ABERDEEN, Scotland–(BUSINESS WIRE)–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.
As the largest owner and operator of shuttle tankers (together with our sponsor, Knutsen NYK), we believe we are well positioned to benefit from such an improving charter market. We are pleased to have agreed the swap of the Dan Cisne for the Tuva Knutsen, which provides growth for the fleet without a requirement for new funding, while also increasing our pipeline of long-term contracts, reducing our average fleet age, and concentrating our fleet in the most in-demand shuttle tanker class. We remain focused on generating certainty and stability of cashflows from long-term employment with high quality counterparties, and are confident that continued operational performance and execution of our strategy can create unitholder value in the quarters and years ahead.”
Financial Results Overview
Results for Q2 2024 (compared to those for the three months ended March 31, 2024 (“Q1 2024”)) included:
Revenues of $74.4 million in Q2 2024 ($76.6 million in Q1 2024), with the decrease due to lower revenues related to spot voyages compared with those performed in Q1 2024.
Vessel operating expenses of $27.0 million in Q2 2024 ($25.9 million in Q1 2024), with the increase due to higher vessel service and repair related cost, in addition to an increase in port expenses and IT related costs.
Depreciation of $27.7 million in Q2 2024 ($27.7 million in Q1 2024).
Impairments in respect of the Dan Cisne and Dan Sabia of $5.8 million and $10.6 million, respectively, were recognized in Q2 2024, while there were no impairments in Q1 2024. In accordance with US GAAP, the Partnership’s fleet is regularly assessed for impairment as events or changes in circumstances may indicate that a vessel’s net carrying value exceeds the net undiscounted cash flows expected to be generated over its remaining useful life, and in such situation the carrying amount of the vessel is reduced to its estimated fair value. This exercise in Q2 2024 resulted in an impairment in respect of these vessels owing to their lack of long-term charters in a context where their smaller size is not optimal for the Brazilian market and affects the outlook for future employment.
General and administrative expenses of $1.4 million in Q2 2024 ($1.6 million in Q1 2024).
Operating income consequently of $1.3 million in Q2 2024 ($19.7 million in Q1 2024). When adjusted to remove the impact of the impairment, operating income for Q2 2024 was $17.7 million.
Interest expense of $16.9 million in Q2 2024 ($17.5 million in Q1 2024) with the decrease due to outstanding debt decreasing and lower interest rates.
Realized and unrealized gain on derivative instruments of $1.8 million in Q2 2024 (gain of $5.0 million in Q1 2024), including unrealized loss (i.e. non-cash) elements of $2.2 million in Q2 2024 (gain of $0.9 million in Q1 2024).
Net loss consequently of $12.9 million in Q2 2024 (net income of $7.4 million in Q1 2024). When adjusted to remove the impact of the impairment, net income in Q2 2024 was $3.5 million.
By comparison with the three months ended June 30, 2023 (“Q2 2023”), results for Q2 2024 included:
an increase of $32.5 million in operating income (to $1.3 million in Q2 2024 from a loss of $31.2 million in Q2 2023), driven primarily by a reduction in the impairments of the Dan Cisne and Dan Sabia of $16.4 million in Q2 2024 compared with impairments of $49.6 million in Q2 2023; and driven also by higher time charter and bareboat revenues partly offset by higher vessel operating expenses;
an increase of $4.9 million in finance expense (to finance expense of $14.0 million in Q2 2024 from finance expense of $9.1 million in Q2 2023), due to lower realized and unrealized gain on derivative instruments, partly offset by lower interest expenses.
a reduction of $27.5 million in net loss (to a net loss of $12.9 million in Q2 2024 from a net loss of $40.4 million in Q2 2023).
Financing and Liquidity
As of June 30, 2024, the Partnership had $66.6 million in available liquidity, which was comprised of cash and cash equivalents of $56.6 million and $10 million of capacity under one of the revolving credit facilities. The Partnership’s revolving credit facilities mature between August 2025 and November 2025.
The Partnership’s total interest-bearing obligations outstanding as of June 30, 2024 were $901.0 million ($895.4 million net of debt issuance costs). The average margin paid on the Partnership’s outstanding debt during Q2 2024 was approximately 2.26% over SOFR. These obligations are repayable as follows:
(U.S. Dollars in thousands)
Sale &
Leaseback
Period repayment
Balloon repayment
Total
Remainder of 2024
$
7,038
$
38,587
$
—
$
45,625
2025
14,399
76,081
176,583
267,063
2026
15,060
59,096
219,521
293,677
2027
15,751
30,231
37,500
83,482
2028
16,520
13,240
78,824
108,585
2029 and thereafter
102,602
—
—
102,602
Total
$
171,370
$
217,235
$
512,429
$
901,034
As of June 30, 2024, the Partnership had entered into various interest rate swap agreements for a total notional amount outstanding of $389.3 million, to hedge against the interest rate risks of its variable rate borrowings. As of June 30, 2024, the Partnership receives interest based on SOFR and pays a weighted average interest rate of 1.82% under its interest rate swap agreements, which have an average maturity of approximately 1.4 years. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impacted by changes in the market value of such financial instruments.
As of June 30, 2024, the Partnership’s net exposure to floating interest rate fluctuations was approximately $283.7 million based on total interest-bearing contractual obligations of $901.0 million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $171.4 million, less interest rate swaps of $389.5 million, and less cash and cash equivalents of $56.6 million.
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 secured by the Hilda Knutsen, which replaced and financed repayment of the existing loan facility secured by the Hilda Knutsen. This new facility carries terms and conditions similar to those in the facility it replaced, including an interest rate per annum equal to SOFR plus a margin of 2.25%.
Assets Owned by Knutsen NYK
Pursuant to the omnibus agreement the Partnership entered into with Knutsen NYK at the time of its initial public offering, the Partnership has the option to acquire from Knutsen NYK any offshore shuttle tankers that Knutsen NYK acquires or owns that are employed under charters for periods of five or more years.
There can be no assurance that the Partnership will acquire any additional vessels from Knutsen NYK. Given the relationship between the Partnership and Knutsen NYK, any such acquisition would be subject to the approval of the Conflicts Committee of the Partnership’s Board of Directors.
Knutsen NYK owns with effect on the date of this release, or has ordered, the following vessels and has entered into the following charters:
1.
In November 2021, Live Knutsen was delivered to Knutsen NYK from the yard in China and commenced on a five-year time charter contract with Galp Sinopec for operation in Brazil. Galp has options to extend the charter for up to a further six years.
2.
In June 2022, Daqing Knutsen was delivered to Knutsen NYK from the yard in China and commenced on a five-year time charter contract with PetroChina International (America) Inc for operation in Brazil. The charterer has options to extend the charter for up to a further five years.
3.
In July 2022, Frida Knutsen was delivered to Knutsen NYK from the yard in Korea and commenced in December 2022 on a seven-year time charter contact with Eni for operation in North Sea. The charterer has options to extend the charter for up to a further three years.
4.
In August 2022, Sindre Knutsen, was delivered to Knutsen NYK from the yard in Korea and commenced in September 2023 on a five-year time charter contract with Eni for operation in the North Sea. The charterer has options to extend the charter for up to a further five years.
5.
In May 2022, Knutsen NYK entered into a new ten-year time charter contract with Petrobras for a vessel to be constructed and which will operate in Brazil where the charterer has the option to extend the charter by up to five further years. The vessel will be built in China and is expected to be delivered in late 2024.
6.
In November 2022, Knutsen NYK entered into a new fifteen-year time charter contract with Petrobras for a vessel to be constructed and which will operate in Brazil where the charterer has an option to extend the charter by up to five further years. The vessel will be built in China and is expected to be delivered in late 2025.
7.
In February 2024, Knutsen NYK entered into a new ten-year time charter contract with Petrobras for each of three vessels to be constructed and which will operate in Brazil, where the charterer has an option to extend each charter by up to five further years. The vessels will be built in China and are expected to be delivered over 2026 – 2027.
Outlook
At June 30, 2024, the Partnership’s fleet of eighteen vessels had an average age of 10.2 years, and the Partnership had charters with an average remaining fixed duration of 2.3 years, with the charterers of the Partnership’s vessels having options to extend their charters by an additional 2.3 years on average. The Partnership had $773 million of remaining contracted forward revenue at June 30, 2024, excluding charterers’ options and excluding contracts agreed or signed after that date. The combined effect of the Tuva Knutsen Acquisition and the Dan Cisne Sale will first be reflected in the equivalent measures for September 30, 2024.
The market for shuttle tankers in Brazil, where thirteen of our vessels operated during Q2 2024, has continued to tighten, driven by a significant pipeline of new production growth over the coming years, a limited newbuild order book, and typical long-term project viability requiring a Brent oil price of only $35 per barrel. While the Dan Sabia stands out among the Partnership’s fleet as being of a smaller size than is optimal in today’s Brazilian market, we remain in discussions with our customers and continue to evaluate all our options for the Dan Sabia, including but not limited to redeployment in the tightening Brazilian market, deployment to the North Sea, charter to Knutsen NYK (subject to negotiation and approvals), short term conventional tanker work and sale.
Shuttle tanker demand in the North Sea has remained subdued, driven by the impact of COVID-19-related project delays. We expect these conditions to persist for several more quarters until new oil production projects that are anticipated come on stream, most notably the long-anticipated Johan Castberg field in the Barents Sea, which is scheduled to come online later this year.
Looking ahead, based on supply and demand factors with significant forward visibility and committed capital from industry participants, we believe that the overall medium and long-term outlook for the shuttle tanker market remains favourable.
In the meantime, the Partnership intends to pursue long-term visibility from its charter contracts, build its liquidity, and position itself to benefit from its market-leading position in an improving shuttle tanker market.
The Partnership’s financial information for the quarter ended June 30, 2024 included in this press release is preliminary and unaudited and is subject to change in connection with the completion of the Partnership’s quarter end close procedures and further financial review. Actual results may differ as a result of the completion of the Partnership’s quarter end closing procedures, review adjustments and other developments that may arise between now and the time such financial information for the quarter ended June 30, 2024 is finalized.
About KNOT Offshore Partners LP
KNOT Offshore Partners LP owns, operates and acquires shuttle tankers primarily under long-term charters in the offshore oil production regions of Brazil and the North Sea.
KNOT Offshore Partners LP is structured as a publicly traded master limited partnership but is classified as a corporation for U.S. federal income tax purposes, and thus issues a Form 1099 to its unitholders, rather than a Form K-1. KNOT Offshore Partners LP’s common units trade on the New York Stock Exchange under the symbol “KNOP”.
The Partnership plans to host a conference call on Wednesday September 4, 2024 at 9:30 AM (Eastern Time) to discuss the results for Q2 2024. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:
By dialing 1-833-470-1428 from the US, dialing 1-833-950-0062 from Canada or 1-404-975-4839 if outside North America – please join the KNOT Offshore Partners LP call using access code 889208.
By accessing the webcast on the Partnership’s website: www.knotoffshorepartners.com.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
Six Months Ended
(U.S. Dollars in thousands)
June 30,
2024
March 31,
2024
June 30,
2023
June 30,
2024
June 30,
2023
Time charter and bareboat revenues
$
73,437
$
73,362
$
69,924
$
146,799
$
132,857
Voyage revenues (1)
351
2,715
1,585
3,066
8,839
Loss of hire insurance recoveries
78
—
1,424
78
2,335
Other income
554
555
891
1,109
973
Total revenues
74,420
76,632
73,824
151,052
145,004
Vessel operating expenses
26,952
25,909
25,287
52,861
44,730
Voyage expenses and commission (2)
584
1,635
159
2,219
4,855
Depreciation
27,748
27,742
28,107
55,490
55,836
Impairment (3)
16,384
—
49,649
16,384
49,649
General and administrative expenses
1,426
1,637
1,838
3,063
3,488
Total operating expenses
73,094
56,923
105,040
130,017
158,558
Operating income (loss)
1,326
19,709
(31,216
)
21,035
(13,554
)
Finance income (expense):
Interest income
897
828
861
1,725
1,544
Interest expense
(16,863
)
(17,465
)
(18,107
)
(34,328
)
(35,476
)
Other finance income/(expense)
177
(269
)
(112
)
(92
)
(184
)
Realized and unrealized gain (loss) on derivative instruments (4)
1,797
5,002
8,124
6,799
5,814
Net gain (loss) on foreign currency transactions
28
(226
)
109
(198
)
(27
)
Total finance income (expense)
(13,964
)
(12,130
)
(9,125
)
(26,094
)
(28,329
)
Income (loss) before income taxes
(12,638
)
7,579
(40,341
)
(5,059
)
(41,883
)
Income tax benefit (expense)
(213
)
(141
)
(49
)
(354
)
196
Net income (loss)
$
(12,851
)
$
7,438
$
(40,390
)
$
(5,413
)
$
(41,687
)
Weighted average units outstanding (in thousands of units):
Common units
34,045
34,045
34,045
34,045
34,045
Class B units (5)
252
252
252
252
252
General Partner units
640
640
640
640
640
(1) Voyage revenues are revenues unique to spot voyages.
(2) Voyage expenses and commission are expenses unique to spot voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, agency fees and commission.
(3) The carrying value of each of the Dan Cisne and the Dan Sabia was written down to its estimated fair value as of June 30, 2023 and 2024.
(4) Realized gain (loss) on derivative instruments relates to amounts the Partnership actually received (paid) to settle derivative instruments, and the unrealized gain (loss) on derivative instruments relates to changes in the fair value of such derivative instruments, as detailed in the table below.
Contacts
KNOT Offshore Partners LP
Derek Lowe
ir@knotoffshorepartners.com
