Good day, and welcome to the KNOT Offshore Partners LP Third Quarter 2017 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to John Costain, CEO. Please go ahead, sir.

Thank you. If any of you have not seen 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-U.S. GAAP measures such as distributable cash flow and adjusted EBITDA. The earnings release includes a reconciliation of these non-U.S. GAAP items 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 report with the 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. Now onto the presentation. KNOT Offshore Partners, KNOP, focuses on the shuttle tanker segment. Yes, it is a field-specific and integral part of the supply chain. On the non-volume-based contracts, we transport oil from the offshore oil production unit shore-side, in essence, the midstream of our pipeline business. Shuttle tankers operate in a niche space and being built to the charterer's requirements and are generally used on specific oil fields. In our sector, there has been nonspeculative ordering so the partnership should yield both stable and sustainable revenues longer term. As our production moves further offshore, these tankers operate in a space which will see substantial growth in the coming years. Some of the largest discovered oil reserves in the southern hemisphere are in pre-salt layer, 130 kilometers off the coast of Brazil. And Petrobras, for the month of September, oil and natural gas output on those proportions of 1.68 million barrels of oil equivalent average daily production, a 6.6% increase from the previous months and higher than last year's average. With the phasing out of some of the…

[Operator Instructions]. The first question comes from Hillary Cacanando with Wells Fargo.

You've been very aggressive in terms of fleet growth. So I just wanted to get your thoughts around your plans around the drop-down schedule going forward. I know there's one in the drop-down pipeline and then the parent just recently bought another one. So are you expecting the pace to be this fast going forward as well or -- just your thoughts.

Well, we haven't got that many ships left in the inventory currently with -- we will see when we get this Torill financing out of the way and perhaps, we'll see how the equity market looks. And I think probably early next year, first quarter next year, we might send that ship dropping to the MLP. But that's subject to the factors on equity we can raise and what kind of financings we do. So it can be longer than that. But after that, we'd probably take a bit of a breather, although it has been quite a big steep growth this year, and it's been good to lock in significant improvement in coverage on the MLP on the back of the increase in leverage on the preference issues. So I think the MLP looks very solid today and we look forward to growing it. I think the pace will slow next year, definitely. I can't....

Yes. No, it makes sense. And then also could you just talk about the tender activity? I know you mentioned Petrobras earlier in your remarks but are you seeing any other -- what other tender activities are you seeing out there?

Well, we believe that Transpetro as separate from Petrobras will also submit a tender as well but it's open for all kinds of shipping companies. So we'll just have to wait and see. We believe that the tenders for about the Petrobras tenders with 4 ships, but I can't actually specify the numbers that they want. I understand that there's about 4 or 5 DP1s that come in the next 1 to 2 years, and Petrobras have only started to really deliver them and so they're phasing them out. And production has not been quite as aggressive going next year. It's certainly not plateaued, and I think the pace is going to take shape into the next year or 2. So they're saying -- I mean, the tankers, we've been waiting for them to come to the market really. But it will be 2019, 2020 before the first of those get delivered. So that again -- in case there will be a bit of a time line [indiscernible] for the dedicated shuttle tanker covenant which, I think, is the sponsor's intention before the substantial drop-downs.

The next question comes from Spiro Dounis with UBS.

Just want to follow up in Hillary's first question there just around the drop-down inventory fleet. When you think about maybe growing that, I guess, 2 potentials stick out to me before getting into 2019 when those newbuilds would deliver, assuming you want some tenders. One of those would be going out and doing another third-party purchase either yourselves or through your sponsor. I guess, one, are there other opportunities like that available to you? And then the other sort of angle might be opening up to dropping down some LNG vessels at the sponsor. Is that something that's even on the table?

It could be. It really depends. The first one, the Chevron ship was a nice vessel and it's an elementary vessel and there aren't that many quality tonnage around really. There are all those orders in the market, but they -- everyone's always in the market if the price is right. I don't think the pricing might be at all -- are probably suitable for us. So I think -- and also, you do tend to buy second-hand [indiscernible] and buy other people's problems. So I think -- I never say never but I'm not convinced that because of the nature of the market as well. In fact, the ships are locked in the contracts. And generally, most vessels from others owners have quality long-term contracts on them, so people are not that keen on selling. So that's not -- I'm not saying it's not going to happen, but it's less likely to happen, and I'm not suspecting, in shipping. The other alternative -- LNGs are an alternative. The other alternative, I guess, is to put one into the older vessels in from the sponsor, but they basically have a different contract structure. Well, the market is much tighter there as well. That's a possibility or an alternative to the LNGs or alternatively, just as you build a covenant quite well now. We're quite relaxed about us sitting tight for a year as well or having a gap year in growth for the MLP, if necessary. But yes, the -- I could imagine there will be discussions around an LNG fleet, but the yield is -- with the quality of contracts we've got now, the yield is quite high on this unit but we are prepared to see it, but again it's not my decision, that one, but it has been something that we had talked about. I hope that helps.

No, no, that's fair. That's really what I was looking to sort of hear just in terms of what you think the realistic options are. So that makes sense. Just in terms -- you mentioned having the ability to, I guess, increase the distribution. It's something you've been a little reluctant to do. And like you said, you're getting credit for building that coverage. So no issues on that front. You guys have somewhat been rewarded for that. But as you think about what would make you increase the distribution, how do you think about that now? Is it an increase in the unit price? Do you need to reward that? Or how are you thinking about it these days?

Well, I think also as well having the need to go to the market and take equity, as you've got a significant number of ships to place, the MLP would obviously -- you'd have to get more aggressive with the distribution in the current market. I think also if the unit price did go up, I think that's a possibility as well. But again, you have to have something -- I think something as a hopper to make it really worthwhile. We've got 2 ships left, and I'm pretty relaxed. And I think it's a fairly good risk/reward profile for the MLP to play so -- and there's no need to push the distribution to much [indiscernible]. I think if we had a significant inventory and we were going to grow the MLP in the very near term, I wouldn't -- and we weren't -- I wouldn't honestly be in a position where you have to put all vessels in at the moment. I think a slow and steady growth is more beneficial for everybody. But if we were in a position where we have -- we have to evaluate when the next amount of tonnage basically -- and evaluate what we do with the distribution, but I can't see a space to look for, that's for sure, and just fit in our purpose. This year, we've had -- I mean, bear in mind that beginning of -- less than 2 years ago, we were down $9, $10 considering the price now. We just feel that most people -- we want to be just to able to -- need to see how the unit is trading up and so we're quite comfortable with the way things are today. And you don't particularly need to push the distribution too much and I would say it would rather reduce quite a lot of the additional coverage as you build in effectively.

Yes. No, you've certainly come a long way from $10. So nice job on that. That's it for me, John.

The next question comes from Ben Brownlow with Raymond James.

Just wondering if you could quantify what the impact on OpEx was from the stronger Norwegian kroner.

I think it was about -- probably about -- from about NOK 8.3 to about NOK 7.8. It's quite difficult to say exactly what it is. But generally, that sort of level is probably about $200 or $300 a day on the vessel. I think it's no more than that. But I think the main area for the OpEx, it was significant difference. The Raquel Knutsen -- the way the insurance receipts were accounted for had quite an impact on the second quarter because the first quarter had a little bit of cost in it and the second quarter had quite a lot of insurance receipts in it. So it actually had a very low OpEx figure in the second quarter. Plus some of the ships that we want to deliver into the fleet like the new ones, the Tordis and the Vigdis, they also have quite low operating cost. So it's not that much. It is there. Somebody would take a big move on it, Norwegian kroner on the dollar rates have an impact on the earnings really. But that was just taken out of the G&A. Perhaps -- I have seen the figures. With all the new ships coming and the low OpEx in the first few months, it tends to distort a little bit the results as well as the Raquel Knutsen as well. So it's not a -- but I would say for about half about it we're about $200, something like that, just being from about -- probably about NOK 8.3 to NOK 7.8 is what I'm guessing has gone back up again a bit now.

Okay. That's helpful. And how should we think about, I guess, that vessel OpEx, just kind of run rate going forward? I assume it will be -- I mean, I guess, the puts and the takes in the fourth quarter from relocating the Carmen for drydocking. And just kind of as we think about before the next drop-down, how should we think about that kind of underlying run rate in vessel OpEx at this point?

On the OpEx, I think -- well, we do actually -- you can see in the -- we do actually have 25 million in dollars swaps to -- and that's back into our Norwegian kroner exposure and the swap is about NOK 8.3 there so NOK 8.38 or something. So we are actually well covered. And often, Ironically, as you can see in the results this time, the NOK is wrong -- has gone the wrong way. But obviously, the way we mark-to-market our instruments, you can see there's been quite a significant FX gain. It's an accessible way. The OpEx impact is quite heavily positioned towards the contract. So it tends to distort the results a bit. But yes, I mean, if you -- if the Norwegian kroner went down by, say, about 1, it would probably be $5 to $6 a day on the OpEx of the ship. So it's not material but it does have a little bit of an impact, and ships are probably clearing about -- the OpEx is typical investments are between 13,000 and 14,000 a day, just so you get an idea. And the revenue is about 50. So it's not that much but it is there.

The next question comes from Robert Silvera [ph] with RE Silvera & Associates Marine Surveyors.

My question involves hedging for fuel cost, bunker fuel. Could you give us some why on how you are hedged in this position, especially with crude oil heading in the states and WTI now at $57 a barrel?

Well, we can actually -- we don't actually have an impact. The vessels are natively time chartered so that means we just pay -- we don't have to worry about the commercial cost of the ships that was the major aspect. And I think -- I've always dealt with tankers, the rates are higher there, more on transports than the fuel anyway. So we don't worry too much about the residual cost of the vessel because obviously, the oil goes up in price there and [indiscernible] it was up a lot more. So the vessels aren't actually -- we're not actually exposed as a business to the crude oil price. We have a little bit of impact because of [indiscernible] are affected, but I mean, it's not significant in terms of the performance of this particular business.

[Operator Instructions]. The next question comes from Nick Raza with Citi.

Most of my questions are answered. But just really quickly, just from an overall perspective, you spoke about some tendering activity. But could you talk about east Canada and the North Sea and just give us your view in terms of what sort of activities you expect out of there?

The North Sea tends to be more CoA-focused at the moment with, obviously, Teekay Offshore ships for Statoil. We've also seen from some of our small investments a pick up in their CoA activity. But they're not on the MLP because they've been basically on short-term contracts. But we've seen quite a lot in the North Sea in terms of that. But nothing -- no structural contracts, no long-term unchartered at the moment. As far as Canada is concerned, there are still obviously the 3 Teekay ships delivering into Canada. And I think that's probably sufficient for the meat at the time being. We've still got two of our ships on charter out there. So I don't think those vessels are in that market, they will be making any decisions on those. So with Brazil, this year, we've built quite a lot of ships [indiscernible] for Petrobras Transpetro will [indiscernible] so -- and obviously, Shell will take investment with [indiscernible] delivered quite a few vessels into -- and delivered 5 vessels last couple of year so that's quite a lot but nothing more anything than that, or much of that type, I'm sorry.

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

Thank you, everyone, for listening in, and thank you for some interesting questions. I always appreciate your interest. And let's hope the next year is as good as this year has been. Thank you very much.

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