Third Quarter 2014 Results. November 7, 2014

Transcription

1 Third Quarter 2014 Results November 7, 2014

2 Notice to Recipients This presentation is not a prospectus and is not an offer to sell, nor a solicitation of an offer to buy, securities. Except for the historical information contained herein, the matters discussed in this presentation include forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, among other things, market conditions and other factors that are described in KNOT Partners filings with the U.S Securities and Exchange Commission, which are available on the SEC s website at Nevertheless, new factors emerge from time to time, and it is not possible for KNOT Partners to predict all of these factors. Further, KNOT Partners cannot assess the impact of each such factor on its business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. KNOT Partners expressly disclaims any intention or obligation to revise or publicly update any forward-looking statements whether as a result of new information, future events or otherwise. The forward-looking statements contained herein are expressly qualified by this cautionary notice to recipients. 2

3 Highligts & Recent Events For the third quarter of 2014, KNOT Offshore Partners L.P. (the Partnership ): Generated net income of $12.6 million and operating income of $15.5 million Generated Adjusted EBITDA (1) of $25.7 million and Generated distributable cash flow (1) of $14.7 million Net income in Q3-14 was affected by $1.8 million unrealized derivative gains The Partnership has declared a Q3-14 cash distribution of $0.49 per unit payable on November 14. This represents an annual distribution of $1.96 per unit which is a 12.6% increase from Q2-14 distribution Following the Partnership s 4.6 million common units offering in June 2014, the underwriters exercised 640,000 units of their 690,000 unit overallotment option in July. Total gross proceeds from the June and July transactions, including the 2% general partner units amounted to $152 million In September, Knutsen NYK Offshore Tankers entered into new long term charters with BG group from late 2016/ start of Two shuttle tanker newbuildings were also ordered at Hyundai Heavy Industries, South Korea. This increases the Partnership s number of defined vessels eligible for acquisition to six units. (1) Adjusted EBITDA and Distributable cash flow are non-gaap financial measures. Please see page 6 and 7 for definitions. 3

4 Summary unaudited condensed consolidated and combined carveout statement of operations Vessel operation in line with forecast 98.4% uptime (7.4 days offhire) Revenues include a non-cash item of approximately $0.9 million for Q3-14 and approx. $0.5 million for the other quarters Mark to market gain on interest rate swaps: includes an unrealized gain of $1.8 million Realized loss of $0.7 million Net of $1.1 million (USD in thousands) Three months Ended September 30, 2014 (unaudited) Three months Ended September 30, 2013 (unaudited) Three months Ended June 30, 2014 (unaudited) Time charter and bareboat revenues 1) 34,247 20,454 22,116 Loss of hire insurance recoveries - Other income 18 3 Total revenues 34,265 20,454 22,119 Vessel operating expenses 7,601 3,830 4,324 Depreciation and amortization 10,201 6,304 6,782 General and administrative expenses , 1,461 Total operating expenses 18,789 11,094 12,567 Operating income 15,476 9,360 9,552 Finance income (expense): Interest income Interest expense -4,014-2,653-3,856 Other finance expense Realized and unrealized gain on derivative 1, ,342 Net gain (loss) on foreign currency transac Total finance expense -2,914-3,008-7,073 Income (loss) before income taxes 12,562 6,352 2,479 Income tax benefit (expense) Net income (loss) attributable to KNOT Offshore Partners LP Owners 12,563 6,357 2,497 Weighted average units outstanding (in thousands): Common units 13,565,848 8,567,500 8,719,148 Subordinated units 8,567,500 8,567,500 8,567,500 General Partner units 453, , ,789 4

5 Summary Unaudited Condensed Consolidated and combined carve-out Balance sheet Total unrestricted cash of $44.4 million Interest bearing debt at $536.2 million Average credit margin was 2.4% Agreed $380m in new credit facilities Drawdown in June of $220m and $20m revolver Assumes remaining $140m to be drawn in Q4-14 Repayment profile 19 yrs. Ballons in 2019 $350 million of the Libor interest rate risk is secured through interest swaps Duration is between February and October 2018, average term is 3.6 years Fixed payable rates are between 1.25% and 1.46% with an average rate of 1.38% (USD in thousands) At September 30, 2014 (unaudited) At December 31, 2013 (Audited) ASSETS Current assets: Cash and cash equivalents Restricted cash 458 Derivative assets 248 Other current assets Long-term assets: Vessels and equipment Goodwill Deferred debt issuance cost Derivative assets Total assets LIABILITIES AND PARTNERS EQUITY/OWNER S CAPITAL Current liabilities: Current installments of long-term debt Derivative liabilities Contract liabilities Income taxes payable Amount due to related parties Other current liabilities Long-term liabilities: Long-term debt, excluding current installments Long-term debt from related parties Derivative liabilities Contract liabilities Deferred tax liabilities Other long-term liabilities Total liabilities Owner's equity - - Partner's capital Common unitholders Subordinated unitholder General Partner interest Total Partner s capital Total liabilities and equity

6 Distributable cashflow Three months Ended (USD in thousands) September 30, 2014 (unaudited) Net income Add: Depreciation and amortization Other non-cash items; deferred costs amortization debt 308 Less: Estimated maintenance and replacement capital expenditures (including drydocking reserve) Deferred revenue -858 Unrealized gain from interest rate derivatives and forward exchange currency contracts Distributable cash flow Distributable Cash Flow ( DCF ) Distributable cash flow represents net income adjusted for depreciation and amortization, unrealized gains and losses from derivatives, unrealized foreign exchange gains and losses, other non-cash items and estimated maintenance and replacement capital expenditures. Estimated maintenance and replacement capital expenditures, including estimated expenditures for drydocking, represent capital expenditures required to maintain over the long-term the operating capacity of, or the revenue generated by our capital assets. Distributable cash flow is a quantitative standard used by investors in publicly-traded partnerships to assist in evaluating a partnership s ability to make quarterly cash distributions. Distributable cash flow is a non-gaap financial measure and should not be considered as an alternative to net income or any other indicator of KNOT Offshore Partners performance calculated in accordance with GAAP. The table below reconciles distributable cash flow to net income, the most directly comparable GAAP measure. 6

7 Adjusted EBITDA Three months Ended (USD in thousands) September 30, 2014 (unaudited) Net income Interest income 0 Interest expenses Depreciation and amortization Income tax (benefits) expense -1 EBITDA Other financial items (1) Adjusted EBITDA (1) Other financial items consist of other finance expense, realized and unrealized loss on derivative instruments and net loss on foreign currency transactions Adjusted EBITDA refers to earnings before interest, other financial items, taxes, non-controlling interest, depreciation and amortization. Adjusted EBITDA is a non-gaap financial measure used by investors to measure our performance. The Partnership believes that Adjusted EBITDA assists its management and investors by increasing the comparability of its performance from period to period and against the performance of other companies in its industry that provide Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, taxes and depreciation and amortization, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. The Partnership believes that including Adjusted EBITDA as a financial measure benefits investors in (a) selecting between investing in the Partnership and other investment alternatives and (b) monitoring the Partnership s ongoing financial and operational strength in assessing whether to continue to hold common units. Adjusted EBITDA is a non-gaap financial measure and should not be considered as an alternative to net income or any other indicator of Partnership performance calculated in accordance with GAAP. The table below reconciles Adjusted EBITDA to net income, the most directly comparable GAAP measure. 7

8 Long-term Contracts Backed by Leading Energy Companies Capacity Name (DWT) Charterer Type Windsor Knutsen Bodil Knutsen Time Charter Time Charter Fortaleza Knutsen Bareboat Recife Knutsen Bareboat Carmen Knutsen Hilda Knutsen Torill Knutsen Time Charter Time Charter Time Charter Fixed Contract Option Knutsen NYK Guarantee (1) KNOP fleet has average remaining fixed contract duration of 5.1 years (2) (TC: 3.8yrs, BB:8.8yrs) Note: Remaining contract life is calculated as of 09/30/2014. (1) Guarantee duration of five years from IPO date. (2) Including Knutsen NYK Guarantee and excluding the option periods. 8

9 Knutsen NYK Offshore Tankers (KNOT) orders two new shuttle tankers KNOT enters into new contract for shuttle tankers Vessel Size (dwt) Construction Delivery Employment Term BG I dwt Hyundai, South Korea Q4-16 Timecharter BG group Up to 20 years BG II dwt Hyundai, South Korea Q1-17 Timecharter BG group Up to 20 years BG III option dwt Hyundai, South Korea Q4-17 Timecharter BG group Up to 20 years BG IV option dwt Hyundai, South Korea Q1-18 Timecharter BG group Up to 20 years On September 12, KNOT entered into new long term charters with a subsidiary of BG group plc to provide shuttle tanker services in Brazil The contract will be serviced by two Suezmax size DP II newbuildings to be constructed at Hyundai Heavy Industries, South Korea The vessels will commence operations under long term charters when delivered late 2016/ early If all options are exercised, term of timecharters could be up to 20 years Up to September 2015, BG has the option to increase the number of shuttle tankers to three or four at similar terms When on the water and on contract, KNOT Offshore Partners LP will have the option to acquire the vessels 9

10 Dropdown Fleet Overview Capacity Charter Name (DWT) Charterer Delivery Type Expiration Area (1) Ingrid Knutsen Q Time Charter nov.23 North Sea Hull 574, Cosco Q Time Charter sep.24 Brazil Dan Cisne Q Bareboat sep.23 Brazil Dan Sabia Q Bareboat jan.24 Brazil BG I / Hyundai Q Time Charter jan.24 Brazil BG II / Hyundai Q Time Charter jan.24 Brazil Fixed Contract Option Yard Fixed contract periods for the dropdown fleet are 7.6 years in average 14.5yrs including options (1) Expected area of operation. 10

11 Petrobras production capacity is being ramped up Source: Petrobras Investor presentation June 2014, 11

12 BG group Investor update October 2014 Source: BG group Investor Update October 2014, Red outline : KNOT Offshore Partners 12

13 BG group Investor update October 2014 Source: BG group Investor Update October 2014, Red outline : KNOT Offshore Partners 13

14 Brazilian deepwater shuttle tanker volumes Source: Fearnley November 2014, 14

15 Break even oil prices Norway, NPD including interest Source: Norwegian Petroleum Directorate April 2014, Red line : KNOT Offshore Partners 15

16 Q3-14: Full effect of the Hilda Knutsen and Torill Knutsen acquisitions KNOT Offshore Partners LP Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Main quarterly figures Revenues $ million 17,3 20,5 22,2 21,8 22,1 34,3 Operating income $ million 7,4 9,4 10,0 9,4 9,6 15,5 Net Income $ million 4,0 6,4 7,9 6,4 2,5 12,6 EBITDA, adjusted* $ million 12,7 15,7 16,8 16,1 16,3 25,7 Distributable cashflow* ( $ million 7,2 9,3 9,8 9,2 8,1 14,7 Distributions (B) $ million 5,5 7,6 7,6 7,6 9,9 11,2 Coverage ratio (A)/(B) x 1,32 1,22 1,28 1,20 0,82 1,31 # vessels # 4,0 4,7 5,0 5,0 5,0 7,0 Offhire days 0,0 3,4 3,5 2,7 1,5 7,4 Offhire % 0,0% 1,4% 1,3% 1,0% 0,5% 1,6% Distributions/ unit regard $/unit 0, ,435 0,435 0,435 0,435 0,490 Units, Total # million 17,5 17,5 17,5 17,5 22,2 22,8 * See definitions of these non-gaap financial measures on Page 6 and Page 7 Operation has been better than forcasted at the IPO Offhire a bit higher in Q3-14, but still less than 2% budget Following a stable period of quarterly EBITDA around $16 million, the effect of Hilda Knutsen and Torill Knutsen acquisitions inreases EBITDA significantly Coverage ratio back above 1.20x following a dip created by the common unit offering in late June. Q2 distribution to new units without corresponding earnings in the quarter 16

17 Distribution for Q3-14 will be up 31%* from MQD Following the Hilda Knutsen and Torill Knutsen, distribution is increased by 12.6% At the IPO in April 2013, the Partnership expected a distribution growth averaging 10% to 15% annually in the first three years period 17

18 Thank you, any questions?

19 A Critical Component of Offshore Oil Infrastructure: Shuttle Tankers are substituting pipelines in Deep Sea oil production Superior, more economical alternative with lower initial investment in certain fields based on: Water depth Distance from infrastructure Field size Field life Destination flexibility Advantages vs. Pipelines Key Differences vs. Conventional Tankers Specially designed tankers with sophisticated bow loading and submerged turret loading equipment Dynamic Positioning (DP) systems allow the vessel to stay on location in high seas and in harsh environments 50% higher investment cost than conventional tankers Tender-based business drives newbuilds (versus speculative ordering) Longer-term contracts Stricter standards and specialized crewing 19

20 (Mn Boepd) Deepwater Oil Production Is Rapidly Growing Key Themes & Trends Depletion of existing fields, in addition to consumption growth, will drive new exploration New Offshore Oil Field Developments (3) Barents Sea Total oil consumption is projected to increase at a long-term annual growth rate of 0.6% (1) The most easily accessible offshore oil fields have already been developed; new oil fields will be in more remote areas and deepwater locations Eastern Canada Developments in Norway Developments in the UK 70 Offshore Supply by Depth (2) Developments in Brazil 20 Growth regions Shallow Deep 2012 Level Deepwater is an increasing part of offshore oil production (1) Source: IEA World Energy Outlook (2) Source: Douglas-Westwood Ltd., April (3).Source: Fearnleys April

21 Demand for Shuttle Tankers Increasing Oil Fields Serviced by Shuttle Tankers Expected to Increase (1) Millions Barrels Daily Offshore Oil Field production (Fields operated by shuttle tankers) 86% of growth driven by Brazil & North Sea 8,00 7,00 6,00 5, CAGR: 21% 4,8 5,4 6,4 7,3 Additional need by 2020: 60 Based on discoveries already made, but not yet tendered 4,00 3,00 2,7 3,3 Current order book: 10* Based on charters already tendered 2,3 2,00 1,00 0, Norway Brazil UK Canada Denmark Significant demand past 2020 due to new field discoveries and longer expected hauls (1) Sources: Fearnleys November

22 Late cycle and stable margins in the Shuttle tanker industry An offshore oil production development is a complex operation that takes years to mature Normally 5 to 15 years from discovery to first oil Shuttle tankers are late cycle in this industry Discoveries from wildcat drilling today will normally be shuttle transportation after 2022 Demand for Shuttle tankers up to 2020 are already found oil with decision to develop the field Building time for a shuttle is less than 2,5 years Will typically be contracted within a year after an FPSO contract. Open tenders and competition indicates that tenders will give «normal» returns This also means lower recontracting risk rates will normally reflect interest rates and Newbuilding prices No commodity or production risk Equipment hire and services for a daily fee FPSO = Floating Production Storage Offloading Unit 22

23 Excellent visibility in the Shuttle tanker business: ENI vessels on the Goliat field is an example Goliath field Development SEISMIC EXPLORATION DRILLING PDO - Plan for Development and Operation DEVELOPMENT DRILLING FPSO Feed study FPSO Construction Shuttle construction Shuttle contract Delay 4 years from PDO approved to shuttle start Goliat field: 15 years from discovery to first oil In Brazil, discovery to first oil has been down to 5 years 23

24 Shuttle Tankers: Unique Assets in Energy Supply Chain Specialized Asset Class Standardized Asset Class Shuttle Tankers LNG Conventional Tankers Dry Bulk Carriers Function Transport from FPSO or production unit to terminal / refinery Transports to and from terminal / refinery Transports crude and products to and from terminal / refinery Specializes in break bulk dry cargoes such as coal Ordering With contract With contract / Speculative Predominantly speculative Predominantly speculative Typical Trading Long-term contracts: (5-15 years) Long-term contracts (5-25 years) Spot contracts, sometimes longer Spot contracts, sometimes longer 390 Vessels 3,900 Vessels 9,500 Vessels Total Size / Capacity of Global Fleet 77 Vessels 9mm Dead Weight Tons 53mm Cubic Meters 440mm Dead Weight Tons 670mm Dead Weight Tons Shuttle Tankers are a unique and highly specialized asset class that is integral to the offshore oil infrastructure Sources: Fearnleys and Clarksons March

25 One of the World s Youngest Fleets with the Latest Technology Few vessels are being delivered going forward All Newbuilding vessels are on contract no speculative ordering Delivery of Brazilian vessels ordered in 2007 has continuosly been delayed The Partnership expects new ordring based on long term charters (>=5yrs) this year Source: Fearnleys January

26 Knutsen NYK Offshore Tankers: Industry Leader with 2 nd Largest Fleet A Highly Experienced Operator Knutsen NYK is One of the Largest Operators in the Shuttle Tanker Sector (1)(2) Market leading shuttle tanker operator with extensive experience 26 years of experience in offshore buoy loading and DP (Dynamic Positioning) operations Backed by two leading sponsors in the industry: TSSI and NYK Fleet expansion based entirely on organic growth Knutsen NYK is the exclusive vehicle for investment in shuttle tankers by its Sponsors (1) Sources: Fearnley research, January (2) Indicates owned vessels only. 26

27 Overview of Sponsors and Partnership Structure Overview of Nippon Yusen Kaisha ( NYK ) Publicly listed company on the Tokyo, Osaka and Nagoya Stock Exchanges Fleet of over 800 vessels, including bulk carriers, containerships, tankers and specialized vessels NYK Market Cap: $5.2Bn 100% Public Owners NYK (Japan) 50% 50% Knutsen NYK Offshore Tankers AS (Norway) Individual Owners TSSI AS (Norway) Overview of TSSI One of the largest private shipping companies in Norway Dates back to 1984 Owned by our Chairman, Trygve Seglem, and his family Other assets: 5 product / chemical tankers, LNG vessels and maritime tech. companies KNOT Partners GP LLC (Marshall Islands) 37.5% Public 2% GP KNOT Offshore 60.5% Partners LP (Marshall Islands) KNOT Offshore Partners LP Issued units August 14, 2014 # Units % Common units ,5% Subordinated units ,5% General partner units ,0% Totally issued ,0% 100% 100% 100% 100% 100% 100% 100% Bodil Knutsen Windsor Knutsen Fortaleza Knutsen Recife Knutsen Carmen Knutsen Hilda Knutsen Torill Knutsen 27