KNOT Offshore Partners LP Common Units representing Limited Partner Interests

Hello, my name is Drew and I'll be your conference operator today. At this time, I would like to welcome everyone to the Not Offshore Partners fourth quarter 2023 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. Derek Lowe, you now may begin your conference.

Thank you and good morning ladies and gentlemen. My name is Derek Lowe and I'm the Chief Executive and Chief Financial Officer of Not Offshore Partners. Welcome to the partnerships earnings call for the fourth quarter of 2023. Our website is notoffshorepartners.com and you can find the earnings release there along with this presentation. On slide two you will find guidance on the inclusion of forward-looking statements in today's presentation. These are made in good faith and reflect management's current views, known and unknown risks, and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied in forward-looking statements, and the partnership does not have or undertake a duty to update any such forward-looking statements made as of the date of this presentation. For further information, please consult our SEC filings, especially in relation to our annual and quarterly results. 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 slide three, we have the financial and operational headlines for Q4. Revenues were $73 million, operating income 18.1. There was a net loss of 5.3 million after accounting for an unrealized, in other words, non-cash loss of 8.9 million on derivatives, and adjusted EBITDA of 45.7 million. We closed Q4 with $63.9 million in available liquidity made up wholly of cash and cash equivalents. We operated with 99.6 utilization of the vessel time available for scheduled operations, which is equivalent to 96% of total fleet time after accounting for the planned dry dockings of Toriel Knutson and Ingrid Kutson. Following the end of Q4, we declared a cash distribution of 2.6 US cents per common unit, which was paid in early February. On slide four, we have the headlines of the contractual developments since our last results call, which was on December the 14th, 2023. In our major market, Brazil, Carmen Knutson saw exercise of a one-year extension option by Repsol, which commenced in January. Repsol holds a further one year's option, which, if exercised, would see Carmen Knutson employed through to January 2026. And Ansabio's charter to Transpetro has been extended to early June this year. In the North Sea, Hilda Knudsen, Toril Knudsen and Bodal Knudsen have continued to operate under time charters to our sponsor Knudsen NYK. For Bodal Knudsen, this charter will last until the end of March and delivery to Equinor to commence a charter of two years fixed plus two years options. For Hilda Knudsen and Toril Knudsen, the charter is for rolling one month terms up to January 2025. The continuing area of focus for our contracting team, especially for near-term deployment, is on Dan Cisner, Dan Sabia, Hilda Knutson and Toril Knutson. We received re-delivery of Dan Cisner in December 2023. Her size is more suited to the North Sea market, and we are assessing her technical compatibility for shuttle tanker work in the North Sea. In the meantime, we are deploying Dan Cisner on conventional tanker work. Dan Sabia is due for re-delivery to us in June, which is the extended expiry date of her charter to Transpetro. Marketing of all four vessels continues to potential charters, both existing clients and others, including the partnership sponsor. On slide five, our outlook remains positive on both industry dynamics and the partnerships positioning to participate fruitfully in our markets. Significant growth is anticipated in production in fields which rely on service by shuttle tankers. We see recently reported orders of around six vessels as an endorsement of confidence in the sector. Three of these vessels have been ordered by our sponsor for delivery over 2026 and 2027. Each of these is a 10-year fixed contract with Petrobras, along with a client option to extend by a further five years. We would expect to see further new build orders placed in order to service the large new production volumes coming online in the years ahead. A measured amount of new shuttle tanker ordering is imperative and should not be understood as some sort of negative development for the sector. We do also remain mindful of the near-term market conditions, where we are focused on the marketing of the four vessels, as I described earlier. In the meantime, the partnership remains financially resilient, with a strong contracted revenue position of $699 million at the end of Q4 on fixed contracts, which average two years in duration. Charter's options are additional to this, and average a further 2.1 years. Our pattern of cash generation and liquidity balance is sufficient for our operations and the significant pay down rate for our debt. And we have demonstrated the strength of our relationships with the lending banks by several refinancings completed over the last year. Finally, the average age of our vessels at 9.7 years places us well when compared to the useful life model at 23 years. On to slide six, you can see the consistency of revenues and operating income when comparing with those of previous quarters. including Q2 of 2023, when that is viewed without the impairment. Slide 7 similarly reflects the consistency of our adjusted EBITDA, and you can find the definition of this non-GAAP measure in the appendix. On slide 8, the most notable change in the balance sheet over 2023 has been the reduction in current liabilities, which has arisen from the refinancing secured during 2023. Long-term debt has increased as a reflection of these refinancings, However, the overall change in the partnership's liabilities has been a reduction by $92 million, which is reflective of the debt repayments we've made during the year. On slide 9, we've expanded on the terms of the partnership's debt facilities to provide added colour around the dynamics of debt repayment. The highlighted column shows how the outstanding balances of each facility have been reducing because of the repayments we've been making in line with scheduled repayment terms. The current instalments are the amounts of capital repayment due over the next year, which do not include interest. And the balloon payments are the final amounts of principal which will be due on the maturity dates. Of note, $153 million is due to be paid on these debt facilities over the 12 months following 31st December 23, of which $57 million is a balloon repayment due in May 24 on the loan which is secured by Hilde Knutson. Our practice with a significant repayment such as this is to seek a refinancing, and our track record demonstrates the viability of this approach. Negotiations are well advanced with potential lenders for a new facility to be secured also by the Hildekutzen, sufficient to finance the balloon repayment of the maturing facility. The partnership is not aware of any reasons why this refinancing would be unlikely to complete. However, there can be no guarantees of the success of any financing exercise. Aside from that refinancing, $87 million will be repayable over the course of this 12-month period, of which 10 million has already formed the repayment of the Dan Sabia facility in January. This leaves both Dan Cisner and Dan Sabia free of debt, and we don't have any plans to incur additional borrowing secured by these vessels until we have better visibility on their future employment. Slide 10 shows the contracted pipeline in chart format, reflecting the developments I set out earlier. Similarly, slide 11 highlights the focus of our commercial efforts on adding near-term contracts, primarily for the four vessels mentioned earlier. On slide 12, we see our sponsor's inventory of vessels which are eligible for purchase by the partnership. This applies to any vessel owned by or on order for our sponsor where the vessel has a firm contract period at least five years in length. At present, five existing vessels and five under construction fall into this category. There is no assurance that any further acquisitions will be made by the partnership and any transaction will be subject to the board approval of both parties, which includes the partnership's independent conflicts committee. As we have said, our top priorities remain securing additional contract coverage for our existing fleet and fostering our liquidity position. On slides 13 and 14, we have provided some useful illustrations of the strong demand dynamics in the Brazilian market as published by Petrobras. We encourage you to review Petrobras' materials directly at the web page as shown there. The primary takeaway from each of these slides is consistent. There is very significant committed demand growth coming in the Brazilian market in the form of new FPSOs that will require regular service from shuttle tankers. We believe that recent reports of up to six vessel construction contracts are an endorsement of the strong anticipated market conditions in the medium and longer term and do not think this is an excessive amount of added supply in the context. As I mentioned earlier, three of these recent new-build contracts are for our sponsor, Knutson MYK, and are due for delivery over 2026 and 2027. On slide 15, we provide information relevant to our US unit holders, in particular those seeking a Form 1099. Those holding units via their custodians or brokers should approach those parties directly. Those with directly registered holdings should contact our transfer agent, American Stock Transfer, who come under the umbrella of Equinity Trust Company, whose details are shown there. On slide 16, we include some reminders of the strong fundamentals of our business in the market we serve, our assets, competitive landscape, robust contractual footprint and resilient finances. I'll finish with slide 17, recapping our financial and operational performance in Q4 2023 and the subsequent time and our outlook for 2024 We are glad to have delivered high and safe utilisation, which have generated consistent financial performance. We are pleased with the new contracts and extensions we've secured during the quarter and since, along with our ability to navigate our refinancing needs and capex relating to dry docks throughout last year. And our continued commercial focus remains on filling up utilisation for 2024, while looking further forward to longer term charter visibility and liquidity generation. Thank you for listening. And with that, I'll hand back the call to the operator for any questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press start followed by one on your telephone keypad. If you change your mind, please press start followed by two. Our first question today comes from Liam Burke from B Reilly. Your line is now open. Please go ahead.