KNOT Offshore Partners LP
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good day and welcome to the KNOT First Quarter 2021 Earnings Results Conference Call. All participants will be in a listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . I would now like to turn the conference over to Gary Chapman, Company's CEO. Please go ahead.

[Gary Chapman:]

Thank you and welcome everybody to our first quarter earnings call for 2021. You can as always find our earnings release and this presentation on our website at knotoffshorepartners.com. Our call today includes certain non-U.S. GAAP measures of distributable cash flow and adjusted EBITDA and although our earnings includes the reconciliation of those non-GAAP measures to the most directly comparable GAAP measures.

[Operator:]

We will now begin the question and answer session. And the first question comes from Liam Burke with B. Riley. Please go ahead.

[Liam Burke:]

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

[Gary Chapman:]

Hello. Liam, I'm well. Thank you. Hope you are well.

[Liam Burke:]

I'm glad to hear that. You mentioned the Bodil Knutsen would be chartered by your sponsor on a rolling 90-day period. And then you touched on the fact that there's challenges related to the North Sea? Or can I get some clarification on how the North Sea ties into this?

[Gary Chapman:]

Yes, sure. The Bodil is a ice class vessel, and it suited to North Sea operations as opposed to Brazil. And I think at the moment, there are -- with the vessel coming off charter, we're looking for various options for the vessel to seek new employment. And at the moment, we've got -- this as an example, sorry, the headwinds that we've explained previously. With various projects shifting to the right, there's a little softness in the market at the moment. And that has meant that, we've been discussing with the parents about how we can deal with that in the immediate term, until we find alternative employment. And I think the solution we found, I think gives KNOP what it needs, which is the certainty of income. And I think that's really what we've been focused on.

[Liam Burke:]

Okay. That's fair. And then you mentioned as many, I mean, I guess, the prepared comments. Four new builds on drop down schedule. 2021, you're looking at one. How many realistically could you look at over a period of time? Or could you actually drop down over a period of time?

[Gary Chapman:]

Yes. There's actually six sitting at the sponsor at the moment. And we're looking at plans to purchase a vessel if we can in Q4 as I mentioned. I think at this stage today, the traditional equity issuance fees perhaps still not there for us. We are likely to put in place an ATM facility such that if an opportunity arises for us to go down on equity issuance that way, then at least we have that opportunity. But obviously, an ATM or any equity issuance is only useful if we have an accretive use for those funds, as you mentioned. So at the moment, we are looking at an internally financed dropdown similar perhaps to how we did the one in December 2020. But we are constantly assessing all of our options. I think, realistically, this year where we're targeting one. We might be able to do two. But I think one is a more realistic target. And then we go from there. I think further out than that it becomes harder for us to anticipate at this point. But I'm sure we'll get more clarity as we go through the year.

[Liam Burke:]

Great. Thank you, Gary.

[Gary Chapman:]

Thank you, Lian.

[Operator:]

The next question comes from Richard Diamond with Castlewood. Please go ahead.

[Richard Diamond:]

Yes. Good morning, Gary, and appreciate the steady hand. According to TradeWinds news this morning, steel prices and new Vs are up 11%. And the price has risen from $90 million to $100 million in the last two months. Assuming the price of shuttle tankers are also going up. Can you discuss the implication of higher newbuild prices on rates and any other implications for KNOT?

[Gary Chapman:]

Thank you, Richard. Good question. I think in terms of higher newbuilds prices for us and new projects, there are no speculative orders for shuttle tankers. So to the extent that newbuild prices go up, that would get plugged into our financial modeling in terms of when we're putting tenders forward for new business. So that ultimately is passed on to our charter. I think what's very interesting is that when newbuild prices go up, it allows our existing fleet to become more competitive at times of rechartering. So that when you have the higher newbuild price, clearly an existing vessel is able to command higher charter rate at rechartering as well. So in actual fact, for us with vessels coming off charter in the next sort of 12, 18 months, we actually will welcome higher newbuild prices. I think that's -- it's helpful for us as an existing vessel owner.

[Richard Diamond:]

Alright. Given the shortage of barge now, until 2024, because of all the container ship and other types of vessel ordering. Will that cause charters who want new vessels to look more aggressively to make sure that you can get the slots?

[Gary Chapman:]

I'm sure it will. It may very well bring forward some of our customers decision making if they look around at a slots and yards that are available and realize that if they don't get in soon, then maybe they won't. But I think that's an issue for KNOT, our sponsor primarily, but obviously ultimately has a knock on for us, I think our focus is on the rechartering rates. And hopefully, as I'd mentioned, the increase in newbuild prices in the -- will have a positive effect on rechartering rates. And that's really the main benefit for us and the sponsor already had six vessels with contracts that are either delivered or being constructed today that we'll be able to purchase. So I think for a sponsor, I think, yes, it can help with new business and therefore ultimately growth for us is MLP. But at the moment, yes, we've got six vessels that we can already look forward to.

[Richard Diamond:]

Thank you very much, Gary.

[Gary Chapman:]

Thank you, Richard.

[Operator:]

As we have no further questions, this concludes our question and answer session. I would now like to turn the conference back over to Gary Chapman for any closing remarks.

[Gary Chapman:]

Thank you very much everybody for your time and have a good day.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.