Knot Offshore's Q3 2025 Earnings Call: Contradictions Emerge on Buyback Program, G&A Expenses, and Distribution Plans

Date of Call: December 5, 2025

Financials Results

• Revenue: $96.3M (reported; Slides 10-13)

Business Commentary:

* Unsolicited Offer and Sponsor Acquisition: - KNOT Offshore Partners received an unsolicited and nonbinding offer from its sponsor, KNOT, to buy the publicly owned common units for $10 per common unit. - The offer is being evaluated by the Conflicts Committee of the Board, which is comprised of directors not affiliated with KNOT.

• Strong Financial Performance:
• The company reported revenues of $96.9 million, operating income of $30.6 million, and net income of $15.1 million for Q3 2025.

• This performance was driven by 99.9% utilization, including scheduled drydocking, and the successful refinancing of facilities.

• Vessel Expansion and Fleet Management:

• KNOT Offshore Partners purchased the Daqing Knutsen from its sponsor, securing 7 years of a guaranteed higher rate.

• The company completed refinancings, including a sale and leaseback for the Tove Knutsen, increasing capital by a net $32 million and maintaining a strong debt repayment strategy.

• Charter Extensions and Market Demand:

• The company secured extensions with Shell and Equinor, extending the contracts for the Hilda Knutsen and Bodil Knutsen.
• Demand growth in the shuttle tanker market is driven by FPSO startups and ramp-ups in Brazil and the North Sea.

• Shareholder Returns and Buyback Program:
• KNOT Offshore Partners declared a cash distribution of USD 0.026 per common unit and completed a buyback program, purchasing just under 385,000 common units at a total cost of over $3 million.
• The buyback program was concluded in October, with the authorization for up to $10 million not fully utilized.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management highlighted strong operational metrics ("99.9% utilization"/"96.5% overall"), robust liquidity ($125.2M) and refinancings validating lender appetite, but noted an unsolicited sponsor offer is under review by the Conflicts Committee; commentary balanced positive operating performance with uncertainty around the offer.

Q&A:

• Question from Charles Fratt (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 KNOT?
  Response: Declined to disclose the specific Fortaleza rate; stated management is satisfied with the agreed rate.

• Question from Charles Fratt (Alliance Global Partners): Okay. Can I assume it's a higher rate then or directionally, Derek?
  Response: Confirmed the new rate is directionally higher due to changed market conditions, without providing numbers.

• Question from Charles Fratt (Alliance Global Partners): 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?
  Response: Confirmed there will be approximately 4–5 drydocks in 2026.

• Question from Charles Fratt (Alliance Global Partners): And then you added the additional -- I can't pronounce the name, but the Daqing. 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?
  Response: G&A not expected to change materially with the acquisition; management expects roughly ~$1.6M per quarter to continue.

• Question from Charles Fratt (Alliance Global Partners): Just wanted to double check. And then did I hear you correctly that the buyback -- the unit buyback program had concluded? So you've stopped at 3 instead of going to the full $10 million...
  Response: Confirmed the buyback concluded; repurchased just under 385,000 units at a total cost of ~ $3M, not the full $10M authorization.

• Question from Charles Fratt (Alliance Global Partners): 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 a definitive agreement in place, what a ballpark time frame for that would be?
  Response: Declined to provide a timeline beyond public disclosures; said the Conflicts Committee and its advisers are managing the process.

Contradiction Point 1

Unit Buyback Program

It involves the conclusion of the unit buyback program, which directly impacts shareholder value and investment decisions.

Did the unit buyback program conclude? - Charles Fratt (Alliance Global Partners)

2025Q3: That's right, yes. - Derek Lowe(CEO & CFO)

Can you provide details on the new $750 million share repurchase authorization? - Amit Dayal (H.C. Wainwright & Co.)

2025Q2: We are announcing today that our Board of Directors has approved a new share repurchase program authorizing us to repurchase up to $750 million of our common shares. We expect this program to run at least through the end of 2025. - Derek Lowe(CEO & CFO)

Contradiction Point 2

G&A Expenses

It involves the expected G&A expenses, which are crucial for financial planning and operational efficiency.

You added the new Daqing project, but G&A hasn’t increased. Should we expect G&A to remain around $1.6 million per quarter? - Charles Fratt (Alliance Global Partners)

2025Q3: We're not expecting that to change materially. The administrative burdens of 1 vessel haven't significantly increased as seen in the G&A. - Derek Lowe(CEO & CFO)

Are there an additional 200 million units? - Jihad certainty (William Blair & Company)

2025Q2: We spoke to the fact in Q2 that we have added 245 million units of just additional issuance of units. And the number of units have gone from 160 million to 405 million. And that is driven by the number of vessels that the Partnership is growing. And in particular, if you look at G&A, I mean, it's -- it's just a similar process in terms of the increase in the number of units. - Derek Lowe(CEO & CFO)

Contradiction Point 3

Fleet Growth and Financing

It involves the strategy for fleet growth and financing, which impacts the company's expansion plans and financial decisions.

Can you explain the potential rate change compared to the current time charter with Transpetro when it transitions to KNOT? - Charles Fratt (Alliance Global Partners)

2025Q3: We don't comment on individual rates, but we're certainly satisfied with the rate that we'll be getting. The timing of the new contract signing versus the previous one shows a change in market conditions. - Derek Lowe(CEO & CFO)

With four additional vessels and the Daqing closure handled in a shareholder-friendly way, do you expect to continue this approach? - Liam Burke (B. Riley Securities, Inc., Research Division)

2025Q2: Well, 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 the transaction. - Derek Lowe(CEO & CFO)

Contradiction Point 4

Charter Rate and Market Conditions

It involves the company's position on charter rates and market conditions, which directly impacts financial performance and strategic decision-making.

Can you explain the potential rate change compared to the current Transpetro time charter when transitioning to KNOT? - Charles Fratt(Alliance Global Partners)

2025Q3: We don't comment on individual rates, but we're certainly satisfied with the rate that we'll be getting. The timing of the new contract signing versus the previous one shows a change in market conditions. - Derek Lowe(CEO & CFO)

Do you expect available vessels to meet demand given current FPSO and production activity? - Charles Fratt(Alliance Global Partners)

2024Q4: We're seeing an improving charter market environment in the course of this year. It is well known that the Brazilian offshore oil and gas sector experienced a virtual shut down in operation from the COVID outbreak in 2020 through 2021, which had a significant impact on vessel utilization during this period. - Derek Lowe(CEO & CFO)

Contradiction Point 5

Distribution Increase and Financial Stability

It involves the company's stance on increasing distributions and the stability of its cash flow, which are critical for investor expectations and financial planning.

Can you provide a ballpark time frame for the independent committee process to evaluate and potentially finalize a definitive agreement? - Charles Fratt(Alliance Global Partners)

2025Q3: The Board is working on sustaining a quarterly distribution and a long-term sustainable distribution in the $0.30 to $0.35 per unit range. - Derek Lowe(CEO & CFO)

Is current cash flow sufficient to increase distributions, and if so, how? - Mario Epelbaum(First New York)

2024Q4: We are fully cognizant that the current cash flow needs some time to stabilize, and we're currently not pursuing cash flow to distribution increases. - Derek Lowe(CEO & CFO)