Good day and welcome to the KNOT Offshore Q4 Earnings 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. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Gary Chapman. Please go ahead.

Thank you and welcome everybody to our fourth quarter earnings call. You can find our earnings release and this presentation on our website at knotoffshorepartners.com. Our call today includes non-U.S. GAAP measures of distributable cash flow and adjusted earnings before interest, tax, depreciation and amortization, EBITDA. Our earnings release includes a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and please remember that, any forward-looking statements made during today's call are subject to risks and uncertainties that are further discussed in our annual and quarterly SEC filings. Actual events and results can differ materially from those forward-looking statements and the partnership does not have undertake a duty to update any forward-looking statements. I refer you to Slide 2 and our other SEC filings for further details. Onto Slide 3, fourth quarter 2020 highlights. The partnership is yet again able to report a very good and very stable set of quarterly results. Total revenues in the fourth quarter were $69.9 million, operating income $30.4 million and net income $24.6 million. Adjusted EBITDA was $52.9 million, distributable cash flow was $28.6 million and our coverage ratio was 1.58. This is all driven by scheduled fleet utilization of 98.6% in the quarter, allowing us to maintain and pay our 22nd consecutive quarterly distribution of $0.52 per common unit. Our crew and our operations have remained materially unaffected by the COVID-19 pandemic to-date. And we've established many new procedures to do what we can to keep our colleague safe, despite the many challenges that have risen since this time last year. At the end of the quarter, the partnership had $738 million of remaining firm contracted forward revenue excluding options, up from $585 million at the end of the prior quarter. We completed the dropdown of Tove Knutsen in December…

[Operator Instructions] The first question comes from Liam Burke with B. Riley. Please go ahead.

On the Bodil Knutsen, as it comes off a drydock, would you anticipated operating in the short-term charter market or are you confident that you can secure a longer term charter?

I think - at this moment Liam. We're looking at all options and that also includes the contract to the affreightment market in the North Sea which is actually the more prevalent contract type in the North Sea. We obviously have all time charters and [Bodil] charters at the moment, but the North Sea does tend to favor contract to the affreightment normally. So to answer your question, we're actually looking at all of them and clearly we've got a preference for a long-term charter and sometimes they can take a little bit longer to negotiate and close in which case we'd be comfortable taking short-term charters in the meantime, but yes we're targeting long-term. But we're not concerned if we also have to take short-term.

So in that bridge period between the period of time where you're under short-term contract and so you secure another long-term charter. You're comfortable, but generally the contribution of the vessel will be fairly consistent?

I think that's hard to say right now. I think it would be unfair if I said there's going to be full utilization of that vessel in 2021. And I think that's probably unrealistic to say that. I think probably what I can say is that looking at the maths and taking all the moving pieces into account, not just Bodil, an absence something catastrophic. I think based on what we see today we think 2021 is looking okay and stronger oil prices will really help our customers to make commitments on their tonnage. So I think, we're looking at our business in the round and while Bodil is in a challenging position as we sit here today we're optimistic about it. And as a business as a whole across our entire fleet as I say, we think 2021 is looking okay based on what we see today.

Great. And obviously the - you’ve got the current debt due, it’s nothing new, you've got as you mentioned earlier in your prepared comments options on the lending side. Is there anything different this year than in the past, when you've had to refinance current debt?

No, I would say not. The indications in the early discussions we've had with our typical lending group, which is quite broad. No particular new issues are coming out of that for us. And early indications are good. It's progressing. And we obviously will hope to have something more to report as soon as we can. And we'd like to get that closed as early as we can to put that to bed.

The next question comes from Igor Levi with BTIG. Please go ahead.

This appears to be the first time I've seen where you guys are using cash on hand as opposed to issuing equity to take a dropdown. So, I was hoping you could talk about the upcoming drop downs in the pipeline and how you guys are thinking about the decision to either issue new equity versus use cash on hand?

Yes hi, Igor. Thank you for that. I think it's not a secret. We want to maintain the pre-existing methodologies that we've used in this MLP over the years. And the unit prices, is not there for us right now and equity markets is too expensive, but it's still our preference. And I think, we've seen an upturn in our unit price just recently which has helped. But it's certainly not got us over the line at this stage. I think absent that equity we will look to replicate what we've done on the Tove Knutsen in December. I think for us that's not something where we can pick up all of the six vessels that are in the pipeline. I think that's unrealistic, because we will always face a situation of leverage. But in this year for 2021 our first focus is on our refinancing. And then, also secondly making sure that we maintain a sensible leverage and I think that may allow us later in the year - late in the year to maybe replicate what we've done with the Tove Knutsen. But at this stage whilst there are more in the pipeline it's not something that we can easily do more than probably one vessel in 2021.

Okay. And how are you comfortable drawing down your cash on hand?

Well, we obviously have covenants in our loan agreements, which we're very comfortable with at the moment. I think where we are today, we've got very good liquidity. I don't think, there's a specific number that I have to hand to give to you. But the covenants in our loan agreements are very, very comfortable right now. We've got very good liquidity for the business and to see us through. I think I'd rather give you a non-quantitative answer and just say we will let our cash flow drop to a point where we still remain comfortable. It's something that has been a hallmark of this business since it IPO back in 2013, that it's been run on a fairly conservative basis to try and maintain that stability. And that's really - it goes to the heart of everything that we try to do.

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

Thanks for taking my question or questions. A couple of things, first of all, the sale leaseback of the Raquel Knutsen, if that actually - I know you said that in the Slide 3 that the funds were realized in the first quarter. But I was under the impression that the actual transaction closed at the end of December. But if you look at the balance sheet, I don't see a change in lease liabilities or the corresponding assets figure. Please explain?

Yes, I mean the accounting it's following where we were and obviously we've had discussions with our auditors about this, but the arrangements in December were to enter into it. And then we entered into it in January.

Okay.

And the accounting rules allowed us to therefore book it in January. To be honest, Jim, there's no deliberate accounting going on there. It’s just what happened. We didn't deliberately keep it out of our December numbers. This is just how - it happened to fall.

Okay. I don't mean to imply anything improper just…

No, no, no. That's fine.

So I'm assuming - when we see the March 31 balance sheet, we will see an increase in lease liabilities and the right of use assets?

Yes, the disclosures will come in the Q1 numbers.

Okay. And talking about the refinancing of the debt facilities that you have coming due later this year, are those facilities floating or fixed?

The facilities themselves are floating and then we separately have interest rate swaps against proportions of the debt.

Well I'm assuming that - when you - I don’t know when you entered into those arrangements, but interest rates were somewhat higher than they are today. Do you anticipate - I mean I don't know how this whether you get the same spread on the float on the underlying floating rate liability? But do you anticipate that because of the general decline in interest rates you may be able to achieve some savings through the refinancing? I mean obviously there are a lot of moving parts that go into it - it’s a few months away from closing a deal, but…?

Yes, I mean I think, we anticipate similar or paying similar margins on our debt. And then underlying that it is obviously floating LIBOR. So, to the extent that that's lower then, yes. The total cost of our new debt may be lower than the total cost of our existing debt. But to get to that answer you have to take into account the swaps that we've got. So, I think you've seen over the last few quarters that our interest expense has come down because we don't swap out and fix a 100% of our debt today. So, we've taken advantage of the falling interest rates over the last several quarters. And so, I think when we look at the refinance we'll also look at our hedged position as well. And if we hedge less or if our hedging position changes as a result of that refinancing then we may be able to carve out some extra benefit.

[Operator Instructions] The next question comes from Ted Lou with Valley Financial Group. Please go ahead.

I just wondered if Shell has any liability with regards to the Windsor?

Hi, Ted. The short answer is no. We were - it’s a time charter contract so we had our own crew onboard and that crew was taking instructions from Shell as to how to operate the vessel where to go et cetera. But in actual fact it's our responsibility to provide a vessel in working order and under crew. So the short answer is no which is why we are claiming on our insurance.

Roger, thank you very much.

No problem. Thank you.

The last question comes from Robert Silvera with R.E. Silvera & Associates. Please go ahead.

Thank you for taking my call, Gary. In relation to the drop downs that you've just done with the Tove acquisition and future ones, I'm trying to get a feeling for it. The Tove when it was brand new purchased by the parent. How much was that ship did it cost?

I'm not sure I can give you that information Robert, because it's obviously a private contract between our sponsor and the yard. And also there are various numbers in there that relate to the confidential contracts as well.

Can you give a general figure as to the type of ship and those kinds of Can you give a general figure as to the type of ship and those kinds of what kind of numbers take place for that type of ship? I mean you must have a feel for that even though it's not specific to that contract.

Yes. I mean I think it completely depends on the specification of the ship obviously and the equipment on - it's very difficult to say this ship should have been 115 and that ship should have been, because actually unless you understand the specifications you don't know the starting point. But if I was - as a starting point as sort of basic ship you might be looking at a $100 million without any pre-delivery finance without any equipment onboard without any costs of transactional costs. That's the sort of starting point in today's market for a shuttle tanker. That's I would describe it as basic.

Okay. Well I'm trying to get a feel because obviously the ship was used by the parent for a while right?

Just for a month, yes.

Oh, one month. I didn't realize that we're getting basically a brand new ship for 100 - basically a $118 million. Okay…

Correct.

That better explains it. I'm trying to get a feel for future drop downs and what they might be in the neighborhood of and that answers that. Okay. We've got about $730 million in booked sales contract sales with about $1.2 billion in debt round numbers. How do you see us matching up to the - to covering the debt, do you see it with no problem. It's going to be relatively easy or do you think the competition with what’s going on is going to make that kind of difficult.

I think the average age of our fleet is seven years and we expect our vessels today to operate until 25 years. So although we've only in inverted commas got $738 million of forward revenue, we've got many years left of life in the fleet. And I think whilst COVID has potentially pushed back a little bit of growth anywhere 12 months, 18 months, 24 months maybe and you can argue where that line starts and stops. But although it's pushed it back, we've got very strong forecasts for demand growth for shuttle tankers over the next 10 years as I’ve showed on the graph.

Right.

So in actual fact, we are very optimistic about not only closing that gap but also far exceeding it.

Good. I know because we are a well-run company and the customers, large customers we have are obviously satisfied with us. You have a 1.58 coverage, have you given any thought to accelerating debt repayment which makes borrowing easier in the future et cetera? And from what I've seen from some VLCC companies, they have aggressively when rates were higher than the earlier part of 2020 aggressively went after extra debt payments and it made their balance sheets really shine and the price of the stock began to move up Balance sheets really shine and price of the stock began to move up nicely as well? So I was curious are you anticipating any possibility that you might go more aggressively toward debt?

I think the short answer is, no. I think we're paying down faster than a straight line basis today around $90 million. And that brings our EBITDA leverage down at a pace. So I think we don't need to do that. And I think in terms of leverage itself, we look at our cash flow. We don't get hung up by sort of arbitrary rules of thumb if you like and we're interested in what - what's the sensible leverage for the business. And I think that's the most financially efficient way to do it.

Okay. Do you see the acquisition - the total acquisition as a creative or simply as replacement for ships that might disappear in the future?

No, I don't think any of our ships are about to disappear. So Yes I would definitely describe it as cash accretive to the business, because again we haven't had to issue any new equity in order to do it. And the cost of debt is quite low. So Yes I'd say it's definitely cash accretive to the business.

Okay. Then being cash accretive in building cash, I haven't heard any indication that you want to change the dividend to a higher dividend and you don't want to accelerate debt. What do you anticipate using the buildup of accretive cash the use for it?

I think when you look at our cash profile over the last few quarters, I mean it's very healthy. It hasn't grown substantially. And we pay out a very healthy yield at the moment. We pay off a lot of debt. And we also need we're conscious as an MLP. Our secondary objective is to grow the business. So I think in the current climate, I don't think it's right for us to increase the distribution. That's not to say we wouldn't in the future but given the short term headwinds that we've got principally because of COVID and lower oil prices and some of the growth being pushed to the right, lack of access to equity, new equities is something that we have to just all bear in mind as a whole picture. And I think whilst having a very prudent outlook and a healthy cash balance, I think is what will see us through this sort of next few quarters.

Okay. Well I'm very glad that you did it without the issue of any equity. I was very pleased by that decision on your board's part and your part. And thank you very much Gary for doing a good job. I really enjoy the dividends and I look forward to the business growing by your accretive acquisition of Tove Knutsen. Thank you.

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

Thank you very much and thank you everybody for listening. And if - please do reach out to us if you have any further questions otherwise have a good day.

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