Business Context and Reporting Period
KNOT Offshore Partners LP (KNOT) is a limited partnership owning and operating a fleet of 17 shuttle tankers under long-term time and bareboat charters with major oil and gas companies. This Form 6-K covers the quarterly period ended June 30, 2021. The Partnership operates in a single reportable segment: the shuttle tanker market.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2021) | Value (USD in thousands) |
|---|---|
| Total Revenues | $142,418 |
| Net Income | $17,216 |
| Operating Cash Flow | $79,814 |
| Total Debt (Gross) | $1,003,211 |
| Cash and Cash Equivalents | $51,589 |
| Available Liquidity | $101,589 (Includes $50M undrawn credit facilities) |
| EBITDA Margin (Approx.) | Filing does not provide a clear EBITDA margin percentage. |
Note: For the three months ended June 30, 2021, the Partnership reported a Net Loss of $10.9 million, primarily driven by a non-cash asset write-down.
Material Changes vs. Prior Period
- Revenue: Six-month revenues increased 3.1% to $142.4 million compared to $138.1 million in the prior year period. This increase was driven by $10.3 million in loss of hire insurance recoveries, offsetting a $5.4 million decrease in time charter and bareboat revenues due to vessel off-hire periods (specifically the Windsor Knutsen and Bodil Knutsen).
- Profitability: Net income for the six months increased 11% to $17.2 million from $15.5 million. However, the Q2 2021 quarter saw a net loss of $10.9 million compared to a net income of $21.7 million in Q2 2020.
- Asset Write-Down: A significant non-cash write-down of $29.4 million was recorded in Q2 2021 related to the Windsor Knutsen. This impairment was due to the vessel's high carrying value relative to its estimated fair value following engine repairs and market reassessment.
- Operating Expenses: Vessel operating expenses increased 25% year-over-year for the six-month period to $36.0 million, attributed to higher crew costs due to COVID-19 travel restrictions and the inclusion of the Tove Knutsen in operations since late 2020.
- Debt: Total long-term debt decreased to $1.003 billion from $1.036 billion at year-end 2020, following a sale and leaseback transaction for the Raquel Knutsen and regular debt repayments.
Guidance, Outlook, and Risks
- Outlook: Management believes current resources, including $50 million in undrawn revolving credit facilities, are sufficient to meet working capital requirements for the next 12 months. The Partnership expects to refinance existing term loans maturing between late 2021 and mid-2022.
- Recent Developments:
- Refinancing: On August 25, 2021, the Partnership entered into a new $345 million senior secured credit facility to refinance five vessels, extending maturities to September 2026.
- ATM Program: An "At-The-Market" equity offering program was established on August 26, 2021, allowing the sale of up to $100 million of common units.
- Charter Renewals: A one-year time charter for the Windsor Knutsen is expected to commence in September 2021. The Bodil Knutsen is undergoing VOC recovery plant installation for a new charter starting in late 2023 or early 2024.
- Risks and Contingencies:
- COVID-19: Ongoing pandemic impacts may lead to increased crew costs, port restrictions, and potential off-hire claims, though no material service interruptions have occurred to date.
- Refinancing Risk: The Partnership has significant debt maturities in 2022. Failure to refinance could materially adversely affect liquidity.
- Market Conditions: Fluctuations in oil prices and demand for shuttle tankers could impact future charter rates and vessel values.
Investor Verification Checklist
- Asset Impairment: Verify the assumptions used in the $29.4 million write-down of the Windsor Knutsen and the vessel's expected redeployment timeline.
- Debt Maturity Wall: Confirm the status of the $345 million refinancing closing and the schedule for other loans maturing in 2022.
- Off-Hire Status: Monitor the operational status of the Windsor Knutsen and Bodil Knutsen to ensure timely return to revenue-generating charters.
- Insurance Recoveries: Assess the sustainability of revenue contributions from loss of hire insurance, which was a significant factor in the six-month revenue increase.
- Equity Dilution: Review the utilization of the new $100 million ATM program and its potential impact on earnings per unit.