Hello. My name is Drew and I will be your conference operator today. I would like to welcome everyone to the KNOT Offshore Partners Fourth Quarter 2023 Earnings Results Conference Call. All lines have been muted to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. Derek Lowe, you may now begin your conference.

Thank you, and good morning, ladies and gentlemen. My name is Derek Lowe, and I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the Partnership's earnings call for the fourth quarter of 2023. Our website is knotoffshorepartners.com and you can find the earnings release there along with this presentation. On Slide 2, you will find guidance on the inclusion of forward-looking statements in today's presentation. These are made in good faith and reflect management's current views, known and unknown risks and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied in forward-looking statements, and the partnership does not have or undertake a duty to update any such forward-looking statements made as of the date of this presentation. For further information, please consult our SEC filings, especially in relation to our annual and quarterly results. Today's presentation also includes certain non-US GAAP measures, and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On Slide 3, we have the financial and operational headlines for Q4. Revenues were $73 million, operating income $18.1 million. There was a net loss of $5.3 million after accounting for an unrealized, in other words, non-cash loss of $8.9 million on derivatives and adjusted EBITDA of $45.7 million. We closed Q4 with $63.9 million in available liquidity made up wholly of cash and cash equivalents. We operated with 99.6% utilization of the vessel time available for scheduled operations, which is equivalent to 96% of total fleet time after accounting for the planned dry dockings of Torill Knutsen and Ingrid Knutsen. Following the end of Q4, we declared a cash distribution of US$0.026 per common unit, which was paid in early February. On Slide 4, we have the headlines of the contractual developments since our last results call, which was on December 14, 2023. In our major market Brazil, Carmen Knutsen saw exercise of a one-year extension option by Repsol, which commenced in January. Repsol had a further one year's option, which if exercised with The Carmen Knutsen employed through to January 2026. Dan Sabia is chartered to Transpetro has been extended to early June this year. In the North Sea, Hilda Knutsen, Torill Knutsen and Bodil Knutsen have continued to operate under time charters to our sponsor Knutsen NYK. For Bodil Knutsen, this charter will last until the end of March and delivery to Equinor to commence a charter of two years fixed plus two years options. For Hilda Knutsen and Torill Knutsen, the charters are rolling not terms up to January 2025. The continuing area of focus for our contracting team, especially for near-term deployment is on Dan Cisne, Dan Sabia, Hilda Knutsen and Torill Knutsen. We received redelivery of Dan Cisne in December 2023. Our size is more suited to the North Sea market, and we are assessing our technical compatibility for shuttle tanker work in the North Sea. In the meantime, we are deploying Dan Cisne on conventional tanker work. Dan Sabia is due for redelivery to us in June, which is the extended expiry date of our charter to Transpetro. Marketing of all four vessels continues to potential charterers, both existing clients and others, including partnership sponsor. On Slide 5, our outlook remains positive on both industry dynamics and the partnership's positioning to participate fruitfully in our markets. Significant growth is anticipated in production and fields, which rely on service by shuttle tankers. We see recently reported orders of around six vessels as an endorsement of confidence in the sector. Three of these vessels have been ordered by our sponsor for delivery over 2026 and 2027. Each of these is a 10-year fixed contract with Petrobras along with a client option to extend by a further five years. We would expect to see further newbuild orders placed in order to service the large new production volumes coming online in the years ahead. A measured amount of new shuttle tanker ordering is imperative and should not be understood as some sort of negative development for the sector. We do also remain mindful of the near-term market conditions, where we are focused on the marketing of the four vessels, as I described earlier. In the meantime, the partnership remains financially resilient with a strong contracted revenue position of $699 million at the end of Q4 on fixed contracts, which average two years in duration. Charter's options are additional to this and average a further 2.1 years. Our pattern of cash generation and liquidity balance is sufficient for our operations and the significant paydown rate for our debt, and we have demonstrated the strength of our relationships with the lending banks by several refinancings completed over the last year. Finally, the average age of our vessels at 9.7 years places us well when compared to the useful life model at 23 years. On to slide 6, you can see the consistency of revenues and operating income when comparing them with those of previous quarters, including Q2 of 2023 when that is viewed without the impairment. Slide 7 similarly reflects the consistency of our adjusted EBITDA and you can find the definition of this non-GAAP measure in the appendix. On slide 8, the most notable change in the balance sheet over 2023 has been the reduction in current liabilities, which has arisen from the refinancings secured during 2023. Long-term debt has increased as a reflection of these refinancings. However, the overall change in the partnership's liabilities has been a reduction by $92 million, which is reflective of the debt repayments we've made during the year. On slide 9, we've expanded on the terms of the partnership's debt facilities to provide added color around the dynamics of debt repayment. The highlighted column shows how the outstanding balances of each facility have been reducing because of the repayments we've been making in line with scheduled repayment terms. The current installments are the amounts of capital repayments due over the next year, which do not include interest. The balloon payments are the final amounts of principal, which will be due on the maturity dates. Of note, $153 million is due to be paid on these debt facilities over the 12 months following 31st December 2023, of which $57 million is a balloon repayment due in May 2024 and on the loan which is secured by Hilda Knutsen. Our practice with a significant repayment such as this is to seek a refinancing, and our track record demonstrates the viability of this approach. Negotiations are well advanced with potential lenders for a new facility to be secured also by the Hilda Knutsen, sufficient to finance the balloon repayments of the maturing facility. The partnership is not aware of any reasons why this refinancing will be unlikely to complete. However, there can be no guarantees of the success of any financing exercise. Aside from that refinancing, $87 million will be repayable over the course of this 12-month period, of which $10 million has already formed the repayment of the Dan Sabia facility in January. This leaves both Dan Cisne and Dan Sabia free of debt, and we don't have any plans to incur additional borrowings secured by these vessels until we have better visibility on their future employment. Slide 10 shows the contracted pipeline in chart format, reflecting the developments I set out earlier. Similarly, Slide 11 highlights the focus of our commercial efforts on adding near-term contracts, primarily for the four vessels mentioned earlier. On Slide 12, we see our sponsors' inventory vessels, which are eligible for purchase by the partnership. This applies to any vessel owned or an order for our sponsor where the vessel has a firm contract period of at least five years in length. At present, five existing vessels and five under construction fall into this category. There is no assurance that any further acquisitions will be made by the partnership, and any transaction will be subject to the Board approval of both parties, which includes the partnership's Independent Conflicts Committee. As we have said our top priorities remain securing additional contract coverage for our existing fleet and fostering our liquidity position. On Slides 13 and 14, we have provided some useful illustrations of the strong demand dynamics in the Brazilian market as published by Petrobras. We encourage you to review Petrobras' materials directly on the web page as shown here. The primary takeaway from each of these slides is consistent. There is very significant committed demand growth coming in the Brazilian market in the form of new FPSOs that will require regular service from shuttle tankers. We believe that recent reports of up to six vessel construction contracts are an endorsement of the strong anticipated market conditions in the medium and longer term and do not think this is an excessive amount of added supply in the context. As I mentioned earlier, three of these recent newbuild contracts are for our sponsor Knutsen NYK and are due for delivery over 2026 and 2027. On Slide 15 we provide information relevant to our U.S. unitholders, in particular those seeking Form 1099. Those holding units via their custodians or brokers should approach those parties directly. Those with directly registered holdings should contact our transfer agent American Stock Transfer who come under the umbrella of Equiniti Trust Company whose details are shown there. On Slide 16 we include some reminders of the strong fundamentals of our business in the market we serve, our assets, competitive landscape, robust contractual footprint, and resilient finances. I'll finish with Slide 17, recapping our financial and operational performance in Q4 2023 in the subsequent time and our outlook for 2024. We are glad to have delivered high and safe utilization, which have generated consistent financial performance. We are pleased with the new contracts and extensions we've secured during the quarter and since, along with our ability to navigate our refinancing needs and CapEx relating to dry docks throughout last year. Our continued commercial focus remains on filling up utilization for 2024 while looking further forward to longer-term charter visibility and liquidity generation. Thank you for listening. And with that, I'll hand back the call to the operator for any questions.

Thank you. Our first question today comes from Liam Burke from B. Riley. Your line is now open, please go ahead.

Yes, thank you. Hi Derek, how are you today?

Hi Liam. Good. Thank you and you?

I'm fine. Thank you. On the Cisne and Sabia asset values in the traditional tanker market are pretty healthy. And you've got one of the vessels currently working as a conventional tanker now anyway. Would a priority be to sell these two tankers for conventional use and redeploy that capital?

I wouldn't say it's a priority. We think any shuttle tanker is better equipped to earn higher rates in the shuttle tanker market rather than in the conventional market and that goes for both us operating or potential purchasers. So our interest is in actually operating vessels in the shuttle tankers market. And we're marketing them as such.

So I mean based on the supply-demand outlook, you see the earnings power of these two vessels outperforming a one-time sale and redeploying that capital?

For the time being, yes, obviously we've got a gap in utilization coming up which we're seeking to fill. So it's a function of how well we secure or negotiate contracts for them.

Okay. And then just on your current debt, you laid it out, you paid $10 million. You've got a $57 million Balloon, that's due in May that you've had a long history of successfully refinancing. So if I look at the balance and your current cash balance and your predictable cash flow, once you're past that refinancing, 2024 debt service should be pretty manageable?

It will be pretty consistent with previous years. If you look at the reduction in debt over 2023 which was $92 million, the equivalent figure on Slide 9 is the $90 million of which, as I say, we've paid $3 million from that column an additional $6.5 million from the Balloon payment list.

Great. Thank you, Derek.

Thank you.

Our next question today comes from Poe Fratt from Alliance Global Partners. Your line is now open. Please go ahead.

Good afternoon, Derek. Two questions on the quarter. If you could just highlight the increase in the sequential increase in OpEx what caused that? And then, also, it looks like the tax rate jumped a little bit or just there was a tax payment as opposed to what you would have expected with the loss. So can you just address those two things?

Sure. Hi Poe, thank you for the question. OpEx is generally influenced by unit costs related to our main expenditures. This includes factors like staffing, and if we consider additional costs like crude travel during off shifts. These aspects represent the significant influence on changes in OpEx. Regarding the tax rate, as shown at the bottom of Page 6, there’s a modification to the value recorded in Q3. Specifically, it’s a single item amounting to approximately $4.4 million.

Great. That's helpful. And then can you talk about OpEx going into this year as far as 2024? And then Derek could you discuss the impact that the Dan Cisne is going to have on utilization and potential revenues as it works as the conventional tanker versus the shuttle tanker?

We are marketing all four vessels that are currently on short-term or limited contracts, with Cisne being the most notable as it has been redelivered to us. Our goal is to secure medium and long-term shuttle tanker work. For the Cisne, we are primarily looking at spot market opportunities, and we do not view this as a long-term strategy, but rather a short-term deployment into that market.

Great. Should we expect any downtime on it? Is it flips between charters? And then also can you confirm that you don't expect any dry docking activity in 2024?

Correct about dry docking. We don't anticipate any dry docks in 2024. What you'll see on Dan Cisne is the utilization information will come through in the first quarter results because we received redelivery. I think it was around mid-December, so it had very little impact if any on the Q4 figures. Our impact will come through in Q1 figures.

Okay, so expect a little bit of downtime. Can you tell me about the option on the Anna with Total Head? What is the notice period for that? Have you heard anything or when do you expect to hear about a potential option exercise?

I believe the notice period is between one and two months. We are approaching the end of that notice period in the next month or so. We are continuously engaging with all of our clients and potential clients. While we don't have any updates to share at this time, it is not causing us any concern.

Okay, great. Thank you. Thank you, Derek.

Thanks, Poe.

Our next question comes from Jim Altschul from Aviation Advisory Service. Your line is now open. Please go ahead.

Good afternoon. Thank you for taking my question. I have a couple of related inquiries. The main point is regarding utilization, as it was around 99% for the entire fourth quarter of 2023. I understand that the Dan Cisne will be off-hire for part of this quarter. You mentioned that currently you have coverage for a bit over 70% for the full year. What will the utilization percentage look like for the first and second quarters based on your existing contracts?

Well, Jim, thank you for your questions. The range of utilization or contracting that we currently have in terms of full visibility for this year is 79% fixed and 91% if we include the exercise of all client options. I appreciate the chart format that is shown on Slide 11. I don't have the individual numbers directly available, but the chart provides a good indication of those levels.

I apologize for not addressing that earlier. There will be one ship off hire for this quarter, if I recall correctly. Also, I may not have been paying close enough attention, but will there be a significant impact on revenues? Some ships that were under charter are now on short-term conventional tanker contracts. Will this combination have a meaningful effect on first quarter revenues?

We're only talking about one vessel, so one out of 18. The percentage there is order of magnitude 5%, and that's assuming no income. Actually, as we've described with the conventional work that she's been able to do, there has been some income and some utilization. So those overall figures should feed through to the figures in Q1. But it's not a question of entirely removing a vessel from the performance of the fleet over this quarter, and it is limited to one vessel in this quarter.

Okay. Is it reasonable to assume that the rates of getting short-term conventional tanker work are less than you would get on a medium or long-term charter for shuttle tanker work?

Yes. That's correct. Obviously, they're modeled on a slightly different basis because of the short-term nature of those commercial contracts that we're looking at as well.

Thank you very much.

Thanks, Altschul.

Lastly, we have a follow-up from Poe Fratt from Alliance Global Partners. Your line is now open. Please go ahead.

Yeah. Hi, Derek. Can you talk about the backlog? There was a pretty healthy increase in the backlog of to $699 million from $645 million from the time of the third quarter call. Can you just talk about that incremental increase because it didn't seem like your contracted backlog in years went up that significantly, but you did add $50 million. Can you just talk about the mechanics of that, Derek?

Sure. I mean the – obviously, we burn off backlog each quarter as well and that would be factored into it. I appreciate that serves to reduce the number before any additions. The main addition to the backlog was the Carmen Knutsen with the exercise of the one-year option by Repsol. We also had the Dan Sabia for an additional six months in the first half of this year as well. So those are the major changes.

Yes, you sort of calculated that is adding about 4.5 years of backlog, and you burn off every quarter about 4.5 years of backlog just and so you take the $645 million, you take out the $72 million that you recognized in the fourth quarter revenue, and to get to the new number. And that delta is about $126 million. And it just seemed a little bit higher than I would have anticipated given that the Torill, Hilda, which I assume are included in the backlog, are working at reduced rates and the Carmen was really the only option that would have been expired or would have been exercised at a decent rate in my mind.

Yes. I mean, the Carmen was the main headline since we held our call in December. These figures relate to quarter-end. You need to look at additional contracts secured during Q4 but were before December 14. So, apologies for the complexity there. On Slide 4, you've got just a reminder there, and it will also be in our Q3 release as well. There was additional work secured for Windsor Knutsen which we announced in December; and Brasil Knutsen as well and then a one-year extension on each of the Tordis and Lena Knutsen. So those will also be part of the addition to backlog over that time.

Okay. Great. That’s helpful. Thank you so much.

Yes. Thanks. I apologize it's in two places, but we didn't want to reannounce the same thing twice.

There are no further questions. I will now hand back over to Derek Lowe for any closing remarks.

Thank you again for joining this earnings call for KNOT Offshore Partners fourth quarter in 2023, and I look forward to speaking with you again following the first quarter results for 2024.

That concludes today's call, you may now disconnect your lines.