Good morning and thank you all for joining. I would like to welcome you all to the KNOT Offshore Partners' Third Quarter 2024 Earnings Call. My name is Brica and I will be your moderator for today. All lines will be muted during the presentation portion of the call with the opportunity for questions-and-answers at the end. I would now like to pass the conference over to your host, Derek Lowe, Chief Executive Officer and Chief Financial Officer at KNOT Offshore Partners. Thank you, you may proceed Derek.

Thank you, Brica and good morning ladies and gentlemen. My name is Derek Lowe, I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the partnership's earnings call for the third 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 Q3. Revenues were $76.3 million, operating income $17.2 million, and there was a net loss of $3.8 million. Adjusted EBITDA was $45.1 million. We closed Q3 with $77 million in available liquidity, made up of $67 million in cash and cash equivalents plus $10 million in undrawn capacity on our credit facilities. We operated with 98.8% utilization and the vessel time available for scheduled operations was not impacted by any planned dry docking. Following the end of Q3, we declared a cash distribution of $0.026 per common unit, which was paid in early November. On to Slide 4. 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 rely on service by shuttle tankers. We see around 11 newbuilds on order, including for our sponsor, Knutsen NYK. And we 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 unavoidable and in fact, necessary as a shortage of shuttle tanker capacity remains projected in the coming years. The partnership remains financially resilient with a strong contracted revenue position of $980 million at the end of Q3 on fixed contracts, which averaged 2.8 years in duration. Charterer's options are additional to this and average a further 2.4 years. Our pattern of cash generation and liquidity balance is sufficient for our operations and the significant paydown rate for our debt, which is in the region of $90 million per year for installment payments. And our near-term chartering exposure has reduced to Dan Sabia, where we are maintaining our marketing focus. She has secured some conventional cargoes and is operating commercially while we seek a shuttle tanker deployment. On Slide 5, a number of developments in Q3 were announced already on the previous earnings call, including charter extensions for Tordis Knutsen and Lena Knutsen. The most important development in Q3 is on Slide 6, showing the swap of Dan Cisne for Tuva Knutsen. Tuva brought seven years of fixed or guaranteed future charter revenue and this is a significant step in fleets and pipeline growth without the need for new funding. On Slide 7, our most recent developments include the Ingrid Knutsen beginning her charter with Eni in October for two years plus two options each of one year; signature of a charter for the Hilda Knutsen for one year fixed, commencing March 2025; commencement of the Torill Knutsen's time charter via Eni for three years fixed plus three options each of one year; exercised by Repsol of their one-year option on Carmen Knutsen commencing Q1 2025; and some short-term deployments for the Dan Sabia on conventional tanker work. On to Slide 8, you can see the consistency of our revenues over the quarters and years. This consistency also applies to our operating income when the effects of vessel impairments are removed. Slide 9 similarly reflects the consistency of our adjusted EBITDA, and you can find the definition of this non-GAAP measure in the appendix. On Slide 10, there are two notable changes in the balance sheet over the first nine months of 2024. The first is a slight increase in overall liabilities. While we continue contractual debt repayments in the area of $90 million per year, liabilities increased with completion of the Tuva acquisition on the 3rd of September. The second change is that two of our debt facilities have moved up from long-term to current liabilities because of their upcoming maturities. These can be seen on Slide 11, which sets out the maturity profile of our debt facilities. On Line 1, the first of our revolving credit facilities is due to mature in August 2025. And on Line 2, around half of the loan secured by Tove Knutsen and Synnøve Knutsen matures in September 2025. The remainder of that facility matures in October 2025, and the second revolver matures in November 2025. 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 repayment due over the next year, which do not include interest or the final balloon payments due on the maturity dates. Of note, $96 million in current installments is due to be paid over the 12 months following 30th of September. Our typical pattern is for our vessels to provide security for our debt facilities, and that applies to 17 out of 18 vessels in the fleet as of 30th of September. At present, Dan Sabia is the only vessel free of debt, and we do not have any plans to incur additional borrowings secured by Dan Sabia until we have better visibility on her future employment. $907 million out of $947 million in debt facilities are secured by vessels, while the two revolving credit facilities totaling $50 million of capacity are unsecured. Slide 12 shows the contracted pipeline in chart format, reflecting the developments I set out earlier. Similarly, Slide 13 highlights the focus of our commercial efforts on adding near-term contracts for Dan Sabia. We've made good progress in increasing our fixed charter coverage, and we intend to remain active in that regard. On Slide 14, we see our sponsor's inventory of vessels, which are eligible for purchase by the partnership. This applies to any vessel owned by or on 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 15 and 16, 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 at the webpage shown there. 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 reports earlier this year of additional vessel construction contracts are an endorsement of the strong anticipated market conditions in the medium and longer term. Five outstanding 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. In a trend that also applies to oil production globally, you'll see that even in the years ahead where aggregate production growth slows, deep offshore production, in this case, Brazilian pre-salt, continues to outpace the overall market and take market share. On Slide 17, we provide information relevant to our U.S. unitholders, in particular, those seeking a 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, Equiniti Trust Company, whose details are shown there. On Slide 18, 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. And I'll finish with Slide 19, recapping our financial and operational performance in Q3 2024 and the subsequent time and our current outlook. We're glad to have delivered high and safe utilization, which has generated consistent financial performance. We're 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 periodic capital expenditure. We're delighted to have taken the growth step of swapping Dan Cisne for Tuva Knutsen. And our continued commercial focus remains on filling up third-party utilization for the coming months, while looking further forward to longer-term charter visibility and liquidity generation. In total, though, we're making good progress and are pleased to have established positive momentum against an improving market backdrop. Thank you for listening. And with that, I'll hand the call back to Brica for any questions.

Thank you. We will now begin the question-and-answer session. We have the first question on the line from Liam Burke with B. Riley. Please go ahead.

Thank you. Hi Derek, how are you?

Hi Liam. Good. Thank you and you?

I'm fine. Thank you. It appears your operating expenses increased by about $2 million sequentially. Could you clarify how much of that was related to the Torill repair, if at all?

Pretty limited amount. Well under half of that amount off the top of my head. Probably a quarter at the most.

Okay. There was some expense baked into that number related to the repair.

That's right. We are due to receive the insurance claim proceeds during this quarter. And until we receive it, we don't recognize it. So, you don't have the offsetting income to correspond with that and reduce the effect of the net cost to us.

Great. You announced four charters or extensions beginning this quarter, which included the Torill. Could you provide a general overview of how these charters compare to your previous levels, even though you don't share specific details on the contracts?

The new ones, the new news as it were for this quarter, you mean or the Torill specifically?

No, can you provide a general idea of how all of them are trending?

The rates reflect the market conditions at the time they were contracted. For Ingrid, I don't have the signature date in front of me, but it would reflect that. The signature date for Hilda was in October this year, which will reflect a current market. Torill is also close to current since the signature was in July this year. In contrast, Carmen will refer back to the timing of the original contract, which was several years ago. Therefore, Ingrid and Carmen will be older, while Hilda and Torill will be closer to current.

Great. Thank you, Derek.

Thank you.

Hello.

Hello Jim, I can hear you. Yes, please go ahead.

Good afternoon. Thank you for taking my call. I have a couple of things to discuss. First, in your earlier response, you mentioned that some of the new charters reflect current market conditions. Does this imply that the rates are somewhat lower than they were a couple of years ago? Am I understanding that correctly?

It's the other way around. So, it's fair to say that market conditions have been strengthening reasonably steadily over that time. So, we don't have particular numbers to give you on those contracts, but more recent would typically imply better rates or higher rates.

Okay. Regarding the operating expenses, you mentioned earlier that part of it is related to the repair, and you expect to recover at least some of that from the insurance company. What other factors have contributed to the increase in operating expenses year-on-year?

General operating cost level. So, we see increased cost of crewing, particularly relating to travel and increased cost of supplies as well. It's a generally inflationary environment, unfortunately, for our work.

Understood. Thank you very much.

Thanks Jim.

Good afternoon Derek.

Hello Poe.

Can you ensure that the presentation is uploaded on the website? I've been trying to access it throughout the call, and it's not available yet. If you're receiving similar feedback from other investors, I think it's important to take note of that.

Okay. Thank you. I'm sorry about that. It was approved for publication.

I understand that you've mentioned it throughout the call, and I believe you thought it was available, but I haven't managed to access it myself, possibly due to a technical issue. You mentioned increased operating expenses. There was a slight adjustment in the third quarter, roughly around 15 days. Regarding the run rate observed in the third quarter, would that be suitable for the fourth quarter? Or should we anticipate any modifications in operating expenses as we move into the fourth quarter and 2025?

It's probably a good guide or somewhere between the second and third. I don't have a sort of a fine-tuned comment for you on that, but it's not a bad guide.

Okay. And then I'm not sure if I heard it, but have you quantified the amount that you expect to recover in insurance in the fourth quarter?

We haven't disclosed that yet. In our discussions with the insurance company, we are close to having that information, but it will be addressed in our fourth quarter report when we receive it. We anticipate that it will be in the fourth quarter.

It's essentially the difference between the time charter contracted rate when it was operationally impaired; it was still functioning, but not at full capacity. So, it's just the difference for that period, which I believe was six days.

It's the difference for a number of days less the deductible that applies to that policy as well. But because she was able to operate on, as you say, an impaired basis rather than not able to operate at all, there's a discussion around how many days should be recognized. But that discussion is substantially complete.

Okay. Can you provide insights on the revolvers? Do you anticipate their renewal? What timeframe should we expect for their renewal?

We certainly expect to seek to renew them. That discussion with our lenders would normally be over the course of the first half next year. And we would typically, at least in the earlier one, expect to be complete with that discussion by the end of the first half. The second one is due that a little bit later in November. So, that might get into Q3 for that conclusion. And of course, you're aware of our pattern of results and news flow. So, it's likely that you'd hear about it on the earnings release date that followed any conclusion to those.

Understood. So, maybe possibly in late May or even as late as August, September of next year?

Yes, those are the likely dates of our earnings releases. We expect to include news within that timeframe. The renewals will not be significant enough to require a separate announcement, in my opinion.

Understood. To clarify, regarding the Carmen exercise of the option, the original contract was established when rates were lower. Now that rates have improved, particularly in Brazil, can you provide a percentage range indicating how much rates have improved in relation to the Carmen option? Is it around 10%?

I don't think we can provide that. As you know, we generally don't give very specific guidance on the rates that our vessels are earning. You can find an average rate based on our revenues for the quarter.

Can you tell us how many actual down days there were during the quarter? Specifically, what were your operating days excluding the idle days for repairs?

Yes, we don't have that specific number available. It's quite complex because partial earnings were possible. And we're looking at the difference between rates and not just total day rates. So, it's too complex to go into on the call and for putting into a model, I'm afraid.

Okay. To clarify, Dan Sabia transitioned from bareboat to the conventional market. Hopefully, it will realize its higher potential use. I believe you mentioned that about three quarters of the increase in operating expenses occurred in the third quarter.

That will be part of the increase in the OpEx.

Hi, good afternoon Derek. Great quarter. I want to thank you for all the hard work that you and your chartering department have done in securing excellent charters and achieving great coverage. I have a few questions, some specific and some more general. On the specific side, regarding the Dan Sabia, if you look on the map, they're going to Panama on a conventional voyage. Is there a consideration to swap similar to what was done with the Dan Cisne for a drop-down? Or is Panama halfway to Brazil where there are potential opportunities? Additionally, speaking to some clients in Brazil, the day rates are currently around $65. So even a smaller ship might be able to earn strong daily rates. Can you walk us through your thinking on the Dan Sabia?

Yes. We are marketing in any area where she can operate, including Brazil, and with some adjustments, the North Sea for shuttle work as well. We continue to market her directly. She is somewhat smaller than preferred in Brazil, which makes it challenging to deploy her despite the high current day rates. This is actually why she left Brazil once her charter ended last summer. Regarding a potential swap like the Cisne-Tuva swap a few months ago, that is absolutely a possibility. It will depend on discussions and negotiations with Knutsen NYK and needs to be commercially beneficial for both sides. It will also be reviewed by our independent conflicts committee, so the potential is there. We should note that the deployment of the sister vessel Dan Cisne to the North Sea pool has consumed some supply in that market. Therefore, Sabia's ability to be deployed there is slightly hindered by Cisne's presence. The concept of a drop-down is definitely possible, following the usual governance process, but the market circumstances differ from the situation we had with Cisne last summer.

Understood. That makes a lot of sense because the legal work should be quite similar to the Cisne. You can even duplicate the documents. As long as the independent committee approves, that should be beneficial. Regarding the Hilda, the situation is tightening in the North Sea. Clearly, production is increasing. Johan Casper should be starting any day now. What is your projection or expectation for the North Sea, especially considering there are no new builds?

Yes. Well, we'll continue to market Hilda for the period beyond the charter that we've just signed, so that will be from Q1 2026 onwards. And we're certainly very optimistic about market conditions in the North Sea. But as we saw during the course of this year, to actually get from our view on the market to signature took rather longer than really anybody anticipated. And what we don't see yet is whether that will change or whether the charterers will be signing further in advance than they chose to this year.

Understood. Can I ask a broader question? I have been investing for a long time, but I've rarely seen such a significant difference between the cost of debt and the cost of equity for a company like yours. The cost of debt is SOFR plus 220. You've refinanced everything immediately without any issues, which is impressive, and you have a very stable ownership and financing track record. As a result, your funding costs are quite low, yet the cost of equity seems extremely high given the net asset value or replacement cost of the ships in the mid to high teens. There's a substantial value gap between what the fleet is worth and the performance that has been reflected in the share price. There has been an increase in available cash and free cash flow despite repayments. Could you provide some insight on the dividend, particularly regarding the possibility of resuming it gradually? As shareholders, we have not received any remuneration for quite some time. For the Board members listening, it would be good to know that as they are receiving their Board fees, we too would like the dividend to be reinstated.

Yes, I understand everything you've mentioned, and I appreciate it. Over the past couple of years, we recognized the need to rebuild our visible charter pipeline. You might recall that two quarters ago, we expressed concern about four vessels. Last quarter, we narrowed that down to two vessels, and now we’re down to one vessel, with interest in renewing the Hilda. Currently, Dan Sabia is the vessel we are most concerned about. This is progress that we're pleased with, and it's encouraging to see that our unitholders have acknowledged this as well. However, we still need to deploy the Sabia, whether through charter, sale, or swap, depending on what option is most advantageous. We must keep reviewing our forecasted pipeline. Historically, our partnership has grown through drop-downs, and while swaps have proved efficient and strategically beneficial, we currently have only one opportunity for a drop-down swap coming up. As of now, there are five candidates available on the water for drop-downs. The Directors will be examining our capital allocation policy to determine the best approach, whether that means increasing distributions or a combination of options.

Well, just to point out, this is the smallest ship. We're now one out of 18. We have been waiting for a long time. It would be beneficial if the Board of Directors and the sponsor, which also owns 30%, recognized what an incredible opportunity this is to buy back stock at 30% to 40% of replacement cost. While it may not be a large amount, it would be helpful for the Board and the sponsor to acknowledge that there are shareholders who should benefit from the improvements in operations. You also have the opportunity with the declaration of dividend in January to signal that you care about shareholders as well.

Yes, thank you, I do understand and the Directors are aware of that too. Thanks Pavel.

Thank you guys and great quarter. And you guys have done an incredible job on all the fronts, except one. And I think I would urge the Board to really reevaluate given the amount of cash flow that you're bringing in every quarter to send a signal to shareholders that you're there for them as well. Thank you.

Yes. Thank you.

Hi. Good afternoon. Thank you for taking my questions. Most has already been covered, but could you talk a bit about your current hedging strategy? You increased the average maturity on your swaps quarter-over-quarter. And I was wondering, looking ahead, do you expect to maintain the ratio of hedged versus unhedged debt more or less constant? Or are you willing to lower it a bit given the higher interest rate environment?

Thank you for the question. We certainly expect to consider the current interest rate levels when entering any future interest rate swaps. It's not just about keeping a certain percentage of our debt fixed or effectively fixed. We have a broad range of hedging options available, covering between half and three quarters of our outstanding debt. Right now, we're on the higher side of that range, but we anticipate a significant reduction during 2025, which you can see from the average maturity of our disclosed interest rate swaps. However, we won't engage in swaps if we believe the rates are too high, as it wouldn't make economic sense. We expect to allow existing swaps to mature without initiating new ones at unfavorable rates.

Right. That’s helpful. Thank you for taking my questions.

Thanks.

This isn't really a question. It's more of a comment, just following up on the previous comment about rewarding the shareholders. Obviously, we'd all like to see an increase in both dividends and the stock price. But I don't have any specific numbers in mind, but I would urge you to continue to look at all these decisions with a conservative bank. I grew up in the airline industry. And I mean this is a different barrel of fish, but no pun intended. I look at all the airlines that went bankrupt after buying back stock even though they were heavily levered or much more heavily levered than you are. But part of shareholder value is preserving the value for the long-term. So, although I'd certainly like to see the dividends go back to where they were, I also want this company to survive and be strong for the long-term.

Thank you, Jim. Thanks for your input.

Hey Derek, congratulations on the great work you’re doing with the company. Dan Sabia just left after completing the option extension. You also have an upcoming firm period on Raquel, which will expire closer to summer. Can you provide more details on the timing and when you expect an option extension to occur?

On the Raquel, we typically notice that extensions are selected quite late, often as close as a month before the option period begins. While we prefer it to be decided earlier, the nature of it being a charter option means we usually have limited control over the timing.

Okay. Thanks. And now with Hilda getting a contract from March, it will exit the Knutsen pool. Won't that make it more attractive to sell Dan Sabia to sponsor and call it in the pool replacing Hilda with Sabia?

Yes, that certainly helps the demand/supply dynamics, yes. Well, thank you all again for joining this earnings call for KNOT Offshore Partners' third quarter 2024. And apologies to those who couldn't get into the presentation on the website. It certainly was uploaded and approved for public viewing. So, and I'll be looking into that. Otherwise, I look forward to speaking with you again following the fourth quarter results.

Thank you all for joining. I can confirm that does conclude today's call. Please enjoy the rest of your day, and you may now disconnect.