KNOT Offshore Partners LP Common Units representing Limited Partner Interests

Welcome to the KNOP first quarter 2024 earnings call. My name is Carla, and I will be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. And if you change your mind, please press star followed by two. I would now like to hand you over to Derek Lowy to begin. Derek, please go ahead.

Thank you and good morning ladies and gentlemen. My name is Derek Lowe and I'm the Chief Executive and Chief Financial Officer of Knott Offshore Partners. Welcome to the Partnerships Earnings Call for the first quarter of 2024. Our website is knottsoffshorepartners.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 gap measures. On slide 3, we have the financial and operational headlines for Q1. Revenues were $76.6 million, operating income $19.7 million, net income was $7.4 million, and adjusted EBITDA $47.5 million. We closed Q1 with $55 million in available liquidity, made up of $50 million in cash and cash equivalents, plus five million in undrawn capacity on our credit facilities. We operated with 97.6 utilization and the vessel time available for scheduled operations was not impacted by any planned dry docking. Following the end of Q1, we declared a cash distribution of 2.6 US cents per common unit, which was paid in early May. On slide four, we have the headlines of the contractual and operational development since our last results call, which was on February the 27th. In our major market, Brazil, Vigdisk Knutson was delivered to Shell in March for a three-year time charter. Anna Knutson saw exercise of an option by Total Energies, extending the current charter to April 2026. And by the time of the last results call, Dan Sabia's charter to Transpetro had been extended to early June this year. In the North Sea, Hilda Knutson, Toril Knutson and Bodal Knutson have continued to operate under time charters to our sponsor, Knutson MYK. For Bodal Knutson, this charter lasted as planned until delivery to Equinor at the end of March on a charter of two years fixed plus two years options. For Hilda Knutson and Toril Knutson, the charter is for rolling one month terms up to January 2025. Ingrid Knutson was re-delivered by Altera at the end of March as anticipated and has since gone on to time charter with Knutson MYK. Both Ingrid Knutson and Toril Knutson will commence charters with E&I in Q4 this year. For Ingrid Knutson, this was a deferral to October from a previously contracted April delivery. This deferral is on terms that are no less favourable to us than applied previously. That charter is for two years fixed, plus two options each of one year. For Toll Knutson, the new time charter with ENI is for three years fixed, plus three options each of one year. In the meantime, Toll Knutson is undergoing repairs to a broken generator rotor which has limited the range of client facilities which this vessel is able to serve. We expect repair to be completed later in Q2 or into Q3, and both the repair costs and some loss of hire are expected to be covered by insurance, subject to the relevant policy terms. After we received re-delivery of Dam Cisner in December 2023, we have deployed her on short-term conventional tanker work while also assessing the upgrades required for compatibility with shuttle tanker work in the North Sea. Those upgrades are due to be carried out in the coming weeks. Dan Sabia is due for re-delivery to us in June, which is the extended expiry date of her charter to Transpetro. The continuing area of focus for our contracting team is on Dan Cisner, Dan Sabia and Hilda Knutson. For near-term deployment, focus also remains on Ingrid Knutson and Toril Knutson until each of them is delivered to E&I in Q4 this year. On slide five, Our outlook remains positive on both industry dynamics and the partnership's positioning to participate fruitfully in our markets. Significant growth is anticipated in production in fields which rely on service by shuttle tankers. We see reported orders from earlier this year 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 sponsor vessels has a 10-year fixed contract with Petrobras along with the 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 shuffled tanker ordering is imperative. It should not be understood as some sort of negative development for the sector. The material shortage of shuffled tanker capacity remains projected in the coming years. We also remain mindful of near-term market conditions. where we particularly focused on marketing the Dan Cisner, Dan Sabia and Hilda Knudsen, as well as seeking third-party employment of Ingrid Knudsen and Toril Knudsen until commencement in Q4 of their next long-term charters. In the meantime, the partnership remains financially resilient, with a strong contracted revenue position of $683 million at the end of Q1 on fixed contracts, which average two years in duration. Charterers' options are additional to this and average a further two years. Our pattern of cash generation and liquidity balance is sufficient for our operations and the significant paid-out rate for our debt. And we have demonstrated the strength of our relationships with lending banks by several refinancings completed over the last year. Finally, the average age of our vessels at 9.9 years places as well when compared with the useful life model at 23 years. On to slide six, you can see the consistency of revenues and operating income when comparing between courses and also between 12-month periods. 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 the first quarter has come from refinancing of the loan secured by Hilde Knutson, the balance of which has moved from current liabilities into long-term debt. The overall change in the partnership's liabilities has been a reduction by $42 million, which is reflective of our debt repayment schedule. On slide 9, we have 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 have been making in line with scheduled repayment terms. The current instalments are the amounts of capital repayments 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 date. Of note, $91 million is due to be paid on these debt facilities over the 12 months following 31st March. Completion of the Hilda Loan refinancing is due imminently, following which no further balloon repayments or refinancings are due within that 12-month period. Our typical pattern is for our vessels to provide security for our debt facilities, and that applies to 16 out of 18 vessels. At present, the exceptions are that Dan Cisner and Dan Sabia are free of debt, and we do not have plans to incur additional borrowings secured by these vessels until we have better visibility on their future employment. $880 million out of $925 million in debt facilities are secured by vessels, while the two revolving credit facilities totaling $50 million of capacity are unsecured. Slide 10 shows the contracted pipeline in chart formats reflecting the developments I set out earlier. Similarly, slide 11 highlights the focus of our commercial efforts on adding near-term contracts, particularly for Dan Sissner, Dan Sarbia, and Hilde Knutson, and in the near term also for Ingrid Knutson and Toralt Knutson. 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 to 15, we 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. The primary takeaway from each of these slides is consistent. There is very significant committed demand growth coming to the Brazilian market in the form of new FPSOs that will require regular service from shuttle tankers. We believe that reports earlier this year of up to six vessel construction contracts are an endorsement of the strong anticipated market conditions in the medium and longer term. As I mentioned earlier, three of these recent new-build contracts are for our sponsor, Curtin MYK, and are due for delivery over 2026 and 2027. 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, and a material shortage of shuttle tanker capacity remains projected in the coming years. On slide 16, 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, Equinity Trust Company, whose details are shown there. On slide 17, 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 18, recapping our financial and operational performance in Q1 2024 and the subsequent time, and our outlook for the remainder of 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 have secured during the quarter and since, along with our ability to navigate our refinancing needs and periodic capital expenditure. And our continued commercial focus remains on filling up third party 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 back to the operator for any questions.

Thank you. If you'd 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. When preparing to ask your question, please ensure your device is unmuted locally. And our first question comes from Liam Burke from Bee and Riley.