Business Context and Reporting Period
Company: KNOT Offshore Partners LP (KNOT Offshore Partners)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021.
Business Overview: The Partnership owns and operates a fleet of 17 shuttle tankers primarily under long-term time and bareboat charters with major oil and gas companies. The fleet operates in the shuttle tanker market, a single reportable segment.
Key Financial Metrics
| Metric (in thousands, except per unit) | Three Months Ended Sept 30, 2021 | Nine Months Ended Sept 30, 2021 | Balance Sheet (Sept 30, 2021) |
|---|---|---|---|
| Total Revenues | $66,579 | $208,997 | - |
| Net Income | $13,527 | $30,743 | - |
| Operating Income | $21,134 | $47,549 | - |
| Net Cash Provided by Operating Activities | - | $120,649 | - |
| Cash and Cash Equivalents | - | - | $66,605 |
| Total Debt (Current + Long-term) | - | - | $992,649 |
| Undrawn Revolving Credit Facilities | - | - | $55,000 |
| Earnings Per Unit (Basic) - Common | $0.34 | $0.75 | - |
| Cash Distribution Per Unit | $0.52 | $1.56 | - |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues for the nine months ended September 30, 2021, decreased by $0.4 million (0.2%) compared to the prior year period. Time charter and bareboat revenues decreased by $10.0 million (5%), primarily due to reduced utilization of the Windsor Knutsen (off-hire for repairs) and the Tordis Knutsen (technical fault). This was partially offset by the inclusion of the Tove Knutsen in results since December 2020.
- Insurance Recoveries: Loss of hire insurance recoveries increased significantly to $10.3 million for the nine months ended September 30, 2021, compared to $0 in the prior year. This relates to the Windsor Knutsen (engine block crack) and Tove Knutsen (propeller leakage).
- Asset Write-Down: A non-cash write-down of $29.4 million was recorded in the second quarter of 2021 related to the Windsor Knutsen, reducing its carrying value to estimated fair value. No such write-down occurred in the prior year.
- Depreciation Increase: Depreciation expense increased by $6.3 million (9%) for the nine-month period. This was driven by a change in the estimated useful life of the fleet from 25 years to 23 years, effective July 1, 2021, and the addition of the Tove Knutsen.
- Derivative Gains: Realized and unrealized gains on derivative instruments improved to a gain of $5.8 million for the nine months ended September 30, 2021, compared to a loss of $25.9 million in the prior year, largely due to mark-to-market gains on interest rate swaps.
Guidance, Outlook, and Management Commentary
- IDR Exchange: On September 7, 2021, the Partnership entered into an agreement to exchange KNOT's Incentive Distribution Rights (IDRs) for 673,080 common units and 673,080 Class B Units. Class B Units convert to common units over time if distributions meet a threshold of $0.52 per quarter.
- Refinancing: In September 2021, the Partnership closed a new $345 million senior secured credit facility to refinance debt for five vessels (Tordis, Vigdis, Lena, Anna, Brasil), extending maturities to September 2026.
- Vessel Status:
- Windsor Knutsen: Returned to service in September 2021 on a one-year time charter with PetroChina.
- Bodil Knutsen: Underwent installation of a VOC recovery plant; expected to be fully operational by end of December 2021.
- Tordis Knutsen: Experienced a 37-day off-hire in July 2021 due to a technical fault; insurance compensation of $1.2 million is expected.
- Liquidity: As of September 30, 2021, available liquidity was $121.6 million (cash plus undrawn credit facilities). Management believes resources are sufficient to meet working capital requirements for the next 12 months.
- Risks: Continued uncertainty regarding the impact of COVID-19 on crew changes, travel restrictions, and global economic activity. Potential for off-hire claims if outbreaks occur on board.
Investor Verification Checklist
- Verify the status and expected revenue impact of the Windsor Knutsen following its $29.4 million write-down and return to charter.
- Confirm the timeline and cost recovery for the VOC recovery plant installation on the Bodil Knutsen.
- Monitor the conversion schedule of Class B Units to common units and the impact on future distributions.
- Review the terms of the new $345 million refinancing facility and compliance with financial covenants (e.g., minimum liquidity, EBITDA/interest ratio).
- Assess the impact of the revised 23-year useful life estimate on future depreciation charges and net income.
- Track the resolution of open insurance claims totaling approximately $4.0 million as of September 30, 2021.