KNOT Offshore Partners LP — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
Business context
The Partnership owns and operates shuttle tankers that transport crude oil from offshore fields, primarily in Brazil and the North Sea. It reported a fleet of 18 vessels and relies on time charters and bareboat charters for most revenue. KNOT and its affiliates provide substantial vessel-management and administrative services and are also a related-party customer.
Financial highlights
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $290.7 million | $268.6 million |
| Operating income | $25.1 million | $66.2 million |
| Net income (loss) | $(34.3) million | $58.7 million |
| Net cash from operating activities | $131.6 million | $100.9 million |
| Cash and cash equivalents at year-end | $63.9 million | $47.6 million |
| Total debt outstanding at year-end | $963.0 million | $1,062.6 million |
- Time-charter and bareboat revenue rose 5% to $277.1 million, attributed mainly to higher utilization, increased hire rates and the inclusion of Synnøve Knutsen for a full year. Total revenue increased about 8%.
- Operating expenses included $49.6 million of impairment charges for Dan Cisne and Dan Sabia. The vessels were written down because their charters were nearing expiry, their carrying values were high and their size was less suited to the Brazilian market. Depreciation was $110.9 million.
- Interest expense increased 69% to $72.1 million, mainly due to higher benchmark rates and increased debt-related costs. Derivative gains declined to $5.4 million from $35.5 million in 2022, contributing to the year-over-year earnings decline.
- Operating cash flow improved by $30.7 million. Investing cash outflow was $2.8 million; financing cash outflow was $112.5 million, including $349.6 million of debt repayments and $10.4 million of distributions.
- Year-end current liabilities were $127.6 million against current assets of $89.8 million, resulting in net current liabilities of $37.8 million. Revolving credit facilities were fully drawn, leaving no additional borrowing capacity under them at year-end.
- Management reported that a 1 percentage-point change in short-term interest rates would change annual interest expense by approximately $2.9 million, based on year-end exposure. Interest-rate swaps had a $426.5 million notional amount.
Material changes and distributions
- Common-unit distributions were reduced to $0.026 per quarter beginning with the fourth quarter of 2022 and remained at that level through the report date. FY2023 common-unit distributions totaled $2.5 million; $6.8 million was paid to Series A Preferred unitholders.
- The Partnership refinanced a group of vessel loans in June 2023 with a new $240 million, five-year secured term loan. It also refinanced two $25 million revolving facilities, both maturing in 2025; both were fully drawn at year-end.
- Dan Cisne and Dan Sabia debt facilities were repaid in September 2023 and January 2024, respectively. Their 2023 impairments totaled $49.6 million.
- In April 2024, the Hilda Knutsen subsidiary entered into a proposed $60 million secured refinancing to replace a $100 million facility, including a $58.5 million balloon due in May 2024. Closing remained subject to definitive documentation and other customary conditions.
Outlook, risks and unusual items
- Management stated that available funding was expected to meet working-capital and other requirements for at least 12 months, assuming current contracted charter rates and timely completion of the Hilda refinancing. This is conditional; the filing does not provide earnings or distribution guidance.
- Management expects to prioritize working capital, debt reduction and balance-sheet strengthening. Estimated drydocking and classification-survey spending for time-chartered vessels was $3.7 million in 2024, within an estimated $63.1 million for 2024–2028. Additional potential spending included $0.7 million for a ballast-water system upgrade and up to $1.2 million for Dan Cisne upgrades.
- Charter coverage is a key risk. As of April 11, 2024, Hilda Knutsen and Torill Knutsen were on rolling monthly charters with KNOT’s pool, and several vessels faced expirations or lacked firm future employment. Dan Cisne was working short-term conventional tanker voyages; Dan Sabia’s Transpetro bareboat charter was due to expire in June 2024. Management was marketing vessels for new work.
- In January 2024, Torill Knutsen suffered a broken generator rotor that limited the facilities it could serve. The Partnership expected repair in late Q2 or early Q3 2024 and expected insurance to cover repair costs above a $150,000 deductible and some lost hire, subject to policy terms.
- Management cited continued inflation and supply-chain pressure, especially for fuel, logistics, crew and equipment; exposure to floating interest rates; customer and charter concentration; drydocking/off-hire risk; and geopolitical, environmental-regulatory and vessel-market risks. The Partnership reported compliance with debt covenants at December 31, 2023.
- Auditors issued an unqualified opinion on the financial statements and internal controls. The audit identified vessel impairment measurement as a critical audit matter, involving estimates of charter rates, utilization, drydocking costs and discount rates. Management reported effective disclosure controls and internal controls over financial reporting.
Important facts for investors to verify
- Whether the Hilda Knutsen refinancing closed on time and on the disclosed terms, and how near-term debt maturities and the fully drawn revolvers affect liquidity.
- Current charter status and achievable rates for vessels with near-term expirations or no firm employment, particularly Hilda Knutsen, Torill Knutsen, Dan Cisne, Dan Sabia and Ingrid Knutsen.
- Whether operating cash flow can support debt service, required vessel maintenance and the preferred distribution while the common-unit distribution remains $0.026 quarterly.
- Whether cost inflation, interest rates, off-hire events or vessel valuations create further pressure on margins, covenant headroom or impairment estimates.
- Potential dilution and senior claims from the 3,541,666 Series A Preferred Units, which carry cumulative distributions at an 8% annual rate and rank ahead of common units.