KNOT Offshore Partners Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 31, 2023

Key Takeaways

  • Q2 fleet achieved 99.3% utilization for scheduled operations (95.5% including drydockings) and completed two 10-year special surveys in Europe.
  • Closed a new $240 million five-year senior term loan facility and refinanced one $25 million revolver to August 2025, with the second revolver under renewal discussions before its November 2023 maturity.
  • Signed a 1-year time charter for Brazil Knutsen commencing January 2024, agreed terms for a 2025 charter of Windsor Knutsen, extended Dan Sysna’s charter by 100 days, and is marketing Hilda and Torill Knutsen for new employment.
  • Recognized $49.6 million of non-cash impairments on the smaller Panamax vessels Dan Sysna and Dan Savia due to near-term charter expiries and market fit, evaluating both charter renewals and potential sales.
  • Ended Q2 with £68.1 million of available liquidity, 67% of debt hedged or fixed, and $620 million of forward contracted revenue, while citing tightening Brazilian shuttle tanker fundamentals and strong long-term demand.
AI Generated. May Contain Errors.
Earnings Conference Call
KNOT Offshore Partners Q2 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Welcome to today's KNOT Offshore Partners Second Quarter 2023 Earnings Results Conference Call. My name is Jordan, and I'll be coordinating your call today. I'm now going to hand over to Gary Chapman, CEO and CFO, to begin. Gary, please go ahead.

Speaker 1

Thank you, and welcome, everybody, to our Q2 2023 earnings call. The earnings release and this presentation are available on our website at knotoffshorepartners.com. Slide 2 of the presentation gives guidance on the inclusion of forward looking statements in today's presentation that are made in good faith and reflect management's current views, known and unknown risks and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied forward looking statements, And the partnership does not have or undertake a duty to update any such forward looking statements made as of the date of this presentation. And for further information, please consult our annual and quarterly SEC filings.

Speaker 1

Today's presentation also includes certain non U. S. GAAP measures, and our earnings release includes of these to the most directly comparable GAAP measures. On Slides 3, 45 are highlights from the Q2 of 2nd quarter and which was paid in August 2023 under our 1099 structure. We had a strong operational quarter as our fleet operated with 99.3 percent utilization for scheduled operations and 95.5 percent utilization, taking into account the scheduled drydockings of the Brazil Knutsen and the Hilda Knutsen.

Speaker 1

We successfully closed our new 5 year $240,000,000 senior Term loan facility in June, which was scheduled to mature in September 2023, secured by the 6 vessels listed on the slide. And in August, we also successfully closed the refinancing of our first $25,000,000 revolving credit facility, with the facility being rolled until August 2025 on similar terms. We're discussing with the lender under our second $25,000,000 revolving credit facility, which will mature in November 2023. We also expect this will be successfully refinanced on acceptable and similar terms prior to its maturity. Then coming to some recent contract developments.

Speaker 1

In August, we agreed a 100 day extension to the existing bareboat charter party for the Dan Sysna with TransPetro, which will extend the vessel's employment to around the end of December 2023. This is not yet signed, but it is only subject to agreements of customer And we expect that it will be signed in the coming days. On August 8, 2023, we entered into a new time charter contract for the Brazil Knutsen with a major independent operator in Brazil to commence in January 2024 for a fixed period of 1 year. We agreed with Equinor to substitute the Brazil Knutsen for the Windsor Knutsen in the time charter contract we have with Equinor that is due to commence in the Q4 of 2024 or the Q1 of 25 with the time charter otherwise remaining unchanged. This allowed us to move forward and agree commercial terms in July 2023 for a new time charter contract for the Windsor Knutsen with an oil major to commence within the window from February 1 to May 1, 2025, for a fixed period of the charterers option of either 1 year with an option for the charterer to extend the charter by a further year or a single firm period of 2 years.

Speaker 1

Signing of this new contract does remain subject to the charterers' management approval, agreement to certain operational details and customary documentation. We are confident at this moment that this will be successfully concluded within September 2023. On Slide 4, the Hilda Knutsen and the Torill Knutsen each continued to operate on separate time charter contracts with a subsidiary of the partnership sponsor Knutsen NYK at a reduced charter rate, and we are continuing to market both vessels for new third party charter employment. And we are in active discussions with potential charters, including Knutsen NYK, and we hope to be able to give more details in a future release. As we have disclosed previously, in April 2023, a new time charter contract for the Recife Knutsen was signed with TransPetro for a firm period of 3 years.

Speaker 1

The vessel began operating under this new time charter contract on August 3, 2023, directly after the expiration of the then existing bareboat charter, also with TransPetro, And the vessel is now fixed until around August 2026. The Tawke's Knutsen operated under a time charter contract with a subsidiary of Total Energies, which On July 1, 2023, and on the same day, the vessel was delivered to Shell to commence on its new 3 year time charter. On August 1, PetroChina took its final option on Vichdis Knutsen such that the time charter contract was extended by 6 more months to March 2024, after which the vessel is due to be delivered to Shell to commence on a new 3 year time charter. The Lena Knutsen operated under a time charter contract with a subsidiary of Total Energies, which is in fact anticipated to end today, August 31, following which the vessel will start on its new 3 year time charter contract with Shell, which which we expect will start in early September 2023. Following discussions with Ernst and Young or our auditors, In the Q2, we recognized noncash impairments in respect to the Dansysna and Dansavia in accordance with U.

Speaker 1

S. GAAP in a total amount of $49,600,000 This was due to the vessel's current charter contracts moving closer to their expiry, their high carrying value and their smaller size not being optimal for the Brazilian market. These vessels are the Partnership's only 2 smaller Panamax sized vessels, and we do not currently expect there to be any wider implications on the rest of the fleet from this same issue. In terms of employment for the Dansysna and Dansabia, we are actively assessing options should TransPetro or Petrobras not wish to enter into a new charter for 1 or both of the vessels. And these options include a potential sale.

Speaker 1

Though at this stage, no decisions have been made and discussions remain ongoing as both vessels are under contract until at least the end of 2023. We expect to be able to give more details in a future release. The scheduled 10 year special survey drydockings of the Brazil Knutsen and the Hilda Knutsen commenced in the Q2 of 2023, with both drydockings being successfully completed in Europe in July 2023. We were able to secure a cargo voyage from Brazil to Europe for the Brazil Knutsen, And it allowed us to avoid incurring the majority of bunker fuel costs in transit from Brazil to the European Yard and as well reduce the number of days off hire. Following the work this quarter and beforehand, we have now essentially secured employment across the fleet for the vast majority of 2023, allowing us to focus on the gaps remaining in 2024 and beyond.

Speaker 1

On Slide 5, the partnership had £68,100,000 in available liquidity at the end of the second quarter. We had around 67% of our debt hedged or effectively operating on a fixed interest rate basis, and we had £620,000,000 of remaining contracted Forward revenue, excluding charterers options and excluding contracts agreed or signed after June 30, 2023. The fleet was on average 9.2 years old, over a useful life of 23 years, and we continue to see very encouraging tightening in the Brazilian market, A very limited newbuild order book. And although the North Sea market is still expected to take several more quarters before it begins to rise again, The supportive fundamentals of vessel supply set against the faster pace of new offshore oil production that will drive demand, we believe leaves the partnership well placed over the coming years benefit from our market leading position. Slide 6, 7 and 8 are our summary of financial results for the quarter.

Speaker 1

On Slide 6, our revenues are strong in the Q2. Operating expenses were broadly in line with our expectations, excluding the noncash impairment charge. And although interest expenses increased over the Q1, we're hopeful that interest rate increases may now have peaked. On Slide 7, you can see our cash and cash equivalents balance at the end of the quarter of $63,100,000 and the current portion of long term debt has reduced as the Financings have closed. On Slide 8, which eliminates the noncash impairment, you can see that adjusted EBITDA for the 2nd quarter was again solid.

Speaker 1

Slide 9 shows our contractual position, and the updates are also set out in the earnings release, so I won't repeat them here. As at June 30, 2023, excluding charters options and contracts agreed after this date, we had $620,000,000 of forward contracted revenue. And of our firm charters, these have 2 years remaining on average, and charters had options to extend these charters by further 2.2 years on average. On Slide 10, you will see that we now have contract coverage for practically the entire of 2023, And several vessels are now under contract for much longer periods as you could see on Slide 9. As a result, most of our focus has moved on to the vessels that are yet to be fixed in 2020 Principally the Hilda Knutsen, Torral Knutsen, Dan Sysna and Dan Sabia.

Speaker 1

And these vessels are where our main efforts are being directed. With only 5 new shuttle tankers to come into the market between now and 2026, the total supply of shuttle tankers is likely to become tight in view of oil production increases. And with newbuild shuttle tanker prices remaining very elevated, this helps the competitiveness of our fleet. Whereas in recent years, we have been cautious about vessels nearing the end of their firm periods, the balance in Brazil, in particular, is shifting. That is, While we can't say that a given vessel option will or will not be taken up by a charter at the end of a firm period, we're increasingly confident that either options will be exercised or we would at that time be in a good negotiating position to secure new employment.

Speaker 1

As noted, the size of the dam vessels makes them something of an outlier for Brazil, But the majority of the fleet would be well positioned. Finally, do please bear in mind that this slide does not talk to vessel utilization. It refers Future charter contract coverage. Then on Slide 11, we list the potential dropdown vessels currently owned by our sponsor KNOT. As stated, the acquisition by the partnership of any such vessel in the future would be subject to approval of the partnership's Independent Conflicts Committee as well as the Board of Directors of each And there can be no assurance that any potential acquisitions will actually occur.

Speaker 1

As we have said, our top priorities are securing additional contract coverage, Forward visibility for our existing fleet and rebuilding our liquidity position and that remains unchanged. Slide 12. We've shown this slide before, and I will just dwell on it for a moment to emphasize that we are in fact seeing these new FPSOs making their way to the Brazilian offshore region. As anticipated, with Petrobras alone starting up 2 of them during the Q2, indicating that another will start during the Q3 and Equinor announcing that another is currently on its way. As a practical matter, FPSOs do not simply arrive on the scene and immediately produce at maximum capacity, These processes are underway and building significant momentum in the manner that we had anticipated.

Speaker 1

Just as further context and as one example, Petrobras Miro II with the Sepativa FPSO will be the largest project anticipated to start up during the second half of twenty twenty three. Once sailed from China and installed in the pre salt field, it is expected to produce around 164,000 barrels per day at its peak. With a low carbon score and low marginal cost of oil production, combined with a general need to utilize shuttle tankers for much of this growth, This hopefully helps to explain why we feel very positive with respect to the mid- to long term outlook for our business, particularly in Brazil. We have also retained a further slide in the appendix to this presentation that gives some more detail. On top of this, Slide 13 sets out our investment case in summary form, listing the various key attributes of our business and which helps us to explain even further why we are so positive about partnership's mid and long term outlook.

Speaker 1

I won't read these out, but hopefully, you will agree that we are able to present a very strong case. So in summary for this quarter on Slide 14, our fleet operated with 99.3% utilization for scheduled operations and 95.5% utilization 13 under our 1099 structure. We've now largely addressed our near term refinancing needs, having We closed the new 5 year $240,000,000 senior secured term loan facility, which was scheduled to mature in September 2023, and the first $25,000,000 revolving credit facility with the facility being rolled until August 2025 on similar terms. We expect that the second $25,000,000 revolving credit facility, which will mature in November 2023, will also be successfully refinanced on acceptable and similar terms prior to its We concluded a new contract for the Brazil Knutsen, agreed terms for a new contract for the Windsor Knutsen. PetroChina took up their option to extend their existing charter for the Vigdis Knutsen, and we agreed a short charter extension for the Dansysna.

Speaker 1

And in the near term, we'll continue to focus on safety as our number one priority and plan for the remaining 2 2023 scheduled dry docks. Look to maintain high scheduled operational utilization in line with our historically strong track record and continue to rebuild liquidity and earnings visibility by working to secure additional charter coverage, in particular across 2024 with our focus on the Hilda Knutsen, Torill Knutsen, Dan Sysnet and Danfzabia. So overall, I believe we have had a strong and successful quarter, notwithstanding the noncash impairments on our 2 smallest vessels. We've been successful in getting new charters, though we acknowledge there's more to do. And we've now largely addressed our near term refinancing needs, all moving us in the right direction.

Speaker 1

We remain committed to being open and transparent in what we are doing and delivering what we say we will. As you've hopefully heard me say many times, we believe that there are clear signs of mid- to long term future. And as the partnership moves forward in the very capable hands of Mr. Derek Lowe as the new incoming CEO, CFO, I believe our and our sponsors' decades long experience and market leading position in the shuttle tanker sector will serve the partnership very well. Thank you very much for your time today, and I'll now take any questions.

Operator

We have a question from Liam Burke of B. Riley to begin. Liam, please go ahead.

Speaker 2

Hi, Gary. How are you today?

Speaker 1

Hello, Liam. I'm very well. Thank you. How are you?

Speaker 2

Good. Thank you. I guess the 4 vessels you talked about, the 2 Dans and then the Toro and the Hilda. But taking a step back, what needs to happen for the partnership. Is it just those 4 vessels when you can get back to what has created value traditionally, A higher payout or a resumption of taking dropdowns from your sponsor.

Speaker 1

Yes. I think just let me address that last point first. Drop downs right now, they're not a Priority for us, clearly, it's something that's still there. Our focus is on other things, as we've said. I think if you recall, when we reduced the distribution in January, we said back then that the Priority is longer term charter visibility and building liquidity.

Speaker 1

And I think those four vessels will go a long way to helping with that. We've Sorted out the short term refinancing or the vast majority of it. We've got a couple of dry docks still to go this year, so we need to be mindful of those. And I think that the Board's discretion really is then comes into play in terms of how they view the required level of visibility and liquidity. But certainly, those 4 vessels, and we've highlighted them for a reason because When you look at the charter diagram, that is kind of where the obvious hole is at the moment and where we need to focus our efforts.

Speaker 1

And we think we're moving in the right direction, but there's clearly Still some work

Speaker 2

to do. Well, just looking at Brazil, you have would the Toro and Hilda make sense I know it costs a lot of money, but does it make sense to move them to the Brazilian market and charter them there?

Speaker 1

Yes. I mean, I think we've said previously, we certainly haven't ruled that out, but timing really is everything there. It would cost us a Fair chunk to get them down there. We it's an option, absolutely, but it's all about the timing and the choice there. So I think, yes, it's on our list of options, if you like.

Speaker 1

But I think you can be assured that we are looking at it very carefully to make sure that if we ever went down that route, we do it at the right time and for the right reasons.

Speaker 2

Great. Thank you, Gary.

Speaker 1

Thanks, Liam.

Operator

Our next question comes from Poe Fratt of Alliance Global Partners. Poe, the line is yours.

Speaker 3

First of all, Gary, I'd like to just congratulate you on your new position Navigator and just say that I've really enjoyed working with you as you're well covered, not offshore. So I'll make sure, please. Thank you. Yes. This is Alex Turai.

Speaker 3

I did have a couple of questions, just a little more detail. Can you just remind me on where the Dan Sysna and The Dan Sabio have been written down to?

Speaker 1

Yes. So the book values were In the region of 65, and we've taken 25 of each of them, broadly speaking.

Speaker 3

Okay. And then how realistic is it to think that those 2 could be sold?

Speaker 1

Yes. I mean, of course, it's always an option. And I think The discussions that the Board has had encompasses all sorts of things. So our first choice is always to utilize the vessels, utilize them for a good charter rate, run them very well. It's only when that doesn't become an option that we start to look at other things.

Speaker 1

But obviously, you have to factor in time, and We can't leave those discussions till the very last moment. We need to start thinking about them now. So again, in the interest of transparency, we've mentioned that on this call and in this earnings release. But we're far from having made any decisions about that. We don't know that the vessels won't be taken by either TransPetro, Petrobras or another charterer.

Speaker 1

The problem being is that today, we don't know that they will either. The vessels have been on very long term charters, spare boat charters. They've been very, very busy. The Brazilian market is tightening, as we've said. And although the environment in Brazil isn't Optimum for those smaller vessels today.

Speaker 1

With an absence of other vessels in Brazil, who's to say what might happen? So A sale is possible. I think it's arguably perhaps the slightly harder option, particularly if we're trying Sell it into a conventional market. But I think we've got other options before that and certainly our preference is to seek a new charter and run it as a shuttle tanker.

Speaker 3

Great. What is the more optimal market for those 2? You said that Brazil, they're smaller, there's it's suboptimal. Is there a more optimal market out there in the shuttle tanker market? You just talked about the

Speaker 1

conventional market, but in the shuttle tanker. Yes. If you force me to answer that question, I would say they're probably slightly more suited to the North Sea. They're not North Sea compatible at the moment, but they Could be made to be. So that is also an option.

Speaker 1

But clearly, right now, as we sit here today, Perhaps the North Sea transferring them immediately to the North Sea wouldn't be a sensible idea. But nonetheless, Both of them are contracted to the end of 2023 anyway. So we've still got several months before we even need to do anything with them. So That's why at this stage, we just want people to be aware that we are looking at all options in case We aren't able to secure a new charter at the end of these ones.

Speaker 3

Great. And how much Time and money would it take to make them North Sea compatible?

Speaker 1

It's not like a it's not a huge conversion exercise like trying to convert a conventional vessel into a shuttle tanker. It's equipment and it's substantial, but it's not I don't think it's something that our investors need to be concerned about from Material CapEx perspective, it's something that we would bake into a transaction or a decision to bring them to the North Sea if that's what we decide to do.

Speaker 3

Okay. Thanks. And then the loss of higher revenues that came in, dollars 1 point 1,400,000. What were they associated with?

Speaker 1

Yes. They would all go back So slightly historic, and I say slightly historic because it's probably in the last 1, 2, 3 quarters of claims. So if you go back to some of our previous earnings releases, we have disclosed some of the more material off hires that we've suffered in terms of Vessels suffering a few problems when we claimed non insurance, and that money coming through Is a closure of those insurance claims from previous quarters. Under U. S.

Speaker 1

GAAP, you have to be Really sure that you're going to get the money before you can book it. So we always end up with a mismatch between when we Put the insurance claim in and know about the problem on a ship to when we actually get the money in and we can recognize it in the accounts.

Speaker 3

And I think I read that you don't have any additional claims outstanding at this point in time?

Speaker 1

Yes, yes, that's right.

Speaker 3

Okay. And then looking at the Hilda and Toro, they're currently on short Charter agreements that runs through the year end with your subsidiary of 1 of your GPs. Is that something we should expect to continue to sort of You've filled the gap until the North Sea market rebalances. You've said it's going to take a little longer than expected, a couple more quarters. Is that something we should sort of expect as sort of a stop gap until you can get firm work?

Speaker 1

Obviously, I can't speak for the other side of that in terms of our sponsor and KNOT. But certainly, We've worked with them and come to an agreement with them to date on those vessels. And if nothing further It is forthcoming. As Liam talked about, there's the Brazil option, moving them to Brazil. But again, we'd have to assess the merits of that.

Speaker 1

But we would probably be turning to KNOT and seeking to negotiate with them A further extension, if need be. Obviously, I can't talk to their reaction and to their response to that. But Certainly, so far, they have proven and shown to be very supportive.

Speaker 3

Okay, great. And then just one last one, if you wouldn't mind. When I look at the options in Brazil, that's really where there might be a little bit of uncertainty in looking into 2024 With the Carmen and Windsor in the Q1 and then Anna in the Q3, but you did say that you're given the tightening in the market, You're pretty confident that those will be exercised. When will we find out that those options have been exercised?

Speaker 1

All the charters, unfortunately, Poe, for you and for us, all the charters have different terms and notice periods. So it's not a simple thing to say or to answer that question. I think we're increasingly confident given the market in Brazil that Even if the options are not taken, that there is alternative employment opportunities for each and all of those vessels in Brazil. So yes, we are confident that options will be taken, particularly if customers have got a good Charter rates locked in. But notwithstanding that, I think the point is really that option or no option, We're increasingly confident that we would find employment for any or all of those vessels in Brazil anyway.

Speaker 3

Great. And just I apologize, Gary. Just one more, if you wouldn't mind. What should we build in for the Toro? On the tour on the Ingrid, as far as drydocks coming up in the Q4, roughly 30 days or sort of what's the ballpark number for those drydocks?

Speaker 1

Yes. Toril and Ingrid are obviously European based vessels, and we Perform all of our dry docks in Europe, so they're much quicker. So similar to the Hill that you'd probably expect in the region of 30 days.

Speaker 3

Great. And Gary, good luck in your new endeavor. Thank you so much.

Speaker 1

Thank you, both. It's a pleasure working with you. Thank you.

Operator

Thank you. Our next question comes from Robert Silvera of R. E. Silvera and Associates. Robert, the line is yours.

Speaker 4

Thank you. Gary, I'm looking at the balance sheet and the current assets, current liabilities. We're seeing that our cash since the end of 2022 has climbed substantially, which is good. And the current portion of long term debt has dropped very significantly. But then dropping down a little bit to the long term assets, The net vessels and equipment has dropped about roughly $100,000,000 and the long term debt has gone up to $820,000,000 And I'm having problem understanding this.

Speaker 4

I wonder if you could Explain to me why this dynamic is happening where the long term debt has gone up so substantially since the end of 'twenty two while your cash and the rest of the things seem to improve and the current liabilities have dropped so much.

Speaker 1

Yes. The cash position has risen through operations, but also we hold back money for dry docks. So As we come towards dry docks, the cash position will be slightly elevated in order that we've got excess cash to pay for those dry docks. I think that's one side of it. The other side in terms of the debt and the current versus the long term or let's call it non current, It's just reclassification between pre refinancing and post refinancing.

Speaker 1

So As we come up to a refinance, obviously, we're within 1 year of that refinance maturity date and quite a lot of the debt moves into the current As we refinance, it shifts back into the long term. So if you compare 1 quarter to the other quarter and there has been a Finance at some point, you will probably see movements such as that happening, and that's exactly what's happened on our balance sheet in Q2 compared to Q1 or even the end of Q4 last year.

Speaker 4

So the long term asset drop of about $100,000,000 most of it is that reassessment of the value of the 2 ships?

Speaker 1

The reduction in the asset will be normal depreciation and the impairment taken together, yes.

Speaker 4

Really, in 6 months, we've gone down $100,000,000 almost. And that's the investment equipment,

Speaker 1

The impairment itself was €50,000,000 of that.

Speaker 4

Yes, that's what I'm saying afterwards. Okay. Well, our feelings are please do not take any more dropdowns Until we show that the Brazilian market really has improved substantially and our charter rates are climbing before we'll entertain the risk of taking some more drop downs. That's

Speaker 1

As I expect, I think one of the other question is Drop downs at the moment really not our priority. It's still part of the strategy of the business to grow the fleet, But the focus at the moment is visibility of earnings and liquidity.

Speaker 4

Right. Reducing debt like that. Do you have any feeling at the rate you're doing what you're doing and assuming that The Brazilian market continues to strengthen. How long might it take in your estimation? And you won't be around to have to stand up to this estimation in the long run because you're off to a new career.

Speaker 4

But How long do you think it might take before you see the dividend begin to rise again?

Speaker 1

Yes. We're talking 6

Speaker 4

months, 2 years. What are we doing?

Speaker 1

Look, I think when we reduced the distribution only earlier this year, And I know it's been a couple of quarters since then. And we said that we needed longer term charter visibility and we needed to build liquidity. Clearly, we've sorted out the majority of our refinancing near term. We've got some dry docks to take care of. And we're making moves in the right direction, I think, with still some work to do.

Speaker 1

But ultimately, The level at which we've got enough charter visibility and enough liquidity, that's really up to the Board's discretion. But I think we're moving in the right direction. I think there's still work to do. But ultimately, it's the Board's discretion. So it's difficult for me to answer that.

Speaker 1

I personally don't think we're there yet. We only got the distribution earlier this year.

Speaker 4

I know. So we're 6 months in that. But I'm trying to get a feeling, is it another 6 months, another whole year Before we can entertain, we remember the sweet days of $0.52 a quarter. And truly, you must have some feeling. I don't hold you to an exact number, but you must have some feeling of your strategy, the changing market Dynamic in Brazil, particularly the demand, etcetera, where the cash flows and the reduction of debt Would play out to a time frame of 6 months, a year, 2 years, and you've got to have some feeling for that.

Speaker 1

Robert, even though I'm leaving, I would be a fool to answer that question in a way because we've stated what We are trying to do and where we need to get to. But first of all, I can't Predict the future actually. And secondly, ultimately, it's the Board's discretion. So it's when the Board feels That all of these things that you've mentioned there, the market, the liquidity, the feeling, the outlook, It's when the Board feels and the Board's discretion to decide, yes, okay, now we feel we can do something. And I can't possibly really second guess that.

Speaker 1

We've tried to put out information and Where we are and what we think and where we see it. But ultimately, future quarters, like we've said right at the start with forward looking statements, It's very difficult to predict that.

Speaker 4

Okay. Going down another line then, there has been some chatter in financial markets that what the parent might do is Reach down and absorb the partnership at this lower level of pricing where we are now around $5 Do you see that as a possibility or could you say pretty hard and fast No, that's not going to happen. The parent company is going to continue to honor the Partnership and let it work its way back up into the higher price ranges of this the share price.

Speaker 1

Yes. Well, I can't

Speaker 5

speak for

Speaker 1

the sponsor, and I'm not involved or party to the sponsor's Discussions and thoughts. All I can do is tell you that we've had a board meeting yesterday, and Our strategy as a company remains unchanged, and we're focusing on what we can do. And what we are looking at is The things within our control and we're focused on getting more charters and we're building liquidity. And I think if we focus on It's for everybody's benefit, and we're trying to look after all the unitholders here. The sponsor is a unitholder just like everybody else.

Speaker 1

So It's almost impossible for me to make any comment on that. And even if I did make a comment on it, The sponsor tomorrow could decide it has a different view. So we're just trying to stick with what we Can control on what we're focused on and hopefully that's for everybody's benefit.

Speaker 4

Okay. Well, that's somewhat encouraging. At least we know we've stated our feelings with thousands of shares That, we would not like to see that. So thank you very much and may your future career be blessed, Gerry.

Speaker 1

Thank you very much, Robert. Appreciate it.

Operator

Our next question comes from Hany Hasnat, a Private Investor. Hany, please go ahead.

Speaker 5

Hi, Gary. How are you doing? It's Henry.

Speaker 1

How are

Speaker 5

you doing today?

Speaker 1

Yes. I'm well. Thank you.

Speaker 5

Wonderful. Thank you so much for all the effort that you guys are doing and trying to stabilize the cash flow and add in the increasing liquidity. My question comes in actually onto the potential future acquisitions. So there are 7 vessels out there that we can actually I'm not sure where we are in terms of discussions that have been offered to us in order to acquire, Because they're still at the early stage and they're fairly 5 years or more, that's over my 7 years. So are we entertaining any of those acquisitions at this time?

Speaker 5

Or has it not been in our discussion at the time being?

Speaker 1

At the moment, Hany, it's the latter. I mean, we they are still there, And our sponsor has been Flexible, and those acquisitions are still available to us. But First of all, it's difficult to do them right now anyway. But secondly, as I've said once or twice already on this call and It's not at the moment our priority.

Speaker 5

I understand. But it really I understand that it will take more on the long term debt and we'll increase the long term debt, but it also will keep us on the positive cash flow side of things. That's really where I'm coming from.

Speaker 1

Yes. I think, Of course, first of all, we would never do an acquisition unless it was accretive, first of all. But I think Yes. But I think where we are sitting here today, I think our liquidity position, The requirement to make sure we have cash for dry docks and to run the fleet, and to get into a very Comfortable position again so that we've got options. I think that's more important at the moment than acquisitions.

Speaker 1

And I believe that the Board So I don't think we're concerned about necessarily adding debt to the balance sheet provided that The transaction is accretive and the cash flow can handle that debt, etcetera. I don't think that's a concern particularly, Certainly not the first concern, but the first concern today is getting stability of liquidity and getting to a comfortable position to have options again. And at that point, we could then start again to look at acquisitions.

Speaker 5

Okay. So I guess the way I look at it, we have about $63,000,000 in cash. And the dry dock for the last two vessels were around 11,000,000 I guess we're anticipating another $11,000,000 for the 2 other dry docks this year, correct? If we're like an average ballpark?

Speaker 1

You mean each or for both?

Speaker 5

Both for both.

Speaker 1

Yes, probably less than that because they're both European based vessels. So but You're not mistaken. So we do have it.

Speaker 5

Yes, I understand. So even with the dry dock, we still have enough cash flow, And we can add up 1 or 2 vessels at least from the potential acquisition. That's really what I'm trying to get to. Has that been discussed? Has it been not agreed upon?

Speaker 5

Or has it not really in our scope at this scope at this time?

Speaker 1

I think the one extra thing that you have to take into consideration is that we have Financial covenants as part of our debt structure and some of our loan agreements. And as a ballpark figure, And it's more complex than this, but as a ballpark figure, we need to retain in the region of $40,000,000 in available liquidity. So that $63,000,000 that we have isn't fully available to spend, if you see what I mean. Yes. It's obviously out of cash.

Speaker 1

It's obviously out of cash, but it's not something. Plus as well, notwithstanding that, we also, of course, have to maintain Sufficient working capital, etcetera, to run 18 ships, and this is an expensive business. We've Taking quite a lot of revenue, but we also have quite high costs.

Speaker 5

I understand that. Well, thank you so much, Gary. Appreciate it. That kind of answers my questions.

Speaker 1

Okay. Thanks very much, Hany. Appreciate it. Thank you.

Speaker 3

Thank you.

Operator

Our next question comes from Jim Atchall of the Aviation Advisory Service. Jim, please go ahead.

Speaker 6

Good afternoon, I guess. First of all, I want to join the others, Gary, in thanking you for Your really exceptional responsiveness and professionalism during the years, some of the years I've been And investor in participating in these calls. I've got a couple of questions for you. First of all, Looking at the news release, with regard to the Extensions that the new charters, for example, you signed a new Charter or a no time charter for the Recife Knutsen. And I'm sorry, I'm just scrolling down.

Speaker 6

The Windsor Knutsen and the Brazil Nielsen, without giving specific numbers, how do the charter rates On these newer extended charters compared to what you were receiving under the prior charters?

Speaker 1

Yes. They reflect the tightening market, I think, is the simple answer to that question. We've seen that gradually over the last few quarters in Brazil. We're not yet seeing that in the North Sea. But yes, they are for sure, reflecting a tightening market with less available tonnage to customers.

Speaker 6

You mean Tightening in favor of not offshore partners.

Speaker 1

Is that

Speaker 6

what you mean?

Speaker 1

Correct. Yes.

Speaker 6

Okay. Next thing, over the next In addition, after the complete these 2 dry dockings, do you have any other dry dockings Anticipated schedule over the next 12 months.

Speaker 1

The last Dry dock, the ingrid might split into January of next year, if it's not depending on the exact timing of it. But Leaving that aside, there are no drydocks scheduled for 2024. Okay. I think you should be able See that on the Slide 9, we put The green boxes on each of the vessel charter timelines to show where the dry docks are and if you look down the 2020 For column, you'll see that there are none in there. Like I said, the last couple of vessels may Tumble a little bit for a few days into 2024, but really we treat them as 2023 dry docks.

Speaker 6

Okay. Excellent. Thank you very much.

Speaker 1

No problem, Jim. Thanks for your kind words as well.

Operator

We have a follow-up question from Robert Silvera of R. E. Silvera and Associates. Robert, the line is yours.

Speaker 4

Hey, thank you for taking the follow-up, Gary. The previous caller just Talk to you about changing in the rates for new contracts now versus the old established contracts. And you implied that things are getting better because of the tighter Brazilian marketplace at this point. Can you give us a feeling percentage wise? Are they 2%, 3% better, 10% better, 15%?

Speaker 4

What's how fast kind of thing do you see this going up? And to what percentage extent in the near future. Yes.

Speaker 1

Robert, I'll start with the question. It's not quite as simple as Talk about percentage increases because obviously then you I'd have to sort of talk about from what date to what date and all charts The difference or customers are different. And the discussions we have with each customer, every customer is in a different In terms of their own operations and demands and volumes that they need to transport and numbers of cargoes and ton miles. So there's a lot of variables that goes into it and each discussion with each customer is pretty unique. So yes, Overall, for sure, we have seen a robust strengthening of rates.

Speaker 1

It's more than negligible, that's for sure. But I think trying to give you percentages would be As misleading as trying to give you precise numbers. So I think it's The message we're trying to give is that the market is materially tightening. We're the beneficiaries of that. It may take some time to come through.

Speaker 1

We have long term charters. So yes, we've signed a couple of new charters, as we've disclosed, and we've got 1 or 2 more in hopefully in the pipeline. But obviously, the majority of our vessels today are operating on charters that have been agreed sometime in the past. So We have to wait for things to work through a little bit as well. So there's an extra complexity there when you add in the time line.

Speaker 1

So The simple answer to your question is that it's a robust tightening, for sure. But trying to put percentages or numbers onto that, I'm afraid, I'm going to mislead somebody, I almost guarantee.

Speaker 4

Okay. Well, I like the word robust. It's got a good connotation. And putting percentages on sounds like the U. S.

Speaker 4

Government who's trying to tell us what inflation we really are living with. And it all depends on whether you're dealing with gasoline, eggs or something else. So Thank you very much for that extra color on that. It gives me a stronger feeling that the market really is moving in a robust manner. Thanks, Gary.

Speaker 1

Thank you.

Operator

We have no further questions on the line, so I'll hand back for closing remarks.

Speaker 1

Yes. Thank you very much, everybody. I appreciate the time you've spent today and the questions, and I wish you all the best for the future. Thank you.

Operator

Thank you for joining. This concludes today's call. You may now disconnect your lines.

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