UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
Commission File Number: 001-35866
KNOT Offshore Partners LP
(Translation of registrant’s name into English)
2 Queen’s Cross,
Aberdeen, AB15 4YB
United Kingdom
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
KNOT OFFSHORE PARTNERS LP
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024
Table of Contents
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENT:
| ● | FORM F-3 (NO. 333-274460) ORIGINALLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) ON SEPTEMBER 11, 2023. |
2
Unaudited Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2024 and 2023
(U.S. Dollars in thousands, except per unit amounts)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
(U.S. Dollars in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Operating revenues: (Notes 3 and 4) | ||||||||||||
Time charter and bareboat revenues | $ | 73,437 | $ | 69,924 | $ | 146,799 | $ | 132,857 | ||||
Voyage revenues | 351 | 1,585 | 3,066 | 8,839 | ||||||||
Loss of hire insurance recoveries (Note 5) |
| 78 |
| 1,424 |
| 78 |
| 2,335 | ||||
Other income | 554 | 891 | 1,109 | 973 | ||||||||
Total revenues |
| 74,420 |
| 73,824 |
| 151,052 |
| 145,004 | ||||
Operating expenses: |
|
|
|
| ||||||||
Vessel operating expenses |
| 26,952 |
| 25,287 |
| 52,861 |
| 44,730 | ||||
Voyage expenses and commission | 584 | 159 | 2,219 | 4,855 | ||||||||
Depreciation |
| 27,748 |
| 28,107 |
| 55,490 |
| 55,836 | ||||
Impairment (Note 19) | 16,384 | 49,649 | 16,384 | 49,649 | ||||||||
General and administrative expenses |
| 1,426 |
| 1,838 |
| 3,063 |
| 3,488 | ||||
Total operating expenses |
| 73,094 |
| 105,040 |
| 130,017 |
| 158,558 | ||||
Operating income (loss) |
| 1,326 |
| (31,216) |
| 21,035 |
| (13,554) | ||||
Finance income (expense): (Note 6) |
|
|
|
| ||||||||
Interest income |
| 897 |
| 861 |
| 1,725 |
| 1,544 | ||||
Interest expense (Note 6) |
| (16,863) |
| (18,107) |
| (34,328) |
| (35,476) | ||||
Other finance income (expense) (Note 6) |
| 177 |
| (112) |
| (92) |
| (184) | ||||
Realized and unrealized gain (loss) on derivative instruments (Note 7) |
| 1,797 |
| 8,124 |
| 6,799 |
| 5,814 | ||||
Net gain (loss) on foreign currency transactions |
| 28 |
| 109 |
| (198) |
| (27) | ||||
Total finance expense |
| (13,964) |
| (9,125) |
| (26,094) |
| (28,329) | ||||
Income (loss) before income taxes |
| (12,638) |
| (40,341) |
| (5,059) |
| (41,883) | ||||
Income tax benefit (expense) (Note 9) |
| (213) |
| (49) |
| (354) |
| 196 | ||||
Net income (loss) | $ | (12,851) | $ | (40,390) | $ | (5,413) | $ | (41,687) | ||||
Series A Preferred unitholders’ interest in net income (loss) | $ | 1,700 | $ | 1,700 | $ | 3,400 | $ | 3,400 | ||||
General Partner’s interest in net income (loss) |
| (269) |
| (777) |
| (163) |
| (832) | ||||
Limited Partners’ interest in net income (loss) |
| (14,282) |
| (41,313) |
| (8,650) |
| (44,225) | ||||
Earnings per unit (Basic): (Note 15) |
|
|
|
| ||||||||
Common unit (basic) | $ | (0.42) | $ | (1.21) | $ | (0.25) | $ | (1.30) | ||||
Class B unit (basic) | $ | — | $ | — | $ | — | $ | — | ||||
General Partner unit (basic) | $ | (0.42) | $ | (1.21) | $ | (0.25) | $ | (1.30) | ||||
Earnings per unit (Diluted): (Note 15) |
|
|
|
| ||||||||
Common unit (diluted) | $ | (0.42) | $ | (1.21) | $ | (0.25) | $ | (1.30) | ||||
Class B unit (diluted) | $ | — | $ | — | $ | — | $ | — | ||||
General Partner unit (diluted) | $ | (0.42) | $ | (1.21) | $ | (0.25) | $ | (1.30) | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
Unaudited Condensed Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended June 30, 2024 and 2023
(U.S. Dollars in thousands)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
(U.S. Dollars in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net income (loss) | $ | (12,851) | $ | (40,390) | $ | (5,413) | $ | (41,687) | ||||
Other comprehensive income, net of tax |
| — |
| — |
| — | — | |||||
Comprehensive income (loss) | $ | (12,851) | $ | (40,390) | $ | (5,413) | $ | (41,687) | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
Unaudited Condensed Consolidated Balance Sheets
As of June 30, 2024, and December 31, 2023
(U.S. Dollars in thousands)
(U.S. Dollars in thousands) |
| At June 30, 2024 |
| At December 31, 2023 | ||
ASSETS |
|
|
|
| ||
Current assets: |
|
|
|
| ||
Cash and cash equivalents (Note 8) | $ | 56,619 | $ | 63,921 | ||
Amounts due from related parties (Note 13) |
| 784 |
| 348 | ||
Inventories (Note 11) |
| 3,717 |
| 3,696 | ||
Derivative assets (Notes 7 and 8) |
| 12,593 |
| 13,019 | ||
Other current assets (Note 17) |
| 10,698 |
| 8,795 | ||
Total current assets |
| 84,411 |
| 89,779 | ||
Long-term assets: |
|
| ||||
Vessels, net of accumulated depreciation (Notes 10 and 19) |
| 1,421,256 |
| 1,492,998 | ||
Right-of-use assets (Note 4) | 1,730 | 2,126 | ||||
Deferred tax assets (Note 9) |
| 3,812 |
| 4,358 | ||
Derivative assets (Notes 7 and 8) |
| 6,406 |
| 7,229 | ||
Total long-term assets |
| 1,433,204 |
| 1,506,711 | ||
Total assets | $ | 1,517,615 | $ | 1,596,490 | ||
| ||||||
LIABILITIES AND EQUITY |
|
|
|
| ||
Current liabilities: |
|
|
| |||
Trade accounts payable (Note 17) | $ | 5,475 | $ | 10,243 | ||
Accrued expenses (Note 18) |
| 9,717 |
| 14,775 | ||
Current portion of long-term debt (Notes 8 and 12) |
| 89,157 |
| 98,960 | ||
Current lease liabilities (Note 4) | 1,096 | 982 | ||||
Income taxes payable |
| 25 |
| 44 | ||
Prepaid charter and deferred revenue |
| 2,354 |
| 467 | ||
Amount due to related parties (Note 13) |
| 3,859 |
| 2,106 | ||
Total current liabilities |
| 111,683 |
| 127,577 | ||
Long-term liabilities: |
|
| ||||
Long-term debt (Notes 8 and 12) |
| 806,214 |
| 857,829 | ||
Lease liabilities (Note 4) | 634 | 1,144 | ||||
Deferred tax liabilities (Note 9) |
| 121 |
| 127 | ||
Deferred revenues |
| 2,102 | 2,336 | |||
Total long-term liabilities |
| 809,071 |
| 861,436 | ||
Total liabilities |
| 920,754 |
| 989,013 | ||
Commitments and contingencies (Note 14) |
|
| ||||
Series A Convertible Preferred Units |
| 84,308 |
| 84,308 | ||
Equity: |
|
| ||||
Partners’ capital: |
|
| ||||
Common unitholders |
| 499,593 |
| 510,013 | ||
Class B unitholders (1) | 3,871 | 3,871 | ||||
General partner interest |
| 9,089 |
| 9,285 | ||
Total partners’ capital |
| 512,553 |
| 523,169 | ||
Total liabilities and equity | $ | 1,517,615 | $ | 1,596,490 | ||
(1) | On September 7, 2021, the Partnership entered into an exchange agreement with Knutsen NYK, and the Partnership’s general partner whereby Knutsen NYK contributed to the Partnership all of Knutsen NYK’s incentive distribution rights (“IDRs”), in exchange for the issuance by the Partnership to Knutsen NYK of 673,080 common units and 673,080 Class B Units, whereupon the IDRs were cancelled (the “IDR Exchange”). As of June 30, 2024, 420,675 of the Class B Units had been converted to common units. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
Unaudited Condensed Consolidated Statements of Changes in Partners’ Capital
for the Three and Six Months Ended June 30, 2024 and 2023
(U.S. Dollars in thousands)
Partners’ Capital | Accumulated | Series A | ||||||||||||||||
General | Other | Total | Convertible | |||||||||||||||
(U.S. Dollars in thousands) | Common | Class B | Partner | Comprehensive | Partners’ | Preferred | ||||||||||||
Three Months Ended June 30, 2023 and 2024 |
| Units |
| Units |
| Units |
| Income (Loss) |
| Capital |
| Units | ||||||
Consolidated balance at March 31, 2023 | $ | 550,095 | $ | 3,871 | $ | 10,039 | $ | — | $ | 564,005 | $ | 84,308 | ||||||
Net income (loss) | (41,313) | — | (777) | — | (42,090) | 1,700 | ||||||||||||
Other comprehensive income | — | — | — | — | — | — | ||||||||||||
Cash distributions | (885) | — | (16) | — | (901) | (1,700) | ||||||||||||
Consolidated balance at June 30, 2023 | $ | 507,897 | $ | 3,871 | $ | 9,246 | $ | — | $ | 521,014 | $ | 84,308 | ||||||
| ||||||||||||||||||
Consolidated balance at March 31, 2024 | $ | 514,760 | $ | 3,871 | $ | 9,374 | $ | — | $ | 528,005 | $ | 84,308 | ||||||
Net income (loss) | (14,282) | — | (269) | — | (14,551) | 1,700 | ||||||||||||
Other comprehensive income | — | — | — | — | — | — | ||||||||||||
Cash distributions | (885) | — | (16) | — | (901) | (1,700) | ||||||||||||
Consolidated balance at June 30, 2024 | $ | 499,593 | $ | 3,871 | $ | 9,089 | $ | — | $ | 512,553 | $ | 84,308 | ||||||
|
|
|
| |||||||||||||||
Six Months Ended June 30, 2023 and 2024 | ||||||||||||||||||
Consolidated balance at December 31, 2022 | $ | 553,922 | $ | 3,871 | $ | 10,111 | $ | — | $ | 567,904 | $ | 84,308 | ||||||
Net income (loss) |
| (44,255) |
| — |
| (832) |
| — |
| (45,087) |
| 3,400 | ||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Cash distributions |
| (1,770) |
| — |
| (33) |
| — |
| (1,803) |
| (3,400) | ||||||
Consolidated balance at June 30, 2023 | $ | 507,897 | $ | 3,871 | $ | 9,246 | $ | — | $ | 521,014 | $ | 84,308 | ||||||
|
|
|
| |||||||||||||||
Consolidated balance at December 31, 2023 | $ | 510,013 | $ | 3,871 | $ | 9,285 | $ | — | $ | 523,169 | $ | 84,308 | ||||||
Net income (loss) |
| (8,650) |
| — |
| (163) |
| — |
| (8,813) |
| 3,400 | ||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Cash distributions |
| (1,770) |
| — |
| (33) |
| — |
| (1,803) |
| (3,400) | ||||||
Consolidated balance at June 30, 2024 | $ | 499,593 | $ | 3,871 | $ | 9,089 | $ | — | $ | 512,553 | $ | 84,308 | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2024 and 2023
(U.S. Dollars in thousands)
Six Months Ended June 30, | ||||||
(U.S. Dollars in thousands) |
| 2024 |
| 2023 | ||
OPERATING ACTIVITIES |
|
| ||||
Net income (loss) (1) | $ | (5,413) | $ | (41,687) | ||
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
|
| ||||
Depreciation |
| 55,490 |
| 55,836 | ||
Impairment | 16,384 | 49,649 | ||||
Amortization of contract intangibles / liabilities |
| — |
| (583) | ||
Amortization of deferred revenue | (234) | (234) | ||||
Amortization of deferred debt issuance cost |
| 1,089 |
| 1,355 | ||
Drydocking expenditure |
| (58) |
| (10,701) | ||
Income tax (benefit) expense |
| 354 |
| (196) | ||
Income taxes paid |
| (23) |
| (414) | ||
Unrealized (gain) loss on derivative instruments |
| 1,251 |
| 729 | ||
Unrealized (gain) loss on foreign currency transactions |
| 148 |
| (43) | ||
Changes in operating assets and liabilities: |
|
| ||||
Decrease (increase) in amounts due from related parties |
| (436) |
| (430) | ||
Decrease (increase) in inventories |
| (20) |
| 2,663 | ||
Decrease (increase) in other current assets |
| (1,907) |
| 6,904 | ||
Increase (decrease) in trade accounts payable |
| (4,636) |
| 2,626 | ||
Increase (decrease) in accrued expenses |
| (5,058) |
| 3,226 | ||
Increase (decrease) prepaid charter |
| 1,887 |
| 3,318 | ||
Increase (decrease) in amounts due to related parties |
| 1,754 |
| 43 | ||
Net cash provided by operating activities |
| 60,572 |
| 72,061 | ||
INVESTING ACTIVITIES |
|
| ||||
Additions to vessel and equipment |
| (75) |
| (2,744) | ||
Net cash used in investing activities |
| (75) |
| (2,744) | ||
FINANCING ACTIVITIES |
|
| ||||
Proceeds from long-term debt |
| 60,000 |
| 240,000 | ||
Repayments of long-term debt |
| (121,971) |
| (286,078) | ||
Payment of debt issuance cost |
| (536) |
| (2,466) | ||
Cash distributions |
| (5,203) |
| (5,203) | ||
Net cash used in financing activities |
| (67,710) |
| (53,747) | ||
Effect of exchange rate changes on cash |
| (89) |
| (25) | ||
Net increase (decrease) in cash and cash equivalents |
| (7,302) |
| 15,545 | ||
Cash and cash equivalents at the beginning of the period |
| 63,921 |
| 47,579 | ||
Cash and cash equivalents at the end of the period | $ | 56,619 | $ | 63,124 | ||
| (1) | Included in net income (loss) is interest paid amounting to $33.6 million and $34.0 million for the six months ended June 30, 2024 and 2023, respectively. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
7
Notes to Unaudited Condensed Consolidated Financial Statements
| 1) | Description of Business |
KNOT Offshore Partners LP (the “Partnership”) was formed as a limited partnership under the laws of the Republic of the Marshall Islands. The Partnership was formed for the purpose of acquiring 100% ownership interests in four shuttle tankers owned by Knutsen NYK Offshore Tankers AS (“KNOT” or “Knutsen NYK”) in connection with the Partnership’s initial public offering of its common units (the “IPO”), which was completed on April 15, 2013.
As of June 30, 2024, the Partnership had a fleet of eighteen shuttle tankers, the Windsor Knutsen, the Bodil Knutsen, the Recife Knutsen, the Fortaleza Knutsen, the Carmen Knutsen, the Hilda Knutsen, the Torill Knutsen, the Dan Cisne, the Dan Sabia, the Ingrid Knutsen, the Raquel Knutsen, the Tordis Knutsen, the Vigdis Knutsen, the Lena Knutsen, the Brasil Knutsen, the Anna Knutsen, the Tove Knutsen and the Synnøve Knutsen, each referred to as a “Vessel” and, collectively, as the “Vessels”. The Vessels operate under fixed charter contracts to charterers, with expiration dates between 2024 and 2030. Please see Note 4—Operating Leases.
On September 3, 2024, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, sold to KNOT all outstanding shares in KNOT Shuttle Tankers 20 AS, the company that owns the Dan Cisne, and simultaneously acquired from KNOT all outstanding shares in KNOT Shuttle Tankers 31 AS, the company that owns the Tuva Knutsen. Please see Note 20—Subsequent Events. The sale of the Dan Cisne will be accounted for as a sale of an asset, and the acquisition of the Tuva Knutsen will be accounted for as an acquisition of an asset. As a result, the Partnership will record the results of operations of the Tuva Knutsen in its consolidated statement of operations from September 3, 2024. Correspondingly, the Partnership will cease recording the results of operations of the Dan Cisne in its consolidated statement of operations after September 3, 2024.
The unaudited condensed consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern.
The Partnership expects that its primary future sources of funds will be available cash, cash from operations, borrowings under any new loan agreements, any vessel sales and the proceeds of any debt or equity financings. The Partnership believes that these sources of funds (assuming the current rates earned from existing charters) will be sufficient to cover operational cash outflows, working capital requirements and ongoing obligations under the Partnership’s lease obligations and financing commitments to pay loan interest and make scheduled loan repayments and to make distributions on its outstanding units assuming the Partnership is able to timely refinance its maturing credit facilities on similar terms as its existing facilities. Accordingly, as of September 18, 2024, the Partnership believes that its current resources, including the undrawn portion of its revolving credit facilities of $10 million, are sufficient to meet working capital requirements and other cash requirements for its current business for at least the next twelve months. See Note 12—Long-Term Debt.
2) | Summary of Significant Accounting Policies |
(a)Basis of Preparation
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for financial information. In the opinion of management of the Partnership, all adjustments considered necessary for a fair presentation, which are of normal recurring nature, have been included. All intercompany balances and transactions are eliminated. The unaudited condensed consolidated financial statements do not include all the disclosures and information required for a complete set of annual financial statements; and, therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2023, which are included in the Partnership’s Annual Report on Form 20-F (the “2023 20-F”).
(b)Significant Accounting Policies
The accounting policies adopted in the preparation of the unaudited condensed consolidated financial statements are consistent with those followed in the preparation of the Partnership’s audited consolidated financial statements for the year ended December 31, 2023, as contained in the 2023 20-F.
8
(c)Recent Accounting Pronouncements
For more information, please see the 20-F for 2023 about recently adopted accounting standards.
Accounting pronouncements not yet adopted
Other recently issued accounting pronouncements are not expected to materially impact the Partnership.
3)Segment Information
The Partnership has not presented segment information as it considers its operations to occur in one reportable segment, the shuttle tanker market. As of June 30, 2024 and 2023, the Partnership’s fleet consisted of eighteen vessels, and operated under time charters and bareboat charters. In both time charters and bareboat charters, the charterer, not the Partnership, controls the choice of which trading areas the Vessels will serve. Accordingly, the Partnership’s management, including the chief operating decision makers, does not evaluate performance according to geographical region.
The following table presents time charter and bareboat revenues and percentages of revenues for material customers that accounted for more than 10% of the Partnership’s consolidated revenues during the three and six months ended June 30, 2024 and 2023. All of these customers are subsidiaries of major national or international oil companies.
The Partnership has financial assets that expose it to credit risk arising from possible default by a counterparty. The Partnership considers its counterparties to be creditworthy banking and financial institutions and does not expect any significant loss to result from non-performance by such counterparties. The maximum loss due to credit risk that the Partnership would incur if counterparties failed completely to perform would be the carrying value of cash and cash equivalents, and derivative assets. The Partnership, in the normal course of business, does not demand collateral from its counterparties.
4)Operating Leases
Revenues
The Partnership’s primary source of revenues is chartering its shuttle tankers to its customers. The Partnership primarily uses two types of contracts, time charter contracts and bareboat charter contracts. The Partnership’s time-charter contracts include both a lease component, consisting of the bareboat element of the contract, and non-lease component, consisting of operation of the Vessel for the customers, which includes providing the crewing and other services related to the Vessel’s operations, the cost of which is included in the daily hire rate, except when off hire.
9
The following table presents the Partnership’s revenues by time charter and bareboat charters and other revenues for the three and six months ended June 30, 2024 and 2023:
As of June 30, 2024, the minimum contractual future revenues to be received from time charters and bareboat charters during the next five years and thereafter are as follows (including service element of the time charter, but excluding unexercised customer option periods and excluding any contracted revenues signed after June 30, 2024):
(U.S. Dollars in thousands) |
| ||
2024 (excluding the six months ended June 30, 2024) | $ | 134,060 | |
2025 | 252,300 | ||
2026 | 214,812 | ||
2027 | 105,696 | ||
2028 | 39,363 | ||
2029 and thereafter | 27,136 | ||
Total |
| $ | 773,367 |
The minimum contractual future revenues should not be construed to reflect total charter hire revenues for any of the years. Minimum contractual future revenues are calculated based on certain assumptions such as operating days per year. In addition, minimum contractual future revenues presented in the table above have not been reduced by estimated off hire time for periodic maintenance. The amounts may vary given unscheduled future events such as vessel maintenance.
The Partnership’s fleet as of June 30, 2024 consisted of:
| ● | the Windsor Knutsen, a conventional oil tanker built in 2007 and retrofitted to a shuttle tanker in 2011 that is currently operating under a time charter contract with Brazil Shipping I Limited, a subsidiary of Royal Dutch Shell (“Shell”), that expires in January 2025. Thereafter, the Windsor Knutsen will operate under a new time charter with an oil major to commence in the first half of 2025 for a fixed period of two years; |
| ● | the Bodil Knutsen, a shuttle tanker built in 2011 that is currently operating under a time charter contract with Equinor ASA (“Equinor”) that expires in March 2026, with options for the charterer to extend the charter by two further one-year periods; |
| ● | the Fortaleza Knutsen, a shuttle tanker built in 2011 that is currently operating under a time charter contract that expires in March 2026 with Fronape International Company, a subsidiary of Petrobras Transporte S.A. (“Transpetro”); |
| ● | the Recife Knutsen, a shuttle tanker built in 2011 that is currently operating under a time charter that expires in August 2026 with Transpetro; |
| ● | the Carmen Knutsen, a shuttle tanker built in 2013 that is currently operating under a time charter contract that expires in January 2026 with Repsol Sinopec Brasil, B.V. a subsidiary of Repsol Trading S.A. (“Repsol”). Thereafter, the Carmen Knutsen will commence a new time charter with an oil major in Q1 2026 for a fixed period of four years plus a charterer’s option for one additional year; |
| ● | the Hilda Knutsen, a shuttle tanker built in 2013 that is currently operating under a rolling time charter contract with Knutsen Shuttle Tankers Pool AS that expires in January 2025 unless terminated by either party on giving not less than 30 days’ notice; |
| ● | the Torill Knutsen, a shuttle tanker built in 2013 that is currently operating under a time charter contract with Knutsen Shuttle Tankers Pool AS that expires in January 2025 unless terminated earlier by either party on giving not less than 30 days’ notice. |
10
| A time charter commencing Q4 2024 has been executed with Eni Trading and Shipping S.p.A. (“Eni”) in respect of the Torill Knutsen for a fixed period of three years plus three charterer’s options each of one year; |
| ● | the Dan Cisne, a shuttle tanker built in 2011 that was operating under a time charter contract with Knutsen Shuttle Tankers Pool AS until the closing on September 3, 2024, of her sale to KNOT. See Note 20–Subsequent Events; |
| ● | the Dan Sabia, a shuttle tanker built in 2012 that was received back by the Partnership via redelivery on July 10, 2024, following expiry of her bareboat contract with Transpetro. The Dan Sabia is being marketed for shuttle tanker operations principally in Brazil and remains available also for charter to KNOT (subject to negotiation and approvals) and short-term conventional tanker contracts; |
| ● | the Ingrid Knutsen, a shuttle tanker built in 2013 that is currently operating under a rolling monthly time charter with Knutsen Shuttle Tankers Pool AS at a reduced charter rate, to expire upon her delivery to Eni in October 2024. On April 12, 2024, an agreement was reached with Eni, on terms no less favourable to the Partnership than applied previously, to delay delivery of Ingrid Knutsen until October 2024 for a time charter for a fixed period of two years plus two charterer’s options each of one year; |
| ● | the Raquel Knutsen, a shuttle tanker built in 2015 that is currently operating under a time charter contract that expires in June 2025 with Repsol, with options to extend the charter until June 2030; |
| ● | the Tordis Knutsen, a shuttle tanker built in 2016 that is currently operating under a time charter with Shell that expires in July 2028, with options to extend the charter until June 2031; |
| ● | the Vigdis Knutsen, a shuttle tanker built in 2017 that is currently operating under a time charter with Shell that expires in March 2027; |
| ● | the Lena Knutsen, a shuttle tanker built in 2017 that is currently operating under a time charter with Shell that expires in September 2028, with options to extend the charter until September 2031; |
| ● | the Anna Knutsen, a shuttle tanker built in 2017 that is currently operating under a time charter contract with a wholly owned subsidiary of TotalEnergies that expires in April 2026, with TotalEnergies having an option to extend the charter for one one-year period; |
| ● | the Brasil Knutsen, a shuttle tanker built in 2013 that is currently operating under a time charter contract with Petrorio Luxembourg Holding S.A.R.L. (“Petrorio”) that expires on or around May 2025, with two one-month options. The vessel will commence on a new time charter contract with Equinor in the third quarter of 2025 for a fixed period of two years, with options for the charterer to extend the charter by two further one-year periods; |
| ● | the Tove Knutsen, a shuttle tanker built in 2020 that is currently operating under a time charter contract with Equinor that expires in November 2027, with options to extend the charter until November 2040; and |
| ● | the Synnøve Knutsen, a shuttle tanker built in 2020 that is currently operating under a time charter contract with Equinor that expires in February 2027, with options to extend the charter until February 2042. |
Furthermore, on September 3, 2024, the Partnership acquired from KNOT all outstanding shares in the owner of the Tuva Knutsen, a shuttle tanker built in 2021 that is currently operating under a time charter contract with TotalEnergies that expires in February 2026, with options to extend the charter until February 2036. As part of the terms of this acquisition, KNOT has guaranteed that, until September 3, 2031, daily charter hire to the Partnership in respect of Tuva Knutsen will be no less than what would be due from TotalEnergies assuming exercise of their relevant charterer’s options. See Note 20–Subsequent Events.
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Lease obligations
The Partnership does not have any material leased assets but has some leased equipment on operational leases on the various ships operating on time charter contracts. As of June 30, 2024, the and lease liability for operating leases was $1.7 million and are presented as separate line items on the balance sheets. The operating lease cost and corresponding cash flow effect for the three and six months ended June 30, 2024, was $0.3 million and $0.6 million, respectively. As of June 30, 2024, the weighted average discount rate for the operating leases was 7.3% and was determined using the expected incremental borrowing rate for a loan facility of similar term. As of June 30, 2024, the weighted average remaining lease term is 1.6 years.
A maturity analysis of the Partnership’s lease liabilities from leased-in equipment as of June 30, 2024 is as follows:
(U.S. Dollars in thousands) |
|
| |
2024 (excluding the six months ended June 30, 2024) | $ | 592 | |
2025 | 1,146 | ||
2026 |
| 93 | |
Total | 1,831 | ||
Less imputed interest |
| 101 | |
Carrying value of operating lease liabilities | $ | 1,730 |
5)Insurance proceeds
Insurance claims for property damage for recoveries up to the amount of loss recognized are recorded when the claims submitted to insurance carriers are probable of recovery. Claims for property damage in excess of the loss recognized and for loss of hire are recognized when the proceeds are received. As of June 30, 2024, and December 31, 2023, the Partnership had open insurance claims for hull and machinery recoveries of $1.1 million and $0.1 million, respectively, which were recorded as part of Other Current Assets. See Note 17(b)—Other Current Assets.
Loss of hire proceeds of $0.1 million for the three and six months ended June 30, 2024, related to the Brasil Knutsen, were recognized as a component of total revenues, since the day rates are recovered under terms of the policy.
Loss of hire proceeds of $1.4 million for the three months ended June 30, 2023, related to the Windsor Knutsen and the Lena Knutsen, were recognized as a component of total revenues, and loss of hire proceeds of $2.3 million for the six months ended June 30, 2023, related to the Synnøve Knutsen, the Windsor Knutsen and the Lena Knutsen, were recognized as a component of total revenues, since day rates are recovered under the terms of the policy.
6)Other Finance Expenses
(a)Interest Expense
The following table presents the components of interest expense as reported in the consolidated statements of operations for the three and six months ended June 30, 2024 and 2023:
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(b)Other Finance Expense
The following table presents the components of other finance expense for three and six months ended June 30, 2024 and 2023:
7)Derivative Instruments
The unaudited condensed consolidated financial statements include the results of interest rate swap contracts to manage the Partnership’s exposure related to changes in interest rates on its variable rate debt instruments and the results of foreign exchange forward contracts to manage its exposure related to changes in currency exchange rates on its operating expenses, mainly crew expenses, in currency other than the U.S. Dollar and on its contract obligations. The Partnership does not apply hedge accounting for derivative instruments. The Partnership does not speculate using derivative instruments.
By using derivative financial instruments to economically hedge exposures to changes in interest rates, the Partnership exposes itself to credit risk and market risk. Derivative instruments that economically hedge exposures are used for risk management purposes, but these instruments are not designated as hedges for accounting purposes. Credit risk is the failure of the counterparty to perform under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty owes the Partnership, which creates credit risk for the Partnership. When the fair value of a derivative instrument is negative, the Partnership owes the counterparty, and, therefore, the Partnership is not exposed to the counterparty’s credit risk in those circumstances. The Partnership minimizes counterparty credit risk in derivative instruments by entering into transactions with major banking and financial institutions. The derivative instruments entered into by the Partnership do not contain credit risk-related contingent features. The Partnership has not entered into master netting agreements with the counterparties to its derivative financial instrument contracts.
Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates, currency exchange rates or commodity prices. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Partnership assesses interest rate risk by monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating economical hedging opportunities.
The Partnership has historically used variable interest rate mortgage debt to finance its vessels. The variable interest rate mortgage debt obligations expose the Partnership to variability in interest payments due to changes in interest rates. The Partnership believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, the Partnership has entered into interest rate swap contracts which are based on the Secured Overnight Financing Rate (“SOFR”) in order to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of SOFR. These swaps change a portion of the Partnership’s total variable rate cash flow exposure on the mortgage debt obligations to fixed cash flows. Under the terms of the interest rate swap contracts, the Partnership receives SOFR-based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed rate debt for the notional amount of its debt hedged.
As of June 30, 2024, and December 31, 2023, the total notional amount of the Partnership’s outstanding interest rate swap contracts that were entered into in order to hedge outstanding or forecasted debt obligations were $389.3 million and $426.5 million, respectively. As of June 30, 2024, and December 31, 2023, the carrying amount of the interest rate swap contracts was a net asset of $19.0 million and $20.2 million, respectively. See Note 8—Fair Value Measurements.
Changes in the fair value of interest rate swap contracts are reported in realized and unrealized gain (loss) on derivative instruments in the same period in which the related interest affects earnings.
The Partnership and its subsidiaries utilize the U.S. Dollar as their functional and reporting currency, because all of their revenues and the majority of their expenditures, including the majority of their investments in vessels and their financing transactions, are denominated in U.S. Dollars. Payment obligations in currencies other than the U.S. Dollar, and in particular operating expenses in NOK, expose the Partnership to variability in currency exchange rates. The Partnership believes that it is prudent to limit the variability of a
13
portion of its currency exchange exposure where possible. To meet this objective, the Partnership from time to time enters into foreign exchange forward contracts to manage fluctuations in cash flows resulting from changes in the exchange rates towards the U.S. Dollar. The agreements change the variable exchange rate to fixed exchange rates at agreed dates.
The following table presents the realized and unrealized gains and losses that are recognized in earnings as net gain (loss) on derivative instruments for the three and six months ended June 30, 2024 and 2023:
8)Fair Value Measurements
(a)Fair Value of Assets and Liabilities
The following table presents the carrying amounts and estimated fair values of the Partnership’s assets and liabilities that are measured at fair value on a recurring and non-recurring basis as of June 30, 2024 and December 31, 2023. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The carrying amounts shown in the table above are included in the unaudited interim consolidated balance sheet under the indicated captions. Carrying amount of long-term debt, current and non-current, above excludes capitalized debt issuance cost of $5.7 million and $6.2 million as of June 30, 2024 and December 31, 2023, respectively. The carrying value of trade accounts receivable, trade accounts payable and receivables/payables to owners and affiliates approximate their fair value.
The fair values of the financial instruments shown in the table above as of June 30, 2024 and December 31, 2023 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Partnership’s own judgment about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Partnership based on the best information available in the circumstances, including expected cash flows, appropriately risk-adjusted discount rates and available observable and unobservable inputs.
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The following methods and assumptions were used to estimate the fair value of each class of assets and liabilities:
| ● | Cash and cash equivalents and restricted cash: The fair value of the Partnership’s cash balances approximates the carrying amounts due to the current nature of the amounts. As of June 30, 2024 and December 31, 2023 there is no restricted cash. |
| ● | Interest rate swap contracts: The fair value of interest rate swap contracts is determined using an income approach using the following significant inputs: (1) the term of the swap contract (weighted average of 1.4 years and 1.8 years, as of June 30, 2024 and December 31, 2023, respectively), (2) the notional amount of the swap contract (ranging from $14.4 million to $29.3 million as of June 30, 2024 and ranging from $2.6 million to $30.7 million as of December 31, 2023), discount rates interpolated based on relevant SOFR swap curves; and (3) the rate on the fixed leg of the swap contract (rates ranging from 0.71% to 2.90% as of June 30, 2024 and from 0.71% to 2.90% as of December 31, 2023). |
| ● | Long-term debt: With respect to long-term debt measurements, the Partnership uses market interest rates and adjusts for risks, such as its own credit risk. In determining an appropriate spread to reflect its credit standing, the Partnership considered interest rates currently offered to KNOT for similar debt instruments of comparable maturities by KNOT’s and the Partnership’s bankers as well as other banks that regularly compete to provide financing to the Partnership. |
| ● | Vessels: In estimating fair value, the Partnership considers factors related to vessel age, expected residual value, ongoing use of the vessels and equipment, shifts in market conditions and other impacting factors associated with the global oil and maritime transportation industries. This exercise in the second quarter of 2024 resulted in an impairment of the Dan Cisne (owing to her sale on September 3, 2024) and the Dan Sabia (owing to the expiry of her charter contract, her high carrying value, and her smaller size being not being optimal for the Brazilian market, therefore affecting the outlook for future employment). This exercise in the second quarter of 2024 resulted in an impairment in respect of these two vessels using a discounted cash flow approach. The Partnership determined the discounted cash flows for the vessels using projected future redeployment opportunities, estimated residual value and a possible sale of the two vessels, discounted at an estimated market participant rate of 8.66%. The projected future redeployment opportunities take into consideration the Partnership’s projected bareboat charter rates that the Partnership believes could be contracted in future periods. In establishing these estimates, the Partnership considered the specific attributes of these vessels, current and future potential discussions with potential customers, and available redeployment opportunities. |
(b)Fair Value Hierarchy
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring and non-recurring basis (including items that are required to be measured at fair value or for which fair value is required to be disclosed) as of June 30, 2024 and December 31, 2023:
15
The Partnership’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1 and Level 2 as of June 30, 2024 and December 31, 2023. As of June 30, 2024, two non-recurring asset were recognized as Level 3. The following table provides information about the valuation techniques and significant unobservable inputs used in the valuation of Level 3 assets measured at fair value on a non-recurring basis as of June 30, 2024.
| (1) | WACC is defined as weighted average cost of capital |
9)Income Taxes
Components of Current and Deferred Tax Expense
All of the income from continuing operations before income taxes was taxable in Norway for the three and six months ended June 30, 2024 and 2023. Our Norwegian subsidiaries are subject to Norwegian tonnage tax rather than ordinary corporate taxation. Under the tonnage tax regime, tax is payable based on the tonnage of the vessel, not on operating income, and is included within operating expenses. Net financial income and expense remain taxable as ordinary income at the regular corporate income tax rate of 22% and is recorded as an income tax expense. The amount of tonnage tax included in operating expenses for each of the three and six months ended June 30, 2024 was $54,660 and $108,500, respectively. The amount of tonnage tax included in operating expenses for each of the three and six months ended June 30, 2023 was $55,000 and $107,000, respectively. The activities taxable in the UK relate to the activities of KNOT Offshore Partners UK LLC (“KNOT UK”) and are included within income taxes payable.
Taxes payable related to the entrance tax, a one-time tax payable by the Partnership related to certain subsidiaries on entering the Norwegian tonnage tax system, and income taxes attributable to income from continuing operations are calculated based on the Norwegian corporate tax rate of 22% for 2024 and 2023, and deferred tax liabilities are also calculated based on a tax rate of 22% effective as from January 1, 2024 and January 1, 2023, respectively. As of June 30, 2024 and December 31, 2023, $3.8 million and $4.4 million are presented as non-current deferred taxes assets, respectively, and as of June 30, 2024 and December 31, 2023, $0.1 million and $0.1 million are presented as non-current deferred taxes liabilities, respectively.
16
Significant components of current and deferred income tax expense attributable to income from continuing operations for the three and six months ended June 30, 2024 and 2023 were as follows:
Income tax expenses for the three and six months ended June 30, 2024 and 2023 consist of the following:
The Partnership records a valuation allowance against deferred tax assets when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. In assessing the need for a valuation allowance against deferred tax assets, which relate to financial loss carry forwards and other deferred tax assets within the tonnage tax regime, the Partnership considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized taking into account all the positive and negative evidence available. The Partnership has determined that part of the deferred tax assets are likely to not be realized, and therefore a valuation allowance is recognized as of June 30, 2024, and December 31, 2023. In September 2023, KNOT Shuttle Tankers 12 AS and KNOT Shuttle Tankers AS were merged. After the merger, the financial loss carry forwards in KNOT Shuttle Tankers 12 AS were transferred to the acquiring entity, KNOT Shuttle Tankers AS. KNOT Shuttle Tankers AS has taxable income, and the Partnership has determined it is more likely than not that some of the benefit from the deferred tax assets would be realized based on the weight of available evidence. As of June 30, 2024 and December 31, 2023, the Partnership has determined that $3.8 million and $4.4 million of the deferred tax assets, respectively, are more likely than not to be realized.
10)Vessels and Equipment
As of June 30, 2024 and December 31, 2023, Vessels with a book value of $1,421 million and $1,493 million, respectively, are pledged as security for the Partnership’s long-term debt. See Note 12—Long-term debt.
Vessels & | Accumulated | Accumulated | ||||||||||
(U.S. Dollars in thousands) |
| equipment |
| depreciation |
| impairment |
| Net Vessels | ||||
Vessels, December 31, 2022 | $ | 2,388,615 |
| $ | (727,814) |
| $ | (29,421) |
| $ | 1,631,380 | |
Additions |
| 2,794 |
| — | — |
| 2,794 | |||||
Drydock costs |
| 19,375 |
| — | — |
| 19,375 | |||||
Disposals |
| (12,350) |
| 12,350 | — |
| — | |||||
Depreciation and write down for the period (1) |
| — |
| (110,902) | (49,649) |
| (160,551) | |||||
Vessels, December 31, 2023 | $ | 2,398,434 | $ | (826,366) | $ | (79,070) | $ | 1,492,998 | ||||
Additions |
| 74 |
| — | — |
| 74 | |||||
Drydock costs |
| 58 |
| — | — |
| 58 | |||||
Depreciation and write down for the period (1) |
| — |
| (55,490) | (16,384) |
| (71,874) | |||||
Vessels, June 30, 2024 | $ | 2,398,566 | $ | (881,856) | $ | (94,454) | $ | 1,421,256 | ||||
| (1) | The carrying values of each of the Dan Cisne and the Dan Sabia were written down to their respective estimated fair values as of June 30, 2023 and further as of June 30, 2024. See Note 19—Impairment of long-lived assets. |
17
Drydocking activity as of June 30, 2024 and December 31, 2023 is summarized as follows:
11)Inventory
The following table presents the inventory as of June 30, 2024 and December 31, 2023:
(U.S. Dollars in thousands) |
| At June 30, 2024 |
| At December 31, 2023 |
Lubricating oil | 3,156 | 2,995 | ||
Bunkers | 561 | 701 | ||
Total inventory | 3,717 | 3,696 |
12)Long-Term Debt
As of June 30, 2024 and December 31, 2023, the Partnership had the following debt amounts outstanding:
June 30, | December 31, | |||||||
(U.S. Dollars in thousands) |
| Vessel |
| 2024 |
| 2023 | ||
$345 million loan facility | Anna Knutsen, Tordis Knutsen, Vigdis Knutsen, Brasil Knutsen, Lena Knutsen | $ | 275,987 | $ | 288,534 | |||
$240 million loan facility | Windsor Knutsen, Bodil Knutsen, Carmen Knutsen, Fortaleza Knutsen, Recife Knutsen, Ingrid Knutsen | 204,528 | 222,264 | |||||
Hilda loan facility |
| Hilda Knutsen |
| 60,000 |
| 60,000 | ||
$192.1 million loan facility | Synnøve Knutsen, Tove Kuntsen | 149,149 | 153,702 | |||||
$25 million revolving credit facility with NTT |
|
|
| 15,000 |
| 25,000 | ||
$25 million revolving credit facility with Shinsei | 25,000 | 25,000 | ||||||
Raquel Sale & Leaseback | Raquel Knutsen | 76,415 | 79,070 | |||||
Torill Sale & Leaseback | Torill Knutsen | 94,955 | 99,065 | |||||
Total long-term debt |
|
| $ | 901,034 | $ | 963,005 | ||
Less: current installments |
|
|
| 91,251 |
| 101,010 | ||
Less: unamortized deferred loan issuance costs |
|
|
| 2,094 |
| 2,050 | ||
Current portion of long-term debt |
|
|
| 89,157 |
| 98,960 | ||
Amounts due after one year |
|
|
| 809,783 |
| 861,995 | ||
Less: unamortized deferred loan issuance costs |
|
|
| 3,569 |
| 4,166 | ||
Long-term debt, less current installments, and unamortized deferred loan issuance costs |
|
| $ | 806,214 | $ | 857,829 | ||
The Partnership’s outstanding debt of $901.0 million ($895.4 million net of debt issuance costs) as of June 30, 2024 is repayable as follows:
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As of June 30, 2024, the interest rates on the Partnership’s loan agreements were SOFR plus a fixed margin ranging from 1.75% to 2.40%. The average margin paid on the Partnership’s outstanding debt during the second quarter of 2024 was approximately 2.26% over SOFR. The Partnership is in compliance with all covenants under its credit facilities.
$60 Million Hilda Loan Facility
In May 2024, the Partnership’s subsidiary, Knutsen Shuttle Tankers 14 AS, which owns the vessel Hilda Knutsen, closed a new $60 million senior secured term loan facility with DNB Bank ASA and Nordea Bank ABP (the “$60 million Hilda Facility”). The $60 million Hilda Facility is repayable in 12 consecutive quarterly installments with a final payment due at maturity of $39.4 million, which includes the balloon payment and last quarterly installment. The $60 million Hilda Facility bears interest at a rate per annum equal to SOFR plus a margin of 2.25%. The $60 million Hilda Facility is secured by a mortgage on the Hilda Knutsen. The Partnership and KNOT Shuttle Tankers AS are the sole guarantors. The facility matures in May 2027.
The $60 million Hilda Facility contains the following primary financial covenants:
| ● | The borrower shall at all times maintain liquidity equal or greater to $500,000; |
| ● | Positive working capital of the Partnership; |
| ● | Minimum liquidity of the Partnership of $15 million plus increments of $1.5 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 8 vessels and $1.0 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 12 additional vessels in excess of 8 vessels (of which a minimum of $10 million must be cash); |
| ● | Minimum book equity ratio for the Partnership of 30%; and |
| ● | Minimum EBITDA to interest ratio for the Partnership of 2.50. |
The $60 million Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including if the market value of the Hilda Knutsen is less than 135% of the outstanding loan under the $60 million Hilda Facility, upon a total loss or sale of the Hilda Knutsen and customary events of default. As of June 30, 2024, the borrower and the guarantors were in compliance with all covenants under this facility.
Tuva Facility
On January 15, 2021, KNOT Shuttle Tankers 31 AS, the subsidiary owning the Tuva Knutsen, as borrower, entered into a $88 million term loan facility with Nordea Bank ABP (the “Tuva Facility”). The Tuva Facility became one of the Partnership’s debt obligations upon closing of the Tuva Knutsen Acquisition on September 3, 2024 (see Note-20 Subsequent Events), and is therefore not included in the Partnership’s outstanding debt as of June 30, 2024. The Tuva Facility is repayable in quarterly installments with a final payment at maturity on January 28, 2027 of $57.4 million, which includes the balloon payment and last quarterly installment. The facility bears interest at a rate per annum equal to SOFR plus a margin of 2.16%. In connection with the Tuva Knutsen Acquisition, the Partnership and KNOT Shuttle Tankers AS became the sole guarantors. The facility is secured by a mortgage on the Tuva Knutsen.
The Tuva Facility contains the following primary financial covenants:
| ● | The borrower shall at all times maintain liquidity equal or greater than $500,000; |
| ● | Positive working capital of the Partnership; |
| ● | Minimum liquidity of the Partnership of $15 million plus increments of $1.5 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 8 vessels and $1 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 12 additional vessels in excess of 8 vessels (of which a minimum of $10 million must be cash); |
| ● | Minimum book equity ratio for the Partnership of 30%; and |
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| ● | Minimum EBITDA to interest ratio for the Partnership of 2.50. |
The Tuva Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including if the market value of the Tuva Knutsen falls below 125% of the outstanding loan, upon total loss or sale of the vessel and customary events of default.
13)Related Party Transactions
(a)Related Parties
Net income (expense) from related parties included in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023 are as follows:
| Three Months Ended | Six Months Ended | ||||||||||
June 30, | June 30, | |||||||||||
(U.S. Dollars in thousands) | 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Statements of operations: | ||||||||||||
Time charter and bareboat revenues: |
|
|
|
|
|
|
|
| ||||
Time charter income from KNOT (1) |
| $ | 7,495 |
| $ | 7,607 |
| $ | 14,311 |
| $ | 13,923 |
Operating expenses: |
|
|
|
|
|
|
|
| ||||
Vessel operating expenses (2) |
| 5,266 |
| 4,960 |
| 8,614 |
| 7,753 | ||||
Voyage expenses and commissions (3) | 4 | 6 | 15 | 70 | ||||||||
Technical and operational management fee from KNOT to Vessels (4) |
| 3,035 |
| 2,864 |
| 6,502 |
| 5,407 | ||||
Operating expenses from other related parties (5) |
| 286 |
| 196 |
| 576 |
| 462 | ||||
General and administrative expenses: |
|
|
|
| ||||||||
Administration fee from KNOT Management (6) |
| 381 |
| 303 |
| 710 |
| 605 | ||||
Administration fee from KOAS (6) |
| 231 |
| 147 |
| 440 |
| 298 | ||||
Administration fee from KOAS UK (6) |
| 16 |
| 20 |
| 33 |
| 41 | ||||
Administration and management fee from KNOT (7) |
| 10 |
| 15 |
| 20 |
| 34 | ||||
Total income (expenses) | $ | (1,734) | $ | (904) | $ | (2,599) | $ | (747) | ||||
(U.S. Dollars in thousands) |
| At June 30, 2024 |
| At December 31, 2023 | ||
Balance Sheet: |
|
|
|
| ||
Vessels: |
|
|
|
| ||
Drydocking supervision fee from KNOT (8) | $ | 10 | $ | 135 | ||
Drydocking supervision fee from KOAS (8) | — | (77) | ||||
Equipment purchased from Knutsen Ballast Water AS (9) | 70 | 577 | ||||
Total | $ | 80 | $ | 635 | ||
| (1) | Time charter income from KNOT: Time charter contracts with Knutsen Shuttle Tankers Pool AS have been in operation in respect of the Bodil Knutsen until her delivery to Equinor in March 2024; the Hilda Knutsen since the third quarter of 2022; the Torill Knutsen since the first quarter of 2023; the Ingrid Knutsen since the second quarter of 2024. Commencing July 2024, the Dan Cisne operated on a time charter contract with Knutsen Shuttle Tankers Pool AS until the completion of her sale to KNOT on September 3, 2024. |
| (2) | Vessel operating expenses: KNOT Management or KNOT Management Denmark provides technical and operational management of the vessels on time charter including crewing and crew training services. |
| (3) | Voyage expenses and commissions: The Ingrid Knutsen and the Torill Knutsen have completed one spot voyage each where Knutsen Shuttle Tankers Pool AS has earned a 1.25% commission on the voyage revenues. |
| (4) | Technical and operational management fee, from KNOT Management or KNOT Management Denmark to Vessels: KNOT Management or KNOT Management Denmark provides technical and operational management of the vessels on time charter including crewing, purchasing, maintenance and other operational service. In addition, there is also a charge for 24-hour emergency response services provided by KNOT Management for all vessels managed by KNOT Management. |
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| (5) | Operating expenses from other related parties: Simsea Real Operations AS, a company jointly owned by the Partnership’s Chairman of the Board, Trygve Seglem, and by other third-party shipping companies in Haugesund, provides simulation, operational training assessment and other certified maritime courses for seafarers. The cost is course fees for seafarers. Knutsen OAS Crewing AS, a subsidiary of TSSI, provides administrative services related to Eastern European crew on vessels operating on time charter contracts. The cost is a fixed fee per month per such crew member onboard a vessel. Level Power & Automation AS, a company that provides the Partnership’s vessels with equipment and inspection services, is owned by Level Group AS, where Trygve Seglem, his family and members of TSSI management have significant influence. |
| (6) | Administration fee from KNOT Management, Knutsen OAS Shipping AS (“KOAS”) and Knutsen OAS (UK) Ltd. (“KOAS UK”): Administration costs include compensation and benefits of KNOT Management’s management and administrative staff on a time-spent basis as well as other general and administration expenses. Some services are also provided by KOAS and KOAS UK. Net costs are total administration cost plus a 5% margin. As such, the level of administration costs charged to the Partnership can vary from year to year based on the administration and financing services provided each year. KNOT Management also charges each subsidiary a fixed annual fee for the preparation of statutory financial statements. |
| (7) | Administration and management fee from KNOT Management and KNOT Management Denmark: For bareboat charters, the shipowner is not responsible for providing crewing or other operational services and the customer is responsible for all vessel operating expenses and voyage expenses. However, each of the vessels under bareboat charters is subject to a management and administration agreement with either KNOT Management or KNOT Management Denmark, pursuant to which these companies provide general monitoring services for the vessels in exchange for an annual fee. |
| (8) | Drydocking supervision fee from KNOT Management, KNOT Management Denmark and KOAS : KNOT Management, KNOT Management Denmark and KOAS provide supervision and hire out service personnel during drydocking of the vessels. The fee is calculated as a daily fixed fee. |
| (9) | Equipment purchased from Knutsen Ballast Water AS: As part of the scheduled drydocking of the Carmen Knutsen that commenced in the fourth quarter of 2022 until the first quarter of 2023, a ballast water treatment system was installed on the vessel. As part of the scheduled drydocking of the Torill Knutsen in the fourth quarter of 2023, a ballast water treatment system was installed on the vessel. As of December 31, 2023 and June 30, 2024, parts of the system had been purchased from Knutsen Ballast Water AS, a subsidiary of TSSI, for $0.58 million and $0.07 million, respectively. |
(b)Transactions with Management and Directors
Trygve Seglem, the Chairman of the Partnership’s board of directors and the President and CEO of KNOT, controls Seglem Holding AS, which owns 100% of the equity interest in TSSI, which controls KOAS and Knutsen Ballast Water AS. TSSI owns 50% of the equity interest in KNOT. NYK, which owns 50% of the equity interest in KNOT, has management and administrative personnel on secondment to KNOT. Mr. Seglem, along with other third-party shipping companies in Haugesund, also jointly owns Simsea Real Operations AS.
See the footnotes to Note 13(a)—Related Party Transactions for a discussion of transactions with management and directors included in the unaudited condensed consolidated statements of operations.
(c)Amounts Due from (to) Related Parties
Balances with related parties consisted of the following:
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Amounts due from (to) related parties are unsecured and are intended to be settled in the ordinary course of business. The majority of these related party transactions relate to vessel management and other fees due to KNOT, KNOT Management, KOAS UK and KOAS.
(d)Trade accounts payable
Trade accounts payable to related parties are included in total trade accounts payable in the balance sheet. The balances to related parties consisted of the following:
Trading balances from KNOT and affiliates are included in other current assets in the balance sheet. The balances from related parties consisted of the following:
14)Commitments and Contingencies
Assets Pledged
As of June 30, 2024 and December 31, 2023, Vessels with a book value of $1,421 million and $1,493 million, respectively, were pledged as security held as guarantee for the Partnership’s long-term debt and interest rate swap obligations. See Note 7—Derivative Instruments, Note 10—Vessels and Equipment and Note 12—Long-Term Debt.
Claims and Legal Proceedings
Under the Partnership’s time charter contracts, claims to reduce charter hire payments can be made by customers if the Vessel does not perform to certain specifications as set out in the relevant contract. No accrual for possible claims was recorded for the period ended June 30, 2024 and the year ended December 31, 2023.
From time to time, the Partnership is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows.
Insurance
The Partnership maintains insurance on all the Vessels to insure against loss of charter hire and marine and war risks, which includes damage to or total loss of the Vessels, with each type of insurance subject to deductible amounts that average $0.15 million per Vessel.
Under the loss of hire policies, the insurer will pay compensation for the lost hire rate agreed in respect of each Vessel for each day, in excess of 14 deductible days, for the time that the Vessel is out of service as a result of damage, for a maximum of 180 days. In addition, the Partnership maintains protection and indemnity insurance, which covers third-party legal liabilities arising in connection with the Vessels’ activities, including, among other things, the injury or death of third-party persons, loss or damage to cargo, claims arising from collisions with other vessels and other damage to other third-party property, including pollution arising from oil or other substances. This insurance is unlimited, except for pollution, which is limited to $1 billion per vessel per incident. The protection and indemnity insurance is maintained through a protection and indemnity association, and as a member of the association, the Partnership may be required to pay amounts above budgeted premiums if the member claims exceed association reserves, subject to certain reinsured amounts. If the Partnership experiences multiple claims each with individual deductibles, losses due to risks that are not insured or
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claims for insured risks that are not paid, it could have a material adverse effect on the Partnership’s results of operations and financial condition. See Note 5 — Insurance proceeds.
15)Earnings per Unit and Cash Distributions
The calculations of basic and diluted earnings per unit (1) are presented below:
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
(U.S. Dollars in thousands, except per unit data) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net income (loss) | $ | (12,851) | $ | (40,390) | $ | (5,413) | $ | (41,687) | ||||
Less: Series A Preferred unitholders’ interest in net income (loss) | 1,700 | 1,700 | 3,400 | 3,400 | ||||||||
Net income (loss) attributable to the unitholders of KNOT Offshore Partners LP | (14,551) | (42,090) | (8,813) | (45,087) | ||||||||
Less: Distributions (2) | 901 | 901 | 1,803 | 1,803 | ||||||||
Under (over) distributed earnings | (15,452) | (42,991) | (10,616) | (46,890) | ||||||||
Under (over) distributed earnings attributable to: | ||||||||||||
Common unitholders | (15,168) | (42,198) | (10,421) | (46,025) | ||||||||
General Partner | (284) | (793) | (195) | (865) | ||||||||
Weighted average units outstanding (basic) (in thousands): |
|
|
|
| ||||||||
Common unitholders | 34,045 | 34,045 | 34,045 | 34,045 | ||||||||
Class B unitholders | 252 | 252 | 252 | 252 | ||||||||
General Partner | 640 | 640 | 640 | 640 | ||||||||
Weighted average units outstanding (diluted) (in thousands): | ||||||||||||
Common unitholders | 38,519 | 38,448 | 38,519 | 38,448 | ||||||||
Class B unitholders | 252 | 252 | 252 | 252 | ||||||||
General Partner | 640 | 640 | 640 | 640 | ||||||||
Earnings per unit (basic): |
|
|
|
| ||||||||
Common unitholders | $ | (0.42) | $ | (1.21) | $ | (0.25) | $ | (1.30) | ||||
Class B unitholders (3) | — | — | — | — | ||||||||
General Partner | (0.42) | (1.21) | (0.25) | (1.30) | ||||||||
Earnings per unit (diluted): |
|
| ||||||||||
Common unitholders (4) | $ | (0.42) | $ | (1.21) | $ | (0.25) | $ | (1.30) | ||||
Class B unitholders (3) | — | — | — | — | ||||||||
General Partner | (0.42) | (1.21) | (0.25) | (1.30) | ||||||||
Cash distributions declared and paid in the period per unit (5) | $ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.05 | ||||
Subsequent event: Cash distributions declared and paid per unit relating to the period (6) | $ | 0.03 | $ | 0.03 | $ | 0.05 | $ | 0.05 | ||||
| (1) | Earnings per unit have been calculated in accordance with the cash distribution provisions set forth in the Partnership’s agreement of limited partnership (the “Partnership Agreement”). |
| (2) | This refers to distributions made or to be made in relation to the period irrespective of the declaration and payment dates and based on the number of units outstanding at the record date. |
| (3) | When the distribution target is not met, there is no allocation of net income (loss) to Class B units. |
| (4) | Diluted weighted average units outstanding and earnings per unit diluted for the three and six months ended June 30, 2024 and 2023 does not reflect any potential common units relating to the Series A Preferred Units since the assumed issuance of any additional units would be anti-dilutive. |
| (5) | Refers to cash distributions declared and paid during the period. |
| (6) | Refers to cash distributions declared and paid subsequent to the period end. |
The Series A Preferred Units rank senior to the common units and Class B Units as to the payment of distributions and amounts payable upon liquidation, dissolution or winding up. The Series A Preferred Units have a liquidation preference of $24.00 per unit, plus
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any Series A unpaid cash distributions, plus all accrued but unpaid distributions on such Series A Preferred Unit with respect to the quarter in which the liquidation occurs to the date fixed for the payment of any amount upon liquidation. The Series A Preferred Units are entitled to cumulative distributions from their initial issuance date, with distributions being calculated at an annual rate of 8.0% on the stated liquidation preference and payable quarterly in arrears within 45 days after the end of each quarter, when, as and if declared by the Board.
The Series A Preferred Units are generally convertible, at the option of the holders of the Series A Preferred Units, into common units at the applicable conversion rate. The conversion rate will be subject to adjustment under certain circumstances. In addition, the conversion rate will be redetermined on a quarterly basis, such that the conversion rate will be equal to $24.00 (the “Issue Price”) divided by the product of (x) the book value per common unit at the end of the immediately preceding quarter (pro-forma for per unit cash distributions payable with respect to such quarter) multiplied by (y) the quotient of (i) the Issue Price divided by (ii) the book value per common unit on February 2, 2017. In addition, the Partnership may redeem the Series A Preferred Units at any time until February 2, 2027 at the redemption price specified in the Partnership Agreement, provided, however, that upon notice from the Partnership to the holders of Series A Preferred Units of its intent to redeem, such holders may elect, instead, to convert their Series A Preferred Units into common units at the applicable conversion rate.
Upon a change of control of the Partnership, the holders of Series A Preferred Units will have the right to require cash redemption at 100% of the Issue Price. In addition, the holders of Series A Preferred Units will have the right to cause the Partnership to redeem the Series A Preferred Units on February 2, 2027 in, at the option of the Partnership, (i) cash at a price equal to 70% of the Issue Price or (ii) common units such that each Series A Preferred Unit receives common units worth 80% of the Issue Price (based on the volume-weighted average trading price, as adjusted for splits, combinations and other similar transactions, of the common units as reported on the NYSE for the 30 trading day period ending on the fifth trading day immediately prior to the redemption date) plus any accrued and unpaid distributions. In addition, subject to certain conditions, the Partnership has the right to convert the Series A Preferred Units into common units at the applicable conversion rate if the aggregate market value (calculated as set forth in the partnership agreement) of the common units into which the outstanding Series A Preferred Units are convertible, based on the applicable conversion rate, is greater than 130% of the aggregate Issue Price of the outstanding Series A Preferred Units.
The Series A Preferred Units have voting rights that are identical to the voting rights of the common units and Class B Units, except they do not have any right to nominate, appoint or elect any of the directors of the Board, except whenever distributions payable on the Series A Preferred Units have not been declared and paid for four consecutive quarters (a “Trigger Event”). Upon a Trigger Event, holders of Series A Preferred Units, together with the holders of any other series of preferred units upon which like rights have been conferred and are exercisable, may replace one of the members of the Board appointed by the General Partner with a person nominated by such holders, such nominee to serve until all accrued and unpaid distributions on the preferred units have been paid. The Series A Preferred Units are entitled to vote with the common units and Class B Units as a single class so that the Series A Preferred Units are entitled to one vote for each common unit into which the Series A Preferred Units are convertible at the time of voting.
On September 7, 2021, the Partnership entered into an exchange agreement with its general partner and KNOT whereby KNOT contributed to the Partnership all of KNOT’s IDRs in exchange for the issuance by the Partnership to KNOT of 673,080 common units and 673,080 Class B Units, whereupon the IDRs were cancelled (the “IDR Exchange”). The IDR Exchange closed on September 10, 2021. The Class B Units are a new class of limited partner interests which are not entitled to receive cash distributions in any quarter unless common unitholders receive a distribution of at least $0.52 for such quarter (the “Distribution Threshold”). When common unitholders receive a quarterly distribution at least equal to the Distribution Threshold, then Class B unitholders will be entitled to receive the same distribution as common unitholders.
For each quarter (starting with the quarter ended September 30, 2021) that the Partnership pays distributions on the common units that are at or above the Distribution Threshold, -eighth of the number of Class B Units originally issued will be converted to common units on a one-for-one basis until such time as no further Class B Units exist. The Class B Units will generally vote together with the common units as a single class.
As of December 31, 2023 and June 30, 2024, a total of 420,675 of the Class B Units had been converted.
On January 11, 2023, the Partnership declared a quarterly cash distribution with respect to the fourth quarter of 2022 of $0.026 per common unit. After the payment of the Partnership’s quarterly cash distributions in respect of the fourth quarter of 2022 through to the second quarter of 2024 inclusive, no Class B Units converted to common units. As a result, 252,405 out of the 673,080 Class B Units originally issued remain outstanding as of June 30, 2024.
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As of June 30, 2024, 71.4% of the Partnership’s total number of common units outstanding representing limited partner interests were held by the public (in the form of 24,293,458 common units) and 28.4% of such units were held directly by KNOT (in the form of 9,661,255 common units). In addition, KNOT, through its ownership of the General Partner, held a 1.83% general partner interest (in the form of 640,278 general partner units) and a 0.3% limited partner interest (in the form of 90,368 common units). As of June 30, 2024, KNOT also held 208,333 Series A Preferred Units and 252,405 Class B Units.
Earnings per unit – basic is determined by dividing net income, after deducting the amount of net income attributable to the Series A Preferred Units and the distribution paid or to be made in relation to the period, by the weighted-average number of units outstanding during the applicable period.
The computation of limited partners’ interest in net income per common unit – diluted assumes the issuance of common units for all potentially dilutive securities consisting of 3,541,666 Series A Preferred Units and 252,405 Class B Units as of June 30, 2024. Consequently, the net income attributable to limited partners’ interest is exclusive of any distributions on the Series A Preferred Units. In addition, the weighted average number of common units outstanding has been increased assuming the Series A Preferred Units and Class B Units have been converted to common units using the if-converted method. The computation of limited partners’ interest in net income per common unit – diluted does not assume the issuance of Series A Preferred Units and Class B Units if the effect would be anti-dilutive.
The General Partner’s, Class B unitholders’ and common unitholders’ interest in net income was calculated as if all net income was distributed according to the terms of the Partnership Agreement, regardless of whether those earnings would or could be distributed. The Partnership Agreement does not provide for the distribution of net income. Rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter less the amount of cash reserves established by the Board to provide for the proper conduct of the Partnership’s business, including reserves for future capital expenditures, anticipated credit needs and capital requirements and any accumulated distributions on, or redemptions of, the Series A Preferred Units. Unlike available cash, net income is affected by non-cash items, such as depreciation and amortization, unrealized gains and losses on derivative instruments and unrealized foreign currency gains and losses.
16)Unit Activity
There was no movement in the number of common units, Class B Units, general partner units and Series A Preferred Units from December 31, 2023 until June 30, 2024.
17)Trade Accounts Receivable and Other Current Assets
(a)Trade Accounts Receivable
Trade accounts receivable are presented net of provisions for expected credit loss. As of June 30, 2024 and December 31, 2023, there were no provisions for expected credit loss.
(b)Other Current Assets
The following table presents other currents assets of June 30, 2024 and December 31, 2023:
Out of the trade receivables of $6,107,000 at June 30, 2024, $143,000 was due from KNOT and its affiliates (refer to Note 13 (d))
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18)Accrued expenses
The following table presents accrued expenses as of June 30, 2024 and December 31, 2023:
(U.S. Dollars in thousands) |
| At June 30, 2024 |
| At December 31, 2023 | ||
Operating expenses | $ | 1,549 | $ | 3,025 | ||
Interest expenses |
| 4,678 |
| 5,032 | ||
Other expenses |
| 3,490 |
| 6,718 | ||
Total accrued expenses | $ | 9,717 | $ | 14,775 | ||
19)Impairment of Long-Lived Assets
The carrying value of the Partnership’s fleet is regularly assessed as events or changes in circumstances may indicate that a vessel’s net carrying value exceeds the net undiscounted cash flows expected to be generated over its remaining useful life, and in such situation the carrying amount of the vessel is reduced to its estimated fair value. The Partnership considers factors related to vessel age, expected residual value, ongoing use of the vessels and equipment, shifts in market conditions and other impacting factors associated with the shuttle tanker business as well as the wider global oil and maritime transportation industries.
This exercise in respect of the second quarter of 2024 resulted in an impairment in respect of the Dan Cisne (owing to her sale on September 3, 2024) and the Dan Sabia (owing to the expiry of her charter contract, her high carrying value, and her smaller size being not being optimal for the Brazilian market, therefore affecting the outlook for future employment).The carrying values of the Dan Cisne and the Dan Sabia were written down to their estimated fair value, using a discounted cash flow valuation. Our estimates of future cash flows involve assumptions about future hire rates, vessel utilization, operating expenses, drydocking expenditures, vessel residual values, the remaining estimated life of our vessels, the potential for sale of the two vessels and discount rates. The Partnership’s consolidated statement of operations for the six months ended June 30, 2024, includes a $5.8 million impairment charge related to the Dan Cisne and $10.6 million impairment charge related to the Dan Sabia. The impairment of the Dan Cisne and the Dan Sabia is included in the Partnership’s only segment, the shuttle tanker segment.
This exercise in respect of the second quarter of 2023 resulted in impairments in respect of both the Dan Cisne and the Dan Sabia principally due to their charter contracts moving closer to expiration without being renewed, their high carrying value, and their smaller size not being optimal for the Brazilian market, therefore affecting the outlook for their future employment. The carrying values of the Dan Cisne and the Dan Sabia were written down to their estimated fair value, using a discounted cash flow valuation. The Partnership’s consolidated statement of operations for the six months ended June 30, 2023, includes a $24.5 million impairment charge related to the Dan Cisne and $25.2 million impairment charge related to the Dan Sabia.
20)Subsequent Events
The Partnership has evaluated subsequent events from the balance sheet date through September 18, 2024, the date at which the unaudited condensed consolidated financial statements were available to be issued, and determined that there are no other items to disclose, except as follows:
On July 9, 2024, the Partnership declared a quarterly cash distribution of $0.026 per common unit with respect to the quarter ended June 30, 2024, which was paid on August 8, 2024, to all common unitholders of record on July 29, 2024. On the same day, the Partnership declared a quarterly cash distribution to holders of Series A Preferred Units with respect to the quarter ended June 30, 2024 in an aggregate amount equal to $1.7 million, which was paid on August 7, 2024.
On July 10, 2024, the Partnership received the Dan Sabia back via redelivery, following expiry of her bareboat charter party to Transpetro. The Dan Sabia is being marketed for shuttle tanker operation principally in Brazil and remains available also for charter to Knutsen NYK (subject to negotiation and approvals) and short-term conventional tanker contracts.
On July 25, 2024, a time charter to commence Q4 2024 was executed with Eni in respect of the Torill Knutsen for a fixed period of three years plus three charterer’s options each of one year. This had initially been negotiated with Eni in conjunction with an agreement reached on April 12, 2024, and on terms no less favorable to the Partnership than had applied previously, to delay delivery of Ingrid Knutsen until October 2024 for a time charter for a fixed period of two years plus two charterer’s options each of one year.
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On August 15, 2024, repair work on the Torill Knutsen was completed following the breakage of a generator rotor in January 2024. The Torill Knutsen remained able to serve a limited range of client facilities, and the Partnership expects to be compensated by insurance for the extent to which, as a consequence of this breakage, the Torill Knutsen’s earnings have fallen short of a contractual hire rate, commencing 14 days after the date of the breakage. The Partnership also expects that the repair cost will be covered by insurance, in excess of a deductible of $150,000.
On September 3, 2024, the Partnership’s subsidiary, KNOT Shuttle Tankers AS, acquired KNOT Shuttle Tankers 31 AS, the company that owns the shuttle tanker Tuva Knutsen, from Knutsen NYK (the “Tuva Knutsen Acquisition”). Simultaneously, KNOT Shuttle Tankers AS sold KNOT Shuttle Tankers 20 AS, the company that owns the shuttle tanker Dan Cisne, to Knutsen NYK (the “Dan Cisne Sale”). The purchase price for the Tuva Knutsen Acquisition was $97.5 million, less $69.0 million of outstanding indebtedness under the secured credit facility related to the Tuva Knutsen (the “Tuva Facility”) plus capitalized fees of $0.4 million. The sale price for the Dan Cisne Sale was $30 million and there was no related debt. The combination of the Tuva Knutsen Acquisition and the Dan Cisne Sale was settled by a net cash payment from Knutsen NYK to KNOT Shuttle Tankers AS of $1.1 million (relating to the difference between the prices of the respective transactions). Customary adjustments related to working capital and an associated interest rate swap will be made following the closing.
The Tuva Facility is repayable in quarterly installments with a final balloon payment (including the final quarterly installment) of $57.4 million due at maturity on January 28, 2027. The Tuva Facility bears interest at a rate equal to SOFR plus a margin of 2.16%. For a description of the Tuva Facility, please see Note 12 – Long-Term Debt-Tuva Facility.
The Tuva Knutsen is operating in Brazil on a charter contract with TotalEnergies, for which the current fixed period expires in February 2026, and for which the charterer holds options for a further 10 years. As part of the Tuva Knutsen Acquisition, Knutsen NYK has agreed that if at any time during the seven years following the closing date of the Tuva Knutsen Acquisition the Tuva Knutsen is not receiving from any charterer a rate of hire that is equal to or greater than the rate of hire then in effect and payable under the TotalEnergies charter, then Knutsen NYK shall pay the Partnership such rate of hire that would have been in effect and payable under the Total Energies charter; provided, however, that in the event that for any period during such seven years the Tuva Knutsen is chartered under a charter other than the Total Energies charter and the rate of hire being paid under such charter is lower than the rate of hire that would have been in effect and payable under the Total Energies charter during any such period, then Knutsen NYK shall pay the Partnership the difference between the rate of hire that would have been in effect and payable under the existing Tuva Knutsen charter during such period and the rate of hire that is then in effect and payable under such other charter. Thus, Knutsen NYK has effectively guaranteed the hire rate for the Tuva Knutsen until September 3, 2031 on the same basis as if TotalEnergies had exercised its options through such date.
The Partnership’s Board of Directors (the “Board”) and the conflicts committee of the Board (the “Conflicts Committee”) approved the purchase prices of the Tuva Knutsen Acquisition and the Dan Cisne Sale. The Conflicts Committee retained an outside financial advisor and outside legal counsel to assist with its evaluation of the Tuva Knutsen Acquisition and the Dan Cisne Sale.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this report to the “Partnership,” “KNOT Offshore Partners,” “we,” “our,” “us” or like terms, refer to KNOT Offshore Partners LP and its subsidiaries. Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Forward-Looking Statements” for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.
This section should be read in conjunction with our unaudited condensed consolidated financial statements for the periods presented elsewhere in this report, as well as our historical consolidated financial statements and notes thereto included in our Annual Report on Form 20-F for the year ended December 31, 2023 (the “2023 20-F”). Under our Partnership Agreement, KNOT Offshore Partners GP LLC, the general partner of the Partnership (the “General Partner”), has irrevocably delegated to the Partnership’s board of directors the power to oversee and direct the operations of, and to manage and determine the strategies and policies of, the Partnership. During the period from the Partnership’s initial public offering (“IPO”) in April 2013 until the time of the Partnership’s first annual general meeting (“AGM”) on June 25, 2013, the General Partner retained the sole power to appoint, remove and replace all members of the Partnership’s board of directors. From the first AGM, four of the seven board members became electable by the common unitholders and accordingly, from this date, the General Partner no longer retained the power to control the Partnership’s board of directors and, hence, the Partnership. As a result, the Partnership is no longer considered to be under common control with Knutsen NYK Offshore Tankers AS (“KNOT” or “Knutsen NYK”) and as a consequence, the Partnership no longer accounts for any vessel acquisitions from KNOT as transfer of a business between entities under common control.
General
We are a limited partnership formed to own, operate and acquire shuttle tankers primarily under long-term charters, which we define as charters of five years or more. Our fleet of shuttle tankers has been contributed to us by KNOT or purchased by us from KNOT. KNOT is jointly owned by TS Shipping Invest AS (“TSSI”) and Nippon Yusen Kaisha (“NYK”). TSSI is controlled by our Chairman and is a private Norwegian company with ownership interests in shuttle tankers, LNG tankers and product/chemical tankers. NYK is a Japanese public company with a fleet of approximately 811 vessels, including bulk carriers, car carriers, containerships, tankers and specialized vessels.
As of June 30, 2024, we had a modern fleet of eighteen shuttle tankers that operate primarily under charters with major oil and gas companies engaged in offshore oil production. Our primary business objective is to generate stable cash flows and provide a sustainable quarterly distribution per unit by chartering our vessels pursuant to long-term charters with high quality customers that generate long-term stable income, and by pursuing strategic and accretive acquisitions of shuttle tankers. Pursuant to the Omnibus Agreement we have entered into with KNOT in connection with the IPO (the “Omnibus Agreement”), we have the right to purchase from KNOT any shuttle tankers operating under charters of five or more years. This right will continue throughout the entire term of the Omnibus Agreement.
Recent Developments
Cash Distributions
On May 9, 2024, the Partnership paid a quarterly cash distribution of $0.026 per common unit with respect to the quarter ended March 31, 2024 to all common unitholders of record on April 29, 2024. On May 9, 2024, the Partnership paid a quarterly cash distribution to holders of Series A Preferred Units with respect to the quarter ended March 31, 2024 in an aggregate amount equal to $1.7 million.
On August 8, 2024, the Partnership paid a quarterly cash distribution of $0.026 per common unit with respect to the quarter ended June 30, 2024 to all common unitholders of record on July 29, 2024. On August 7, 2024, the Partnership paid a quarterly cash distribution to holders of Series A Preferred Units with respect to the quarter ended June 30, 2024 in an aggregate amount equal to $1.7 million.
$60 Million Hilda Loan Facility
In May 2024, the Partnership’s subsidiary, Knutsen Shuttle Tankers 14 AS, which owns the vessel Hilda Knutsen, closed a new $60 million senior secured term loan facility with DNB Bank ASA and Nordea Bank ABP, (the “$60 million Hilda Facility”). The $60 million Hilda Facility is repayable in 12 consecutive quarterly installments with a final payment due at maturity of $39.4 million, which includes the balloon payment and last quarterly installment. The $60 million Hilda Facility bears interest at a rate per annum equal to
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SOFR plus a margin of 2.25%. The $60 million Hilda Facility is secured by a mortgage on the Hilda Knutsen. The Partnership and KNOT Shuttle Tankers AS are the sole guarantors. The facility matures in May 2027.
Vessel Impairments
Impairments in respect of the Dan Cisne and Dan Sabia of $5.8 million and $10.6 million, respectively, were recognized in respect of the second quarter of 2024. In accordance with US GAAP, the Partnership’s fleet is regularly assessed for impairment as events or changes in circumstances may indicate that a vessel’s net carrying value exceeds the net undiscounted cash flows expected to be generated over her remaining useful life, and in such situation the carrying amount of the vessel is reduced to her estimated fair value. This exercise in respect of the second quarter of 2024 resulted in an impairment in respect of the Dan Cisne (owing to her sale on September 3, 2024) and the Dan Sabia (owing to the expiry of her charter contract, her high carrying value, and her smaller size not being optimal for the Brazilian market, therefore affecting the outlook for future employment).
Time Charters to KNOT
On January 1, 2024, the Hilda Knutsen, Torill Knutsen and Bodil Knutsen each continued to operate on separate time charter contracts with a subsidiary of KNOT, at a reduced charter rate. On January 2, 2024, these rolling monthly contracts were extended until the earlier of January 2025 and any date on which the respective vessel would be delivered to a client for new, third-party charter employment. Similar time charters to KNOT were commenced for the Ingrid Knutsen on April 22, 2024 and the Dan Cisne on July 25, 2024.
Ingrid Knutsen Charter
On April 12, 2024, an agreement was reached with Eni, on terms no less favourable to the Partnership than applied previously, to delay delivery of Ingrid Knutsen until October 2024 for a time charter for a fixed period of two years plus two charterer’s options each of one year. On April 22, 2024, the Ingrid Knutsen began operating under a rolling monthly time charter with KNOT at a reduced charter rate, to expire upon her delivery to Eni in October 2024.
Carmen Knutsen Charter
On April 17, 2024, a time charter for the Carmen Knutsen was executed with an oil major, to commence Q1 2026 for a fixed period of four years plus a charterer’s option for one additional year.
Dan Sabia Redelivery
On July 10, 2024, the Partnership received the Dan Sabia back via redelivery, following expiry of her bareboat charter party to Transpetro. The Dan Sabia is being marketed for shuttle tanker operation principally in Brazil and remains available also for charter to KNOT (subject to negotiation and approvals) and short-term conventional tanker contracts.
Torill Knutsen Charter
On July 25, 2024, in conjunction with the above-mentioned agreement relating to the Ingrid Knutsen, a time charter was executed with Eni in respect of the Torill Knutsen. The time charter is due to commence in Q4 2024 and is for a fixed period of three years plus three charterer’s options each of one year.
Torill Knutsen Repair Completion
On August 15, 2024, repair work on the Torill Knutsen was completed following the breakage of a generator rotor in January 2024. The Torill Knutsen remained able to serve a limited range of client facilities, and the Partnership expects to be compensated by insurance for the extent to which, as a consequence of this breakage, the Torill Knutsen’s earnings have fallen short of a contractual hire rate, commencing 14 days after the date of the breakage. The Partnership also expects that the repair cost will be covered by insurance, in excess of a deductible of $150,000.
29
Tordis Knutsen and Lena Knutsen Charter Extensions
On August 22, 2024, the Partnership agreed with Shell to extend by 1 year the charters for Tordis Knutsen and Lena Knutsen and to provide Shell with options to extend each of these charters by up to 3 periods of 1 year each. Thus, the fixed charter period for each charter will extend until 2028 and the option periods will extend until 2031.
Dan Cisne Sale; Tuva Knutsen Acquisition
On September 3, 2024, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, acquired KNOT Shuttle Tankers 31 AS, the company that owns the shuttle tanker Tuva Knutsen, from KNOT (the “Tuva Knutsen Acquisition”). Simultaneously, KNOT Shuttle Tankers AS sold KNOT Shuttle Tankers 20 AS, the company that owns the shuttle tanker Dan Cisne, to KNOT (the “Dan Cisne Sale”). The purchase price for the Tuva Knutsen Acquisition was $97.5 million, less $69.0 million of outstanding indebtedness under the credit facility related to the Tuva Knutsen (the “Tuva Facility”) plus $0.4 million of capitalized fees. The sale price for the Dan Cisne Sale was $30 million and there was no related debt. The combination of the Tuva Knutsen Acquisition and the Dan Cisne Sale was settled by a net cash payment from KNOT to the Partnership of $1.1 million (relating to the difference between the prices of the respective transactions). Customary adjustments related to working capital and an associated interest rate swap will be made following the closing.
The Tuva Facility is repayable in quarterly installments with a final balloon payment of $57.4 million due at maturity on January 28, 2027. The Tuva Facility bears interest at a rate equal to SOFR plus a margin of 2.16%.
The Tuva Knutsen is operating in Brazil on a charter contract with TotalEnergies, for which the current fixed period expires in February 2026, and for which the charterer holds options for a further 10 years. As part of the Tuva Knutsen Acquisition, KNOT has agreed that if at any time during the seven years following the closing date of the Tuva Knutsen Acquisition the Tuva Knutsen is not receiving from any charterer a rate of hire that is equal to or greater than the rate of hire then in effect and payable under the TotalEnergies charter, then KNOT shall pay the Partnership such rate of hire that would have been in effect and payable under the TotalEnergies charter; provided, however, that in the event that for any period during such seven years the Tuva Knutsen is chartered under a charter other than the TotalEnergies charter and the rate of hire being paid under such charter is lower than the rate of hire that would have been in effect and payable under the TotalEnergies charter during any such period, then KNOT shall pay the Partnership the difference between the rate of hire that would have been in effect and payable under the TotalEnergies charter during such period and the rate of hire that is then in effect and payable under such other charter. Thus, KNOT has effectively guaranteed the hire rate for the Tuva Knutsen until September 3, 2031 on the same basis as if TotalEnergies had exercised its options through such date.
The Partnership’s Board of Directors (the “Board”) and the conflicts committee of the Board (the “Conflicts Committee”) approved the purchase prices of the Tuva Knutsen Acquisition and the Dan Cisne Sale. The Conflicts Committee retained an outside financial advisor and outside legal counsel to assist with its evaluation of the Tuva Knutsen Acquisition and the Dan Cisne Sale.
30
Results of Operations
Three Months Ended June 30, 2024 Compared with the Three Months Ended June 30, 2023
Three Months Ended |
| ||||||||||||
June 30, |
| ||||||||||||
(U.S. Dollars in thousands) |
| 2024 |
| 2023 |
| Change |
| % Change |
| ||||
Time charter and bareboat revenues | $ | 73,437 | $ | 69,924 | $ | 3,513 | 5 | % | |||||
Voyage revenues | 351 | 1,585 | (1,234) | (78) | % | ||||||||
Loss of hire insurance recoveries | 78 | 1,424 | (1,346) | (95) | % | ||||||||
Other income |
| 554 |
| 891 |
| (337) |
| (38) | % | ||||
Vessel operating expenses |
| 26,952 |
| 25,287 |
| 1,665 |
| 7 | % | ||||
Voyage expenses and commission | 584 | 159 | 425 | 267 | % | ||||||||
Depreciation |
| 27,748 |
| 28,107 |
| (359) |
| (1) | % | ||||
Impairment | 16,384 | 49,649 | (33,265) | (67) | % | ||||||||
General and administrative expenses |
| 1,426 |
| 1,838 |
| (412) |
| (22) | % | ||||
Interest income |
| 897 |
| 861 |
| 36 |
| 4 | % | ||||
Interest expense |
| (16,863) |
| (18,107) |
| 1,244 |
| (7) | % | ||||
Other finance income (expense) |
| 177 |
| (112) |
| 289 |
| (258) | % | ||||
Realized and unrealized gain (loss) on derivative instruments |
| 1,797 |
| 8,124 |
| (6,327) |
| (78) | % | ||||
Net gain (loss) on foreign currency transactions |
| 28 |
| 109 |
| (81) |
| (74) | % | ||||
Income tax (expense) |
| (213) |
| (49) |
| (164) |
| 335 | % | ||||
Net income (loss) | $ | (12,851) | $ | (40,390) | $ | 27,539 | (68) | % | |||||
Time charter and bareboat revenues: Time charter and bareboat revenues increased by $3.5 million to $73.4 million for the three months ended June 30, 2024 compared to $69.9 million for the three months ended June 30, 2023. The increase was mainly due to commencement of new time charter contracts for several of the vessels and higher utilization in the fleet in the second quarter of 2024 compared to second quarter of 2023, which was affected by the scheduled drydocking of the Brasil Knutsen and Hilda Knutsen.
Voyage revenues: Voyage revenues for the three months ended June 30, 2024 were $0.4 million compared to $1.6 million for the same period last year. Voyage revenues for the three months ended June 30, 2024 and 2023 relate to spot voyages performed by the Ingrid Knutsen and the Torill Knutsen, and less spot voyages were performed by these two vessels for the three months ended June 30, 2024 compared to same period last year.
Loss of hire insurance recoveries: Loss of hire insurance recoveries for the three months ended June 30, 2024 were $0.1 million, compared to $1.4 million for the three months ended June 30, 2023. The loss of hire insurance recoveries in the three months ended June 30, 2024 related to the Brasil Knutsen in connection with repairs of a tunnel thruster reported in the second quarter of 2023. The loss of hire insurance recoveries in the three months ended June 30, 2023, related to the Windsor Knutsen were $0.8 million and were in connection with repairs of a leakage from a tunnel thruster reported in the third quarter of 2022, for which the Windsor Knutsen was off hire from September 29, 2022, to October 31, 2022. For the three months ended June 30, 2023, the Partnership recorded $0.6 million in loss of hire recoveries with respect to the Lena Knutsen in connection with excessive and abnormal wear found on the steering gear rotor in relation with her scheduled drydocking in second quarter of 2022.
Other income: Other income for the three months ended June 30, 2024 was $0.6 million compared to $0.9 million for the three months ended June 30, 2023.
Vessel operating expenses: Vessel operating expenses for the three months ended June 30, 2024 were $27.0 million, an increase of $1.7 million from $25.3 million in the three months ended June 30, 2023. The increase is mainly due to more vessels operating on time charter contracts for the three months ended June 30, 2024 compared to same period last year.
Voyage expenses and commission: Voyage expenses and commission for the three months ended June 30, 2024 were $0.6 million and relate to bunker cost, commission and port costs for spot voyages performed by the Ingrid Knutsen and the Torill Knutsen. Voyage expenses and commission for the three months ended June 30, 2023 were $159,000 and relate to commissions from spot voyages performed by the Ingrid Knutsen and port costs for a spot voyage performed by the Torill Knutsen.
Depreciation: Depreciation expense for the three months ended June 30, 2024 was $27.8 million compared to $28.1 million for the three months ended June 30, 2023.
31
Impairment: Impairment charge for the three months ended June 30, 2024 was $16.4 million compared to $49.6 million for the three months ended June 30, 2023. The impairment charges for the three months ended June 30, 2024 and 2023, relate to the Dan Cisne and the Dan Sabia. The carrying values of the Dan Cisne and the Dan Sabia were written down to their estimated fair values, using a discounted cash flow valuation.
General and administrative expenses: General and administrative expenses for the three months ended June 30, 2024 were $1.4 million compared to $1.8 million for the same period in 2023.
Interest income: Interest income was $0.9 million for each of the three month periods ended June 30, 2024 and 2023.
Interest expense: Interest expense for the three months ended June 30, 2024 was $16.9 million, a decrease of $1.2 million from $18.1 million for the three months ended June 30, 2023. The decrease is mainly due to repayment of outstanding debt.
Other finance income (expense): Other finance income was $0.2 million for the three months ended June 30, 2024, compared to an expense of $0.1 million for the three months ended June 30, 2023.
Realized and unrealized gain (loss) on derivative instruments: Realized and unrealized gain on derivative instruments for the three months ended June 30, 2024 was $1.8 million, compared to a gain of $8.1 million for the three months ended June 30, 2023, as set forth in the table below:
The total notional amount of the Partnership’s outstanding interest rate swap contracts that were entered into in order to offset part of the exposure to interest rate changes in respect of outstanding or forecasted debt obligations was $389.3 million as of June 30, 2024 and $440.6 million as of June 30, 2023. The unrealized loss in the three months ended June 30, 2024 was related to a mark-to-market loss on interest rate swaps of $2.2 million. The unrealized gain in the three months ended June 30, 2023 was related to mark-to-market gain on interest rate swaps of $4.7 million and a loss of $0.1 million on foreign exchange contracts.
Net gain (loss) on foreign currency transactions: Net gain on foreign currency transactions for the three months ended June 30, 2024 was $0.03 million compared to a gain of $0.1 million for the three months ended June 30, 2023.
Income tax expense: Income tax expense for the three months ended June 30, 2024 was $0.2 million compared to $0.05 million for the three months ended June 30, 2023.
Net income (loss): As a result of the foregoing, the Partnership recorded net loss of $12.9 million for the three months ended June 30, 2024, compared to net loss of $40.4 million for the three months ended June 30, 2023.
32
Six Months Ended June 30, 2024 Compared with the Six Months Ended June 30, 2023
Six Months Ended |
| |||||||||||
June 30, |
| |||||||||||
(U.S. Dollars in thousands) |
| 2024 |
| 2023 |
| Change |
| % Change |
| |||
Time charter and bareboat revenues | $ | 146,799 | $ | 132,857 | $ | 13,942 | 10 | % | ||||
Voyage revenues | 3,066 | 8,839 | (5,773) | (65) | % | |||||||
Loss of hire insurance recoveries | 78 | 2,335 | (2,257) | (97) | % | |||||||
Other income |
| 1,109 |
| 973 |
| 136 |
| 14 | % | |||
Vessel operating expenses |
| 52,861 |
| 44,730 |
| 8,131 |
| 18 | % | |||
Voyage expenses and commission | 2,219 | 4,855 | (2,636) | (54) | % | |||||||
Depreciation |
| 55,490 |
| 55,836 |
| (346) |
| (1) | % | |||
Impairment | 16,384 | 49,649 | (33,265) | (67) | % | |||||||
General and administrative expenses |
| 3,063 |
| 3,488 |
| (425) |
| (12) | % | |||
Interest income |
| 1,725 |
| 1,544 |
| 181 |
| 12 | % | |||
Interest expense |
| (34,328) |
| (35,476) |
| 1,148 |
| (3) | % | |||
Other finance expense |
| (92) |
| (184) |
| 92 |
| (50) | % | |||
Realized and unrealized gain (loss) on derivative instruments |
| 6,799 |
| 5,814 |
| 985 |
| 17 | % | |||
Net gain (loss) on foreign currency transactions |
| (198) |
| (27) |
| (171) |
| 633 | % | |||
Income tax benefit (expense) |
| (354) |
| 196 |
| (550) |
| (281) | % | |||
Net income (loss) | (5,413) | (41,687) | 36,274 |
| (87) | % | ||||||
Time charter and bareboat revenues: Time charter and bareboat revenues increased by $13.9 million to $146.8 million for the six months ended June 30, 2024, compared to $132.9 million for the six months ended June 30, 2023. The increase was mainly due to commencement of new time charter contracts for several of the vessels and higher utilization in the first half of 2024 compared to the first half of 2023 which was affected by the scheduled drydocking of the Carmen Knutsen, the Brasil Knutsen and the Hilda Knutsen.
Voyage revenues: Voyage revenues for the six months ended June 30, 2024 were $3.1 million compared to $8.8 million for the same period last year. Voyage revenues for the six months ended June 30, 2024 relate to spot voyages performed by the Dan Cisne, Ingrid Knutsen and the Torill Knutsen while spot voyages for the six months ended June 30, 2023 only related to spot voyages performed by the Ingrid Knutsen and Torill Knutsen. The Ingrid Knutsen was redelivered to the Partnership from its previous charterer on January 2, 2023, and the vessel subsequently performed a number of spot voyages, including in the conventional tanker market, before commencing on a fixed time charter contract on March 2, 2023 which ended on March 28, 2024. The Ingrid Knutsen performed one spot voyage before the vessel began operating under a rolling monthly time charter with KNOT at a reduced charter rate on April 22, 2024, to expire upon her delivery to Eni in October 2024. The Torill Knutsen was redelivered to the Partnership from its previous charter on December 17, 2022, and the vessel performed several spot voyages in January and February 2023 until the vessel began operating under a rolling monthly time charter with KNOT at a reduced charter rate.
Loss of hire insurance recoveries: Loss of hire insurance recoveries for the six months ended June 30, 2024 were $0.1 million compared to $2.3 million for the six months ended June 30, 2023. The loss of hire insurance recoveries in the six months ended June 30, 2024 related to the Brasil Knutsen in connection with repairs of a tunnel thruster reported in the second quarter of 2023. The loss of hire insurance recoveries in the six months ended June 30, 2023 related to the Windsor Knutsen were $0.8 million and were in connection with repairs of a leakage from a tunnel thruster reported in the third quarter of 2022, for which the Windsor Knutsen was off hire from September 29, 2022, to October 31, 2022. For the six months ended June 30, 2023, the Partnership recorded $0.6 million in loss of hire recoveries with respect to the Lena Knutsen in connection with excessive and abnormal wear found on the steering gear rotor in relation with her scheduled drydocking in the second quarter of 2022. For the six months ended June 30, 2023, the Partnership recorded $0.9 million in loss of hire recoveries with respect to the Synnøve Knutsen in connection with an oil leakage from the controllable pitch propellers system in the third quarter of 2022, for which the vessel was off hire from October 14, 2022, to November 1, 2022.
Other income: Other income for the six months ended June 30, 2024 was $1.1 million compared to $1.0 million for the six months ended June 30, 2023.
Vessel operating expenses: Vessel operating expenses for the six months ended June 30, 2024 were $52.9 million, an increase of $8.1 million from $44.7 million in the six months ended June 30, 2023. The increase is mainly due to bunker costs for the Carmen Knutsen and the Hilda Knutsen in connection with their voyages to drydock, and the increase is due to more vessels operating on time charter contracts for the six months ended June 30, 2024 compared to same period last year.
33
Voyage expenses and commission: Voyage expenses and commission for the six months ended June 30, 2024 were $2.2 million and relate to bunker cost, commission and port costs for spot voyages performed by the Dan Cisne, the Ingrid Knutsen and the Torill Knutsen. Voyage expenses and commission for the six months ended June 30, 2023 were $4.9 million and relate to bunker cost, commission and port costs for spot voyages performed by the Ingrid Knutsen and the Torill Knutsen.
Depreciation: Depreciation expense for the six months ended June 30, 2024 was $55.5 million, compared to $55.8 million in the six months ended June 30, 2023.
Impairment: Impairment charge for the six months ended June 30, 2024 was $16.4 million compared to $49.6 million for the six months ended June 30, 2023. The impairment charge for the six month periods ended June 30, 2024 and 2023 related to the Dan Cisne and the Dan Sabia. The carrying values of the Dan Cisne and the Dan Sabia were written down to their estimated fair values, using a discounted cash flow valuation.
General and administrative expenses: General and administrative expenses for the six months ended June 30, 2024 were $3.1 million, compared to $3.5 million for the six months ended June 30, 2023.
Interest income: Interest income for the six months ended June 30, 2024 was $1.7 million compared to $1.5 million for the six months ended June 30, 2023. The increase is mainly due to increased interest rates on our bank deposits.
Interest expense: Interest expense for the six months ended June 30, 2024 was $34.3 million, a decrease of $1.2 million from $35.5 million in the six months ended June 30, 2023. The decrease is mainly due to repayment of outstanding debt.
Other finance expense: Other finance expense was $0.1 million for the six months ended June 30, 2024, compared to $0.2 million for the six months ended June 30, 2023. Other finance expense is primarily related to bank fees and guarantee commissions.
Realized and unrealized gain (loss) on derivative instruments: Realized and unrealized gain on derivative instruments for the six months ended June 30, 2024 was $6.8 million, compared to a gain of $5.8 million for the six months ended June 30, 2023 as set forth in the table below:
The total notional amount of the Partnership’s outstanding interest rate swap contracts that were entered into in order to offset part of the exposure to interest rate changes in respect of outstanding or forecasted debt obligations was $389.3 million as of June 30, 2024 and $440.6 million as of June 30, 2023. The unrealized loss in the six months ended June 30, 2024 was related to a mark-to-market loss on interest rate swaps of $1.3 million. The unrealized loss in the six months ended June 30, 2023 was related to mark-to-market loss on interest rate swaps of $0.6 million and a loss of $0.1 million on foreign exchange contracts.
Net gain (loss) on foreign currency transactions: Net loss on foreign currency transactions for the six months ended June 30, 2024 was $198,000, compared to $27,000 for the six months ended June 30, 2023.
Income tax benefit (expense): Income tax expense for the six months ended June 30, 2024 was $0.4 million compared to an income tax benefit of $0.2 million for the six months ended June 30, 2023.
Net income (loss): As a result of the foregoing, the Partnership recorded a net loss of $5.4 million for the six months ended June 30, 2024, compared to net loss of $41.7 million for the six months ended June 30, 2023.
34
Liquidity and Capital Resources
Liquidity and Cash Needs
We operate in a capital-intensive industry, and we expect to finance the purchase of additional vessels and other capital expenditures through a combination of borrowings from commercial banks, cash generated from operations, any vessel sales and debt and equity financings. In addition to paying distributions, our other liquidity requirements relate to payment of operating costs, servicing our debt, payment of lease obligations, funding investments (including the equity portion of investments in vessels), funding working capital, including drydocking, and maintaining cash reserves against fluctuations in operating cash flows. As of September 18, 2024, we believe our sources of funds (assuming the current contracted rates are earned from our existing charters), including the undrawn portion of our revolving credit facilities of $10 million, are sufficient to meet our working capital and other cash requirements for our current business for at least the next twelve months. Generally, our long-term sources of funds are cash from operations, long-term bank borrowings and other debt and equity financings. Because we distribute our available cash, we expect to rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and other expansion capital expenditures.
On January 11, 2023, we reduced our quarterly common unit distribution to $0.026 per unit. We expect to continue to use our internally generated cash flow to provide for working capital, reduce our debt levels and strengthen our balance sheet.
Our funding and treasury activities are intended to maximize investment returns while maintaining appropriate liquidity. Cash and cash equivalents are held primarily in U.S. Dollars with some balances held in NOK, British Pounds and Euros. We have not made use of derivative instruments other than for interest rate and currency risk management purposes, and we expect to continue to economically hedge part of our exposure to interest rate fluctuations in the future by entering into new interest rate swap contracts when suitable opportunities arise.
We estimate that we will spend in total approximately $46.9 million for drydocking and classification surveys for the vessels in our fleet as of June 30, 2024, between 2024 and 2027, with approximately $7.1 million of this amount to be spent in the twelve months ending June 30, 2025. As our fleet matures and expands, our drydocking expenses will likely increase. Ongoing costs for compliance with environmental regulations are primarily included as part of our drydocking and society classification survey costs or are a component of our vessel operating expenses. We are not aware of any regulatory changes or environmental liabilities that we currently anticipate will have a material impact on our current or future operations. There will be further costs related to voyages to and from drydocking yards that will depend on the distance from the vessel’s ordinary trading area to the drydocking yard.
As of June 30, 2024, the Partnership had available liquidity of $66.6 million, which consisted of cash and cash equivalents of $56.6 million and undrawn capacity under one of the revolving credit facilities of $10 million. The Partnership’s total interest-bearing obligations outstanding as of June 30, 2024 were $901.0 million ($895.4 million net of debt costs). The average margin paid on the Partnership’s outstanding debt during the second quarter of 2024 was approximately 2.26 % over the SOFR.
As of June 30, 2024, the Partnership had total $901.0 million in outstanding obligations, which include installments and interest on long-term debt, sale and leaseback commitments in respect of the Raquel Knutsen and the Torill Knutsen, interest commitments on interest rate swaps and operating lease commitments. Of the total outstanding obligations, $89.2 million matures within one year and $806.2 million matures after one year.
The consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As of June 30, 2024, the Partnership’s net current liabilities were $27.3 million. Included in current liabilities are $89.2 million of short-term loan obligations that mature before June 30, 2025 and are therefore presented as current debt.
Currently, we do not have any off-balance sheet arrangements.
The following table summarizes our net cash flows from operating, investing and financing activities and our cash and cash equivalents for the periods presented:
35
Six Months Ended June 30, 2024 Compared with the Six Months Ended June 30, 2023
Six Months Ended June 30, | ||||||
(U.S. Dollars in thousands) |
| 2024 |
| 2023 | ||
Net cash provided by (used in) operating activities | $ | 60,572 | $ | 72,061 | ||
Net cash provided by (used in) investing activities |
| (75) |
| (2,744) | ||
Net cash provided by (used in) financing activities |
| (67,710) |
| (53,747) | ||
Effect of exchange rate changes on cash |
| (89) |
| (25) | ||
Net increase in cash and cash equivalents |
| (7,302) |
| 15,545 | ||
Cash and cash equivalents at the beginning of the period |
| 63,921 |
| 47,579 | ||
Cash and cash equivalents at the end of the period | $ | 56,619 | $ | 63,124 | ||
Net cash provided by operating activities
Net cash provided by operating activities decreased by $11.5 million to $60.6 million in the six months ended June 30, 2024, compared to $72.1 million in the six months ended June 30, 2023. Before changes in working capital, cash provided by operating activities was $69.0 million for the six months ended June 30, 2024, an increase of $15.3 million compared to $53.7 million for the six months ended June 30, 2023. The increase of $15.3 million was primarily due to drydocking expenditures related to the Carmen Knutsen, the Brasil Knutsen and the Hilda Knutsen for the six months ended June 30, 2023 compared with a small expenditure for corresponding period of 2024. Changes in working capital decreased net cash provided by operating activities by $8.4 million for the six months ended June 30, 2024, a decrease of $26.8 million from a contribution of $18.4 million for the six months ended June 30, 2023. The decrease from positive to negative contribution in changes in working capital was mainly due to the use of cash for the increase in other current assets and the use of cash for the decreases in trade accounts payable and accrued expenses.
Net cash used in investing activities
Net cash used in investing activities was $0.1 million in the six months ended June 30, 2024, compared to $2.7 million in the six months ended June 30, 2023. The decrease is mainly related to installation of a Ballast Water Treatment System (BWTS) on the Carmen Knutsen and the Brasil Knutsen in the first half of 2023 with a small installation on the Torill Knutsen for the corresponding period of 2024.
Net cash used in financing activities
Net cash used in financing activities during the six months ended June 30, 2024 of $67.7 million was mainly related to the following:
| ● | Proceeds of $60 million from the drawdown on a new three-year loan facility secured by the Hilda Knutsen. |
This was offset by the following:
| ● | Repayment of long-term debt of $121.9 million, of which $58.5 million was repaid in connection with the refinancing of the maturing loan facility secured by the Hilda Knutsen; |
| ● | Payment of cash distributions of $5.2 million; and |
| ● | Payment of debt issuance costs of $0.5 million in connection with the refinancing of the maturing loan facility secured by the Hilda Knutsen. |
Net cash used in financing activities during the six months ended June 30, 2023 of $53.7 million was mainly related to the following:
| ● | Proceeds of $240 million from the refinancing of a new five-year loan facility secured by the Windsor Knutsen, the Bodil Knutsen, the Fortaleza Knutsen, the Recife Knutsen, the Carmen Knutsen and the Ingrid Knutsen. |
This was offset by the following:
| ● | Repayment of long-term debt of $286.1 million, of which $239.5 million was repaid in connection with the refinancing of the new loan facility secured by the Windsor Knutsen, the Bodil Knutsen, the Fortaleza Knutsen, the Recife Knutsen, the Carmen Knutsen and the Ingrid Knutsen; |
36
| ● | Payment of cash distributions of $5.2 million; and |
| ● | Payment of debt issuance costs of $2.5 million in connection with the refinancing of the $240 Million Loan Facility. |
Borrowing Activities
Long-Term Debt
As of June 30, 2024, and December 31, 2023, the Partnership had the following debt amounts outstanding:
|
| June 30, |
| December 31, | ||||
(U.S. Dollars in thousands) | Vessel | 2024 | 2023 | |||||
$345 million loan facility | Anna Knutsen, Tordis Knutsen, Vigdis Knutsen, Brasil Knutsen, Lena Knutsen | $ | 275,984 | $ | 288,534 | |||
$240 million loan facility | Windsor Knutsen, Bodil Knutsen, Carmen Knutsen, Fortaleza Knutsen, Recife Knutsen, Ingrid Knutsen | 204,528 | 222,264 | |||||
Hilda loan facility |
| Hilda Knutsen |
| 60,000 |
| 60,000 | ||
$192.1 million loan facility | Synnøve Knutsen, Tove Knutsen | 149,149 | 153,702 | |||||
$25 million revolving credit facility with NTT |
|
| 15,000 |
| 25,000 | |||
$25 million revolving credit facility with Shinsei |
|
| 25,000 |
| 25,000 | |||
Raquel Sale & Leaseback |
| Raquel Knutsen |
| 76,415 |
| 79,070 | ||
Torill Sale & Leaseback |
| Torill Knutsen |
| 94,955 |
| 99,065 | ||
Total long-term debt |
| $ | 901,034 | $ | 963,005 | |||
Less: current installments | 91,251 | 101,010 | ||||||
Less: unamortized deferred loan issuance costs |
| 2,094 |
| 2,050 | ||||
Current portion of long-term debt | 89,157 | 98,960 | ||||||
Amounts due after one year | 809,783 | 861,995 | ||||||
Less: unamortized deferred loan issuance costs | 3,569 | 4,166 | ||||||
Long-term debt, less current installments, and unamortized deferred loan issuance costs | $ | 806,214 | $ | 857,829 | ||||
The Partnership’s outstanding debt of $901.0 million as of June 30, 2024, is repayable as follows:
As of June 30, 2024, the interest rates on the Partnership’s loan agreements were SOFR plus a fixed margin ranging from 1.75% to 2.40%. The average margin paid on the Partnership’s outstanding debt during the second quarter of 2024 was approximately 2.26 % over SOFR.
For more information regarding the Partnership’s credit facilities outstanding as of December 31, 2023, please read Note 17—Long-Term Debt to our consolidated financial statements included in our 2023 20-F. Please see below for a description of additional credit facilities or amendments to existing credit facilities entered into by the Partnership since December 31, 2023. The Partnership is in compliance with all covenants under its credit facilities.
Dan Sabia Facility
On January 9, 2024, the loan facility secured by the Dan Sabia was repaid in full.
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$60 Million Hilda Loan Facility
In May 2024, the Partnership’s subsidiary, Knutsen Shuttle Tankers 14 AS, which owns the vessel Hilda Knutsen, closed a new $60 million senior secured term loan facility with DNB Bank ASA and Nordea Bank ABP (the “$60 million Hilda Facility”). The $60 million Hilda Facility is repayable in 12 consecutive quarterly installments with a final payment due at maturity of $39.4 million, which includes the balloon payment and last quarterly installment. The $60 million Hilda Facility bears interest at a rate per annum equal to SOFR plus a margin of 2.25%. The $60 million Hilda Facility is secured by a mortgage on the Hilda Knutsen. The Partnership and KNOT Shuttle Tankers AS are the sole guarantors. The facility matures in May 2027.
The $60 million Hilda Facility contains the following primary financial covenants:
| ● | The borrower shall at all times maintain liquidity equal to or greater than $500,000; |
| ● | Positive working capital of the Partnership; |
| ● | Minimum liquidity of the Partnership of $15 million plus increments of $1.5 million for each owned vessel with less than 12 months remaining tenor on its employment contracts up to 8 vessels and $1.0 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 12 additional vessels in excess of 8 vessels (of which a minimum of $10 million must be cash); |
| ● | Minimum book equity ratio for the Partnership of 30%; and |
| ● | Minimum EBITDA to interest ratio for the Partnership of 2.50. |
The $60 million Hilda Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including if the market value of the Hilda Knutsen is less than 135% of the outstanding loan under the $60 million Hilda Facility, upon a total loss or sale of the Hilda Knutsen and customary events of default. As of June 30, 2024, the borrower and the guarantors were in compliance with all covenants under this facility.
Tuva Facility
On January 15, 2021, KNOT Shuttle Tankers 31 AS, the subsidiary owning the Tuve Knutsen, as borrower, entered into a $88 million term loan facility with Nordea Bank ABP (the “Tuva Facility”). The Tuva Facility became one of the Partnership’s debt obligations upon closing of the Tuva Knutsen Acquisition on September 3, 2024 (see Note 20-Subsequent Events), and is therefore not included in the Partnership’s outstanding debt as of June 30, 2024. The Tuva Facility is repayable in quarterly installments with a final payment due at maturity of $57.4 million, which includes the balloon payment and last quarterly installment. The facility bears interest at a rate per annum equal to SOFR plus a margin of 2.16%. In connection with the Tuva Knutsen Acquisition, the Partnership and KNOT Shuttle Tankers AS became the sole guarantors. The facility is secured by a mortgage on the Tuva Knutsen. The facility matures in January 2027.
The Tuva Facility contains the following primary financial covenants:
| ● | The borrower shall at all times maintain liquidity equal or greater than $500,000; |
| ● | Positive working capital of the Partnership; |
| ● | Minimum liquidity of the Partnership of $15 million plus increments of $1.5 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 8 vessels and $1 million for each owned vessel with less than 12 months remaining tenor on its employment contract up to 12 additional vessels in excess of 8 vessels (of which a minimum of $10 million must be cash); |
| ● | Minimum book equity ratio for the Partnership of 30%; and |
| ● | Minimum EBITDA to interest ratio for the Partnership of 2.50. |
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The Tuva Facility also identifies various events that may trigger mandatory reduction, prepayment and cancellation of the facility, including if the market value of the Tuva Knutsen falls below 125% of the outstanding loan, upon total loss or sale of the vessel and customary events of default.
Derivative Instruments and Hedging Activities
We use derivative instruments to reduce the risks associated with fluctuations in interest rates. We have a portfolio of interest rate swap contracts that exchange or swap floating rate interest to fixed rates, which, from a financial perspective, hedges our obligations to make payments based on floating interest rates. As of June 30, 2024, the Partnership’s net exposure to floating interest rate fluctuations on its outstanding debt was $283.7 million based on total interest-bearing debt outstanding of $901.0 million, less the Raquel Knutsen and the Torill Knutsen sale/leaseback facilities of $171.4 million, less interest rate swaps with a notional amount of $389.3 million and less cash and cash equivalents of $56.6 million. Our interest rate swap contracts mature between March 2025 and February 2032 and have an average maturity of approximately 1.4 years. Under the terms of the interest rate swap agreements, we will receive from the counterparty interest on the notional amount based on three-month and six-month SOFR and will pay to the counterparty a fixed rate. For the interest rate swap agreements above, we will pay to the counterparty a weighted average interest rate of 1.8%. The Partnership does not apply hedge accounting for derivative instruments, and its financial results are impaired by changes in the market value of such financial instruments.
Critical Accounting Estimates
The preparation of the unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures about contingent assets and liabilities. We base these estimates and assumptions on historical experience and on various other information and assumptions that we believe to be reasonable. Our critical accounting estimates are important to the portrayal of both our financial condition and results of operations and require us to make subjective or complex assumptions or estimates about matters that are uncertain. For a description of our material accounting policies that involve higher degree of judgment, please read Note 2—Summary of Significant Accounting Policies of our consolidated financial statements included in our 2023 20-F filed with the SEC.
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FORWARD-LOOKING STATEMENTS
This Report on Form 6-K contains certain forward-looking statements concerning future events and our operations, performance and financial condition and assumptions related thereto. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” “plan,” “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of 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 by such forward-looking statements. Forward-looking statements include statements with respect to, among other things:
| ● | market trends in the shuttle tanker or general tanker industries, including hire rates, factors affecting supply and demand, and opportunities for the profitable operations of shuttle tankers and conventional tankers; |
| ● | market trends in the production of oil in the North Sea, Brazil and elsewhere; |
| ● | KNOT’s and KNOT Offshore Partners’ ability to build shuttle tankers and the timing of the delivery and acceptance of any such vessels by their respective charterers; |
| ● | KNOT Offshore Partners’ ability to purchase vessels from KNOT in the future; |
| ● | KNOT Offshore Partners’ ability to enter into long-term charters, which KNOT Offshore Partners defines as charters of five years or more, or shorter-term charters or voyage contracts; |
| ● | KNOT Offshore Partners’ ability to refinance its indebtedness on acceptable terms and on a timely basis and to make additional borrowings and to access debt and equity markets; |
| ● | KNOT Offshore Partners’ distribution policy, forecasts of KNOT Offshore Partners’ ability to make distributions on its common units, Class B Units and Series A Preferred Units, the amount of any such distributions and any changes in such distributions; |
| ● | KNOT Offshore Partners’ ability to integrate and realize the expected benefits from acquisitions; |
| ● | impacts of supply chain disruptions and the resulting inflationary environment; |
| ● | KNOT Offshore Partners’ anticipated growth strategies; |
| ● | the effects of a worldwide or regional economic slowdown; |
| ● | turmoil in the global financial markets; |
| ● | fluctuations in currencies, inflation and interest rates; |
| ● | fluctuations in the price of oil; |
| ● | general market conditions, including fluctuations in hire rates and vessel values; |
| ● | changes in KNOT Offshore Partners’ operating expenses, including drydocking and insurance costs and bunker prices; |
| ● | recoveries under KNOT Offshore Partners’ insurance policies; |
| ● | the length and cost of drydocking; |
| ● | KNOT Offshore Partners’ future financial condition or results of operations and future revenues and expenses; |
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| ● | the repayment of debt and settling of any interest rate swaps; |
| ● | planned capital expenditures and availability of capital resources to fund capital expenditures; |
| ● | KNOT Offshore Partners’ ability to maintain long-term relationships with major users of shuttle tonnage; |
| ● | KNOT Offshore Partners’ ability to leverage KNOT’s relationships and reputation in the shipping industry; |
| ● | KNOT Offshore Partners’ ability to maximize the use of its vessels, including the re-deployment or disposition of vessels no longer under charter; |
| ● | the financial condition of KNOT Offshore Partners’ existing or future customers and their ability to fulfill their charter obligations; |
| ● | timely purchases and deliveries of newbuilds; |
| ● | future purchase prices of newbuilds and secondhand vessels; |
| ● | any impairment of the value of KNOT Offshore Partners’ vessels; |
| ● | KNOT Offshore Partners’ ability to compete successfully for future chartering and newbuild opportunities; |
| ● | acceptance of a vessel by its charterer; |
| ● | the impact of the Russian war with Ukraine, the conflict between Israel and Hamas and other conflicts in the Middle East; |
| ● | termination dates and extensions of charters; |
| ● | the expected cost of, and KNOT Offshore Partners’ ability to, comply with governmental regulations (including climate change regulations) and maritime self-regulatory organization standards, as well as standard regulations imposed by its charterers applicable to KNOT Offshore Partners’ business; |
| ● | availability of skilled labor, vessel crews and management; |
| ● | the effects of outbreaks of pandemics or contagious diseases, including the impact on KNOT Offshore Partners’ business, cash flows and operations as well as the business and operations of its customers, suppliers and lenders; |
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| ● | KNOT Offshore Partners’ general and administrative expenses and its fees and expenses payable under the technical management agreements, the management and administration agreements and the administrative services agreement; |
| ● | the anticipated taxation of KNOT Offshore Partners and distributions to its unitholders; |
| ● | estimated future capital expenditures; |
| ● | Marshall Islands economic substance requirements; |
| ● | KNOT Offshore Partners’ ability to retain key employees; |
| ● | customers’ increasing emphasis on climate, environmental and safety concerns; |
| ● | the impact of any cyberattack; |
| ● | potential liability from any pending or future litigation; |
| ● | potential disruption of shipping routes due to accidents, political events, piracy or acts by terrorists; |
| ● | future sales of KNOT Offshore Partners’ securities in the public market; |
| ● | KNOT Offshore Partners’ business strategy and other plans and objectives for future operations; and |
| ● | other factors listed from time to time in the reports and other documents that KNOT Offshore Partners files with the SEC, including its 2023 20-F and subsequent reports on Form 6-K. |
Forward-looking statements in this Report on Form 6-K are based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties, including those risks discussed in this Form 6-K and our 2023 20-F. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. We do not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.
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EXHIBITS
The following exhibits are filed as part of this report:
Exhibit |
| Exhibit Description |
4.1 | ||
4.2 | ||
4.3 | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| KNOT OFFSHORE PARTNERS LP | ||
Date: September 18, 2024 | By: | /s/ Derek Lowe | |
|
| Name: | Derek Lowe |
|
| Title: | Chief Executive Officer and Chief Financial Officer |
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Exhibit 4.1
SHARE PURCHASE AGREEMENT |
Between |
Knutsen NYK Offshore Tankers AS (as Seller) |
And |
KNOT Shuttle Tankers AS for the sale and purchase of the shares in KNOT Shuttle Tankers 31 AS |
SHARE PURCHASE AGREEMENT
This agreement (this “Agreement”) is entered into on the 3 September 2024 between:
(1) | Knutsen NYK Offshore Tankers AS, company registration no. 995 221 713 |
(the “Seller”), and
(2) | KNOT Shuttle Tankers AS, company registration no. 998 942 829 |
(the “Buyer”).
The Seller and the Buyer are hereinafter individually referred to as a “Party” and jointly the “Parties”.
1 | RECITALS |
WHEREAS:
a) | KNOT Shuttle Tankers 31 AS, company registration no. 914 750 326, is a private limited liability company that has as its purpose to engage in shipowning activities, is duly incorporated under Norwegian law and has its registered place of business in Haugesund, Norway (the “Company”); |
b) | The Seller is the sole owner of the ownership interest in the Company, with a share capital of NOK 100,000; |
c) | The Company is the owner of the MT “Tuva Knutsen”, having IMO No. 9887968 (the “Vessel”); |
d) | The Seller and the Buyer have agreed that the Buyer shall acquire 100% of the shares in the Company (the “Tuva Shares”) on the terms and conditions set forth in this Agreement and the Settlement Agreement dated 3 September 2024 between the Seller and the Buyer (the “Settlement Agreement”). |
2 | DEFINITIONS |
In this Agreement, the following definitions shall have the following meanings:
a) | Accounting Principles | means the applicable Norwegian generally accepted accounting principles as defined by Norwegian law and regulations and accounting standards issued by the Norwegian Accounting Standards Board (Nw: Norsk Regnskapsstiftelse/NRS), applied on a consistent basis; |
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b) | Accounts | means, in respect of the Company, its audited profit and loss and balance sheet statement as per the Accounts Date attached as Appendix 2; |
| | |
c) | Accounts Date | means 31 December 2023; |
| | |
d) | Agreement | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
e) | Business | means the current business of the Company, being to own the Vessel, and charter the same under the Charter; |
| | |
f) | Business Day | means a day on which banks are open for general banking business in Norway; |
| | |
g) | Buyer | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
h) | Buyer Indemnitees | shall have the meaning ascribed to such term in Clause 13.1; |
| | |
i) | Capitalized Fees | means capitalized fees and transaction costs related to the financing of the Vessel as of 1 September , 2024, the Capitalized Fees which are USD 402,027. |
| | |
j) | Charter | means the time charterparty dated 28 June 2019, as amended, entered into between the Company as owner and the Charterer as charterer in respect of the Vessel; |
| | |
k) | Charterer | means Total Shipping Brazil B.V.; |
| | |
l) | Closing | shall have the meaning ascribed to such term in Clause 5.1; |
| | |
m) | Closing Date | means the date when the Closing actually takes place according to Clause 5.1; |
| | |
n) | Companies Act | means the Norwegian Limited Liability Companies Act of 1997 |
| | |
o) | Company | shall have the meaning ascribed to such term in Clause 1; |
| | |
p) | Dan Cisne SPA | means the Share Purchase Agreement, dated the date hereof, pursuant to which the Buyer has agreed to sell to the Seller all of the shares in KNOT Shuttle Tankers 20 AS, the owner of the vessel Dan Cisne; |
| | |
q) | Encumbrance | means any mortgage, charge, pledge, lien, option or other security interest or restriction of any kind; |
2
r) | Governmental Authority | means any domestic or foreign government, including federal, provincial, state, municipal, county or regional government or governmental or regulatory authority, domestic or foreign, and includes any department, commission, bureau, board, administrative agency or regulatory body of any of the foregoing and any multinational or supranational organization; |
| | |
s) | Indemnified Party | shall have the meaning ascribed to such term in Clause 13.3; |
| | |
t) | Indemnifying Party | shall have the meaning ascribed to such term in Clause 13.3; |
| | |
u) | Losses | means any loss, liability, claim, damage, expense (including costs of investigation and defence and reasonable attorneys’ fees) or diminution of value, whether or not involving a third-party claim; |
| | |
v) | Material Adverse Effect | means a material adverse effect on the condition (financial, commercial, technical, legal or otherwise) of the Business, assets, results of operations or prospects of the Company; |
| | |
w) | Material Agreement | shall have the meaning ascribed to such term in Clause 8.11; |
| | |
x) | Party | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
y) | Parties | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
z) | Partnership | means KNOT Offshore Partners LP, a Marshall Islands limited partnership; |
| | |
aa) | Seller | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
bb) | Seller Indemnities | shall have the meaning ascribed to such term in Clause 13.2; |
| | |
cc) | Settlement Agreement | shall have the meaning ascribed to such term in Clause 1; |
| | |
dd) | Signing Date | means the date of this Agreement; |
| | |
ee) | Swap Agreements | means the 2002 ISDA master agreements entered into between the Company and Nordea Bank Apb and the Schedule thereto, dated 25 January 2021 relating to the Tuva Facility; |
| | |
ff) | Swap Balance | means the balance under the Swap Agreements as determined according to a mark-to-market determination as of the Closing Date and applying the middle rate for USD/NOK as published by Nordea Markets on the Closing Date. As of 31 July, 2024 the Swap Balance (being the balance under swaps entered into |
3
| | with Nordea Bank Apb plc was USD 1,962,901 ex accrued interest (favoring the Company); |
| | |
gg) | Taxes | means all taxes (including value-added tax and similar taxes), however denominated, including interest, penalties and other additions to tax that may become payable or imposed by any applicable statute, rule or regulation or any governmental agency, including all taxes, withholdings and other charges in respect of income, profits, gains, payroll, social security or other social benefit taxes, sales, use, excise, real or personal property, stamps, transfers and workers’ compensation, which the Company is required to pay, withhold or collect; and |
| | |
hh) | Third-Party Claim | shall have the meaning ascribed to such term in Clause 13.3; |
| | |
ii) | Tuva Facility | means the USD 88,000,000 Term Loan Facility in respect of the Vessel, dated 15 January 2021, and made between (i) the Company as borrower, (ii) the Seller as original guarantor (iii) the banks and financial institutions listed in Schedule 1 thereto as lenders, (iv) Nordea Bank ABP, Oslo Branch and SMBC BANK EU AG as bookrunners and mandated lead arrangers, (v) Nordea Bank ABP as swap providers and (vi) Nordea Bank ABP. as agent and security agent; |
| | |
jj) | Tuva Purchase Price | shall have the meaning ascribed to such term in Clause 4; |
| | |
kk) | Tuva Purchase Price Adjustments | shall have the meaning ascribed to such term in Clause 5.4; |
| | |
ll) | Tuva Shares | shall have the meaning ascribed to such term in Clause 1; and |
| | |
mm) | Vessel | shall have the meaning ascribed to such term in Clause 1. |
3 | SALE AND PURCHASE |
Subject to the terms and conditions set forth in this Agreement, the Seller agrees to sell, and the Buyer agrees to purchase, the Tuva Shares, together with all rights attached to them.
The Tuva Shares shall be transferred to the Buyer on the Closing Date, free and clear from any Encumbrances, other than pursuant to the Tuva Facility.
4 | PURCHASE PRICE |
The Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to purchase from the Seller the Tuva Shares for USD 97,500,000, less USD 69,037,510 of outstanding principal under the Tuva Facility at Closing, plus the Capitalized Fees in the amount of USD 402,027 (the “Tuva Purchase Price”), plus the Tuva Purchase Price Adjustments, all in accordance with and subject to the terms and conditions set forth in this Agreement. The Tuva Purchase Price shall be settled and paid in
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accordance with the Settlement Agreement, subject to the subsequent Tuva Purchase Price Adjustments in accordance with Clause 5.4.
The Tuva Purchase Price as calculated above is based on the assumption that Closing occurs within 5September, 2024 at 23:59 CET. If Closing should occur at another time the Parties shall agree on an adjusted Tuva Purchase Price to be paid on Closing, to reflect accrued interest, currency fluctuations and paid instalments (as applicable) in respect of the Tuva Facility and the Capitalized Fees.
5 | CLOSING |
5.1 | Time and place |
Subject to the satisfaction or waiver of the conditions set forth in Clause 6, the completion of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of the Seller at 3 September, 2024 or such other time as the Parties agree.
5.2 | The Seller’s Closing obligations |
At the Closing, the Seller shall:
a) | deliver to the Buyer a copy of the minutes of the meeting of the board of directors of the Seller authorising the execution of, and the consummation of the transaction contemplated by, this Agreement; and |
b) | in exchange for the payment of the Tuva Purchase Price in accordance with the Settlement Agreement, transfer the Tuva Shares to the Buyer and deliver to the Buyer the share register of the Company with the Buyer duly registered as the owner of the Tuva Shares, as well as the related notices according to Sections 4-7 and 4-10 of the Companies Act. |
5.3 | The Buyer’s Closing obligations |
At the Closing, the Buyer shall
a) | settle the Tuva Purchase Price in accordance with Clause 4 and the Settlement Agreement. |
5.4 | Post-Closing Adjustment |
a) | Within 60 days following the Closing Date, the Buyer and the Seller shall agree on the amount of the post-Closing adjustments to the Tuva Purchase Price based on: |
(i) | the Company’s working capital, including the amounts owed to KNOT Management AS pursuant to Clause 8.8b) of this Agreement as of 00:01 hours CET on 1 September, 2024; |
(ii) | the Swap Balance; |
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b) | Within 3 business days following the date on which the Tuva Purchase Price Adjustments have been agreed pursuant to Clause 5.4 a) above, the Buyer or the Seller (as the case may be) shall pay to the other Party an amount, in cash, equal to the net Tuva Purchase Price Adjustments. Any amounts other than those covered by the Tuva Purchase Price Adjustments varying in the period between the Signing Date and the Closing Date shall be for Seller’s account. |
6 | CLOSING CONDITIONS |
6.1 | Conditions to the Buyer’s Closing obligations |
The obligations of the Buyer to purchase the Tuva Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Buyer) on or before the Closing Date:
a) | that the Vessel has been delivered to the Charterer and operated in accordance with the provisions of the Charter and that all costs and expenses related thereto have been settled by the Seller; |
b) | there is no material breach of any of the representations and warranties of the Seller set forth in Clause 8 and Clause 9; |
c) | the Buyer shall have obtained the funds necessary to consummate the purchase of the Tuva Shares, and to pay all related fees and expenses; |
d) | in all respects material to the transactions contemplated hereby, the Seller shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Seller at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement; and |
e) | the results of the searches, surveys, tests and inspections of the Vessel referred to in Clause 10.1 h) are reasonably satisfactory to the Buyer. |
6.2 | Conditions to the Seller’s Closing obligations |
The obligations of the Seller to sell the Tuva Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Seller) on or before the Closing Date:
a) | there is no material breach of any of the representations and warranties of the Buyer set forth in Clause 7; |
b) | At Closing, the Buyer shall procure that the Partnership accede to the Tuva Facility as “Guarantor” by way of an “Accession |
6
Letter” set out therein, and that the Tuva Shares are pledged as contemplated by the Tuval Facility, and procure that relevant conditions precedent under the Tuva Facility relating to the Partnership and/or the Buyer have been satisfied. At Closing, the Seller shall be released from its guarantee obligations under the Tuva Facility; and
c) | in all respects material to the transactions contemplated hereby, the Buyer shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Buyer at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement. |
6.3 | Conditions of the Parties. |
The obligations of Seller to sell the Tuva Shares and the obligations of Buyer to purchase the Tuva Shares are subject to the satisfaction (or waiver by each of Seller and Buyer) on or prior to the Closing Date of the following conditions:
a) | The Seller shall have received any and all written consents, permits, approvals or authorizations of any Governmental Authority or any other Person (including, but not limited to, with respect to the Charter, the Tuva Facility and the Swap Agreements) and shall have made any and all notices or declarations to or filing with any Governmental Authority or any other Person, including those related to any environmental laws or regulations, required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder, including the transfer of the Tuva Shares; |
b) | No legal or regulatory action or proceeding shall be pending or threatened by any Governmental Authority to enjoin, restrict or prohibit the purchase and sale of the Tuva Shares; and |
c) | The sale of the shares of KNOT Shuttle Tankers 20 AS by Buyer to Seller pursuant to the terms of the Dan Cisne SPA and the Settlement Agreement shall be consummated on the Closing Date. |
7 | REPRESENTATIONS AND WARRANTIES OF THE BUYER |
The Buyer represents and warrants to the Seller that as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
7.1 | Corporate existence and power |
The Buyer is duly incorporated, validly existing and in good standing under the laws of Norway.
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The Buyer has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the business of the Buyer or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
7.2 | Corporate authorisation and non-contravention |
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of the Buyer and constitutes or will, when executed, constitute valid and binding obligations of the Buyer enforceable in accordance with its respective terms.
The execution by the Buyer of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by the Buyer of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of the Buyer or of any applicable law, order, judgment or decree of any court or Governmental Authority or of any agreement to which the Buyer is bound.
The Buyer is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
8 | REPRESENTATIONS AND WARRANTIES OF THE SELLER |
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
8.1 | Corporate existence and power |
Each of the Company and the Seller is duly incorporated, validly existing and in good standing under the laws of Norway.
Each of the Company and the Seller has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
The Company does not own, directly or indirectly, any equity or long-term debt securities of any corporation, partnership, limited liability company or other entity.
8.2 | Corporate authorisation and non-contravention |
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of each of the Company and the Seller, as appropriate, and constitutes or will, when executed, constitute valid and binding obligations of each of the Company and the Seller, as appropriate, enforceable in accordance with its respective terms.
The execution by each of the Company and the Seller, as appropriate, of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by each of the Company and the Seller, as appropriate, of its obligations under this
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Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of each of the Company and the Seller, as appropriate, or of any applicable law, order, judgment or decree of any court or Governmental Authority or of any agreement to which each of the Company and the Seller, as appropriate, is bound.
Each of the Company and the Seller, as appropriate, is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
8.3 | Capitalisation and title |
The Seller has full ownership to the Tuva Shares. The Tuva Shares are duly authorised, validly issued and fully paid and at Closing, will be free and clear from any Encumbrances, other than pursuant to the Tuva Facility.
There is no outstanding subscription, option or similar rights relating to the Tuva Shares.
8.4 | Records |
The Company’s articles of association, shareholders’ register and other organizational documents are true, accurate, up-to-date and complete.
8.5 | Charter documents; validity of the Charter |
The Seller has supplied to the Buyer true and correct copies of the Charter and any related documents, as amended to the Closing Date. The Charter is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms and, to the knowledge of the Seller, the Charter is a valid and binding agreement of all other parties thereto enforceable against such parties in accordance with its terms.
8.6 | Accounts |
The Accounts have been prepared in accordance with the Accounting Principles and in accordance with the books and records of the Company. The Accounts give a true and accurate view of the financial position, solvency, assets, liabilities, liquidity, cash flow and the result of the operations of the Company as of the Accounts Date.
8.7 | No undisclosed liabilities |
Neither the Company nor the Vessel has any Encumbrances, or other liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for Taxes and interest, penalties and other charges payable with respect to any such liability or obligation), except for such liabilities or obligations arising under the Charter, the Tuva Facility, the Swap Agreements, the management agreement relating to the Vessel with KNOT Management AS, the inter-company balances described in Clause 8.8 b) and the Encumbrances appearing in the ship registry of the Vessel and arising under the Tuva Facility and the Swap Agreements.
8.8 | Loans and other financial facilities |
All loans and other financial facilities available to the Company have been made available for review by the Buyer.
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a) | As of the Signing Date, the principal outstanding amount under the Tuva Facility in respect of the Vessel is USD 69,037,510 where the next instalments of USD 1,294,000 is due 29. October, 2024; |
b) | As of 31 July 2024, the non-interest bearing inter-company balance between the Company (as borrower) and KNOT Management AS (as lender) was USD 306,730. |
No event has occurred which gives, or after notice or lapse of time, or both, would give any third party the right to call for repayment from the Company prior to normal maturity of any loan or other financial facility. The Company is not indebted, directly or indirectly, to any person who is an officer, director, stockholder or employee of the Seller or any spouse, child or other relative or any affiliate of any such person, nor isany such officer, director, stockholder, employee, relative or affiliate indebted to the Company.
8.9 | Assets |
At the Closing Date, the Company shall not be using assets in the Business that it neither owns nor has the right to use pursuant to written agreements with third parties. At the Closing Date, the assets of the Company will comprise all the assets necessary for carrying on the Business fully and effectively to the extent to which it is conducted at the Signing Date.
8.10 | Absence of certain changes or events |
Since the Accounts Date, there has not occurred or arisen:
a) | any change of accounting methods, principles or practices, accounting, invoicing and supplier practice or procedures for the Company; |
b) | any acquisition or disposal of, or the entering into any agreement to acquire or dispose of, any asset, other than the sale of products in the ordinary course of business; |
c) | the termination of any Material Agreement, other than the Commercial Management Agreement dated 30 October 2018 between the Company and KNOT Management AS pursuant to the Agreement on Termination of the Commercial Management Agreement dated 30 August 2024; |
d) | any obligations, commitments or liabilities, contingent or otherwise, whether for Taxes or otherwise, except obligations, commitments and liabilities arising in the ordinary course of business; |
e) | any event or condition, whether covered by insurance or not, which has resulted in or may result in a Material Adverse Effect; or |
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f) | the entering into of any agreements or commitments other than on customary terms. |
8.11 | Agreements |
Each Material Agreement is in full force and effect. No other Material Agreements will be entered into by the Company prior the Closing Date without the prior consent of the Buyer (such consent not to be unreasonably withheld). The Company has fulfilled all material obligations required pursuant to the Material Agreements to have been performed by it prior to the Signing Date and has not waived any material rights thereunder.
There has not occurred any material default on the part of the Company under any of the Material Agreements, or to the knowledge of the Seller, on the part of any other party thereto, nor has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of the Company under any of the Material Agreements nor, to the knowledge of the Seller, has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of any other party to any of the Material Agreements.
The term “Material Agreement” means each agreement, contract or other undertaking by or of the Company (a) that is of material importance to the Business or (b) the value of which, in respect of total turnover during one year, is not less than USD 50,000, provided, however, that such term includes the Charter, the Tuva Facility and the Swap Agreements.
8.12 | Insurance |
The Company maintains insurance policies on fire, theft, loss, disruption, product and general liability and other forms of insurance with reputable insurers that would reasonably be judged to be sound and required for the Business.
The Company’s insurance policies do not contain any provisions regarding a change of control or ownership of the insured.
The Company is in compliance with all terms and conditions contained in the insurance policies, and nothing has been done or omitted to be done that would make any insurance policy or insurance void or voidable or that would result in a reduction of the coverage (No: avkortning).
8.13 | Environmental matters |
The Company is not and has not been in breach of any applicable laws (whether civil, criminal or administrative), statutes, regulations, directives, codes, judgments, orders or any other measures imposed by any governmental, statutory or regulatory body with regard to the pollution or the protection of the environment or to the protection of human health or human safety, or any other living organisms supported by the environment.
There is no current governmental investigation or disciplinary proceeding relating to any alleged breach of any law or permit by the Company, and none is pending, nor threatened.
The Company has not, other than as permitted under applicable permits or applicable laws or regulations held from time to time, disposed of, discharged, released, placed, dumped or emitted any hazardous substances, such as pollutants, contaminants, hazardous or toxic materials, wastes
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or chemicals. Neither the Seller nor the Company has received any formal or informal notice or other communication from which it appears that the Company may be or has been in violation of any laws or permits. There are no actual or contingent obligations on the Company to pay money or carry out any work in order to keep or be granted an extension or renewal of any existing permit. There are no facts or circumstances that could result in such an obligation. The properties used by the Company are not made of or do not contain any form of asbestos or any other toxic substance that may cause damage to the health of the persons working or visiting the premises.
8.14 | Compliance with laws |
The Company has at all times conducted the Business in accordance with and have complied with any applicable laws in Norway and in any other relevant countries relating to each of their operations and the Business.
All necessary licences, consents, permits and authorisations have been obtained by the Company enable the Company to carry on the Business in the places and in the manner in which such Business is now conducted and all such licences, consents, permits and authorisations are valid and subsisting and have been complied with in all respects.
8.15 | Litigation |
There are no claims, actions, lawsuits, administrative, governmental, arbitration or other legal proceedings (including but not limited to proceedings related to Taxes) pending or threatened against or involving the Company, the Business or properties or assets of the Company and which would result in a Material Adverse Effect if adversely determined.
8.16 | Taxes |
The Company has properly filed with the appropriate Tax authorities all Tax returns and reports required to be filed for all Tax periods ending prior to the Closing Date. Such filings are true, correct and complete. All information required for a correct assessment of Taxes has been provided.
The Tax returns of the Company have been assessed and approved by the Tax authorities through the Tax years up to and including the years for which such assessment and approval is required, and the Company is not subject to any dispute with any such authority.
All Taxes that have become due have been fully paid or fully provided for in the Accounts, and the Company shall not be liable for any additional Tax pertaining to the period before the Accounts Date. All Taxes for the period after the Accounts Date have been fully paid when due.
There are no Tax audits, Tax disputes or Tax litigation pending or threatened against or involving the Company. There is no basis for assessment of any deficiency in any Taxes against the Company that has not been provided for in the Accounts or that has not been paid.
The Company is not and has not been involved in any transaction that could be considered as Tax-evasive. All losses for Tax purposes incurred by of the Company are trading losses and are available to be carried forward and set off against income in succeeding periods without limitation and have been accepted by the relevant Tax authorities.
The Company is not and has not been subject to any Tax outside its respective country of fiscal residence.
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8.17 | Relationship with the Seller |
Except as disclosed to the Buyer, there are no written or oral agreements or arrangements between the Company and the Seller, and no liabilities or obligations (contingent or otherwise) owed by the Company to the Seller.
No services provided by the Seller to the Company are necessary in the ordinary course of business.
No payments of any kind, including, but not limited to management charges, have been made by the Company to the Seller, save for payments under agreements or arrangements made on an arm’s-length basis in accordance with applicable law and regulations.
8.18 | Information |
All documents provided to the Buyer by or on behalf of the Seller or the Company are true and correct, and no document provided to the Buyer by or on behalf of the Seller or the Company contains any untrue statement of a relevant fact or omits to state a relevant fact necessary to make the statements contained in the document not misleading.
There are no facts or circumstances known to the Seller, relating to the affairs of the Company, that have not been disclosed to the Buyer, which, if disclosed, reasonably could have been expected to influence the decision of the Buyer to purchase the Tuva Shares on the terms of this Agreement.
The Seller confirms that the Seller, prior to the Signing Date, has made, and until the Closing Date, shall continue to make, all investigations necessary in order to ensure that the statements in Clauses 8 and 9 are correct.
9 | REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE VESSEL |
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
9.1 | Flag and title |
9.2 | Classification |
9.3 | Maintenance |
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two years and all known scheduled repairs due to be made and all known deficiencies have been disclosed to the Buyer.
9.4 | Liens |
The Vessel is not (a) under arrest or otherwise detained, (b) other than in the ordinary course of business, in the possession of any person (other than her master and crew) or (c) subject to a possessory lien.
9.5 | Safety |
The Vessel is supplied with valid and up-to-date safety, safety construction, safety equipment, radio, loadline, health, tonnage, trading and other certificates or documents as may for the time being be prescribed by the law of Norway or of any other pertinent jurisdiction, or that would otherwise be deemed necessary by a shipowner acting in accordance with internationally accepted standards for good ship management and operations.
9.6 | No blacklisting or boycotts |
No blacklisting or boycotting of any type has been applied or currently exists against or in respect of the Vessel.
9.7 | No options |
There are not outstanding any options or other rights to purchase the Vessel.
9.8 | Insurance |
The insurance policies relating to the Vessel are as set forth on Appendix 2 hereto, each of which is in full force and effect and, to the Seller’s knowledge, not subject to being voided or terminated for any reason.
10 | COVENANTS PRIOR TO THE CLOSING |
10.1 | Covenants of the Seller Prior to the Closing |
From the Signing Date to the Closing Date, the Seller shall cause the Company to conduct its business in the usual, regular and ordinary course in substantially the same manner as previously conducted. The Seller shall not permit the Company to enter into any contracts or other written or oral agreements prior to the Closing Date, other than such contracts and agreements as have been disclosed to the Buyer prior to the Signing Date, without the prior consent of the Buyer (such consent not to be unreasonably withheld). In addition, the Seller shall not permit the Company to take any action that would result in any of the conditions to the purchase and sale of the Tuva Shares set forth in Clause 6 not being satisfied. Furthermore, the Seller hereby agrees and covenants that it:
a) | shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to consummate and make effective as promptly as possible the transactions contemplated by this Agreement and to co-operate with the Buyer and others in connection with the foregoing; |
b) | shall use its best efforts to obtain the authorisations, consents, orders and approvals of regulatory bodies and officials that may |
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be or become necessary for the performance of its obligations pursuant to this Agreement and the completion of the transactions contemplated by it;
c) | shall co-operate with the Buyer and promptly seek to obtain such authorisations, consents, orders and approvals as may be necessary for the performance of the Parties’ respective obligations pursuant to this Agreement; |
d) | shall not amend, alter or otherwise modify or permit any amendment, alteration or modification of any material provision of or terminate the Charter or any other contract prior to the Closing Date without the prior written consent of the Buyer, such consent not to be unreasonably withheld or delayed; |
e) | shall not exercise or permit any exercise of any rights or options contained in the Charter, without the prior written consent of the Buyer, not to be unreasonably withheld or delayed; |
f) | shall observe and perform in a timely manner, all of its covenants and obligations under the Charter, the Tuva Facility and the Swap Agreements, if any, and in the case of a default by another party thereto, it shall forthwith advise the Buyer of such default and shall, if requested by the Buyer, enforce all of its rights under such Charter, the Tuva Facility or the Swap Agreements, as applicable, in respect of such default; |
g) | shall not cause or, to the extent reasonably within its control, permit any Encumbrances to attach to the Vessel other than in connection with the Tuva Facility and the Swap Agreements; and |
h) | shall permit representatives of the Buyer to make, prior to the Closing Date, at the Buyer’s risk and expense, such surveys, tests and inspections of the Vessel as the Buyer may deem desirable, so long as such surveys, tests or inspections do not damage the Vessel or interfere with the activities of the Seller, the Company or the Charterer thereon and so long as the Buyer shall have furnished the Seller with evidence that adequate liability insurance is in full force and effect. |
10.2 | Covenants of the Buyer Prior to the Closing |
The Buyer hereby agrees and covenants that during the period of time after the Signing Date and prior to the Closing Date, the Buyer shall, in respect of the Tuva Shares to be transferred on the Closing Date, take, or cause to be taken, all necessary company action, steps and proceedings to approve or authorize validly and effectively the purchase and sale of the Tuva Shares and the execution and delivery of this Agreement and the other agreements and documents contemplated hereby.
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11 | TERMINATION |
11.1 | Termination |
This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned, at any time prior to the Closing Date:
a) | by either Party if a breach of any provision of this Agreement has been committed by the other Party, such breach has not been waived and such breach is material to the transactions contemplated hereby, the Business or the assets, financial condition or prospect of the Company; |
b) | by the Buyer if satisfaction of any of the conditions in Clause 6.1 is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition; |
c) | by the Seller if satisfaction of any of the conditions in Clause 6.2 is or becomes impossible (other than through the failure of the Seller to comply with its obligations under this Agreement) and the Seller has not waived such condition; |
d) | by either Party if satisfaction of any of the conditions in Clause 6.3 is or becomes impossible and Buyer and Seller have not waived such condition; |
e) | by the Buyer due to a change having occurred that has resulted or may result in a Material Adverse Effect; |
f) | by mutual written consent of the Seller and the Buyer; or |
g) | by either Party if the Dan Cisne SPA is terminated. |
11.2 | Rights on termination |
If this Agreement is terminated pursuant to Clause 11.1, all further obligations of the Parties pursuant to this Agreement shall terminate without further liability of a Party to the other, provided, however, that the obligations of the Parties contained in Clause 14 (Costs) and Clause 18 (Governing Law and arbitration) shall survive such termination, and further provided, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.
12 | GUARANTEE BY KNOT |
12.1 | Guarantee relating to the Tuva Knutsen |
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effect and payable under the Charter; provided, however, that in the event that for any period during such seven years following the Closing Date the Tuva Knutsen is chartered under a charter other than the Charter and the rate of hire being paid under such charter is lower than the rate of hire that would have been in effect and payable under the Charter during any such period, then Seller shall pay, or cause to be paid, to the owner of the Tuva Knutsen, the difference between the rate of hire that would have been in effect and payable under the Charter during such period and the rate of hire that is then in effect and payable under such other charter. No amounts shall be payable pursuant to this Clause 12 during any period of technical offhire of the vessel.
12.2 | Gross up |
13 | INDEMNIFICATION |
13.1 | Indemnity by the Seller |
a) | by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Seller in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Seller; |
b) | subject to Clause 14 b), any fees, expenses or other payments incurred or owed by the Seller to any brokers, financial advisors or comparable other persons retained or employed by it in connection with the transaction contemplated by this Agreement; |
c) | any Losses of the Company or the Vessel or any other vessel chartered or owned by the Company incurred prior to or on the Closing Date arising from any violation of any applicable law or regulation relating to protection of natural resources, health and safety and the environment; |
d) | all federal, state, foreign and local income tax liabilities attributable to the Company or operation of the Vessel prior to the Closing Date; or |
e) | any Losses suffered or incurred by such Buyer Indemnitees in connection with any claim for the repayment of hire or Losses |
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in relation to the Vessel or any other vessel chartered or owned by the Company for periods prior to the Closing.
13.2Indemnity by the Buyer
Following the Closing, the Buyer shall be liable for, and shall indemnify, defend and hold harmless the Seller and its respective officers, directors, employees, agents and representatives (the “Seller Indemnitees”) from and against, any Losses, suffered or incurred by such Seller Indemnitees by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Buyer in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Buyer.
13.3 | Indemnification procedures with respect to third-party claims |
If the Seller or the Buyer, as the case may be (an “Indemnified Party”), shall receive notice of any claim by a third party that is or may be subject to indemnification or compensation from the other Party pursuant to this Agreement (a “Third-Party Claim”), the Indemnified Party shall give the other Party (the “Indemnifying Party”) prompt written notice of such Third-Party Claim and the Indemnifying Party shall, at the Indemnifying Party’s option, have the right to participate in the defence thereof by counsel at the Indemnifying Party’s own cost and expense. If the Indemnifying Party acknowledges within 30 days from such written notice in writing its obligation to indemnify the Indemnified Party against all Losses that may result from such Third-Party Claim, the Indemnifying Party shall be entitled, at the Indemnifying Party’s option, to assume and control the defence of such Third-Party Claim at the Indemnifying Party’s cost and expense and through counsel of the Indemnifying Party’s choice. No such Third-Party Claim may be settled by the Indemnifying Party without the written consent of the Indemnified Party, unless the settlement involves only the payment of money by the Indemnifying Party. No Third-Party Claim that is being defended in good faith by the Indemnifying Party shall be settled by the Indemnified Party without the written consent of the Indemnifying Party. The Indemnifying Party shall have no obligation to indemnify the Indemnified Party for any losses resulting from the settlement of Third-Party Claims in violation of the provisions of this Clause 13.3.
14 | COSTS |
a) | Subject to Clause 14b) and 14c), each party shall pay its own costs and expenses in connection with the preparation for and completion of the transactions contemplated by this Agreement, including but not limited to all fees and expenses of its own representatives, agents, brokers, legal and financial advisers and authorities and no such costs or expenses shall be charged to or paid by, neither directly or indirectly, the Company. |
b) | The fees and expenses related to the fairness opinion of AMA Capital Partners LLC dated 27 August 2024 will be divided equally between the Buyer and the Seller. |
c) | Legal fees to Norwegian and UK legal counsel related to the transactions contemplated by this Agreement and the related |
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and financing arrangements will be divided equally between the Buyer and the Seller.
15 | NOTICES |
All notices, requests, demands, approvals, waivers and other communications required or permitted under this Agreement must be in writing in the English language and shall be deemed to have been received by a Party when:
a) | delivered by post, unless actually received earlier, on the third Business Day after posting, if posted within Norway, or the fifth Business Day, if posted to or from a place outside Norway; |
b) | delivered by hand, on the day of delivery; or |
c) | delivered by fax, on the day of dispatch if supported by a written confirmation from the sender’s fax machine that the message has been properly transmitted. |
All such notices and communications shall be addressed as set forth below or to such other addresses as may be given by written notice in accordance with this Clause 15.
If to the Seller:
Knutsen NYK Offshore Tankers AS
Attention: President & CEO
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
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If to the Buyer:
KNOT Shuttle Tankers AS
Attention: Chairman of the Board
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
16 | ASSIGNMENT |
This Agreement shall be binding upon and inure to the benefit of the successors of the Parties, but shall not be assignable by any of the Parties without the prior written consent of the other Party. The benefit of this Agreement may, however, be assigned by either of the Parties to any group directly or indirectly controlling, controlled by or under common control of the assignor, provided that the assignor shall remain liable for its own debt and for all obligations under this Agreement.
17 | MISCELLANEOUS |
17.1 | Further Assurances |
17.2 | Integration |
17.3 | No Broker’s Fees |
18 | GOVERNING LAW AND ARBITRATION |
This Agreement shall be governed by and construed in accordance with Norwegian law.
The Parties shall seek to solve through negotiations any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof. If the Parties fail to
20
solve such dispute, controversy or claim by a written agreement within 60 days after one of the Parties has requested such negotiations by notice to the other Party, such dispute, controversy or claim shall be finally settled by arbitration in Haugesund in the English language in accordance with the Norwegian Arbitration Act. The arbitration tribunal shall consist of three arbitrators, of which the Buyer shall appoint one arbitrator and the Seller shall appoint one arbitrator. The arbitrators so appointed shall appoint the third arbitrator, who shall be the chairman of the arbitration tribunal. In the event of failure by a Party to appoint its arbitrator within 30 days after the request for arbitration first is given, or the failure by the first two arbitrators to appoint the third arbitrator within 30 days after appointment of the last of the first two arbitrators to be appointed, such arbitrator or arbitrators shall be appointed by the district judge (No: “Sorenskriver”) of Haugesund District Court. Any Party may seek judgement upon any award in any court having jurisdiction, or an application may be made to such court for the judicial acceptance of the award and for an order of enforcement.
Notwithstanding the above, either Party may bring an action in any court of competent jurisdiction (a) for provisional relief pending the outcome of arbitration, including, without limitation, provisional injunctive relief or pre-judgement attachment of assets, or (b) to compel arbitration or enforce any arbitral award. For purposes of any proceeding authorised by this Clause 18, each Party hereby consents to the non-exclusive jurisdiction of Haugesund, Norway.
* * *
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This Agreement has been executed in two original copies, of which each Party has retained one copy.
| KNOT Shuttle Tankers AS | |||||
| | | ||||
By: | | By: | ||||
| | | ||||
/s/ Trygve Seglem | | /s/ Øystein Emberland | ||||
| | | ||||
Name: | Trygve Seglem | | Name: | Øystein Emberland | ||
| | | | | | |
Title: | CEO | | Title: | Attorney-in Fact | ||
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Appendix 1
INSURANCES
Insurance Policies (all quoted values are USD)
Hull | Insured Value: | $110,000,000 |
| Policy Renewal: | 01.05.2024-31.10.2025 |
Hull Interest | Insured Value: | $27,500,000 |
| Policy Renewal: | 01.05.2024-31.10.2025 |
Freight Interest | Insured Value: | $27,500,000 |
| Policy Renewal: | 01.05.2024-31.10.2025 |
5,0% | Alandia Försäkrinfg Abp | |
18,5% | Aon London Broking Center Allianz | |
| 10,0% | Allianz Global Corporate & Speciality SE, London |
| 5,0% | Lloyds Syndicate 1036 COF |
| 3,5% | Markel Insurance SE |
4,0% | Aon London Broking Centre Arch | |
| 4% | Arch Insurance Comp. (Europe) Ltd. |
8,5% | Aon London Broking Centre AxaXL | |
| 8,5% | Lolyds Syndicate 2003 AXL |
3,0% | Aon London Broking Centre BRT 2987 | |
| 3% | Lolyds Syndicate 2987 BRT |
5,0% | Aon London Broking Centre CUL 3010 | |
| 5% | Lolyds Syndicate 3010 CUL |
3,5% | Aon London Broking Centre SCOR | |
| 3,5% | SCOR UK Company Limited |
2,5% | AssuranceForeningen Skuld (Gjensidig) | |
5,0% | Codan Forsikring NUF | |
5,0% | DUPI Underwriting Agencies B.V. | |
| 0,325% | Axeria IARD S.A. |
| 1,500% | Hamilton Insurance DAC |
| 1,875% | Sirus Point Ltd. |
| 1,300% | SMA S.A |
7,5% | Gard AS, as agents only for Gard M&E Ltd | |
7,5% | Norwegian Hull Club | |
25,0% | Tokio Marine & Nichido Fire Insurance Co., Ltd. | |
100,0% | Total | |
Appendix 2
ACCOUNTS
[Separate attachment]
Exhibit 4.2
SHARE PURCHASE AGREEMENT
Between
KNOT Shuttle Tankers AS
(as Seller)
And
Knutsen NYK Offshore Tankers AS
(as Buyer)
for the sale and purchase of the shares in
KNOT Shuttle Tankers 20 AS
SHARE PURCHASE AGREEMENT
This agreement (this “Agreement”) is entered into on the 3 September 2024 between:
(1) | KNOT Shuttle Tankers AS, company registration no. 998 942 829 |
(the “Seller”), and
(2) | Knutsen NYK Offshore Tankers AS, company registration no. 995 221 713 |
(the “Buyer”).
The Seller and the Buyer are hereinafter individually referred to as a “Party” and jointly the “Parties”.
1 | RECITALS |
WHEREAS:
a) | KNOT Shuttle Tankers 20 AS, company registration no. 897 099 152, is a private limited liability company that has as its purpose to engage in shipowning activities, is duly incorporated under Norwegian law and has its registered place of business in Haugesund, Norway (the “Company”); |
b) | The Seller is the sole owner of the ownership interest in the Company, with a share capital of NOK 10,000,000; |
c) | The Company is the owner of the MT “Dan Cisne”, having IMO No. 9513440 (the “Vessel”); and |
d) | The Seller and the Buyer have agreed that the Buyer shall acquire 100% of the shares in the Company (the “Dan Cisne Shares”) on the terms and conditions set forth in this Agreement and the Settlement Agreement dated 3 September 2024 between the Seller and the Buyer (the “Settlement Agreement”). |
2 | DEFINITIONS |
In this Agreement, the following definitions shall have the following meanings:
a) | Accounting Principles | means the applicable Norwegian generally accepted accounting principles as defined by Norwegian law and regulations and accounting standards issued by the Norwegian Accounting Standards Board (Nw: Norsk Regnskapsstiftelse/NRS), applied on a consistent basis; |
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b) | Accounts | means, in respect of the Company, its audited profit and loss and balance sheet statement as per the Accounts Date attached as Appendix 2; |
| | |
c) | Accounts Date | means 31 December 2023; |
| | |
d) | Agreement | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
e) | Business | means the current business of the Company, being to own the Vessel, and charter the same under the Charter; |
| | |
f) | Business Day | means a day on which banks are open for general banking business in Norway; |
| | |
g) | Buyer | shall have the meaning ascribed to such term in the preamble to this Agreement; |
| | |
h) | Buyer Indemnitees | shall have the meaning ascribed to such term in Clause 12.1; |
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i) | Charter | means the time charterparty 25 July, 2024, as amended, entered into between the Company as owner and the Charterer as charterer in respect of the Vessel; |
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j) | Charterer | means Knutsen Shuttle Tanker Pool AS.; |
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k) | Closing | shall have the meaning ascribed to such term in Clause 5.1; |
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l) | Closing Date | means the date when the Closing actually takes place according to Clause 5.1; |
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m) | Companies Act | means the Norwegian Limited Liability Companies Act of 1997 |
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n) | Company | shall have the meaning ascribed to such term in Clause 1; |
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o) | Dan Cisne Purchase Price | shall have the meaning ascribed to such term in Clause 4; |
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p) | Dan Cisne Purchase Price Adjustments | shall have the meaning ascribed to such term in Clause 5.4; |
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q) | Dan Cisne Shares | shall have the meaning ascribed to such term in Clause 1; |
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r) | Encumbrance | means any mortgage, charge, pledge, lien, option or other security interest or restriction of any kind; |
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s) | Governmental Authority | means any domestic or foreign government, including federal, provincial, state, municipal, county or regional government or governmental or regulatory authority, domestic or foreign, and includes any department, commission, bureau, board, administrative agency or regulatory body of any of the foregoing and any multinational or supranational organization; |
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t) | Indemnified Party | shall have the meaning ascribed to such term in Clause 12.3; |
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u) | Indemnifying Party | shall have the meaning ascribed to such term in Clause 12.3; |
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v) | Losses | means any loss, liability, claim, damage, expense (including costs of investigation and defence and reasonable attorneys’ fees) or diminution of value, whether or not involving a third-party claim; |
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w) | Material Adverse Effect | means a material adverse effect on the condition (financial, commercial, technical, legal or otherwise) of the Business, assets, results of operations or prospects of the Company; |
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x) | Material Agreement | shall have the meaning ascribed to such term in Clause 8.11; |
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y) | Party | shall have the meaning ascribed to such term in the preamble to this Agreement; |
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z) | Parties | shall have the meaning ascribed to such term in the preamble to this Agreement; |
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aa) | Partnership | means KNOT Offshore Partners LP, a Marshall Islands limited partnership; |
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bb) | Seller | shall have the meaning ascribed to such term in the preamble to this Agreement; |
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cc) | Seller Indemnities | shall have the meaning ascribed to such term in Clause 12.2; |
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dd) | Settlement Agreement | shall have the meaning ascribed to such term in Clause 1; |
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ee) | Signing Date | means the date of this Agreement; |
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ff) | Taxes | means all taxes (including value-added tax and similar taxes), however denominated, including interest, penalties and other additions to tax that may become payable or imposed by any applicable statute, rule or regulation or any governmental agency, including all taxes, withholdings and other charges in respect of income, profits, gains, payroll, social security or other social benefit taxes, sales, use, excise, real or personal |
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| | property, stamps, transfers and workers’ compensation, which the Company is required to pay, withhold or collect; and |
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gg) | Third-Party Claim | shall have the meaning ascribed to such term in Clause 12.3; |
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hh) | Tuva SPA | means the Share Purchase Agreement, dated the date hereof, pursuant to which the Buyer has agreed to sell to the Seller all of the shares in KNOT Shuttle Tankers 31 AS, the owner of the vessel Tuva Knutsen; and |
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ii) | Vessel | shall have the meaning ascribed to such term in Clause 1. |
3 | SALE AND PURCHASE |
Subject to the terms and conditions set forth in this Agreement, the Seller agrees to sell, and the Buyer agrees to purchase, the Dan Cisne Shares, together with all rights attached to them.
The Dan Cisne Shares shall be transferred to the Buyer on the Closing Date, free and clear from any Encumbrances.
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4 | PURCHASE PRICE |
The Seller agrees to sell and transfer to the Buyer, and the Buyer agrees to purchase from the Seller the Dan Cisne Shares for USD 30,000,000, (the “Dan Cisne Purchase Price”), plus the Dan Cisne Purchase Price Adjustments, all in accordance with and subject to the terms and conditions set forth in this Agreement.
The Dan Cisne Purchase Price shall be settled and paid in accordance with the Settlement Agreement, subject to the subsequent Dan Cisne Purchase Price Adjustments in accordance with Clause 5.4.
The Dan Cisne Purchase Price as calculated above is based on the assumption that Closing occurs within 5 September, 2024 at 23:59 CET. If Closing should occur at another time the Parties shall agree on an adjusted Dan Cisne Purchase Price to be paid on Closing.
5 | CLOSING |
5.1 | Time and place |
Subject to the satisfaction or waiver of the conditions set forth in Clause 6, the completion of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of the Seller at 3 September 2024 or such other time as the Parties agree.
5.2 | The Seller’s Closing obligations |
At the Closing, the Seller shall:
a) | deliver to the Buyer a copy of the minutes of the meeting of the board of directors of the Seller authorising the execution of, and the consummation of the transaction contemplated by, this Agreement; and |
b) | in exchange for the payment of the Dan Cisne Purchase Price in accordance with the Settlement Agreement, transfer the Dan Cisne Shares to the Buyer and deliver to the Buyer the share register of the Company with the Buyer duly registered as the owner of the Dan Cisne Shares, as well as the related notices according to Sections 4-7 and 4-10 of the Companies Act. |
5.3 | The Buyer’s Closing obligations |
At the Closing, the Buyer shall
a) | settle the Dan Cisne Purchase Price in accordance with Clause 4 and the Settlement Agreement. |
5.4 | Post-Closing Adjustment |
a) | Within 60 days following the Closing Date, the Buyer and the Seller shall agree on the amount of the post-Closing adjustments to the Dan Cisne Purchase Price based on: |
(i) | The Company’s working capital (the “Dan Cisne Purchase Price Adjustments”) as of 00:01 hours CET, on 1 September, 2024. |
b) | Within 3 business days following the date on which the Dan Cisne Purchase Price Adjustments have been agreed pursuant to Clause 5.4 a) above, the Buyer or the Seller |
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(as the case may be) shall pay to the other Party an amount, in cash, equal to the net Dan Cisne Purchase Price Adjustments. Any amounts other than those covered by the Dan Cisne Purchase Price Adjustments varying in the period between the Signing Date and the Closing Date shall be for Seller’s account.
6 | CLOSING CONDITIONS |
6.1 | Conditions to the Buyer’s Closing obligations |
The obligations of the Buyer to purchase the Dan Cisne Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Buyer) on or before the Closing Date:
a) | that the Vessel has been delivered to the Charterer in accordance with the provisions of the Charter and that all costs and expenses related thereto have been settled by the Seller; |
b) | there is no material breach of any of the representations and warranties of the Seller set forth in Clause 8 and Clause 9; |
c) | the Buyer shall have obtained the funds necessary to consummate the purchase of the Dan Cisne Shares, and to pay all related fees and expenses; |
d) | in all respects material to the transactions contemplated hereby, the Seller shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Seller at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement; and |
e) | the results of the searches, surveys, tests and inspections of the Vessel referred to in Clause 10.1 h) are reasonably satisfactory to the Buyer. |
6.2 | Conditions to the Seller’s Closing obligations |
The obligations of the Seller to sell the Dan Cisne Shares and to take the other actions required to be taken by it at the Closing are subject to the satisfaction of each of the following conditions (any of which may be waived in whole or in part by the Seller) on or before the Closing Date:
a) | there is no material breach of any of the representations and warranties of the Buyer set forth in Clause 7; and |
b) | in all respects material to the transactions contemplated hereby, the Buyer shall have performed or complied with all of its obligations pursuant to this Agreement to be performed or complied with by the Buyer at or prior to the Closing Date and shall have delivered each document or instrument to be delivered by it pursuant to this Agreement. |
6.3 | Conditions of the Parties. |
The obligations of Seller to sell the Dan Cisne Shares and the obligations of Buyer to purchase the Dan Cisne Shares are subject to the satisfaction (or waiver by each of Seller and Buyer) on or prior to the Closing Date of the following conditions:
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a) | The Seller shall have received any and all written consents, permits, approvals or authorizations of any Governmental Authority or any other Person (including, but not limited to, with respect to the Charter and shall have made any and all notices or declarations to or filing with any Governmental Authority or any other Person, including those related to any environmental laws or regulations, required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereunder, including the transfer of the Dan Cisne Shares; |
b) | No legal or regulatory action or proceeding shall be pending or threatened by any Governmental Authority to enjoin, restrict or prohibit the purchase and sale of the Dan Cisne Shares; and |
c) | The sale of the shares of KNOT Shuttle Tankers 31 AS by Buyer to Seller pursuant to the terms of the Tuva SPA and the Settlement Agreement shall be consummated on the Closing Date. |
7 | REPRESENTATIONS AND WARRANTIES OF THE BUYER |
The Buyer represents and warrants to the Seller that as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
7.1 | Corporate existence and power |
The Buyer is duly incorporated, validly existing and in good standing under the laws of Norway.
The Buyer has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
7.2 | Corporate authorisation and non-contravention |
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of the Buyer and constitutes or will, when executed, constitute valid and binding obligations of the Buyer enforceable in accordance with its respective terms.
The execution by the Buyer of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by the Buyer of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of the Buyer or of any applicable law, order, judgment or decree of any court or Governmental Authority or of any agreement to which the Buyer is bound.
The Buyer is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
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8 | REPRESENTATIONS AND WARRANTIES OF THE SELLER |
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
8.1 | Corporate existence and power |
Each of the Company and the Seller is duly incorporated, validly existing and in good standing under the laws of Norway.
Each of the Company and the Seller has not been declared insolvent; become the subject of a petition in bankruptcy; had a receiver appointed with respect to it or to the Business or part thereof; entered into any arrangement with, or made an assignment for the benefit of, its creditors; or ceased to function as a going concern.
The Company does not own, directly or indirectly, any equity or long-term debt securities of any corporation, partnership, limited liability company or other entity.
8.2 | Corporate authorisation and non-contravention |
This Agreement and each other document or instrument delivered or to be delivered in connection with this Agreement has been duly authorised by all necessary corporate action(s) of each of the Company and the Seller, as appropriate, and constitutes or will, when executed, constitute valid and binding obligations of each of the Company and the Seller, as appropriate, enforceable in accordance with its respective terms.
The execution by each of the Company and the Seller, as appropriate, of this Agreement and each other document or instrument delivered or to be delivered in connection with it, and the performance by each of the Company and the Seller, as appropriate, of its obligations under this Agreement and the consummation of the transactions provided for in this Agreement, do not and will not result in a breach of any provision of the articles of association of each of the Company and the Seller, as appropriate, or of any applicable law, order, judgment or decree of any court or Governmental Authority or of any agreement to which each of the Company and the Seller, as appropriate, is bound.
Each of the Company and the Seller, as appropriate, is not required to obtain any authorisations, consents, approvals or exemptions by any Governmental Authority in connection with the entering into or performance of its obligations under this Agreement.
8.3 | Capitalisation and title |
The Seller has full ownership to the Dan Cisne Shares. The Dan Cisne Shares are duly authorised, validly issued and fully paid and at Closing, will be free and clear from any Encumbrances.
There is no outstanding subscription, option or similar rights relating to the Dan Cisne Shares.
8.4 | Records |
The Company’s articles of association, shareholders’ register and other organizational documents are true, accurate, up-to-date and complete.
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8.5 | Charter documents; validity of the Charter |
The Seller has supplied to the Buyer true and correct copies of the Charter and any related documents, as amended to the Closing Date. The Charter is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms and, to the knowledge of the Seller, the Charter is a valid and binding agreement of all other parties thereto enforceable against such parties in accordance with its terms.
8.6 | Accounts |
The Accounts have been prepared in accordance with the Accounting Principles and in accordance with the books and records of the Company. The Accounts give a true and accurate view of the financial position, solvency, assets, liabilities, liquidity, cash flow and the result of the operations of the Company as of the Accounts Date.
8.7 | No undisclosed liabilities |
Neither the Company nor the Vessel has any Encumbrances, or other liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for Taxes and interest, penalties and other charges payable with respect to any such liability or obligation), except for such liabilities or obligations arising under the Charter, the management agreement relating to the Vessel with KNOT Management Denmark A/S, and the Encumbrances appearing in the ship registry of the Vessel.
8.8 | Loans and other financial facilities |
The vessel is debt free;
The Company is not indebted, directly or indirectly, to any person who is an officer, director, stockholder or employee of the Seller or any spouse, child or other relative or any affiliate of any such person, nor is any such officer, director, stockholder, employee, relative or affiliate indebted to the Company.
8.9 | Assets |
At the Closing Date, the Company shall not be using assets in the Business that it neither owns nor has the right to use pursuant to written agreements with third parties. At the Closing Date, the assets of the Company will comprise all the assets necessary for carrying on the Business fully and effectively to the extent to which it is conducted at the Signing Date.
8.10 | Absence of certain changes or events |
Since the Accounts Date, there has not occurred or arisen:
a) | any change of accounting methods, principles or practices, accounting, invoicing and supplier practice or procedures for the Company; |
b) | any acquisition or disposal of, or the entering into any agreement to acquire or dispose of, any asset, other than the sale of products in the ordinary course of business; |
c) | the termination of any Material Agreement; |
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d) | any obligations, commitments or liabilities, contingent or otherwise, whether for Taxes or otherwise, except obligations, commitments and liabilities arising in the ordinary course of business; |
e) | any event or condition, whether covered by insurance or not, which has resulted in or may result in a Material Adverse Effect; or |
f) | the entering into of any agreements or commitments other than on customary terms. |
8.11 | Agreements |
Each Material Agreement is in full force and effect. No other Material Agreements will be entered into by the Company prior the Closing Date without the prior consent of the Buyer (such consent not to be unreasonably withheld). The Company has fulfilled all material obligations required pursuant to the Material Agreements to have been performed by it prior to the Signing Date and has not waived any material rights thereunder.
There has not occurred any material default on the part of the Company under any of the Material Agreements, or to the knowledge of the Seller, on the part of any other party thereto, nor has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of the Company under any of the Material Agreements nor, to the knowledge of the Seller, has any event occurred that with the giving of notice or the lapse of time, or both, would constitute any material default on the part of any other party to any of the Material Agreements.
The term “Material Agreement” means each agreement, contract or other undertaking by or of the Company (a) that is of material importance to the Business or (b) the value of which, in respect of total turnover during one year, is not less than USD 50,000, provided, however, that such term includes the Charter.
8.12 | Insurance |
The Company maintains insurance policies on fire, theft, loss, disruption, product and general liability and other forms of insurance with reputable insurers that would reasonably be judged to be sound and required for the Business.
The Company’s insurance policies do not contain any provisions regarding a change of control or ownership of the insured.
The Company is in compliance with all terms and conditions contained in the insurance policies, and nothing has been done or omitted to be done that would make any insurance policy or insurance void or voidable or that would result in a reduction of the coverage (No: avkortning).
8.13 | Environmental matters |
The Company is not and has not been in breach of any applicable laws (whether civil, criminal or administrative), statutes, regulations, directives, codes, judgments, orders or any other measures imposed by any governmental, statutory or regulatory body with regard to the pollution or the protection of the environment or to the protection of human health or human safety, or any other living organisms supported by the environment.
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There is no current governmental investigation or disciplinary proceeding relating to any alleged breach of any law or permit by the Company, and none is pending, nor threatened.
The Company has not, other than as permitted under applicable permits or applicable laws or regulations held from time to time, disposed of, discharged, released, placed, dumped or emitted any hazardous substances, such as pollutants, contaminants, hazardous or toxic materials, wastes or chemicals. Neither the Seller nor the Company has received any formal or informal notice or other communication from which it appears that the Company may be or has been in violation of any laws or permits. There are no actual or contingent obligations on the Company to pay money or carry out any work in order to keep or be granted an extension or renewal of any existing permit. There are no facts or circumstances that could result in such an obligation. The properties used by the Company are not made of or do not contain any form of asbestos or any other toxic substance that may cause damage to the health of the persons working or visiting the premises.
8.14 | Compliance with laws |
The Company has at all times conducted the Business in accordance with and has complied with any applicable laws in Norway and in any other relevant countries relating to its operations and the Business.
All necessary licences, consents, permits and authorisations have been obtained by the Company to enable the Company to carry on the Business in the places and in the manner in which such Business is now conducted and all such licences, consents, permits and authorisations are valid and subsisting and have been complied with in all respects.
8.15 | Litigation |
There are no claims, actions, lawsuits, administrative, governmental, arbitration or other legal proceedings (including but not limited to proceedings related to Taxes) pending or threatened against or involving the Company, the Business or properties or assets of the Company and which would result in a Material Adverse Effect if adversely determined.
8.16 | Taxes |
The Company has properly filed with the appropriate Tax authorities all Tax returns and reports required to be filed for all Tax periods ending prior to the Closing Date. Such filings are true, correct and complete. All information required for a correct assessment of Taxes has been provided.
The Tax returns of the Company have been assessed and approved by the Tax authorities through the Tax years up to and including the years for which such assessment and approval is required, and the Company is not subject to any dispute with any such authority.
All Taxes that have become due have been fully paid or fully provided for in the Accounts, and the Company shall not be liable for any additional Tax pertaining to the period before the Accounts Date. All Taxes for the period after the Accounts Date have been fully paid when due.
There are no Tax audits, Tax disputes or Tax litigation pending or threatened against or involving the Company. There is no basis for assessment of any deficiency in any Taxes against the Company that has not been provided for in the Accounts or that has not been paid.
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The Company is not and has not been involved in any transaction that could be considered as Tax-evasive. All losses for Tax purposes incurred by of the Company are trading losses and are available to be carried forward and set off against income in succeeding periods without limitation and have been accepted by the relevant Tax authorities.
The Company is not and has not been subject to any Tax outside its respective country of fiscal residence.
8.17 | Relationship with the Seller |
Except as disclosed to the Buyer, there are no written or oral agreements or arrangements between the Company and the Seller, and no liabilities or obligations (contingent or otherwise) owed by the Company to the Seller.
No services provided by the Seller to the Company are necessary in the ordinary course of business.
No payments of any kind, including, but not limited to management charges, have been made by the Company to the Seller, save for payments under agreements or arrangements made on an arm’s-length basis in accordance with applicable law and regulations.
8.18 | Information |
All documents provided to the Buyer by or on behalf of the Seller or the Company are true and correct, and no document provided to the Buyer by or on behalf of the Seller or the Company contains any untrue statement of a relevant fact or omits to state a relevant fact necessary to make the statements contained in the document not misleading.
There are no facts or circumstances known to the Seller, relating to the affairs of the Company, that have not been disclosed to the Buyer, which, if disclosed, reasonably could have been expected to influence the decision of the Buyer to purchase the Dan Cisne Shares on the terms of this Agreement.
The Seller confirms that the Seller, prior to the Signing Date, has made, and until the Closing Date, shall continue to make, all investigations necessary in order to ensure that the statements in Clauses 8 and 9 are correct.
9 | REPRESENTATIONS AND WARRANTIES OF THE SELLER REGARDING THE VESSEL |
The Seller represents and warrants to the Buyer as of the Signing Date and on the Closing Date, unless otherwise expressly stated:
9.1 | Flag and title |
9.2 | Classification |
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cannot be detached by any port state authority or the flag state authority for any deficiency.
9.3 | Maintenance |
9.4 | Liens |
9.5 | Safety |
9.6 | No blacklisting or boycotts |
9.7 | No options |
9.8 | Insurance |
10 | COVENANTS PRIOR TO THE CLOSING |
10.1 | Covenants of the Seller Prior to the Closing |
From the Signing Date to the Closing Date, the Seller shall cause the Company to conduct its business in the usual, regular and ordinary course in substantially the same manner as previously conducted. The Seller shall not permit the Company to enter into any contracts or other written or oral agreements prior to the Closing Date, other than such contracts and agreements as have been disclosed to the Buyer prior to the Signing Date, without the prior consent of the Buyer (such consent not to be unreasonably withheld). In addition, the Seller shall not permit the Company to take any action that would result in any of the conditions to the purchase and sale of the Dan Cisne Shares set forth in Clause 6 not being satisfied. Furthermore, the Seller hereby agrees and covenants that it:
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a) | shall use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to consummate and make effective as promptly as possible the transactions contemplated by this Agreement and to co-operate with the Buyer and others in connection with the foregoing; |
b) | shall use its best efforts to obtain the authorisations, consents, orders and approvals of regulatory bodies and officials that may be or become necessary for the performance of its obligations pursuant to this Agreement and the completion of the transactions contemplated by it; |
c) | shall co-operate with the Buyer and promptly seek to obtain such authorisations, consents, orders and approvals as may be necessary for the performance of the Parties’ respective obligations pursuant to this Agreement; |
d) | shall not amend, alter or otherwise modify or permit any amendment, alteration or modification of any material provision of or terminate the Charter or any other contract prior to the Closing Date without the prior written consent of the Buyer, such consent not to be unreasonably withheld or delayed; |
e) | shall not exercise or permit any exercise of any rights or options contained in the Charter, without the prior written consent of the Buyer, not to be unreasonably withheld or delayed; |
f) | shall observe and perform in a timely manner, all of its covenants and obligations under the Charter, if any, and in the case of a default by another party thereto, it shall forthwith advise the Buyer of such default and shall, if requested by the Buyer, enforce all of its rights under such Charter, as applicable, in respect of such default; |
g) | shall not cause or, to the extent reasonably within its control, permit any Encumbrances to attach to the Vessel; and |
h) | shall permit representatives of the Buyer to make, prior to the Closing Date, at the Buyer’s risk and expense, such surveys, tests and inspections of the Vessel as the Buyer may deem desirable, so long as such surveys, tests or inspections do not damage the Vessel or interfere with the activities of the Seller, the Company or the Charterer thereon and so long as the Buyer shall have furnished the Seller with evidence that adequate liability insurance is in full force and effect. |
10.2 | Covenants of the Buyer Prior to the Closing |
The Buyer hereby agrees and covenants that during the period of time after the Signing Date and prior to the Closing Date, the Buyer shall, in respect of the Dan Cisne Shares to be transferred on the Closing Date, take, or cause to be taken, all necessary company action, steps and proceedings to approve or authorize validly and effectively the purchase and sale of the Dan Cisne Shares and the execution and delivery of this Agreement and the other agreements and documents contemplated hereby.
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11 | TERMINATION |
11.1 | Termination |
This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned, at any time prior to the Closing Date:
a) | by either Party if a breach of any provision of this Agreement has been committed by the other Party, such breach has not been waived and such breach is material to the transactions contemplated hereby, the Business or the assets, financial condition or prospect of the Company; |
b) | by the Buyer if satisfaction of any of the conditions in Clause 6.1 is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition; |
c) | by the Seller if satisfaction of any of the conditions in Clause 6.2 is or becomes impossible (other than through the failure of the Seller to comply with its obligations under this Agreement) and the Seller has not waived such condition; |
d) | by either Party if satisfaction of any of the conditions in Clause 6.3 is or becomes impossible and Buyer and Seller have not waived such condition; |
e) | by the Buyer due to a change having occurred that has resulted or may result in a Material Adverse Effect; |
f) | by mutual written consent of the Seller and the Buyer; or |
g) | by either Party if the Tuva SPA is terminated. |
11.2 | Rights on termination |
If this Agreement is terminated pursuant to Clause 11.1, all further obligations of the Parties pursuant to this Agreement shall terminate without further liability of a Party to the other, provided, however, that the obligations of the Parties contained in Clause 13 (Costs) and Clause 17 (Governing Law and arbitration) shall survive such termination, and further provided, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.
12 | INDEMNIFICATION |
12.1 | Indemnity by the Seller |
a) | by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, |
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agreement or obligation of, the Seller in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Seller;
b) | subject to Clause 13 b), any fees, expenses or other payments incurred or owed by the Seller to any brokers, financial advisors or comparable other persons retained or employed by it in connection with the transaction contemplated by this Agreement; |
c) | any Losses of the Company or the Vessel or any other vessel chartered or owned by the Company incurred prior to or on the Closing Date arising from any violation of any applicable law or regulation relating to protection of natural resources, health and safety and the environment; |
d) | all federal, state, foreign and local income tax liabilities attributable to the Company or operation of the Vessel prior to the Closing Date; or |
e) | any Losses suffered or incurred by such Buyer Indemnitees in connection with any claim for the repayment of hire or Losses in relation to the Vessel or any other vessel chartered or owned by the Company for periods prior to the Closing. |
12.2Indemnity by the Buyer
Following the Closing, the Buyer shall be liable for, and shall indemnify, defend and hold harmless the Seller and its respective officers, directors, employees, agents and representatives (the “Seller Indemnitees”) from and against, any Losses, suffered or incurred by such Seller Indemnitees by reason of, arising out of or otherwise in respect of any inaccuracy in, breach of any representation or warranty, or a failure to perform or observe fully any covenant, agreement or obligation of, the Buyer in or under this Agreement or in or under any document, instrument or agreement delivered pursuant to this Agreement by the Buyer.
12.3 | Indemnification procedures with respect to third-party claims |
If the Seller or the Buyer, as the case may be (an “Indemnified Party”), shall receive notice of any claim by a third party that is or may be subject to indemnification or compensation from the other Party pursuant to this Agreement (a “Third-Party Claim”), the Indemnified Party shall give the other Party (the “Indemnifying Party”) prompt written notice of such Third-Party Claim and the Indemnifying Party shall, at the Indemnifying Party’s option, have the right to participate in the defence thereof by counsel at the Indemnifying Party’s own cost and expense. If the Indemnifying Party acknowledges within 30 days from such written notice in writing its obligation to indemnify the Indemnified Party against all Losses that may result from such Third-Party Claim, the Indemnifying Party shall be entitled, at the Indemnifying Party’s option, to assume and control the defence of such Third-Party Claim at the Indemnifying Party’s cost and expense and through counsel of the Indemnifying Party’s choice. No such Third-Party Claim may be settled by the Indemnifying Party without the written consent of the Indemnified Party, unless the settlement involves only the payment of money by the Indemnifying Party. No Third-Party Claim that is being defended in good faith by the Indemnifying Party shall be settled by the Indemnified Party without the written consent of the Indemnifying Party. The Indemnifying Party shall have no obligation to indemnify the Indemnified Party for any losses resulting from the settlement of Third-Party Claims in violation of the provisions of this Clause 12.3.
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13 | COSTS |
a) | Subject to Clause 13b) and 13c), each party shall pay its own costs and expenses in connection with the preparation for and completion of the transactions contemplated by this Agreement, including but not limited to all fees and expenses of its own representatives, agents, brokers, legal and financial advisers and authorities and no such costs or expenses shall be charged to or paid by, neither directly or indirectly, the Company. |
b) | The fees and expenses related to the fairness opinion of AMA Capital Partners LLC dated 27 August 2024 will be divided equally between the Buyer and the Seller. |
c) | Legal fees to Norwegian and UK legal counsel related to the transactions contemplated by this Agreement and the related and financing arrangements will be divided equally between the Buyer and the Seller. |
14 | NOTICES |
All notices, requests, demands, approvals, waivers and other communications required or permitted under this Agreement must be in writing in the English language and shall be deemed to have been received by a Party when:
a) | delivered by post, unless actually received earlier, on the third Business Day after posting, if posted within Norway, or the fifth Business Day, if posted to or from a place outside Norway; |
b) | delivered by hand, on the day of delivery. |
All such notices and communications shall be addressed as set forth below or to such other addresses as may be given by written notice in accordance with this Clause 14.
If to the Seller:
KNOT Shuttle Tankers AS
Attention: Chairman of the Board
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
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If to the Buyer:
Knutsen NYK Offshore Tankers AS
Attention: President & CEO
Smedasundet 40, Postboks 2017, 5504 Haugesund, Norway
15 | ASSIGNMENT |
This Agreement shall be binding upon and inure to the benefit of the successors of the Parties, but shall not be assignable by any of the Parties without the prior written consent of the other Party. The benefit of this Agreement may, however, be assigned by either of the Parties to any group directly or indirectly controlling, controlled by or under common control of the assignor, provided that the assignor shall remain liable for its own debt and for all obligations under this Agreement.
16 | MISCELLANEOUS |
16.1 | Further Assurances |
16.2 | Integration |
16.3 | No Broker’s Fees |
17 | GOVERNING LAW AND ARBITRATION |
This Agreement shall be governed by and construed in accordance with Norwegian law.
The Parties shall seek to solve through negotiations any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof. If the Parties fail to
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solve such dispute, controversy or claim by a written agreement within 60 days after one of the Parties has requested such negotiations by notice to the other Party, such dispute, controversy or claim shall be finally settled by arbitration in Haugesund in the English language in accordance with the Norwegian Arbitration Act. The arbitration tribunal shall consist of three arbitrators, of which the Buyer shall appoint one arbitrator and the Seller shall appoint one arbitrator. The arbitrators so appointed shall appoint the third arbitrator, who shall be the chairman of the arbitration tribunal. In the event of failure by a Party to appoint its arbitrator within 30 days after the request for arbitration first is given, or the failure by the first two arbitrators to appoint the third arbitrator within 30 days after appointment of the last of the first two arbitrators to be appointed, such arbitrator or arbitrators shall be appointed by the district judge (No: “Sorenskriver”) of Haugesund District Court. Any Party may seek judgement upon any award in any court having jurisdiction, or an application may be made to such court for the judicial acceptance of the award and for an order of enforcement.
Notwithstanding the above, either Party may bring an action in any court of competent jurisdiction (a) for provisional relief pending the outcome of arbitration, including, without limitation, provisional injunctive relief or pre-judgement attachment of assets, or (b) to compel arbitration or enforce any arbitral award. For purposes of any proceeding authorised by this Clause 17, each Party hereby consents to the non-exclusive jurisdiction of Haugesund, Norway.
* * *
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This Agreement has been executed in two original copies, of which each Party has retained one copy.
Knutsen NYK Offshore Tankers AS |
| KNOT Shuttle Tankers AS | ||
| | | ||
By: | | By: | ||
| | | ||
/s/ Trygve Seglem | | /s/ Øystein Emberland | ||
| | | ||
Name: | Trygve Seglem | | Name: | Øystein Emberland |
| | | | |
Title: | CEO | | Title: | Attorney-in-Fact |
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Appendix 1
INSURANCES
Insurance Policies (all quoted values are USD)
Hull & Machinery | ||
Hull | Insured Value: | $40,000,000 |
| Policy Renewal: | 01.05.2024-31.10.2025 |
Hull Interest | Insured Value: | $10,000,000 |
| Policy Renewal: | 01.05.2024-31.10.2025 |
Freight Interest | Insured Value: | $10,000,000 |
| Policy Renewal: | 01.05.2024-31.10.2025 |
P&I Insurance | ||
Gross Tonnage: | 36303 | |
Policy Renewal: | 20.02.2024-20.02.2025 | |
5,0% | Alandia Försäkrinfg Abp | |
18,5% | Aon London Broking Center Allianz | |
| 10,0% | Allianz Global Corporate & Speciality SE, London |
| 5,0% | Lloyds Syndicate 1036 COF |
| 3,5% | Markel Insurance SE |
4,0% | Aon London Broking Centre Arch | |
| 4% | Arch Insurance Comp. (Europe) Ltd. |
8,5% | Aon London Broking Centre AxaXL | |
| 8,5% | Lolyds Syndicate 2003 AXL |
3,0% | Aon London Broking Centre BRT 2987 | |
| 3% | Lolyds Syndicate 2987 BRT |
5,0% | Aon London Broking Centre CUL 3010 | |
| 5% | Lolyds Syndicate 3010 CUL |
3,5% | Aon London Broking Centre SCOR | |
| 3,5% | SCOR UK Company Limited |
2,5% | AssuranceForeningen Skuld (Gjensidig) | |
5,0% | Codan Forsikring NUF | |
5,0% | DUPI Underwriting Agencies B.V. | |
| 0,325% | Axeria IARD S.A. |
| 1,500% | Hamilton Insurance DAC |
| 1,875% | Sirus Point Ltd. |
| 1,300% | SMA S.A |
7,5% | Gard AS, as agents only for Gard M&E Ltd | |
7,5% | Norwegian Hull Club | |
25,0% | Tokio Marine & Nichido Fire Insurance Co., Ltd. | |
100,0% | Total | |
Appendix 2
ACCOUNTS
[Separate attachment]
Exhibit 4.3
SETTLEMENT AGREEMENT
This settlement agreement (the “Agreement”) is entered into this 3 day of September 2024 by and between:
(1) | Knutsen NYK Offshore Tankers AS, company registration no. 995 221 713 ("KNOT"); and |
(2) | KNOT Shuttle Tankers AS, company registration no. 998 942 829. ("KST"). |
KNOT and KST are hereinafter collectively referred to as the "Parties" and each individually as a "Party".
WHEREAS:
A. | KNOT has agreed to sell to KST all of the shares in KNOT Shuttle Tankers 31 AS, company registration no. 914 750 326, which is the owner of the vessel MT “Tuva Knutsen”, having IMO No. 9887968, pursuant to a share purchase agreement dated September 3, 2024 (the “Tuva SPA”). |
B. | KST has agreed to sell to KNOT all of the shares in KNOT Shuttle Tankers 20 AS, company registration no. 897 099 152, which is the owner of the vessel MT “Dan Cisne”, having IMO No. 9513440, pursuant to a share purchase agreement dated September 3, 2024 (the “Dan Cisne SPA”). |
C. | The Parties have agreed to enter into this Agreement in order to settle the Tuva Purchase Price payable under the Tuva SPA and the Dan Cisne Purchase Price payable under the Dan Cisne SPA partly by set-off and partly by payment of the net difference in cash as calculated and set out in the Tuva SPA and the Dan Cisne SPA. |
NOW THEREFORE THE PARTIES HAVE AGREED AS FOLLOWS:
1DEFINITIONS
Terms and definitions used in the Tuva SPA and the Dan Cisne SPA shall have same meanings when used in this Agreement unless the context otherwise requires.
2SETTLEMENT AND PAYMENT
The Parties confirm and agree that the Tuva Purchase Price payable by KST under the Tuva SPA and the Dan Cisne Purchase Price payable by KNOT under the Dan Cisne SPA shall be settled partly by set – off and partly by payment of cash. The net difference between the Tuva Purchase Price and the Dan Cisne Purchase Price to KST (the “Net Amount”) shall be paid by KNOT on the Closing Date in cash to KST.
Calculation of the Tuva Purchase Price, the Dan Cisne Purchase Price, the Tuva Purchase Price Adjustments and the Dan Cisne Purchase Price Adjustments and other amounts due shall be done in accordance with the Tuva SPA and Dan Cisne SPA, respectively, and same shall apply to the closing and payment procedures agreed therein. The Parties agree that Net Amount to be paid in cash by KNOT to KST shall be USD 1,135,483, and the
Parties agree and confirm that this represents the settlement of the Tuva Purchase Price and the Dan Cisne Purchase Price under the Tuva SPA and Dan Cisne SPA
3FURTHER ASSURANCE
The Parties shall (at their own expense) promptly execute and deliver all such documents, and do all such things, or procure the execution of documents and doing of such things as are required to give full effect to its obligations under this Agreement and the transactions intended to be effected pursuant to it.
4GOVERNING LAW AND ARBITRATION
Clause 18 (Governing law and arbitration) under the Tuva SPA and Clause 17 (Governing law and arbitration) under the Dan Cisne SPA shall apply mutatis mutandis to this Agreement.
*****
Knutsen NYK Offshore Tankers AS |
| KNOT Shuttle Tankers AS | ||||||
| | | ||||||
By: | /s/ Trygve Seglem | | By: | /s/ Øystein Emberland | ||||
| | | | | ||||
Name: | Trygve Seglem | | Name: | Øystein Emberland | ||||
| | | | | | | ||
Title: | CEO | | Title: | Attorney-in-Fact | ||||