KNOT Offshore Partners LP(KNOP) - 2024 Q4 - Annual Report

Financial Performance and Debt Management - The quarterly cash distribution was reduced to $0.026 per common unit, which may impact the company's ability to raise capital [32]. - Consolidated debt as of December 31, 2024, was approximately$909.7 million, limiting the company's flexibility in obtaining additional financing [39]. - Approximately $256.7 million of the company's debt is due to be repaid or refinanced in 2025 [40]. - The company's ability to service or refinance its debt is dependent on its current and future financial performance, which may be affected by economic conditions [41]. - Financing agreements require the company to maintain certain financial ratios, including positive working capital and a minimum liquidity [43]. - The company’s debt level may limit its flexibility in responding to changing business and economic conditions [44]. - The company can borrow money to pay distributions, which may reduce available credit for operational needs [167]. - Unitholders may have liability to repay distributions under certain circumstances, particularly if distributions exceed the fair value of assets [171]. Revenue Sources and Customer Dependence - The company relies on 13 customers for all of its time charter and bareboat revenues, indicating a lack of diversification [26]. - The company derives all of its time charter and bareboat revenues from 13 customers, with key customers accounting for approximately 24$28 million of the company's time charter revenues [64]. - Major customers include Shell (24%), Equinor (17%), Transpetro (14%), Repsol (13%), KNOT (9%), and TotalEnergies (8%), accounting for a significant portion of revenues for the year ended December 31, 2024 [218]. Operational Challenges and Costs - The company anticipates incurring at least 112 off-hire days due to scheduled drydockings in 2025, which could adversely affect cash available for distribution [36]. - The company must make substantial capital expenditures to maintain fleet operating capacity, which reduces cash available for distribution [35]. - The required drydocking of vessels could be more expensive and time-consuming than anticipated, impacting cash flow [36]. - The company experienced significant increases in costs for fuel, logistics, and crewing due to supply chain disruptions and inflation, impacting its financial condition [72]. - Supply chain constraints and labor shortages have led to higher operational costs, which may impact the company's ability to hire and retain crew and procure materials [72]. - The company may face operational problems with vessels that could reduce revenue and increase costs [55]. - The company anticipates ongoing supply chain pressures and inflationary impacts on its cost structure, which may affect its operations and financial results [72]. Market and Economic Conditions - The company’s growth depends on the demand for shuttle tanker transportation services, which is influenced by macroeconomic conditions and oil prices [26]. - Persistent low oil prices may adversely affect the company's growth prospects and ability to make cash distributions, with macroeconomic conditions like rising inflation and interest rates posing additional risks [68]. - Adverse economic conditions may impair customers' ability to pay for services, leading to decreased demand for the company's vessels and negatively impacting revenue [73]. - An increase in global shuttle tanker capacity without a corresponding increase in demand may adversely affect hire rates and vessel values, impacting the company's financial condition [79]. Regulatory and Compliance Risks - The International Maritime Organization (IMO) aims for a 40% reduction in carbon intensity for international shipping by 2030, compared to 2008 levels [1]. - The 2023 IMO GHG Strategy targets net-zero GHG emissions from international shipping by around 2050, with a goal of at least a 20% reduction in total annual GHG emissions by 2030 [1]. - Compliance with new climate-related regulations may increase operational costs and require installation of new emission controls [2]. - The SEC proposed rules requiring public companies to disclose material climate-related risks and GHG emissions, which could lead to increased compliance costs [4]. - The company may face reputational damage and financial impacts due to increased scrutiny on its Environmental, Social, and Governance (ESG) practices [3]. - Increased costs and risks associated with climate change regulations may hinder access to capital and affect investor relationships [3]. - Compliance with extensive environmental regulations, such as the IMO 2020 sulfur cap, may significantly increase operational expenses [112]. Corporate Governance and Ownership Structure - KNOT owns 28.4% of the company's common units and all Class B Units, creating potential conflicts of interest [137]. - The partnership agreement limits unitholders' voting rights, with only four out of seven board members elected by common unitholders [135]. - The partnership agreement allows KNOT to make decisions in its individual capacity, potentially favoring its interests over those of the company [143]. - Common unitholders are entitled to elect only four of the seven members of the board of directors, with the remaining three appointed by the general partner [1]. - The partnership agreement limits unitholders' ability to call meetings, nominate directors, and acquire operational information, which may diminish their influence [1]. Strategic Growth and Future Prospects - The company aims to generate stable cash flows and provide sustainable quarterly distributions to unitholders through strategic acquisitions and long-term charters [210]. - The company has established relationships with leading energy companies, which are expected to provide attractive opportunities for future growth [210]. - The company intends to expand operations in high-growth regions, particularly in the North Sea and Brazil [210]. - The company has a history of acquiring shuttle tankers, with significant acquisitions made from 2013 to 2025 [193][194][195][196][197][198][199][200][201][202]. Cybersecurity and Data Protection - A successful cyber-attack could materially disrupt the company's operations and lead to significant financial repercussions [130]. - Cybersecurity risks are increasing, requiring significant resources for protection and compliance with new regulations [132]. - The company is subject to evolving data protection laws, which may incur substantial compliance costs and legal liabilities [133]. - The company faces complex compliance challenges related to data privacy and cybersecurity laws, with potential penalties for noncompliance [133].