KNOT Offshore Partners LP Common Units representing Limited Partner Interests

Good morning and thank you all for attending E-NOT Offshore Partners fourth quarter 2024 earnings call. My name is Brica and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the call over to your host Derek Lowe, Chief Executive Officer and Chief Financial Officer of Knott Offshore Partners. Thank you. You may proceed, Derek.

Thank you, Brika, 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 fourth quarter of 2024. Our website is knottoffshorepartners.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 $91.3 million, operating income $34.7 million, net income $23.3 million, adjusted EBITDA was $63.1 million. We closed Q4 with $90 million in available liquidity, made up of 67 million in cash and cash equivalents, plus 23 million in undrawn capacity on our credit facilities. We operated with 98.3% utilization, and the vessel time available for scheduled operations was not impacted by any planned dry docking. 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 to slide four. 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. In particular, we've seen Brazilian FPSOs delivering and starting up ahead of schedule, with quite a few still to come. In the North Sea, the long awaited Johan Casberg FPSO is expected to start production shortly, while the Penguins FPSO began production recently. Penguins is Shell's first new operated platform in the North Sea in over 20 years, bringing production back to a field that's been offline since the decommissioning of the prior generation platform in 2021. On Johan Casberg, we're aware of some media speculation that a KNFP vessel has already offloaded cargoes, but I can clarify that this operation is our vessel coming alongside still as part of the commissioning process. Nonetheless, the picture at Johan Casberg is positive and we look forward to operations there. On the vessel supply front, we're seeing continued new build orders placed in order to service the large new production volumes coming online in the years ahead, including for our sponsor Knutson MYK. A measured amount of new Shuttle tanker ordering is unavoidable and in fact necessary as a shortage of Shuttle tanker capacity remains projected in the coming years. As usual for the Shuttle market, we believe that all known new build orders are backed by firm client charters, minimizes or even eliminates the dynamic of speculation around anticipated supply into the global fleet in two to three years' time. The partnership remains financially resilient, with a strong contracted revenue position of $870 million at the end of Q4 on fixed contracts, which averaged 2.4 years in duration. Charterverse options are additional to this, an average of further 4.8 years. With the market having strengthened and given expectations for tightness in the years ahead, The economic rationale for exercising these options has been strengthening and we increasingly expect these options to be taken up. Our near term charging exposure has been addressed by a swap of the Dan Sabia for the lever Knudsen, which we announced on the 27th of February. And our passive cash generation and liquidity balance is sufficient for our operations and the significant pay down rate for our debt, which is in the region of $90 million per year for installment payments. The debt on the lever acquisition fits in with this repayment profile also. On slide five, a number of developments in Q4 were announced already on the previous earnings call, including a new charter for Hilde Knudsen, which is about to begin. On slide six, our most recent developments include closeout of the insurance claim for Toral Knudsen, dating back to January 2024, totaling about less than $6 million. A brief option exercise for Brazil Knudsen and for Vigdes Knudsen, a switch to bare boat and extension of fixed duration by three years out to 2030, along with an option for a further two years. The most important recent development is on slide seven, showing a swap of the Dan Sabia for Lever Knutson. Lever has brought nearly five years of fixed or guaranteed future charter revenue, and this swap was a significant step in fleet and pipeline growth without the need for new funding. Additionally, this transaction leaves our fleet wholly concentrated in the most in-demand shuttle tanker classes. Onto slide eight, you can see consistent and growing revenues over the quarters and years, along with improving profitability. Slide 9 similarly reflects consistent and growing adjusted EBITDA, and you can find the definition of this non-GAAP measure in the appendix. On slide 10, there are two notable points in the balance sheet over 2024. The first is that four of our debt facilities have moved up from long term to current liabilities because of their upcoming maturities. The second is that even after the assumption of debt involved in the TUVA acquisition in September, our overall liabilities decreased by $29 million in 2024. as we continue to make contractual debt repayments in the area of $90 million per year. The debt facilities can be seen on slide 11, which sets out the maturity profile. On line one, the first of our revolving credit facilities is due to mature in August 2025. And on line two, the loan secured by Tover Knutson and Sanova Knutson matures over September and October 2025. The second revolver matures in November 2025. We typically seek to refinance such facilities on very comparable terms and we have a good track record of refinancing success, even in less favourable market environments. 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 amount of capital repayment due over the next year, which do not include interest or the final bloom payments due on the maturity date. Of note, $93 million in current installments is due to be paid during 2025. Our typical pattern is for our vessels to provide security for our debt facilities, and that applies to 17 out of the 18 vessels in the fleet out of the 31st of December, with the one exception being Dansabia, which is the vessel we sold earlier this month. $883 million out of $910 million in debt facilities at 31st of December are secured by vessels, while the two revolving credit facilities taking $50 million of capacity are unsecured. The Lever Knudsen, which we acquired earlier this month, have 73 million of secured debts attached maturing in October 26, and on very similar terms and conditions to the other secured loans shown here. The maturity profile of these debts is set out graphically on slide 12. As you can see, repayments are spread out over the coming years, but include material balloons in each of 2025 and 2026. Slide 13, shows the contracted pipeline in chart format, reflecting the developments I set out earlier, as well as the fact that Raquel Knutson's option period is the only material outstanding period for the year, as well as the possibility of brief off-hire as the Brazil Knutson transitions between charters. While nothing is certain until it's formally in place, we are cautiously optimistic about securing that additional coverage in the current tight market, either as an extension or under a new charter. Similarly, slide 14 highlights an encouraging 94% of fixed charter coverage for 2025. We currently have 75% of 2026 fixed as well, although the open percentage does rise materially over the course of the year, which demonstrates the need for our continuing commercial efforts. On slide 15, we see our sponsors' 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 secured a firm contract period at least five years in length. At present, four existing vessels and five under construction fall into this category. There's 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. We continue to believe that key components of KNOP's strategy and value proposition are accretive investment in the fleet and a long-term sustainable distribution. As such, we intend to pursue long-term charter visibility and accretive drop-down supportive of long-term cash flow generation. On slides 16 to 18, 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 at the webpage as shown there. The primary takeaway from each of these slides is consistent. There's 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 additional vessel construction contracts are an endorsement of the strong anticipated market conditions in the medium and longer term. Five outstanding new-build contracts are for our sponsor, Knutson MYK, and are due for delivery by the end of 2027. We would not be surprised to see further new-build orders placed in order to service the large new production volumes coming online in the years ahead. In a trend that also applies to oil production globally, you'll see that even in the years ahead where aggregate production growth slows, deep offshore production, in this case the Brazilian pre-salt, continues to outpace the overall market and take market share. On slide 19, we provide information relevant to our US unit holders, and particularly 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 20, 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 21, recapping our financial and operational performance in Q4 2024 and the subsequent time and our current outlook. We're glad to have delivered high and safe utilization, which have generated consistent financial performance. We're delighted to have taken the further growth step by swapping Dan Savi for Lever Knutson, Our continued commercial focus remains on adding to our longer-term charter visibility and the cash flows that provide us with the capacity for both accretive investment in the fleet and a long-term sustainable distribution. And in the coming months, we will also be addressing the four refinancings which are coming due this year. In total, though, we are making good progress and are pleased to have established positive momentum against an improving market backdrop. Thank you for listening, and with that, I'll hand the call back to Brika for any questions.

Thank you, Derek. We will now begin the question and answer session. If you would like to ask a question, you can do so by pressing star followed by one on your telephone keypad. And if for any reason you would like to remove that question, please press star followed by two. And again, to ask a question, please press star one. And as a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly whilst questions are registered. We have the first question on the line from Liam Burke with B Reilly Security. You may proceed.