Good afternoon and welcome to the KNOT Offshore Partners’ Earnings Conference Call. [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 read the earnings release or the slide presentation, they are both available on the Investors section of our website. On today’s call, our review will include non-U.S. 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 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 events and results can differ materially from those forward-looking statements. The partnership does not undertake a duty to update any forward-looking statements. Introduction, KNOT Offshore Partners, KNOP, focuses on the shuttle tanker segments. The individual tanker spill specific and an integral component in the offshore oil production value chain. Shuttle tankers operate in a niche space and under non-volume-based contracts transport oil from the offshore production units to shoreside. Being built the charterer’s requirements, the tankers are generally used on specific oil fields enabling the partnership to yield both the sustainable and stable revenue longer term. Oil production continues to move further offshore, so shuttle tankers operate in a space, which we'll see substantial growth in the coming years. Our sponsor is a very experienced operator, having been involved in the design and construction of this type of vessel growing its fleet organically for more than 30 years. And it's part of one of the largest shipping drips in the world Knutsen or NYK. NYK, is the member of the Mitsubishi Keiretsu. In the last five years from the third quarter of 2013, the fleet's grown 300% from 416 vessels. It has an average…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Hillary Cacanando with Wells Fargo. Please go ahead.

So the four extensions, were they done at the same -- at the existing rate or were they done at a lower rate?

The Bodil was on a lower rate. The other three are very close to …

Which one? Sorry.

The Bodil Knutsen.

Okay.

The original extension agreements on the vessel when they exercise the three options in a row then we agree to this and other option periods for them because the vessel will probably end of in Brazil. It's not probably going to trade in the North Sea with the big Suezmax size. They seem to like that size more for Brazil than in the North Sea, including Suezmax class shuttle in the North Sea. So we agree to lower the rate on that. The other three are pretty close to where they were previously. The total -- sorry, the Torill and the Windsor are very slightly up and the Hilda is very slightly down. But overall, there's very little difference. You wouldn't notice it in the cash flow.

Okay, got it. And when do you have to start, I guess, when do you start talking to them again for -- because their one-year extension? So …

Yes. so it's basically the revolver happened around the third quarter this year. So it will be similar timing next year. I mean, the Bodil is extended till 2020 -- May 2020. I think it's like six months say end of talking about that November '19 way through the October '19 that Torill will be in October '19, I think, as well. So it will be all around the same time.

Got it. And then, could you just talk a little bit about any tenders that your sponsor is participating in that could …

Yes, obviously we got -- we put a press release out in the -- about these two Statoil ships in Brazil, which we -- which the sponsor has successfully won that tender. He is also looking over contracts, and we have -- with Costco, we have two options -- for building cheap. We have a got attractive -- they've got attractive numbers. So we hope that we can use them. I mean we know that Petrobras are in the market for more shuttles and there are other operators like Shell, Total, who are also in the market. So it's starting to come back. The market is some slow. And, I mean, obviously, as I said before, we don't know who is going to win these contracts, but today, we definitely got -- we've got to and I believe the sponsors also thinking about -- has gotten all of the work we know that. I know that tanking as well. So three, I think, that building. The two that shuttle that will come through again in 2020. And so still a bit of a gap to the MLP as far as new tenders is concerned, but it is happening, not quickly as we had expected, but actually a slower growth market that is necessarily about things that makes a more stable proposition. And we'll also more deleveraging possibilities in two years time until today then the day-to-day cash flow neutral and we can kind of trading MLP with that and looking for refinancing for these two from the next couple of years.

The next question comes from Robert Silvera of RE Silvera and Associates Marine Surveyors. Please go ahead.

I'm glad you choose this nice noon time to read because it's good for West Coast, East Coast and not too bad for you hopefully. That's what I'm saying. The question I have is, particularly, and she touched on it a little bit. In your time charters, they're carrying all these charters. Your charter amount at a fixed rate and operator is carrying all the operating costs? Or do we carry operating costs?

No. We -- the bareboat charters, which is four of the ships, we carry the -- they carry the whole operating costs. It's just like a finance lease. So the time charters, we yield to pay the operating costs, but the fuel is like hiring a car. The fuel, basically they pay for on a time charter. We just pay for the crude, the cost of crude.

Okay. Could you give us a little bit insight on your longer term strategy for increasing the dividend? You've been in a steady dividend all the way back since October of 2015. You know October 29 …

I think, after the MLP has got to expend and we got to see how accretive the contracts are to make a decision on that, and we're not when we're competing. We will -- we need to add ships to the MLP just to keep it stable because the ships are wasting assets and we need to retool it.

Exactly.

as you deleverage in our vessels. I -- we have to look at the nuts really to see what we can do with the distribution, but I'm not optimistic in the short-term bank leases. I mean you have to wait and looking at the window of that three to five years really. But I think -- I think -- I just want to -- I personally thinking that we keep the distributions stable, the unit prices table, everyone happy, and wherever you can do that. So that -- we should -- we want to manage it in a stable way and until we got more visibility on the contracts it will be, how accretive that it will be and more value. What costs that sponsors put in MLP and not what the terms are that may currently make a decision on the distribution?

Okay. Well the only thing that troubles me is the distribution stays the same, which is fine.

Yes.

If you can find a methodology so to speak for increasing the price of the stock, otherwise if the stock price stays in the narrow range it does 20 to 22, and the dividend stays exactly the same at 52. Yet the long term debt is climbing, that doesn't give one a good peaceful feeling. So I'm really curious about your long-term strategy for?

Well look that's not climbing. That's not climbing. I think this -- it will come down over the next year or two quite comfortably because they don’t forget [Multiple Speaker].

The chart shows that it's climbing. You know the long-term ….

With our four ships?

I mean overall the company is carrying more longtime debt and the runs who are really benefiting from us is the structure are the bankers. They're getting more interest. But I don't know the shareholders aren’t getting.

I think in the long-term the company will be leveraging in the next year or two and then used that deleveraging to actually leverage back up again and put more ships into the MLP without raising equity. And then it gets more interesting what -- we have to see how accretive these contracts are.

Yes, that's the key we need to somehow get these contracts to be paying us a little bit more as we move into the future. And what you said, if you could comment with some of these contracts were actually being extended at a lower price than a higher price? And do you see the market being able to sustain where you can get a higher price when the contracts are extended? Or is the language of the contracts such that there's no possibility for getting a rise in our yield on the contract expansion?

Of the four that have been extended, two of them have gone up and two of them have gown down. And generally auction periods are slightly higher. But, yes, it's …

Okay. The language then -- the language in the contracts is such that we can get a higher price. That makes me feel a lot better.

Yes. It is. Yes, there is …

Okay. Now, the cost of money is changing all the time and we don't have fixed interest. Was it correct?

Yes, I believe, we've hedge that on average 60% of the debt, 50% to 60% of the debt. Asset rates about 1.7% -- 1.7%, 1.8%. So we’re a little bit buffered from the interest rate rises. Well what you see with the interest rate rises, it does actually help older vessels because it makes them more cost effective because it's less capital tied up in them. So they're relatively speaking a bit cheaper than a brand new ship because of the nature of the immunity, so it's not all bad.

With our type of ships, what is the life span for our type of ship as opposed to like a VLCC 20 years?

That's a bit longer. This is bit longer. This does get 20 years our, some of them are in 25. But I mean, they’re not -- I would say, some are between 20 and 22, 23, is covering about right and then they go into – the VLCC is going about 15, 20, depending on the market. So there’s a bit longer there -- a bit more, there’s the highest flagships.

Right. It is -- the sulfur content in fuel going to affect us in any way or just the operating expense?

Yes. The operating expense are obviously, in the longer run, the vessels that are more economical and -- than the low sulfur fuel -- more economic burning fuel will benefit. I mean, I think genuinely for us, because charters are in bit over of 2020. It’s not really going to impact as very heavily after time and have the risk period is really straight up to IMO 2020 comes in with the six to 12 months and the enterprise will be very volatile. We will be affected because the Raquel Knutsen is drydocking in 2020, and that also yet to balance the ship. So obviously, that will have an impact on the results. We can't say how much that will be, but it will be. It will impact us but not massively. Generally, it doesn't really impact us very heavily. We're quite fortunate that way.

Okay. In this floating pipeline business that we run, where do we stand percentage-wise of the total market?

So the sponsor is -- this vessel…

… with our 16 ships.

Is about 20% of the market.

So we have -- we control about 20%. Okay, good. That's substantial.

Yes.

[Operator Instructions] The next question comes from Richard Diamond with Castlewood Partners. Please go ahead.

John, after that last round of questioning, I want to thank you for your prudence as an investor. You’ve been conservative on so many fronts from maintaining a high distribution coverage, to being very disciplined in paying down debt. We’ve all benefited from your steady hand. Just for good order sake, would you mind reviewing how lower oil prices such as Brent $59.99 versus Brent at $75 impact demand for shuttle tankers?

It’s a good question. It has more noise effect on the unit price than it does on the shuttle tanker deman. I mean -- Brazil has continued to expand and so is the Barents Sea. I think the Barents Sea, it has more of an impact on the Barents Sea that overall oil price. I think in Brazil, I think Brazil was just continued to ramp the production because oils relatively cheap to exploit the oil less, Brazil needs the revenues. So I see that the Brazil program will go ahead and that we continue to expand. The nice thing about lower oil prices for the shuttle tanker businesses it tends to slow the growth down a bit and it’s mean that the business has been much slowed, and next time it's gone out of the market a bit. It’s meant for that it's become a better market in many ways because it’s a gradual build rather than a bubble. And that’s obviously better for the shuttle tanker business. I think, I said being the steady market, I think, we have seen a bit of a lift in Brazil now, but I don’t see it being a threefold, like 25 or say tankers all at once. I think it's going to be a trickle, maybe 5 to 10 tankers this year. So I think the lower price have a -- it tends to weigh on the unit price a bit because people with oil sentiment is affected and oil stocks are affected by the lower oil price. That’s why the MLP pipelines -- when the market went away in MLPs because the oil price drop keep a word about the end of life of the pipelines and that will be... there may be a collapse. This is the just a more sentiment impact on the day-to-day basis. It doesn't affect the operation of the vessels. It may have the margin reduce the growth story a little bit.

One would hope that with interest rates stabilizing or fall in line with the collapse in the U.S. of housing, automobiles sales and, now energy prices, the contracted yield would be even more attractive to investors. Thank you very much, John.

This concludes our question-and-answer session. I would like to turn the conference back over to John Costain for any closing remarks.

Thank you, everybody, for your -- especially the people who had a question there. It's been interesting as usual to have a little bit of a dialogue. I hope you had a look at the company and you continue to support us. And thank you. Okay, bye.

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