KNOT Offshore Partners: Capitalizing on Brazil's Offshore Energy Boom

The offshore energy sector in Brazil is experiencing a renaissance, driven by surging production from deepwater pre-salt fields and the rapid expansion of floating production infrastructure. At the heart of this boom is KNOT Offshore Partners LP (KNOP), a shuttle tanker operator uniquely positioned to capitalize on Brazil’s growing oil and gas demand. With a robust backlog, extended charter contracts, and strategic fleet adjustments, KNOT is primed to deliver outsized returns as the South American energy superpower continues its ascent.

A Backlog Built for Growth

KNOT’s contractual backlog stood at $854 million as of March 2025, a figure bolstered by a series of extensions and new agreements in Brazil. The Brasil Knutsen, one of its flagship vessels, exemplifies the company’s operational agility. After Petrorio extended its contract through September 2025, the vessel will transition to a two-year time charter with Equinor, with options for two additional one-year terms. This seamless handoff underscores the sequential demand for KNOT’s vessels in Brazil’s offshore projects.

Meanwhile, the Vigdis Knutsen secured a critical upgrade: Shell exercised an option to convert its charter from time to bareboat terms, extending the contract to 2030 with a two-year extension option. These long-term agreements not only stabilize revenue but also signal counterparty confidence in KNOT’s role as a reliable partner in Brazil’s energy renaissance.

Charter Coverage: Stability Amid Rising Demand

KNOT’s 96% charter coverage for the remainder of 2025 and 75% for 2026 provide investors with unmatched visibility into cash flow. This forward commitment is particularly critical in Brazil, where Petrobras’ FPSO projects are driving production to record highs. With limited newbuild orders in the shuttle tanker sector and a wave of aging vessels nearing retirement, the supply-demand imbalance is tightening—a tailwind for operators like KNOT with modern, well-maintained fleets.

The Partnership’s fleet of 18 vessels, averaging 9.8 years old, maintains a 99.5% utilization rate, even after accounting for scheduled drydockings. This efficiency, paired with strategic moves like swapping the Dan Sabia for the newer Live Knutsen, ensures the fleet remains aligned with Brazil’s operational needs.

Why Brazil’s Energy Boom Matters

Brazil’s offshore energy sector is booming, with Petrobras targeting 3 million barrels per day of oil production by 2027, up from 2.6 million in 2024. This growth requires a reliable logistics backbone, which KNOT’s shuttle tankers provide. The country’s FPSO fleet—critical for transporting crude from deepwater fields—will see 10 new units online by 2027, all demanding regular tanker support.

The chart would show KNOP outperforming broader energy indices as Brazil’s demand accelerates.

Strategic Moves to Fuel Growth

KNOT is not content to rest on its current backlog. Key initiatives include:
1. Dropdown Transactions: The Partnership plans to acquire newbuilds from its sponsor Knutsen NYK, which has ordered six next-gen shuttle tankers (deliverable through 2028). These vessels, already chartered to Brazilian clients, will lower KNOT’s fleet age and boost contracted revenue.
2. Market Leadership: With Brazil’s shuttle tanker market tightening, KNOT’s 20% fleet share and deep local relationships position it to win further contracts as older vessels retire.
3. Cost Management: Despite EU ETS compliance costs, KNOT’s long-term charters and operational efficiency mitigate margin pressure, ensuring cash flow resilience.

Valuation: A Discounted Opportunity

At current prices, KNOP trades at a discount to its peers, despite its fortress-like balance sheet ($100.8 million in liquidity) and contracted growth pipeline. With 96% of 2025 revenue secured, the Partnership is a low-risk play on Brazil’s energy boom. As new FPSOs come online and newbuilds enter service, KNOT’s backlog is likely to expand further, pushing valuation multiples higher.

Conclusion: Act Now Before the Market Catches On

KNOT Offshore Partners is not just riding Brazil’s energy wave—it’s steering it. With a backlog anchored by long-term, high-quality contracts; a fleet optimized for the region’s needs; and a clear path to accretive dropdowns, KNOP offers a rare combination of safety and growth. Investors ignoring this opportunity risk missing out on a multiyear winner in one of the world’s most dynamic energy markets.

The time to act is now. Brazil’s offshore energy revolution is here, and KNOT Offshore Partners is leading the charge.