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DATE

Friday, May 29, 2026 at 9:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Derek Lowe
  • Operator

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TAKEAWAYS

  • Revenue -- $92 million; management confirmed sequential decline was due to scheduled drydocking and contract terms.
  • Operating Income -- $14.7 million as directly reported.
  • Net Income -- $2.6 million as stated in the opening remarks.
  • Adjusted EBITDA -- $56.5 million; calculated before depreciation, interest, and tax effects.
  • Available Liquidity -- $140.7 million, comprised of $92.7 million cash and $48 million in undrawn credit, $3.7 million above the previous quarter-end.
  • Utilization Rate -- 97.2% fleet utilization including scheduled dry dockings, and 92% overall due to drydocking of specific vessels.
  • Distribution -- Cash distribution per common unit increased to $0.05, paid under a 1.1 thousand structure in May, marking the first increase after an extended period of low payouts.
  • Charter Backlog -- $858 million in fixed contracts with an average remaining duration of 2.4 years, with potential for extension if all options are exercised.
  • Fleet Size and Age -- 19 vessels with an average age of 10.5 years as of quarter-end.
  • Debt Repayment -- Ongoing annual repayment at a rate near $90 million, with $220 million and $65 million of facilities maturing in September and October 2026, respectively.
  • Charter Extensions and Additions -- Hilde Knutsen time charter with Shell extended through March 2027 and a new three-year fixed charter with Eni confirmed to commence in Q3 2027; Anna Knutsen’s charter with Total extended 1 year to May 2027; Recife Knutsen charter secured with Transpetro to begin in Q3 2026 for 2 years.
  • Change in Vessel Useful Life Estimate -- Prospective adjustment from 23 to 20 years starting January 1, 2026, increasing future quarterly depreciation, though not affecting cash flows or operational lifespan.
  • Market Dynamics -- Management observed tightening supply-demand in Brazil and the North Sea, sustained by new FPSO start-ups and higher offshore activity.
  • Floating Rate Debt Margin -- Average margin of 2.22% over SOFR reported for the quarter.
  • Growth Strategy -- Plan to pursue drop-down acquisitions from sponsor inventory over the next 4 to 5 years, contingent on attractive terms and conflicts committee approval.

SUMMARY

The call confirmed the first cash distribution increase in several years, alongside affirmation of solid liquidity and debt-reduction momentum. Management indicated anticipation of further gradual distribution growth contingent on execution of drop-down deals and sustained charter market fundamentals. Upcoming debt maturities in September and October and a recently adopted shorter vessel useful-life estimate may alter future depreciation profiles, but management emphasized resilience in bank finance access and projected fleet renewal via sponsor drop-downs.

  • Management stated, "Based on current charter rates, we believe charterers' options are likely to be exercised given the strength of the charter market," highlighting potential for extended revenue certainty.
  • CEO Lowe said, "We are pleased to have initiated the process of increasing the distribution after an extended period of low payouts during which we restored our charter coverage improved our liquidity position, and addressed multiple refinancings and dry dockings."
  • The fleet's operational environment is being supported by "tightening markets driven by FPSO start ups. Ramp ups, expansions, and new developments," contributing to backlog and utilization stability.
  • Management asserted that drop-downs—acquisitions from the sponsor—will be the primary method of renewing and expanding the fleet as older vessels age out over the next several years.

INDUSTRY GLOSSARY

  • Shuttle Tanker: Specialized oil tanker designed for transport of crude from offshore oil fields to onshore terminals or refineries.
  • FPSO: Floating Production Storage and Offloading vessel used for processing and storage of oil and gas offshore.
  • Drop Down: Acquisition of assets, typically vessels, by the partnership from its sponsoring entity at negotiated terms.

Full Conference Call Transcript

We begin on Slide 4 with the Q1 financial and operational headlines. Revenues were $92 million Operating income was $14.7 million, Net income was $2.6 million. Adjusted EBITDA was $56.5 million. And as of March 31, 2026, we had $140.7 million in available liquidity made up of $92.7 million in cash and cash equivalents, $48 million in undrawn capacity. This available liquidity was $3.7 million higher than December 31. We operated at 97.2% utilization taking into account scheduled drydocking. Which amounts to 92% utilization overall following the dry dockings of 2 Knutsen and then-- Following the end of the quarter, we declared a cash distribution of $0.05 per common unit, which was paid in May under the 1.1 thousand structure.

And which represented an increase from the previous level. We are pleased to have initiated the process of increasing the distribution after an extended period of low payouts during which we restored our charter coverage improved our liquidity position, and addressed multiple refinancings and dry dockings. On Slide 5, we have developments during the quarter. Prospectively from January 1, 2026 we changed the useful life estimate of our vessels from 23 years to 20 years reflecting longer term market trends. This will increase future depreciation quarter by quarter, that is not a cash item. This step also does not prevent vessels from operating beyond 20 years. On Slide 6, we have commercial developments.

We exercised our option to continue the time charter of Hilde Knutsen with Shell through March 2027, and subsequently agreed to new time charter with Eni commencing in Q3 27 for 3 years fixed plus options up to a further 3 years. Total Energy has exercised their option to extend the charter of Anna Knutsen for 1 year until May 2027. And we agreed a time charter for Recife Knutsen with Transpetro to commence in Q3 26 for a fixed period of 2 years. Turning to Slide 7 for a high level summary of our operating momentum. In both Brazil and the North Sea, we continue to see tightening markets driven by FPSO start ups.

Ramp ups, expansions, and new developments. This increase in shuttle tanker service volumes across both markets has been sustained and sufficient to tighten the supply demand balance. We have sustained a strong backlog with $858 million of fixed contracts averaging 2.4 years. And rather more if all options are exercised. At quarter end, our fleet of 19 vessels had an average age of 10.5 years. And we are continuing to repay debt at around $90 million per year, we consider prudent with a depreciating asset base. And having addressed prior refinancing activity, we now look ahead to a $220 million facility in September 2026, and the $65 million facility in October.

Over Slides 9 to 12, we provide the financials for Q1, the highlights of which we have covered already. On Slide 13 is our debt maturity profile. While no guarantees can be made, we have historically benefited from access to a wide pool of lenders and attractive bank finance. And we have been encouraged by our refinancing experience in recent years. Including during significant weaker shuttle tanker markets than we than the current 1. Notably, the average margin on our floating rate debt during the first quarter was 2.22% over SOFR. Moving on to Slide 15 and our charter portfolio.

I believe this remains a very useful resource for investors looking to track the primary movements where change can occur in a highly stable portfolio of cash flows. Based on current charter rates, we believe charterers' options are likely to be exercised given the strength of the charter market. On Slide 16, you can see our strong coverage through the coming quarters. Some charter options that we believe have a good likelihood of being exercised, a small amount of open time. On Slide 17, you can see the drop down inventory held at the sponsor. Drop downs have been the route to growth in the fleets throughout the life of the partnership.

And remain the means of replenishing and rejuvenating the fleet. As mentioned in the earnings release, anticipate pursuing these acquisitions over the next 4 to 5 years to the extent that the relevant terms are attractive and are approved by our conflicts committee. At the same time, we believe that the combination of accretive drop downs and improving charter market should support multiple gradual distribution increases over the coming quarters and years. In addition to materially extending our long term cash generation runway as certain of our vessels begin to age out in the years ahead.

On Slides 18 to 20, include market commentary, particularly from Petrobras, which continues to highlight a strong and expanding offshore production outlook and continued FPSO deployment. We would encourage you to review this as well as the copious materials that Petrobras publishes as the largest player in the Brazilian market where we primarily operate. To summarize on Slide 21, During the first quarter, we had strong utilization and solid financial results. We secured additional charter coverage across key vessels, We maintained a constructive backlog and market outlook. And we paid a quarterly distribution of $0.05 per unit.

Looking ahead to the coming quarters and years, we believe the successful execution of accretive dropdown transactions combined with rechartering of vessels into a strong market environment should create conditions for multiple gradual increases to our sustainable distribution. With that, I will hand the call back to Jade for any questions.

Operator: Thank you. We will now begin the Q&A session. which is open to equity research analysts. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question, And if you are muted locally, please remember to unmute your device. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Fredrik Dybwad from Fearnley Securities. Please go ahead.

Fredrik Dybwad: Thank you. Hello, Derek. Good day with the results. They are-- they have a pretty robust cash position, even more robust liquidity position. I am happy to hear that you are talking about modestly increasing the dividend or distributions going forward. In addition to being able to take the potential dropdowns as well. But how should we think about when you say modest gradual increases in the dividend, in what in terms of magnitude, how should we think about this?

Derek Lowe: Well, that is something that gets decided on by the board each time they make a dividend or distribution declaration, and that can only follow the end of each respective quarter. So we do not have specific guidance on numbers that may be coming and the board will make their decision following the end of first quarter for the sorry, the end of second quarter for the next distribution.

Fredrik Dybwad: Yeah. But if you can provide some color about you know, if you look at the backlog and cash flow or cash generation going forward, you can sustain deals much higher than 5¢ per unit. Should we think about when you say modest increases, should we think about an increase similar to the 1 you did this time or should it be more? that is just for you know, in terms of how we should think about it. As investment.

Derek Lowe: I appreciate the question, but until we have a distribution decision from the directors over the after the end of the second quarter, we do not have a number to provide you with.

Fredrik Dybwad: Okay. Thank you. That was all I had in terms of questions.

Derek Lowe: Thanks, Roger. Yeah.

Operator: Your next question comes from the line of Liam Burke from B. Riley Securities. Please go ahead.

Liam Burke: Thank you. Hi, Derek. How are you today?

Derek Lowe: Hi, Liam. Good. Thank you. And you?

Liam Burke: I am fine. Thanks.

Derek Lowe: Derek, I had a macro question for you. there is more oil obviously being sourced out of the non-Gulf area due to the conflict in the Mideast.

Liam Burke: Now, eventually, the Strait Of Hormuz will be reopened but you anticipate even post Strait of Hormuz opening, see an increase higher than normal increase in offshore oil production development. Or does it change your markets for the better?

Derek Lowe: Well, I do not particularly have a view over the medium to longer term. I can understand people being quite cautious in the nearer term as developments come along because the news flow varies from 1 day to the next. And I am sure people will be seeking to interpret that as best they can and even remain cautious once the straights are open again. But I do not really have a view on whether it would change what will otherwise happen in the medium to long term because there could be other factors relating to that as well. Okay. Fair enough.

Liam Burke: And on the supply side, I mean, just in the vein where you reduce the useful life of the asset, Could you give me a sense as to where we are in terms of the order book and the aging of the shuttle tanker fleet. Globally?

Derek Lowe: Well, you can you can see the aging of our And Right. I guess twentieth is the best place to look at that to get that listed out. Although, do not particularly have a comment on the aging of other ship owners' fleets But clearly, the ramp up, particularly in Brazil, the new build inventory is clearly in excess of what is going to retire from the market. it is intended to serve new volumes that are coming online. Okay.

Liam Burke: But there is an aging of the fleet on the other end of it that could further tighten supply.

Derek Lowe: that is right. Yep.

Liam Burke: Okay. Great. Thank you, Derek.

Derek Lowe: Thank you.

Operator: Your next question comes from the line of Charles Fratt from Alliance Global Partners. Please go ahead.

Poe Fratt: Hey, Derek. I apologize. I logged in a little late. And you may have addressed this on your prepared in your prepared remarks. But could you just talk about the sequential decline in revenues? And was that totally associated with the downtime you experienced? Or were there some time charter rollovers that impacted revenues?

Derek Lowe: Yeah. Thanks, Poe, and no problem. We did not address that at the time earlier on. Yes. It will relate to the dry dock schedule. And also simply the terms of the contracts charters that are outstanding between different periods. Great. Thank you.

Poe Fratt: Thanks. Thanks.

Operator: At this time, there are no further questions. I will now turn the call back to Derek for closing remarks.

Derek Lowe: Thank you, Jason. Thank you all again for joining this earnings call for KNOT Offshore Partners' first quarter of 26. We look forward to speaking with you again following the second quarter results. Thank you.

Operator: This concludes today's call. Thank you all for attending. You may now disconnect.