Knot Offshore Partners LP Earnings Release--Interim Results for the Period Ended June 30, 2024
ABERDEEN, Scotland--(BUSINESS WIRE)--September 03, 2024--
Financial Highlights
For the three months ended June 30, 2024 ("Q2 2024"), KNOT Offshore Partners LP ("KNOT Offshore Partners" or the "Partnership"):
-- Generated total revenues of $74.4 million, operating income of $1.3
million and net loss of $12.9 million, after recording a combined $16.4
million non-cash impairment in respect of the vessels Dan Cisne and Dan
Sabia. When adjusted to remove the impact of the impairment, operating
income for the quarter was $17.7 million and net income was $3.5
million.
-- Generated Adjusted EBITDA1 of $45.5 million.
-- Reported $66.6 million in available liquidity at June 30, 2024, which
was comprised of cash and cash equivalents of $56.6 million and undrawn
revolving credit facility capacity of $10 million.
Other Partnership Highlights and Events
-- Fleet operated with 98.8% utilization for scheduled operations in Q2
2024.
-- On July 9, 2024, the Partnership declared a quarterly cash distribution
of $0.026 per common unit with respect to Q2 2024, which was paid on
August 8, 2024, to all common unitholders of record on July 29, 2024. On
the same day, the Partnership declared a quarterly cash distribution to
holders of Series A Convertible Preferred Units ("Series A Preferred
Units") with respect to Q2 2024 in an aggregate amount of $1.7 million.
-- On April 12, 2024, an agreement was reached with Eni, on terms no less
favourable to the Partnership than applied previously, to delay delivery
of Ingrid Knutsen until October 2024 for a time charter for a fixed
period of two years plus two charterer's options each of one year. In
connection therewith, on July 25, 2024, a time charter due to commence Q4
2024 was executed with Eni in respect of the Torill Knutsen for a fixed
period of three years plus three charterer's options each of one year.
-- On April 17, 2024 a time charter for the Carmen Knutsen was executed
with an oil major, to commence Q1 2026 for a fixed period of four years
plus a charterer's option for one additional year.
-- On April 22, 2024, the Ingrid Knutsen began operating under a rolling
monthly time charter with our sponsor Knutsen NYK Offshore Tankers AS
("Knutsen NYK") at a reduced charter rate, to expire upon her delivery to
Eni in October 2024.
-- On May 22, 2024, Knutsen Shuttle Tankers 14 AS, the Partnership's
wholly-owned subsidiary which owns the vessel Hilda Knutsen, closed a new
$60 million senior secured term loan facility with DNB and Nordea, which
is secured by the Hilda Knutsen. This new facility replaced the facility
with Mitsubishi UFJ Lease & Finance (Hong Kong) Limited, which also was
secured by the Hilda Knutsen and was repaid on the closing date with a
balloon payment of $58.5 million.
-- On July 10, 2024, the Partnership received the Dan Sabia back via
redelivery, following expiry of its bareboat charter party to Transpetro.
The Dan Sabia is being marketed for shuttle tanker operation principally
in Brazil and remains available also for charter to Knutsen NYK (subject
to negotiation and approvals) and short-term conventional tanker
contracts.
-- On August 15, 2024, repair work on the Torill Knutsen was completed
following the breakage of a generator rotor in January 2024. The Torill
Knutsen remained able to serve a limited range of client facilities, and
the Partnership expects to be compensated by insurance for the extent to
which, as a consequence of this breakage, the Torill Knutsen's earnings
have fallen short of a contractual hire rate, commencing 14 days after
the date of the breakage. The Partnership also expects that the repair
cost will be covered by insurance, in excess of a deductible of
$150,000.
-- On August 22, 2024, the Partnership agreed with Shell to extend by 1
year the charters for Tordis Knutsen and Lena Knutsen and to provide
Shell with options to extend each of these charters by up to 3 periods of
1 year each. Thus, the fixed charter period for each charter will extend
until 2028 and the option periods will extend until 2031.
-- On September 3, 2024, the Partnership's wholly owned subsidiary, KNOT
Shuttle Tankers AS ("KST"), acquired KNOT Shuttle Tankers 31 AS, the
company that owns the shuttle tanker Tuva Knutsen, from Knutsen NYK (the
"Tuva Knutsen Acquisition"). Simultaneously, KST sold KNOT Shuttle
Tankers 20 AS, the company that owns the shuttle tanker Dan Cisne, to
Knutsen NYK (the "Dan Cisne Sale"). The purchase price for the Tuva
Knutsen Acquisition was $97.5 million less $69.0 million of outstanding
debt plus $0.4 million of capitalized fees related to the credit facility
secured by the Tuva Knutsen. The sale price for the Dan Cisne Sale was
$30 million and there was no related debt. The combination of the Tuva
Knutsen Acquisition and the Dan Cisne Sale was settled by a net cash
payment from Knutsen NYK to KST of $1.1 million (relating to the
difference between the prices of the respective transactions). Customary
adjustments relating to working capital and an associated interest rate
swap will also be made following the closing.
The Tuva Knutsen is operating in Brazil on a charter contract with TotalEnergies, for which the current fixed period expires in February 2026, and for which the charterer holds options for a further 10 years. As part of the Tuva Knutsen Acquisition, Knutsen NYK has agreed that if at any time during the seven years following the closing date of the Tuva Knutsen Acquisition the Tuva Knutsen is not receiving from any charterer a rate of hire that is equal to or greater than the rate of hire then in effect and payable under the TotalEnergies charter, then Knutsen NYK shall pay the Partnership such rate of hire that would have been in effect and payable under the TotalEnergies charter; provided, however, that in the event that for any period during such seven years the Tuva Knutsen is chartered under a charter other than the TotalEnergies charter and the rate of hire being paid under such charter is lower than the rate of hire that would have been in effect and payable under the TotalEnergies charter during any such period, then Knutsen NYK shall pay the Partnership the difference between the rate of hire that would have been in effect and payable under the TotalEnergies charter during such period and the rate of hire that is then in effect and payable under such other charter. Thus, Knutsen NYK has effectively guaranteed the hire rate for the Tuva Knutsen until September 3, 2031 on the same basis as if TotalEnergies had exercised its options through such date.
(1) EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management and external users of the Partnership's financial statements. Please see Appendix A for definitions of EBITDA and Adjusted EBITDA and a reconciliation to net income, the most directly comparable GAAP financial measure. ------------------------------------------------------------------------------
Derek Lowe, Chief Executive Officer and Chief Financial Officer of KNOT Offshore Partners LP, stated, "We are pleased to report another strong performance in Q2 2024, marked by safe operation at over 98% fleet utilization, consistent revenue and operating income generation, and material progress in securing additional charter coverage for our fleet.
"Including the swap of the Dan Cisne for the Tuva Knutsen and those contracts signed since June 30, 2024, we now have 93% of charter coverage for the whole of 2024 from fixed contracts, which rises to 95% if charterers' options are exercised. Having executed a number of new contracts this year, we have established good momentum in a strengthening market and remain focused on filling the remaining gaps in our charter portfolio.
"In Brazil, the main offshore oil market where we operate, the outlook is continuing to improve, with robust demand and increasing charter rates. Driven by Petrobras' continued high production levels and FPSO start-ups in the pre-salt fields that rely upon shuttle tankers, we believe the world's biggest shuttle tanker market is tightening materially. Our secondary geography, in the North Sea, is taking longer to re-balance, but we welcome the recent news of the long-anticipated Johan Castberg FPSO having recently set sail for the Barents Sea, where it is scheduled to begin production later this year.
"We are aware that Knutsen NYK has ordered three new shuttle tankers to be chartered to Petrobras with delivery over 2026-2027; and we note reports of another operator ordering three new shuttle tankers, with delivery by early 2027. We anticipate that all these new orders are backed by charters to clients in Brazil, and see this as a sign of confidence in the medium-to-long term demand for the global shuttle tanker fleet. These new orders bring anticipated deliveries to a total of eleven, spread over the coming three years. We continue to believe that growth of offshore oil production in shuttle tanker-serviced fields across both Brazil and the North Sea is on track to outpace shuttle tanker supply growth in the coming years, particularly as increasing numbers of shuttle tankers reach or exceed typical retirement age.
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