment of crude oil by rail. High-profile accidents involving crude oil unit trains in Quebec, North Dakota, Virginia, West Virginia and Illinois have raised concerns about theenvironmental and safety risks associated with transporting crude oil by rail, and the associated risks arising from railcar design. In August 2013, the FederalRailroad Administration, or FRA, issued both an Action Plan for Hazardous Materials Safety and an order imposing new standards on railroads for properlysecuring rolling equipment. A proposed rule with regard to the latter was subsequently released in September 2014. In August 2013, the FRA and PHMSAbegan conducting inspections of crude oil carrying railcars from the Bakken formation to make sure cargo is properly identified to railroads and emergencyresponders. In February 2014, the DOT and transportation industry agreed to certain voluntary measures designed to enhance the safety of crude oilshipments by rail, which include lowering speed limits for crude oil trains traveling in high-risk areas, modifying routes to avoid such high-risk areas,increasing the frequency of track inspections, implementing improved braking mechanisms, and improving the training of certain emergency responders.In February 2014, as amended and restated in March 2014, the DOT issued another order, immediately requiring all carriers who transport crude oilfrom the Bakken region by rail to ensure that the product is properly tested and classified in accordance with federal safety regulations, and further requiringthat all crude oil shipments be designated in the two highest risk categories, effectively mandating that crude oil be transported in more robust railcars. Anyperson failing to comply with the order is subject to potential civil penalties up to $175,000 for each violation or for each day they are found to be inviolation, as well as potential criminal prosecution. Similarly, in February 2014, the Canadian Department of Transport, which we refer to as TransportCanada, finalized new regulations requiring shippers and carriers of crude oil by rail to properly sample, classify, certify and disclose certain characteristics ofthe crude oil being shipped, and gave shippers and carriers six months to comply with these new regulatory procedures. In April 2014, the Canadian Ministerof Transport, who oversees Transport Canada, announced a series of directives and other actions to address the Transportation Safety Board of Canada’sinitial recommendations on rail safety. Effective immediately, Transport Canada prohibited the least crash-resistant and non-upgraded or retrofitted DOT-111railcars from carrying dangerous goods. Additionally, Transport Canada ordered DOT-111 railcars used to transport crude oil and ethanol that are notcompliant with required safety standards be phased out or retrofitted by May 2017. Retrofitted DOT-111 railcars are now permitted to be used only withrespect to certain packing groups until May 2025. We currently provide railcar services for 2,813 railcars, all of which are compliant with this Canadiansafety standardIn May 2014, the DOT issued another order, immediately requiring railroads operating trains carrying more than one million gallons of Bakken crudeoil to notify State Emergency Response Commissions regarding the estimated volume, frequency, and transportation route of those shipments. Also in May2014, the FRA and PHMSA issued a joint Safety Advisory to the rail industry advising those shipping or offering Bakken crude oil to use railcar designs withthe highest available level of integrity and to avoid using older legacy DOT-111 or CTC-111 railcars. In July 2014, Transport Canada adopted the CPC-1232technical standards as the minimum safety threshold for railcars transporting dangerous goods after May 2017.In May 2015, the DOT, in coordination with Transport Canada, finalized new rail safety rules. The final rule includes more stringent constructionstandards for rail tank cars constructed after October 1, 2015. The final rule also creates a new North American tank car standard known as the DOTSpecification 117 (DOT-117) with thicker steel and redesigned bottom outlet valves, among other improvements, over the DOT-111 tank car. U.S. crude oilshippers had until January 1, 2018, to phase out or upgrade older DOT-111 tank cars, while Canadian shippers were required to phase DOT-111 cars out ofcrude oil service by May 1, 2017. The rule also requires companies hauling crude in the U.S. or Canada to retrofit or phase out non-jacketed CPC-1232 tankcars by April 1, 2020. In addition, the final rule includes mandates for using electronically controlled pneumatic braking systems and for performing routinganalyses and makes permanent the provisions of an emergency order issued by DOT in April 2015 imposing a speed limit of 40 miles per hour (mph) in high-threat urban areas for crude oil trains containing at least one older-model tank car. The speed limit for all other crude-by-rail service will be restricted to 50mph, in line with the speed limit railroads voluntarily adopted in 2013. The final rule requires offerors to develop and carry out sampling and testingprograms for all unrefined petroleum-based products, including crude oil, and to certify that hazardous materials subject to the program are14Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.packaged in accordance with the test results, but does not require oil companies to process their products to make them less volatile before shipment.All of our fleet was manufactured in 2013 or later and has been constructed or retrofitted to comply with the DOT 117, the jacketed CPC-1232 standard,or the unjacketed CPC-1232 standard. As of December 31, 2017, we had 375 railcars which will require retrofitting to comply with the jacketed CPC-1232rules. The remaining cars either have leases that will expire before they are required to be retrofitted, or already meet the requirements of the directive. Webelieve that the current retrofit timelines that have been released to date should provide us with sufficient time to make any changes to our railcar fleet that isrequired due to these new regulations. Were DOT to adopt more strict specifications for tank cars, it would likely result in increased difficulty and costs toobtain compliant cars after the applicable phase-out dates. While we might be able to pass some of these costs on to our customers, there might be additionalcosts that we cannot pass on to our customers. We are continuously monitoring the railcar regulatory landscape and remain in close contact with railcarsuppliers and other industry stakeholders to stay informed of railcar regulation rulemaking developments. Given the current railcar design compliancerequirements and timelines outlined in the most recent Transport Canada and DOT rules, we do not anticipate a material impact to our ability to transportcrude oil under our existing contracts. If future rulemakings result in more stringent design requirements and compressed compliance timelines, then ourability to transport these volumes could be affected by a delay in the railcar industry’s ability to provide adequate railcar modification repair services. Wemay not have access to a sufficient number of compliant cars to transport the required volumes under our existing contracts. This may lead to a decrease inrevenues and other consequences. The adoption of additional federal, state, provincial or local laws or regulations, including any voluntary measures by the rail industry regarding railcardesign or crude oil and liquid hydrocarbon rail transport activities, or efforts by local communities to restrict or limit rail traffic involving crude oil, couldaffect our business by increasing compliance costs and decreasing demand for our services, which could adversely affect our financial position and cashflows.Crude Oil Pipeline SafetyIn connection with our acquisition of the Casper and Stroud terminals and related facilities, we became subject to regulation by the Federal EnergyRegulatory Commission, or FERC, the DOT through PHMSA, as well as other federal, state and local laws and regulations relating to the operation of ourdedicated crude oil pipeline, rates charged for transportation service, and protection of health, property and the environment. The transportation and storageof crude oil and refined petroleum products involve a risk that hazardous liquids may be released into the environment, potentially causing harm to thepublic or the environment. In turn, such incidents may result in substantial expenditures for response actions, significant government penalties, liability togovernment agencies for natural resources damages, and significant business interruption. DOT has adopted safety regulations with respect to the design,construction, operation, maintenance, inspection and management of our crude oil pipeline and related assets. These regulations contain requirements for thedevelopment and implementation of pipeline integrity management programs, which include the inspection and testing of pipelines and necessarymaintenance or repairs. These regulations also require that pipeline operation and maintenance personnel meet certain qualifications and that pipelineoperators develop comprehensive spill response plans.We are subject to regulation by the DOT under the Hazardous Liquid Pipeline Safety Act of 1979, also known as the HLPSA. The HLPSA delegated toDOT the authority to develop, prescribe, and enforce minimum federal safety standards for the transportation of hazardous liquids by pipeline. Congress alsoenacted the Pipeline Safety Act of 1992, also known as the PSA, which added the environment to the list of statutory factors that must be considered inestablishing safety standards for hazardous liquid pipelines, required that regulations be issued to define the term “gathering line” and that safety standardsfor certain “regulated gathering lines” be established, and mandated that regulations be issued to establish criteria for operators to use in identifying andinspecting pipelines located in High Consequence Areas, or HCAs, defined as those areas that are unusually sensitive to environmental damage, that cross anavigable waterway, or that have a high population density. In 1996, Congress enacted the Accountable Pipeline Safety and Partnership Act, also known asthe APSPA, which limited the operator identification requirement mandate to pipelines that cross a waterway where a substantial likelihood of commercialnavigation exists, required that certain areas where a pipeline rupture would likely cause permanent or long-term environmental damage be considered indetermining whether an15Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.area is unusually sensitive to environmental damage, and mandated that regulations be issued for the qualification and testing of certain pipeline personnel.In the Pipeline Inspection, Protection, Enforcement, and Safety Act of 2006, also known as the PIPES Act, Congress required mandatory inspections forcertain U.S. crude oil and natural gas transmission pipelines in HCAs and mandated that regulations be issued for low-stress hazardous liquid pipelines andpipeline control room management. We are also subject to the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, which reauthorizedfunding for federal pipeline safety programs through 2015, increased penalties for safety violations, established additional safety requirements for newlyconstructed pipelines, and required studies of certain safety issues that could result in the adoption of new regulatory requirements for existing pipelines. TheProtecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 reauthorized the federal pipeline safety programs of PHMSA through 2019.PHMSA administers compliance with these statutes and has promulgated comprehensive safety standards and regulations for the transportation ofhazardous liquids by pipeline, including regulations for the design and construction of new pipeline systems or those that have been relocated, replaced orotherwise changed; pressure testing of new pipelines; operation and maintenance of pipeline systems, establishing programs for public awareness anddamage prevention, and managing the operation of pipeline control rooms; protection of steel pipelines from the adverse effects of internal and externalcorrosion; and integrity management requirements for pipelines in HCAs. On January 13, 2017, PHMSA issued a final rule amending federal safety standardsfor hazardous liquid pipelines. The final rule is the latest step in a lengthy rulemaking process that began in 2010 with a request for comments and continuedwith publication of a rulemaking proposal in October 2015. The general effective date of this final rule is six months from publication in the Federal Register,but it is currently subject to further administrative review in connection with the transition of Presidential administrations. The final rule addresses severalareas including reporting requirements for gravity and unregulated gathering lines, inspections after weather or climatic events, leak detection systemrequirements, revisions to repair criteria and other integrity management revisions. In addition, PHMSA issued new regulations on January 23, 2017, onoperator qualification, cost recovery, accident and incident notification and other pipeline safety changes. These new regulations were to become effectiveMarch 24, 2017. These regulations are also subject, however, to potential further review in connection with the transition of Presidential administrations. Wedo not anticipate that we would be impacted by either of these regulatory initiatives to any greater degree than other similarly situated competitors upon theirgoing into effect.We monitor the structural integrity of our pipeline system through a program of periodic internal assessments using high resolution internal inspectiontools, as well as hydrostatic testing and direct assessment that conforms to federal standards. We accompany these assessments with a review of the data andrepair anomalies, as required, to ensure the integrity of the pipeline. We then utilize sophisticated risk algorithms and a comprehensive data integration effortto ensure that the highest risk areas receive the highest priority for scheduling subsequent integrity assessments. We use external coatings and impressedcurrent cathodic protection systems to protect against external corrosion. We conduct all cathodic protection work in accordance with National Associationof Corrosion Engineers standards. We continually monitor, test, and record the effectiveness of these corrosion inhibiting systems.Crude Oil Pipeline Rate RegulationThe rates we charge for use of our dedicated crude oil pipeline are subject to regulation by various federal, state and local agencies. FERC regulates thetransportation of crude oil on our dedicated Casper and Stroud pipelines under the Interstate Commerce Act, or ICA, Energy Policy Act of 1992, or EPAct1992, and the rules and regulations promulgated under those laws. FERC regulations require that rates charged by pipelines that provide transport services ininterstate or foreign commerce for crude oil and refined petroleum products (collectively referred to as “petroleum pipelines”) and certain other liquids be justand reasonable, not unduly discriminatory, and not confer any undue preference upon any shipper. FERC regulations also require interstate common carrierpetroleum pipelines to file with FERC and publicly post tariffs stating their transportation rates and terms and conditions of service. Under the ICA, FERC orinterested persons may challenge existing or changed rates or services. FERC is authorized to investigate such charges and may suspend the effectiveness of anew rate for up to seven months. A successful rate challenge could result in a common carrier paying refunds together with interest for the period that the ratewas in effect. FERC may also order a pipeline to change its rates and may require a common carrier to pay shippers reparations for damages sustained for aperiod up to two years prior to the filing of a complaint.16Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EPAct 1992 required FERC to establish a simplified and generally applicable methodology to adjust tariff rates for inflation for interstate petroleumpipelines. As a result, FERC adopted an indexing rate methodology which, as currently in effect, allows common carriers to change their rates withinprescribed ceiling levels that are tied to changes in the Producer Price Index for Finished Goods, or PPIFG. FERC’s indexing methodology is subject toreview every five years. During the five-year period commencing July 1, 2011 and ending June 30, 2016, common carriers charging indexed rates werepermitted to adjust their indexed ceilings annually by PPIFG plus 2.65%. Beginning July 1, 2016, the indexing method provided for annual changes equal tothe change in PPIFG plus 1.23%. The indexing methodology is applicable to existing rates, including grandfathered rates, with the exclusion of market-basedrates. A pipeline is not required to raise its rates up to the index ceiling, but it is permitted to do so and rate increases made under the index are presumed tobe just and reasonable unless a protesting party can demonstrate that the portion of the rate increase resulting from application of the index is substantially inexcess of the pipeline’s increase in costs. Under the indexing rate methodology, in any year in which the index is negative, pipelines must file to lower theirrates if those rates would otherwise be above the rate ceiling. In October 2016, FERC issued an Advance Notice of Proposed Rulemaking seeking commenton a number of proposals, including: (1) whether the Commission should deny any increase in a rate ceiling or annual index-based rate increase if apipeline’s revenues exceed total costs by 15% for the prior two years; (2) a new percentage comparison test that would deny a proposed increase to apipeline’s rate or ceiling level greater than 5% above the barrel-mile cost changes; and (3) a requirement that all pipelines file indexed ceiling levelsannually, with the ceiling levels subject to challenge and restricting the pipeline’s ability to carry forward the full indexed increase to a future period. Thecomment period with respect to the proposed rules extended until March 17, 2017. The FERC has not taken any further action following the close of thecomment period.While common carriers often use the indexing methodology to change their rates, common carriers may elect to support proposed rates by using othermethodologies such as cost-of-service ratemaking, market-based rates, and settlement rates. A pipeline can follow a cost-of-service approach when seeking toincrease its rates above the rate ceiling (or when seeking to avoid lowering rates to the reduced rate ceiling). A common carrier can charge market-based ratesif it establishes that it lacks significant market power in the affected markets. In addition, a common carrier can establish rates under settlement if agreed uponby all current shippers. We have used settlement rates for our dedicated crude oil pipeline. If we used cost-of-service rate making to establish or support ourrates, the issue of the proper allowance for federal and state income taxes could arise. In 2005, FERC issued a policy statement stating that it would permitcommon carriers, among others, to include an income tax allowance in cost-of-service rates to reflect actual or potential tax liability attributable to aregulated entity’s operating income, regardless of the form of ownership. Under FERC’s policy, a tax pass-through entity seeking such an income taxallowance must establish that its partners or members have an actual or potential income tax liability on the regulated entity’s income. Whether a pipeline’sowners have such actual or potential income tax liability is subject to review by FERC on a case-by-case basis. Although this policy is generally favorablefor common carriers that are organized as pass-through entities, it still entails rate risk due to the FERC’s case-by-case review approach. The application ofthis policy, as well as any decision by FERC regarding our cost of service, may also be subject to review in the courts. On December 23, 2016, FERC issuedan Inquiry Regarding the Commission’s Policy for Recovery of Income Tax Credits. FERC is seeking comment regarding how to address any doublerecovery resulting from the Commission’s current income tax allowance and rate of return policies. The comment period with respect to the proposed rulesextended until April 7, 2017. The FERC has not taken any further action following the close of the comment period.Intrastate services provided by our pipeline are subject to regulation by the Wyoming Public Service Commission. This state commission uses acomplaint-based system of regulation, both as to matters involving rates and priority of access. The Wyoming Public Service Commission could limit ourability to increase our rates or to set rates based on our costs or order us to reduce our rates and require the payment of refunds to shippers. FERC and stateregulatory commissions generally have not investigated rates, unless the rates are the subject of a protest or a complaint. However, FERC, or a statecommission, could investigate our rates on its own initiative or at the urging of a third party.If our rate levels were investigated by FERC or a state commission, the inquiry could result in a comparison of our rates to those charged by others orto an investigation of our costs, including:•the overall cost of service, including operating costs and overhead;•the allocation of overhead and other administrative and general expenses to the regulated entity;17Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•the appropriate capital structure to be utilized in calculating rates;•the appropriate rate of return on equity and interest rates on debt;•the rate base, including the proper starting rate base;•the throughput underlying the rate; and•the proper allowance for federal and state income taxesIf the FERC, or the Wyoming Public Service Commission, on their own initiative or due to challenges by third parties, were to lower our tariff rates ordeny any rate increase or other material changes to the types, or terms and conditions, of service we might propose, the profitability of our pipeline andterminals located in Casper, Wyoming and Stroud, Oklahoma, may suffer.Employee SafetyWe are subject to the requirements of the U.S. federal Occupational Safety and Health Act, or OSHA, and comparable state and Canadian federal andprovincial statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard and the CanadianWorkplace Hazardous Materials Information System, or WHMIS, require that information be maintained about hazardous materials used or produced inoperations and that this information be provided to employees, state and local government authorities and citizens. We believe that our operations are insubstantial compliance with OSHA in the United States and comparable state and Canadian federal and provincial requirements, including general industrystandards, record keeping requirements, and monitoring of occupational exposure to regulated substances. SecurityWhile we are not currently subject to governmental standards for the protection of computer-based systems and technology from cyber threats andattacks, proposals to establish such standard are being considered in the U.S. Congress and by U.S. Executive Branch departments and agencies, includingthe U.S. Department of Homeland Security, or DHS, and we may become subject to such standards in the future. We currently are implementing our own cybersecurity programs and protocols; however, we cannot guarantee their effectiveness. A significant cyber-attack could have a material effect on our operationsand those of our customers.EMPLOYEESWe are managed and operated by the board of directors and executive officers of USD Partners GP LLC, our general partner. Neither we nor oursubsidiaries have any employees. Our general partner has the sole responsibility for providing the employees and other personnel necessary to conduct ouroperations. All of the employees that conduct our business are employed by affiliates of our general partner. Our general partner and its affiliates haveapproximately 73 employees performing services for our operations. We believe that our general partner and its affiliates have a satisfactory relationship withthose employees.INSURANCEOur rail terminals, pipelines, storage tanks and railcars may experience damage as a result of an accident or natural disaster. These hazards can causepersonal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension ofoperations. We maintain insurance and are insured under the property, business interruption and liability policies of USD and certain of its subsidiaries,subject to the deductibles and limits under those policies, which we consider to be reasonable and prudent under the circumstances to cover our operationsand assets. However, such insurance does not cover every potential risk associated with our assets, and we cannot ensure that such insurance will be adequateto protect us from all material expenses related to potential future claims for personal and property damage, or that these levels of insurance will be availablein the future at commercially reasonable prices. Although we believe that our assets are adequately covered by insurance, a substantial uninsured loss couldhave a material adverse effect on our financial position, results of operations and cash flows. As we grow, we will continue to monitor our policy limits andretentions as they relate to the overall cost and scope of our insurance program.18Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.AVAILABLE INFORMATIONWe make available free of charge on or through our Internet website at www.usdpartners.com our Annual Reports on Form 10-K, Quarterly Reports onForm 10-Q, Current Reports on Form 8-K and other information statements, and if applicable, amendments to those reports filed or furnished pursuant toSection 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file suchmaterial with the SEC. Information contained on our website is not part of this report.19Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1A. Risk FactorsYou should carefully consider the risk factors below in connection with the other sections of this Annual Report. Each of these risk factors could have amaterial effect on our business, operating results, cash flows and financial condition, as well as the value of an investment in our common units.Risks Related to our BusinessWe may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including costreimbursements to our general partner, to enable us to pay the minimum quarterly distribution, or any distribution, to holders of our common, Class A,subordinated and general partner units. In order to pay the minimum quarterly distribution of $0.2875 per unit per quarter, or $1.15 per unit on an annualized basis, we require available cashof approximately $7.6 million per quarter, or $30.3 million per year, based on the number of common, Class A, subordinated and general partner unitsoutstanding at December 31, 2017. We may not have sufficient available cash from operating surplus each quarter to enable us to pay the minimum quarterlydistribution. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which willfluctuate from quarter to quarter based on, among other things:•our entitlement to minimum monthly payments associated with our take-or-pay terminal services agreements and the impact of credits for unutilizedcontractual capacity;•our ability to acquire new customers and retain existing customers;•the rates and terminalling fees we charge for the volumes we handle;•the volume of crude oil and other liquid hydrocarbons we handle;•damage to terminals, railroads, pipelines, facilities, related equipment and surrounding properties caused by hurricanes, earthquakes, floods, fires,severe weather, explosions and other natural disasters and acts of terrorism including damage to third-party pipelines, railroads or facilities uponwhich our customers rely for transportation services;•leaks or accidental releases of products or other materials into the environment, including explosions, chemical fumes or other similar events,whether as a result of human error, natural disaster or otherwise;•prevailing economic and market conditions; including low or volatile commodity prices and their effect on our customers;•the level of our operating, maintenance and general and administrative costs;•regulatory action affecting railcar design or the transportation of crude oil by rail; and•the supply of, or demand for, crude oil and other liquid hydrocarbons.In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control,including:•the level and timing of capital expenditures we make;•the cost of acquisitions, if any;•our debt service requirements and other liabilities;•our requirements to pay distribution equivalents on phantom unit awards, or Phantom Units, pursuant to the terms of the Amended and RestatedUSD Partners LP 2014 Long-Term Incentive Plan, or A/R LTIP;•fluctuations in our working capital needs;•fluctuations in the values of foreign currencies in relation to the U.S. dollar, including the Canadian dollar;•our ability to borrow funds and access capital markets;•restrictions contained in our debt agreements;•the amount of cash reserves established by our general partner; and•other business risks affecting our cash levels.The amount of cash we have available for distribution to holders of our common units, Class A units, subordinated units and general partner unitsdepends primarily on our cash flow rather than on our profitability, which may prevent us from making distributions, even during periods in which werecord net income. The amount of cash we have available for distribution depends primarily upon our cash flow and not solely on profitability, which will be affected bynon-cash items. As a result, we may make cash distributions during periods when we20Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.record losses for financial accounting purposes and may not be able to make cash distributions during periods when we record net earnings for financialaccounting purposes.Our contracts subject us to renewal risks. We provide terminalling services for liquid hydrocarbons and biofuels under contracts with terms of various durations and renewal. Five of the sixterminal services agreements with our Hardisty terminal customers expire in 2019 and the sixth expires in 2020. Our sole customer contract for our WestColton terminal is terminable at any time by either party on 150 days’ notice. The two terminal services agreements with our Casper terminal customersextend through October 2018 and September 2019. Our sole customer contract for our Stroud terminal expires in 2020.We lease an aggregate of 2,813 railcars from various railcar manufacturers and financial entities and we provide these railcars to our customers pursuantto master fleet services agreements. Through the end of 2018, we expect the leases on approximately 970 railcars to expire, approximately half of which relateto a legacy customer of a terminal sold prior to our formation and the remainder of which relate to a prior customer at our Hardisty terminal. As these contracts expire, we will have to negotiate extensions or renewals with existing customers or enter into new contracts with other customers. Wemay not be able to obtain new contracts on favorable commercial terms, if at all. We also may be unable to maintain the economic structure of a particularcontract with an existing customer or maintain the overall mix of our contract portfolio if, for example, prevailing crude oil prices and the associated spreadsbetween different grades of crude oil remain at present levels or decline further. Depending on prevailing market conditions at the time of a contract renewal,customers with fee-based contracts may desire to enter into contracts under different fee or term arrangements or may seek to purchase such capacity on anuncommitted basis. To the extent we are unable to renew our existing contracts on terms that are favorable to us or successfully manage our overall contractmix over time, our revenue and cash flows could decline and both our ability to make cash distributions to our unitholders and our ability to remain incompliance with the covenants under our credit facility could be materially and adversely affected. We depend on a limited number of customers for a significant portion of our revenues. The loss of, or material nonpayment or nonperformance by, anyone or more of these customers could adversely affect our ability to make cash distributions to our unitholders.We generate the vast majority of our operating cash flow in connection with providing terminalling services at our crude oil terminals. Substantially allof the capacity at our crude oil terminals is contracted under multi-year, take-or-pay terminal services agreements. A continued sustained reduction in theprices of crude oil and other commodities could have a material adverse effect on our customers’ businesses. In particular, oil sands production in Canada isparticularly susceptible to decline as a result of long-term reductions in the price of crude oil due to its relatively high production costs. As a result, some ofour customers may have material financial or liquidity issues or may, as a result of operational incidents or other events, be disproportionately affected ascompared to larger or better-capitalized companies. Any material nonpayment or nonperformance by any of our key customers could have a material adverseeffect on our business, financial condition, results of operations, and ability to make quarterly distributions to our unitholders. In addition, liquidity issuesresulting from sustained lower crude oil prices could lead our customers to go into bankruptcy or could encourage them to seek to repudiate, cancel,renegotiate or fail to renew their agreements with us for various reasons. We expect our exposure to concentrated risk of non-payment or non-performance tocontinue as long as we remain substantially dependent on a relatively limited number of customers for a substantial portion of our revenue.Additionally, the sole contract at our West Colton terminal is terminable at any time upon 150 days’ notice. If we were unable to renew our contractwith one or more of these customers, including customers at our Hardisty or Casper terminals, on favorable terms, we may not be able to replace any of thesecustomers in a timely fashion, on favorable terms or at all.Any reduction in our or our customers’ ability to utilize third-party storage facilities, pipelines, railroads or trucks that interconnect with our terminalsor to continue utilizing them at current costs could negatively impact customer volumes and renewal rates at our terminals. We and the customers of our terminals are dependent upon access to third-party storage facilities, pipelines, railroads and truck fleets to receive anddeliver crude oil and other liquid hydrocarbons to or from us. The continuing operation of such third-party storage facilities, pipelines, railroads and othermidstream facilities or assets is not within our control. Any interruptions or reduction in the capabilities of these third parties due to testing, line repair,reduced operating pressures, or other causes in the case of pipelines, or track repairs, derailments or other causes, in the case of railroads, could result inreduced volumes transported through our terminals.21Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We entered into a facilities connection agreement with Gibson whereby Gibson constructed a pipeline to provide our Hardisty terminal with exclusivepipeline access to Gibson’s Hardisty storage terminal, which is the source of all of the crude oil handled by our Hardisty terminal. In addition, substantiallyall of the crude oil handled by our Casper terminal has historically been sourced from the Express Pipeline. Our customer base is accordingly constrained bycustomer access to Gibson’s Hardisty storage terminal in the case of our Hardisty terminal, and the Express Pipeline in the case of our Casper terminal. If ourexisting customers don’t maintain their capacity with Gibson or Express, or in the case of our Casper terminal, our customers’ capacity allocations on theExpress pipeline are reduced by prorations due to the capacity demands of other shippers or other reasons, the volume shipped by our existing customers maybe reduced or our customers may choose not to renew their agreements with us at existing rates and volumes, if at all, which would have a material adverseeffect on our results of operations and ability to make quarterly distributions to our unitholders.Similar issues could arise based on other capacity issues arising before or after a customer’s products reach or leave our terminals, including railcapacity constraints and constraints at receiving terminals or other midstream facilities downstream of receiving terminals. For example, the recent rapidincrease in demand for utilization of our Hardisty terminal has been limited by the ability of the railroads to increase staffing to meet this demand. If therailroads are unwilling or unable to meet the existing and potential future demand for our terminals, our ability to retain customers or grow our terminalwould be materially impacted.We may not be able to compete effectively and our business is subject to the risk of a capacity overbuild of midstream infrastructure and the entrance ofnew competitors in the areas where we operate. We face competition in all aspects of our business and can give no assurances that we will be able to compete effectively. Our terminals competewith existing and potential new hydrocarbon by rail terminals, as well as alternative modes of transporting hydrocarbons from production centers to refiningor aggregation centers, such as existing and potential new crude oil pipelines and water-borne vessels. Our competitors include other midstream companies,major integrated energy companies, independent producers and refiners, as well as commodity marketers and traders of widely varying sizes, financialresources and experience. We compete on the basis of many factors, including geographic proximity to production areas, market access, rates, terms ofservice, connection costs and other factors. Many of our competitors have access to capital resources significantly greater than ours. A significant driver of competition in some of the markets where we operate is the risk of development of new midstream infrastructure capacity drivenby the combination of (i) significant increases in oil and gas production and development in the particular production areas, both actual and anticipated,(ii) low barriers to entry and (iii) generally widespread access to relatively low cost capital. This environment exposes us to the risk that these areas becomeoverbuilt, resulting in an excess of midstream infrastructure capacity. We face these risks in particular with respect to the potential development of additionalpipeline takeaway capacity from the Canadian oil sands region, where our customers source the majority of the crude oil handled at our terminals. Mostmidstream projects require several years of “lead time” to develop and companies like us that develop such projects are exposed (to varying degreesdepending on the contractual arrangements that underpin specific projects) to the risk that expectations for oil and gas development in the particular areamay not be realized or that too much capacity is developed relative to the demand for services that ultimately materializes. If we experience a significantcapacity overbuild in one or more of the areas where we operate, it could have a material adverse effect on our business, financial condition, results ofoperations, and ability to make quarterly distributions to our unitholders.The lack of diversification of our assets and geographic locations could adversely affect our ability to make distributions to our common unitholders.We generate the vast majority of our operating cash flow in connection with providing terminalling services at our crude oil terminals, all of whichreceive the majority of their crude oil from the Canadian oil sands through the Hardisty hub. Due to the lack of diversification in our assets and geographiclocation, an adverse development in our businesses or areas of operations, especially to our crude oil terminals, including those due to catastrophic events,weather, regulatory action or decreases in the price of, or demand for, crude oil, could have a significantly greater impact on our results of operations anddistributable cash flow to our common unitholders than if we maintained more diverse assets and locations. In particular, due in part to relatively highproduction costs, oil sands production in Canada may be particularly susceptible to decline as a result of long-term declines in the price of crude oil, whichcould materially impact our ability to secure additional long-term customer contracts and renewals at our Hardisty terminal and our Casper terminal, and theability of USD Group LLC to contract for and complete expansions. In addition, events that impact the supply of crude oil in Western Canada, such asextreme weather, forest fires, and facility downtime, and events that increase the take-away capacity, such as the construction of new pipelines would have asimilar impact.22Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We do not own some of the land on which our terminals are located, which could disrupt our operations. We do not own all of the land on which our West Colton terminal is located, which land we obtained the right to use through leases from the Class Irailroad servicing this terminal. These leases are currently cancellable at will by either party. We are therefore subject to the possibility of lease cancellation,more onerous terms and/or increased costs to retain the land necessary to operate this terminal. Our loss of these rights, through our inability to renew or theunwillingness of the land owner to negotiate right-of-way contracts or leases, or otherwise, could cause us to cease operations on the affected land, incur coststo dismantle and remove existing facilities, increase costs related to continuing operations elsewhere and reduce our revenue.The fees charged to customers under our agreements with them for the transportation of crude oil may not escalate sufficiently or at all to coverincreases in costs, and the agreements may be temporarily suspended or terminated in some circumstances, which would affect our profitability. We generate the vast majority of our operating cash flow in connection with providing terminalling services at our crude oil terminals. Substantiallyall of the capacity at our crude oil terminals is contracted under multi-year, take-or-pay terminal services agreements, which, in the case of our Hardistyterminal, are subject to inflation-based rate escalators. The terminal services agreements at our Casper terminal are not subject to inflation-based rateescalators. Any inflation-based escalators in our terminal services agreements may be insufficient to compensate for increases in our costs. Additionally, somecustomers’ obligations under their agreements with us may be temporarily suspended upon the occurrence of certain events, some of which are beyond ourcontrol, or may be terminated in the case of uninterrupted force majeure events of over one year wherein the supply of crude oil is curtailed or cut off. Forcemajeure events may include (but are not limited to) revolutions, wars, acts of enemies, embargoes, import or export restrictions, strikes, lockouts, fires, storms,floods, acts of God, explosions, mechanical or physical failures of our equipment or facilities of our customers, or any cause or causes of any kind or character(except financial) reasonably beyond the control of the party failing to perform. If either the escalation of fees under the terminal services agreements at ourHardisty terminal is insufficient to cover increased costs, we experience increased costs at our Casper terminal, or if any customer suspends or terminates itscontracts with us, our profitability and ability to make quarterly distributions to our unitholders could be materially and adversely affected. We serve customers who are involved in drilling for, producing and transporting crude oil and other liquid hydrocarbons. Adverse developmentsaffecting the fossil fuel industry or drilling activity, including continuing low or further reduced prices of crude oil or biofuels, reduced demand forcrude oil products and increased regulation of drilling, production or transportation could cause a reduction of volumes transported through ourterminals.Our business, including our ability to grow our business through the contracting and development of new terminals, as well as our ability to securerenewals or extensions of agreements with customers at our existing terminals, depends on the continued development, production and demand for crude oiland other liquid hydrocarbons from our existing markets as well as other areas unserved or underserved by existing alternative transportation solutions. Thewillingness of exploration and production companies to develop and produce crude oil in particular producing regions depends largely on their ability toconduct these activities profitably, which in turn depends largely upon the markets for and prices of crude oil and other commodities. A continued sustainedreduction in the prices of crude oil and other commodities would have a material adverse effect on our business. The factors impacting the prices of crude oiland other commodities include the supply of and demand for these commodities, which fluctuate with changes in market and economic conditions, and otherfactors, including:•worldwide and regional economic conditions;•worldwide and regional political events, including actions taken by foreign oil producing nations;•worldwide and regional weather events and conditions, including natural disasters and seasonal changes that could decrease supply or demand;•the levels of domestic and international production and consumer demand;•the availability of transportation systems with adequate capacity;•fluctuations in demand for crude oil, such as those caused by refinery downtime or turnarounds;•fluctuations in the price of crude oil, which may have an impact on the spot prices for the transportation of crude oil by pipeline or railcar;•increased government regulation or prohibition of the transportation of hydrocarbons by rail;•the volatility and uncertainty of world crude oil prices as well as regional pricing differentials;•fluctuations in gasoline consumption;23Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•the price and availability of alternative fuels;•changes in mandates to blend renewable fuels, such as ethanol, into petroleum fuels;•the price and availability of the raw materials used to produce ethanol, such as corn;•the effect of energy conservation measures, such as more efficient fuel economy standards for automobiles;•the nature and extent of governmental regulation and taxation, including the amount of subsidies for ethanol and other alternative sources ofenergy;•fluctuations in demand from electric power generators and industrial customers; and•the anticipated future prices of oil and other commodities.The prices of crude oil and related products remain volatile and subject to the influence of many global factors, such as OPEC policy, the balance ofsupply versus demand for those products in various markets and geopolitical risks. Our terminals primarily transport crude oil produced from the Canadianoil sands, which are considered to have relatively high production costs. In the past, exploration and production companies operating in the Canadian oilsands have and may further reduce capital spending for expansion projects designed to increase crude oil production. We expect that declines in crude oilprices or prices remaining at current levels for a prolonged period of time may result in further reductions in capital spending, which would likely decreasethe likelihood that our existing customers would renew their contracts with us at current prices or at all, reduce the opportunities for us to grow our assets andotherwise have a material adverse impact on our business and results of operations. The dangers inherent in our operations could cause disruptions and expose us to potentially significant losses, costs or liabilities and reduce ourliquidity. We are particularly vulnerable to disruptions in our operations because most of our terminalling operations are concentrated at the Hardistyand Casper terminals. Our operations are subject to significant hazards and risks inherent in transporting and storing crude oil, intermediate products and refined products.These hazards and risks include, but are not limited to, natural disasters, fires, explosions, pipeline or railcar ruptures and spills, third-party interference andmechanical failure of equipment at our terminals, any of which could result in disruptions, pollution, personal injury or wrongful death claims and otherdamage to our properties and the property of others. There is also risk of mechanical failure and equipment shutdowns both in the normal course of operationsand following unforeseen events. Because the vast majority of our cash flow is generated from operations conducted at our crude oil terminals, any sustaineddisruption at any of these terminals, the Gibson storage terminal, which is the source of all of the crude oil handled by our Hardisty terminal, the Expresspipeline, which is the primary source of the crude oil handled by the Casper terminal, or the Cushing hub and pipelines feeding into or out of the Cushinghub, which is the destination of the crude oil handled by the Stroud terminal, would have a material adverse effect on our business, financial condition,results of operations and cash flows and, as a result, our ability to make distributions. Some of our customers’ operations cross the U.S./Canada border and are subject to cross-border regulation.Our customers’ cross border activities subject them to regulatory matters, including import and export licenses, tariffs, Canadian and U.S. customs andtax issues and toxic substance certifications. Such regulations include the Short Supply Controls of the Export Administration Act, the North American FreeTrade Agreement and the Toxic Substances Control Act. Violations of these licensing, tariff and tax reporting requirements could result in the imposition ofsignificant administrative, civil and criminal penalties on our customers. Our revenue and cash flows could decline and our ability to make cash distributionsto our unitholders could be materially and adversely affected should our customers fail to comply with these cross-border regulations.24Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Changes in the provincial royalty rates and drilling incentive programs in Canada could decrease the oil and gas exploration and pipeline activities inCanada, which could adversely affect the demand for our terminalling services. Certain provincial governments collect royalties on the production from lands owned by the government of Canada. These fiscal royalty regimes arereviewed and adjusted from time to time by the respective provincial governments for appropriateness and competitiveness. Any increase in the royalty ratesassessed by, or any decrease in the drilling incentive programs offered by, a provincial government could negatively affect the drilling activity, which couldadversely affect the demand for our terminalling services.Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results. Currency exchange rate fluctuations could have an adverse effect on our results of operations. A substantial portion of the cash flows from our currentassets will be generated in Canadian dollars, but we intend to make distributions to our unitholders in U.S. dollars. As such, a portion of our distributable cashflow will be subject to currency exchange rate fluctuations between U.S. dollars and Canadian dollars. For example, if the Canadian dollar weakenssignificantly, the corresponding distributable cash flow in U.S. dollars could be less than what is necessary to pay our minimum quarterly distribution. A significant strengthening of the U.S. dollar relative to other currencies could result in an increase in our financing expenses and could materiallyaffect our financial results under GAAP. In addition, because we report our operating results in U.S. dollars, changes in the value of the U.S. dollar also resultin fluctuations in our reported revenues and earnings. In addition, under GAAP, all foreign currency-denominated monetary assets and liabilities such as cashand cash equivalents, accounts receivable, restricted cash, accounts payable and capital lease obligations are revalued and reported based on the prevailingexchange rate at the end of the reporting period. This revaluation may cause us to report significant non-monetary foreign currency exchange gains andlosses in certain periods. Increases in rail freight costs may adversely affect our results of operations. The largest component of a shipment of crude by rail is the rail freight transportation costs. Unlike terminal services fees, which are typicallyestablished by multi-year contracts, railroad freight transportation has traditionally been purchased on a spot basis. Recently the railroads servicing some ofour terminals have begun to seek multi-year term agreements, which also increase costs to our customers to the extent not utilized. High spot rail freight costsfrom or to our terminals, or high term rates or long contract terms, may make the shipment of crude or other liquid hydrocarbons less attractive or unattractiveto our customers and potential customers. In addition, transporters of hydrocarbons by rail compete with other parties, such as coal, grain and corn, whichship their product by rail. Demand for transportation of crude or other products by rail is currently and has previously caused shortages in availablelocomotives and railroad crews. Such shortages may ultimately increase the cost to transport hydrocarbons by rail. Additionally, diesel fuel costs generallyfluctuate with increasing and decreasing world crude oil prices, and accordingly are subject to political, economic and market factors that are outside of ourcontrol. Diesel fuel prices are a significant component of the costs to our customers of shipping hydrocarbons by rail. Increased costs to ship hydrocarbons byrail could curtail demand for shipment of hydrocarbons by rail which would have an adverse effect on our results of operations and cash flows and our abilityto attract new customers and retain existing customers.Our business could be adversely affected if service on the railroads is interrupted or if more stringent regulations are adopted regarding railcar designor the transportation of crude oil by rail. We do not own or operate the railroads on which crude oil carrying railcars are transported; however, we do manage a railcar fleet that is subject toregulations governing railcar design and manufacture. The volume of crude oil and liquid hydrocarbons transported in North America by rail has increasedsubstantially in recent years. High-profile accidents involving crude oil carrying trains in recent years, in conjunction with increased use of railtransportation, have raised concerns about the environmental and safety risks associated with crude oil transport by rail and railcar design.The DOT and Transport Canada released a series of directives and other actions to address rail safety concerns. Among the directives is a final rulerequiring that CPC-1232 railcars used to transport crude oil and ethanol that are not compliant with required safety standards be phased out or retrofitted asearly as April 1, 2020, with none in use after May 1, 2025. We currently provide railcar services for 2,813 railcars, 375 of which will still be under contractand require retrofitting pursuant to this directive. Although these leases may expire before the regulatory deadline, certain of our lease agreements maypermit for early retrofit of the railcars. The remaining railcars either have leases that will expire before they are required to be retrofitted, or already meet therequirements of the directive. We do not own any of the railcars in our railcar fleet and are25Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.not directly responsible for costs associated with the retrofitting of CPC-1232 railcars. However, costs associated with the retrofitting of railcars wouldincrease the incremental monthly cost of the applicable railcar lease, which cost we may not always be able to pass through to our customers and could affectdemand for our services. The timing of retrofits to the rail cars we manage could disrupt our operations particularly if we are unable; however, to work withour railcar suppliers on modification scheduling that avoids major disruptions.DOT and Transport Canada have also required operators to take certain precautions relating to rail routing, and mandated reductions in train speed andthe implementation of new braking technology, to address rail safety concerns. The recent changes to U.S. and Canadian regulations and the adoption ofadditional federal, state, provincial or local laws or regulations, including any additional voluntary measures by the rail industry regarding railcar design orcrude oil and liquid hydrocarbon rail transport activities, or efforts by local communities to restrict or limit rail traffic involving crude oil, could affect ourbusiness by increasing compliance costs and decreasing demand for our services, which could adversely affect our financial position and cash flows.Moreover, any disruptions in the operations of railroads, including those due to shortages of railcars or qualified personnel, weather-related problems,flooding, drought, accidents, mechanical difficulties, strikes, lockouts or bottlenecks, could adversely impact our customers’ ability to move their productsand, as a result, could affect our business.We may be subject to liability or expense in connection with the use of our railcars by our customers.We lease an aggregate of 2,813 railcars from various railcar manufacturers and financial entities and we provide these railcars to our customerspursuant to master fleet services agreements. We have assigned certain payment and performance obligations under the leases and master fleet servicesagreements for 2,613 of these railcars to other parties, but have retained certain rights and obligations with respect to the servicing of these railcars. Althoughour customers are generally responsible for the use, maintenance and condition of the railcars subject to their master fleet services agreements with us, we, andnot our customers, are directly responsible to our lessors. In the event that our lessors seek to recover any costs at lease expiration resulting from the conditionof the railcars, they will primarily look to us to recoup these amounts. Although our customers have generally agreed to be responsible for any costs we incuras a result of their use of our railcars, our customers may deny culpability for any specific costs. In the event that we are unable to resolve disputes related toreturn costs with our lessors and our customers, we may be obligated to pay the associated costs ourselves or the disputes may result in legal proceedings.Any such legal proceedings may be costly and we may not be able to recover our costs of participation in such proceedings from either the lessors or ourcustomers. In addition, in the event that any such legal proceeding results in a judgment against us that is not reimbursable by our customer, such judgmentcould result in material costs for us. Finally, as the lessee of our railcars, we may be named in any legal proceedings related to any damage to third parties orthe environment caused by the use of our railcars by our customers. In the event that we are unable to obtain indemnification from our customers as a result ofsuch potential claims, we may incur material costs and liabilities. Any costs or liabilities resulting from our customers’ use of our railcars could have amaterial adverse effect on our business, financial condition, results of operations and cash flows and, as a result, our ability to make distributions.Changes in, or challenges to, our pipeline rates and other terms and conditions of service could have a material adverse effect on our financialcondition and results of operations.Our dedicated crude oil pipelines, CCR Pipeline and SCT Pipeline, are subject to regulation by various federal, state and local agencies. FERCregulates the interstate transportation services provided on these pipelines under the ICA, the EPAct 1992 and the rules and regulations promulgated underthose laws. FERC regulations require that rates for interstate service on pipelines that transport crude oil and refined petroleum products (collectively referredto as “petroleum pipelines”) and certain other liquids to be just and reasonable, not be unduly discriminatory and not confer any undue preference upon anyshipper. FERC regulations also require interstate common carrier petroleum pipelines to file with FERC and publicly post tariffs stating their interstatetransportation rates and terms and conditions of service. Under the ICA, FERC or interested persons may challenge existing or changed rates or services.FERC is authorized to investigate such changes and may suspend the effectiveness of a new rate for up to seven months. A successful rate challenge couldresult in a common carrier paying refunds together with interest for the period during which the rate was in effect. FERC may also order a pipeline to changeits rates, and may require a common carrier to pay shippers reparations for damages sustained for a period up to two years prior to the filing of a complaint.Intrastate transportation services provided by CCR Pipeline, the crude oil pipeline serving our Casper Terminal, are subject to regulation by theWyoming Public Service Commission. The Wyoming Public Service Commission uses a complaint-based system of regulation, both as to matters involvingrates and priority of access. In response to a complaint, the Wyoming Public Service Commission could limit our ability to increase our rates or to set ratesbased on our costs or order us to reduce our rates and require the payment of refunds to shippers. If we were to provide intrastate transportation26Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.services through our SCT Pipeline, the crude oil pipeline serving our Stroud terminal, we could elect to file a tariff covering such services with the OklahomaCorporation Commission, which does not require such filings and does not regulate intrastate crude oil pipeline rates but does make filed pipeline tariffsavailable for public viewing.FERC and state regulatory commissions generally have not investigated petroleum pipeline rates unless the rates are the subject of a protest or acomplaint. However, FERC or the Wyoming Public Service Commission could investigate our rates on their own initiative or at the urging of a third party. IfFERC or the Wyoming Public Service Commission were to lower our tariff rates or deny any proposed rate increase or other material changes to the types, orterms and conditions, of service we might propose, the profitability of our CCR Pipeline and terminal located in Casper, Wyoming, or of our SCT Pipelineand terminal located in Stroud, Oklahoma, could suffer. In addition, if we were permitted to raise our tariff rates for services provided through the CCRPipeline or SCT Pipeline, there might be a significant delay between the time the tariff rate increase is approved and the time that the rate increase actuallygoes into effect, which could adversely affect our cash flow. Furthermore, competition from other pipelines and terminals may prevent us from raising ourtariff rates even if FERC or the Wyoming Public Service Commission permits us to do so. FERC and the Wyoming Public Service Commission periodically implement new rules, regulations and policies that can have a bearing on petroleumpipeline rates and terms and conditions of service. New initiatives or orders may adversely affect the rates charged for our services or otherwise adverselyaffect our financial condition, results of operations and cash flows and our ability to make cash distributions to our unitholders.Restrictions in our senior secured credit agreement could adversely affect our business, financial condition, results of operations, ability to makedistributions to unitholders and value of our common units. We are dependent upon the earnings and cash flow generated by our operations in order to meet our debt service obligations under our senior securedcredit agreement and to allow us to make cash distributions to our unitholders. The operating and financial restrictions and covenants in our senior securedcredit agreement and any future financing agreements could restrict our ability to finance future operations or capital needs or to expand or pursue ourbusiness activities, which may, in turn, limit our ability to make cash distributions to our unitholders. Our senior secured credit agreement limits our abilityto, among other things:•incur or guarantee additional debt;•make distributions on or redeem or repurchase units;•make certain investments and acquisitions;•incur certain liens or permit them to exist;•enter into certain types of transactions with affiliates;•merge or consolidate with other affiliates;•transfer, sell or otherwise dispose of assets;•engage in a materially different line of business;•enter into certain burdensome agreements; and•prepay other indebtedness. Our senior secured credit agreement also includes covenants requiring us to maintain certain financial ratios. Our ability to meet those financial ratiosand tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests. In addition, if we are unable tomaintain our existing revenues and cash flows, particularly in connection with the potential renewal or extension of our existing take or pay agreements, wemay be required to reduce our indebtedness or fall out of compliance with one or more of these ratios or tests.The provisions of our senior secured credit agreement may affect our ability to obtain future financing and pursue attractive business opportunities andour flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our senior securedcredit agreement could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together withaccrued and unpaid interest, to be immediately due and payable along with triggering the exercise of other remedies. If the payment of our debt isaccelerated, our assets may be insufficient to repay such debt in full, and our unitholders could experience a partial or total loss of their investment.27Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The credit and risk profile of our general partner and its owner, USD Group LLC, could adversely affect our credit ratings and risk profile, which couldincrease our borrowing costs or hinder our ability to raise capital and additionally have a direct impact on our ability to pay our minimum quarterlydistribution The credit and business risk profiles of our general partner and USD Group LLC, neither of which has a rating from any credit agency, may be factorsconsidered in credit evaluations of us. This is because our general partner, which is owned by USD Group LLC, controls our business activities, including ourcash distribution policy and growth strategy. In addition, a wholly-owned affiliate of our general partner is a customer of ours at our Hardisty terminal andStroud terminal and may become a customer at other terminals we own or control in the future. Any adverse change in the financial condition of USDGroup LLC, including the degree of its financial leverage and its dependence on cash flow from us to service its indebtedness, if any, may adversely affectour credit ratings and risk profile. If we were to seek a credit rating in the future, our credit rating may be adversely affected by the leverage of our generalpartner or USD Group LLC, as credit rating agencies such as Standard & Poor’s Ratings Services and Moody’s Investors Service may consider the leverageand credit profile of USD Group LLC and its affiliates because of their ownership interest in and control of us. Any adverse effect on our credit rating wouldincrease our cost of borrowing or hinder our ability to raise financing in the capital markets, which would impair our ability to grow our business and makedistributions to common unitholders.Our growth strategy requires access to new capital. Tightened capital markets or increased competition for investment opportunities could impair ourability to grow. We regularly consider and evaluate potential acquisitions and other opportunities to grow our business. Any limitations on our access to new capitalwill impair our ability to execute this strategy. If the cost of such capital becomes too expensive, our ability to develop or acquire strategic and accretiveassets will be limited. We may not be able to raise the necessary funds on satisfactory terms, if at all. The primary factors that influence our initial cost ofequity include market conditions, including our then current unit price, fees we pay to underwriters and other offering costs, which include amounts we payfor legal and accounting services. The primary factors influencing our cost of borrowing include interest rates, credit spreads, covenants, underwriting or loanorigination fees and similar charges we pay to lenders. Weak economic conditions, more stringent lending standards, higher interest rates and volatility in the financial markets could increase the cost ofraising money in the debt and equity capital markets, while diminishing the availability of funds from those markets. These factors among others may limitour ability to execute our growth strategy.While Energy Capital Partners has indicated an intention to invest over an additional $1.0 billion of equity capital in USD, subject to market and otherconditions, it has not made a commitment to provide any direct or indirect financial assistance to us. Furthermore, Energy Capital Partners must approve anyissuances of additional equity by us, and its determination may be made free of any duty to us or our unitholders, and members of our general partner’s boardof directors appointed by Energy Capital Partners must approve the incurrence by us or refinancing of our indebtedness outside of the ordinary course ofbusiness, which may limit our flexibility to obtain financing and to pursue other business opportunities.Our existing debt and any additional debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities. As of December 31, 2017, we had approximately $202.0 million of outstanding borrowings under our senior secured credit agreement. We have theability to incur additional debt, including under our existing senior secured credit agreement. Our level of indebtedness could have important consequencesfor us, including the following:•our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions, or other purposes, may be impaired, orsuch financing may not be available on favorable terms;•our funds available for operations, future business opportunities and cash distributions to unitholders may be reduced by that portion of our cashflow required to make interest payments on our debt;•we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and•our flexibility in responding to changing business and economic conditions may be limited. Our ability to service our debt depends upon, among other things, our financial and operating performance, which will be affected by prevailingeconomic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient toservice indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investmentsor capital expenditures, selling assets or seeking additional equity capital. We may not be able to take any of these actions on satisfactory terms or at all.28Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.If we are unable to make acquisitions on economically acceptable terms from USD or third parties, our future growth would be limited, and anyacquisitions we may make could reduce, rather than increase, our cash flows and ability to make distributions to unitholders. A portion of our strategy to grow our business and increase distributions to unitholders is dependent on our ability to make acquisitions that result inan increase in cash flow. If we are unable to make acquisitions from USD or third parties, because we are unable to identify attractive acquisition candidatesor negotiate acceptable purchase agreements, we are unable to obtain financing for these acquisitions on economically acceptable terms, we are outbid bycompetitors or we or the seller are unable to obtain any necessary consents, our future growth and ability to increase distributions to unitholders will belimited. Energy Capital Partners must also approve the acquisition of the securities of any entity by us if the acquisition exceeds specified thresholds.Furthermore, even if we do consummate acquisitions that we believe will be accretive, we may not realize the intended benefits, and the acquisition may infact result in a decrease in cash flow. Any acquisition involves potential risks, including, among other things:•mistaken assumptions about revenues and costs, including synergies;•the assumption of unknown liabilities;•limitations on rights to indemnity from the seller;•mistaken assumptions about the overall costs of equity or debt;•the diversion of management’s attention from other business concerns;•unforeseen difficulties operating in new product areas or new geographic areas; and•customer or key employee losses at the acquired businesses. If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have theopportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and otherresources.We may be unsuccessful in integrating future acquisitions with our existing operations, and in realizing all or any part of the anticipated benefits of anysuch acquisitions. From time to time, we evaluate and expect to acquire assets and businesses that we believe complement our existing assets and businesses, such as ouracquisition of the Casper terminal and the Stroud terminal. These acquisitions may require substantial capital or the incurrence of substantial indebtedness.Our capitalization and results of operations may change significantly as a result of future acquisitions. Acquisitions and business expansions involvenumerous risks, including difficulties in the assimilation of the assets and operations of the acquired businesses, inefficiencies and difficulties that arisebecause of unfamiliarity with new assets and the businesses associated with them and new geographic areas and the diversion of management’s attention fromother business concerns. Further, unexpected costs and challenges may arise whenever businesses with different operations or management are combined, andwe may experience unanticipated delays in realizing the benefits of an acquisition. Also, following an acquisition, we may discover previously unknownliabilities associated with the acquired business or assets for which we have no recourse under applicable indemnification provisions. Our inability tosuccessfully integrate any future acquisitions into our existing operations and asset platform could have a material adverse effect on our business, financialcondition, results of operations, and ability to make quarterly distributions to our unitholders. Our right of first offer to acquire certain of USD’s existing assets and projects and certain projects that it may develop, construct or acquire in the futureis subject to risks and uncertainty, and ultimately we may not acquire any of those assets or businesses. Our omnibus agreement provides us with a right of first offer for a period of seven years from October 15, 2014 on certain of USD’s existing assets andprojects as well as any additional midstream infrastructure that it may develop, construct or acquire in the future, subject to certain exceptions. Theconsummation and timing of any future acquisitions pursuant to this right will depend upon, among other things, USD’s continued development ofmidstream infrastructure projects and successful execution of such projects, USD’s willingness to offer assets for sale and obtain any necessary consents, ourability to negotiate acceptable purchase agreements and commercial agreements with respect to such assets and our ability to obtain financing on acceptableterms. We can offer no assurance that we will be able to successfully consummate any future acquisitions or successfully integrate assets acquired pursuant toour right of first offer. Furthermore, USD is under no obligation to accept any offer that we may choose to make. Additionally, the approval of Energy CapitalPartners is required for the sale of any assets by USD or its subsidiaries, including us (other than sales in the ordinary course of business), acquisitions ofsecurities of other entities that exceed specified materiality thresholds and any material unbudgeted expenditures or deviations from our approved budgets.Energy Capital Partners may make these decisions free of any duty29Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.to us and our unitholders. This approval would be required for the potential acquisition by us of any projects to expand the Hardisty terminal, as well as anyother projects or assets that USD may develop or acquire in the future or any third-party acquisition we may intend to pursue jointly or independently fromUSD. Energy Capital Partners is under no obligation to approve any such transaction. Please refer to the discussion under Item 10. Directors, ExecutiveOfficers and Corporate Governance—Special Approval Rights of Energy Capital Partners regarding the rights of Energy Capital Partners. In addition, wemay decide not to exercise our right of first offer if and when any assets are offered for sale, and our decision will not be subject to unitholder approval.Further, our right of first offer may be terminated by USD at any time in the event that it no longer controls our general partner. Please refer to the discussionunder Part II, Item 8. Financial Statements and Supplementary Data, Note 13. Transactions with Related Parties for additional information regarding ouromnibus agreement. Growing our business by constructing new assets subjects us to construction risks and risks that supplies for such facilities will not be available uponcompletion thereof. One of the ways we intend to grow our business is through the construction of new assets. The construction of new assets requires the expenditure ofcapital, some of which may exceed our resources, and involve regulatory, environmental, political and legal uncertainties. If we undertake the construction ofnew assets, we may not be able to complete them on schedule or at all or at the budgeted cost. Moreover, our revenues may not increase upon the expenditureof funds on a particular project. For instance, if we build a new significant asset, the construction will occur over a period of time, and we will not receive anyrevenues until after completion of the project, if at all. Moreover, we may construct assets to provide services to capture revenue which does not materializeor for which we are unable to acquire new customers. We may also rely on estimates of potential demand for our services in our decision to construct newassets, which may prove to be inaccurate because there are numerous uncertainties inherent in estimating demand for our services. As a result, new assets weconstruct may not be able to attract sufficient demand to achieve our expected investment return, which could materially and adversely affect our results ofoperations, cash flows and financial condition.We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future laws, regulations andother requirements could significantly increase our costs of doing business, thereby adversely affecting our profitability. Our industry is subject to laws, regulations and other requirements including, but not limited to, those relating to the environment, safety, workingconditions, public accessibility and other requirements. These laws and regulations are enforced by federal agencies including, but not limited to, the EPA,the DOT, PHMSA, the FERC, the FRA, the Federal Motor Carrier Safety Administration, or FMCSA, OSHA, state agencies such as the Texas Commission onEnvironmental Quality, the Railroad Commission of Texas, the California Environmental Protection Agency, or Cal/EPA, the California Public UtilitiesCommission, or CPUC, and Canadian agencies such as Environment Canada and Transport Canada as well as numerous other state and federal agencies.Ongoing compliance with, or a violation of, these laws, regulations and other requirements could have a material adverse effect on our business, financialcondition, results of operations, and ability to make quarterly distributions to our unitholders. In addition, these laws and regulations, and the interpretation or enforcement thereof, are subject to frequent change by regulatory authorities, and weare unable to predict the ongoing cost to us of complying with these laws and regulations or the future impact of these laws and regulations on ouroperations. Violation of environmental laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties,injunctions and construction bans or delays. Under various federal, state, provincial and local environmental requirements, as the owner or operator of terminals, we may be liable for the costs ofremoval or remediation of contamination at our existing locations, whether we knew of, or were responsible for, the presence of such contamination. Thefailure to timely report and properly remediate contamination may subject us to liability to third parties and may adversely affect our ability to sell or rent ourproperty or to borrow money using our property as collateral. Additionally, we may be liable for the costs of remediating third-party sites where hazardoussubstances from our operations have been transported for treatment or disposal, regardless of whether we own or operate that site. In the future, we may incursubstantial expenditures for investigation or remediation of contamination that has not yet been discovered at our current or former locations or locationsthat we may acquire. A discharge of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured or insurance is not otherwiseavailable, subject us to substantial expense, including the cost to respond in compliance with applicable laws and regulations, fines and penalties, naturalresource damages and claims made by employees, neighboring landowners and other third parties for personal injury and property damage. We mayexperience future catastrophic sudden or gradual releases into the environment from our pipeline or terminals or discover historical releases that werepreviously unidentified or not assessed. Although our inspection and testing programs are designed in compliance with applicable legal30Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.requirements to prevent, detect and address these releases promptly, damages and liabilities incurred due to any future environmental releases from our assetshave the potential to substantially affect our business. Such discharges could also subject us to media and public scrutiny that could have a negative effecton the value of our common units. Environmental, safety and other regulations are stringent. Penalties for violations have increased and may increase further in amount, and newenvironmental laws and regulations may be proposed and enacted. Moreover, interpretations of existing requirements change from time to time. While wecannot predict the impact that future environmental, health and safety requirements or changed interpretations of existing requirements may have on ouroperations, such future activity may result in material expenditures to ensure our continued compliance and material costs if we are found not to be incompliance. Such future activity could adversely affect our operations, cash flow and net revenues.We are subject to stringent environmental and safety laws and regulations that may expose us to significant costs and liabilities. Our operations are subject to stringent and complex federal, state, provincial and local environmental and safety laws and regulations that govern thedischarge of materials into the environment or otherwise relate to environmental protection. These laws and regulations may impose numerous obligations that are applicable to our operations, including the acquisition of permits to conductregulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of materials from pipelines, railcars and terminals, and theimposition of substantial liabilities and remedial obligations for pollution resulting from our operations or at locations currently or previously owned oroperated by us. Numerous governmental authorities, such as the EPA, the DOT, Environment Canada, Transport Canada and analogous state and provincialagencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costlycorrective actions or costly pollution control measures. Failure to comply with these laws, regulations and permits may result in the assessment ofadministrative, civil and criminal penalties, the imposition of remedial obligations and the issuance of injunctions limiting or preventing some or all of ouroperations. In addition, we may experience a delay in obtaining or be unable to obtain required permits or regulatory authorizations, which may cause us tolose potential and current customers, interrupt our operations and limit our growth and revenue. We may incur significant environmental costs and liabilities in connection with our operations due to historical industry operations and wastedisposal practices, our handling of hydrocarbon and other wastes and potential emissions and discharges related to our operations. Joint and several, strictliability may be incurred, without regard to fault, under certain of these environmental laws and regulations in connection with discharges or releases ofhydrocarbon wastes on, under, or from our properties and terminals. In addition, changes in environmental laws occur frequently, and any such changes thatresult in additional permitting obligations or more stringent and costly waste handling, storage, transport, disposal or remediation requirements could have amaterial adverse effect on our operations or financial position. We may not be able to recover all or any of these costs from insurance.We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations or otherwisecomply with health, safety, environmental and other laws and regulations.Our operations require authorizations and permits that are subject to revocation, renewal or modification and can require operational changes to limitthe effect or potential effect on the environment and/or health and safety. A violation of authorization or permit conditions or other legal or regulatoryrequirements could result in substantial fines, criminal sanctions, permit revocations, injunctions, and/or facility shutdowns. In addition, major modificationsof our operations could require modifications to our existing permits or upgrades to our existing pollution control and safety-related equipment. Any or all ofthese matters could have a material adverse effect on our business, financial condition, results of operations, and ability to make quarterly distributions to ourunitholders. Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or eventoccurs for which we are not adequately insured, or if we fail to recover anticipated insurance proceeds for significant accidents or events for which weare insured, our operations and financial results could be adversely affected. Our operations are subject to all of the risks and hazards inherent in the provision of terminalling services, including:•damage to railroads and terminals, related equipment and surrounding properties caused by natural disasters, acts of terrorism and actions by thirdparties;•damage from construction, vehicles, farm and utility equipment or other causes;31Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•leaks of crude oil and other hydrocarbons or regulated substances or losses of oil as a result of the malfunction of equipment or facilities or operatorerror;•ruptures, fires and explosions; and•other hazards that could also result in personal injury and loss of life, pollution and suspension of operations. These and similar risks could result in substantial costs due to personal injury and/or loss of life, severe damage to and destruction of property andequipment and pollution or other damage. These risks may also result in curtailment or suspension of our operations. A natural disaster or other hazardaffecting the areas in which we operate could also have a material adverse effect on our operations. We are not fully insured against all risks inherent in ourbusiness. In addition, although we are insured for environmental pollution resulting from environmental accidents that occur on a sudden and accidentalbasis, we may not be insured against all environmental accidents that might occur, some of which may result in claims for remediation, damages to naturalresources or injuries to personal property or human health. If a significant accident or event occurs for which we are not fully insured, it could adversely affectour operations and financial condition. Furthermore, we may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates,particularly following a significant accident or event for which we seek insurance. As a result of market conditions, premiums and deductibles for certain ofour insurance policies may substantially increase. In some instances, certain insurance could become unavailable or available only for reduced amounts ofcoverage.Climate change legislation, regulatory initiatives and litigation could result in increased operating costs and reduced demand for the oil services weprovide. In response to studies suggesting that emissions of carbon dioxide, methane and certain other gases may be contributing to warming of the Earth’satmosphere, over 190 countries, including the United States and Canada, reached an agreement to reduce GHG emissions at the Paris climate conference inDecember 2015. The terms of the Paris treaty to reduce GHG emissions are to become effective in 2020. In June 2017, President Trump announced that theUnited States intends to withdraw from the Paris treaty and to seek negotiations either to reenter the Paris treaty on different terms or a separate agreement. InAugust 2017, the U.S. Department of State officially informed the United Nations of the intent of the United States to withdraw from the Paris treaty. The Paristreaty provides for a four-year exit process, which would result in an effective exit date of November 2020. The United States’ adherence to the exit processand/or the terms on which the United States may re-enter the Paris treaty or a separately negotiated agreement are unclear at this time.In addition, the U.S. Congress has considered legislation to restrict or regulate emissions of GHGs. Comprehensive climate legislation appears unlikelyto be passed by either house of Congress in the near future, although additional energy legislation and other initiatives may be proposed that address GHGsand related issues. In addition, almost half of the states (including California and Texas, in which we operate), either individually or through multi-stateregional initiatives, have begun to address GHG emissions, primarily through the planned development of emission inventories or regional GHG cap andtrade programs. Although most of the state-level initiatives have to date been focused on large sources of GHG emissions, such as electric power plants, it ispossible that smaller sources could become subject to GHG-related regulation. Depending on the particular program, we could be required to controlemissions or to purchase and surrender allowances for GHG emissions resulting from our operations, and to the extent federal or state measures are successfulin reaching hydrocarbon fuel usage, they could have an indirect effect on our business. Independent of Congress, the EPA is beginning to adopt regulations to address GHG emissions under its existing CAA authority. For example, in 2009,the EPA adopted rules regarding regulation of GHG emissions from motor vehicles. In addition, in September 2009, the EPA issued a final rule requiring themonitoring and reporting of GHG emissions from specified large GHG emission sources in the United States. In November 2010, EPA expanded this existingGHG emissions reporting rule to petroleum facilities, requiring reporting of GHG emissions by regulated petroleum facilities to the EPA beginning in 2012and annually thereafter. In October 2015, EPA further expanded its GHG emissions reporting program to include onshore petroleum and natural gas gatheringand boosting activities, as well as natural gas transmission pipelines. We monitor and report our GHG emissions. However, operational or regulatory changescould require additional monitoring and reporting at some or all of our other facilities at a future date. In 2010, the EPA also issued a final rule, known as the“Tailoring Rule,” that makes certain large stationary sources and modification projects subject to permitting requirements for GHG emissions under the CAA.Several of the EPA’s GHG rules are being challenged in pending court proceedings and, depending on the outcome of these proceedings, such rules may bemodified or rescinded or the EPA could develop new rules. Although it is not possible at this time to accurately estimate how potential future laws or regulations addressing GHG emissions in Canada or theUnited States would impact our business, any future federal, state or provincial laws or implementing regulations that may be adopted to address GHGemissions could require us to incur increased operating costs32Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and could adversely affect demand for the crude oil and other liquid hydrocarbons we handle in connection with our services. The potential increase in thecosts of our operations resulting from any legislation or regulation to restrict emissions of GHGs could include new or increased costs to operate and maintainour facilities, install new emission controls on our facilities, acquire allowances to authorize our GHG emissions, pay any taxes related to our GHG emissionsand administer and manage a GHG emissions program. While we may be able to include some or all of such increased costs in the rates charged by ourterminals, such recovery of costs is uncertain. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for oil,resulting in a decrease in demand for our services. We cannot predict with any certainty at this time how these possibilities may affect our operations.Because we have a limited operating history, you may have difficulty evaluating our ability to pay cash distributions to our unitholders, or our abilityto be successful in implementing our business strategy. We are dependent on our crude oil terminals for a majority of our cash flow. As recently constructed terminalling facilities, the operating performanceof the crude oil terminals over the long term is not yet proven. We may encounter risks and difficulties frequently experienced by companies whoseperformance is dependent upon newly constructed facilities, such as customer utilization and renewal rates, the terminals not functioning as expected, higherthan expected operating costs, breakdown or failures of equipment and operational errors. Because of our limited operating history and performance record at our crude oil terminals, it may be difficult for you to evaluate our business andresults of operations to date and to assess our future prospects. We may be less successful in maintaining a consistent operating level at our crude oilterminals capable of generating cash flows from our operations sufficient to regularly pay a cash distribution, or to pay any cash distribution to ourunitholders than a company whose major facilities have had longer operating histories. Finally, we may be less equipped to identify and address operatingrisks and hazards in the conduct of our businesses at our crude oil terminals than those companies whose major facilities have had longer operating histories.We may recognize impairment on long-lived assets, goodwill and intangible assets.Periodically, we review our long-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable. We also review our goodwill and intangible assets for indicators of impairment in accordance with applicable accountingstandards. Significant negative industry or general economic trends, disruptions to our business and unexpected significant changes or planned changes inour use of the assets may result in impairments to our goodwill, intangible assets and other long-lived assets. Any reduction in or impairment of the value ofgoodwill or intangible assets will result in a charge against earnings, which could have a material adverse impact on our reported results of operations andfinancial condition.The implementation of derivatives regulations could have an adverse effect on our ability to use derivatives contracts to reduce the effect of foreignexchange, interest rate and other risks associated with our business. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), establishes federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. Although the U.S. Commodity Futures Trading Commission and the other relevantregulators have finalized most of the regulations under the Dodd-Frank Act, they continue to review and refine initial rulemakings through additionalinterpretations and supplemental rulemakings. As a result, it is not possible at this time to predict the ultimate effect of the rules and regulations on ourbusiness and while most of the regulations have been adopted, any new regulations or modifications to existing regulations may increase the cost ofderivatives contracts, materially alter the terms of derivatives contracts, reduce the availability of derivatives to protect against risks we encounter and reduceour ability to monetize or restructure our existing derivatives contracts. If we reduce our use of derivatives as a result of the legislation and regulations, ourresults of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fundcapital expenditures. Any of these consequences could have a material adverse effect on us, our financial condition, our results of operations and our cashflows. Our ability to operate our business effectively could be impaired if we fail to attract and retain key management personnel. We are managed and operated by the board of directors and executive officers of our general partner. All of the personnel that conduct our business areemployed by affiliates of our general partner, but we sometimes refer to these individuals as our employees. Our ability to operate our business andimplement our strategies depends on our continued ability and the ability of affiliates of our general partner to attract and retain highly skilled managementpersonnel. Competition for these persons is intense. Given our size, we may be at a disadvantage, relative to our larger competitors, in the competition for33Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.these personnel. We or affiliates of our general partner may not be able to attract and retain qualified personnel in the future, and the failure to retain or attractsenior executives and key personnel could have a material adverse effect on our ability to effectively operate our business. Neither we nor our general partnermaintains key person life insurance policies for any of our senior management team. Terrorist or cyber-attacks and threats, escalation of military activity in response to these attacks or acts of war could have a material adverse effect onour business, financial condition, results of operations and ability to make quarterly distributions to our unitholders.Terrorist attacks and threats, cyber-attacks, escalation of military activity, acts of war or other civil unrest may have significant effects on generaleconomic conditions, fluctuations in consumer confidence and spending and market liquidity, each of which could materially and adversely affect ourbusiness. Future terrorist or cyber-attacks, rumors or threats of war, actual conflicts involving the United States, Canada or their respective allies, or military ortrade disruptions may significantly affect our operations and those of our customers. Strategic targets, such as energy-related assets and transportation assets,may be at greater risk of future terrorist or cyber-attacks than other targets in the United States and Canada. A cyber incident could result in information theft,data corruption, operational disruption and/or financial loss. We do not maintain specialized insurance for possible liability resulting from a cyber-attack onour assets that may shut down all or part of our business. The disruption or a significant increase in energy prices could result in government-imposed pricecontrols. It is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition,results of operations, and ability to make quarterly distributions to our unitholders. If we fail to maintain an effective system of internal controls, we may not be able to report our financial results timely and accurately or prevent fraud,which would likely have a negative impact on the market price of our common units. We are subject to the public reporting requirements of the Exchange Act. We prepare our financial statements in accordance with U.S. generallyaccepted accounting principles, or GAAP. Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and to operatesuccessfully as a publicly traded partnership. We may be unsuccessful in maintaining our internal controls, and we may be unable to maintain effectivecontrols over our financial processes and reporting in the future or to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002,which we refer to as Section 404. For example, Section 404 requires us, among other things, to annually review and report on, and our independent registeredpublic accounting firm to assess, the effectiveness of our internal controls over financial reporting. Any failure to maintain effective internal controls or to improve our internal controls could harm our operating results or cause us to fail to meet ourreporting obligations. Given the difficulties inherent in the design and operation of internal controls over financial reporting, we can provide no assurance asto our, or our independent registered public accounting firm’s conclusions about the effectiveness of our internal controls, and we may incur significant costsin our efforts to comply with Section 404. Ineffective internal controls will subject us to regulatory scrutiny and a loss of confidence in our reported financialinformation, which could have an adverse effect on our business and would likely have a material adverse effect on the trading price of our common units. For as long as we are an emerging growth company, we will not be required to comply with certain disclosure requirements that apply to other publiccompanies. For as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (JOBS Act), we may take advantage ofcertain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including notbeing required to provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financialreporting pursuant to Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports.We will remain an emerging growth company for up to five years from the October 2014 date of our IPO, although we will lose that status sooner if we havemore than $1.0 billion of revenues in a fiscal year, have more than $700.0 million in market value of our limited partner interests held by non-affiliates, orissue more than $1.0 billion of non-convertible debt over a three-year period. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. We have irrevocably elected to “opt out” of this exemption and, therefore, will be subject to the same new or revisedaccounting standards as other public companies that are not emerging growth companies.34Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executivecompensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our common units tobe less attractive as a result, there may be a less active trading market for our common units and our trading price may be more volatile.Risks Inherent in an Investment in UsOur general partner and its affiliates, including USD, have conflicts of interest with us and limited duties to us and our unitholders, and they may favortheir own interests to our detriment and that of our unitholders.USD indirectly owns a 43.9% limited partner interest and indirectly owns and controls our general partner, which owns a 1.7% general partner interestin us. Although our general partner has a duty to manage us in a manner that is not adverse to the best interests of our partnership and our unitholders, thedirectors and officers of our general partner also have a duty to manage our general partner in a manner that is not adverse to the best interests of its owner,USD. Conflicts of interest may arise between USD and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the otherhand. In resolving these conflicts, the general partner may favor its own interests and the interests of its affiliates, including USD, over the interests of ourcommon unitholders. These conflicts include, among others, the following situations:•neither our partnership agreement nor any other agreement requires USD to pursue a business strategy that favors us, and the directors and officers ofUSD have a fiduciary duty to make these decisions in the best interests of the members of USD. USD may choose to shift the focus of its investmentand growth to areas not served by our assets;•USD may be constrained by the terms of its debt instruments, if any, from taking actions, or refraining from taking actions, that may be in our bestinterests;•our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governingits duties, limiting our general partner’s liabilities and restricting the remedies available to our unitholders for actions that, without the limitations,might constitute breaches of fiduciary duty;•except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;•our general partner will determine the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership securities andthe creation, reduction or increase of cash reserves, each of which can affect the amount of cash that is distributed to our unitholders;•our general partner will determine the amount and timing of many of our cash expenditures and whether a cash expenditure is classified as anexpansion capital expenditure, which would not reduce operating surplus, or a maintenance capital expenditure, which would reduce our operatingsurplus. This determination can affect the amount of cash that is distributed to our unitholders and to our general partner, the amount of adjustedoperating surplus generated in any given period, the conversion ratio of vested Class A units and the ability of the subordinated units to convertinto common units;•our general partner will determine which costs incurred by it are reimbursable by us;•our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowingis to make a distribution on the subordinated units, to make incentive distributions, to affect the conversion ratio of Class A units to common unitsor to satisfy the conditions required to convert subordinated units to common units;•our partnership agreement permits us to classify up to $18.5 million as operating surplus, even if it is generated from asset sales, non-working capitalborrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units orto our general partner in respect of the general partner interest or the incentive distribution rights;•our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or enteringinto additional contractual arrangements with any of these entities on our behalf;•our general partner intends to limit its liability regarding our contractual and other obligations;•our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates if it and its affiliates ownmore than 80.0% of the common units;•our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates;•our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and•our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to ourgeneral partner’s incentive distribution rights without the approval of the conflicts35Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.committee of the board of directors of our general partner, which we refer to as our conflicts committee, or our unitholders. This election may resultin lower distributions to our common unitholders in certain situations. Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our general partner orany of its affiliates, including its executive officers, directors and owners. Any such person or entity that becomes aware of a potential transaction, agreement,arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person orentity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues oracquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. Thismay create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and ourunitholders. Please refer to the discussion under Item 13. Certain Relationships and Related Transactions, and Director Independence regarding conflicts ofinterests and fiduciary duties of our general partner. Energy Capital Partners has substantial influence over USD and our general partner, and its interests may differ from those of USD, us and our publicunitholders. Energy Capital Partners currently has the right to appoint three of seven members of USD’s board of directors and three of nine members of our generalpartner’s board of directors and may in the future have the right to appoint the majority of USD’s board of directors if it invests a specified amount in USD, orcertain other conditions are met. For so long as Energy Capital Partners is able to appoint more than one member to USD’s board of directors, USD will not,and will not permit its subsidiaries, including us and our general partner, to take or agree to take certain actions without the affirmative vote of EnergyCapital Partners, including, among others, any acquisitions or dispositions and any issuances of additional equity interests in us. Energy Capital Partners maymake these decisions free of any duty to us and our unitholders. Additionally, members of our general partner’s board of directors appointed by EnergyCapital Partners, if any, must approve any distributions made by us, any incurrence of debt by us and the approval, modification or revocation of our budget.As a result, Energy Capital Partners is able to significantly influence the management and affairs of USD and our general partner, including the amount ofdistributions we make, if any, our policies and operations, the appointment of management, future issuances of securities, amendments to our organizationaldocuments and the entering into of extraordinary transactions. The interests of Energy Capital Partners may not in all cases be aligned with the interests ofour common unitholders and, in certain situations, they have no duty to us or our unitholders. Energy Capital Partners may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance itsequity investment, even though such transactions might involve risks to our common unitholders, or Energy Capital Partners may have an interest in notpursuing transactions that would otherwise benefit us. For example, Energy Capital Partners could influence us to make acquisitions, investments and capitalexpenditures that increase our indebtedness or to sell revenue-generating assets or to not make such acquisitions, investments or capital expenditures. Inaddition, Energy Capital Partners may have different tax considerations that could influence its position, including regarding whether and when to dispose ofassets and whether and when to incur new or refinance existing indebtedness. In addition, the structuring of future transactions by our general partner maytake into consideration these tax or other considerations even where no similar benefit would accrue to our common unitholders or us. Energy CapitalPartners may make the decisions to approve any acquisition or disposition by us free of any duty to us and our unitholders. Energy Capital Partners’ influence on USD and our general partner may have the effect of delaying, preventing or deterring a change of control of ourcompany. Energy Capital Partners and its affiliates and affiliated funds are in the business of making investments in companies in the energy industry andmay from time to time acquire and hold interests in businesses that compete directly or indirectly with us. USD’s limited liability company agreementprovides that Energy Capital Partners shall not have any duty to refrain from engaging directly or indirectly in the same or similar business activities or linesof business as us or any of our subsidiaries, and that in the event that Energy Capital Partners acquires knowledge of a potential transaction or matter whichmay be a corporate opportunity for itself and us or any of our subsidiaries, neither we nor any of our subsidiaries shall, to the fullest extent permitted by law,have any expectancy in such corporate opportunity, and Energy Capital Partners shall not, to the fullest extent permitted by law, have any duty tocommunicate or offer such corporate opportunity to us or any of our subsidiaries and may pursue or acquire such corporate opportunity for itself or directsuch corporate opportunity to another person. Energy Capital Partners and its affiliates may also pursue acquisition opportunities that are complementary toour business and, as a result, those acquisition opportunities may not be available to us. Please refer to the discussion under Item 10. Directors, ExecutiveOfficers and Corporate Governance—Special Approval Rights of Energy Capital Partners regarding the rights of Energy Capital Partners. At any time following the fifth anniversary of the date of Energy Capital Partners’ investment in USD, Energy Capital Partners, upon giving writtennotice, shall have the right to compel USD to effect the total sale of Energy Capital Partners’36Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.interests in USD, which we refer to as an ECP Exit. Such a sale could include an acquisition by the remaining owners of USD of Energy Capital Partners’interests in USD or an initial public offering of USD. If the ECP Exit has not been completed within 180 days of the date USD receives notice of EnergyCapital Partners’ desire to sell, Energy Capital Partners shall have the right to compel USD to effect a total sale of USD pursuant to an auction process onterms and conditions determined by, and in a process managed by, the members of USD’s board of directors that are appointed by Energy Capital Partners,provided that certain conditions in connection with the sale are met. We intend to distribute a significant portion of our available cash, which could limit our ability to pursue growth projects and make acquisitions. Pursuant to our cash distribution policy we intend to distribute most of our available cash, as that term is defined in our partnership agreement, to ourunitholders. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt andequity securities, to fund our acquisitions and expansion capital expenditures. Therefore, to the extent we are unable to finance our growth externally, ourcash distribution policy will significantly impair our ability to grow. In addition, because we intend to distribute most of our available cash, our growth maynot be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection withany acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable tomaintain or increase our per unit distribution level. There are no limitations in our partnership agreement or our senior secured credit agreement on our abilityto issue additional units, including units ranking senior to the common units as to distribution or liquidation, and our unitholders will have no preemptive orother rights (solely as a result of their status as unitholders) to purchase any such additional units. The incurrence of additional commercial borrowings orother debt to finance our growth strategy would result in increased interest expense, which, in turn, may reduce the amount of cash available to distribute toour unitholders. The board of directors of our general partner may modify or revoke our cash distribution policy at any time at its discretion and our partnershipagreement does not require us to pay any distributions at all. Additionally, members of our general partner’s board of directors appointed by EnergyCapital Partners must approve any distributions made by us. The board of directors of our general partner has adopted a cash distribution policy pursuant to which we intend to distribute quarterly at least $0.2875per unit on all of our units to the extent we have sufficient cash after the establishment of cash reserves and the payment of our expenses, including paymentsto our general partner and its affiliates. However, the board may change such policy at any time at its discretion. Additionally, members of our generalpartner’s board of directors appointed by Energy Capital Partners, if any, must approve any distributions made by us. Our partnership agreement does notrequire us to pay distributions at all and our general partner’s board of directors has broad discretion in setting the amount of cash reserves each quarter.Investors are cautioned not to place undue reliance on the permanence of our cash distribution policy in making an investment decision. Any modification orrevocation of our cash distribution policy could substantially reduce or eliminate the amounts of distributions to our unitholders. The amount ofdistributions we make and the decision to make any distribution is determined by the board of directors of our general partner as well as the members of ourgeneral partner’s board of directors appointed by Energy Capital Partners, whose interests may differ from those of our common unitholders. Our generalpartner has limited duties to our unitholders, which may permit it to favor its own interests or the interests of our sponsor or its affiliates to the detriment ofour common unitholders. Our partnership agreement replaces our general partner’s fiduciary duties to holders of our common units with contractual standards governing itsduties. Our partnership agreement contains provisions that eliminate the fiduciary standards to which our general partner would otherwise be held by statefiduciary duty law and replaces those duties with several different contractual standards. For example, our partnership agreement permits our general partnerto make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, free of any duties to us and our unitholders. Thisprovision entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give anyconsideration to any interest of, or factors affecting, us, our affiliates or our limited partners. By purchasing a common unit, a unitholder is treated as havingconsented to the provisions in our partnership agreement, including the provisions discussed above. Please refer to the discussion under Item 13. CertainRelationships and Related Transactions, and Director Independence regarding conflicts of interests and fiduciary duties of our general partner.37Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our partnership agreement restricts the remedies available to holders of our common and subordinated units for actions taken by our general partnerthat might otherwise constitute breaches of fiduciary duty. Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that mightotherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement:•provides that whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner,our general partner is required to make such determination, or take or decline to take such other action, in good faith and will not be subject to anyhigher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;•provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting fromany act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that ourgeneral partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of acriminal matter, acted with knowledge that the conduct was criminal; and•provides that our general partner will not be in breach of its obligations under our partnership agreement or its fiduciary duties to us or our limitedpartners if a transaction with an affiliate or the resolution of a conflict of interest is approved in accordance with, or otherwise meets the standards setforth in, our partnership agreement. In connection with a situation involving a transaction with an affiliate or a conflict of interest, our partnership agreement provides that anydetermination by our general partner must be made in good faith, and that our conflicts committee and the board of directors of our general partner areentitled to a presumption that they acted in good faith. In any proceeding brought by or on behalf of any limited partner of the partnership, the personbringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please refer to the discussion under Item 13. CertainRelationships and Related Transactions, and Director Independence regarding conflicts of interests and fiduciary duties of our general partner. Our general partner has limited liability regarding our obligations. Our general partner has limited liability under our contractual arrangements so that the counterparties to such arrangements have recourse only againstour assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that arenonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of ourgeneral partner’s fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated toreimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments wouldreduce the amount of cash otherwise available for distribution to our unitholders. If you are not both a citizenship eligible holder and a rate eligible holder, your common units may be subject to redemption. In order to avoid (1) any material adverse effect on the maximum applicable rates that can be charged to customers by our subsidiaries on assets that aresubject to rate regulation by the FERC or analogous regulatory body, and (2) any substantial risk of cancellation or forfeiture of any property, including anygovernmental permit, endorsement or other authorization, in which we have an interest, we have adopted certain requirements regarding those investors whomay own our common units. Citizenship eligible holders are individuals or entities whose nationality, citizenship or other related status does not create asubstantial risk of cancellation or forfeiture of any property, including any governmental permit, endorsement or authorization, in which we have an interest,and will generally include individuals and entities who are U.S. citizens. Rate eligible holders are individuals or entities subject to U.S. federal incometaxation on the income generated by us or entities not subject to U.S. federal income taxation on the income generated by us, so long as all of the entity’sowners are subject to such taxation. If you are not a person who meets the requirements to be a citizenship eligible holder and a rate eligible holder, you runthe risk of having your units redeemed by us at the market price as of the date three days before the date the notice of redemption is mailed. The redemptionprice will be paid in cash or by delivery of a promissory note, as determined by our general partner. In addition, if you are not a person who meets therequirements to be a citizenship eligible holder, you will not be entitled to voting rights. 38Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cost reimbursements, which are determined in our general partner’s sole discretion, and fees due to our general partner and its affiliates for servicesprovided are substantial and reduce our distributable cash flow to you. Under our partnership agreement, we are required to reimburse our general partner and its affiliates for all costs and expenses that they incur on ourbehalf for managing and controlling our business and operations. Except to the extent specified under our omnibus agreement, our general partner determinesthe amount of these expenses. Under the terms of the omnibus agreement we are required to reimburse USD for providing certain general and administrativeservices to us. Our general partner and its affiliates also may provide us other services for which we will be charged fees. Payments to our general partner andits affiliates are substantial and reduce the amount of distributable cash flow to unitholders. For the twelve months ending December 31, 2018, we estimatethat these expenses will be approximately $3.4 million, which includes, among other items, compensation expense for all employees required to manage andoperate our business. For a description of the cost reimbursements to our general partner, please read the discussion under Part II, Item 8. FinancialStatements and Supplementary Data, Note 13. Transactions with Related Parties regarding reimbursements to our general partner under the omnibusagreement. Unitholders have very limited voting rights and, even if they are dissatisfied, they cannot remove our general partner without its consent. Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore,limited ability to influence management’s decisions regarding our business. Unitholders do not elect our general partner or the board of directors of ourgeneral partner and have no right to elect our general partner or the board of directors of our general partner on an annual or other continuing basis. The boardof directors of our general partner is chosen by the members of our general partner, which is indirectly owned by USD. Furthermore, if the unitholders aredissatisfied with the performance of our general partner, they will have little ability to remove our general partner. As a result of these limitations, the price atwhich our common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price. The unitholders are unable initially to remove our general partner without its consent because our general partner and its affiliates own sufficient unitsto prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding units voting together as a single class is required to remove our generalpartner. At December 31, 2017, our general partner and its affiliates own 43.9% of the limited partnership interests entitled to vote in this matter (excludinggeneral partner units and without consideration of any common units held by our officers, directors, employees and certain other persons affiliated with us).Also, if our general partner is removed without cause during the time any subordinated units are outstanding and the subordinated units held by our generalpartner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically be converted into common units, and anyexisting arrearages on the common units will be extinguished. A removal of our general partner under these circumstances would adversely affect thecommon units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continueduntil we had met certain distribution and performance tests. Furthermore, all of the unvested Class A units will immediately vest and convert into commonunits based on the maximum conversion factor that could have applied to such Class A units. This conversion would adversely affect the common units byprematurely eliminating the liquidation preference of common units over the Class A units, which would have otherwise continued while certain conditionsremained unsatisfied. “Cause” is narrowly defined under our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealablejudgment finding the general partner liable for actual fraud or willful misconduct in its capacity as our general partner. Cause does not include most cases ofcharges of poor management of the business, so the removal of our general partner because of the unitholders’ dissatisfaction with our general partner’sperformance in managing us will most likely result in the automatic conversion to common units of all remaining outstanding subordinated units.Furthermore, unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person thatowns 20.0% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees, and persons who acquired such unitswith the prior approval of the board of directors of our general partner, cannot vote on any matter. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations,as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.39Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent. Our general partner may transfer its general partner interest to a third party at any time without the consent of the unitholders. Furthermore, there is norestriction in our partnership agreement on the ability of USD Group LLC to transfer its membership interest in our general partner to a third party. The newowners of our general partner would then be in a position to replace the board of directors and officers of our general partner with their own choices and tocontrol the decisions taken by the board of directors and officers. The incentive distribution rights of our general partner may be transferred to a third party without unitholder consent. Our general partner may transfer its incentive distribution rights to a third party at any time without the consent of our unitholders. If our generalpartner transfers its incentive distribution rights to a third party but retains its general partner interest, our general partner may not have the same incentive togrow our partnership and increase quarterly distributions to unitholders over time as it would if it had retained ownership of its incentive distribution rights.For example, a transfer of incentive distribution rights by our general partner could reduce the likelihood of USD selling or contributing additionalmidstream infrastructure assets and businesses to us, as USD would have less of an economic incentive to grow our business, which in turn would impact ourability to grow our asset base.We may issue additional units without unitholder approval, which would dilute unitholder interests. At any time, we may issue an unlimited number of limited partner interests of any type without the approval of our unitholders and our unitholders willhave no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such limited partner interests. Further, neither ourpartnership agreement nor our senior secured credit agreement prohibits the issuance of equity securities that may effectively rank senior to our commonunits as to distributions or liquidations. The issuance by us of additional common units or other equity securities of equal or senior rank will have thefollowing effects:•our unitholders’ proportionate ownership interest in us will decrease;•the amount of distributable cash flow on each unit may decrease;•because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterlydistribution will be borne by our common unitholders will increase;•the ratio of taxable income to distributions may increase;•the relative voting strength of each previously outstanding unit may be diminished; and•the market price of our common units may decline. USD Group LLC may sell our units in the public or private markets, and such sales could have an adverse impact on the trading price of the commonunits. USD Group LLC held 5,278,963 common units and 6,278,127 subordinated units at December 31, 2017. All of the subordinated units will convert intocommon units on a one-for-one basis in separate, sequential tranches, with each tranche comprising 20.0% of the subordinated units outstanding at theclosing of our IPO on October 15, 2014. A separate tranche will convert on each business day occurring no earlier than January 1, 2015 (but not more thanonce in any twelve-month period), assuming the conditions for conversion are satisfied. Additionally, we have agreed to provide USD Group LLC withcertain registration rights. The sale of these units in the public or private markets could have an adverse impact on the price of the common units. Our general partner’s discretion in establishing cash reserves may reduce the amount of distributable cash flow to unitholders. Our partnership agreement requires our general partner to deduct from operating surplus cash reserves that it determines are necessary to fund our futureoperating expenditures. In addition, our partnership agreement permits the general partner to reduce available cash by establishing cash reserves for theproper conduct of our business, to comply with applicable law or agreements to which we are a party, or to provide funds for future distributions to partners.These cash reserves will affect the amount of distributable cash flow to unitholders.40Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Affiliates of our general partner, including USD, and Energy Capital Partners and its affiliates may compete with us, and none of Energy CapitalPartners, our general partner or any of their respective affiliates have any obligation to present business opportunities to us. Neither our partnership agreement nor our omnibus agreement prohibits USD or any other affiliates of our general partner or Energy Capital Partners orits affiliates from owning assets or engaging in businesses that compete directly or indirectly with us. In addition, USD and other affiliates of our generalpartner, and Energy Capital Partners and its affiliates may acquire, construct or dispose of additional midstream infrastructure in the future without anyobligation to offer us the opportunity to purchase any of those assets. For example, USD Group LLC currently owns the right to construct and further developthe Hardisty terminal, which USD Group LLC expects to complete in a future period. If we are unable to acquire these facilities from USD Group LLC, theseexpansions may compete directly with our Hardisty terminal for future throughput volumes, which may impact our ability to enter into new terminal servicesagreements, including with our existing customers, following the termination of our existing agreements or the terms thereof and our ability to compete forfuture spot volumes. As a result, competition from USD and other affiliates of our general partner could materially adversely impact our results of operationsand distributable cash flow to unitholders.Our general partner may cause us to borrow funds in order to make cash distributions, even where the purpose or effect of the borrowing benefits thegeneral partner or its affiliates. In some instances, our general partner may cause us to borrow funds under our Revolving Credit Facility, from USD or otherwise from third parties inorder to permit the payment of cash distributions. These borrowings are permitted even if the purpose and effect of the borrowing is to enable us to make adistribution on the subordinated units, to make incentive distributions or to satisfy the conditions required to convert subordinated units into common units. Our general partner has a limited call right that it may exercise at any time it or its affiliates own more than 80.0% of the outstanding limited partnerinterests and that may require you to sell your common units at an undesirable time or price. If at any time our general partner and its affiliates own more than 80.0% of the then issued and outstanding common units, our general partner has theright, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliatedpersons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price andmay not receive any return on your investment. You may also incur a tax liability upon a sale of your units. Our general partner and its affiliates ownapproximately 20.0% of our common units (excluding any common units held by our officers, directors, employees and certain other persons affiliated withus) and 43.9% of our common units assuming the conversion of all subordinated units into common units. Your liability may not be limited if a court finds that unitholder action constitutes control of our business. A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of thepartnership that are expressly made non-recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business in anumber of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearlyestablished in some jurisdictions. You could be liable for our obligations as if you were a general partner if a court or government agency were to determinethat:•we were conducting business in a state but had not complied with that particular state’s partnership statute; or•your right to act with other unitholders to remove or replace the general partner, to approve some amendments to our partnership agreement or totake other actions under our partnership agreement constitute “control” of our business. Unitholders may have to repay distributions that were wrongfully distributed to them. Under certain circumstances, unitholders may have to repay amounts wrongfully distributed to them. Under Section 17-607 of the Delaware RevisedUniform Limited Partnership Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets.Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and whoknew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount.41Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Transferees of common units are liable for the obligations of the transferor to make contributions to the partnership that are known to the transferee at thetime of the transfer and for unknown obligations if the liabilities could be determined from our partnership agreement. Liabilities to partners on account oftheir partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution ispermitted.Because our common units are yield-oriented securities, increases in interest rates could adversely impact our unit price, our distributable cash flow,our ability to issue equity or incur debt for acquisitions or other purposes and our ability to make cash distributions at our intended levels. Interest rates may increase in the future. As a result, interest rates on our future credit facilities and debt offerings could be higher than current levels,causing our financing costs to increase accordingly. As with other yield-oriented securities, our unit price is affected by the level of our cash distributions andimplied distribution yield. The distribution yield is often used by investors to compare and rank yield-oriented securities for investment decision-makingpurposes. Therefore, changes in interest rates, either positive or negative, may affect our interest expense and distributable cash flow, the yield requirementsof investors who invest in our units, and a rising interest rate environment could have an adverse impact on our unit price, our ability to issue equity or incurdebt for acquisitions or other purposes and our ability to make cash distributions at our intended levels. The holder of our incentive distribution rights may elect to cause us to issue common units and general partner units to it in connection with a resettingof the target distribution levels related to its incentive distribution rights, without the approval of our conflicts committee or the holders of our commonunits. This could result in lower distributions to holders of our common units. Our general partner has the right, at any time when there are no subordinated units outstanding and it has received distributions on its incentivedistribution rights at the highest level to which it is entitled (48.0%, in addition to distributions paid on its general partner interest) for each of the prior fourconsecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the resetelection. Following a reset election, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution, and the targetdistribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution. If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units and general partner units. Thenumber of common units to be issued to our general partner will be equal to that number of common units that would have entitled the general partner to aquarterly cash distribution equal to distributions to our general partner on the incentive distribution rights in the prior quarter. Our general partner will alsobe issued the number of general partner units necessary to maintain our general partner’s interest in us at the level that existed immediately prior to the resetelection. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not besufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this resetelection at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights andmay, therefore, desire to be issued common units rather than retain the right to receive distributions based on the initial target distribution levels. This riskcould be elevated if our incentive distribution rights have been transferred to a third party. As a result, a reset election may cause our common unitholders toexperience a reduction in the amount of cash distributions that they would have otherwise received had we not issued new common units and general partnerunits in connection with resetting the target distribution levels. Additionally, our general partner has the right to transfer all or any portion of our incentivedistribution rights at any time, and such transferee shall have the same rights as the general partner relative to resetting target distributions if our generalpartner concurs that the tests for resetting target distributions have been fulfilled. The NYSE does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements. Our common units are listed on the NYSE. Because we are a publicly traded limited partnership, the NYSE does not require us to have a majority ofindependent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governancecommittee. Accordingly, unitholders will not have the same protections afforded to shareholders of corporations that are subject to all of the NYSE corporategovernance requirements.42Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The price of our common units may fluctuate significantly, and you could lose all or part of your investment.The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:•our quarterly distributions;•our quarterly or annual earnings or those of other companies in our industry;•announcements by us or our competitors of significant contracts or acquisitions;•changes in accounting standards, policies, guidance, interpretations or principles;•general economic conditions;•the failure of securities analysts to cover our common units or changes in financial estimates by analysts;•future sales of our common units; and•other factors described in these “Risk Factors.”Tax RisksOur tax treatment depends on our status as a partnership for U.S. federal income tax purposes. If the Internal Revenue Service, or IRS, were to treat usas a corporation for U.S. federal income tax purposes, which would subject us to entity-level taxation, then our distributable cash flow to ourunitholders would be substantially reduced. The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federalincome tax purposes. Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treatedas a corporation for U.S. federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for U.S.federal income tax purposes or otherwise subject us to entity-level taxation as an entity. If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate taxrate, which is currently a maximum of 21.0%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxed againas corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions, or credits would flowthrough to you. Because a tax would be imposed upon us as a corporation, our distributable cash flow would be substantially reduced. Therefore, if we weretreated as a corporation for U.S. federal income tax purposes, there would be a material reduction in the anticipated cash flow and after-tax return to ourunitholders, likely causing a substantial reduction in the value of our common units. Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as acorporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount andthe target distribution levels may be adjusted to reflect the impact of that law on us.Notwithstanding our treatment for U.S. federal income tax purposes, we are subject to certain non-U.S.-taxes. If a taxing authority were to successfullyassert that we have more tax liability than we anticipate or legislation were enacted that increased the taxes to which we are subject, the distributablecash flow to our unitholders could be further reduced. Some of our business operations and subsidiaries are subject to income, withholding and other taxes in the non-U.S. jurisdictions in which they areorganized or from which they receive income, reducing the amount of distributable cash flow. In computing our tax obligation in these non-U.S.jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we havenot received rulings from the governing tax authorities, such as whether withholding taxes will be reduced by the application of certain tax treaties. Uponreview of these positions the applicable authorities may not agree with our positions. A successful challenge by a taxing authority could result in additionaltax being imposed on us, reducing the distributable cash flow to our unitholders. In addition, changes in our operations or ownership could result in higherthan anticipated tax being imposed in jurisdictions in which we are organized or from which we receive income and further reduce the distributable cashflow. Although these taxes may be properly characterized as foreign income taxes, you may not be able to credit them against your liability for U.S. federalincome taxes on your share of our earnings.43Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. If we were subjected to a material amount of additional entity-level taxation by individual states, counties or cities, it would reduce our distributablecash flow to our unitholders. Changes in current state, county or city law may subject us to additional entity-level taxation by individual states, counties or cities. Several stateshave subjected, or are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms oftaxation. Imposition of any such taxes may substantially reduce the distributable cash flow to you and the value of our common units could be negativelyimpacted. Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to entity-leveltaxation, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us. The tax treatment of publicly traded partnerships, companies with multinational operations or an investment in our common units could be subject topotential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis. The present U.S. federal income tax treatment of publicly traded partnerships, companies with multinational operations, or an investment in ourcommon units may be modified by administrative, legislative or judicial interpretation at any time. For example, members of Congress and the President haveperiodically considered substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships, including the elimination ofthe qualifying income exception upon which we rely for our treatment as a partnership for U.S. federal income tax purposes. Any modification to the U.S.federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet theexception for us to be treated as a partnership for U.S. federal income tax purposes. We are unable to predict whether any such changes will ultimately beenacted. However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an investment in ourcommon units. Our unitholders’ share of our income will be taxable to them for U.S. federal income tax purposes even if they do not receive any cash distributions fromus. A unitholder’s share of our taxable income, and its relationship to any distributions we make, may be affected by a variety of factors, including oureconomic performance, transactions in which we engage or changes in law. Because a unitholder is treated as a partner to whom we will allocate taxable income that could be different in amount than the cash we distribute, aunitholder’s allocable share of our taxable income will be taxable to the unitholder, which may require the payment of U.S. federal income taxes and, in somecases, state and local income taxes, on the unitholder’s share of our taxable income even if the unitholder receives no cash distributions from us. Ourunitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from thatincome.A unitholder’s share of our taxable income, and its relationship to any distributions we make, may be affected by a variety of factors, including oureconomic performance, which may be affected by numerous business, economic, regulatory, legislative, competitive and political uncertainties beyond ourcontrol, and certain transactions in which we might engage. For example, we may engage in transactions that produce substantial taxable income allocationsto some or all of our unitholders without a corresponding increase in cash distributions to our unitholders, such as a sale or exchange of assets, the proceedsof which are reinvested in our business or used to reduce our debt. A unitholder’s ratio of its share of taxable income to the cash received by it may also beaffected by changes in law. For instance, under the recently enacted tax reform law known as the Tax Cuts and Jobs Act, the net interest expense deductionsof certain business entities, including us, are limited to 30% of such entity’s “adjusted taxable income,” which is generally taxable income with certainmodifications. If the limit applies, a unitholder’s taxable income allocations will be more (or its net loss allocations will be less) than would have been thecase absent the limitation. If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRScontest will reduce our distributable cash flow to our unitholders. We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes. The IRS may adoptpositions that differ from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or courtproceedings to sustain some or all of the positions we take and such positions may not ultimately be sustained. Any contest with the IRS, and the outcome ofany IRS contest, may have a materially adverse impact on the market for our common units and the price at which they trade. In addition, our costs for44Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our distributable cash flow.Some of our activities may not generate qualifying income, and we conduct these activities in a separate subsidiary that is treated as a corporation forU.S. federal income tax purposes. Corporate U.S. federal income tax paid by this subsidiary reduces our cash available for distribution. In order to maintain our status as a partnership for U.S. federal income tax purposes, 90% or more of our gross income in each tax year must bequalifying income under Section 7704 of the Internal Revenue Code. To ensure that 90% or more of our gross income in each tax year is qualifying income,we currently conduct a portion of our business, relating to railcar fleet services, in a separate subsidiary that is treated as a corporation for U.S. federal incometax purposes.Such corporate subsidiary is subject to corporate-level federal income tax on its taxable income at the corporate tax rate, which is currently a maximumof 21%, and will also likely pay state (and possibly local) income tax at varying rates, on its taxable income. If the IRS were to successfully assert that suchcorporate subsidiary has more tax liability than we anticipate or legislation were enacted that increased the corporate tax rate, our cash available fordistribution to our unitholders would be further reduced.If the IRS makes audit adjustments to our income tax return for tax years beginning after December 31, 2017, it may assess and collect any taxes(including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our cash available fordistribution to our unitholders might be substantially reduced.Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income taxreturns, it may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us. Generally,we expect to elect to have our general partner and our unitholders take such audit adjustment into account in accordance with their interests in us during thetax year under audit, but there can be no assurance that such election will be effective in all circumstances. If we are unable to have our general partner andour unitholders take such audit adjustment into account in accordance with their interests in us during the tax year under audit, our current unitholders maybear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us during the tax year under audit. If,as a result of any such adjustments, we are required to make payments of taxes, penalties and interest, our cash available for distribution to our unitholdersmight be substantially reduced. Tax gain or loss on the disposition of our common units could be more or less than expected. If our unitholders sell common units, they will recognize a gain or loss for U.S. federal income tax purposes equal to the difference between the amountrealized and their tax basis in those common units. Because distributions in excess of their allocable share of our net taxable income decrease their tax basisin their common units, the amount, if any, of such prior excess distributions with respect to the common units a unitholder sells will, in effect, become taxableincome to the unitholder if it sells such common units at a price greater than its tax basis in those common units, even if the price received is less than itsoriginal cost. Furthermore, a substantial portion of the amount realized on a sale of common units, whether or not representing gain, may be taxed as ordinaryincome due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of ournonrecourse liabilities, a unitholder that sells common units, may incur a tax liability in excess of the amount of cash received from the sale. Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them. Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts, or IRAs, and non-U.S. personsraises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAsand other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced bywithholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal income tax returns and pay tax on theirshare of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult a tax advisor before investing in our common units.45Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We may be required to deduct and withhold amounts from distributions to foreign unitholders related to withholding tax obligations arising from thesale or disposition of our units by foreign unitholders.Upon the sale, exchange or other disposition of a unit by a foreign unitholder, the transferee is generally required to withhold 10% of the amountrealized on such sale, exchange or other disposition if any portion of the gain on such sale, exchange or other disposition would be treated as effectivelyconnected with a U.S. trade or business. If the transferee fails to satisfy this withholding requirement, we will be required to deduct and withhold such amount(plus interest) from future distributions to the transferee. Because the “amount realized” would include a unitholder’s share of our nonrecourse liabilities,10% of the amount realized could exceed the total cash purchase price for such disposed units. Due to this fact, our inability to match transferors andtransferees of units, and other uncertainty surrounding the application of these withholding rules, the U.S. Department of the Treasury and the IRS havecurrently suspended these rules for transfers of certain publicly traded partnership interests, including transfers of our units, until regulations or otherguidance has been issued. It is unclear when such regulations or other guidance will be issued. We treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challengethis treatment, which could adversely affect the value of the common units. Because we cannot match transferors and transferees of common units and because of other reasons, we have adopted depreciation and amortizationpositions that may not conform to all aspects of existing Treasury regulations promulgated under the Internal Revenue Code and referred to as “TreasuryRegulations.” A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. A successful IRS challengecould also affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of ourcommon units or result in audit adjustments to your tax returns.We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our units eachmonth based upon the ownership of our units on the first business day of each month, instead of on the basis of the date a particular unit is transferred.The IRS may challenge aspects of our proration method, which could change the allocation of items of income, gain, loss and deduction among ourunitholders. We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of ourunits on the first day of each month, instead of on the basis of the date a particular unit is transferred. The U.S. Department of Treasury and the IRS haveissued Treasury Regulations that permit publicly traded partnerships to use a monthly simplifying convention that is similar to ours, but they do notspecifically authorize all aspects of the proration method we have adopted. If the IRS were to successfully challenge this method, we could be required tochange the allocation of items of income, gain, loss and deduction among our unitholders. A unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of thosecommon units. If so, he would no longer be treated for U.S. federal income tax purposes as a partner with respect to those common units during theperiod of the loan and may be required to recognize gain or loss from the disposition. Because a unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed ofthe loaned common units, he may no longer be treated for federal income tax purposes as a partner with respect to those common units during the period ofthe loan to the short seller and the unitholder may be required to recognize gain or loss from such disposition. Moreover, during the period of the loan to theshort seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributionsreceived by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners andavoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers fromloaning their common units. We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS maychallenge these methodologies or the resulting allocations, and such a challenge could adversely affect the value of our common units. In determining the items of income, gain, loss and deduction allocable to our unitholders, in certain circumstances, including when we issue additionalunits, we must determine the fair market value of our assets. Although we may from time to time consult with professional appraisers regarding valuationmatters, we make many fair value estimates using a46Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge thesevaluation methods and the resulting allocations of income, gain, loss and deduction. A successful IRS challenge to these methods or allocations could adversely affect the amount, character and timing of taxable income or loss allocatedto our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of ourcommon units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions. As a result of investing in our common units, you may become subject to state, local and foreign taxes and return filing requirements in jurisdictionswhere we operate or own or acquire properties. In addition to U.S. federal income taxes, our unitholders are likely subject to other taxes, including state, local and foreign taxes, unincorporatedbusiness taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property nowor in the future, even if they do not live in any of those jurisdictions. Our unitholders are likely required to file state, local and foreign income tax returns andpay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply withthose requirements. We currently own assets and conduct business in Alberta, Canada, California, Texas, Wyoming and Oklahoma. Some of thesejurisdictions currently impose a personal income tax on individuals. As we make acquisitions or expand our business, we may control assets or conductbusiness in additional states that impose a personal income tax. Our unitholders bear responsibility for filing all federal, state, local and foreign tax returns.Item 2. PropertiesA description of our properties is included in Item 1. Business, which is incorporated herein by reference.Our Hardisty terminal is located on land we own. Our Casper terminal is located on land we own, as well as land owned by others, but operated by usunder leases with private land owners, public authorities, railways, or public utilities. Our West Colton terminal is located on land owned by others and isoperated by us under easements and rights-of-way, licenses, leases or permits that have been granted by private land owners, public authorities, railways orpublic utilities. Our Stroud terminal is located on land we own, as well as land owned by others, but operated by us under licenses, rights-of-way or leaseswith private land owners, public authorities, railways, or public utilities.We have satisfactory title and other rights to all of the real estate assets that were contributed to us at the closing of our IPO and that we havesubsequently acquired. Under the omnibus agreement, our sponsor has agreed to indemnify us for any materially adverse title defects and any failures toobtain certain consents and permits necessary to conduct our business that are identified prior to the fifth anniversary of the closing of the IPO.Obligations under our senior secured credit facility are secured by a first priority lien on our assets and those of our restricted subsidiaries (as such termis defined in our senior secured credit facility), other than certain excluded assets. Title to the real property necessary for us to operate our business may alsobe subject to encumbrances in some cases, such as customary interests generally retained in connection with the acquisition of real property, liens that can beimposed in some jurisdictions for government-initiated action to clean up environmental contamination, liens for current taxes and other burdens, andeasements, restrictions, and other encumbrances to which the underlying properties were subject at the time of lease or acquisition by our Predecessor or us.However, we do not believe that any of these burdens would materially detract from the value of these properties or from our interest in these properties orwould materially interfere with their use in the operation of our business.Item 3. Legal ProceedingsAlthough we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are notcurrently a party to any litigation or governmental or other proceeding that we believe will have a material adverse impact on our consolidated financialcondition or results of operations. In addition, under our omnibus agreement, USD has agreed to indemnify us for certain liabilities attributable to theownership or operation of the assets contributed to us in connection with the IPO that occurred prior to the closing of the IPO.Item 4. Mine Safety DisclosuresNot Applicable.47Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIItem 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchase of Equity SecuritiesOur common units are listed and traded on the NYSE, under the ticker symbol “USDP”. The following table presents intraday high and low sales pricesper common unit and cash distributions declared to unitholders for each quarter. First Quarter Second Quarter Third Quarter Fourth Quarter2017 High $17.50 $14.75 $11.90 $11.45Low $10.95 $10.70 $9.00 $9.70Quarterly cash distribution per unit (1) $0.3350 $0.3400 $0.3450 $0.35002016 High $8.71 $12.00 $13.25 $16.80Low $4.72 $7.90 $9.40 $11.56Quarterly cash distribution per unit (1) $0.3075 $0.3150 $0.3225 $0.3300 (1) Represents cash distribution attributable to the quarter and declared and paid within 60 days following the end of such quarter.On March 6, 2018, the last reported sales price of our common units on the NYSE was $11.00 per common unit. On March 6, 2018, there wereapproximately 4,500 common unitholders, nine of which were registered common unitholder of record. An established public trading market does not existfor our Class A units, subordinated units, or our general partner units. Our Class A units are held by senior management of USD. All of our subordinated unitsare held by USD Group LLC, while all of our general partner units are held by USD Partners GP LLC.Under our current cash distribution policy, we intend to make minimum quarterly distributions to the holders of our common, Class A, subordinatedand general partner units of at least $0.2875 per unit, or $1.15 per unit on an annualized basis, to the extent we have sufficient available cash after theestablishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner and its affiliates. Our currentcash distribution policy is also subject to certain restrictions, as well as the discretion of our general partner in determining the amount of our available casheach quarter. These restrictions include restrictions under our senior secured credit agreement, our general partner’s discretion to establish reserves and to takeother actions provided by our limited partnership agreement, and the performance of our subsidiaries. For further information about distributions and aboutthese and other limitations and risks related to distributions, please read Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources—Distributions.SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANSPlease see Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Securities Authorized forIssuance Under Equity Compensation Plans for information regarding our equity compensation plans as of December 31, 2017.UNREGISTERED SALES OF EQUITY SECURITIESNone not previously reported on a current report on Form 8-K.ISSUER PURCHASES OF EQUITY SECURITIESNone.48Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 6. Selected Financial DataThe following table sets forth, for the periods and at the dates indicated, the summary historical financial data of USD Partners LP and our Predecessor. Thetable is derived from and should be read in conjunction with our audited consolidated financial statements and notes thereto included in Item 8. FinancialStatements and Supplementary Data. See also Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. For the Year Ended December 31, 2017 2016 2015 2014 2013 (in thousands, except per unit amounts and Bpd) Income Statements Data (1)(2)(3) Operating revenues$111,336 $111,125 $81,763 $36,098 $26,301Operating costs80,223 78,485 59,309 35,451 24,832Operating income31,113 32,640 22,454 647 1,469Interest expense9,925 9,847 4,432 4,855 3,243Loss (gain) associated with derivative instruments937 140 (5,161) (1,536) —Foreign currency transaction loss (gain)(456) (750) (201) 4,850 39Other income, net(308) (10) (64) (30) (2)Provision for (benefit from) income taxes(1,192) (759) 5,755 186 30Income (loss) from continuing operations22,207 24,172 17,693 (7,678) (1,841)Discontinued operations: Income from discontinued operations— — — — 948Gain on sale from discontinued operations— — — — 7,295Net income (loss)$22,207 $24,172 $17,693 $(7,678) $6,402Less: Predecessor loss prior to the IPO (from January 1, 2014 throughOctober 14, 2014) (7,206) Net loss attributable to general and limited partner interests in USDPartners LP subsequent to the IPO (from October 15, 2014 throughDecember 31, 2014) $(472) Net income (loss) attributable to limited partner interest$21,611 $23,690 $17,339 $(7,524) $6,274Net income (loss) per common unit (basic and diluted) (4)$0.88 $1.06 $0.83 $(0.29) $0.54Net income (loss) per subordinated unit (basic and diluted) (4)$0.89 $1.02 $0.82 $(0.63) $0.54Distributions declared per limited partner interest$1.370 $1.275 $1.170 $0.240 Cash Flow Data (1)(2) Net cash provided by (used in) operating activities$47,725 $53,076 $36,204 $(3,085) $9,239Net cash used in investing activities(27,580) (93) (213,283) (34,204) (56,114)Net cash provided by (used in) financing activities(23,790) (51,298) 147,957 45,705 44,885Net cash provided by discontinued operations— — — 24,241 5,168 Balance Sheet Data (at period end) (1)(2) Property and equipment, net$146,573 $125,702 $133,010 $84,059 $61,364Total assets307,390 305,967 328,398 148,280 107,268Long-term debt, net200,627 220,894 239,444 78,458 30,000Total liabilities234,095 259,149 278,638 110,085 104,665Partners’ Capital Predecessor equity— — — — 4,003Common units131,169 122,802 141,374 127,865 —Class A units1,356 1,811 1,749 550 —Subordinated units(60,820) (76,749) (93,445) (90,214) —General Partner(50) 111 220 12 —Accumulated other comprehensive loss1,640 (1,157) (138) (18) (1,400)Total Partners’ Capital$73,295 $46,818 $49,760 $38,195 $2,603 Operating Information Average daily terminal throughput (Bpd) (5)41,328 31,727 27,430 39,125 15,533 Non-GAAP Measures (1)(6) Adjusted EBITDA$56,376 $63,690 $42,752 $15,266 $1,971Distributable cash flow$47,326 $53,885 $35,062 $11,577 $116 Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.49Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(1) Our selected financial data reflects our recapitalization, receipt and use of approximately $145 million of net proceeds we received in connection with our October 15, 2014initial public offering of 9,120,000 common units and the issuance of 1,093,545 common units and 10,463,545 subordinated units to USDG and 427,083 general partner unitsto USD Partners GP LLC, as well as 250,000 Class A units to certain members of management. Additionally, we borrowed $100 million on the Term Loan Facilitycomponent of our senior secured credit agreement, which we distributed to USDG. As of December 31, 2017, the Term Loan Facility has been fully repaid.(2) Our income statement, cash flow and balance sheet data reflect the following acquisitions:Month of Acquisition Description of Acquisition June 2017 Acquisition of Stroud terminal by Stroud Crude Terminal LLC and STC Pipeline LLC (each a wholly-owned subsidiary of the Partnership) located in Stroud, OklahomaNovember 2015 Acquisition of Casper Crude to Rail, LLC and subsidiary located in Casper, Wyoming.(3) Operating costs for the fourth quarter of 2017 include a non-cash impairment loss of approximately $1.7 million to reduce the value of idle assets included in our Terminallingservices segment to their net realizable value less selling costs. Operating costs for the fourth quarter of 2016 include a non-cash impairment loss of approximately $3.5 millionto write down the non-current assets of the San Antonio rail terminal to fair market value.(4) Net income per unit for periods prior to October 15, 2014, are computed on a retrospective basis assuming the minimum quarterly distribution amount of $0.2875 per unit, or$1.15 per unit on an annualized basis, was distributed on the units issued to our general partner and USDG as if they were outstanding the entire period.(5) Includes the average daily throughput of the Stroud terminal which commenced operations in October 2017, the Casper terminal from our acquisition in November 2015 andthe Hardisty terminal, which was placed into service in late June 2014.(6) A reconciliation of our non-GAAP financial measures is included in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— How We Evaluate Our Operations — Adjusted EBITDA and Distributable Cash Flow of this Report.50Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with ourconsolidated financial statements and the accompanying notes included in Item 8. Financial Statements and Supplementary Data of this Annual Report onForm 10-K. Unless the context otherwise requires, references in this discussion to USD Partners, USDP, the Partnership, we, our, us or like terms refer to thefollowing subsidiaries, collectively: San Antonio Rail Terminal LLC, USD Logistics Operations GP LLC, USD Logistics Operations LP, USD Rail LP, USDRail Canada ULC, USD Rail International S.A.R.L., USD Terminals Canada ULC, USD Terminals International S.A.R.L. and West Colton Rail Terminal LLC.This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussedbelow. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Part I, Item1A. “Risk Factors” included elsewhere in this report.Overview and Recent DevelopmentsWe are a fee-based, growth-oriented master limited partnership formed by our sponsor, USD, to acquire, develop and operate midstream infrastructureand complementary logistics solutions for crude oil, biofuels and other energy-related products. We generate substantially all of our operating cash flowsfrom multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies, refiners and marketers. Ournetwork of crude oil terminals facilitates the transportation of heavy crude oil from Western Canada to key demand centers across North America. Ouroperations include railcar loading and unloading, storage and blending in onsite tanks, inbound and outbound pipeline connectivity, truck transloading, aswell as other related logistics services. We also provide our customers with leased railcars and fleet services to facilitate the transportation of liquidhydrocarbons and biofuels 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 suchproducts. We may on occasion enter into buy-sell arrangements in which we take temporary title to commodities while in our terminals. We expect any sucharrangements to be at fixed prices where we do not take commodity price exposure.We believe rail will continue as an important transportation option for energy producers, refiners and marketers due to its unique advantages relativeto other transportation means. Specifically, rail transportation of energy-related products provides flexible access to key demand centers on a relatively lowfixed-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 managinglarge-scale multi-modal logistics centers and energy-related infrastructure across North America. USDG’s solutions create flexible market access for customersin significant growth areas and key demand centers, including Western Canada, the U.S. Gulf Coast and Mexico. Among other projects, USDG is currentlypursuing 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.Market UpdateSubstantially all of our operating cash flows are generated from take-or-pay contracts and, as a result, are not directly related to actual throughputvolumes at our crude oil terminals. Throughput volumes at our terminals are primarily influenced by the difference in price between Western CanadianSelect, or WCS, and other grades of crude oil, commonly referred to as spreads, rather than absolute price levels. WCS spreads are influenced by severalmarket factors, including the availability of supplies relative to the level of demand from refiners and other end users, the price and availability of alternativegrades of crude oil, the availability of takeaway capacity, as well as transportation costs from supply areas to demand centers.51Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.According to Natural Resources Canada, effectively all of Canada’s crude oil exports are transported to the United States. Over the last two years,multiple supply outages at major oil sands production facilities reduced the volume of production seeking transportation from Western Canada into theUnited States. As such, widely-expected pipeline transportation constraints did not materialize during that time.Recently, oil sands production facilities have returned to normal operating levels and new production capacity has been brought online. This hasdriven apportionment levels on the primary heavy lines of the largest export pipeline system to the U.S. from near zero during the third quarter of 2017 tomore than 50% in March 2018, representing the percentage of barrels nominated that were not shipped due to pipeline capacity constraints. Accordingly,inventory levels in Western Canada have surged from approximately 30% in the third quarter of 2017 to approximately 60% during February 2018 as barrelsnot shipped were added to tank storage capacity.To date this year, WCS spreads in relation to key crude oil benchmarks have discounted to levels double the 2017 average. We believe this abruptdiscounting of Canadian crude oil relative to other global prices indicates that Canadian crude oil supplies have begun to exceed available pipelinetakeaway capacity, consistent with our expectations. Furthermore, customer activity at our Hardisty origination terminal has increased substantially over thelast several months as strategically-located rail capacity has provided an export outlet for growing oil sands production.Western Canadian crude oil production is projected to continue to increase throughout the next decade, driven primarily by developments in Alberta’soil sands region. In June 2017, the Canadian Association of Petroleum Producers, or CAPP, projected that the supply of crude oil from Western Canada willgrow by approximately 760,000 bpd by 2020 and 1.1 million bpd by 2025 relative to 2016’s levels.Subsequent to CAPP’s forecast, the industry experienced a consolidation of Western Canadian oil sands producing assets among active Canadianproducers. We expect this will drive further expansions of crude oil production capacity, particularly at existing projects, as cost savings and technologicaladvancements made during the recent commodity price downturn are incorporated into future development plans.As a result, we expect demand for rail capacity at our terminals to increase over the next several years and potentially longer if proposed pipelinedevelopments do not meet currently planned timelines due to regulatory or other headwinds. Our Hardisty and Casper terminals, with established capacityand scalable designs, are well-positioned as strategic locations to meet growing takeaway needs as Western Canadian crude oil supplies continue to exceedavailable pipeline takeaway capacity. Additionally, we believe our Stroud terminal provides an advantaged rail destination for Western Canadian crude oilgiven the optionality provided by its connectivity to the Cushing hub and multiple refining centers across the United States. Rail also generally provides agreater ability to preserve the specific quality of a customer’s product relative to pipelines, providing value to a producer or refiner. We expect theseadvantages, including our recently established origin-to-destination capabilities, to result in re-contracting and expansion opportunities across our terminalnetwork.Growth Opportunities for our OperationsWe apply a disciplined approach to pursuing our growth strategy, which may include organic growth initiatives as well as acquisitions of energy-related logistics assets. Potential acquisitions may include assets developed by our sponsor or by third-party logistics providers. We believe these representattractive opportunities to leverage our established and scalable network footprint to enhance and extend our currently-contracted cash flows.Our sponsor is currently pursuing several development projects related to the storage and transportation of liquid hydrocarbons and biofuels. Thesedevelopment projects are expected to be supported by multi-year, take-or-pay agreements with strategic customers which would generate stable andpredictable cash flows. Energy Capital Partners has indicated an intention to invest an additional $1.0 billion of equity capital in USD, subject to market andother conditions, to support future growth and expansion plans.52Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Opportunities Related to Our Crude Oil Terminal NetworkWestern Canadian crude oil production is projected to increase throughout the next decade, driven primarily by developments in Alberta’s oil sandsregion. Additionally, certain end users, including refineries across North America, have made substantial investments in recent years in order to efficientlyprocess heavy grades of crude oil, such as those from Western Canada. However, even with recent regulatory approvals, additions to pipeline takeawaycapacity from Western Canada to key demand centers in the United States are not expected to keep pace with forecasted production growth. As such, demandfor rail takeaway out of Western Canada is expected to increase over the next several years and potentially longer if currently planned timelines are not met.Our strategically-located crude oil terminal network, with established capacity and scalable design, is well-positioned to meet these growing takeaway needs.Current market demand for the services provided at our Hardisty terminal exceeds our available capacity as substantially all of the terminal’s capacitywas previously contracted for by customers under multi-year agreements through mid-2019 or mid-2020. As such, our sponsor is currently evaluating apotential expansion of the Hardisty terminal to meet near-term customer demand, which our sponsor estimates could be constructed in less than one year. Oursponsor is also pursuing long-term solutions to transport heavier grades of crude oil produced in Western Canada, which our sponsor believes will maximizebenefits to producers, refiners and railroads. Any such development project would be wholly-owned by USDG and would be subject to our existing right offirst offer with respect to midstream projects developed by USDG. We are also undergoing efforts to extend the terms of our agreements with existingcustomers, including offering an origin-to-destination solution from Hardisty to our Stroud terminal near the Cushing, Oklahoma storage hub.Approximately 50% of the Stroud terminal’s current capacity is contracted under a multi-year, take-or-pay terminal services agreement with aninvestment grade, multi-national energy company through mid-2020. This customer is also a customer at our Hardisty terminal through capacity USDMsecured in conjunction with our Stroud terminal acquisition. The remaining 50% of capacity is available as a destination point for other new or existingcustomers, with whom our sponsor is actively negotiating. Our sponsor is also evaluating a potential expansion of the Stroud terminal to meet incrementalcustomer demand. If successful, these efforts would provide us with cash flows incremental to those provided by our currently-contracted capacity.Additionally, any such development project would be wholly-owned by USDG and would be subject to our existing right of first offer with respect tomidstream projects developed by USDG.Our Casper terminal currently includes over 100,000 bpd of loading capacity and 900,000 barrels of tank storage capacity. Following the expiration ofa customer contract with us in August 2017, we have available tank capacity to accommodate spot activity and new customer agreements, both of which weare actively pursuing. Recently, the Casper terminal supported spot shipments for a large international oil and gas company, as well as for a local producer’sheavy sour crude oil production. We are actively pursuing term agreements with these spot customers.We are also actively exploring the potential to establish a rail-to-pipeline solution at the Casper terminal, similar to the current activity at our Stroudterminal. This would require us to make additional capital investments of up to $12 million dollars to establish outbound pipeline connectivity and railcarunloading capabilities. We cannot make any assurances regarding the outcome or timing of these efforts.Opportunities Related to Our Sponsor’s Texas Deepwater Development on U.S. Gulf CoastIn October 2015, our sponsor announced a joint venture to develop a premier U.S. Gulf Coast logistics terminal on a 988-acre parcel of property on theHouston Ship Channel. Its strategic location is uniquely positioned to provide customers with flexible market access to key demand centers, both domesticand abroad. Preliminary master planning efforts suggest that the property footprint is capable of supporting up to twelve million barrels of storage capacity,multiple docks (including barge and deep water), inbound and outbound pipeline connectivity, and a rail terminal with capacity to unload multiple unittrains per day. The property is in proximity to substantially all major inbound and outbound pipelines and can be directly accessed by multiple Class 1railroads.Worldwide consumption of liquid fuels is estimated to have increased by over one million bpd in 2017 and is projected to increase by another threemillion bpd by 2019. Recent industry developments highlight the Gulf Coast’s53Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.strategic importance within global energy markets and ability to meet growing demand. Since the lifting of the export ban in December 2015, exports ofcrude oil from PADD 3 have grown from less than 300,000 bpd to more than 1,000,000 bpd in recent months. Additionally, PADD 3 exports of petroleumproducts have increased more than 10% year-over-year and 20% over the last two years. Finally, given expected growth in Permian Basin crude oilproduction, industry participants have announced plans to add over 1.5 million bpd of pipeline capacity to transport crude oil from West Texas to theHouston refining and distribution hub for domestic consumption or export to other markets.Our sponsor expects that these industry dynamics will contribute to growing demand for storage, staging, blending, export and other logistics servicesalong the Gulf Coast, including at its Houston Ship Channel property. Accordingly, our sponsor is actively engaged in commercial negotiations withpotential customers to provide solutions for crude oil, refined products, and natural gas liquids. Any such development project would be wholly-owned byUSDG and would be subject to our existing right of first offer with respect to midstream projects developed by USDG. If successful, the Texas Deepwaterdevelopment represents a meaningful opportunity to add complementary logistics assets that diversify our current network and have the potential to addadditional high-quality take-or-pay agreements with terms beyond those related to our existing network.Right of First OfferIn connection with our IPO, we entered into an omnibus agreement with USD and USDG, pursuant to which we were granted a right of first offer on anymidstream infrastructure assets that they may develop, construct, or acquire for a period of seven years after the October 15, 2014, closing of our IPO.Additional information about the omnibus agreement and the right of first offer are included in Note 13. Transactions with Related Parties of ourconsolidated financial statements at Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.We cannot assure you that USD will be able to develop or construct, or that we or USD will be able to acquire, any additional midstream infrastructureprojects. Among other things, the ability of USD to further develop the Hardisty and Stroud terminals, or any other project, and our ability to acquire suchprojects, will depend upon USD’s and our ability to raise additional equity and debt financing. We are under no obligation to make any offer, and USD andUSDG are under no obligation to accept any offer we make, with respect to any asset subject to our right of first offer. Additionally, the approval of EnergyCapital Partners is required for the sale of any assets by USD or its subsidiaries, including us (other than sales in the ordinary course of business), acquisitionsof securities of other entities that exceed specified materiality thresholds and any material unbudgeted expenditures or deviations from our approvedbudgets. Energy Capital Partners may make these decisions free of any duty to us and our unitholders. This approval would be required for the potentialacquisition by us of any projects to expand the Hardisty and Stroud terminals, as well as any other projects or assets that USD may develop or acquire in thefuture or any third-party acquisition we may pursue independently or jointly with USD. Energy Capital Partners is under no obligation to approve any suchtransaction. Please refer to the discussion under Item 10. Directors, Executive Officers and Corporate Governance-Special Approval Rights of Energy CapitalPartners regarding the rights of Energy Capital Partners. If we are unable to acquire any projects to expand the Hardisty and Stroud terminals from USD, theseexpansions may compete directly with our existing business for future throughput volumes, which may impact our ability to enter into new terminal servicesagreements, including with our existing customers, following the termination of our existing agreements, or the terms thereof, and our ability to compete forfuture spot volumes. Furthermore, cyclical changes in the demand for crude oil and other liquid hydrocarbons may cause USD, or us, to further re-evaluateany future expansion projects, including expansion of the Hardisty and Stroud terminals.How We Generate RevenueWe conduct our business through two distinct reporting segments: Terminalling services and Fleet services. We have established these reportingsegments as strategic business units to facilitate the achievement of our long-term objectives, to assist in resource allocation decisions and to assessoperational performance.54Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Terminalling ServicesThe Terminalling services segment includes a network of strategically-located terminals that provide customers with railcar loading and/or unloadingcapacity, as well as related logistics services, for crude oil and biofuels. These services are primarily provided under multi-year, take-or-pay agreements thatinclude minimum monthly commitment fees. We generally have no direct commodity price exposure, although fluctuating commodity prices couldindirectly influence our activities and results of operations over the long term. We may on occasion enter into buy-sell arrangements in which we taketemporary title to commodities while in our terminals. We expect any such agreements to be at fixed prices where we do not take commodity price exposure.Hardisty Terminal Services Agreements. We have terminal services agreements with six high-quality, primarily investment grade counterparties ortheir subsidiaries: Cenovus Energy, Gibson, Phillips 66, Suncor Energy, Total and USD Marketing LLC (“USDM”). USDM’s agreement is supported bycommitments from an investment grade rated multi-national energy company, who is also a customer of our Stroud terminal. Substantially all of theterminalling capacity at our Hardisty terminal is contracted under multi-year, take-or-pay terminal services agreements subject to inflation-based escalatorswith a volume-weighted average remaining contract life of approximately 1.9 years as of December 31, 2017. All of our counterparties are obligated to pay aminimum monthly commitment fee for the capacity to load an allotted number of unit trains or barrels per month. If a customer loads fewer unit trains orbarrels than its allotted amount in any given month, that customer will receive a credit for up to six months. This credit may be used to offset fees onthroughput volumes in excess of the customer’s minimum monthly commitments in future periods to the extent capacity is available for the excess volume.We will receive a per-barrel fee on any volumes handled in excess of the customers’ allowed amount, to the extent the additional volume is not subject to thecredit discussed above. If a force majeure event occurs, a customer’s obligation to pay us may be suspended, in which case the length of the contract term willbe extended by the same duration as the force majeure event.Stroud Terminal Services Agreements. Concurrent with the Stroud acquisition, we entered into a new multi-year, take-or-pay terminalling servicesagreement with an investment grade multi-national energy company for the use of approximately 50% of the available capacity at the Stroud terminal. Theterm of this agreement is scheduled to conclude on June 30, 2020, unless otherwise renewed or extended. Our customer is obligated to pay a minimummonthly commitment fee and can load an allotted number of barrels per month. If our customer loads fewer barrels than its allotted amount in any givenmonth, the customer will receive a credit for up to six months. This credit may be used to offset fees on throughput volumes in excess of our customer’sminimum monthly commitments in future periods to the extent capacity is available for the excess volume. We will receive a per-barrel fee on any volumeshandled in excess of our customer’s allotted amount, to the extent the additional volume is not subject to the credit discussed above.We also entered into a Marketing Services Agreement, effective as of May 31, 2017, with USDM, whereby we granted USDM the right to market thecapacity at the Stroud terminal in excess of the capacity of our initial customer in exchange for a nominal per barrel fee. Upon expiration of our contract withthe initial Stroud customer in June 2020, the same marketing rights will apply to all throughput at the Stroud terminal in excess of the throughput necessaryfor the Stroud terminal to generate Adjusted EBITDA that is at least equal to the average monthly Adjusted EBITDA derived from the initial Stroud terminalcustomer during the 12 months prior to expiration.Casper Terminal Services Agreements. Our Casper terminal includes two take-or-pay terminal services agreements with high quality, investmentgrade refiners. The initial term of these agreements varies from four to five years with extension or renewal options for one or two additional 12 monthperiods. The volume-weighted average remaining contract life was 1.4 years as of December 31, 2017. Under these terminal services agreements, ourcustomers are obligated to pay the greater of a minimum monthly commitment fee or a throughput fee based on the actual volume of crude oil loaded. If acustomer loads fewer unit trains or barrels than its allotted amount in any given month, that customer will receive a credit which may be used to offset futurethroughput fees in excess of the minimum monthly commitment fees, to the extent capacity is available for the excess volume. Unused credits generallyexpire if not used by the end of each calendar quarter. Additionally, we may on occasion utilize our available storage and throughput capacity to support ourcustomers’ spot activity through buy-sell agreements that generate cash flows in addition to those provided by our multi-year agreements. We are activelypursuing term agreements with these spot customers.55Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.West Colton Terminal Services Agreements. Our West Colton terminal is supported by a terminal services agreement with a subsidiary of aninvestment grade company pursuant to which we are paid fixed fees per gallon of ethanol transloaded at the terminal. The West Colton terminal servicesagreement has been in place since July 2009 and is terminable at any time by either party upon 150 days’ notice.Fleet ServicesWe provide our customers with leased railcars and fleet services related to the transportation of liquid hydrocarbons and biofuels by rail on a multi-year, take-or-pay basis under master fleet services agreements for initial terms ranging from five to nine years. We do not own any railcars. As ofDecember 31, 2017, our railcar fleet consisted of 2,813 railcars, which we leased from various railcar manufacturers and financial entities, including 2,108C&I railcars. We have assigned certain payment and performance obligations under the leases and master fleet service agreements for 2,613 of the railcars toother parties, but we have retained certain rights and obligations with respect to the servicing of these railcars. Approximately 88% of our current railcar fleetis dedicated to customers of our Hardisty terminal. The remaining 12% of our railcar fleet is dedicated to a customer of terminals belonging to subsidiariespreviously sold by our predecessor. The master fleet services agreements we have with certain of our Hardisty terminal customers have a weighted-averageremaining contract life of 3.6 years as of December 31, 2017. In the aggregate, our master fleet services agreements have a weighted-average remainingcontract life of 3.2 years as of December 31, 2017.Under the master fleet services agreements, we provide customers with railcar-specific fleet services, which may include, among other things, theprovision of relevant administrative and billing services, the repairs and maintenance of railcars in accordance with standard industry practice and applicablelaw, the management and tracking of the movement of railcars, the regulatory and administrative reporting and compliance as required in connection with themovement of railcars, and the negotiation for and sourcing of railcars. Our customers typically pay us and our assignees monthly fees per railcar for theseservices, which include a component for railcar use and 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 thedestinations selected by our customers. We were the contracting party with the railroads for those shipments and were responsible to the railroads for therelated 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 ofthese fees by our customers are included in our consolidated statements of income in the revenues and operating costs line items entitled “Freight and otherreimbursables.”How We Evaluate Our OperationsOur management uses a variety of financial and operating metrics to evaluate our operations. We consider these metrics to be significant factors inassessing our ability to generate cash and pay distributions and include: (i) Adjusted EBITDA and DCF; (ii) operating costs; and (iii) volumes. We defineAdjusted EBITDA and DCF below.Adjusted EBITDA and Distributable Cash FlowWe define 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 commitmentfees and other items which do not affect the underlying cash flows produced by our businesses. Adjusted EBITDA is a non-GAAP, supplemental financialmeasure 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 flows 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,56Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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 flows 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 ourability to generate cash for payment of distributions and other purposes. The GAAP measure most directly comparable to Adjusted EBITDA and DCF is “Netcash provided by operating activities.” Adjusted EBITDA and DCF should not be considered alternatives to “Net cash provided by operating activities” orany other measure of liquidity presented in accordance with GAAP. Adjusted EBITDA and DCF exclude some, but not all, items that affect cash fromoperations, and these measures may vary among other companies. As a result, Adjusted EBITDA and DCF may not be comparable to similarly titled measuresof other companies.The following table sets forth a reconciliation of Net cash provided by operating activities to Adjusted EBITDA and Distributable cash flow to themost directly comparable financial measure calculated and presented in accordance with GAAP: Year Ended December 31, 2017 2016 2015 (in thousands)Reconciliation of Net cash provided by operating activities to Adjusted EBITDA and Distributablecash flow: Net cash provided by operating activities$47,725 $53,076 $36,204Add (deduct): Amortization of deferred financing costs(861) (861) (659)Deferred income taxes250 (46) (814)Changes in accounts receivable and other assets(4,433) (1,859) 730Changes in accounts payable and accrued expenses(397) 1,917 880Changes in deferred revenue and other liabilities7,105 996 (10,085)Change in restricted cash94 654 (870)Interest expense, net9,917 9,837 4,368Provision for (benefit from) income taxes(1,192) (759) 5,755Foreign currency transaction gain (1)(456) (750) (201)Non-cash lease items (2)341 — —Deferred revenue associated with minimum monthly commitment fees (3)(1,717) 1,485 7,444Adjusted EBITDA56,376 63,690 42,752Add (deduct): Cash received (paid) for income taxes (4)1,250 (845) (3,995)Cash paid for interest(9,754) (8,722) (3,695)Maintenance capital expenditures(546) (238) —Distributable cash flow$47,326 $53,885 $35,062 (1) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.(2) Represents non-cash lease revenues and expenses associated with the recognition of our lease contracts.(3) Represents deferred revenue associated with minimum monthly commitment fees in excess of throughput utilized, which fees are not refundable to our customers. Amountspresented are net of: (a) the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue; (b) revenue recognizedin the current period that was previously deferred; and (c) expense recognized for previously prepaid Gibson pipeline fees, which correspond with the revenue recognized thatwas previously deferred. Refer to the discussion in Note 10. Deferred Revenue of our consolidated financial statements included in Part II, Item 8. Financial Statements andSupplementary Data of this Annual Report.57Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(4) Includes refunds of approximately $2.6 million (representing C$3.4 million) received in 2017 for our 2016 foreign income taxes and $3.7 million (representing C$4.9 million)received in 2016 and $0.7 million (representing C$0.9 million) received in 2017 for our 2015 foreign income taxes.Operating CostsOur operating costs are comprised primarily of subcontracted rail expenses, pipeline fees, repairs and maintenance expenses, materials and supplies,utility costs, insurance premiums and rent for facilities and equipment. In addition, our operating expenses include the cost of leasing railcars from third-partyrailcar suppliers and the shipping fees charged by railroads, which costs are generally passed through to our customers. We expect our expenses to remainrelatively stable, but they may fluctuate from period to period depending on the mix of activities performed during a period and the timing of theseexpenditures. With additional throughput volumes handled at our terminals, we expect to incur additional operating costs, including subcontracted railservices and pipeline fees.Our management seeks to maximize the profitability of our operations by effectively managing both our operating and maintenance expenses. As ourterminal facilities and related equipment age, we expect to incur regular maintenance expenditures to maintain the operating capabilities of our facilities andequipment in compliance with sound business practices, our contractual relationships and regulatory requirements for operating these assets. We record thesemaintenance and other expenses associated with operating our assets in “Operating and maintenance” costs in our consolidated statements of income.VolumesThe amount of Terminalling services revenue we generate depends on minimum customer commitment fees and the throughput volume that we handleat our terminals in excess of those minimum commitments. These volumes are primarily affected by the supply of and demand for crude oil, refined productsand biofuels in the markets served directly or indirectly by our assets. Additionally, these volumes are affected by the spreads between the benchmark pricesfor these products, which are influenced by, among other things, the available takeaway capacity in those markets. Although customers at our terminals havecommitted 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 throughputvolumes at our terminals, and provide additional ancillary services at those terminals.General Trends and OutlookStroud Terminal AcquisitionIn the second quarter of 2017, we acquired a crude oil terminal in Stroud, Oklahoma, the Stroud terminal, for approximately $22.8 million in cash. Weacquired the Stroud terminal to facilitate rail-to-pipeline shipments of crude oil from our Hardisty terminal to Cushing, Oklahoma. The Stroud terminalincludes 76-acres with current unit train unloading capacity of approximately 50,000 bpd, two onsite tanks with 140,000 bbls of capacity and a truck bay.Additionally, the terminal includes a 12-inch diameter, 17-mile pipeline with a direct connection to the crude oil storage hub located in Cushing, Oklahoma.We also obtained a lease for 300,000 bbls of crude oil tank storage at the Cushing hub to receive outbound shipments of crude oil from the Stroud terminal.Inbound product is delivered by the Stillwater Central Rail, which handles deliveries from both the BNSF and the UP.58Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Equity OfferingIn June 2017, we issued and sold 3,000,000 common units in an underwritten offering at a public offering price of $11.60 per unit. We receivedproceeds, net of underwriting discounts, commissions and offering costs, of approximately $33.7 million, which we used to repay amounts outstanding underour Revolving Credit Facility, including amounts used to fund our purchase of the Stroud terminal.Factors That May Impact Future Results of OperationsDemand for Rail Transportation of Crude Oil and BiofuelsHigh-growth crude oil production areas in North America are often located at significant distances from refining centers, creating constantly evolvingregional imbalances, which require the expedited development of flexible and sustainable transportation solutions. The extensive existing rail network,combined with rail transportation’s relatively low capital and fixed costs compared to other transportation alternatives, has strategically positioned rail as along-term transportation solution for growing and evolving energy infrastructure needs. In the event that additional pipeline capacity is constructed, or crudeoil production decreases significantly, demand for transportation of crude oil by rail may be impacted.Changes in environmental and gasoline blending regulations may affect the use of ethanol in the market for transportation fuel. Due to corrosionconcerns unique to biofuels, such as ethanol, the long-haul transportation of biofuels via multi-product pipelines is less efficient and less economical thanrail. Rail also helps aggregate fragmented ethanol production across the country. In the event that dedicated pipelines are constructed, or additionaltechnologies are developed to allow for more economical transportation of biofuels on multi-product pipelines, demand for transportation of biofuels by railmay be impacted.Supply and Demand for Crude Oil and Refined ProductsThe volume of crude oil and biofuels that we handle at our terminals and the number of railcars for which we provide and perform railcar-specific fleetservices ultimately depends on refining and blending margins. Refining and blending margins are dependent mostly upon the price of crude oil or otherrefinery feedstocks and the price of refined products. These prices are affected by numerous factors beyond our control, including the global supply anddemand for crude oil and gasoline and other refined products. The supply of crude oil will depend on numerous factors, including commodity pricing,improvements in extractive technology, environmental regulation and other factors. We believe that our Adjusted EBITDA and DCF will not be impacted inthe near term to the extent of our multi-year, take-or-pay terminal services agreements. However, our ability to grow through expansion or acquisitions andour ability to renew or extend our terminal services agreements could be impacted by a long-term reduction in supply or demand.Customer Contract Expirations and RenewalsOur business is subject to the risk that we will not be able to renew, extend or replace our customer contracts as their terms expire. Five of ourterminalling services agreements with our Hardisty terminal customers have an initial contract term of five years and expire in 2019, and the sixth wasextended through mid-2020. The two take-or-pay terminalling services agreements with our Casper terminal customers have initial contract terms expiring in2018 and 2019, respectively. The terminalling services agreement with our Stroud terminal customer has an approximately three year term and expires in2020. The terminalling services agreement for our West Colton terminal is terminable at any time by either party upon 150 days’ notice.We are in active discussions with respect to the provision of terminalling services at our terminals for periods following the terms of our existingagreements. Projected growth in Western Canada crude oil production, including recent additions to oil sands production capacity, represents a meaningfulopportunity to meet takeaway needs with our strategically-positioned and scalable assets, particularly given current industry headwinds for newinfrastructure projects. For a discussion of the risks associated with our ability to renew, extend or replace customer contracts, see Risk Factors — Ourcontracts subject us to renewal risks.59Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Railcar Lease ExpirationsUnder our master fleet services agreements, we provide customers with railcar-specific fleet services. Our customers typically pay us and our assigneesmonthly fees per railcar for these services, which include a component for railcar use and a component for fleet services. Through the end of 2018, we expectthe leases on approximately 970 railcars to expire, approximately half of which relate to a legacy customer of a terminal sold prior to our formation, and theremainder of which relate to a prior customer at our Hardisty terminal. We do not expect the expirations of these railcar leases to have a significant impact onour operating income or cash flows.Deferred Revenues Generated from Our Hardisty OperationsUnder the terminal services agreements we have entered into with customers of our Hardisty terminal, our customers are obligated to pay the greater of aminimum monthly commitment fee or a throughput fee based on the actual volume of crude oil loaded at our Hardisty terminal. If a customer loads fewer unittrains or barrels than its allotted amount in any given month, that customer will receive a credit for up to six months to offset fees on throughput in excess oftheir minimum monthly commitments in future periods, to the extent capacity is available for the excess volume. We record the portion of customer paymentsin excess of amounts paid for volumes actually shipped as deferred revenues on our consolidated balance sheet. Lower throughput volumes do not affect ourAdjusted EBITDA, DCF, or our ability to pay our minimum quarterly distribution, since such deferred revenues do not affect our cash flows. We typicallyrecognize as revenue any amounts we have deferred within six months when these “make-up rights” are either used or expire. The utilization or expiration ofmake-up rights will not affect our cash flows since the fees associated with such volumes were previously collected. Additional discussion regarding make-uprights and deferred revenues is included in Note 10. Deferred Revenues to our consolidated financial statements in Item 8. Financial Statements andSupplementary Data of this Annual Report.Regulatory EnvironmentOur operations are subject to federal, state, and local laws and regulations relating to the protection of health and the environment, including laws andregulations that govern the handling of liquid hydrocarbons and biofuels. Additionally, we are subject to regulations governing railcar design and evolvingregulations pertaining to the shipment of liquid hydrocarbons and biofuels by rail. Please read Item 1. Business—Impact of Regulation. Similar to otherindustry participants, compliance with existing and any additional environmental laws and regulations could increase our overall cost of business, includingour capital costs to construct, maintain, operate and upgrade equipment and facilities, or the costs of our customers, which may reduce the attractiveness ofrail transportation. Our master fleet services agreements generally obligate our customers to pay for modifications and other required repairs to our leased andmanaged railcar fleet. However, we cannot assure that we will be able to successfully pass all such regulatory costs on to our customers. While changes inthese laws and regulations could indirectly affect Adjusted EBITDA and DCF, we believe that consumers of our services place additional value on utilizingestablished and reputable third-party providers to satisfy their rail terminalling and logistics needs, which may allow us to increase market share relative tocustomer-owned operations or smaller operators that lack an established track record of safety and regulatory compliance.Acquisition OpportunitiesWe plan to continue pursuing strategic acquisitions that will provide attractive returns to our unitholders, including energy-related logistics assetsrelated to the storage and transportation of liquid hydrocarbons and biofuels, from both USD and third parties. We intend to leverage our industryrelationships and market knowledge to successfully execute on such opportunities, which we may pursue independently or jointly with USD. We haveentered into an omnibus agreement with USD and USD Group LLC, pursuant to which USD Group LLC has granted us a right of first offer on any midstreaminfrastructure assets that they may develop, construct, or acquire for a period of seven years after the October 15, 2014, closing of our IPO. Additionalinformation regarding our growth opportunities is discussed in Growth Opportunities for our Operations and information regarding the omnibus agreement ispresented in Note 13. Transactions with Related Parties—Omnibus Agreement of Item 8. Financial Statement and Supplementary Data. We cannot assure youthat USD will be able to develop or construct, or that we or USD will be able to acquire, any other midstream infrastructure projects, including any projects toexpand the Hardisty and Stroud terminals. Among other things, the ability of USD to further develop the Hardisty and Stroud terminals, or any other project,and our ability to acquire such projects, will depend upon USD’s and our ability to raise additional equity and debt financing. We are under no60Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.obligation to make any offer, and USD and USD Group LLC are under no obligation to accept any offer we make, with respect to any asset subject to our rightof first offer. Additionally, the approval of Energy Capital Partners is required for the sale of any assets by USD or its subsidiaries, including us (other thansales in the ordinary course of business), acquisitions of securities of other entities that exceed specified materiality thresholds and any material unbudgetedexpenditures or deviations from our approved budget. Energy Capital Partners may make these decisions free of any duty to us and our unitholders. Thisapproval would be required for the potential acquisition by us of any projects to expand the Hardisty and Stroud terminals, as well as any other projects orassets that USD may develop or acquire in the future or any third-party acquisition we may pursue independently or jointly with USD. Energy CapitalPartners is under no obligation to approve any such transaction. Additional discussion of the special approval rights of Energy Capital Partners is included inItem 10. Directors, Executive Officers and Corporate Governance—Special Approval Rights of Energy Capital Partners. If we are unable to acquire anyprojects to expand the Hardisty and Stroud terminals from USD, which USD retained the right to develop and operate, these expansions may compete directlywith our current terminal assets for future throughput volumes, which may impact our ability to enter into new terminal services agreements, including withour existing customers, following the termination of our existing agreements or the terms thereof and our ability to compete for future spot volumes.Furthermore, cyclical changes in the demand for crude oil and other liquid hydrocarbons may cause USD or us to reevaluate any future expansion projects,including any projects to expand the Hardisty and Stroud terminals. Additionally, if we do not make acquisitions on economically acceptable terms, ourfuture growth will be limited, and the acquisitions we do make may reduce, rather than increase, our DCF.Interest Rate EnvironmentThe interest rates available in U.S. and international credit markets remain near historic lows, although the U.S. Federal Reserve Board has begunexecuting on their stated intent to increase interest rates in the United States. Should interest rates continue to rise, our financing costs will increaseaccordingly. This could affect our future ability to access the credit markets at rates we consider reasonable to fund our future growth. Additionally, as withother yield-oriented securities, our unit price could be affected by the level of our cash distributions and the associated implied distribution yield. Therefore,changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and, as such, a rising interest rateenvironment could have an adverse impact on our unit price and our ability to issue additional equity, or increase the cost of issuing equity. However, weexpect that our cost of capital would remain competitive, as our competitors would face similar circumstances. We have entered into interest rate collarcontracts to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range where we will pay thecounterparty if one-month LIBOR falls below the established floor rate of 1.70%, and the counterparty will pay us if the one-month LIBOR exceeds theceiling rate of 2.50%.United States Tax ReformOn December 22, 2017, United States legislation referred to as the Tax Cuts and Jobs Act, or TCJA, was signed into law. Substantially all of theprovisions of the TCJA are effective for taxable years beginning after December 31, 2017. The TCJA includes significant changes to the Internal RevenueCode of 1986 (as amended, the Code), including amendments which significantly change the taxation of individuals and business entities. The mostsignificant change included in the TCJA is a reduction in the corporate federal income tax rate from 35% to 21%. We do not expect changes in the Code fromthe TCJA to have a material impact on our tax provision in future periods.Factors Affecting the Comparability of Our Financial ResultsThe comparability of our current financial results in relation to prior periods are affected by the factors described below.Our historical results of operations include revenues and expenses related to the operations of our Hardisty, Casper, San Antonio and West Coltonterminals and our railcar fleet services throughout North America.Stroud Terminal Asset PurchaseOur operating results include costs from June 2017 and revenues after October 1, 2017, associated with our operation of the Stroud terminal, which wepurchased in June 2017.61Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.San Antonio Terminal Agreement ExpirationOur historical operations include a unit train-capable ethanol destination terminal in San Antonio, Texas, that we ceased operating in May of 2017,upon the expiration of our customer’s agreement with us. We also recognized a non-cash impairment loss of approximately $3.5 million for the year endedDecember 31, 2016, to write down the non-current assets of the terminal to market value. The impairment loss included an asset retirement obligation of $1.0million for amounts we expect to spend to restore the property to its original condition. We are currently in the restoration phase at the terminal.Casper Terminal AcquisitionOur operating results for periods after November 17, 2015, include the revenues and costs associated with our operation of the Casper terminal, whichwe acquired on this date. In addition, one of our initial terminalling services agreements expired in late August 2017. The expired agreement contributedapproximately $15 million to our “Terminalling services” revenue and approximately $12 million of Adjusted EBITDA during the twelve months precedingexpiration of the agreement.Selling, General and Administrative CostsOur sponsor charges us a fixed annual fee for the management and operation of our assets and for the provision of various centralized administrativeservices, as well as allocates general and administrative costs and expenses incurred by them on our behalf. In 2017 and 2016, the fixed annual fee increasedby approximately $0.1 million and $0.7 million to $3.3 million and $3.2 million, respectively, primarily as a result of our sponsor hiring new employeesdedicated to our operations. We received approval from the Board of Directors to increase the fixed annual fee to approximately $3.4 million for 2018.We incur unit based compensation expenses associated with the phantom units granted to directors, officers and employees of our sponsor pursuant tothe USD Partners LP Amended and Restated 2014 Long-Term Incentive Plan, or A/R LTIP, and Class A units granted to certain executive officers and otherkey employees of USDG. We recognize the expense associated with the outstanding phantom units and with each Class A vesting tranche ratably over itsrequisite service period.Foreign Currency Exchange RatesWe derive a significant amount of operating income from our Canadian operations, particularly our Hardisty terminal. Given our exposure tofluctuations in the exchange rate between the Canadian dollar and the U.S. dollar, our operating income and assets which are denominated in Canadiandollars will be positively affected when the Canadian dollar increases in relation to the U.S. dollar and will be negatively affected when the Canadian dollardecreases relative to the U.S. dollar, assuming all other factors are held constant. Conversely, our liabilities which are denominated in Canadian dollars willbe positively affected when the Canadian dollar decreases in relation to the U.S. dollar and will be negatively affected when the Canadian dollar increasesrelative to the U.S. dollar.We entered into derivative contracts to mitigate a significant portion of the potential impact that fluctuations in the value of the Canadian dollarrelative to the U.S. dollar may have on cash flows generated by our Hardisty terminal operations through 2017. As a result, foreign currency exchange ratesdid not have a significant impact on our operating cash flows. Our derivative contracts, which covered the majority of our Canadian cash flows, secured aminimum exchange rate of 0.78 U.S. dollars per Canadian dollar for our 2017 fiscal year and secured an exchange rate of 0.84 U.S. dollars per Canadiandollar during our 2016 fiscal year. The average exchange rates for the Canadian dollar in relation to the U.S. dollar were 0.7712 and 0.7552 for 2017 and2016, respectively.Income Tax ExpenseIn 2016, prior to filing our 2015 Canadian tax returns, we adopted a methodology for determining the return attributable to our Canadian subsidiariesbased upon the completion of a study we initially commissioned in 2015. The methodology we adopted for determining the return attributable to ourCanadian subsidiaries supported by this study resulted in a reduction of our Canadian income tax liability for the 2015 tax year, as reflected in the Canadianincome62Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.tax returns we filed in 2016. The resulting decrease in our Canadian income tax liability was reflected in our 2016 income statement as a reduction to our2016 provision for income taxes. In addition, our 2017 provision for income taxes includes a reduction to our income tax liability for 2016, based upon theCanadian federal and provincial income tax returns for 2016 that we filed in June 2017. We have also reduced our provision for income taxes in 2017 for thelower expected Canadian income tax liability we anticipate for 2017 as a result of the methodology we adopted for determining the return attributable to ourCanadian subsidiaries.Our Hardisty terminal is subject to Canadian income taxes that result from taxable income generated by our Canadian operations and withholdingtaxes that are applicable to certain distributions from our Canadian subsidiaries. We utilized net operating losses relating to our Canadian terminallingbusiness during 2015, to the extent available, to offset Canadian taxable income generated during these periods. The combined Canadian federal andprovincial income tax rate was 25% prior to the income tax rate increase enacted by the Canadian province of Alberta in June 2015, which retroactivelyincreased the combined provincial/federal income tax rate by 1% for 2015 and an additional 1% beginning in 2016. As a result, we paid income taxes on ourCanadian income at a combined provincial/federal income tax rate of 27% in 2017 and 2016 and 26% in 2015. We had no available U.S. federal losscarryforward remaining at December 31, 2017 and approximately $0.8 million at December 31, 2016. The Canadian loss carryforward was approximately$4.6 million and $4.4 million at December 31, 2017 and 2016, respectively, $1.2 million of which will begin expiring in 2034. We will also be required topay withholding taxes at a rate of 5% on cash distributed to us from our Canadian subsidiaries in excess of amounts they have borrowed from us.FinancingWe have a senior secured credit agreement, the Credit Agreement, comprised of a $400 million revolving credit facility (subject to the limits set forththerein), the Revolving Credit Facility, with Citibank, N.A., as administrative agent, and a syndicate of lenders. The Credit Agreement is a five yearcommitted facility that matures on October 15, 2019.Previously, the Credit Agreement included a $300 million Revolving Credit Facility and a $100 million term loan (borrowed in Canadian dollars), theTerm Loan Facility, which we repaid in March 2017. As we repaid amounts outstanding on the Term Loan Facility, the availability on our Revolving CreditFacility was automatically increased to the full $400 million of credit available under the Credit Agreement. As a result of the borrowings we have madeunder the terms of our Credit Agreement and the increase in interest rates, our interest expense in 2017 and 2016 exceeded amounts incurred in 2015.Cash DistributionsWe intend to make minimum quarterly distributions of at least $0.2875 per common unit ($1.15 per unit on an annualized basis) to the extent we havesufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. We intendto pay distributions no later than 60 days after the end of each quarter. We paid our most recent distribution on February 16, 2018, at a rate of $0.35 percommon unit ($1.40 per unit on an annualized basis) for the quarter ending December 31, 2017, to unitholders of record on February 12, 2018.63Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.RESULTS OF OPERATIONSWe conduct our business through two distinct reporting segments: Terminalling services and Fleet services. We have established these reportingsegments as strategic business units to facilitate the achievement of our long-term objectives, to aid in resource allocation decisions and to assess operationalperformance.The following table summarizes our operating results by business segment and corporate charges for each of the years indicated: For the Year Ended December 31, 2017 2016 2015 (in thousands)Operating income Terminalling services$39,002 $40,531 $27,510Fleet services1,201 1,813 2,427Corporate and other(9,090) (9,704) (7,483)Total operating income31,113 32,640 22,454Interest expense, net9,925 9,847 4,432Loss (gain) associated with derivative instruments937 140 (5,161)Foreign currency transaction gain(456) (750) (201)Other income, net(308) (10) (64)Provision for (benefit from) income taxes(1,192) (759) 5,755Net income$22,207 $24,172 $17,693Summary Analysis of Operating ResultsYear ended December 31, 2017 compared to the year ended December 31, 2016Our operating results for the year ended December 31, 2017, compared with our operating results for the year ended December 31, 2016, were largelydriven by the following:•increased Terminalling services revenue associated with increased railcar loading activity by our customers at the Hardisty terminal, the commencementof operations at our Stroud terminal on October 1, 2017, and the recognition of greater amounts of previously deferred revenue in the current year relativeto the prior year due to the expiration of greater amounts of make-up rights granted to customers of our Hardisty terminal;•partially offsetting the above increases in Terminalling services revenue were declines resulting from ceasing operations at our San Antonio terminal inMay 2017 following the conclusion of our customer’s agreement with us and the expiration of a terminalling services agreement at our Casper terminal inAugust 2017;•additional pipeline fees recognized as expense from previously prepaid amounts, which are associated with the recognition of previously deferred revenuefrom our Hardisty terminal;•additional operating expenses related to our Stroud terminal, which we purchased in June 2017;•increased benefits from income taxes resulting from a change in our estimate of Texas franchise tax expense; and•a lower non-cash impairment charge of approximately $1.7 million that we recognized in 2017 to reduce the value of idle assets included in ourTerminalling services segment to their net realizable value less selling costs as compared with the non-cash impairment charge of $3.5 million recognizedin 2016 as the result of the expected conclusion of our customer agreement associated with the operations at our San Antonio terminal.64Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Year ended December 31, 2016 compared to the year ended December 31, 2015Our operating results for the year ended December 31, 2016, compared with our operating results for the year ended December 31, 2015, were largelydriven by the following:•a contribution of approximately $10.2 million derived from the Casper terminal operations we acquired in November 2015, partially offset by theadditional interest expense we incurred on amounts borrowed for the acquisition;•additional Terminalling services revenue resulting from inflation-indexed rate escalations associated with our terminalling services agreements;•a non-cash impairment loss of approximately $3.5 million we recognized in connection with winding down our San Antonio Terminal operations,including an asset retirement obligation of $1.0 million for amounts we expect to spend to restore the property to its original condition;•declines in our Fleet services business resulting from reductions to the number of railcars in our fleet;•increased corporate costs largely associated with unit based compensation due to increases in the trading price of our common units and additionalamounts we are charged pursuant to the omnibus agreement;•non-cash losses associated with the revaluation of our foreign currency derivative instruments as compared with gains in the prior year due to a morestable exchange rate between the U.S. and Canada; and•a reduction in our income taxes resulting from a methodology we adopted for determining the return attributable to the activities of our foreignsubsidiaries based on the functions we provide and risks we manage on their behalf, which resulted in a reduction of our Canadian income tax liabilitiesfor the 2015 and 2016 tax years.A comprehensive discussion of our operating results by segment is presented below.65Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.RESULTS OF OPERATIONS - BY SEGMENTTERMINALLING SERVICESThe following table sets forth the operating results of our Terminalling services business and the approximate average daily throughput volumes of ourterminals for the periods indicated: For the Year Ended December 31, 2017 2016 2015 (in thousands, except Bpd)Revenues Terminalling services$101,402 $99,947 $64,069Railroad incentives22 76 434Freight and other reimbursables368 13 —Total revenues101,792 100,036 64,503Operating costs Subcontracted rail services8,953 8,077 7,710Pipeline fees23,420 20,799 17,249Freight and other reimbursables368 13 —Operating and maintenance2,853 2,625 1,768Selling, general and administrative5,064 4,899 4,156Depreciation and amortization22,132 23,092 6,110Total operating costs62,790 59,505 36,993Operating income39,002 40,531 27,510Interest expense170 1,016 2,043Loss (gain) associated with derivative instruments1,083 140 (5,161)Foreign currency transaction loss (gain)(33) (28) 166Other income, net(308) (10) (17)Provision for (benefit from) income taxes(1,290) (1,184) 5,581Net income$39,380 $40,597 $24,898Average daily terminal throughput (Bpd)41,328 31,727 27,430Year ended December 31, 2017 compared to the year ended December 31, 2016Terminalling Services RevenueRevenue generated by our Terminalling services segment increased $1.8 million to $101.8 million for the year ended December 31, 2017, from $100.0million for the year ended December 31, 2016. This increase was primarily due to increased activity by our customers at the Hardisty terminal during thesecond half of the year which resulted in a lower revenue deferral, as customers were entitled to fewer make-up rights at the end of 2017 as compared with2016. We also recognized a greater amount of previously deferred revenues in the current year as compared with the prior year. The commencement ofoperations at our Stroud terminal in October 2017 also generated additional revenue of $1.7 million. The increases to revenue were partially offset by theconclusions of customer agreements at our San Antonio terminal in May 2017 and at our Casper terminal in August 2017. In addition, our agreement withCanadian Pacific Railway Limited for a per car incentive ended in June 2017. As a result, we no longer receive railroad incentives for shipments from ourHardisty terminal.Our Terminalling services revenue would have been approximately $1.5 million less if the average exchange rate for the Canadian dollar in relation tothe U.S. dollar for the year ended December 31, 2017, was the same as the average exchange rate for the year ended December 31, 2016.66Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Terminalling services revenue excludes amounts we received as payment for minimum monthly commitment fees from our customers that we havedeferred and recorded as short-term liabilities in our consolidated balance sheet. We have deferred recognizing this revenue in connection with the minimummonthly commitment fees paid by customers of our Hardisty and Stroud terminals that are in excess of their actual throughput volumes due to the make-uprights we have granted them under their terminal services agreements with us. Customers of our Hardisty and Stroud terminals can use these make-up rightsfor periods of up to six months to offset throughput volumes in excess of their minimum monthly commitments in future periods, to the extent capacity isavailable for the excess volume. We have historically recognized the deferred amounts in revenue as our customers use these rights, upon expiration of themake-up period, or when our customers’ ability to utilize those rights is determined to be remote. However, with our adoption of ASC 606, as defined below,we will recognize substantially all of the amounts we receive as minimum commitment fees as revenue when collected. See additional discussion below. Werecognized approximately $27.1 million of previously deferred revenue during the year ended December 31, 2017, as compared with approximately $24.2million of previously deferred revenues during the year ended December 31, 2016. The recognition of greater amounts of previously deferred revenue in thecurrent period is due to more make-up rights expiring in the current period relative to the same period for the prior year.In May 2014, the FASB issued Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers, which has been incorporated intothe Accounting Standards Codification, or ASC, as ASC 606. ASC 606 is effective for us beginning January 1, 2018. We expect our adoption of ASC 606 todecrease revenues reported for 2017 and increase revenues reported for 2016 primarily due to our recognition of previously deferred revenue in connectionwith payments we received from customers of our Hardisty and Stroud terminals for their minimum monthly volume commitments. We have historicallydeferred recognition of all such amounts due to the make-up rights we have granted customers of our Hardisty and Stroud terminals for periods up to sixmonths following the month for which the minimum volume commitments were paid. We expect our breakage associated with these make-up rights optionsto approximate 100% based on our experience and expectations around usage of these options. Breakage rates will be regularly evaluated and modified asnecessary to reflect our current expectations and experience. For additional information relating to our adoption of ASC 606, refer to Note 2. Summary ofSignificant Accounting Policies of our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this AnnualReport.Operating CostsThe operating costs of our Terminalling services segment increased $3.3 million to $62.8 million for the year ended December 31, 2017, from $59.5million for the year ended December 31, 2016. This increase was primarily due to incremental operating costs of $2.9 million associated with thecommencement of operations of our Stroud terminal in October 2017, coupled with an increase in subcontracted rail services and pipeline fees at our Hardistyterminal in response to an increase in customer activity. Partially offsetting the increased expenses were reduced costs associated with ceasing the operationsat our San Antonio terminal and a reduction to impairment charges recognized during the year ended December 31, 2017, as compared with the year endedDecember 31, 2016, discussed in detail below underDepreciation and amortization. Our operating expenses would have been approximately $0.7 million less if the average exchange rate for the Canadiandollar in relation to the U.S. dollar for the year ended December 31, 2017, was the same as the average exchange rate for the year ended December 31, 2016. Subcontracted rail services. We subcontract a majority of the services related to the operations of our terminals, which costs are primarily fixed. Oursubcontracted rail services costs increased $0.9 million to $9.0 million for the year ended December 31, 2017, from $8.1 million for the year endedDecember 31, 2016, primarily due to increased customer activity at our Hardisty terminal, along with the addition of services at the Stroud terminal duringthe preparation for and commencement of operations in October 2017. This was partially offset by the conclusion of operations at our San Antonio terminal.Pipeline fees. We incur pipeline fees related to a facilities connection agreement with Gibson for the delivery of crude oil from Gibson’s Hardistystorage terminal to our Hardisty terminal via pipeline. The pipeline fees we pay to Gibson are based on a predetermined formula, which includes amountscollected from customers at our Hardisty67Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.terminal. We have historically deferred recognizing portions of these costs as expense until such time as we recognize the related deferred revenue followingthe expiration of any make-up rights provisions. Pipeline fees increased $2.6 million to $23.4 million for the year ended December 31, 2017, from $20.8million for the year ended December 31, 2016, primarily due to the increase in revenues recognized at the Hardisty terminal as discussed above.We have historically recorded amounts paid to Gibson for pipeline fees as a prepaid expense, which we have recognized as expense concurrently withour recognition of revenue associated with the expiration of the make-up rights we granted to customers of our Hardisty terminal. In connection with ouradoption of ASC 606 effective January 1, 2018, and our expected recognition of a majority of the previously deferred revenue, we expect to concurrentlyrecognize a proportionate amount of the prepaid pipeline fees as expense. For additional information relating to our adoption of ASC 606, refer to Note 2.Summary of Significant Accounting Policies of our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data ofthis Annual Report.Depreciation and amortization. Depreciation and amortization expense decreased $1.0 million to $22.1 million for the year ended December 31, 2017,from $23.1 million for the year ended December 31, 2016. The decrease in depreciation and amortization is primarily due to a lower non-cash impairmentcharge of $1.7 million recognized in 2017 to reduce the value of certain assets to net realizable value less selling costs as compared to the non-cashimpairment loss of $3.5 million recognized in 2016 due to the conclusion of operations at our San Antonio terminal. The decrease in depreciation andamortization was partially offset by the additional depreciation expense associated with the addition of our Stroud terminal.Other ExpensesInterest expense. Interest expense for our Terminalling services segment decreased by $0.8 million to $0.2 million for the year endedDecember 31, 2017, from $1.0 million for the year ended December 31, 2016, due to our repayment of the outstanding balance on our Term Loan Facility inthe first quarter of 2017, which eliminated any future interest expense of our Terminalling services business under the Term Loan Facility.Loss (gain) associated with derivative instruments. In June 2015 and April 2016, we entered into derivative contracts to mitigate our exposure tofluctuations in foreign currency exchange rates, specifically between the U.S. dollar and the Canadian dollar, related to operations at our Hardisty terminal in2016 and 2017. We record all of our derivative financial instruments at fair market value in our consolidated financial statements, which we adjust eachperiod for changes in the fair market value, or mark to market.In June 2017, as a part of our purchase of the Stroud terminal and related facilities, we acquired crude oil used by the prior owner for line fill in thecrude oil pipeline and for tank bottoms at the Stroud terminal. In September, we also acquired crude oil used for tank bottoms by the prior owner at our leasedstorage facility in Cushing, Oklahoma. We sold substantially all of this crude oil prior to the end of 2017. We entered into commodity swap contracts to fixthe price we received upon our sale of the crude oil. Due to the change in fair value of these contracts from the date entered, we experienced a non-cash loss ofapproximately $0.2 million for the year ended December 31, 2017.From December 31, 2016 to December 31, 2017, the exchange rate, representing the midpoint of the range for the bid and ask prices between the U.S.dollar and Canadian dollar, increased from a spot rate of 0.7440 to a spot rate of 0.7967 U.S. dollars for each Canadian dollar. This increase in the exchangerate decreased the value of our foreign currency derivative contracts at December 31, 2017, relative to the value at December 31, 2016, producing a non-cashloss of $0.9 million for the year ended December 31, 2017. By way of comparison, from December 31, 2015 to December 31, 2016, the exchange rate betweenthe U.S. dollar and Canadian dollar increased from 0.7210 to 0.7440 U.S. dollars for each Canadian dollar, producing a non-cash loss of $0.1 million for theyear ended December 31, 2016.Provision for (benefit from) income taxes. Our benefit from income taxes for the Terminalling services segment increased $0.1 million to a benefit of$1.3 million for the year ended December 31, 2017, as compared with a benefit of $1.2 million for the year ended December 31, 2016. During the year endedDecember 31, 2017, upon filing our Canadian federal and provincial income tax returns for 2016, we further revised our estimates of our 2016 Canadianfederal and provincial income tax liabilities based on the actual taxable income of our Canadian operations for 2016.68Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As a result, we received refunds totaling approximately $2.6 million (C$3.4 million) during the third quarter of 2017, which reduced our “Provision forincome taxes” for 2017, producing a benefit. We also decreased our estimates of 2017 Canadian federal and provincial income tax provisions based upon theinformation derived from our 2016 Canadian federal and provincial income tax returns filed and our projections of 2017 taxable income.Year ended December 31, 2016 compared to the year ended December 31, 2015Terminalling Services RevenueRevenue generated by our Terminalling services segment increased $35.5 million to $100.0 million for the year ended December 31, 2016, from $64.5million for the year ended December 31, 2015. This increase was largely due to our acquisition of the Casper terminal in mid-November of 2015, whichprovided an additional $28.1 million of revenue to our Terminalling services business in 2016. In addition, due to inflation-indexed rate escalationsassociated with our terminalling services agreements for our Hardisty terminal, we recognized more revenue for 2016 than we recognized during 2015,partially offset by additional amounts we deferred. Our Terminalling services revenue was also affected by the decline in the Canadian dollar relative to theU.S. dollar. Our Terminalling services revenue would have been approximately $2.3 million greater if the average exchange rate for the Canadian dollar inrelation to the U.S. dollar for the year ended December 31, 2016, was the same as the average exchange rate for the year ended December 31, 2015.Terminalling services revenue for the year ended December 31, 2016, excludes approximately $27.1 million of amounts associated with minimummonthly commitment fees we received as payment from our customers that we have deferred and recorded as short-term liabilities in our consolidated balancesheet. We have deferred recognizing this revenue in connection with the minimum monthly commitment fees paid by customers of our Hardisty terminal thatare in excess of their actual throughput volumes due to the make-up rights we have granted them under their terminal services agreements with us. Ourcustomers can use these make-up rights for periods of up to six months to offset throughput volumes in excess of their minimum monthly commitments infuture periods, to the extent capacity is available for the excess volume. We expect to recognize the deferred amounts in revenue as our customers use theserights, upon expiration of the make-up period, or when our customers’ ability to utilize those rights is determined to be remote. We recognized approximately$24.2 million of previously deferred revenue during the year ended December 31, 2016.Railroad Incentive PaymentsHistorically, we have received incentive payments from railroads in connection with large capital projects that are projected to create incremental trafficon their networks. With respect to our Hardisty terminal, we had the right to receive incentive payments based on the number of railcars loaded for certaincustomers through mid-2017. A portion of these payments increase the pipeline fees payable to Gibson. The decline in these payments is due to a decrease inthe number of railcars loaded in 2016 as compared with 2015.Operating CostsThe operating costs of our Terminalling services segment increased $22.5 million to $59.5 million for the year ended December 31, 2016, from $37.0million for the year ended December 31, 2015, primarily as a result of our acquisition of the Casper terminal, which added $18.6 million of incrementaloperating costs during 2016. Our operating expenses would have been approximately $1.2 million greater if the average exchange rate for the Canadiandollar in relation to the U.S. dollar for the year ended December 31, 2016, was the same as the average exchange rate for the year ended December 31, 2015.We proactively managed our operating costs in an effort to align with the current business environment, which resulted in additional cost savings overthe near term. However, we did not expect these benefits to remain over the long term as market and economic conditions improved. Subcontracted rail services. We subcontract a majority of the services related to the operations of our terminals, which costs are primarily fixed. Thesesubcontracted rail services costs increased $0.4 million to $8.1 million for the year ended December 31, 2016, from $7.7 million for the year endedDecember 31, 2015, primarily due to the additional69Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.costs for these services incurred at our Casper terminal, which contributed approximately $2.8 million more to these costs, partially offset by a decrease incosts at our Hardisty terminal, due to a decrease in the number of railcars loaded in 2016 as compared with 2015.Pipeline fees. We incur pipeline fees related to a facilities connection agreement with Gibson for the delivery of crude oil from Gibson’s Hardistystorage terminal to our Hardisty terminal via pipeline. The pipeline fees we pay to Gibson are based on a predetermined formula, which includes amountscollected from customers at our Hardisty terminal. We may defer recognizing portions of these costs as expense until such time as we recognize the relateddeferred revenue following the expiration of any make-up rights provisions. Pipeline fees increased $3.6 million to $20.8 million for the year endedDecember 31, 2016, from $17.2 million for the year ended December 31, 2015, primarily due to the increase in direct operating income we recognized at ourHardisty terminal.Operating and maintenance. Operating and maintenance expenses increased $0.9 million to $2.6 million for the year ended December 31, 2016, fromthe year ended December 31, 2015, primarily as a result of our acquisition of the Casper terminal.Selling, general and administrative. Selling, general and administrative expenses increased $0.7 million to $4.9 million for the year endedDecember 31, 2016, from $4.2 million for the year ended December 31, 2015, primarily due to incremental costs associated with our management andoperation of the Casper terminal.Depreciation and amortization. Depreciation and amortization expense increased $17.0 million to $23.1 million for the year ended December 31, 2016,from $6.1 million for the year ended December 31, 2015, primarily due to the additional depreciation and amortization expense associated with our Casperterminal, which we acquired in November 2015. In addition, we incurred a non-cash impairment loss of $3.5 million, in connection with the expected May1, 2017 conclusion of our customer contract for ethanol transloading services at our San Antonio terminal, including an asset retirement obligation of $1.0million for amounts we expect to spend to restore the property to its original condition.Other ExpensesInterest expense. Interest expense for our Terminalling services segment decreased by $1.0 million to $1.0 million for the year endedDecember 31, 2016, from $2.0 million for the year ended December 31, 2015, primarily due to the lower average outstanding balance of our Term LoanFacility during the year ended December 31, 2016, as compared with the year ended December 31, 2015.Loss associated with derivative instruments. In June 2015 and April 2016, we entered into derivative contracts to mitigate our exposure to fluctuationsin foreign currency exchange rates, specifically between the U.S. dollar and the Canadian dollar, related to operations at our Hardisty terminal. We record allof our derivative financial instruments at fair market value in our consolidated financial statements, which we adjust each period for changes in the fairmarket value, or mark to market.From December 31, 2015 to December 31, 2016, the exchange rate, representing the midpoint of the range for the bid and ask prices between the U.S.dollar and Canadian dollar, increased from 0.7210 to 0.7440 U.S. dollars for each Canadian dollar. This change in the exchange rate decreased the value ofour derivative contracts at December 31, 2016, relative to the value at December 31, 2015, producing a loss of $0.1 million for the year endedDecember 31, 2016. By way of comparison, from December 31, 2014 to December 31, 2015, the exchange rate between the U.S. dollar and Canadian dollardecreased from 0.8621 to 0.7210 U.S. dollars for each Canadian dollar, producing a gain of $5.2 million for the year ended December 31, 2015.Foreign currency transaction loss (gain) Our Terminalling services segment recognized minimal foreign currency transaction gains for the year endedDecember 31, 2016, compared with losses of $0.2 million for the year ended December 31, 2015, which are primarily the result of routine settlement of U.S.dollar denominated transactions with Canadian dollars by our Canadian subsidiaries.70Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Provision for (benefit from) income taxes. A significant amount of our operating income is generated by our Hardisty terminal, located in the Canadianprovince of Alberta. As a Canadian business, operating income from our Hardisty terminal is subject to corporate income tax rates enacted by the Canadianfederal and the Alberta provincial governments, which on a combined basis have increased from 26% in 2015 to 27% beginning January 1, 2016. As a result,we recognized income tax liabilities and expenses in our consolidated financial statements based upon these higher income tax rates.Our benefit from income taxes for the Terminalling services segment was $1.2 million for the year ended December 31, 2016, as compared with aprovision for income taxes of $5.6 million for the year ended December 31, 2015. In 2016, prior to filing our 2015 Canadian tax returns, we adopted amethodology for determining the return attributable to the activities of our foreign subsidiaries based on the functions we provide and risks we manage ontheir behalf, which resulted in a reduction of our Canadian income tax liabilities for the 2015 and 2016 tax years. The resulting reduction of our Canadianincome tax liabilities for 2015 was reflected as a decrease to our provision for income taxes for the year ended December 31, 2016, resulting in a net benefitfrom income taxes for 2016. We utilized net operating losses relating to our Canadian terminalling business during 2015, to the extent available, to offsetCanadian taxable income generated in 2015. For 2016, we had no operating loss carryforwards available to apply towards future ordinary taxable incomederived from our Canadian terminalling business.FLEET SERVICESThe following table sets forth the operating results of our Fleet services business for the periods indicated: For the Year Ended December 31, 2017 2016 2015 (in thousands)Revenues Fleet leases$6,541 $6,137 $11,833Fleet services2,506 3,010 3,462Freight and other reimbursables497 1,942 1,965Total revenues9,544 11,089 17,260Operating costs Fleet leases6,539 6,174 11,833Freight and other reimbursables497 1,942 1,965Operating and maintenance380 337 294Selling, general and administrative927 823 741Total operating costs8,343 9,276 14,833Operating income1,201 1,813 2,427Foreign currency transaction loss (gain)5 (71) 43Provision for income taxes275 242 173Net income$921 $1,642 $2,211Year ended December 31, 2017 compared to the year ended December 31, 2016Revenues and Operating CostsRevenues from our Fleet services segment decreased approximately $1.5 million to $9.5 million for the year ended December 31, 2017. The decreasewas primarily attributable to a decrease in Freight and other reimbursables revenue, which represents customer reimbursements to us for freight and othercharges that we have incurred on behalf of our customers and were exactly offset by a corresponding decrease in Freight and other reimbursables operatingcosts. This decrease in Freight and other reimbursables revenues and the associated operating costs is primarily due to lower repair and cleaning costsincurred as a greater number of railcars were in storage relative to the prior period. In addition, we modified the manner in which we accounted for leaserevenue and related expenses associated with our lease contracts, which reduced the amounts we reported in the current period.71Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Year ended December 31, 2016 compared to the year ended December 31, 2015RevenuesRevenues from our Fleet services segment decreased $6.2 million to $11.1 million for the year ended December 31, 2016, from $17.3 million for theyear ended December 31, 2015. The decrease was primarily attributable to a reduction in the number of railcars directly leased by us to our customers, whichalso resulted in a $5.7 million decrease in Fleet leases, a corresponding $0.5 million decrease in Fleet services, and no notable changes in Freight and otherreimbursables revenue. The Freight and other reimbursables revenues represent customer reimbursements to us for freight and other charges that we haveincurred on behalf of our customers and were exactly offset by Freight and other reimbursables costs.Fleet leases. Fleet leases revenue decreased $5.7 million to $6.1 million for the year ended December 31, 2016, from $11.8 million for the year endedDecember 31, 2015, primarily due to a reduction in the number of railcars directly leased by us for our customers. We directly leased an average ofapproximately 350 railcars in the year ended December 31, 2016, compared with approximately 650 railcars in the year ended December 31, 2015. Our Fleetlease revenues were offset by slightly more costs we incurred to lease railcars from our lessors than we received in lease revenue due to excess mileage weagreed to pay on behalf of a customer.Fleet services. We receive a service fee for fleet management services we provide for both the railcars we directly lease to our customers and those railcarleases that, subsequent to June 30, 2016, have been assigned to unrelated parties. The average number of railcars for which we provide fleet managementservices decreased to approximately 3,000 for the year ended December 31, 2016, from approximately 3,500 for the year ended December 31, 2015. Thedeclines are the result of non-renewal of expiring railcar leases associated with activities of our Predecessor. As a result of the decrease in the average numberof railcars for which we provide fleet management services, our Fleet services revenue declined by $0.5 million from December 31, 2015 toDecember 31, 2016.Operating CostsOperating costs primarily consist of railcar leases and related expenses incurred for services provided to customers of our terminals. Operating costs ofour Fleet services segment decreased $5.6 million to $9.3 million for the year ended December 31, 2016, from the year ended December 31, 2015. Thedecrease is primarily due to a reduction in the number of directly leased railcars in our fleet and a reduction in activity, which also resulted in a decrease of$5.7 million in Fleet leases costs and essentially no change in Freight and other reimbursables costs. “Selling, general and administrative” and “Operatingand maintenance” expenses were relatively consistent between periods.Other ExpensesProvision for income taxes. We recognized income tax expense of $242 thousand with respect to our Fleet services business for the year endedDecember 31, 2016, as compared with $173 thousand for the year ended December 31, 2015, which amounts are primarily attributable to additional taxableincome.72Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CORPORATE ACTIVITIESThe following table sets forth our corporate charges for the periods indicated: For the Year Ended December 31, 2017 2016 2015 (in thousands)Operating costs Selling, general and administrative$9,090 $9,704 $7,483Operating loss(9,090) (9,704) (7,483)Interest expense9,755 8,831 2,389Loss (gain) associated with derivative instruments(146) — —Foreign currency transaction loss (gain)(428) (651) (410)Other income, net— — (47)Provision for (benefit from) income taxes(177) 183 1Net loss$(18,094) $(18,067) $(9,416)Year ended December 31, 2017 compared to the year ended December 31, 2016Costs associated with our corporate activities were constant at $18.1 million for the years ended December 31, 2017 and 2016. Selling, general andadministrative expenses decreased by $0.6 million, primarily due to lower consulting costs and legal fees. Our consulting costs were lower due to thecompletion of a project in the first half of 2016 to enhance our compliance and internal control systems. Our legal fees were lower during the year endedDecember 31, 2017, because we did not incur additional legal costs for financing and integrating the Casper terminal as we did during the year endedDecember 31, 2016. Interest expense increased by $0.9 million during the year ended December 31, 2017, primarily due to higher weighted average rates ofinterest relative to the same period in 2016.Effective November 2017, we entered into a five-year interest rate collar contract with a $100 million notional value. The collar establishes a rangewhere we will pay the counterparty if one-month LIBOR falls below the established floor rate of 1.70%, and the counterparty will pay us if the one-monthLIBOR exceeds the ceiling rate of 2.50%. The collar settles monthly through the termination date in October 2022. No payments or receipts are exchangedon interest rate collar contracts unless interest rates rise above or fall below a pre-determined ceiling or floor rate.We had a benefit of $0.2 million for income taxes for year ended December 31, 2017, due to a change in our estimate for Texas franchise tax expensefollowing our review of amounts included in the computations associated with our corporate activities.Year ended December 31, 2016 compared to the year ended December 31, 2015The costs associated with our corporate activities increased by $8.7 million to $18.1 million for the year ended December 31, 2016, from $9.4 millionfor the year ended December 31, 2015. Selling, general and administrative expenses increased by $2.2 million, primarily due to incremental unit basedcompensation expense associated with the additional Phantom Units granted in February 2016 to directors and employees of our general partner and itsaffiliates under our Long-Term Incentive Plan. Unit based compensation expense also increased due to a higher closing price for our common units on theNYSE at December 31, 2016, compared with the closing price at December 31, 2015. Selling, general and administrative expense also increased due to theannual adjustment of the management fee we are charged by affiliates of USDG pursuant to the omnibus agreement. Interest expense was the greatestcontributor to the increases in corporate activity costs, which increased by $6.5 million during the year ended December 31, 2016, primarily due to a higheraverage balance outstanding on our Revolving Credit Facility resulting from amounts we borrowed for our acquisition of the Casper terminal, as well ashigher average rates of interest relative to the same period in 2015. We recognized a provision for income taxes of $0.2 million for the year endedDecember 31, 2016, consisting primarily of a provision for Texas state franchise tax of USD Partners LP.73Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.LIQUIDITY AND CAPITAL RESOURCESOur principal liquidity requirements include:•making distributions to our unitholders;•financing current operations;•funding capital expenditures, including potential acquisitions and the costs to construct new assets; and•servicing our debt.We have historically financed our operations with cash generated from our operating activities, borrowings under our Revolving Credit Facility andloans from our sponsor.Liquidity SourcesWe expect our ongoing sources of liquidity to include borrowings under our $400 million senior secured credit agreement, issuances of debt andadditional partnership interests, either privately or pursuant to our effective shelf registration statement, as well as cash generated from our operatingactivities. We believe that cash generated from these sources will be sufficient to meet our ongoing working capital and capital expenditure requirements andto make quarterly cash distributions.Equity OfferingIn June 2017, we issued and sold 3,000,000 common units in an underwritten public offering at a public offering price of $11.60 per unit. We receivedproceeds, net of underwriting discounts, commissions and offering costs of approximately $33.7 million. We used the net proceeds we received from thisoffering to repay amounts outstanding under our Revolving Credit Facility, a portion of which we borrowed to fund our acquisition of the Stroud terminal.Credit AgreementWe have a senior secured credit agreement, the Credit Agreement, comprised of a $400 million revolving credit facility (subject to the limits set forththerein), or the Revolving Credit Facility with Citibank, N.A., as administrative agent, and a syndicate of lenders. The Credit Agreement is a five yearcommitted facility that matures on October 15, 2019.Previously the Credit Agreement included a $300 million Revolving Credit Facility and a $100 million term loan (borrowed in Canadian dollars), theTerm Loan Facility, which we repaid in March 2017. As we repaid amounts outstanding on the Term Loan Facility, the availability on our Revolving CreditFacility was automatically increased to the full $400 million of credit available under the Credit Agreement.Our Revolving Credit Facility and issuances of letters of credit are available for working capital, capital expenditures, permitted acquisitions andgeneral partnership purposes, including distributions. We have the ability to increase the maximum amount of credit available under the Credit Agreement,as amended, by an aggregate amount of up to $100 million to a total facility size of $500 million, subject to receiving increased commitments from lenders orother financial institutions and satisfaction of certain conditions. The Revolving Credit Facility includes an aggregate $20 million sublimit for standbyletters of credit and a $20 million sublimit for swingline loans. Obligations under the Revolving Credit Facility are guaranteed by our restricted subsidiaries(as such term is defined in our Credit Agreement) and are secured by a first priority lien on our assets and those of our restricted subsidiaries, other thancertain excluded assets.At December 31, 2017 and December 31, 2016, we had amounts outstanding of $202.0 million and $213.0 million, respectively, under the RevolvingCredit Facility. At December 31, 2016 we had $10.1 million outstanding under the Term Loan Facility.Our borrowings under the Revolving Credit Facility bear interest at either a base rate and Canadian prime rate, as applicable plus an applicable marginranging from 1.25% to 2.25%, or at the London Interbank Offered Rate, or74Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.LIBOR, or the Canadian Dealer Offered Rate, or CDOR, as applicable, plus an applicable margin ranging from 2.25% to 3.25%. Borrowings under the TermLoan Facility bear interest at either the base rate and Canadian prime rate, as applicable, plus a margin ranging from 1.35% to 2.35% or at LIBOR or CDOR,as applicable, plus an applicable margin ranging from 2.35% to 3.35%. The applicable margin, as well as a commitment fee on the Revolving Credit Facilityranging from 0.375% per annum to 0.50% per annum on unused commitments, will vary based upon our consolidated net leverage ratio, as defined in ourCredit Agreement.The actual average interest rate on our outstanding indebtedness was 4.00% and 3.66% at December 31, 2017 and 2016, respectively.Our Credit Agreement contains affirmative and negative covenants that, among other things, limit or restrict our ability and the ability of our restrictedsubsidiaries to incur or guarantee debt, incur liens, make investments, make restricted payments, engage in business activities, engage in mergers,consolidations and other organizational changes, sell, transfer or otherwise dispose of assets or enter into burdensome agreements or enter into transactionswith affiliates on terms that are not arm’s length, in each case, subject to exceptions.Additionally, we are required to maintain the following financial ratios, each determined on a quarterly basis for the immediately preceding four quarterperiod then ended (or such shorter period as shall apply, on an annualized basis): •Consolidated Interest Coverage Ratio (as defined in the credit agreement), of at least 2.50 to 1.00;•Consolidated Leverage Ratio of not greater than 4.50 to 1.00 (or 5.00 to 1.00 at any time after we have issued at least $150.0 million of unsecurednotes). In addition, upon the consummation of a Material Acquisition (as defined in our Credit Agreement), for the fiscal quarter in which theMaterial Acquisition is consummated and for two fiscal quarters immediately following such fiscal quarter (the “Material Acquisition Period”), ifelected by us by written notice to the Administrative Agent given on or prior to the date of such acquisition, the maximum permitted ratio shall beincreased by 0.50 to 1.00 above the otherwise relevant level; and•after we have issued at least $150.0 million of unsecured notes, a Consolidated Senior Secured Leverage Ratio (as defined in the Credit Agreement)of not greater than 3.50 to 1.00 (or 4.00 to 1.00 during a Material Acquisition Period).Our Credit Agreement generally prohibits us from making cash distributions (subject to exceptions as set forth in the Credit Agreement) except, so longas no default exists or would be caused thereby, we may make cash distributions to unitholders up to the amount of our available cash (as defined in ourpartnership agreement). The Credit Agreement contains events of default, including, but not limited to (and subject to grace periods in circumstances set forth in the CreditAgreement), the failure to pay any principal, interest or fees when due, failure to perform or observe any covenant that does not have certain materialityqualifiers contained in the Credit Agreement or related loan documentation, any representation, warranty or certification made or deemed made in theagreements or related loan documentation being untrue in any material respect when made, default under certain material debt agreements, commencement ofbankruptcy or other insolvency proceedings, certain changes in our ownership or the ownership of our general partner, material judgments or orders, certainjudgment defaults, ERISA events or the invalidity of the loan documents. Upon the occurrence and during the continuation of an event of default under theagreements, the lenders may, among other things, terminate their commitments, declare any outstanding loans to be immediately due and payable and/orexercise remedies against us and the collateral as may be available to the lenders under the agreements and related documentation or applicable law.As of December 31, 2017, we were in compliance with the covenants set forth in our Credit Agreement.75Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table presents our available liquidity as of the dates indicated: December 31, 2017 2016 (in millions)Cash and cash equivalents$7.9 $11.7Aggregate borrowing capacity under Credit Agreement400.0 400.0Less: Term Loan Facility amounts outstanding— 10.1 Revolving Credit Facility amounts outstanding202.0 213.0 Letters of credit outstanding— —Available liquidity (1)$205.9 $188.6 (1) Pursuant to the terms of our Credit Agreement, our borrowing capacity is limited to 5.0 times our trailing 12-month consolidated EBITDA for the quarter in which a materialacquisition occurs and the two quarters following a material acquisition, as defined in our Credit Agreement, after which time the covenant returns to 4.5 times our trailing 12-month consolidated EBITDA. Our acquisition of the Stroud terminal was treated as a material acquisition under the terms of our Credit Agreement. As a result, our borrowingcapacity was limited to 5.0 times our trailing 12-month consolidated EBITDA through December 31, 2017.Energy Capital Partners must approve any additional issuances of equity by us, and its determinations may be made free of any duty to us or ourunitholders. Members of our general partner’s board of directors appointed by Energy Capital Partners must also approve the incurrence by us of additionalindebtedness or refinancing outside of our existing indebtedness that is not in the ordinary course of business.Shelf Registration StatementWe have an effective shelf registration statement on file with the United States Securities and Exchange Commission which allows us to issueapproximately $465 million additional in aggregate offering price of common units, preferred units and debt securities. The debt securities may beguaranteed by some or all of our subsidiaries. The registration statement became effective May 18, 2016, and is available for use for up to three years. Wemay conduct offerings under this registration statement at any time. We may use the net proceeds from any such offerings for general partnership purposes,which may include funding debt repayment, future acquisitions, capital expenditures and additions to working capital.Cash FlowsThe following table and discussion presents a summary of cash flows associated with our operating, investing and financing activities for the periodsindicated. For the Year Ended December 31,2017 2016 2015(in thousands)Net cash provided by (used in): Operating activities$47,725 $53,076 $36,204Investing activities(27,580) (93) (213,283)Financing activities(23,790) (51,298) 147,957Effect of exchange rates on cash(186) (480) (627)Net change in cash and cash equivalents$(3,831) $1,205 $(29,749)Operating ActivitiesNet cash provided by operating activities decreased by $5.4 million to $47.7 million for the year ended December 31, 2017, from $53.1 million for theyear ended December 31, 2016. The decrease was primarily attributable to decreased revenues associated with the ending of a contract at our Casper terminalin August of 2017, partially offset by income tax refunds we received of approximately $2.6 million (C$3.4 million) and the net changes in our working76Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.capital accounts associated with the timing of receipts and payment of our accounts receivable, accounts payable and deferred revenue balances.Net cash provided by operating activities increased by $16.9 million to $53.1 million for the year ended December 31, 2016, from $36.2 million of netcash used in operating activities for the year ended December 31, 2015. The increase was primarily attributable to the cash flows produced by our Casperterminal, which we acquired in November 2015. The increase in cash flows from operating activities was partially offset by net changes in our workingcapital accounts resulting from the timing of receipts and payments of our accounts receivable and payable balances, as well as the increase in our restrictedcash balances.Investing ActivitiesNet cash used in investing activities increased by $27.5 million to $27.6 million for the year ended December 31, 2017, from $0.1 million for the yearended December 31, 2016. The increase was primarily attributable to our purchase of the Stroud terminal in June 2017.Net cash used in investing activities decreased by $213.2 million to $0.1 million for the year ended December 31, 2016, from $213.3 million for theyear ended December 31, 2015. The decrease was primarily attributable to our acquisition of the Casper terminal in 2015, with no acquisition activity in2016. In addition, there were fewer growth capital expenditures made to enhance our terminal operations during the year ended December 31, 2016, than wemade during the year ended December 31, 2015.Financing ActivitiesNet cash used in financing activities decreased by $27.5 million to $23.8 million for the year ended December 31, 2017, from $51.3 million for the yearended December 31, 2016. We obtained $33.7 million of net proceeds from our public offering in June 2017. We had net repayments on our long-term debtof $21.3 million for the year ended December 31, 2017, compared with net repayments of $21.6 million for the year ended December 31, 2016. Additionally,we paid cash distributions of $35.1 million and participant withholding taxes associated with vested Phantom Units of $1.1 million during the year endedDecember 31, 2017, both of which exceeded amounts paid during the year ended December 31, 2016, for similar items.Net cash used in financing activities increased by $199.3 million to $51.3 million for the year ended December 31, 2016, from net cash provided of$148.0 million for the year ended December 31, 2015. During 2016 we paid cash distributions of $29.7 million and repaid the equivalent of $33.6 million onour Term Loan Facility (representing C$44.0 million) and $8.0 million on our Revolving Credit Facility. These payments were partially offset by proceeds of$20.0 million we received from borrowing on our Revolving Credit Facility.77Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Segment Adjusted EBITDAThe cash generated by our reporting segments represents one of our ongoing sources of liquidity. Our segments offer different services and are managedaccordingly. Our chief operating decision maker, or CODM, regularly reviews financial information about both segments in order to allocate resources andevaluate performance. Our CODM assesses segment performance based on the cash flows produced by our established reporting segments using SegmentAdjusted EBITDA. We define Segment 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 withminimum monthly commitment fees and other items which do not affect the underlying cash flows produced by our businesses.The following table provides a reconciliation of our Segment Adjusted EBITDA to “Net cash provided by operating activities:” For the Years Ended December 31, 2017 2016 2015 (in thousands)Segment Adjusted EBITDA Terminalling services$59,818 $67,507 $45,347Fleet services1,542 1,813 2,427Corporate activities (1)(4,984) (5,630) (5,022)Total Adjusted EBITDA56,376 63,690 42,752Add (deduct): Amortization of deferred financing costs$861 $861 $659Deferred income taxes(250) 46 814Changes in accounts receivable and other assets4,433 1,859 (730)Changes in accounts payable and accrued expenses397 (1,917) (880)Changes in deferred revenue and other liabilities(7,105) (996) 10,085Change in restricted cash(94) (654) 870Interest expense, net(9,917) (9,837) (4,368)Benefit from (provision for) income taxes1,192 759 (5,755)Foreign currency transaction gain(2)456 750 201Non-cash lease items(3)(341) — —Deferred revenue associated with minimum monthly commitment fees (4)1,717 (1,485) (7,444)Net cash provided by operating activities$47,725 $53,076 $36,204 (1) Corporate activities represent corporate and financing transactions that are not allocated to our established reporting segments.(2) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.(3) Represents non-cash lease revenues and expenses associated with the recognition of our lease contracts.(4) Represents deferred revenue associated with minimum monthly commitment fees in excess of throughput utilized, which fees are not refundable to our customers. Amountspresented are net of: (a) the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue; (b) revenue recognizedin the current period that was previously deferred; and (c) expense recognized for previously prepaid Gibson pipeline fees, which correspond with the revenue recognized thatwas previously deferred. Refer to the discussion in Note 10. Deferred revenue of our consolidated financial statements included in Part II, Item 8. Financial Statements andSupplementary Data of this Annual Report.Terminalling Services SegmentAdjusted EBITDA from our Terminalling services segment decreased $7.7 million to $59.8 million for the year ended December 31, 2017, from $67.5million for the year ended December 31, 2016, and increased $22.2 million for the year ended December 31, 2016, from the year ended December 31, 2015.The decrease in 2017 is primarily the result of discontinuing the operations of our San Antonio terminal in May 2017 following the conclusion of our78Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.customer’s agreement with us, decreased cash generated from our Casper terminal due to the conclusion of one of our customer agreements in August 2017,and a smaller benefit from the settlement of our derivative contracts, partially offset by cash generated from the commencement of the Stroud terminaloperations in October 2017. The increase in 2016 is primarily the result of cash generated by our Casper terminal, which we acquired in November 2015.Fleet Services SegmentAdjusted EBITDA from our Fleet services has not changed significantly for the year ended December 31, 2017, as compared to December 31, 2016.The underlying business activities associated with our Fleet services segment have remained relatively constant. We have experienced only modest changesin the operating revenues and expenses associated with this business and expect only modest changes in the operating results of our Fleet services businessuntil additional railcars and services are required by our customers. Adjusted EBITDA from our Fleet services decreased $0.6 million to $1.8 million for theyear ended December 31, 2016, from $2.4 million for the year ended December 31, 2015. This decrease in 2016 is primarily the result of a reduction in thetotal number of railcars in our fleet from which we generate cash for providing services primarily in support of customers of our terminals.Cash RequirementsOur primary requirements for capital are to fund capital expenditures, including maintenance capital expenditures, acquisitions and the costs we mayincur to construct new assets, in addition to servicing our debt and making distributions to our unitholders.Capital RequirementsOur historical capital expenditures have primarily consisted of the costs to construct and acquire energy-related logistics assets. Our operations areexpected to require investments to expand, upgrade or enhance existing facilities and to meet environmental and operational regulations.Our partnership agreement requires that we categorize our capital expenditures as either expansion capital expenditures, maintenance capitalexpenditures, or investment capital expenditures.•Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operatingincome or operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of terminals or othercomplementary midstream assets from USD or third parties and the construction or development of new terminals or additional capacity at ourexisting terminals to the extent such capital expenditures are expected to expand our operating capacity or operating income. Expansion capitalexpenditures include interest payments (and related fees) on debt incurred to finance all or a portion of expansion capital expenditures in respect ofthe period from the date that we enter into a binding obligation to commence the construction, development, replacement, improvement orexpansion of a capital asset and ending on the earlier to occur of the date that such capital improvement commences commercial service and thedate that such capital improvement is disposed of or abandoned.•Maintenance capital expenditures are cash expenditures made to maintain, over the long term, our operating capacity, operating income or our assetbase. Examples of maintenance capital expenditures are expenditures to repair and refurbish our terminals.•Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capitalexpenditures. Investment capital expenditures will largely consist of capital expenditures made for investment purposes. Examples of investmentcapital expenditures include traditional capital expenditures for investment purposes, such as purchases of securities, as well as other capitalexpenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investmentpurposes or development of facilities that are in excess of the maintenance of our existing operating capacity or operating income, but that are notexpected to expand our operating capacity or operating income over the long term.We have not experienced significant expenditures in prior years, however, as the age of our assets increase, we expect that our costs will continue toincrease to maintain our assets in compliance with sound business practice, our contractual relationships and applicable regulatory requirements, some ofwhich will be characterized as maintenance79Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.capital expenditures. We incurred $546 thousand of maintenance capital expenditures during the year ended December 31, 2017, primarily for drainageimprovements, replacement and retrofit of pumping and generating equipment at our terminals and repaving of roads to access our terminal storage tanks. Weincurred $238 thousand of maintenance capital expenditures during the year ended December 31, 2016, primarily at our Casper terminal for environmentalmonitoring and security equipment. We had no maintenance capital expenditures during the year ended December 31, 2015. We record routine maintenanceexpenses we incur in connection with the operation of our assets in “Operating and maintenance” costs in our consolidated statements of income.Our total expansion capital expenditures for the year ended December 31, 2017, amounted to $27.6 million primarily related to our purchase of theStroud terminal, which we funded with amounts borrowed on our Revolving Credit Facility and later repaid with a portion of the net proceeds of our equityoffering. For the year ended December 31, 2016, our total expansion capital expenditures were $0.5 million and were for planned growth projects at ourHardisty and Casper terminals. We expect to fund future capital expenditures from cash on our balance sheet, cash flows generated from our operations,borrowing on our Revolving Credit Facility and the issuance of additional partnership interests or long-term debt.Debt ServiceWe anticipate reducing our outstanding indebtedness to the extent we generate cash flows in excess of our operating and investing needs. During theyear ended December 31, 2017, we repaid $10.3 million on our Term Loan Facility (the equivalent of C$13.6 million) and $61.0 million on our RevolvingCredit Facility. These payments were partially offset by proceeds from borrowing $50.0 million on our Revolving Credit Facility, which we used to fund ourpurchase of the Stroud terminal, other capital expenditures and for general partnership purposes.DistributionsWe intend to pay a minimum quarterly distribution of at least $0.2875 per unit. Our current quarterly distribution of $0.35 per unit equates toapproximately $9.7 million per quarter, or $38.8 million per year, based on the number of common, Class A, subordinated, and general partner unitsoutstanding as of February 12, 2018. We do not have a legal obligation to distribute any particular amount per common unit. Additionally, members of ourgeneral partner’s board of directors appointed by Energy Capital Partners, if any, must approve any distribution made by us. Other Items Affecting LiquidityCredit RiskOur exposure to credit risk may be affected by the concentration of our customers within the energy industry, as well as changes in economic or otherconditions. Our customers’ businesses react differently to changing conditions. We believe that our credit-review procedures, customer deposits andcollection procedures have adequately provided for amounts that may be uncollectible in the future.Foreign Currency Exchange RiskWe currently derive a significant portion of our cash flows from our Canadian operations, particularly our Hardisty terminal. As a result, portions of ourcash and cash equivalents are denominated in Canadian dollars and are held by foreign subsidiaries, which amounts are subject to fluctuations resulting fromchanges in the exchange rate between the U.S. dollar and the Canadian dollar. We routinely employ derivative financial instruments to minimize ourexposure to the effect of foreign currency fluctuations.80Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Contractual Obligations and CommitmentsIn the ordinary course of business, we enter into a variety of contractual obligations and other commitments. The following table summarizes theprincipal amount of our future minimum obligations and commitments that have remaining non-cancellable terms in excess of one year atDecember 31, 2017: Payments Due by Year Total 2018 2019 2020 2021 2022 Thereafter (in thousands) Operating services agreements (1)$18,867 $11,278 $6,484 $1,105 $— $— $—Operating leases (2)19,509 3,956 3,956 3,954 3,954 3,669 20Interest (3)14,443 8,073 6,370 — — — —Credit Agreement (4)202,000 — 202,000 — — — —Total$254,819 $23,307 $218,810 $5,059 $3,954 $3,669 $20 (1) These future obligations represent labor service agreements at our terminal facilities.(2) Future minimum lease payments under non-cancellable operating leases for land, building, track, and railcars.(3) Interest payable on our Credit Agreement is variable. We estimated interest through maturity using rates in effect on December 31, 2017.(4) Principal repayment obligations under our Credit Agreement as of December 31, 2017.SUBSEQUENT EVENTSRefer to Note 22. Subsequent events of our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of thisAnnual Report for a discussion regarding subsequent events.Recent Accounting Pronouncements Not Yet AdoptedRefer to Note 2. Summary of significant accounting policies of our consolidated financial statements included in Item 8. Financial Statements andSupplementary Data of this Annual Report for a discussion regarding recent accounting pronouncements that we have not yet adopted.OFF-BALANCE SHEET ARRANGEMENTSIn the normal course of business, we are a party to off-balance sheet arrangements relating to various master fleet services agreements, whereby we haveagreed to assign certain payment and other obligations to third-party special purpose entities that are not consolidated with us. We have also entered intoagreements to provide fleet services to these special purpose entities for fixed servicing fees and reimbursement of out-of-pocket expenses. The purpose ofthese transactions is to remove the risk to us of non-payment by our customers, which would otherwise negatively impact our financial condition and resultsof operations. For more information on these special purpose entities, see the discussion of our relationship with the variable interest entities described in Note 12 – Nonconsolidated Variable Interest Entities and Note 13 – Transactions with Related Parties to our consolidated financial statements for the yearsended December 31, 2017, 2016 and 2015 included in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report. Liabilitiesrelated to these arrangements are generally not reflected in our consolidated balance sheets, and we do not expect any material impact on our cash flows,results of operations or financial condition as a result of these off-balance sheet arrangements.Prior to July 1, 2016, a member of the board of directors of USD exercised control over the VIEs, resulting in these entities being classified as relatedparties during that period. Related party sales to the special purpose entities were $0.8 million and $1.9 million during the years ended December 31, 2016and 2015, respectively. These sales are recorded in “Fleet services—related party” on the accompanying consolidated statements of income.81Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CRITICAL ACCOUNTING POLICIES AND ESTIMATESOur selection and application of accounting policies is an important process that has developed as our business activities have evolved and as newaccounting pronouncements have been issued. Accounting decisions generally involve an interpretation of existing accounting principles and the use ofjudgment in applying those principles to the specific circumstances existing in our business. We make every effort to comply with all applicable accountingprinciples and believe the proper implementation and consistent application of these principles is critical. However, not all situations we encounter arespecifically addressed in the accounting literature. In such cases, we must use our best judgment to implement accounting policies that clearly and accuratelypresent the substance of these situations. We accomplish this by analyzing similar situations and the accounting guidance governing them and consultingwith experts about the appropriate interpretation and application of the accounting literature to these situations.In addition to the above, certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated,requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the consolidated financialstatements are prepared. These estimates affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures with respect tocontingent assets and liabilities. The basis for our estimates is historical experience, consultation with experts and other sources we believe to be reliable.While we believe our estimates are appropriate, actual results can and often do differ from these estimates. Any effect on our business, financial position,results of operations and cash flows resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revisionbecome known.We believe our critical accounting policies and estimates discussed in the following paragraphs address the more significant judgments and estimateswe use in the preparation of our consolidated financial statements. Each of these areas involve complex situations and a high degree of judgment either in theapplication and interpretation of existing accounting literature or in the development of estimates that affect our consolidated financial statements. Ourmanagement has discussed the development and selection of the critical accounting policies and estimates related to the reported amounts of assets,liabilities, revenues and expenses and disclosure of contingent liabilities with the Audit Committee of the board of directors of our general partner.The following discussion relates to the critical accounting policies and estimates for USD Partners LP. Our consolidated financial statements areprepared in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requiresmanagement to make judgments, assumptions and estimates based on the best available information at the time. The following accounting policies areconsidered critical because they are important to the portrayal of our financial condition and results, and involve a higher degree of complexity andjudgment on the part of management. Actual results may differ based on the accuracy of the information utilized and subsequent events, some over which wemay have little or no control. Significant estimates by management include the estimated lives of depreciable property and equipment, recoverability oflong-lived assets and goodwill, and provision or benefit for income taxes.Revenue RecognitionWe derive our revenues from railcar loading and unloading services for bulk liquid products, including crude oil, biofuels, and related products, as wellas sourcing railcar fleets and related logistics and maintenance services. We recognize revenue when persuasive evidence of an arrangement exists, deliveryhas occurred or services have been performed, the buyer’s price is fixed or determinable and collectability is reasonably assured. In accordance with theapplicable accounting guidance, we record revenues for fleet leases on a gross basis, since we are deemed the primary obligor for the services. We alsorecognize as revenue on our consolidated statements of income in “Freight and other reimbursables,” on a gross basis, the amounts we charge to ourcustomers for the out-of-pocket expenses we have incurred to provide our railcar fleet services.We recognize revenue for terminalling services we provide based upon the contractual rates set forth in our agreements related to throughput volumes.All of the contracted capacity at our terminals is under multi-year agreements that contain “take-or-pay” provisions where we are entitled to a payment fromour customer of a minimum monthly commitment fee, regardless of whether the specified throughput to which the customer committed is achieved. Theseagreements grant the customers make-up rights that allow them to load volumes in excess of their minimum monthly82Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.commitments in future periods, without additional charge, to the extent capacity is available for the excess volume. We have historically deferred therecognition of the revenue associated with volumes that are below the minimum monthly commitments until the earlier of (1) the period in which thethroughput is utilized, (2) the customer’s ability to make up the minimum volume has expired, or (3) we determine that the likelihood that the customer willbe able to make up the minimum volume is remote. However, with the adoption of ASC 606, we will recognize substantially all of the amounts we receive asminimum commitment fees as revenue when collected. For additional information relating to our adoption of ASC 606, refer to Note 2. Summary ofSignificant Accounting Policies of our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this AnnualReport. We recognize revenue for fleet leases and related party administrative services ratably over the contract period. Revenue for reimbursable costs isrecognized as the costs are incurred. We have deferred revenues for amounts collected in advance from customers in our Fleet services segment, which will berecognized as revenue as the underlying services are performed pursuant to the terms of our contracts. We have prepaid rent associated with these deferredrevenues on our railcar leases, which we will recognize as expense as these railcars are used. Capitalization Policies and Depreciation MethodsWe record property and equipment at its original cost, which we depreciate on a straight-line basis over the estimated useful lives of the assets, whichrange from five to 30 years. Our determination of the useful lives of property and equipment requires us to make various assumptions when the assets areacquired or placed into service about the expected usage, normal wear and tear and the extent and frequency of maintenance programs. Expenditures forrepairs and maintenance are charged to expense as incurred, while improvements that extend the service life or capacity of existing property and equipmentare capitalized. Upon the sale or retirement of an asset, the related costs and accumulated depreciation are removed from the accounts and any gain or loss isrecognized in our operating results.During construction we capitalize direct costs, such as labor, materials and overhead, as well as interest cost we may incur on indebtedness at ourincremental borrowing rate.Impairment of Long-lived AssetsWe evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not berecoverable.We consider a long-lived asset to be impaired when the sum of the estimated, undiscounted future cash flows from the use of the asset and its eventualdisposition is less than the carrying amount of the asset. Factors that indicate potential impairment include: a significant decrease in the market value of theasset, operating or cash flow losses associated with the use of the asset, or a significant change in the asset’s physical condition or use.When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, estimates of future undiscounted cashflows take into account possible outcomes and probabilities of their occurrence. If the carrying amount of the long-lived asset is not recoverable based on theestimated future undiscounted cash flows, an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the long-livedasset.As an example of the evaluation we perform, in late August 2017, a customer contract for terminalling services at our Casper terminal expired and wasnot renewed. The expiration of this contract represented a trigger event that required us to assess the recoverability of our long-lived assets associated withthe Casper terminal at August 31, 2017. Our assessment of recoverability includes projected cash flow assumptions expected to be derived from our operationof the Casper terminal without regard to any expansion of its existing service potential at August 31, 2017. The assumptions underlying our cash flowprojections include our ability to renew existing contracts and expand business with current customers, and our ability to enter into contracts with newcustomers and obtain additional commitments regarding the use of these facilities. The critical assumptions underlying our projections include:•widening price differentials, or spreads, between the WCS and WTI crude oil pricing indices;83Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•increasing demand from West Coast refineries for Canadian crude oil due to the widening spreads between WCS and alternative crude oilfeedstocks that are priced off of the WTI or Brent pricing indices;•incremental volumes of approximately 7,700 bpd for terminalling and storage services resulting from increasing demand from West Coastrefineries for Canadian crude oil;•expansion of blending services business for distribution to local refineries;•operating expense reductions due to cost savings initiatives;•an eight-year remaining useful life of the primary asset, represented by our customer service agreement intangible asset of the Casper terminalasset group; and•a residual value of 9x projected cash flows for the Casper terminal at the end of the eight year remaining life of the primary asset.The undiscounted cash flows from our projections exceeded the net carrying value of our long-lived assets at Casper as of August 31, 2017 andtherefore no impairment was required. Based on current market conditions, no trigger events were identified as of December 31, 2017.To the extent that our assumptions as set forth above do not materialize as assumed, our projections of future financial performance underlying our cashflow projections for the Casper terminal could yield undiscounted cash flows and a fair value that indicate our long-lived assets are impaired.Assessment of Recoverability of GoodwillGoodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified andseparately recognized. Currently, goodwill is only included in our Terminalling services segment as part of our Casper terminal reporting unit. We do not amortize goodwill, but test it for impairment annually based on the carrying values of our reporting units on the first day of the third quarterof each year or more frequently if impairment indicators arise that suggest the carrying value of goodwill may be impaired. Our measurement of therecoverability of goodwill is highly subjective due to frequent changes in economic conditions underlying the assumptions upon which the valuations arebased and global factors affecting the prices for various grades of crude oil and demand for our services. In assessing our ability to recover the carrying valueof goodwill, we make critical assumptions that include but are not limited to:(1)our projections of future financial performance;(2)our expectations for contract renewals for existing and additional capacity with current customers;(3)our ability to expand our services and attract new customers;(4)our expected market weighted average cost of capital;(5)an expected range of EBITDA multiples derived from equity prices of public companies with similar operating and investment characteristics; and(6)an expected range of EBITDA multiples for transactions based on actual sales and purchases of comparable businesses.We recognize an impairment loss when the carrying amount of a reporting unit exceeds its implied fair value. We reduce the carrying value ofgoodwill to its fair value at the time we determine that an impairment has occurred.The approximately $33.6 million balance of our goodwill originated from our acquisition of the Casper terminal in November 2015 and is whollyattributed to this reporting unit. We measured the fair value of our Casper terminal reporting unit using customary business valuation techniques includingan income analysis, market analysis and transaction analysis, which we weighted at 50%, 25% and 25%, respectively. Our weighting of the measurementmethods84Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.is consistent with weightings used to value organizations that are similar to the Casper terminal reporting unit. The critical assumptions used in our analysisinclude the following:(1)Capital expenditures of up to $12 million for additional terminalling connectivity and unloading racks;(2)Expanding existing business and attracting new customers to produce approximately $15 million to $20 million of incremental annual revenues;(3)A weighted average cost of capital of 10.5%;(4)A capital structure consisting of approximately 35% debt and 65% equity;(5)A range of EBITDA multiples derived from stock prices of public companies with similar operating and investment characteristics, from 8.25x to9.25x; and(6)A range of EBITDA multiples for transactions based on actual sales and purchases of comparable businesses, from 8.25x to 9.25x. The key assumptions listed above were based upon economic and other operational conditions existing at or prior to the July 1, 2017, 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 theFederal Open Market Committee of the Federal Reserve Board, the British Bankers Association and other central banking regulatory authorities, as well asperceptions of risk and market uncertainty regarding our business, industry and those of our peers and our underlying capital structure. We expect our long-term underlying capital structure to approximate a weighting of 50% debt and 50% equity. Each of the above assumptions are likely to change due toeconomic uncertainty surrounding global and North American energy markets that are highly correlated with crude oil, natural gas and other energy-relatedcommodity prices and other market factors.Assumptions we make under the income approach include our projections of future financial performance of the Casper terminal reporting unit, whichinclude our ability to obtain additional connectivity at the terminal, our ability to renew existing contracts and expand business with current customers, andour ability to enter into contracts with new customers and obtain additional commitments regarding the use of their facilities. To the extent that ourassumptions vary from what we experience in the future, our projections of future financial performance underlying the fair value derived from the incomeapproach of the Casper terminal reporting unit could yield results that are significantly different from those projected. Further, in the event we are unable toexecute a majority of our growth plans underlying our financial projections for the Casper terminal reporting unit, we will likely realize an impairment ofGoodwill.The EBITDA multiples we used to estimate the fair value of the Casper terminal reporting unit are subject to uncertainty associated with marketconditions in the energy sector. We derived the assumption based upon the EBITDA multiples from recent transactions involving several comparablebusinesses that operate in the midstream energy sector, generally providing services associated with the transportation of energy-related products. TheEBITDA multiples of each of these entities is affected by changes in the supply of and demand for energy-related products, which affects the demand for theservices they provide. Declines in the production of energy-related products, as well as lower demand for these products, can reduce the operating results ofthese organizations and accordingly, the multiples that market participants are willing to pay. Changes in the EBITDA multiples of the comparablebusinesses we use to estimate fair value could significantly affect the fair value of the Casper terminal reporting unit we derived using this approach.The EBITDA multiples from executed purchase and sales transactions of businesses that are similar to our Casper terminal reporting unit we used toestimate the fair value are also subject to variability, which is dependent upon market conditions in the energy sector, as well as the perceived benefits theacquiring entity expects to derive from the transaction. The transactions comprising the pool occurred during the immediately preceding three years andfuture transactions may have no correlation to the EBITDA multiples for similar transactions in the future. Further deterioration in economic conditions in theenergy sector could result in a greater number of distressed sales at lower EBITDA multiples than currently estimated. Additionally, a representative sampleof transactions in the future may not provide a sufficient population upon which to derive an EBITDA multiple. These factors, among others, could cause ourestimates of fair value for the Casper terminal reporting unit to vary significantly from the amounts determined under this method.85Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As indicated above, our estimate of fair value for the Casper terminal reporting unit required us to use significant unobservable inputs representative ofLevel 3 fair value measurements, including assumptions related to the future performance of our Casper terminal. During the third quarter of 2017, wecompleted our annual goodwill impairment analysis and determined that the fair value of the Casper terminal reporting unit exceeded its carrying value atJuly 1, 2017. An impairment charge would have resulted if our estimate of the fair value of the Casper terminal reporting unit was approximately 5% less thanthe amount determined. We have not observed any events or circumstances subsequent to our analysis that would suggest the fair value of our Casperterminal is below its carrying amount as of December 31, 2017.Income TaxesWe are not a taxable entity for U.S. federal income tax purposes or for a majority of the states that impose an income tax. Taxes on our net income aregenerally borne by our unitholders through the allocation of taxable income, except for USD Rail LP, which, in October 2014, elected to be classified as anentity taxable as a corporation. Our income tax expense is predominantly attributable to Canadian federal and provincial income taxes imposed on ouroperations based in Canada. Additionally, we are also subject to state franchise tax in the State of Texas, which is treated as an income tax under theapplicable accounting guidance. This state income tax is computed on our modified gross margin, which we have determined to be an income tax as set forthin the authoritative accounting guidance. Our current and historical provision for income taxes also reflects income taxes associated with USD Rail LP.We recognize deferred income tax assets and liabilities for temporary differences between the relevant basis of our assets and liabilities for financialreporting and tax purposes. We record the impact of changes in tax legislation on deferred income tax assets and liabilities in the period the legislation isenacted.Pursuant to the authoritative accounting guidance regarding uncertain tax positions, we recognize the tax effects of any uncertain tax position as thelargest amount that will more likely than not be realized upon ultimate settlement with the taxing authority having full knowledge of the position and allrelevant facts. Under this criterion, we evaluate the most likely resolution of an uncertain tax position based on its technical merits and on the outcome thatwe expect would likely be sustained under examination.Our policy is to recognize any interest or penalties related to the underpayment of income taxes as a component of income tax expense or benefit. Wehave not historically incurred any significant interest or penalties for the underpayment of income taxes.Net income for financial statement purposes may differ significantly from taxable income we allocated to our unitholders as a result of differencesbetween the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements set forth in our partnershipagreement. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because informationregarding each partner’s tax attributes in us is not available.Foreign CurrencyA substantial portion of our operations are conducted in Canada and are accounted for in the local currency, the Canadian dollar, which we translateinto our reporting currency, the U.S. dollar. We translate most Canadian dollar denominated balance sheet accounts at the end of period exchange rate, whilemost income statement accounts are translated monthly based on the average exchange rate for each monthly period. Amounts translated from foreigncurrencies into our U.S. dollar reporting currency can vary between periods due to fluctuations in the exchange rates between the foreign currency and theU.S. dollar.Item 7A. Quantitative and Qualitative Disclosures About Market RiskOur exposure to market risks primarily arise from changes in interest rates on our variable rate debt obligations, foreign currency exchange rates,particularly with respect to the U.S. dollar and the Canadian dollar and occasionally commodity prices. In limited circumstances, we may hold long positionsin the commodities we handle on behalf of86Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.our customers, which exposes us to commodity price risk. We use derivative financial instruments, including futures, forwards, swaps, options and otherfinancial instruments with similar characteristics, to manage the risks associated with market fluctuations in interest rates, foreign currency exchange ratesand commodity prices, as well as to reduce volatility in our cash flows. All of our derivative financial instruments are employed in connection with anunderlying asset, liability and/or forecasted transaction and are not entered into with the objective of speculating on interest rates, foreign exchange rates orcommodity prices.Interest Rate RiskWe are charged variable rates of interest on our indebtedness outstanding under the Credit Agreement which exposes us to fluctuations in interest rates.Interest rates prevalent in the current credit markets have been and remain near historic lows. Our credit agreement allows us the option of selecting interestrates on amounts we borrow that are based upon the LIBOR, CDOR, and a Canadian or U.S. base interest rate as set forth in the Credit Agreement. As theeconomic environments in North America and Europe strengthen, monetary policy could tighten, resulting in higher interest rates. Interest rates on variablerate credit facilities and future debt offerings could be higher than current levels, causing our financing costs to increase accordingly. Our current exposure tointerest rate fluctuations relates to the approximate $202.0 million gross amount of our outstanding indebtedness maturing in 2019 bearing interest at a rateof 4.00% at December 31, 2017.We use interest rate collar contracts to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. Under our CreditAgreement, one-month LIBOR is used as the index rate for the interest we are charged on amounts borrowed under our Revolving Credit Facility. EffectiveNovember 2017, we entered into a five-year interest rate collar contract with a $100 million notional value. The collar establishes a range where we will paythe counterparty if one-month LIBOR falls below the established floor rate of 1.70%, and the counterparty will pay us if the one-month LIBOR exceeds theceiling rate of 2.50%. The collar settles monthly through the termination date in October 2022. No payments or receipts are exchanged on interest rate collarcontracts unless interest rates rise above or fall below a pre-determined ceiling or floor rate.The following tables present summarized information about the fair values of our outstanding interest rate contract for the periods indicated: December 31, 2017 Notional Interest RateParameters Fair Value (in thousands)Collar Agreements Maturing in 2022 Ceiling C$100,000,000 2.5% $938Floor C$100,000,000 1.7% (755)Total $183We have not designated these derivative financial instruments as hedges of our interest rate exposures, but instead we mark these contracts to marketvalue quarterly with the change in fair value recorded to “Loss (gain) associated with derivative instruments” in our consolidated statements of income. Thegains or losses associated with changes in the fair value of our interest derivative contracts do not affect our cash flows until the underlying contract is settledby making or receiving a payment to or from the counterparty.Foreign Currency RiskOur cash flows derived from the Hardisty terminal are reported in the U.S. dollar equivalent of such amounts as denominated in Canadian dollars.Monetary assets and liabilities of our Canadian subsidiaries are translated to U.S. dollars using the applicable exchange rate as of the end of a reportingperiod. Revenues, expenses and cash flows are translated using the average exchange rate during the reporting period.87Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.A significant amount of the cash flows we produce are derived from our Hardisty terminal operations in the province of Alberta, Canada. As a result,fluctuations in the exchange rates between the Canadian dollar and the U.S. dollar could have a significant effect on our results of operations, cash flows andfinancial position. The quarterly cash distributions we expect to make to our unitholders will be denominated in U.S. dollars, which are supported by cashflows we derive from our foreign and domestic subsidiaries. As such, a portion of the cash flows we expect to distribute will be subject to currency exchangerate fluctuations between U.S. dollars and Canadian dollars. For example, if the Canadian dollar weakens significantly relative to the U.S. dollar, exchangingthe cash flows we derive from our Canadian subsidiaries for U.S. dollars could reduce the amount of cash we have available to distribute to our unitholders.We have historically and may in the future use derivative instruments to hedge our exposure to variable foreign currency rates. Based on the approximate$10.2 million (C$12.8 million) cash flows from operations of our Canadian entities during the year ended December 31, 2017, we estimate that if exchangerates between Canada and the United States dollar were 15% higher or lower, the change in our cash flow from operations would change by approximately$0.2 million.88Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS,SUPPLEMENTARY INFORMATION ANDCONSOLIDATED FINANCIAL STATEMENT SCHEDULESUSD PARTNERS LP PageReport of Independent Registered Public Accounting Firm90Consolidated Statements of Income91Consolidated Statements of Comprehensive Income92Consolidated Statements of Cash Flows93Consolidated Balance Sheets94Consolidated Statements of Partners’ Capital95Notes to the Consolidated Financial Statements96FINANCIAL STATEMENT SCHEDULESFinancial statement schedules not included in this report have been omitted because they are not applicable or the required information is eitherimmaterial or shown in the consolidated financial statements or notes thereto.89Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting FirmPartners of USD Partners LP and Board of Directors of USD Partners GP LLC, as General Partner of USD Partners LPHouston, TexasOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of USD Partners LP and its subsidiaries (the “Partnership”) as of December 31, 2017 and2016, the related consolidated statements of income, comprehensive income, partners’ capital, and cash flows for each of the three years in the period endedDecember 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financialstatements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and 2016, and the results of theiroperations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generallyaccepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on thePartnership’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not requiredto have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internalcontrol over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ BDO USA, LLPWe have served as the Partnership’s auditor since 2014.Houston, TexasMarch 9, 201890Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.USD PARTNERS LPCONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2017 2016 2015 (in thousands, except per unit amounts)Revenues Terminalling services$87,210 $93,014 $58,841Terminalling services — related party14,192 6,933 5,228Railroad incentives22 76 434Fleet leases2,140 2,577 7,710Fleet leases — related party4,401 3,560 4,123Fleet services1,854 1,084 622Fleet services — related party652 1,926 2,840Freight and other reimbursables863 1,955 1,880Freight and other reimbursables — related party2 — 85Total revenues111,336 111,125 81,763Operating costs Subcontracted rail services8,953 8,077 7,710Pipeline fees23,420 20,799 17,249Fleet leases6,539 6,174 11,833Freight and other reimbursables865 1,955 1,965Operating and maintenance3,233 2,962 2,062Selling, general and administrative9,214 9,658 7,673Selling, general and administrative — related party5,867 5,768 4,707Depreciation and amortization22,132 23,092 6,110Total operating costs80,223 78,485 59,309Operating income31,113 32,640 22,454Interest expense9,925 9,847 4,432Loss (gain) associated with derivative instruments937 140 (5,161)Foreign currency transaction gain(456) (750) (201)Other income, net(308) (10) (64)Income before income taxes21,015 23,413 23,448Provision for (benefit from) income taxes(1,192) (759) 5,755Net income$22,207 $24,172 $17,693Net income attributable to limited partner interest$21,611 $23,690 $17,339Net income per common unit (basic and diluted) (Note 3)$0.88 $1.06 $0.83Weighted average common units outstanding17,924 13,867 10,427Net income per subordinated unit (basic and diluted) (Note 3)$0.89 $1.02 $0.82Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Weighted average subordinated units outstanding6,565 8,668 10,464The accompanying notes are an integral part of these consolidated financial statements.91Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.USD PARTNERS LPCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2017 2016 2015 (in thousands)Net income$22,207 $24,172 $17,693Other comprehensive income (loss) — foreign currency translation2,797 (1,019) (120)Comprehensive income$25,004 $23,153 $17,573The accompanying notes are an integral part of these consolidated financial statements.92Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.USD PARTNERS LPCONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2017 2016 2015 (in thousands)Cash flows from operating activities: Net income$22,207 $24,172 $17,693Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization22,132 23,092 6,110Loss (gain) associated with derivative instruments937 140 (5,161)Settlement of derivative contracts46 2,399 4,283Unit based compensation expense4,143 4,074 2,461Other629 907 1,473Changes in operating assets and liabilities, net of acquisitions: Accounts receivable256 79 1,647Accounts receivable — related party(226) 1,750 (1,805)Prepaid expenses and other assets4,656 30 (572)Other assets — related party(253) — —Accounts payable and accrued expenses377 (1,897) (336)Accounts payable and accrued expenses — related party20 (20) (544)Deferred revenue and other liabilities(7,636) 1,854 9,500Deferred revenue — related party531 (2,850) 585Change in restricted cash(94) (654) 870Net cash provided by operating activities47,725 53,076 36,204Cash flows from investing activities: Additions of property and equipment(27,580) (474) (1,671)Proceeds from settlement of purchase price— 381 —Acquisitions, net of cash received— — (210,445)Purchase of derivative contracts— — (1,167)Net cash used in investing activities(27,580) (93) (213,283)Cash flows from financing activities: Payments for deferred financing costs— — (854)Distributions(35,075) (29,665) (24,032)Vested phantom units used for payment of participant taxes(1,073) (77) —Net proceeds from issuance of common units33,700 — —Proceeds from issuance of General Partner units— — 335Proceeds from long-term debt50,000 20,000 203,000Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Repayment of long-term debt(71,342) (41,556) (30,492)Net cash provided by (used in) financing activities(23,790) (51,298) 147,957Effect of exchange rates on cash(186) (480) (627)Net change in cash and cash equivalents(3,831) 1,205 (29,749)Cash and cash equivalents — beginning of year11,705 10,500 40,249Cash and cash equivalents — end of year$7,874 $11,705 $10,500The accompanying notes are an integral part of these consolidated financial statements.93Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.USD PARTNERS LPCONSOLIDATED BALANCE SHEETS December 31, 2017 2016 (in thousands, except unit amounts)ASSETS Current assets Cash and cash equivalents$7,874 $11,705Restricted cash5,914 5,433Accounts receivable, net4,137 4,321Accounts receivable — related party410 219Prepaid expenses8,957 10,325Other current assets226 2,562Other current assets — related party79 —Total current assets27,597 34,565Property and equipment, net146,573 125,702Intangible assets, net99,312 111,919Goodwill33,589 33,589Other non-current assets145 192Other non-current assets — related party174 —Total assets$307,390 $305,967LIABILITIES AND PARTNERS’ CAPITAL Current liabilities Accounts payable and accrued expenses$2,670 $2,221Accounts payable and accrued expenses — related party244 214Deferred revenue, current portion22,011 26,928Deferred revenue, current portion — related party5,115 4,292Other current liabilities2,339 3,513Total current liabilities32,379 37,168Long-term debt, net200,627 220,894Deferred revenue, net of current portion— 264Deferred income tax liability, net614 823Other non-current liabilities475 —Total liabilities234,095 259,149Commitments and contingencies (Note 14) Partners’ capital Common units (19,537,971 authorized and issued at December 31, 2017 and 14,185,599 authorizedand issued at December 31, 2016)131,169 122,802Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Class A units (250,000 authorized, 82,500 issued at December 31, 2017 and 138,750 issued atDecember 31, 2016)1,356 1,811Subordinated units (10,463,545 authorized, 6,278,127 issued at December 31, 2017 and 8,370,836issued at December 31, 2016)(60,820) (76,749)General partner units (461,136 authorized and issued at December 31, 2017 and 2016)(50) 111Accumulated other comprehensive income (loss)1,640 (1,157)Total partners’ capital73,295 46,818Total liabilities and partners’ capital$307,390 $305,967The accompanying notes are an integral part of these consolidated financial statements.94Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.USD PARTNERS LPCONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL For the Years Ended December 31, 2017 2016 2015 Units Amount Units Amount Units Amount (in thousands, except unit amounts)Common units Beginning balance14,185,599 $122,802 11,947,127 $141,374 10,213,545 $127,865Units issued3,000,000 33,700 — — 1,733,582 15,325Conversion of units2,162,084 (19,047) 2,138,959 (18,300) — —Common units issued for vested phantom units190,288 (1,073) 99,513 (77) — —Net income— 15,718 — 14,644 — 8,605Unit based compensation expense— 3,694 — 2,670 — 1,109Distributions— (24,625) — (17,509) — (11,530)Ending balance19,537,971 131,169 14,185,599 122,802 11,947,127 141,374Class A units Beginning balance138,750 1,811 185,000 1,749 220,000 550Conversion of units(46,250) (606) (46,250) (871) — —Net income— 86 — 148 — 153Unit based compensation expense— 450 — 977 — 1,500Forfeited units(10,000) (247) — — (35,000) (245)Distributions— (138) — (192) — (209)Ending balance82,500 1,356 138,750 1,811 185,000 1,749Subordinated units Beginning balance8,370,836 (76,749) 10,463,545 (93,445) 10,463,545 (90,214)Conversion of units(2,092,709) 19,653 (2,092,709) 19,171 — —Net income— 5,807 — 8,898 — 8,581Unit based compensation expense— 23 — — — —Distributions— (9,554) — (11,373) — (11,812)Ending balance6,278,127 (60,820) 8,370,836 (76,749) 10,463,545 (93,445)General Partner Units Beginning balance461,136 111 461,136 220 427,083 12Units issued— — — — 34,053 335Net income— 596 — 482 — 354Unit based compensation expense— 1 — — — —Distributions— (758) — (591) — (481)Ending balance461,136 (50) 461,136 111 461,136 220Accumulated other comprehensive income (loss) Beginning balance (1,157) (138) (18)Cumulative translation adjustment 2,797 (1,019) (120)Ending balance 1,640 (1,157) (138)Total partners’ capital at December 31, $73,295 $46,818 $49,760The accompanying notes are an integral part of these consolidated financial statements.95Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.USD PARTNERS LPNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION AND DESCRIPTION OF BUSINESSGeneralUSD 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, orUSDG. We were formed to acquire, develop and operate midstream infrastructure and complimentary logistics solutions for crude oil, biofuels and otherenergy-related products. We generate substantially all of our operating cash flows from multi-year, take-or-pay contracts with primarily investment gradecustomers, including major integrated oil companies, refiners and marketers. Our network of crude oil terminals facilitates the transportation of heavy crudeoil from Western Canada to key demand centers across North America. Our operations include railcar loading and unloading, storage and blending in onsitetanks, inbound and outbound pipeline connectivity, truck transloading, as well as other related logistics services. We also provide our customers with leasedrailcars and fleet services to facilitate the transportation of liquid hydrocarbons and biofuels by rail. We do not generally take ownership of the products thatwe handle nor do we receive any payments from our customers based on the value of such products. Our common units are traded on the New York StockExchange, or NYSE, under the symbol USDP.Our capital accounts at December 31, 2017 and 2016 include an approximate 1.7% and 2.0% general partner interest held by USD Partners GP LLC, awholly-owned subsidiary of USDG, respectively.Our capital accounts were distributed as follows at the specified dates: December 31, 2017 2016Common units held by the Public 54.1% 47.5%Common units held by USDG 20.0% 13.8%Subordinated units held by USDG 23.9% 36.1%Class A units held by management 0.3% 0.6%General partner interest held by USD Partners GP LLC 1.7% 2.0% 100.0% 100.0%US Development Group, LLCUSD and its affiliates are engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and energy-relatedinfrastructure across North America. USD is the indirect owner of our general partner through its direct ownership of USDG and is currently owned by EnergyCapital Partners, Goldman Sachs and certain of USD’s management team members.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Use of EstimatesWe prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, orGAAP. Our preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expensesduring the reporting period. We regularly evaluate these estimates utilizing historical experience, consultation with experts and other methods we considerreasonable in the circumstances. Nevertheless, actual results may differ from these estimates. We record the effect of any revisions to these estimates in ourconsolidated financial statements in the period in which the facts that give rise to the revision become known. Significant estimates we make include, but arenot96Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.limited to, the estimated lives of depreciable property and equipment, recoverability of long-lived assets, the collectability of accounts receivable, theamounts of deferred revenue and related prepaid pipeline fees.Principles of ConsolidationThe consolidated financial statements include our accounts and those of our wholly-owned subsidiaries on a consolidated basis. All significantintercompany accounts and transactions have been eliminated in consolidation. We consolidate the accounts of entities over which we have a controllingfinancial interest through our ownership of the general partner or the majority voting interests of the entity.Comparative AmountsWe have made certain reclassifications to the amounts reported in the prior year financial statements 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 TranslationWe conduct a substantial portion of our operations in Canada, which we account for in the local currency, the Canadian dollar. We translate mostCanadian dollar denominated balance sheet accounts into our reporting currency, the U.S. dollar at the end of period exchange rate, while most incomestatement accounts are translated into our reporting currency based on the average exchange rate for each monthly period. Fluctuations in the exchange ratesbetween 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 statedamount.Revenue RecognitionWe derive our revenues from railcar loading and unloading services for bulk liquid products, including crude oil, biofuels, and related products, as wellas sourcing railcar fleets and related logistics and maintenance services. We recognize revenue when persuasive evidence of an arrangement exists, deliveryhas occurred or services have been performed, the buyer’s price is fixed or determinable and collectability is reasonably assured. In accordance with theapplicable accounting guidance, we record revenues for fleet leases on a gross basis, since we are deemed the primary obligor for the services. We alsorecognize as revenue on our consolidated statements of income in “Freight and other reimbursables,” on a gross basis, the amounts we charge to ourcustomers for the out-of-pocket expenses we have incurred to provide our railcar fleet services.We recognize revenue for terminalling services we provide based upon the contractual rates set forth in our agreements related to throughput volumes.All of the contracted capacity at our Casper, Hardisty and Stroud terminals is under multi-year agreements that contain “take-or-pay” provisions where we areentitled to payment from our customer of a minimum monthly commitment fee, regardless of whether the specified throughput to which the customercommitted is achieved. These agreements grant the customers make-up rights that allow them to load volumes in excess of their minimum monthlycommitment in future periods, without additional charge, to the extent capacity is available for the excess volume. With respect to the Casper terminal, themake-up rights generally expire within the three-month period, representing a calendar quarter, for which the volumes were originally committed. Withrespect to the Hardisty and Stroud terminals, the make-up rights typically expire, if unused, in subsequent periods up to six months following the period forwhich the volumes were originally committed. We defer the recognition of the revenue associated with volumes that are below the minimum monthlycommitments until the earlier of (1) the period in which the throughput is utilized, (2) the customer’s ability to make up the minimum volume has expired inaccordance with the terms of the agreements, or (3) we determine that the likelihood that the customer will be able to make up the minimum volume isremote.We recognize revenue for fleet leases and related party administrative services ratably over the contract period. Revenue for reimbursable costs isrecognized as the costs are incurred. We have deferred revenues for amounts collected in advance from customers in our Fleet services segment, which will berecognized as revenue as the underlying services97Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.are performed pursuant to the terms of our contracts. We have prepaid rent associated with these deferred revenues on our railcar leases, which we willrecognize as expense over the contract period.In December 2013, USD Terminals Canada ULC, or USDTC, entered into a binding agreement with Canadian Pacific Railway Limited, which we referto as CP, effective with the commencement of the Hardisty terminal operations in June 2014, whereby in consideration for CP being the sole rail freighttransportation service provider at the Hardisty terminal for certain customers, CP agreed to pay USDTC an average incentive payment amount of C$100 perrailcar shipped up to a maximum of C$12.5 million through mid-2017. We recognized these revenues in “Railroad incentives” in our consolidatedstatements of income as we utilized the services of CP pursuant to the terms of the agreement.Income TaxesWe are not a taxable entity for U.S. federal income tax purposes or for a majority of the states that impose an income tax. Taxes on our net income aregenerally borne by our unitholders through the allocation of taxable income, except for USD Rail LP, which, in October 2014, elected to be classified as anentity taxable as a corporation. Our income tax expense is predominantly attributable to Canadian federal and provincial income taxes imposed on ouroperations based in Canada. Additionally, we are also subject to state franchise tax in the State of Texas, which is treated as an income tax under theapplicable accounting guidance. This state income tax is computed on our modified gross margin, which we have determined to be an income tax as set forthin the authoritative accounting guidance. Our current and historical provision for income taxes also reflects income taxes associated with USD Rail LP.We recognize deferred income tax assets and liabilities for temporary differences between the relevant basis of our assets and liabilities for financialreporting and tax purposes. We record the impact of changes in tax legislation on deferred income tax assets and liabilities in the period the legislation isenacted.Pursuant to the authoritative accounting guidance regarding uncertain tax positions, we recognize the tax effects of any uncertain tax position as thelargest amount that will more likely than not be realized upon ultimate settlement with the taxing authority having full knowledge of the position and allrelevant facts. Under this criterion, we evaluate the most likely resolution of an uncertain tax position based on its technical merits and on the outcome thatwe expect would likely be sustained under examination.Our policy is to recognize any interest or penalties related to the underpayment of income taxes as a component of income tax expense or benefit. Wehave not historically incurred any significant interest or penalties for the underpayment of income taxes.Net income for financial statement purposes may differ significantly from the taxable income we allocate to our unitholders as a result of differencesbetween the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements set forth in our partnershipagreement. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because informationregarding each partner’s tax attributes in us is not available.Cash and Cash EquivalentsCash and cash equivalents consist of all unrestricted demand deposits and funds invested in highly liquid instruments with original maturities of threemonths or less. We periodically assess the financial condition of the financial institutions where these funds are held and believe that our credit risk isminimal.Accounts ReceivableAccounts receivable consist of billed and unbilled amounts due from our customers, which include crude oil producing and petroleum refiningcompanies, as well as marketers of petroleum, petroleum products and biofuels, for services we have provided. We perform ongoing credit evaluations of ourcustomers. When appropriate, we use the specific identification method to estimate allowances for doubtful accounts based on our customers’ financialcondition and collection history, as well as other pertinent factors. Accounts are written-off against the allowance for doubtful accounts when significantlypast due and we have deemed the amounts uncollectible.98Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Contract AssetsWe recognize operating lease contracts that contain escalation clauses, during the lease term, on a straight-line basis over the term of the lease in ourConsolidated Statements of Income and Consolidated Statements of Comprehensive Income. The difference between revenue and the amounts receivedunder the lease contract are currently included in “Other current assets — related party” and “Other non-current assets — related party” in our ConsolidatedBalance Sheets. Capitalization Policies and Depreciation MethodsWe record property and equipment at its original cost, which we depreciate on a straight-line basis over the estimated useful lives of the assets, whichrange from five to 30 years. Our determination of the useful lives of property and equipment requires us to make various assumptions when the assets areacquired or placed into service about the expected usage, normal wear and tear and the extent and frequency of maintenance programs. Expenditures forrepairs and maintenance are charged to expense as incurred, while improvements that extend the service life or capacity of existing property and equipmentare capitalized. Upon the sale or retirement of an asset, the related costs and accumulated depreciation are removed from the accounts and any gain or loss isrecognized in our operating results.During construction we capitalize direct costs, such as labor, materials and overhead, as well as interest cost we may incur on indebtedness at ourincremental borrowing rate.Asset Retirement ObligationsWe record a liability for the fair value of asset retirement obligations and conditional asset retirement obligations that we can reasonably estimate. Wecollectively refer to asset retirement obligations and conditional asset retirement obligations as ARO. Typically, we record an ARO at the time an asset isconstructed or acquired, if a reasonable estimate of fair value can be made. In connection with establishing an ARO, we capitalize the expected costs as partof the carrying value of the related assets. We recognize any ongoing expense for the accretion component of the liability resulting from changes in value ofthe ARO due to the passage of time as part of accretion expense. We depreciate the initial capitalized cost over the useful lives of the related assets. Weextinguish the liabilities for an ARO when assets are taken out of service or otherwise abandoned.Legal obligations exist for our San Antonio and West Colton terminal facilities due to terms within our lease agreements with the lessor that require usto remove our facilities at final abandonment. We generally own the land on which our Casper, Stroud and Hardisty terminals and related facilities reside andas a result, similar legal obligations generally do not exist that would require us to remove our Casper, Stroud and Hardisty facilities at final abandonment.However, a portion of the Casper terminal and the Stroud pipeline are on land that is leased, where the lessor has the option to either purchase the facilitiesfrom us at salvage value, or to require us to remove our facilities at the termination of the lease and restore the land to its original condition.We have an asset retirement obligation for our San Antonio terminal facility in the amount of $1.0 million at December 31, 2017, representing the costswe expect to incur at final abandonment resulting from the conclusion of our customer agreement that occurred May 1, 2017. The West Colton terminaloperates in a geographical and regulatory environment that is significantly different from that of our San Antonio terminal and has unique operatingcharacteristics that make determination of the economic life of the asset, coupled with the methods of settlement necessary for estimating the fair value of theARO related to this facility, impracticable. With respect to the Casper and Stroud terminals, we cannot reasonably estimate the timing nor determine themethod that the lessor will elect with regard to the action we will be required to take at the termination of the lease. In each of these cases, the asset retirementobligation cost is considered indeterminate because there is limited data or information that can be derived from past practice, industry practice, ourintentions or the estimated economic life of the asset. Useful lives of our terminal facilities are primarily derived from available supply resources and ultimateconsumption of those resources by end users. Many variables can affect the remaining lives of the assets, which preclude us from making a reasonableestimate of the ARO. We will recognize the fair value of an ARO for the Casper, Stroud and West Colton terminal facilities in the periods in which sufficientinformation exists that will allow us to reasonably estimate potential settlement dates and methods.99Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Impairment of Long-lived AssetsWe evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not berecoverable.We consider a long-lived asset to be impaired when the sum of the estimated, undiscounted future cash flows from the use of the asset and its eventualdisposition is less than the carrying amount of the asset. Factors that indicate potential impairment include: a significant decrease in the market value of theasset, operating income or cash flows associated with the use of the asset and a significant change in the asset’s physical condition or use.When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, estimates of future undiscounted cashflows take into account possible outcomes and probabilities of their occurrence. If the carrying amount of the long-lived asset is not recoverable based on theestimated future undiscounted cash flows, an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the long-livedasset.As an example of the evaluation we perform, in late August 2017, a customer contract for terminalling services at our Casper terminal expired and wasnot renewed. The expiration of this contract represented a trigger event that required us to assess the recoverability of our long-lived assets associated withthe Casper terminal at August 31, 2017. Our assessment of recoverability includes projected cash flow assumptions expected to be derived from our operationof the Casper terminal without regard to any expansion of its existing service potential at August 31, 2017. The assumptions underlying our cash flowprojections include our ability to renew existing contracts and expand business with current customers, and our ability to enter into contracts with newcustomers and obtain additional commitments regarding the use of these facilities. The critical assumptions underlying our projections include:•widening price differentials, or spreads, between the WCS and WTI crude oil pricing indices;•increasing demand from West Coast refineries for Canadian crude oil due to the widening spreads between WCS and alternative crude oilfeedstocks that are priced off of the WTI or Brent pricing indices;•incremental volumes of approximately 7,700 barrels per day, or bpd, for terminalling and storage services resulting from increasing demand fromWest Coast refineries for Canadian crude oil;•expansion of blending services business for distribution to local refineries;•operating expense reductions due to cost savings initiatives;•an eight-year remaining useful life of the primary asset, represented by our customer service agreement intangible asset of the Casper terminalasset group; and•a residual value of 9x projected cash flows for the Casper terminal at the end of the eight year remaining life of the primary asset.The undiscounted cash flows from our projections exceeded the net carrying value of our long-lived assets at Casper as of August 31, 2017, andtherefore no impairment was required. Based on current market conditions, no trigger events were identified as of December 31, 2017.To the extent that our assumptions as set forth above do not materialize as assumed, our projections of future financial performance underlying our cashflow projections for the Casper terminal could yield undiscounted cash flows and a fair value that indicate our long-lived assets are impaired.Intangible AssetsOur intangible assets primarily consist of customer contracts. We amortize these assets on a straight-line basis over the weighted average useful lives ofthe underlying assets, representing the period over which the assets are expected to contribute directly or indirectly to our future cash flows.100Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.GoodwillGoodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified andseparately recognized. Currently, goodwill is only included in our Terminalling services segment as part of our Casper terminal reporting unit. As ofDecember 31, 2017, the carrying amount of goodwill was $33.6 million. We do not amortize goodwill but test it for impairment annually based on the carrying values of our reporting unit on the first day of the third quarterof each year or more frequently if impairment indicators arise that suggest the carrying value of goodwill may be impaired. In testing goodwill forimpairment, we make critical assumptions that include but are not limited to:(1)projections of future financial performance, which includes contract renewal expectations;(2)market weighted average cost of capital;(3)EBITDA multiples derived from stock prices of public companies with similar operating and investment characteristics; and(4)EBITDA multiples for transactions based on actual sales and purchases of comparable businesses.We recognize an impairment loss when the carrying amount of a reporting unit exceeds its implied fair value. We reduce the carrying value ofgoodwill to its fair value when we determine that an impairment has occurred.We had no impairment of goodwill for the year ended December 31, 2017.Fair Value MeasurementsWe apply the authoritative accounting provisions for measuring fair value to our financial instruments and related disclosures, which include cash andcash equivalents, accounts receivable, accounts payable, debt, and derivative instruments. We define fair value as an exit price representing the expectedamount we would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date.We employ a hierarchy which prioritizes the inputs we use to measure recurring fair value into three distinct categories based upon whether suchinputs are observable in active markets or unobservable. We classify assets and liabilities in their entirety based on the lowest level of input that is significantto the fair value measurement. Our methodology for categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives thehighest priority to unadjusted quoted prices in active markets and the lowest level to unobservable inputs, summarized as follows:•Level 1 — Quoted prices in active markets for identical assets or liabilities.•Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities).•Level 3 — Significant unobservable inputs (including our own assumptions in determining fair value). We use the cost, income or market valuation approaches to estimate the fair value of our assets and liabilities when insufficient market-observabledata is available to support our valuation assumptions.The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and the long-term debt represented by our $400 millionsenior secured credit facility as presented on our consolidated balance sheets approximate fair value due to the short-term nature of these items and, withrespect to the senior secured credit facility, the frequent re-pricing of the underlying obligations. The fair value of our accounts receivable and payables withaffiliates cannot be determined due to the related party nature of these items.Derivative Financial InstrumentsOur net income and cash flows are subject to volatility stemming from changes in interest rates on our variable rate debt obligations and fluctuationsin foreign currency exchange rates. In order to manage our exposure to fluctuations in interest rates and foreign currency exchange rates and the related risksto our unitholders, we use derivative financial101Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.instruments to offset a portion of these risks. We have a program that utilizes swaps, options and other financial instruments with similar characteristics toreduce the risks associated with volatility in our interest rates on our long-term debt and the effects of foreign currency exposures related to our Canadiansubsidiaries, which have cash flows denominated in Canadian dollars. Under this program, our strategy is to have gains or losses on the derivative contractsmitigate the interest rate increases and foreign currency transaction gains or losses to the extent practical. Economically, the derivative contracts help us tolimit our exposure such that the interest rate and exchange rate will effectively lie between the floor and the ceiling of the rates set forth in the derivativecontacts or otherwise fix the exchange rate at a specified date and amount.As part of our purchase of the Stroud terminal and related facilities, we acquired crude oil used by the prior owner for line fill in the crude oil pipelineand for tank bottoms in the storage tanks. We sold substantially all of this crude oil during the year ended December 31, 2017. In order to mitigate thepotential risk of our long crude oil position on our results of operations, cash flows and financial positions, we entered into commodity swaps to fix the pricethat we received when we sold the crude oil.All of our derivative financial instruments are employed in connection with an underlying asset, liability and/or forecast transaction and are notentered into for speculative purposes.In accordance with the authoritative accounting guidance, we record all derivative financial instruments in our consolidated balance sheets at fairmarket value as current or non-current assets or liabilities on a net basis by counterparty. We do not designate, nor have we historically designated, any of ourderivative financial instruments as hedges of an underlying asset, liability and/or forecast transaction. To qualify for hedge accounting treatment as set forthin the authoritative accounting guidance, very specific requirements must be met in terms of hedge structure, hedge objective and hedge documentation. As aresult, changes in the fair value of our derivative financial instruments and the related cash settlement of matured contracts are recognized in “Gain associatedwith derivative instruments” on our consolidated statements of income. Refer to Note 18 — Derivative Financial Instruments.Recent Accounting Pronouncements Not Yet AdoptedThe Jumpstart Our Business Startups Act, or JOBS Act, provides that an emerging growth company can delay adopting new or revised accountingstandards until such time as those standards apply to private companies. We have irrevocably elected to “opt out” of this exemption and, therefore, will besubject to the same new or revised accounting standards as other public companies that are not emerging growth companies.Intangibles — Goodwill and OtherIn January 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2017-04, or ASU 2017-04, whichamends the FASB Accounting Standards Codification, or ASC, Topic 350 to modify the concept of impairment from the condition that exists when thecarrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Anentity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all ofits assets and liabilities as if that reporting unit had been acquired in a business combination. An entity should recognize an impairment loss for the amountby which the carrying amount of a reporting unit exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount ofgoodwill allocated to that reporting unit.The pronouncement is effective for fiscal years beginning after December 15, 2019, or for any interim impairment testing within those fiscal years andis required to be applied prospectively, with early adoption permitted. Any impairment assessment we perform subsequent to our adoption of the standardcould produce an impairment of goodwill in a different amount than would result under current guidance to the extent the carrying amount of a reporting unitexceeds its fair value.102Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Restricted CashIn November 2016, the FASB issued Accounting Standards Update No. 2016-18, or ASU 2016-18, which amends ASC Topic 230 to require that astatement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash orrestricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cashequivalents when we reconcile the beginning-of-period and end-of-period total amounts shown on our consolidated statements of cash flows.The pronouncement is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and is required to beapplied retrospectively for all financial statements presented, with early adoption permitted. We do not expect our adoption of this standard to have amaterial impact on our consolidated financial statements, other than the presentation of cash and cash equivalents within our consolidated statements of cashflows.LeasesIn February 2016, the FASB issued Accounting Standards Update No. 2016-02, or ASU 2016-02, which amends ASC Topic 842 to require balancesheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. The amendment provides an option that permitsus to elect not to recognize the lease assets and liabilities for leases with a term of 12 months or less. The pronouncement is effective for years beginning afterDecember 15, 2018, and early adoption is permitted. Additionally, the FASB has issued and is likely to continue issuing Accounting Standards Updates toclarify application of the guidance in the original standard and to provide practical expedients for implementing guidance, all of which will be effectiveupon adoption.Currently, we cannot reasonably estimate the impact our adoption of ASU 2016-02 will have on our consolidated financial statements. We do notcurrently recognize operating leases in our balance sheets as will be required by ASU 2016-02, but we record payments for operating leases as rent expense asincurred. Our process for implementing ASU 2016-02 will involve evaluating all of our existing leases with terms greater than 12 months to quantify theimpact to our financial statements, developing accounting policies and internal control processes to address adherence to the requirements of the standard,evaluating the capability of existing accounting systems and any enhancements needed, determining the need to modify any bank or debt compliancerequirements, and training and educating our workforce and the investment community regarding the financial statement impact that application of thestandard will have. We have initiated steps to identify, accumulate and categorize our lease agreements into homogeneous groups to evaluate the particularterms and conditions for each type of agreement in relation to the requirements of ASU 2016-02 to determine the accounting impact, commonly referred to asan “Impact Assessment.” Once we have determined the impact ASU 2016-02 will have on our current accounting for each particular type of lease, we willdevelop accounting policies and internal control processes and initiate other steps to implement ASU 2016-02. We do not expect to early adopt theprovisions of this standard.Revenue from Contracts with CustomersIn May 2014, the FASB issued Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers, followed by the issuance of certainadditional related accounting standards updates, which have been incorporated into the Accounting Standards Codification, or ASC, as ASC 606. ASC 606provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previouslyrequired revenue recognition guidance, including industry-specific guidance. Under ASC 606, revenue is recognized when a customer obtains control ofpromised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, thestandard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.ASC 606 permits two methods of adoption: (i) retrospectively to each prior reporting period presented (full retrospective method), or (ii) retrospectivelywith the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). We will adoptASC 606 using the full retrospective method by restating each prior reporting period presented. ASC 606 is effective for us beginning January 1, 2018.103Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We expect our adoption of ASC 606 to affect our previously reported amounts as presented in the following discussion and tables:Terminalling Services Revenue and Deferred Revenue — Terminalling services revenue will decrease by $2.5 million and increase by $2.0 million forthe years ended December 31, 2017 and 2016, respectively, due to our adoption of ASC 606. The changes to our Terminalling services revenue represent therecognition of previously deferred revenue in connection with payments we receive from customers of our Hardisty and Stroud terminals for their minimummonthly volume commitments for the respective periods in connection with our adoption of ASC 606. We have historically deferred recognition of all suchamounts due to the make-up rights we have granted customers of our Hardisty and Stroud terminals for periods up to six months following the month forwhich the minimum volume commitments were paid. Historically, breakage associated with these make-up rights options has approximated 100%. Breakagerates will be regularly evaluated and modified as necessary to reflect our current expectations and experience. Likewise, the balance of our deferred revenueat December 31, 2017 will decrease by approximately $21.9 million due to our adoption of ASC 606.Pipeline Fees and Prepaid Expenses — Our “Pipeline fees” expense will decrease by $0.9 million and increase by $0.2 million for the years endedDecember 31, 2017 and 2016, respectively. We have historically recorded amounts paid to Gibson Energy Partnership, or Gibson, for pipeline fees as aprepaid expense, which we have recognized as expense concurrently with our recognition of revenue associated with the expiration of the make-up rights wegranted to customers of our Hardisty terminal. As a result of our recognition of a portion of the previously deferred revenue, we will concurrently recognize aproportionate amount of the prepaid pipeline fees as expense in connection with our adoption of ASC 606. Likewise, the balance of prepaid expenses atDecember 31, 2017, will decrease by $6.4 million due to our adoption of ASC 606.Provision for Income Taxes and Non-current Deferred Income Tax Liability — Our benefit from income taxes will increase by $0.7 million anddecrease by $0.5 million for the years ended December 31, 2017 and 2016, respectively. The change in our benefit from income taxes is attributable to thechange in “Terminalling services revenue” in excess of the change in “Pipeline fees” associated with our adoption of ASC 606 as discussed above, whichaffect our provision for income taxes and the related non-current deferred income tax liability. The balance of our deferred income tax liability at December31, 2017, will increase by $3.9 million due to our adoption of ASC 606.Other Comprehensive Income (Loss) — Foreign Currency Translation and Accumulated Other Comprehensive Income (Loss) — Our translation of theforegoing items within the consolidated income statements and balance sheets of our Canadian subsidiaries will result in changes to the amounts reported inour consolidated statements of comprehensive income for “Other comprehensive income (loss) — foreign currency translation” and the related amount for“Accumulated other comprehensive income (loss)” included in our consolidated balance sheets. The functional currency of our Hardisty terminal is theCanadian dollar, which we translate into U.S. dollars for reporting in our consolidated financial statements. Our “Other comprehensive income (loss) —foreign currency translation” will increase by $0.8 million and $0.3 million for the years ended December 31, 2017 and 2016, respectively. Additionally, thebalance of “Accumulated other comprehensive income” at December 31, 2017, will increase by $0.3 million due to our adoption of ASC 606.Cash Flows From Operating Activities — Our adoption of ASC 606 will not affect the amount we report as Cash flows from operating activities, as ouradoption of this standard does not affect our cash flow. However, the components that comprise “Net cash provided by operating activities” within ourconsolidated statements of cash flows will change to reflect the revised amounts presented in our consolidated statements of income and consolidatedbalance sheet as discussed above.104Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table shows the adjustments for the adoption of ASC 606 and the resulting balance for each affected line item in our consolidatedstatements of income for the periods indicated: Year ended December 31, 2017 Year ended December 31, 2016 As reported Adjustments As adjusted As reported Adjustments As adjusted (in thousands)Revenues$111,336 $(2,531) $108,805 $111,125 $2,042 $113,167Operating costs80,223 (897) 79,326 78,485 220 78,705Operating income31,113 (1,634) 29,479 32,640 1,822 34,462Other income, net(308) (22) (330) (10) (75) (85)Income before income taxes21,015 (1,612) 19,403 23,413 1,897 25,310Income Taxes(1,192) (737) (1,929) (759) 512 (247)Income from continuing operations22,207 (875) 21,332 24,172 1,385 25,557Net income22,207 (875) 21,332 24,172 1,385 25,557The following table shows the adjustments for the adoption of ASC 606 and the resulting balance for each affected line item in our consolidatedstatements of cash flow for the periods indicated: Year ended December 31, 2017 Year ended December 31, 2016 As reported Adjustments As adjusted As reported Adjustments As adjusted (in thousands)Net income$22,207 $(875) $21,332 $24,172 $1,385 $25,557Deferred income taxes(250) (737) (987) 46 512 558Accounts receivable256 (34) 222 79 — 79Prepaid expenses and other assets4,656 (897) 3,759 30 220 250Deferred revenue and other liabilities(7,636) 2,119 (5,517) 1,854 (2,155) (301)Deferred revenue - related party531 424 955 (2,850) 38 (2,812)Net cash provided by operating activities47,725 — 47,725 53,076 — 53,076The following table shows the adjustments for the adoption of ASC 606 and the resulting balance for each affected line item in our consolidatedbalance sheet: December 31, 2017 As reported Adjustments As adjusted (in thousands)Assets: Accounts receivable, net$4,137 $34 $4,171Prepaid expenses8,957 (6,412) 2,545Liabilities: Deferred revenue, current portion22,011 (18,720) 3,291Deferred revenue, current portion - related party5,115 (3,129) 1,986Deferred income tax liability, net614 3,876 4,490105Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The cumulative effect of the change on our partners’ capital accounts at January 1, 2017 was as follows:Partners’ Capital Account AmountAs reported Cumulative Effect RetrospectivelyRestated Amount (in thousands)Common units $122,802 $6,088 $128,890Class A units 1,811 118 1,929Subordinated units (76,749) 5,805 (70,944)General partner 111 245 356Accumulated other comprehensive income (loss) (1,157) (548) (1,705)Total partners’ capital $46,818 $11,708 $58,526Upon our adoption of ASC 606, we expect to reflect a cumulative catch up adjustment totaling $10.0 million to the January 1, 2016, opening balanceof our partners’ capital accounts.3. NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTERESTWe allocate our net income among our general partner and limited partners using the two-class method in accordance with applicable authoritativeaccounting guidance. Under the two-class method, we allocate our net income and any net income in excess of distributions to our limited partners, ourgeneral partner and the holder of the incentive distribution rights, or IDRs, according to the distribution formula for available cash as set forth in ourpartnership agreement. We allocate any distributions in excess of earnings for the period to our limited partners and general partner based on their respectiveproportionate ownership interests in us, as set forth in our partnership agreement, after taking into account distributions to be paid with respect to the IDRs.The formula for distributing available cash as set forth in our partnership agreement is as follows:Distribution Targets Portion of QuarterlyDistribution Per Unit Percentage Distributed toLimited Partners Percentage Distributed toGeneral Partner(including IDRs) (1)Minimum Quarterly Distribution Up to $0.2875 98% 2%First Target Distribution > $0.2875 to $0.330625 98% 2%Second Target Distribution > $0.330625 to $0.359375 85% 15%Third Target Distribution > $0.359375 to $0.431250 75% 25%Thereafter Amounts above $0.431250 50% 50% (1) Assumes our general partner maintains a 2% general partner interest in us.106Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We determined basic and diluted net income per limited partner unit as set forth in the following tables: For the Year Ended December 31, 2017 CommonUnits SubordinatedUnits Class AUnits GeneralPartnerUnits Total (in thousands, except per unit amounts) Net income attributable to general and limitedpartner interests in USD Partners LP (1) $15,718 $5,807 $86 $596 $22,207Less: Distributable earnings (2) 26,909 8,986 120 845 36,860Distributions in excess of earnings $(11,191) $(3,179) $(34) $(249) $(14,653)Weighted average units outstanding (3) 17,924 6,565 94 461 Distributable earnings per unit (4) $1.50 $1.37 $1.27 Overdistributed earnings per unit (5) (0.62) (0.48) (0.36) Net income per limited partner unit (basic anddiluted) $0.88 $0.89 $0.91 (1) Represents net income allocated to each class of units based on the actual ownership of the Partnership during the period. The net income for each class of limited partner interesthas been reduced by its proportionate amount of the approximate $185 thousand attributed to the general partner for its incentive distribution rights.(2) Represents the per unit distributions paid of $0.335 per unit for the three months ended March 31, 2017, $0.34 per unit for the three months ended June 30, 2017, $0.345 perunit for the three months ended September 30, 2017, and $0.35 per unit distributable for the three months ended December 31, 2017, representing the full year-distributionamount of $1.37 per unit. Amounts presented for each class of unit include a proportionate amount of the $1.2 million distributed and $388 thousand distributable to holders ofthe Equity-classified Phantom Units pursuant to the distribution equivalent rights granted under the USD Partners LP Amended and Restated 2014 Long-Term Incentive Plan.(3) Represents the weighted average units outstanding for the year.(4) Represents the total distributable earnings divided by the weighted average number of units outstanding for the year.(5) Represents the distributions in excess of earnings divided by the weighted average number of units outstanding for the year. For the Year Ended December 31, 2016 CommonUnits SubordinatedUnits Class AUnits GeneralPartnerUnits Total (in thousands, except per unit amounts)Net income attributable to general and limitedpartner interests in USD Partners LP (1) $14,644 $8,898 $148 $482 $24,172Less: Distributable earnings (2) 18,708 11,041 183 608 30,540Distributions in excess of earnings $(4,064) $(2,143) $(35) $(126) $(6,368)Weighted average units outstanding (3) 13,867 8,668 145 461 Distributable earnings per unit (4) $1.35 $1.27 $1.26 Overdistributed earnings per unit (5) (0.29) (0.25) (0.24) Net income per limited partner unit (basic anddiluted) $1.06 $1.02 $1.02 (1) Represents net income allocated to each class of units based on the actual ownership of the Partnership during the year.(2) Represents the per unit distributions paid of $0.3075 per unit for the three months ended March 31, 2016, $0.315 per unit for the three months ended June 30, 2016, $0.3225 perunit for the three months ended September 30, 2016 and $0.33 per unit for the three months ended December 31, 2016, representing the full year distribution of $1.275 per unit.Amounts presented for each class of units include a proportionate amount of the $1.0 million distributed for the year to holders of the Equity-classified Phantom Units pursuant tothe distribution equivalent rights granted under the USD Partners LP 2014 Long-Term Incentive Plan.(3) Represents the weighted average units outstanding for the year.(4) Represents the total distributable earnings divided by the weighted average number of units outstanding for the year.(5) Represents the distributions in excess of earnings divided by the weighted average number of units outstanding for the year.107Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the Year Ended December 31, 2015 CommonUnits SubordinatedUnits Class AUnits GeneralPartnerUnits Total (in thousands, except per unit amounts)Net income attributable to general and limitedpartner interests in USD Partners LP (1) $8,605 $8,581 $153 $354 $17,693Less: Distributable earnings (2) 12,682 12,452 212 518 $25,864Distributions in excess of earnings $(4,077) $(3,871) $(59) $(164) $(8,171)Weighted average units outstanding (3) 10,427 10,464 201 431 Distributable earnings per unit (4) $1.22 $1.19 $1.05 Overdistributed earnings per unit (5) (0.39) (0.37) (0.29) Net income per limited partner unit (basic anddiluted) $0.83 $0.82 $0.76 (1) Represents net income allocated to each class of units based on the actual ownership of the Partnership during the year.(2) Represents the per unit distributions paid of $0.2875 per unit for the three months ended March 31, 2015, $0.29 per unit for the three months ended June 30, 2015, $0.2925 perunit for the three months ended September 30, 2015 and $0.30 per unit for the three months ended December 31, 2015, representing the full year distribution of $1.17 per unit.Amounts presented for each class of units include a proportionate amount of the $434 thousand distributed for the year to holders of the Equity-classified Phantom Units pursuantto the distribution equivalent rights granted under the USD Partners LP 2014 Long-Term Incentive Plan.(3) Represents the weighted average units outstanding for the year.(4) Represents the total distributable earnings divided by the weighted average number of units outstanding for the year.(5) Represents the distributions in excess of earnings divided by the weighted average number of units outstanding for the year.4. CASPER TERMINAL ACQUISITIONWe acquired 100% of the membership interests of Casper Crude to Rail, LLC, which we refer to as the Casper terminal, in November 2015. The Casperterminal, primarily consists of a unit train-capable railcar loading facility with capacity in excess of 100,000 barrels per day, six storage tanks with 900,000barrels of total capacity and a six-mile, 24-inch diameter pipeline with a direct connection from Spectra Energy Partners’ Express Pipeline and from the Platteterminal. We acquired all of the issued and outstanding membership interests of the Casper terminal in exchange for approximately $210.4 million in cash, orthe Cash Consideration, and 1,733,582 of our common units representing limited partner interests in us, or the Equity Consideration. The CashConsideration, which includes approximately $2.1 million for initial working capital, was funded using approximately $35.0 million of cash on handretained from the excess proceeds of our initial public offering in October 2014 and $175.4 million of senior secured credit facility borrowings. We issued theEquity Consideration to Cogent Energy Solutions, LLC, or Cogent, one of the owners of the Seller. The number of common units comprising the EquityConsideration was determined by reference to the volume-weighted average daily closing price of $9.62 per common unit for the 30 trading day period priorto October 12, 2015. In connection with the Equity Consideration issued to Cogent, our general partner contributed $0.3 million in exchange for 34,053additional general partner units sufficient to maintaining its 2% general partner interest in us, on substantially the same terms as the common units issued toCogent.We accounted for our acquisition of the Casper terminal as a business combination using the acquisition method, whereby we recognized theacquisition date fair value of the identifiable assets acquired and liabilities assumed with any unallocated purchase price paid being attributed to goodwill.We incurred approximately $0.5 million for transaction costs in connection with our acquisition of the Casper terminal, consisting primarily of legal andother professional fees, which we expensed as incurred and included in “Selling, general and administrative” within our consolidated statements of income.108Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table summarizes our preliminary and final allocation of the consideration we paid for the Casper terminal among the assets acquiredand liabilities assumed. We determined the fair value of the identifiable assets acquired and liabilities assumed based upon estimates and assumptions madeby management and developed with the assistance of external advisers, with any consideration paid in excess of the fair value of the net assets beingattributed to goodwill.Purchase Price Allocation Preliminary FinalConsideration:(in thousands)Cash paid to Seller$210,445 $210,445Fair value of equity issued to Seller15,325 15,325Total consideration$225,770 $225,770 Allocation of purchase price Working capital, net$1,530 $1,911Property and equipment64,204 64,204Intangible assets126,066 126,066Goodwill33,970 33,589Total purchase price$225,770 $225,770We have included the results of operations of the Casper terminal in our results of operations from the acquisition date. For the years endedDecember 31, 2017 and 2016, the Casper terminal generated revenues of $26.7 million and $31.9 million and net income of $4.3 million and $10.3 million,respectively. From November 17, 2015 through December 31, 2015, the Casper terminal generated revenues of $3.8 million and net income of $0.8 million.The following table presents our unaudited pro forma consolidated financial information as if the closing of the Casper terminal acquisition hadoccurred on January 1, 2015: For the Year Ended December 31,2015 (in thousands except per unitamounts)Total revenues $112,325Operating income $30,997Net income $21,310Earnings per common unit (basic and diluted) $0.93The unaudited pro forma financial information presented above has been prepared by combining our historical results and the historical results of theCasper terminal and further reflects the effect of purchase accounting adjustments and the elimination of transaction costs, among other items. Othersignificant pro forma adjustments have been made to take into account, from the beginning of the period, additional depreciation and amortization of the fairvalue of the non-current assets resulting from the application of purchase accounting, as well as the additional interest expense we would have incurred fromthe incremental borrowings on our revolving credit facility. This pro forma information is not necessarily indicative of the actual results of operations thatwould have occurred if we had acquired the Casper terminal on January 1, 2015, or that may result in the future and does not reflect potential synergies,integration costs or other such costs and savings.Transition Services AgreementIn connection with our acquisition of the Casper terminal, we also entered into a transition services agreement with Cogent, pursuant to which Cogentprovided certain accounting, administrative, customer support and information109Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.technology support services to the Casper terminal for a period of approximately three months following the closing while we transitioned such services toour management. 5. RESTRICTED CASHWe include in restricted cash on our consolidated balance sheets amounts representing a cash account for which the use of funds is restricted by afacilities connection agreement among us and Gibson that we entered into during 2015 in connection with the development of our Hardisty terminal. Thecollaborative arrangement is further discussed in Note 11. Collaborative Arrangement. As of December 31, 2017 and 2016, we had restricted cash balances of$5.9 million and $5.4 million, respectively, for undistributed amounts retained in our joint revenue collection bank account.6. ACCOUNTS RECEIVABLEWe had no allowances for doubtful accounts at December 31, 2017 and 2016. In addition, we had no bad debt expense for the years endedDecember 31, 2017, 2016 and 2015 in our consolidated statements of income.7. PROPERTY AND EQUIPMENTOur property and equipment is comprised of the following: December 31, Estimated Useful Lives (Years) 2017 2016 (in thousands) Land$10,245 $9,636 N/ATrackage and facilities128,568 108,782 10-30Pipeline16,336 10,313 20-25Equipment12,926 8,234 3-10Furniture67 44 5-10Total property and equipment168,142 137,009 Accumulated depreciation(22,369) (13,821) Construction in progress (1)800 2,514 Property and equipment, net$146,573 $125,702 (1) The amounts classified as “Construction in progress” are excluded from amounts being depreciated. These amounts represent property that is not yet ready to be placed intoproductive service as of the respective consolidated balance sheet date. We had no capitalized interest costs for the years ended December 31, 2017, 2016 and 2015.DepreciationDepreciation expense associated with Property and equipment totaled approximately $9.5 million, $10.4 million, and $4.6 million for the years endedDecember 31, 2017, 2016 and 2015, respectively.In December 2017, we recognized non-cash impairment charges totaling approximately $1.7 million to reduce the book value of certain assetsincluded in our Terminalling services segment to their net realizable value less selling costs. We included this charge for impairment in “Depreciation andamortization” within our consolidated statements of income.In August 2016, we received notification from the sole customer of our San Antonio terminal stating their intent to terminate our terminalling servicesagreement with them. The agreement subsequently ended in May 2017. In connection with conclusion of this agreement, the lessor of the real property uponwhich the San Antonio terminal resides notified us of their intent to terminate our lease with them concurrently with the conclusion of our terminallingservices agreement discussed above. As a result of these events, we recognized a non-cash impairment loss of approximately $3.5 million for the year endedDecember 31, 2016, to write down the non-current assets of the terminal to fair market value, the charge for which we have included in “Depreciation andamortization” within our consolidated110Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.statements of income. The impairment loss includes an asset retirement obligation of $1.0 million for amounts we expect to spend to restore the property toits original condition. We determined the fair market value of these assets to approximate $0.2 million, based upon market prices for similar assets anddiscounted cash flows we expected to derive from their use through the contract end date. The San Antonio terminal is included in our Terminalling servicessegment as reported in our segment results included in Note 15 — Segment Reporting.Asset PurchaseOn June 2, 2017, we acquired a 76-acre crude oil terminal in Stroud, Oklahoma, the Stroud terminal, for $22.8 million in cash, to facilitate rail-to-pipeline shipments of crude oil from our Hardisty terminal to Cushing, Oklahoma. The Stroud terminal includes current unit train unloading capacity ofapproximately 50,000 bpd, two onsite tanks with 140,000 barrels of total capacity and a truck bay. Additionally, the terminal includes a 12-inch diameter,17-mile pipeline with a direct connection to the crude oil storage hub located in Cushing, Oklahoma. In connection with the transaction, we also purchasedapproximately $1.4 million of crude oil used by the prior owner for line fill and tank bottoms and capitalized approximately $1.3 million of one-time costs.We accounted for the acquisition of the Stroud terminal as an asset purchase, as a result of our early adoption of Financial Accounting StandardsBoard, or FASB, Accounting Standards Update No. 2017-01, or ASU 2017-01, which clarifies the definition of a business as set forth in Topic 805 of theFASB Accounting Standards Codification, or ASC.8. GOODWILL AND INTANGIBLE ASSETSGoodwillGoodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. Ourgoodwill originated from our acquisition of the Casper terminal, which is included in our Terminalling services segment. As of December 31, 2017, thecarrying amount of our goodwill was $33.6 million.Changes in the balance of Goodwill are presented in the following table (in thousands):Balance at December 31, 2015 $33,970Proceeds from settlement of Casper purchase price (381)Balance at December 31, 2016 and 2017$33,589We test goodwill for impairment annually based on the carrying values of our reporting units on the first day of the third quarter of each year, or morefrequently if events or changes in circumstances suggest that the fair value of a reporting unit is less than its carrying value. During the third quarter of 2017,we completed our annual goodwill impairment analysis and determined that the fair value of the Casper terminal reporting unit exceeded its carrying value atJuly 1, 2017. An impairment charge would have resulted if our estimate of the fair value of the Casper terminal reporting unit was approximately 5% less thanthe amount determined. The critical assumptions used in our analysis include the following:1)a weighted average cost of capital of 10.5%;2)a capital structure consisting of approximately 35% debt and 65% equity;3)a range of EBITDA multiples derived from equity prices of public companies with similar operating and investment characteristics, from 8.25x to9.25x; and4)a range of EBITDA multiples for transactions based on actual sales and purchases of comparable businesses, from 8.25x to 9.25x.We measured the fair value of our Casper terminal reporting unit by using an income analysis, market analysis and transaction analysis withweightings of 50%, 25% and 25%, respectively. Our estimate of fair value required us to use significant unobservable inputs representative of a Level 3 fairvalue measurement, including assumptions related to the future performance of our Casper terminal. The undiscounted cash flows from our projectionsexceeded the net111Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.carrying value of our long-lived assets at Casper as of August 31, 2017, and therefore no impairment was required. Based on current market conditions, notrigger events were identified as of December 31, 2017.Intangible AssetsThe composition, gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows as of the dates indicated: December 31, 2017 December 31, 2016 (in thousands)Carrying amount: Customer service agreements$125,960 $125,960Other106 106Total carrying amount126,066 126,066Accumulated amortization: Customer service agreements(26,731) (14,135)Other(23) (12)Total accumulated amortization(26,754) (14,147)Total intangible assets, net$99,312 $111,919Our identifiable intangible assets at December 31, 2017 and 2016, originated from our acquisition of the Casper terminal and are directly associatedwith our Terminalling services segment. Refer to Note 4 — Casper Terminal Acquisition for additional discussion of the Casper terminal acquisition. Thecustomer service agreements intangible assets are derived from the multi-year, take-or-pay agreements. The acquisition date fair value attributed to theintangible assets was based on the present value of the future revenue stream expected to be derived from our relationships with existing customers of theCasper terminal and the additional service potential associated with these assets, which we expect to continue over a period of approximately 10 years. AtDecember 31, 2017, the remaining average life of the agreements is 1.4 years until the next renewal. We amortize our intangibles on a straight-line basis overthe 10 year estimated useful lives of these assets.We determined the expiration of a customer contract for terminal services at our Casper terminal in August 2017 was an event that required us toevaluate our Casper terminal asset group for impairment. Our projections of the undiscounted cash flows expected to be derived from the operation anddisposition of the Casper terminal asset group exceeded the carrying value of the asset group as of August 31, 2017, the date of our evaluation, indicatingcash flows were expected to be sufficient to recover the carrying value of the Casper terminal asset group.The pre-tax amortization expense associated with intangible assets totaled approximately $12.6 million for the years ended December 31, 2017 and2016 and approximately $1.5 million for the year ended December 31, 2015. We expect the annual pre-tax amortization expense associated with ourintangible assets at December 31, 2017, to approximate $12.6 million for each of the next five years.9. DEBTCredit AgreementWe have a senior secured credit agreement, the Credit Agreement, comprised of a $400 million revolving credit facility (subject to the limits set forththerein), the Revolving Credit Facility, with Citibank, N.A., as administrative agent, and a syndicate of lenders. The Credit Agreement is a five yearcommitted facility that matures on October 15, 2019.Previously, the Credit Agreement included a $300 million Revolving Credit Facility and a $100 million term loan (borrowed in Canadian dollars), theTerm Loan Facility, which we repaid in March 2017. As we repaid amounts outstanding on the Term Loan Facility, the availability on our Revolving CreditFacility was automatically increased to the full $400 million of credit available under the Credit Agreement.112Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our Revolving Credit Facility and any issuances of letters of credit are available for working capital, capital expenditures, permitted acquisitions andgeneral partnership purposes, including distributions. We have the ability to increase the maximum amount of credit available under the Credit Agreement,as amended, by an aggregate amount of up to $100 million to a total facility size of $500 million, subject to receiving increased commitments from lenders orother financial institutions and satisfaction of certain conditions. The Revolving Credit Facility includes an aggregate $20 million sublimit for standbyletters of credit and a $20 million sublimit for swingline loans. Obligations under the Revolving Credit Facility are guaranteed by our restricted subsidiaries(as such term is defined in our senior secured credit facility) and are secured by a first priority lien on our assets and those of our restricted subsidiaries, otherthan certain excluded assets.Our borrowings under the Revolving Credit Facility bear interest at either a base rate and Canadian prime rate plus an applicable margin ranging from1.25% to 2.25%, or at the London Interbank Offered Rate, or LIBOR, or the Canadian Dealer Offered Rate, or CDOR, plus an applicable margin ranging from2.25% to 3.25%. Borrowings under the Term Loan Facility bear interest at either the base rate or Canadian prime rate plus a margin ranging from 1.35% to2.35%, or at LIBOR or CDOR, as applicable, plus an applicable margin ranging from 2.35% to 3.35%. The applicable margin, as well as a commitment fee onthe Revolving Credit Facility of 0.375% to 0.50% per annum on unused commitments, will vary based upon our consolidated net leverage ratio, as definedin our Credit Agreement.The actual average interest rate on our outstanding indebtedness was 4.00% and 3.66% at December 31, 2017 and 2016, respectively.Effective November 2017, we entered into a collar contract with a notional amount of $100 million to manage our exposure to fluctuations in the ratesof interest we are charged on our Revolving Credit Agreement. Refer to Note 18. Derivative Financial Instruments for additional discussion of these collaragreements.Our Credit Agreement contains affirmative and negative covenants that, among other things, limit or restrict our ability and the ability of our restrictedsubsidiaries to incur or guarantee debt, incur liens, make investments, make restricted payments, engage in business activities, engage in mergers,consolidations and other organizational changes, sell, transfer or otherwise dispose of assets or enter into burdensome agreements or enter into transactionswith affiliates on terms that are not arm’s length, in each case, subject to exceptions.Additionally, we are required to maintain the following financial ratios, each determined on a quarterly basis for the immediately preceding four quarterperiod then ended (or such shorter period as shall apply, on an annualized basis): •Consolidated Interest Coverage Ratio (as defined in the credit agreement) of at least 2.50 to 1.00;• Consolidated Leverage Ratio of not greater than 4.50 to 1.00 (or 5.00 to 1.00 at any time after we have issued at least $150.0 million of unsecurednotes). In addition, upon the consummation of a Material Acquisition (as defined in our Credit Agreement), for the fiscal quarter in which theMaterial Acquisition is consummated and for two fiscal quarters immediately following such fiscal quarter (the “Material Acquisition Period”), ifelected by us by written notice to the Administrative Agent given on or prior to the date of such acquisition, the maximum permitted ratio shall beincreased by 0.50 to 1.00 above the otherwise relevant level; and •after we have issued at least $150.0 million of unsecured notes, a Consolidated Senior Secured Leverage Ratio (as defined in the Credit Agreement)of not greater than 3.50 to 1.00 (or 4.00 to 1.00 during a Material Acquisition Period).Our Credit Agreement generally prohibits us from making cash distributions (subject to exceptions as set forth in the Credit Agreement). However, solong as no default exists or would be caused by making a cash distribution, we may make cash distributions to our unitholders up to the amount of ouravailable cash (as defined in our partnership agreement).The Credit Agreement contains events of default, including, but not limited to (and subject to grace periods in circumstances set forth in the CreditAgreement), the failure to pay any principal, interest or fees when due, failure to perform or observe any covenant that does not have certain materialityqualifiers contained in the Credit Agreement113Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.or related loan documentation, any representation, warranty or certification made or deemed made in the agreements or related loan documentation beinguntrue in any material respect when made, default under certain material debt agreements, commencement of bankruptcy or other insolvency proceedings,certain changes in our ownership or the ownership of our general partner, material judgments or orders, certain judgment defaults, ERISA events or theinvalidity of the loan documents. Upon the occurrence and during the continuation of an event of default under the agreements, the lenders may, amongother things, terminate their commitments, declare any outstanding loans to be immediately due and payable and/or exercise remedies against us and thecollateral as may be available to the lenders under the agreements and related documentation or applicable law.As of December 31, 2017, we were in compliance with the covenants set forth in our Credit Agreement.Our long-term debt balances included the following components as of the specified dates: December 31, 2017 2016 (in thousands)Term Loan Facility$— $10,128Revolving Credit Facility202,000 213,000Less: Deferred financing costs, net(1,373) (2,234)Total long-term debt, net$200,627 $220,894We determined the capacity available to us under the terms of our Credit Agreement was as follows as of the specified dates: December 31, 2017 2016 (in millions)Aggregate borrowing capacity under the Credit Agreement$400.0 $400.0Less: Term Loan Facility amounts outstanding— 10.1 Revolving Credit Facility amounts outstanding202.0 213.0 Letters of credit outstanding— —Available under the Credit Agreement (1)$198.0 $176.9 (1) Pursuant to the terms of our Credit Agreement, our borrowing capacity currently is limited to 5.0 times our trailing 12-month consolidated EBITDA for the quarter in which amaterial acquisition occurs and the two quarters following a material acquisition, as defined in our Credit Agreement, after which time the covenant returns to 4.5 times our trailing12-month consolidated EBITDA. Our acquisition of the Stroud terminal is treated as a material acquisition under the terms of our Credit Agreement. As a result, our borrowingcapacity was limited to 5.0 times our trailing 12-month consolidated EBITDA through December 31, 2017. Interest expense associated with our outstanding indebtedness was as follows for the specified periods: For the Years Ended December 31, 2017 2016 2015 (in thousands)Interest expense on Credit Agreement$9,064 $8,986 $3,773Amortization of deferred financing costs861 861 659Total interest expense$9,925 $9,847 $4,43210. DEFERRED REVENUEOur deferred revenue includes amounts we have received in cash from customers as payment for their minimum monthly commitment fees under take-or-pay contracts, where such payments exceed the charges implied by the customer’s actual throughput based on contractual rates set forth in ourterminalling services agreements. We grant customers of our Hardisty and Stroud terminals a credit for periods up to six months, which may be used to offsetfees114Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.on throughput in excess of their minimum monthly commitments in future periods, to the extent capacity is available for the excess volume. We refer to thesecredits as make-up rights. We defer revenue associated with make-up rights until the earlier of when the throughput is utilized, the make-up rights expire, orwhen it is determined that the likelihood that the customer will utilize the make-up right is remote. A majority of our deferred revenue derived from the make-up rights provisions of our terminalling services agreements are denominated in Canadian dollars and translated into U.S. dollars at the exchange rate ineffect at the end of the period. As a result, the balance of our deferred revenue may vary from period to period due to changes in the exchange rate betweenthe U.S. dollar and the Canadian dollar.Our deferred revenue also includes amounts collected in advance from customers of our Fleet services business, which will be recognized as revenuewhen earned pursuant to the terms of our contractual arrangements. We have likewise prepaid the rent on our railcar leases that are associated with thedeferred revenue, which we will recognize as expense concurrently with our recognition of the associated revenue.The following table provides details of our deferred revenue from unrelated customers as reflected in our consolidated balance sheets as of the datesindicated: December 31, 2017 2016 (in thousands)Customer prepayments, current portion (1)$284 $3,705Minimum monthly commitment fees21,727 23,223Total deferred revenue, current portion$22,011 $26,928 Customer prepayments (1)$— $264Total deferred revenue, net of current portion$— $264 (1) Represents amounts associated with lease payments received in advance from our Fleet services customers.Refer to Note 13—Transactions with Related Parties for a discussion of deferred revenues associated with related parties included in our consolidatedbalance sheets.11. COLLABORATIVE ARRANGEMENTWe entered into a facilities connection agreement in 2014 with Gibson under which Gibson developed, constructed and operates a pipeline and relatedfacilities connected to our Hardisty terminal. Gibson’s storage terminal is the exclusive means by which our Hardisty terminal receives crude oil. Subject tocertain limited exceptions regarding manifest train facilities, our Hardisty terminal is the exclusive means by which crude oil from Gibson’s Hardisty storageterminal may be transported by rail. We remit pipeline fees to Gibson for the transportation of crude oil to our Hardisty terminal based on a predeterminedformula. Pursuant to our arrangement with Gibson, we incurred $23.4 million, $20.8 million and $17.2 million of expenses for the years endedDecember 31, 2017, 2016 and 2015, respectively, which are presented as “Pipeline fees” in our consolidated statements of income. Additionally, atDecember 31, 2017 and 2016, we had prepaid pipeline fees of $6.4 million and $6.8 million, respectively, included in “Prepaid expenses” on ourconsolidated balance sheets, which we will recognize as expense concurrently with our recognition of revenue that we deferred in connection with ourminimum monthly volume commitments.12. NONCONSOLIDATED VARIABLE INTEREST ENTITIESIn 2014, we entered into purchase, assignment and assumption agreements to assign payment and performance obligations for certain operating leaseagreements with lessors, as well as customer fleet service payments related to these operating leases, with unconsolidated entities in which we have variableinterests. These variable interest entities, or VIEs, include LRT Logistics Funding LLC, USD Fleet Funding LLC, USD Fleet Funding Canada Inc., and USDLogistics Funding Canada Inc. We treat these entities as variable interests under the applicable accounting guidance due to their having an insufficientamount of equity invested at risk to finance their activities without additional115Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.subordinated financial support. We are not the primary beneficiary of the VIEs, as we do not have the power to direct the activities that most significantlyaffect the economic performance of the VIEs, nor do we have the power to remove the managing member under the terms of the VIEs’ limited liabilitycompany agreements. Accordingly, we do not consolidate the results of the VIEs in our consolidated financial statements.Prior to July 1, 2016, our activities with the VIEs were treated as related party transactions and disclosed in Note 13 – Transactions with RelatedParties due to the managing member of the VIEs being a member of the board of directors of USD. The managing member subsequently transferred ownershipand control of the companies to a party that is unaffiliated with USD or us. As a result, for periods following June 30, 2016, we no longer treat the VIEs asrelated parties.The following table summarizes the total assets and liabilities between us and the VIEs as reflected in our consolidated balance sheets atDecember 31, 2017 and 2016, as well as our maximum exposure to losses from entities in which we have a variable interest, but are not the primarybeneficiary. Generally, our maximum exposure to losses is limited to amounts receivable for services we provided, reduced by any deferred revenues. December 31, 2017 Total assets Total liabilities Maximum exposure toloss (in thousands)Accounts receivable$30 $— $—Accounts payable— — —Deferred revenue, current portion— 284 —Deferred revenue, net of current portion— — — $30 $284 $— December 31, 2016 Total assets Total liabilities Maximum exposure toloss (in thousands)Accounts receivable$7 $— $—Accounts payable— 3 —Deferred revenue, current portion— 1,297 —Deferred revenue, net of current portion— 264 — $7 $1,564 $—We have assigned certain payment and performance obligations under the leases and master fleet service agreements for 2,613 of the railcars to theVIEs, but we have retained certain rights and obligations with respect to the servicing of these railcars.During the years 2017, 2016 and 2015, we provided no explicit or implicit financial or other support to these VIEs that were not previouslycontractually required.13. TRANSACTIONS WITH RELATED PARTIESNature of Relationship with Related PartiesUSD is engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and other energy-related infrastructureacross North America. USD is also the sole owner of USDG and the ultimate parent116Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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 December 31, 2017, owns 5,278,963 of our common units and all 6,278,127 of our subordinatedunits representing a combined 43.9% limited partner interest in us. USDG also provides us with general and administrative support services necessary for theoperation and management of our business.USD Marketing LLC, or USDM, is a wholly-owned subsidiary of USDG organized to promote contracting for services provided by our terminals andfacilitate the marketing of customer products.USD Partners GP LLC, our general partner, currently owns all 461,136 of our general partner units representing a 1.7% general partner interest in us, aswell as all of our incentive distribution rights. Pursuant to our partnership agreement, our general partner is responsible for our overall governance andoperations.Omnibus AgreementWe are a party to an omnibus agreement with USD, USDG and certain of their subsidiaries including our general partner that provide for the following:•our payment of an annual amount to USDG for providing certain general and administrative services by USDG and its affiliates and executivemanagement services by officers of our general partner. We also incur and pay additional amounts that are based on the costs actually incurred byUSDG and its affiliates in providing the services;•our right of first offer to acquire any Hardisty expansion projects, as well as other additional midstream infrastructure that USD and USDG mayconstruct or acquire in the future;•our obligation to reimburse USDG for any out-of-pocket costs and expenses incurred by USDG in providing general and administrative services(which reimbursement is in addition to certain expenses of our general partner and its affiliates that are reimbursed under our partnership agreement),as well as any other out-of-pocket expenses incurred by USDG on our behalf; and•an indemnity by USDG for certain environmental and other liabilities, and our obligation to indemnify USDG and its subsidiaries for events andconditions associated with the operation of our assets that occur after the closing of the initial public offering, or IPO, and for environmentalliabilities related to our assets to the extent USDG is not required to indemnify us. So long as USDG controls our general partner, the omnibus agreement will remain in full force and effect. If USDG ceases to control our general partner, eitherparty may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with their terms.Payment of Annual Fee and Reimbursement of Expenses We pay USDG, in equal monthly installments, the annual amount USDG estimates will be payable by us during the calendar year for providingservices for our benefit. The omnibus agreement provides that this amount, which included a fixed annual fee of $3.3 million, $3.2 million and $2.5 millionfor the years ended December 31, 2017, 2016 and 2015 respectively, may be adjusted annually to reflect, among other things, changes in the scope of thegeneral and administrative services provided to us due to a contribution, acquisition or disposition of assets by us, or our subsidiaries, or for changes in anylaw, 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 wepay to reimburse our general partner and its affiliates for certain costs and expenses incurred on our behalf for managing our business and operations, asrequired by our partnership agreement.The total amounts charged to us under the omnibus agreement for the years ended December 31, 2017, 2016 and 2015 was $5.9 million, $5.8 millionand $4.7 million, respectively, which amounts are included in “Selling, general and administrative — related party” in our consolidated statements ofincome. We had a payable balance of $0.2 million117Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.with respect to these costs at both December 31, 2017 and 2016, included in “Accounts payable and accrued expenses — related party” within ourconsolidated balance sheets.From time to time, in the ordinary course of business, USD and its affiliates may receive vendor payments or other amounts due to us or our subsidiaries.In addition, we may make payments to vendors and other unrelated parties on behalf of USD and its affiliates for which they routinely reimburse us. We hadno significant receivable or payable at December 31, 2017, and a receivable balance of $0.2 million at December 31, 2016, associated with these transactionsincluded in “Accounts receivable — related party” within our consolidated balance sheet.Right of First OfferUnder the omnibus agreement, until October 15, 2021, prior to engaging in any negotiation regarding the sale, transfer or disposition of certainspecified expansion projects at our Hardisty terminal retained by USDG or any other midstream infrastructure assets that USD or USDG may develop,construct or acquire, USD or USDG is required to provide written notice to us setting forth the material terms and conditions upon which USD or USDG wouldsell or transfer such assets or businesses to us. Following the receipt of such notice, we will have 60 days to determine whether the asset is suitable for ourbusiness at that particular time and to propose a transaction with USD or USDG. We and USD or USDG will then have 60 days to negotiate in good faith toreach an agreement on such transaction. If we and USD or USDG, as applicable, are unable to agree on terms during such 60-day period, then USD or USDG,as applicable, may transfer such asset to any third party during a 180-day period following the expiration of such 60-day period on terms generally no lessfavorable to the third party than those included in the written notice.Our decision to make any offer will require the approval of the conflicts committee of the board of directors of our general partner. The consummationand timing of any acquisition by us of the assets covered by our right of first offer will depend on, among other factors, USD or USDG’s decision to sell anasset covered by our right of first offer, our ability to reach an agreement with USD or USDG on the price and other terms and our ability to obtain financingon acceptable terms. USD or USDG are under no obligation to accept any offer that we may choose to make.Additionally, the approval of Energy Capital Partners is required for the sale of any assets by USD or its subsidiaries, including sales to or by USDG andus (other than sales in the ordinary course of business), acquisitions of securities of other entities that exceed specified materiality thresholds and any materialunbudgeted expenditures or deviations from our approved budgets. Energy Capital Partners may make these decisions free of any duty to us and ourunitholders. This approval would be required for the potential acquisition by us of any Hardisty expansion projects, as well as any other projects or assets thatUSD or USDG may develop or acquire in the future or any third-party acquisition we may intend to pursue jointly or independently from USD or USDG.Energy Capital Partners is under no obligation to approve any such transaction.IndemnificationUSDG indemnifies us for certain defects in title to the assets contributed to us and failure to obtain certain consents, licenses and permits necessary toconduct our business, including the cost of curing any such condition and certain tax liabilities attributable to the operation of the assets contributed to usprior to the time they were contributed that are identified prior to October 15, 2019. In addition, USDG also indemnifies us for liabilities, subject to an aggregate deductible of $500,000 relating to:•the consummation of the IPO contribution transactions;•events and conditions associated with any assets retained by USDG; and•all tax liabilities attributable to the assets contributed to us that arose prior to the closing of the IPO or otherwise related to USDG’s contribution ofthose assets to us in connection with the IPO.Assignment of CostsDuring the first quarter of 2015, USDG assumed the obligation to pay a portion of the freight costs associated with the movement of empty railcarsrelated to a customer contract entered into in June 2013, prior to our formation. The assumption was effective as of January 1, 2015, and includedreimbursement to us for any amounts we paid118Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.subsequent to the effective date. We did not receive any significant reimbursements in 2017 or 2016, and we had no amounts receivable with respect to thesecosts at December 31, 2017 and 2016. We received reimbursements pursuant to the terms of the assumption agreement of $2.9 million for the year endedDecember 31, 2015.Marketing Services AgreementIn connection with our purchase of the Stroud terminal, we entered into a Marketing Services Agreement, effective as of May 31, 2017, with USDM,whereby we granted USDM the right to market the capacity at the Stroud terminal in excess of the capacity of our initial customer in exchange for a nominalper barrel fee. USDM is obligated to fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additionalthroughput. Upon expiration of our contract with the initial Stroud customer in June 2020, the same marketing rights will apply to all throughput at theStroud terminal in excess of the throughput necessary for the Stroud terminal to generate Adjusted EBITDA that is at least equal to the average monthlyAdjusted EBITDA derived from the initial Stroud terminal customer during the 12 months prior to expiration. We also granted USDG the right to developother projects at the Stroud terminal in exchange for the payment to us of market-based compensation for the use of our property for such developmentprojects. Any such development projects would be wholly-owned by USDG and would be subject to our existing right of first offer with respect to midstreamprojects developed by USDG. Payments made under the Marketing Services Agreement during the periods presented in this report are discussed below underthe heading “Related Party Revenue and Deferred Revenue.” Variable Interest EntitiesWe entered into purchase, assignment and assumption agreements to assign payment and performance obligations for certain operating leaseagreements, as well as customer fleet service payments related to these operating leases, with the VIEs. Prior to July 1, 2016, a member of the board ofdirectors of USD exercised control over the VIEs as its managing member. Subsequent to June 30, 2016, the managing member transferred ownership of theVIEs to a party that is unaffiliated with USD or us. As a result, for periods following June 30, 2016, we no longer treat the VIEs as related parties. Refer to Note12 – Nonconsolidated Variable Interest Entities for additional discussion and information regarding transactions with the VIEs subsequent to June 30, 2016.For periods prior to July 1, 2016, our related party sales to the VIEs are included in the accompanying consolidated statements of income as set forth inthe following table for the indicated periods: For the Years Ended December 31, 2017 2016 2015 (in millions)Fleet services — related parties$— $0.8 $1.9Related Party Revenue and Deferred RevenueWe have agreements to provide terminalling and fleet services for USDM with respect to our Hardisty terminal and terminalling services with respectto our Stroud terminal, which also include reimbursement to us for certain out-of-pocket expenses we incur.In connection with our acquisition of the Stroud terminal, USDM assumed the rights and obligations for additional terminalling capacity at ourHardisty terminal from another customer, effective as of June 1, 2017, to facilitate the origination of crude oil barrels by the Stroud terminal customer fromour Hardisty terminal for delivery to the Stroud terminal. As a result of the assumption of these rights and obligations by USDM, and in order to accommodatethe needs of the Stroud terminal customer, the contracted term for the capacity held by USDM has been extended to June 30, 2020. USDM controlsapproximately 25% of the available monthly capacity of the Hardisty terminal at December 31, 2017. The terms and conditions of these agreements aresimilar to the terms and conditions of agreements we have with other parties at the Hardisty terminal that are not related to us.We also entered into a Marketing Services Agreement with USDM effective as of May 31, 2017, as discussed above, in connection with ouracquisition of the Stroud terminal. Pursuant to the terms of the agreement, we receive a119Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.fixed amount per barrel from USDM in exchange for marketing the additional capacity available at the Stroud terminal. We include amounts receivedpursuant to this arrangement as revenue in the table below under “Terminalling services - related party.” For the years ended December 31, 2017, 2016 and2015, we have not received any payments pursuant to this agreement.Our related party revenue from USDM as described above are presented below in the following table for the indicated periods: For the Years Ended December 31, 2017 2016 2015 (in thousands)Terminalling services — related party$14,192 $6,933 $5,228Fleet leases — related party4,401 3,560 4,123Fleet services — related party652 1,116 966Freight and other reimbursables — related party2 — 85 $19,247 $11,609 $10,402We had $0.4 million receivable from USDM as of December 31, 2017, and no significant amounts receivable at December 31, 2016, recorded in“Accounts receivable — related party.” We have deferred revenue included in “Deferred revenue, current portion – related party” in our consolidated balancesheets associated with our terminalling and fleet services agreements with USDM for amounts we have collected from them for their minimum volumecommitment fees and prepaid lease amounts as follows for the indicated periods: December 31, 2017 2016 (in thousands)Other current and non-current assets — related party (1)$253 $— Customer prepayments, current portion (2)$410 $390Minimum monthly commitment fees4,705 3,902Total deferred revenue, current portion — related party$5,115 $4,292 (1) Represents non-cash lease revenues associated with the recognition of our lease contracts.(2) Represents amounts associated with lease payments received in advance.Cash DistributionsWe paid the following aggregate cash distributions to USDG as a holder of our common units and as the sole owner of our subordinated units and toUSD Partners GP LLC for their general partner interest and as holder of our IDRs.Year Ended December 31, 2017DistributionDeclaration Date Record Date DistributionPayment Date Amount Paid to USDG Amount Paid toUSD Partners GPLLC (in thousands)February 1, 2017 February 13, 2017 February 17, 2017 $3,814 $152April 27, 2017 May 8, 2017 May 12, 2017 3,872 170July 27, 2017 August 7, 2017 August 11, 2017 3,929 194October 26, 2017 November 6, 2017 November 13, 2017 3,987 216 $15,602 $732120Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Year Ended December 31, 2016DistributionDeclaration Date Record Date DistributionPayment Date Amount Paid to USDG Amount Paid toUSD Partners GPLLC (in thousands)February 4, 2016 February 15, 2016 February 19, 2016 $3,467 $138April 28, 2016 May 9, 2016 May 13, 2016 3,554 142July 28, 2016 August 8, 2016 August 12, 2016 3,640 145October 27, 2016 November 7, 2016 November 14, 2016 3,727 149 $14,388 $574Transition Services AgreementIn connection with our acquisition of the Casper terminal in November 2015, we entered into a transition services agreement with Cogent, pursuant towhich Cogent provided certain accounting, administrative, customer support and information technology support services to the Casper terminal for threemonths following the November 17, 2015, closing date, while we transitioned such services to our management. Two officers of an affiliate of our generalpartner are the principal owners of Cogent. As a result these officers were considered to be beneficiaries of this agreement. Pursuant to the terms of thisagreement, we incurred approximately $52 thousand and $44 thousand of expenses for December 31, 2016 and 2015, respectively.14. COMMITMENTS AND CONTINGENCIESRail Service AgreementsWe have rail service agreements at our terminal facilities with labor service providers that expire at various dates from 2018 through 2020. After theinitial term of the agreements, the rail service contracts will continue to be in effect for consecutive one-year terms unless either party provides the other partywritten notice prior to the end of the term. Under these agreements, we incurred approximately $9.0 million, $8.1 million and $7.7 million in service fees forthe years ended December 31, 2017, 2016 and 2015, respectively, which are recorded in “Subcontracted rail services” within our consolidated statements ofincome.The future minimum payments for these rail services agreements are as follows (in thousands):Year ending December 31, 2018$11,27820196,48420201,105Total$18,867Operating Leases and Fleet Lease IncomeWe have non-cancellable operating leases for railroad tracks, land surfaces, and railcars that expire on various dates from 2017 through 2024. Weincurred approximately $0.3 million, $0.4 million and $0.4 million in lease expenses for buildings, offices, tracks and land for the years endedDecember 31, 2017, 2016 and 2015, respectively, which are recorded in “Operating and maintenance” within our consolidated statements of income.Additionally, we incurred approximately $6.5 million, $6.2 million and $11.8 million of fleet service expenses for railcar leases for the years endedDecember 31, 2017, 2016 and 2015, respectively, which are recorded in “Fleet leases” within our consolidated statements of income.121Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The approximate amount of our future minimum lease payments under our non-cancellable operating leases are as follows (in thousands):Year ending December 31, 2018$3,95620193,95620203,95420213,95420223,669Thereafter20Total$19,509We serve as an intermediary to assist our customers with obtaining railcars. In connection with our leasing of railcars from third parties, wesimultaneously enter into lease agreements with our customers for non-cancellable terms that are designed to recover our costs associated with leasing therailcars plus a fee for providing this service. Our lease agreements with customers require them to make monthly payments to us totaling $24.2 million undernon-cancellable terms through 2022, which are concurrent with the payments we are required to make to our lessors under our non-cancellable operatingleases as set forth in the table above. We record the revenue we derive from these leases in “Fleet leases” and “Fleet leases — related party” within ourconsolidated statements of income.The approximate amount of our future rental income under non-cancellable operating leases are as follows (in thousands):Year ending December 31, 2018$4,84520194,84520204,84520214,84520224,845Thereafter—Total$24,225Contingent LiabilitiesFrom 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 arecurrently a party to any such proceedings that will have a material adverse impact on our financial condition or results of operations.122Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.15. SEGMENT REPORTINGWe manage our businesses in two reportable segments: Terminalling services and Fleet services. The Terminalling services segment charges minimummonthly 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 feesper gallon to transload ethanol from railcars, including related logistics services. The Fleet services segment provides customers with railcars and fleetservices related to the transportation of liquid hydrocarbons and biofuels under multi-year, take-or-pay contracts. Corporate activities are not considered areportable 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 chief operating decision maker, or CODM, regularly reviews financialinformation about both segments in order to allocate resources and evaluate performance. Our CODM assesses segment performance based on the cash flowsproduced by our established reporting segments using Segment Adjusted EBITDA. We define Segment Adjusted EBITDA as “Net cash provided by operatingactivities” 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 flowsproduced by our businesses.The following tables summarize our reportable segment data: For the Year Ended December 31, 2017 Terminallingservices Fleetservices Corporate Total (in thousands)Revenues Terminalling services$87,210 $— $— $87,210Terminalling services — related party14,192 — — 14,192Railroad incentives22 — — 22Fleet leases— 2,140 — 2,140Fleet leases — related party— 4,401 — 4,401Fleet services— 1,854 — 1,854Fleet services — related party— 652 — 652Freight and other reimbursables367 496 — 863Freight and other reimbursables — related party1 1 — 2Total revenues101,792 9,544 — 111,336Operating costs Subcontracted rail services8,953 — — 8,953Pipeline fees23,420 — — 23,420Fleet leases— 6,539 — 6,539Freight and other reimbursables368 497 — 865Operating and maintenance2,853 380 — 3,233Selling, general and administrative5,064 927 9,090 15,081Depreciation and amortization22,132 — — 22,132Total operating costs62,790 8,343 9,090 80,223Operating income (loss)39,002 1,201 (9,090) 31,113Interest expense170 — 9,755 9,925Loss (gain) associated with derivative instruments1,083 — (146) 937Foreign currency transaction loss (gain)(33) 5 (428) (456)Other income, net(308) — — (308)Provision for (benefit from) income taxes(1,290) 275 (177) (1,192)Net income (loss)$39,380 $921 $(18,094) $22,207Total assets$304,315 $2,229 $846 $307,390Capital expenditures and acquisitions$27,580 $— $— $27,580123Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the Year Ended December 31, 2016 Terminallingservices Fleetservices Corporate Total (in thousands)Revenues Terminalling services$93,014 $— $— $93,014Terminalling services — related party6,933 — — 6,933Railroad incentives76 — — 76Fleet leases— 2,577 — 2,577Fleet leases— related party— 3,560 — 3,560Fleet services— 1,084 — 1,084Fleet services — related party— 1,926 — 1,926Freight and other reimbursables13 1,942 — 1,955Freight and other reimbursables — related party— — — —Total revenues100,036 11,089 — 111,125Operating costs Subcontracted rail services8,077 — — 8,077Pipeline fees20,799 — — 20,799Fleet leases— 6,174 — 6,174Freight and other reimbursables13 1,942 — 1,955Operating and maintenance2,625 337 — 2,962Selling, general and administrative4,899 823 9,704 15,426Depreciation and amortization23,092 — — 23,092Total operating costs59,505 9,276 9,704 78,485Operating income (loss)40,531 1,813 (9,704) 32,640Interest expense1,016 — 8,831 9,847Loss associated with derivative instruments140 — — 140Foreign currency transaction gain(28) (71) (651) (750)Other income, net(10) — — (10)Provision for (benefit from) income taxes(1,184) 242 183 (759)Net income (loss)$40,597 $1,642 $(18,067) $24,172Total assets$297,250 $5,773 $2,944 $305,967Capital expenditures and acquisitions$474 $— $— $474124Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the Year Ended December 31, 2015 Terminallingservices Fleetservices Corporate Total (in thousands)Revenues Terminalling services$58,841 $— $— $58,841Terminalling services — related party5,228 — — 5,228Railroad incentives434 — — 434Fleet leases— 7,710 — 7,710Fleet leases — related party— 4,123 — 4,123Fleet services— 622 — 622Fleet services — related party— 2,840 — 2,840Freight and other reimbursables— 1,880 — 1,880Freight and other reimbursables — related party— 85 — 85Total revenues64,503 17,260 — 81,763Operating costs Subcontracted rail services7,710 — — 7,710Pipeline fees17,249 — — 17,249Fleet leases— 11,833 — 11,833Freight and other reimbursables— 1,965 — 1,965Operating and maintenance1,768 294 — 2,062Selling, general and administrative4,156 741 7,483 12,380Depreciation and amortization6,110 — — 6,110Total operating costs36,993 14,833 7,483 59,309Operating income (loss)27,510 2,427 (7,483) 22,454Interest expense2,043 — 2,389 4,432Gain associated with derivative instruments(5,161) — — (5,161)Foreign currency transaction loss (gain)166 43 (410) (201)Other income, net(17) — (47) (64)Provision for income taxes5,581 173 1 5,755Net Income (loss)$24,898 $2,211 $(9,416) $17,693Total assets$316,232 $5,719 $6,447 $328,398Capital expenditures and acquisitions$212,116 $— $— $212,116125Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Segment Adjusted EBITDAThe following table provides a reconciliation of Segment Adjusted EBITDA to “Net cash provided by operating activities:” For the Years Ended December 31, 2017 2016 2015 (in thousands)Segment Adjusted EBITDA Terminalling services$59,818 $67,507 $45,347Fleet services1,542 1,813 2,427Corporate activities (1)(4,984) (5,630) (5,022)Total Adjusted EBITDA56,376 63,690 42,752Add (deduct): Amortization of deferred financing costs861 861 659Deferred income taxes(250) 46 814Changes in accounts receivable and other assets4,433 1,859 (730)Changes in accounts payable and accrued expenses397 (1,917) (880)Changes in deferred revenue and other liabilities(7,105) (996) 10,085Change in restricted cash(94) (654) 870Interest expense, net(9,917) (9,837) (4,368)Benefit from (provision for) income taxes1,192 759 (5,755)Foreign currency transaction gain (2)456 750 201Non-cash lease items (3)(341) — —Deferred revenue associated with minimum monthly commitment fees (4)1,717 (1,485) (7,444)Net cash provided by operating activities$47,725 $53,076 $36,204 (1) Corporate activities represent shared service and financing transactions that are not allocated to our established reporting segments.(2) Represents foreign exchange transaction amounts associated with activities between our U.S. and Canadian subsidiaries.(3) Represents non-cash lease revenues and expenses associated with the recognition of our lease contracts.(4) Represents deferred revenue associated with minimum monthly commitment fees in excess of throughput utilized, which fees are not refundable to our customers. Amountspresented are net of: (a) the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue; (b) revenue recognizedin the current period that was previously deferred; and (c) expense recognized for previously prepaid Gibson pipeline fees, which correspond with the revenue recognized thatwas previously deferred. Refer to Note 10 – Deferred Revenue for additional discussion of deferred revenue.The following tables summarize the geographic data for our continuing operations: For the Year Ended December 31, 2017 U.S. Canada Total (in thousands)Revenues Third party$37,336 $54,753 $92,089Related party$5,054 $14,193 $19,247Total assets$229,206 $78,184 $307,390 For the Year Ended December 31, 2016 U.S. Canada Total (in thousands)Revenues Third party$44,792 $53,914 $98,706Related party$5,426 $6,993 $12,419Total assets$224,450 $81,517 $305,967126Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the Year Ended December 31, 2015 U.S. Canada Total (in thousands)Revenues Third party$20,134 $49,353 $69,487Related party$6,945 $5,331 $12,276Total assets$250,309 $78,089 $328,39816. INCOME TAXESU.S. Federal and State Income TaxesWe are treated as a partnership for U.S. federal and most state income tax purposes, with each partner being separately taxed on their share of ourtaxable income. One of our subsidiaries, USD Rail LP, has elected to be classified as an entity taxable as a corporation for U.S. federal income tax purposes.We are also subject to state franchise tax in the state of Texas, which is treated as an income tax under the applicable accounting guidance. Our U.S. federalincome tax expense is based upon our estimated annual effective federal income tax rate of 34% as applied to USD Rail LP’s taxable income of $2.0 million,taxable loss of $0.8 million and taxable income of $161 thousand for the years ended December 31, 2017, 2016 and 2015, respectively. We recorded aprovision for U.S. federal income tax in 2017 and 2015, utilizing net operating loss carryforwards to offset a portion of our taxable income. As a result of thelosses in 2016, we did not record a provision for U.S. federal income taxes for that year.On December 22, 2017, United States legislation referred to as the Tax Cuts and Jobs Act, or TCJA, was signed into law. Substantially all of theprovisions of the TCJA are effective for taxable years beginning after December 31, 2017. The TCJA includes significant changes to the Internal RevenueCode of 1986 (as amended, the Code), including amendments which significantly change the taxation of individual and business entities. The mostsignificant change included in the TCJA is a reduction in the corporate federal income tax rate from 35% to 21%. We do not expect changes in the Code fromthe TCJA to have a material impact on our tax provision in future periods.Foreign Income TaxesOur Canadian operations are conducted through entities that are subject to Canadian federal and provincial income taxes. The Canadian federalincome tax rate on business income is currently 15%. In June 2015, the Canadian province of Alberta enacted a tax rate increase which raised income taxrates on Alberta businesses from a previous rate of 10% to an effective rate of 11% for all of 2015, further increasing to 12% beginning January 1, 2016. As aresult, we recognized income tax liabilities and expenses in our consolidated financial statements based upon the combined federal and provincial incometax rate of 27% as applied to the pretax book income for our Canadian operations for 2017 and 2016 and 26% for 2015. The combined rate of 27% was alsoused to compute deferred income tax expense, which is the result of temporary differences that are expected to reverse in the future. For the year endedDecember 31, 2015, we used all $3.0 million of available net operating loss carryforwards to partially offset our taxable income. As a result, our effectiveCanadian income tax rate was 23.4% for 2015.The 2017 income tax expense of our Canadian operations includes a reduction to our estimate for 2016 income tax expense resulting from refunds ofapproximately $2.6 million (C$3.4 million) in connection with our Canadian federal and provincial income tax returns for 2016, which we filed in June2017. In 2016, we adopted a methodology for determining the return attributable to our Canadian subsidiaries based upon completion of a study we initiallycommissioned in 2015, which affected the amount of Canadian federal and provincial income taxes to which our Canadian operations are subject. Wecalculated our 2017 and 2016 income tax provisions for our Canadian operations utilizing this same methodology. This methodology also resulted in areduction of our Canadian income tax liability for the 2015 tax year, which we reflected in the third quarter of 2016.127Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Consolidated Provision for (Benefit from) Income TaxesComponents of our provision for (benefit from) income taxes are presented below: Years Ended December 31, 2017 2016 2015 (in thousands)Current income tax expense (benefit) U.S. federal income tax$687 $— $346U.S. federal operating loss carryforward(200) — (301)State income tax expense (benefit)(115) 208 154Canadian federal and provincial income taxes expense (benefit)(1,314) (1,013) 5,596Benefit of Canadian operating loss carryforwards— — (854)Total current income tax expense (benefit)(942) (805) 4,941Deferred income tax expense (benefit) U.S. federal income tax (benefit)(262) 245 —Canadian federal and provincial income taxes expense (benefit)12 (199) 814Total change in deferred income tax expense (benefit)(250) 46 814Provision for (benefit from) income taxes$(1,192) $(759) $5,755The components of our income before income taxes and a reconciliation between income tax expense based on the U.S. statutory income tax rate andour effective income tax expense are presented below: Years Ended December 31, 2017 2016 2015 (in thousands)Domestic$25,663 $27,367 $3,222Foreign(4,648) (3,954) 20,226Income before income taxes$21,015 $23,413 $23,448 Income tax expense at the U.S. federal statutory rate$7,145 $7,961 $7,972Amount attributable to partnership not subject to income tax(8,590) (8,718) 247Foreign income tax rate differential326 397 (2,303)Other28 (68) 135State income tax expense (benefit) (1)(132) 201 125Change in valuation allowance31 (532) (421)Provision for (benefit from) income taxes$(1,192) $(759) $5,755 (1) Net of the federal income tax expense or benefit for the deduction associated with state income taxes.128Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our deferred income tax assets and liabilities reflect the income tax effect of differences between the carrying amounts of our assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes. Major components of deferred income tax assets and liabilities associated withour operations were as follows as of the dates indicated: December 31, 2017 U.S. Foreign Total (in thousands)Deferred income tax assets Deferred revenues$— $— $—Other assets16 — 16Capital loss carryforwards— 469 469Operating loss carryforwards— — —Deferred income tax liabilities Unbilled revenue— (284) (284)Prepaid expenses— — —Property and equipment— (346) (346)Valuation allowance— (469) (469)Deferred income tax liability, net$16 $(630) $(614) December 31, 2016 U.S. Foreign Total (in thousands)Deferred income tax assets Deferred revenues$89 $— $89Capital loss carryforwards— 438 438Operating loss carryforwards257 — 257Deferred income tax liabilities Prepaid expenses(592) — (592)Property and equipment— (577) (577)Valuation allowance— (438) (438)Deferred income tax liability, net$(246) $(577) $(823)We had no available U.S. federal loss carryforward remaining at December 31, 2017 and approximately $0.8 million at December 31, 2016. TheCanadian loss carryforward was approximately $4.6 million and $4.4 million at December 31, 2017 and 2016, respectively, $1.2 million of which will beginexpiring in 2034.We are subject to examination by the taxing authorities for the years ended December 31, 2017, 2016 and 2015. We did not have any unrecognizedincome tax benefits or any uncertain tax positions for which income tax reserves would be required as of December 31, 2017 and 2016.129Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.17. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISKThe following tables provide the percentage of total revenues attributable to a single customer from which 10% or more of total revenues are derived: For the Year Ended December 31, 2017 Total Revenues byMajor Customer(in thousands) Percentage of TotalCompany Revenues Percentage of CustomerRevenues inTerminalling ServicesSegment Percentage of CustomerRevenues in FleetServices SegmentCustomer A$19,114 17% 74% 26%Customer B$18,226 16% 100% —%Customer C$12,018 11% 100% —%Customer D$13,041 12% 100% —%Customer E$9,949 9% 100% —%Customer F$4,583 4% 100% —% For the Year Ended December 31, 2016 Total Revenues byMajor Customer(in thousands) Percentage of TotalCompany Revenues Percentage of CustomerRevenues inTerminalling ServicesSegment Percentage of CustomerRevenues in FleetServices SegmentCustomer A$11,611 10% 60% 40%Customer B$15,827 14% 100% —%Customer C$11,436 10% 100% —%Customer D$10,158 9% 100% —%Customer E$15,249 14% 100% —%Customer F$11,140 10% 96% 4%A substantial portion of our revenues are from a limited number of customers. Our revenues are derived mainly from railcar loading and unloading,storage and other terminalling services as well as railcar fleet services. The industry concentration of these customers may impact our overall exposure tocredit risk, either positively or negatively, since our customers may be similarly affected by changes in commodity prices, regulation, and other economicfactors. We seek high-quality customers with investment grade credit ratings and perform ongoing credit evaluations of our customers.18. DERIVATIVE FINANCIAL INSTRUMENTSOur net income and cash flows are subject to fluctuations resulting from changes in interest rates on our variable rate debt obligations and fromchanges in foreign currency exchange rates, particularly with respect to the U.S. dollar and the Canadian dollar. In limited circumstances, we may also holdlong positions in the commodities we handle on behalf of our customers, which exposes us to commodity price risk. We use derivative financial instruments,including futures, forwards, swaps, options and other financial instruments with similar characteristics, to manage the risks associated with marketfluctuations in interest rates, foreign currency exchange rates and commodity prices, as well as to reduce volatility in our cash flows. We have not historicallydesignated, nor do we expect to designate, our derivative financial instruments as hedges of the underlying risk exposure. All of our derivative financialinstruments are employed in connection with an underlying asset, liability and/or forecasted transaction and are not entered into for speculative purposes.130Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Interest Rate DerivativesWe use interest rate collar contracts to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. Under our CreditAgreement, one-month LIBOR is used as the index rate for the interest we are charged on amounts borrowed under our Revolving Credit Facility. EffectiveNovember 2017, we entered into a five-year interest rate collar contract with a $100 million notional value. The collar establishes a range where we will paythe counterparty if one-month LIBOR falls below the established floor rate of 1.70%, and the counterparty will pay us if the one-month LIBOR exceeds theceiling rate of 2.50%. The collar settles monthly through the termination date in October 2022. No payments or receipts are exchanged on interest rate collarcontracts unless interest rates rise above or fall below a pre-determined ceiling or floor rate.Foreign Currency DerivativesWe derive a significant portion of our cash flows from our Hardisty terminal operations in the province of Alberta, Canada, which are denominated inCanadian dollars. As a result, fluctuations in the exchange rate between the Canadian dollar and the U.S. dollar could have a significant effect on our resultsof operations, cash flows and financial position. We endeavor to limit our foreign currency risk exposure using various types of derivative financialinstruments with characteristics that effectively reduce or eliminate the impact to us of declines in the exchange rate for a specified value of Canadian dollardenominated cash flows we expect to exchange into U.S. dollars.In April 2016, we entered into four separate forward contracts with an aggregate notional amount of C$33.5 million to manage our exposure tofluctuations in the exchange rate between the Canadian dollar and the U.S. dollar resulting from our Canadian operations during the 2017 calendar year.Each forward contract effectively fixed the exchange rate we received for each Canadian dollar we sold to the counterparty. One of these forward contractssettled at the end of each fiscal quarter during 2017 and secured an exchange rate where a Canadian dollar was exchanged for an amount between 0.7804 and0.7809 U.S. dollars.In June 2015, we entered into four separate collar arrangements with an aggregate notional value of C$32.0 million, which settled at the end of eachfiscal quarter during 2016, each having a notional value ranging between C$7.9 million and C$8.1 million. These derivative contracts were executed tosecure cash flows totaling C$32.0 million at an exchange rate range where a Canadian dollar was exchanged for an amount between 0.84 and 0.86 U.S.dollars.In May 2014, we entered into collar arrangements with an aggregate notional value of C$37.2 million, which, similar to the derivative contractsdiscussed above, settled at the end of each fiscal quarter through December 31, 2015. These derivative contracts were executed to secure cash flows totalingC$37.2 million at an exchange rate range where a Canadian dollar was exchanged for an amount between 0.91 and 0.93 U.S. dollars.Commodity DerivativesAs a part of our purchase of the Stroud terminal and related facilities, we acquired crude oil used by the prior owner for line fill in the crude oil pipelineand tank bottoms for the storage tanks at the Stroud terminal. We agreed to sell the approximately 18,000 barrels, or bbls, of crude oil used for tank bottomsin July 2017 and the approximately 13,000 bbls of crude oil used for line fill in October 2017 to an unrelated party at a price which varies with the price ofcrude oil during the months of July and October of 2017. In June 2017, we entered into two separate fixed-for-floating swap contracts with an aggregatenotional amount of 31,778 bbls to manage our exposure to fluctuating crude oil prices. Each swap contract effectively fixed the price we received upon ourdelivery of the crude oil. The first contract for approximately 18,000 bbls settled in July 2017 at $47.20 per barrel, and the second for approximately 13,000bbls settled in October 2017 at $47.70 per barrel.In September 2017, we also acquired crude oil used by the prior owner of the Stroud terminal for tank bottoms in a leased storage tank at a third-partyfacility in Cushing, Oklahoma. We agreed to sell this crude oil in October 2017 to an unrelated party at a price which varied with the price of crude oil duringthe month of October. We entered into a fixed-for-floating swap contract with an aggregate notional amount of 30,000 bbls to manage our exposure to the131Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.variability in crude oil prices during the month of October 2017. The swap contract effectively fixed the price we received upon our delivery of the crude oiland settled in October 2017 at $47.90 per barrel.Derivative PositionsWe recorded all of our derivative financial instruments at their fair values in the line items specified below within our consolidated balance sheets, theamounts of which were as follows at the dates indicated: December 31, 2017 2016 (in thousands)Other current assets$183 $1,167We have not designated our derivative financial instruments as hedges of our interest rate, foreign currency rate or commodity exposures. As a result,changes in the fair value of these derivatives are recorded as “Loss (gain) associated with derivative instruments” in our consolidated statements of income.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 bymaking or receiving a payment to or from the counterparty. In connection with our derivative activities, we recognized the following amounts during theperiods presented: Years Ended December 31, 2017 2016 2015 (in thousands)Loss (gain) associated with derivative instruments$937 $140 $(5,161)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 tables present summarized information about the fair values of our outstanding interest rate contracts for the periods indicated: December 31, 2017 Notional Interest RateParameters Fair Value (in thousands)Collar Agreements Maturing in 2022 Ceiling C$100,000,000 2.5% $938Floor C$100,000,000 1.7% (755)Total $183132Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following tables present summarized information about the fair values of our outstanding foreign currency contracts for the period indicated: December 31, 2016 Notional ForwardRate (1) MarketPrice (1) Fair Value (in thousands)Forward contracts maturing in 2017 March 31, 2017 C$8,300,000 0.7804 0.7444 $299June 30, 2017 C$8,400,000 0.7805 0.7453 296September 29, 2017 C$8,400,000 0.7807 0.7462 290December 29, 2017 C$8,400,000 0.7809 0.7473 282Total $1,167 (1) Forward rates and market prices are denoted in amounts where a Canadian dollar is exchanged for the indicated amount of U.S. dollars. The forward rate represents the rate wereceived upon settlement. The market price represents the rate we would expect to pay had the contract been settled on December 31, 2016.We record the fair market value of our derivative financial instruments in our consolidated balance sheets as current and non-current assets orliabilities on a net basis by counterparty. The terms of the International Swaps and Derivatives Association Master Agreement, which governs our financialcontracts and include master netting agreements, allow the parties to our derivative contracts to elect net settlement in respect of all transactions under theagreements. The effect of the rights of offset are presented in the tables below as of the date indicated. December 31, 2017 Currentassets Non-currentassets Currentliabilities Non-currentliabilities Total (in thousands)Fair value of derivatives - gross presentation $938 $— $— $— $938Effects of netting arrangements — — (755) — $(755)Fair value of derivatives - net presentation $938 $— $(755) $— $183 December 31, 2016 Currentassets Non-currentassets Currentliabilities Non-currentliabilities Total (in thousands)Fair value of derivatives - gross presentation $1,167 $— $— $— $1,167Effects of netting arrangements — — — — $—Fair value of derivatives - net presentation $1,167 $— $— $— $1,167For more information on our accounting policies regarding derivatives, refer to the derivative financial instruments discussion in Note 2 — Summaryof Significant Accounting Policies.19. PARTNERS’ CAPITALOur common units and subordinated units represent limited partner interests in us. The holders of common units and subordinated units are entitled toparticipate in partnership distributions and to exercise the rights and privileges available to limited partners under our partnership agreement.133Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our Class A units are limited partner interests in us that entitle the holders to nonforfeitable distributions that are equivalent to the distributions paidwith respect to our common units (excluding any arrearages of unpaid minimum quarterly distributions from prior quarters) and, as a result, are consideredparticipating securities. Our Class A units do not have voting rights and vest in four equal annual installments over the four years following theconsummation of our IPO only if we grow our annualized distributions each year. If we do not achieve positive distribution growth in any of these years, theClass A units that would otherwise vest for that year will be forfeited. The Class A units contain a conversion feature, which, upon vesting, provides for theconversion of the Class A units into common units based on a conversion factor that is tied to the level of our distribution growth for the applicable year. Theconversion factor was 1.00 for the first vesting tranche, 1.50 for the second vesting tranche and will be no more than 1.75 for the third vesting tranche and2.00 for the fourth and final vesting tranche. In February 2017, pursuant to the terms set forth in our partnership agreement, the second vesting tranche of46,250 Class A units vested. We determined that, upon conversion, each vested Class A unit would receive one and one-half (1.50) common units based uponour distributions paid for the four preceding quarters. As a result, 46,250 Class A units were converted into 69,375 common units.Our partnership agreement provides that, while any subordinated units remain outstanding, holders of our common units and Class A units will havethe right to receive distributions of available cash from operating surplus each quarter in an amount equal to our minimum quarterly distribution per unit,plus (with respect to the common units) any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, beforeany distributions of available cash from operating surplus may be made on the subordinated units.Subordinated units convert into common units on a one-for-one basis in separate sequential tranches. Each tranche is comprised of 20.0% of thesubordinated units issued in conjunction with our IPO. A separate tranche is eligible to convert on or after December 31, 2015 (but no more frequently thanonce in any twelve-month period), provided on such date (i) distributions of available cash from operating surplus on each of the outstanding common units,Class A units, subordinated units and general partner units equaled or exceeded $1.15 per unit (the annualized minimum quarterly distribution) for the fourquarter period immediately preceding that date; (ii) the adjusted operating surplus generated during the four quarter period immediately preceding that dateequaled or exceeded the sum of $1.15 per unit (the annualized minimum quarterly distribution) on all of the common units, Class A units, subordinated unitsand general partner units outstanding during that period on a fully diluted basis; and (iii) there are no arrearages in the payment of the minimum quarterlydistribution on our common units. For each successive tranche, the four quarter period specified in clauses (i) and (ii) above must commence after the fourquarter period applicable to any prior tranche of subordinated units. In February 2017, pursuant to the terms set forth in our partnership agreement, weconverted the second tranche of 2,092,709 of our subordinated units into common units upon satisfaction of the conditions established for conversion.Pursuant to the terms of the USD Partners LP 2014 Long-Term Incentive Plan, which we refer to as the LTIP, our phantom unit awards, or PhantomUnits, granted to directors and employees of our general partner and its affiliates, which are classified as equity, are converted into our common units uponvesting. Equity-classified Phantom Units totaling 269,661 vested during 2017, of which 190,288 were converted into our common units after 79,373Phantom Units were withheld from participants for the payment of applicable employment-related withholding taxes. The conversion of these Phantom Unitsdid not have any economic impact on Partners’ Capital, since the economic impact is recognized over the vesting period. Additional information anddiscussion regarding our unit based compensation plans is included below in Note 20 - Unit Based Compensation.The board of directors of our general partner has adopted a cash distribution policy pursuant to which we intend to distribute at least the minimumquarterly distribution of $0.2875 per unit ($1.15 per unit on an annualized basis) on all of our units to the extent we have sufficient available cash after theestablishment of cash reserves and the payment of our expenses, including payments to our general partner and its affiliates. The board of directors of ourgeneral partner may change our distribution policy at any time and from time to time. Our partnership agreement does not require us to pay cash distributionson a quarterly or other basis. The amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determinedby our general partner.134Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In June 2017, we completed an underwritten public offering of 3,000,000 common units that we used to repay a portion of the amounts outstanding onour revolving credit facility, including amounts we borrowed to fund our acquisition of the Stroud terminal.The following table presents the net proceeds from our common unit issuances: Number of CommonUnits Issued Public Offering Price perCommon Unit Net Proceeds to thePartnership (1) (in millions) June 7, 2017 Issuance3,000,000 $11.60 $33.7 (1) Net of underwriter’s fees and discounts, commissions and issuance costs.20. UNIT BASED COMPENSATIONClass A unitsAs provided for in our partnership agreement, we granted 250,000 non-voting Class A units to certain executive officers and other key employees ofour general partner who provide services to us, of which 82,500, 138,750 and 185,000 were outstanding as of December 31, 2017, 2016 and 2015,respectively. In February 2017, pursuant to the terms set forth in our partnership agreement, the second vesting tranche of 46,250 Class A units vested basedupon our distributions paid for the four preceding quarters and were converted on a basis of one and one-half common units for each class A unit. As a resultwe converted 46,250 class A units into 69,375 common units. The grant date average fair value of all Class A units was $25.71 per unit atDecember 31, 2017, 2016 and 2015. Years Ended December 31, 2017 2016 2015Class A units outstanding at beginning of period 138,750 185,000 220,000Vested (46,250) (46,250) —Forfeited (10,000) — (35,000)Class A units outstanding at end of period 82,500 138,750 185,000Our Class A units vest over a four year period if established distribution target thresholds are met each year of the four year vesting period. Ifdistributions exceed the threshold by more than the target amount, the Class A units in that tranche vest and become convertible into more than one commonunit (each Class A unit is convertible into a maximum number of additional common units of 1.25 to 2.0 times, depending on the tranche). The maximumnumber of common units available for issuance under the plan was 154,688 at December 31, 2017. Each of the Class A units have an accompanyingdistribution equivalent right, or DER, until they are forfeited, expire, or are terminated. However, distributions over the vesting period are not paid in arrearsif the Class A units become convertible into more than one common unit.We measure the compensation cost associated with the Class A units based on the fair value at the October 15, 2014 effective date of the grant. Wedetermined the fair value of our Class A units at the grant date to be $25.71 per Class A unit based on the market price of the underlying common units on thedate of our IPO, adjusted for vesting probabilities associated with the performance-based vesting requirements and the present value of the expecteddistributions. We assumed distribution rates ranging from $0.24375 per quarter to $0.4905 per quarter during the vesting period which we discountedassuming a 13% annual cost of equity. For the years ended December 31, 2017 and 2016, we revised our assumptions regarding the vesting probabilitiesassociated with the performance-based vesting requirements to reflect our current expectations regarding future quarterly distribution rates.The ultimate percentage of units vesting in each tranche depends on a performance condition: specifically, the total distributions paid in the fourquarters of the vesting period for each tranche. If distributions meet or fall below a135Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.threshold, the Class A units in that tranche are forfeited. If distributions exceed a threshold by less than a target amount, the Class A units in that tranche vestand become convertible into one common unit. If distributions exceed the threshold by the target amount or more, the Class A units in that tranche vest andbecome convertible into more than one common unit (1.25 to 2.0 times common units per Class A unit, depending on the tranche). We did not assume anyforfeitures in our initial determination of fair value, although we have reflected actual forfeitures in our determination of compensation expense with respectto the Class A units.We estimated the expense for each tranche as the number of unit equity awards, multiplied by the per unit grant date fair value of those awards lessactual forfeitures in the probable vesting scenario for each tranche (equaling the applicable conversion multiple times the value of the unit excluding theexpected distributions paid over the vesting period (the common unit price at October 15, 2014, less the present value of the expected distributions) plus thepresent value of the expected distributions for any tranches that vest). The estimated fair value of our Class A units is amortized over the four-year vestingperiod using the straight-line method. The Class A unit awards will convert into our common units upon vesting. We recognized approximately $0.2 million,$1.0 million and $1.3 million as compensation expense for the years ended December 31, 2017, 2016 and 2015, respectively, related to the Class A unitsgranted, which costs are included in “Selling, general and administrative” in our consolidated statements of income.Each holder of a Class A unit is entitled to nonforfeitable cash distributions equal to the product of the number of Class A units outstanding for theparticipant and the cash distribution per unit paid to our common unitholders. These distributions are included in “Distributions” as presented in ourconsolidated statements of cash flows and our consolidated statements of partners’ capital. However, any distributions paid on Class A units that are forfeitedare reclassified to unit based compensation expense when we determine that the Class A units are not expected to vest. We recognized compensation expenseof $30 thousand and $19 thousand for the years ended December 31, 2017 and 2015, respectively, for distributions paid on Class A units that were forfeited.We did not recognize any compensation expense for distributions paid on Class A units that are not expected to vest for the year ended December 31, 2016.Long-term Incentive PlanIn connection with the completion of our initial public offering in 2014, our general partner adopted the USD Partners LP 2014 Long-Term IncentivePlan, or the LTIP. The total number of our common units initially authorized for issuance under the LTIP was 1,654,167, which amount was subsequentlyincreased to 3,654,167 common units pursuant to the Amended and Restated 2014 Long-Term Incentive Plan, or A/R LTIP, that became effectiveNovember 16, 2017. In 2017, 2016 and 2015, the board of directors of our general partner, acting in its capacity as the general partner, approved grants of695,099, 576,373 and 419,551 Phantom Units, respectively, to directors and employees of our general partner and its affiliates under the USD Partners LP2014 Long-Term Incentive Plan. At December 31, 2017, we had 2,189,688 common units remaining available for issuance. The Phantom Units are subject toall of the terms and conditions of the A/R LTIP and the Phantom Unit award agreements, which are collectively referred to as the Award Agreements. Awardamounts for each of the grants are generally determined by reference to a specified dollar amount based on an allocation formula which included a percentagemultiplier 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 precedingthe grant date, as 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 directorsand 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 anamount equivalent to the closing market price of one of our common units on the vesting date. Each Phantom Unit granted under the Award Agreementsincludes an accompanying DER, which entitles each participant to receive payments at a per unit rate equal in amount to the per unit rate for anydistributions we make with respect to our common units. The Award Agreements granted to employees of our general partner and its affiliates generallycontemplate that the individual grants of Phantom Units will vest in four equal annual installments based on the grantee’s continued employment throughthe vesting dates specified in the Award Agreements, subject to acceleration upon the grantee’s death or disability, or involuntary termination in connectionwith a change in control of the Partnership or our general partner. Awards to independent directors of the board of our general partner and an independentconsultant typically vest over a one year period following the grant date.136Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table presents the award activity for our Equity-classified Phantom Units: Independent Director andConsultant Phantom Units Employee PhantomUnits Weighted-AverageGrant Date Fair ValuePer Phantom UnitPhantom Unit awards at December 31, 2014— — $—Granted24,045 367,548 $12.76Forfeited— (17,572) $12.90Phantom Unit awards at December 31, 201524,045 349,976 $12.75Granted64,830 472,912 $6.41Vested(24,045) (87,500) $12.66Forfeited— (4,580) $7.29Phantom Unit awards at December 31, 201664,830 730,808 $8.51Granted24,999 641,955 $12.78Vested(64,830) (204,831) $8.48Forfeited— (56,083) $10.94Phantom Unit awards at December 31, 201724,999 1,111,849 $10.90The following table presents the award activity for our Liability-classified Phantom Units: Independent Director andConsultant Phantom Units Employee Phantom Units Weighted-AverageGrant Date Fair ValuePer Phantom UnitPhantom Unit awards at December 31, 2014— — $—Granted10,256 17,702 $12.78Vested (1)— (4,426) $12.78Phantom Unit awards at December 31, 201510,256 13,276 $12.78Granted21,610 17,021 $6.39Vested (1)(2)(10,256) (8,682) $11.34Phantom Unit awards at December 31, 201621,610 21,615 $7.70Granted8,333 19,812 $12.80Vested (1)(2)(21,610) (13,633) $6.29Phantom Unit awards at December 31, 20178,333 27,794 $11.29 (1) Phantom Units granted to employees domiciled in Canada vested on December 31, 2017, 2016 and 2015 at the closing price for our common units as quoted on the NYSE. Wepaid $153 thousand, $137 thousand and $32 thousand, respectively, for Phantom Units granted to employees domiciled in Canada that vested on December 31, 2017, 2016 and2015.(2) Phantom Unit grants to Directors and independent consultants domiciled in Canada vested on February 25, 2017 and February 16, 2016, at the closing price for our common unitsas quoted on the NYSE, resulting in our payment of $277 thousand and $64 thousand, respectively, for the vested Phantom Units.The total fair value of all shares vested in 2017, 2016 and 2015 was approximately $4.0 million, $0.9 million, and $32 thousand, respectively, whichincluded approximately $430 thousand, $201 thousand, and $32 thousand respectively, of Canadian share-based liabilities.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 thePhantom Unit grants to independent directors and employees of our general partner and its affiliates domiciled in Canada that are paid out in cash uponvesting, throughout the requisite vesting period, by revaluing the unvested Phantom Units outstanding at the end of each reporting period and recording acharge to137Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.compensation expense in “Selling, general and administrative” in our consolidated statements of income and recognizing a liability in “Other currentliabilities” in our consolidated balance sheets. With respect to the Phantom Units granted to employees of our general partner and its affiliates domiciled inthe United States, we amortize the initial grant date fair value over the requisite service period using the straight-line method with a charge to compensationexpense in “Selling, general and administrative” in our consolidated statements of income, with an offset to common units within the Partners’ Capitalsection of our consolidated balance sheet. With respect to the Phantom Units granted to consultants and independent directors of our general partner and itsaffiliates domiciled in the United States, we revalue the unvested Phantom Units outstanding at the end of each reporting period throughout the requisiteservice period and record a charge to compensation expense in “Selling, general and administrative” in our consolidated statements of income, with an offsetto common units within the Partners’ Capital section of our consolidated balance sheets.For the years ended December 31, 2017, 2016 and 2015, we recognized approximately $3.9 million, $3.1 million and $1.2 million, respectively, ofcompensation expense associated with outstanding Phantom Units. As of December 31, 2017, we have unrecognized compensation expense associated withour outstanding Phantom Units totaling approximately $9.4 million, which we expect to recognize over a weighted average period of 2.66 years. We haveelected 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: Years Ended December 31, 2017 2016 2015 (in thousands)Equity-classified Phantom Units (1)$1,439 $868 $327Liability-classified Phantom Units65 56 24Total$1,504 $924 $351 (1) We reclassified approximately $64 thousand, $3 thousand and $5 thousand for the years ended December 31, 2017, 2016 and 2015, respectively, to unit based compensationexpense for DERs paid in relation to Phantom Units that have been forfeited.21. SUPPLEMENTAL CASH FLOW INFORMATIONThe following table provides supplemental cash flow information for the periods indicated: For the Years Ended December 31, 2017 2016 2015 (in thousands)Cash paid (received) for income taxes$(1,250) $845 $3,995Cash paid for interest$9,754 $8,722 $3,695The following table provides supplemental information for the item labeled “Other” in the “Net cash provided by operating activities” section of ourconsolidated statements of cash flows: For the Years Ended December 31, 2017 2016 2015 (in thousands)Loss associated with disposal of assets$18 $— $—Amortization of deferred financing costs$861 $861 $659Deferred income taxes$(250) $46 $814 $629 $907 $1,473138Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.22. SUBSEQUENT EVENTSDistribution to PartnersOn February 1, 2018, the board of directors of USD Partners GP LLC, acting in its capacity as our general partner, declared a quarterly cash distributionpayable of $0.35 per unit, or $1.40 per unit on an annualized basis, for the three months ended December 31, 2017. The distribution represents an increase of$0.005 per unit or 1.4% over the prior quarter distribution per unit, and is 21.7% over our minimum quarterly distribution per unit. We paid the distributionon February 16, 2018, to unitholders of record at the close of business on February 12, 2018. We paid $5.0 million to our public common unitholders, $27thousand to the Class A unitholders, an aggregate of $4.0 million to USDG as the holder of our common units and our subordinated units and $238 thousandto USD Partners GP LLC for their general partner interest.Long-term Incentive PlanIn February and March of 2018, awards of 369,903 Phantom Units vested. The following table provides details of these vested awards: Phantom UnitsVested Common Units Issued (1) Cash Paid (2) (inthousands)U.S. domiciled directors and independent consultants24,999 24,999 $—U.S. domiciled employee336,571 219,795 —Canadian domiciled directors and independent consultants8,333 — 96 369,903 244,794 $96 (1) Upon vesting, one common unit is issued for each equity classified Phantom Unit that vests. Employees have the option of using a portion of their vested Phantom Units tosatisfy any tax liability resulting from the vesting and as a result, the actual number of common units issued may be less than the number of phantom units that vest.(2) Each Liability-classified Phantom Unit that vests is redeemed in cash for an amount equivalent to the closing market price of one of our common units on the vesting date,which was $11.55.In February 2018, the board of directors of USD Partners GP LLC, acting in its capacity as our general partner approved the grant of 546,940 PhantomUnits to directors and employees of our general partner and its affiliates under the A/R LTIP. The Phantom Units are subject to all of the terms and conditionsof the A/R LTIP and the Phantom Unit award agreements, or the Award Agreements. Following the February and March 2018 Phantom Unit award activity,we have approximately 1,797,127 Phantom Units available for grant pursuant to the A/R LTIP. Phantom Unit awards generally represent rights to receive ourcommon units or, with respect to awards granted to individuals domiciled in Canada, cash equal to the fair value of our common units upon vesting. TheAward Agreements granted to employees of our general partner generally vest in four equal annual installments. Awards to independent directors of the boardof our general partner vest over a one year period following the grant date.Vesting of Class A unitsOn February 20, 2018, pursuant to the terms set forth in our partnership agreement, the third tranche of Class A units vested. We determined the ClassA unit conversion amount to be one of our common units for each vested Class A unit based upon our distributions paid for the four preceding quarters. As aresult, 38,750 Class A units were converted into 38,750 common units.Subordinated Units ConversionOn February 20, 2018, pursuant to the terms set forth in our partnership agreement, we converted the third subordinated unit tranche of 2,092,709subordinated units into our common units upon satisfaction of the conditions established for conversion.139Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Revolving Credit Facility ActivitySubsequent to December 31, 2017, we borrowed an additional $9.0 million and repaid $8.0 million under the terms of our existing $400 millionRevolving Credit Facility. Our borrowings under the Revolving Credit Facility bear interest at either a base rate and Canadian prime rate plus an applicablemargin ranging from 1.25% to 2.25%, or at LIBOR or CDOR plus an applicable margin ranging from 2.25% to 3.25%. The Revolving Credit Facilityagreement, as amended, provides for borrowings of up to $400 million, expandable to $500 million, and expires on October 15, 2019. Subsequent to thisactivity, we had amounts outstanding of $203.0 million under the Revolving Credit Facility.23. QUARTERLY FINANCIAL DATA (Unaudited) First Second Third Fourth (in thousands, except per unit amounts)2017 Quarters Operating revenue$27,752 $26,989 $28,981 $27,614Operating expense (1)$18,516 $18,227 $20,182 $23,298Operating income$9,236 $8,762 $8,799 $4,316Net income$5,198 $8,379 $6,427 $2,203Net income attributable to limited partner ownership interests in USD Partners LP$5,080 $8,185 $6,258 $2,098Net income per limited partner unit, basic and diluted$0.22 $0.35 $0.24 $0.08 2016 Quarters Operating revenue$26,357 $27,871 $28,343 $28,554Operating expense (2)$18,834 $18,454 $18,843 $22,354Operating income$7,523 $9,417 $9,500 $6,200Net income$2,150 $5,235 $12,831 $3,956Net income attributable to limited partner ownership interests in USD Partners LP$2,107 $5,131 $12,575 $3,877Net income per limited partner unit, basic and diluted$0.09 $0.23 $0.49 $0.17 (1) Operating expense for the fourth quarter of 2017 includes a non-cash impairment loss of approximately $1.7 million to reduce the value of certain assets included in ourTerminalling services segment to their net realizable value less selling costs.(2) Operating expense for the fourth quarter of 2016 includes a non-cash impairment loss of approximately $3.5 million to write down the non-current assets of the San Antonio railterminal to fair market value.140Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDISCLOSURE CONTROLS AND PROCEDURESAs required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we have evaluated, under the supervision andwith the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period coveredby this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us inreports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer andprincipal financial officer, as appropriate, to allow for timely decisions regarding required disclosure and to ensure information is recorded, processed,summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer andprincipal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report atthe reasonable assurance level.INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement’s Annual Report on Internal Control Over Financial ReportingManagement of the Partnership is responsible for establishing and maintaining adequate internal control over financial reporting as such term isdefined in Exchange Act Rule 13a-15(f).The Partnership’s internal control over financial reporting is a process designed under the supervision and with the participation of our principalexecutive and principal financial officers, and effected by the board of directors of our general partner, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance withgenerally accepted accounting principles.Our internal control over financial reporting includes policies and procedures that:•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets of the Partnership;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with the authorizations ofthe Partnership’s management and directors; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets thatcould have a material effect on the Partnership’s financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with our policies or procedures may deteriorate.Management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2017, with the participation ofour principal executive officer and principal financial officer, based on the framework established in Internal Control—Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on this assessment, management concluded that thePartnership maintained effective internal control over financial reporting as of December 31, 2017.141Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThis Annual Report does not include an attestation report of our independent registered public accounting firm on our internal control over financialreporting because Section 103 of the Jumpstart Our Business Startups Act of 2012 provides that an emerging growth company (“EGC”) is not required toprovide an auditor’s report on internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act for as long as we qualify as an EGC.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGWe did not make any changes in our internal control over financial reporting during the three months ended December 31, 2017, that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationNone.142Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceEXECUTIVE OFFICERS AND DIRECTORSWe are managed by the directors and executive officers of our general partner, USD Partners GP LLC. Our general partner is not elected by ourunitholders and will not be subject to re-election by our unitholders in the future. USD indirectly owns all of the membership interests in our general partner.Our general partner has a board of directors, and our unitholders are not entitled to elect the directors or directly or indirectly to participate in ourmanagement or operations. Our general partner will be liable, as general partner, for all of our debts (to the extent not paid from our assets), except forindebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, we intend to incur indebtedness that is nonrecourse to ourgeneral partner.Our general partner’s board of directors has nine directors, three of whom are independent as defined under the independence standards established bythe NYSE and the Exchange Act. Our general partner’s board of directors has affirmatively determined that Ms. O’Hagan, Mr. Smith and Mr. Wood areindependent as described in the rules of the NYSE and the Exchange Act. The NYSE does not require a listed publicly traded partnership, such as ours, tohave a majority of independent directors on the board of directors of our general partner, or to establish a compensation committee or a nominatingcommittee.Set forth below is information concerning the directors and executive officers of our general partner, USD Partners GP LLC. Directors are elected by thesole member of our general partner and hold office until their successors have been elected or qualified or until their earlier death, resignation, removal ordisqualification. Executive officers are appointed by, and serve at the discretion of, the board of directors. The following table shows information for theexecutive officers and directors of USD Partners GP LLC:Name Age Position Dan Borgen 56 Chairman of the Board, Chief Executive Officer and PresidentPaul Tucker 77 Executive Vice President, Chief Integration & Relationship OfficerJosh Ruple 37 Senior Vice President, Chief Operating OfficerAdam Altsuler 44 Senior Vice President, Chief Financial OfficerJay Stanford 54 Vice President, Chief Accounting OfficerKeith Benson 45 General CounselSchuyler Coppedge 44 DirectorMike Curry 64 DirectorDouglas Kimmelman 57 DirectorThomas Lane 61 DirectorJane O’Hagan 54 DirectorBrad Sanders 60 DirectorStacy Smith 49 DirectorJeff Wood 47 DirectorDan Borgen. Mr. Borgen has been Chief Executive Officer and President of our general partner since June 2014 and became Chairman of the Board ofour general partner prior to the close of our IPO. Mr. Borgen is a co-founder of USD and its predecessor companies and has served as chairman, CEO andPresident of USD since its inception. Additionally, Mr. Borgen served as President of U.S. Right-of-Way Corporation, a private company, since 1993. Prior toUSD, Mr. Borgen worked for 11 years in investment banking in mergers and acquisitions, portfolio management and strategic planning. He began his careerwith a private investment firm focused on the oil and gas industry. Mr. Borgen has served on the board of directors of several corporations and currentlyserves on the board of Vertex Energy Inc., an environmental services company that recycles industrial waste streams and off-specification commercialchemical products. Active in several community organizations, he is chair of the USD Foundation and a trustee of Boys and Girls143Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Club of America. Mr. Borgen received a degree in Petroleum Management and Finance from the University of Oklahoma. He was recognized by GoldmanSachs as one of 100 Most Intriguing Entrepreneurs in 2013 and was a finalist for Ernst and Young’s 2014 Gulf Coast Entrepreneur of the Year. Mr. Borgen’sexperience in founding and leading USD and its predecessors provides the board with broad business and leadership expertise in the financial and energyindustries.Paul Tucker. Mr. Tucker has been Executive Vice President and Chief Integration & Relationship Officer of our general partner and for USD sinceJanuary 1, 2017. In this role, Mr. Tucker is primarily responsible for developing and maintaining USD’s and our large network of strategic relationships andfor facilitating the integration of processes, practices and culture throughout current and future facilities. Mr. Tucker previously served as Senior VicePresident and Chief Operating Officer of our general partner since June 2014 and for USD since its inception. Mr. Tucker’s career in the rail transportationindustry spans over 41 years and includes key senior leadership roles with the Union Pacific and Missouri Pacific railroads and the Port Terminal RailroadAssociation (PTRA). Mr. Tucker’s career also includes service on the board of directors of the Texas City Terminal (TCT), the Galveston, Houston andHenderson (GH&H), the Wichita Terminal Association (WTA) and the Houston Belt and Terminal (HBT) railroads, on which he also served on the ExecutiveCommittee. Mr. Tucker received a BA in Psychology from Henderson State University and received post-graduate executive leadership development at theUniversity of Pittsburgh and Eckerd College, St. Petersburg, Florida.Josh Ruple. Mr. Ruple has been Senior Vice President and Chief Operating Officer of our general partner and for USD since January 1, 2017. In thisrole, Mr. Ruple is responsible for all operations and project development activities in support of USD and our commercial development vision, mission andtactical growth strategies. Mr. Ruple previously served as Vice President, Project Development Group of USD since June 2014. From July 2013 through June2014, Mr. Ruple was the Senior Development Manager for TransDevelopment Group, a developer of specialized transportation facilities for shippers andcarriers in the rail, highway, and marine cargo industries. From March 2011 through December 2013, Mr. Ruple was the Vice President Construction Servicesfor Powerhouse Retail Services, a national provider of retail construction and maintenance services. From August 2004 through March 2011, Mr. Rupleworked at the BNSF Railway in positions of increasing responsibility, most recently as Senior Manager of Facility Development. Mr. Ruple received a BS inCivil and Environmental Engineering from the University of Utah and is an active member of both professional and public community organizations. Adam Altsuler. Mr. Altsuler has been Senior Vice President and Chief Financial Officer of our general partner since January 1, 2018. Prior to that,Mr. Altsuler served as Vice President and Chief Financial Officer since June 2014 after joining USD in April 2014 as Vice President, Finance with a primaryfocus on corporate finance, capital markets and investor relations activities. From 2009 to 2014, Mr. Altsuler served in various leadership roles at Eagle RockEnergy Partners, a master limited partnership headquartered in Houston, Texas, most recently serving as Vice President and Treasurer. Prior to joining EagleRock, Mr. Altsuler was an Investment Analyst at Kenmont Investments, an energy-focused hedge fund located in Houston, where he managed the fund’smaster limited partnership investment portfolio from 2007 to 2009. Prior to Kenmont, Mr. Altsuler worked the majority of his career in investment bankingwith Donaldson, Lufkin and Jenrette/Credit Suisse First Boston and a boutique investment bank in Dallas and San Francisco. Mr. Altsuler graduated from theUniversity of Texas at Austin with a BBA in Finance and received an MBA from Rice University, graduating Beta Gamma Sigma.Jay Stanford. Mr. Stanford has been the Vice President and Chief Accounting Officer of our general partner since January 1, 2018 and is responsible foroverseeing the accounting and financial reporting functions in support of our Sponsor and the Partnership. Mr. Stanford served as Senior Director,Accounting and Financial Reporting of the Partnership since July 2017 and as Director, Financial Reporting for the General Partner from November 2014through July 2017, with responsibility for overseeing the accounting and SEC reporting functions of the Partnership. From January 2005 through November2014, Mr. Stanford held various management level positions with Enbridge Energy Company, Inc., the general partner of Enbridge Energy Partners, L.P., amaster limited partnership headquartered in Houston, Texas, with responsibility for accounting and finance functions including: financial reporting,technical accounting, strategic planning, budgeting and forecasting, among other duties. Mr. Stanford has also held similar positions with responsibility forfinancial accounting and reporting activities with other public and private companies and began his career with KPMG LLP, where he served clients for fiveyears in the banking and healthcare industries.144Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Mr. Stanford is a Certified Public Accountant and Certified Global Management Accountant, a two time graduate of Texas Tech University where he receivedBBAs in Finance and Accounting and an active member of the American Institute of Certified Public Accountants. Keith Benson. Mr. Benson became General Counsel of our general partner and Co-General Counsel of USD in March 2015. From January 2008through February 2015, Mr. Benson was a partner with the international law firm of Latham & Watkins LLP in their Houston and San Francisco offices. Mr.Benson’s practice focused on public company representation, corporate governance, capital markets and mergers & acquisitions, with a focus on midstreamand upstream energy companies, master limited partnerships and real estate investment trusts. From July 2000 through December 2007, Mr. Benson was anassociate with Latham & Watkins LLP and from October 1998 through June 2000 Mr. Benson was an associate with the law firm of Cahill, Gordon & ReindelLLP. Mr. Benson received a JD with high honors from Rutgers School of Law and a BA in Political Science from The College of New Jersey.Schuyler Coppedge. Mr. Coppedge has been a member of the board of directors of our general partner since September 2016. Mr. Coppedge is aPartner at Energy Capital Partners. He is involved in all areas of the firm’s investment activities, with a particular emphasis on renewable and fossil fuelgeneration and environmental and oil field services. Mr. Coppedge serves on the boards of STEAG-SCR Tech, ProPetro Holding Corp and Terra-Gen, LLCand serves as a board observer to NCSG Crane & Heavy Haul Corporation. Prior to realization, Mr. Coppedge served on the board of FirstLight PowerEnterprises, Inc. Before joining Energy Capital in 2005, Mr. Coppedge spent over six years at JP Morgan in New York and London in the firm’s EnergyInvestment Banking Division. At JP Morgan, Mr. Coppedge was involved in numerous financing and merger and acquisition transactions across variousbusiness segments of the energy sector. Mr. Coppedge received a BA from Middlebury College and an MBA from the Wharton School at the University ofPennsylvania.Mike Curry. Mr. Curry has been a member of the board of directors of our general partner since June 2014. Mr. Curry is co-founder of USD and itspredecessor companies, and currently serves as Executive Vice President and Head of Finance and Risk for USD. From 2006 to June 2014, Mr. Curry servedas Chief Financial Officer of USD. Throughout the years he has been extensively involved with and directed numerous aspects of USD, including strategicplanning, project development, construction and heading finance. Prior to USD, Mr. Curry served as Treasurer and Chief Accounting Officer for integrated oiland gas producer An-Son Corp., located in Oklahoma City, from 1982 to 1985 and was employed by Arthur Andersen & Co. from 1978 to 1981. Mr. Curry isa Certified Public Accountant and holds a Master’s Degree in Accountancy from the University of Illinois. Mr. Curry’s experience and involvement with USDfrom its founding to its present day operations, along with his accounting background, bring the board financial, strategic and operational expertise andleadership. Douglas Kimmelman. Mr. Kimmelman has been a member of the board of directors of our general partner since October 2014. Mr. Kimmelmanfounded Energy Capital Partners in April 2005 and serves as its Senior Partner. Mr. Kimmelman currently serves on the boards of CE2 Carbon Capital, LLC,PLH Group, Inc. and Nesco Holdings, LP. Prior to founding Energy Capital Partners, Mr. Kimmelman spent 22 years with Goldman Sachs, starting in 1983 inthe firm’s Pipeline and Utilities Department within the Investment Banking Division. He remained exclusively focused on the energy and utility sectors inthe Investment Banking Division until 2002, when he transferred to the firm’s J. Aron commodity group. He was named a General Partner of the firm in 1996.From 2002 to 2005, Mr. Kimmelman played a leadership role at Goldman Sachs in building a power generation asset portfolio through the J. Aroncommodity group. Mr. Kimmelman received a BA in Economics from Stanford University and an MBA from the Wharton School at the University ofPennsylvania. Mr. Kimmelman’s experience as founder and Senior Partner of Energy Capital Partners and knowledge of the energy industry provide theboard with extensive financial and business leadership. Thomas Lane. Mr. Lane has been a member of the board of directors of our general partner since October 2014. Mr. Lane is Vice Chairman of EnergyCapital Partners. He is involved in all areas of the firm’s investment activities, with a particular emphasis on the midstream sector. Mr. Lane serves on theboards of Summit Midstream Partners, LLC and Summit Midstream Partners, L.P. (NYSE: SMLP). Prior to realization, Mr. Lane served on the board ofFirstLight Power Enterprises, Inc. and Cardinal Gas Storage Partners, LLC. Prior to joining Energy Capital Partners in 2005, Mr. Lane worked for 17 years inthe Investment Banking Division at Goldman Sachs. As a Managing Director145Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.at Goldman Sachs, Mr. Lane had senior-level coverage responsibility for electric and gas utilities, independent power companies and midstream gascompanies throughout the United States. Mr. Lane received a BA in Economics from Wheaton College and an MBA from the University of Chicago. Mr.Lane provides the board with broad knowledge of the energy industry in addition to his financial, business and leadership expertise. Jane O’Hagan, ICD.D. Ms. Jane O’Hagan has been a member of the board of directors of our general partner since October 2014. Ms. O’Hagan is anindependent director of our general partner and serves as Chairman of the conflicts committee and as a member of the audit committee. She also serves asDirector and is a former senior railway executive at Pinnacle Renewable Energy. Previously, she held several management positions at Canadian PacificRailway. She was Chief Marketing Officer and Executive Vice President from 2011 to 2014, Senior Vice President of Marketing and Sales from 2010 to 2011,Senior Vice President of Strategy and Yield from 2008 to 2009, Vice President of Strategy and External Affairs from 2005 to 2008, Vice President of Strategy,Research and New Market Development from 2003 to 2005, and Assistant Vice President of Strategy and Research from 2002 to 2003. Ms. O’Hagan holds aBachelor of Arts (Honours) and a Bachelor of Administrative and Commercial Studies from the University of Western Ontario, and has completed graduatestudies in Program and Policy Studies from the University of Western Ontario. Ms. O’Hagan is also a holder of the Director designation from the Institute ofCorporate Directors, which she achieved in June 2016. Brad Sanders. Mr. Sanders has been a member of the board of directors of our general partner since October 2014. Mr. Sanders joined USD asExecutive Vice President, Head of Market Strategy for USD in May 2014 and became Executive Vice President, Chief Commercial Officer in October 2014.Mr. Sanders’ main focus at USD is working with the leadership team to identify, develop and execute strategic commercial and market opportunities. Prior toUSD, Mr. Sanders spent 32 years at Koch Industries where he was primarily responsible for building and managing several of Koch’s global tradingbusinesses, including businesses in the crude oil, NGLs, distillates, gasoline and gasoline components, and plastics value chains. He is a 1979 graduate of theUniversity of Kansas with a degree in business. He is a current Trustee for KU Endowment and a current member for the KU Endowment InvestmentCommittee. Mr. Sanders provides the board with strategic planning and business development leadership and expertise in the energy industry.Stacy Smith. Mr. Smith has been a member of the board of directors of our general partner since October 2015. Mr. Smith co-founded in February 2013and remains a partner of Trinity Investment Group, a firm which invests in private equity transactions, public equity securities and other assets. Since 2013,Mr. Smith has also served as managing partner of SCW Capital, LP, an equity hedge fund co-founded by Mr. Smith. In 1997, Mr. Smith co-founded WalkerSmith Capital, a Dallas-based small- and mid-cap equity hedge fund, where he was a partner and served as a portfolio manager until December 2012. Mr.Smith currently serves on the boards of directors of Independent Bank Group, a bank holding company, to which he was elected in February 2013, andWhiteHorse Finance, Inc., an externally managed, non-diversified, closed-end management investment company, to which he was elected in August 2015.Mr. Smith received a bachelor of business administration in finance and accounting from the University of Texas at Austin. Mr. Smith brings extensiveexperience in finance and corporate governance to the board of directors of our general partner in addition to his knowledge of the energy and financialinstitution industries.Jeff Wood. Mr. Wood has been a member of the board of directors of our general partner since January 2015 and serves as chairman of the auditcommittee and as a member of the conflicts committee. Mr. Wood currently serves as the Senior Vice President and Chief Financial Officer of Black StoneMinerals, L.P., a publicly traded master limited partnership (MLP) and one of the largest oil and natural gas mineral and royalty companies in the UnitedStates. Previously, Mr. Wood served as Executive Vice President and Chief Financial Officer of Siluria Technologies, Inc., a leading innovator of processtechnologies for the energy and petrochemical industries. Before joining Siluria, Mr. Wood served as Senior Vice President and Chief Financial Officer ofEagle Rock Energy Partners, LP, a publicly traded MLP, from 2009 through 2014. Prior to that, Mr. Wood was one of the founding principals of the LehmanBrothers’ MLP Investment Fund, which focused on direct investments in the MLP sector. He also spent 10 years with the Natural Resources InvestmentBanking team at Lehman Brothers where he primarily focused on MLP transactions. Mr. Wood began his career at Price Waterhouse in its audit andcompliance practice.146Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Board Leadership StructureThe chief executive officer of our general partner serves as the chairman of the board. The board of directors of our general partner has no policy withrespect to the separation of the offices of chairman of the board of directors and chief executive officer. Instead, that relationship is defined and governed bythe amended and restated limited liability company agreement of our general partner, which permits the same person to hold both offices. Directors of theboard of directors of our general partner are designated or elected by USD. Accordingly, unlike holders of common stock in a corporation, our unitholdershave only limited voting rights on matters affecting our business or governance, subject in all cases to any specific unitholder rights contained in ourpartnership agreement. Energy Capital Partners Investment in USDIn September 2014, Energy Capital Partners made a significant investment in USD and indicated an intention to invest over an additional $1.0 billion ofequity capital in USD, subject to market and other conditions, to support future growth and expansion plans. In connection with Energy Capital Partners’investment, USD repurchased a substantial portion of Goldman Sachs’ investment in USD and used the remaining proceeds to fund growth projects andstrengthen its balance sheet to allow for additional flexibility to pursue its goal of providing energy infrastructure solutions. Special Approval Rights of Energy Capital PartnersFor so long as Energy Capital Partners is able to appoint more than one member to USD’s board of directors, USD will not, and will not permit itssubsidiaries, including us and our general partner, to take or agree to take any of the following actions (or take or agree to take any action that is reasonablylikely to require or result in any of the following actions) without the affirmative vote of Energy Capital Partners (or, with respect to distributions by us or oursubsidiaries, the members of our general partner’s board of directors appointed by Energy Capital Partners):•any sale of USD, any subsidiary of USD, including us, or any of their assets (other than asset sales in the ordinary course of business), including byway of merger, consolidation, public offering or otherwise, other than to USD or a wholly-owned subsidiary of USD;•(A) any capital contribution or issuance of or redemption of securities of USD or any subsidiary of USD, including us, (B) any issuance of profitsinterests in USD, (C) any distributions, except distributions by us and our subsidiaries (which distributions shall be subject to the affirmative vote ofthe members of our general partner’s board of directors appointed by Energy Capital Partners), (D) any incurrence or refinancing of indebtedness(whether directly, through a guaranty or otherwise) outside of the ordinary course of business, other than any incurrence or refinancing ofindebtedness by us or our subsidiaries (which incurrences and refinancings shall be subject to the affirmative vote of the members of our generalpartner’s board of directors appointed by Energy Capital Partners), (E) any acquisition of securities of any other entity in excess of the lesser of theconsolidated earnings before interest, taxes, depreciation and amortization of USD Group LLC or $50 million or (F) any making of any loan oradvance to any entity other than a wholly-owned subsidiary of USD;•the approval, modification or revocation of any budget or a material deviation from or a material expenditure not part of any such budget (includingany material change with respect to the nature of any budgeted capital expenditure), other than the approval, modification or revocation of anybudget related to us or our subsidiaries (which approvals, modifications or revocations shall be subject to the affirmative vote of the members of ourgeneral partner’s board of directors appointed by Energy Capital Partners);•(A) amending the organizational documents of USD in a manner adverse to the holders of the common membership interests of USD, (B) amendingthe organizational documents of any subsidiary of USD, including us, (C) expanding the purpose of any of USD or any of its subsidiaries, includingus, (D) causing or taking any action with the purpose or effect of causing the bankruptcy, liquidation, dissolution or winding up of USD or any of itssubsidiaries, (E) making any material change to USD or any of its subsidiaries’ federal tax treatment, (F) entering into or amending any transactionwith any member of USD or their affiliates or (G) creating or materially amending any employee incentive plan; or•the determination of significant regulatory issues or litigation, including any decision to initiate, forego or settle any material litigation orarbitration, or the entering into discussions, or negotiations, with any147Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.governmental authority in connection with any investigation, proceedings or threatened investigation or proceedings, or any material inquiry. Energy Capital Partners’ Right to Sell USD or Its Interests in USDAt any time following the fifth anniversary of the date of Energy Capital Partners’ investment in USD, Energy Capital Partners, upon giving writtennotice, shall have the right to compel USD to effect the total sale of Energy Capital Partners’ interests in USD (an ECP Exit). Such a sale could include anacquisition by the remaining owners of USD of Energy Capital Partners’ interests in USD or an initial public offering of USD. If the ECP Exit has not beencompleted within 180 days of the date USD receives notice of Energy Capital Partners’ desire to sell, Energy Capital Partners shall have the right to compelUSD to effect a total sale of USD pursuant to an auction process on terms and conditions determined by, and in a process managed by, the members of USD’sboard of directors that are appointed by Energy Capital Partners, provided that certain conditions in connection with the sale are met. Board Role in Risk OversightOur corporate governance guidelines provide that the board of directors of our general partner is responsible for reviewing the process for assessing themajor risks facing us and the options for their mitigation. This responsibility is largely satisfied by our audit committee, which is responsible for reviewingand discussing with management and our registered public accounting firm our major risk exposures and the policies that management has implemented tomonitor such exposures.Communication with the Board of DirectorsA holder of our common units or other interested party who wishes to communicate with the non-management directors or independent directors of ourgeneral partner may do so by writing to: Independent Directors, c/o Corporate Secretary, USD Partners GP LLC, at 811 Main Street, Suite 2800, Houston,Texas 77002. Communications will be relayed to the intended recipient of the board of directors except in instances where it is deemed unnecessary orinappropriate to do so. Any communications withheld will nonetheless be recorded and available for any director who wishes to review them.SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) of the Exchange Act requires our directors, executive officers and 10% beneficial owners to file with the SEC reports of ownership andchanges in ownership of our equity securities and to furnish us with copies of all reports filed. To our knowledge, based solely on a review of the copies ofsuch reports furnished to us and written representations that no other reports were required, we believe that all reporting obligations of our general partner’sofficers, directors and greater than 10% unitholders under Section 16(a) were satisfied during the year ended December 31, 2017, except for one late Form 3filed in June 2017 by ECP ControlCo, LLC, related to an internal restructuring.CODE OF BUSINESS CONDUCT AND ETHICS AND CORPORATE GOVERNANCE GUIDELINESWe have adopted a Code of Business Conduct and Ethics applicable to the directors and senior officers of our general partner including the principalexecutive officer, principal financial officer and principal accounting officer of USD Partners GP LLC. A copy of the Code of Business Conduct and Ethics isavailable on our website at www.usdpartners.com. We post on our website any amendments to or waivers of our Code of Business Conduct and Ethics, andwe intend to satisfy any disclosure requirements that may arise under Form 8-K relating to this information through such postings. Additionally, this materialis available in print, free of charge, to any person who requests the information. Persons wishing to obtain this printed material should submit a request toCorporate Secretary, c/o USD Partners GP LLC, 811 Main Street, Suite 2800, Houston, Texas 77002.We also have a statement of Corporate Governance Guidelines that sets forth the expectation of how our board of directors should function and itsposition with respect to key corporate governance issues. A copy of the Corporate Governance Guidelines is available on our website atwww.usdpartners.com. We post on our website any amendments to our Corporate Governance Guidelines, and we intend to satisfy any disclosurerequirements that may otherwise arise under Form 8-K relating to these amendments through such postings. Additionally, this material is available in print,148Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.free of charge, to any person who requests the information. Persons wishing to obtain this printed material should submit a request to Corporate Secretary, c/oUSD Partners GP LLC, 811 Main Street, Suite 2800, Houston, Texas 77002.AUDIT COMMITTEEOur general partner has an audit committee currently comprised of three board members, Jane O’Hagan, Stacy Smith and Jeff Wood, who areindependent as the term is used in Section 10A of the Exchange Act, and are not relying upon any exemptions from the foregoing independencerequirements. Mr. Wood serves as chair of the committee.The audit committee provides independent oversight with respect to our internal controls, accounting policies, financial reporting, internal auditfunction and the report of the independent registered public accounting firm. Our audit committee also has the sole authority for retaining and terminatingour independent registered public accounting firm, approving all auditing services and related fees and the terms thereof, and pre-approving any non-auditservices to be rendered by our independent registered public accounting firm. Our audit committee is also responsible for confirming the independence andobjectivity of our independent registered public accounting firm. Our independent registered public accounting firm has unrestricted access to our auditcommittee.The charter of the audit committee is available on our website at www.usdpartners.com. The charter of the audit committee complies with the listingstandards of the NYSE currently applicable to us. This material is available in print, free of charge, to any person who requests the information. Personswishing to obtain this printed material should submit a request to Corporate Secretary, c/o USD Partners GP LLC, 811 Main Street, Suite 2800, Houston,Texas 77002.The board of directors of our general partner has determined that Jeff Wood, who serves as chairman of the audit committee, qualifies as an “auditcommittee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K and that each of the members of the audit committee are independent asdefined by Section 303A of the listing standards of the NYSE.The audit committee of our general partner has established procedures for the receipt, retention and treatment of complaints we receive regardingaccounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regardingquestionable accounting or auditing matters. Persons wishing to communicate with our audit committee may do so by writing to the Chairman, AuditCommittee, c/o USD Partners GP LLC, 811 Main Street, Suite 2800, Houston, Texas 77002.AUDIT COMMITTEE REPORTThe audit committee of our general partner oversees the Partnership’s financial reporting process on behalf of the board of directors. Management hasthe primary responsibility for the financial statements and the reporting process, including the systems of internal controls.In fulfilling its oversight responsibilities, the audit committee reviewed and discussed with management the audited financial statements contained inthis Annual Report on Form 10-K.The Partnership’s independent registered public accounting firm, BDO USA, LLP, is responsible for expressing an opinion on the conformity of theaudited financial statements with accounting principles generally accepted in the United States of America. The audit committee reviewed with BDO USA,LLP the firm’s judgment as to the quality, not just the acceptability, of the Partnership’s accounting principles and such other matters as are required to bediscussed with the audit committee under the standards of the Public Company Accounting Oversight Board, or PCAOB.The audit committee discussed with BDO USA, LLP the matters required to be discussed by PCAOB Auditing Standard 1301, Communications withAudit Committees. The audit committee received written disclosures and the letter from BDO USA, LLP required by applicable requirements of the PCAOBregarding BDO USA, LLP’s communications with the audit committee concerning independence, and has discussed with BDO USA, LLP its independencefrom management and the Partnership.149Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Based on the reviews and discussions referred to above, the audit committee recommended to the board of directors that the audited financialstatements be included in this Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the SEC.Jeff Wood, ChairmanJane O’HaganStacy SmithCONFLICTS COMMITTEEOur general partner has established a conflicts committee to review specific matters that may involve conflicts of interest in accordance with the termsof our partnership agreement. Our conflicts committee will determine if the resolution of the conflict of interest is fair and reasonable to us. The conflictscommittee will be comprised of at least two members of the board of directors of our general partner. Jane O’Hagan, Stacy Smith and Jeff Wood currentlyserve as members of the conflicts committee. The members of our conflicts committee may not be officers or employees of our general partner or directors,officers, or employees of its affiliates, and must meet the independence and experience standards established by the NYSE and the Exchange Act to serve onan audit committee of a board of directors. In addition, the members of our conflicts committee may not own any interest in our general partner or any interestin us or our subsidiaries other than common units or awards under our incentive compensation plan. We anticipate that once appointed to our generalpartner’s board of directors, any additional independent members appointed to our audit committee will also serve on the conflicts committee. Any mattersapproved by our conflicts committee will be presumed to have been approved in good faith, will be deemed to be approved by all of our partners and will notbe a breach by our general partner of any duties it may owe us or our unitholders.The charter of the conflicts committee is available on our website at www.usdpartners.com. This material is available in print, free of charge, to anyperson who requests the information. Persons wishing to obtain this printed material should submit a request to Corporate Secretary, c/o USD Partners GPLLC, 811 Main Street, Suite 2800, Houston, Texas 77002.EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORSIn accordance with our Corporate Governance Guidelines, the non-management members of the board of directors of our general partner meet inexecutive session without management participation at each meeting. In addition, the independent directors of our general partner meet separately inexecutive session at least once per year. These executive sessions are chaired by the chairman of the audit committee of the board, who is presently JeffWood, or in his absence by an independent director chosen by the chairman. Interested parties may communicate directly with the independent directors bysubmitting a communication in care of Mr. Wood at Corporate Secretary, c/o USD Partners GP LLC, 811 Main Street, Suite 2800, Houston, Texas 77002.150Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 11. Executive CompensationGeneralWe do not directly employ any of the persons responsible for managing our business. Our general partner, under the direction of its board of directors,is responsible for managing our operations and for obtaining the services of the employees that operate our business. However, we sometimes refer to theemployees and officers of our general partner as our employees and officers in this report.As an “emerging growth company,” or EGC, as defined under the applicable rules of the SEC, we are not required to include a CompensationDiscussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to EGCs. This executive compensationdisclosure provides an overview of the executive compensation paid to the named executive officers, or NEOs, identified below for their services to us in2017. For 2017, we determined the NEOs to be as follows:•Dan Borgen, Principal Executive Officer and Director•Keith Benson, General Counsel•Adam Altsuler, Senior Vice President and Chief Financial OfficerFor 2017 and all prior periods, all of the individuals who served as executive officers of our business were employed by USD or its affiliates other thanus and, in addition to their responsibilities related to our business, also performed services for USD that were unrelated to us. Except with respect to our ClassA units and with respect to awards granted under our USD Partners LP 2014 Long-Term Incentive Plan, or LTIP, all responsibility and authority forcompensation-related decisions for the NEOs remains with USD and its affiliates, and such decisions are not subject to any approval by us, our generalpartner’s board of directors or any committees thereof. Other than the Class A units or awards granted under the LTIP, USD and its affiliates have the ultimatedecision-making authority with respect to the total compensation of their and their subsidiaries’ executive officers and their employees. We incur a fixedannual cash charge for the services rendered to us and our general partner by the NEO’s, the amount of which is set forth under the terms of the omnibusagreement. We also reimburse USD and its affiliates a separate amount in respect of the salaries and matching contributions associated with 401(k) deferralsof our NEOs based upon the percentage of time that an NEO estimates is devoted to us and our subsidiaries for a given year. Compensation related to awardsgranted under the LTIP are presented in the summary compensation table below at the fair value of the units on the grant date, although for financialreporting purposes, such amounts are recognized as compensation expense ratably over the vesting period, typically a four-year period.Summary Compensation TableThe following table summarizes total compensation for services rendered to us by the NEOs during 2017 and 2016. All of our NEOs provide servicesto both us and USD and its affiliates other than us. Cash amounts paid for services to us (which amounts are shown in the “Salary” column of the table below)include the fixed fees that we pay to USD for the services of each of the NEOs under the terms of the omnibus agreement as well as the portion of the basesalary that is separately allocated to us and reimbursed by us to USD. The NEOs also received other compensation from USD for services unrelated to us.151Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SUMMARY COMPENSATION TABLEName and Principal Position Salary (1)UnitAwards (2)TotalYear($)($)($)Dan Borgen2017352,5001,188,0061,540,506Principal Executive Officer and Director2016330,750378,588709,338Keith Benson2017260,313392,704653,017General Counsel2016232,422184,090416,512Adam Altsuler2017303,955314,816618,771Senior Vice President and Chief Financial Officer (1)The amounts presented reflect the portion of the fixed fee and variable amounts that we pay to USD for the NEOs’ services under Schedule C and asotherwise set forth under the terms of the omnibus agreement, as well as the portion of the base salary that is separately allocated to us and reimbursed byus to USD.(2)The amounts presented for 2017 and 2016 represent the grant date fair value of Phantom Unit awards granted pursuant to our LTIP. Each Phantom Unit isthe economic equivalent of one of our common units, and awards vest in four equal annual installments commencing on the one-year anniversary of theissuance date, subject to vesting acceleration in certain circumstances as discussed below under the heading “Potential Payments Upon Termination orChange in Control.” The value attributed to each Phantom Unit is $12.80 for the Phantom Unit awards granted in 2017 and $6.39 for the Phantom Unitawards granted in 2016, in each case representing the closing price of our common units as stated on the NYSE on February 24, 2017 and February 25,2016 respectively. For additional information about our Phantom Unit awards and the LTIP, refer to the discussion included in Note 20 — Unit BasedCompensation of our financial statements included in Part II, Item 8 of this Annual Report.Narrative Disclosure to Summary Compensation TableNeither we, our general partner, nor any of our subsidiaries have employees. USD is contractually obligated to provide its and its subsidiaries’employees and other personnel necessary for us to conduct our operations. This includes all of our executive officers. The executive officer compensation ispaid by USD or its applicable affiliate. We pay USD a fixed and a variable amounts each month for the services of our executive officers.Our general partner’s board of directors has adopted the LTIP on our behalf. Substantially all officers, employees, consultants and directors of ourgeneral partner and its affiliates who contribute to our business are eligible to receive awards under the LTIP. Awards under the LTIP are approved by ourgeneral partner’s board of directors. Our general partner’s board of directors has granted awards of Phantom Units pursuant to the LTIP, which represent theright to receive our common units or, in the discretion of the board, cash payments based on the value of our common units. The following table sets forth thePhantom Units granted to our NEOs for the respective year:NameYearPhantom Unit AwardDan Borgen201792,813 201659,247Keith Benson201730,680 201628,809Adam Altsuler201724,595The Phantom Units vest in four equal annual installments over a four-year period, subject to accelerated vesting in certain circumstances. For moreinformation about accelerated vesting of the Phantom Units, see the discussion below under the heading “Potential Payments Upon Termination or Changein Control.” In addition, the Phantom Unit awards to our NEOs were granted with corresponding distribution equivalent rights, or DERs, which represent theright152Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.to receive payments in an amount equal to any distributions made by us with respect to our common units underlying the Phantom Units. The distributionequivalent rights remain outstanding until the earlier of the vesting or forfeiture of the related Phantom Unit.Prior to our IPO, our general partner also granted Class A units in us to certain of our NEOs and certain other key employees as discussed below.Class A Unit AwardsIn August 2014, our general partner’s board of directors granted Class A unit awards to our NEOs as follows: Mr. Borgen - 55,000 Class A units and Mr.Altsuler - 20,000 Class A units. The Class A units are limited partner interests in our partnership that entitle the holder to distributions that are equivalent tothe distributions paid in respect of our common units (excluding any arrearages of unpaid minimum quarterly distributions from prior quarters). The Class Aunits vest in four equal annual installments over a four-year period (each of which we refer to as a Class A Vesting Tranche), subject to us growing ourannualized distributions each year. If we do not achieve positive distribution growth in any of these years, the Class A units in the Class A Vesting Tranchethat would otherwise vest for that year will be forfeited. The Class A units are also subject to vesting acceleration in certain circumstances. For moreinformation about vesting acceleration of the Class A units, see the discussion below under the heading “Potential Payments Upon Termination or Changein Control.”The Class A units convert into our common units upon vesting. The number of common units into which the Class A units will convert upon vesting istied to the level of our distribution growth for the applicable year. If the Class A units in a Class A Vesting Tranche vest, but we grow our annualizeddistribution by less than 10%, the Class A units in that Class A Vesting Tranche will convert into common units one-for-one. If we grow our annualizeddistribution by 10% or more, the Class A units in that Class A Vesting Tranche will convert into common units based on a conversion factor of 1.25 for thefirst Class A Vesting Tranche, 1.5 for the second Class A Vesting Tranche, 1.75 for the third Class A Vesting Tranche and 2.0 for the last Class A VestingTranche. In February 2016 and 2017, the first and second Class A Vesting Tranches vested and were converted into common units on a one-for-one basis anda one and a half-for-one basis, respectively.Outstanding Equity Awards at Fiscal Year-End 2017The following table shows outstanding equity awards for our NEOs. All values are shown as of December 31, 2017. Unit Awards Phantom UnitsClass A unitsNameNumber of shares or units of stock thathave not vested (1)(#)Market value of shares or units ofstock that have not vested (2)($)Equity Incentive Plan Awards: Numberof Unearned Shares, Units orOther Rights That HaveNot Vested (3)(#)Equity Incentive Plan Awards: Marketor Payout of Value of UnearnedShares, Units or Other Rights ThatHave Not Vested (2)($)Dan Borgen152,9021,720,14827,500464,063Keith Benson66,710750,488——Adam Altsuler42,321476,11110,000168,750 (1) The Phantom Units were granted in February 2015, 2016 and 2017 for Messrs. Borgen and Altsuler and March 2015, February 2016 and February 2017for Mr. Benson. Each Phantom Unit represents the economic equivalent of one of our common units, and awards vest in four equal annual installmentscommencing on approximately the one-year anniversary of the issuance date, subject to continued employment. Refer to the discussion included in Note20 — Unit Based Compensation of our financial statements included in Part II, Item 8 of this Annual Report.(2) The value is based on the closing market price of a common unit on December 29, 2017, the last trading day for 2017, of $11.25 per unit. The amountsshown for the Class A units assume that the Class A units would convert into our common units at a ratio of one and a half-for-one.153Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(3) The Class A units were granted on August 18, 2014, and vest in four equal annual installments (with the first installment having vested on February 22,2016 and the second installment having vested on February 21, 2017, representing the first business day following the payment of our regular quarterlydistribution in respect of the calendar quarter ended December 31, 2016 and 2017, respectively), subject to continued employment and to us achievingthe distribution growth required for the applicable tranche to vest. For additional information, please refer to the discussion above under the heading“Class A Unit Awards” and the discussion included in Note 20 — Unit Based Compensation of our financial statements included in Part II, Item 8 of thisAnnual Report.Potential Payments Upon Termination or Change in ControlNone of our NEOs have entered into any employment, severance or similar agreements in relation to their services to us or our general partner and,except with respect to the Class A units and Phantom Units issued pursuant to our LTIP, as of December 31, 2017, there were no arrangements pursuant towhich our NEOs would receive any payments or benefits in connection with a change in control of us.The terms of the Class A units that were granted to our NEOs provide that if (i) the executive’s employment is terminated without cause or due to hisdeath or disability, (ii) the executive resigns his employment for good reason or (iii) there is a change in control of our partnership, the Class A units will fullyvest and convert into common units based on the maximum conversion factor that could have applied to such Class A units. For additional information,please refer to the discussion above under the heading “Class A Unit Awards.”The Phantom Unit awards granted pursuant to the LTIP generally contemplate that the individual grants of Phantom Units will vest in four equal annualinstallments based on the grantee’s continued employment through the vesting dates, subject to acceleration upon (i) the grantee’s death or disability, (ii)upon a change in control of the Partnership or our general partner that also results in the grantee’s involuntary termination, or (iii) upon termination of thegrantee’s service without cause (as defined in the LTIP) or resignation for good reason, in either case following a change in control of the Partnership or ourgeneral partner. The board of directors of our general partner may also accelerate the vesting of the Phantom Units in its discretion within 60 days followingthe grantee’s termination for any reason other than cause.“Cause” when defined for purposes of the Class A units generally means (i) an act of gross negligence or willful misconduct that adversely affects USDor its affiliates, (ii) an act of fraud, theft or embezzlement, (iii) a conviction of guilty or nolo contendere plea with respect to certain crimes, (iv) a breach ofapplicable material policies or agreements or (v) the refusal to perform reasonable duties following notice and opportunity to cure. “Good reason” forpurposes of the Class A units is generally defined as (x) a material diminution in duties or responsibilities, (y) a material diminution in base salary or (z) arelocation of principal place of employment by more than 50 miles, in each case subject to a notice and cure right for us or our affiliates.2017 Director Compensation TableAs a partnership, we are managed by our general partner. The members of the board of directors of our general partner perform for us the functions of aboard of directors of a business corporation. Our general partner has implemented a director compensation policy for members of the board of directors whoare not officers, employees or paid consultants or advisors of us or our general partner or USD or Energy Capital Partners. We are allocated 100% of thedirector compensation of such board members. Such directors are expected to receive an annual compensation package valued at approximately $200,000.For 2017, approximately one-third of this amount was paid in the form of a cash retainer and the remaining two-thirds was provided in the form of a unitbased award (with distribution equivalent rights) under the USD Partners LP 2014 Long-Term Incentive Plan. The Phantom Units (with distributionequivalent rights) granted to the directors are subject to the same terms and conditions, including vesting acceleration, as the grants to our NEOs, except theawards vest over a one-year period (instead of a four-year period) following the grant date. Such directors also receive reimbursement for out-of-pocketexpenses associated with attending board or committee meetings and director and officer liability insurance coverage. Officers, employees or paidconsultants or advisors of us or our general partner or its affiliates who also serve as directors do not receive additional compensation for their service asdirectors. All directors are indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware law and arereimbursed for all expenses incurred in attending to his or her duties as a director.154Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.DIRECTOR COMPENSATIONNameFees Earned orPaid in Cash (1)($)Unit Awards (2)($)Total (3)($)Jane O’Hagan66,667106,662173,329Stacy Smith66,667106,662173,329Jeff Wood66,667106,662173,329 (1) The amounts reflected in this column represent the director cash retainer payments made during 2017.(2) Each of Ms. O’Hagan, Mr. Smith and Mr. Wood were granted 8,333 Phantom Unit awards on February 24, 2017, pursuant to our LTIP, with a fair value of $12.80 per unit,which amount is based on the closing price of one of our common units on the day of the grant. At December 31, 2017, Ms. O’Hagan, Mr. Smith and Mr. Wood each held8,333 Phantom Units. Each of the Phantom Units granted will vest in total on approximately the one-year anniversary of the grant date.(3) The difference between the expected annual compensation package valued at approximately $200,000 discussed above and the total Director Compensation amount presentedherein is due to the change in the unit price between the determination date for the Unit Awards and the grant date.Compensation Committee Interlocks and Insider ParticipationAs discussed above, the board of directors of our general partner is not required to maintain and does not maintain a compensation committee.Mr. Borgen and Mr. Sanders do not participate in the determination of their respective compensation as officers of our general partner.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe following tables set forth information with respect to persons known to us to be the beneficial owners of more than 5% of any class of our units, andNEOs, directors and executive officers of USD Partners GP LLC as a group. The amounts and percentage of units beneficially owned are reported on the basisof regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a“beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or“investment power,” which includes the power to dispose of or to direct the disposition of such security. The percentage of units beneficially owned is basedon a total of 21,914,224 common units, 38,750 Class A units and 4,185,418 subordinated units outstanding. In computing the number of common unitsbeneficially owned by a person and the percentage ownership of that person, common units subject to options or warrants held by that person that arecurrently exercisable or exercisable within 60 days of March 6, 2018, if any, are deemed outstanding, but are not deemed outstanding for computing thepercentage ownership of any other person. Except as indicated by footnote, the persons named in the table below have sole voting and investment powerwith respect to all units shown as beneficially owned by them, subject to community property laws where applicable.155Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSThe following table sets forth information as of March 6, 2018, with respect to persons, other than the NEOs, directors and executive officers of USDPartners GP LLC as a group, known to us to be the beneficial owners of more than 5% of any class of our units:Name of Beneficial Owner (1) Common UnitsBeneficially Owned Subordinated UnitsBeneficially Owned Percentage of TotalCommon Units, Class AUnits and SubordinatedUnits BeneficiallyOwnedUS Development Group, LLC (2) 7,371,672 4,185,418 44.2%USD Holdings LLC (3) 3,354,111 1,904,365 20.1%ECP ControlCo, LLC (4) 3,626,863 2,059,226 21.8%Advisory Research, Inc. (5) 2,969,976 — 11.4% (1) Unless otherwise indicated, the address for each beneficial owner is 811 Main Street, Suite 2800, Houston, Texas 77002.(2) USD, through its 100% ownership of USD Group LLC (which owns 100% of our general partner), is the indirect owner of 7,371,672 common units,4,185,418 subordinated units and 461,136 general partner units. USD is the parent company of USD Group LLC who holds the common units andsubordinated units directly and is the sole owner of the member interests of our general partner. USD Group LLC is managed by USD. USD is managed bya seven person board of directors that includes Dan Borgen, Mike Curry, James Hutson-Wiley, Schuyler Coppedge, Douglas Kimmelman, Thomas Laneand Alan Crown. The board of directors of USD exercises voting and dispositive power over the units held by USD Group LLC, and acts by majority vote.Please read Item 13. Certain Relationships and Related Transactions, and Director Independence. Messrs. Borgen, Coppedge, Curry, Hutson-Wiley,Kimmelman, Lane and Crown are thus not deemed to have beneficial ownership of the units owned by USD Group LLC.(3) USD Holdings, LLC is a 45.5% member of USD and may therefore be deemed to indirectly beneficially own 3,354,111 common units, 1,904,365subordinated units and 209,817 general partner units held by USD. As holders of a 45.5% voting interest of USD, USD Holdings, LLC is entitled to electthree directors of USD. USD Holdings LLC is managed by its managers, Mike Curry, Dan Borgen and James Hutson-Wiley. Neither Messrs. Curry, Borgennor Hutson-Wiley are deemed to beneficially own, and they disclaim beneficial ownership of, any common units or subordinated units beneficially ownedby our general partner or USD.(4) Energy Capital Partners III-A, LP, Energy Capital Partners III-B (USD IP), LP, and Energy Capital Partners III-C (USD IP), LP (collectively, the “ECPFunds”) are members of USD, collectively holding a 49.2% interest in USD, and may therefore be deemed to indirectly beneficially own 3,626,863common units, 2,059,226 subordinated units and 226,878 general partner units held by USD. ECP ControlCo, LLC (“ECP ControlCo”) is the managingmember of Energy Capital Partners III, LLC (“ECP”), which is the general partner of Energy Capital Partners GP III, LP (“ECP GP”), which is the generalpartner of each of the ECP Funds, and, as such, each of ECP Control Co, ECP GP and ECP may be deemed to beneficially own the units beneficiallyowned by the ECP Funds. Douglas Kimmelman, Thomas Lane, Andrew Singer, Peter Labbat, Tyler Reeder and Rahman D’Argenio are the managingmembers of ECP ControlCo and share the power to vote and dispose of the securities beneficially owned by ECP Control Co. Each of Messrs.Kimmelman, Lane, Singer, Labbat, Reeder and D’Argenio disclaim any beneficial ownership of the units beneficially owned by ECP ControlCo. Asholders of a 49.2% voting interest of USD, the ECP Funds are entitled to elect three directors of USD and have veto rights over certain actions by USD andits subsidiaries. Douglas Kimmelman, Thomas Lane and Schuyler Coppedge are each a member of the board of directors of our general partner asrepresentatives of the ECP Funds. The business address for each of the entities and individuals listed in this footnote (other than USD) is 51 John F.Kennedy Parkway, Suite 200, Short Hills, New Jersey 07078.(5) Based solely on a Schedule 13G/A filed by Advisory Research, Inc. (“ARI”) on February 14, 2018. The Schedule 13G/A states that ARI has shared votingpower over 2,963,966 of the common units and shared dispositive power over all 2,969,976 of the common units. The Schedule 13G/A states that ARI, awholly-owned subsidiary of Piper156Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Jaffray Companies and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of the2,969,976 common units as a result of acting as investment adviser to various clients. The Schedule 13G/A states that Piper Jaffray Companies may bedeemed to be the beneficial owner of these 2,969,976 common units through control of ARI. However, Piper Jaffray Companies disclaims beneficialownership of such common units. The address of the ARI is 180 N Stetson Ave., Suite 5500, Chicago, IL 60601 and the address of Piper JaffrayCompanies is 800 Nicollet Mall, Suite 800, Minneapolis, MN 55402.SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORSThe following table sets forth information as of March 6, 2018, with respect to each class of our units beneficially owned by the NEOs, directors andexecutive officers of USD Partners GP LLC as a group:Name of Beneficial Owner (1) Common UnitsBeneficially Owned Class A UnitsBeneficially Owned Percentage of TotalCommon Units, ClassA Units andSubordinated UnitsBeneficially OwnedDan Borgen (2) 155,617 13,750 *Schuyler Coppedge — — *Mike Curry (3) 32,754 — *Douglas Kimmelman 50,000 — *Thomas Lane 50,000 — *Jane O’Hagan (4) — — *Brad Sanders (5) 211,277 10,000 *Stacy Smith (6) 79,896 — *Jeff Wood (7) 41,499 — *Adam Altsuler (8) 31,612 5,000 *Keith Benson (9) 17,277 — *All Directors and Executive Officers as a group (14 Persons) (10) 761,579 32,500 3.0% *Less than 1.0%.(1) Unless otherwise indicated, the address for each beneficial owner is 811 Main Street, Suite 2800, Houston, Texas 77002.(2) Excludes 213,053 phantom units granted under the A/R LTIP. The phantom units generally vest in equal annual installments over a four year serviceperiod commencing on the one year anniversary of the grant.(3) Excludes 64,675 phantom units granted under the A/R LTIP. The phantom units generally vest in equal annual installments over a four year serviceperiod commencing on the one year anniversary of the grant.(4) Excludes 11,348 phantom units granted under the A/R LTIP. The phantom units will vest on February 16, 2019.(5) Excludes 159,514 phantom units granted under the A/R LTIP. The phantom units generally vest in equal annual installments over a four year serviceperiod commencing on the one year anniversary of the grant.(6) Excludes 11,348 phantom units granted under the A/R LTIP. The phantom units will vest on February 16, 2019.(7) Excludes 11,348 phantom units granted under the A/R LTIP. The phantom units will vest on February 16, 2019.(8) Excludes 62,505 phantom units granted under the A/R LTIP. The phantom units vest in equal annual installments over a four year service periodcommencing on the one year anniversary of the grant.(9) Excludes 65,972 phantom units granted under the A/R LTIP. The phantom units generally vest in equal annual installments over a four year serviceperiod commencing on the one year anniversary of the grant.(10) Excludes 771,368 phantom units granted under the A/R LTIP.157Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANSThe following table provides information as of December 31, 2017, with respect to common units that may be issued under the A/R LTIP: Plan category Number of securities to beissued upon exercise ofoutstanding options, warrantsand rights(1) Weighted average exercise priceof outstanding options,warrants and rights Number of securities remainingavailable for future issuance underequity compensationplans(2) Equity compensation plans approved by security holders 1,172,975 — 1,797,127 Equity compensation plans not approved by securityholders — — — Total 1,172,975 — 1,797,127 (1) Reflects the number of previously granted equity incentive awards, representing Phantom Units outstanding at December 31, 2017, issued pursuant to the A/R LTIP and includes36,127 Phantom Units issued pursuant to the LTIP that upon vesting entitle the participant to receive cash for an amount equivalent to the closing market price for one of ourcommon units on the vesting date multiplied by the number of vested Phantom Units.(2) Reflects the remaining equity incentive awards, representing Phantom Units that are convertible into common units available for issuance pursuant to the A/R LTIP.Item 13. Certain Relationships and Related Transactions, and Director IndependenceAs of March 6, 2018, USD Group LLC owns 11,557,090 common units and subordinated units representing an aggregate 43.4% limited partner interestin us. In addition, as of March 6, 2018, our general partner owns 461,136 general partner units representing a 1.7% general partner interest in us.CASH DISTRIBUTIONSDuring the year ended December 31, 2017, we paid the following aggregate cash distributions to USDG as a holder of our common units and all of oursubordinated units and to USD Partners GP LLC for their general partner interest.DistributionDeclaration Date Record Date DistributionPayment Date Amount Paid to USDG Amount Paid toUSD Partners GPLLC (in thousands)February 1, 2017 February 13, 2017 February 17, 2017 $3,814 $152April 27, 2017 May 8, 2017 May 12, 2017 3,872 170July 27, 2017 August 7, 2017 August 11, 2017 3,929 194October 26, 2017 November 6, 2017 November 13, 2017 3,987 216 $15,602 $732CONFLICTS OF INTERESTConflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates, including USD, on theone hand, and us and our limited partners, on the other hand. The directors and officers of our general partner have fiduciary duties to manage our generalpartner in a manner beneficial to USD. At the same time, our general partner has a duty to manage our partnership in a manner it believes is in our bestinterests. Our partnership agreement specifically defines the remedies available to unitholders for actions taken that, without these defined liability standards,might constitute breaches of fiduciary duty under applicable Delaware law. The Delaware Revised Uniform Limited Partnership Act, which we refer to as theDelaware Act, provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwiseowed by the general partner to the limited partners and the partnership. 158Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Whenever a conflict arises between our general partner or its affiliates, on the one hand, and us or our limited partners, on the other hand, the resolutionor course of action in respect of such conflict of interest shall be permitted and deemed approved by all our limited partners and shall not constitute a breachof our partnership agreement, of any agreement contemplated thereby or of any duty, if the resolution or course of action in respect of such conflict of interestis:•approved by the conflicts committee of our general partner, although our general partner is not obligated to seek such approval; or•approved by the holders of a majority of the outstanding common units, excluding any such units owned by our general partner or any of itsaffiliates, although our general partner is not obligated to seek such approval. Our general partner may, but is not required to, seek the approval of such resolutions or courses of action from the conflicts committee of its board ofdirectors or from the holders of a majority of the outstanding common units as described above. If our general partner does not seek approval from theconflicts committee or from holders of common units as described above and the board of directors of our general partner takes or declines the course ofaction taken with respect to the conflict of interest, then it will be presumed that, in making its decision, the board of directors of our general partner acted ingood faith, and in any proceeding brought by or on behalf of us or any of our unitholders, the person bringing or prosecuting such proceeding will have theburden of overcoming such presumption. Unless the resolution of a conflict is specifically provided for in our partnership agreement, the board of directors ofour general partner or the conflicts committee of the board of directors of our general partner may consider any factors they determine in good faith toconsider when resolving a conflict. An independent third-party is not required to evaluate the resolution. Under our partnership agreement, a determination,other action or failure to act by our general partner, the board of directors of our general partner or any committee thereof (including the conflicts committee)will be deemed to be “in good faith” unless our general partner, the board of directors of our general partner or any committee thereof (including the conflictscommittee) believed such determination, other action or failure to act was adverse to the interests of the partnership. Please read Item 10. Directors, ExecutiveOfficers and Corporate Governance—Conflicts Committee for information about the conflicts committee of our general partner’s board of directors.REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONSThe board of directors of our general partner have adopted a related party transactions policy that provides that the board of directors of our generalpartner or its authorized committee will review on at least a quarterly basis all related person transactions that are required to be disclosed under SEC rulesand, when appropriate, initially authorize or ratify all such transactions. In the event that the board of directors of our general partner or its authorizedcommittee considers ratification of a related person transaction and determines not to so ratify, the code of business conduct and ethics provides that ourmanagement will make all reasonable efforts to cancel or annul the transaction.The related party transactions policy provides that, in determining whether or not to recommend the initial approval or ratification of a related persontransaction, the board of directors of our general partner or its authorized committee should consider all of the relevant facts and circumstances available,including (if applicable) but not limited to: (i) whether there is an appropriate business justification for the transaction; (ii) the benefits that accrue to us as aresult of the transaction; (iii) the terms available to unrelated third parties entering into similar transactions; (iv) the impact of the transaction on a director’sindependence (in the event the related person is a director, an immediate family member of a director or an entity in which a director or an immediate familymember of a director is a partner, shareholder, member or executive officer); (v) the availability of other sources for comparable products or services;(vi) whether it is a single transaction or a series of ongoing, related transactions; and (vii) whether entering into the transaction would be consistent with thecode of business conduct and ethics.TRANSACTIONS WITH RELATED PERSONSWe believe the terms and provisions of our related party agreements are fair to us; however, such agreements and transactions may not be as favorableto us as we could have obtained from unaffiliated third parties. Refer to Part II, Item 8. Financial Statements and Supplementary Data, Note 13. Transactionswith Related Parties for a comprehensive discussion and disclosure of our transactions with related parties.159Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Omnibus Agreement TransactionsPursuant to the omnibus agreement entered into by us with USD and USD Group LLC, we incurred charges of $5.9 million, which are recorded in“Selling, general and administrative — related party” in our consolidated statements of income.The omnibus agreement also addresses the following matters:•our right of first offer to acquire certain USD-retained Hardisty development projects, as well as other additional midstream infrastructure that USDand USDG may construct or acquire in the future;•our obligation to reimburse USDG for any out-of-pocket costs and expenses incurred by USDG in providing general and administrative services(which reimbursement is in addition to certain expenses of our general partner and its affiliates that are reimbursed under our partnershipagreement), as well as any other out-of-pocket expenses incurred by USDG on our behalf; and,•an indemnity by USD for certain environmental and other liabilities, and our obligation to indemnify USD and its subsidiaries for events andconditions associated with the operation of our assets that occur after the closing of our IPO and for environmental liabilities related to our assetsto the extent USD is not required to indemnify us.So long as USD controls our general partner, the omnibus agreement will remain in full force and effect. If USD ceases to control our general partner,either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with theirterms.From time to time, in the ordinary course of business, USD and its affiliates may receive vendor payments or other amounts due to us or oursubsidiaries. In addition, we may make payments to vendors and other unrelated parties on behalf of USD and its affiliates for which they routinely reimburseus.Related Party Sales to USD Marketing LLCMarketing Services AgreementIn connection with our purchase of the Stroud terminal, we entered into a Marketing Services Agreement, effective as of May 31, 2017, with USDMarketing LLC, or USDM, a wholly-owned subsidiary of USDG, whereby we granted USDM the right to market the capacity at the Stroud terminal in excessof the capacity of our initial customer in exchange for a nominal per barrel fee. USDM is obligated to fund any related capital costs associated with increasingthe 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 will apply to all throughput at the Stroud terminal in excess of the throughput necessary for the Stroud terminal to generateAdjusted EBITDA that is at least equal to the average monthly Adjusted EBITDA derived from the initial Stroud terminal customer during the 12 monthsprior 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-basedcompensation for the use of our property for such development projects. Any such development projects would be wholly-owned by USDG and would besubject to our existing right of first offer with respect to midstream projects developed by USDG. Payments made under the Marketing Services agreementduring the periods presented in this report are discussed below under the heading “Related Party Revenue and Deferred Revenue.” Related Party Revenue and Deferred RevenueWe have agreements to provide terminalling and fleet services for USDM with respect to our Hardisty terminal and terminalling services with respectto our Stroud terminal, which also include reimbursement to us for certain out-of-pocket expenses we incur.In connection with our acquisition of the Stroud terminal, USDM assumed the rights and obligations for additional terminalling capacity at ourHardisty terminal from another customer, effective as of June 1, 2017, to facilitate the origination of crude oil barrels by the Stroud terminal customer fromour Hardisty terminal for delivery to the Stroud160Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.terminal. As a result of the assumption of these rights and obligations by USDM, and in order to accommodate the needs of the Stroud terminal customer, thecontracted term for the capacity held by USDM has been extended to June 30, 2020. USDM controls approximately 25 percent of the available monthlycapacity of the Hardisty terminal at December 31, 2017. The terms and conditions of these agreements are similar to the terms and conditions of agreementswe have with other parties at the Hardisty terminal that are not related to us.We also entered into a Marketing Services Agreement with USDM effective as of May 31, 2017, as discussed above, in connection with ouracquisition of the Stroud terminal. Pursuant to the terms of the agreement, we receive a fixed amount per barrel from USDM in exchange for marketing theadditional capacity available at the Stroud terminal. We include amounts received pursuant to this arrangement as revenue in the table below under“Terminalling services - related party.” For the years ended December 31, 2017, 2016 and 2015, we have not received any payments pursuant to thisagreement.Our related party revenue from USDM as described above are presented below in the following table for the indicated periods: For the Year EndedDecember 31, 2017 (in thousands)Terminalling services — related party$14,192Fleet leases — related party4,401Fleet services — related party652Freight and other reimbursables — related party2 $19,247Other Agreements with USD and Related PartiesDevelopment Rights and Cooperation AgreementIn connection with the transfer and conveyance of the undeveloped land under the Purchase and Sale Agreement described above, our subsidiary thatowns the Hardisty terminal entered into a Development Rights and Cooperation Agreement with USD pursuant to which:•our subsidiary granted to USD the right to develop, construct and operate certain development projects in, on, over, across and under the propertyon which the Hardisty terminal is located, including the exclusive right to develop and construct such expansions for a period of seven years afterthe closing of our IPO;•our subsidiary granted to USD the right to use (both on a temporary and permanent basis) certain portions of the property on which the Hardistyterminal is located in connection with the development, construction and operation of USD’s development projects;•our subsidiary will cooperate with USD in connection with the development, construction and operation of USD’s development projects at theHardisty terminal;•our subsidiary will enter into such further agreements or instruments with or for the benefit of USD and any land owned by USD (including theundeveloped land being acquired by USD under the Purchase and Sale Agreement described above) and will grant further rights in, on, over,across and under the property on which the Hardisty terminal is located to or for the benefit of USD and any land owned by USD (including theundeveloped land being acquired by USD under the Purchase and Sale Agreement described above), as USD may reasonably request inconnection with certain development projects;•USD’s development projects at the Hardisty terminal will be at the sole cost and expense of USD, and will be subject to the observance by USD ofcertain customary construction-related requirements and obligations; and161Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•all improvements constructed or installed by USD in connection with USD’s development projects at the Hardisty terminal will be owned by USDand USD will be entitled to grant liens on such improvements and/or in and to any rights acquired by USD under the Development Rights andCooperation Agreement.Director IndependenceSee Item 10. Directors, Executive Officers and Corporate Governance, for information regarding director independence required by Item 407(a) ofRegulation S-K.Item 14. Principal Accountant Fees and ServicesThe following table sets forth the aggregate fees billed for professional services rendered by BDO USA, LLP (“BDO”), our principal independentauditors, for each of the last two fiscal years. For the year ended December 31, 2017 2016 (in millions)Audit fees (1)$0.6 $0.6Audit-related fees (2)— —Tax fees (3)— —All other fees (4)— —Total$0.6 $0.6 (1) Audit fees consist of fees for professional services rendered for the audit of our consolidated financial statements, reviews of our interim consolidated financial statements and workrelated to registration statements and offerings.(2) Audit-related fees represent fees for assurance and related services. BDO did not provide any audit-related services to us during the last two fiscal years.(3) BDO did not provide any tax services to us during the last two fiscal years.(4) All other fees represent fees for services not classifiable under the categories listed in the above table. No such services were rendered by BDO to us during the last two fiscal years.Engagements for services provided by BDO are subject to pre-approval by the audit committee of the board of directors for USD Partners GP LLC. Allservices in 2017 were pre-approved by the audit committee.162Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IVItem 15. Exhibits and Financial Statement SchedulesThe following documents are filed as a part of this report:(1) Financial Statements.The following financial statements and supplementary data are incorporated by reference in Part II, Item 8. Financial Statements andSupplementary Data of this Annual Report.a.Report of BDO USA, LLP, Independent Registered Public Accounting Firm.b.Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015.c.Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015.d.Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015.e.Consolidated Balance Sheets as of December 31, 2017 and 2016.f.Consolidated Statements of Partners’ Capital for the years ended December 31, 2017, 2016 and 2015.g.Notes to the Consolidated Financial Statements.(2) Financial Statement Schedules.All schedules have been omitted because they are not applicable, the required information is shown in the consolidated financial statements orNotes thereto or the required information is immaterial.(3) Exhibits.Reference is made to the “Index of Exhibits” immediately preceding the signature pages, which is hereby incorporated into this Item.Item 16. Form 10-K SummaryNone.163Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Index of ExhibitsEach exhibit identified below is filed as a part of this Annual Report.Exhibit Number Description2.1†† Membership Interest Purchase Agreement between Casper Crude to Rail Holdings, LLC and USDP CCR LLC dated October 12, 2015 (incorporated byreference herein to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-36674) filed on October 13, 2015).3.1 Certificate of Limited Partnership of USD Partners LP (incorporated by reference herein to Exhibit 3.1 to the Registration Statement on Form S-1 (FileNo. 333-198500) filed on August 29, 2014, as amended).3.2 Second Amended and Restated Agreement of Limited Partnership of USD Partners LP dated October 15, 2014, by and between USD Partners GP LLCand USD Group LLC (incorporated by reference herein to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-36674) filed on October 21,2014).10.1 Contribution Conveyance and Assumption Agreement dated as of October 15, 2014, by and among U.S. Development Group, LLC, USD Group LLC,USD Partners GP LLC, USD Partners LP and USD Logistics Operations LP (incorporated by reference herein to Exhibit 10.1 to the Current Report onForm 8-K (File No. 001-36674) filed on October 21, 2014).10.2 Omnibus Agreement dated as of October 15, 2014, by and among U.S. Development Group, LLC, USD Group LLC, USD Partners GP LLC, USDPartners LP and USD Logistics Operations LP (incorporated by reference herein to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-36674)filed on October 21, 2014).10.3 Credit Agreement, dated as of October 15, 2014, among USD Partners LP and USD Terminals Canada ULC, as borrowers, Citibank, N.A., asadministrative agent, swing line lender and l/c issuer, U.S. Bank National Association, as an l/c issuer and the lenders from time to time party thereto(incorporated by reference herein to Exhibit 10.3 to the Current Report on Form 8-K (File No. 001-36674) filed on October 21, 2014).10.4* USD Partners LP Amended and Restated 2014 Long-term Incentive Plan10.5 Offer to Purchase and Agreement to Purchase and Sale, dated October 15, 2014 (incorporated by reference herein to Exhibit 10.5 to the Current Report onForm 8-K (File No. 001-36674) filed on October 21, 2014).10.6 Development Rights and Cooperation Agreement between USD Terminals Canada ULC, as Current Operator, and USD Terminals Canada II ULC, asDeveloper, dated as of October 16, 2014 (incorporated by reference herein to Exhibit 10.6 to the Current Report on Form 8-K (File No. 001-36674) filedon October 21, 2014).10.7# Form of USD Partners LP Long-Term Incentive Plan Phantom Unit Agreement (U.S.) (incorporated by reference to Exhibit 10.1 to the Current Report onForm 8-K (File No. 001-36674) filed on February 20, 2015).10.8† Services Agreement Between USD Terminals Canada ULC and USD Marketing LLC, effective July 7, 2014 (incorporated by reference to Exhibit 10.6 tothe Registration Statement on Form S-1 (File No. 333-1985) filed on August 29, 2014).10.9 Facilities Connection Agreement Between USD Terminals Canada Inc. and Gibson Energy Partnership, dated June 4, 2013 (incorporated by reference toExhibit 10.5 to the Registration Statement on Form S-1 (File No. 333-1985) filed on September 22, 2014).10.10 First Amendment to the Credit Agreement dated November 13, 2015, among USD Partners LP and USD Terminals Canada ULC, as borrowers, Citibank,N.A., as administrative agent, swing line lender and l.c. issuer, U.S. Bank National Association, as an l.c. issuer and the lenders from time to time partythereto (incorporated by reference herein to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File No. 001-36674) filed on November 13, 2015).10.11 Registration Rights Agreement between USD Partners LP and Cogent Energy Solutions, LLC dated November 17, 2015 (incorporated by reference hereinto Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-36674) filed on November 17, 2015).10.12 Agreement among Cogent Energy Solutions, LLC, Randy Balhorn, Steve Magness, USD Group, LLC and USDP CCR LLC dated November 17, 2015(incorporated by reference herein to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-36674) filed on November 17, 2015).10.13† Marketing service agreement dated as of May 31, 2017 by and between USD Marketing LLC and Stroud Crude Terminal LLC. (incorporated by referenceherein to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File No. 001-36674) filed on August 8, 2017).21.1* Subsidiaries of the Registrant.23.1* Consent of BDO USA, LLP.24.1* Powers of Attorney (included on the signature page to this Annual Report).164Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit Number Description31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1* Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2* Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS* XBRL Instance Document.101.SCH* XBRL Taxonomy Extension Schema Document.101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.101.LAB* XBRL Taxonomy Extension Label Linkbase Document.101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document. *Filed or furnished herewith.#Management contract or compensatory plan arrangement required to be filed as an exhibit to this Annual Report pursuant to Item 15(b) of Form 10-K.†Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been separately filed with the Securities and Exchange Commission.††The registrant has omitted the schedules to this exhibit pursuant to the provisions of Regulation S-K, Item 601(b)(2). The registrant shall supplementary furnish a copy of theomitted schedules to the Securities and Exchange Commission upon request.Copies of Exhibits may be obtained upon written request of any Unitholder to Investor Relations, USD Partners LP, 811 Main Street, Suite 2800, Houston, Texas 77002.165Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. USD PARTNERS LP(Registrant) By:USD Partners GP LLC,its General Partner Date:March 9, 2018By: /s/ Dan Borgen Dan BorgenChief Executive Officer and President166Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.POWER OF ATTORNEYKNOW ALL BY THESE PRESENTS, that each of the undersigned officers and directors of USD Partners GP LLC, a Delaware limited liability companyand general partner of USD Partners LP, a Delaware limited partnership (the “Registrant”), does hereby constitute and appoint Dan Borgen, Adam Altsulerand Keith Benson, and each of them, as his true and lawful attorney or attorneys-in-fact, with full power of substitution and revocation, for each of theundersigned and in the name, place, and stead of each of the undersigned, to sign on behalf of each of the undersigned any and all amendments to the AnnualReport on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith including, without limitation, a Form 12b-25 with the Securities and Exchange Commission, granting to said attorney or attorneys-in-fact, and each of them, full power and authority to do so andperform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersignedmight or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or their substitutesmay lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities indicated.Signature Title Date /s/ Dan Borgen Chairman of the Board, Chief Executive Officer and President(Principal Executive Officer) March 9, 2018Dan Borgen /s/ Adam Altsuler Senior Vice President, Chief Financial Officer(Principal Financial Officer) March 9, 2018Adam Altsuler /s/ Jay Stanford Vice President, Chief Accounting Officer(Principal Accounting Officer) March 9, 2018Jay Stanford /s/ Schuyler Coppedge Director March 9, 2018Schuyler Coppedge /s/ Mike Curry Director March 9, 2018Mike Curry /s/ Douglas Kimmelman Director March 9, 2018Douglas Kimmelman /s/ Thomas Lane Director March 9, 2018Thomas Lane /s/ Jane O’Hagan Director March 9, 2018Jane O’Hagan /s/ Brad Sanders Director March 9, 2018Brad Sanders /s/ Stacy Smith Director March 9, 2018Stacy Smith /s/ Jeff Wood Director March 9, 2018Jeff Wood 167Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 10.4USD PARTNERS LPAMENDED AND RESTATED 2014 LONG-TERM INCENTIVE PLANSECTION 1. Purpose of the Plan.This USD Partners LP 2014 Amended and Restated Long-Term Incentive Plan (the “Plan”) has been adopted by USD Partners GP LLC, a Delawarelimited liability company (the “Company”), the general partner of USD Partners LP, a Delaware limited partnership (the “Partnership”). The Plan is intendedto promote the interests of the Partnership and the Company by providing incentive compensation awards denominated in or based on Units to Employees,Consultants and Directors to encourage superior performance. The Plan is also intended to enhance the ability of the Partnership, the Company and theirAffiliates to attract and retain the services of individuals who are essential for the growth and profitability of the Partnership, the Company and their Affiliatesand to encourage them to devote their best efforts to advancing the business of the Partnership, the Company and their Affiliates.SECTION 2. Definitions.As used in the Plan, the following terms shall have the meanings set forth below:“Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlledby or is under common control with, the Person in question. As used herein, the term “control” means the possession, direct or indirect, of the power to director cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.“ASC Topic 718” means Accounting Standards Codification Topic 718, Compensation - Stock Compensation, or any successor accountingstandard.“Award” means an Option, Restricted Unit, Phantom Unit, DER, Substitute Award, Unit Appreciation Right, Unit Award or Profits Interest Unitgranted under the Plan.“Award Agreement” means the written or electronic agreement by which an Award shall be evidenced and which agreement may include a separateplan, policy, agreement or other written document.“Board” means the board of directors or board of managers, as the case may be, of the Company.“Cause” means, unless otherwise set forth in an Award Agreement or other written agreement between the Company and the applicable Participant, afinding by the Committee, before or after the Participant’s termination of Service, of: (i) any material failure by the Participant to perform the Participant’sduties and responsibilities under any written agreement between the Participant and the Company or its Affiliate(s); (ii) any act of fraud, embezzlement, theftor misappropriation by the Participant relating to the Company, the Partnership or any of their Affiliates; (iii) the Participant’s commission of a felony or acrime involving moral turpitude; (iv) any gross negligence or intentional misconduct on the part of the Participant in the conduct of the Participant’s dutiesand responsibilities with the Company or any Affiliate(s) of the Company or which adversely affects the image, reputation or business of the Company, thePartnership or their Affiliates; or (v) any material breach by the Participant of any agreement between the Company or any of its Affiliates, on the one hand,and the Participant on the other. The findings and decision of the Committee with respect to such matter, including those regarding the acts of the Participantand the impact thereof, will be final for all purposes.“Change in Control” means, and shall be deemed to have occurred upon one or more of the following events:(i) any “person” or “group” within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act, other than the Company or anAffiliate of the Company (as determined immediately prior to such event), shall become the beneficial owner, by way of merger, acquisition,consolidation,Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.recapitalization, reorganization or otherwise, of 50% or more of the combined voting power of the equity interests in the Company or thePartnership;(ii) the limited partners of the Partnership approve, in one or a series of transactions, a plan of complete liquidation of the Partnership;(iii) the sale or other disposition by either the Company or the Partnership of all or substantially all of the Company’s or the Partnership’sassets, respectively, in one or more transactions to any Person other than the Company, the Partnership or an Affiliate of the Company or of thePartnership; or(iv) a transaction resulting in a Person other than the Company or an Affiliate of the Company (as determined immediately prior to suchevent) being the sole general partner of the Partnership.Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award which provides for the deferral ofcompensation subject to Section 409A or such compensation otherwise would be subject to Section 409A, the transaction or event described in subsection(i), (ii), (iii) or (iv) above with respect to such Award must also constitute a “change in control event,” as defined in Treasury Regulation §1.409A-3(i)(5), andas relates to the holder of such Award, to the extent required to comply with Section 409A.“Code” means the Internal Revenue Code of 1986, as amended.“Committee” means the Board, except that it shall mean such committee of the Board as may be appointed by the Board to administer the Plan, or asnecessary to comply with applicable legal requirements or listing standards.“Consultant” means an individual who renders consulting services to the Company, the Partnership or any of their Affiliates.“DER” means a distribution equivalent right, representing a contingent right to receive an amount in cash, Units, Restricted Units and/or PhantomUnits equal in value to the distributions made by the Partnership with respect to a Unit during the period such Award is outstanding.“Director” means a member of the board of directors or board of managers, as the case may be, of the Company, the Partnership or any of theirAffiliates who is not an Employee or a Consultant (other than in that individual’s capacity as a Director).“Disability” means, unless otherwise set forth in an Award Agreement or other written agreement between the Company, the Partnership or one oftheir Affiliates and the applicable Participant, as determined by the Committee in its discretion exercised in good faith, a physical or mental condition of aParticipant that would entitle him or her to payment of disability income payments under the Company’s, the Partnership’s or one of their Affiliates’ long-term disability insurance policy or plan, as applicable, for employees as then in effect; or in the event that a Participant is not covered, for whatever reason,under any such long-term disability insurance policy or plan for employees of the Company, the Partnership or one of their Affiliates or the Company, thePartnership or one of their Affiliates does not maintain such a long-term disability insurance policy, “Disability” means a total and permanent disabilitywithin the meaning of Section 22(e)(3) of the Code; provided, however, that if a Disability constitutes a payment event with respect to any Award whichprovides for the deferral of compensation subject to Section 409A or such compensation otherwise would be subject to Section 409A, then, to the extentrequired to comply with Section 409A, the Participant must also be considered “disabled” within the meaning of Section 409A(a)(2)(C) of the Code. Adetermination of Disability may be made by a physician selected or approved by the Committee and, in this respect, Participants shall submit to anexamination by such physician upon request by the Committee.“Employee” means an employee of the Company, the Partnership or any of their Affiliates.Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.“Exchange Act” means the Securities Exchange Act of 1934, as amended.“Fair Market Value” means, as of any given date, the closing sales price on such date during normal trading hours (or, if there are no reported saleson such date, on the last date prior to such date on which there were sales) of the Units on the New York Stock Exchange or, if not listed on such exchange, onany other national securities exchange on which the Units are listed or on an inter-dealer quotation system, in any case, as reported in such source as theCommittee shall select. If there is no regular public trading market for the Units, the Fair Market Value of the Units shall be determined by the Committee ingood faith and, to the extent applicable, in compliance with the requirements of Section 409A.“Option” means an option to purchase Units granted pursuant to Section 6(a) of the Plan.“Other Unit-Based Award” means an award granted pursuant to Section 6(f) of the Plan.“Participant” means an Employee, Consultant or Director granted an Award under the Plan and any authorized transferee of such individual.“Partnership Agreement” means the Agreement of Limited Partnership of the Partnership, as it may be amended or amended and restated from time totime.“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,including a “group” as defined in Section 13(d) thereof.“Phantom Unit” means a notional interest granted under the Plan that, to the extent vested, entitles the Participant to receive a Unit or an amount ofcash equal to the Fair Market Value of a Unit, as determined by the Committee in its discretion.“Profits Interest Unit” means to the extent authorized by the Partnership Agreement, an interest in the Partnership that is intended to constitute a“profits interest” within the meaning of the Code, Treasury Regulations promulgated thereunder, and any published guidance by the Internal RevenueService with respect thereto.“Restricted Period” means the period established by the Committee with respect to an Award during which the Award remains subject to forfeitureand is either not exercisable by or payable to the Participant, as the case may be.“Restricted Unit” means a Unit granted pursuant to Section 6(b) of the Plan that is subject to a Restricted Period.“Securities Act” means the Securities Act of 1933, as amended.“SEC” means the Securities and Exchange Commission, or any successor thereto.“Section 409A” means Section 409A of the Code and the Treasury Regulations and other interpretive guidance issued thereunder, includingwithout limitation any such regulations or other guidance that may be amended or issued after the Effective Date (as defined in Section 9 below).“Service” means service as an Employee, Consultant or Director. The Committee, in its sole discretion, shall determine the effect of all matters andquestions relating to terminations of Service, including, without limitation, the questions of whether and when a termination of Service occurred and/orresulted from a discharge for Cause, and all questions of whether particular changes in status or leaves of absence constitute a termination of Service. TheCommittee, in its sole discretion, subject to the terms of any applicable Award Agreement, may determine that a termination of Service has not occurred inthe event of (a) a termination where there is simultaneous commencement by the Participant of a relationship with the Partnership, the Company or any oftheir Affiliates as anSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Employee, Director or Consultant or (b) a termination which results in a temporary severance of the service relationship.“Substitute Award” means an award granted pursuant to Section 6(g) of the Plan.“Unit” means a Common Unit of the Partnership.“Unit Appreciation Right” or “UAR” means a contingent right that entitles the holder to receive the excess of the Fair Market Value of a Unit on theexercise date of the UAR over the exercise price of the UAR.“Unit Award” means an award granted pursuant to Section 6(d) of the Plan.SECTION 3. Administration.(a) The Plan shall be administered by the Committee, subject to subsection (b) below; provided, however, that in the event that the Board is notalso serving as the Committee, the Board, in its sole discretion, may at any time and from time to time exercise any and all rights and duties of the Committeeunder the Plan. The governance of the Committee shall be subject to the charter, if any, of the Committee as approved by the Board. Subject to the terms ofthe Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall havefull power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number ofUnits to be covered by Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstancesAwards may be settled, exercised, canceled, or forfeited; (vi) interpret and administer the Plan and any instrument or agreement relating to an Award madeunder the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the properadministration of the Plan; and (viii) make any other determination and take any other action that the Committee deems necessary or desirable for theadministration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or an Award Agreementin such manner and to such extent as the Committee deems necessary or appropriate. Unless otherwise expressly provided in the Plan, all designations,determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, maybe made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, the Partnership, any of their Affiliates, anyParticipant and any beneficiary of any Participant.(b) To the extent permitted by applicable law and the rules of any securities exchange on which the Units are listed, quoted or traded, the Board orCommittee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grantor amend Awards or to take other administrative actions pursuant to Section 3(a); provided, however, that in no event shall an officer of the Company bedelegated the authority to grant awards to, or amend awards held by, the following individuals: (i) individuals who are subject to Section 16 of the ExchangeAct, or (ii) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder; provided, further, that anydelegation of administrative authority shall only be permitted to the extent that it is permissible under applicable provisions of the Code and applicablesecurities laws and the rules of any securities exchange on which the Units are listed, quoted or traded. Any delegation hereunder shall be subject to suchrestrictions and limitations as the Board or Committee, as applicable, specifies at the time of such delegation, and the Board or Committee, as applicable, mayat any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 3(b) shall serve in suchcapacity at the pleasure of the Board and the Committee.SECTION 4. Units.(a) Limits on Units Deliverable. Subject to adjustment as provided in Section 4(c), the number of Units that may be delivered with respect toAwards under the Plan is three million six hundred fifty-four thousand one hundred sixty-seven (3,654,167). If any Award is forfeited, cancelled, exercised,paid, or otherwise terminates or expires without the actual delivery of Units pursuant to such Award (for the avoidance of doubt, the grant ofSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Restricted Units is not a delivery of Units for this purpose unless and until such Restricted Units vest and any restrictions placed upon them under the Planlapse), the Units subject to such Award that are not actually delivered pursuant to such Award shall again be available for Awards under the Plan. To theextent permitted by applicable law and securities exchange rules, Substitute Awards and Units issued in assumption of, or in substitution for, any outstandingawards of any entity (including an existing Affiliate of the Partnership) that is (or whose securities are) acquired in any form by the Partnership or anyAffiliate thereof shall not be counted against the Units available for issuance pursuant to the Plan. There shall not be any limitation on the number of Awardsthat may be paid in cash. For the avoidance of doubt, neither the Class A Units (as defined in the Partnership Agreement) that were previously granted tocertain recipients by the Partnership nor any Units into which the Class A Units may be converted under the terms of the Partnership Agreement shall reducethe number of Units that may be granted under the Plan.(b) Sources of Units Deliverable Under Awards. Any Units delivered pursuant to an Award shall consist, in whole or in part, of Units acquired in theopen market, from the Partnership, any Affiliate thereof or any other Person, or Units otherwise issuable by the Partnership, or any combination of theforegoing, as determined by the Committee in its discretion.(c) Anti-dilution Adjustments.(i) Equity Restructuring. With respect to any “equity restructuring” event (within the meaning of ASC Topic 718) that could result in an additionalcompensation expense to the Company or the Partnership pursuant to the provisions of ASC Topic 718 if adjustments to Awards with respect to such eventwere discretionary, the Committee shall equitably adjust the number and type of Units covered by each outstanding Award and the terms and conditions,including the exercise price and performance criteria (if any), of such Award to equitably reflect such event and shall adjust the number and type of Units (orother securities or property) with respect to which Awards may be granted under the Plan after such event. With respect to any other similar event that wouldnot result in an ASC Topic 718 accounting charge if the adjustment to Awards with respect to such event were subject to discretionary action, the Committeeshall have complete discretion to adjust Awards and the number and type of Units (or other securities or property) with respect to which Awards may begranted under the Plan in such manner as it deems appropriate with respect to such other event.(ii) Other Changes in Capitalization. In the event of any non-cash distribution, Unit split, combination or exchange of Units, merger, consolidationor distribution (other than normal cash distributions) of Partnership assets to unitholders, or any other change affecting the Units of the Partnership, other thanan “equity restructuring,” the Committee may make equitable adjustments, if any, to reflect such change with respect to (A) the aggregate number and kind ofUnits that may be issued under the Plan; (B) the number and kind of Units (or other securities or property) subject to outstanding Awards; (C) the terms andconditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (D) the grant orexercise price per Unit for any outstanding Awards under the Plan.SECTION 5. Eligibility.Any Employee, Consultant or Director shall be eligible to be designated a Participant and receive an Award under the Plan.SECTION 6. Awards.(a) Options and UARs. The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Options and/orUARs shall be granted, the number of Units to be covered by each Option or UAR, the exercise price therefor, the Restricted Period and other conditions andlimitations applicable to the exercise of the Option or UAR, including the following terms and conditions and such additional terms and conditions, as theCommittee shall determine, that are not inconsistent with the provisions of the Plan. Options which are intended to comply with Treasury Regulation Section1.409A-1(b)(5)(i)(A) and UARs which are intended to comply with Treasury Regulation Section 1.409A-1(b)(5)(i)(B) or, in each case, any successorregulation, may be granted only if the requirements of Treasury Regulation Section 1.409A-1(b)(5)(iii), or anySource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.successor regulation, are satisfied. Options and UARs that are otherwise exempt from or compliant with Section 409A may be granted to any eligibleEmployee, Consultant or Director.(i) Exercise Price. The exercise price per Unit purchasable under an Option or subject to a UAR shall be determined by the Committee atthe time the Option or UAR is granted but, except with respect to a Substitute Award, may not be less than the Fair Market Value of a Unit as of thedate of grant of the Option or UAR.(ii) Time and Method of Exercise. The Committee shall determine the exercise terms and any applicable Restricted Period with respect toan Option or UAR, which may include, without limitation, provisions for accelerated vesting upon the achievement of specified performance goalsand/or other events, and the method or methods by which payment of the exercise price with respect to an Option or UAR may be made or deemed tohave been made, which may include, without limitation, cash, check acceptable to the Company, withholding Units having a Fair Market Value onthe exercise date equal to the relevant exercise price from the Award, a “cashless” exercise through procedures approved by the Company, or anycombination of the foregoing methods.(iii) Exercise of Options and UARs on Termination of Service. Each Option and UAR Award Agreement shall set forth the extent to whichthe Participant shall have the right to exercise the Option or UAR following a termination of the Participant’s Service. Unless otherwise determinedby the Committee, if the Participant’s Service is terminated for Cause, the Participant’s right to exercise the Option or UAR shall terminate as of thestart of business on the effective date of the Participant’s termination. Unless otherwise determined by the Committee, to the extent the Option orUAR is not vested and exercisable as of the termination of Service, the Option or UAR shall terminate when the Participant’s Service terminates.(iv) Term of Options and UARs. The term of each Option and UAR shall be stated in the Award Agreement, provided, that the term shallbe no more than ten (10) years from the date of grant thereof.(b) Restricted Units and Phantom Units. The Committee shall have the authority to determine the Employees, Consultants and Directors to whomRestricted Units and/or Phantom Units shall be granted, the number of Restricted Units or Phantom Units to be granted to each such Participant, theapplicable Restricted Period, the conditions under which the Restricted Units or Phantom Units may become vested or forfeited and such other terms andconditions, including, without limitation, restrictions on transferability, as the Committee may establish with respect to such Awards.(i) Payment of Phantom Units. The Committee shall specify, or permit the Participant to elect in accordance with the requirements ofSection 409A, the conditions and dates or events upon which the cash or Units underlying an award of Phantom Units shall be issued, which dates orevents shall not be earlier than the date on which the Phantom Units vest and become nonforfeitable and which conditions and dates or events shallbe subject to compliance with Section 409A (unless the Phantom Units are exempt therefrom).(ii) Vesting of Restricted Units. Upon or as soon as reasonably practicable following the vesting of each Restricted Unit, subject tosatisfying the tax withholding obligations of Section 8(b), the Participant shall be entitled to have the restrictions removed from his or her Unitcertificate (or book-entry account, as applicable) so that the Participant then holds an unrestricted Unit.(c) DERs. The Committee shall have the authority to determine the Employees, Consultants and/or Directors to whom DERs are granted, whethersuch DERs are tandem or separate Awards, whether the DERs shall be paid directly to the Participant, be credited to a bookkeeping account (with or withoutinterest in the discretion of the Committee), any vesting restrictions and payment provisions applicable to the DERs, and such other provisions or restrictionsas determined by the Committee in its discretion, all of which shall be specified in the applicable Award Agreements. Distributions in respect of DERs shallbe credited as of the distribution dates during the periodSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.between the date an Award is granted to a Participant and the date such Award vests, is exercised, is distributed or expires, as determined by the Committee.Such DERs shall be converted to cash, Units, Restricted Units and/or Phantom Units by such formula and at such time and subject to such limitations as maybe determined by the Committee. Tandem DERs may be subject to the same or different vesting restrictions as the tandem Award, or be subject to such otherprovisions or restrictions as determined by the Committee in its discretion. Notwithstanding the foregoing, DERs shall only be paid in a manner that is eitherexempt from or in compliance with Section 409A.(d) Unit Awards. Awards of Units may be granted under the Plan (i) to such Employees, Consultants and/or Directors and in such amounts as theCommittee, in its discretion, may select, and (ii) subject to such other terms and conditions, including, without limitation, restrictions on transferability, asthe Committee may establish with respect to such Awards.(e) Profits Interest Units. Any Award consisting of Profits Interest Units may be granted to an Employee, Consultant or Director for the performanceof services to or for the benefit of the Partnership (i) in the Participant’s capacity as a partner of the Partnership, (ii) in anticipation of the Participantbecoming a partner of the Partnership, or (iii) as otherwise determined by the Committee. At the time of grant, the Committee shall specify the date or dateson which the Profits Interest Units shall vest and become nonforfeitable, and may specify such conditions to vesting as it deems appropriate. Profits InterestUnits shall be subject to such restrictions on transferability and other restrictions as the Committee may impose.(f) Other Unit-Based Awards. Other Unit-Based Awards may be granted under the Plan to such Employees, Consultants and/or Directors as theCommittee, in its discretion, may select. An Other Unit-Based Award shall be an award denominated or payable in, valued in or otherwise based on or relatedto Units, in whole or in part. The Committee shall determine the terms and conditions of any Other Unit-Based Award. Upon vesting, an Other Unit-BasedAward may be paid in cash, Units (including Restricted Units) or any combination thereof as provided in the Award Agreement.(g) Substitute Awards. Awards may be granted under the Plan in substitution of similar awards held by individuals who are or who becomeEmployees, Consultants or Directors in connection with a merger, consolidation or acquisition by the Partnership or an Affiliate of another entity or thesecurities or assets of another entity (including in connection with the acquisition by the Partnership or one of its Affiliates of additional securities of anentity that is an existing Affiliate of the Partnership). Such Substitute Awards that are Options or UARs may have exercise prices less than the Fair MarketValue of a Unit on the date of the substitution if such substitution complies with Section 409A and other applicable laws and securities exchange rules.(h) General.(i) Award Agreements. Each Award shall be evidenced in writing in an Award Agreement that shall reflect any vesting conditions orrestrictions imposed by the Committee covering a period of time specified by the Committee and shall also contain such other terms, conditions andlimitations as shall be determined by the Committee in its sole discretion. Where signature or electronic acceptance of the Award Agreement by theParticipant is required, any such Awards for which the Award Agreement is not signed or electronically accepted shall be forfeited.(ii) Forfeitures. Except as otherwise provided in the terms of an Award Agreement, upon termination of a Participant’s Service for anyreason during an applicable Restricted Period, all outstanding, unvested Awards held by such Participant shall be automatically forfeited by theParticipant. Notwithstanding the immediately preceding sentence, the Committee may, in its discretion, waive in whole or in part such forfeiturewith respect to any such Award; provided, that any such waiver shall be effective only to the extent that such waiver will not cause (i) any Awardintended to satisfy the requirements of Section 409A to fail to satisfy such requirements or (ii) any Award intended to be exempt from Section 409Ato become subject to and to fail to satisfy such requirements.Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(iii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or inaddition to, in tandem with, or in substitution for any other Award granted under the Plan or any award granted under any other plan of the Companyor any Affiliate. Awards granted in addition to or in tandem with other Awards or awards granted under any other plan of the Company or anyAffiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.(iv) Limits on Transfer of Awards.(A) Except as provided in paragraph (C) below, each Option and UAR shall be exercisable only by the Participant (or theParticipant’s legal representative in the case of the Participant’s Disability or incapacitation) during the Participant’s lifetime, or by theperson to whom the Participant’s rights shall pass by will or the laws of descent and distribution.(B) Except as provided in paragraph (C) below, no Award and no right under any such Award may be assigned, alienated,pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or the laws of descent and distributionand any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable againstthe Company, the Partnership or any Affiliate.(C) The Committee may provide in an Award Agreement or in its discretion that an Award may, on such terms and conditions asthe Committee may from time to time establish, be transferred by a Participant without consideration to any “family member” of theParticipant, as defined in the instructions to use of the Form S-8 Registration Statement under the Securities Act, as applicable, or any othertransferee specifically approved by the Committee after taking into account any state, federal, local or foreign tax and securities lawsapplicable to transferable Awards. In addition, vested Units may be transferred to the extent permitted by the Partnership Agreement and nototherwise prohibited by the Award Agreement or any other agreement or policy restricting the transfer of such Units.(v) Term of Awards. Subject to Section 6(a)(iv) above, the term of each Award, if any, shall be for such period as may be determined by theCommittee.(vi) Unit Certificates. Unless otherwise determined by the Committee or required by any applicable law, rule or regulation, neither theCompany nor the Partnership shall deliver to any Participant certificates evidencing Units issued in connection with any Award and instead suchUnits shall be recorded in the books of the Partnership (or, as applicable, its transfer agent or equity plan administrator). All certificates for Units orother securities of the Partnership delivered under the Plan and all Units issued pursuant to book entry procedures pursuant to any Award or theexercise thereof shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules,regulations, and/or other requirements of the SEC, any securities exchange upon which such Units or other securities are then listed, and anyapplicable federal or state laws, and the Committee may cause a legend or legends to be inscribed on any such certificates or book entry to makeappropriate reference to such restrictions.(vii) Consideration for Grants. To the extent permitted by applicable law, Awards may be granted for such consideration, includingservices, as the Committee shall determine.(viii) Delivery of Units or other Securities and Payment by Participant of Consideration. Notwithstanding anything in the Plan or anyAward Agreement to the contrary, subject to compliance with Section 409A, the Company shall not be required to issue or deliver any certificates ormake any book entries evidencing Units pursuant to the exercise or vesting of any Award, unless and until the Board or the Committee hasdetermined, with advice of counsel, that the issuance of such Units is in compliance with all applicable laws, regulations of governmental authoritiesand, if applicable, the requirements of anySource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.securities exchange on which the Units are listed or traded, and the Units are covered by an effective registration statement or applicable exemptionfrom registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Participant make suchreasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with anysuch laws, regulations, or requirements. Without limiting the generality of the foregoing, the delivery of Units pursuant to the exercise or vesting ofan Award may be deferred for any period during which, in the good faith determination of the Committee, the Company is not reasonably able toobtain or deliver Units pursuant to such Award without violating applicable law or the applicable rules or regulations of any governmental agencyor authority or securities exchange. No Units or other securities shall be delivered pursuant to any Award until payment in full of any amountrequired to be paid pursuant to the Plan or the applicable Award Agreement (including, without limitation, any exercise price or tax withholding) isreceived by the Company.SECTION 7. Amendment and Termination; Certain Transactions.Except to the extent prohibited by applicable law:(a) Amendments to the Plan. Except as required by applicable law or the rules of the principal securities exchange, if any, on which the Units aretraded and subject to Section 7(b) below, the Board or the Committee may amend, alter, suspend, discontinue, or terminate the Plan in any manner at any timefor any reason or for no reason without the consent of any partner, Participant, other holder or beneficiary of an Award, or any other Person. The Board shallobtain securityholder approval of any Plan amendment to the extent necessary to comply with applicable law or securities exchange listing standards orrules.(b) Amendments to Awards. Subject to Section 7(a) above, the Committee may waive any conditions or rights under, amend any terms of, or alterany Award theretofore granted, provided that no change, other than pursuant to Section 7(c) below, in any Award shall materially reduce the rights or benefitsof a Participant with respect to an Award without the consent of such Participant.(c) Actions Upon the Occurrence of Certain Events. Upon the occurrence of a Change in Control, any transaction or event described in Section 4(c)above, any change in applicable laws or regulations affecting the Plan or Awards hereunder, or any change in accounting principles affecting the financialstatements of the Company or the Partnership, the Committee, in its sole discretion, without the consent of any Participant or holder of an Award, and on suchterms and conditions as it deems appropriate, which need not be uniform with respect to all Participants or all Awards, may take any one or more of thefollowing actions:(i) provide for either (A) the termination of any Award in exchange for a payment in an amount, if any, equal to the amount that wouldhave been attained upon the exercise of such Award or realization of the Participant’s rights under such Award (and, for the avoidance of doubt, if asof the date of the occurrence of such transaction or event, the Committee determines in good faith that no amount would have been payable uponthe exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B)the replacement of such Award with other rights or property selected by the Committee in its sole discretion having an aggregate value notexceeding the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award beencurrently exercisable or payable or fully vested;(ii) provide that such Award be assumed by the successor or survivor entity, or a parent or subsidiary thereof, or be exchanged for similaroptions, rights or awards covering the equity of the successor or survivor, or a parent or subsidiary thereof, with appropriate adjustments as to thenumber and kind of equity interests and prices;(iii) make adjustments in the number and type of Units (or other securities or property) subject to outstanding Awards, the number andkind of outstanding Awards, the terms and conditions of (including the exercise price), and/or the vesting and performance criteria included in,outstanding Awards;Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(iv) provide that such Award shall vest or become exercisable or payable, notwithstanding anything to the contrary in the Plan or theapplicable Award Agreement; and(v) provide that the Award cannot be exercised or become payable after such event and shall terminate upon such event.Notwithstanding the foregoing, (i) with respect to an above event that constitutes an “equity restructuring” that would be subject to a compensation expensepursuant to ASC Topic 718, the provisions in Section 4(c) above shall control to the extent they are in conflict with the discretionary provisions of thisSection 7, provided, however, that nothing in this Section 7(c) or Section 4(c) above shall be construed as providing any Participant or any beneficiary of anAward any rights with respect to the “time value,” “economic opportunity” or “intrinsic value” of an Award or limiting in any manner the Committee’sactions that may be taken with respect to an Award as set forth in this Section 7 or in Section 4(c) above; and (ii) no action shall be taken under this Section 7which shall cause an Award to result in taxation under Section 409A, to the extent applicable to such Award.SECTION 8. General Provisions.(a) No Rights to Award. No Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity oftreatment of Participants, including the treatment upon termination of Service or pursuant to Section 7(c). The terms and conditions of Awards need not bethe same with respect to each recipient.(b) Tax Withholding. Unless other arrangements have been made that are acceptable to the Company, the Company or any Affiliate thereof isauthorized to deduct or withhold, or cause to be deducted or withheld, from any Award, from any payment due or transfer made under any Award, or from anycompensation or other amount owing to a Participant the amount (in cash or Units, including Units that would otherwise be issued pursuant to such Award orother property) of any applicable taxes payable in respect of an Award, including its grant, its exercise, the lapse of restrictions thereon, or any payment ortransfer thereunder or under the Plan, and to take such other action as may be necessary in the opinion of the Company to satisfy its withholding obligationsfor the payment of such taxes. In the event that Units that would otherwise be issued pursuant to an Award are used to satisfy such withholding obligations,the number of Units which may be so withheld or surrendered shall be limited to the number of Units which have a Fair Market Value on the date ofwithholding equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign incometax and payroll tax purposes that are applicable to such supplemental taxable income.(c) No Right to Employment or Services. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employof the Company, the Partnership or any of their Affiliates, or to continue to serve as a Consultant or a Director, as applicable. Furthermore, the Company, thePartnership and/or an Affiliate thereof may at any time dismiss a Participant from employment or consulting free from any liability or any claim under thePlan, unless otherwise expressly provided in the Plan, any Award Agreement or other written agreement between any such entity and the Participant.(d) No Rights as Unitholder. Except as otherwise provided herein, a Participant shall have none of the rights of a unitholder with respect to Unitscovered by any Award unless and until the Participant becomes the record owner of such Units.(e) Section 409A. To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A, the AwardAgreement evidencing such Award shall be drafted with the intention to include the terms and conditions required by Section 409A. To the extentapplicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A. Notwithstanding any provision of the Plan to the contrary,in the event that following the Effective Date (as defined in Section 9 below), the Committee determines that any Award may be subject to Section 409A, theCommittee may adopt such amendments to the Plan and the applicable Award Agreement, adopt other policies and procedures (including amendments,policies and procedures with retroactive effect), and/or take any other actions that the Committee determines are necessary or appropriate to preserve theintended tax treatment of the Award, including without limitation, actions intended to (i) exempt theSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Award from Section 409A, or (ii) comply with the requirements of Section 409A; provided, however, that nothing herein shall create any obligation on thepart of the Committee, the Partnership, the Company or any of their Affiliates to adopt any such amendment, policy or procedure or take any such otheraction, nor shall the Committee, the Partnership, the Company or any of their Affiliates have any liability for failing to do so. If any termination of Serviceconstitutes a payment event with respect to any Award which provides for the deferral of compensation and is subject to Section 409A, such termination ofService must also constitute a “separation from service” within the meaning of Section 409A. Notwithstanding any provision in the Plan to the contrary, thetime of payment with respect to any Award that is subject to Section 409A shall not be accelerated, except as permitted under Treasury Regulation Section1.409A-3(j)(4). Notwithstanding any provision of this Plan to the contrary, if a Participant is a “specified employee” within the meaning of Section 409A asof the date of such Participant’s termination of Service and the Company determines that immediate payment of any amounts or benefits under this Planwould cause a violation of Section 409A, then any amounts or benefits which are payable under this Plan upon the Participant’s “separation from service”within the meaning of Section 409A that: (i) are subject to the provisions of Section 409A; (ii) are not otherwise exempt under Section 409A; and (iii) wouldotherwise be payable during the first six-month period following such separation from service, shall be paid, without interest, on the first business dayfollowing the earlier of: (1) the date that is six months and one day following the date of termination; or (2) the date of the Participant’s death. Each paymentor amount due to a Participant under this Plan shall be considered a separate payment, and a Participant’s entitlement to a series of payments under this Planis to be treated as an entitlement to a series of separate payments.(f) Lock-Up Agreement. Each Participant shall agree, if so requested by the Company or the Partnership and any underwriter in connection withany public offering of securities of the Partnership or any Affiliate, not to directly or indirectly offer, sell, contract to sell, sell any option or contract topurchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any Units held by it forsuch period, not to exceed one hundred eighty (180) days following the effective date of the relevant registration statement filed under the Securities Act inconnection with such public offering, as such underwriter shall specify reasonably and in good faith. The Company or the Partnership may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period. Notwithstanding the foregoing, the180-day period may be extended for up to such number of additional days as is deemed necessary by such underwriter or the Company or Partnership tocontinue coverage by research analysts in accordance with FINRA Rule 2711 or any successor rule.(g) Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Units and the payment ofmoney under the Plan or under Awards granted or awarded hereunder are subject to compliance with all applicable federal, state, local and foreign laws, rulesand regulations (including but not limited to state, federal and foreign securities law and margin requirements), the rules of any securities exchange orautomated quotation system on which the Units are listed, quoted or traded, and to such approvals by any listing, regulatory or governmental authority asmay, in the opinion of counsel for the Company or the Partnership, be necessary or advisable in connection therewith. Any securities delivered under the Planshall be subject to such restrictions, and the Person acquiring such securities shall, if requested by the Company or the Partnership, provide such assurancesand representations to the Company or the Partnership as the Company or the Partnership may deem necessary or desirable to assure compliance with allapplicable legal requirements. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to theextent necessary to conform to such laws, rules and regulations. In the event an Award is granted to or held by a Participant who is employed or providingservices outside the United States, the Committee may, in its sole discretion, modify the provisions of the Plan or of such Award as they pertain to suchParticipant to comply with applicable foreign law or to recognize differences in local law, currency or tax policy. The Committee may also impose conditionson the grant, issuance, exercise, vesting, settlement or retention of Awards in order to comply with such foreign law and/or to minimize the Company’s or thePartnership’s obligations with respect to tax equalization for Participants employed outside their home country.(h) Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined inaccordance with the laws of the State of Delaware without regard to its conflicts of laws principles.Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(i) Severability. If any provision of the Plan or any Award is or becomes, or is deemed to be, invalid, illegal, or unenforceable in any jurisdiction oras to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construedor deemed amended to conform to the applicable law or, if it cannot be construed or deemed amended without, in the determination of the Committee,materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Planand any such Award shall remain in full force and effect.(j) Other Laws. The Committee may refuse to issue or transfer any Units or other consideration under an Award if, in its sole discretion, itdetermines that the issuance or transfer of such Units or such other consideration might violate any applicable law or regulation, the rules of the principalsecurities exchange on which the Units are then traded, or entitle the Partnership or an Affiliate to recover the same under Section 16(b) of the Exchange Act,and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptlyrefunded to the relevant Participant, holder or beneficiary.(k) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or afiduciary relationship between the Company, the Partnership or any of their Affiliates, on the one hand, and a Participant or any other Person, on the otherhand. To the extent that any Person acquires a right to receive payments pursuant to an Award, such right shall be no greater than the right of any generalunsecured creditor of the Partnership or any participating Affiliate of the Partnership.(l) No Fractional Units. No fractional Units shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determinewhether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Units or whether such fractional Units or any rights theretoshall be canceled, terminated, or otherwise eliminated.(m) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shallnot be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision hereof.(n) No Guarantee of Tax Consequences. None of the Board, the Committee, the Company or the Partnership provides or has provided any taxadvice to any Participant or any other Person or makes or has made any assurance, commitment or guarantee that any federal, state, local or other taxtreatment will (or will not) apply or be available to any Participant or other Person and assumes no liability with respect to any tax or associated liabilities towhich any Participant or other Person may be subject.(o) Clawback. To the extent required by applicable law or any applicable securities exchange listing standards, or as otherwise determined by theCommittee to address misconduct of Company officers or individual Participants, Awards and amounts paid or payable pursuant to or with respect to Awardsshall be subject to the provisions of any clawback policy implemented by the Company or the Partnership, which clawback policy may provide for forfeiture,repurchase and/or recoupment of Awards and amounts paid or payable pursuant to or with respect to Awards. Notwithstanding any provision of this Plan orany Award Agreement to the contrary, the Company and the Partnership reserve the right, without the consent of any Participant, to adopt any such clawbackpolicies and procedures, including such policies and procedures applicable to this Plan or any Award Agreement with retroactive effect.(p) Unit Retention Policy. The Committee may provide in its sole and absolute discretion, subject to applicable law, that any Units received by aParticipant in connection with an Award granted hereunder shall be subject to a unit ownership, unit retention or other policy restricting the sale or transfer ofunits, as the Committee may determine to adopt, amend or terminate in its sole discretion from time to time.(q) Limitation of Liability. No member of the Board or the Committee or Employee to whom the Board or the Committee has delegated authorityin accordance with the provisions of Section 3 of this Plan shall be liable for anything done or omitted to be done by him or her by any member of the Boardor the Committee or bySource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.any Employee in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided bystatute.(r) Facility Payment. Any amounts payable hereunder to any Person under legal disability or who, in the judgment of the Committee, is unable tomanage properly his or her financial affairs, may be paid to the legal representative of such Person, or may be applied for the benefit of such Person in anymanner that the Committee may select, and the Partnership, the Company and all of their Affiliates shall be relieved of any further liability for payment ofsuch amounts.SECTION 9. Term of the Plan.The Plan became effective on the date on which the original Plan was adopted by the Board (the “Effective Date”) and shall continue until the dateterminated by the Board. However, any Award granted prior to such termination, and the authority of the Board or the Committee to amend, alter, adjust,suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall extend beyond such termination date.Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 21.1USD PARTNERS LPSubsidiaries of the Registrant Company Name State or other Jurisdiction of Incorporation/ Formation/OrganizationCasper Crude to Rail, LLC WyomingCCR Pipeline, LLC DelawareSan Antonio Rail Terminal LLC DelawareStroud Crude Terminal LLC DelawareSCT Pipeline LLC DelawareUSD Logistics Operations GP LLC DelawareUSD Logistics Operations LP DelawareUSDP CCR LLC DelawareUSDP Finance Corp. DelawareUSD Rail Canada ULC British ColumbiaUSD Rail International S.A.R.L. LuxembourgUSD Rail LP DelawareUSD Terminals Canada ULC British ColumbiaUSD Terminals International S.A.R.L. LuxembourgWest Colton Rail Terminal LLC DelawareSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMUSD Partners LPHouston, TexasWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-201275) and Form S-3 (No. 333-214565 and No.333-211181) of USD Partners LP of our report dated March 9, 2018, relating to the consolidated financial statements, which appears in this Form 10-K./s/ BDO USA, LLPHouston, TexasMarch 9, 2018Source: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1Certification Pursuant toRules 13a-14 and 15d-14 Under the Securities Exchange Act of 1934I, Dan Borgen, certify that:1.I have reviewed this Annual Report on Form 10-K (this “report”) of USD Partners LP (the “registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:March 9, 2018 /s/ Dan Borgen Dan Borgen Chief Executive Officer and PresidentSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.2Certification Pursuant toRules 13a-14 and 15d-14 Under the Securities Exchange Act of 1934I, Adam Altsuler, certify that:1.I have reviewed this Annual Report on Form 10-K (this “report”) of USD Partners LP (the “registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date:March 9, 2018 /s/ Adam Altsuler Adam Altsuler Senior Vice President and Chief Financial OfficerSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.1Certification Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I,Dan Borgen, Chief Executive Officer and President of USD Partners GP LLC, as general partner of USD Partners LP (the “Partnership”), hereby certify, to thebest of my knowledge, that:(1)The Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “Report”) fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Partnership.Date:March 9, 2018 /s/ Dan Borgen Dan Borgen Chief Executive Officer and PresidentSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.2Certification Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), I,Adam Altsuler, Chief Financial Officer of USD Partners GP LLC, as general partner of USD Partners LP (the “Partnership”), hereby certify, to the best of myknowledge, that:(1)The Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “Report”) fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Partnership.Date:March 9, 2018 /s/ Adam Altsuler Adam Altsuler Senior Vice President and Chief Financial OfficerSource: USD Partners LP, 10-K, March 09, 2018Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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