KNOT Offshore Partners LP (NYSE:KNOP) Q4 2023 Earnings Call Transcript
KNOT Offshore Partners LP (NYSE:KNOP) Q4 2023 Earnings Call Transcript February 27, 2024
KNOT Offshore Partners LP isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello. My name is Drew and I will be your conference operator today. At this time, I would like to welcome everyone to the KNOT Offshore Partners Fourth Quarter 2023 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Derek Lowe, you now may begin your conference.
Derek Lowe: Thank you, and good morning, ladies and gentlemen. My name is Derek Lowe, and I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the Partnership's earnings call for the fourth quarter of 2023. Our website is knotoffshorepartners.com and you can find the earnings release there along with this presentation. On Slide 2, you will find guidance on the inclusion of forward-looking statements in today's presentation. These are made in good faith and reflect management's current views, known and unknown risks and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies many of which are beyond our control. Actual results may differ materially from those expressed or implied in forward-looking statements and the partnership does not have or undertake a duty to update any such forward-looking statements made as of the date of this presentation.
For further information, please consult our SEC filings, especially in relation to our annual and quarterly results. Today's presentation also includes certain non-US GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On Slide 3, we have the financial and operational headlines for Q4. Revenues were $73 million, operating income $18.1 million. There was a net loss of $5.3 million after accounting for an unrealized. In other words, non-cash loss of $8.9 million on derivatives and adjusted EBITDA of $45.7 million. We closed Q4 with $63.9 million in available liquidity made up wholly of cash and cash equivalents. We operated with 99.6% utilization of the vessel time available for scheduled operations, which is equivalent to 96% of total fleet time after accounting for the planned dry dockings of Torill Knutsen and Ingrid Knutsen.
Following the end of Q4, we declared a cash distribution of US$0.026 per common unit, which was paid in early February. On Slide 4, we have the headlines of the contractual developments since our last results call, which was on December 14, 2023. In our major market Brazil, Carmen Knutsen saw exercise of a one-year extension option by Repsol, which commenced in January. Repsol had a further one year's option, which if exercised with The Carmen Knutsen employed through to January 2026. Dan Sabia is chartered to Transpetro has been extended to early June this year. In the North Sea, Hilda Knutsen, Torill Knutsen and Bodil Knutsen have continued to operate under time charters to our sponsor Knutsen NYK. For Bodil Knutsen, this charter will last until the end of March and delivery to Equinor to commence a charter of two years fixed plus two years options.
For Hilda Knutsen and Torill Knutsen, the charters are rolling not terms up to January 2025. The continuing area of focus for our contracting team, especially for near-term deployment is on Dan Cisne, Dan Sabia, Hilda Knutsen and Torill Knutsen. We received redelivery of Dan Cisne in December 2023. Our size is more suited to the North Sea market and we are assessing our technical compatibility for shuttle tanker work in the North Sea. In the meantime, we are deploying Dan Cisne on conventional tanker work. Dan Sabia is due for redelivery to us in June, which is the extended expiry date of our charter to Transpetro. Marketing of all four vessels continues to potential charterers, both existing clients and others, including partnership sponsor.
On slide 5, our outlook remains positive on both industry dynamics and the partnership's positioning to participate fruitfully in our markets. Significant growth is anticipated in production and fields, which rely on service by shuttle tankers. We see recently reported orders of around six vessels as an endorsement of confidence in the sector. Three of these vessels have been ordered by our sponsor for delivery over 2026 and 2027. Each of these is a 10-year fixed contract with Petrobras along with a client option to extend by a further five years. We would expect to see further newbuild orders placed in order to service the large new production volumes coming online in the years ahead. A measured amount of new shuttle tanker ordering is imperative and should not be understood as some sort of negative development for the sector.
We do also remain mindful of the near-term market conditions, where we are focused on the marketing of the four vessels, as I described earlier. In the meantime, the partnership remains financially resilient with a strong contracted revenue position of $699 million at the end of Q4 on fixed contracts, which average two years in duration. Charter's options are additional to this and average a further 2.1 years. Our pattern of cash generation and liquidity balance is sufficient for our operations and the significant paydown rate for our debt and we have demonstrated the strength of our relationships with the lending banks by several refinancings completed over the last year. Finally, the average age of our vessels at 9.7 years, places us well when compared to the useful life model at 23 years.
On to slide 6, you can see the consistency of revenues and operating income when comparing with those of previous quarters, including Q2 of 2023 when that is viewed without the impairment. Slide 7 similarly reflects the consistency of our adjusted EBITDA and you can find the definition of this non-GAAP measure in the appendix. On slide 8, the most notable change in the balance sheet over 2023 has been the reduction in current liabilities, which has arisen from the refinancings secured during 2023. Long-term debt has increased as a reflection of these refinancings. However, the overall change in the partnership's liabilities has been a reduction by $92 million, which is reflective of the debt repayments we've made during the year. On slide 9, we've expanded on the terms of the partnership's debt facilities to provide added color around the dynamics of debt repayment.
The highlighted column shows how the outstanding balances of each facility have been reducing because of the repayments we've been making in line with scheduled repayment terms. The current installments are the amounts of capital repayments due over the next year, which do not include interest. And the balloon payments are the final amounts of principal, which will be due on the maturity dates. Of note, $153 million is due to be paid on these debt facilities over the 12 months following 31st December 2023, of which $57 million is a balloon repayment due in May 2024 and on the loan which is secured by Hilda Knutsen. Our practice with a significant repayment such as this is to seek a refinancing, and our track record demonstrates the viability of this approach.
Negotiations are well advanced with potential lenders for a new facility to be secured also by the Hilda Knutsen, sufficient to finance the balloon repayments of the maturing facility. The partnership is not aware of any reasons why this refinancing will be unlikely to complete. However, there can be no guarantees of the success of any financing exercise. Aside from that refinancing, $87 million will be repayable over the course of this 12-month period, of which $10 million has already formed the repayment of the Dan Sabia facility in January. This leaves both Dan Cisne and Dan Sabia free of debt, and we don't have any plans to incur additional borrowings secured by these vessels until we have better visibility on their future employment. Slide 10 shows the contracted pipeline in chart format, reflecting the developments I set out earlier.
Similarly, Slide 11 highlights the focus of our commercial efforts on adding near-term contracts, primarily for the four vessels mentioned earlier. On Slide 12, we see our sponsors' inventory vessels, which are eligible for purchase by the partnership. This applies to any vessel owned by or an order for our sponsor where the vessel has a firm contract period at least five years in length. At present, five existing vessels and five under construction fall into this category. There is no assurance that any further acquisitions will be made by the partnership and any transaction will be subject to the Board approval of both parties, which includes the partnership's Independent Conflicts Committee. As we have said our top priorities remain securing additional contract coverage for our existing fleet and fostering our liquidity position.
On Slides 13 and 14, we have provided some useful illustrations of the strong demand dynamics in the Brazilian market as published by Petrobras. We encourage you to review Petrobras' materials directly on the web page as shown here. The primary takeaway from each of these slides is consistent. There is very significant committed demand growth coming in the Brazilian market in the form of new FPSOs that will require regular service from shuttle tankers. We believe that recent reports of up to six vessel construction contracts are an endorsement of the strong anticipated market conditions in the medium and longer term and do not think this is an excessive amount of added supply in the context. As I mentioned earlier, three of these recent newbuild contracts are for our sponsor Knutsen NYK and are due for delivery over 2026 and 2027.
On Slide 15 we provide information relevant to our U.S. unitholders, in particular those seeking of Form 1099. Those holding units via their custodians or brokers should approach those parties directly. Those with directly registered holdings should contact our transfer agent American Stock Transfer who come under the umbrella of Equiniti Trust Company whose details are shown there. On Slide 16 we include some reminders of the strong fundamentals of our business in the market we serve, our assets, competitive landscape, robust contractual footprint, and resilient finances. I'll finish with Slide 17, recapping our financial and operational performance in Q4 2023 in the subsequent time and our outlook for 2024. We are glad to have delivered high and safe utilization, which have generated consistent financial performance.
We are pleased with the new contracts and extensions we've secured during the quarter and since, along with our ability to navigate our refinancing needs and CapEx relating to dry docks throughout last year. And our continued commercial focus remains on filling up utilization for 2024 while looking further forward to longer-term charter visibility and liquidity generation. Thank you for listening. And with that, I'll hand back the call to the operator for any questions.
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