Knot Offshore Partners LP (KNOP) 2015 Q1 法說會逐字稿

Good afternoon, and welcome to the KNOT Offshore Partners first-quarter 2015 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Arild Vik, CEO and CFO of KNOT. Please go ahead.

Thank you, and good morning. Welcome you all to our first-quarter 2015 results call. Please note the cautionary statements on page 2.

And we can then go on to talk about the first quarter, which has been a stable and good quarter for the Partnership. We now have in total operation eight vessels, so we have expanded with four since we did our IPO. We have generated revenue of $36.2 million, operating income of $17 million, and there's net income of $7.2 million, reflecting that there is also certain derivative losses which I'll come back to, which are basically mainly unrealized.

We generated adjusted EBITDA of $28.3 million, and we generated distributable cash flow of $16.4 million. We have had stronger than budgeted utilization, virtually no down time on our fleet. And we did declare increase in distribution 4%, up to $0.51 for the first quarter, and this reflects a coverage ratio of 1.36%.

Further, Mr. John Costain has now been appointed as the new CEO - CFO of the company. He will take his position up on June 1. And he is currently -- he has previously been on our Board, and he has long experience within the tanker industry, in various finance positions. Also, under the partnership agreement, the elected directors, independent elected directors, have appointed Mr. Simon Bird, UK national, currently employed with Bristol Ports, and also have long logistics experience to become a new member of our Board, with effect from today.

If we then look more closely at our income statement on page 4, I'd just like to highlight, in addition to what we talked about on the revenue side, as previously, there are certain non-cash items, minor amounts and I suppose the main area worth noting is the derivatives, where we have realized non-realized losses of a total $5.6 million. Of that, $1 million is realized losses connected to interest rate swaps, and there are $4.6 million which are unrealized, related to foreign exchange and most of it, $2.9 million, related to long-term interest swaps.

So that means that we have, as we have previously had, strong top line numbers, and basically, our finance costs are also in line with our expectations, and we shall see also how obviously the interest rate develops, in order to see what will be the long-term effects here. But I think already today, our unrealized losses are lower than what was reflected at March 31.

If we then go to page 5, this is our balance sheet. As you can see, we have $32.8 million in cash, our interest bearing debt is $604 million, and our credit margin has come down to 2.3%. And we have a repayment profile now of an average 15.8 years.

And we have set out on this slide as well the repayment schedule showing that we don't have any major balloon financings until 2018. And as mentioned, we have done interest rate swaps, total of $380 million. Average duration is 4.5 years, and the rates we pay are, on average, 1.47. So we continue to maintain then a strong balance sheet.

On page 6, we have shown the distributable cash flow calculation, showing that we distributed in total, or we have a distributable cash flow of $16.4 million, and as mentioned, this gives us, with distributions of $12 million at 1.36 in coverage ratio, which is a strong ratio due to better than forecasted operations, and to some extent, also lower financial cost on the non-secured debt portion.

On page 7, you will see the calculation of the adjusted EBITDA of $28.3 million, and I think the numbers then follow from what we have talked about without any special items, that I think I need to mention. So that basically concludes the presentation of our numbers, which we are ourselves see as very much in line with what we have expected anyway.

And if you then go to page 8, I just want to summarize for you current status. As mentioned, we are now up to up to eight vessels, with remaining fixed contract duration of 5.1 years, and there are, in average, 2.1 years of optionality for the charter, where we continue to believe that, based on the projects we're involved in, the long-term demand for these vessels will be there.

On page 9, we have set out our drop-down fleet, and in actual fact, the fixed contract period there is 7.1 years in average, and there is also options to -- which again on average is 7.7 years, and with strong charters securing that, we have a solid backlog to continue to grow the partnership for the coming years.

Page 10, that is a summary of our quarterly figures development since IPO. And we continue -- we have throughout this period had better than forecasted operation on the technical side. The EBITDA levels have been stable in relation to -- for the comparable fleet, obviously growing with the number of ships coming in.

And we have had consistently high coverage ratio, with the exception of what happened in the second quarter of 2014, where we had newly distributed units without the corresponding earnings being part of that quarter. But as you will see, that has been straightened out over time.

On page 11, this is a graphic figure showing development on our distributions and coverage ratio. And as you will see, we, in the first quarter it's up 4% over the Q4 2014 distribution, and we have then exceeded so far the -- our initial guidance to the market to grow 10% to 15% annually for the first three years period. So we believe this shows strong development that we can put behind us.

And then on page 12, this one we have included in order to show how the fleet in the partnership has developed, and also how the inventory has developed. And I think the highlight here is that we started with four vessels, we have put in four. But whilst doing that, we have also increased the backlog quite substantially.

And the latest addition was a contract for a vessel in Brazil with an international oil company that was made -- this first quarter. And as far as continued development is going on, we see that although as we have talked about delays in Brazil, there continue to be delays, but they're also due to phasing out the vessels, and due to especially some of the new projects coming along, as planned. We continue to see new projects and contracts under discussion, and continue to be very optimistic that we shall see further new activity within this year.

So by that, I conclude my presentation. I reiterate that it's been a strong quarter, very much operation as expected, and we are definitely very positive that the shuttle tanker market has -- continues to have strong potential to grow, as we believe. From the identified vessels on the contract that was made during the last 12 months, and also as I said, we expect further positive development. Thank you.

(Operator Instructions)

And our first question will come from Spiro Dounis of UBS Securities.

Good afternoon, Arild.

I'm fine, thank you. How are you?

Not too bad. So just wondering how you and maybe some of the oil majors you speak to are viewing this rebound we have had in crude prices over the last month or two? I know you've mentioned in the past maybe the distribution growth rate guidance could be scaled back a bit in response to the market, and maybe some projects coming offline in a few years, and just where the unit price was trading. I was wondering if that's still the case, or are you feeling optimistic these days, or are the oil majors feeling more optimistic these days, just given where the crude price is?

I think we have throughout felt that this development is not stopping. And obviously, the fact that the oil price seems to come back somewhat is helpful in this respect. But I think the main message from our side is that we have said through that much of the activity that we're going to see over the next five years is things where -- which have already come a long way.

And on that basis, we continue to see, as I said, there continues to be activity on discussion, so new contracts. And the oil price, I think is obviously helping that in the right direction. But we have never been in a position that things have been held back to a large extent.

Spiro, this is [Burin] remember that when oil price drops considerably, we said that activity in the market for new shuttle contracts really improved. So we have seen a lot of discussions in the market for new deals. So I don't think it's fair to say that this short term list we've seen lately has really changed anything in the market. Oil companies seem to be quite confident on the way down, and they stay long on the way up.

And is that a result of owners just doing enhanced oil recovery to squeeze every last drop out of the wells they've already poured a lot of money into? Is that the driver behind the increase?

No, I think it's just maturement of projects that are up for shuttle tanker demand. And of course, what we've discussed is of course is the very good development in Brazil. That's been quite positive, and I think the companies exposed there, they wanted more capacity to transport their oil.

Makes sense. And with respect to the potential BG Shell merger, I guess a lot of talk so far has been around the impact on LNG carriers, but how are you viewing this potential merger from a shuttle tanker perspective?

Well, I believe that one of the reasons Shell bought BG is that hey find their oil activity and their oil assets in Brazil interesting. And all we hear is that there is good speed in relation to making sure that can be developed as quickly as possible. Over time, of course, we would expect, once the merger becomes effective, that there will be some level of coordination. But we don't think that will affect the activity levels.

Got you. Great. That's it for me. And I guess we'll see you in a few weeks at [NAPPP]. Take care.

Very good. Thank you.

And the next question comes from Lin Shen of HITE.

Thank you for taking my call. Can you remind us what you think for the timing of the next drop down, and how do you plan to finance this drop down?

That's a good question. We obviously have considered we will continue to grow the Company. I think we are looking to do further acquisitions this year.

The unit price hasn't been that encouraging. So of course, that also going into our evaluation of this. And obviously when it comes to the -- so we will not guide specifically on timing.

But obviously we have these drops downs, and we're going to do them. And of course, in terms of financing, we would believe that will be a mix of debt and equity. And then, we obviously need to follow the unit price a bit, to see how we can optimize that in the interests of the existing unit holders.

Okay, thank you very much.

Next, we have a question from Ben Brownlow of Raymond James.

Thanks for taking the question. I just wanted to follow up on the last question. I know the Ingrid vessel is a slightly higher spec, more expensive vessel. But could you give us just an idea of kind the range in multiple you expect for that drop-down to take place?

Well, I think we're -- again we don't guide specifically. But I think it would be something along the lines of what you have seen.

Thank you.

The contract is a bit longer, but there's no reason to really change, pricing based on that. And then in the fairly stable interest rate environment, we don't see that relationship change a lot.

Great, thank you.

(Operator Instructions)

Showing no additional question, I would like to turn the conference back over to management for any closing remarks.

Yes, thank you very much. Once again, thank you all for listening to us, and we look forward to welcoming you again in three months' time for our second-quarter earnings presentation. And that of course will be with the new management. So as far as for me, I take this opportunity to thank you all for your support, and for my dealings with you during this time.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.