Operator
Ladies and gentlemen, thank you for joining us and welcome to the KNOPP Second 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 have dialed in to today's call, please press star one to raise your hand. I will now hand the conference over to Derek Lowe. please go ahead, sir.
Thank you, Leo. Good morning, ladies and gentlemen. My name is Derek Lowe and I'm the Chief Executive and Chief Financial Officer of Knott Offshore Partners. Welcome to the Partnerships Earnings Call for the second quarter of 2026. Our website is knottoffshorepartners.com and you can find the earnings released there along with this presentation. On slide two, you'll 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 gap measures, and our earnings release includes a reconciliation of these to the most directly comparable gap measures. We begin on slide three with the Q2 financial and operational headlines. Revenues were £96.8 million, operating income £15.6 million, net income £3.4 million, adjusted EBITDA of $57.6 million, And as of June 30th, 2026, we had $143.3 million in available liquidity, made up of $95.3 million in cash and cash equivalents, plus $48 million in undrawn capacity. This available liquidity was $2.6 million higher than at March 31st, and that rise is largely in line with the reducing trend in recent quarters. We operated with 96.8% utilisation, taking into account scheduled dry docking, which amounts to 92.4% utilisation overall following the dry docking of Fort Leyes. Following the end of the quarter, we declared a cash distribution of 7.5 cents per common unit, which was paid in August under the 1099 structure and which represented an increase from the previous level. We're pleased to have continued the process of multiple gradual increases to our distribution anchored in our reliable and diversified long-term cash flow and improved balance sheet. On slide four, we have the most significant developments since the start of the second quarter. On September 1st, 2026, we purchased the Hedeknotsen from Cnot for a purchase price of £113 million, less than $89.4 million debt facility plus $0.8 million of capitalised financing fees, resulting in a net cash cost of $24.4 million. dollars. The transaction was negotiated by our board's independent conflicts committee. The vessel was delivered new to KNOT in October 2024 and is on time charter to Petrobras in Brazil through to November 2034 with an additional five years of charter as options. The acquisition provides fleet growth, diversifies and extends our pipeline of long-term contracts, reduces our average fleet age and develops the fleet in the most in-demand Shuttletang grasset class and on slide five we have commercial and financing developments we list here a number of positive contractual developments since the beginning of the second quarter in addition to the various charterers options exercised as expected i would highlight the time charter for hildoknetson was executed with eni to commence in june 2027 for a fixed period of three years plus three charterers options each for one additional year the time charter for receive Knutson was executed by Transpetro to commence in Q3 2026 for a fixed period of two years. The agreement was reached with E&I for a time charter on Ingrid Knutson, commencing October 2026 for three years fixed plus three options each of one year. This is indirect continuation of the existing time charter to E&I and replaces their existing options and we refinanced the loan secured by Tordis, Vigdis, Lena, Anna and Brazil Knudsen by a new $225 million five-year senior secured term loan facility arranged by DNB with the interest rate reduced meaningfully to sofa plus 165 basis points. Turning to slide six for a high level summary of our operating momentum. In both Brazil and the North Sea we continue to see tightening markets driven by robust multi-year fpso pipeline production growth and continuing investment in exploration and existing project expansion the increase in shuttle tanker service volumes across both markets has been sustained and sufficient to tighten the supply demand balance even as new vessels have been delivered we have expanded our strong backlog with 881.2 million dollars of fixed contracts at quarter end which average 2.5 years in duration and charterless options averaging further four years at quarter end our fleet of 19 vessels had an average age of 10.7 years acquisition of the header reduces the average age by nearly half a year we are continuing to repay debt at around 95 million dollars per year which we consider prudent with a depreciating asset base and we are well advanced in the refinancing of the 65 million dollar facility secured by lever knutzen which is due later in october over slides 8 to 11 we provide the financials for q2 the highlights of which we've covered already on slide 12 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 significantly weaker shuffle tanker markets than the current one notably the average margin on our floating rate debt during the second quarter to us 2.21% over so far. Moving on to slide 14 and our charter portfolio, I believe this remains a very useful resource for investors looking to track the primary moments where change can occur in a highly stable portfolio of cash flows. Based on current charter rates, we believe chartered options are likely to be exercised given the strength of the charter market. On slide 15, you can see our strong forward coverage where we're fully chartered the remainder of 2026 and in 2027 we have 92% firm coverage or 96% including charterless options likewise for 2028 we have 65% firm coverage or 93% including charterless options if we assume the charterless options are picked up which is our current expectation then you can see the slowly widening light grey section at the top of the bars as those offering upside potential for the K&OP fleet if market momentum is sustained. On slide 16 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. In June 2026 the partnership decided not to pursue Frieda Knudsen and Sindra Knudsen and they've been removed from our drop-down inventory. At the same time we believe that the combination of accretive drop-downs and an improving charter market should support multiple gradual distribution increases over the coming quarters and years in addition to material extending our long-term cash generation runway as certain of our vessels begin to age out in the years ahead on slides 17 to 19 we include market commentary particularly from petrobras which continues to highlight record production a strong and expanding offshore production outlook and continued fpso deployment we encourage you to review this as well as the copious materials that Petrobras publishes as the largest player in the Brazilian market where we primarily operate. To summarise on slide 20, during the second 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, we paid a quarterly distribution of 7.5 cents per unit which is an increase from 5 cents in the prior quarter and 2.6 cents per quarter for several years before that. Following the end of the quarter we purchased Hedeknudsen, secured additional charter coverage and refinanced the $225 million loan facility. And on slide 21 we conclude with the key themes for KNOP and the shuttle tanker market. The market remains niche and highly concentrated, offshore extraction continues to take market share from traditional onshore production and FBSOs serviced by shuttle tankers remain dominant compared with the construction of new pipelines brazilian north sea offshore build-outs have strong have strong momentum following a quieter stretch while the shuttle tanker order remains non-speculative and insufficient to meet anticipated demand levels looking ahead to coming quarters and years we believe that KNMP is well positioned to pursue attractive long-term growth opportunities alongside multiple gradual increases to our sustainable distribution. With that, I'll hand the call back to Leah for any questions.
Operator
We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Liam Burke with B. Riley Securities. Your line is open. Please go ahead.
Rick, you've been a busy man this quarter.
In terms of dropdowns, the head of financing was pretty elegant with the assumption of debt and the addition of cash. When I think about the potential drop-downs and the ability to finance them, do you anticipate a different cadence of growing the fleet, or are you just going to take it as they come along?
Well, we respond to the offers that are made to us, and obviously only a limited number of the fleet of the drop-down lists have been delivered at this stage. And so they can only be offered once they've been delivered. So it's a matter of the timing of the offers and the response that the conflicts committee wants to make to them.
Okay. But would you envision the financing similar to HEDA, which, as I said before, is a pretty elegant way to fund a drop down?
I mean, the standard model for all of them is that they have a secure debt facility in place already as they are offered. So the financing itself does not need to be arranged at the time that the drop-down is offered. And it's a standard term of those facilities that the ownership and the guarantor arrangements can be transferred over to KNOP from KNOT, so that that is straightforward. But I would say the loan on the header is very standard from the point of view of the drop-downs we've had in the past. so that those terms did not come as a great surprise nor did the approximate cash cost of of the transaction so that 24 million is fairly consistent with the cost that you'll see the sort of net effect the cost that you'll see in the previous transactions we've done great thank you Derek great thanks Liam there are no further questions at this time I will now turn the call back to Derek Lowe for closing remarks. Well, thank you again, ladies and gentlemen, for joining us Earnings Court for Canossa Office of Partners second quarter of 2026. And I look forward to speaking with you again following the third quarter results.
Operator
This concludes today's call. Thank you for attending. You may now disconnect.
