KNOT Offshore Partners LP — 2020 Form 20-F Summary
Business context and reporting period
This is an annual report for the fiscal year ended December 31, 2020, not a standalone fourth-quarter report. KNOT Offshore Partners owns and operates shuttle tankers under time and bareboat charters, primarily serving offshore oil production in Brazil and the North Sea. Its fleet numbered 17 vessels at year-end, including the Tove Knutsen acquired from affiliate KNOT on December 31, 2020. Financial statements are prepared under U.S. GAAP.
Financial and operating highlights
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $279.2 million | $282.6 million |
| Operating income | $123.1 million | $127.7 million |
| Net income | $65.2 million | $59.0 million |
| Basic earnings per common unit | $1.74 | $1.55 |
| Operating cash flow | $169.2 million | $165.7 million |
| Adjusted EBITDA | $212.8 million | $217.6 million |
| Cash and cash equivalents at year-end | $52.6 million | $43.5 million |
| Gross debt at year-end | $1,036.1 million | $1,002.8 million |
| Cash distributions declared and paid per common unit | $2.08 | $2.08 |
Cash used in investing activities was $21.4 million, primarily related to the Tove Knutsen acquisition. Cash used in financing activities was $139.3 million, including $92.8 million of debt repayments and $79.3 million of distributions. The filing reports available liquidity of $73.3 million at December 31, 2020, comprising cash and $20.7 million of revolver availability; undrawn revolver capacity was $55 million as of March 18, 2021. Net current liabilities were $147.5 million at year-end, including $184.2 million of current debt.
Changes versus the prior year
- Revenue declined 1%, principally because of Raquel Knutsen’s scheduled drydocking, reduced Windsor Knutsen utilization and a lower Bodil Knutsen rate. Operating income fell about 4%, while net income rose 11%, primarily because interest expense decreased by $19.1 million.
- Derivative losses widened to $25.7 million from $17.8 million, largely reflecting lower U.S. swap interest rates. These fair-value movements are included in earnings; unrealized losses do not affect cash flow.
- Operating cash flow increased $3.5 million, mainly reflecting lower interest payments, partly offset by higher drydocking spending and working-capital changes.
- Debt increased, including borrowings associated with the Tove Knutsen acquisition. The fleet grew from 16 to 17 vessels.
Outlook, risks and unusual items
- Management expected resources, including $55 million of revolving credit availability as of March 18, 2021, to meet working-capital needs for at least 12 months, assuming existing charter rates. The Partnership expected to refinance debt maturities in 2021; inability to refinance on satisfactory terms could materially harm liquidity and operations.
- Near-term offshore project delays and capital-spending cuts related to COVID-19 softened shuttle-tanker demand. Management believed many projects were delayed rather than cancelled and remained positive on the medium- to long-term market, while acknowledging uncertainty.
- Two significant charter transitions require attention: the Bodil Knutsen charter was expected to expire April 9, 2021 after Equinor did not exercise its extension option; Windsor Knutsen’s charter had expired, and an engine-block crack left it off-hire. The Partnership anticipated a return to service around June 2021 and had agreed commercial terms for an expected one-year charter starting in the third quarter of 2021.
- Three Shell-chartered vessels have new three-year fixed charters scheduled to begin between May and December 2023, leaving an estimated average 15-month interim employment period. The vessels would be marketed for short- to mid-term work.
- Broker estimates placed aggregate vessel market value about $112 million below carrying value on a charter-free basis at year-end. No impairment was recorded because management concluded projected undiscounted cash flows supported recoverability; vessel impairment was a critical audit matter.
- Revenue is concentrated among seven customers; Shell represented 28% of 2020 revenue, and ENI and Transpetro each represented 16%. The Partnership also relies on KNOT affiliates for management and administrative services and has related-party expenses.
- Debt covenants restrict distributions and require, among other tests, minimum liquidity, positive working capital, a 30% minimum book-equity ratio and a 2.50 minimum EBITDA-to-interest ratio. The Partnership reported compliance at December 31, 2020.
- Other material exposures include floating-rate debt and LIBOR transition, vessel operating and drydocking costs, charter renewal and customer credit risk, oil-market and regulatory changes, and potential COVID-19-related crew or port disruptions. The filing reports no off-balance-sheet arrangements or legal proceedings believed to have a material adverse effect.
Important facts for investors to verify
- Confirm the refinancing status and terms of the 2021 debt maturities, including whether projected liquidity and covenant headroom remain adequate.
- Check subsequent employment, repair completion and insurance recoveries for the Windsor and Bodil, and the actual timing and terms of the three 2023 charters.
- Assess whether vessel valuations, charter assumptions and future cash flows support the no-impairment conclusion, especially for vessels facing charter expirations.
- Review cash available for distribution after maintenance and replacement capital needs, preferred-unit distributions and debt restrictions; the common distribution is not guaranteed.
- Monitor customer concentration and the Partnership’s related-party fees, governance conflicts and dependence on KNOT.