KNOT Offshore Partners LP (NYSE:KNOP) Q2 2018 Earnings Conference Call - Final Transcript

Sep 05, 2018 • 12:00 pm ET


KNOT Offshore Partners LP (NYSE:KNOP) Q2 2018 Earnings Conference Call - Final Transcript


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Good day, and welcome to the Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I'd now like to turn the conference over to John Costain, CEO. Please go ahead.

John Costain

Thank you. If any of you have not seen the earnings release or slide presentation, they're both available on Investor Section on our website.

On today's call our review will include non-US GAAP measures such as distributable cash flow and adjusted earnings before interest, taxation, depreciation and amortization, the EBITDA. The earnings release includes a reconciliation of these non-GAAP measures to the normal directly comparable GAAP financial measures.

(Forward-Looking Cautionary Statements)

And now onto the presentation. KNOT Offshore Partners focuses on the shuttle tanker segment. Each vessel is usually built to an individual charter specification. Under non-volume-based contracts, we transport oil from the offshore production units to shoreside, in effect we're midstream mobile pipeline business. The chartered vessel forming an integral component of the charter supply chain. Shuttle tankers operate in a niche space. In our sector to date, there has been no speculative ordering of tankers by vessel owners. So given the solid growth outlook from the sector, the partnership should yield stable and sustainable revenues longer-term. Our sponsor Knutsen NYK has placed all their younger vessels in the MLP. All have long-term charters after construction, and all remain strategically important in their respective charters. Taken together with the partnership, the Knutsen Group has 29 shuttle tankers, numerically this equates to the largest fleet on the water. Our sponsor is a very experienced operator, having been involved in the design and construction of shuttle tankers for well over 30 years, including being involved with the development of the design in the pioneering days, growing their fleet organically over time.

Oil production is moving further offshore as new fields open particularly in Brazil and the Barents Sea, and these tankers, therefore, operate in a space, which is seeing substantial oil production growth. This should continue in the coming years in addition to much of the shuttle tanker fleet is aging and will need replacing in the medium term. Our sponsor, Knutsen NYK is, according to Clarkson Platou research, part of the largest shipping group in the world, and NYK is a major company in the Mitsubishi family. Since the partnership's initial product offering in April 2013, the fleet has grown 300% to 16 vessels, with an average age of just under five years at the end of June.

Slide three, financial highlights. The partnership generated its highest quarterly revenues of 69.8 million, and its highest operating income of 32.1 million, and net income of 21.7 million. KNOT also generated its highest ever quarterly adjusted EBITDA of 54.4 million. The partnership estimated distributable cash flow of 27 million, and that with a coverage ratio of 1.5. We declared and paid cash distribution of $0.52 per unit