KNOT Offshore Partners LP(KNOP) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Q1 2024 revenues were $76.6 million, operating income was$19.7 million, net income was $7.4 million, and adjusted EBITDA was$47.5 million [11] - The company ended Q1 with $55 million in available liquidity, consisting of$50 million in cash and cash equivalents plus $5 million in undrawn credit facilities [11] - Vessel utilization was 97.6$0.026 per common unit was declared and paid in early May [11] Business Line Data and Key Metrics - In Brazil, Vigdis Knutsen was delivered to Shell in March for a three-year time charter, and Anna Knutsen's charter with TotalEnergies was extended to April 2026 [5] - Ingrid Knutsen and Torill Knutsen will commence charters with Eni in Q4 2024, with Ingrid Knutsen's charter deferred from April to October [6] - Torill Knutsen is undergoing repairs to a broken generator rotor, expected to be completed in Q2 or Q3, with repair costs and loss of hire covered by insurance [6] - Dan Sabia is due for redelivery in June, with focus on near-term deployment for Dan Cisne, Dan Sabia, and Hilda Knutsen [7] Market Data and Key Metrics - In the North Sea, Hilda Knutsen, Torill Knutsen, and Bodil Knutsen continued to operate under time charters to Knutsen NYK, with Bodil Knutsen delivered to Equinor at the end of March [12] - Dan Cisne was deployed on short-term conventional tanker work after redelivery in December 2023, with upgrades for North Sea shuttle tanker work planned [13] - Significant growth is anticipated in production fields served by shuttle tankers, with reported orders of around six vessels in early 2024, including three by the sponsor for delivery in 2026 and 2027 [14] Company Strategy and Industry Competition - The company remains positive on industry dynamics and its positioning, with significant growth expected in production fields served by shuttle tankers [14] - A material shortage of shuttle tanker capacity is projected in the coming years, with new build orders expected to service large new production volumes [8] - The company has a strong contracted revenue position of $683 million at the end of Q1, with fixed contracts averaging two years in duration and options averaging a further two years [15] Management Commentary on Operating Environment and Future Outlook - Management highlighted the consistency of revenues and operating income across quarters and 12-month periods [9] - The company remains financially resilient with a strong contracted revenue position and sufficient cash generation for operations and debt repayment [15] - The average age of the fleet is 9.9 years, well within the useful life model of 23 years [16] Other Important Information - The company completed refinancing of the loan secured by Hilda Knutsen, reducing overall liabilities by$42 million [17] - $880 million out of$925 million in debt facilities are secured by vessels, with two revolving credit facilities totaling $50 million unsecured [20] - The company has five existing vessels and five under construction eligible for purchase by the partnership, subject to board approval [22] Q&A Session Summary Question: North Sea Market Activity - Management anticipates significant demand increase in the North Sea once new FPSOs come online, with focus on marketing Hilda Knutsen and Dan Cisne [33][36] Question: Incremental Demand from New FPSOs - Management expects sufficient incremental demand to cover under-utilized vessels, with Hilda Knutsen and Dan Cisne available for North Sea work [44][45] Question: Dan Cisne Upgrades - Upgrades for Dan Cisne are expected to take around a month to six weeks, with costs not material to financial results [52][53] Question: Dan Sabia Market Position - Dan Sabia is being marketed in Brazil despite not being ideally sized, with potential for client demand [55] Question: Torill Knutsen Downtime - Torill Knutsen experienced around a month of downtime in Q1 due to a broken generator rotor, with earnings impacted but not fully lost [58] Question: Opex and G&A Trends - Opex increased slightly due to voyage expenses, with G&A remaining stable [64] Question: Interest Rate Hedges - The company added a small amount of interest rate hedges in Q1, staying within policy range for fixed-rate debt [66][67] Question: New Build Pricing Impact - New build pricing does not significantly impact existing fleet pricing, with demand dynamics being the primary driver [73][74] Question: Share Buybacks - The company prioritizes filling contract gaps and improving liquidity before considering share buybacks [79][82] Question: Dividend and Debt Reduction - Shareholders expressed support for maintaining the current dividend and aggressively reducing debt, with no immediate plans for drop-down acquisitions [89][93]