UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2023
Commission File Number: 001-35866
KNOT
Offshore Partners LP
(Translation of registrant’s name into English)
2
Queen’s Cross,
Aberdeen, AB15 4YB
United Kingdom
(Address of principal executive office)
Indicate by check mark whether the registrant files
or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F
x Form 40-F ¨
ITEM 1–INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached
as Exhibit 99.1 is a copy of the press release of KNOT Offshore Partners LP dated December 13, 2023.
ITEM 2– EXHIBITS
The following exhibits are filed as a part of this report:
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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KNOT OFFSHORE PARTNERS LP |
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| Date: December 13, 2023 |
By: |
/s/
Derek Lowe |
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Name: Derek Lowe |
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Title: Chief Executive Officer and Chief Financial
Officer |
Exhibit 99.1
KNOT OFFSHORE PARTNERS LP
EARNINGS RELEASE—INTERIM RESULTS FOR THE
PERIOD ENDED SEPTEMBER 30, 2023
Financial Highlights
For the three months ended September 30, 2023 (“Q3 2023”),
KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):
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Generated total revenues of $72.7 million, operating income of $20.6 million and net income of $12.6 million. |
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Generated
Adjusted EBITDA1 of $48.1 million |
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Reported $58.2 million in available liquidity, which included cash and cash equivalents of $53.2 million at September 30, 2023. |
Other Partnership Highlights and Events
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Fleet operated with 98.8% utilization for scheduled operations in Q3 2023, and 97.4% utilization taking into account the scheduled drydockings of the Brasil Knutsen and the Hilda Knutsen, which were completed around the beginning of Q3 2023. |
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On October 12, 2023, the Partnership declared a quarterly cash distribution of $0.026 per common unit with respect to Q3 2023, which was paid on November 9, 2023, to all common unitholders of record on October 26, 2023. On the same day, the Partnership declared a quarterly cash distribution to holders of Series A Convertible Preferred Units (“Series A Preferred Units”) with respect to Q3 2023 in an aggregate amount of $1.7 million. |
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On November 15,
2023, the Partnership successfully closed the refinancing of the second of its two $25 million revolving credit facilities, with
the facility being rolled until November 2025 on similar terms. |
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On September 13, 2023, a 100-day extension to the
existing bareboat charter party for the Dan Cisne was signed with Transpetro, extending the vessel’s fixed employment
to late December 2023. The Partnership anticipates receiving the Dan Cisne
and Dan Sabia back via redelivery in December 2023 and January 2024 respectively, following expiry of the existing
bareboat charter parties. The Partnership is continuing to market both vessels for new, third-party employment and is in active discussions
with both existing charterers and others, including the Partnership’s sponsor, Knutsen NYK Offshore Tankers AS (“Knutsen
NYK”). |
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On October 30, 2023, Shell exercised its option to continue its charter of the Windsor Knutsen through to the first quarter
of 2025. On September 26, 2023, the Partnership signed a new
time charter contract for the Windsor Knutsen with an oil major to commence within the window from February 1, 2025 to
May 1, 2025. The new charter is for a fixed period of two years and will see near-continuous employment for this vessel through
to the first half of 2027, subject to the exact dates for completion of the above charter to Shell and the start of this new
charter. |
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In order to make the Windsor Knutsen available
for the above contract commencing in 2025, the Partnership sought and reached an agreement with Equinor to substitute the Brasil
Knutsen into the time charter previously due to employ the Windsor Knutsen commencing in the fourth quarter of 2024 or
the first quarter of 2025. This time charter is for a fixed period, at the charterer’s option, of either one year
or two years, with options for the charterer to extend the charter, in either case, by two further one-year periods. The Brasil
Knutsen is consequently now employed until around the end of 2025 and, if all the charterer’s options are taken, the vessel
will be fixed until the end of 2028. |
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The Hilda Knutsen and the Torill Knutsen
each continued to operate on separate time charter contracts with a subsidiary of Knutsen NYK at a reduced charter rate, with
the contracts expected to continue on a rolling 30 day basis, subject to relevant negotiation and the approval of the Partnership’s
Board and Conflicts Committee. The Partnership is continuing to market both vessels for new, third-party time charter employment
and is in active discussions with potential charterers, including Knutsen NYK. |
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The Bodil Knutsen continued to operate on a
reduced rate time charter contract with Knutsen NYK, which will expire in time for delivery of the vessel to Equinor in March 2024,
for an initial fixed time charter contract of two years, with charterer’s options to extend the charter by two further one-year
periods. |
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On October 2, 2023, the Partnership signed an
agreement with Shell to extend the current time charters for the Tordis Knutsen and Lena Knutsen by one year each,
which will see these vessels employed until mid-2027. |
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This Earnings Release does not make an assumption around the exercise
by Repsol of their extension option on Carmen Knutsen in relation to an initial period of 1 year commencing mid-January 2024. This
is under active discussion with Repsol at the time of this Earnings Release. |
Derek Lowe, Chief Executive Officer and Chief Financial Officer of
KNOT Offshore Partners LP, stated, “We are pleased to report another strong performance in Q3 2023, marked by safe operation at
over 98% fleet utilization for scheduled operations; consistent revenue and operating income; and completion of the refinancing required
in 2023.
1
EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management and external users of the Partnership’s financial
statements. Please see Appendix A for definitions of EBITDA and Adjusted EBITDA and a reconciliation to net income, the most directly
comparable GAAP financial measure.
Including those contracts signed since September 30, 2023,
we now have 70% of charter coverage in 2024 from fixed contracts, which rises to 79% if charterers’ options are exercised.
Having executed a number of new contracts, we remain focused on filling the
remaining gaps in our charter portfolio.
In Brazil, the main offshore oil market where we operate, the supply/demand
balance is continuing to improve, with robust demand and increasing charter rates. Driven by Petrobras’ continued high production
levels and FPSO start-ups in the pre-salt fields that rely upon shuttle tankers, we believe the world’s biggest shuttle tanker
market is tightening materially. Our secondary geography, in the North Sea, is taking longer to re-balance, where we anticipate progressive
improvement during and beyond 2024. With only five new shuttle tankers set to deliver globally, and currently none after 2025, we believe
that growth of offshore oil production in shuttle tanker-serviced fields across both Brazil and the North Sea is on track to outpace
shuttle tanker supply growth in the coming years.
As the largest owner and operator of shuttle tankers (together with
our sponsor, Knutsen NYK), we believe we are well positioned to benefit from such an improving charter market. We remain focused on generating
certainty and stability of cashflows from long-term employment with high quality counterparties, and are confident that continued operational
performance and execution of our strategy can create unitholder value in the quarters and years ahead.”
Financial Results Overview
Total revenues were $72.7 million for Q3 2023, compared to $73.8 million
for the three months ended June 30, 2023 (“Q2 2023”). Revenues in Q3 2023 were lower compared to Q2 2023 owing to revenues
from spot voyages and loss of hire insurance recoveries in Q2 2023, which was partly offset by an increase in time charter and bareboat
revenues in Q3 2023.
Vessel operating expenses for Q3 2023 were $23.2 million, a decrease
of $2.1 million from $25.3 million in Q2 2023. The decrease is mainly due to the costs related to various upgrades and services on
the Brasil Knutsen in connection with her scheduled drydocking, the bulk of which took place in Q2 2023.
Depreciation was $27.5 million for Q3 2023, a decrease of $0.6 million
from $28.1 million in Q2 2023.
There was no impairment recognized in Q3 2023, compared to $49.6 million
in impairments in Q2 2023 in respect of the Dan Cisne and the Dan Sabia.
General and administrative expenses were $1.1 million for Q3 2023
compared to $1.8 million for Q2 2023.
As a result, operating income for Q3 2023 was $20.6 million, compared
to an operating loss of $31.2 million for Q2 2023.
Interest expense for Q3 2023 was $18.5 million, an increase
of $0.4 million from $18.1 million for Q2 2023. The increase is mainly due to an increase in the US dollar LIBOR and Secured
Overnight Financing Rate (“SOFR”) rates.
The realized and unrealized gain on derivative instruments was $4.4 million
in Q3 2023, compared to $8.1 million in Q2 2023. Of these amounts, the unrealized (i.e. non-cash) elements were gains of $0.5 million
in Q3 2023 and $4.6 million in Q2 2023.
As a result, net income for Q3 2023 was $12.6 million compared to
a net loss of $40.4 million for Q2 2023.
By comparison with the three months ended September 30, 2022
(“Q3 2022”), results for Q3 2023 include:
| · | an
increase of $4.9 million in operating income (to $20.6 million from $15.7 million), driven
primarily by higher utilization; |
| · | an
increase of $13.9 million in net finance expense (to net finance expense of $13.4 million
from net finance income of $0.5 million), due to higher interest rates; and |
| · | a
decrease of $3.4 million in net income (to $12.6 million from $16.0 million). |
Fleet utilization
The Partnership’s vessels operated throughout Q3 2023 with 98.8%
utilization for scheduled operations, and 97.4% utilization taking into account the scheduled drydockings of the Brasil Knutsen
and the Hilda Knutsen, which were offhire for 11 days and 12 days respectively in Q3 2023.
Financing and Liquidity
As of September 30, 2023, the Partnership had $58.2 million
in available liquidity, which consisted of cash and cash equivalents of $53.2 million and $5.0 million of capacity under one of
the revolving credit facilities. Following their refinancings, the revolving credit facilities mature between August 2025 and November 2025.
The Partnership’s total interest-bearing obligations outstanding as of September 30, 2023 were $984.1 million ($977.3 million
net of debt issuance costs). The average margin paid on the Partnership’s outstanding debt during Q3 2023 was approximately 2.29%
over LIBOR or SOFR, as applicable.
As of September 30, 2023, the Partnership had entered into various
interest rate swap agreements for a total notional amount of $431.8 million to hedge against the interest rate risks of its variable
rate borrowings. As of September 30, 2023, the Partnership receives interest based on three or six-month LIBOR, or three-month SOFR,
and pays a weighted average interest rate of 1.9% under its interest rate swap agreements, which have an average maturity of approximately
2.0 years. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impacted by changes
in the market value of such financial instruments.
As of September 30, 2023, the Partnership’s net exposure
to floating interest rate fluctuations was approximately $317.6 million based on total interest-bearing contractual obligations of $984.1
million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $181.5 million, less interest rate
swaps of $431.8 million, and less cash and cash equivalents of $53.2 million. The Partnership’s outstanding interest-bearing
contractual obligations of $984.1 million as of September 30, 2023 are repayable as follows:
| (U.S. Dollars in thousands) | |
Sale & Leaseback | | |
Period repayment | | |
Balloon
repayment | | |
Total | |
| Remainder of 2023 | |
$ | 3,395 | | |
$ | 22,657 | | |
$ | — | | |
$ | 26,052 | |
| 2024 | |
| 13,804 | | |
| 76,651 | | |
| 63,393 | | |
| 153,848 | |
| 2025 | |
| 14,399 | | |
| 68,581 | | |
| 181,583 | | |
| 264,563 | |
| 2026 | |
| 15,060 | | |
| 51,596 | | |
| 219,521 | | |
| 286,177 | |
| 2027 | |
| 15,751 | | |
| 26,481 | | |
| — | | |
| 42,232 | |
| 2028 and thereafter | |
| 119,120 | | |
| 13,241 | | |
| 78,824 | | |
| 211,185 | |
| Total | |
$ | 181,529 | | |
$ | 259,207 | | |
$ | 543,321 | | |
$ | 984,057 | |
On August 16, 2023, the Partnership closed the refinancing of
the first of its two $25 million revolving credit facilities, with the facility being rolled over with NTT Finance Corporation. The new
facility will mature in August 2025, bears interest at a rate per annum equal to SOFR plus a margin of 2.23% and has a commitment
fee of 0.5% on the undrawn portion of the facility. The commercial terms of the facility are substantially unchanged from the facility
entered into in June 2021 with NTT Finance Corporation.
On November 15, 2023, the Partnership closed the refinancing
of the second of its two $25 million revolving credit facilities, with the facility being rolled over with SBI Shinsei Bank, Limited.
The new facility will mature in November 2025, bears interest at a rate per annum equal to SOFR plus a margin of 2.0% and has a
commitment fee of 0.8% on the undrawn portion of the facility. The commercial terms of the facility are substantially unchanged from
the facility entered into in November 2020 with SBI Shinsei Bank, Limited.
On September 15, 2023, the loan facility secured by the
Dan Cisne was repaid in full with a $10.2 million payment. The Dan Sabia facility is due to be paid down with a final scheduled
balloon payment of $6.5 million on maturity in January 2024. There are no plans to incur additional borrowings secured by these
two vessels until such time as the Partnership has better visibility on the vessels’ future employment.
Assets Owned by Knutsen NYK
Pursuant to the omnibus agreement the Partnership entered into with
Knutsen NYK at the time of its initial public offering, the Partnership has the option to acquire from Knutsen NYK any offshore shuttle
tankers that Knutsen NYK acquires or owns that are employed under charters for periods of five or more years.
There can be no assurance that the Partnership will acquire any additional
vessels from Knutsen NYK. Given the relationship between the Partnership and Knutsen NYK, any such acquisition would be subject to the
approval of the Conflicts Committee of the Partnership’s Board of Directors.
Knutsen NYK owns the following vessels and has entered into the following
charters:
In February 2021, Tuva Knutsen was delivered to Knutsen
NYK from the yard and commenced on a five-year time charter contract with a wholly owned subsidiary of the French oil major TotalEnergies.
TotalEnergies has options to extend the charter for up to a further ten years.
In November 2021, Live Knutsen was delivered to Knutsen
NYK from the yard in China and commenced on a five-year time charter contract with Galp Sinopec for operation in Brazil. Galp has options
to extend the charter for up to a further six years.
In June 2022, Daqing Knutsen was delivered to Knutsen
NYK from the yard in China and commenced on a five-year time charter contract with PetroChina International (America) Inc for operation
in Brazil. The charterer has options to extend the charter for up to a further five years.
In July 2022, Frida Knutsen was delivered to Knutsen NYK
from the yard in Korea and commenced in December 2022 on a seven-year time charter contact with Eni for operation in North Sea.
The charterer has options to extend the charter for up to a further three years.
In August 2022, Sindre Knutsen, was delivered to Knutsen
NYK from the yard in Korea and commenced in September 2023 on a five-year time charter contract with Eni for operation in the North
Sea. The charterer has options to extend the charter for up to a further five years.
In May 2022, Knutsen NYK entered into a new ten-year time charter
contract with Petrobras for a vessel to be constructed and which will operate in Brazil where the charterer has the option to extend
the charter by up to five further years. The vessel will be built in China and is expected to be delivered in late 2024.
In November 2022, Knutsen NYK entered into a new fifteen-year
time charter contract with Petrobras for a vessel to be constructed and which will operate in Brazil where the charterer has an option
to extend the charter by up to five further years. The vessel will be built in China and is expected to be delivered in late 2025.
Management Transition
As previously announced on August 4, 2023, Mr. Derek Lowe
became the Partnership’s new Chief Executive Officer and Chief Financial Officer, taking office on September 13, 2023.
Mr. Lowe joined the Partnership from Telford Offshore, a provider
of accommodation, construction and pipelay in the global offshore energy services industry. He served as the Group Company Secretary
of Telford Offshore since its formation in 2018, having provided consultancy services to its predecessor since 2015. He worked from 2011
to 2015 for the debt capital markets group of Pareto Securities, and from 1994 to 2010 for the equity capital markets group of UBS.
Outlook
At September 30, 2023, the Partnership’s fleet of
eighteen vessels had an average age of 9.4 years, and the Partnership had charters with an average remaining fixed duration of 1.9
years, with the charterers of the Partnership’s vessels having options to extend their charters by an additional 2.0 years on
average. The Partnership had $645 million of remaining contracted forward revenue at September 30, 2023, excluding
charterers’ options and excluding contracts agreed or signed after that date.
The Partnership’s earnings for the fourth quarter of 2023 will
be affected by the scheduled ten-year special survey drydockings of the Europe-based Torill Knutsen and Ingrid Knutsen,
which are being carried out in Europe during November and December 2023.
The market for shuttle tankers in Brazil, where fourteen of our vessels
operate, has continued to tighten in Q3 2023, driven by a significant pipeline of new production growth over the coming years, a limited
newbuild order book, and typical long-term project viability requiring a Brent oil price of only $35 per barrel. While the Dan Cisne
and Dan Sabia stand out among the Partnership’s fleet as being of a smaller size than is optimal in today’s Brazilian
market, the contract that we signed for the Brasil Knutsen in August 2023 demonstrates that market tightening in Brazil is
underway. We remain in discussions with our customers and continue to evaluate all our options for the Dan Cisne and Dan Sabia
vessels, including but not limited to redeployment in the tightening Brazilian market, charter to Knutsen NYK (subject to negotiation
and approvals) and sale.
Shuttle tanker demand in the North Sea has remained subdued, driven
by the impact of COVID-19-related project delays. We expect these conditions to persist for several more quarters until new oil production
projects that are anticipated come on stream.
Looking ahead, based on supply and demand factors with significant
forward visibility and committed capital from industry participants, we believe that the overall medium and long-term outlook for the
shuttle tanker market remains favorable. Notably, the current shuttle tanker orderbook consists of only five vessels, all of which are
scheduled to deliver by the end of 2025, while any future new orders would be expected to deliver in 2026 or thereafter.
In the meantime, the Partnership intends to pursue long-term visibility
from its charter contracts, build its liquidity, and position itself to benefit from its market-leading position in an improving shuttle
tanker market.
About KNOT Offshore Partners LP
KNOT Offshore Partners LP owns, operates and acquires shuttle tankers
primarily under long-term charters in the offshore oil production regions of Brazil and the North Sea.
KNOT Offshore Partners LP is structured as a publicly traded master
limited partnership but is classified as a corporation for U.S. federal income tax purposes, and thus issues a Form 1099 to its unitholders,
rather than a Form K-1. KNOT Offshore Partners LP’s common units trade on the New York Stock Exchange under the symbol “KNOP”.
The Partnership plans to host a conference call on Thursday December 14,
2023 at 9:30 AM (Eastern Time) to discuss the results for the third quarter of 2023. All unitholders and interested parties are invited
to listen to the live conference call by choosing from the following options:
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By dialing 1-833-470-1428 from the US, dialing 1-833-950-0062 from Canada or 1-404-975-4839 if outside North America – please join the KNOT Offshore Partners LP call using access code 119607. |
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By accessing the webcast on the Partnership’s website: www.knotoffshorepartners.com. |
December 13, 2023
KNOT Offshore Partners LP
Aberdeen, United Kingdom
Questions should be directed to:
Derek Lowe via email at ir@knotoffshorepartners.com
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
| | |
Three Months Ended | | |
Nine Months Ended | |
| (U.S. Dollars in thousands) | |
September 30,
2023 | | |
June 30,
2023 | | |
September 30,
2022 | | |
September 30,
2023 | | |
September 30,
2022 | |
| Time charter and bareboat revenues | |
$ | 72,188 | | |
$ | 69,924 | | |
$ | 67,738 | | |
$ | 205,045 | | |
$ | 196,713 | |
| Voyage revenues (1) | |
| 10 | | |
| 1,585 | | |
| — | | |
| 8,849 | | |
| — | |
| Loss of hire insurance recoveries | |
| — | | |
| 1,424 | | |
| — | | |
| 2,335 | | |
| — | |
| Other income | |
| 485 | | |
| 891 | | |
| 78 | | |
| 1,458 | | |
| 258 | |
| Total revenues | |
| 72,683 | | |
| 73,824 | | |
| 67,816 | | |
| 217,687 | | |
| 196,971 | |
| Vessel operating expenses | |
| 23,164 | | |
| 25,287 | | |
| 23,127 | | |
| 67,894 | | |
| 66,212 | |
| Voyage expenses and commission (2) | |
| 375 | | |
| 159 | | |
| — | | |
| 5,230 | | |
| — | |
| Depreciation | |
| 27,472 | | |
| 28,107 | | |
| 27,638 | | |
| 83,308 | | |
| 79,634 | |
| Impairment (3) | |
| — | | |
| 49,649 | | |
| — | | |
| 49,649 | | |
| — | |
| General and administrative expenses | |
| 1,083 | | |
| 1,838 | | |
| 1,366 | | |
| 4,571 | | |
| 4,492 | |
| Total operating expenses | |
| 52,094 | | |
| 105,040 | | |
| 52,131 | | |
| 210,652 | | |
| 150,338 | |
| Operating income (loss) | |
| 20,589 | | |
| (31,216 | ) | |
| 15,685 | | |
| 7,035 | | |
| 46,633 | |
| Finance income (expense): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest income | |
| 932 | | |
| 861 | | |
| 289 | | |
| 2,476 | | |
| 350 | |
| Interest expense | |
| (18,493 | ) | |
| (18,107 | ) | |
| (12,220 | ) | |
| (53,969 | ) | |
| (27,246 | ) |
| Other finance expense | |
| (228 | ) | |
| (112 | ) | |
| (213 | ) | |
| (413 | ) | |
| (525 | ) |
| Realized and unrealized gain (loss) on derivative instruments (4) | |
| 4,361 | | |
| 8,124 | | |
| 12,374 | | |
| 10,175 | | |
| 33,847 | |
| Net gain (loss) on foreign currency transactions | |
| 14 | | |
| 109 | | |
| 237 | | |
| (13 | ) | |
| 139 | |
| Total finance income (expense) | |
| (13,414 | ) | |
| (9,125 | ) | |
| 467 | | |
| (41,744 | ) | |
| 6,565 | |
| Income (loss) before income taxes | |
| 7,175 | | |
| (40,341 | ) | |
| 16,152 | | |
| (34,709 | ) | |
| 53,198 | |
| Income tax benefit (expense) | |
| 5 ,466 | | |
| (49 | ) | |
| (180 | ) | |
| 5,663 | | |
| (558 | ) |
| Net income (loss) | |
$ | 12,641 | | |
$ | (40,390 | ) | |
$ | 15,972 | | |
$ | (29,046 | ) | |
$ | 52,640 | |
| Weighted average units outstanding (in thousands of units): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common units | |
| 34,045 | | |
| 34,045 | | |
| 33,923 | | |
| 34,045 | | |
| 33,839 | |
| Class B units (5) | |
| 252 | | |
| 252 | | |
| 375 | | |
| 252 | | |
| 459 | |
| General Partner units | |
| 640 | | |
| 640 | | |
| 640 | | |
| 640 | | |
| 640 | |
| (1) |
Voyage revenues are revenues unique to spot voyages. |
| (2) |
Voyage expenses and commission are expenses unique to spot voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, agency fees and commission. |
| (3) |
The carrying value of each of the Dan Cisne and the Dan Sabia was written down to its estimated fair value as of June 30, 2023. |
| (4) |
Realized gain (loss) on derivative instruments relates to amounts the Partnership actually received (paid) to settle derivative instruments, and the unrealized gain (loss) on derivative instruments relates to changes in the fair value of such derivative instruments, as detailed in the table below. |
| | |
Three Months Ended | | |
Nine Months Ended | |
| (U.S. Dollars in thousands) | |
September 30,
2023 | | |
June 30,
2023 | | |
September 30,
2022 | | |
September 30,
2023 | | |
September 30,
2022 | |
| Realized gain (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest rate swap contracts | |
$ | 3,963 | | |
$ | 3,538 | | |
$ | (304 | ) | |
$ | 10,506 | | |
$ | (3,707 | ) |
| Foreign exchange forward contracts | |
| (79 | ) | |
| — | | |
| — | | |
| (79 | ) | |
| — | |
| Total realized gain (loss): | |
| 3,884 | | |
| 3,538 | | |
| (304 | ) | |
| 10,427 | | |
| (3,707 | ) |
| Unrealized gain (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest rate swap contracts | |
| 352 | | |
| 4,667 | | |
| 13,482 | | |
| (252 | ) | |
| 38,772 | |
| Foreign exchange forward contracts | |
| 125 | | |
| (81 | ) | |
| (804 | ) | |
| — | | |
| (1,218 | ) |
| Total unrealized gain (loss): | |
| 477 | | |
| 4,586 | | |
| 12,678 | | |
| (252 | ) | |
| 37,554 | |
| Total realized and unrealized gain (loss) on derivative instruments: | |
$ | 4,361 | | |
$ | 8,124 | | |
$ | 12,374 | | |
$ | 10,175 | | |
$ | 33,847 | |
| (5) |
On September 7, 2021, the Partnership entered into an exchange agreement with Knutsen NYK, and the Partnership’s general partner whereby Knutsen NYK contributed to the Partnership all of Knutsen NYK’s incentive distribution rights (“IDRs”), in exchange for the issuance by the Partnership to Knutsen NYK of 673,080 common units and 673,080 Class B Units, whereupon the IDRs were cancelled (the “IDR Exchange”). As of September 30, 2023, 420,675 of the Class B Units had been converted to common units. |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
| (U.S. Dollars in thousands) | |
At September 30, 2023 | | |
At December 31, 2022 | |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 53,189 | | |
$ | 47,579 | |
| Amounts due from related parties | |
| 1,230 | | |
| 1,998 | |
| Inventories | |
| 3,088 | | |
| 5,759 | |
| Derivative assets | |
| 15,443 | | |
| 15,070 | |
| Other current assets | |
| 7,421 | | |
| 15,528 | |
| Total current assets | |
| 80,371 | | |
| 85,934 | |
| | |
| | | |
| | |
| Long-term assets: | |
| | | |
| | |
| Vessels, net of accumulated depreciation | |
| 1,514,532 | | |
| 1,631,380 | |
| Right-of-use assets | |
| 2,207 | | |
| 2,261 | |
| Intangible assets, net | |
| — | | |
| — | |
| Deferred tax assets | |
| 5,442 | | |
| — | |
| Derivative assets | |
| 13,753 | | |
| 14,378 | |
| Accrued income | |
| — | | |
| — | |
| Total long-term assets | |
| 1,535,934 | | |
| 1,648,019 | |
| Total assets | |
$ | 1,616,305 | | |
$ | 1,733,953 | |
| | |
| | | |
| | |
| LIABILITIES AND EQUITY | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Trade accounts payable | |
$ | 6,025 | | |
$ | 4,268 | |
| Accrued expenses | |
| 10,869 | | |
| 10,651 | |
| Current portion of long-term debt | |
| 156,797 | | |
| 369,787 | |
| Current lease liabilities | |
| 902 | | |
| 715 | |
| Income taxes payable | |
| 18 | | |
| 699 | |
| Current portion of contract liabilities | |
| — | | |
| 651 | |
| Prepaid charter and deferred revenue | |
| 467 | | |
| 1,504 | |
| Amount due to related parties | |
| 1,481 | | |
| 1,717 | |
| Total current liabilities | |
| 176,559 | | |
| 389,992 | |
| | |
| | | |
| | |
| Long-term liabilities: | |
| | | |
| | |
| Long-term debt | |
| 820,475 | | |
| 686,601 | |
| Lease liabilities | |
| 1,305 | | |
| 1,546 | |
| Deferred tax liabilities | |
| 152 | | |
| 424 | |
| Deferred revenues | |
| 2,453 | | |
| 3,178 | |
| Total long-term liabilities | |
| 824,385 | | |
| 691,749 | |
| Total liabilities | |
| 1,000,944 | | |
| 1,081,741 | |
| Commitments and contingencies | |
| | | |
| | |
| Series A Convertible Preferred Units | |
| 84,308 | | |
| 84,308 | |
| Equity: | |
| | | |
| | |
| Partners’ capital: | |
| | | |
| | |
| Common unitholders | |
| 517,751 | | |
| 553,922 | |
| Class B unitholders | |
| 3,871 | | |
| 3,871 | |
| General partner interest | |
| 9,431 | | |
| 10,111 | |
| Total partners’ capital | |
| 531,053 | | |
| 567,904 | |
| Total liabilities and equity | |
$ | 1,616,305 | | |
$ | 1,733,953 | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN PARTNERS’ CAPITAL
| | |
Partners' Capital | | |
Accumulated | | |
| | |
Series A | |
| (U.S. Dollars in thousands) | |
| | |
| | |
General | | |
Other | | |
Total | | |
Convertible | |
| Three Months Ended September 30, 2022 and 2023 | |
Common
Units | | |
Class B
Units | | |
Partner
Units | | |
Comprehensive
Income (Loss) | | |
Partners'
Capital | | |
Preferred
Units | |
| Consolidated balance at June 30, 2022 | |
$ | 568,515 | | |
$ | 6,689 | | |
$ | 10,436 | | |
$ | — | | |
$ | 585,640 | | |
$ | 84,308 | |
| Net income | |
| 13,877 | | |
| 133 | | |
| 262 | | |
| — | | |
| 14,272 | | |
| 1,700 | |
| Conversion of Class B units to common units (1) | |
| 1,302 | | |
| (1,302 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (17,615 | ) | |
| (219 | ) | |
| (333 | ) | |
| — | | |
| (18,167 | ) | |
| (1,700 | ) |
| Consolidated balance at September 30, 2022 | |
$ | 566,079 | | |
$ | 5,301 | | |
$ | 10,365 | | |
$ | — | | |
$ | 581,745 | | |
$ | 84,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated balance at June 30, 2023 | |
$ | 507,897 | | |
$ | 3,871 | | |
$ | 9,246 | | |
$ | — | | |
$ | 521,014 | | |
$ | 84,308 | |
| Net income | |
| 10,739 | | |
| — | | |
| 202 | | |
| — | | |
| 10,941 | | |
| 1,700 | |
| Conversion of Class B units to common units (1) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (885 | ) | |
| — | | |
| (17 | ) | |
| — | | |
| (902 | ) | |
| (1,700 | ) |
| Consolidated balance at September 30, 2023 | |
$ | 517,751 | | |
$ | 3,871 | | |
$ | 9,431 | | |
$ | — | | |
$ | 531,053 | | |
$ | 84,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Nine Months Ended September 30, 2022 and 2023 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated balance at December 31, 2021 | |
$ | 568,762 | | |
$ | 9,453 | | |
$ | 10,492 | | |
$ | — | | |
$ | 588,707 | | |
$ | 84,308 | |
| Net income | |
| 46,079 | | |
| 590 | | |
| 871 | | |
| — | | |
| 47,540 | | |
| 5,100 | |
| Conversion of Class B units to
common units (1) | |
| 3,954 | | |
| (3,954 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (52,716 | ) | |
| (788 | ) | |
| (998 | ) | |
| — | | |
| (54,502 | ) | |
| (5,100 | ) |
| Consolidated balance at September 30, 2022 | |
$ | 566,079 | | |
$ | 5,301 | | |
$ | 10,365 | | |
$ | — | | |
$ | 581,745 | | |
$ | 84,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated balance at December 31, 2022 | |
$ | 553,922 | | |
$ | 3,871 | | |
$ | 10,111 | | |
$ | — | | |
$ | 567,904 | | |
$ | 84,308 | |
| Net income | |
| (33,515 | ) | |
| — | | |
| (630 | ) | |
| — | | |
| (34,145 | ) | |
| 5,100 | |
| Conversion of Class B units to common units (1) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (2,656 | ) | |
| — | | |
| (50 | ) | |
| — | | |
| (2,706 | ) | |
| (5,100 | ) |
| Consolidated balance at September 30, 2023 | |
$ | 517,751 | | |
$ | 3,871 | | |
$ | 9,431 | | |
$ | — | | |
$ | 531,053 | | |
$ | 84,308 | |
| (1) |
On September 7, 2021, the Partnership entered into an exchange agreement with Knutsen NYK and the Partnership’s general partner whereby Knutsen NYK contributed to the Partnership all of Knutsen NYK’s IDRs, in exchange for the issuance by the Partnership to Knutsen NYK of 673,080 common units and 673,080 Class B Units, whereupon the IDRs were cancelled. As of September 30, 2022, 252,405 of the Class B Units had converted to common units. As of September 30, 2023, 420,675 of the Class B Units had converted to common units. No Class B Units were converted in the third quarter of 2023. |
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
| | |
Nine Months Ended September 30, | |
| (U.S. Dollars in thousands) | |
2023 | | |
2022 | |
| OPERATING ACTIVITIES | |
| | | |
| | |
| Net income (loss) (1) | |
$ | (29,046 | ) | |
$ | 52,640 | |
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | |
| | | |
| | |
| Depreciation | |
| 83,308 | | |
| 79,634 | |
| Impairment | |
| 49,649 | | |
| — | |
| Amortization of contract intangibles / liabilities | |
| (651 | ) | |
| (1,063 | ) |
| Amortization of deferred revenue | |
| (350 | ) | |
| — | |
| Amortization of deferred debt issuance cost | |
| 1,934 | | |
| 2,071 | |
| Drydocking expenditure | |
| (13,207 | ) | |
| (17,309 | ) |
| Income tax expense | |
| (5,662 | ) | |
| 558 | |
| Income taxes paid | |
| (665 | ) | |
| (422 | ) |
| Unrealized (gain) loss on derivative instruments | |
| 252 | | |
| (37,554 | ) |
| Unrealized (gain) loss on foreign currency transactions | |
| (26 | ) | |
| (38 | ) |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Decrease (increase) in amounts due from related parties | |
| 768 | | |
| 905 | |
| Decrease (increase) in inventories | |
| 2,671 | | |
| (1,319 | ) |
| Decrease (increase) in other current assets | |
| 8,106 | | |
| (4,886 | ) |
| Decrease (increase) in accrued income | |
| — | | |
| 1,289 | |
| Increase (decrease) in trade accounts payable | |
| 1,786 | | |
| 2,820 | |
| Increase (decrease) in accrued expenses | |
| 217 | | |
| 3,179 | |
| Increase (decrease) prepaid charter | |
| (1,504 | ) | |
| (906 | ) |
| Increase (decrease) in amounts due to related parties | |
| (235 | ) | |
| 351 | |
| Net cash provided by operating activities | |
| 97,345 | | |
| 79,950 | |
| | |
| | | |
| | |
| INVESTING ACTIVITIES | |
| | | |
| | |
| Additions to vessel and equipment | |
| (2,811 | ) | |
| (2,789 | ) |
| Acquisition of Synnøve Knutsen (net of cash acquired) | |
| — | | |
| (32,205 | ) |
| Net cash used in investing activities | |
| (2,811 | ) | |
| (34,994 | ) |
| | |
| | | |
| | |
| FINANCING ACTIVITIES | |
| | | |
| | |
| Proceeds from long-term debt | |
| 245,000 | | |
| 142,000 | |
| Repayment of long-term debt | |
| (323,590 | ) | |
| (138,944 | ) |
| Payment of debt issuance cost | |
| (2,461 | ) | |
| (889 | ) |
| Cash distributions | |
| (7,805 | ) | |
| (59,602 | ) |
| Net cash used in financing activities | |
| (88,856 | ) | |
| (57,435 | ) |
| Effect of exchange rate changes on cash | |
| (68 | ) | |
| (253 | ) |
| Net increase (decrease) in cash and cash equivalents | |
| 5,610 | | |
| (12,732 | ) |
| Cash and cash equivalents at the beginning of the period | |
| 47,579 | | |
| 62,293 | |
| Cash and cash equivalents at the end of the period | |
$ | 53,189 | | |
$ | 49,561 | |
| (1) |
Included in net income is interest paid amounting to $51.6 million and $23.7 million for the nine months ended September 30, 2023 and 2022, respectively. |
APPENDIX A—RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
EBITDA and Adjusted EBITDA
EBITDA is defined as earnings before interest, depreciation and taxes.
Adjusted EBITDA is defined as earnings before interest, depreciation, impairments, taxes and other financial items (including other finance
expenses, realized and unrealized gain (loss) on derivative instruments and net gain (loss) on foreign currency transactions). EBITDA
is used as a supplemental financial measure by management and external users of financial statements, such as the Partnership’s
lenders, to assess its financial and operating performance and compliance with the financial covenants and restrictions contained in its
financing agreements. Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements,
such as investors, to assess the Partnership’s financial and operating performance. The Partnership believes that EBITDA and Adjusted
EBITDA assist its management and investors by increasing the comparability of its performance from period to period and against the performance
of other companies in its industry that provide EBITDA and Adjusted EBITDA information. This increased comparability is achieved by excluding
the potentially disparate effects between periods or companies of interest, other financial items, taxes, impairments and depreciation,
as applicable, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis
and which items may significantly affect net income between periods. The Partnership believes that including EBITDA and Adjusted EBITDA
as financial measures benefits investors in (a) selecting between investing in the Partnership and other investment alternatives
and (b) monitoring the Partnership’s ongoing financial and operational strength in assessing whether to continue to hold common
units. EBITDA and Adjusted EBITDA are non-GAAP financial measures and should not be considered as alternatives to net income or any other
indicator of Partnership performance calculated in accordance with GAAP.
The table below reconciles EBITDA and Adjusted EBITDA to net income,
the most directly comparable GAAP measure.
| | |
Three Months Ended | | |
Nine Months Ended | |
| (U.S. Dollars in thousands) | |
September 30,
2023
(unaudited) | | |
September 30,
2022
(unaudited) | | |
September 30,
2023
(unaudited) | | |
September 30,
2022
(unaudited) | |
| Net income (loss) | |
$ | 12,641 | | |
$ | 15,972 | | |
$ | (29,046 | ) | |
$ | 52,640 | |
| Interest income | |
| (932 | ) | |
| (289 | ) | |
| (2,476 | ) | |
| (350 | ) |
| Interest expense | |
| 18,493 | | |
| 12,220 | | |
| 53,969 | | |
| 27,246 | |
| Depreciation | |
| 27,472 | | |
| 27,638 | | |
| 83,308 | | |
| 79,634 | |
| Impairment | |
| — | | |
| — | | |
| 49,649 | | |
| — | |
| Income tax expense | |
| (5,466 | ) | |
| 180 | | |
| (5,663 | ) | |
| 558 | |
| EBITDA | |
| 52,208 | | |
| 55,721 | | |
| 149,741 | | |
| 159,728 | |
| Other financial items (a) | |
| (4,147 | ) | |
| (12,398 | ) | |
| (9,749 | ) | |
| (33,461 | ) |
| Adjusted EBITDA | |
$ | 48,061 | | |
$ | 43,323 | | |
$ | 139,992 | | |
$ | 126,267 | |
| (a) |
Other financial items consist of other finance income (expense), realized and unrealized gain (loss) on derivative instruments and net gain (loss) on foreign currency transactions. |
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking statements concerning
future events and KNOT Offshore Partners’ operations, performance and financial condition. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the
words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases
of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are
inherently subject to significant uncertainties and contingencies, many of which are beyond KNOT Offshore Partners’ control. Actual
results may differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements include statements
with respect to, among other things:
| |
● |
market trends in the shuttle tanker or general tanker industries, including hire rates, factors affecting supply and demand, and opportunities for the profitable operations of shuttle tankers and conventional tankers; |
| |
● |
market trends in the production of oil in the North Sea, Brazil and elsewhere; |
| |
● |
Knutsen NYK’s and KNOT Offshore Partners’ ability to build shuttle tankers and the timing of the delivery and acceptance of any such vessels by their respective charterers; |
| |
● |
KNOT Offshore Partners’ ability to purchase vessels from Knutsen NYK in the future; |
| |
● |
KNOT Offshore Partners’ ability to enter into long-term charters, which KNOT Offshore Partners defines as charters of five years or more, or shorter-term charters or voyage contracts; |
| |
● |
KNOT Offshore Partners’ ability to refinance its indebtedness on acceptable terms and on a timely basis and to make additional borrowings and to access debt and equity markets; |
| |
● |
KNOT Offshore Partners’ distribution policy, forecasts of KNOT Offshore Partners’ ability to make distributions on its common units, Class B Units and Series A Preferred Units, the amount of any such distributions and any changes in such distributions; |
| |
● |
KNOT Offshore Partners’ ability to integrate and realize the expected benefits from acquisitions; |
| |
● |
impacts of supply chain disruptions that began during the COVID-19 pandemic and the resulting inflationary environment; |
| |
● |
KNOT Offshore Partners’ anticipated growth strategies; |
| |
● |
the effects of a worldwide or regional economic slowdown; |
| |
● |
turmoil in the global financial markets; |
| |
● |
fluctuations in currencies, inflation and interest rates; |
| |
● |
fluctuations in the price of oil; |
| |
● |
general market conditions, including fluctuations in hire rates and vessel values; |
| |
● |
changes in KNOT Offshore Partners’ operating expenses, including drydocking and insurance costs and bunker prices; |
| |
● |
recoveries under KNOT Offshore Partners’ insurance policies; |
| |
● |
the length and cost of drydocking; |
| |
● |
KNOT Offshore Partners’ future financial condition or results of operations and future revenues and expenses; |
| |
● |
the repayment of debt and settling of any interest rate swaps; |
| |
● |
planned capital expenditures and availability of capital resources to fund capital expenditures; |
| |
● |
KNOT Offshore Partners’ ability to maintain long-term relationships with major users of shuttle tonnage; |
| |
● |
KNOT Offshore Partners’ ability to leverage Knutsen NYK’s relationships and reputation in the shipping industry; |
| |
● |
KNOT Offshore Partners’ ability to maximize the use of its vessels, including the re-deployment or disposition of vessels no longer under charter; |
| |
● |
the financial condition of KNOT Offshore Partners’ existing or future customers and their ability to fulfill their charter obligations; |
| |
● |
timely purchases and deliveries of newbuilds; |
| |
● |
future purchase prices of newbuilds and secondhand vessels; |
| |
● |
any impairment of the value of KNOT Offshore Partners’ vessels; |
| |
● |
KNOT Offshore Partners’ ability to compete successfully for future chartering and newbuild opportunities; |
| |
● |
acceptance of a vessel by its charterer; |
| |
● |
the impact of the Russian war with Ukraine; |
| |
● |
termination dates and extensions of charters; |
| |
● |
the expected cost of, and KNOT Offshore Partners’ ability to, comply with governmental regulations (including climate change regulations) and maritime self-regulatory organization standards, as well as standard regulations imposed by its charterers applicable to KNOT Offshore Partners’ business; |
| |
● |
availability of skilled labor, vessel crews and management, including possible disruptions due to the COVID-19 outbreak; |
| |
● |
the effects of outbreaks of pandemics or contagious diseases, including the impact on KNOT Offshore Partners’ business, cash flows and operations as well as the business and operations of its customers, suppliers and lenders; |
| |
● |
KNOT Offshore Partners’ general and administrative expenses and its fees and expenses payable under the technical management agreements, the management and administration agreements and the administrative services agreement; |
| |
● |
the anticipated taxation of KNOT Offshore Partners and distributions to its unitholders; |
| |
● |
estimated future capital expenditures; |
| |
● |
Marshall Islands economic substance requirements; |
| |
● |
KNOT Offshore Partners’ ability to retain key employees; |
| |
● |
customers’ increasing emphasis on climate, environmental and safety concerns; |
| |
● |
the impact of any cyberattack; |
| |
● |
potential liability from any pending or future litigation; |
| |
● |
potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists; |
| |
● |
future sales of KNOT Offshore Partners’ securities in the public market; |
| |
● |
KNOT Offshore Partners’ business strategy and other plans and objectives for future operations; and |
| |
● |
other factors listed from time to time in the reports and other documents that KNOT Offshore Partners files with the U.S. Securities and Exchange Commission, including its Annual Report on Form 20-F for the year ended December 31, 2022, and subsequent reports on Form 6-K. |
All forward-looking statements included in this release are made only
as of the date of this release. New factors emerge from time to time, and it is not possible for KNOT Offshore Partners to predict all
of these factors. Further, KNOT Offshore Partners cannot assess the impact of each such factor on its business or the extent to which
any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking
statement. KNOT Offshore Partners does not intend to release publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in KNOT Offshore Partners’ expectations with respect thereto or any change in events, conditions or
circumstances on which any such statement is based.
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