KNOT Offshore Partners LP (KNOP) Q1 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for joining us and welcome to the NOP First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session with an opportunity for equity research analysts to ask questions. If you would like to ask a question, please raise your hand. If you had dialed into today's call, please press star one to raise your hand. I will now hand the conference over to Derek Lowe. Please go ahead.

Thank you, Jade. And good morning, ladies and gentlemen. My name is Derek Lowe and I'm the Chief Executive and Chief Financial Officer of Connaught Offshore Partners. Welcome to the Partnerships Earnings School for the first quarter of 2026. Our website is connaughtoffshorepartners.com and you can find the earnings released there along with this presentation. On slide two 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 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. We begin on slide four with the Q1 financial and operational headlines. Revenues were 92 million dollars, operating income was 14.7 million, net income was 2.6 million, adjusted EBITDA was 56.5 million and as of March 31st 2026 we had 140.7 million dollars in available liquidity, made up of $92.7 million in cash and cash equivalents, plus $48 million in undrawn capacity. This available liquidity was $3.7 million higher than December 31st. We operated the 97.2% utilisation, taking into account scheduled dry docking, which amounts to 92% utilisation overall, following the dry dockings of Tuva Knudsen and Bodel Knudsen. following the end of the quarter we declared a cash distribution of five cents per common unit which was paid in may under the 1099 structure and which represented an increase from the previous level we are pleased to have initiated the process of increasing the distribution after an extended period of low payouts during which we restored our charter coverage improved our liquidity position and addressed multiple refinancings and dry dockings on slide five we have developments during the quarter prospectively from january the 1st 2026 we changed the useful life estimate of our vessels from 23 years to 20 years reflecting longer term market trends this will increase future depreciation quarter by quarter but that is not a cash item this step also does not prevent vessels from operating beyond 20 years and on slide 6 we have commercial developments we exercised our option to continue the time charter of Hildekunitsen with Shell through March 2027 and subsequently agreed a new time charter with E&I commencing in Q3 2027 for three years fixed plus options up to a further three years. Total Energies exercised their option to extend the charter of Anna-Kunitsen for one year until May 2027 and we agreed a time charter for Receife-Kunitsen with Transpetro to commence in Q3 2026 for a fixed period of two years. Turning to slide 7 for a high-level summary of our operating momentum, in both Brazil and the North Sea, we continue to see tightening markets driven by FBSO startups, ramp-ups, expansions and new developments. This increase in shuttle tanker service volumes across both markets has been sustained and sufficient to tighten the supply-demand balance. We have sustained a strong backlog with 858 million of fixed contracts averaging 2.4 years and rather more if all options are exercised. At quarter end, our fleet of 19 vessels had an average age of 10.5 years, and we are continuing to repay debt at around $90 million per year, which we consider prudent with a depreciating asset base. And having addressed prior refinancing activity, we now look ahead to a $220 million facility in September 2026, and a $65 million facility in October. Over slides 9 to 12, we provide the financials for Q1, the highlights which we have covered already. On slide 13 is our debt maturity profile. While no guarantees can be made, we have historically benefited from access to a wide pool of lenders and attractive bank finance, and we've been encouraged by our refinancing experience in recent years, including during significant weaker shuttle tanker markets than the current one. Notably, the average margin on our floating rate debt during the first quarter was 2.22% over so far. Moving on to slide 15 and our charter portfolio, I believe this remains a very useful resource for investors looking to track the primary movements where change can occur in a highly stable portfolio of cash flows. Based on current charter rates, we believe charterers options are likely to be exercised given the strength of the charter market. On slide 16, you can see our strong coverage through the coming quarters, some charterers options that we believe have a good likelihood of being exercised and a small amount of open time. On slide 17, you can see the drop-down inventory held at the sponsor. Drop-downs have been the route to growth in the fleet throughout the life of the partnership and remain the means of replenishing and rejuvenating the fleet. As mentioned in the earnings release, we anticipate pursuing these acquisitions over the next four to five years to the extent that the relevant terms are attractive and are approved by our conflicts committee. At the same time, we believe that the combination of accretive drop-downs and improving charter market should support multiple gradual distribution increases over the coming quarters and years, in addition to materially extending our long-term cash generation runway as certain of our vessels begin to age out in the years ahead. On slides 18 to 20, we include market commentary, particularly from Petrobus, which continues to highlight a strong and expanding offshore production outlook and continued FPSO deployment. We would encourage you to review this as well as the copious materials that Petrobas publishes as the largest player in the Brazilian market where we primarily operate. To summarise on slide 21, during the first quarter we had strong utilisation and solid financial results, we secured additional charter coverage across key vessels, we maintained a constructive backlog and market outlook and we paid a quarterly distribution of 5 cents per unit. looking ahead to the coming quarters and years we believe the successful execution of accretive drop-down transactions combined with rechartering of vessels into a strong market environment should create conditions for multiple gradual increases to our sustainable distribution with that i'll hand the call back to jade for any questions thank you we will now begin the

question and answer session which is open to equity research analysts if you would like to ask a question please press star followed by the number one on your telephone keypad to withdraw your question press star one again please pick up your handset when asking a question and if you're muted locally please remember to unmute your device we'll pause for just a moment to compile the q a roster your first question comes from the line of frederick dibod from fernlys please go ahead.

Thank you. Hello, Derek. Congratulations with the results. You have a pretty, pretty robust cash position, even more robust liquidity position. I'm happy to hear that you are talking about modestly increasing the dividends or distributions going forward, in addition to be able to take the potential drop downs as well.

But how should we think about when you say modest gradual increases in the dividend in what in terms of magnitude how should we think about it well that's something that gets decided on by the board each time they make a dividend or distribution declaration and that can only follow the end of each respective quarter so we don't have specific guidance on numbers that may be coming and the board will make their decision following the end of first quarter for the, sorry, the end of second quarter for the next distribution.

Yeah, but if you can provide some call about, you know, if you look at the backlog and cash generation going forward, you can sustain it with a much higher than five cents per unit. Should we think about, when you say modest increases, should we think about an increase similar to the one you did this time, or should it be more? that's just just for you know in terms of how we should think about it i appreciate the um uh the question but until we uh have a distribution uh decision from the directors over the uh after the end of the second quarter we don't have a number to provide you with okay thank you that was all i had uh in terms of questions your next question comes from the line

of Liam Burke from B. Reilly Securities. Please go ahead.

Thank you. Hi, Derek. How are you today?

Hi, Liam. Good, thank you. And you?

I'm fine, thanks. Derek, I had a macro question for you. There's more oil obviously being sourced out of the non-Gulf area due to the conflict in the Mideast. Now, eventually the straightover Homo's will be reopened, but do you anticipate, even post straighter Homo's opening, a higher than normal increase in offshore oil production development, or does it change your markets for the better?

Well, I don't particularly have a view over the medium to longer term. I can understand people being quite cautious in the nearer term as developments come along because the news flow varies from one day to the next. And I'm sure people will be seeking to interpret that as best they can and even remain cautious once the straits are open again. But I don't really have a view on whether it would change what will otherwise happen in the medium to long term because there could be other factors relating to that as well.

Okay, fair enough. And on the supply side, I mean, just in the vein where you reduce the useful life of the assets, could you give me a sense as to where we are in terms of the order book and the aging of the shuttle tanker fleet globally?

Well, you can see the aging of our vessels, and I guess the 20F is the best place to look at that to get that listed out. I don't particularly have a comment on the aging of other ship owners fleets uh but clearly with the ramp up particularly in brazil um the the new build inventory um is is clearly uh in excess of what's going to retire from the market it's intended to serve new volumes of the coming online okay but there is an aging of the fleet on the other end of it that could further tighten supply that's right yeah okay great thank you Derek.

Thank you.

Your next question comes in the line of Pofrat from Alliance Global Partners. Please go ahead.

Here, Derek. I apologize. I logged in a little late, and you may have addressed this in your prepared remarks, but could you just talk about the sequential decline in revenues and was that totally associated with the downtime you experienced or were there some you know time charter rollovers that impacted revenues yeah um thanks and no problem we didn't address that at the time earlier on um yes it will relate to uh the dry dock schedule and also simply the terms of the contracts that are outstanding

between the different periods.

Great, thank you. Thanks.

At this time there are no further questions. I will now turn the call back to Derek for closing remarks.

Thank you James and thank you all again for joining this Earnings School for Knott's Office of Partners first quarter of 2026. We look forward to speaking with you again following the second quarter results.

This concludes today's call. Thank you all for attending. You may now disconnect.