Knot Offshore Partners LP Q4 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 : Derek, you've got a long history of being able to refinance high-quality assets. You're improving -- your liquidity is improving. Your cash flow is up year-over-year, up nicely. How do you think about allocation of capital now that you've got a fairly safe lease book here?

Question: Liam Burke - B. Riley Securities Inc - Analyst : Okay. Fair enough. On the charter coverage, obviously, you mentioned 75% covered in the next year. If you're looking at the amount of FPSO or production activity coming online either in the North Sea or in Latin America, do you -- are you comfortable that your available vessels will fit into that demand profile?

Question: Poe Fratt - Alliance Global Partners - Analyst : Derek, can you address the open windows for 2026 for the Fortaleza? And is it the Recife, or Recife? Are we potentially facing the same situation we had with the Dan Sabia and the other smaller shuttle tanker that was on bareboat charter to Transpetro? Can you just address sort of the specs of those vessels and how you're looking at rechartering at this point in time?

Question: Poe Fratt - Alliance Global Partners - Analyst : That's helpful. But there isn't any option or when -- are you currently trying to line up time charters for those? Or is it too early to work on those?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. Any interest in those? Or can you give us a flavor for the -- you said you were confident. So what kind of confidence interval should I use?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. Can you just address the shift in -- with Shell on the Vigdis or Vigdis. Why did they decide to flip over to bareboat chartering the shuttle tanker? And can you just give us the dynamics of that decision? And then also, is there an impact to the net cash flow that will be generated from that shuttle tanker?

Question: Poe Fratt - Alliance Global Partners - Analyst : It does lower your operating risk on that shuttle tanker, correct? And then, can you highlight whether any other time charters have the same option to shift to bareboat?

Question: Poe Fratt - Alliance Global Partners - Analyst : Yes. It's interesting too because -- I'm not sure if you saw the recent award of -- I think it was nine shuttle tankers where Petrobras or Transpetro intends to bareboat charter the vessels, which seems -- I'm just trying to figure out why the shift to potentially bareboating instead of just straight time chartering?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. And then -- we always play a game of cat and mouse with the time charter rates and the renewals and extensions, and it's always interesting, and you never give sort of specific guidance. But can you just highlight the large jump sequentially in time charter revenue? You seem to be all of a sudden hitting a new level. And can you talk about the forward-looking time charter book? Will -- is $84 million in time charter revenue a reasonable expectation going forward? Or is there -- was there something in the fourth quarter, maybe bonuses or other things that would have pushed that number up, that won't recur in the first half of 2025?

Question: Poe Fratt - Alliance Global Partners - Analyst : Yes, the Ingrid, the Hilda, the Torill. Yes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 20, 2025 / 1:30PM, KNOP.N - Q4 2024 Knot Offshore Partners LP Earnings Call

Question: Poe Fratt - Alliance Global Partners - Analyst : But we have hit a new level. And as you mentioned, that new level was driven by pretty much the Ingrid and the Hilda early in the quarter and then the Torill later in the quarter.

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. And then can you share with us the potential impact to backlog of the Live acquisition? Because that potentially -- I assume that's not in the stated backlog of $870 million. Can you give me a ballpark on how that will change the backlog, the contracted backlog?

Question: Poe Fratt - Alliance Global Partners - Analyst : Understood. But it will have a -- it will add, what, 5.5, 6 years of contract backlog or contracted revenue to that contracted backlog number? So in the second quarter --

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. Can we talk about OpEx? There was a big drop in OpEx in the fourth quarter versus the third quarter. You highlighted the impact of what -- was it the -- I think the return of the -- one of the Dans, right? Can you just talk about sort of the run rate for OpEx in the first half of 2025?

Question: Poe Fratt - Alliance Global Partners - Analyst : Can you quantify the impact of the Dan Sabia in the third quarter? Because I don't recall that you actually talked about that on the December call?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. And just to summarize, so the first quarter will be impacted from a cost standpoint, but then the second quarter of 2025 shouldn't see a similar impact?

Question: Poe Fratt - Alliance Global Partners - Analyst : Okay. And is there any outstanding off-hire receivable any at this point in time? Or is that all cleared up and you have nothing in negotiations as far as off-hire reimbursement or anything like that, Derek?

Question: Mario Epelbaum - First New York - Analyst : I guess my first question is to see if I'm thinking about this right. If I take a quarter like this and -- a full year of a quarter like this, you would probably have like cash flow before debt amortization of about $160 million a year. And if you have $90 million a year of amortization, you're talking about almost $70 million of cash flow after amortizations per year. Am I wrong in my analysis?

Question: Mario Epelbaum - First New York - Analyst : Yes. Yes, of course, I did. I did. Yes. I subtracted the interest and the insurance from this quarter, and you get like a $40 million of cash flow. You had a $63 million of EBITDA, something like that, take $6 million and then the $16 million of interest, and that's where you land. So this is more than $2 per share of cash flow after amortizations now. And so it's quite a hefty number. Now I understand that you want to be secure with -- you want it to be recurring in order to pay the dividend or not, but there's a lot of recurring cash flow that is already there. So do you think you have to have 100% charter coverage in order to increase the distribution to match it a little bit to the $2 change per year that -- and this is before the increases that you just described that are likely to come. So I'm -- just a question of how -- I mean, could we see maybe a little bit more dividend because there's a big difference between paying all the cash flow and some of the cash flow? If you could give us a little bit more color on how to think -- how you're thinking about it, I would appreciate it.

Question: Mario Epelbaum - First New York - Analyst : I agree with that. But there is some sense of a connection between your decision to pay more dividends than the charters. And as you just said, you will always have some charters rolling off. So that would mean that you perhaps would never want to pay a dividend using that logic. I'm not suggesting that, that's your point of view, but I'm just sort of extrapolating that logic As unitholders -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 20, 2025 / 1:30PM, KNOP.N - Q4 2024 Knot Offshore Partners LP Earnings Call

Question: Mario Epelbaum - First New York - Analyst : No, no. That was it. I guess let me move on. I understand what you're saying. I wanted to sort of think that as a unitholder, there's quite a bit of room now to pay dividends. You could pay maybe -- you could have a policy where you pay 40% or 50% of the cash after amortizations, and that might be the beginning of getting remunerated. So let me ask another question in terms of, when you -- I imagine that there's four vessels now that you may purchase in the -- that are now actually out there on the water. Two of them are in Brazil and two of them are in the North Sea. Would you buy some in the North Sea given that the long-term outlook for that market is smaller and the growth of it is not so -- not as secure as in Brazil?

Question: Mario Epelbaum - First New York - Analyst : Okay. And then the final question is like, I understand that the dropdowns with the [Cisne] was -- makes a lot of sense. But now if you do dropdowns like we're doing with cash, how would you look at the difference between the cash deployed to buying back shares versus a dropdown? I would think the cash to the shares is a lot higher return on investment right now than doing an additional dropdown. Would that be something that you would consider when you make a decision?

Question: Poe Fratt - Alliance Global Partners - Analyst : I apologize. Yes, you probably didn't think I had another question, Derek, but I do. Can you look at first quarter utilization? And how has utilization been this quarter? And can you highlight any drydocking activity that you know about for the -- either the first quarter or the rest of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 20, 2025 / 1:30PM, KNOP.N - Q4 2024 Knot Offshore Partners LP Earnings Call

Question: Poe Fratt - Alliance Global Partners - Analyst : Got you. The Windsor, the Raquel, the Tove and the Tuva, correct?

Question: Poe Fratt - Alliance Global Partners - Analyst : Into '26?

Question: Climent Molins - Value Investor's Edge - Analyst : I wanted to start by asking about your debt repayment schedule pro forma for the recent swap of the Dan Sabia for the Live Knutsen? Could you talk about how much the facility on the Live Knutsen adds to the scheduled debt repayment for 2025?

Question: Climent Molins - Value Investor's Edge - Analyst : Makes sense. And this one is more market related. Over the past couple of years, the North Sea had lagged behind the Brazilian market. Does the Penguins and Johan Castberg start-up have the potential to, let's call it, close the gap? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 20, 2025 / 1:30PM, KNOP.N - Q4 2024 Knot Offshore Partners LP Earnings Call