ABERDEEN, Scotland--(BUSINESS WIRE)--Jun 5, 2018--Highlights

For the three months ended March 31, 2018, KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):

Generated highest ever quarterly total revenues of $68.0 million, operating income of $31.9 million and net income of $30.7 million. Generated highest ever quarterly Adjusted EBITDA of $53.4 million. 1 Generated highest ever quarterly distributable cash flow of $27.9 million. 1 Reported a distribution coverage ratio of 1.55. 2 Fleet operated with 99.6% utilization for scheduled operations and 99.5% utilization taking into account the scheduled drydocking of the Brasil Knutsen, which was offhire for the last 2 days in the first quarter of 2018.

Other events:

On February 15, 2018, the Partnership paid a quarterly cash distribution of $0.52 per common unit with respect to the quarter ended December 31, 2017, to all common unitholders of record as of the close of business on February 2, 2018. On February 15, 2018, the Partnership also paid a cash distribution to Series A Preferred unitholders with respect to the quarter ended December 31, 2017 in an aggregate amount equal to $1.8 million. On March 1, 2018, the Partnership completed the acquisition from Knutsen NYK Offshore Tankers AS (“Knutsen NYK”) of the entity that owns the shuttle tanker, Anna Knutsen. On May 15, 2018, the Partnership paid a cash distribution of $0.52 per common unit with respect to the quarter ended March 31, 2018 to all common unitholders of record on May 2, 2018. On May 15, 2018, the Partnership also paid a cash distribution to Series A Preferred unitholders with respect to the quarter ended March 31, 2018 in an aggregate amount equal to $1.8 million.

Financial Results Overview

Total revenues were $68.0 million for the three months ended March 31, 2018 (the “first quarter”) compared to $61.6 million for the three months ended December 31, 2017 (the “fourth quarter”). The increase in revenues was mainly due to increased earnings from the Brasil Knutsen, as she was included in the results of operations from December 15, 2017, one month of earnings from the Anna Knutsen, as she was included in the results of operations from March 1, 2018 and a full quarter of earnings from the Carmen Knutsen, which incurred offhire in the fourth quarter due to scheduled drydocking and subsequent propeller repairs. The increase was partly offset by reduced revenues from the Raquel Knutsen as a result of 4.5 days offhire, reduced revenues from the Brasil Knutsen as she started the scheduled drydocking in the end of the quarter and by two additional calendar days in the fourth quarter compared to the first quarter.

Vessel operating expenses for the first quarter of 2018 were $13.2 million, a decrease of $1.9 million from $15.2 million in the fourth quarter of 2017. The decrease was mainly due to the bunkers consumption in connection with the scheduled drydocking and propeller repairs of the Carmen Knutsen that was charged in the fourth quarter. This was partially offset by higher operating expenses due to the Brasil Knutsen and the Anna Knutsen being included in the results of operations from December 15, 2017 and March 1, 2018, respectively.

General and administrative expenses of $1.3 million in the first quarter were unchanged from the fourth quarter.

_______________________________

1 EBITDA, Adjusted EBITDA and distributable cash flow 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, Adjusted EBITDA and distributable cash flow and a reconciliation to net income, the most directly comparable GAAP financial measure. 2 Distribution coverage ratio is equal to distributable cash flow divided by distributions declared for the period presented.

Depreciation was $21.6 million for the first quarter, an increase of $1.5 million from $20.1 million. The increase was mainly due to the Brasil Knutsen and the Anna Knutsen being included in operations from December 15, 2017 and March 1, 2018 respectively.

As a result, operating income for the first quarter of 2018 was $31.9 million compared to $25.0 million in the fourth quarter of 2017.

Interest expense for the first quarter of 2018 was $10.6 million compared to $9.2 million for the fourth quarter of 2017. The increase was mainly due to the additional debt incurred in connection with the acquisitions of the Brasil Knutsen and the Anna Knutsen and the refinancing of the Torill Knutsen.

Realized and unrealized gain on derivative instruments was $10.0 million in the first quarter of 2018, compared to $3.0 million in the fourth quarter of 2017. The unrealized non-cash element of the mark-to-market gain was $9.2 million for the three months ended March 31, 2018 compared to $3.8 million for the three months ended December 31, 2017. Of the unrealized gain for the first quarter of 2018, $8.9 million is related to mark-to-market gains on interest rate swaps due to an increase in the swap rate during the quarter. Of the unrealized gain for the fourth quarter of 2017, $4.6 million related to mark-to-market gains on interest rate swaps due to an increase in the swap rate during the quarter, and an unrealized loss of $0.8 million related to foreign exchange contracts due to the strength of the U.S. Dollar against the Norwegian Kroner (“NOK”). As a result, net income for the first quarter of 2018 was $30.7 million compared to $18.6 million for the fourth quarter of 2017.

Net income for the first quarter of 2018 increased by $19.3 million from net income of $11.4 million for the three months ended March 31, 2017. The operating income for the first quarter of 2018 increased by $14.4 million compared to the first quarter of 2017, mainly due to increased earnings from the Tordis Knutsen, the Vigdis Knutsen, the Lena Knutsen, the Brasil Knutsen and the Anna Knutsen being included in the Partnership’s results of operations from March 1, 2017, June 1, 2017, September 30, 2017, December 15, 2017 and March 1, 2018, respectively. Total finance expense for the three months ended March 31, 2018 decreased by $4.9 million compared to the first quarter of 2017, mainly due changes in unrealized and realized gain on derivative instruments. This was partially offset by additional debt due to the acquisitions of the Tordis Knutsen, the Vigdis Knutsen, the Lena Knutsen, the Brasil Knutsen and the Anna Knutsen, refinancing of the Hilda facility and the Torill facility, and higher LIBOR margin. This was partially offset by changes in unrealized and realized gain and loss on derivative instruments.

Distributable cash flow was $27.9 million for the first quarter of 2018, compared to $21.5 million for the fourth quarter of 2017. The increase in distributable cash flow is mainly due to increased earnings from the Brasil Knutsen and the Anna Knutsen being included in the Partnership’s results of operations from December 15, 2017 and March 1, 2018, respectively and increased earnings on the Carmen Knutsen as a result of its offhire due to drydocking and repairs in the fourth quarter of 2017. The distribution declared for the first quarter of 2018 was $0.52 per common unit, equivalent to an annualized distribution of $2.08.

Operational review

The Partnership’s vessels operated throughout the first quarter of 2018 with 99.6% utilization for scheduled operations and 99.5% utilization taking into account the scheduled drydocking of the Brasil Knutsen.

The Brasil Knutsen went offhire on March 29, 2018 for the mobilization trip to a shipyard in Portugal in order to complete her planned 5-year special survey drydocking. The Brasil Knutsen went back on charter on May 23, 2018 in Brazil.

Financing and Liquidity

As of March 31, 2018, the Partnership had $57.1 million in available liquidity, which consisted of cash and cash equivalents of $44.1 million and $13.0 million of capacity under its revolving credit facilities. The revolving credit facilities mature in June and August 2019. The Partnership’s total interest-bearing debt outstanding as of March 31, 2018 was $1,141.8 million ($1,133.4 million net of debt issuance cost). The average margin paid on the Partnership’s outstanding debt during the quarter ended March 31, 2018 was approximately 2.1% over LIBOR.

As of March 31,2018, the Partnership had entered into foreign exchange forward contracts, selling a total notional amount of $25.0 million against the NOK at an average exchange rate of NOK 8.15 per 1.00 U.S. Dollar. These foreign exchange forward contracts are economic hedges for certain vessel operating expenses and general expenses in NOK.

As of March 31, 2018, the Partnership had entered into various interest rate swap agreements for a total notional amount of $645.2 million to hedge against the interest rate risks of its variable rate borrowings. As of March 31, 2018, the Partnership receives interest based on three or six month LIBOR and pays a weighted average interest rate of 1.73% under its interest rate swap agreements, which have an average maturity of approximately 4.5 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, 2018, the Partnership’s net exposure to floating interest rate fluctuations on its outstanding debt was approximately $410.5 million based on total interest bearing debt outstanding of $1,141.8 million, less interest rate swaps of $645.2 million, less a 3.85% fixed rate export credit loan of $42.0 million and less cash and cash equivalents of $44.1 million. The Partnership’s outstanding interest bearing debt of $1,141.8 million as of March 31, 2018 is repayable as follows:

Distributions

On February 15, 2018, the Partnership paid a quarterly cash distribution of $0.52 per common unit with respect to the quarter ended December 31, 2017. The total amount of the distribution was $16.4 million. On February 15, 2018, the Partnership also paid a distribution to Series A Preferred Unitholders with respect to the quarter ended December 31, 2017 in an aggregate amount equal to $1.8 million. On May 15, 2018, the Partnership paid a quarterly cash distribution of $0.52 per common unit with respect to the quarter ended March 31, 2018 to all common unitholders of record as of the close of business on May 2, 2018. On May 15, 2018, the Partnership also paid a cash distribution to Series A Preferred unitholders with respect to the quarter ended March 31, 2018 in an aggregate amount equal to $1.8 million.

Torill Knutsen Refinancing

On January 30, 2018, the Partnership’s subsidiary, KNOT Shuttle Tankers 15 AS, which owns the vessel Torill Knutsen, closed a new $100 million senior secured term loan facility (the “New Torill Facility”) with a consortium of banks, in which The Bank of Tokyo-Mitsubishi UFJ acted as agent. The New Torill Facility is repayable in 24 consecutive quarterly installments with a balloon payment of $60.0 million due at maturity. The New Torill Facility bears interest at a rate per annum equal to LIBOR plus a margin of 2.1%. The facility will mature in January 2024 and is guaranteed by the Partnership. The New Torill Facility refinanced a $73.1 million loan facility associated with the Torill Knutsen that bore interest at a rate of LIBOR plus 2.5% and was due to be paid in full in November 2018.

Acquisition of Anna Knutsen

On March 1, 2018, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, acquired KNOT Shuttle Tankers 30 AS (“KNOT 30”), the company that owns the shuttle tanker, Anna Knutsen, from Knutsen NYK (the “Anna Acquisition”). The purchase price of the Anna Acquisition was $120.0 million, less approximately $106.8 million of outstanding indebtedness related to the Anna Knutsen and plus approximately $1.4 million for certain capitalized fees related to the financing of the vessel and plus other purchase price adjustments of $5.3 million. On the closing of the Anna Acquisition, KNOT 30 repaid $32.3 million of the indebtedness, leaving an aggregate of approximately $74.4 million of debt outstanding under the secured credit facility related to the vessel (the “Anna Facility”). The Anna Facility is repayable in quarterly installments with a final balloon payment of $57.1 million due at maturity in March 2022. The Anna Facility bears interest at an annual rate equal to LIBOR plus a margin of 2.0%. The purchase price of the Anna Acquisition was settled in cash.

The Anna Knutsen was delivered to the Partnership in March 2017 and is operating in Brazil under a time charter with Galp Sinopec Brazil Services B.V., which will expire in the second quarter of 2022. The charterer has options to extend the charter for two three-year periods.

The Partnership’s board of directors (the “Board”) and the conflicts committee of the Board (the “Conflicts Committee”) approved the purchase price of the Anna Acquisition. The Conflicts Committee retained an outside financial advisor to assist with its evaluation of the acquisition and the purchase price offered by Knutsen NYK.

Outlook

The Partnership’s earnings for the second quarter of 2018 will be affected by the planned 5-year special survey drydocking of the Brasil Knutsen, which was offhire for 56 days, including mobilization back and forth to Brazil. Offsetting this offhire will be the Anna Knutsen, which is expected to operate for the entire second quarter. The Hilda Knutsen is due for her 5-year special survey drydocking in the third quarter of 2018 and the Torill Knutsen and the Ingrid Knutsen are due for their 5-year special survey drydocking in the fourth quarter of 2018. These vessels are operating in the North Sea and will undergo drydocking in Europe, and are expected to incur offhire of approximately 18-20 days per vessel.

As of March 31, 2018, the Partnership’s fleet of sixteen vessels had an average remaining fixed contract duration of 3.9 years. In addition, the charterers of the Partnership’s time charter vessels have options to extend their charters by an additional 4.7 years on average.

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.

The Board believes that demand for newbuild offshore shuttle tankers will continue to be driven over time based on the requirement to replace older tonnage in the North Sea and Brazil and further expansion into deep water offshore oil production areas such as in Pre-salt Brazil and the Barents Sea. The Board further believes that significant growth in demand exists and that this will continue for new shuttle tankers as the availability of existing vessels has reduced and modern operational demands have increased. Consequently, there should be opportunities to further grow the Partnership.

About KNOT Offshore Partners LP

KNOT Offshore Partners owns operates and acquires shuttle tankers under long-term charters in the offshore oil production regions of the North Sea and Brazil. KNOT Offshore Partners owns and operates a fleet of sixteen offshore shuttle tankers with an average age of 4.7 years.

KNOT Offshore Partners is structured as a publicly traded master limited partnership. KNOT Offshore Partners’ common units trade on the New York Stock Exchange under the symbol “KNOP.”

The Partnership plans to host a conference call on Wednesday, June 6, 2018 at noon (Eastern Time) to discuss the results for the first quarter of 2018, and invites all unitholders and interested parties to listen to the live conference call by choosing from the following options:

By dialing 1-855-209-8259 or 1-412-542-4105, if outside North America. By accessing the webcast, which will be available for the next seven days on the Partnership’s website: www.knotoffshorepartners.com.

June 6, 2018 KNOT Offshore Partners L.P. Aberdeen, United Kingdom

Questions should be directed to: John Costain (+44 7496 170 620)

This article has been truncated. You can see the rest of this article by visiting http://www.businesswire.com/news/home/20180605006686/en.