Good day everyone. And welcome to the KNOT Offshore Partners LP First Quarter Conference Call. All participants will be in a listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. John Costain. Sir, please go ahead.

Thank you. If any of you have not seen the earnings release or the slide presentation, they’re both available on the Investors section of our Web site. On today’s call, our review will include non-U.S. GAAP measures such as discounted cash flow, DCF and adjusted EBITDA. The earnings release includes a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. A quick reminder that any forward-looking 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 events 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, focuses on the Shuttle Tanker segment. These assets provide a vital service transporting oil from offshore oil production units to shore side. In essence, a midstream mobile pipeline business. The vessels are an integral part of the logistic supply chain operating in a space which will see substantial oil production growth in the coming years. Shuttle Tankers are built to charters requirements and used on specific fields. They attract contracts which give long-term non-volume based revenue streams. Whilst the MLP has a young fleet, our sponsors been involved in design and construction of these type of vessels for over 30 years, building up the fleets organically during this period. And today the Knutsen Group has more than of these high specification tankers. And on these sectors, there has been no speculative oil drill, so the partnership should yield both stable and sustainable revenues longer-term, before ordering a new vessel of sponsored Knutsen NYK has always agreed a long-term employment contract with the charter. Following on from the recent acquisition…

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session [Operator Instructions]. Our first question today comes from Spiro Dounis from UBS Securities. Please go ahead with your question.

Just wanted to ask first about the refinancing activity, looks like a pretty big cash positive event on the Hilda Knutsen, I think $24 million is what you mentioned. And then also you've got another two more in the hopper there, between Torvill and Ingrid. As we think about how much cash you could extract out of those refinancings. Can you give us a sense of where that is and then what you plan to do with that cash flow, whether it's later this year or in '18?

Well, obviously, we're very happy with the Hilda refinancing, and we're looking to ways to do something similar on the Torvill. But obviously we haven't -- this is the biggest bilateral deal in Mitsubishi in shipping. So we're very pleased with the refinancing. I don't know if there’s banks out there would do something quite as big as that bilaterally. So obviously, during the next year, it'll be a bit more complicated we'll have to put together a syndicate of some sort. But obviously the sponsor is looking at raising more capital on the Torvill. And the idea would be to use that to acquire another vessel, if we can raise financing on that, we might. We can certainly drop a third vessel in the way things are looking now and we probably look to leverage up and basically grow the cover -- and the MLP through leverage. But at this stage, it’s the early stages of talking to people. And we've got -- it's two to three months down the line from the Hilde and we've still got a good 15 months before we have to start worrying about. And we're not under any pressure now because the amount of capital we've raised recently.

And so you mentioned potentially linking up refinancing and any cash inflows with doing out there drop. I guess I got the sense before that you listed all your sources of liquidity. Should we assume that if you do that third drop this year, it's not really contingent upon much in the way of raising additional capital? It sounds like you've already got it. Or should we connect these refinancings with doing a third drop? Øystein Kalleklev: It's Øystein Kalleklev. Also just mentioning on the refinancing, so of course the Hilda and Torvill they were financed by a syndicate of tanks and now we're taking out one of the vessel and just financed it bilaterally with Mitsubishi. So we are thinking of doing something really similar of Torvill. But we have to take this stepwise. When it comes to the Ingrid, it's actually a fairly small portion of the loan, which is maturing at end of 2018. The Ingrid loan is actually what you would call ECA loan, so the Norwegian government is lending off the big portion of that loan, and we have some commercial banks, have our loan attached to that. So the ECA facility doesn’t mature before 2025 actually for Ingrid, but only the commercial terms. And so that should be no problem refinancing. But there is no really rush to do it since the vessel is on charter for 2025. So I think we are already confident about sitting in place similar refinancing at Hilda. And of course we are in the market talking to banks we have very good access to debt finance. And kind of the liquidity question, we have no means that we -- when we are saying that we have balance sheet capacity to add another vessel in third quarter, it means that we have that secure today, the ability to do, that was done through this preferred equity issuance, which will take place on 30th of June.

And that answers to my question is kind of where I was getting at from the balance sheet capacity standpoint. Just second question here, I just wondered, the dropdown inventory, you got two left; one, sounds like maybe could happen this year, which leaves one more for '18. Can give us a sense for how quickly the sponsor can replenish the dropdown fleet? And at one point, do you go after the market and make third party acquisitions. Is that still years away in your view?

No, not necessarily. They are obviously from placing an order, winning a tender to construction completions about two years. So we may gain access to third party acquisition or we might just wait here, we certainly are quite relaxed now. We’ve got this growth out the way, and we feel there is plenty of interest out there in new tankers I think it's time to show, but we haven't had it and haven't translated into any tenders yet. We’re still -- the Statoil can -- contracts haven't been awarded yet. We’re still involved with that. Obviously, not the only partner involved with it, so participants involved with it, so we can't say whether we’re see that or not. And going forward, I think we started to see quite a few or majors asking about shuttle tankers, so we’re relatively relax about it. Obviously, we can't go in a very stable study way because it depends on what contracts we win. But we think we’re extremely well placed to win quite a lot of these tenders that are going to come out.

Our next question comes from Hillary Cacanando from Wells Fargo. Please go ahead with your question.

I just had a question about the Windsor Knutsen charter. I know that’s a expiring in October this year. Just wanted to find out if you have been in discussions with Shell for an extension or with any other charterers for implement?

We haven't. They have six month declaration window. Is it six or three, Øystein, actually this… Øystein Kalleklev: It's three months, so they will declare in July whether they want to continue with this low cost area, the income of business that’s guaranteed by the sponsor until April 2018. But we are in talk with Shell. So they will inform us in July whether they will use that first option to extending charter.

So until July, you’re not allowed to talk any other charterers? Øystein Kalleklev: No, they have indiscernible] to exercise the option -- and the market for shuttle tankers are already tight these days, so we are not loosing fleet about it.

And then just on Hilda Knutsen and Torvill Knutsen expiring in 2018, I know it's kind of early. Are you in discussions at all or is it still too early?

Just following the agreements with we left -- we can refinance the ship, so we’re not under any pressure to push them to exercise renewal. I mean the good thing about those two ships is they’re really specialized, I mean you just can't replace them without -- you have to construct any vessels and this is going to take 2.5 to 3 years. So I mean I am thinking on those line anyways, which we have a good relationship with them and we’re pretty confident that we just rolled into the new agreement.

Who owns the third? I think last time you had mentioned that there is the Hilda Knutsen to Torvill and there is another shuttle tanker, serving the Goliat field. Who is the third one? [Multiple Speakers] Øystein Kalleklev: There are three vessels in the world, which can load oil on this particular FPSO and this Hilda, Torvill and Eagle Bowden, so substitution of this is [indiscernible].

And then you mentioned different tenders during the call, and I think last -- either last call or the call before, you said there were tenders for more than 40 vessels up to 2020. I was just wondering if that has changed at all, has that gone up or down? Is it still 40 vessels?

Well, that’s currently the projection. We’ve never said that. But we do think it's a pretty good stuff. I mean what I would say is that when you see the way the vessels trade in the presold, the Petrobras voyage are pretty straight in out Brazil, but the international oil companies tend to do longer voyages. And one of the aspects on Investor Day we saw that like the Shell and Petrogal and all these ships were doing between eight and 10 charters a year, and the Petrobras was doing around 28 to 30 voyages a year that really should -- and these were small destination flexibility with the international companies. And what we see recently is excellent based and talk to Petrobras now about licensing part of the pre-salt, which is all very positive, not for last major oil major hasn’t been in zone, actually taking -- looking to take a slice of the pre-salt and happens. And I think you will see an increase in demand for sure. I mean the good thing about having a lot of oil majors involved is they all tend to elect to use their own ships, and they also tend to like to have destination flexibility on the discharge, which tends to increase demand for shareholders. So though we see at the moment we’ve not seen translated yet into firm orders. I mean the markets have been quite volatile in shipping space and the offshore has been a bit subdued. So we’ve not translated yet into firm orders, but we see that interest is definitely there. And we do think that we will -- you will see some activity fairly soon.

I just have a one quick follow-up question. Does three shuttle tankers that are serving the -- that has the capacity to serve the Goliat field? Do you know if there are any other, like a newbuild, that are under construction that would have this capacity or no? Like a special... Øystein Kalleklev: Four newbuildings, the four vessels on order; three of them are from [indiscernible]; they will go to town about, they cannot load on Goliat; and the fourth one is Lena Knutsen, which will go on charter to Shell; so all these vessels are tied up for long term charters.

[Operator Instructions] Our next question comes from Ben Brownlow from Raymond James. Please go ahead with your question.

Just two quick ones near term kind of thinking about second quarter, the Windsor the incremental bunker costs that you had around $600,000 in the first quarter. Is there any incremental bunker costs related to that drydocking that will fall into the second quarter?

No, it's pretty clean in the second quarter. It's back on high on the 4th of April. So the costs been captured in the first quarter.

And just one more from me, the Raquel repair costs that $600,000 I guess roughly $400,000 is going to be reimbursed by insurance. Ay idea on the timing of that?

For the second quarter, it will come on in the second quarter but it depends how quickly they do the file. I think it will be certainly before the end of the -- it should be the second quarter really.

[Operator Instructions] Our next question comes from Nick Raza from Citi. Please go ahead with your question.

Just a couple of quick follow-on questions about the bunker fields, there is a mandate that states that a lot of the marine vessels are supposed to reduce sulfur emissions very drastically by 2020. Could you just talk about what the impact of that is on your fleet?

We tend to -- we can burn most of fuel oil [indiscernible] I guess. We’re not in U.S. floating areas, we have weeks of it, it doesn’t really affect us too much. Øystein Kalleklev: And it's also -- it really has to highlight the effect of that. When you have the vessel on time charter the cost of bunkers is for the charter, the account so we don’t pay the bunkers cost. So that the charter is obligated to find out and pay for the bunker, so it's not kind of our cost but also unusually with marine and gas or oil. So this is more like suitable what I would call commodity shipping like conventional tankers or cruise operators; so all contain the vessels.

Then I guess the other question I have was I mean during the Analyst Day I mean you guys did a great job of presenting some of your current assets and you currently have a fairly large portfolio of LNG vessels. Is the thought for the MLP to continue to be pure play oil, or is at some point in time, do you expect you can actually drop down some of the LNG vessels or your backlog could increase in corporate LNG vessels as well?

We’ll not be answering for the sponsor side. So as long as we said our outlook of certain tankers there along with reason for kind of meeting it up. So we don’t even -- we don’t want it to be a non-calls MLP. But the thing is we see a lot of tender activity this year, so we do expect that we will add to the drop down inventory during the year.

Okay.

If we kind of dropdown assets very quickly, of course the LNG could be a potential asset class since the charters are detained. Shell is the biggest charter on the LNG as well. And basically LNG is a floating pipeline similar to the shuttle tankers. But so far we have not contemplated doing it.

And then, and I guess just turning to the finances a little bit more. I mean you mentioned that you would not increase the distribution right now, because there’s sort of an equity overhang and you'd rather pay debt. But at what point do you think or at what level do you think that might change? And understanding that the market still may not give you credit, but any thoughts on that?

At Investor Day, we guided that we migrate raise 0.01 at the end of the year, but we're not -- I mean it's not out decision downstream nor the [indiscernible], but we'll look at -- so we'll propose depending on where the unit price goes to as well, ultimately we would like -- so there’s been the price that go significantly we'd like to defend it. But when you’re roughly at 9.25% yield you sort of think well. I mean for all these investments we make, we just starting we’ll left out the cover, because now it doesn't makes sense. I mean I think a normalized MLP should have a distribution increase of 2% to 4% a year in a normal environment, and that's why we probably try and aim for. But today we’re a bit more relaxed about, because we think we've a very good value and we've a very good growth story and we've a good yield. So we’re quite relaxed about distribution increases [multiple speakers].

And at this time, I'm showing now additional questions. I'd like to turn the conference call back over to management for any closing remarks.

I'd just like to thank everyone who attended for attending, and I hope you found the information we disclosed valuable. If you want any more information, please feel free to email me or Øystein. And my contact is on the Web site. And thank you for attending.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.