KNOT Offshore Partners LP Earnings Release—Interim Results for the Period Ended December 31, 2024

Published: 2025-03-19 16:17:04 ET KNOP

Financial Highlights

For the three months ended December 31, 2024 (“Q4 2024”), 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 Q4 2024, marked by safe operation at 98.3% fleet utilization from scheduled operations, consistent revenue and operating income generation, and material progress in securing additional charter coverage for our fleet.

Starting from the date of the Live Knutsen Acquisition and including those contracts signed since December 31, 2024, we have now secured over 94% of charter coverage for the remainder 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, is taking longer to re-balance, but we welcome the news of the new Penguins FPSO having commenced production earlier this year and look forward to the long-anticipated start of production from the Johan Castberg FPSO.

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 five 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 cashflows 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 cashflow generation, strengthen our forward visibility, and create sustainable unitholder value in the quarters and years ahead.”

Financial Results Overview

Results for Q4 2024 (compared to those for the three months ended September 30, 2024 (“Q3 2024”)) included:

By comparison with the three months ended December 31, 2023 (“Q4 2023”), results for Q4 2024 included:

Financing and Liquidity

As of December 31, 2024, the Partnership had $90.4 million in available liquidity, which was comprised of cash and cash equivalents of $66.9 million and $23.5 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 December 31, 2024 were $909.7 million ($904.7 million net of debt issuance costs). The average margin paid on the Partnership’s outstanding debt during Q4 2024 was approximately 2.25% over SOFR. These obligations are repayable as follows:

Sale &

Period

Balloon

(U.S. Dollars in thousands)

Leaseback

repayment

Total

2025

14,399

81,257

163,083

258,739

2026

15,060

64,272

219,521

298,853

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

85,370

—

85,370

Total

164,332

190,295

555,026

909,653

As of December 31, 2024, the Partnership had entered into various interest rate swap agreements for a total notional amount outstanding of $417.9 million, to hedge against the interest rate risks of its variable rate borrowings. As of December 31, 2024, the Partnership receives interest based on SOFR and pays a weighted average interest rate of 1.81% under its interest rate swap agreements, which have an average maturity of approximately 0.98 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, 2024, the Partnership’s net exposure to floating interest rate fluctuations was approximately $260.6 million based on total interest-bearing contractual obligations of $909.7 million, less the Raquel Knutsen and Torill Knutsen sale and leaseback facilities of $164.3 million, less interest rate swaps of $417.9 million, and less cash and cash equivalents of $66.9 million.

On October 14, 2021, KNOT Shuttle Tankers 27 AS, the subsidiary owning the Live Knutsen, as borrower, entered into an $89.6 million term loan facility with SMBC Bank EU AG and others (the “Live Facility”). The Live Facility became one of the Partnership’s debt obligations upon closing of the Live Knutsen Acquisition on March 3, 2025. The Live Facility is repayable in quarterly installments with a final payment due at maturity of $65.9 million. The facility bears interest at a rate per annum equal to SOFR plus a margin of 2.01%. In connection with the Live Knutsen Acquisition, the Partnership and KNOT Shuttle Tankers AS became the sole guarantors. The facility is secured by a mortgage on the Live Knutsen. The facility matures in October 2026.

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:

Outlook

As at December 31, 2024: (i) the Partnership had charters with an average remaining fixed duration of 2.4 years, with the charterers of the Partnership’s vessels having options to extend their charters by an additional 4.8 years on average and (ii) the Partnership had $870 million of remaining contracted forward revenue, excluding charterers’ options and charters agreed or signed after that date. Taking into account the Live Knutsen Acquisition, at December 31, 2024, the eighteen vessels, which comprise the Partnership’s fleet as of the date of this Earnings Release, had an average age of 9.6 years

The market for shuttle tankers in Brazil, where thirteen of our vessels operated during Q4 2024, 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 is due to begin production shortly, 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 cashflow 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.

The Partnership’s financial information for the year ended December 31, 2024 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, 2024 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 Thursday March 20, 2025 at 9:30 AM (Eastern Time) to discuss the results for Q4 2024. 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

Year Ended

December 31,

September 30,

December 31,

(U.S. Dollars in thousands)

2024

2023

2024

2023

Operating revenues:

Time charter and bareboat revenues

84,434

75,682

72,039

306,915

277,084

Voyage revenues (1)

438

124

—

3,628

8,849

Loss of hire insurance recoveries

5,892

—

505

5,970

2,840

Other income

491

486

485

2,086

1,943

Total revenues

91,255

76,292

73,029

318,599

290,716

Gain from disposal of vessel

—

703

—

703

—

Operating expenses:

Vessel operating expenses (2)

26,205

29,453

25,457

108,519

93,351

Voyage expenses and commission

430

951

306

3,600

5,536

Depreciation

28,425

27,902

27,594

111,817

110,902

Impairment (3)

—

16,384

49,649

General and administrative expenses

1,530

1,475

1,571

6,067

6,142

Total operating expenses

56,590

59,781

54,928

246,387

265,580

Operating income (loss)

34,665

17,214

18,101

72,915

25,136

Finance income (expense):

Interest income

1,055

857

992

3,636

3,468

Interest expense

(16,167

)

(16,857

)

(18,101

)

(67,352

)

(72,070

)

Other finance expense

(87

)

(179

)

(176

)

(358

)

(589

)

Realized and unrealized gain (loss) on derivative instruments (4)

4,560

(4,561

)

(4,806

)

6,798

5,369

Net gain (loss) on foreign currency transactions

(772

)

(224

)

(943

)

(237

)

Total finance income (expense)

(11,411

)

(20,712

)

(22,315

)

(58,219

)

(64,059

)

Income (loss) before income taxes

23,254

(3,498

)

(4,214

)

14,696

(38,923

)

Income tax benefit (expense)

)

(275

)

(1,068

)

(631

)

4,595

Net income (loss)

23,251

(3,773

)

(5,282

)

14,065

(34,328

)

Weighted average units outstanding (in thousands of units):

Common units

34,045

Class B units (5)

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)

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 and 2024.

(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

Year Ended

December 31,

September 30,

December 31,

(U.S. Dollars in thousands)

2024

2023

2024

2023

Realized gain (loss):

Interest rate swap contracts

3,698

3,772

4,141

15,518

14,648

Foreign exchange forward contracts

—

(79

)

Total realized gain (loss):

3,698

3,772

4,141

15,518

14,569

Unrealized gain (loss):

Interest rate swap contracts

862

(8,333

)

(8,947

)

(8,720

)

(9,200

)

Total unrealized gain (loss):

862

(8,333

)

(8,947

)

(8,720

)

(9,200

)

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

4,560

(4,561

)

(4,806

)

6,798

5,369

____________________

(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 December 31, 2024, 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, 2024

At December 31, 2023

ASSETS

Current assets:

Cash and cash equivalents

66,933

63,921

Amounts due from related parties

2,230

348

Inventories

3,304

3,696

Derivative assets

8,112

13,019

Other current assets

14,793

8,795

Total current assets

95,372

89,779

Long-term assets:

Vessels, net of accumulated depreciation

1,462,192

1,492,998

Right-of-use assets

1,269

2,126

Deferred tax assets

3,326

4,358

Derivative assets

5,189

7,229

Accrued income

4,817

—

Total Long-term assets

1,476,793

1,506,711

Total assets

1,572,165

1,596,490

LIABILITIES AND EQUITY

Current liabilities:

Trade accounts payable

5,766

10,243

Accrued expenses

11,465

14,775

Current portion of long-term debt

256,659

98,960

Current lease liabilities

1,172

982

Income taxes payable

Current portion of contract liabilities

2,889

—

Prepaid charter

7,276

467

Amount due to related parties

1,835

2,106

Total current liabilities

287,122

127,577

Long-term liabilities:

Long-term debt

648,075

857,829

Lease liabilities

1,144

Contract liabilities

23,776

—

Deferred tax liabilities

127

Deferred revenues

1,869

2,336

Total long-term liabilities

673,908

861,436

Total liabilities

961,030

989,013

Commitments and contingencies

Series A Convertible Preferred Units

84,308

Equity:

Partners’ capital:

Common unitholders: 34,045,081 units issued and outstanding at December 31, 2024 and 2023, respectively

513,603

510,013

Class B unitholders: 252,405 units issued and outstanding at December 31, 2024 and 2023, respectively

3,871

General partner interest: 640,278 units issued and outstanding at December 31, 2024 and 2023, respectively

9,353

9,285

Total partners’ capital

526,827

523,169

Total liabilities and equity

1,572,165

1,596,490

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

Partners’ Capital

Accumulated

Series A

General

Other

Total

Convertible

Common

Class B

Partner

Comprehensive

Partners’

Preferred

(U.S. Dollars in thousands)

Units

Income (Loss)

Capital

Units

Three Months Ended December 31, 2023 and 2024

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

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

Consolidated balance at September 30, 2024

493,336

3,871

8,971

—

506,178

84,308

Net income (loss)

21,152

—

399

—

21,551

1,700

Other comprehensive income

—

Cash distributions

(885

)

—

(17

)

—

(902

)

(1,700

)

Consolidated balance at December 31, 2024

513,603

3,871

9,353

—

526,827

84,308

Year Ended December 31, 2023 and 2024

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

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

Consolidated balance at December 31, 2023

510,013

3,871

9,285

—

523,169

84,308

Net income (loss)

7,131

—

134

—

7,265

6,800

Other comprehensive income

—

Cash distributions

(3,541

)

—

(66

)

—

(3,607

)

(6,800

)

Consolidated balance at December 31, 2024

513,603

3,871

9,353

—

526,827

84,308

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31,

(U.S. Dollars in thousands)

2024

2023

OPERATING ACTIVITIES

Net income (loss) (1)

14,065

(34,328

)

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

Depreciation

111,817

110,902

Impairment

16,384

49,649

Amortization of contract intangibles / liabilities

(963

)

(651

)

Amortization of deferred revenue

(467

)

(467

)

Amortization of deferred debt issuance cost

2,221

2,503

Drydocking expenditure

(553

)

(19,375

)

Income tax (benefit)/expense

631

(4,595

)

Income taxes paid

(41

)

(665

)

Unrealized loss on derivative instruments

8,720

9,200

Unrealized (gain) loss on foreign currency transactions

776

Gain from disposal of vessel

(703

)

—

Changes in operating assets and liabilities:

Decrease (increase) in amounts due from related parties

(10,445

)

1,650

Decrease (increase) in inventories

583

2,139

Decrease (increase) in other current assets

(4,371

)

6,735

Decrease (increase) in accrued revenue

(4,817

)

—

Increase (decrease) in trade accounts payable

(4,379

)

5,867

Increase (decrease) in accrued expenses

(4,176

)

4,125

Increase (decrease) prepaid charter

6,809

(1,504

)

Increase (decrease) in amounts due to related parties

6,054

389

Net cash provided by operating activities

137,145

131,641

INVESTING ACTIVITIES

Additions to vessel and equipment

(945

)

(2,779

)

Proceeds from asset swap (net cash)

607

—

Net cash provided by (used in) investing activities

(338

)

(2,779

)

FINANCING ACTIVITIES

Proceeds from long-term debt

60,000

250,000

Repayment of long-term debt

(182,392

)

(349,642

)

Payment of debt issuance cost

(521

)

(2,461

)

Cash distributions

(10,407

)

(10,407

)

Net cash used in financing activities

(133,320

)

(112,510

)

Effect of exchange rate changes on cash

(475

)

(10

)

Net increase (decrease) in cash and cash equivalents

3,012

16,342

Cash and cash equivalents at the beginning of the period

63,921

47,579

Cash and cash equivalents at the end of the period

66,933

63,921

____________________

(1)

Included in net income (loss) is interest paid amounting to $65.7 million and $69.3 million for the year ended December 31, 2024 and 2023, 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

Year Ended

December 31,

2024

2023

2024

2023

(U.S. Dollars in thousands)

(unaudited)

Net income (loss)

23,251

(5,282

)

14,065

(34,328

)

Interest income

(1,055

)

(992

)

(3,636

)

(3,468

)

Interest expense

16,167

18,101

67,352

72,070

Depreciation

28,425

27,594

111,817

110,902

Impairment

—

16,384

49,649

Income tax expense

1,068

631

(4,595

)

EBITDA

66,791

40,489

206,613

190,230

Other financial items (a)

(3,701

)

5,206

(5,497

)

(4,543

)

Adjusted EBITDA

63,090

45,695

201,116

185,687

____________________

(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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