Good afternoon and welcome to the KNOT Offshore Partners LP second quarter earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to John Costain, please go ahead.

Thank you. If any of you have not seen the earnings release or slide presentation, they’re both available on the Investors section of our website. On today’s call, our review will include non-U.S. GAAP measures such as DCF and adjusted EBITDA. The earnings release includes a reconciliation of these non-U.S. GAAP measures to the most directly comparable GAAP financial measures. A quick reminder that any forward-looking financial statements made during today’s call are subject to risks and uncertainties and these are discussed at length in our annual and quarterly SEC filings. As you know, actual event and results can differ materially from those forward looking statements. The partnership does not undertake a duty to update any forward looking statements, and now onto the presentation. KNOT Offshore Partners KNOP’s focus is on the Shuttle Tanker segment. The shuttle tanker provides the vital service transporting oil from the offshore oil production unit to shore side. In effects a midstream mobile pipeline business with fully contracted stable non-volume based revenue streams. KNOT trades at significant yield premium to the Alerian Index which represents around 80% of MLPs by market cap. Unlike most of these MLPs however we are operating in a space with substantial oil production growth prospects. In a recent press release about Brazilian pre-salts Petrobras have highlighted oil production operated in the pre-salts areas have exceeded 1 million barrels per day, less than two year after reaching the production of about 0.5 million barrels per day. The average cost of extraction of pre-salt wells total less than $8 per barrel of oil equivalent and has gradually been decreasing. The average time to build a well reached 89 days, a reduction of 71% between 2010 and 2016. The Brazilian government is cautiously loosening the Petrobras pre-salts operator monopoly and Statoil recently became…

[Operator Instructions] our first question is from Michael Weber, Wells Fargo.

I wanted to start with the slide in your deck where you run through the lending base, Slide 4, I appreciate that breakdown in terms of your lending base, it’s helpful. Just thinking about it, you guys are in kind of an odd scenario where '18, '19 is not that far away, probably too early to really get constructive on talking about renegotiating and it’s probably not in advantages time in the market in terms of pricing to be looking to do that. But at the same time you know the majority of that book is obviously European and don't believe they are in the process of extending their credit exposure in this space, I mean usually it's going to in the direction. So maybe you can talk a little bit about how you think about financing future drops and/or when you think about renegotiating this leverage down the line is there going to be a focus on diversifying that lending base and then maybe Asia where there is -- seems to be a bit of I guess selective pools of deeper capital?

Yes I can address that, I don’t -- while there is a polarization of the banking market and of course as you are pointing out the kind of credits available has been shrinking, but what is also happening is that you have a kind of risk aversion in the bank. So they are chasing the deals which are ticking all the boxes in terms of who is the owner, do this owner have access to capital markets, how big are this owner, do they have reputable contracts with good charters. So we very much tick the box on all this measures in terms of bankability. So for us we haven't really felt in credit crunch as such. Actually pricing as well on deals have not really changed, we just finance the last -- kind of signed the loan agreement on the last drop down vessels, which is vessel for Petrobras, it was signed in July, of course we have been working on it for a longer period of time. And leverage is 81% and margin is 200 basis points. So it really hasn’t change that all, it actually a bit lower than the average margin of KNOP. So of course, I do think we have very supportive banking group and we’re not really concerned about our ability to raise bank financing and particularly for the two loans maturing in 2018 for the ENI. These vessels will pay on that field and once you go into new charter or extended charter through the option agreement which they have, we would certainly be able to refinance the vessel. But also when you talk about Asian financing, we are of course everywhere. We have a lot of Japanese banks, we have Australian banks, North American banks, European bank. So we have 30 access bank in the Knutsen group and probably 10 banks that want to get in and we also have the ECA finance provide, there is also one ECA provider in KNOP. So we’re not really in a position where we are getting feeling and in credit crunch, but we certainly are aware that there is a huge credit crunch, but it mainly affects people with less contract hold, much older vessels, not the right owner, so we are not feeding that pinch to be honest.

Got you, okay that’s helpful. Just talk a bit about the North Sea, now you’ve got two assets on with ENI on a field that I believe in June took an $800 million write down. I think they started production in March. Just curious as to what the utilization level is like right now for those carries, I know for you it's 100%, so there is no revenue disruption obviously, just trying to think about like a read through in terms of how that project stands and what those assets are actually doing?

Well, the vessels are placed in the North Sea, those two shuttles, Hilda and Torill, until the Goliat Field came on, were being used in general Statoil program. And Statoil have a major shorts of tonnage at the moment so they’re trying to get in the vessels of those. So we don’t -- it's not important that the vessels are used fully on Goliat Field, it's just that they are available for on use on that. They can be used within the general Statoil program as well and they have been in the past.

That’s helpful, latest trading in the general program they’re no specifically tied to the field. So there has been no disruption in terms of their movement or anything like that?

No.

Okay.

The good thing with was in [Goliat] (ph) we'll probably use them on all major oil fields in the North Sea because once -- when the Goliat Field is delayed, possibly use the crew on all our fields. So they’re already fair approved and tested on all these field, so they have huge employment capability. But of course what is particular for these vessels are, they’re only three vessels that can load on the Goliat field due to a very high technical requirement. But these can also go trade on other field in addition to Goliat.

Okay that's helpful. Just to transition to Brazil, John, you spent some time talking about the fact that you think some the risk is priced into the market around Brazilian employment might be a bit overdone, just curious, and I know -- I think you've gotten this the last two or three quarters, but the idea of bringing down kind of breakeven levels in costs certainly still persists. I'm just curious as to whether -- have you guys been approach in terms of renegotiating any of those, I believe they are, bareboats in there?

There is no need to because pact. The UK finance leaves us effectively -- you are under precious probably the last year or two of the contract, but not seven or eight years out, there is not really anything to be done. So Petrobras they basically have a massive need for ships and at the moment the cost of the shuttle is very small relation to would actually bills and carrying the oil. So not really they are not really in the position to negotiate with us yet. They’ve been in a position to negotiate with us about a year from the end contract I would guess. We're too far down the line at the moment.

Fair enough. And it's a no approach nothing even along those lines?

No.

Okay.

And also because I’ve heard -- I mean I’ve heard from tranche investors even our competitor has not -- has pushed back Petrobras. But obviously that's a second hand book. People been talking to our competitor about the, because they’ve got -- they’re much closer they have much better idea than we do about market in Brazil in terms of area you are probably best speaking to them and as we got -- we're too far off I mean we are not, we're not close enough to renewal.

Well I know that's sort of question comes from because we haven’t heard other price but if you guys are having the approach it's to be at the end of the conversations for now.

I think Michael I think you saw this on the Carmen and we had Carmen on charter to Repsol to 2018 and we are have been we need to kept that rates very smaller and in order to get five extra years on that. So that's obviously not to 2017 and it was not a reduction in the charter, it was more a reflection of, in particular we had skydive, so we took a small production in the rate and all those to secure our contact until 2020. But the reduction in the rate was just very smaller and then also it compares to the cost savings we have due to the strengthen of dollar against [indiscernible] which is out huge part of the OpEx cost.

Fair enough, okay. One more I'll turn it over to just kind of transitioning to even more to the positive side what are your competitors in the many MLPs space raise the first batch as of growth equity earlier this summer after about a year and with those the list of marine MLPs that could reasonably think about raising capital for growth is pretty short and you guys are on there. Just curious when you think about where your yield is today, how close are you guys from the cost of capital perspectives to be able to hit the kind of accretion you do want to hit in terms of accessing the market and order your landscape looks today?

Well today the unit yields is about 11%, it’s still this is bit out there, when we are considering an equity assurance. Markets is obviously showing signs of improvement as are right it point out Michael, it makes at least about 50 million and much of the new capital currently being invested in MLPs tend to be of a preference or higher per capital. This isn’t our preferred way as we still consider our MLP to have a substantial growing in it and that's what well we would prefer to issue equity. We are obviously mark-to-market closely as it could be an avenue for raising capital the rates currently what we may use a hybrid instrument if we don’t see a lot more improvement and maybe a little bit more. It's something we are weighing up internally, we’d definitely want to keep it as a growth vehicle, through the outlook for the space. But I think not issuing equity can be seen as a little bit it slows up the growth of the units, obviously if you actually issue an equity the appreciation of the unit price is better, but it's something we have been discussing actively all the time. We got a lot of candidates dropping early.

Is there a limit to what how far you can push your leverage to drive more accretive growth, so I guess the question is -- given that the yield is relative, it’s wide, but it's certainly narrower than it has been on kind of a trailing 18 month basis so, do you need to see that reasonably get to a single digit level before you think about it or you in a scenario now where your kind you’re knocking on the door of an area where you're thinking you can make the math work?

Well you know we got a very young fleets and there is the same in the presentation, you can always consider all the ships because you can get a higher distribution off on all the ships with same amount of finance. The capital base is compressed on our vessel, that's an option as well but we haven’t thought about that through. There is nothing off the table for us, we're desperate to keep MLP going. But we are talking about it, we haven't made up her mind what to do yet.

But single digit is correct Mike.

You raised an interesting question on the older assets and if I kind of think about it just from the across the capital perspective the better return or you basically finding the better return on the older asset in terms of talking 100, 200 basis points you think you can gain in terms of acquiring older assets versus something on the water how much flexibility does that gives you in terms of thinking about where your hurdle rate is?

It depends on what we issues as well the thing is if you issue perhaps it can reduce the hurdle rates and then you can sell basically, but as I say it's not necessary right next to the partnership. There was quiet an intellectual discussion earlier, and I don't think -- Oystein and I haven't got to the end of it yet. But we are talking actively about it, so I don't want to say too much about it. We’re not far off doing something, that’s for sure, but we want to do the right thing.

[Operator Instructions] and our next question is from Nick Raza at Citi.

Thank you. Good afternoon guys, just a couple of quick questions in terms of your two vessels are do the shortest contracts particularly the Bodil and the Windsor, what sort of conversations that you are having with the current charters? Understanding that they are guaranteed through April 2018, but the existing charter what are they saying right now in terms of renewing their options?

Well they like optionality and we can't -- we’ll just stay with the existing agreements on the Bodil, it's escalate so we’re quite happy with it because it was picked quite a number of year ago. And the Windsor was part of the BG deal with the new ships, so we have to get some optionality. But we’re more looking at the tightness in the market and the fact that the ramping of the production in Brazil we don’t see an issue. We're not worried about Windsor at all. But it was just part of the deal when we did the original, BG -- we gave them to option two on one of the options to max and my guess waiting to see what happens with the new oil markets and see what we do. Basically the Windsor we just have to leave as it is. There is no problem with options a lot of people list them and I think realistically when you look at the outlook they will list the options on that each year. I think there is no way in our mind and also the price is cheaper on that ship than current contracts on the other. So it's actually a cheaper vessel for them so why wouldn’t they list those options than ordering new ships, so we don’t see an issue with it. But obviously it's not -- when looking them not -- what are this ships are.

Okay, but that means should we assume that once the option does come back, I mean the Windsor Knutsen is probably just to all your entire fleet right now that the rate would actually be lower, I think it's like nine years from what we calculated?

No, the options are great to prices is a great and the option is just a case of them, It's very flat. So it would just be a renewal -- the same boat. But they don't have the option and where we could have shipped that, I mean ship is old seven year, seven or eight years old, But we’re fixing ships 24 year old ships, one in Venezuela about 48, and we got a 13 year old ship is 51. So it's not unreasonable and it's not out of markets, it's the way the shores are today.

Next to summarize, we are very positive about the expansion on this vessels, [indiscernible] elapsing before they would have time to order a new vessel, and we do know that they need tonnage. So yes, we already comfortable with employment prospect of these two vessels and also in Vancouver [ph].

Okay, fair enough. In the absence of a drop-down potential and I'm assuming the multiple is still about nine times which is required by the parent, these sort of thing that distribution increase would be the next avenue to sort of make the security more attractive or the units more attractive?

Well, we haven't made her mind up yet, it's an option, we would have to think about the -- today the way the unit sets up and the way that MLP sets up without deleveraging, and I don’t thinks it’s a sensible the time to deleverage to right now because -- I think leverage in shipping generally is when the market settles down, it’s got a lot of volatility and asset prices. And this will play out, I mean in six to 12 months, once the asset prices sets and it seems to be settling now, than the normal financing market will come back. But what you’ve see in the last two or three years, you seen a bit of trade war in the yards and they’ve all been losing quite heavily cash wise, but there has been quite a lot of rationalization now and we will start to see fair prices on ship. We know the banks have been nervous because the classes are all over the place and not being prepared to finance. So we can't deleverage easily without -- there is no point today, so we would have to look at other ways of raising the distribution, introducing new assets I guess and that’s not easy. We haven't ruled it out, and obviously the incentive to increase the distribution for everybody. We would not obviously improve the unit price, we certainly want to do something because we don’t want to trade at this level of yield we’re getting and our gross prospects, our outlook. I think our outlook is excellent. I don’t think you’ll find many MLPs with our outlook period, I think the production growth in Brazil is massive and I think when you look at general MLP sector, the Alerian Index is about 8% yield and 80% for the MLP are costing that. And if you look at the U.S. generally predictions is going to stabilize maybe four, over the next two or three years. So MLP are no longer growth vehicle, for a lot of MLPs they’re just stable high yielding instruments and why I see the massive increase in price. We are a growth vehicles still and we don’t think we should be trading at these levels. So obviously we need to do something. We haven’t totally made up our minds yet, but we will. Over the next certain moments and they’re helpful.

Fair enough. That's helpful. And then I guess the other I just want to apologize on asking about a lot of different things, but you mentioned that operator ships for the Carcara field actually switched from Petrobras, how many of your vessels actually operate there, and how many of the your -- how many of the dropdown the potential vessels will operate in non-Petrobras operated fields?

While the most of our ships the four vessels that obviously we got fill with Petrobras, We have no more with them because we haven’t won any more orders since 2012 with Petrobras for whatever reason, you can speculate. But we have four obviously, got four with BG Shell and we've got one with Petrofab. So we've actually moved away from Petrobras we would like to get back into Petrobras because they have been our first class charter and I 'm sure once everything settles down in Brazil and everything is more open to tendering processors, more often so we can actually go out and win a few contracts, we haven’t been able to for quite a no of years. And you can speculate on that. Let say, we haven’t -- the latest additions we’ve had are not Petrobras.

Fair enough. And last question guys any additional potential for getting vessels there in East Canada for you guys?

We didn’t where we took like the cost, we found that the logistic supply chain is very difficult in East Canada and it does create a significant uplift in operating cost because getting crew and equipment out to that part of the world is quiet tricky. And we didn't think at the time when we tendered it, it was reflected in the tender. We are always game to obviously win contracts, but I don’t think East Canada at the moment is a big expansion area. I mean two main expansion areas are on the North Sea and Brazil. Brazil being the big game changer really, so yes its interesting East Canada and we do still have ships employed there under contract with our competitor and we don’t see it being a big area for us at the moment.

Fair enough. That's all I had. Thank you very much.

I'm sorry. We shows no further question at this time Mr. Costain would like to make any closing remarks.

Yes, I would just thank everyone for attending the meeting and I hope it has been informative and I hope you go out any buy units, really. Thank you.

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