Hello and welcome to today's KNOT Offshore Partners Second Quarter 2023 Earnings Results Conference Call. My name is Jordan, and I'll be coordinating your call today. If you'd like to register an audio question, you may do so by pressing star, followed by one on your telephone keypad. I'm now going to hand over to Gary Chapman, CEO and CFO to begin. Gary, please go ahead.
Thank you, and welcome everybody to our Second Quarter 2023 Earnings Call. The earnings release and this presentation are available on our website at knotoffshorepartners.com. Slide two of the presentation gives guidance on the inclusion of forward-looking statements in today's presentation, that are made in good faith and reflect management's current views, known and unknown risks, and are based on assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied forward-looking statements, and the partnership does not have or undertake a duty to update any such forward-looking statements made as of the date of this presentation. For further information, please consult our annual and quarterly SEC 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 three, four, and five, are highlights from the second quarter of 2023 and some subsequent developments. Beginning on slide three, we announced our 41st consecutive quarterly cash distribution since our IPO in respect to the second quarter, and which was paid in August 2023 under our 1099 structure. We had a strong operational quarter as our fleet operated with 99.3% utilization for scheduled operations and 95.5% utilization, taking into account the scheduled dry dockings of the Brasil Knutsen and the Hilde Knutsen.
We successfully closed our new five-year, $240 million senior secured term loan facility in June, which was scheduled to mature in September 2023, secured by the six vessels listed on the slide. In August, we also successfully closed the refinancing of our first $25 million revolving credit facility, with the facility being rolled until August 2025 on similar terms. We're discussing with the lender under our second $25 million revolving credit facility, which will mature in November 2023, and we also expect this will be successfully refinanced on acceptable and similar terms prior to its maturity. Coming to some recent contract developments. In August, we agreed a 100-day extension to the existing bareboat charter party for the Dan Cisne with Transpetro, which will extend the vessel's employment to around the end of December 2023.
This is not yet signed, but it is only subject to agreement of customary documentation, and we expect that it will be signed in the coming days. On August 8, 2023, we entered into a new time charter contract for the Brasil Knutsen with a major independent operator in Brazil, to commence in January 2024 for a fixed period of one year. We agreed with Equinor to substitute the Brasil Knutsen for the Windsor Knutsen in the time charter contract we have with Equinor, that is due to commence in the fourth quarter of 2024 or the first quarter of 2025, with the time charter otherwise remaining unchanged.
This allowed us to move forward and agree commercial terms in July 2023 for a new time charter contract for the Windsor Knutsen with an oil major to commence within the window from February 1st to May 1st, 2025, for a fixed period at the charterer's option of either one year, with an option for the charterer to extend the charter by a further year, or a single firm period of two years. Signing of this new contract does remain subject to the charterer's management approval, agreement of certain operational details and customary documentation, but we are confident at this moment that this will be successfully concluded within September 2023.
On slide four, the Hilde Knutsen and the Torill Knutsen each continued to operate on separate time charter contracts with a subsidiary of the partnership sponsor, Knutsen NYK, at a reduced charter rate, and we are continuing to market both vessels for new third-party charter employment. We are in active discussions with potential charterers, including Knutsen NYK, and we hope to be able to give more details in a future release. As we had disclosed previously, in April 2023, a new time charter contract for the Recife Knutsen was signed with Transpetro for a firm period of three years, and the vessel began operating under this new time charter contract on August 3rd, 2023, directly after the expiration of the then existing bareboat charter, also with Transpetro, and the vessel is now fixed until around August 2026.
The Tordis Knutsen operated under a time charter contract with a subsidiary of TotalEnergies, which expired on July 1st, 2023, and on the same day, the vessel was delivered to Shell to commence on its new three-year time charter. On August 1st, PetroChina took its final option on Vigdis Knutsen, such that the time charter contract was extended by six more months to March 2024, after which the vessel is due to be delivered to Shell to commence on a new three-year time charter. The Lena Knutsen operated under a time charter contract with a subsidiary of TotalEnergies, which is in fact anticipated to end today, August 31st, following which, the vessel will start on its new three-year time charter contract with Shell, which we expect will start in early September 2023.
Following discussions with Ernst & Young or EY, our auditors, in this second quarter, we recognized non-cash impairments in respect of the Dan Cisne and Dan Sabia, in accordance with the U.S. GAAP, in a total amount of $49.6 million. This was due to the vessel's current charter contracts moving closer to their expiry, their high carrying value, and their smaller size not being optimal for the Brazilian market. These vessels are the partnership's only two smaller Panamax size vessels, and we do not currently expect there to be any wider implications on the rest of the fleet from this same issue. In terms of employment for the Dan Cisne and Dan Sabia, we are actively assessing options should Transpetro or Petrobras not wish to enter into a new charter for one or both of the vessels....
These options include a potential sale, though at this stage, no decisions have been made and discussions remain ongoing, as both vessels are under contract until at least the end of 2023. We expect to be able to give more details in a future release. The scheduled 10-year special survey dry dockings of the Brasil Knutsen and the Hilde Knutsen commenced in the second quarter of 2023, with both dry dockings being successfully completed in Europe in July 2023. We were able to secure a cargo voyage from Brazil to Europe for the Brasil Knutsen, and it allowed us to avoid incurring the majority of bunker fuel costs in transit from Brazil to the European yard, and as well, reduce the number of days off hire.
Following the work this quarter and beforehand, we have now essentially secured employment across the fleet for the vast majority of 2023, allowing us to focus on the gaps remaining in 2024 and beyond. On slide five, the partnership had $68.1 million in available liquidity at the end of the second quarter. We had around 67% of our debt hedged or effectively operating on a fixed interest rate basis, and we had $620 million of remaining contracted forward revenue, excluding charterers options and excluding contracts agreed or signed after June 30, 2023. The fleet was on average, 9.2 years old, over a useful life of 23 years, and we continue to see very encouraging tightening in the Brazilian market.
A very limited newbuild order book, and although the North Sea market is still expected to take several more quarters before it begins to rise again, the supportive fundamentals of vessel supply set against the faster pace of new offshore oil production that will drive demand. We believe leaves the partnership well-placed over the coming years to benefit from our market-leading position. Slides six, seven, and eight are our summary of financial results for the quarter. On slide six, our revenues were strong in the second quarter. Operating expenses were broadly in line with our expectations, excluding the non-cash impairment charge, and although interest expenses increased over the first quarter, we're hopeful that interest rate increases may now have peaked.
On slide seven, you can see our cash and cash equivalents balance at the end of the quarter of $63.1 million, and the current portion of long-term debt has reduced as the re-financings have closed. On slide eight, which eliminates the non-cash impairment, you can see that adjusted EBITDA for the second quarter was again solid. Slide nine shows our contractual position, and the updates are also set out in the earnings release, so I won't repeat them here. As at June 30, 2023, excluding charterers options and contracts agreed after this date, we had $620 million of forward contracted revenue, and of our firm charters, these had two years remaining on average, and charterers had options to extend these charters by a further 2.2 years on average.
On slide ten, you will see that we now have contract coverage for practically the entire of 2023, and several vessels are now under contract for much longer periods, as you could see on slide nine. As a result, most of our focus has moved on to the vessels that are yet to be fixed in 2024. Principally, the Hilde Knutsen, Torill Knutsen, Dan Cisne, and Dan Sabia, and these vessels are where our main efforts are being directed. With only five new shuttle tankers to come into the market between now and 2026, the total supply of shuttle tankers is likely to become tight in view of oil production increases, and with newbuild shuttle tanker prices remaining very elevated, this helps the competitiveness of our fleet.
Whereas in recent years, we have been cautious about vessels nearing the end of their firm periods, the balance in Brazil, in particular, is shifting. That is, while we can't say that a given vessel option will or will not be taken up by a charterer at the end of a firm period, we're increasingly confident that either options will be exercised or we would, at that time, be in a good negotiating position to secure new employment. As noted, the size of the Dan vessels makes them something of an outlier for Brazil, but the majority of the fleet would be well-positioned. Finally, do please bear in mind that this slide does not talk to vessel utilization. It refers to future charter contract coverage. Then on slide 11, we list the potential drop-down vessels currently owned by our sponsor, KNOT.
As stated, the acquisition by the partnership of any such vessel in the future would be subject to approval of the partnership's independent conflicts committee, as well as the board of directors of each of KNOP and KNOT, and there can be no assurance that any potential acquisitions will actually occur. As we have said, our top priorities are securing additional contract coverage, forward visibility for our existing fleet, and rebuilding our liquidity position, and that remains unchanged. Slide 12. We've shown this slide before, and I will just dwell on it for a moment to emphasize that we are in fact seeing these new FPSOs making their way to the Brazilian offshore region. As anticipated, with Petrobras alone starting up two of them during the second quarter, indicating that another will start during the third quarter, and Equinor announcing that another is currently on its way.
As a practical matter, FPSOs do not simply arrive on the scene and immediately produce at maximum capacity, but these processes are underway and building significant momentum in the manner that we had anticipated. Just as further context, and as one example, Petrobras's Mero-2, with the Sepetiba FPSO, will be the largest project anticipated to start up during the second half of 2023. Once sailed from China and installed in the pre-salt field, it is expected to produce around 164,000 barrels per day at its peak. With a low carbon score and low marginal cost of oil production, combined with a general need to utilize shuttle tankers for much of this growth, this hopefully helps to explain why we feel very positive with respect to the mid to long-term outlook for our business, particularly in Brazil.
We have also retained a further slide in the appendix to this presentation that gives some more detail. On top of this, slide 13 sets out our investment case in summary form, listing the various key attributes of our business, and which helps us to explain even further why we are so positive about the partnership's mid and long-term outlook. I won't read these out, but hopefully you will agree that we are able to present a very strong case. In summary for this quarter, on slide 14, our fleet operated with 99.3% utilization for scheduled operations and 95.5% utilization, taking into account the scheduled dry dockings of the Brasil Knutsen and the Hilde Knutsen, and we paid our 41st consecutive distribution since the partnership listed in 2013 under our 1099 structure.
We've now largely addressed our near-term refinancing needs, having successfully closed the new five-year, $240 million senior secured term loan facility, which was scheduled to mature in September 2023, and the first $25 million revolving credit facility, with the facility being rolled until August 2025 on similar terms. And we expect that the second $25 million revolving credit facility, which will mature in November 2023, will also be successfully refinanced on acceptable and similar terms prior to its maturity. We concluded a new contract for the Brasil Knutsen, agreed terms for a new contract for the Windsor Knutsen. PetroChina took up their option to extend their existing charter for the Vigdis Knutsen, and we agreed a short charter extension for the Dan Cisne.
Then in the near term, we'll continue to focus on safety as our number one priority and plan for the remaining two 2023 scheduled dry docks. Look to maintain high scheduled operational utilization in line with our historically strong track record, and continue to rebuild liquidity and earnings visibility by working to secure additional charter coverage, in particular, across 2024, with our focus on the Hilde Knutsen, Torill Knutsen, Dan Cisne, and Dan Sabia. So overall, I believe we have had a strong and successful quarter, notwithstanding the non-cash impairments on our two smallest vessels. We've been successful in getting new charters, though we acknowledge there's more to do, and we've now largely addressed our near-term refinancing needs, all moving us in the right direction. We remain committed to being open and transparent in what we are doing and delivering what we say we will.
As you've hopefully heard me say many times, we believe that there are clear signs of a positive mid to long-term future. As the partnership moves forward in the very capable hands of Mr. Derek Lowe, as the new incoming CEO, CFO, I believe our and our sponsors' decades-long experience and market-leading position in the shuttle tanker sector will serve the partnership very well. Thank you very much for your time today, and I'll now take any questions.
As a reminder, if you'd like to register an audio question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two, and please ensure you're unmuted when speaking. We have a question from Liam Burke of B. Riley to begin. Liam, please go ahead.
Hi, Gary. How are you today?
Hello, Liam. I'm very well, thank you. How are you?
Good, thank you. I guess, you know, the four vessels you talked about, the two Dans and then the Torill and the Hilde. But taking a step back, what needs to happen for the partnership? Is it just those four vessels when you can get back to, you know, what has created value traditionally, a higher payout or a resumption of taking drop-downs from your sponsor?
Yeah, I think just let me address that last point first. Drop-downs right now, you know, they're not a priority for us. Clearly, it's something that's still there. You know, our focus is on other things, as we've said. I think if you recall, when we reduced the distribution in January, we said back then that, you know, the priority is longer-term charter visibility and building liquidity. And I think those four vessels will go a long way to helping with that. You know, we've sorted out the short-term refinancing the vast majority of it. We've got a couple of dry docks still to go this year, so we need to be mindful of those.
And I think that, you know, the board's discretion really is it then comes into play in terms of how they view the required level of visibility and liquidity. But certainly, those four vessels, and we've highlighted them for a reason, because when you look at the charter diagram, that is kind of where the obvious hole is at the moment and where we need to focus our efforts. And we think we're moving in the right direction, but there's clearly still some work to do.
Well, just looking at Brazil, you have. Would the Torill and Hilde make sense to take? I know it costs a lot of money, but does it make sense to move them to the Brazilian market and charter them there?
Yeah, I mean, we've I think we've said previously, you know, we certainly haven't ruled that out, but timing really is everything, there. It would cost us a fair chunk to get them down there. And we, you know, it's an option, absolutely, but it's all about the timing and the choice there. So I think, yes, it's on our list of options, if you like, but, you know, I think you can be assured that we are looking at it very carefully to make sure that, you know, if we ever went down that route, we'd do it at the right time and for the right reasons.
Great. Thank you, Gary.
Thanks, Liam.
Our next question comes from Poe Fratt of Alliance Global Partners. Poe, the line is yours.
First of all, Gary, I'd like to just congratulate you on your new position in Navigator and just say that I've really enjoyed working with you as your well-covered, not offshore, so I'll miss you at least.
Thank you.
Yep, this last dry. Well, I did have a couple questions, just a little more detail. Wait, can you just remind me on where the Dan Cisne and the Dan Sabia have been written down to?
Yes, so their, their book values were in the region of $65, and we've taken $25 off each of them, broadly speaking.
Okay, and then how, how realistic is it to think that those two could be sold?
Yeah, I mean, of course, it's always an option. And I think the discussions that the board has had encompasses all sorts of things. So, you know, our first choice is always to utilize the vessels, utilize them for a good charter rate, run them very well. It's only when that doesn't become an option that we start to look at other things, but obviously, you have to factor in time, and, you know, we can't leave those discussions till the very last moment. We need to start thinking about them now. So again, in the interest of transparency, we've mentioned that on this call and in this earnings release, but we're far from, you know, having made any decisions about that. We don't know that the vessels won't be taken by either Transpetro, Petrobras, or another charterer.
The problem being is that, that today, we don't know that they will either. The, the vessels have been on very long-term charters, bareboat charters. They've been very, very busy. The Brazilian market's tightening, as we've said, and although the environment in Brazil isn't optimum for those smaller vessels today, you know, with an absence of, of other vessels in Brazil, who's to say what, what might happen? So a, a sale is, is possible. I think it's, you know, arguably perhaps the, the slightly harder option, particularly if we're trying to sell it into a conventional market. But I think we've got other options before that, and certainly our, our preference is to seek a, a new charter and, and run it as a shuttle tanker.
Great. What is the more optimal market for those two? You said that, you know, Brazil, they're smaller, there's, it's suboptimal. Is there a more optimal market out there in the shuttle tanker market? You know, you just talked about-
Yeah, if you-
the conventional market, but in the shuttle tanker.
Yeah, if you force me to answer that question, I would say they're probably slightly more suited to the North Sea. They're not North Sea compatible at the moment, but they could be made to be. So you know, that is also an option, but clearly right now, as we sit here today, you know, perhaps the North Sea, you know, transferring them immediately to the North Sea wouldn't be a sensible idea. But nonetheless, both of them are contracted to the end of 2023 anyway, so we've still got several months before we even need to do anything with them. So that's why, at this stage, we just want people to be aware that, you know, we are looking at all options in case we aren't able to secure a new charter at the end of these ones.
Great. You know, how much time and money would it take to make them North Sea compatible?
It's not like a... It's not a huge conversion exercise like, you know, trying to convert a conventional vessel into a shuttle tanker. It's equipment and, you know, it's substantial, but it's not, I don't think it's something that our investors need to be concerned about from a, you know, a material CapEx perspective. It's something that we would bake into a transaction or a decision to bring them to the North Sea, if that's what we decide to do.
Okay, thanks. Then, the last of higher revenues that came in, you know, $1.3 or 1.4 million, what were they associated with?
Yeah, they would all go back to slightly historic, and I say slightly historic because it's probably in the last one, two, three quarters of claims. So if you go back to some of our previous earnings releases, we have disclosed some of the more material off-hires that we've suffered in terms of, you know, vessels suffering a few problems when we claimed on insurance, and that money coming through is a closure of those insurance claims from previous quarters. Under U.S. GAAP, you have to be really sure that you're going to get the money before you can book it.
So we always end up with a mismatch between when we put the insurance claim in and know about the problem on a ship, to when we actually get the money in and we can recognize it in the accounts.
I think I read that you don't have any additional claims outstanding at this point in time?
Yes. Yes, that's right.
Okay. And then looking at the Hilde and Torill, you know, they're currently on, you know, short-term charter agreements that runs through the year-end with, you know, your subsidiary of one of your GPs.
Mm.
Is that something we should expect, you know, to continue to sort of, you know, fill the gap until the North Sea market, you know, rebalances? You know, you've said it's gonna take a little longer than expected, a couple more quarters. You know, is that something we should sort of accept, expect as sort of a stopgap until you can get firm work?
Obviously, I can't speak for the other side of that in terms of our sponsor and KNOT, but certainly, you know, we've worked with them and come to an agreement with them to date on those vessels. And if nothing further is forthcoming, as Liam talked about, you know, there's the Brazil option, moving them to Brazil. But, you know, again, we'd have to assess the merits of that. But, you know, we would probably be turning to KNOT and seeking to negotiate with them, you know, a further extension if need be. Obviously, you know, I can't talk to their reaction and to their response to that, but certainly so far, they have proven and shown to be very supportive.
Okay, great. And then just one last one, if you wouldn't mind. On when I look at the options, you know, in Brazil, that's really where, you know, there might be a little bit of uncertainty in looking into 2024, you know, with the Carmen and Windsor in the first quarter, and then the Anna in the third quarter. But you did say that you're you know, given the tightening in the market, you're pretty confident that those will be exercised. When will we find out that those options have been exercised?
All the charters, unfortunately, Poe, for you and for us, all the charters have different terms and notice periods, so it's not a simple thing to say or to answer that question. I think, you know, we're increasingly confident, given the market in Brazil, that even if the options are not taken, that there is alternative employment opportunities for each and all of those vessels in Brazil. So yes, we are confident that options will be taken, and particularly if, you know, customers have got a good charter rate locked in. But notwithstanding that, you know, I think the point is really that option or no option, we're increasingly confident that we would find employment for any or all of those vessels in Brazil anyway.
Great. Just, I apologize, Gary, just one more, if you wouldn't mind.
Yeah.
What should we build in for the Torill? On the Torill and the Ingrid, you know, as far as dry docks coming up in the fourth quarter, you know, roughly 30 days, or sort of what's a ballpark number for those dry docks?
Yeah, Torill and Ingrid are obviously European-based vessels, and we perform all of our dry docks in Europe, so they're much quicker. So similar to the Hilde, you'd probably expect in the region of 30 days.
Great. Gary, good luck in your new endeavor. Thank you so much.
Thank you, Poe. It's a pleasure working with you. Thank you.
Our next question comes from Robert Silvera of R.E. Silvera & Associates. Robert, the line is yours.
Thank you. Gary, I'm looking at the balance sheet and, the current assets, current liabilities. I'm seeing that our cash, since the end of 2022, has climbed substantially, which is good, and the current portion of long-term debt has dropped very significantly. But then dropping down a little bit to the long-term assets, the net vessels and equipment has dropped about roughly $100 million, and the long-term debt has gone up to $820 million. And I'm having problem understanding this. I wonder if you could explain to me why this dynamic is happening, where the long-term debt has gone up so substantially since the end of 2022, while your cash and the rest of the things seem to improve, and the current liabilities have dropped so much?
Yeah, the cash position has risen through operations, but also, you know, we hold back money for dry docks. So as we come towards dry docks, the cash position will be slightly elevated in order that we've got excess cash to pay for those dry docks. I think that's one side of it. The other side, in terms of the debt and the current versus the long-term, or let's call it non-current, it's just reclassification between pre-refinancing and post-refinancing. So as we come up to a refinance, obviously we're within one year of that refinance maturity date, and quite a lot of the debt moves into the current category. As we refinance, it shifts back into the long term.
If you compare one quarter to the other quarter, and there has been a refinance at some point, you will probably see movements such as that happening, and that's exactly what's happened on our balance sheet in Q2, compared to Q1 or even the end of Q4 last year.
The long-term asset drop of about $100 million, most of it is that reassessment of the value of the two ships?
The reduction in the asset will be normal depreciation and the impairment taken together, yes.
Really? In six months, we've gone down $100 million, almost?
Well, the impairment-
The net assets and equipment, net vessel and equipment.
The impairment itself was $50 of that.
Yeah, that's, that's what I'm saying, impairment. Okay, well, our feelings are, please do not take any more drop-downs ... until we show that the Brazilian market really has improved substantially and our charter rates are climbing, before we'll entertain the risk of taking some more drop-downs, that's our perspective right now.
Yeah, well, as I expect, I think one of the other question is, you know, drop-downs are, at the moment, really not our priority. It's still-
Good
part of the strategy of the business to grow the fleet, but you know, the focus at the moment is visibility of earnings and liquidity.
Right, reducing debt like that. Do you have any feeling at the rate you're doing what you're doing, and assuming that the Brazilian market continues to strengthen, how long might it take in your estimation? And you won't be around to have to stand up to this estimation in the long run because you're off to a new career, but how long do you think it might take before you see the dividend begin to rise again?
Yeah, well, I think-
Are we talking six months, two years? What are we doing?
Look, I think when we reduced the distribution only earlier this year, and I know it's been a couple of-
Right
Quarters since then. We said that we needed longer-term charter visibility, and we needed to build liquidity. Clearly, we've sorted out the majority of our refinancing near term. We've got some dry docks to take care of, and we're making moves in the right direction, I think, with still some work to do. But, you know, ultimately, you know, the level at which we've got enough charter visibility and enough liquidity, that's really up to the board's discretion. But, you know, I think we're moving in the right direction. I think there's still work to do, but ultimately, it's the board's discretion. So, it's difficult for me to answer that.
Well-
I personally don't, you know, I don't think we're there yet. We only cut the distribution earlier this year.
I know, so we're six months in that. But I'm trying to get a feeling, is it another six months, another whole year before we can entertain? You know, we remember the sweet days of $0.52 a quarter. And,
I think, you know, the board-
Truly, you must have, you must have some feeling. I don't hold you to an exact number, but you must have some feeling of your strategy, the changing market dynamic in Brazil, particularly the demand, et cetera, where the cash flows and the reduction of debt would play out to a, a timeframe of six months, a year, two years, and you-
Uh-
You've got to have some feeling for that, and I wish you would share that.
Robert, even though I'm leaving, I would be a fool to answer that question in a way, because, you know, we've stated what we are trying to do, and where we need to get to. But, you know, first of all, you know, I can't predict the future, actually, and secondly, you know, ultimately, it's the board's discretion. So it's when the board feels-
Sure
... that all of these things that you've mentioned there, what, you know, the market, the liquidity, the feeling, the outlook, it's when the board feels and the board's discretion to decide, "Yes, okay, now we feel we can do something." And, you know, I can't possibly really second-guess that. We, we've tried to put out information and explain where we are and what we think and where we see it. But ultimately, you know, future quarters, like we've said right at the start, with forward-looking statements, they, you know, it, it's very difficult to predict that.
Okay. Going down another line then, there has been some chatter in financial markets that what the parent might do is reach down and absorb the partnership at this lower level of pricing, where we are now around $5. Do you see that as a possibility, or could you say pretty hard and fast that, "No, that's not going to happen?" The parent company is going to continue to honor the partnership and let it work its way back up into the higher price ranges of this, the share price.
Yeah, well, I can't speak for the sponsor, and, you know, I'm not involved or party to the sponsor's discussions and thoughts. All I can do is tell you that, you know, we've had a board meeting yesterday, and, you know, our strategy as a company remains unchanged, and we're focusing on what we can do. And what we are looking at is the things within our control, and we're focused on getting more charters, and we're building liquidity. And I think, you know, if we focus on that, it's for everybody's benefit, and we're trying to look after all the unitholders here. You know, the sponsor is a unitholder, just like everybody else. So it's almost impossible for me to make any comment on that.
Even if I did make a comment on it, you know, the sponsor tomorrow could decide it has a different view. So we're just trying to stick with what we can control and what we're focused on, and hopefully, that's for everybody's benefit.
Okay, well, that's somewhat encouraging. At least we know we've stated our feelings with thousands of shares that we would not like to see that.... So thank you very much, and may your future career be blessed, Gary.
Thank you very much, Robert. Appreciate it.
Our next question comes from Hani Hassena of a private investor. Hani, please go ahead.
Hi, Gary. How are you doing? It's Hani.
Hello.
How are you doing today?
Yeah, I'm well, thank you.
Thank you so-
How are you?
Wonderful. Thank you so much for all the effort that you guys are doing and trying to stabilize the cash flow and the increasing liquidity. My question comes in actually onto the potential future acquisitions. So there are some vessels out there that we can actually, I'm not sure where we are in terms of discussions, have they been offered to us in order to acquire? Because they're still at the early stage, and they're fairly five years or more, so over my seven years. So, are we entertaining any of those acquisitions at this time, or has it not been in our discussion at the time being?
At the moment, Hani, it's the latter. I mean, we, you know, they are still there, and our sponsor has been flexible. And those acquisitions are still available to us, but first of all, it's difficult to do them right now, anyway. But secondly, you know, as I've said once or twice already on this call and previously, it's not, at the moment, our priority.
I understand, but it really, I understand that it will take more on the long-term debt-
Mm-hmm
... and will increase the long-term debt, but it also will keep us on the positive cash flow side of things. That's really where I'm coming from.
Yeah, I think, you know, of course, you know, first of all, we would never do an acquisition unless it was accretive, first of all. But-
Oh, absolutely
I think, yeah, but I think it, you know, where we are sitting here today, I think our liquidity position, the requirement to make sure we have cash for dry docks and to run the fleet, and to get into a very comfortable position again so that we've got options, I think that's more important at the moment than, than acquisitions. And I, I believe that the board shares that, shares that view. So I don't think we're concerned about necessarily adding debt to the balance sheet, provided that, you know, the, the, the transaction is accretive and, and the cash flow can handle that debt, et cetera. I don't think that's a concern, particularly, certainly not the first concern, but the first concern today is, is getting stability of the, of liquidity and getting to a comfortable position to have options again.
And at that point, we could then start again to look at acquisitions.
Okay. So, I guess, the way I look at it, we have about $63 million in cash, and the dry dock for the last two vessels were around $11 million. I guess we're anticipating another $11 million for the two other dry docks this year, correct? If we're, like, on an average ballpark.
You mean each or for both?
Both. For both.
Yeah, probably less than that because they're both European-based vessels. So, but you're not material, yeah.
So we do have the... Yeah, I understand. So even with the dry dock, we still have enough cash flow, and we can add up one or two vessels, at least, from the potential acquisition. And that's really what I'm trying to get to. Has that been discussed? Has it been not agreed upon?
We have-
or has it not really in our scope at this time?
I think the one extra thing that you have to take into consideration is that we have financial covenants as part of our debt structure and some of our loan agreements.
Sure.
As a ballpark figure, it's more complex than this, but as a ballpark figure, we need to retain in the region of $40 million in available liquidity. So that $63 that we have isn't fully available to spend, if you see what I mean.
Yeah, yeah.
It's obviously our cash. It's obviously our cash, but it's not something... Plus, as well, notwithstanding that, we also, of course, have to maintain sufficient, you know, working capital, et cetera, to run 18 ships and, you know, this is an expensive business. We take in quite a lot of revenue, but we also have quite high costs.
Yeah, I understand that. Well, thank you so much, Gary. Appreciate it. That kinda answers my questions.
Okay.
Yeah.
Thanks very much, Hani. Appreciate it. Thank you.
Thank you. You have a great one.
Thank you.
Good luck in your future endeavors.
Thanks.
Bye.
As a reminder, that's star followed by one to register a question. Our next question comes from Jim Altschul of the Aviation Advisory Service. Jim, please go ahead.
Good afternoon, I guess. First of all, I wanna join the others, Gary, in thanking you for your really exceptional responsiveness and professionalism during the years, seven years I've been an investor and participating in these calls. I've got a couple of questions for you. First of all, looking at the news release, with regard to the extensions that the new, the new charters, I mean, for example, you signed a new charter or a new time charter for the Windsor Knutsen from Knutsen, and, what was it? I'm sorry, I'm just looking at scrolling down. The Windsor Knutsen and the Brasil Knutsen. Without giving specific numbers, how do the charter rates on these newer extended charters compare to what you were receiving under the prior charters?
Yeah. They reflect a tightening market, I think is the simple answer to that question. You know, we've seen that gradually over the last few quarters in Brazil. We're not yet seeing that in the North Sea. But, yeah, they are for sure reflecting a tightening market with less available tonnage to customers.
You mean, you know, in other words, tightening in, in your in favor of KNOT Offshore Partners.
Correct.
Is that what you mean?
Yes. Yes.
Okay. Next thing. Over the next, in addition, after you complete these two dry dockings, do you have any other dry dockings anticipated scheduled over the next 12 months?
The last dry dock, the Ingrid, might split into January of next year, if it's not, depending on the time, the exact timing of it. But leaving that aside, there are no dry docks scheduled for 2024.
Oh, good.
And I think you should, you should be able to see that on the, on the, slide nine. We put the green, the green boxes on each of the vessel charter, timelines to, to show where the dry docks are, and if you look down the 2024 column, you, you'll see that there are none in there. Like I said, the, the last couple of vessels may, may tumble a little bit for a few days into 2024, but, but we, we treat them as 2023 dry docks.
Okay. Excellent. Thank you very much.
No problem, Jim. Thanks for your kind words as well.
We have a follow-up question from Robert Silvera of R.E. Silvera & Associates. Robert, the line is yours.
Hey, thank you for taking the follow-up, Gary. The previous caller just talked to you about changing in the rates for new contracts now versus the old established contracts, and you implied that things are getting better because of the tighter Brazilian marketplace at this point. Can you give us a feeling percentage-wise, are they 2%, 3% better, 10% better, 15%, you know? What's—how fast kind of thing do you see this going up, and to what percentage extent in the near future?
Yeah, Robert, I can't-
From what you're seeing.
It's not quite so simple as to talk about percentage increases, because obviously, then you, I'd have to sort of talk about, you know, from what date to what date, and all charters are different, all customers are different. And the discussions we have with each customer, you know, every customer is in a different place in terms of their own operations and demands and volumes that they need to transport, and numbers of cargoes, and ton miles. So there's a lot of variables that goes into it, and, you know, each discussion with each customer is pretty unique. So yes, overall, for sure, we have seen a robust strengthening of rates. It's, you know, more than negligible, that's for sure.
But I think trying to give you percentages would be as misleading as, you know, as trying to give you precise numbers. So I think it's, you know, the message we're trying to give is that the market is, you know, materially tightening. We're the beneficiaries of that. It may take some time to come through, you know. We have long-term charters. So yes, we've signed a couple of new charters as we've disclosed, and we've got one or two more in, hopefully, in the pipeline. But obviously, the majority of our vessels today are operating on charters that have been agreed sometime in the past, so we have to wait for things to work through a little bit as well. So there's an extra complexity there when you add in the timeline.
So, to the simple answer to your question is that it's a robust tightening, for sure, but, you know, trying to put percentages or numbers onto that, I'm afraid is... I'm gonna mislead somebody, I almost guarantee.
Okay. Well, I like the word robust. It's got a good connotation.
Okay.
Putting percentages on sounds like the U.S. government, who's trying to tell us what inflation we really are living with. And it all depends on whether you're dealing with gasoline, eggs, or something else. So thank you very much for that extra color on that. It gives me a stronger feeling that the market-
Yeah, sure
really is moving in a robust manner. Thanks, Gary.
Thank you.
We have no further questions on the line, so I'll hand back for closing remarks.
Yeah. Thank you very much, everybody. I appreciate the time you've spent today and the questions, and I wish you all the best for the future. Thank you.
Thank you for joining. This concludes today's call. You may now disconnect your lines.