KNOT Offshore Partners LP Aktie

Ladies and gentlemen, thank you for joining us and welcome to the KNOT Offshore Partners Second Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session with an opportunity for equity research analysts to ask questions. [Operator Instructions] I will now hand the conference over. Derek Lowe. Please go ahead, sir.

Thank you, Leo, 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 second quarter of 2026. Our website is knotoffshorepartners.com and you can find the earnings release there along with this presentation. On slide 2, you'll 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 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-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 in 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 dry docking, which amounts to 92.4% utilization overall following the dry docking of Fortaleza. Following the end of the quarter, we declared a cash distribution of ¢7.5 per common unit, which was paid in August under the 1099 structure and which represented an increase from the previous level.

We're 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 Heda Knudsen from KNOT for a purchase price of $113 million, less an $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 five years of charter as options. The acquisition provides fleet growth, diversifies and extends our pipeline of long-term contracts, reduces our average fleet age and develops the fleet in the most in-demand shuttle tanker gross 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 charterers options exercised as expected, I would highlight the time charter for Hilder Knudsen was executed with ENI to commence in June 2027 for a fixed period of three years plus three charterer's options each for one additional year. Time charter for Recife Knutsen was executed by Transpetro to commence in Q3 2026 for a fixed period of two years. The agreement was reached with E&I for a time charter on Ingrid Knudsen, commencing October 2026, for three years fixed, plus three options each of one year. This indirect continuation of the existing time charter to E&I replaces their existing options. And we refinanced the loan secured by the Tordis Knutsen, Vigdis Knutsen, Lena Knutsen, Anna Knutsen, and Brazil Knutsen via a new $225 million five-year senior secured term loan facility arranged by DNB, with the interest rate reduced meaningfully to SOFR plus 165 basis points. 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 multi-year FPSO pipeline, production growth and continuing investment in exploration and existing project expansion. The increase in shuttle tanker service volumes across both markets has been sustained and 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 average 2.5 years in duration, and chartered options averaging further four years. At quarter end, our fleet of 19 vessels had an average age of 10.7 years. Acquisition of the Heda Knudsen reduces the average age by nearly half a year. We are continuing to repay debt at around $95 million per year, which we consider prudent with a depreciating asset base. And we are well advanced in the refinancing of the $65 million facility secured by the Lena Knutsen, which is due later in October.

Over slides 8 to 11, we provide the financials for Q2, the highlights of which we've covered already. On slide 12 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. We've been encouraged by our refinancing experience in recent years, including during significantly weaker shuttle tanker markets than the current one. 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 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're fully chartered for the remainder of 2026. And in 2027, we have 92% firm coverage or 96% including charter as options. Likewise for 2028, we have 65% firm coverage, or 93%, including charter's options. If we assume that charter'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 offering upside potential for the KNOP fleet if 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 the Frieda Knudsen and the Sindra Knudsen and they've been removed from our drop-down inventory.

At the same time, we believe that the combination of accreted 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 slides 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. And we paid a quarterly distribution of ¢7.5 per unit, which is an increase from ¢5 in the prior quarter and ¢2.6 per quarter for several years before that. Following the end of the quarter, we purchased the Heda Knudsen, secured additional charter coverage and refinanced the $225 million loan facility.

And on slide 21, we conclude with the key themes for 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 FPSOs serviced by shuttle tankers remain dominant compared with the construction of new pipelines. Brazil and North Sea offshore build-outs have strong momentum following a quieter stretch, while 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'll hand the call back to Leo for any questions.

Thank you.

We will now begin the question and answer session. [Operator Instructions] Your first question comes from the line of Liam Burke with B. Riley Securities.

Please go ahead. Rick, you've been a busy man this quarter.

Yes, I have. Thanks, Liam.

In terms of drop-downs, the financing of the Heda Knudsen 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 they come along?

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 vessels have been delivered at this stage, and so they can only be offered once they've been delivered. So it's 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 the Heda Knudsen, which 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 secure debt facility in place already as they are offered. The financing itself does not need to be arranged at the time that the drop-down is offered. And it's 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's that is straightforward. But I would say the loan on the Heda Knudsen is very standard from the point of view of the drop-downs we've had in the past, so 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'll see the sort of net of debt, the cost that you'll see in the previous transactions we've done.

Great. Thank you, Derek. Great. Thanks, Liam. There are no further questions at this time. I will now turn the call back to Derek Lowe for closing remarks.

Well, thank you again, ladies and gentlemen, for joining us earnings call for KNOT Offshore Partners in the second quarter of 2026. And I look forward to speaking with you again following the third quarter results. This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Ladies and gentlemen, thank you for joining us, and welcome to the KNOP First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Derek Lowe. Please go ahead.

Thank you, Jade, and good morning, ladies and gentlemen. My name is Derek Lowe. I'm the Chief Executive and Chief Financial Officer of KNOT Offshore Partners. Welcome to the Partnership's earnings call for the first quarter of 2026. 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 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-U.S. GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures.

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 plus $48 million in undrawn capacity. This available liquidity was $3.7 million higher than at December 31.

We operated the 97.2% utilization taking into account scheduled dry docking, which amounts to 92% utilization overall following the dry dockings of Tuva Knutsen and Bodil Knutsen. Following the end of the quarter, we declared a cash distribution of $0.05 per common unit, which was paid in May under the 1099 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 address multiple refinancings and dry dockings.

On Slide 5, we have developments during the quarter. Prospectively, from January 1, 2026, we changed the useful life estimates of our vessels from 23 years to 20 years reflecting longer-term market trends. This will increase future depreciation quarter-by-quarter, but that is not a cash item. This step also does not prevent vessels from operating beyond 20 years.

And on Slide 6, we have commercial developments. We exercised our option to continue the time charter of Hilda Knutsen with Shell through March 2027 and subsequently agreed a new time charter with Eni commencing in Q3 2027 for 3 years fixed plus options up to a further 3 years.

TotalEnergies exercised their option to extend the charter of Anna Knutsen for 1 year until May 2027. And we agreed to time charter for Recife Knutsen with Transpetro to commence in Q3 2026 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're continuing to repay debt at around $90 million per year, which we consider prudent with the 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 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've been encouraged by our refinancing experience in recent years, including during significant weaker shuttle tanker markets than the current one. 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 charter 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 are good likelihood of being exercised and a small amount of open time.

On Slide 17, you can see the drop-down inventory held at the sponsor. Dropdowns 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, we anticipate pursuing these acquisitions over the next 4 to 5 years to the extent that relevant terms are attractive and are approved by our Conflicts Committee.

At the same time, we believe that the combination of accretive dropdowns 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 Slide 18 to 20, we 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 [ copyrighted ] materials of Petrobras publishers 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 drop-down transactions combined with rechartering of vessels into a strong market environment should create the conditions for multiple gradual increases to our sustainable distribution.

With that, I'll hand the call back to Jade for any questions.

[Operator Instructions] Your first question comes from the line of Fredrik Dybwad from Fearnley.

Congratulations with the results. So you have a pretty robust cash position, even more robust liquidity position. I'm happy to hear that you are talking about modestly increasing the dividends or distributions going forward in addition to being able to take the potential drop-downs as well. But how should we think about when you say modest gradual increase in the dividend in what -- in terms of magnitude, how should we think about this?

Well, that's 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 don't 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.

Yes. But if you can provide some color about if you look at your backlog and cash -- or cash generation going forward, you can sustain the dividend much higher than $0.05 per unit. Should we think about -- when you say modest increases you would think about an increase similar to the one you did this time? Or should it be more? That's just for -- in terms of how we should think about it as investors...

I appreciate the question, but until we have a distribution decision from the directors over the -- after the end of the second quarter, we don't have a number to provide you with.

Your next question comes from the line of Liam Burke from B. Riley Securities.

Derek, I had a macro question for you. There's more oil obviously being sourced out of the non-Gulf area due to the conflict in the Mid East. Now eventually, the Strait of Hormuz will be reopened. But do you anticipate even post Strait of Hormuz opening -- a higher-than-normal increase in offshore oil production development? Or does it change your markets for the better?

Well, I don't 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 one day to the next. And I'm sure people will be seeking to interpret that as best they can. And even remain cautious once the Straits are open again. But I don't 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. And on the supply side, I mean, just in the vein where you reduced the useful life of the assets. 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?

Well, you can see the aging of our vessels. And I guess the 20-F is the best place to look at that to get that listed out. I don't particularly have a comment on the aging of other ship owners fleets. But clearly, with the ramp-up, particularly in Brazil, the new build inventory is clearly in excess of what's going to retire from the market. It's intended to serve new volumes that are coming online.

Okay. But there is an aging of the fleet on the other end of it, that could further tighten supply?

That's right. Yes.

Your next question comes from the line of Poe Fratt from Alliance Global Partners.

Derek, I apologize. I logged in a little late and you may have addressed this 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?

Yes. Thanks, Poe, and no problem we didn't address that at the time earlier on. Yes, it will relate to the dry dock schedule. And also simply the terms of the contracts that are outstanding between different period.

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

Thanks, Jade, and thank you all again for joining this earnings call for KNOT Offshore Partners First Quarter of 2026. We look forward to speaking with you again following the second quarter results. Thank you.

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

Ladies and gentlemen, thank you for joining us, and welcome to the KNOP Fourth Quarter 2025 Earnings Call. [Operator Instructions]

I will now hand the conference over to Derek Lowe. Please go ahead, sir.

Thank you, Tyler, 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 2025. 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-U.S. 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 comments on the unsolicited and nonbinding offer from our sponsor, KNOT, to buy the publicly owned common units for $10 per common units, which we received during the fourth quarter. As announced in the press release on the March 19, the mutual decision was made by the independent KNOP Conflicts Committee and the sponsor to conclude those discussions with no transaction recommended. All information provided by KNOP's Conflicts Committee about that process was included within the March 19 press release, and I'll not be able to comment any further during today's call.

On Slide 4, we have the Q4 financial and operational headlines, certain of which reflect the impact of the noncash impairment related to the Bodil Knutsen. Revenues were $96.5 million. Operating income was $8.4 million on a fully reported basis or $28.6 million when excluding the impact of the impairment on Bodil. Similarly, net income on a fully reported basis was a loss of $6.2 million whereas it was net income of $14 million when we exclude the impact of the impairment. Adjusted EBITDA was $59.3 million. And as of December 31, 2025, we had $137 million in available liquidity, made up of $89 million in cash and cash equivalents, plus $48 million in undrawn capacity on our credit facilities, and that was $11.8 million higher than at September 30. We operated at 99.5% utilization, taking into account the scheduled dry docking of Synnove Knutsen, which amounts to 96.4% utilization overall. Following the end of Q4, we declared a cash distribution of USD 0.026 per common unit, which was paid in February.

On Slide 5, we have the developments during Q4. Early in the quarter, we entered into a $71.1 million senior secured term loan facility to refinance Synnove Knutsen. On November 4, the Vigdis Knutsen transitioned from a time charter contract to a bareboat charter with the same customer, Shell, extending until at least 2030. We completed our second of 2 RCF refinancings rolled over on similar terms. Our next refinancings are in the late third and early fourth quarter of this year. And on November 21, we agreed the time charter for Fortaleza Knutsen with KNOT to commence during the second quarter of 2026 and lasting between 1 and 3 years. Given the vessels smaller size relative to the Suezmax that has become standard in the Brazilian offshore segment, the vessel is expected to transition to the much more diversified North Sea.

Then on Slide 6. The principal development in the first quarter has been the termination of discussions around the offer from KNOT, which I described earlier.

Turning to Slide 7 for a high-level summary of our positive momentum coming into the spring of 2026 with the tightening market and expanding backlog and the balance sheet continuing to strengthen. In both Brazil and the North Sea, we continue to see tightening markets driven by FPSO start-ups, ramp-ups, expansions, new discoveries and in a number of cases, technology-driven increases in production beyond nameplate capacity.

In each instance, these increased volumes are the outcome of lengthy, often CapEx-intensive projects such that they are not typically sudden unanticipated step changes in shuttle tanker demand that caps the market off guard. Nevertheless, the increase in shuttle tanker service volumes across both markets has been both sustained and sufficient to tighten the supply-demand balance. Petrobras will continue to deploy its long committed pipeline of FPSOs and to expand production capacity across its existing fleet.

We've sustained our backlog as of December 31, 2025, with $929 million of fixed contracts averaging 2.6 years and rather more if all the options are exercised. At year-end, our fleet of 19 vessels had an average age of 10.2 years.

We are continuing to repay debt at $90 million or more per year, which we think is prudent with the depreciating asset base. Having reliably addressed our refinancing needs typically on very consistent terms, we now look to the $220 million 5 ship facility in September 2026 and a $65 million single ship facility in October 2026, secured by Lena Knutsen.

Over Slides 9 to 12, we provide the financials for Q4, the highlights of which we have covered already. On Slide 13 is our debt maturity profile on which you can see we have material repayment obligations later this year. While no guarantees can be made, we have historically benefited from our access to a wide pool of lenders, attractive bank finance and several key lender relationships with major players. Moreover, we've been encouraged by our refinancing experiences in recent years, and the strong signal they provide regarding lenders continued appetite. Notably, the average margin on our floating rate debt during the fourth quarter was 2.2% over SOFR.

Moving on to Slide 15 and our charter portfolio. I've covered most of the updates here. But I believe this is very useful resource for investors looking to track the primary movements where a change can occur in a highly stable portfolio of cash flows. That is when charters turn over and when there are dry docks that will cause offhire and incur some CapEx costs. Based on current charter rates, we believe charter's options are likely to be taken up given the strength of the charter market.

On Slide 16, you can see our strong coverage through the coming quarters. Some charters options that market conditions suggest have a good likelihood of being exercised and a small amount of open time. In all, we have 93% of vessel time in 2026 covered by fixed contracts and 69% in 2027. If all relevant options are exercised, this rises to 98% in 2026 and 88% in 2027.

On Slide 17, 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 other means of replenishing and rejuvenating the fleet given the depreciation in our assets. I would underscore both that our Board has consistently acknowledged the importance of drop-downs for the partnership, and also that any drop-down would first have to be approved by the Independent Conflicts Committee.

On Slides 18 to 20, we include again some commentary from Petrobras with relevant highlights from a 5-year plan they released for 2026 through to 2030 as well as a useful overview of their significant 2025 progress from their recently reported full year 2020 results. We believe that these materials from Petrobras provide a useful insight into the Brazilian offshore market, and we'd encourage you to review the extensive materials that Petrobras regularly publishes. In short, though, from the shuttle tanker owners perspective, Petrobras continues to deploy significant CapEx into a long-term FPSO pipeline in shuttle tanker service areas, to find new ways to increase volumes from existing fleet and overall, to continue expanding its aggregate production on time or in a number of instances ahead of schedule.

As with the development that we're seeing in the North Sea, this gives us comfort that shuttle tanker demand should readily absorb the current order book. Further, we believe that the current order book still trends towards the medium-term shortage of shuttle tankers when set against the forthcoming production.

To summarize on Slide 21, during Q4, we had strong utilization and financial results. We refinanced the Synnove Knutsen facility and the second RCF. We secured additional charter cover and paid a quarterly distribution. And in Q1, we've seen the termination of the discussions around the offer from KNOT.

With that, I'll hand the call back to Tyler for any questions.

[Operator Instructions] And your first question comes from the line of Fredrik Dybwad with Fearnley Securities.

Can you hear me well? Can you hear me?

Fredrik, can't hear you that well.

Okay. Is this better?

Just try us. Yes.

So congratulations, good quarter, solid cash flow. You're doing the things, market, as you say, very firm. Since last time around, I have noted that the Knutsen on the holding level issued a bond. Have -- in connection with that bond issue, has there been a valuation of KNOP?

To repeat for anyone who didn't hear that clearly. Fredrik, I think you're referring to the TSSI bond, which is, I think, 2 corporate levels above KNOP. I think anyone interested in the circumstances around that bond would need to look at the offering materials and the disclosure related to it. I'm not directly aware of valuation exercise on KNOP, at least as far as the partnership was directly involved, but the offering materials will contain the disclosure related to that transaction.

Okay. Got it. And I also note that you reduced the useful life of your vessels from 23 to 20 years. Could you shed some light on the rationale behind that? I thought it was a bit -- bit surprised me a bit.

Yes. So useful life is a measure of how long a vessel is expected to stay in the hands of a current owners. So it's not directly a measure of the economic life of a vessel per se. So in some instances, we see shuttle tankers being deployed commercially beyond 20 years. But quite often, it's outside the sector. So it's a conventional floating storage or FPSO. What we are seeing is that the typical scenario is clients will wish to see vessels that are under 20 years, and we'll seek those out before seeking to contract those that are older. And so it's a judgment around that overall situation, particularly operation in shuttle tanker form that led us to take that view that 20 years was a better judgment on that than 23.

Okay. And limited visibility just from my own modeling, what the price on new building Suezmax currently on the shuttle tanker?

I think that's too commercially sensitive for us to disclose at the moment. We don't discuss our newbuild contract pricing.

No, not necessarily yours, but generically, how much would it cost to build shuttle tanker in, for instance, China.

Well, given that our sponsor is quite active in the newbuild space, I think generically and commercially specifically, pretty much the same thing. So I don't have any comments on it, I'm afraid.

Okay. It's around $140 million will be fair from my end, as an assumption.

As I said, I don't have any direct comment on that, I'm afraid.

Okay. And yes, just a final one, sorry, a bit of saturated on the question side, but last one. Back in 2023 when you cut the dividend, I can quote you that you said that until you have reestablished a greater degree of forward visibility and on earnings and on liquidity, the quarterly distribution is reduced, but will be increased once this is in place. And hearing what you are saying now on the outlook for shuttle tankers, your balance is rock solid and you're generating significant cash flow for the quarter.

What will it take for the dividend to come back when it seems like everything is in place for it to happen?

Yes. Thank you. I mean capital allocation is very much in the minds of directors on a continual basis. And whether it's distributions, buybacks or investment in the fleet or drop-downs, that's something that they are assessing on a continual basis, and we'll continue to do so. We don't have a direct formula that says there's a given time for one or other of those aspects to be selected, but it does remain under active review by the directors.

So would you say that your view on dividend distributions is changed from 2022 to today? Or is it the same the way you look at it?

Well, we're clearly pleased with a stronger financial position now than back then. That's certainly the case. But the choice of how and where and when to allocate capital is something, as I say, that the directors keep under continual review.

Okay. Okay. I understand. I understand. I appreciate your comments, Derek. And final question. You try to do the Annual General Meeting last year about the success. Are you going to schedule it again for this year? Or how should we think about that?

Well, we do obviously have a standing obligation to seek to hold a meeting each year, and we intend to satisfy that obligation during 2026 as well.

Your next question comes from the line of Liam Burke with B. Riley Securities.

Whatever happened to 2 questions per customer. Anyway, you've got a -- your sponsor has quite a list of drop-downs, which create nice opportunity considering you've got a very healthy end market there. Could you give us a sense on how you're prioritizing or any kind of timing? Or how you're thinking about adding vessels to the fleet?

Well, that alludes to the capital allocation topic that we discussed -- I discussed just now. So the directors are well aware of a range of potential deployments of capital, whether it's distributions, buybacks or drop-downs, and they will keep that continually in mind, noting the financial position of the partnership and also the outlook from a chartering point of view as well. So there's no direct formula as to which of those will be chosen, which combination and when and so on.

Okay. That's fair. But I mean, we're looking at your liquidity position strengthening. Your operating cash flow was up 13.5% this year. You've had a long history of successfully refinancing balloon payments, and those balloon payments are coming down as we saw in one of the slides. So I mean, how would we -- and drop-downs in this market look to be very good considering we're looking at the long-term contracts. Is there any priority to the drop-downs vis-a-vis dividends or accelerated debt repayment?

No, there's no working priority as between those different places that the capital could be allocated. The directors look at all of them at the same time.

And there are no further questions at this time, so I will turn it back to Derek for closing remarks.

Thank you, Tyler, and thank you all again for joining this earnings call for the KNOT Offshore Partners Fourth Quarter in 2025. I look forward to speaking with you again following the first quarter results.

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

Ladies and gentlemen, thank you for joining us, and welcome to the KNOT Third Quarter 2025 Earnings Call. [Operator Instructions]

I will now hand the conference over to Derek Lowe. Please go ahead, sir.

Thank you, Karina, 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 third quarter of 2025. Our websites 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-U.S. GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures.

We begin on Slide 3 with clearly most material development during -- since Q3 2025, which is our receipt of an unsolicited and nonbinding offer from our sponsor, KNOT, to buy the publicly owned common units for $10 per common unit. The offer is currently being evaluated by the Conflicts Committee of the Board, which is comprised of directors who are not affiliated to KNOT, and they have appointed Evercore and Richard Lakeland Finger, they're independent professional advisers.

Given the outstanding nature of that process, I will not be addressing that matter on today's call, and we refer you to the press release that we issued on the 3 of November, and to KNOT's owned 13D filing with the SEC on the same date as those contain all the detail that's currently available.

On Slide 4, we have the Q3 financial and operational headlines. Revenues were $96.9 million, operating income of $30.6 million and net income, $15.1 million. Adjusted EBITDA was $61.6 million. And as of September 30, 2025, we had $125.2 million in available liquidity, made up of $77.2 million in cash and cash equivalents plus $48 million in undrawn capacity on our credit facilities, and that was $20.4 million higher than at June 30.

We operated with 99.9% utilization taking into account the scheduled dry docking of [indiscernible], which amounts to 96.5% utilization overall. And following the end of Q3, we declared a cash distribution of USD 0.06 per common unit, which was paid in November.

On Slide 5, we have developments during Q3, most of which you will likely have seen in our update in late September. On July 2, we purchased the docking [indiscernible] from our sponsor. The headlines of this are set out on Slide 6 and includes 7 years of a guaranteed high rate. Also on July 2, we announced establishment of the buyback program. We purchased just under 385,000 common units at a total cost of just over $3 million, which averages $7.87 per common unit. The program was concluded in October.

We completed 2 refinancings in the quarter, the first was our $25 million revolving credit facility with NTT and the second was for the [indiscernible] where we use a sale and leaseback to increase capital by net $32 million.

On the contractual front, in August, we obtained an extension with Shell for the [indiscernible] Knutsen of up to 1 year. That is 3 months firm and then 3 months also and then 9 months at our option. And in September, we secured an extension with Equinor for the [indiscernible], which is now contracted through to March 2029 fixed plus 2 options of 1 year each.

On Slide 7, we have the key developments in the fourth quarter to date. Most materially is the offer from KNOT, which I described earlier. We've completed this year's refinancing schedule with a $71 million loan secured by the Synnøve Knutsen in October and a $25 million revolving credit facility, which was rolled over with SBI Shinsei.

And on the contracting front, we have signed a time chart with KNOT for the Fortaleza Knutsen to begin in Q2 2026, which is for 1 year fixed followed by 2 charter options each of 1 year.

Turning to Slide 8 for a high-level summary of our current momentum. The chuckle tanker market has been tightening in both Brazil and the North Sea as well, in either case, driven by FPSO start-ups and ramp-ups. Certain of these projects were a long time coming, and it's been encouraging to see them up and running, driving shuttle tanker demand growth.

We've extended our backlog as of September 30, 2025, to $963 million of fixed contracts averaging 2.6 years and rather more if all options are exercised. At September 30, our fleet of 19 vessels had an average age of 10 years. We are continuing to repay debt at $95 million or more per year, which we think is prudent with a depreciating asset base. And our robust model has been validated by the 4 refinancings we've completed in the second half of 2025.

Over Slides 10 to 13, we provide the financials for Q3, for which the headlines are revenues of $96.3 million, operating income $30.7 million, net income $15.1 million adjusted EBITDA of $61.6 million and available liquidity at quarter end of $125.2 million, made up of $77.2 million in cash and cash equivalents, plus $48 million in undrawn capacity on our credit facilities, that's $20 million higher than available liquidity at the end of Q2.

On Slide 14 is our debt maturity profile, which has been updated to reflect the refinancing since quarter end of the Synnøve Knutsen loan and the second revolving credit facility. Notably, the average margin on our floating rate debt was 2.2% over sofa. We're encouraged by our experience of the refinancing this year and the signal we provide for lenders' appetite to provide refinancing in the future.

Moving on to Slide 16 and our charter portfolio. I've covered most of the updates here. But I believe that this is a very useful resource for investors looking to track the primary movements where change is going to go in a highly stable portfolio of cash flows. In other words, when charters turn over and when there are dried docks that will cause off-hire and encourage CapEx costs.

Based on current charter rates, we believe the charter's options are likely to be taken up given the strength of the charter market.

On Slide 17, you can see our strong coverage through the coming quarters. some charters options that market conditions suggest have a good likelihood of being exercised and a small amount of open time. In all, we have 93% of vessel time in 2026 covered by fixed contracts, and 69% in 2027. If all relevant options are exercised, this rises to 98% in 2026 and 88% in 2027.

On Slide 18, 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 other means of replenishing and rejuvenating the fleet given the depreciation in our assets.

On Slides 19 to 21, we include again some commentary from Petrobras with relevant highlights from the 5-year plan they just released for 2026 through to 2030. Overall volumes produced and anticipated product start-up time lines in the pre-salt continue to be in line with or above prior expectations, while CapEx on presale projects comes down marginally. We believe that these materials and fractures provide a useful insight into the Brazilian offshore market, and we would encourage you to review the extensive materials that Petrobras have just published last week for the full picture.

In short, though, from the shuttle tanker owners perspective, there is a lot to like about what Petrobras is saying and importantly in what they're putting into action. Crucially, it is this trackable and measurable activity, including numerous additional FPSOs that have already been funded, but expected to come online in the years ahead that gives us comfort that shuttle tanker demand should readily absorb the current order book.

Further, we believe that the current order book still trends towards a medium-term shortage of shuttle tankers when set against the forthcoming production.

To summarize on Slide 22. During Q3, we had strong utilization and financial results. We bought the [indiscernible] Knutsen, we financed 2 facilities, including a cash generation via sale and leaseback we secured additional charter cover and paid the quarterly distribution. And so far during Q4, we've received the unsolicited and nonbinding offer from our sponsor KNOT. We've refinanced 2 further facilities. We've secured the next period of charter coverage for the Fortaleza Knutsen. And we've announced the annual meeting for December 15, which our Board has nominated Ms. Pinilla Asensio, for election as Independent Director.

With that, I'll hand the call back to Karen for any questions. Thank you.

[Operator Instructions] Your first question comes from the line of Poe Fratt from Alliance Global Partners.

Just a couple of questions. One on the Fortaleza. Can you give me an appreciation for the potential rate change versus the current time charter with Transpetro when it moves over to not?

We don't comment on individual rates, I'm afraid, but I can't say that we're certainly satisfied with the rate that we'll be getting.

Okay. Can I assume it's a higher rate than -- or directionally, Derek?

Yes, we don't comment on particular rates. I mean you'll appreciate the timing of when this new contract has been signed by comparison with when the previous one we signed some years ago. And obviously, there will be a change in market conditions between the 2x.

Okay. And then looking at '26 for dry dockings, it looks like it's a pretty active year with at least what probably 4, potentially 5 dry docks.

Yes, that's right.

Okay. And then you added the additional I can't pronounce the name, but [indiscernible], but G&A didn't go up at all. Is that something we should continue to look at sort of the G&A at the $1.6 million per quarter range?

Yes, we're not expecting that to change materially. I mean if you're thinking that, that ought to or question whether that should have changed with acquisition of 1 vessel out of turning '18 into '19, we don't see any material increase in the administrative burdens of 1 vessel as seen in the G&A.

Yes, just want to double check. And then did I hear you correctly that -- or did I hear you say that the buyback -- the unit buyback program had concluded?

That's right, yes.

So you've -- so you stopped at 3 instead of going to the full $10 million -- $10 million authorization?

Yes.

Okay. And then -- no, that's it for me. Derek, can I just have to ask, I know you said you couldn't comment it, but can you at least give us a ballpark time frame when you think this independent committee process of evaluating or potentially getting the definitive agreement in place? What a ballpark time frame for that would be.

I'm afraid all the information that's currently available is what's been announced already on the 3 of November, and that was a press release from the partnership and the 13D filing from KNOT. But beyond those, there's nothing further that we can provide [indiscernible] comment, I'm afraid.

Yes. Okay. But just mechanically, just so we all understand what the process is you get a definitive agreement, then you'll have to put a proxy out and then you'll have a shareholder vote or [indiscernible] vote at some point in time. So it really looks more holistically at least in my mind, that this would be a first quarter event at the earliest.

Yes. I mean, that's in the process that the conflicts committee is going through now. So it's for them to develop with their advisers and obviously in discussion with in response to KNOT in due course.

Great.

Thanks, Poe.

[Operator Instructions] It appears we have no further questions in queue. I will hand the call back to Derek Lowe for closing remarks.

Thank you again for joining this earnings call for KNOT Offshore Partners third quarter in 2025. I look forward to speaking with you following the fourth quarter results, and I encourage you to provide your proxy vote into the annual meeting within the next few days. Thank you.

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

Good morning, and thank you all for attending the KNOT not Offshore Partners Second Quarter 2025 Earnings Call. My name is Brika, and I will be your moderator for today. [Operator Instructions]. I would now like to pass this conference over to your host, our CEO, Derek Lowe.

Thank you. You may proceed, Derek.

Thank you, Brika, 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 second quarter of 2025. Our website is not offshore partners.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's does not have or undertake a duty to update 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-U.S. GAAP measures and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On Slide 3, we have the Q2 financial and operational headlines. Revenues were $87.1 million, operating income of $22.2 million and net income $6.8 million.

Adjusted EBITDA was $51.6 million, and as of June 30, 2025, we had $104 million in available liquidity, made up of $66.3 million in cash and cash equivalents, plus $38.5 million in undrawn capacity on our credit facilities. That available liquidity was $4 million higher than at March 31. We operated the full utilization, taking into account the start of 2 dry dockings, which amounts to a 96.8% utilization overall. Following the end of Q2, we declared a cash distribution of USD [ 0.026 ] per common unit, which was paid in August.

On to Slide 4 for developments during Q2. Through a combination of new chartering, charter is exercising options and good maneuvering by our chartering team, we made good progress in extending our charter coverage. [indiscernible] Brasil Knutsen is scheduled to go on charter director next month. With that in mind, we've been able to extend the redelivery timing from PetroRio to minimize any downtime between charters. Reps or sign it back exercise their option to extend the [ Racal ] Knutsen through June 2028. And [ Vigdis ] Knutsen commenced operations with ExxonMobil on June 4 following completion of scheduled dry docking. On Slide 5, we have development subsequent to quarter end, some of which you will likely have seen in our early July update. On September [ 16 ], 2025, we refinanced Tordis Knutsen with a sale and leaseback that netted $32 million in cash. We also purchased the [ DAC ] Knutsen from our sponsor with a $95 million combination of cash and debt.

The cash components of that was approximately $25 million. So that was $7 million less than the net proceeds released from the Torill Knutsen refinancing. The [ Dainipon ] Knutsen is on time charter with PetroChina in Brazil, through until July 2027, with not guaranteeing the day rate until 2032 on the same basis as if PetroChina had exercised its option through to that time. We were also pleased to have reached a point in the recovery for KNOP and the wider shape tanker market, where we deemed it prudent to increase our discretionary allocation capital to include unit buybacks and on the premise that the units traded a significant discount to what we believe to be any reasonable valuation for the partnership and its prospects.

We have been active under our $10 million authorization, repurchasing 226,000 common units at an aggregate cost of $1.64 million, which is an average price of $7.24 per common unit. On Slide 6, we provide an overview of the [ docking ] Knutsen purchase. I've covered most of the highlights already, that the strategic and commercial implications of such a drop-down transaction includes an increased pipeline of long-term contracts, fleet growth, reduced average fleet age and continued development of our fleet in the most in-demand shale tanker asset class. This is a high-quality vessel and contract for us to welcome into the partnership. And when taken in conjunction with the sale and leaseback of the Tordis Knutsen, we're very pleased to have been able to achieve growth without any draw on the cash in hand but instead we have obtained additional liquidity from the debt portfolio. Turning to Slide 7 for a high-level summary of developments. The shuttle tanker market is tightening above Brazil and at long last to a degree in the North Sea as well. in either case, driven by FPSO start-ups and ramp-ups. Certain of these projects were a long time coming, and it's been encouraging to see them up and running, driving shuttle tanker demand growth. We've extended our backlog as of June 30, 2025, to $895 million of fixed contracts averaging 2.6 years and rather more if all options are exercised.

At June 30, our fleet of 18 vessels had an average age of 10.1 years. With the addition of our 19th vessel just a couple of days thereafter, the average age reduced to 9.7 years. We're continuing to repay debt or more per year. which we think is prudent with a depreciating asset base. Debt paydown also produces flexibility and optionality to take on leverage elsewhere to enable an accretive allocation of capital as with the recent sale leaseback and drop down. which was accompanied by the initiation of the $10 million buyback program. We appreciate that ours is a business where the time lines and contract durations are long, and thus, the financial impact of chartering typically arrives quite some time later materially behind an upturn in sentiment or spot market activity. That being said, it's clear that after a lengthy period defined by the COVID era cutbacks at energy majors. We're increasingly building positive momentum and taking actions on multiple fronts for the benefit of unitholders now and well into the future.

Over Slides 9 to 12, we provide the financials for Q2 for which the headlines are revenues of $87.1 million operating income of $22.2 million, net income of $6.8 million, adjusted EBITDA of $51.6 million and availability at quarter end of $104.8 million made up of $66.3 million in cash and cash equivalents, plus $38.5 million in undrawn capacity on our credit facilities. That's $4 million higher available liquidity than at the end of Q1.

On Slide 13 is our debt maturity profile, which has been updated to reflect the total KNOT's on sale leaseback, the NTT revolver refinancing and the July 2 stacking acquisition. Notably, the average margin on our debt was 2.23% over so far. And while nothing could be taken for granted, the positive momentum for both KNOP and the wider sector mean that we feel quite confident about these maturities in the years ahead. particularly after seamlessly addressing similar maturities in recent years and with materially less rosy market conditions. Moreover, we may have select opportunities to raise liquidity as we did with the Tove Knutsen. That any such action will be contingent on conditions at the time.

Moving on to Slide 15 and our charter portfolio I've covered most of the updates here, but I believe it's a useful resource for investors looking to track the primary movements where change can occur in a highly stable portfolio of cash flows. That is when charters turn over and when there were dry docks that will cause off hire an incurrence of CapEx costs. Based on current charter rates, we believe charter's options are likely to be taken up given the strength of the charter market. As such, upcoming points of particular elements are the Fortalez and Recife which operate in Brazil and the coming open in early and mid 2026, respectively. On Slide 16, you can see our strong coverage through the coming quarters, some charters options that market conditions suggest to have a good likelihood of being exercised and a small amount of open time. In all, we have 89% of vessel time in 2026 covered by fixed contracts.

On Slide 17, you can see the drop-down inventory held at the sponsor. As we have said, we believe that growth on attractive terms that benefit the partnership is a central plank of our strategy, alongside sustainable payments to unitholders. We operate a fleet of depreciating assets where we punishment with younger vessels over time and on the right terms, is an imperative for the business, not to mention the basis for returns to unitholders.

On Slides 18 to 20 we include again some commentary from Petrobras to continue their strong offshore production growth, particularly in the shuttle tanker service fields and doing so rapidly ahead of schedule and through the deployment of assets with a decades-long use profile. From the shuttle tanker owners perspective, there was a lot to like about what Petrobras is saying and importantly in what they're putting into action. Crucially, it's this trackable and measurable activity, including numerous additional FPSOs that have already been funded, but are expecting to come online in the years ahead that gives us comfort that the shuttle tanker demand should readily absorb the current order book. Further, we believe that the current order book still trends towards medium-term shortage of shuttle tankers when set against the forthcoming production. To summarize on Slide 21, we have strong utilization and financial results for the quarter, while securing additional charter cover and paying a quarterly distribution -- we subsequently purchased a vessel with 7 years of chance cover. We refinanced a vessel to release liquidity in excess of the cash we paid for the acquisition.

We refinanced the first of our $225 million revolver and we initiated our $10 million unit buyback program. And looking at our near-term priorities on Slide 22. We focused as ever on safe operation and maintaining high scheduled operational utilization. We aim to continue growth in earnings visibility and liquidity through vessel chartering outs into immediate term. And we aim to deploy incremental capital opportunistically towards a combination of accretive growth and returns of capital to unitholders.

With that, I'll hand the call back to Brice for any questions.

[Operator Instructions] The first question we have on the phone line comes from the line of Liam Burke from B. Riley Securities.

On the decking Knutsen, I know you've got customary closing events prior to taking delivery, but -- could you give us a sense as to when you'd expect to take delivery on that vessel?

On the [ DAC ] Knutsen, we took delivery on the day we announced it, so the second of July.

Okay. Because at the customary closing was Okay, great. Second question I had was on the drop downs. There are 4 additional vessels. You made the closing of the decking in a very shareholder-friendly manner. Do you anticipate to be able to continue to do that?

I mean, we think it's unitholder-friendly whenever we do these transactions on accretive terms -- were you alluding to the funding for the equity component in the transaction.

Well, that and the fact there's 4 currently available in addition to the -- when you have the new builds, what I was getting at is, I mean, you were able to add one more vessel quite easily in a very friendly -- shareholder-friendly manner. I guess, more or less, do you have a sense of timing based on your financing flexibility and your desire to grow the fleet?

Sure. We don't have a particular sense of timing. We respond to vessels that are offered to us when that happens and on the basis of the terms that are offered and can be negotiated. But we don't have a particular timing in mind. I mean part of that is obviously our financial capacity to fund any cash component that's required in a transaction. You can also see our debt schedule, what is coming up at different times and the opportunities they can present for potential releveraging or release of some sort so [indiscernible] sale and leaseback would be a good example of how release can happen.

[Operator Instructions] We have any questions from Climent Molins with value investors.

I wanted to ask about the other Winson Knutsen, the Fortaleza and [indiscernible], could you said about how contracting discussions with potential customers compare relative to your more modern tonnage? And is there maybe any appetite to dispose of these vessels over the coming years?

For our business model relates to operating vessels rather than trading them and I do appreciate we have engaged in vessel swaps in the past, but that was actually so that we could gear up our ownership, if anything, rather than dispose. When we have active contracting discussions with our clients all the time about our vessels, I don't think I can expand on how those are going with -- in any individual case for commercial reasons, but we certainly are actively discussing those vessels with our clients.

Makes sense. And you've been clear that your near-term priority is to continue expanding the fleet. But could you talk a bit how you plan to mix that with potential distribution increases in the medium term?

So we fleet growth through acquisition is partly relating to growth. And the most important element of growth there is in the charter schedule. It's only through that, that we can generate income in the medium to longer term. It also helps with rejuvenating the fleet, which is -- it contributes to that as well. returns to unitholders and deployment of capital to drop downs, we think both of those at the same time are good deployment of capital, and we don't see them as necessarily competing with each other. I mean they both use capital. But if you look at the orders of magnitude that are involved, the buyback program, for example, is planned to use rather less than even a single vessel, if you look at just a year's worth of the buyback program.

So we think they're both necessary for -- in the interest of unitholders in the medium to longer term. I mean just to give you an example on fleet rejuvenation, which we think is particularly important with 18 vessels as of the end of June and then o9 shortly after that. The vessel age -- average age in early July was down to, I think, 9.7 years. Well, that is the age that we had earlier in the year. And just simply the passage of time with -- with the fleet, the size that we have means that acquisitions are required to keep the fleet rejuvenated and to keep that average age down.

That does conclude the question-and-answer session today. And I would like to hand it back to Derek for some final closing comments.

Well, thank you again for joining us earnings call for KNOT Offshore Partners Second Quarter in 2025, and I look forward to speaking with you again following the third quarter results.

Thank you all for joining the KNOT Offshore Partners Second Quarter 2025 Earnings Call. I can confirm. Today's call has now concluded. Thank you all for your participation, and you may now disconnect. Please enjoy the rest of your day.