Good day. And welcome to the KNOT Offshore Partners’ Third Quarter 2014 Earnings Release 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 would now like to turn the conference over to Mr. Arild Vik, CEO and CFO of KNOT Offshore Partners. Please go ahead.

Thank you very much. Good afternoon and very much happy to welcome you to our third quarter earnings conference call, and I will go through the presentation and we will take questions afterwards as they come. I think, we should go straight to the presentation and after the notice to the recipients that we can go straight to the page three for the highlights and recent events of the partnership during this period. Major element is that we have added two vessels towards the end of second quarter -- this year, so that have major effect on our income and operating income as well. Our net income ended up $12.6 million and our operating income of $15.5 million. We generated adjusted EBITDA of $25.7 million and we generated distributable cash flow of $14.7 million. In addition to acquisition effects from these two vessels, our result in third quarter was also positively affected by $1.8 million in unrealized derivative gains on interest swaps. In third quarter we declared a cash distribution of $0.49 per unit and this then leases to having an annual distribution of $1.96 per unit, which is a 12.6% increase from the Q2 distribution. Also during this quarter, the underwriters exercised their option to take the overallotment option and the General Partner followed on in order to maintain the 2% partner -- their ownership. So, in total the common unit offering and the overallotment option write to increase in our equity of $152 million. And other notable event is that during the quarter our sponsor Knutsen NYK Offshore Tankers entered into long-term charters with BG Group, for vessels starting up 2016, 2017 and this contracts will be -- has been ordered at the Hyundai Heavy Industries in South Korea and this increases the partnership -- the defined vessels…

Thank you. (Operator Instructions) The first question comes from Derek Walker with Bank of America. Please go ahead.

Hi. Good afternoon.

Good afternoon.

Appreciate the color around the breakevens both in Brazil and North Sea. I guess, in light of that information, do you still see any changes or behavior perhaps outside of those areas, I know there is other markets for shuttle tankers, but not sure what the breakeven points are there, and to some extent your appetite. Previously given just the commodity backdrop, but just what are you seeing outside of both those markets for shuttle tankers and do you see the (indiscernible) prices change sort of the opportunities out there?

I think we continue to believe that Brazil and North Sea are main markets. I think we see development maybe in off the Canadian Coast potentially, as they need maybe at one point to renew part of their fleet. But, I mean, we don’t see West Africa and I don’t think we see U.S. Gulf quite yet. So I think that in terms of what our practical importance for investors over the next three to five years, I think our picture is pretty much the same.

But also in the northern part of Norway and further north, there will be also some development and that will be of longer distances for sailing which also give a higher demand.

Got it. Appreciate it. And then sorry hopped on the call late, but do you guys give a sense for just the overall tender activity for next year and how that’s developed?

Well, I think we have indicated that there have been tendering activity and now we see that it’s actually happening. There was also a tender of orders to competitor the other day and I think we continue to believe that there are tenders out there, which would for the next 12 months be in a range of six to eight vessels. It’s very difficult to give a fixed number, but I would -- we would definitely expect to see continued tender activity next during up period.

And I more believe that actually we should be able to take our share of that and be just as successful as we have been into ’14, into '15.

Got it. And then just a last one for me.

We have enough our candidates. So irrespective of the oil price, this will happen because these are fields which have already decided development, they wouldn’t be stopped.

Got it. Just a last one for me is just, as you look at portfolio and continue the path of just being a pure-play shutter tanker business, but are you evaluating other types of assets and either complementary or just additional platforms, can you just provide some thoughts there?

I think we are much following the main path of shuttle tankers for the time being. There could be pursue opportunities as they develop, but I think there again we see strong growth potential in the shuttle tanker market. And clearly that is where we have our focus.

That’s it for me. Thank you very much.

(Operator Instructions) The next question comes from TJ Schultz with RBC Capital.

Hey, guys. Just on the dropdowns, just looking for timing expectations for the next dropdowns, how we should think about those six contracts shifting into the MLP over the next couple of years? Is it something where you kind of target a certain distribution growth and kind of manage the drops into that timeframe, just any color you can give would be great? Thanks.

I think we are maintaining our growth picture as we set out. So, I mean, I would imagine that we are looking to drop down all these vessels over the next couple of years. We haven’t -- we are not giving specific indications to when we will do it and which the order of which we will due to dropdowns. But we do see that this gives us good basis for continuing the growth as we have laid out.

Okay. I mean, can you just remind me what those kind of your growth expectations are over the next couple of years?

Well, I think we set out say 10% to 15% growth over the first three-year period and that’s pretty much where we are. Of course, we have delivered part of that growth already, but we see that as a reasonable expectation tomorrow -- going forward.

Great. Totally agree. I appreciate it. Thanks.

The next question comes from David Starkey with Morgan Stanley. Please go ahead.

Yes. Hi, guys. Can you give us an idea what your interest rate exposure, say, short rates maybe in the next couple years move up to a 3% or so, how that would effect your income? I know you’re hedging? But how long are you sort of fixed in and locked it at current rates?

Well, currently, we are locked in about four years, which is $350 million out of total of net $500 million in debt. And we see that as sort of the reasonable interest this for us. I mean, that compare with term of the peaks, contract of 5.1 and then we have some options in this, so that should give you the picture.

Okay. So, in the neighborhood of about four years based on current hedging and current maturities?

Yes.

Okay. And what would happen if just for instance, rates spiked up to 7% or 8% after that period with your income? How would that affect that?

Well, that will be reflected in the renewals of the contract.

Right. Okay.

Of course and until then you will suffer.

But you do have these things locked in, so we don’t really need to worry so much about what rates do over the next three or four years based on what you’re saying?

Yes. I think that’s right. And then as Bjorn is saying here, I mean, over time we will be able to -- because the rate structure is to a large extend set by the capital cost enrolled, that’s understood by all the -- both the charters and the owners. And that means that over time we will be able to get compensate but there could be a lag in that process.

Right. Okay. Great. Well, thanks for your help. Appreciate it.

The next question comes from Andy Gupta with HITE Hedge. Please go ahead.

Hi. Good afternoon, guys. My question was more and we’ve seen recently Statoil announce suspension of two rigs that is sold end of the year. I’m just wondering if this is reflective of activity on the North Sea and if it has impact on tendering activity, notwithstanding, the comments you’ve already made on tendering activity?

We don’t see that that will have any effect on tender activity for the next three to four years, because the fields that we are tendering they are already far mature and so much investment has been made in order to complete them. So when now the Statoil and others are reducing the drilling activity, that will have -- potentially that will have effects much further ahead. And again, if we look at our existing operation, we are protected from these developments, because one thing is for sure and that is that the oil companies want to make sure that once they made that much investment in specific fields, they want to get the oil out of there and sell it really at any price because there is still -- is a lot, is a big element of some cost there.

Thank you.

In short, I think it’s quite natural that you see reductions in activity in the North Sea, given the record high level that’s been on the last year. In this presentation, we took in some slides from BG and want to show what’s going on in Brazil. We feel that we have a very strong contract courage currently with 5-point here, so the 7 back to fleet, we will double that fleet probably within the next couple of years. And that dropdrown inventory has even longer contracts averaging 7.6. Beyond that, we see that we’re pretty resilient on the growth because as we try to convey to you is that as long as oil prices are above 40, these fields that we’re targeting for the shuttles are profitable. Of course, we have no extra use on what’s going to happen with oil price and what’s going to happen in international markets, but that’s what we see from all our point of view.

Thank you. How do you see the M&A market evolve for you guys at the MLP level?

Well, it’s a good question. We get more of that, but I think as far as we are concerned, we see excellent potential to continue to grow the business based on the backlog we have and based on the expectations we have for new business. And then of course, there are some other plays that we could maybe try to consolidate. But on the other hand, that obviously is something that doesn’t come automatically. So we definitely see ourselves as growing. Ad if there are M&A opportunities for us, we would look at them, but that’s not something we have put in our assumptions that we will be able to do any acquisitions of the other vessels.

But I would like to add to that actually we have cut out two of our competitors in the market, both Knutsen with previous, they are totally now out of this market and until we bought their last vessels, so they are also away from the market. So this is the acquisitions we have made in KNOT, but of course actually depending on time-charter such there will be candidate for also all of them.

Thank you very much.

The next question comes from Matthew Phillips with Clarkson. Please go ahead.

Hi, everybody.

Hello.

You commented on this in your last answer just now. And I am wondering -- really appreciate the color on Brazil, North Sea, breakeven and what not. And I am wondering if BG and Petrobras’s outlook differs materially? I mean, each have their own funding issues and motivations. And BG, it seams clear is still pushing ahead. I mean, do you feel it’s same at Petrobras as well and clearly you have a couple vessels with long-term contracts that you just mentioned that would be coming into the fleet. But I am just wondering about how you see any difference now working the two explorers?

I think actually what we see is picking up again in Brazil and some other projects, which previously was delayed, is now actually going ahead. So we see actually some kind of acceleration, if we take the market that’s -- as such of in Brazil. We see all the companies then BG like see an affect of the euro.

Petrobras and BG is pretty much 100% aligned. I mean, BG has typical 35% share, Windsor Knutsen and Petrobras, 65%. And if you look in their investor presentation, they have the same optimistic tone. There also is one more point with Brazil and that pre-sold wells have been better than anticipated. So they are producing more oil and that’s a positive that we are not seeing for the last half year.

Interesting. Thanks. Appreciate the color.

The next question comes from William Adams with Advisory Research. Please go ahead.

Yes. Thanks for the discussion so far. I guess, I wonder if you can give us little bit color on what type of -- what would the economics or EBITA multiple that was that you expect from those acquisitions of the charters by the parent, for the two for Brazil.

You mean the last acquisitions we did in June?

The two with BG, there will be a dropdown in Canada. I was just curious what kind of economics would be for the….?

Yeah. We don’t disclose that. They are in line with pervious contracts. So, as we have earlier said, this market is pretty stable. And you do not see big variations and the variations is mostly connected to differences in interstate level.

Okay. Can you give us a range of what historically the GP you’ve been able to enter contract for?

And we have indicated that targeting and levered IRR around 10.

Okay.

We should have an idea.

Okay. And then on that page -- slide21, you show this forecast there was given in November 13. And obviously then oil prices were significantly higher. And I was just curios you talked about in this source currently whatever that is, talked about additional needs of 60, I guess, 60 Shuttle Tankers by 2020. I just wonder how this overall price would impact that need by say 2020, which I would I assume with the overall price and lower cash flows that maybe that would be deferred?

Yeah. We haven’t done any calculations on the fact of lower cash flows in the oil companies. But we know that, the late cycle, we know about the all fields that’s going to be developed until 2020. And they are highly profitable to that current level. They should be highly profitable down to where we assume that shale, U.S. shale will shutdown. But as I said, I don’t have any specific cash flow. You can do that as well as we can with other companies. What I mean, it’s completely different bull game, shale is short-term, high production short -- you take out the big effect of the volume. This deepwater fields that we are dealing with are very long term and as an example in the sale. The average production per well is around 30,000 barrels today for the deepwater wells compared to let’s say 15,000 barrels in North Sea and 10,000 barrels in the Gulf of Mexico.

But I think, we can say because 2020 is not that many years ahead and the fields and the developments that were supposed to happen during that period, has come a long way. So we are not looking at any significant changes to that number.

We see actually that tampering is actually picking up and has been doing that for the last -- for the last 12 months. And actually the result productivity will confer but then -- also take three and a half years. When you get the contracts, it will have a new building into operations. So that could mistake us. The contracts we are winning today, they will not stop before ‘19, ‘17 -- 2017 I mean.

And for that results, the lead time are even longer up to three years.

Okay. Great. Thanks so much.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Arild Vik for any closing remarks.

Yes, thank you very much. We appreciate again having the opportunity to speak to you all and look forward to welcoming you to our next conference -- earnings conference in three months time. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.