KNOT Offshore Partners LP: Riding the Wave of a Tightening Shuttle Tanker Market

Investors seeking exposure to the energy logistics sector should take note: KNOT Offshore Partners LP (KNOP) is positioned to capitalize on a structural shift in the global shuttle tanker market. With fleet utilization rates near historic highs, rock-solid contracted revenue visibility, and a pipeline of accretive dropdown opportunities, the Partnership is poised to deliver outsized returns as demand for offshore oil production surges.

Fleet Utilization at Record Levels: A Signal of Strong Market Dynamics

KNOT’s fleet utilization rate for scheduled operations hit 96.9% in Q1 2025, rising to 99.5% when accounting for planned drydockings. This near-perfect utilization underscores the tight supply-demand balance in the shuttle tanker sector, particularly in Brazil, where 14 of KNOT’s 18 vessels operated during the quarter. Brazil’s offshore oil boom—driven by Petrobras’ aggressive production targets and FPSO projects in pre-salt fields—is fueling a structural shortage of vessels.

The Partnership’s North Sea operations are also gaining momentum, with new production hubs like the Penguins FPSO and Johan Castberg field boosting demand. Crucially, yard capacity constraints and an aging fleet (many vessels over 15 years old) are limiting supply growth, ensuring KNOT’s vessels remain in high demand.

Contracted Revenue: A Shield Against Volatility

KNOT’s financial stability is anchored in its long-term charter agreements. As of March 2025, the Partnership had 96% of 2025 charter coverage locked in, with 75% secured for 2026. This contracted revenue acts as a bulwark against oil price swings and market volatility.

Key highlights include:
- A 10-year charter for the Hedda Knutsen with Petrobras, extendable by five years.
- The Vigdis Knutsen’s transition to a bareboat charter with Shell, extending its contract to 2030.
- A new two-year charter with Equinor for the Brasil Knutsen, starting Q3 2025.

The average remaining fixed charter duration across the fleet is 2.3 years, with options to extend by 4.7 years on average. This creates a “moat” of predictable cash flows, enabling KNOT to sustain its $0.026 per unit dividend despite near-term headwinds like rising EU Emissions Trading System (EU ETS) costs.

Dropdown Opportunities: The Fuel for Growth

The real catalyst for KNOT’s upside lies in its relationship with sponsor Knutsen NYK Offshore Tankers AS. Under their omnibus agreement, KNOT can acquire Knutsen NYK’s vessels under long-term charters (five+ years), modernizing its fleet and boosting contracted revenue.

Current dropdown candidates include:
1. Hedda Knutsen: Already operating under a 10-year Petrobras charter (acquired in late 2024).
2. Three Petrobras newbuilds: Expected 2026–2027, each with a 10-year base charter.
3. A vessel for Petrorio: Delivering in early 2027 under a seven-year charter.
4. A vessel for Equinor: Delivering in 2028 with a seven-year base term.

These acquisitions would lower KNOT’s fleet age (currently 9.8 years) and add high-margin, fixed-rate contracts to its backlog. With $100.8 million in liquidity and $694.8 million in long-term debt, the Partnership is financially primed to execute dropdowns selectively.

Why Act Now?

The market tailwinds for KNOT are undeniable:
- Brazil’s offshore oil production is set to grow 10% annually through 2030, outpacing the shuttle tanker supply.
- Newbuild orders are constrained by limited shipyard capacity, ensuring vessel shortages persist.
- KNOT’s 96.9% utilization and 95%+ charter coverage signal operational excellence, while its $52.2 million Q1 Adjusted EBITDA highlights cash flow resilience.

Risks remain—rising interest rates, geopolitical tensions, and a potential global recession—but KNOT’s defensive model (long-term charters, fixed rates) mitigates these concerns.

Conclusion: A Compelling Case for Immediate Action

KNOT Offshore Partners LP is at a pivotal juncture: a tightening market, a fortress balance sheet, and a pipeline of accretive dropdowns position it to outperform peers. With shares trading at a discount to its net asset value and its dividend yield offering a 1.54% cushion, investors can secure a leveraged play on the energy transition—without the volatility of commodity prices.

The time to act is now. As Brazil’s oil boom and North Sea production ramp up, KNOT’s fleet is set to deliver outsized returns for years to come. This is a rare opportunity to invest in a company with a moated business model, clear growth catalysts, and a management team executing flawlessly.

Invest today—before the market’s tightness tightens further.