KNOT Offshore Partners LP(KNOP) - 2025 Q1 - Quarterly Report

Executive Summary & Financial Highlights This section provides an overview of KNOT Offshore Partners LP's financial performance and key operational events for Q1 2025 Q1 2025 Financial Performance KNOT Offshore Partners LP achieved $84.0 million in total revenues, $23.4 million in operating income, and $7.6 million in net income for Q1 2025, with adjusted EBITDA of $52.2 million and $100.8 million in available liquidity | Metric | Amount ($ millions) | | :-------------------- | :------------------ | | Total Revenues | 84.0 | | Operating Income | 23.4 | | Net Income | 7.6 | | Adjusted EBITDA | 52.2 | | Available Liquidity | 100.8 | | Cash & Cash Equivalents | 67.3 | | Undrawn RCF Capacity | 33.5 | Other Partnership Highlights and Events The fleet achieved 96.9% utilization in scheduled operations for Q1 2025, or 99.5% including planned drydocking, and declared a quarterly cash distribution of $0.026 per common unit - Fleet utilization in scheduled operations was 96.9% for Q1 2025, or 99.5% including planned drydocking[4] - A quarterly cash distribution of $0.026 per common unit for Q1 2025 was declared on April 9, 2025, and paid on May 8, 2025[4] CEO Statement & Operational Review This section presents the CEO's commentary on Q1 2025 performance, market outlook, and key operational and charter updates CEO Commentary CEO Derek Lowe expressed satisfaction with Q1 2025 performance, highlighting over 99% fleet utilization, stable revenue, and significant progress in securing additional charter coverage, with approximately 96% coverage for the last three quarters of 2025 and 75% for 2026 - Fleet utilization exceeded 99% in scheduled operations for Q1 2025[5] - Approximately 96% of charter coverage secured for the last three quarters of 2025 and 75% for 2026 as of the release date[6] - Strong momentum built in a strengthening market, focusing on enhancing and extending charter coverage across the fleet[6] Market Outlook and Industry Trends The Brazilian offshore oil market continues to improve with strong demand and rising charter rates, while the North Sea market rebalances, with offshore oil production growth expected to outpace shuttle tanker supply - Brazilian offshore oil market outlook continues to improve with strong demand and rising charter rates, driven by high Petrobras production and FPSO start-ups in pre-salt fields[7] - North Sea market is rebalancing, with new FPSO projects like Penguins in the UK North Sea and Johan Castberg in the Barents Sea commencing production[7] - Offshore oil production growth in fields served by shuttle tankers in Brazil and the North Sea is expected to exceed shuttle tanker supply growth in the coming years, with newbuild orders (including six for Knutsen NYK) anticipated to be absorbed by the expanding market[8] Operational Highlights and Charter Updates Operational highlights include final insurance settlement for Torill Knutsen, contract extensions and new charters for Brasil Knutsen and Vigdis Knutsen, a vessel swap involving Live Knutsen and Dan Sabia, and Hilda Knutsen commencing a one-year time charter - Final insurance settlement received in January 2025 for repair and off-hire losses related to Torill Knutsen's generator rotor damage in January 2024[9] - Petrorio exercised an option to extend the Brasil Knutsen contract until September 2025, followed by a new two-year time charter with Equinor (with two one-year extension options) commencing in Q3 2025[9] - Shell exercised an option to convert Vigdis Knutsen's time charter to a bareboat charter (effective July 2025 or later) and extended the fixed term from 2027 to 2030 (with two one-year extension options)[9] - In March 2025, the Partnership acquired Live Knutsen from Knutsen NYK through its subsidiary KST, while simultaneously selling Dan Sabia to Knutsen NYK, completing a two-vessel swap[9] - Hilda Knutsen commenced a one-year time charter with Shell on March 23, 2025[9] Financial Results Overview This section provides a comparative analysis of the Partnership's financial performance for Q1 2025 against prior periods Q1 2025 vs Q4 2024 Comparison Total revenues and net income decreased in Q1 2025 compared to Q4 2024, primarily due to a one-time insurance gain in Q4 2024, while vessel operating expenses rose due to increased maintenance and EU ETS costs | Metric | Q1 2025 ($ millions) | Q4 2024 ($ millions) | Change ($ millions) | Change Rate | | :------------------------- | :-------------------------- | :-------------------------- | :---------------- | :----- | | Total Revenues | 84.0 | 91.3 | (7.3) | -8.0% | | Operating Income | 23.4 | 34.7 | (11.3) | -32.6% | | Net Income | 7.6 | 23.3 | (15.7) | -67.4% | | Vessel Operating Expenses | 30.6 | 26.2 | 4.4 | 16.8% | | Realized gain on derivatives | 3.1 | 3.7 | (0.6) | -16.2% | | Unrealized gain (loss) on derivatives | (4.5) | 0.9 | (5.4) | -600.0% | - Q4 2024 total revenues included a $5.9 million one-time insurance gain[11] - Increase in vessel operating expenses primarily due to higher maintenance and drydocking costs, and EU ETS costs[11] Q1 2025 vs Q1 2024 Comparison Operating income increased by $3.7 million to $23.4 million and net income slightly rose by $0.2 million to $7.6 million in Q1 2025 compared to Q1 2024, driven by improved fleet utilization, higher charter revenues, and vessel disposal gains, despite a $3.2 million increase in finance expenses due to unrealized derivative losses | Metric | Q1 2025 ($ millions) | Q1 2024 ($ millions) | Change ($ millions) | Change Rate | | :------------------------- | :-------------------------- | :-------------------------- | :---------------- | :----- | | Operating Income | 23.4 | 19.7 | 3.7 | 18.8% | | Net Income | 7.6 | 7.4 | 0.2 | 2.7% | | Finance Expenses | 15.3 | 12.1 | 3.2 | 26.4% | - Operating income increase driven by improved fleet utilization, higher charter revenues, and gains on vessel disposal[11] - Finance expenses increased primarily due to unrealized losses on derivatives in Q1 2025 compared to unrealized gains in Q1 2024[11] Financing and Liquidity This section details the Partnership's liquidity position, debt obligations, and interest rate hedging strategies Liquidity Position As of March 31, 2025, the Partnership had $100.8 million in available liquidity, comprising $67.3 million in cash and cash equivalents and $33.5 million in undrawn revolving credit facility capacity - Available liquidity was $100.8 million as of March 31, 2025[12] - Liquidity comprised $67.3 million in cash and cash equivalents and $33.5 million in undrawn revolving credit facility capacity[12] - Revolving credit facilities are scheduled to mature between August 2025 and November 2025[12] Debt Obligations and Interest Rate Swaps Total outstanding interest-bearing debt was $949 million as of March 31, 2025, with an average interest rate of SOFR plus 2.23% for Q1 2025, and the Partnership utilized $462.3 million in interest rate swaps to hedge floating rate exposure, resulting in a net floating rate exposure of approximately $258.6 million - Total outstanding interest-bearing debt was $949 million as of March 31, 2025[13] - Average interest rate on outstanding debt for Q1 2025 was SOFR plus approximately 2.23%[13] | Period | Total ($ thousands) | | :----------------- | :------------------ | | Remainder of 2025 | 228,397 | | 2026 | 368,511 | | 2027 | 140,874 | | 2028 | 108,585 | | 2029 | 17,232 | | 2030 and thereafter | 85,367 | | Total | 948,966 | - Interest rate swap agreements with a total notional amount of $462.3 million and an average remaining term of approximately 1.53 years are in place to hedge floating rate borrowings[13] - Net exposure to floating interest rate fluctuations was approximately $258.6 million as of March 31, 2025[14] Strategic Assets and Dropdown Opportunities This section outlines the Partnership's strategy for acquiring vessels from Knutsen NYK and lists potential dropdown opportunities Omnibus Agreement and Dropdown Strategy Under the Omnibus Agreement with Knutsen NYK, the Partnership has the right to acquire offshore shuttle tankers with charters of five years or more, with such acquisitions requiring approval from the Partnership's board conflict committee, as increasing fleet investment and sustainable distributions are core strategies - The Partnership has the right to acquire offshore shuttle tankers with charters of five years or more from Knutsen NYK[15] - Key components of the strategy and value proposition are accretive investments in the fleet and long-term sustainable distributions[16] - Any such acquisition requires approval from the Partnership's board conflict committee[16] Knutsen NYK Owned/Ordered Vessels Knutsen NYK owns or has ordered several vessels, primarily operating in Brazil and the North Sea with long-term charters and expected deliveries from 2025 to 2028, representing potential dropdown acquisition opportunities for the Partnership - Daqing Knutsen: Delivered June 2022, on a 5-year time charter with PetroChina International (America) Inc. (operating in Brazil), with a 5-year extension option[17] - Frida Knutsen: Delivered July 2022, on a 7-year time charter with Eni (operating in the North Sea), with a 3-year extension option[17] - Sindre Knutsen: Delivered August 2022, on a 5-year time charter with Eni (operating in the North Sea), with a 5-year extension option[23] - Knutsen NYK has newbuilds on order for Petrobras (Brazil): one with a 15-year charter signed November 2022, expected delivery late 2025; three with 10-year charters signed February 2024, expected delivery 2026-2027[23] - Knutsen NYK has a newbuild on order for Petrorio (Brazil): with a 7-year charter signed August 2024, expected delivery early 2027[23] - Hedda Knutsen: Delivered October 2024, on a 10-year time charter with Petrobras (operating in Brazil), with a 5-year extension option[23] - Knutsen NYK has a newbuild on order for Equinor (Brazil): with a 7-year charter signed March 2025, expected delivery early 2028[23] Corporate Governance This section details recent changes to the Partnership's Board of Directors Board of Directors Change Effective April 1, 2025, Mr. Masami Okubo replaced Mr. Yasuhiro Fukuda as a member of the Partnership's general partner board, both representing Nippon Yusen Kaisha (NYK) - Mr. Masami Okubo replaced Mr. Yasuhiro Fukuda as a member of the Board of Directors, effective April 1, 2025[18] Outlook and Future Strategy This section outlines the market outlook for shuttle tankers and the Partnership's strategic plans for future growth and distributions Market Outlook As of March 31, 2025, the fleet had an average remaining fixed charter term of 2.3 years with 4.7 years of charterer options, and $853.8 million in remaining contractual forward revenue, with a tightening Brazilian market and new North Sea production supporting an optimistic medium to long-term outlook for shuttle tankers - As of March 31, 2025, the Partnership's charters had an average remaining fixed term of 2.3 years, with charterers holding options for an additional 4.7 years[19] - The Partnership had $853.8 million in remaining contractual forward revenue as of March 31, 2025[19] - The Brazilian shuttle tanker market continues to tighten, driven by new production growth in the coming years, limited newbuild orders, and long-term project viability at Brent crude prices as low as $35/barrel[19] - North Sea shuttle tanker demand, which has been subdued for several years, has seen recent new oil and gas production start-ups, including the Johan Castberg field and Penguins FPSO[20] - Overall, the medium to long-term outlook for the shuttle tanker market remains positive[21] Partnership Strategy The Partnership plans to pursue long-term charter visibility, build liquidity, execute accretive dropdown transactions for long-term cash flow, and leverage its market-leading position in an improving shuttle tanker market to increase capital value, contractual backlog, and future sustainable distribution levels - The Partnership plans to pursue long-term visibility on charter contracts, build liquidity, execute accretive dropdown transactions to support long-term cash flow generation, and leverage its market-leading position in an improving shuttle tanker market[22] - Dropdown transactions are expected to increase the Partnership's capital value, with growth in contractual backlog leading to increased cash flow and aiding refinancing efforts[24] - Combined with strong market fundamentals, opportunities are anticipated to increase sustainable distribution levels in the future[24] Company Overview This section provides a brief description of KNOT Offshore Partners LP's business and market presence About KNOT Offshore Partners LP KNOT Offshore Partners LP owns, operates, and acquires shuttle tankers primarily in Brazilian and North Sea offshore oil production areas under long-term charters, trading common units on the NYSE under "KNOP" and classified as a corporation for U.S. federal income tax purposes - KNOT Offshore Partners LP primarily owns, operates, and acquires shuttle tankers under long-term charters in the offshore oil production areas of Brazil and the North Sea[25] - The company is a publicly traded limited partnership but is classified as a corporation for U.S. federal income tax purposes, issuing Form 1099 to its unitholders[26] - KNOT Offshore Partners LP's common units trade on the New York Stock Exchange under the ticker symbol "KNOP"[26] Conference Call Information This section provides details for the upcoming Q1 2025 earnings conference call Q1 2025 Earnings Conference Call KNOT Offshore Partners LP will host a conference call on Wednesday, May 21, 2025, at 9:30 AM ET to discuss Q1 2025 results, accessible via phone or webcast for all interested parties - The conference call will be held on Wednesday, May 21, 2025, at 9:30 AM ET[27] - The call is scheduled to discuss Q1 2025 results[27] - Participation is available by dialing specified phone numbers (US: 1-833-470-1428, Canada: 1-833-950-0062, Outside North America: 1-404-975-4839, Access Code 259019) or via webcast on the company's website at www.knotoffshorepartners.com[27](index=27&type=chunk) Financial Statements (Unaudited Condensed Consolidated) This section presents the unaudited condensed consolidated financial statements for KNOT Offshore Partners LP Statements of Operations The unaudited condensed consolidated statements of operations for Q1 2025 show total revenues of $84.0 million, net income of $7.6 million, and operating income of $23.4 million, with $3.1 million in realized gains on derivatives offset by $4.5 million in unrealized losses | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | March 31, 2024 ($ thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues | 84,029 | 91,255 | 76,632 | | Operating Income | 23,436 | 34,665 | 19,709 | | Net Income | 7,581 | 23,251 | 7,438 | | Realized gain on derivatives | 3,111 | 3,698 | 4,063 | | Unrealized gain (loss) on derivatives | (4,455) | 862 | 939 | Balance Sheet Total assets increased to $1,651.4 million as of March 31, 2025, from $1,572.2 million on December 31, 2024, with total liabilities rising to $1,035.3 million and total partners' capital increasing to $531.8 million | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Total Assets | 1,651,417 | 1,572,165 | | Total Liabilities | 1,035,303 | 961,030 | | Total Partners' Capital | 531,806 | 526,827 | | Cash & Cash Equivalents | 67,260 | 66,933 | | Vessels, net | 1,535,408 | 1,462,192 | | Current portion of long-term debt | 249,437 | 256,659 | | Long-term debt | 694,827 | 648,075 | Statement of Changes in Partners' Capital Total partners' capital increased from $526.8 million on December 31, 2024, to $531.8 million on March 31, 2025, primarily driven by net income, partially offset by cash distributions | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :------------------- | :-------------------------- | :-------------------------- | | Total Partners' Capital | 531,806 | 526,827 | | Net Income (Loss) | 5,881 | 5,773 | | Cash Distributions | (902) | (902) | Statement of Cash Flows Q1 2025 saw $36.0 million net cash from operating activities, $0.8 million net cash from investing activities, and $36.7 million net cash used in financing activities, primarily for debt repayment and cash distributions, resulting in a slight increase in cash and cash equivalents to $67.3 million at period-end | Metric | March 31, 2025 ($ thousands) | March 31, 2024 ($ thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash from operating activities | 36,021 | 26,796 | | Net cash from investing activities | 827 | (70) | | Net cash from financing activities | (36,680) | (40,302) | | Cash & Cash Equivalents (end of period) | 67,260 | 50,243 | - Net cash from investing activities included $10.4 million from asset swaps[34] - Net cash from financing activities primarily included $34.078 million in long-term debt repayments and $2.602 million in cash distributions[34] Appendix A - Reconciliation of Non-GAAP Financial Measures This appendix provides definitions and reconciliations for non-GAAP financial measures used by the Partnership EBITDA and Adjusted EBITDA Definition EBITDA and Adjusted EBITDA are non-GAAP financial measures used to assess the Partnership's financial and operational performance, with Adjusted EBITDA further excluding other financial items to enhance comparability across periods and companies - EBITDA is defined as earnings before interest, taxes, depreciation, and amortization[36] - Adjusted EBITDA is defined as EBITDA adjusted for other financial items, including other finance expenses, realized and unrealized gains (losses) on derivatives, and net gains (losses) on foreign currency transactions[36] - These non-GAAP measures aim to improve comparability of performance by excluding items like interest, other financial items, taxes, impairment, and depreciation, which may have varying impacts across periods or companies[36] EBITDA and Adjusted EBITDA Reconciliation For Q1 2025, EBITDA was $51.1 million and Adjusted EBITDA was $52.2 million, representing a decrease from Q4 2024, primarily reflecting changes in net income and other financial items | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :-------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | 7,581 | 23,251 | | Interest Income | (748) | (1,055) | | Interest Expense | 14,902 | 16,167 | | Depreciation | 28,763 | 28,425 | | Income Tax Expense | 579 | 3 | | EBITDA | 51,077 | 66,791 | | Other Financial Items | 1,122 | (3,701) | | Adjusted EBITDA | 52,199 | 63,090 | Forward-Looking Statements This section provides a disclaimer regarding forward-looking statements and outlines associated risk factors Disclaimer and Risk Factors This press release contains forward-looking statements regarding future events, operations, performance, and financial condition, covering market trends, chartering, refinancing, distributions, acquisitions, economic factors, and regulatory compliance, which involve known and unknown risks and are based on assumptions that may cause actual results to differ materially, with no intention to publicly update or revise them - Forward-looking statements cover market trends (shuttle or conventional tanker industry, supply and demand, charter rates), market trends for oil production in the North Sea, Brazil, and other regions, ability to build shuttle tankers, ability to acquire vessels from Knutsen NYK, ability to enter into long-term or short-term charters, ability to refinance debt and obtain capital markets financing, distribution policy, acquisition integration, impact of supply chain disruptions, growth strategy, economic slowdowns, financial market volatility, currency/inflation/interest rate fluctuations, oil price volatility, changes in operating expenses, insurance proceeds, length and cost of drydocking periods, future financial condition and performance, debt repayment, capital expenditures, relationships with major customers, leveraging Knutsen NYK relationship, maximizing vessel utilization, financial condition of customers, newbuild procurement and delivery, impairment of vessel values, competitive ability, vessel acceptance, impact of geopolitical conflicts, charter terminations and extensions, costs of complying with governmental regulations and IMO standards, availability of skilled labor/crew/management, impact of pandemics, general and administrative expenses, taxes, Marshall Islands economic substance requirements, retention of key employees, customer climate/environmental/safety concerns, cyber-attacks, litigation, disruptions to shipping routes, future sales of securities, and other factors listed in SEC filings[41][42][44] - These statements involve known and unknown risks and are based upon assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond KNOT Offshore Partners' control, and actual results may differ materially from those expressed or implied in the forward-looking statements[41] - KNOT Offshore Partners does not intend to publicly update or revise any of the forward-looking statements contained in this press release to reflect any change in its expectations or any change in events, conditions, or circumstances[43]