KNOT Offshore Partners LP Common Units representing Limited Partner Interests

Hello everyone and welcome to the Notts Third Quarter 2022 Earnings Results Conference call. My name is Charlie and I'll be coordinating the call today. You'll have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I'll now hand over to your host, Gary Chapman, CEO and CFO to begin. Gary, please go ahead.

Thank you, Charlie. Thank you and welcome everybody to our Third Quarter 2022 Earnings call. The earnings release and this presentation are also available on our website at notoffshorepartners.com if you want to view them. Straight on to slide two, which concerns the nature of today's presentation, in particular the inclusion of forward-looking statements which are made in good faith, but which contain risks and uncertainties, meaning that actual results may be materially different. The partnership does not have or undertake a duty to update such forward-looking statements, and for further information, please consult our annual and quarterly SEC filings. Today's presentation also includes certain non-US GAAP measures, and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On to slide three, highlights of the third quarter and subsequent. We announced a cash distribution of $0.52 for the quarter for the 29th consecutive time at this level under our 1099 structure, and which was the 38th consecutive distribution made since the partnership first listed. We ran at 99.7% utilization for scheduled operations during the third quarter and 92.8% taking into account the scheduled dry dockings of the Lena and Windsor Knudsen vessels. We completed the acquisition of the Sunerva Knudsen on July 1st, 2022 to bring our fleet up to 18 vessels and at the same time, adding a block of forward revenue and charter coverage as a result. And all five of our vessel dry docking scheduled in 2022 have been completed. In terms of charter developments, Knutson NYK have taken each of their one month options on the Boodle Knutson to date and have options to keep the vessel until June 2023. We signed the time charter for the Windsor Knutson with Shell to commence in or around January 2023 for a one year fixed period plus a one year option. The Lane of Knutson commenced on its charter with Total Energies for six months plus a further six month option. And although in the second quarter we announced the re-delivery of the Hilda Knutson, we can confirm that the partnership's sponsor, Knudsen NYK, in similar fashion to the Boodle Knudsen arrangement, have agreed to time charter the vessel for a 90-day period plus three further 30-day option periods, albeit at a reduced charter rate, but to help support the partnership's cash flow in the short term. This arrangement commenced on September 3rd, 2022, and if all options are taken by Knudsen NYK, would currently expire on or around the beginning of March 2023. The time charter for the Tordes Knutson with Total Energies commenced on September 10th, 2022, for a fixed period of three months, with charters options to extend the charter by up to two further three-month periods. And Total Energies has already exercised the first of its two three-month option periods. On slide four, the current time charter for the Brazil Knutson with Galp Sinopec expired in November 2022. However, the partnership has entered into a new time charter contract, also with GALP, in direct continuation for a period of one year, extending the vessel's firm employment to November 2023. Regarding the partnership's time charter contract with Equinor for the Boodle Knudsen that is to commence around the end of 2023, this charter was either one year firm plus two one year options, or two years firm with two one year options In November 2022, Equinor confirmed their intention to fix the initial charge period at two years, meaning that if all options are taken by Equinor, the charter will be for four years and will expire around the end of 2027. We received news that ENI would re-deliver the Toril Knudsen to us, and we expect this to occur on or around December 17th, 2022. We're now marketing the vessel for new employment. In accordance with the previously announced time charter agreement with ENI for the Ingrid Knudsen, the partnership is expecting re-delivery of the vessel on or around December 7th, 2022. The partnership is continuing to market the vessel for new employment during 2023 in anticipation of the commencement of the new three-year ENI time charter contract commencing in January 2024. In terms of the wider market, we have continued to see good levels of activity in Brazil, but the North Sea remains a significant concern as we consider that this could take several further quarters to rebalance. As we've said before, we're also in this time looking at the conventional tanker market where headline spot rates have risen substantially in recent weeks. And although this is a positive development, the reality is that it is not that easy to secure those high rates. And as part of this type of employment, it is necessary to consider utilisation where the vessel may not earn revenue every day when it's between cargoes, as it does under a time charter, and also fuel costs, which would normally be a cost for our customers under a time charter contract. Although we are also actively looking at the conventional market, it may be that this does not provide a sufficient level of income. Notwithstanding, given the charter developments we have seen, we now have 644 million of contracted forward revenue excluding options up from 594 million at the end of June 2022, plus 74.6 million in available liquidity. Slides five through eight are our usual summary of our financial results, and as usual, I will just mention a few points. On slide five, our revenues held up well this quarter given the dry dockings ongoing, and depreciation was higher as a result of there now being 18 vessels in the fleet from July 1st. Operating expenses are above their historic average, mainly as a result of increased bunker fuel costs related to our time charter vessels that needed to transit to and from their dry docks. When time chartered vessels are on hire fuel is a cost for our customers but these vessels are off hire during their dry docks and with fuel costs increasing this has impacted our results. The other factor affecting operating expenses are crew and crew related costs which remain elevated since the onset of Covid and which level may become the new normal as we move forward. With a wide and geographically spread supply base to draw upon, we do believe we have some protection against certain elements of inflation that are occurring in many countries just now. However, this is something that we, like all companies, are keeping under close review. The upturn in interest expenses and realized and unrealized gains and losses on derivative instruments are driven in part by the recent increases in US dollar interest rates and forward curve, and again, partly driven by having an extra vessel in the fleet. September 30th, 2022, around 61% of our debt was actually or effectively fixed rate through either interest rate swaps or our two sale and lease back financings. On slide seven, you can see our cash and cash equivalents balance at the end of the quarter of 49.6 million and the debt refinancing due in the third quarter of 2023 has moved to the current portion of our long-term debt balance. This is something we have already started talking to our lenders about And early indications are that we will be able to successfully refinance the six underlying vessels in good time by mid 2023 and on acceptable terms. The distribution coverage ratio on slide eight was slightly up at 0.6 for the third quarter of 2022. And as we have disclosed previously, although there is a tendency to focus heavily on this figure each quarter, the partnership and the board instead takes a longer and more rounded view. But of course, that's not to say that a DCR of less than one is something that is sustainable. In the context of the distribution, although we do not mechanically link that to the distribution coverage ratio in a given quarter, our board does take into account our liquidity position, the outlook for the business in our market, our strategic interests, and anything else we consider to be relevant. We feel this allows us to bring a holistic view in ensuring that we operate in the best interests of our unit holders, without jeopardizing their ability to participate in the longer term shuttle tanker opportunities that are the core of our business. Slide nine is an update on our contracted revenue and charter portfolio. We've covered many of the contractual updates already, so I won't repeat them here, other than to say that while we have had success in filling some of the gaps we had in 2022 and in the longer term, there remains important work to be done in the near term for 2023, particularly in the North Sea. and that is what we're expending a great deal of energy on at the moment. As noted before, at September 30th, 2022, we had remaining forward contracted revenue of $644 million, excluding options, with average remaining firm charters of 1.9 years, and charters had options to extend these charters by a further three years on average. Then on slide 10, we have the potential drop-down vessels held by our sponsor, KNOT, that the partnership may choose to purchase in the future. We've now added the two recently contracted vessels that are due for delivery in late 2024 and late 2025. It remains the partnership's target to acquire these vessels from the sponsor when suitable opportunities arise. However, there is, of course, no guarantee that this will be possible. Slide 11. We have seen pandemic-related impacts start to recede, and FPSO deployment and oil production schedules have accelerated, especially in the Brazilian offshore shuttle tanker service to pre-salt areas. Partly, this is from a belief that higher or higher oil prices will persist compared to project break-evens at or below $35 per barrel, driving investment and additional production capacity in the deepwater offshore fields. Although the more mature North Sea market has continued to encounter delays, resulting in the current oversupply of shuttle tankers in the region, we saw the arrival into Norway during the second quarter of the delayed Johan Kastberg FPSO that is to be operated by Equinor. This is a great example of a large field that will need shuttle tankers for its proven volumes that are today estimated at between 400 and 650 million barrels of oil equivalent and for throughout its production life, which is expected to be 30 years. On slide 12, we've highlighted previously only a very small number of new shuttle tanker orders that have been placed in 2022 for deliveries in 2024 and 2025. constituting only approximately 5% of current shuttle tankers in service. Given this, and the main shipyard still being effectively full with container ships and LNG carrier orders through 2025, the total order book for shuttle tankers is very muted, with only six likely to deliver before the end of 2025, all of which are understood to be assigned to long-term charters. Set against anticipated production startups from ordered or delivered FPSOs, we expect this will meaningfully tighten the mid-term charter market, potentially to the point of shortage. New-built shuttle tank prices also remain elevated up around 30% since the second half of 2021 as the result of tight shipyard capacity and higher input prices for steel and labor, all of which continues to help the competitiveness of our existing fleet. So in summary for this quarter on slide 13, we had strong utilization of 99.7% for scheduled operations, we generated distributable cash flow of 10.9 million, and we paid a quarterly distribution of 52 cents for the 29th consecutive quarter. We had 644 million of remaining contracted forward revenue, excluding options at the end of the quarter, and no refinance due until the third quarter of 2023. As a reminder, the partnership's operations are not exposed to short-term fluctuations in oil prices, volume of oil transported, or global oil storage capacity, and our offshore loading charter rates are not as volatile as you find in other segments of shipping, either upwards or downwards. In the near term, we focus very much on safe operations, both onboard and onshore, and we aim to maintain our high utilization statistics for scheduled operations. We're talking with our customers, as we always do, and are proactively monitoring the wider market, including the conventional tanker market, to ensure we can respond flexibly as opportunities arise. We're planning for the scheduled dry docks that are to occur in 2023. And it may be worth saying here that all five of the dry docks in 2022 were for vessels based in Brazil. And with the dry docks taking place in Europe, these were our most expensive works due to longer mobilization time and fuel costs. In 2023, we have five further dry docks, however three of these vessels are already based in Europe, resulting in significantly lower budgeted time and costs. Finally, as mentioned, the speed of recovery in oil production and hence shuttle tanker demand in the North Sea is our biggest cause for concern at this moment. We're working every angle to support our short-term cash flows across our North Sea vessels to find opportunities to reinforce our balance sheet, But if we're not able to do that and soon, then the board will need to consider how this impacts on our distributable cash flow. At the same time, we continue to believe that the significant mid to long-term expansion of offshore oil production, particularly in pre-salt Brazil, supported by the large number of committed FPSO orders and with low marginal costs of oil production, together with the barriers to entry in our track record, mean we can continue to remain positive with respect to the mid to long-term outlook. Thank you very much for listening. And following this part of today's call, I'll be happy to answer questions.

Thank you. If you wish to submit a request for a question, please press star followed by 1 on your telephone keypad now. That's star followed by 1 on your telephone keypad.

Our first question comes from Liam Burke of V Reilly.

Liam, your line is open. Please proceed.

Thank you. Hi, Gary. How are you today? Hello, Liam. I'm very well. How are you? I'm fine. Thank you. Gary, I mean, obviously, you've got four vessels with limited chartering options. Your current liquidity position is what it is. Your coverage ratio is lower. And then you have to balance that against the long-term charter opportunities as well as elevated asset values. How are you balancing your coverage ratio and how long do you think that you're going to have to go before your coverage ratio improves?

Yeah, thanks, Liam. I think, you know, the board is always looking at the whole picture just as you have described there in terms of all of those things and I think you know the outlook for us hasn't changed in terms of what we've been saying for several quarters now that you know the impact will depend on the signing of new charters at good rates and that's what we were doing yesterday it's what we're doing today and it's what we'll be doing tomorrow and I think you know we're working really hard to get back to a sustainable position. Like we said, the coverage ratio is not where we want it to be, and we're working really hard to get that back. And I think that's really, as you've said, you've pointed out the North Sea vessels that we've got there, and that's exactly why we're looking at every angle, including the conventional market, to the maximum extent we can to make sure that we can not only get through this, but also look after the long-term interests of the unit holders and get us back to a sustainable place.

Okay. So what are your options in the North Sea? I mean, I understand the conventional charter market is what it is, but if there's overcapacity in the North Sea, there's overcapacity in the North Sea.

Yeah, but that's not to say that the vessels aren't doing anything at all. There is business there. Perhaps it's less long-term than we would like, but we're talking to all of our customers all of the time, and their requirements change often, daily, weekly. So I think for us, we're pushing as many buttons as we can, and that's why we've broadened our horizon to the conventional market as well. There are opportunities out there. I think we've been guiding towards this sort of situation for a little while. The gaps are a little bit nearer now, and we recognize that, which is perhaps what's coming through in the earnings release that we've put out. But the extent of that depends on what charters we can get. And I do think there is some business in the North Sea. It's not that there's no business. And with the conventional market as well, and obviously the rates in the conventional market at the moment are very positive, so that's very helpful for us. They could go higher. So I think the extent of the impact for us is yet to be seen. And I think we're doing all we can to get some good business for those ships that are open.

Great. Thank you, Gary.

Thanks, Liam.

Thank you. Our next question comes from Richard Diamond of Castlewood Capital. Richard, your line is open. Please go ahead.

You know, Gary, I just want to say that the mid- to long-term outlook for KNLP is really the best it's looked since coming public, and it's really short-term challenges. And I know you and the Board will take the right course for creating long term shareholder value. Earlier this morning, I listened to the frontline call, and they showed Q4 Suez Max rates, you know, again, short term charter at $65,000 a day, with, you know, three year time charters at 35,000 a day. So It looks, you know, if you wanted to do voyages, that rates are still strong. You know, without asking for a dollar amount, let's say Suez Max rates went up to $80,000 a day. Would that be competitive for KNOP?

Thanks, Richard. You've made some really good points there, particularly around the mid to long term, which we certainly would agree with. And it is the short term that's the challenge for us. I think part of the reason why we've been a little bit raising the caveats about the conventional market is obviously around the fact that the utilization is a little bit unpredictable. Yes, you can sign up for a TC but at a lower rate. And playing in the market really does depend on utilization and to a degree obviously fuel and repositioning and ballast costs. So I think it's not so easy to come up with a a rate that this would work and this one wouldn't. But I think what we can say is that certainly where the conventional market is today, it's really helpful for us. And we are seriously looking at what we can achieve in that market. And I think given the volatility that we're seeing in the market, we don't know what's going to happen to rates, et cetera, with what OPEC and Russia are going to do, and the price cap at the beginning of December. There's a lot of things happening at the moment that make it very difficult to think that conventional tanker rates are going to come down in the short term, and that's very helpful for us. We don't want to necessarily use our vessels in the conventional market. We would much rather be doing offshore loading activities. It does at least give us a realistic and viable chance to earn good money. And you're right, I can't give you a rate, but certainly, you know, despite the caveats we've put, we do feel that, you know, it's a good opportunity for us to be able to secure some charters and some income for our vessels.

Would it change the let's say you decided to charter, let's say, two vessels short term or, you know, move them to Brazil? Do you think that psychologically the North Sea charters would start to become concerned about the availability of capacity?

Yes, and certainly we've seen that already starting in 2024 for sure. And I think some of our customers must already be thinking that way, I think. And we're seeing that in Brazil even today for 2023. So I think that is very, very possible. We've seen a couple of vessels leaving The North Sea just recently, I think. So, again, the numbers are changing regularly. And I think we, you know, things are moving in the right direction for us. You know, we're not seeing too many variables that are working against us at the moment. You know, new build prices are high. Certain vessels are leaving, you know, the older vessels are perhaps leaving the market in ones and twos. And things are being tied up. And certainly in Brazil that is already the case. What we are doing our best to do is to obviously work with the conditions that we've got in the North Sea and do our very best to sign new business for those vessels. But certainly, you know, the underlying market and the conventional market at least is, you know, it's supporting us in those efforts, I think.

Thank you very much.

Thanks, Richard. Thank you, Richard. As a reminder, if you wish to submit a question, please press star followed by 1 on your telephone keypad now. That's star followed by 1 on your telephone keypad. Our next question comes from Jim Altshall of Aviation Advisory Service. Jim, your line is open. Please go ahead.

Thank you. Good afternoon, I guess. I've got a couple of questions for you, please. First of all, with regard to your hedge accounting, specifically the realized and unrealized gain on the derivative instruments, because I believe in the news release you said that you're not using hedge accounting. I hope I'm using the right word. That's right. Now, there's a significant difference if you look at the income statement, there's a significant increase in the interest expense because of the increase in interest rates. But you also have a significant realized and unrealized game on the derivatives. The derivatives are all related to your interest rate risk, right?

I mean, you're not...

Yeah, I mean, you don't have other kinds of derivatives like, you know, that Baltic tanker futures or anything like that. Your derivatives are all interest rate related, correct?

Yes, they're all the realized and unrealized game. There's a breakdown in the earnings release. And, you know, the majority of that relates to the valuation of the interest rate swap contract. that goes through the P&L each quarter because we don't do hedge accounting.

Okay. So of that figure you have in there, $12.37 million, how much of that relates to... Sorry. this quarter's interest expense, how much can we assume can be offset against the current quarter's interest expense? I hope I'm phrasing this properly.

Well, they're two different things. I mean, the interest expense is the interest expense on our debt. And then separately, we have interest rate swap contracts that offset some of that. So they're not actually legally the same thing, if you see what I mean. So I think, Jim, if you want to, I'm happy to speak to you separately away from this call if that's helpful to you. If you wanted to drop an email to the IR email address, I'm very happy to talk to you if you want to get into the detail at some point on that.

Okay, I will. I can understand that better. Next question. In the press release, you indicated that a couple of the vessels that were re-delivered, if that's the right word, they're currently on short-term charter to, I believe, your sponsor, but at a somewhat lower rate. Can you give us an estimate of what the quarterly revenue impact of these lower rates will be on those particular vessels?

Yeah, we've traditionally not broken down our fleet by vessel for a number of different reasons. And I'm not going to do that here, and in particular because that is a rate that is somewhat private between the company and its sponsor. Those rates have been reviewed and checked by our independent conflicts committee as being appropriate rates given the circumstances. And actually, we believe that it's positive for the business to have those charters in place because the alternative, certainly up until this period, the alternative was potentially no income at all for a period of time. So I think we don't generally break down our fleet in that respect, and we try to steer our investors away from looking at individual vessels and instead focusing on the total revenues.

Well, I don't want to press the point, but there's more than one vessel affected. I was looking for an aggregate impact on the quarterly revenues of the transition of these two or three vessels to these short-term charters, would you be able to give us that number?

I'm sorry, Jim, I'm not going to give you a number on that because I think, as I say, you'll just be able to, there are two vessels, you'll just be able to take the number divided by two, so it will kind of lead me in the same in the same direction.

Okay. And the final thing is, this is not a question, actually, and I know this is supposed to be Q&A, not pontificating, but I would, as an investor, I would like to put in my two cents, and no pun intended, urge all of you to be conservative in calculating determining your next distributions. I mean, obviously, I enjoy getting a nice quarterly distribution from you every three months. But to me, the most important thing is the long term strength of the balance sheet and the company. And as you well know, there are an awful lot of companies that created some major problems for themselves. by paying dividends well in excess of what they could really afford, starting with General Electric and General Motors. So, again, I would encourage you to be conservative when it comes to making your next decision regarding that distribution.

Yeah, I appreciate that, Jim. I've said before on previous earnings call, and I'm happy to say it again, we try to run this business on a conservative basis. We're generally not inclined to make rash decisions. We try very hard to do the best for our unit holders and also making sure that we can access the benefits that we think are going to come in the good market that we see in the future. I fully get your point.

Excellent. Well, thank you very much. And best wishes to all of you and your families for a happy holiday season.

Thank you. Thanks, Jim.

Thank you. As another reminder, if you wish to submit a question, it's star followed by one on your telephone keypad now. Our next question comes from V Church, who's an individual investor. V, your line is open. Please go ahead.

I just wanted to have a quick question. Realistically, what are the chances of spending some of the cash on repurchasing shares on the open market? That's all.

Thanks, V. Thanks, V. Yeah, no, look, we've never ruled that out. It's something that the board has always kept on the table. We've know historically not not done that we've not gone down that route we've felt that the money has been better used and it makes more sense to keep that money and cash in the business and obviously it's a decision for the board rather than myself so i won't sort of pontificate on on what the board might or might not decide to do in the future but we haven't typically done that and i think at the moment you know with outlook I think the business probably needs the cash that it's got and you know we're focused on getting all of the charters that we need at good rates so that you know we're in a good sustainable position so I think to answer your question I don't think it's on the cards at the moment but as I say I won't speak on behalf of the board But I think at the moment, that's probably not our priority.

I see. I only asked because the coverage ratio is below one.

That's the only reason. Yes. Yes, no, thank you for your question. Thank you. Thank you.

Thank you. As a final reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Rob Silveira of RE Silveira and Associates Marine Surveyors. Rob, your line is open. Please go ahead.

Thank you. Yes, Gary. I'm very concerned about this last report that you put out for a number of reasons, not just the financial reasons, but what it seems to point to based on your past actions. My first question is, what was your purpose of revealing all of the new and upcoming shuttle tankers of Knudsen NYK that may be available in the future? Why did you reveal all of those?

Yeah, Rob, that slide has sort of been in our presentation certainly as long as I've been performing this role and you know we always like to disclose what the sponsor has because through the omnibus agreement we have the ability to purchase those ships from the sponsor at a point in the future subject to all kinds of different things but I think it's important that we disclose that information so that people can understand where the future might be in terms of fleet growth for the business. So there's nothing sinister about it. It's really just trying to be transparent.

Okay. Well, currently with our current situations with expiring contracts and the need to employ the ships, The report is obviously very troubling to the market because we've lost over a year's worth of dividends in the price of the stock for today. As we speak, it's down at $11.66, down $2.37. So that's very discouraging. And I think based on your past conference calls, on the last one, you had said that there were no new dropdowns coming that you contemplated. And then this latest dropdown, which came in July, um, comes as a surprise based on what you're telling people that is going to happen in the future. And that's also happened a few quarters back when, um, You mentioned nothing about drop downs and then right after the conference call, within a week, there was a drop down and you didn't tell us that that was coming or even contemplated at that point in time. And I think that kind of communication hurts.

Robert, the previous earnings call in August, the drop down had already happened. It was effective 1st of July and the previous earnings call was in August.

Yeah, I'm sorry. I missed that one. It was the one before that that you said it. It was the call before that, so forgive me.

Yeah, but the drop-downs that we've done certainly recently have been using cash and debt and it's basically internally financed. So we haven't had to dilute any of the existing unit holders in order to do that and in order to bring in those new revenue streams. That I understand. And we put out the KNOT vessels, which was your original point, so that people can see um you know what those vessels might be and we always are looking to drop vessels down at an appropriate time when we think you know we benefit from from doing that so well at this point it's certainly something that we want to do yes but at this point in time when you're struggling to get new contracts to fill the ships we have i think it does not serve a good purpose to

imply that there may be future drop-downs with the raising of interest rates and raising of the debt levels that we have because this last one, you know, you paid cash and you assumed the debt, and altogether we paid $119 million for a ship that turned out that it was actually defective and had to be repaired, which is

not something that looks good i think that that's a little bit harsh because um all of you know vessels have troubles and and they get fixed and that's the same as your car it's the same as anything else i mean it wasn't i know and i think but um it troubles me to see a used vessel go for 119 million dollars um in total cost that was troubling anyhow i'm apprehensive

I'm apprehensive as a shareholder for many, many years now that we're going to, in the near future, do some more drop-downs with conditions as they are until we get good contracts for our vessels. Because it's obvious you do not want to operate in the spot market, even though rates are high. And I can understand why you don't want to, because you're really not designed to compete against the VLCCs or the Suez Maxes that are doing that every day.

And yeah, so that's, that's my feeling that, um, well, we, we, we do, we, we do, and we are happy to, to go into the conventional markets. I mean, all of these things are, you know, not so simple as looking at a headline rate and saying, yes, we can get that. But there's no, reticence from us about putting our vessels in the conventional tanker market if we think that's the best thing to do. And certainly... What size do we come in at? What size are we classified as?

Suezmax?

Yeah, most of the North Sea are Afromax, and then we've got the Boodle Knutson, which is Suezmax.

I see.

Okay.

Well, that's my concern. I know you want to be conservative, and I really don't want to see us increase our debt and increase our drop-downs at this point in time until we have solidified our existing fleet. Because next year, like you say, we face another five dry dockings, which are very tough on earnings. So that's my input, okay? Thank you, Gary.

I reassure you, we won't be doing any drop-downs unless it makes sense. So it's not a grow-at-all-cost MLP.

How does it make sense? Can you explain to me how it makes sense in a time when interest rates have risen and will probably rise some more and we have ships that are not contracted for? that may be open to having to go in the spot market. How is contemplating a drop-down beneficial?

I'm not saying we're going to do a drop-down, but the way that we think about a drop-down is whether or not, by itself, as a standalone ship, does it make the MLP stronger? Is it in the interest of everybody for us to take that when you look at the cash flows associated with that vessel? If we pay X dollars for it, is it creating free cash flow for us by buying that vessel at that price with the debt that it has and the charter that it has? And also considering the fact that we will have to pay a certain amount of equity for it, and that may be generated through internal funds or debt. But as a project, as a vessel, it has to stand alone and be a good piece of business. and add to the partnership. Otherwise, obviously, we won't do it.

Well, that's good to hear. The thing that's really discouraging is the market's reaction to the current report, which is quite discouraging because you see whole years of dividends wiped out in the price of the stock. Okay, thank you. That's my input, Gary. please consider them. And have a nice holiday, and God bless you.

Thank you.

At this time, we currently have no further questions, so I'll hand back over to Gary for any closing remarks.

Thank you, everybody, and I wish everybody well for the holiday season if we don't speak to you, and thank you again for listening.

Ladies and gentlemen, this concludes today's call. You may now disconnect your line.