KNOT Offshore Partners LP Earnings Release—Interim Results for the Period Ended March 31, 2024

Financial Highlights

For the three months ended March 31, 2024 (“Q1 2024”), KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):

• Generated total revenues of $76.6 million, operating income of $19.7 million and net income of $7.4 million.
• Generated Adjusted EBITDA¹ of $47.5 million
• Reported $55.2 million in available liquidity at March 31, 2024, which was comprised of cash and cash equivalents of $50.2 million and undrawn revolving credit facility capacity of $5.0 million.

Other Partnership Highlights and Events

• Fleet operated with 97.6% utilization for scheduled operations in Q1 2024.
• On April 16, 2024, the Partnership declared a quarterly cash distribution of $0.026 per common unit with respect to Q1 2024, which was paid on May 9, 2024, to all common unitholders of record on April 29, 2024. On the same day, the Partnership declared a quarterly cash distribution to holders of Series A Convertible Preferred Units (“Series A Preferred Units”) with respect to Q1 2024 in an aggregate amount of $1.7 million.
• On December 15, 2023, the Partnership received the Dan Cisne back via redelivery, following expiry of its bareboat charter party to Transpetro. The Dan Cisne is being assessed for shuttle tanker operation in the North Sea and is, in the interim, being deployed on short-term conventional tanker contracts.
• On January 2, 2024, the rolling monthly time charter contracts at a reduced rate with Knutsen NYK Offshore Tankers AS (“Knutsen NYK”) were extended to January 2025 for the Hilda Knutsen and the Torill Knutsen. The time charter contract with Knutsen NYK for Bodil Knutsen was extended through to March 2024, at which point it was terminated as anticipated to facilitate delivery to Equinor on March 27, 2024.
• On January 9, 2024, an extension to the existing bareboat charter party for the Dan Sabia was signed with Transpetro, extending the vessel’s fixed employment to early June 2024.
• On January 28, 2024, the Torill Knutsen experienced a broken generator rotor, which limits the range of client facilities this vessel is able to serve. Under its loss of hire insurance policies, the Partnership will be compensated by insurance for the extent to which, as a consequence of this breakage, the Torill Knutsen’s earnings fall short of a contractual hire rate, commencing 14 days after the date of the breakage. The Partnership expects the supply of necessary components, and thereafter completion of the repair, to occur late in the second quarter or early in the third quarter of 2024. The Partnership also expects that the repair cost will be covered by insurance, in excess of a deductible of $150,000.
• On March 16, 2024 the Vigdis Knutsen was delivered to Shell to commence on a three-year time charter.
• On March 22, 2024, TotalEnergies exercised its option to extend its charter for the Anna Knutsen to April 2026.
• On March 28, 2024 the Ingrid Knutsen was redelivered from Altera, following which she worked temporarily in the conventional tanker market. On April 22, 2024, the Ingrid Knutsen began operating under a rolling monthly time charter with Knutsen NYK at a reduced charter rate, to expire upon her delivery to Eni in October 2024.
• On April 17, 2024 a time charter for the Carmen Knutsen was executed with an oil major, to commence Q1 2026 for a fixed period of four years plus a charterer’s option for one additional year.
• On April 12, 2024, an agreement was reached with Eni, on terms no less favourable to the Partnership than applied previously, to delay delivery of Ingrid Knutsen until October 2024 for a time charter for a fixed period of two years plus two charterer’s options each of one year. On the same date, a time charter commencing Q4 2024 was agreed with Eni in respect of the Torill Knutsen for a fixed period of three years plus three charterer’s options each of one year.
• On April 5, 2024, Knutsen Shuttle Tankers 14 AS, the Partnership’s wholly-owned subsidiary which owns the vessel Hilda Knutsen, entered into a new $60 million senior secured term loan facility with DNB. The new facility will replace the facility with Mitsubishi UFJ Lease & Finance (Hong Kong) Limited, which is secured by the Hilda Knutsen and due to be repaid in May 2024 with a balloon payment of $58.5 million. This refinancing is anticipated to close shortly, following completion of customary closing conditions.

Derek Lowe, Chief Executive Officer and Chief Financial Officer of KNOT Offshore Partners LP, stated, “We are pleased to report another strong performance in Q1 2024, marked by safe operation at over 97% fleet utilization, along with consistent revenue and operating income.

Including those contracts signed since March 31, 2024, we now have 88% of charter coverage for 2024 from fixed contracts, which rises to 93% if charterers’ options are exercised. Having executed a number of new contracts, we remain focused on filling the remaining gaps in our charter portfolio.

In Brazil, the main offshore oil market where we operate, the outlook is continuing to improve, with robust demand and increasing charter rates. Driven by Petrobras’ continued high production levels and FPSO start-ups in the pre-salt fields that rely upon shuttle tankers, we believe the world’s biggest shuttle tanker market is tightening materially. Our secondary geography, in the North Sea, is taking longer to re-balance, where we look forward to the long-anticipated start-up of the Johan Castberg FPSO scheduled for the latter part of this year.

We are aware that Knutsen NYK has ordered three new shuttle tankers to be chartered to Petrobras with delivery over 2026-2027; and we note reports of another operator ordering three new shuttle tankers, with delivery by early 2027. We anticipate that all these new orders are backed by charters to clients in Brazil, and see this as a sign of confidence in the medium-long term demand for the global shuttle tanker fleet. These new orders bring anticipated deliveries to a total of eleven within the coming three years. While delivery of these orders will add to the supply of vessels into the global shuttle tanker fleet, we continue to believe that growth of offshore oil production in shuttle tanker-serviced fields across both Brazil and the North Sea is on track to outpace shuttle tanker supply growth in the coming years, particularly as increasing numbers of shuttle tankers reach or exceed typical retirement age.

As the largest owner and operator of shuttle tankers (together with our sponsor, Knutsen NYK), we believe we are well positioned to benefit from such an improving charter market. We remain focused on generating certainty and stability of cashflows from long-term employment with high quality counterparties, and are confident that continued operational performance and execution of our strategy can create unitholder value in the quarters and years ahead.”

Financial Results Overview

• Results for Q1 2024 (compared to those for the three months ended December 31, 2023 (“Q4 2023”)) included:
• Revenues of $76.6 million in Q1 2024 ($73.0 million in Q4 2023), with the increase due to revenues related to spot voyages performed in Q1.
• Vessel operating expenses of $25.9 million in Q1 2024 ($25.5 million in Q4 2023), with the increase due to higher port expenses and IT related costs.
• Depreciation of $27.7 million in Q1 2024 ($27.6 million in Q4 2023).
• General and administrative expenses of $1.6 million in Q1 2024 ($1.6 million in Q4 2023).
• Operating income consequently of $19.7 million in Q1 2024 ($18.1 million in Q4 2023).
• Interest expense of $17.5 million in Q1 2024 ($18.1 million in Q4 2023) with the decrease due to outstanding debt decreasing and lower interest rates.
• Realized and unrealized gain on derivative instruments of $5.0 million in Q1 2024 (loss of $4.8 million in Q4 2023), including unrealized gain (i.e. non-cash) elements of $0.9 million in Q1 2024 (loss of $8.9 million in Q4 2023).
• Net income consequently of $7.4 million in Q1 2024 (net loss of $5.3 million in Q4 2023).

By comparison with the three months ended March 31, 2023 (“Q1 2023”), results for Q1 2024 included:

• an increase of $2.0 million in operating income (to $19.7 million in Q1 2024 from $17.7 million in Q1 2023), driven primarily by higher time charter and bareboat revenues partly offset by higher vessel operating expenses;
• a decrease of $7.1 million in finance expense (to finance expense of $12.1 million in Q1 2024 from finance expense of $19.2 million in Q1 2023), due to lower interest rates; and
• an increase of $8.7 million in net income (to a net income of $7.4 million in Q1 2024 from a net loss of $1.3 million in Q1 2023).

Financing and Liquidity

As of March 31, 2024, the Partnership had $55.2 million in available liquidity, which was comprised of cash and cash equivalents of $50.2 million and $5.0 million of capacity under one of the revolving credit facilities. The Partnership’s revolving credit facilities mature between August 2025 and November 2025.

The Partnership’s total interest-bearing obligations outstanding as of March 31, 2024 were $925.3 million ($919.6 million net of debt issuance costs). The average margin paid on the Partnership’s outstanding debt during Q1 2024 was approximately 2.28% over SOFR. These obligations are repayable as follows:

As of March 31, 2024, the Partnership had entered into various interest rate swap agreements for a total notional amount outstanding of $442.6 million, to hedge against the interest rate risks of its variable rate borrowings. As of March 31, 2024, the Partnership receives interest based on SOFR and pays a weighted average interest rate of 2.0% under its interest rate swap agreements, which have an average maturity of approximately 1.7 years. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impacted by changes in the market value of such financial instruments.

As of March 31, 2024, the Partnership’s net exposure to floating interest rate fluctuations was approximately $257.7 million based on total interest-bearing contractual obligations of $925.3 million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $174.8 million, less interest rate swaps of $442.6 million, and less cash and cash equivalents of $50.2 million.

On January 9, 2024, the loan facility secured by the Dan Sabia was repaid in full with a $10.4 million payment. The Dan Sabia and the Dan Cisne are now debt-free and there are no plans to incur additional borrowings secured by these vessels until such time as the Partnership has better visibility on the vessels’ future employment.

On April 5, 2024, Knutsen Shuttle Tankers 14 AS, the Partnership’s wholly-owned subsidiary which owns the vessel Hilda Knutsen, entered into a new $60 million senior secured term loan facility which is due to replace the existing loan facility secured by the Hilda Knutsen. That existing facility is due to mature with a balloon payment of $58.5 million in May 2024. This refinancing is anticipated to close shortly, following completion of customary closing conditions.

Assets Owned by Knutsen NYK

Pursuant to the omnibus agreement the Partnership entered into with Knutsen NYK at the time of its initial public offering, the Partnership has the option to acquire from Knutsen NYK any offshore shuttle tankers that Knutsen NYK acquires or owns that are employed under charters for periods of five or more years.

There can be no assurance that the Partnership will acquire any additional vessels from Knutsen NYK. Given the relationship between the Partnership and Knutsen NYK, any such acquisition would be subject to the approval of the Conflicts Committee of the Partnership’s Board of Directors.

Knutsen NYK owns, or has ordered, the following vessels and has entered into the following charters:

Source link