Good day and welcome to the KNOT Offshore Partners’ First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note today’s event is being recorded. With that, I would like to turn the conference over to John Costain. Please go ahead.

Thank you. If any of you have not read the earnings release or slide presentation, they are 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 earnings before interest, taxation, depreciation and amortization, the EBITDA. The earnings release includes a reconciliation of these non-GAAP measures 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 and quarterly SEC filings. As you know, actual events and results can differ materially from those forward-looking statements. The partnership does not undertake a duty to update any forward-looking statements. So, introduction, KNOT Offshore Partners, KNOP, focuses on the shuttle tanker segment. The individual tankers are field-specific and an integral component of the offshore oil production value chain. Shuttle tankers operate in a niche space and under non-volume based contracts transporting oil from the offshore production units to shore side. Often being built to the charterer’s requirements, the tankers are generally used on specific oil fields enabling the partnership to yield both the sustainable and stable revenue longer term. Oil production continues to move further offshore, so shuttle 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 the pre-salt, 130 kilometers off the coast of Brazil. The average annual production operates in the pre-salt layer which includes portions of Petrobras and its partners, in 2007 [ph], were the largest in the company’s history reaching at a mark of 1.29 million barrels per day. Although our MLP is young, our sponsor is a very experienced operator having…

[Operator Instructions] And our first question today comes from Hillary Cacanando with Wells Fargo. Please go ahead.

Hi, thanks for taking my questions. I am sorry I missed part of the presentation, did you talk about the re-contracting opportunity for Windsor, Hilda, and Torill by any chance or – I am sorry if you...

Well, I dug options from – yes I mentioned that Hillary, I just briefly said that we have a structure on all of these ships, which is one option, one option, one for 5 or 6 year periods. Windsor has already had one of those option periods exercised. In July, Hilda and Windsor, their charterer has todeclare whether they are going to exercise those options and we’ve not received an indication that they are not, and given the late stage now, I think it’s highly likely we can assume that they will lift those options or alternative the vessels will get redelivered which is unlikely in the current market environment. As I said in the presentation that we feel it’s good to have a mix between long and short contracts, because the market is tightening and the asset prices are starting to come back. So, it’s good to have a mix and it’s also good for the charterer to have a bit of flexibility as well. So, it cuts both ways really. Well, yes, today we have quite a lot of ships with these structures. I mean, given also the financial constraints the charterer having short contracts, it works on a financial disclosure basis for [indiscernible] much lower impact on their accounts and we see more of these types of agreements coming to play.

I am sorry so you said do you think these options will be exercised?

Yes, definitely. There is no reason why they wouldn’t be. I mean, there isn’t really any – I mean, we haven’t really ordered a new ship any, for instance, on the Hilda. So, to have to redeliver the ship and move the oil from the platform or carry on with the charter, I mean, normally it would take probably 3 years to build a vessel like that. So, it’s certainly a month away from exercise, so I think it’s unlikely they will do anything over an exercise at this point as they haven’t come back and told us anything other than, you know….

Okay. And then I know there is no more asset in the dropdown pipeline, is it – are there other – is it because there is no, the assets at the parent level have like not enough the contract length is not long enough or is it just...?

Yes. We tend to put on new ships over longer contracts or better quality, all better quality in contracts really. The sponsor has quite a lot of the older tankers. I think looking at the MLP today, it’s not going to stand still in the long run. I mean, it is nicely from a shipping company effected the oil mobile pipeline company with 16 very well-positioned tankers, which are specialized and very good revenue on contracts. I mean, I just look at it as an investment it’s very attractive for the sponsor to use the vehicles for carrying on growing, but we are obviously having internal discussions as to the best way forward, but we are not going to do it. It’s go out into the market and just press and win contracts, that’s anonymous, but are not realistic. I mean, when we looked at the last contract, the Petrobras one in Brazil, we were quoted from the yard that we went to, they wanted a 10% increase in the price and the rates that have been banded about are quite significantly lower than what the normal market rate has been in recent years. So, it’s quite a surprise. I guess anyone doing the Petrobras they have to make a very attractive offer to get a deal. That’s why we lead it. I mean, I don’t know what else. But I think you can guarantee that we are in talks with both charterers and there is an appetite to order ships and I think we are comfortable with the present situation.

That’s it for me. Thanks, John.

Okay. Thanks, Hillary.

The next question comes from [indiscernible]. Please go ahead.

Thank you, gentlemen. A very nice job that you have done. My first question has to do with your Series A convertible preferred units. There was no change in the number from last quarter to this quarter, are you still in the market to want to purchase some of those to reduce the number?

No, not today. I mean, my own view on it, it is not necessary that the sponsors book. We don’t want to load too many press into the MLP, we don’t have to, because obviously it creates a problem for the common units. Our competitor 20% common – sorry, 20% press, which I think is a little bit higher. I mean, I think I like the amount we have got today, I don’t particularly want to put more and we are not in the market to that sort of capital, but obviously, we never say never, because the preference market might be open when the common unit market is closed. As of today, we finished our business and I think the answer is probably no. On those preference units, the strike price has drifted up to $24.50, because we have been reporting good results on the company, so that’s very positive and they are working very well for the MLP, because they are definitely very accretive, but we have been balanced against [indiscernible] yields trip on top of the common unit holder.

Alright. My general concern is because of worldwide interest rates are starting to climb a little bit, my second question has to do with what your average debt per vessel is and whether you see yourselves reducing that average debt per vessel?

Well, inevitably, our debt is structured debt first mortgage priority debt, which is relatively cheap compared to equity. We have a very good quality sponsor and we have very good quality end user contracts that support that sort of level of debt and we obviously will take the opportunity if we are not doing accretive acquisitions to reduce the debt level. So, we will reduce the debt. I mean basically at one point...

Good. You are doing that average debt per vessel. I realized taking on new vessels increases the total debt, but the average across all the vessels is what I am concerned about that it’s going down in a healthy manner. Let me ask you another question. It goes down by program I realize that, but you are not taking any extra cash to alleviate a debt level on a faster basis there?

No. I mean, we were paying – these are very, very good contracts with end-user oil maintenance or so we can leverage quite well against that, because obviously, there is no intermediary here. The vessel is actually acting as a pipeline. So, the cash flow is very secure. So, you can leverage accordingly. And if you got long contract though, you have its quite straightforward to do that. It always upright with a decent amount of leverage and basically when we win these contracts they are competitive and therefore you have to have leverage to make a – we are paying 10% yield today and also….

I know, that’s one of the main reasons we are stockholders in it, because of the nice yield and the soundness of your balance sheet and the way you are running the business, we are very pleased. Do you have any feeling for the average resale value of the vessels that you had? If you had to say okay, here is the whole fleet, here is what the average price of the whole fleet would be per vessel?

On a break of charter free basis you mean, so basically you are discounting the whole contracts have been placed and put them into like as a shuttle tanker probably...

Yes, I am just trying to look at the assets by the assets themselves, not as a business, because obviously, the business is doing very well paying the nice dividends etcetera, but I am just looking at it from the standpoint of you have got value in every ship and of course, each ship is different value if it was going to be resold. So taking an average across all the ships where would you place a reasonable market value as an average number and then also what would the average scrap value of those vessels be?

Well, the average price point is about $16, $17 a unit, I would say and then the premium is basically the charters and the positional sponsor in the market, but there is a resale hard value and it’s pretty decent in relation to the unit. I mean obviously, it gets even more interesting as the dollar weakens more, because it has weakened in the last 2 years. And I think that’s probably why you see it in the marine space. You are looking at the marine investment now which is probably a bit unfair, but there you go. In the marine space, generally in the last few weeks, you have seen quite a lift in the prices of lot of these companies, basis the fact that the oil prices are starting to creep up. I mean, bear in mind in the U.S. in the last 2 years, if you look at the benchmark of the U.S. dollar against say the SDR, the Special Drawing Rights currency of the IMF, it’s lost about 10% of its value and also you will see the dollar of interest rates are going up relative to rest of the world, so the dollar is actually losing ground. It is the go-to currency of the world still, but actually in positional terms, it’s losing a bit of value and that makes shipping investments interesting, that’s why they have lifted, but we are a bit more stable on that. We are somewhere between that in the pipeline, because obviously where it impacts is obviously – where your question is interesting is obviously the weak contracting activity when we build a new ship and we go on to a field and that obviously impacts how the level at which the pricing is determined for the whole contract. So,…

Okay. The other thing is in the VLCC market, you see the average value roughly speaking of VLCCs around $16 million from scrap value point of view, if you were to look at your ships, now your ships obviously more specialized, would the scrap value on our ships be considerably different than that or would that same steel price and the unit equivalent?

These are half the size – they are half the size, but that 25,000, 27,000 tons worth of steel where a VLCC is about 45,000, 50,000 tons, I think the current scrap price is about $400 a ton. So, it’s a little bit more than that.

My last question is – I realized we are not in the market to scrap any of our vessels. I understand that. But I am just trying to get a hard number in my mind, what the steel is worth there and all versus our vessels, etcetera. Now the last question I have is what percent of our debt is fixed?

Well, we have to run some instruments basically. So, $645 million out of the $1.1 billion is fixed. So that sort of reflects the contracts that you could see as well because obviously we got about 4 or 5 ships with 1-year contracts. So, you probably match the long-term contracts up with the fixed portion.

Okay. Well, good. Thank you very much. I am very pleased with the job you have done. Keep up the good work.

Thank you.

At this time, this will conclude today’s question-and-answer session. I’d like to turn the conference back over to John Costain for any closing remarks.

Now thank you very much. I appreciate everybody taking the time and interest in coming on the call. And hopefully we will continue with the good quarters going forward. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.