KNOP's Q3 2025 Earnings and Buyout Offer: A Strategic Buyout and Dividend Opportunity?

The recent $10/unit buyout offer for KNOT Offshore Partners LP (KNOP) has sparked a critical debate: Is this a fair valuation for a company with a $963 million charter backlog, 99.9% vessel utilization, and a $0.026 quarterly distribution? Let's break down the numbers and strategic implications.

KNOP's Q3 2025 Earnings: A Story of Resilience

KNOP's third-quarter results were nothing short of impressive. The company generated $96.9 million in revenue and $61.6 million in Adjusted EBITDA, driven by near-perfect vessel utilization (99.9%) and a robust charter backlog according to Q3 earnings. These figures highlight KNOP's ability to capitalize on strong demand in the offshore shipping sector. Additionally, the company extended its charter backlog to $963 million, covering 93% of its 2026 operations, providing a clear line of sight to future cash flows.

The financials also reveal a disciplined approach to capital management. KNOP completed four refinancings in Q3 2025, secured new contracts, and launched a $10 million buyback program, repurchasing 385,000 units at an average price of $7.87. This aggressive buyback, combined with a $0.026 quarterly distribution (yielding 0.97% annually), underscores the company's commitment to returning value to unitholders according to stock analysis.

The Buyout Offer: A Premium, But Is It Enough?

The $10/unit offer from KNOP's sponsor, KNOT, represents an 11% premium to KNOP's current trading price of $9.02 according to Nasdaq press release. On the surface, this seems attractive. However, a deeper dive into valuation metrics suggests the offer may undervalue KNOP's intrinsic worth.

KNOP's enterprise value to EBITDA (EV/EBITDA) ratio stands at 6.36, while its forward P/E ratio is 5.95 according to stock analysis. These multiples are already conservative, especially when compared to the $963 million charter backlog, which provides a stable revenue stream for 2026. At a 6.36 EV/EBITDA multiple, KNOP's implied enterprise value would be approximately $391 million (6.36 × $61.6 million EBITDA). However, the $10/unit offer would require KNOP to have roughly 39.1 million outstanding units to match this valuation. Given that KNOP repurchased 385,000 units in Q3 2025, the actual outstanding unit count is likely slightly lower, suggesting the offer may not fully reflect the company's current earnings power.

Dividend Sustainability and Long-Term Cash Flow Visibility

KNOP's $0.026 quarterly distribution (equivalent to $0.10 annually) is supported by its strong cash flow generation. With $125.2 million in liquidity as of September 30, 2025 (comprising $77.2 million in cash and $48 million in undrawn credit facilities) according to Morningstar earnings release, the company has ample flexibility to maintain or even increase distributions. Analysts project 2.18% revenue growth and a modestly adjusted forward P/E ratio of 9.11x, according to Yahoo Finance, indicating confidence in KNOP's ability to sustain earnings.

The $963 million charter backlog further strengthens this case. At 93% coverage for 2026, this backlog provides a buffer against market volatility and ensures consistent cash flows. For context, the average P/EBITDA for the broader maritime sector is around 6.12 according to Equidam data, suggesting KNOP's current valuation is already in line with industry benchmarks. A $10/unit offer, therefore, may not fully account for the company's long-term visibility and operational discipline.

Should Investors Take the Offer or Wait?

The Conflicts Committee of KNOP's Board, composed of independent directors, is evaluating the offer with the help of advisors according to Nasdaq press release. While the timeline for a decision remains unclear, investors should consider the following:
1. The Offer's Contingencies: Approval requires the Conflicts Committee, KNOP Board, KNOT Board, and a majority of unitholders according to Nasdaq press release. This multi-step process introduces uncertainty but also provides room for negotiation.
2. KNOP's Buyback Program: The company's aggressive repurchase of units at $7.87 (well below the $10 offer price) signals confidence in its intrinsic value according to Q3 earnings. If the Conflicts Committee concludes the offer is inadequate, KNOP could continue repurchasing units or even pursue a higher bid.
3. Dividend and Buyback Synergy: KNOP's $10 million buyback program and $0.026 quarterly distribution create a compelling case for long-term value creation. Investors who take the $10 offer would forgo future upside from these initiatives.

Conclusion: A Strategic Crossroads

While the $10/unit offer is a premium to KNOP's current price, it appears to understate the company's operational strength, charter backlog, and disciplined capital management. At a 6.36 EV/EBITDA multiple, KNOP's intrinsic value already exceeds the offer's implied valuation. For investors seeking immediate liquidity, the offer is tempting. However, those who believe in KNOP's long-term cash flow visibility and dividend sustainability may prefer to wait for a more favorable outcome.

As the Conflicts Committee deliberates, keep a close eye on KNOP's next moves. If the board concludes the offer is insufficient, the company could unlock even greater value through continued buybacks or a revised proposal. In the meantime, KNOP's Q3 results and $963 million backlog make it a compelling name to watch in the offshore shipping sector.