KNOT Offshore Partners LP Earnings Release—Interim Results for the Period Ended March 31, 2025

Published: 2025-05-20 16:17:04 ET KNOP

Published on 05/20/2025 at 16:17

KNOT Offshore Partners LP (NYSE:KNOP):

Financial Highlights

For the three months ended March 31, 2025 (“Q1 2025”), KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):

Other Partnership Highlights and Events

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.

Derek Lowe, Chief Executive Officer and Chief Financial Officer of KNOT Offshore Partners LP, stated, “We are pleased to report another strong performance in Q1 2025, marked by safe operation at more than 99% fleet utilization from scheduled operations, consistent revenue and operating income generation, and material progress in securing additional charter coverage for our fleet.

As of the date of this release and including contractual updates since March 31, 2025, we have now secured approximately 96% of charter coverage for the final three quarters of 2025, and approximately 75% for 2026. Having executed a number of new contracts and extensions over the last year, we have established good momentum in a strengthening market and remain focused on strengthening and extending our fleetwide charter coverage.

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, has taken longer to re-balance, but we welcome the news of the new FPSO production starts for both the UK North Sea-based Penguins and Barents Sea-based Johan Castberg.

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 throughout the coming years, driven most notably by the aggressive expansion of Brazilian deepwater production capacity, particularly as increasing numbers of shuttle tankers reach or exceed typical retirement age. We are aware of newbuild shuttle tanker orders, including six for Knutsen NYK, all of which are scheduled for delivery over 2025‑2028. 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-to-long term demand for the global shuttle tanker fleet. Particularly when considered in the context of the increasing numbers of shuttle tankers reaching or exceeding typical retirement age, as well as yard capacity constraints limiting material new orders into late 2027 or thereafter, we anticipate that these newbuild deliveries will be readily absorbed by the expanding market for shuttle tankers.

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 cash flows from long-term employment with high-quality counterparties, both through continued chartering and through the consummation of accretive dropdown transactions. We are confident that continued operational performance and the successful execution of our strategy in an improving market environment can increase our cash flow generation, strengthen our forward visibility, and create sustainable unitholder value in the quarters and years ahead.”

Financial Results Overview

Results for Q1 2025 (compared to those for the three months ended December 31, 2024 (“Q4 2024”)) included:

By comparison with the three months ended March 31, 2024 (“Q1 2024”), results for Q1 2025 included:

Financing and Liquidity

As of March 31, 2025, the Partnership had $100.8 million in available liquidity, which was comprised of cash and cash equivalents of $67.3 million and $33.5 million of capacity under its revolving credit facilities. The Partnership’s revolving credit facilities mature between August 2025 and November 2025.

The Partnership’s total interest-bearing obligations outstanding as of March 31, 2025 were $949 million ($944.3 million net of debt issuance costs). The average margin paid on the Partnership’s outstanding debt during Q1 2025 was approximately 2.23% over SOFR. These obligations are repayable as follows:

(U.S. Dollars in thousands)

Sale & Leaseback

Period repayment

Balloon repayment

Total

Remainder of 2025

10,912

64,402

153,083

228,397

2026

15,060

68,004

285,447

368,511

2027

15,751

31,525

93,598

140,874

2028

16,520

13,241

78,824

108,585

2029

17,232

—

17,232

2030 and thereafter

85,367

—

85,367

Total

160,842

177,172

610,952

948,966

As of March 31, 2025, the Partnership had entered into various interest rate swap agreements for a total notional amount outstanding of $462.3 million, to hedge against the interest rate risks of its variable rate borrowings. As of March 31, 2025, the Partnership receives interest based on SOFR and pays a weighted average interest rate of 2.38% under its interest rate swap agreements, which have an average maturity of approximately 1.53 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 March 31, 2025, the Partnership’s net exposure to floating interest rate fluctuations was approximately $258.6 million based on total interest-bearing contractual obligations of $949 million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $160.8 million, less interest rate swaps of $462.3 million, and less cash and cash equivalents of $67.3 million.

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.

While the Partnership continues to believe that key components of its strategy and value proposition are accretive investment in the fleet and a long-term, sustainable distribution, 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:

Board of Directors Change

Effective April 1, 2025, the Partnership’s general partner appointed Mr. Masami Okubo to replace Mr. Yasuhiro Fukuda, both of whom are employees of Nippon Yusen Kabushiki Kaisha (“NYK”), on the Partnership’s Board of Directors.

Outlook

As at March 31, 2025: (i) the Partnership had charters with an average remaining fixed duration of 2.3 years, with the charterers of the Partnership’s vessels having options to extend their charters by an additional 4.7 years on average and (ii) the Partnership had $853.8 million of remaining contracted forward revenue, excluding charterers’ options and charters agreed or signed after that date. As at March 31, 2025, the eighteen vessels which comprise the Partnership’s fleet had an average age of 9.8 years. The market for shuttle tankers in Brazil, where fourteen of our current fleet operated during Q1 2025, has continued to tighten, 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.

Shuttle tanker demand in the North Sea has remained subdued for some years, driven by the impact of COVID‑19‑related project delays. These conditions persisted into recent quarters, awaiting anticipated new oil production starts. Most notably, the long-anticipated Johan Castberg field in the Barents Sea and the new Penguins FPSO in the North Sea entered production recently.

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, pursue accretive dropdown transactions supportive of long-term cash flow generation, and position itself to benefit from its market-leading role in an improving shuttle tanker market. The Partnership continues to believe that key components of its strategy and value proposition are accretive investment in the fleet and a long-term, sustainable distribution.

In the near term, the Partnership believes that there are compelling opportunities to deploy a material portion of its cash flow to facilitate dropdown transactions. The Partnership believes that dropdowns will lead to an increase in the Partnership’s capital value, with growth in contractual backlog leading to increasing cash flow over time. Together with reductions in the average age of the fleet, this increased cash flow should also facilitate refinancings. Combined with strong market fundamentals, this should provide for the opportunity to increase sustainable distribution levels in the future.

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 Wednesday May 21, 2025 at 9:30 AM (Eastern Time) to discuss the results for Q1 2025. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

March 31,

December 31,

March 31,

(U.S. Dollars in thousands)

2025

2024

Operating revenues:

Time charter and bareboat revenues

82,991

84,434

73,362

Voyage revenues (1)

466

438

2,715

Loss of hire insurance recoveries

—

5,892

—

Other income

572

491

555

Total revenues

84,029

91,255

76,632

Gain from disposal of vessel

1,342

—

Operating expenses:

Vessel operating expenses

30,609

26,205

25,909

Voyage expenses and commission (2)

767

430

1,635

Depreciation

28,763

28,425

27,742

General and administrative expenses

1,796

1,530

1,637

Total operating expenses

61,935

56,590

56,923

Operating income (loss)

23,436

34,665

19,709

Finance income (expense):

Interest income

748

1,055

828

Interest expense

(14,902

)

(16,167

)

(17,465

)

Other finance expense

(152

)

(87

)

(269

)

Realized and unrealized gain (loss) on derivative instruments (3)

(1,344

)

4,560

5,002

Net gain (loss) on foreign currency transactions

374

(772

)

(226

)

Total finance income (expense)

(15,276

)

(11,411

)

(12,130

)

Income (loss) before income taxes

8,160

23,254

7,579

Income tax benefit (expense)

(579

)

(141

)

Net income (loss)

7,581

23,251

7,438

Weighted average units outstanding (in thousands of units):

Common units

34,045

Class B units (4)

252

General Partner units

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) 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

March 31,

December 31,

March 31,

(U.S. Dollars in thousands)

2025

2024

Realized gain (loss):

Interest rate swap contracts

3,111

3,698

4,063

Total realized gain (loss):

3,111

3,698

4,063

Unrealized gain (loss):

Interest rate swap contracts

(4,455

)

862

939

Total unrealized gain (loss):

(4,455

)

862

939

Total realized and unrealized gain (loss) on derivative instruments:

(1,344

)

4,560

5,002

(4) 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 March 31, 2025, 420,675 of the Class B Units had been converted to common units.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(U.S. Dollars in thousands)

At March 31, 2025

At December 31, 2024

ASSETS

Current assets:

Cash and cash equivalents

67,260

66,933

Amounts due from related parties

2,092

2,230

Inventories

4,247

3,304

Derivative assets

6,445

8,112

Other current assets

19,411

14,793

Total current assets

99,455

95,372

Long-term assets:

Vessels, net of accumulated depreciation

1,535,408

1,462,192

Right-of-use assets

4,100

1,269

Deferred tax assets

3,027

3,326

Derivative assets

3,276

5,189

Accrued income

6,151

4,817

Total Long-term assets

1,551,962

1,476,793

Total assets

1,651,417

1,572,165

LIABILITIES AND EQUITY

Current liabilities:

Trade accounts payable

7,970

5,766

Accrued expenses

14,891

11,465

Current portion of long-term debt

249,437

256,659

Current lease liabilities

986

1,172

Income taxes payable

Current portion of contract liabilities

5,529

2,889

Prepaid charter

5,244

7,276

Amount due to related parties

6,032

1,835

Total current liabilities

290,114

287,122

Long-term liabilities:

Long-term debt

694,827

648,075

Lease liabilities

3,114

Derivative liabilities

661

—

Contract liabilities

44,737

23,776

Deferred tax liabilities

Deferred revenues

1,752

1,869

Total long-term liabilities

745,189

673,908

Total liabilities

1,035,303

961,030

Commitments and contingencies

Series A Convertible Preferred Units

84,308

Equity:

Partners’ capital:

Common unitholders:

518,491

513,603

Class B unitholders:

3,871

General partner interest:

9,444

9,353

Total partners’ capital

531,806

526,827

Total liabilities and equity

1,651,417

1,572,165

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

Partners’ Capital

(U.S. Dollars in thousands)

Common Units

Class B Units

General Partner Units

Accumulated Other Comprehensive Income (Loss)

Total Partners’ Capital

Series A Convertible Preferred Units

Three Months Ended March 31, 2024 and 2025

Consolidated balance at December 31, 2023

510,013

3,871

9,285

—

523,169

84,308

Net income (loss)

5,632

—

106

—

5,738

1,700

Other comprehensive income

—

Cash distributions

(885

)

—

(17

)

—

(902

)

(1,700

)

Consolidated balance at March 31, 2024

514,760

3,871

9,374

—

528,005

84,308

Consolidated balance at December 31, 2024

513,603

3,871

9,353

—

526,827

84,308

Net income (loss)

5,773

—

108

—

5,881

1,700

Other comprehensive income

—

Cash distributions

(885

)

—

(17

)

—

(902

)

(1,700

)

Consolidated balance at March 31, 2025

518,491

3,871

9,444

—

531,806

84,308

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended March 31,

(U.S. Dollars in thousands)

2025

2024

OPERATING ACTIVITIES

Net income (loss) (1)

7,581

7,438

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Depreciation

28,763

27,742

Amortization of contract intangibles / liabilities

(862

)

—

Amortization of deferred revenue

(117

)

(117

)

Amortization of deferred debt issuance cost

567

546

Drydocking expenditure

(979

)

Income tax (benefit)/expense

579

142

Income taxes paid

(52

)

(23

)

Unrealized (gain) loss on derivative instruments

4,455

(939

)

Unrealized (gain) loss on foreign currency transactions

(355

)

187

Gain from disposal of vessel

(1,342

)

—

Changes in operating assets and liabilities:

Decrease (increase) in amounts due from related parties

(327

)

(851

)

Decrease (increase) in inventories

(1,365

)

(590

)

Decrease (increase) in other current assets

(3,085

)

(2,775

)

Decrease (increase) in accrued income

(1,334

)

—

Increase (decrease) in trade accounts payable

3,003

(3,418

)

Increase (decrease) in accrued expenses

(434

)

Increase (decrease) prepaid charter

(2,033

)

—

Increase (decrease) in amounts due to related parties

2,857

(209

)

Net cash provided by operating activities

36,021

26,796

INVESTING ACTIVITIES

Additions to vessel and equipment

(213

)

(70

)

Proceeds from asset swap (net cash)

1,040

—

Net cash provided by (used in) investing activities

827

(70

)

FINANCING ACTIVITIES

Repayment of long-term debt

(34,078

)

(37,700

)

Cash distributions

(2,602

)

(2,602

)

Net cash used in financing activities

(36,680

)

(40,302

)

Effect of exchange rate changes on cash

159

(102

)

Net increase (decrease) in cash and cash equivalents

327

(13,678

)

Cash and cash equivalents at the beginning of the period

66,933

63,921

Cash and cash equivalents at the end of the period

67,260

50,243

(1) Included in net income (loss) is interest paid amounting to $14.5 million and $17.2 million for the three months ended March 31, 2025 and 2024, respectively.

APPENDIX A—RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before interest, depreciation, impairments 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

March 31,

December 31,

2025

2024

(U.S. Dollars in thousands)

(unaudited)

Net income (loss)

7,581

23,251

Interest income

(748

)

(1,055

)

Interest expense

14,902

16,167

Depreciation

28,763

28,425

Income tax expense

579

EBITDA

51,077

66,791

Other financial items (a)

1,122

(3,701

)

Adjusted EBITDA

52,199

63,090

(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:

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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