Good afternoon, and welcome to the Knot Offshore Partners Second Quarter 2019 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Gary Chapman. Please go ahead.

Thank you, and welcome everybody. If any of you have not read the earnings release or the slide presentation, they're both available on the Investors section of our website. On today's call, our review will include non-US GAAP measures such as distributable cash flow and adjusted earnings before interest, tax, 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 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 and the partnership does not undertake a duty to update any forward-looking statements. I think this is my first earnings call, since taking over from John Costain. I'd like to take this opportunity to get very brief background for those of you who don't know. I joined KNOT as Chief Executive Officer and Chief Financial Officer in June 2019. I'm a fellow of the Institute of Chartered Accountants in England and Wales and I recently served as the Chief Financial Officer for Biggin Hill Airport Limited, a private business aviation airport in London. Before that, I spent around nine years as the Finance Director for NYK's energy transport business in the EMEA region, NYK being a shareholder in KNOT sponsor. Prior to this, I was NYK's European Head of Tax for around six years having worked previously in various audits and tax roles for KPMG, the global audit accounting firm, including as a member of that Oil and Gas group. Introduction. KNOT Offshore Partners, KNOP, focuses on the Shuttle Tanker segment, whose ships transport oil from production units to shore side effectively a…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Robert Silvera with R.E. Silvera and Associates. Please go ahead.

Hi, welcome to the company, and thank you for doing a reasonable job. I noticed that on the end of last year till now, your number of common unit holders has dropped from 631,000 to 613,000 approximately. Could you tell us what the average price I assume you bought each [ph] back at was?

Robert, I'm afraid, on the top of my head, I don't know that information. Is there a way that I can get up to you in the future?

Sure. My phone number is area code 865 in the United States.

Sure.

882-1064.

Sure. Let me call you back, if not today, then tomorrow.

Fine. Okay, thank you. If I'm not here just leave a message on the phone to answer the question. The other thing is, I -- are you trying at all to pick up any of the convertible preferred units?

No. By this time, no. We're not.

No. It's not trading at any discount to 25 [ph]?

No. I don't think so.

All right. Okay, that's pretty much it for me. You're going to continue to reduce debt on schedule and you don't anticipate accelerating debt repayment?

No. I mean, given the current yield on the shares and where we are in terms of wanting to grow the MLP and the unit price, I think, we need to look at all of our options to keep the business very stable. We want to maintain our distribution, as we have done since 2015. But equally we want to grow the business. So we've got to look at all of our options in order to make sure that if the three vessels or when the three vessels are offered to the MLP. We're in a position to take those on, if the pricing is correct and appropriate.

So your strategy for increasing the MLP is through acquisition of dropdowns?

Yes, and we've got to find out something in the most appropriate way we possibly can, the time given market conditions.

Okay. What would be the earliest dropdown available from NYK?

From our sponsor, the first delivery is around the middle -- is scheduled to be around the middle of 2020. So at this stage, that's the sort of time frame. We're not expecting any dropdown before that.

Are there -- one of the question for me? Are there any other, or are there any incentive distribution rights in existence. I have noticed [ph] one way or another?

Yes. There are.

Is there any outlook for that being eliminated?

It's -- we constantly talk about that. But at the moment, we have no plans. I think at the moment it's not, the -- sort of top of our radar, top of our list to do that or to address that, first. But yes, at some point we very well might do.

Thank you. I appreciate it. Thank you for taking my call, my questions. God bless you in the future.

Thank you.

Our next question comes from Jim Altschul with Aviation Advisory Service. Please go ahead.

Good afternoon, and thanks for taking my call. Couple of questions. Well, I think when you sort of alluded to in passing, but -- with regard to the three dropdowns, would you -- how -- do you have any thoughts as to how you might finance them? Would you need to issue more equity, or would you be able to do it entirely with debt or...

Well, we've got very good cash coverage at the moment, first and foremost. The model for the company has always been to find an accretive deal and finance that through new equity at the right price. I think today we -- the market's difficult for us, given the prices of units and the yield. And the general sentiment towards energy stocks, I think where we get caught up in that category. At this stage, you know, we've got luckily a few months and a couple of quarters to sort out how we're going to do it, but it may be that -- when you look at our leverage, we may be able to just increase that just slightly without going over what is comfortable. We would never do that. Plus with the cash we have, otherwise we may look to the main sponsor unit holders in NYK and Knutsen. So there are a few options for us. And at the moment we're still in the process of evaluating where we think we'll be. Clearly, there is also the possibility that in six months' time the market is different.

Thank you. Looking at the kind of -- I guess, the first of the three potential dropdowns would be 3-1-1-4 [ph]. What if 50 -- if you would have taken that upon delivery, when -- approximately when that delivery being, by when would you have to nail down some financing?

Well, the delivery schedules for the middle of 2020, so whether it's Q2 or Q3, at the moment, I don't say. But I get the -- everyone is pulling in the same direction here in terms of the dropdown itself. I think typically we would want to take a dropdown after delivery because it derisks for us in the MLP and that would tend to suggest it would be in Q3. We don't have a desperate need to do it before delivery. We don't have to do it before delivery, but we are guided to some degree by the offer that is made from the KNOT sponsor. So, I think at the moment we have some time to work out what it is that we're going to do and how we're going to do, then we do have some ideas for that. And we do think it's possible having studied those ideas already.

Oh, good.

Yes.

No. I'm sorry to interrupt you. Please continue.

No. I was just going to say it will be -- I've set out previously the various options that we think that, that for us at the moment. There are also banks and other financial institutions, who are offering us more complex sources of finance, let's say. But I think at this stage we want to really concentrate on keeping the structure and the transparency of the finance in this MLP as clear and simple as possible. The business that we operate is hopefully very clear and simple. We want the financing as much as possible to be the same. So we're trying very hard to keep this attractive to investors by the simplicity of what we're doing.

Appreciate that. Just two more questions and I'll shut up. The Torill Knutsen now reference -- according to the Slide 8, that charter, the fixed contract currently runs through the end of 2019 the reference -- you also made reference to a one-year like the first of several one-year extension options. Does that option take it to the end of 2019, or is it now going to go to the end of 2020?

Very good question. I'm afraid, I don't know at the top of my head about that. Apologies. Probably by the next quarter I think, I will have all of this information on the tip of my tongue. But at the moment, the slide is showing this to the end of 2019, that's the firm period. And I suspect that option is -- has already been taken or is very close to being taken.

Well, I mean, I don't doubt that at all. What about this basic rule of investment look out for the downside and the upside will take care of itself. Let us suppose the option is not exercised. Would you have other potential operators you could contact and how long would it take to re-position that to ship, if I find a new customer and I don't know to what extent you'd have to do some work to get it ready for their preferences?

Yes. There's certainly some fields where you may even need modifications. Typically for those sorts of fields, we -- typically get the charters to pay for those. I think to answer your question there are -- there's a tightness of supply in the shuttle tanker market today. If a vessel were to come-off charter, I think we'd be confident that we would be able to find something else and the fallback position is that we would enter it and -- we could enter it into potentially the [COA pool] that we have on which is essentially a more revolving short-term pool that is operated by our sponsor KNOT. Though, but ultimately, we would be confident that we could very quickly find a place and a utilization for the vessel.

Okay, excellent. Well, thank you very much for your detailed answer on all my questions.

Thank you very much for your interest in KNOP. We very much appreciate it.

[Operator Instructions] We do have a follow-up question from Mr. Robert Silvera with R.E. Silvera and Associates. Please go ahead.

Hey, once again, after hearing about the three dropdowns, my question is this, if you begin to take those dropdowns, do you anticipate growing the dividend at all?

Good question, Robert. We would always like to grow the dividend and the distribution. I mean, that's what the, the purpose of we're trying to do here is be successful and grow the MLP. I think at the moment, however, given where the market is, we can't make any promises on that. And we don't want to give away our equity, if you like, for fear of not being able to then grow the MLP in the future. And today's yields, given where our price -- unit prices, we don't at the moment foresee a growth of the distribution. Now I can't say that will stay the same forever or even in the next year, but at the moment we don't have an intention to increase the distribution and expand the vessels.

Okay. So, if those new vessels come on, we can still anticipate basically the same dividend?

I think that's the baseline position is perhaps a way of saying it, in that.

Okay.

If we can increase it, and we think it's sensible and sustainable, and I think that's the most important point for us. And we've tried very hard for the sensible and sustainable in the way that we've run this MLP. So we won't increase the distribution, if we don't think we can achieve that.

Okay. Well, our philosophy is looking at it. As the future goes on, one of two things either share price increases or dividend increases. You know. Just stay static, is -- I think, what has been hurting the price. We are perceived as a static situation and not as a growing MLP, that's one of the problems. So as long as you're addressing that, with that in mind, I'm happy. So...

Yes. I mean, we always are. But equally given the ability of the business and the way in which we have strong operations and predictability and to a large degree a lot of transparency and we kind of feel as well that the market is perhaps undervaluing where the MLP actually is today, and maybe that's perhaps a result of wider sentiment across oil and shipping and the wider economy. So we would always like to grow the distribution, of course, we would, but equally we need to be very careful and sensible.

Sensibly.

Yes, exactly.

Sure. Okay.

And it's actually not possible then unfortunately we have to wait some time.

All right. Because I -- the last thing I want to see is our business exists really just for the benefit of lenders. Okay.

Yes, of course.

Thank you very much for taking my questions.

You're welcome.

[Operator Instructions] Our next question comes from Marc Solecitto with Barclays. Please go ahead.

Hi, good afternoon. Just a follow-up to one of your responses earlier. Just curious if you had a max leverage target in mind, you know, with respect to potential funding for future dropdowns?

Yes, sure. We're in the region of 4.5 at the moment. And I think, we feel that the business could comfortably sit between 4.5% and 5%. We would never look to go over 5%. That's our kind of guidance if you like as to where we feel the business is.

Got it. Thank you.

[Operator Instructions] If there are no further questions, I would like to turn over the call back to Gary Chapman for any closing remarks.

Well, thank you to everyone who's listened in. And we genuinely believe KNOP is currently undervalued by the market given the stable nature of the business and the operational record and growth prospects. So please do support us, and I look forward to hopefully supporting you and speaking to you next time. Thank you very much.

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