My name is Bailey, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Gary Chapman, CEO and CFO. Gary, please go ahead.
Thank you. Welcome to our fourth quarter 2022 earnings call. The earnings released in this presentation are available on our website at knotoffshorepartners.com if you want to view them. Slide 2 gives guidance on the inclusion of forward-looking statements in today's presentation, which are made in good faith, but which contain risks to filings. Today's presentation also includes certain non-U.S. GAAP measures, and our earnings release includes a reconciliation of these to the most directly comparable GAAP measures. On Slides 3 and 4 are highlights from the fourth quarter of 2022 and subsequent. We announced a cash distribution of $0.026 per common unit under a 1099 structure, which although reduced, was the 39th consecutive distribution overall since the partnership first listed in 2013.
Our fleet in the fourth quarter operated with 96.1% utilization for scheduled operations and 94.9% utilization, taking into account the scheduled dry docking of the Carmen Knutsen. Since we last reported, we've been busy. On November 29, 2022, Repsol signed a existing time charter of the vessel by one further year. The vessel is now fixed until January 2024, with Repsol Sinopec holding options to extend the time charter by two further one-year periods. We've signed six new contracts or extensions, including a new 10-month contract with Altera for the Ingrid Knutsen, contract extensions to the Tordis Knutsen and the Lena Knutsen, and new contracts with our sponsor, Knutsen NYK, for the Bodil Knutsen, the Hilda Knutsen, and the Torill Knutsen.
The three contracts with our sponsor were approved to the partnership. In respect to the Bodil Knutsen and the Ingrid Knutsen, these vessels are now contracted to at least the fourth quarter of 2025 and 2026 respectively. In addition, during the fourth quarter or since, three of our vessels, the Windsor Knutsen, the Torill Knutsen, and the Ingrid Knutsen, have operated for at least some time in the spot market, either performing conventional tanker voyages or offshore loading voyages. Each has been able to generate a positive contribution from those activities. The Windsor Knutsen was also successfully delivered to Shell on January 11, 2023, commencing on a fixed one-year charter, with Shell also having an option to extend the charter by one further year.
Then finally, we have agreed commercial terms for a new multi-year time charter contract for each of the Fortaleza Knutsen and the Recife Knutsen with Transpetro to commence directly upon expiration of the existing bareboat charters. We are now awaiting the charter's management approval, which we anticipate will follow shortly. The increased market activity in our main market, Brazil, continued in the fourth quarter and to date, and we expect this will persist based on current market parameters and conditions. The North Sea time charter market, where currently four of our 18 vessels operate, remains subdued, taking longer to return to the predicted higher levels of oil production and shuttle tanker demand.
We have secured a level of income for all of these four vessels in 2023, with the Bodil Knutsen and the Ingrid Knutsen secured until the fourth quarter 2025 and 2026, respectively, as I mentioned. At December 31, 2022, the partnership had $47.6 million in available liquidity, and the fleet had an average age of 8.7 years, with each vessel having an estimated useful life of 23 years. A few points. On slide 5, our revenues were strong in the fourth quarter, and indeed, there may be over $1 million more in loss of hire insurance to come, resulting from insurance claims for the Windsor Knutsen and the Sindre Knutsen, that under U.S. GAAP, we are not allowed to recognize in the account as we are not yet sure of the final amount.
Operating expenses were lower in the fourth quarter, largely reflecting higher bunker fuel costs recalling that when time chartered vessels are on hire, fuel is a cost for our customers, but these vessels are off hire during their dry dock. Crew, crew-related costs and logistics remain somewhat elevated compared to historic and probably now the new normal as we move forward. As we have mentioned before, with a wide and geographically spread crew and supply base to draw upon, we believe we have some protection against the inflationary pressures that are occurring in many countries just now. This is something that we, like all companies, are keeping under close review. Higher LIBOR, higher utilization of our evolving facilities and having an 18th vessel from 2022, and this trend continued in the fourth quarter.
This has not had any impact on our continuing and scheduled debt repayments made during the year. At December 31, 2022, the Partnership's net exposure to floating interest rate fluctuations was $372.5 million or 35% of our total interest-bearing debt. In other words, 65% was fixed via interest rate swaps or effectively fixed via our two sale and leaseback financings. On slide 6, you can see our cash and cash equivalents balance at the end of the quarter of $47.6 million. We are working on the upcoming debt refinancings, the first of which falls due that they will not be refinanced on acceptable and similar terms and in good time prior to maturity. At present, we are not targeting to borrow more.
That is, we do not currently plan to increase our leverage on any of the facilities in 2022. Slide 8 is an update on our contracted revenue and charter portfolio. As before, we have covered many of the contractual updates already. They are also set out in the earnings release addition where we have contract coverage for almost the whole of 2023, and several vessels are now under contract for much longer periods. It's still a work in progress. We have certainly made progress. 2022, we have remaining forward contracted revenue of $715 million. This figure excludes options. It does include contracts and extensions signed since December 31, 2022. As we have agreed commercial terms, though we have not yet signed, we have included the anticipated charters on a bareboat basis for the Fortaleza Knutsen and the R ecife Knutsen.
Of our firm charters, these have 2.1 years remaining on average. Charterers had options to extend these charters by a further 2.2 years on average. On Slide 9, we are showing our contract coverage in a different way. This slide is not saying that utilization in the first quarter of 2023 will be 100% to be covered by a charter contract. This slide perhaps most clearly demonstrates where our work and focus is needed to restore forward visibility of earnings, to which we have very frequently referred to in the past. Drop-down vessels held by our sponsor, KNOP, that the partnership may choose to purchase in the future. It remains the partnership's target to acquire these vessels from the sponsor when suitable opportunities arise. There is of course, no guarantee that this will actually be possible. Slide 11.
We have included a similar slide in previous presentations. We believe this remains a very valuable source of independent information that speaks to the future of shuttle tanker demand in Brazil. The number of new FPSOs to be deployed in Brazil through to 2027, and with a low carbon score and low marginal cost of oil production, we remain very positive with respect to the mid to long-term outlook here. We have also included a further slide in the appendix to this presentation that gives some more detail. On slide 12, as we've highlighted previously, despite the forecast growth in demand for shuttle tankers in the mid and long term, only a very small number of new shuttle tankers are in service.
Given this, with the main shipyards having very limited or no capacity due to container ship and LNG carrier orders through 2025, the total order book for shuttle tankers is likely to remain very muted. Hence, we continue to expect that the market will meaningfully tighten, potentially to the point of shortage. There does remain some uncertainty around forecasting the specific timing of such market developments. New build shuttle tanker prices, indeed, the prices of any new ship today remain elevated, up over 30% since the second half of 2021, as a result of tight shipyard capacity and higher input prices for steel and labor, all of which continues to help the competitiveness of our existing fleet. In summary for this quarter on slide 13, we had good utilization of 96.1 scheduled operations.
We paid a quarterly distribution for the 39 consecutive quarter, albeit at a reduced level, and we have commenced discussions with lenders for our upcoming refinancings. Since December 31, 2022, we have signed six new charters and extensions and agreed commercial terms for multi-year charters for two further vessels towards restoring visibility of earnings and a sustainable path forward. Though of course, there remains more to do. In the near term, as always, our focus is on safe operations, both on board and onshore, due in 2023. We are well underway with these processes and hope to be in a position to have each closed well in advance of each maturity date. After the Carmen Knutsen dry dock, which is already completed.
Hopefully it goes without saying that we are talking to our customers and proactively monitoring the market to ensure we can respond flexibly as charter or even spot opportunities arise. On slide 14, we have just put this in here to promote our newly refreshed website. We've tried to add a little more background content on shuttle tankers, and we will try to continue to do so over time, and hopefully people will find it useful and provide an improved experience. Thank you for listening and following this more formal part of the call. I'll be very happy to answer any questions.
Thank you, keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking a question. The first question today comes from the line of Liam Burke from B. Riley. Please go ahead. Your line is now open.
Thank you. How are you today, Gary?
I'm very well, Liam. How are you?
Fine. Thank you. Gary, a lot of your discussion on the market is Brazil. You have four vessels that's all slated for Brazil. Could you either give us color on the North Sea market, or does it make more sense to move capacity to Brazil?
The North Sea market, as we said, is a little bit soft, and it's still the overhang from the project delays that we've seen, historically. In terms of moving vessels down to Brazil, we certainly haven't ruled that out. Timing is everything, and we would obviously also incur not insignificant costs in moving the vessels down to Brazil. We would want to be really sure that if we did that, it would be a successful move. I come back to my first point that we haven't ruled out.
Okay. Obviously, your contracting outlook looks a lot better with what you've done in the fourth quarter. Does that help?
Yes, absolutely. Absolutely. you know, we think we will be able to successfully close all of those anyway, regardless. Of course, all of our institutional lenders clearly are interested in us being a successful business. Yes, of course it helps. Nonetheless, I, you know, we were confident that we would be able to get all of these refinancings done on a timely basis, regardless. Yes, of course it helps.
That also includes the two revolvers, that are up for renewal later in the year.
That's correct. It includes those, yes.
Okay, great. Thank you.
Thanks, Liam.
Our next question today comes from the line of Richard Diamond from Castlewood. Please go ahead. Your line is now open.
Hi, Gary. Good morning. I want to commend you on the progress you've made since the beginning of the year. I have a quick market question. Are charters aware that today you have significant conventional market? If, for example-
Sorry, Richard. I'm.... Very quiet.
Okay. Can you hear me?
Oh, that's much better. Thank you.
Can you hear me? Commend you on making a lot of progress. It's not easy. Hats off. Secondly, are charters aware that you have, or we have significant choices in the marketplace? If you were a conventional tanker company, you could charter out your vessels, and your stock price would likely double. I understand our, you know, strategy, and I buy into it. I'm just wondering if the charters understand how vulnerable they are if shuttle tankers leave for conventional shipping.
Yes, Richard, it's a great point and a great question. You know, absolutely, we're very much aware of that, and we make sure our customers are aware of that, if they're not already aware of it by their own analysis. I mean, certainly, you know, our shuttle tankers are irreplaceable, so and there are only so many of them. With the yards full up, you know, supply isn't going to suddenly increase in the next few years. I think it's something that we're, you know, we continually press with our customers that, you know, perhaps they do need to, when they need it.
I think we've seen a little bit of that with Equinor, fixing, some of the vessels, Windsor and Bodil, for example, in the North Sea, for Bodil. I think there is a little bit of movement there, and I think we're increasingly seeing that, certainly in Brazil, for sure. For sure.
Thank you very much.
Thanks, Richard. Appreciate it.
As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from the line of Poe Fratt from Alliance Global Partners. Please go ahead. Your line is now open.
Good morning, Gary, or good afternoon to you. I had a couple quick and then, you know, what, how many days were idle, including the loss of hire days?
Yes, of course we've got all of that data. I think, we obviously try to strike a balance in what we publish in terms of, you know, giving people enough to understand the business and to make good decisions, but not opening ourselves up too much in terms of our competitors and our customers. Certainly, we can take a look at that information if that, going forward, is something that is of interest to people as to whether or not we can publish some of that data in future quarters.
Yeah, I guess it's less interesting from the standpoint of, you know, moving forward, you're gonna have, you know, all the ones that worked in the voyage or spot market in the fourth and first quarter to date, you know, will be moving on to charters with, you know, Knutsen NYK. You know, I was just trying to.
Yeah.
get a flavor for what happened in the fourth and the first. To that end, can you highlight the decision to move those back to, you know, time charters with Knutsen NYK, and why you didn't, you know, stick with the tanker market because of, you know, as the previous questioner said, the, you know, tanker market looks pretty good? Nonetheless, you're moving that capacity back into the shuttle market.
I think there's a, there's a few little points in there, but I think the conflicts committee had a look at it, and what we've done is on an arm's length basis. I think the overall point is that it provides us with certainty, which I think is important for us at this point in time. Of course, you know, we may look back with hindsight and realize that we could have perhaps got higher rates. We may look back and think we could be, you know, we've done well. I think what we're trying to do is understand that certainty is valuable to KNOT right now in terms of coverage and cash flow.
Also, as we suggested a little bit in the past as well, headline tanker rates don't necessarily easily translate into cash in the bank. Also our vessels are heavier and will require a discount on that rate when we do put them into the conventional market. When you look at the objectives of what we're trying to do at this moment, I think the board and the conflicts committee felt that this was the right balance to strike, where, you know, these are relatively short-term arrangements. In particular, the Hilda Knutsen is essentially on a rolling contract. We have one vessel that we can take away or take back from KNOT.
If, you know, the market was to suddenly, you know, spike, for a period of time, we would have some exposure there if we wanted to take that. I think overall, the board just felt that, you know, the balance between certainty and what is achievable strike with the one vessel where we could move it around a little bit if the market moved very, very positively.
you know, the time charter with Knutsen NYK, are all those rates the same across the three shuttle tankers? was there any change from the mark, you know, month-to-month previous arrangement to the new arrangement where you're ?
Yeah. The process that we go through, and the board goes through, and the conflicts committee goes through, looks at the rate. I think it's an appropriate rate once that analysis has been done, doing what we think is achievable. To a degree, you know, information from KNOT side that we are able to access, which is not actually all of it, because clearly that's KNOT's business. It's, you know, we're able to make an assessment on those charter rates such that, you know, the conflicts committee and the board get comfortable that it's at their fair arm's length rates under the circumstances. I think clearly, whilst I'm not answering your question in numbers terms, the charter rates across the vessels are similar. You know, they're not wildly different.
One isn't a, you know, double the other, for example. They are very, very similar.
Okay. You know, I should mention, congratulations on, you know, closing some of the charter windows that you had. Can you just talk about the outlook for the other two bareboat charters in Brazil? You know, one actually is, I think the Dan Cisne is up in June. Can you just talk about, you know, on the Dan Sabia and the Dan Cisne, sort of your outlook there and your expectations. If you could also just expand on the, you know, the difference, what we're gonna see from a standpoint of, you know, your income statement impact on...
The Fortaleza Recife and the Cisne Sabia, they're two sets of two sister vessels. It makes sense that Transpetro feel obviously come up first, and that's why we're talking to them about those. I think normally we would much prefer that we have these contracts signed earlier and the same with the Cisne Sabia as well. You know, we obviously can only go at the speed of our customer, and they have a lot of internal arrangements and things to sort out themselves. I think at the moment on the Cisne Sabia, with Petrobras, Transpetro, as soon as we've finished with the Fortaleza and Recife, that's our current expectation. I'm afraid I'm not giving you too much information there, but we're.
Okay. Then when you look at sort of the time charters you have in place that start in January of 2024, can you just maybe give us a flavor for whether, you know, on the Tordis Knutsen, the Lena Knutsen, the Ingrid Knutsen, you know, as you move on to time charters with either Shell or Eni, up, down or neutral, just directionally, if you give us an idea of sort of how those rates as they kick in in early 2024 look relative to what the current environment is?
Yeah. I mean, I think the rates on vessels are very much a factor of when those agreements were reached. And I think the net situation for 2024 for the vessels that you've mentioned there, I haven't done the math, so you're gonna have to, I'm afraid, just bear with me. My expectation would probably be neutral across all of those vessels.
Again, Gary, that's relative to what they're currently working at?
That's a level of detail that I'm gonna struggle to answer on the phone here.
Okay.
Poe. I think it's, you know, the, the rates, as I say, are a function of when the charters were agreed. Certainly some of those charters were agreed a while ago. I think we've got, you know, we've got some positive numbers in there, and we've got some numbers that are today perhaps not so positive. Therefore, on a net basis, you're perhaps looking at a neutral figure for 2024. Those rates might be better given the partners in the market, particularly in Brazil.
Should I read anything into, you know, you're not talking about, you know, DCF or distributable cash flow? Do you have a figure for, you know, fourth quarter 2022? You know, distributable cash flow in 2023, sort of what you would be using for your maintenance CapEx.
Yeah. I think with the reduced distribution, we felt that it didn't make a lot of sense to continue with it. It's really not a metric we've focused on at Q4. Clearly, it was helpful when, you know, people were monitoring the risk or the future outlook for the distribution. I think we've reached the conclusion that perhaps it's not so helpful going forward. That's really why we've not continued with it. We feel cash flow and liquidity is, you know, a clear investors to look at.
Okay. In the event of any possible change in the distribution, you would be looking more to traditional, you know, payout ratios on earnings as opposed to distributable cash flow. Is that fair to say, or can you just sort of expand on that?
I think, you know, unfortunately, we cut the distribution, but it was only in January, so, that's not, at the moment, something that we've focused on looking at. I'm not saying that the DCR and DCF would never come back, or what else we might do in its place. Yeah, I think, you know, right now, Poe, I don't really have an answer to that.
Okay. Just if I could squeeze one last one in.
Yeah, sure.
There's a lot of turmoil. There's obviously a lot of turmoil in the, you know, the financial industry right now. Can you just talk about your, you know, interest rate hedges and when they roll? You know, you have 65% of your debt currently hedged or fixed, and, you know, those don't last forever. Can you just give us a sort of an aging on the, you know, interest rate swaps and when they roll?
Yeah, I don't have that information. We'll be putting out our 20-F very shortly, and I suspect all of that detail will be in there. Is that something that you can wait for, Poe?
Oh, absolutely. No, I was just wondering, I mean, my, as I recall, I think there's three-year tenors or maybe they're remaining, like, 2.5, three years left on them.
Yeah. There's a real mixture. Yeah.
Yeah.
There's a real mixture. Typically, they, you know, they follow the debt profiles typically, but not always. I think the best thing to do if you're not urgently waiting for that information is to get our 20-F, and I suspect you'll find it in there.
Great. Thanks for your help, Gary.
No problem. Thank you very much.
As a reminder, if you would like to ask a question, please press star followed by one on today's call. The next question today comes from the line of Rohit Jindal from Quality Pipes. Please go ahead. Your line is now open.
Hi. Good morning. Thank you. Interest expense, right, do we find the hedging that we're doing by way of these derivatives, is that as effective as was anticipated? You know, clearly the interest expense right now is our biggest exposure, in kinda keeping on target with the profit. I just wanted to understand if you had any other clarity beyond the additional detail you'll be providing later.
Yeah. I mean, we've always taken the view throughout the history of this business that it's prudent to hedge a good proportion of our floating debt. By taking on too effectively fixed term sale and leaseback transactions, that's also helped the percentage that is effectively fixed. I think we haven't entered into new swaps recently because of the rising interest rate environment. I think a lot of those, you know, forward pricing has already been factored in, and so the swaps were not so attractive. I think, you know, we may see some of our coverage percentage-wise fall over time. There's an opportunity, and we feel it's the right thing to do then. You know, there are opportunities for us to enter into new hedges.
Some leeway so that we can act quickly on this within certain parameters. Obviously if you wait too long, you kind of miss the boat. That, yeah, the company's, you know, interest rate increases are not particularly welcome after low interest rates for so long. You know, we've only got 35% open today. You know, we're not in a bad position.
Okay. Thank you, Gary.
Thank you.
As a final reminder, if you would like to ask a question on today's call, please press star followed by one on your telephone keypad.
Thank you everybody for listening and, we'll hopefully be back in touch for our first quarter in May. Have a good day.
This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.