TRANSACTIONS WITH RELATED PARTIES

Nature of Relationship with Related Parties

USD is engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and other energy-related midstream infrastructure across North America, and is the sole owner of USDG and the ultimate parent 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. Prior to our IPO, USDG held a 98.0% limited partner interest in us and currently retains an aggregate 54.3% limited partner interest. USDG also provides us with general and administrative support services necessary for the operation and management of our business.

USD Partners GP LLC, our general partner both before and after the IPO, currently holds a 2.0% general partner interest in us and all of our incentive distribution rights. Pursuant to our partnership agreement, our general partner is responsible for our overall governance and operations.

Initial Public Offering Transactions

In connection with our IPO, we entered into agreements regarding the vesting of assets in and the assumption of liabilities by us and our subsidiaries, as well as the application of the proceeds from the IPO. We also completed other transactions in connection with the closing of our IPO pursuant to which USDG conveyed to us its ownership interests in each of its subsidiaries that own or operate the Hardisty, San Antonio and West Colton rail terminals and the railcar business. In exchange for these ownership interests, we: (1) issued to USDG 1,093,545 of our common units and all 10,463,545 of our subordinated units, currently representing an aggregate 54.3% limited partner interest, (2) assumed $30.0 million of borrowings under the BOK Credit Agreement and (3) distributed $100.0 million to USDG. Additionally, we issued to our general partner 427,083 general partner units, currently representing a 2.0% general partner interest in us, as well as all of our incentive distribution rights. We have entered into various agreements as discussed below with our general partner, USDG and its affiliates on terms that we consider to be no less favorable to us or our subsidiaries than those that could have been negotiated with unaffiliated parties for similar services.

In addition to the above noted transactions and in connection with our IPO, we sold land in close proximity to our Hardisty rail terminal on October 15, 2014, to USD Terminals Canada II ULC, a wholly-owned subsidiary of USDG, in exchange for a demand note receivable, denominated in Canadian dollars, of $2.9 million. As a transaction among entities under common control, we did not recognize any gain or loss upon the sale. The note receivable balance was $2.3 million and $2.5 million as of June 30, 2015, and December 31, 2014, respectively.

Omnibus Agreement

At the closing of our IPO, we entered into an omnibus agreement with USD and USDG, and certain of their subsidiaries including our general partner that provide for the following matters:

•

our payment of an annual amount to USDG, initially in the amount of approximately $4.9 million, for providing certain general and administrative services by USDG and its affiliates, which includes a fixed annual fee of $2.5 million for providing executive management services by officers of our general partner. Other portions of this annual amount are based on the costs actually incurred by USDG and its affiliates for providing the services;


•	our right of first offer to acquire the Hardisty Phase II and Hardisty Phase III projects, as well as other midstream infrastructure assets and businesses that USD and 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 partnership agreement), as well as any other out-of-pocket expenses incurred by USDG on our behalf;


•	an indemnity by USDG for certain environmental and other liabilities, and our obligation to indemnify USDG and its subsidiaries for events and conditions associated with the operation of our assets that occur after the closing of the IPO and for environmental liabilities related to our assets to the extent USDG is not required to indemnify us; and


•	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, either party 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 that calendar year for providing services for our benefit. The omnibus agreement provides that this amount may be adjusted annually to reflect, among other things, changes in the scope of the general and administrative services provided to us due to a contribution, acquisition or disposition of assets by us or our subsidiaries or for changes in any law, rule or regulation applicable to us affecting the cost of providing the general and administrative services. We will also reimburse USDG for any out-of-pocket costs and expenses incurred on our behalf by USDG in providing general and administrative services to us. This reimbursement will be in addition to our reimbursement of our general partner and its affiliates for certain costs and expenses incurred on our behalf for managing and controlling our business and operations as required by our partnership agreement.

The total amounts charged to us under the omnibus agreement for the three and six months ended June 30, 2015, were $1.1 million and $2.3 million, respectively, and are recorded in "Selling, general and administrative — related party" in our consolidated statement of operations.

Assignment of costs

During the first quarter of 2015, USDG assumed the obligation to pay a portion of the freight costs associated with the movement of empty railcars related to a customer contract initially entered into in June 2013, prior to our formation. The assumption was effective as of January 1, 2015 and included reimbursement to us for any amounts we paid subsequent to the effective date. As of June 30, 2015, we had a receivable balance of $1.3 million in respect of these costs recorded as “Accounts receivable — related party.”

Variable Interest Entities

We have entered into purchase, assignment and assumption agreements to assign payment and performance obligations for certain operating lease agreements with lessors and customer fleet service payments related to these operating leases with LRT Logistics Funding LLC, USD Fleet Funding LLC, USD Fleet Funding Canada Inc., and USD Logistics Funding Canada Inc., which are unconsolidated entities in which we have a variable interest, collectively referred to as the VIEs. The managing member of the VIEs is majority-owned by related parties. We are not the primary beneficiary of the VIEs, as we do not have power to direct the activities that most significantly affect the economic performance of the VIEs, nor do we have the power to remove the managing member under the terms of the VIE's limited liability company agreements. Accordingly, we do not consolidate the results of the VIEs in our consolidated financial statements.

The following table summarizes the total assets and liabilities between us and the VIEs as reflected in our consolidated balance sheets, as well as our maximum exposure to losses in which we have a variable interest, but are not the primary beneficiary. Generally, our maximum exposure to losses is limited to amounts receivable for services we provided, reduced by any unearned deferred revenues.



	June 30, 2015
	Total assets		Total liabilities		Maximum exposure to loss
	(in thousands)
Accounts receivable - related party	$	556	$	—	$	—
Deferred revenue, current portion - related party	—		1,243		—
Deferred revenue, net of current portion - related party	—		1,917		—
	$	556	$	3,160	$	—



	December 31, 2014
	Total assets		Total liabilities		Maximum exposure to loss
	(in thousands)
Accounts receivable - related party	$	134	$	—	$	—
Deferred revenue, current portion - related party	—		591		—
Deferred revenue, net of current portion - related party	—		1,931		—
	$	134	$	2,522	$	—

Related party sales to the VIEs were $0.5 million and $0.4 million during the three months ended June 30, 2015 and 2014, respectively and $1.1 million and $0.7 million during the six months ended June 30, 2015 and 2014, respectively. These sales are recorded in "Fleet services — related party" in the accompanying consolidated statements of operations.

Related Party Revenue and Deferred Revenue

We have agreements with J. Aron & Company, or J. Aron, a wholly owned subsidiary of The Goldman Sachs Group, Inc., or GS, as well as USD Marketing LLC, or USD Marketing, a wholly owned subsidiary of USDG, to provide terminalling and fleet services, which include reimbursement for certain out-of-pocket expenses, related to the Hardisty rail terminal operations. GS ceased to be a principal shareholder of USD in October 2014, and as a result, in 2015, J. Aron is no longer considered to be a related party. The terms and conditions of these agreements are similar to the terms and conditions of our agreements with unrelated parties at the Hardisty rail terminal. J. Aron has entered into assignment arrangements with third parties in respect to portions of these services and may do so again in the future.

Related party sales to J. Aron were $29 thousand and $219 thousand, respectively, during the three and six months ended June 30, 2014. These sales were recorded in "Freight and other reimbursables — related party" in the accompanying consolidated statements of operations. No outstanding balance was due from J. Aron as of December 31, 2014.

The following table presents our related party sales to USD Marketing for the periods indicated:



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Terminalling services - related party	$	1,803	$	—	$	1,803	$	—
Fleet leases — related party	1,011		—		2,221		—
Fleet services — related party	214		—		472		—
Freight and other reimbursables — related party	22		—		62		—

We received payments totaling $3.6 million from USD Marketing during the six months ended June 30, 2015, in connection with their minimum monthly volume commitments at our Hardisty rail terminal, all of which have been deferred. As of June 30, 2015, and December 31, 2014, the balances recorded as "Deferred revenue, current portion — related party" in our consolidated balance sheets related to USD Marketing were $4.6 million and $2.6 million, respectively. We did not receive similar payments during the six months ended June 30, 2014.

Cost Allocations

Prior to our IPO, USDG allocated overhead costs to us for general and administrative services, including insurance, professional fees, facilities, information services, human resources and other support provided to us. Where costs incurred on our behalf could not be determined by specific identification, the costs were primarily allocated evenly across the number of operating subsidiaries or allocated based on budgeted volumes or projected revenues. We believe these allocations are a reasonable reflection of the utilization of services provided. However, the allocations may not fully reflect the expenses that would have been incurred had we been a stand-alone company during the periods presented. Following our IPO, we are charged these costs as set forth in the omnibus agreement as previously discussed.

The total amount charged to us for overhead cost allocations for the three and six months ended June 30, 2014, which is recorded in "Selling, general and administrative — related party" in the consolidated statements of operations, was $0.9 million and $1.8 million, respectively.

Cash Distributions

During the six months ended June 30, 2015, we paid the following aggregate cash distributions to USDG as a holder of our common units and all of our subordinated units and to USD Partners GP LLC for their general partner interest.



Distribution Declaration Date	Record Date	Distribution Payment Date	Amount Paid to USDG		Amount Paid to USD Partners GP LLC
			(in thousands)
January 29, 2015	February 9, 2015	February 13, 2015	$	2,817	$	102
April 28, 2015	May 11, 2015	May 15, 2015	$	3,323	$	125