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| And therefore, that’s what gives us the confidence that we think we can grow our capacity and grow our relationship not only with existing customers, but new |
| As a reminder, DRUbit creates enhanced blending and netback opportunities for our customers with a lower carbon footprint and offers an egress solution that moves a safer, nonhazardous, nonflammable product to new end markets |
| And again, we feel good about that happening |
| The successful completion of the first phase of our sponsor’s Hardisty DRU joint venture project enhanced the sustainability and quality of the partnership’s cash flows by significantly increasing the average tenure of a portion of the terminal services agreements at the partnership’s Hardisty terminal |
| We successfully closed on the sale of Casper Terminal for $33 million on March 31, which was the first phase of our plan to strengthen the partnership’s balance sheet and liquidity position during this recontracting cycle |
| We remain encouraged and are pleased with the great customer that we have that help pioneer this program |
| I would say that overall, they’re happy with performance financially as well |
| So not only is it an origination play coming out of Canada, but it has established a new market destination that gives our customers – customer and customers better netbacks and more competitive alternatives, again, with a lower carbon footprint |
| And as Brad said, the proven ratability and success of the program is evident |
| That’s why we feel good about renewing |
| As a reminder, the sponsor currently owns approximately 51% of the partnership and is very aligned with other unitholders both in seeing the partnership continue to return cash to unitholders as well as, more importantly, in seeing the partnership achieve long-term sustainable success |
| But I would say we remain very confident |
| However, we recovered and renewed our volumes and life to date, we have transloaded approximately 158 million barrels of crude oil at the Hardisty terminal, and we remain confident in the value that the Hardisty terminal has to offer to the industry |
| And lastly, as Dan mentioned, we are encouraged by and remain focused on converting the partnership’s existing Dilbit capacity to our longer-term sustainable DRUbit by rail program |
| That’s great news, great update |
| We have progressed our discussions with multiple potential customers regarding the expansion of our DRUbit by rail network and remain encouraged that these discussions could lead to additional long-term take-or-pay commitments that will benefit the partnership |
| One, we continue to have advanced discussions with potential customers and are encouraged with their momentum and progress |
| While this was a difficult decision, we remain steadfast in our commitment to providing value to our unitholders as we have in the past and are hopeful that we will be able to restore our distribution in the future, if we are able to renew or replace customer agreements at our terminals |
| The partnership achieved lower operating costs during the first quarter of 2023 as compared to the first quarter of 2022 |
| So overall, we’re quite happy with the DRU unit and it’s doing what we expected and planned for it to do |
| In regards to DRU operations, that unit operated by our partner, Gibson, is performing quite well |
| But I think from a performance and validation of sustainability and being competitive, which is what’s most critical to us, we’re really pleased with those type of discussions |
| All of that adds up to positive impacts for the customer |
| So clearly, as we see hopefully soon, the renew and extension of existing contracts and/or our new DRUbit extension, both of which, one being DRUbit, one being Dilbit that we would look – we have – increase our distributable cash flow and look then to be able to get our distribution back up to speed |
| Given all of this, we believe this proactive measure, coupled with management’s review of strategic alternatives was the prudent thing to do and will be best positioned the partnership for both recontracting or for refinancing or replacement of our senior secured credit facility before it matures later this year |
| I would say the most important maybe messaging and feedback would be that – one is our customer is happy with our performance and reliability |
| But it is the right thing to do to assure long-term sustainability with cleaner transportation and safer transportation methods |
| As we continue to grow and transition our business into safer and cleaner grades of heavy crude through our DRUbit program, it’s the right long-term strategy for the partnership |
| That test was successful and proved our goal of designing and operating a DRU unit that was flexible to handle a multiple range of Dilbit feedstocks |
| As a reminder, Cushing is the largest crude hub in North America, providing advantaged connectivity and tankage capacity for both producers and refiners |
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| During the quarter, the partnership continued to see challenging market conditions surrounding the Canadian heavy crude oil macro |
| And now for the details from the quarter, the partnership’s revenues for the first quarter of 2023 relative to the same quarter in 2022 were lower primarily as a result of lower revenues at the Hardisty Terminal due to a reduction in contracted capacity |
| Adjusted EBITDA for the first quarter decreased by 67% when compared to the same period in 2022 due primarily to the factors already discussed |
| Therefore, given these conditions and timing issues, renewing contracts in our traditional Dilbit business remains challenged, and our ability to possibly commercialize our Hardisty capacity is more likely in the second half of 2023 |
| As a reference, examples of this include the lower volumes transloaded at our Hardisty terminal in both 2016 and 2020, respectively, when market conditions were also challenging |
| As you mentioned in your opening dialogue, the Canadian macro conditions continue to be challenging |
| Distributable cash flow decreased to negative $1.6 million for the current quarter and also includes the impact of higher cash paid for interest and taxes when compared to the prior year |
| As we continue to navigate the recontracting cycle, the Board of Directors of the partnership’s general partner made the difficult decision to suspend the partnership’s quarterly distribution to utilize free cash flow to support the partnership’s operations and to potentially pay down debt |
| Revenues were also lower at Hardisty due to an unfavorable variance in the Canadian exchange rate on the partnership’s Canadian dollar-denominated contracts during the first quarter of 2023 as compared to the first quarter of 2022 |
| Short-term market for Dilbit has continued to be difficult and volatile |
| Revenue was lower at the Stroud Terminal due to the conclusion of the partnership’s terminalling services contract with its sole customer effective July 1, 2022 |
| In addition, subcontracted rail services costs were lower due to decreased throughput at the partnership’s terminals |
| Transition is tough |
| The basin’s growth ability is primarily constrained by access to rail logistics at destinations |
| Depreciation and amortization expenses were also lower in the first quarter of 2023, primarily associated with the decrease in the carrying value of the assets at the Casper terminal resulting from the impairment that was recognized in September 2022 |
| As Dan mentioned, the Board of Directors of the partnership’s general partner approved the suspension of the partnership’s quarterly distribution and the utilization of free cash flow to support the partnership’s operations and to potentially pay down debt as we consider strategic alternatives |
| SG&A costs and pipeline fees associated with the partnership’s Hardisty Terminal were lower, which is directly attributable to the associated decrease in Hardisty Terminal revenues already mentioned as compared to the first quarter of 2022 |
| The decrease in the partnership’s operating cash flow resulted from the factors already discussed |
| And obviously, with the GHG, greenhouse gas emissions in Canada being a pressure point for most producers |
| The biggest unknown, of course, is not only does the production show up, but when |
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