Knot Offshore Partners LP Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Liam Burke - B. Riley Securities, Inc. - Analyst : This seems -- your OpEx jumped about $2 million sequentially. How much of that was related to the Torill repair, or if any?

Question: Liam Burke - B. Riley Securities, Inc. - Analyst : There was some expense baked into that number related to the repair. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 2:30PM, KNOP.N - Q3 2024 Knot Offshore Partners LP Earnings Call

Question: Liam Burke - B. Riley Securities, Inc. - Analyst : Great. You announced four charters or extensions beginning this quarter, which included the total Torill. Can you give us a sense -- I know you don't give specifics on the contracts, but can you give some color generally how they look vis-a-vis where you've been sitting on the charter levels?

Question: Liam Burke - B. Riley Securities, Inc. - Analyst : No, all of them or just a sense as to actually have a --

Question: Jim Altschul - Aviation Advisory Service, Inc. - Analyst : Couple of things. First of all, in response to -- in your response to the previous question, you're talking about how a couple of the new charters made it to current market conditions. Does that mean that the rate is -- the rate in the current market conditions are somewhat lower than they would have been a couple of years ago. Am I correct me in thinking that?

Question: Jim Altschul - Aviation Advisory Service, Inc. - Analyst : Okay. And with regard to the operating expenses, because you -- again, in your answer to the previous question, you said part of it relates to this repair, and you're expecting to get to at least some of that back from the insurance company. But what are some of the other factors that have

Question: Poe Fratt - Alliance Global Partners - Analyst : I was just wondering can you just ensure that the presentation is up on the website. I mean I'm trying to -- I've been trying the whole call to access it, and it's just not up there yet. So you're getting the same feedback from other investors, I think you should be aware.

Question: Poe Fratt - Alliance Global Partners - Analyst : No, I know, and you're referring to it the whole call, so I assume that you thought it was up there, but I haven't been able to access it. Maybe it's just -- maybe it's just technology, but you talked about the higher OpEx. So there's a little bit of repair from -- in the third quarter, very -- with 15 days or so. What -- is the run rate that we saw in the third quarter, would that -- maybe another way to ask it is, would that be an appropriate run rate for the fourth quarter? Or will there be any other changes in OpEx when you look at fourth quarter and into 2025?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. And then I'm not sure if I heard it, but have you quantified the amount that you expect to recover in insurance in the fourth quarter?

Question: Poe Fratt - Alliance Global Partners - Analyst : And -- but essentially, it's the differential between what the time charter contracted rate was when the -- when it was impaired operationally, it is still operating, but it wasn't at full capacity, right? So it's just the differential for that, I think it was the 6-day period?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. And then you sort of mentioned the revolvers. Can you just talk about how the discussion on the revolvers? Do you expect them to get renewed? What sort of time frame you're also -- we should also be expecting those to be if they will be renewed within?

Question: Poe Fratt - Alliance Global Partners - Analyst : Understood. So maybe possibly in late May or even as late as August, September of next year?

Question: Poe Fratt - Alliance Global Partners - Analyst : Understood. And then just to clarify, you talked about like the Carmen, the exercise of the option, was that original contract was done at an environment where rates were lower. And now rates are -- have improved. You've been talking about this, especially in Brazil, the counter, the market improving. Can you quantify or give us sort of a range, percentage range on how much rates have improved vis-a-vis like the Carmen option? Is it 10% --

Question: Poe Fratt - Alliance Global Partners - Analyst : And then to talk about that, how many actual down days were there during the quarter, Derek? In other words, you're operating -- what was your operating days ex the idle base of the repair days?

Question: Poe Fratt - Alliance Global Partners - Analyst : But -- and to clarify, the Dan Sabia did come off of bareboat and go into the conventional market. Hopefully, it will get into what it's higher use potentially is, but that was -- I think I heard you say about three-quarters of the increase in the OpEx in the third quarter.

Question: Pavel Oliva - Rockhill Global, LLC - Analyst : Great quarter. I just wanted to really thank you for all this hard work that you and your chartering department have done securing great charters and getting great coverage. So I have a few questions sort, so some more specific and some sort of bigger picture. On the more specific side, the Dan Sabia is, if you look on the map there, going to Panama on a conventional voyage. What -- is there a top bill to do a swap with the -- similar to the Dan Cisne to do a drop down? Or Panama is halfway to Brazil or there is opportunities in Brazil? And just as a color, speaking to some of the clients in Brazil, the day rates now are hovering around $65,000. So even a smaller ship may be able to earn some very good daily rates. Can you maybe walk us through your thinking on the Dan Sabia?

Question: Pavel Oliva - Rockhill Global, LLC - Analyst : Understood. That makes a lot of sense because the legal work should be pretty similar to the Cisne. You can even Xerox or copy the papers. And as long as the independent committee is fine with it, that should be helpful. Maybe on the Hilda, the one year is -- there's tightening in the North Sea. Obviously, the production is going up. Johan Castberg is -- should be starting any day now. What's your projection on -- or expectation on the North Sea side, especially since there are no new builds?

Question: Pavel Oliva - Rockhill Global, LLC - Analyst : Understood. Okay. Can I ask a sort of broader and bigger picture question, and that is, I've been investing for a long time, but I've probably never seen a bigger disconnect between the cost of debt and cost of equity than in your company. The cost of debt is SOFR plus $220 million. You guys have refinanced everything immediately. Zero problems with any refinancing or anything like that. Knock on wood, but you have a very stable through the ownership as well as track record in financing. So funding costs are very low, yet the cost of equity is, I would call it infinite, with the NAV of your -- or the replacement cost of the ships in mid- to high teens, there is an incredible value gap between what the fleet is worth and how you have improved the performance with the share price. We -- there has been a good pickup in the cash available and the free cash flow even with the repayments. Can you give us the color a little bit on the dividend, thoughts on dividend and especially buyback restarting the dividend gradually. Because as shareholders, we have not been remunerated almost at all. and for the Board members that are listening, it would be good to hear that they're also -- because they're getting their board fees if we could get the dividend restarted.

Question: Pavel Oliva - Rockhill Global, LLC - Analyst : Well, one just pointing out that this is the smallest ship where 1 out of 18 now, and we have been waiting for a long time. It would be helpful if the Board of Directors and a sponsor, which also owns 30%, would recognize what an incredible opportunity this is to, for example, buy back stock at 30%, 40% of replacement cost and not a big amount, but just it would be helpful to have the Board and the sponsor sort of acknowledge that they also have shareholders that should reap some of the rewards as the operations have improved. And you have an opportunity with the declaration of dividend in January to kind of send a signal that you are -- you care about shareholders as well.

Question: Pavel Oliva - Rockhill Global, LLC - Analyst : And you guys have done an incredible job on all the fronts, except one. And I think I would urge the Board to really reevaluate given the amount of cash flow that you are bringing in every quarter to send a signal to shareholders that you had there for them as well.

Question: Jim Altschul - Aviation Advisory Service, Inc. - Analyst : Really -- this isn't really a question, it's more of a comment, just following up on next the previous comment about the overworn the shareholders. Obviously, we don't like to see an increase in both dividends and the stock price, but -- and I don't have any specific numbers in mind, but I would urge you to continue to look at all these decisions were the conservative bank. I grew up in the airline industry. And I mean this is a different catalyst first, but not one intended. I look at all the airlines went bankrupt after buying back stock in heavily much more heavy level than you are. But part of shareholder value is preserving the value for the long term. So although I'd certainly like to see the dividends go back to where they were, I also want this company to survive and be strong for the long term.