Welcome to the KNOP First Quarter 2024 Earnings Call. My name is Carla, and I will be coordinating your call today. I would now like to hand you over to Derek Lowe to begin. Derek, please go ahead.

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 first quarter of 2024. 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-U.S. 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 Q1. Revenues were $76.6 million, operating income $19.7 million, net income of $7.4 million and adjusted EBITDA of $47.5 million. We closed Q1 with $55 million in available liquidity, made up of $50 million in cash and cash equivalents, plus $5 million in undrawn capacity on our credit facilities. We operated with 97.6% utilization and the vessel time available for scheduled operations was not impacted by any planned drydocking. Following the end of Q1, we declared the cash distribution of $0.026 per common unit, which was paid in early May. On Slide 4, we have the headlines of the contractual and operational developments since our last results call, which was on February 27. In our major market, Brazil, Vigdis Knutsen was delivered to Shell in March for a 3-year time charter. Anna Knutsen saw the exercise of an option by TotalEnergies, extending the current charter to April 2026. And by the time of the last results call, Dan Sabia's charter 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 lasted as planned until delivery to Equinor at the end of March on a charter of 2 years fixed plus 2 years options. For Hilda Knutsen and Torill Knutsen, the charter is rolling 1-month terms up to January 2025. Ingrid Knutsen was redelivered by Altera at the end of March as anticipated and has since gone on to time charter with Knutsen NYK; both Ingrid Knutsen and Torill Knutsen will commence charters with Eni in Q4 this year. For Ingrid Knutsen, this was a deferral to October from a previously contracted April delivery. This deferral is on terms that are no less favorable to us than applied previously. That charter is 2 years fixed plus 2 options each of 1 year. For Torill Knutsen, the new time charter with Eni is a 3 years fixed plus 3 options each of 1 year. In the meantime, Torill Knutsen is undergoing repairs to a broker generator rotor, which has limited the range of client facilities that this vessel is able to serve. We expect repair to be completed later in Q2 or into Q3 and both the repair costs and some loss of hire are expected to be covered by insurance subject to the relevant policy terms. After we received redelivery of Dan Cisne in December 2023, we have deployed our own short-term conventional tanker work while also assessing the upgrades required for compatibility of shuttle tanker work in the North Sea. Those upgrades are due to be carried out in the coming weeks. Dan Sabia is due for redelivery to us in June, which is the extended expiry date of charter to Transpetro. The continuing area of focus for our contracting team is on Dan Cisne, Dan Sabia and Hilda Knutsen. For near-term deployment, focus also remains on Ingrid Knutsen and Torill Knutsen until each of them are delivered to Eni in Q4 this year. 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 in fields, which were on service by shuttle tankers. We see reported orders from earlier this year of around 6 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 sponsor vessels has a 10-year fixed contract with Petrobras, along with the client option to extend by a further 5 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; it should not be understood as some sort of negative development for the sector. A material shortage of shuttle tanker capacity remains projected in the coming years. We also remain mindful of near-term market conditions, where we're particularly focused on marketing the Dan Cisne, Dan Sabia and Hilda Knutsen as well as seeking third-party employment of Ingrid Knutsen and Torill Knutsen until commencement in Q4 of their next long-term charters. In the meantime, the partnership remains financially resilient with a strong contracted revenue position of $683 million at the end of Q1 on fixed contracts, which average 2 years in duration. Charter options are additional to this, averaging a further 2 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 within the banks by several refinancings completed over the last year. Finally, the average age of our vessels at 9.9 years places us well when compared with the useful life model at 23 years. On to Slide 6, you can see the consistency of revenues and operating income when comparing between quarters and also between 12-month periods. 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 the first quarter has come from refinancing of the loan secured by Hilda Knutsen, the balance of which has moved from current liabilities into long-term debt. The overall change in the partnership's liabilities has been a reduction by $42 million, which is reflective of our debt repayment schedule. On Slide 9, we have expanded on the terms of the partnership 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, and the balloon payments are the final amounts of principal, which will be due on the maturity dates. Of note, $91 million is due to be paid on these debt facilities over the 12 months following March 31. Completion of Hilda loan refinancing is due imminently, following which no further balloon repayments or refinancings are due within that 12-month period. Our typical pattern is through our vessels to provide security for our debt facilities, and that applies to 16 out of 18 vessels. At present, the exceptions of Dan Cisne and Dan Sabia are free of debt, and we do not have plans to incur additional borrowings secured by these vessels until we have better visibility on their future employment. $880 million out of $925 million in debt facilities are secured by vessels, while the 2 revolving credit facilities totaling $50 million of capacity are unsecured. 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, particularly for Dan Cisne, Dan Sabia and Hilda Knutsen and in the near term, also for Ingrid Knutsen and Torill Knutsen. On Slide 12, we see our sponsors' inventory of vessels, which are eligible for purchase by the partnership. This applies to any vessel owned by or an order for our sponsor, where the vessel has a firm contract period of at least 5 years in length. The present 5 existing vessels and 5 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 stop priorities remain securing additional contract coverage for our existing fleet and fostering our liquidity position. On Slides 13 to 15, we 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. The primary takeaway from each of these slides is consistent: there is 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 reports earlier this year of up to 6 vessel construction contracts are an endorsement of the strongly anticipated market conditions in the medium and longer term. As I mentioned earlier, 3 of these recent newbuild contracts are for our sponsor Knutsen NYK and are due for delivery over 2026 and 2027. We would expect to see further newbuild orders placed in order to service the large new production volumes coming online in the years ahead, and a material shortage of shuttle tanker capacity remains projected in the coming years. On Slide 16, we provide information relevant to our U.S. unitholders, particularly those seeking a Form 1099. Those holding units by their custodians or brokers should approach those parties directly. Those with directly registered holdings should contact our transfer agents, Equiniti Trust Company, whose details are shown there. On Slide 17, 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 18, recapping our financial and operational performance in Q1 2024 and the subsequent time and our outlook for the remainder of 2024. We are glad to have delivered high and safe utilization, which has generated consistent financial performance. We are pleased with the new contracts and extensions we have secured during the quarter and since, along with our ability to navigate our refinancing needs and periodic capital expenditure. Our continued commercial focus remains on filling up third-party 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.

And our first question comes from Liam Burke from B. Riley.

Derek, could you give us a little more color on the macro side, specifically the activity in the North Sea? I mean, it's pretty well known that the step-up investment in offshore in Latin America is pretty high. We're not hearing much on the North Sea.

Sure. Well, the main developments we're looking at are the Johan Castberg and the Penguins FPSOs coming online with production either late this year or early next year, and we think there's going to be a significant increase in demand for the whole of the North Sea shuttle fleet once those come along. The question in the meantime is at what stage do clients want to start entering into contracts in anticipation of that?

So everyone is anticipating the actual projects coming to fruition. Does that make sense to just keep the Hilda and Torill busy until you can charter them? I mean, are they good candidates to be chartered into this market?

Torill has a charter from Q4 this year with Eni. So the Torill use is perhaps in the COA pool until delivered into that contract; that's certainly a relevant point for us, but not after that.

Okay. And on the Cisne and Sabia, I mean they're in a good market, but just not the right size. Do you have any more alternatives rather than just running them into the traditional market?

Well, Cisne, I think you'd be aware that we brought over to the North Sea and are going to put the upgrades in place for North Sea work because we think Cisne is much better suited to the North Sea because of the size than to the Brazilian market. So she'll be exposed to the same dynamics in the North Sea as we have with the other vessels as well, which is why she's got probably the greatest amount of focus from the contracting team of all our vessels. Sabia, we expect redelivery in early June, and she's subject to all the normal and energetic marketing efforts, as you might imagine, given that she's not contracted afterwards.

Our next question comes from Poe Fratt from AGP.

Congratulations on addressing some of the issues. I am particularly surprised about the Torill, especially since the North Sea market could become quite competitive with the introduction of the two FPSOs later this year. Based on your market insights, what do you foresee in terms of the additional demand these two FPSOs could create? Additionally, it appears that there may not be any available capacity apart from Hilda at that time. Is that an accurate assessment?

We believe there is sufficient incremental demand to address the short- or underutilized vessels we have, as well as those that others might have. The North Sea has always posed a timing challenge. As conditions change, it becomes more frustrating, but it remains a timing matter rather than anything more serious. The vessels available for this situation will not include the Torill and Ingrid, as they have been contracted to Eni starting in Q4. However, Hilda and Dan Cisne, which has been prepared for the North Sea, will be available.

But if you would answer the question, what do you think the incremental demand of those 2 FPSOs could be?

I don't have a figure to hand, I'm afraid, but certainly more than enough to soak up the capacity that we've got.

Would it be fair to say that 2 to 4 for each FPSO or maybe 2 so that you have incremental demand developing into 2025 for shuttle tankers in the North Sea?

Yes. I'm afraid I don't have that to hand, so I can look at that and maybe we can discuss offline?

Okay. And my understanding is that neither of those projects have lined up any capacity that you would understand.

As far as I know, they haven't lined anything up.

Could you provide details on the upgrade for the Dan Cisne? What was the cost of the upgrade, and will there be any downtime for that vessel in the second quarter?

Well, she's currently not contracted. So downtime is perhaps a slightly moot point. We think it's around a month of both the work and the testing and trials and so on that go afterwards, maybe a month to 6 weeks. This is not on contract in any case during that time. We haven't published the cost, but it's not material in the context of the financial results we've produced, but we haven't produced a figure.

Okay. Maybe you could describe the upgrade that was required.

Yes, it's some harsh weather facilities.

Okay. And then do you think that Dan Sabia will stay in Brazil? It seems like there's strong enough demand there, and I guess what's your sort of working assumption on the Dan Sabia at this point in time?

Well, we are very mindful that she's not the size that is ideal in Brazil, but there's enough demand that potentially a client might want to take her in any case. So we continue to market in Brazil given that especially.

When you assess the impact of the Torill in the first quarter, what was the issue, a broken motor rotor? Can you provide the number of days? Will it simply be the higher deductible of 14 days that occurred in the first quarter?

Well, we certainly will be subject to that 14 days deductible. It's not straightforward because she's able to serve some client facilities, but not others. So she's got some earnings, so it's not a classic classifier where she's completely out, and the calculation involved is actually relatively simple in those cases. This is going to be more complicated.

Got you. So was she down at all in the first quarter? And then if you could quantify any other idle days that you might have had in the first quarter to sort of get to that utilization number that you published?

Sure. Something like a month in the first quarter. I need to check the exact figures, but order of magnitude is a month.

Was there any other downtime or idle days in the first quarter? It seems like you had more voyages in the conventional tanker market at Cisne.

That's correct. She did experience some downtime during that period. However, overall employment for the Cisne is not just a comment for Q1 because her efforts have continued since then, totaling around 80 days over the last five months.

Sorry, would you clarify that 80 days, she's worked 80 days over the last 5 months?

Something like that, yes.

Okay. Got you. So 80 of the 150, if you look at it.

Yes. It was 3 different quarters of performance as well. So it's not easy to fit into quarterly results.

Understood. When I examine your operating expenses, it seems that they may have increased slightly on a daily basis in the first quarter. Is that correct? Can you also provide some insights on the outlook for operating expenses and general and administrative costs?

Sure. General and administrative expenses have been quite consistent. The main variation in operating expenses is due to voyage expenses. It's important to note that we have generated revenue to counterbalance that as well. I believe this is related to the Dan Cisne due to the specifics of the voyage at that time.

Got you. So that was mainly absorbing the bunker costs and voyages and other potential fees.

Yes.

And then just one mid-picky one. It looks like you might have layered on some interest rate hedges in the first quarter; the overall notional amount of the swap went up. Can you just talk about that?

Yes, we made a minor adjustment. Currently, we are well within our policy range regarding the amount of debt that is either at fixed rates or effectively fixed through hedges. As those hedges expire, we will need to implement additional ones, so we started making a small addition to that early in the first quarter. We are quite satisfied with the rate we secured at that time, even though interest rates have fluctuated slightly since then.

Yes. It looks like you still were able to fix in the low 2 range because your average interest rate costs fixed-wise only went up to 2 from 1.9, right?

Sure, it's as low as 2 for the new fix, but it was certainly a rate that we were happy with.

Yes, other than the three you've mentioned, Hilda, Dan Cisne, and Dan Sabia, who have open windows and no long-term work, could you provide some information on Carmen? It appears that Repsol has a yearly option at the beginning of next year. When would the notice period be for that option before it transitions to the major oil company for either four years or three years?

We would generally expect that to be within something like 1 to 3 months of the start of the optional period. I don't have the exact terms for that particular one in front of me, but that sort of period is what we would expect to be the latest we'd expect to know.

Well, congratulations, Derek, on the contracting, chartering during the quarter.

Our next question comes from Pavel Oliva from RockHill Global.

Congratulations on a great quarter. I have a few questions, if you don't mind. One is, my understanding is that the prices of new builds are around $160 million for the North Sea and $140 million for Brazil, and that there are really no new builds for the North Sea. Does the value of the new builds impact the daily pricing of the existing fleet?

I wouldn't say so. Certainly not in the North Sea. I mean, we're aware of the short- to medium-term issues around when demand for those 4 North Sea vessels couldn't come in, and that's a far greater driver than anything else.

I see. So the charters that are on those new ships, for example, in Brazil would be similar to what they are now? Or they would reflect the new cost and the new cost of capital?

They will reflect the terms of market conditions at the time they were entered into. So the nearest ones, obviously, you would expect to be, let's say, recognizably current, but some of the other vessels that aren't yet delivered are obviously contracted time and time to go and will be on different terms.

Right. So if I have a ship that's coming off hire and I have to recharter it. Is it fair to say that, for example, in Brazil, the rates would be a lot higher than they were at the historical charter?

We are seeing them firming up, if anything. So we are clearly going in the direction that's going in.

Can I ask in the North Sea, besides your ships, are there any other ships like Altera ships that may be available for those projects or are these ships sort of it?

I understand there is competing capacity. I don't have figures to hand on that, and I wouldn't want to comment on another operator's contractual profile anyway. But yes, we understand there is capacity aside from our own.

I see. Okay. And you had really good results in terms of free cash flow generation in the first quarter. That's without a lot of the charters. Have you guys considered potentially buying some shares back at this point, given what the NAV is in light of the new ships that are being built in Brazil and sort of the values or replacement value of the fleet as well as just the ability by lowering the number of shares to potentially increase the dividend when and if you're ready to reinstate that dividend?

Yes. Well, we certainly understand and appreciate the value of that strategy, and that's a question for the Board to be addressing in due course. The greatest priority is actually that we continue to make progress on visibility of our contracting schedule. And at the moment, clearly, there are 2 or 3 vessels that remain uncontracted, which is quite a rare position for us to be in. They're more concerned that that capacity is filled first before looking at anything else. We certainly look forward to the point where that is a really good use of capital. I would also say, if you look at our liquidity position, which we are certainly content with, we had $55 million, I think. So we had $50 million of cash equivalent.

Cash.

Cash and cash equivalents until the end of March totaled $55 million, but we also had $45 million drawn from our revolving credit facility. Therefore, our net liquidity is considerably lower, and I don't believe the Board would feel comfortable using cash for unit buybacks in this situation.

Understood. As you move into a more comfortable position and have repaid a significant amount of debt, it’s certainly something the Board will take into consideration.

Yes, it's certainly one of the options.

Okay. Awesome. Very good. Congratulations on a great quarter and terrific performance.

And our next question comes from Robert Silvera from R.E. Silvera and Associates Marine.

Yes, we're marine surveyors, by the way. We dropped the word, surveyors. In any case, I'd like to congratulate you on improving the company's situation considerably versus the past. Our input is that we would love because we own thousands of shares, we would love to see you keep the dividend about where it is for an extended period of time and aggressively continue your move toward reducing debt. Don't take any more drop-downs for the time being because the fleet is fairly young and let's fill the gaps, as you've been saying, and get to the position where we have significantly continued to reduce the debt. You have some of the ships already debt-free, and that's really great. So that's our position as shareholders, and we hope you will take that into consideration.

Sure. Thank you very much. I would just show you again Slide 9, if you want to go back to it. The current installment figure is basically a 12-month look forward from the balance sheet date of the debt repayments that are coming due by amortizations. And that $91 million over the 12 months starting first of April this year is very recognizable on a year-by-year basis for the amount we repay in our debt in cash purely on the scheduled repayment terms. So point very well taken, and I hope you're also pleased with the amount of debt repayment we're managing to do already.

Yes. Very pleased with that. And I'm saying our point is I'm not interested in getting the dividend raised back to $0.52 right away, but rather continuously aggressively continue to pay down the debt, don't take any drop-downs for at least a year at this point, and fill the gaps on where we are with our ships putting us in a very, very solid position. And I think the share price will reflect it. And in the future, with the market in Brazil looking as good as it is, given that much time that I'm talking about a year, we will know the market a lot better by then, and we can make very judicious decisions on what to add to the fleet and future.

Thanks, Robert.

We currently have no further questions. I will hand it back to Derek for any final remarks.

Well, thank you all again for joining this earnings call for KNOT Offshore Partners First Quarter 2024, and I look forward to speaking with you again following the second quarter results.

And this concludes today's conference call. Thank you for joining. You may now disconnect your lines.