KNOT Offshore Partners LP(KNOP) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a cash and cash equivalents balance of $63.1 million at the end of the quarter, with a reduction in the current portion of long-term debt following successful refinancings [18][22] - Adjusted EBITDA for the second quarter was solid, despite recognizing non-cash impairments totaling $49.6 million related to two smaller vessels [16][18] - The partnership had $620 million of forward contracted revenue as of June 30, 2023, with firm charters averaging two years remaining [19][34] Business Line Data and Key Metrics Changes - The fleet operated with 99.3% utilization for scheduled operations and 95.5% utilization when accounting for scheduled dry dockings [29][22] - A new time charter contract for the Brasil Knutsen was agreed upon, set to commence in January 2024 for a fixed period of one year [31] - The company successfully extended the bareboat charter for the Dan Cisne with Transpetro, which will now run until the end of December 2023 [30] Market Data and Key Metrics Changes - The Brazilian market is tightening, with a limited newbuild order book and increasing demand for shuttle tankers due to offshore oil production growth [34][20] - The North Sea market is expected to take several more quarters to recover, while the Brazilian market shows signs of improvement [34][20] Company Strategy and Development Direction - The company is focused on securing additional contract coverage and rebuilding liquidity, prioritizing long-term charter visibility over immediate acquisitions [66][102] - Management expressed confidence in the mid to long-term outlook for the business, particularly in Brazil, due to the anticipated startup of new FPSOs [20][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the need for stability in liquidity and the importance of maintaining sufficient working capital to operate the fleet [4][23] - The company is optimistic about the future, citing a positive mid to long-term outlook driven by tightening market conditions and operational improvements [20][21] Other Important Information - The company has largely addressed its near-term refinancing needs, successfully closing a new $240 million senior secured term loan facility [22][14] - The partnership paid its 41st consecutive distribution since its IPO in 2013, reflecting ongoing commitment to returning value to shareholders [29] Q&A Session Questions and Answers Question: What needs to happen for the partnership to return to higher payouts or resume drop-downs? - Management indicated that the focus is currently on securing long-term charter visibility and building liquidity, with drop-downs not being a priority at this time [39][66] Question: Is it feasible to move the Torill and Hilda vessels to the Brazilian market? - Management stated that while it is an option, timing and costs are critical factors, and they are evaluating this possibility carefully [40][46] Question: Can you explain the dynamics of the balance sheet changes, particularly the increase in long-term debt? - Management clarified that the increase in long-term debt is primarily due to reclassification related to refinancing, and the drop in long-term assets is due to depreciation and impairments [62][78] Question: How are the new charter rates compared to previous contracts? - Management noted that new charter rates reflect a tightening market, but providing specific percentage increases would be misleading due to the variability in contracts [105][121] Question: What is the timeline for potential acquisitions? - Management confirmed that while there are vessels available for acquisition, the current focus is on liquidity and securing charters rather than pursuing new acquisitions [100][102]