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DATE

Friday, Sept. 4, 2026 at 9:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer and Chief Financial Officer - Derek Lowe

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TAKEAWAYS

  • Revenue -- $96.8 million, representing an increase from $92.0 million in the previous quarter driven by higher loss-of-hire insurance recoveries and fewer off-hire days.
  • Operating Income -- $15.6 million, reflecting a $0.9 million increase from the first quarter of 2026.
  • Adjusted EBITDA -- $57.6 million, compared to $56.5 million in the first quarter of 2026.
  • Net Income -- $3.4 million, representing an increase from $2.6 million in the previous quarter.
  • Available Liquidity -- $143.3 million, consisting of $95.3 million in cash and $48.0 million in undrawn revolving credit capacity as of June 30, 2026.
  • Vessel Utilization -- 96.8% for scheduled operations, reflecting the impact of the Fortaleza Knutsen drydocking which reduced overall utilization to 92.4%.
  • Cash Distribution -- $0.075 per common unit, an increase from $0.05 per unit in the prior quarter and $0.026 per quarter in previous years.
  • Hedda Knutsen Acquisition -- $113.0 million, involving the assumption of $89.4 million in debt and a net cash payment of $24.4 million on Sept. 1, 2026.
  • Hilda Knutsen Charter -- three years fixed, executed with ENI to commence in June 2027 with three years of options.
  • Recife Knutsen Charter -- two years fixed, with Transpetro starting in late 2026 following a scheduled drydocking.
  • Ingrid Knutsen Charter -- three years fixed, with ENI starting in October 2026 as a direct continuation of the existing charter.
  • Refinanced Debt -- $225.0 million, secured by five vessels via a five-year term loan at SOFR plus 1.65%.
  • Contract Backlog -- $881.2 million, consisting of fixed contracts with an average duration of 2.5 years as of June 30, 2026.
  • Charter Coverage -- 100% for the remainder of 2026 and 92% firm for 2027.
  • 2028 Charter Coverage -- 65% firm, or 93% when including charterer's options.
  • Average Fleet Age -- 10.7 years, with the acquisition of the Hedda Knutsen reducing the average by nearly 0.5 years.
  • Debt Repayment -- $95.0 million per year, which management stated is a prudent level relative to the depreciating asset base.
  • Floating Rate Debt Margin -- 2.21% over SOFR, representing the average margin during the second quarter.
  • Loss of Hire Recoveries -- $1.9 million, received in August 2026 relating to the Tordis Knutsen breakdown in the second quarter.
  • Vessel Operating Expenses -- $36.4 million, up from $33.0 million in the previous quarter due to insurance settlements related to claims in the first quarter.
  • General and Administrative Expenses -- $1.7 million, representing a decrease from $2.5 million in the first quarter driven by higher costs associated with a previous unit purchase offer.
  • Interest Expense -- $13.8 million, compared to $13.9 million in the first quarter of 2026.
  • Derivative Instruments Gain -- $1.4 million, consisting of a $0.6 million realized gain and an $0.8 million unrealized gain during the second quarter.
  • Upcoming Refinancing -- $65.9 million, related to the facility secured by the Live Knutsen maturing in October 2026.
  • Interest Rate Swaps -- $272.4 million in total notional amount outstanding as of June 30, 2026, with an average maturity of 1.4 years.

SUMMARY

Management of KNOT Offshore Partners LP (KNOP -0.52%) reported an increase in quarterly revenues and operating income driven by high vessel utilization and insurance recoveries. The partnership completed the acquisition of the Hedda Knutsen and executed several multiyear charter extensions, which management stated would strengthen long-term cash flow visibility. The company indicated that the shuttle tanker market is tightening in Brazil and the North Sea due to a multiyear pipeline of offshore production projects and a limited global order book. Chief Executive Officer Derek Lowe stated that the combination of accretive acquisitions and an improving re-chartering environment supports a strategy of multiple gradual distribution increases for unitholders over the coming quarters.

  • Management highlighted the tightening shuttle tanker market in Brazil and the North Sea, driven by a "robust multiyear FPSO pipeline" and continued investment in exploration.
  • Lowe noted that the global shuttle tanker order book is "insufficient to meet anticipated demand levels" through at least 2028, given yard capacity constraints.
  • The partnership decided not to acquire the Frida Knutsen and Sindre Knutsen from the sponsor because they lacked fixed or guaranteed charter contracts of sufficient duration.
  • Lowe indicated that the partnership anticipates seeking additional "dropdown" acquisitions from Knutsen NYK over the next four to five years to replenish and rejuvenate the fleet.
  • Management expressed confidence in the re-chartering environment, stating that charterer's options are "likely to be exercised" given current market strength.
  • Lowe noted that the partnership has historically benefited from "access to a wide pool of lenders" and attractive bank finance even during periods of market weakness.

INDUSTRY GLOSSARY

  • FPSO: Floating Production, Storage, and Offloading unit, used by offshore oil fields for processing and temporary storage of crude.
  • Shuttle Tanker: A specialized ship designed to transport crude oil from offshore oil fields to onshore terminals.
  • SOFR: Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated loans.
  • Time Charter: An agreement where a charterer hires a vessel for a specific period while the owner manages operations.
  • Bareboat Charter: An arrangement where the charterer takes full control of the vessel, including operations and crew.
  • Suezmax: A mid-sized tanker class typically capable of carrying approximately 1 million barrels of oil.
  • Drydocking: The process of bringing a ship into a service yard for maintenance, inspection, and repairs.
  • Adjusted EBITDA: A non-GAAP metric representing earnings before interest, taxes, depreciation, and other financial items.
  • DP2: Dynamic Positioning Class 2, a redundant system that automatically maintains a vessel's position and heading.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for joining us, and welcome to the KNOP second quarter 26 Earnings Call. After today's prepared remarks, will host a question and answer session with an opportunity for equity research analysts to ask questions. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 1 to raise your hand. I will now hand the conference over to Derek Lowe. Please go ahead, sir.

Derek Lowe: Thank you, Leo, good morning, ladies and gentlemen. My name is Derek Lowe, and I am the executive and chief financial officer of KNOT Offshore Partners. Welcome to the partnership's earnings call for the second quarter of 26. 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 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 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. We begin on slide 3, with the Q2 financial and operational headlines. Revenues were $96.8 million, Operating income, $15.6 million. Net income, $3.4 million, Adjusted EBITDA, $57.6 million.

And as of June 30, 2026, we had $143.3 million available liquidity made up of $95.3 million in cash and cash equivalents, plus $48 million in undrawn capacity. This available liquidity was $2.6 million higher than at March 31 and that rise is largely in line with the reducing trend in recent quarters. We operated with 96.8% utilization taking into account scheduled drydocking, which amounts to 92.4% utilization overall following the drydocking of Fortaleza Knutsen. Following the end of the quarter, we declared a cash distribution of $0.075 per common unit, which was paid in August under the 99 structure and which represented an increase from the previous level.

We are pleased to have continued the process of multiple gradual increases to our distribution, anchored in our reliable and diversified long term cash flow and improved balance sheet. On slide 4, we have the most significant development since the start of the second quarter. On September 1, 2026, we purchased the Hilde Knutsen from KNOT, for a purchase price of $113 million. Less than $89.4 million debt facility, plus $0.8 million of capitalized financing fees, resulting in a net cash cost of $24.4 million. The transaction was negotiated by our board's independent conflicts committee.

The vessel was delivered new to KNOT in October 2024, and is on time charter to Petrobras in Brazil through to November 2034, with an additional 5 years of charter options. The acquisition provides fleet growth, diversifies, extends our pipeline of long term contracts, reduces our average fleet age, and develops the fleet in the most in demand shuttle tanker asset class. And on slide 5, we have commercial and financing developments. We list here a number of positive contractual developments since the beginning of the second quarter.

In addition to the various charterer's options exercised, as expected, I would highlight the time charter for Hilda Knutsen was executed with ENI, to commence in June 2027 for a fixed period of 3 years plus 3 charterer's options each for 1 additional year. Time charter for Recife Knutsen was executed for Transpetro to commence in Q3 26 for a fixed period of 2 years. Agreement was reached with Eni for a time charter on Ingrid Knutsen, commencing October 2026, for 3 years fixed plus 3 years of options, 3 options each of 1 year. This is in direct continuation of the existing time charter to Eni, and replaces their existing options.

And we refinanced the loan secured by Taurus, Fygdas, Lena, Anna and Brasil Knutsen via a new $225 million 5-year senior secured term loan facility. Arranged by DNB with the interest rate reduced meaningfully to SOFR plus 1.65%. Turning to slide 6. For a high level summary of our operating momentum. In both Brazil and the North Sea, we continue to see tightening markets driven by robust multiyear FPSO pipeline production growth, and continuing investments in exploration and existing project expansion. The increase in shuttle tanker service volumes across both markets has been sustained, sufficient to tighten the supply demand balance even as new vessels have been delivered.

We have expanded our strong backlog with $881.2 million of fixed contracts at quarter end, which averaged 2.5 years in duration and charterers options averaging further 4 years. At quarter end, our fleet of 19 vessels had an average age of 10.7 years, Acquisition of the Hilda reduces the average age by nearly half a year. We are continuing to repay debt at around $95 million per year, we consider prudent with a depreciating asset base. And we are well advanced in the refinancing of the $65 million facility secured by Lena Knutsen which is due later in October. Over slides 8 to 11, we provide the financials for Q2, the highlights of which we have covered already.

On slide 12 is our debt maturity profile. No guarantees can be made, we have historically benefited from access to a wide pool of lenders and attractive bank finance. We have been encouraged by our refinancing experience in recent years. Including during significantly weak sharp tanker markets than the current 1. Notably, the average margin on our floating rate debt during the second quarter was 2.21% over SOFR. Moving on to slide 14 and our charter portfolio. I believe this remains a very useful resource for investors looking to track the primary moments where change can occur in a highly stable portfolio of cash flows.

Based on current charter rates, we believe charter's options are likely to be exercised, given the strength of the charter market. On slide 15, you can see our strong forward coverage where we are fully chartered for the remainder of 2026 And in 2027, we have 92% firm coverage or 96% including charterer's options. Likewise for 2028, we have 65% firm coverage or 93% including charterer's options. We assume the charterer's options are picked up, which is our current expectation, then you can see the slowly widening light gray section at the top of the bars as those offer an upside potential for the KNOP fleet. For market momentum is sustained.

On slide 16, you can see the drop down inventory held at the sponsor. Drop downs have been the route to growth in the fleet throughout the life of the partnership. And remain the means of replenishing and rejuvenating the fleet. In June 2026, the partnership decided not to pursue Fredrik and Synnøve Knutsen and they have been removed from our drop down inventory. At the same time, we believe that the combination of accretive drop-downs and an 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 slide 17 to 19, we include market commentary, particularly from Petrobras, which continues to highlight record production a strong and expanding offshore production outlook, and continued FPSO deployment. We 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 20, during the second 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, We paid a quarterly distribution of $0.075 per unit, which is an increase from $0.05 in the prior quarter and $0.026 per quarter for several years before that.

Following the end of the quarter, we purchased Hilda Knutsen, secured additional charter coverage, refinanced the $225 million loan facility. And on slide 21, we conclude with the key themes of KNOP and the shuttle tanker market. The market remains niche and highly concentrated. Offshore extraction continues to take market share from traditional onshore production, and FPSO service by shuttle tankers remains dominant compared with the construction of new pipelines. Brazilian North Sea offshore build outs have strong have strong momentum following quite a stretch. The shuttle tanker order book remains non speculative and insufficient to meet anticipated demand levels.

Looking ahead to coming quarters and years, we believe that KNOP is well positioned to pursue attractive long term growth opportunities alongside multiple gradual increases to our sustainable distribution. With that, I will hand the call back to Leo for any questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Liam Burke with B. Riley Securities. Your line is open. Please go ahead.

Liam Burke: Derek, you have been a busy man this quarter.

Derek Lowe: Yes. I have. Thanks, Liam.

Liam Burke: In terms of dropdowns, the Hilda financing was pretty elegant with the assumption of debt and the addition of cash. Does that when I think about the potential drop downs, and the ability to finance them, Do you anticipate a different cadence of growing the fleet? Or are you just going to take it as a come along?

Derek Lowe: Well, we respond to the offers that are made to us. And, obviously, only a limited number of the fleet have been delivered of the drop down list have been delivered at this stage. And so they can only be offered once they have been delivered. And so it is a matter of the timing of the offers and the response that the conflicts committee wants to make to them. Okay. But would you envision the financing similar to Hilda? As I said before, is a pretty elegant way to fund a drop down. Yeah. I mean, the standard model for all of them is that they have a secured debt facility in place already as they are offered.

So the financing itself does not need to be arranged at the time that the drop down's offered. And it is a standard term of those facilities that the guarantor or the ownership and the guarantor arrangements can be transferred over to KNOP from KNOT so that is that is straightforward. I would say the loan on the Hilda is very standard from the point of view of the drop-downs we have had in the past so that those terms did not come as a great surprise. Nor did the approximate cash cost of the transaction.

So that $24 million is fairly consistent with the cost that you will see, the sort of the net of debt, the cost that you will see in the previous transactions we have done. Great. Thank you, Derek.

Liam Burke: Thanks, Liam.

Operator: There are no further questions at this time. I will now turn the call back to Derek Lowe for closing remarks.

Derek Lowe: Well, thank you again, ladies and gentlemen, for joining us earnings call for KNOT Offshore Partners second quarter of 26. And I look forward to speaking with you again following the third quarter results.

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