Second Quarter 2016 Results August 11, 2016
Second Quarter 2016 Results
August 11, 2016
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 Offshore Partners LP’s (“KNOP”)
filings with the U.S Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at
http://www.sec.gov.
Nevertheless, new factors emerge from time to time, and it is not possible for KNOP to predict all of these
factors. Further, KNOP 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. KNOP 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.
3
Financial Highlights
Highest quarterly revenues of $43.1 million.
Highest quarterly operating income of $20.2 million and net income of $11.6 million.
Highest quarterly Adjusted EBITDA(1) of $34.1 million.
Highest quarterly distributable cash flow(1) of $18.5, with a coverage ratio of 1.23.
Achieved strong operational performance with 99.9% utilization
Declared cash distribution of $0.52 per unit for Q2 2016, 2% higher than 2Q 2015,
unchanged from Q1 2016
On June 30, 2016, the Partnership entered into an amended and restated senior
secured credit facility, which includes a new revolver facility tranche of $15 million, in
order to further strengthen the balance sheet and increase financial flexibility.
(1) “Adjusted EBITDA” and “Distributable cash flow” are non-GAAP financial measures, please see the Appendix for definitions.
4
KNOP has very good access to bank financing
Geographically diversified bank group As of June 30, 2016, $55.7 million in available liquidity,
consisted of cash $25.7 million and $30 million undrawn
revolving credit facility
KNOP has nine supportive banks that are financing the
partnership through four different lending facilities
– Secured Term Loan Facilities for the vessels Fortaleza, Recife,
Windsor, Bodil and Carmen with a lending margin of 2.125%
maturing 2019 and lending margin of 2.5% for the $15 million new
revolver credit facility maturing 2019
– Secured Term Loan Facilities for the vessels Hilda and Torill with
lending margin of 2.5% maturing 2018
– Secured Term Loan Facilities for the vessels Dan Cisne and Dan
Sabia with a lending margin of 2.4% maturing 2023/2024
– Secured Term Loan Facilities for the vessels Ingrid, consisting of
20% commercial bank tranche with lending margin of 2.25%
maturing 2018 and a 80% export credit loan with fixed annual rate
of 3.85% maturing 2025
Given KNOPs modern fleet and healthy backlog, KNOP is
able to fully finance the partnership with attractive bank
financing
All five dropdown vessels fully long-term financed with pre-
acceptance by banks of KNOP as new owner on existing
financial covenants; hence no financing risk
20%
22%
12%
12%
8%
3%
9%
7%
8%
5
Income Statement
Unaudited, USD in thousands 2Q 2016 1Q 2016 2Q 2015 FY 2015
Time charter and bareboat revenues 42,864 41,826 36,071 154,750
Other income 199 200 149 274
Total revenues 43,063 42,026 36,220 155,024
Vessel operating expenses 7,975 7,647 6,807 27,543
Depreciation 13,913 13,892 11,400 48,844
General and administrative expenses 948 1,308 1,068 4,290
Goodwill impairment charge — — — 6,217
Total operating expenses 22,836 22,847 19,275 86,894
Operating income 20,227 19,179 16,945 68,130
Interest income 0 2 1 8
Interest expense (5,055) (5,029) (4,186) (17,451)
Realized and unrealized gain (loss)
on derivative instruments (3,176) (3,184) (5,623) (9,695)
Other financial items(1) (416) (302) 52 (609)
Income before income taxes 11,581 10,666 7,189 40,383
Income tax benefit (expense) (3) (3) (3) 59
Net income 11,578 10,663 7,186 40,442
(1) Other financial items consist of other finance expenses and net gain (loss) on foreign currency transactions
Net Income impacted in Q2 by derivatives loss due to lower US interest rates
6
Adjusted EBITDA
Unaudited, USD in thousands 2Q 2016 1Q 2016 2Q 2015 FY2015
Net income 11,578 10,663 6,887 40,443
Interest income — (2) (2) (8)
Interest expense 5,055 5,029 4,212 17,451
Depreciation 13,913 13,892 11,560 48,844
Goodwill impairment charge — — 6,217 6,217
Income tax (benefits) expense 3 3 3 (59)
EBITDA 30,549 29,585 28,877 112,888
Other financial items (a) 3,592 3,486 (42) 10,304
Adjusted EBITDA 34,141 33,071 28,835 123,192
(a) Other financial items consist of other finance expense, realized and unrealized gain (loss) on derivative instruments and net gain (loss) on foreign currency transactions
Highest ever quarterly Adjusted EBITDA
7
Distributable cash flow
Unaudited, USD in thousands 2Q 2016 1Q 2016 2Q 2015 FY2015
Net income 11,578 10,663 6,887 40,442
Add:
Depreciation 13,913 13,892 11,560 48,844
Goodwill impairment charge — — 6,217 6,217
Other non-cash items; deferred costs amortization debt 287 287 288 1,149
Unrealized losses from interest rate derivatives and
forward exchange currency contracts 1,608 4,348 — 8,629
Less:
Estimated maintenance and replacement capital
expenditures (including drydocking reserve) (7,894) (7,894) (6,264) (26,704)
Other non-cash items; deferred revenue and accrued
income (1,032) (1,319) (858) (3,432)
Unrealized gains from interest rate derivatives and
forward exchange currency contracts — (2,089) (1,586) (8,239)
Distributable cash flow (A) 18,460 17,888 16,243 66,907
Total distributions (B) 15,027 15,095 14,747 56,922
Coverage ratio (A/B) 1.23X 1.19X 1.10X 1,18X
Coverage ratio based on weighted average unit 1.23X 1.19X 1.25X 1,21X
Highest ever quarterly distributable cash flow
8
Balance sheet
Unaudited, USD in thousands At June 30,
2016
At December 31,
2015
At June 30,
2016
At December 31,
2015
Current assets: Current liabilities
Cash and cash equivalents 25,667 23,573 Current portion of long-term debt 53,888 48,535
Derivative assets 232 — Derivative liabilities 3,747 5,138
Other current assets 2,504 2,707 Contract liabilities 1,518 15,18
Other current liabilities 12,927 10,345
Total current assets 28,403 26,280 Total current liabilities 72,080 65,536
Long-term liabilities:
Long-term debt 594,621 619,187
Derivative liabilities 6,028 1,232
Contract liabilities 8,998 9,757
Long-term assets: Deferred tax liabilities 919 877
Vessels adn equipment 1,168,240 1,192,927 Other long-term liabilities 1,799 2,543
Derivative assets — 695 Total liabilities 684,445 699,132
Accrued income 706 —
Total long-term assets 1,168,946 1,193,622 Total partners’ equity 512,904 520,770
Total assets 1,197,349 1,219,902 Total equity and liabilities 1,197,349 1,219,902
Available liquidity of USD 55.7m vs. requirement of USD 18.5m
9
Financial guidance for existing fleet for year 2016
Guidance YTD 16 Figures Achieved
Revenues $ 167-170 m $85.1 m 51%
EBITDA $128-132 m $67.2 m 52%
Distributable Cash Flow $75-79 m $36.4 m 47%
Distribution $60 m $30.1 m 50%
Coverage ratio ≈1.25 1.21
Despite docking of Bodil Knutsen in first quarter with
associated costs and off-hire we are in line to deliver
according to full year guidance
10
Stable operational performance results in stable financial performane
17,320,5
22,2 21,8 22,1
34,3 34,7 36,2 3739,3
42,5 42,0 43,1
Q2
2013
Q3 Q4 Q1
2014
Q2 Q3 Q4 Q1
2015
Q2 Q3 Q4 Q1
2016
Q2
REVENUE (USD million)
ADJUSTED EBITDA (USD million)
100%
99,2% 99,3% 99,4% 99,7%
98,9%
99,7% 99,9% 100%99,6%
99,9% 99,8 % 99,90%
Q2
2013
Q3 Q4 Q1
2014
Q2 Q3 Q4 Q1
2015
Q2 Q3 Q4 Q1
2016
Q2
UTILIZATION (%)
7,2
9,3 9,88,9
8,1
14,7 15,116,4 16,2 16,2
18,1 17,9 18,5
Q2
2013
Q3 Q4 Q1
2014
Q2 Q3 Q4 Q1
2015
Q2 Q3 Q4 Q1
2016
Q2
12,7
15,716,8 16,1 16,3
25,7 26,528,3 28,8
32,233,8 33,1
34,1
Q2
2013
Q3 Q4 Q1
2014
Q2 Q3 Q4 Q1
2015
Q2 Q3 Q4 Q1
2016
Q2
DCF (USD million)
Average of 99.7 % since IPO 28% CAGR
since IPO
30% CAGR
since IPO
31% CAGR
since IPO
11
Name Area 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Windsor Knutsen Brazil
Bodil Knutsen N. Sea
Fortaleza Knutsen Brazil
Recife Knutsen Brazil
Carmen Knutsen Brazil
Hilda Knutsen N. Sea
Torill Knutsen N. Sea
Dan Cisne Brazil
Dan Sabia Brazil
Ingrid Knutsen N. Sea
Long-term Contracts Backed by Leading Energy Companies
KNOP fleet has average remaining fixed contract duration of 5.1(2) years
Additional 2.5 years on average in Charterers option
(1) KNOT has guaranteed the hire rate to April 2018 (five years from IPO date)
(2) Remaining contract life is calculated as of 30/06/2016.
(1)
(1)
12
Significant fleet growth since IPO
13
Positive news from Brazil
Brazil production is estimated to grow by 7% yearly over the next four years.
Total production split by projects – thousands boe/d
• Petrobras sold 66% share in 1 billion-barrel
Carcara to Statoil - making the Norwegian
major the first international oil company to
acquire operatorship in Brazil’s giant pre-salt
fields
• Petrobras announced in May/June:
• Oil production operated in the pre-salt exceeded 1
million bpd less than 2 years after reaching production
of 0,5 bpd
• The average cost of extraction of the pre-salt wells
totaled less than US$8 per barrel of oil equivalent and
has been gradually decreasing, and the average time
to build a well reached 89 days, a reduction of 71%
between 2010 and 2016.
• Reported monthly production in June - 2.7 million boed
14
Still significant demand for new shuttle tanker projects
As of today shuttle tanker market extremely tight,
without any free capacity
– No speculative newbuildings orders
Fearnleys sees a significant demand for new
shuttle tankers going forward
– Expect tenders for in excess of 40 vessels up to 2020
– Including attrition demand which represent more than
half of the demand
Corruption scandal in Brazil combined with lower
oil price have decreased/delayed shuttle tanker
demand
– No field development projects have been canceled
– Projects likely to be developed, timing uncertain
In Brazil generally perform long haul trades
– Ton mile (vessel) demand increases in with oil
production
Sources: Fearnleys Consultants February 2016.
15
Dropdown inventory: Five potential acquisitions
Fixed contract periods for the dropdown fleet are 5.8(1)years on average
Charterers also have the option to extend these charters by 11.2 years on average
(1) Remaining contract life is calculated as of 30/06/2016.
Name Area 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Raquel Knutsen Brazil
H2816 Brazil
H2817 Brazil
H686 Brazil
H2818 Brazil
16
Summary
Solid contract base – Revenue backlog of $ 746 million and
average contract duration of 5.1 years(1)
1
Modern shuttle tanker fleet, average age 4.6 years vs. industry
average of 11.2 years excluding KNOP fleet(1)
Excellent operating results – 99.7%(2) average utilisation since IPO
Large sponser asset base – provide substantial dropdown growth
potential
1
2
3
4
(1) As of June 30, 2016
(2) Of the fleet for scheduled operation, adjusted for planned off hire the average utilization rate is 99.5%
17
Shuttle Tanker Market Overview
Thank you, any questions?
Appendix
APPENDIX
19
Non-GAAP Financial Measures
Adjusted EBITDA
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.
Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements, such
as investors, to assess the Partnership’s financial and operating 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.
Distributable Cash Flow
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. The Partnership believes distributable cash flow is an important measure of operating
performance used by management and investors in publicly-traded partnerships to compare the cash generated by the
Partnership to the cash distributions the Partnership pays its unitholders. 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.