The increase was primarily due to the results of a full quarter of operations of the ‘Dan Sabia’ compared to 16 days of operations in 2Q15, as well as an additional day in the third quarter.
Vessel operating expenses for the third quarter were $5.9 mill, compared to $7.2 mill in 2Q15. This decrease was mainly due to the receipt of insurance proceeds relating to repair costs to bow door damage on the ‘Hilda Knutsen’.
Operating income for 2Q15 was $19.7 mill, compared to $11.1 mill for 2Q15. The increase was mainly due to the results of a full quarter of operations of the ‘Dan Sabia’ and the non-cash charge for impairment of goodwill of $6.2 mill in 2Q15.
Net income for 2Q15 was $8.8 mill, compared to $6.9 mill for 2Q15. Net income was impacted by the recognition of realised and unrealised loss on derivative instruments of $6.5 mill in 3Q15, compared to a gain of $0.3 mill for the previous quarter.
All nine of KNOP’s vessels operated well throughout the 3Q15. The vessels achieved 99.6% utilisation (3.3 days off hire).
Distributable cash flow was $16.1 mill for 3Q15, compared to $16.2 mill for 2Q15, resulting in a coverage ratio of 1.07x for the third quarter.
As of 30th September, 2015, KNOP had cash and cash equivalents of $67.2 mill and undrawn revolving credit facility of $20 mill. Total interest bearing debt outstanding was $610.3 mill.
On October 15, 2015, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers, acquired Knutsen NYK Shuttle Tankers 16 AS, the company that owns the shuttle tanker ‘Ingrid Knutsen’, from Knutsen Offshore Tankers for $115 mill.
KNOP financed the purchase price with cash on hand, and the assumption of $104.5 mill of outstanding debt on the vessel. On the closing of the acquisition, KNOT 16 prepaid $27 mill of the debt, leaving an aggregate of $77.5 mill of secured debt related to the vessel, composed of two tranches.
The vessel was delivered in December, 2013 and is operating in the North Sea under a 10-year timecharter with Standard Marine Tønsberg (a Norwegian subsidiary of ExxonMobil), which will expire in the first quarter of 2024. The charterer has options to extend the charter for one three-year period and one two-year period.
In September, 2015, the Partnership agreed an amended timecharter with Repsol for the ‘Carmen Knutsen’, extending the duration of the timecharter for five years, while maintaining Repsol’s three one-year extension options. The amended timecharter is effective on 1st October, 2015 until February, 2023, during which period the average charter rate will be reduced by 6.2%.
As at the end of September, 2015, KNOP’s nine vessels had an average remaining fixed contract duration of 5.5 years. Including the Ingrid Knutsen, the average remaining fixed contract duration increases to 5.8 years. In addition, the charterers of the Partnership’s timecharter vessels have options to extend their charters by an average of 2.2 years.
KNOP also said that it has or expects to receive options to acquire five vessels controlled by Knutsen NYK under the terms of the omnibus agreement. One of these vessels, ‘Raquel Knutsen’, delivered in 2015, is timechartered to Repsol that is due to expire in 2025, with options to extend until 2030. Four vessels are under construction in South Korea and China.
In January, 2015, Knutsen NYK announced an agreement for a long-term timecharter with an oil company for a new DP2 Suezmax shuttle tanker with delivery in 1Q17. The vessel was ordered at Cosco Zhoushan shipyard in China and will be a sister vessel of the ‘Raquel Knutsen’. She is expected to operate in Brazil. KNOP will have the option to acquire this vessel from Knutsen NYK following acceptance by the charterer.
In connection with the September, 2014 contract between Knutsen NYK and a subsidiary of BG for two Suezmax-size DP2 shuttle tanker newbuildings, BG received an option, for a period of one year, to order up to two more shuttle tankers.
In June, 2015, BG exercised its option for an additional vessel, and Knutsen NYK entered into a new long-term charter with a subsidiary of BG to provide shuttle tanker services in Brazil beginning in mid-2017. This charter will have a minimum term of five years, with options for BG to extend for an additional 15 years. BG still has a remaining option to contract one additional shuttle tanker.
All of the newbuildings are being built at Hyundai Heavy Industries. The Partnership will have the option to acquire each of these vessels from Knutsen NYK following acceptance by BG for each vessel.
KNOP also has the option to purchase from Knutsen NYK any offshore shuttle tankers that Knutsen NYK acquires or owns that are employed under charters for periods of five or more years.
KNOP said that the demand for offshore shuttle tankers will continue to grow over time based on identified projects. Future oil price developments will influence the growth of offshore oil production activity when existing projects are completed.