KNOT Offshore Partners (KNOP) Q3 2018 Earnings Conference Call Transcript

KNOT Offshore Partners (KNOP -0.87%)
Q3 2018 Earnings Conference Call
Nov. 27, 2018 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the KNOT Offshore Partners earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Costain. Please go ahead.

John Costain -- Chief Executive Officer and Chief Financial Officer

Thank you. If any of you have not read 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 earnings before interest, taxation, depreciation, 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 financial 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.

Introduction. KNOT Offshore Partners, KNOT, focuses on the shuttle tanker segment, the individual tanker is field-specific and an integral component in the offshore oil production value chain. Shuttle tankers operate in a niche space and under non-volume-based contracts, transport oil from the offshore production units to shore side. Being built to charter's requirement, tankers are generally used on specific oil fields, enabling the partnership to yield both 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. Our sponsors are very experienced operator, having been involved in the design and construction of this type of vessel growing its fleet organically for more than 30 years and is part of one of the largest shipping groups in the world, Nippon Yusen or NYK. NYK is a member of the Mitsubishi Keiretsu. In the last five years from the third quarter of 2013, the fleet has grown 300% from four to 16 vessels.

It has an average age of about five-anda quarter years. Now turning to the presentation, financial highlights. For the third-quarter 2018, the partnership generated its best set of results, or closest best set of results. The total revenues were $70.7 million, operating income was $31.7 million and net income was $20.9 million.

Adjusted EBITDA was $54.1 million. The partnership generated distributable cash flow of $26.3 million and after declaring a cash distribution of $0.52 per unit, this gives a coverage of 1.46 times for the quarter. During the quarter, the fleet operated 99.9% utilization for scheduled operations and 97.4% utilization taking into account the scheduled dry docking at Hilda and Torill Knutsen, which were off-hire for 24 and 14 days, respectively, in Q3 2018. Since our initial public offering in 2013, we declared and paid common-unit distributions of $10.82.

Our current distribution is stable, a little over 10%. On the 20th of September 2018, the partnership refinanced credit facility secured by the Windsor Knutsen, Bodil Knutsen, Fortaleza Knutsen, Recife Knutsen, the Carmen Knutsen and the Ingrid Knutsen, with the loan facilities totaling $375 million. Slide 4, Recent Events. On 13th of July, 2018, the subsidiary of Royal Dutch Shell exercised the option to extend the time charter on the Windsor Knutsen by one additional year until October 2019.

On the 3rd of August, 2018, the partnership entered into in amended time charter with Eni, extending the duration of the Hilda Knutsen time charter for four years until 2022. On the 5th of September, Eni exercised its option to extend the Torill Knutsen by one additional year until November 2019. And on the 9th of November, Equinor ASA exercised its option to extend the time charter of Bodil Knutsen by one additional year until May 2020. Slide 5, The Income Statement.

The total revenues were $70.7 million for the three months ended 30th of September Q3 and compares to $69.8 million for the three months ended Q2, 30th of June. The increase in revenues is mainly due to the full earnings of the Brasil Knutsen, as the vessel had finished its scheduled first special survey docking during the second quarter, and there was one additional day in the third quarter. The increase is partly offset by reduced revenues from Hilda and Torill Knutsen due to the off-hire periods for each vessel, as a result of their scheduled first special survey dry dockings, both of which commenced in the third quarter. Vessel operating expenses for the third quarter were $15.3 million, an increase of $1.3 million from the second quarter.

The increase is mainly due to the scheduled dry docking of Hilda and Torill Knutsen and one additional calendar day in the third quarter. In addition, the insurance proceeds in connection with the propeller repairs of Carmen Knutsen in the second quarter had reduced the previous quarter costs. All of this was partly offset by reduced bunker consumption in connection with the dry docking of Brasil Knutsen that was charged in the second quarter and lower operating cost on average due to the strengthening U.S. dollar against the Norwegian kroner.

General and administrative expenses were $1.3 million for the third quarter compared to $1.4 million in the second quarter. Depreciation was $22.4 million in the third quarter, an increase of $0.1 million from $22 million in the second quarter. The increase was mainly due to the increased depreciation for Brasil Knutsen, the Hilda and Torill Knutsen due to dry-dock additions. As a result, operating income for the third quarter was $31.7 million, compared to $32.1 million in the second quarter.

Interest expense for Q3 was $10.6 million, compared to $9.2 million in Q2. This is mainly due to additional debt incurred in connection with the acquisitions. Realized and unrealized gain on derivative instruments was $3 million in the third quarter, compared to $2 million in the second quarter. Of the unrealized gain in the third quarter, $2.4 million is related to mark-to-market gains on interest rate swaps and the small loss in foreign-currency contracts.

The unrealized gains in 2008, all the way -- '18, all the way through are due to the increased U.S. swap rates. Net income for the third quarter of 2018 was $20.9 and it compares to $21.7 million in the second quarter. Slide 6, Adjusted EBITDA.

In Q3, the partnership generated EBITDA of $54.1 million, compared to $54.4 million for Q2. Adjusted EBITDA refers to earnings before interest, taxation, depreciation, amortization and other financial items being a proxy for cash flow. Adjusted EBITDA is a non-U.S. GAAP measure used by our investors to measure the partnership performance.

And with a wasting asset like a vessel, these young vessels tend to produce lower EBITDA for every dollar invested. The annuity effect reduces the annual loss in the early years, which is factored into replacement CAPEX calculation for distributable cash flow. Distributable cash flow, another non-U.S. GAAP measure.

Distributable cash flow represents the net income adjusted for depreciation, unrealized gains and losses from derivatives and exchange, distributions on the convertible pref units and other non-cash items. The estimated maintenance and capital -- CAPEX for dry docking and replacement capital expenditures, which are required to maintain long-term the operating capacity of, and therefore, the revenue generated by partnership capital assets. Distributable cash flow, or DCF, was $26.3 million in Q3, in comparison to $27 million in Q2. We maintained our distribution levels in Q3 at $0.52 a unit equivalent to an annual distribution of $2.08.

Distribution coverage ratio was a healthy 1.46 times for Q3. Impacting the calculation this quarter was the dry dockings between July and September at Hilda and Torill Knutsen, their first five-year special survey dry dockings. These vessels are operating in the North Sea. The Hilda went off-hire on July 25, 2018 for the mobilization trip to the shipyard in Denmark in order to complete her planned five-year special survey and went back on charter on the 18th of August.

Torill went off-hire on the 17th of September, going back on charter on the 5th of October in dry dock in Denmark. The average coverage ratio for the full year of 2017 was 1.26 times as a comparison. And in Q3, the partnership had interest rate swap agreements totaling $645 million, of which the partnership received interest based on LIBOR and pays an average rate of 1.73%. These have an average maturity of about four and a half years.

The partnership's financial results are impacted by the changes in market -- or swaps. The cash flow is stabilized, mitigating the interest rate-wise impact on the distributable cash flow. We also see rising interest rates in the U.S. in 2018 together with increasing replacement CAPEX provisions charged on our vessels as they get older.

However, our coverage has increased from earlier years and our full-year estimate 2018 and 2019 looks solid. KNOT has an elevated yield compared to most MLPs and is focused on building coverage and deleveraging. As today, it's not making accretive investments. Given the quality and the market position of the sponsor, together with the shuttle tanker outlook, the yield has elevated under very attractive value proposition.

There is, therefore, little benefit to the MLP in the short term to increase distribution when the yield is around 10%. Slide 8, The Balance Sheet. At the end of Q3, the partnership had $78.7 million in available liquidity, consisting of cash and cash equivalents of $56 million and $22.7 million of capacity under its revolving credit facilities. The revolving credit facilities mature in August 2019 and September 2023.

We have a predictable cash flow and a healthy liquidity position. The partnership's total interest-bearing debt outstanding as of 30th of September was $1,116.6 million, $1,105.8 million net of debt-issuance costs. The average margin on the partnership's outstanding debt during the quarter ended 30th September was approximately 2.1% over LIBOR. Slide 9, Long-term Contracts by Leading Energy Companies.

The Windsor has been on charter to a subsidiary of Royal Dutch Shell since October 2015, and after a two-year period, Shell has lifted the first two of six annual extension options, the next option being declarable in July '19. Bodil Knutsen is our largest shuttle tanker and is currently operating in the North Sea, ice class and on charter to Statoil until May 2020. Following the end of that period, there are four further extension options. Torill and Hilda Knutsen operate on the Goliat, the first field to be developed in the Barents Sea, currently representing the world's most northerly offshore development.

It is estimated that this field contains -- the Barents Sea contains nearly half of the discovered oil reserves in the Norwegian shelf. After initial five-year terms on both vessels, the Hilda Knutsen time charter was extended for four more years with three options. And in October, the first of five annual extension options was exercised on Torill Knutsen. Today, many charters like this annual-option type of agreement, both for the commercial flexibility and because of the imposition of more unrisked financial disclosure requirements, there is a much lower impact on -- in the accounts of the charterer.

For the MLP, this mix of short and long-term charters in that portfolio is useful, because as well as tailoring solutions for the charterer's wishes, we believe, assets could firm -- prices could firm and the market will tighten. And given the size of our fleet and therefore commercial footprint, some measure of contract flexibility is desirable. Four of our vessels are on long-term bareboat charter through to 2023 with Petrobras Transporte, Transpetro. These vessels are among the youngest in the Petrobras fleet, delivered between 2011 and 2012, heavily utilized.

Delivered in 2013, the Carmen is on charter directly to Repsol Sinopec until 2023. The Ingrid Knutsen was delivered in December 2013 and is operating in the North Sea on time charter with Standard Marine Tønsberg, a Norwegian subsidiary of ExxonMobil. This will expire in the first quarter of 2024. The charter has options to extend up to five one-year periods.

The Raquel Knutsen was delivered in March 2015 and operates under a charter that will expire in first quarter of 2025. There are options to extend until 2030. Tordis, Vigdis and Lena Knutsen are on five-year charters to Brazil Shipping 1, a subsidiary of Shell. This will expire in 2022.

The charter has options to extend with an additional two five-year options. The Brasil and Anna Knutsen are on charter to Galp Energia until 2022, with options to extend until 2028. The KNOT fleet has an average remaining contract -- fixed contract duration of 3.6 years with an average 4.4 years on that -- of charterers' options. Whilst we currently have no further drop-down candidate, we have new contracts we have developed before we can drop some more down.

There will be no near-term equity investments. Given the market outlook, we expect to grow quite significantly over the coming years. In summary, KNOT Offshore Partners should be considered as a mobile pipeline business with fully contracted revenue streams. Since being awarded the first contract in 1984, Knutsen has grown organically for over 30 years as the business has been able to build a sizable fleet of these tankers, currently around 29 units.

This quarter, we report a very good performance again, both in absolute and per-unit terms for the revenue, profit, EBITDA and distributable cash flow. Yet another quarter with strong financial performance and substantial increase over the last year in all financial measures. Not surprising, when you set this against the acquisition program, the four vessels that were added to the fleet in 2017 and the Anna, which was added on the 1st of March 2018, KNOT has very good access to financing. In September, we closed at $375 million multi-vessel financing on very attractive terms.

With this refinancing, there is no need for any structural refinancing for several years. Not just well-placed to complete in future -- compete in future tenders, the current fleet of vessels are in order. We have a solid and profitable contract base, generated by our modern fleet, which by the end of December, was on average age of around five and a quarter years. Since the formation of KNOT, we've been at very high levels of asset utilization on average around 99.6%.

No one has more expertise in upgrading these sophisticated shuttle tankers than KNOT Offshore Partners. We operate these vessels with real expertise and supply is tightening. The market is expanding and tenders are back in the market. Response is already building further drop-down inventories.

We remain at very attractive value proposition, with core distribution of $0.52 equating to around 10% as an annual distribution. Thank you, and that concludes the narrative for the slides. If anyone has any questions, I'll be happy to take them. 

Questions and Answers:

Operator

[Operator instructions] The first question comes from Hillary Cacanando with Wells Fargo. Please go ahead.

Hillary Cacanando -- Wells Fargo -- Analyst

Hi, John. So the four extensions, were they done at the same -- at existing rate? Or were they done at a lower rate?

John Costain -- Chief Executive Officer and Chief Financial Officer

The Bodil was on a lower rate. The other three are very close to be...

Hillary Cacanando -- Wells Fargo -- Analyst

Which one, sorry?

John Costain -- Chief Executive Officer and Chief Financial Officer

The Bodil Knutsen.

Hillary Cacanando -- Wells Fargo -- Analyst

OK.

John Costain -- Chief Executive Officer and Chief Financial Officer

The original extension agreements on the vessel when they exercise the three options in a row then we agree to this and other option periods for them, because the vessel will probably end up in Brazil. It's not probably going to trade in the North Sea with the big Suezmax size. They seem to like that size more for Brazil than in the North Sea. It's going to be Suezmax class shuttle in the North Sea.

So we agreed to lower the rate on that. The other three are pretty close to where they were previously. The Tordis -- sorry, the Torill and the Windsor are slightly up and the Hilda space, slightly down. But overall, there's very little difference.

You wouldn't notice it in the cash flow.

Hillary Cacanando -- Wells Fargo -- Analyst

OK, got it. And when they have to start -- I guess, when do you start talking to them again for -- because their one-year extension so...

John Costain -- Chief Executive Officer and Chief Financial Officer

Yes. The -- so expect they will happen around the third quarter this year. So it will be similar timing next year. I mean, the Bodil is extended til 2020 -- May 2020.

I think, it's like six months of talking about that November '19, going through October '19 that Torill will be October '19, I think, as well. So will be all around the same time.

Hillary Cacanando -- Wells Fargo -- Analyst

Got it. And then could you just talk a little bit about any tenders that your sponsor is participating in that could...

John Costain -- Chief Executive Officer and Chief Financial Officer

Yes, obviously, we got -- we put a press release out in the -- about these two Statoil ships in Brazil, which we -- which the sponsor has successfully won that tender. He's also looking at other contracts. And we have around -- with COSCO, we have two options to for building too. We have a got attractive -- they've got attractive numbers.

So we hope that we can use them. I mean, we know the Petrobras are in the market for more shuttles and there are other operators like Shell, Total, who are also in the market. So it's starting to come back. The market is some slow.

And I mean, obviously, as I said before, we don't know who is going to win these contracts. But today, definitely, we've got two and I believe, the sponsor's also thinking about -- has gotten warm with the work and of the tanks as well. So three, I think, they're building. The two, the Statoil vessels will come toward the end of 2020.

So there still is the gap for the MLP as far as new tenders is concerned, but it is happening. Not as quickly as we'd expected, but actually a slower growth market isn't necessarily a bad thing. It makes a more stable proposition. And we'll also have more releveraging possibilities in two years' time than we did today.

At the end of the day, today, we're cash flow neutral and we can kind of trade them with new financing for the next couple of years.

Hillary Cacanando -- Wells Fargo -- Analyst

OK, got it. OK. Well, that's it for me, John. Thank you.

John Costain -- Chief Executive Officer and Chief Financial Officer

Thank, Hillary.

Operator

The next question comes from Robert Silvera with R.E. Silvera & Associates Marine Surveyors. Please go ahead.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Good morning, John -- afternoon here. I'm glad you chose this nice noon time to read, because it's good for the West Coast, East Coast and not too bad for you, hopefully.

John Costain -- Chief Executive Officer and Chief Financial Officer

No, it's [Inaudible]

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

That's what I'm saying. The question I have is particularly, and you touched on it a little bit. In your time charters, they're carrying -- all these charters, you charter amount at a fixed rate and the operator is carrying all the operating costs? Or do we carry the operating costs?

John Costain -- Chief Executive Officer and Chief Financial Officer

No. We -- the bareboat charters, which is four of the ships, we carry the -- they carry the whole operating cost. It's just like a finance lease. So the time charters, we obviously pay the operating costs, but the fuel is like hiring a car.

The fuel, basically they pay for on a time charter. We just pay for the crude, the cost of crude.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Right, OK. OK, could you give us a little bit of insight on your longer-term strategy for increasing the dividend? You've been in a steady dividend all the way back since October of 2015 when -- October 29, 2015...

John Costain -- Chief Executive Officer and Chief Financial Officer

After the MLP has got to expand and we got to see how accretive the contracts are before we can make a decision on that, so we're not when we're competing. We will -- we need to add ships to the MLP just to keep it stable, because the ships are a wasting asset and we need to retool...

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Exactly.

John Costain -- Chief Executive Officer and Chief Financial Officer

As you deleverage in our vessels. I -- we have to look at the nuts really to see what can do with the distribution, but I'm not optimistic in the short-term of that increasing. I mean, you have to wait. You're looking at a window of about three to five years, really.

But I think -- I just want -- I personally think and we keep the distribution stable, the unit price stable, everyone's happy. And we -- the way we can do that. So that we want to manage in a stable way and until we got more visibility on the contracts and how accretive they will be, and know what costs that sponsors put in MLP and what the terms are, then we can't really make a decision on the distribution.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

OK. Well, the only thing that troubles me is the distribution stays the same, which is fine.

John Costain -- Chief Executive Officer and Chief Financial Officer

Yeah.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

If you can find a methodology, so to speak, for increasing the price of the stock. Otherwise, if the stock price stays in the narrow range it does, 20 to 22 and the dividend stays exactly the same at 52, yet the long-term debt is climbing, that doesn't give one a good peaceful feeling. So I'm really curious about your long-term strategy for...

John Costain -- Chief Executive Officer and Chief Financial Officer

Well, the debt is not climbing. The debt is not climbing. I think, it's -- it will come down over the next year or two quite comfortably, because don't forget [Inaudible].

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

The chart shows that it's climbing the long term...

John Costain -- Chief Executive Officer and Chief Financial Officer

The -- just with four ships so...

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Yeah, that's what I mean. Overall, the company is carrying more long-term debt and ones who are really benefiting from us is the structure, are the bankers. They're getting more interest, but on the shareholders, aren't getting an appreciation.

John Costain -- Chief Executive Officer and Chief Financial Officer

[Inaudible] I think, in the long term, the company will deleverage in the next year or two and then use that deleveraging to actually leverage back up again and put more ships into the MLP, without raising equity and then it gets more interesting. But we have to see how accretive these contracts are.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Yeah, well, that's the key. We need to somehow get these contracts to be paying us a little bit more as we move into the future. And what you said, the first comment...

John Costain -- Chief Executive Officer and Chief Financial Officer

You see the cause of this...

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

For some of these -- with some of these contracts we're actually being extended at a lower price than a higher price.

John Costain -- Chief Executive Officer and Chief Financial Officer

Yeah, yeah.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

And do you see the market being able to sustain where you can get a higher price when the contracts are extended? Or is the language of the contract is such that there is no possibility for getting a rise in our yield on the contract expansion?

John Costain -- Chief Executive Officer and Chief Financial Officer

Of the four that have been extended, two of them have gone up and two of them have gone down. And generally, option periods are slightly higher. But yeah, it's...

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

OK, well, the language then -- the language in the contract is such that we can get a higher price. That makes me feel a lot better.

John Costain -- Chief Executive Officer and Chief Financial Officer

Yes, it is getting there. It has to be able to -- yeah.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Now, the cost of money is changing all the time and we don't have fixed interest, correct?

John Costain -- Chief Executive Officer and Chief Financial Officer

Yes, absolutely. We believe we've hedged out on average 60% of the debt -- 50% to 60% of the debt at a rate of about 1.7%, 1.8%. So we are a little bit buffered from the interest rate rises. What you see with interest rate rises, it does actually help older vessels, because it does make them more price-competitive because there's less capital tied up in them.

They're relatively speaking, a bit cheaper than a brand new ship, just because of the nature of the annuity. So it's not all bad.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

With our type of ships, what is the lifespan for our type of ship as opposed to like a VLCC, 20 years?

John Costain -- Chief Executive Officer and Chief Financial Officer

Actually, a bit longer. This is the longest. This does get 20 years out, some of them are in 25. But I mean, they're not -- I would say, some are between 20 and 22, 23 is probably about right.

I mean, they're going to -- the VLCC is going to about 15, 20 depending on the market. So a bit longer. There's a bit more. They're the high-spec ships.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Right. Is the sulfur content in fuel going to affect us in any way or just the operators?

John Costain -- Chief Executive Officer and Chief Financial Officer

It's the operators' expenses. Yes, the operators expense, but obviously, in the longer run, the vessels that are more economical and then the low-sulfur fuel, more economic burning fuel will benefit. I mean, I think, genuinely for us, because the charters are all wet in over 2020, it's not really going to impact as very heavily after time and have the risk period is really straight up to IMO 2020 comes in for the first six to 12 months when the enterprise will be very volatile. We will be affected, because the Raquel Knutsen is dry docking at 2020 and we obviously have to dial up the ship.

So obviously, that will have an impact on the results. We can't say how much that will be, but it will be. It will impact us, but not massively. Generally, it doesn't really impact us very heavily.

We're quite fortunate that way.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

OK. In this floating pipeline business that we run, where do we stand, percentage-wise, of the total market?

John Costain -- Chief Executive Officer and Chief Financial Officer

So the sponsor is, this vessel...

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

With our 16 ships?

John Costain -- Chief Executive Officer and Chief Financial Officer

It's about 20% of the market.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

And we control about 20%. OK, good. That's substantial.

John Costain -- Chief Executive Officer and Chief Financial Officer

Yeah.

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Good enough. I guess, that's it for me. Thank you very much for doing a good job and keeping a steady keel.

John Costain -- Chief Executive Officer and Chief Financial Officer

Thanks.

Operator

[Operator instructions] The next question comes from Richard Diamond with Castlewood Partners. Please go ahead.

Richard Diamond -- Castlewood Partners -- Analyst

John, after that last round of questioning, I want to thank you for your prudence as an investor. You've been conservative on so many fronts from maintaining a high distribution coverage to being very disciplined in paying down debt. We've all benefited from your steady hand. Just for good order's sake, would you mind reviewing how lower oil prices such as Brent at $59.99 versus Brent at $75 impact demand for shuttle tankers?

John Costain -- Chief Executive Officer and Chief Financial Officer

Yes, a good question. It has more noise effect on the unit price than it does on the shuttle tanker demand. I mean, I -- Brazil has continued to expand and so is the Barents Sea. I think, the Barents Sea, it has more of an impact on the Barents Sea, the oil price.

I think, in Brazil, I think, Brazil will just continue to ramp up production, because it's relatively cheap to exploit the oil there and Brazil needs the revenues. So I see that the Brazil program will go ahead and that it will continue to expand. The nice thing about lower oil prices for the shuttle tanker business is it tends to slow the build down a bit and it's meant that the business has been much slowed and next time it's gone out of the market a bit. It's meant that it's become a better market in many ways, because it's a gradual build rather than a bubble and that's obviously better for the shuttle tanker business.

I think, I said being a steady market, I think, we have seen a bit of a lift in Brazil now and -- but I don't see it being a threefold, like 25 or 30 tankers all at once. I think, it's going to be a trickle, maybe five, 10 tankers this year. So I think, the lower oil price, it tends to have -- it tends to weigh on the unit price a bit, because people with oil sentiment is affected and oil stocks are affected by the lower oil price. It's like the MLP pipelines when the market went away in MLPs, because of the oil price drop, people were worried about the end of life of the pipelines and that will be -- there may be a collapse.

This is the just a more sentiment, it don't actually impact on a day-to-day basis. It doesn't affect the operation of vessels. It may have the margin reduce the growth story a little bit.

Richard Diamond -- Castlewood Partners -- Analyst

Yeah, one would hope that with interest rates stabilizing or falling with the collapse in the U.S. of housing, automobile sales and now energy prices, the contracted yield would be even more attractive to investors. Thank you very much, John.

John Costain -- Chief Executive Officer and Chief Financial Officer

Thank you, Richard.

Operator

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

John Costain -- Chief Executive Officer and Chief Financial Officer

Thank you, everybody, for your -- especially the people who had a question in, because it's been interesting as usual to have a little bit of a dialogue. I hope you had a look at the company and you continue to support us. Thank you. OK, bye.

Operator

[Operator signoff]

Duration: 33 minutes

Call Participants:

John Costain -- Chief Executive Officer and Chief Financial Officer

Hillary Cacanando -- Wells Fargo -- Analyst

Robert Silvera -- R.E. Silvera & Associates, Inc. -- Analyst

Richard Diamond -- Castlewood Partners -- Analyst

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