KNOT Offshore Partners LP(US:KNOP)2021-03-18 20:43Financial Performance - Total revenues for the year ended December 31, 2020, were $279,222,000, a slight decrease of 1% compared to $282,561,000 in 2019[28]. - Net income for 2020 was $65,225,000, representing an increase of 10% from $58,957,000 in 2019[33]. - EBITDA for 2020 was $186,498,000, down 6% from $198,680,000 in 2019, while Adjusted EBITDA was $212,825,000, a decrease of 2% from $217,574,000 in 2019[33]. - Cash and cash equivalents at the end of 2020 were $52,583,000, up from $43,525,000 in 2019[28]. - Net cash provided by operating activities for 2020 was $169,241,000, compared to $165,692,000 in 2019[28]. - Cash distributions declared and paid per unit remained stable at $2.08 for both 2020 and 2019[28]. Debt and Financing - Long-term debt, including current portion and seller's credits, was $1,030,345,000 at the end of 2020, an increase from $995,396,000 in 2019[28]. - As of December 31, 2020, the company had consolidated debt of approximately $1,030.3 million, which may limit its flexibility in obtaining additional financing and paying distributions to unitholders[61]. - The company's ability to service its debt is contingent on future financial and operating performance, which may be adversely affected by economic conditions and other factors beyond its control[63]. - Financing agreements impose restrictions that may limit the company’s ability to incur additional debt, pay distributions, or engage in certain business activities[64]. - The company’s debt levels could make it more vulnerable to competitive pressures and economic downturns compared to competitors with less debt[62]. Operational Risks - The company is exposed to fluctuations in oil prices, which may adversely affect its growth prospects and results of operations[52]. - The outbreak of COVID-19 continues to negatively impact global economic activity and energy demand, potentially affecting the company's operations and those of its customers and suppliers[49]. - The company faces risks related to operational problems with vessels that could reduce revenue and increase costs[42]. - The company may experience difficulties in re-chartering its vessels at attractive rates, particularly for those coming off charter in the next one to two years[52]. - The company must make substantial capital expenditures to maintain the operating capacity of its fleet, which reduces cash available for distribution[57]. Customer Concentration - The company relies on seven customers for all of its time charter and bareboat revenues, indicating a lack of diversification[42]. - The company derives all of its time charter and bareboat revenues from seven customers, with the largest customer accounting for approximately 28% of total revenues for the year ended December 31, 2020[77]. Regulatory and Compliance Issues - The company is subject to U.S. sanctions, particularly those against Iran, which have been significantly expanded since 2012, affecting its ability to conduct business internationally[128]. - Compliance with new greenhouse gas regulations may increase operational costs and require installation of new emission controls[105]. - The maximum sulfur content in fuels used by the marine sector was reduced from 3.5% to 0.5% effective January 1, 2020, under IMO's MARPOL Annex VI[116]. - The company must disclose any activities involving sanctioned countries in its SEC filings, which could impact investor perception and market value[129]. - The company is committed to maintaining compliance with applicable sanctions and embargo laws, but future compliance cannot be guaranteed due to changing interpretations[129]. Market and Economic Conditions - A decline in oil prices could adversely affect the company’s growth prospects and financial condition, impacting its ability to make cash distributions[85]. - Adverse economic conditions, including low oil prices, may lead to a decline in customers' operations or ability to pay for services, resulting in decreased demand for vessels[87]. - The global supply of shuttle tanker capacity may increase without a corresponding rise in demand, adversely affecting hire rates and vessel values[96]. - The company faces substantial competition for long-term, fixed-rate charters, which may hinder its ability to expand relationships with existing customers or obtain new ones[94]. Corporate Governance and Structure - As of March 18, 2021, KNOT owned 26.2% of the company's common units, which may lead to conflicts of interest and influence over business decisions[138]. - The partnership agreement limits unitholders' voting rights, allowing only limited influence over management decisions and board elections[136]. - The partnership agreement allows KNOT and its affiliates to make decisions that may not align with the best interests of the company or its unitholders[141]. - The partnership agreement allows for working capital borrowings to pay distributions, which may reduce available credit for business operations[183]. Environmental and Safety Concerns - The International Maritime Organization (IMO) aims for a 40% reduction in carbon intensity for international shipping by 2030 compared to 2008 levels[105]. - Compliance with safety and other vessel requirements imposed by classification societies may incur significant costs, impacting overall business operations[100]. - The company may incur substantial expenses to comply with evolving environmental regulations, impacting financial performance[118]. Strategic Growth and Acquisitions - The company’s growth strategy focuses on expansion in the shuttle tanker sector, which is dependent on continued growth in demand for offshore oil transportation services[82]. - The company’s acquisition strategy is critical for fleet expansion, but it carries risks such as unanticipated liabilities and integration challenges[70]. - The company has engaged in several acquisitions, including the Carmen Knutsen and the Dan Cisne, enhancing its fleet and operational capacity[218][219]. Miscellaneous Risks - The company faces risks from piracy and terrorism, which could lead to increased operational costs and potential loss of vessels[113][115]. - Fluctuating currency exchange rates may result in increased payments under service agreements, affecting cash flows[121]. - Labor disruptions due to collective bargaining agreements could adversely affect operations and financial condition[122]. - Maritime claims could lead to vessel arrests, interrupting cash flow and potentially impacting revenue from charters[126]. - The required drydocking of vessels could be more expensive and time-consuming than anticipated, adversely affecting cash available for distribution to unitholders[98].