KNOT Offshore Partners LP: Earnings Release—Interim Results for the Period Ended March 31, 2020


For the three months ended March 31, 2020, KNOT Offshore Partners LP:

Generated total revenues of $67.8 million, operating income of $28.4 million and net loss of $6.1 million after taking into account a $23.9 million unrealized loss on derivative instruments.
Generated Adjusted EBITDA of $50.8 million (1)
Generated distributable cash flow of $23.9 million (1)
Reported a distribution coverage ratio of 1.33 (2)
Fleet operated with 99.6% utilization for scheduled operations and 95.2% utilization taking into account the scheduled drydocking of the Raquel Knutsen, which was offhire for 64 days in the first quarter of 2020.
Other events:

Due to the COVID-19 outbreak, the Partnership has taken health and safety precautions to minimize the spread of the virus, is following the directives of the governments of its countries of operation and is adapting procedures in line with the recommendations of the relevant health authorities.
On April 20, 2020, Eni Trading and Shipping S.p.A. (“Eni”) exercised two of its one-year options to extend the time charter of the Torill Knutsen until November 2022. In connection with the early exercise by Eni of its options, the Partnership granted Eni a further option to extend the time charter by one additional one-year period. Eni now has the option to extend the time charter by two one-year periods until November 2024.
The Partnership’s general partner appointed Mr. Junya Omoto to replace Mr. Takuji Banno on the Partnership’s Board of Directors, effective April 1, 2020.
On May 14, 2020, the Partnership paid a quarterly cash distribution of $0.52 per common unit with respect to the quarter ended March 31, 2020 to all common unitholders of record on May 1, 2020. On May 14, 2020, the Partnership paid a cash distribution to holders of Series A Preferred Units with respect to the quarter ended March 31, 2020 in an aggregate amount equal to $1.8 million.
Financial Results Overview

Total revenues were $67.8 million for the three months ended March 31, 2020 (the “first quarter”) compared to $70.1 million for the three months ended December 31, 2019 (the “fourth quarter”). The decrease was mainly related to reduced earnings from the Raquel Knutsen as a result of 64 offhire days incurred during the first quarter for the vessel to finish its scheduled first special survey drydocking.

Vessel operating expenses for the first quarter of 2020 were $15.6 million, an increase of $0.2 million from $15.4 million in the fourth quarter of 2019. The increase was mainly due to expenses for bunkers consumption in connection with the drydocking of the Raquel Knutsen. This was partially offset by lower operating cost on average for the fleet due to the strengthening of the U.S Dollar against the Norwegian Kroner (NOK).

General and administrative expenses were $1.4 million for the first quarter, an increase of $0.3 million from $1.1 million in the fourth quarter. The increase is mainly due to higher costs in connection with annual reporting.

(1) EBITDA, Adjusted EBITDA and distributable cash flow are non-GAAP financial measures used by management and external users of the Partnership’s financial statements. Please see Appendix A for definitions of EBITDA, Adjusted EBITDA and distributable cash flow and a reconciliation to net income, the most directly comparable GAAP financial measure.

(2) Distribution coverage ratio is equal to distributable cash flow divided by distributions declared for the period presented.

Depreciation was $22.4 million for the first quarter, a decrease of $0.2 from $22.6 million in the fourth quarter. The decrease is mainly due to depreciation adjustments for the Raquel Knutsen due to its accelerated drydocking in the first quarter.

As a result, operating income for the first quarter was $28.4 million compared to $31.0 million in the fourth quarter.

Interest expense for the first quarter was $10.5 million, a decrease of $0.9 million from $11.4 million for the fourth quarter. The decrease was mainly due to lower LIBOR on average for all credit facilities and one less day in the first quarter compared to the fourth quarter.

Realized and unrealized loss on derivative instruments was $23.7 million in the first quarter, compared to a gain of $4.2 million in the fourth quarter. The unrealized non-cash element of the mark-to-market loss was $23.9 million for the first quarter of 2020 compared to a gain of $4.9 million for the fourth quarter of 2019. Of the unrealized loss for the first quarter of 2020, $23.0 million is related to a mark-to-market loss on interest rate swaps due to a decrease in the US swap rate and $0.9 million is related to foreign exchange contracts.

As a result, net loss for the first quarter of 2020 was $6.1 million compared to a net income of $23.8 million for the fourth quarter of 2019.

Net loss of $6.1 million for the first quarter of 2020 decreased by $19.0 million from net income of $12.9 million for the three months ended March 31, 2019. The operating income of $28.4 million for the first quarter of 2020 decreased by $4.0 million compared to operating income of $32.4 million in the first quarter of 2019, mainly due to reduced earnings from the Raquel Knutsen in connection to its scheduled drydocking and reduced earnings from the Bodil Knutsen due to its reduced daily rate from May 2019 when the vessel began operating under its new time charter option and higher operating cost on average for the fleet. Total finance expense for the first quarter of 2020 increased by $15.1 million to $34.6 million compared to finance expense of $19.5 million for the first quarter of 2019. The increase was mainly due to increased unrealized loss on derivative instruments mainly due to a lower US swap rate.

Distributable cash flow was $23.9 million for the first quarter of 2020 compared to $26.4 million for the fourth quarter of 2019. The decrease in distributable cash flow is mainly due to reduced earnings from the Raquel Knutsen due to its scheduled drydocking and one less operational earning day in the first quarter. After review there was also an upward adjustment made to the annual estimated maintenance and replacement capital expenditures. The distribution declared for the first quarter of 2020 was $0.52 per common unit, equivalent to an annualized distribution of $2.08.

Operational Review

Despite the continuing impact of COVID-19 on global economic activity and the decline in oil prices, the Partnership has not experienced any material disruption in its operations pursuant to its charters. Due to international travel restrictions there have been challenges in respect of crew changes. However, the Partnership has been able to carry out some limited changes in both Europe and in Brazil. The Partnership currently expects higher airfreight and crew expenses due to COVID-19 but does not expect total vessel operating costs to be materially higher than budget for the year.

The Partnership’s vessels operated throughout the first quarter of 2020 with 99.6% utilization for scheduled operations and 95.2% utilization taking into account the scheduled drydocking of the Raquel Knutsen.

On April 20, 2020, Eni exercised two of its one-year options to extend the time charter of the Torill Knutsen until November 2022. In connection with the early exercise by Eni of its options, the Partnership granted Eni a further option to extend the time charter by one additional one-year period. Eni now has the option to extend the time charter by two one-year periods until November 2024.

The Raquel Knutsen went offhire on December 14, 2019 for her voyage to a shipyard in Portugal to complete her planned 5-year special survey drydocking. The Raquel Knutsen went back on charter on March 5, 2020.

Financing and Liquidity

As of March 31, 2020, the Partnership had $72.9 million in available liquidity, which consisted of cash and cash equivalents of $44.2 million and $28.7 million of capacity under its revolving credit facilities. The revolving credit facilities mature in August 2021 and September 2023. The Partnership’s total interest-bearing debt outstanding as of March 31, 2020 was $984.4 million ($977.6 million net of debt issuance cost). The average margin paid on the Partnership’s outstanding debt during the first quarter of 2020 was approximately 2.1% over LIBOR.

As of March 31, 2020, the Partnership had entered into foreign exchange forward contracts, selling a total notional amount of $10.0 million against the NOK at an average exchange rate of NOK 9.79 per 1.00 U.S. Dollar. The foreign exchange forward contracts are economic hedges for certain vessel operating expenses and general expenses in NOK.

As of March 31, 2020, the Partnership had entered into various interest rate swap agreements for a total notional amount of $633.7 million to hedge against the interest rate risks of its variable rate borrowings. As of March 31, 2020, the Partnership receives interest based on three or six-month LIBOR and pays a weighted average interest rate of 1.75% under its interest rate swap agreements, which have an average maturity of approximately 3.9 years. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impacted by changes in the market value of such financial instruments.

As of March 31, 2020, the Partnership’s net exposure to floating interest rate fluctuations on its outstanding debt was approximately $306.5 million based on total interest-bearing debt outstanding of $984.4 million, less interest rate swaps of $633.7 million and less cash and cash equivalents of $44.2 million.
Source: Knot Offshore Partners



Leave A Reply

Your email address will not be published. Required fields are marked *