KNOT OFFSHORE PARTNERS LP 2026 Q2 Earnings Call

Good morning, ladies and gentlemen. My name is Derek Lowe, and I am the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the partnerships earnings call for the second quarter of 2026. Our website is knotoffshorepartners.com, and you can find the earnings release there along with this presentation. On slide 2, you will find guidance on the inclusion of forward-looking statements in today's presentation. These are made in good faith and reflect management’s current views, known and unknown risks, and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied in forward-looking statements, and the partnership does not have or undertake a duty to update any such statements made as of the date of this presentation.

For further information, please consult our SEC filings especially in relation to our annual and quarterly results. Today's presentation also includes certain non-US GAAP measures, and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. We begin on slide 3 with the Q2 financial and operational headlines. Revenues were $96.8 million. Operating income, $15.6 million, net income $3.4 million, adjusted EBITDA, $57.6 million, and as of June 30, 2026, we had $143.3 million in available liquidity made up of $95.3 million in cash and cash equivalents plus $48 million in undrawn capacity. This available liquidity was $2.6 million higher than at March 31, and that rise is largely in line with the reducing trend in recent quarters.

We operated with 96.8% utilization taking into account scheduled drydocking which amounts to 92.4% utilization overall following the drydocking of Fortaleza Knutsen. Following the end of the quarter, we declared a cash distribution of $0.075 per common unit which was paid in August under the 1099 structure and which represented an increase from the previous level. We are pleased to have continued the process of multiple gradual increases to our distribution anchored in our reliable and diversified long term cash flow improved balance sheet. On slide 4, we have the most significant developments since the start of the second quarter.

On September 1st, 2026, we purchased the Hedda Knutsen from KNOT for a purchase price of $113 million less an $89.4 million debt facility plus $0.8 million of capitalized financing fees resulting in a net cash cost of $24.4 million. The transaction was negotiated by our board's independent conflicts committee. The vessel was delivered new to KNOT in October 2024 and is on time charter to Petrobras in Brazil through to November 2034 with an additional 5 years of charters options. The acquisition provides fleet growth, diversifies and extends our pipeline of long term contracts, reduces our average fleet age and develops the fleet in the most in demand shuttle tanker asset class. On slide 5, we have commercial and financing developments.

We list here a number of positive contractual developments since the beginning of the second quarter. In addition to various charterers options exercised as expected, I would highlight: A time charter for Hilda Knutsen was executed with Eni to commence in June 2027 for a fixed period of 3 years plus 3 charters options each for one additional year. Time Charter for Recife Knutsen was executed for Transpetro to commence in Q3 2026 for a fixed period of 2 years. Agreement was reached with Eni for a time charter on Ingrid Knutsen commencing October 2026 for 3 years fixed plus 3 options each of one year. This is indirect continuation of the existing time chartered to Eni, replaces their existing options.

We refinanced the loan secured by Tordis Knutsen, Vigdis Knutsen, Lena Knutsen, Anna Knutsen and Brasil Knutsen via new $225 million 5 year senior secured term loan facility arranged by DNB Bank ASA with interest rate reduced meaningfully to SOFR plus 165 basis points. Turning to Slide 6 for high level summary of operating momentum. Both Brazil, North Sea continue to see tightening markets driven by robust multiyear FPSO pipeline, production growth, continuing investment exploration, existing project expansion, increase shuttle tanker service volumes across both markets, sustained sufficient tight supply demand balance even as new vessels delivered, expanded strong backlog $881.2 million fixed contracts quarter end, average 2.5 years duration charters options averaging further 4 years. At quarter fleet 19 vessels, 10.7 years. Acquisition Hedda Knutsen reduces average age nearly half year, continuing repay debt $95 million per year, prudent depreciating asset base, well advanced refinancing $65 million facility secured by Sindre Knutsen due later October. Slides 8-11 financials Q2 highlights covered already. On slide 12 is our debt maturity profile.

While no guarantees can be made, we have historically benefited from access to a wide pool of lenders and attractive bank finance, and we've been encouraged by our refinancing experience in recent years, including during significantly weaker shuttle tanker markets than the current one. Notably, the average margin on our floating rate debt during the second quarter was 2.21% over SOFR. Moving on to Slide 14 and our charter portfolio, I believe this remains a very useful resource for investors looking to track the primary moments where change can occur in a highly stable portfolio of cash flows. Based on current charter rates, we believe charters options are likely to be exercised given the strength of the charter market. On slide 15, you can see our strong forward coverage, where we're fully chartered for the remainder of 2026.

In 2027, we have 92% firm coverage or 96%, including charterers options. Likewise, for 2028, we have 65% firm coverage, or 93%, including charterers options. If we assume that charterers options are picked up, which is our current expectation, then you can see the slowly widening light gray section at the top of the bars as those offering upside potential for the KNOP fleet if market momentum is sustained. On slide 16, you can see the drop-down inventory held at the sponsor. Drop-downs have been the route to growth in the fleet throughout the life of the Partnership and remain the means of replenishing and rejuvenating the Fleet. In June 2026, the partnership decided not to pursue Frida Knutsen and Sindre Knutsen, and they've been removed from our drop-down inventory.

At the same time, we believe that the combination of accretive drop-downs and an improving charter market should support multiple gradual distribution increases over the coming quarters and years, in addition to materially extending our long-term cash generation runway, as certain of our vessels begin to age out in the years ahead. On slides 17 to 19, we include market commentary, particularly from Petrobras, which continues to highlight record production, a strong and expanding offshore production outlook, and continued FPSO deployment. We encourage you to review this as well as the copious materials that Petrobras publishes as the largest player in the Brazilian market, where we primarily operate. To summarize on slide 20, during the second quarter, we had strong utilization and solid financial results. We secured additional charter coverage across key vessels. We maintained a constructive backlog and market outlook.

We paid a quarterly distribution of $0.075 per unit, which is an increase from $0.05 in the prior quarter and $0.026 per quarter for several years before that. Following the end of the quarter, we purchased Hedda Knutsen, secured additional charter coverage, and refinanced the $225 million loan facility. On slide 21, we conclude with the key themes for KNOP and the Shuttle Tanker market. The market remains niche and highly concentrated. Offshore extraction continues to take market share from traditional onshore production. FPSOs serviced by shuttle tankers remain dominant compared with the construction of new pipelines. Brazil and North Sea offshore buildouts have strong momentum following a quieter stretch, while the shuttle tanker order book remains non-speculative and insufficient to meet anticipated demand levels.

Looking ahead to coming quarters and years, we believe that KNOP is well positioned to pursue attractive long-term growth opportunities alongside multiple gradual increases to our sustainable distribution. With that, I'll hand the call back to Leah for any questions.