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 February 2024
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 February 26, 2024.
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.
| |
KNOT OFFSHORE PARTNERS LP |
| |
|
| Date: February 26, 2024 |
By: |
/s/ Derek Lowe |
| |
|
Name: |
Derek Lowe |
| |
|
Title: |
Chief Executive Officer and Chief Financial Officer |
Exhibit 99.1
KNOT OFFSHORE PARTNERS LP
EARNINGS RELEASE—INTERIM RESULTS FOR THE
PERIOD ENDED DECEMBER 31, 2023
Financial Highlights
For the three months ended December 31, 2023 (“Q4 2023”),
KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):
| ● |
Generated total revenues of $73.0 million, operating income of $18.1 million and net loss of $5.3 million. |
| ● |
Generated Adjusted EBITDA1 of $45.7 million |
| ● |
Reported $63.9 million in available liquidity at December 31, 2023, which was comprised of cash and cash equivalents of $63.9 million. |
Other Partnership Highlights and Events
| ● |
Fleet operated with 99.6% utilization for scheduled operations in
Q4 2023, and 96.0% utilization taking into account the scheduled drydockings of the Torill
Knutsen and the Ingrid Knutsen, which were carried out during Q4 2023. |
| ● |
On January 16, 2024, the Partnership declared a quarterly cash distribution of $0.026 per common unit with respect to Q4 2023, which
was paid on February 8, 2024, to all common unitholders of record on January 29, 2024. 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 Q4 2023 in an aggregate amount of $1.7 million. |
| ● |
On January 9, 2024, an extension to the existing bareboat charter party for the Dan Sabia was signed with Transpetro, extending
the vessel’s fixed employment to early June 2024. |
| ● |
On December 15, 2023, Repsol Sinopec exercised its extension option to the existing time charter for the Carmen Knutsen extending
the vessel’s fixed employment to mid-January 2025. A further 1 year’s option remains available to Repsol. |
| ● |
On December 15, 2023, the Partnership received the Dan Cisne back via redelivery, following expiry of its bareboat charter
party to Transpetro. The Dan Cisne is being assessed for shuttle tanker operation in the North Sea and has also been deployed
on short-term conventional tanker contracts in Europe. |
| ● |
The Hilda Knutsen, Torill Knutsen and Bodil Knutsen each continued to operate on separate time charter contracts with a
subsidiary of the Partnership’s sponsor, Knutsen NYK Offshore Tankers AS (“Knutsen NYK”), at a reduced charter rate.
On January 2, 2024, these rolling monthly contracts were extended to January 2025 (in the cases of the Hilda Knutsen and
the Torill Knutsen) and March 2024 for the Bodil Knutsen, to terminate in time for delivery to Equinor. |
| ● |
The Partnership continues to market the Hilda Knutsen, Torill Knutsen, Dan Cisne and Dan Sabia for new, third-party employment
and is in active discussions with both existing charterers and others, including Knutsen NYK. |
| ● |
On November 2, 2023, the Partnership entered into an at-the-market sales agreement with B. Riley Securities, Inc. (the “Agent”)
pursuant to which the Partnership may offer and sell up to $100 million of common units (the “ATM program”), from time to
time, through the Agent. This new sales agreement replaces and supersedes the prior sales agreement with the Agent entered into on August 26,
2021. |
Derek Lowe, Chief Executive Officer and Chief Financial Officer of
KNOT Offshore Partners LP, stated, “We are pleased to report another strong performance in Q4 2023, marked by safe operation at
over 99% fleet utilization for scheduled operations, along with consistent revenue and operating income.
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 December 31, 2023, we now
have 79% of charter coverage in 2024 from fixed contracts, which rises to 91% 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 outlook
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.
We are aware that Knutsen NYK has recently ordered three new shuttle
tankers with delivery over 2026-2027; and we note recent reports of another operator ordering three new shuttle tankers, with delivery
by early 2027. We anticipate that all these new orders are backed by charters to clients in Brazil, and see this as a sign of confidence
in the medium-long term demand for the global shuttle tanker fleet. These new orders bring anticipated deliveries to a total of eleven
within the coming three years. While delivery of these orders will add to the supply of vessels into the global shuttle tanker fleet,
we continue to 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, particularly as increasing numbers of shuttle tankers reach or exceed
typical retirement age.
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
Results for Q4 2023 (compared to those for the three months ended September 30,
2023 (“Q3 2023”)) included:
| · | Revenues of $73.0 million in Q4 2023 ($72.7 million in Q3 2023), with the increase due to loss of hire insurance recoveries in Q4
2023. |
| · | Vessel operating expenses of $25.5 million in Q4 2023 ($23.2 million in Q3 2023), with the increase due to higher costs for supplies,
equipment and repairs. |
| · | Depreciation of $27.6 million in Q4 2023 ($27.5 million in Q3 2023). |
| · | General and administrative expenses of $1.6 million in Q4 2023 ($1.1 million in Q3 2023). |
| · | Operating income consequently of $18.1 million in Q4 2023 ($20.6 million in Q3 2023). |
| · | Interest expense of $18.1 million in Q4 2023 ($18.5 million in Q3 2023) with the decrease due to outstanding debt decreasing and lower
fluctuations in interest rates. |
| · | Realized and unrealized loss on derivative instruments of $4.8 million in Q4 2023 (gain of $4.4 million in Q3 2023), including unrealized
loss (i.e. non-cash) elements of $8.9 million in Q4 2023 (gain of $0.5 million in Q3 2023). |
| · | Net loss consequently of $5.3 million in Q4 2023 (net income of $12.6 million in Q3 2023). |
By comparison with the three months ended December 31, 2022 (“Q4
2022”), results for Q4 2023 included:
| · | a decrease of $1.5 million in operating income (to $18.1 million in Q4 2023 from $19.6 million in Q4 2022), driven primarily by higher
vessel operating expenses; |
| · | an increase of $9.1 million in finance expense (to finance expense of $22.3 million in Q4 2023 from finance expense of $13.2 million
in Q4 2022), due to fluctuations in interest rates; and |
| · | a decrease of $11.3 million in net income (to a net loss of $5.3 million in Q4 2023 from net income of $6.0 million in Q4 2022). |
Fleet utilization
The Partnership’s vessels operated throughout Q4 2023 with 99.6%
utilization for scheduled operations, and 96.0% utilization taking into account the scheduled drydockings of the Torill Knutsen and
the Ingrid Knutsen, which were offhire for 23 days and 33 days respectively in Q4 2023.
Financing and Liquidity
As of December 31, 2023, the Partnership had $63.9 million in
available liquidity, which was comprised of cash and cash equivalents of $63.9 million. The Partnership’s revolving credit facilities
are fully drawn and mature between August 2025 and November 2025.
The Partnership’s total interest-bearing obligations outstanding
as of December 31, 2023 were $963.0 million ($956.8 million net of debt issuance costs). The average margin paid on the Partnership’s
outstanding debt during Q4 2023 was approximately 2.28% over SOFR. These obligations are repayable as follows:
| (U.S. Dollars in thousands) | |
Sale & Leaseback | | |
Period repayment | | |
Balloon
repayment | | |
Total | |
| 2024 | |
$ | 13,805 | | |
$ | 76,650 | | |
$ | 63,393 | | |
$ | 153,848 | |
| 2025 | |
| 14,399 | | |
| 68,581 | | |
| 181,583 | | |
| 269,563 | |
| 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 | |
$ | 178,135 | | |
$ | 236,549 | | |
$ | 548,321 | | |
$ | 963,005 | |
As of December 31, 2023, the Partnership had entered into various
interest rate swap agreements for a total notional amount outstanding of $426.5 million, to hedge against the interest rate risks of its
variable rate borrowings. As of December 31, 2023, the Partnership receives interest based on SOFR and pays a weighted average interest
rate of 1.9% under its interest rate swap agreements, which have an average maturity of approximately 1.8 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 December 31, 2023, the Partnership’s net exposure
to floating interest rate fluctuations was approximately $294.5 million based on total interest-bearing contractual obligations of $963.0
million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $178.1 million, less interest rate
swaps of $426.5 million, and less cash and cash equivalents of $63.9 million.
On January 9, 2024, the loan facility secured by the Dan Sabia
was repaid in full with a $10.4 million payment. The Dan Sabia and the Dan Cisne are now debt-free and there are no
plans to incur additional borrowings secured by these vessels until such time as the Partnership has better visibility on the vessels’
future employment.
In May 2024, the loan facility
secured by the Hilda Knutsen is due for repayment, for which the balloon repayment is $57 million. Negotiations are
well-advanced with potential lenders for a new facility, to be secured also by the Hilda Knutsen, sufficient to finance the
balloon repayment of the maturing facility. Management believe that such facility will be refinanced on acceptable and similar terms
prior to maturity. However, there can be no guarantees of the success of any financing exercise.
On November 2, 2023, the Partnership entered into an at-the-market
sales agreement with B. Riley Securities, Inc. for a new ATM program pursuant to which the Partnership may offer and sell up to $100
million of common units from time to time, through the Agent. This new sales agreement replaces and supersedes the prior sales agreement
with the Agent entered into on August 26, 2021, which had provided for a $100 million at-the-market offering program for our common
units. The Partnership intends to use the net proceeds of any sales of offered units for general partnership purposes, which may include,
among other things, the repayment of indebtedness or the funding of acquisitions or other capital expenditures.
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, or has ordered, the following vessels and has entered
into the following charters:
| 1. | 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. |
| 2. | 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. |
| 3. | 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. |
| 4. | 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. |
| 5. | 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. |
| 6. | 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. |
| 7. | 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. |
| 8. | In February 2024, Knutsen NYK entered into a new ten-year time charter contract with Petrobras for
each of three vessels to be constructed and which will operate in Brazil, where the charterer has an option to extend each charter by
up to five further years. The vessels will be built in China and are expected to be delivered over 2026 - 2027. |
Outlook
At December 31, 2023, the Partnership’s fleet of eighteen
vessels had an average age of 9.7 years, and the Partnership had charters with an average remaining fixed duration of 2.0 years, with
the charterers of the Partnership’s vessels having options to extend their charters by an additional 2.1 years on average. The Partnership
had $699 million of remaining contracted forward revenue at December 31, 2023, excluding charterers’ options and excluding
contracts agreed or signed after that date.
The market for shuttle tankers in Brazil, where fourteen of our vessels
have been operating, has continued to tighten in Q4 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, 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, deployment to the North Sea, 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 favourable.
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.
The
Partnership’s financial information for the year ended December 31, 2023 included in this press release is preliminary and
unaudited and is subject to change in connection with the completion of the Partnership’s year end close procedure and further
financial review, Actual results may differ as a result of the completion of the Partnership’s year end closing procedures,
review adjustment and other developments that may arise between now and the time the audit for the year ended December 31, 2023 is
finalized.
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 Tuesday, February 27,
2024 at 9:30 AM (Eastern Time) to discuss the results for the fourth quarter of 2023. All unitholders and interested parties are invited
to listen to the live conference call by choosing from the following options:
| · |
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 617850. |
|
· | By accessing the webcast on the Partnership’s website: www.knotoffshorepartners.com. |
February 26, 2024
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 | | |
Year Ended December 31, | |
| (U.S. Dollars in thousands) | |
December
31, 2023 | | |
September
30, 2023 | | |
December
31, 2022 | | |
2023 | | |
2022 | |
| Time charter and bareboat revenues | |
$ | 72,039 | | |
$ | 72,188 | | |
$ | 66,084 | | |
$ | 277,084 | | |
$ | 262,797 | |
| Voyage revenues (1) | |
| — | | |
| 10 | | |
| 4,689 | | |
| 8,849 | | |
| 4,689 | |
| Loss of hire insurance recoveries | |
| 505 | | |
| — | | |
| 758 | | |
| 2,840 | | |
| 758 | |
| Other income (2) | |
| 485 | | |
| 485 | | |
| 83 | | |
| 1,943 | | |
| 341 | |
| Total revenues | |
| 73,029 | | |
| 72,683 | | |
| 71,614 | | |
| 290,716 | | |
| 268,585 | |
| Vessel operating expenses | |
| 25,457 | | |
| 23,164 | | |
| 19,820 | | |
| 93,351 | | |
| 86,032 | |
| Voyage expenses and commission (3) | |
| 306 | | |
| 375 | | |
| 2,814 | | |
| 5,536 | | |
| 2,814 | |
| Depreciation | |
| 27,594 | | |
| 27,472 | | |
| 27,785 | | |
| 110,902 | | |
| 107,419 | |
| Impairment (4) | |
| — | | |
| — | | |
| — | | |
| 49,649 | | |
| — | |
| General and administrative expenses | |
| 1,571 | | |
| 1,083 | | |
| 1,606 | | |
| 6,142 | | |
| 6,098 | |
| Total operating expenses | |
| 54,928 | | |
| 52,094 | | |
| 52,025 | | |
| 265,580 | | |
| 202,363 | |
| Operating income (loss) | |
| 18,101 | | |
| 20,589 | | |
| 19,589 | | |
| 25,136 | | |
| 66,222 | |
| Finance income (expense): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest income | |
| 992 | | |
| 932 | | |
| 472 | | |
| 3,468 | | |
| 822 | |
| Interest expense | |
| (18,101 | ) | |
| (18,493 | ) | |
| (15,358 | ) | |
| (72,070 | ) | |
| (42,604 | ) |
| Other finance expense | |
| (176 | ) | |
| (228 | ) | |
| (103 | ) | |
| (589 | ) | |
| (628 | ) |
| Realized and unrealized gain (loss) on derivative instruments (5) | |
| (4,806 | ) | |
| 4,361 | | |
| 1,663 | | |
| 5,369 | | |
| 35,510 | |
| Net gain (loss) on foreign currency transactions | |
| (224 | ) | |
| 14 | | |
| 81 | | |
| (237 | ) | |
| 220 | |
| Total finance income (expense) | |
| (22,315 | ) | |
| (13,414 | ) | |
| (13,245 | ) | |
| (64,059 | ) | |
| (6,680 | ) |
| Income (loss) before income taxes | |
| (4,214 | ) | |
| 7,175 | | |
| 6,344 | | |
| (38,923 | ) | |
| 59,542 | |
| Income tax benefit (expense) | |
| (1,068 | ) | |
| 5,466 | | |
| (317 | ) | |
| 4
595 | | |
| (875 | ) |
| Net income (loss) | |
| (5,282 | ) | |
| 12,641 | | |
| 6,027 | | |
| (34,328 | ) | |
| 58,667 | |
| Weighted average units outstanding (in thousands of units): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common units | |
| 34,045 | | |
| 34,045 | | |
| 34,009 | | |
| 34,045 | | |
| 33,882 | |
| Class B units (6) | |
| 252 | | |
| 252 | | |
| 289 | | |
| 252 | | |
| 416 | |
| General Partner units | |
| 640 | | |
| 640 | | |
| 640 | | |
| 640 | | |
| 640 | |
| (1) | Voyage revenues are revenues unique to spot voyages. |
| (2) | The Bodil Knutsen has received $1.2 million as of December 31, 2023 related to the volatile organic
compound emission ("VOC") control equipment installation. |
| (3) | 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. |
| (4) | 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. |
| (5) | 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 | | |
Year Ended December 31, | |
| (U.S. Dollars in thousands) | |
December 31,
2023 | | |
September
30, 2023 | | |
December 31,
2022 | | |
2023 | | |
2022 | |
| Realized gain (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest rate swap contracts | |
$ | 4,141 | | |
$ | 3,963 | | |
$ | 1,229 | | |
$ | 14,648 | | |
$ | (2,478 | ) |
| Foreign exchange forward contracts | |
| — | | |
| (79 | ) | |
| (502 | ) | |
| (79 | ) | |
| (502 | ) |
| Total realized gain (loss): | |
| 4,141 | | |
| 3,884 | | |
| 727 | | |
| 14,569 | | |
| (2,980 | ) |
| Unrealized gain (loss): | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest rate swap contracts | |
| (8,947 | ) | |
| 352 | | |
| (282 | ) | |
| (9,200 | ) | |
| 38,490 | |
| Foreign exchange forward contracts | |
| — | | |
| 125 | | |
| 1,218 | | |
| — | | |
| — | |
| Total unrealized gain (loss): | |
| (8,947 | ) | |
| 477 | | |
| 936 | | |
| (9,200 | ) | |
| 38,490 | |
| Total realized and unrealized gain (loss) on derivative instruments: | |
$ | (4,806 | ) | |
$ | 4,361 | | |
$ | 1,663 | | |
$ | 5,369 | | |
$ | 35,510 | |
| (6) | 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 December 31, 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 December 31, 2023 | | |
At December 31, 2022 | |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 63,921 | | |
$ | 47,579 | |
| Amounts due from related parties | |
| 348 | | |
| 1,998 | |
| Inventories | |
| 3,696 | | |
| 5,759 | |
| Derivative assets | |
| 13,019 | | |
| 15,070 | |
| Other current assets | |
| 8,795 | | |
| 15,528 | |
| Total current assets | |
| 89,779 | | |
| 85,934 | |
| | |
| | | |
| | |
| Long-term assets: | |
| | | |
| | |
| Vessels, net of accumulated depreciation | |
| 1,492,998 | | |
| 1,631,380 | |
| Right-of-use assets | |
| 2,126 | | |
| 2,261 | |
| Deferred tax assets | |
| 4,358 | | |
| — | |
| Derivative assets | |
| 7,229 | | |
| 14,378 | |
| Total Long-term assets | |
| 1,506,711 | | |
| 1,648,019 | |
| Total assets | |
$ | 1,596,490 | | |
$ | 1,733,953 | |
| | |
| | | |
| | |
| LIABILITIES AND EQUITY | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Trade accounts payable | |
$ | 10,243 | | |
$ | 4,268 | |
| Accrued expenses | |
| 14,775 | | |
| 10,651 | |
| Current portion of long-term debt | |
| 151,796 | | |
| 369,787 | |
| Current lease liabilities | |
| 982 | | |
| 715 | |
| Income taxes payable | |
| 44 | | |
| 699 | |
| Current portion of contract liabilities | |
| — | | |
| 651 | |
| Prepaid charter | |
| 467 | | |
| 1,504 | |
| Amount due to related parties | |
| 2,106 | | |
| 1,717 | |
| Total current liabilities | |
| 180,413 | | |
| 389,992 | |
| | |
| | | |
| | |
| Long-term liabilities: | |
| | | |
| | |
| Long-term debt | |
| 804,993 | | |
| 686,601 | |
| Lease liabilities | |
| 1,144 | | |
| 1,546 | |
| Deferred tax liabilities | |
| 127 | | |
| 424 | |
| Deferred revenues | |
| 2,336 | | |
| 3,178 | |
| Total long-term liabilities | |
| 808,600 | | |
| 691,749 | |
| Total liabilities | |
| 989,013 | | |
| 1,081,741 | |
| Commitments and contingencies | |
| | | |
| | |
| Series A Convertible Preferred Units | |
| 84,308 | | |
| 84,308 | |
| Equity: | |
| | | |
| | |
| Partners’ capital: | |
| | | |
| | |
| Common unitholders | |
| 510,013 | | |
| 553,922 | |
| Class B unitholders | |
| 3,871 | | |
| 3,871 | |
| General partner interest | |
| 9,285 | | |
| 10,111 | |
| Total partners’ capital | |
| 523,169 | | |
| 567,904 | |
| Total liabilities and equity | |
$ | 1,596,490 | | |
$ | 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 December 31, 2022 and 2023 | |
Common
Units | | |
Class B
Units | | |
Partner
Units | | |
Comprehensive
Income (Loss) | | |
Partners'
Capital | | |
Preferred
Units | |
| Consolidated balance at September 30,
2022 | |
$ | 566,079 | | |
$ | 5,301 | | |
$ | 10,365 | | |
$ | — | | |
$ | 581,745 | | |
$ | 84,308 | |
| Net income | |
| 4,220 | | |
| 28 | | |
| 79 | | |
| — | | |
| 4
327 | | |
| 1,700 | |
| Conversion of Class B to
common units (1) | |
| 1,283 | | |
| (1,283 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (17,660 | ) | |
| (175 | ) | |
| (333 | ) | |
| — | | |
| (18,168 | ) | |
| (1,700 | ) |
| Consolidated balance at December 31,
2022 | |
$ | 553,922 | | |
$ | 3,871 | | |
$ | 10,111 | | |
$ | — | | |
$ | 567,904 | | |
$ | 84,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated balance at September 30,
2023 | |
$ | 517,751 | | |
$ | 3,871 | | |
$ | 9,431 | | |
$ | — | | |
$ | 531,053 | | |
$ | 84,308 | |
| Net income (loss) | |
| (6,853 | ) | |
| — | | |
| (129 | ) | |
| — | | |
| (6,982 | ) | |
| 1,700 | |
| Conversion of Class B to
common units (1) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (885 | ) | |
| — | | |
| (17 | ) | |
| — | | |
| (902 | ) | |
| (1,700 | ) |
| Consolidated balance at December 31,
2023 | |
$ | 510,013 | | |
$ | 3,871 | | |
$ | 9,285 | | |
$ | — | | |
$ | 523,169 | | |
$ | 84,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Year Ended December 31, 2022 and 2023 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated balance at December 31,
2021 | |
$ | 568,762 | | |
$ | 9,453 | | |
$ | 10,492 | | |
$ | — | | |
$ | 588,707 | | |
$ | 84,308 | |
| Net income | |
| 50,297 | | |
| 619 | | |
| 951 | | |
| — | | |
| 51,867 | | |
| 6,800 | |
| Conversion of Class B
to common units (1) | |
| 5,238 | | |
| (5,238 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (70,375 | ) | |
| (963 | ) | |
| (1,332 | ) | |
| — | | |
| (72,670 | ) | |
| (6,800 | ) |
| Consolidated balance at December 31,
2022 | |
$ | 553,922 | | |
$ | 3,871 | | |
$ | 10,111 | | |
$ | — | | |
$ | 567,904 | | |
$ | 84,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated balance at December 31,
2022 | |
$ | 553,922 | | |
$ | 3,871 | | |
$ | 10,111 | | |
$ | — | | |
$ | 567,904 | | |
$ | 84,308 | |
| Net income (loss) | |
| (40,368 | ) | |
| — | | |
| (760 | ) | |
| — | | |
| (41,128 | ) | |
| 6,800 | |
| Conversion of Class B to
common units (1) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Other comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Cash distributions | |
| (3,541 | ) | |
| — | | |
| (66 | ) | |
| — | | |
| (3,607 | ) | |
| (6,800 | ) |
| Consolidated balance at December 31,
2023 | |
$ | 510,013 | | |
$ | 3,871 | | |
$ | 9,285 | | |
$ | — | | |
$ | 523,169 | | |
$ | 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 December 31, 2022,
420,675 of the Class B Units had converted to common units. As of December 31, 2023, 420,675 of the Class B Units had converted
to common units. No Class B Units were converted in the fourth quarter of 2023. |
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
| | |
Year Ended December 31, | |
| (U.S. Dollars in thousands) | |
2023 | | |
2022 | |
| OPERATING ACTIVITIES | |
| | | |
| | |
| Net income (loss) (1) | |
$ | (34,328 | ) | |
$ | 58,667 | |
| Adjustments to reconcile net income to cash provided by operating activities: | |
| | | |
| | |
| Depreciation | |
| 110,902 | | |
| 107,419 | |
| Impairment | |
| 49,649 | | |
| — | |
| Amortization of contract intangibles / liabilities | |
| (651 | ) | |
| (1,442 | ) |
| Amortization of deferred revenue | |
| (467 | ) | |
| — | |
| Amortization of deferred debt issuance cost | |
| 2,503 | | |
| 2,692 | |
| Drydocking expenditure | |
| (19,375 | ) | |
| (17,614 | ) |
| Income tax expense | |
| (4,595 | ) | |
| 875 | |
| Income taxes paid | |
| (665 | ) | |
| (422 | ) |
| Unrealized (gain) loss on derivative instruments | |
| 9,200 | | |
| (38,490 | ) |
| Unrealized (gain) loss on foreign currency transactions | |
| 67 | | |
| 49 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Decrease (increase) in amounts due from related parties | |
| 1,650 | | |
| 723 | |
| Decrease (increase) in inventories | |
| 2,139 | | |
| (2,163 | ) |
| Decrease (increase) in other current assets | |
| 6,735 | | |
| (9,689 | ) |
| Decrease (increase) in accrued revenue | |
| — | | |
| 1,450 | |
| Increase (decrease) in trade accounts payable | |
| 5,867 | | |
| 251 | |
| Increase (decrease) in accrued expenses | |
| 4,125 | | |
| 3,528 | |
| Increase (decrease) prepaid charter | |
| (1,504 | ) | |
| (4,682 | ) |
| Increase (decrease) in amounts due to related parties | |
| 389 | | |
| (210 | ) |
| Net cash provided by operating activities | |
| 131,641 | | |
| 100,942 | |
| | |
| | | |
| | |
| INVESTING ACTIVITIES | |
| | | |
| | |
| Disposals (additions) to vessel and equipment | |
| (2,779 | ) | |
| (3,309 | ) |
| Acquisition of Synnøve Knutsen (net of cash aquired) | |
| — | | |
| (32,205 | ) |
| Net cash used in investing activities | |
| (2,779 | ) | |
| (35,514 | ) |
| | |
| | | |
| | |
| FINANCING ACTIVITIES | |
| | | |
| | |
| Proceeds from long-term debt | |
| 250,000 | | |
| 167,000 | |
| Repayment of long-term debt | |
| (349,642 | ) | |
| (166,609 | ) |
| Payment of debt issuance cost | |
| (2,461 | ) | |
| (889 | ) |
| Cash distributions | |
| (10,407 | ) | |
| (79,470 | ) |
| Net cash used in financing activities | |
| (112,510 | ) | |
| (79,968 | ) |
| Effect of exchange rate changes on cash | |
| (10 | ) | |
| (174 | ) |
| Net increase (decrease) in cash and cash equivalents | |
| 16,342 | | |
| (14,714 | ) |
| Cash and cash equivalents at the beginning of the period | |
| 47,579 | | |
| 62,293 | |
| Cash and cash equivalents at the end of the period | |
$ | 63,921 | | |
$ | 47,579 | |
| (1) | Included in net income (loss) is interest paid amounting to $69.3 million and $37.3 million for the year ended December 31,
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, | | |
Year Ended | |
| (U.S. Dollars in thousands) | |
December 31,
2023
(unaudited) | | |
December 31,
2022
(unaudited) | | |
December 31,
2023
(unaudited) | | |
December 31,
2022
(unaudited) | |
| Net income (loss) | |
$ | (5,282 | ) | |
$ | 6,027 | | |
$ | (34,328 | ) | |
$ | 58,667 | |
| Interest income | |
| (992 | ) | |
| (472 | ) | |
| (3,468 | ) | |
| (822 | ) |
| Interest expense | |
| 18,101 | | |
| 15,358 | | |
| 72,070 | | |
| 42,604 | |
| Depreciation | |
| 27,594 | | |
| 27,785 | | |
| 110,902 | | |
| 107,419 | |
| Impairment | |
| — | | |
| — | | |
| 49,649 | | |
| — | |
| Income tax expense (benefit) | |
| 1,068 | | |
| 317 | | |
| (4,595 | ) | |
| 875 | |
| EBITDA | |
| 40,489 | | |
| 49,015 | | |
| 190,230 | | |
| 208,743 | |
| Other financial items (a) | |
| 5,206 | | |
| (1,641 | ) | |
| (4,543 | ) | |
| (35,102 | ) |
| Adjusted EBITDA | |
$ | 45,695 | | |
$ | 47,374 | | |
$ | 185,687 | | |
$ | 173,641 | |
| (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 impacts of the Russian war with Ukraine, the conflict between Israel and Hamas and the other conflicts in the Middle East; |
| · | 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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