Arild Vik - Chief Executive Officer and CFO

Sunil Sibal - Global Hunter Securities Derek Walker - Bank of America Merrill Lynch

Hello and welcome to the KNOT Offshore Partners’ Second Quarter Earnings Call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Arild Vik. Please go ahead sir.

Thank you very much and we are happy to welcome you all to our second quarter results presentation. And I think I'll go straight to the presentation. We would like to just remind you if page two where we say something about the forward-looking statements. And along that, I'll go to straight to page three to talk about the highlights for this quarter. The quarter has been an excellent for the MLP where we have refinanced our debt and secured longer maturities, we have done the acquisition of two vessels and we have done an equity issue. And from that we will see that there has been a certain costs related to the affecting these transactions. So, our net income $2.5 million, however our operating income is $9.6 million which is in line with our initial assumptions and improvement in relation to the previous quarter. This is also reflected in the generated adjusted EBITDA which is 16.3 million and our generated distributable cash flow is also slightly lower than it would have been if we had not done all these transactions. And then further, in the second bullet point, you'll see that we had 1.6 million of unrealized derivative losses obviously due to movement in the interest rate and further there is about $2.2 million in various transaction costs related to the refinancing, acquisition and equity offering that we have been undertaking. We paid today the second quarter distribution of $0.435 per unit and as we have previously advised the management has recommended to the Board that there should be an increase for the third quarter up to $0.49 per unit. As mentioned we have completed the acquisitions of Hilda Knutsen and Torill Knutsen that was completed at the end of the quarter the last quarter meaning that these vessels does not have any income or cost effect on the numbers that we’re presenting today, but they’re obviously have an effect on the balance sheet. In order to finance the equity portion of the acquisition we sold 4.6 million units in June raised $125.7 million net and the general partner also injected $2.7 million to maintain its 2% ownership in our partnership. And then subsequently the underwriters have also taken the option to buy 640,000 units in as green shoe which is of course added to the company’s liquidity however of course that happened after end of the quarter. And as previously advised as well we have also reached so to say Windsor Knutsen to BG starting up in fourth quarter ‘15 upgrades in line with current market and for two fixed years and then three optional years and in line with the obligation under the Omnibus agreement KNOT is then through a time charter party ensuring that the (inaudible) will have same earnings as it would have had in the existing charter. And we have refinanced the loan portfolio at an interest rate of 2.12% which I will come back to. Going to page four, as mentioned we have 2.5 million in the net result. Our top-lines are well in line with what we would expect anyway and our operating expenses are somewhat down compared to the previous quarter as mentioned the two new vessels have no effect on these numbers and as mentioned the other numbers worth noting is related to the general and administrative where we have had cost related to the activity that we have undertaken during the quarter and there is also additional cost under interest expense which relates to us having to expense previously accrued loan fees. And as mentioned there is the realized and unrealized gain on derivatives of which 1.6 is unrealized and 0.7 is realized loss. Going to page five and looking at our balance sheet, we have a strong balance sheet and the total unrestricted cash now of 34.4 million. We have as mentioned agreed new credit facilities in the total amount of 380 million and we have drawn the first one of these which is 220 million and a 20 million revolver. And there is another facility remaining to be drawn during third quarter. We have managed to expand the loan profile and once the full refinancing has been completed the balloons will be stable in 90. And as mentioned the credit margin is down on these facilities up 2.12 versus the previous average under the facilities we had up 2.74 and that's an affect of that, the average credit margin for this quarter has been 2.5. And of course this sponsor is been used to refinance existing debt and we have also refinanced the previous seller credit which was taken up in connection with the acquisition of Carmen. And afterward total debt of 545 million of total bank debt, 350 million is secured through swaps with duration average cost of four years and an average rate of 1.38, giving us then going forward, a net interest costs will below 4%, which was our estimate when we did the [acquisition]. And going to page six on the distributable cash flow that is somewhat lower than last quarter due to the fact that we have had these additional costs related to the activity that we have been undertaking. If we calculate the coverage ratio straight out in relation to the number of units outstanding, it would be in the range of 0.82, if we calculated in relation to the old number of units outstanding it would be 1.07 and obviously as the equity that’s been taken into to fund the new acquisitions. Obviously that has not generated any income for this period, so we would expect that we would be back in 1.20 range, which we have been previously thought, that would be a normal quarter for us. So, as mentioned there are a few exceptional items in relation to this one. And as you see on page seven, our adjusted EBITDA reflects that we have had an excellent operation with almost (inaudible) during the period and so well in line with what was roughly we would expect. On page eight, Petrobras has accepted innovation of the (inaudible) charges and that means that this transaction will go ahead between (inaudible) shortly. And as mentioned or as like before we've been assumed that business obviously will be off the partnership under the terms of Omnibus agreement. And as mentioned these vessels are low term charges in Brazil and we believe they would be excellent assets to include in the MLP. That brings us to page nine. On page nine, you will see the concrete structure and where we now have average remaining fixed period of 5 years and obviously the variable of this 8.8 remaining (inaudible) was 3.8 and there is as you would see interim there where the vessels are being charted out to our sponsor which is then marketing this vessel on various cargos during that period and it will then enter the new charter sometime last quarter in 15. And otherwise, the fleet is in line with what you have seen before. And if we then go to page 10, we have now indicated here also that Dan Cisne and Dan Sabia were it's well, let’s see we have recently had a approval from the charter and there is a line there which can be deleted. So, obviously now we expect this transaction to be consummated quickly. And that would then means that the contract period for the dropdown fleet is now about 10 years on a fixed basis and 12 years on an optional basis. So, in summary we have had second quarter the operation as forecasted, excellent in terms of (inaudible) we have a solid contract base and backlog as mentioned 5.1 years, plus that we have the identified acquisition candidates. And we have seen that Windsor Knutsen goes back to BG when their demand for shuttle tankers is again coming to a level where they can consume both the new vessels they got from some of our friends and ourselves. So, that has bought up to a total fleet of 7 vessels and we feel we are in line with the growth plan that we have outlined out. We continue to see that industry dynamics are strong, we see that there are ongoing activity from the charter side and we fully expect to see that there will be certain factors contracts the certain factors included in the near future. So, that sums up my presentation and as always we will be happy to take any questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from [Andy Gafta of Height Hedge]. Please go ahead.

Hi, good afternoon. Thank you for taking the question. I’ve got a couple for you, first if you could give us some color on EBITDA from the two vessels the Dan Cisne and the Dan Sabia and the potential timing that will be very helpful?

Yes. Well we haven’t specifically given that information, but obviously what we’ve said is that we will look to do (inaudible) pricing at 10 times EBITDA so obviously these vessels are bit smaller and that will then be reflected there. In terms of the timing we obviously we’re just on an equity issue but obviously we’re now considering what is the optimal timing and we have not decided whether this would work to the original order of (inaudible) we set out with.

Understood. And then how about the additional to drop-downs, how far turning for in Ingrid Knutsen, can you give us some guidance on those two?

Yes well, I think the guidance is to some extend the same I mean we said when we set out that we will the drops within 18 to 24 months and that means that we will look to spread these June results over the next I think now probably we should say 12 to 18 maybe and I think that when it comes to those vessels they are on the expensive side due to their high specifications. Well, but on the other hand I think if you look at the -- if you average out the numbers that we have in our existing accounts I think that you will get a pretty good idea of how this EBITDA levels would look like.

Understood. And the final question from me is while we see of course your assets are contract for very good period here could you give us some perspective on what are you seeing generally in the industry for shuttle tankers and for rates what are you seeing in terms of competition out there?

Well I think that what we see now is that the period this continues to be in line of between 5 to 10 years. We don’t think that would become shorter because the oil companies using the vessels also need the security that they have offtake when they actually plan expensive offshore oil operation which we are actually the shuttle tanker, cost is not the major cost element for them. As we have said and we cannot say anymore there are activity out there now in the market, this is tender activity, we have seen that new building prices of course to some extent that the level in terms of what investment is and we have been looking to have about 10% IRR on leverage on our project and I believe that would be -- our competitors would be thinking sort of mainly along the same lines.

Understood. Well, thank you. Congratulations on a good quarter.

Thank you.

Our next question comes from Sunil Sibal of Global Hunter Securities. Please go ahead. Sunil Sibal - Global Hunter Securities: Hi, good afternoon guys.

Good afternoon. Sunil Sibal - Global Hunter Securities: My question was really follow-up on the previous color. Can you just give a little bit more color on the market for shuttle tank? I was wondering if you could talk about which markets are you seeing the most tender activity with base Brazil or not to see and it seems like or the past few months some vessels have retired. So how do you see the demand-supply balance in the next say 12 to 24 months?

Well, I think it’s still the same which is where we see most of the activity. Although we know there are some activity coming up in the North Sea as well over the next couple of years. I think that the situation is that there is really today any modern, there is a delay as we have seen in for example in (inaudible) meaning that vessel are effectively operated by start oil once they're going to E&I project, we don't see there will really be any surface capacity and that means that new project will need new vessels and we don't see anyone contract respectively. So we continue to see this very much in the same way that we have done for a while that there are projects coming out and there will be kind of processes to meet those demands. And fundamentally speaking I think we see the same overall demand over the next 5 years in the range of 60 vessels that we saw some time ago. What’s been holding back of course is delays in production both in Brazil and in Norway. We feel that we see some improvement in the activity in Brazil. They have now managed the increase their production over the last quarter so we think these things are going in a right way. And they're going slowly but I think in one way that fits us as well because that means that we can adjust our investment activity in line with actual demands and don't want to take speculative positions. Sunil Sibal - Global Hunter Securities: Okay, that's very helpful. Thanks. That's all from me.

(Operator Instructions). Our next question comes from Derek Walker of Bank of America Merrill Lynch. Please go ahead. Derek Walker - Bank of America Merrill Lynch: Hi. Good afternoon guys.

Good afternoon. Derek Walker - Bank of America Merrill Lynch: Hi. Most of my questions have been answered but I have a couple of questions here. Can you give us little bit more background around the conversations you had with PG and (inaudible), and rechartering there? I guess the next contract up is with the (inaudible) oil. At this point and just little bit further on contract is up for actually expiring before the auction for extension but is there potential for that contract to be similar to the BG contract where there is -- they didn’t do the renewal, but then you are able to actually re-contract there? Just any insight around the conversation you have with BG and then the potential -- of that potentially happing with the Statoil?

Yes. I mean first to talk about the process with BG, I mean they are expanding massively in the area and however they had production delays and in getting the FPSOs coming on stream. And of course after having taking four vessels from our competitor, they needed sometime to assimilate that. And in combination that led to them not needing Windsor Knutsen. But on the other hand, we continued to have a strong dialog with them and they always like the vessel. And of course that's now demonstrated by the fact that they took her back. And I think we believe that there will be further demand for vessels from BG. So, that situation was because of the delay and that’s how we ended up in this. The vessel was not -- was really, it wasn't matter of money for BG that they had a period where they actually thought couldn’t pay for it. When it comes to Statoil, I think that the situation is a bit different. There is not any sort of overcapacity of modern tonnage in the North Sea. And it’s too early to talk them about what’s going to happen in ‘16, but our idea still is that we believe that vessel we will be needed for North Sea operations. It is in many ways besides two Eni vessels, the most sophisticated vessel available for harsh North Sea conditions. Derek Walker - Bank of America Merrill Lynch: Got it. I appreciate the color.

At that time, we also assume that there have been no temporarily oil capacity in the market as well in general. Derek Walker - Bank of America Merrill Lynch: Got it, okay. And then, I appreciate the color there. Just last one from me is just on consolidation within the shuttle tanker market. How are you guys looking at third party M&A, in particular just are there certain opportunities there you are trying to avoid just giving certain contract lengths or most opportunities out there well contracted and you see plenty of opportunity for potentially third-party acquisitions?

Well, I mean we have completed one third party acquisition and it takes time. So, it’s really upto the (inaudible) this and I think that we’d be interested. On the other hand, would have to be meaningful pricing. And we still believe the main business philosophy is to grow organically and to develop new projects because we know that we are always on -- have a seat at the table when there are new contracts coming along. We truly, position we have with the sponsor, we are more than critical mass in order to be in that position. And we’re not dependent on M&A to grow for the time being. But yes, of course that’s something, we watch the market and there could be opportunities. It’s really what I could say about it. Derek Walker - Bank of America Merrill Lynch: Got it. Thanks Arild, thanks for the color. I appreciate it.

(Operator Instructions). This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Vik for any closing remarks.

Yes, thank you very much. Thank you all for listening and giving us the opportunity to present the Partnership and our ideas and results for you. And we look forward to talking to you again in three months time.

Thank you. The conference is now concluded. You may now disconnect. And thank you for attending today’s presentation.