Knot Offshore Partners LP (KNOP) 2023 Q3 法說會逐字稿

Hello, everyone. My name is Drew, and I'll be your conference operator today. At this time, I would like to welcome everyone to The KNOT Third Quarter 2023 earnings results conference call. (Operator instructions) I'll now turn the call over to your host, Derek Lowe. Please go ahead.

Thank you, Drew, and good morning, ladies, and gentlemen. My name is Derek Lowe, and I've recently joined KNOT's Offshore Partners, taking office as Chief Executive and Chief Financial Officer in September 2023. It is my pleasure for the first time to welcome you to our earnings call for the partnership. Our website is knotoffshorepartners.com, and you can find the earnings release for the third quarter of 2023 and also this presentation.

On slide 2, you'll 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 and 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 3, we have the financial and operational headlines for Q3. Revenues were $72.7 million, operating income, $20.6 million, net income, $12.6 million and adjusted EBITDA $48.1 million. We closed Q3 with $58.2 million in available liquidity, which comprised $53.2 million of cash and equivalents plus $5 million in undrawn capacity in our debt facilities.

We operated with 98.8% utilization of the vessel time for scheduled operations, which is equivalent to 97.4% of total fleet time after accounting for the planned dry dockings of the Brasil Knutsen and Hilda Knutsen. Following the end of Q3, we completed the refinancing requirements for 2023 by rolling the second of our two revolving credit facilities. That continues at $25 million of capacity and now expires in November of 2025. A cash distribution for Q3 was declared in October at $0.026 cents per common unit, which was paid in early November.

On slide 4, we have the headlines of contractual developments with five vessels securing significant new firm periods through either extension or new contracts. Starting with our major market, Brasil, Windsor connects into secure near continuous employment through to the first half of 27. This is via exercise of an extension option by Shell, which will last until at least early 25. And the new time charter commencing in the first half of 25, lasting for two years fixed. In demonstration of some flexibility between our vessels, the way we can make Windsor Knutsen available for that second contract was to seek substitution of Brasil Knutsen into the winds as existing contract with Equinor.

That begins in late 24 or 25 and lasts for between one and four years, depending on the exercise of charter's options. And both Tordis Knutsen and Lana Knutsen saw their contracts with Shell extended by a further year, which will now employ both vessels until mid-27. In the North Sea, Bodil Knutsen has secured between two and four years of time charter with Equinor due to commence in March 24.

The continuing area of focus for our contracting team, especially for near-term deployment, is on Dan Cisne and Dan Sabia in Brazil and Hilda Knutsen and Torill Knutsen in the North Sea. the next month. We're in the process of receiving redelivery of Dam Cisne and anticipate the same will apply to Dan Sabia in the next month. We expect Hilda Knutsen and Torill Knutsen to spend some time on rolling 30-day contracts with our sponsor as 2024 begins. Marketing of all four vessels continues to potential charters, both existing clients and others, including the partnership sponsor.

On slide 5, our outlook remains positive on both industry dynamics and the partnership's positioning to participate fruitfully in our markets. The net supply of shuttle tankers into the global fleet appears very constrained with only five new vessels on order and also delivery by the end of 25 and significant growth is anticipated in production in fields which rely on service by shuttle tankers.

Both of these dynamics are positive for the future demand volume and charter rates for the partnership's fleet. We are, however, 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 $645 million at the end of Q3 on fixed contracts, which average 1.9 years in duration. Charter's options are additional to this an average, a further 2.1 years. Our pattern of cash generation and liquidity balance is sufficient for our operations and the significant paydown 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 9.4 years places us well when compared with a useful life model to 23 years.

On to slide 6, you can see the consistency of revenues, operating expenses and operating income when comparing with those previous quarters, including Q2, and that's viewed without the impairment. For convenience, we have added here a rolling 12 month look-back, which can then be compared with recent full calendar years.

Slide 7 similarly reflects the consistency of our adjusted EBITDA, and you can find the definitions of this non-GAAP measure in the appendix.

On slide 8, the most notable change in the balance sheet has been the reduction in our current liabilities, which has arisen from the refinancings secured during the year to September. Long-term debt has increased as a consequence. However, the overall change in the partnership's liabilities has been a reduction by $80 million, which is reflective of the debt repayments we have made during the year so far.

On slide 9, we have expanded on the terms of the partnership's debt facilities provided added color 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 installments, while the amounts of capital repayments due over the next year, which do not include interest and the balloon payments of the final amounts of principal, which will be due on the maturity dates. Of note, $159 million is due to be paid on these debt facilities over the 12 months following 30 of September 23, of which $57 million of balloon repayment due in May 24.

Our practice with a significant repayment such as this is to seek refinancing and our track record even in just the last year demonstrates the viability of this approach. There are, however, no guarantees that future financing endeavours will succeed. Aside from that refinancing, $102 million will be repayable over the course of this 12 month period.

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 contracts for 2024, primarily for the four vessels mentioned earlier.

On slide 12, we see our sponsor's inventory vessels, which are eligible for purchase by the partnership. This applies any vessel owned by an order for our sponsor where the vessel has a firm contract period at least five years in length. The present five existing vessels and two 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 fleets and fostering our liquidity position.

On slides 13 and 14, we've provided some useful illustrations of the strong demand dynamics in the Brazilian market as published by Petrobras. We encourage you to review Petrobras's materials directly as the web pages 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 and shuttle tankers.

On slide 15, we provide information about relevant to our US unit holders in particularly those seeking a Form 1099. Those holding units via their custodians or brokers should approach those parties directly. And those that directly registered holdings should contact our transfer agent American Stock Transfer to come onto the umbrella of Equity 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 Brazilian finances.

I will finish with slide 17 recapping our financial and operational performance in Q2 23 and the subsequent time and our outlook for 24. We are glad to have delivered high and safe utilization, which have generated consistent financial performance. We're pleased with the new contracts and extensions we have secured along with our ability to navigate our significant refinancing needs and CapEx relating to drydocks throughout the year.

And our continued commercial focus remains on filling up utilization for 2024, while looking further forward to longer-term charter visibility and liquidity generation. Thank you for listening. And with that, I'll hand the call back to Drew for any questions.

Thank you. We will now start today's Q&A session. (Operator instructions)

Liam Burke, B. Riley.

Hello, Derek. How are you today?

Good, thank you and you.

I'm fine. Thank you. I wanted to ask you about the Cisne and Sabia. They are both in the offshore Brazil , which is looks like to be a really, really fast-growing market, but the size of the vessels are not ideal for Brazil. How do you reconcile that? Is there a fit in that market at all ?

Well, we continue to market the vessels both there and in the North Sea, and I think there is a function of supply and demand. So if demand for vessel capacity reaches a sufficient level, then that's the source of circumstance in which we might see the vessels contracted there. But we're mindful yes, that they are smaller than ideal for that market.

And you also talked about possibly repositioning, I guess that would be in the prepared -- in your press release you have mentioned repositioning as well .

Yes. So and as I say, we're marketing the vessels to both our major markets and if we anticipated client demands, and certainly those are clear contracts in a different location than we'd consider moving them.

Okay. And then just on the on the other two vessels, the Hilda and Torill, are you seeing any interest out of that market? What's the degree of interest in Brazil ?

Yes. I mean, it has been clearly slower than Brazil. And I don't comment on specific conversations that we're having with our clients, but clearly are our contracting team and marketing your vessels pretty heavily in the North Sea market and Brazil at the moment. We expect the decline for shuttle tankers to pick up in the North Sea rather later on during next year once Johan Castberg comes increasingly online and it could well take during the course of next year for contracts for that work to come through.

Great. Thank you Derek.

Thank you, thanks Liam.

(Operator instructions) Robert Silvera, R.E. Silvera.

Thank you very much for taking my call there.

Thanks Robert.

We have not contracted for any reason drop downs since the end of last year? Is that correct ?

That's right. Yes.

Can you help me understand then how our long-term debt from the end of last year went from $686 million to $820 million plus currently.

So you need to look at that in. So we're I'm looking at slide 8. You need to look at that in the context of the current liabilities at both dates as well and then also the total liability figure at the bottom of the screen on the right-hand side of slide 8 at the bottom of that table as well.

This is about refinancing that took place on one of our larger facilities during the first half of the year. And so the amount due for repayment then which was a current liability at the end of 22. It got transferred into a longer liability and therefore, long-term debt by the same. I think by the end of June, actually, but certainly by the end of September.

Okay. I thought that's what it might mean. So overall, we've really lowered the liability by $81 million, which is good.

That's right.

And I thank you. And this market seems to have liked it in the early market on pricing. Could you give me any color on what's happening in the Bering Sea ?

I don't have any color available on that. I'm afraid.

So, there's no opportunity for us up there ?

Well our contracting teams and our marketing in many geographies but I don't have a specific comment on the Bering Sea.

Okay. Well, that's all for me. Thank you and welcome. And I'm I hope that you can at least round off the dividend from $2.6 to $0.03, make it an even number Anyhow, thank you very much.

Thanks Robert. Appreciate it. Thank you.

So we have no further questions at this time. I'll now hand back over to Derek Lowe for any final remarks.

Thank you, everyone, again for joining this earnings call for KNOT Offshore Partners third quarter and 23. And I look forward to speaking with you again following the fourth-quarter results.

That concludes today's keynote Q3 2023 earnings results conference. You may now disconnect your lines.