KNOT Offshore Partners Q2 Earnings Call Highlights

Key Points

• Q2 performance remained solid: KNOT Offshore Partners reported $96.8 million in revenue, $57.6 million in adjusted EBITDA and 96.8% utilization excluding scheduled drydocking. Liquidity totaled $143.3 million at quarter-end.
• Fleet expansion and distribution growth: The partnership raised its quarterly distribution to $0.075 per common unit and acquired the Hedda Knutsen for a net cash cost of $24.4 million, adding a newer vessel with a Petrobras charter through 2034.
• Strong charter coverage and refinancing progress: KNOT had full charter coverage for the rest of 2026, with 92% of 2027 covered on a firm basis. It also refinanced $225 million of debt at SOFR plus 165 basis points, while management cited tightening shuttle tanker market conditions in Brazil and the North Sea.

KNOT Offshore Partners NYSE: KNOP reported second-quarter 2026 revenue of $96.8 million, operating income of $15.6 million, net income of $3.4 million and adjusted EBITDA of $57.6 million, as the shuttle tanker partnership cited high vessel utilization and additional charter activity.

Derek Lowe, the partnership’s CEO and CFO, said available liquidity totaled $143.3 million as of June 30, consisting of $95.3 million of cash and cash equivalents and $48 million of undrawn borrowing capacity. Liquidity increased by $2.6 million from March 31, though Lowe said the increase was broadly consistent with a declining trend in recent quarters.

The partnership reported utilization of 96.8% when accounting for scheduled drydocking, and 92.4% overall following the drydocking of the Fortaleza Knutsen.

Distribution Increased and Hedda Knutsen Acquired

Following the quarter, KNOT Offshore Partners declared a cash distribution of $0.075 per common unit, which was paid in August under the partnership’s 1099 structure. The distribution rose from $0.05 in the preceding quarter and from a quarterly rate of $0.026 that had been in place for several years.

Lowe said the partnership’s distribution increases were supported by reliable and diversified long-term cash flow and an improved balance sheet. He said management expects that a combination of accretive vessel drop-downs and an improving charter market could support further gradual distribution increases over coming quarters and years.

On Sept. 1, the partnership acquired the Hedda Knutsen from Knutsen for a purchase price of $113 million. The vessel came with an $89.4 million debt facility and $0.8 million of capitalized financing fees, resulting in a net cash cost of $24.4 million.

The acquisition was negotiated by the board’s independent Conflicts Committee. Hedda Knutsen was delivered new to KNOT in October 2024 and is chartered to Petrobras in Brazil through November 2034, with five additional years of charterer options. Lowe said the purchase adds fleet capacity, extends the partnership’s long-term contract pipeline, lowers average fleet age and expands its presence in a shuttle tanker asset class with strong demand.

Charter Agreements and Refinancing Activity

KNOT Offshore Partners disclosed several chartering developments during and after the quarter. Among them, the Hilda Knutsen received a charter agreement with Eni beginning in June 2027 for a fixed three-year period, plus three one-year charterer options.

• The Recife Knutsen secured a charter with Transpetro scheduled to begin in the third quarter of 2026 for two years.
• The Ingrid Knutsen reached an agreement with Eni for a charter commencing in October 2026, with a fixed three-year term and three additional one-year options. Lowe described the agreement as an indirect continuation of the vessel’s existing Eni charter and a replacement for Eni’s existing options.
• The partnership refinanced debt secured by the Tordis Knutsen, Vigdis Knutsen, Lena Knutsen, Anna Knutsen and Brasil Knutsen through a new $225 million, five-year senior secured term loan arranged by DNB Bank ASA.

The new $225 million facility carries an interest rate of SOFR plus 165 basis points, which Lowe said represented a meaningful reduction in borrowing costs. The partnership also said it was well advanced in refinancing the $65 million facility secured by the Live Knutsen, which is due in late October. Its average margin on floating-rate debt was 2.21% over SOFR during the second quarter.

Backlog and Market Conditions

At quarter-end, the partnership had $881.2 million of fixed contracted backlog, averaging 2.5 years in duration, along with charterer options averaging an additional four years. Its fleet of 19 vessels had an average age of 10.7 years at quarter-end, and Lowe said the Hedda Knutsen acquisition lowers that average by nearly half a year.

The partnership was fully chartered for the remainder of 2026. It reported firm charter coverage of 92% for 2027, rising to 96% when charterer options are included. For 2028, coverage was 65% on a firm basis and 93% including options.

Lowe said the partnership expects charterer options to be exercised based on current charter rates and the strength of the charter market. He cited tightening conditions in Brazil and the North Sea, driven by multiyear floating production storage and offloading, or FPSO, development pipelines, production growth and investment in exploration and project expansions.

According to Lowe, rising shuttle tanker service volumes in both regions have tightened the supply-demand balance even as new vessels enter service. He also said the shuttle tanker order book remains non-speculative and, in management’s view, insufficient to meet expected demand.

Drop-Down Approach Remains Opportunity-Driven

During the question-and-answer session, B. Riley Securities analyst Liam Burke asked whether the Hedda Knutsen transaction could signal a different pace of fleet expansion. Lowe said the partnership responds to vessel offers as they are made and noted that only a limited number of vessels in the drop-down inventory have been delivered and can therefore be offered to the partnership.

Lowe said the debt structure used for Hedda Knutsen was standard for the partnership’s historical drop-down transactions. Such vessels generally have secured debt facilities in place before they are offered, with ownership and guarantor arrangements capable of being transferred from KNOT to the partnership. He added that Hedda Knutsen’s approximately $24 million net cash cost was consistent with prior transactions.

In June, the partnership decided not to pursue the Frida Knutsen and Sindre Knutsen, removing them from its drop-down inventory.

About KNOT Offshore Partners (NYSE:KNOP)

KNOT Offshore Partners LP is a publicly traded limited partnership formed in 2013 to own and operate shuttle tankers under long‐term charters in the offshore oil industry. Listed on the New York Stock Exchange under the symbol KNOP, the partnership specializes in the transportation of crude oil from offshore production facilities to onshore refineries. Its fleet comprises moderne shuttle tankers equipped with dynamic positioning systems, enabling safe transfer operations in harsh weather and sea conditions.

The partnership's vessels primarily serve fields in the North Sea, Brazil and West Africa, where they operate under multi‐year contracts with major energy producers.

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