KNOT Offshore Partners LP — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide separate Q4 financial results. The Partnership owns and operates shuttle tankers, principally under time and bareboat charters. It reported a fleet of 17 vessels as of year-end and seeks to generate stable cash flows and quarterly distributions.
Financial and operating highlights
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Time charter and bareboat revenue | $269.3 million | $278.6 million | Down 3% |
| Total revenue and other income, including insurance recoveries | $281.1 million | $279.2 million | Up 1% |
| Operating income | $73.6 million | $123.1 million | Down 40% |
| Net income | $53.9 million | $65.2 million | Down 17% |
| Operating margin, calculated as operating income / total revenue | 26.2% | 44.1% | Lower |
| Net cash provided by operating activities | $166.4 million | $169.2 million | Down $2.8 million |
| Cash and cash equivalents at year-end | $62.3 million | $52.6 million | Up $9.7 million |
| Consolidated debt at year-end | $974.6 million | $1,036.1 million | Down $61.5 million |
- 2021 operating results included a $29.4 million impairment charge on the Windsor Knutsen and $11.5 million in loss-of-hire insurance recoveries. The impairment was attributed principally to the vessel’s high carrying value following its purchase and conversion.
- Depreciation increased to $99.6 million from $89.7 million, partly because the estimated useful lives of the fleet were shortened from 25 to 23 years effective July 1, 2021. The filing says this change reduced 2021 net income by $5.7 million.
- Interest expense fell to $28.1 million from $31.6 million. Derivative results improved to a $10.0 million gain from a $25.7 million loss; these mark-to-market movements can affect earnings without affecting cash flow in the same period.
- Net cash used in investing activities was $11.5 million, principally for vessel equipment. Net cash used in financing activities was $145.1 million, including $79.4 million of cash distributions and substantial debt repayments and refinancing activity.
- Reported available liquidity at December 31, 2021 was $117.3 million: $62.3 million of cash and $55.0 million of undrawn revolving facilities. The Partnership also reported net current liabilities of $42.1 million, including $88.6 million of current debt.
- Debt carried interest at LIBOR plus margins of 1.75% to 2.4%. The Partnership had $462.3 million of interest-rate swaps and estimated net exposure to floating rates of $360.8 million; a 1 percentage-point rate change was estimated to affect annual interest expense by about $3.6 million.
- The quarterly distribution was $0.52 per common unit, or $2.08 per unit for the year. Series A Preferred Units carry cumulative distributions at an 8% annual rate and have priority over common-unit distributions.
Material changes and developments
- In September 2021, the Partnership refinanced five vessels through a new $345 million secured facility, bearing LIBOR plus 2.05% and maturing in September 2026. It includes a $220 million balloon payment at maturity. The refinancing replaced loans due to mature in 2021–2022.
- In January 2021, the Raquel Knutsen entered a 10-year sale-and-leaseback arrangement. The Partnership reported $38 million of net proceeds after repayment of the prior loan and related swaps.
- KNOT exchanged its incentive distribution rights for 673,080 common units and 673,080 Class B Units in September 2021. The IDRs were cancelled. Class B Units receive distributions only when common units receive at least $0.52 per quarter; one-eighth convert to common units for each qualifying quarter.
- The Partnership established a $100 million at-the-market common-unit sales program. It sold 41,940 units through year-end for net proceeds of $0.83 million; no further sales were reported through March 17, 2022.
Outlook, risks and contingencies
- Management described the near-term shuttle-tanker market as softened by oil-company capital-spending delays and said weaker demand could persist through most of 2022. It remained positive on medium- and long-term demand, citing offshore projects and replacement of older vessels. These are forward-looking views, not guaranteed outcomes.
- Charter duration and re-employment are key concerns: average remaining charter term was 2.0 years at December 31, 2021, and several vessels faced expiration or redelivery in 2022. The filing identifies possible idle periods and less attractive replacement rates as risks. Several new charters or commercial terms were reported after year-end, including employment for the Anna Knutsen and Tordis Knutsen.
- Five customers—Shell, Transpetro, ENI, Galp and Repsol—accounted for approximately 22%, 17%, 16%, 13% and 14% of 2021 revenue, respectively. All time-charter and bareboat revenue was derived from nine customers, creating concentration and counterparty risk.
- Management said the Partnership had avoided material COVID-19 service disruptions apart from 17 days of off-hire on the Vigdis Knutsen in July 2021. Crew travel, logistics and operating costs remained challenging; future outbreaks or customer payment issues could affect operations and cash flow.
- The Partnership stated it was in compliance with debt covenants at year-end and believed available resources were sufficient for at least 12 months, assuming current charter rates. However, debt agreements impose liquidity, working-capital, equity-ratio and interest-coverage tests and can restrict distributions. The filing identifies refinancing risk, including a significant September 2023 facility maturity and balloon payments.
- Other material risks include vessel outages and drydocking costs, oil-market and shuttle-tanker supply/demand changes, interest-rate and LIBOR-transition exposure, environmental and greenhouse-gas regulation, and possible operational or supply-chain effects of Russia’s invasion of Ukraine. The Partnership reported no direct business impact from the invasion through the filing’s evaluation date, but noted that some crew members were Russian or Ukrainian nationals.
- No legal proceedings were identified as expected to have a material adverse effect. The independent auditor gave an unqualified opinion on the financial statements and on internal control over financial reporting; management also concluded the controls were effective at year-end.
Important facts for investors to verify
- Confirm post-year-end vessel employment, charter commencement dates, rates, options and any resulting off-hire or drydocking exposure.
- Review the maturity and refinancing plan for the $177 million final payment due under the multi-vessel facility in September 2023, as well as other balloon obligations and covenant headroom.
- Assess whether operating cash flow can support preferred distributions, maintenance spending, debt service and the $0.52 quarterly common distribution without relying on additional borrowing or unit issuance.
- Track vessel impairment assumptions and the effects of the 23-year useful-life estimate, particularly for the Windsor Knutsen and vessels approaching charter expiration.
- Evaluate the potential dilution and distribution priority associated with Series A Preferred Unit conversion or redemption and Class B Unit conversion.
- Monitor customer concentration, charterer credit quality, LIBOR transition arrangements, and any developments affecting Russian or Ukrainian crew, sanctions, or vessel operations.