Business Context and Reporting Period
Company: KNOT Offshore Partners LP
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter and six months ended June 30, 2026
Business Overview: The Partnership owns and operates a fleet of 19 shuttle tankers (as of June 30, 2026), primarily under long-term time and bareboat charters with major oil and gas companies. The fleet operates globally, with significant exposure to the North Sea and Brazil. The Partnership is a limited partnership formed to generate stable cash flows and provide sustainable quarterly distributions.
Key Financial Metrics
| Metric (U.S. Dollars in thousands) | Three Months Ended June 30, 2026 |
Six Months Ended June 30, 2026 |
|---|---|---|
| Total Revenues | $96,776 | $188,783 |
| Operating Income | $15,557 | $30,253 |
| Net Income | $3,411 | $6,038 |
| Net Income Attributable to Common Unitholders | $1,679 | $2,589 |
| Earnings Per Unit (Basic) - Common | $0.05 | $0.08 |
| Cash Provided by Operating Activities | N/A | $66,641 |
| Cash and Cash Equivalents (End of Period) | $95,255 | $95,255 |
| Total Debt (Current + Long-Term) | $905,915 | $905,915 |
| Available Liquidity (Cash + Undrawn Credit) | $143,255 | $143,255 |
Note: Total debt includes current portion of long-term debt ($313.8M) and long-term debt ($588.7M). Available liquidity includes $48.0M in undrawn revolving credit facilities.
Material Changes vs. Prior Comparable Period
- Revenue Growth: Total revenues increased 11% for the six months ended June 30, 2026 ($188.8M) compared to the prior year ($171.1M). This was driven by the inclusion of the Live Knutsen and Daqing Knutsen in the fleet and increased EU ETS revenue recognition (100% phase-in in 2026 vs. 70% in 2025).
- Depreciation Increase: Depreciation expense surged 44% to $83.9M for the six months ended June 30, 2026, compared to $58.1M in the prior year. This is primarily due to a change in accounting estimate effective January 1, 2026, reducing the useful life of vessels from 23 years to 20 years.
- Net Income Decline: Despite higher revenues, Net Income decreased 58% to $6.0M for the six months ended June 30, 2026, compared to $14.4M in the prior year. The decline is largely attributable to the increased non-cash depreciation charge and the absence of a $1.3M gain from the disposal of the Dan Sabia recorded in the prior year.
- Insurance Recoveries: Loss of hire insurance recoveries increased significantly to $6.4M for the six months ended June 30, 2026, compared to $0.6M in the prior year, related to breakdowns and repairs on several vessels.
- Interest Expense: Interest expense decreased 8% to $27.7M for the six months ended June 30, 2026, due to debt repayments and lower SOFR rates.
Guidance, Outlook, and Risks
- Outlook: Management expects to continue using the majority of internally generated cash flow for working capital, debt reduction, and accretive acquisitions. The Partnership anticipates seeking to acquire additional vessels under long-term charters from KNOT over the next four to five years.
- Refinancing Needs: Significant debt maturities are scheduled for late 2026 and 2027, including facilities secured by the Live Knutsen ($65.9M), Tuva Knutsen ($57.4M), Hilda Knutsen ($39.4M), and Daqing Knutsen ($62.3M). Management believes these can be refinanced on similar terms.
- Subsequent Events:
- Hedda Knutsen Acquisition: On September 1, 2026, the Partnership acquired the Hedda Knutsen for a net cost of approximately $24.4M. The vessel is chartered to Petrobras until November 2034.
- Refinancing: On August 7, 2026, a new $225M senior secured credit facility was entered into to refinance existing loans for five vessels, maturing in June 2031.
- Distributions: A quarterly cash distribution of $0.075 per common unit was declared for the quarter ended June 30, 2026.
- Risks: Key risks include the ability to refinance debt on acceptable terms, fluctuations in oil prices and hire rates, compliance with environmental regulations (EU ETS), and potential impairment of vessel values if market conditions deteriorate.
Investor Verification Checklist
- Depreciation Impact: Verify the long-term impact of the reduced vessel useful life (20 years) on future earnings and cash flow projections.
- Debt Maturity Wall: Confirm the status of refinancing negotiations for the ~$225M in debt maturing between October 2026 and June 2027.
- Charter Expirations: Review the schedule of charter expirations, particularly for vessels with options (e.g., Synnøve Knutsen, Live Knutsen) to assess revenue visibility.
- Series A Preferred Units: Monitor the redemption date of February 2, 2027, for Series A Preferred Units, which could require a cash outlay of approximately $59.5M if redeemed in cash.
- EU ETS Costs: Assess the ongoing impact of the 100% phase-in of EU Emission Trading System costs on operating expenses and charter rates.