Hello. My name is Drew and I will be your conference operator today. At this time, I would like to welcome everyone to the KNOT Offshore Partners Fourth Quarter 2023 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Derek Lowe, you now may begin your conference.

Thank you, and good morning, ladies and gentlemen. My name is Derek Lowe, and I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the Partnership's earnings call for the fourth quarter of 2023. Our website is knotoffshorepartners.com and you can find the earnings release there along with this presentation. On Slide 2, you will find guidance on the inclusion of forward-looking statements in today's presentation. These 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 in 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. For further information, please consult our SEC filings, especially in relation to our annual and quarterly results. Today's presentation also includes certain non-US GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On Slide 3, we have the financial and operational headlines for Q4. Revenues were $73 million, operating income $18.1 million. There was a net loss of $5.3 million after accounting for an unrealized. In other words, non-cash loss of $8.9 million on derivatives and adjusted EBITDA of $45.7 million. We closed Q4 with $63.9 million in available liquidity made up wholly of cash and cash equivalents. We operated with 99.6% utilization of the vessel time available for scheduled operations, which is equivalent to 96% of total fleet time after accounting for the planned dry dockings of Torill Knutsen and Ingrid Knutsen. Following the end of Q4, we declared a cash distribution of US$0.026 per…

Thank you. [Operator Instructions] Our first question today comes from Liam Burke from B. Riley. Your line is now open, please go ahead.

Yes, thank you. Hi Derek, how are you today?

Hi Liam. Good. Thank you and you?

I'm fine. Thank you. On the Cisne and Sabia asset values in the traditional tanker market are pretty healthy. And you've got one of the vessels currently working as a conventional tanker now anyway. Would a priority be to sell these two tankers for conventional use and redeploy that capital?

I wouldn't say it's a priority. And we think any shuttle tanker is better equipped to earn higher rates in the shuttle tanker market rather than in the conventional market and that goes for both, us operating or potential purchaser. So our interest is in actually operating vessels in the shuttle tankers market. And we're marketing them as such.

So I mean based on the supply-demand outlook, you see the earnings power of these two vessels outperforming a one-time sale and redeploying that capital?

For the time being, yes, obviously we've got a gap in utilization coming up which we're seeking to fill. So it's a function of how well we secure or negotiate contracts for them.

Okay. And then just on your current debt, you laid it out, you paid $10 million. You've got a $57 million Balloon, that's due in May that you've had a long history of successfully refinancing. So if I look at the balance and your current cash balance and your predictable cash flow, once you're past that refinancing 2024 debt service should be pretty manageable?

It's -- it will be pretty consistent with previous years. So if you look at the reduction in debt over 2023 which was $92 million, the equivalent figure on Slide 9 is the $90 million of which as I say, we've paid $3 million from that column an additional $6.5 million from the Balloon payment list.

Great. Thank you, Derek.

Thank you.

Our next question today comes from Poe Fratt from Alliance Global Partners. Your line is now open. Please go ahead.

Good afternoon, Derek. Two questions on the quarter. If you could just highlight the increase in the sequential increase in OpEx what caused that? And then, also, it looks like the tax rate jumped a little bit or just there was a tax payment as opposed to what you would have expected with the loss. So can you just address those two things?

Sure. Hi Poe, thank you for the question. Yeah. So OpEx is typically impacted by unit costs in our major expenditure items. So things particularly like manning if you extend that to growing if you can send that to costs like crude travel and so on -- on an off shift. So those that was the -- so that's what unit pricing and other suppliers like Balloon and so on. That's the major impact when OpEx changes. And then tax rate, the tax item you can see at the bottom of Page 6. It's an adjustment to the value recognized in Q3. So there's a single item there, the net amount of which is something like $4.4 million.

Great. That's helpful. And then can you talk about OpEx going into this year as far as 2024? And then Derek could you discuss the impact that the Dan Cisne is going to have on utilization and potential revenues as it works as the conventional tanker versus the shuttle tanker?

Sure. So we are -- as I said we're marketing all four of those vessels which are either on short-term or limited contracts of which Cisne is the most notable one, because it's been redelivered to us. And we are -- our preference is to secure medium and longer term shuttle tanker work. So the conventional work is pretty much spot market for the Cisne. We don't see it as a strategy and anything other than the near term to deploy into that market.

Great. Should we expect any downtime on it? Is it flips between charters? And then also can you confirm that you don't expect any dry docking activity in 2024?

Correct about dry docking. We don't anticipate any dry docks in 2024. What you'll see on Dan Cisne is the utilization information will come through in the first quarter results because we received redelivery. I think it was around mid-December, so it had very little impact if any on the Q4 figures. And so our impact will come through in Q1 figures.

Okay. So expect a little bit of downtime. And can you -- the other major option it seems like is the -- on the Anna [ph] with total head. And what's the notice period on that? And have you heard or when do you expect to hear on a potential option exercise there?

Yeah. I believe the notice period is between one and two months. And, obviously, we're coming up to the end of that notice period over the next month or so. I know we're always in active dialogue with all of our clients and potential clients. So we don't -- while we don't have any news to announce there it's not currently causing us any concern.

Okay, great. Thank you. Thank you, Derek.

Thanks, Poe.

[Operator Instructions] Our next question comes from Jim Altschul from Aviation Advisory Service. Your line is now open. Please go ahead.

Good afternoon. Thanks for taking my question. A couple of related questions. Look the big thing is with the utilization because in the fourth quarter for the whole year of 2023 something like 99% utilization. Now I guess was it the Dan Cisne will be off-hire for part of this quarter? You indicated that you have as of today charter or coverage or -- something like 70%, a little more than 70% for the full year. What is utilization? What is the percentage figure going to look like for the first and second quarters based on the contracts you now have?

Well, Jim, thanks for your questions. So the range of utilization that -- or contracting that we currently have in terms of full visibility for this year 79% fixed and 91% if that's -- if you include exercise of all client options. Those figures I appreciate rein chart format that are set out on Slide 11. And I don't have the individual numbers directly to hand, but you can -- the chart gives you a good indication of those levels.

Oh, I'm sorry. I didn't look at that. I just did really -- sorry about that. But you're going to have one ship off hire for this quarter Dan Cisne, if I remember correctly. And also, maybe I wasn't listening carefully enough, but will there be much of an impact on the revenues and in fact some of the ships that were on charter are now on short-term conventional tanker contracts, is that going to make a meaningful -- the combination of these things, is that going to make a meaningful -- create a meaningful impact on first quarter revenues?

Well, we're only talking about one vessel, so one out of 18. So the percentage there is order of magnitude 5% and that's assuming no income. But actually, as we've described with the conventional work that she's been able to do, there has been some income and some utilization. So those overall figures should feed through to the figures in Q1. But it's not a question of entirely removing a vessel from the performance of the fleet over this quarter and it is limited to one vessel in this quarter.

Okay. Is it reasonable to assume that the rates is getting short-term conventional tanker work are less than you would get on a medium or long-term charter for shuttle tanker work?

Yes. That's correct. And obviously they're modeled on a slightly different basis because of the short-term nature of those -- of the commercial contracts that we're looking at as well.

Thank you very much.

Thanks, Altschul.

Lastly, we have a follow-up from Poe Fratt from Alliance Global Partners. Your line is now open. Please go ahead.

Yeah. Hi, Derik.

Hi.

Can you talk about the backlog? There was a pretty healthy increase in the backlog of to $699 million from $645 million from the time of the third quarter call. Can you just talk about that incremental increase because it didn't seem like you're contracted backlog in years went up that significantly, but you did add $50 million. Can you just talk about the mechanics of that Derek?

Sure. I mean the – obviously, we burn off backlog each quarter as well and that would be factored into it. And I appreciate that serves to reduce the number, before any additions. The main addition to the backlog was the Carmen Knutsen with the exercise of one-year option by Repsol. We also had the -- the Dan Sabia for an additional six months in the first half of this year as well. So those are the major changes.

Yes, you sort of calculated that is adding about 4.5 years of backlog and you burn off every quarter about 4.5 years of backlog just and so you take the $645 million, you take out the $72 million that you recognized in the fourth quarter revenue, and to get to the new number. And that delta is about $126 million. And it just seemed a little bit higher than I would have anticipated given that the Torill, Hilda which I assume are included in the backlog are working at reduced rates and the Carmen was really the only option that would have been expired or would have been exercised at a decent rate in my mind.

Yes. I mean, the Carmen was the main headline since we held our call in December. And these figures relate to quarter end. So you need to look at also at the additional contracts secured during Q4 but were before December 14. So, apologies for the complexity there. So on Slide 4, you've got just a reminder there and it will also be in our Q3 release as well. So there was additional work secured for Windsor Knutsen which we announced in December; and Brasil Knutsen as well and then a one-year extension on each of the Tordis and Lena Knutsen. So those will also be part of the addition to backlog over that time.

Okay. Great. That’s helpful. Thank you so much.

Yes. Thanks. So I apologies it's in two places, but we didn't want to reannounce the same thing twice.

There are no further questions. I will now hand back over to Derek Lowe for any closing remarks. Answer

Thank you again, for joining this earnings call for KNOT Offshore Partners fourth quarter in 2023, and I look forward to speaking with you again following the first quarter results for 2024.

That concludes today's call, you may now disconnect your lines.