John Costain - CEO

Michael Weber - Wells Fargo Nick Raza - Citi

Good afternoon and welcome to the KNOT Offshore Partners LP second quarter earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to John Costain, please go ahead.

Thank you. If any of you have not seen the earnings release or slide presentation, they’re both available on the Investors section of our website. On today’s call, our review will include non-U.S. GAAP measures such as DCF and adjusted EBITDA. The earnings release includes a reconciliation of these non-U.S. GAAP measures to the most directly comparable GAAP financial measures. A quick reminder that any forward-looking financial statements made during today’s call are subject to risks and uncertainties and these are discussed at length in our annual and quarterly SEC filings. As you know, actual event and results can differ materially from those forward looking statements. The partnership does not undertake a duty to update any forward looking statements, and now onto the presentation. KNOT Offshore Partners KNOP’s focus is on the Shuttle Tanker segment. The shuttle tanker provides the vital service transporting oil from the offshore oil production unit to shore side. In effects a midstream mobile pipeline business with fully contracted stable non-volume based revenue streams. KNOT trades at significant yield premium to the Alerian Index which represents around 80% of MLPs by market cap. Unlike most of these MLPs however we are operating in a space with substantial oil production growth prospects. In a recent press release about Brazilian pre-salts Petrobras have highlighted oil production operated in the pre-salts areas have exceeded 1 million barrels per day, less than two year after reaching the production of about 0.5 million barrels per day. The average cost of extraction of pre-salt wells total less than $8 per barrel of oil equivalent and has gradually been decreasing. The average time to build a well reached 89 days, a reduction of 71% between 2010 and 2016. The Brazilian government is cautiously loosening the Petrobras pre-salts operator monopoly and Statoil recently became the first international oil company to acquire operational control of a project within the giant pre-salt fields. Our sponsor Knutsen NYK is according to Clarkson Platou, the number one brokerage in oil, parts of the largest shipping group in the world and NYK is a major company in the Mitsubishi family. We have young fleets and today for the second quarter of 2016 we report our highest ever revenues and operating income, together with our highest ever EBITDA and distributable cash flow, a very solid financial situation. Our sector is unique amongst many MLPs in that there are no speculative ordering of shuttle tankers, so the partnership should yield both stable and sustainable revenues. Before ordering a new vessel, our sponsor, Knutsen NYK, will always agree a long term employment contract with the charter. Now turning to the presentation Slide 3, the financial highlights, for the second quarter of 2016, our partnership generated record revenues and operating income from 43.1 million and 20.2 million respectively. Also our highest ever adjusted EBITDA and distributable cash flow of 34.1 million and 18.5 million. We declared a stable distribution of $0.52 for this quarter with a coverage ratio of 1.23. We had again an excellent operation performance of 99.9% utilization in this quarter. The partnership elected not to repurchase any common units under its repurchase program during the quarter. On June 30, 2016, the Partnership entered into an amended and restated senior secured credit facility, which includes a new revolver facility tranche of 15 million, this further strengthen the balance sheet and increase financial flexibility. Slide 4, KNOP has very good access to bank financing. We have managed to utilize the good banking relationship of KNOP offshore partners and our strong Knutsen NYK which has an active banking that is about 30 banks worldwide to add an incremental non-amortizing revolving credit facility of $50 million, which we can utilize as we see fit for general corporate purposes. This new facility has a margin 250 basis points compared to 212.5 basis points for our existing revolver facility but will only cost 1% i.e. 150k per annum as long as it remains unused, which we think is a low price to pay for additional finance flexibility it gets the partnership. We utilized existing loan and security documentation as well as our existing banks, it is very straightforward put in place with marginal cost and it highlights what we have previously messaged, mainly that we have very good banking relationships. We have a capacity to optimize our balance if we have the requirements and desire to do so. We believe we can raise additional debt as required, but with this new facility we certainly do not see any need for doing so at the moment. We have a very large liquidity cushion giving the stable measure of our contracts. We it comes to maturities in 2018, which we are sometime asked about, to the balloons primarily relate to the two vessels serving the Goliat Field, and we do not intent to re-finance these loans any time soon as we are happy with the loans and the terms attached. Refinancing the loans add unnecessary costs since we are very comfortable with the employment prospects of these two vessels and if you have employment for your shuttle tankers with a first class charter, refinancing is not really anywhere based on our rather extends experience as a shipping company. Slide 5, income statement. Total revenues were 43.1 million for the three months ended June 30, 2016 compared to 42.0 million for the three months ended March 31, 2016 Q1, an increase of $1.1 million. The increase was mainly due to revenues from the Bodil Knutsen in Q2 as the vessel was dry-dock during the first quarter and incurred 21 days in off-hire. There are now scheduled off-hires for the remainder of 2016. Operating expenses in Q2 were $22.8 million in line with Q1, operating income for Q2 was $20.2 million compared to $19.2 to Q1. Net income was significant impacted by the recognition of realized and unrealized losses on derivative instruments of 3.2 in both Q2 and Q1, due to lowering long term interest rates. Net income for Q2 was 11.6 compared 10.7 million for Q1, this equates to an earnings per units of $0.42. If we adjust for the unrealized non-cash element of the derivatives $1.6 million loss, earnings per unit to $0.47. Slide 6, adjusted EBITDA. In Q2 the partnership generated our best ever adjusted EBITDA of 34.1 million, this compared to 33.1 million to Q1, adjusted EBITDA refers to earnings before interest, taxation, depreciation and amortization. It provides a proxy to cash flow and adjusted EBITDA is a non-US GAAP measure used by our investors to measure the financial performance. With a wasting asset like a vessel, younger fleets in theory should produce lower EBITDAs for every dollar invested. The annuity effect reduces the value loss in the early years, and younger fleets or assets also have longer to enjoy the anticipated improvement in these markets. KNOP fleets have an average age 4.5 years about compared to the rest of the industry average shuttle tanker rates of over 11 years. Slide 7, distributable cash flow. Our highest ever distributable cash flow of $18.5 million was reported in Q2 and this compared to $17.9 million for Q1. We maintain our highest distribution level which for the quarter was $0.52 per unit equivalent to an annual distribution of $2.08. This distribution had a coverage ratio of 1.23 in Q2. At the end of June we had our best -- sorry on Slide 8, at the end of June we had our best available liquidity positions to date with cash and cash equivalents of $25.7 million and an ongoing undrawn credit facility of $30 million. The credit facilities are available until June 2019, we believe the treasury position is very comfortable given our predictable cash flow. Total interest-bearing debt outstanding was $649 million. Annually we currently have a scheduled repayments of $53.8 million this compares to replacement CapEx charge of $28 million when computing distributable cash flow. We did not have any loan maturity before the second half of 2018 and our cash flow indicate we’ll maintain our current distribution until that time. At the end of June total partner's equity was 513 million with 27.7 million units issued, this equates to $18.52 per unit. Slide 9, financial guidance for existing fleet for the current year. We are in line to deliver on our financial guidance given early calls of the year. Slide 10, stable operational performance results in stable financial performance, since the formation of KNOP, we have had very strong levels of vessel utilization which means continuingly high and an increasing predictable revenue, adjusted EBITDA, and discounts in cash flow as more vessels are added to the fleet. In Q2, we had record distributable cash flow of 18.5 million and we’ll make 15 million distribution. Since our initial public offerings three years ago, we have declared distribution of $6.14, so our initial investors have received a total payout of nearly 30% including the two Q2 distribution. Our current unit yield is around 11%. Slide 11, long term contracts backed by leading energy companies. The Windsor Knutsen has been on two year contract from 13 October, 2015 with as Brazil Shipping, a subsidiary of Royal Dutch Shell with options to extend for further six years. Hilda Knutsen and sister ship Torvill Knutsen have both commenced employments on the Goliat field, and of the original five year contracts on the two vessels on average of 2.25 years of the firm charter period remains. Given the specialized nature of this contract, we would expect the vessels to operate on this field throughout its life. The Bodil Knutsen, the largest shuttle tanker operating in the North Sea is ice-class, and on charter to Statoil ASA until May 2017. There are two further years of options to extend and the sponsor may, in any event, guarantee income at the current level until April 2018. Statoil has recently been given permission to proceed with the development of the Johan Castberg oilfield in the Barents Sea, 240 km north of Hammerfest. This should provide medium term employment and security for the Bodil. Four of our vessels are on long-term bareboat charter to 2023 with Petrobras Transporte. These vessels are among the youngest in the Petrobras fleet delivered between 2011 and 2012. Dan Sabia and Dan Cisne are of unique size and the Fortaleza Knutsen and Recife Knutsen have shallow drafts with lots of thruster capacity. Three of these vessels will take their five year special survey in 2016 two have been completed. These vessels are heavily utilized by the charterer. Delivered in 2013, the Carmen Knutsen is on charter direct for Respol Sinopec until 2023. The Ingrid Knutsen was delivered in December 2013 and is operating in the North Sea on a time-charter for Standard Marine Tonsberg AS, a Norwegian subsidiary of Exxon Mobil. This will expire in the first quarter of 2024. The charterer has extension options on the charter for additional five one-year periods. On Slide 12, significant fleet growth since IPO, at the time of the IPO, our fleet of four vessels had average age of three years. Now over three years, we have a fleet of 10 vessels which have an average age of 4.5 years, combined with a strong sponsor support and we are very well placed to go in the medium term. Slide 13, positive news from Brazil, the Brazilian government sold 66% share in a 1 billion-barrel Carcara to Statoil making the Norwegian major the first international oil company to acquire operational control of a project within the giant pre-salt fields. In May 2016, oil production in pre-salt field exceeded 1 million barrels per day less than two years after reaching a production of 0.5 million barrels per day and within 10 years of discovery. The new record was obtained using just 52 production wells. The average time to build an offshore well in a Statoil station, pre-salt cluster used to be approximately 310 days with the introductions of advanced technologies and increasing project efficiency by 2015 that time has dropped to 128 days. And in the first five months of 2016, the average time to build a well dropped to 89 base, a reduction of 71% during 2010 and 2016. The average cost of extraction of the pre-salt wells has gradually decreasing and today totals less than $8 per barrel of oil equivalent. Slide 14. Still significant amount for new shuttle tanker projects, today there is no shuttle tanker capacity and traditionally there has been no speculative ordering. Fearnleys sees a significant demand for new shuttle tankers going forward and they expect tenders for an excess of 40 vessels up to 2020. This includes attrition demand which represents more than half the total. The lower oil price coupled with political uncertainty in Brazil have led to delays in the shuttle tanker orders, but no projects being cancelled. So there is pent up demand. A short note on foreign flagged offshore service vessels, OSVs, these operate in Brazil under a license that must get renewed annually. And such license are not granted if local tonnage is available for charter. Falling demand for OSVs had led to Brazil flag vessels being redeployed, blocking foreign vessels. When it comes to out unit, many would-be investors seem to be concerned about our connection with Brazil, they should not be, as blocking has nothing to do with the shuttle tanker. Petrobras remains a first class charter of our four vessels, dry-docking two of them in first half of the year. BarCap recently had this to say regarding concerns emerging about their ability to meet cash flow viewing these fears as overdone. They stated in a report, in addition to its productive E&P assets, Petrobras benefits from our management team with a successful financial track record and liquidity levers including asset sales and new funding from diverse sources both locally and abroad. Our contracts are of a long term nature and that of course is in a much better position at it is operating a niche market for transportation of crude oil from offshore oil fields to the terminal, a critical components of the supply chain and in Brazil demand for such transportation is increasing substantially. Slide 15, dropdown inventory five potential acquisitions. Today we have a further potential dropdown inventory of five vessels. The same as when we did the IPO, even though we have added six vessels to the fleet. The fixed contract period for the dropdown fleet is a minimum of 5.9 years on average. It could be longer depending on which series of options the charter elects to take on delivery. Slide 16, summary. In summary, we have a solid and highly profitable contract base. With a revenue backlog of $746 million on an average contract duration as of the 31 June, of 5.1 years, we have a modern shuttle tanker fleet with an average age of around 4.5 years versus the rest of the industry average of 11.25 years. The partnership is well placed and highly focused on expanding the medium terms as the oil markets recover and the shuttle tanker market expands substantially. No one has more expertise and experience in operating sophisticated shuttle tanker like Knutsen offshore and we operate these assets with real expertise. We’ve had minimum lost hire with a total of just seven hours of quarter for 10 vessels in the MLP fleet. This is in line with our average utilization since the IPO. We have a large sponsor asset base with an ability to capture a good proportions expanding markets. And that’s the end of the presentation, I will turn it over now for the Q&A section.

[Operator Instructions] our first question is from Michael Weber, Wells Fargo.

I wanted to start with the slide in your deck where you run through the lending base, Slide 4, I appreciate that breakdown in terms of your lending base, it’s helpful. Just thinking about it, you guys are in kind of an odd scenario where '18, '19 is not that far away, probably too early to really get constructive on talking about renegotiating and it’s probably not in advantages time in the market in terms of pricing to be looking to do that. But at the same time you know the majority of that book is obviously European and don't believe they are in the process of extending their credit exposure in this space, I mean usually it's going to in the direction. So maybe you can talk a little bit about how you think about financing future drops and/or when you think about renegotiating this leverage down the line is there going to be a focus on diversifying that lending base and then maybe Asia where there is -- seems to be a bit of I guess selective pools of deeper capital?

Yes I can address that, I don’t -- while there is a polarization of the banking market and of course as you are pointing out the kind of credits available has been shrinking, but what is also happening is that you have a kind of risk aversion in the bank. So they are chasing the deals which are ticking all the boxes in terms of who is the owner, do this owner have access to capital markets, how big are this owner, do they have reputable contracts with good charters. So we very much tick the box on all this measures in terms of bankability. So for us we haven't really felt in credit crunch as such. Actually pricing as well on deals have not really changed, we just finance the last -- kind of signed the loan agreement on the last drop down vessels, which is vessel for Petrobras, it was signed in July, of course we have been working on it for a longer period of time. And leverage is 81% and margin is 200 basis points. So it really hasn’t change that all, it actually a bit lower than the average margin of KNOP. So of course, I do think we have very supportive banking group and we’re not really concerned about our ability to raise bank financing and particularly for the two loans maturing in 2018 for the ENI. These vessels will pay on that field and once you go into new charter or extended charter through the option agreement which they have, we would certainly be able to refinance the vessel. But also when you talk about Asian financing, we are of course everywhere. We have a lot of Japanese banks, we have Australian banks, North American banks, European bank. So we have 30 access bank in the Knutsen group and probably 10 banks that want to get in and we also have the ECA finance provide, there is also one ECA provider in KNOP. So we’re not really in a position where we are getting feeling and in credit crunch, but we certainly are aware that there is a huge credit crunch, but it mainly affects people with less contract hold, much older vessels, not the right owner, so we are not feeding that pinch to be honest.

Got you, okay that’s helpful. Just talk a bit about the North Sea, now you’ve got two assets on with ENI on a field that I believe in June took an $800 million write down. I think they started production in March. Just curious as to what the utilization level is like right now for those carries, I know for you it's 100%, so there is no revenue disruption obviously, just trying to think about like a read through in terms of how that project stands and what those assets are actually doing?

Well, the vessels are placed in the North Sea, those two shuttles, Hilda and Torill, until the Goliat Field came on, were being used in general Statoil program. And Statoil have a major shorts of tonnage at the moment so they’re trying to get in the vessels of those. So we don’t -- it's not important that the vessels are used fully on Goliat Field, it's just that they are available for on use on that. They can be used within the general Statoil program as well and they have been in the past.

That’s helpful, latest trading in the general program they’re no specifically tied to the field. So there has been no disruption in terms of their movement or anything like that?

No.

Okay.

The good thing with was in [Goliat] (ph) we'll probably use them on all major oil fields in the North Sea because once -- when the Goliat Field is delayed, possibly use the crew on all our fields. So they’re already fair approved and tested on all these field, so they have huge employment capability. But of course what is particular for these vessels are, they’re only three vessels that can load on the Goliat field due to a very high technical requirement. But these can also go trade on other field in addition to Goliat.

Okay that's helpful. Just to transition to Brazil, John, you spent some time talking about the fact that you think some the risk is priced into the market around Brazilian employment might be a bit overdone, just curious, and I know -- I think you've gotten this the last two or three quarters, but the idea of bringing down kind of breakeven levels in costs certainly still persists. I'm just curious as to whether -- have you guys been approach in terms of renegotiating any of those, I believe they are, bareboats in there?

There is no need to because pact. The UK finance leaves us effectively -- you are under precious probably the last year or two of the contract, but not seven or eight years out, there is not really anything to be done. So Petrobras they basically have a massive need for ships and at the moment the cost of the shuttle is very small relation to would actually bills and carrying the oil. So not really they are not really in the position to negotiate with us yet. They’ve been in a position to negotiate with us about a year from the end contract I would guess. We're too far down the line at the moment.

Fair enough. And it's a no approach nothing even along those lines?

No.

Okay.

And also because I’ve heard -- I mean I’ve heard from tranche investors even our competitor has not -- has pushed back Petrobras. But obviously that's a second hand book. People been talking to our competitor about the, because they’ve got -- they’re much closer they have much better idea than we do about market in Brazil in terms of area you are probably best speaking to them and as we got -- we're too far off I mean we are not, we're not close enough to renewal.

Well I know that's sort of question comes from because we haven’t heard other price but if you guys are having the approach it's to be at the end of the conversations for now.

I think Michael I think you saw this on the Carmen and we had Carmen on charter to Repsol to 2018 and we are have been we need to kept that rates very smaller and in order to get five extra years on that. So that's obviously not to 2017 and it was not a reduction in the charter, it was more a reflection of, in particular we had skydive, so we took a small production in the rate and all those to secure our contact until 2020. But the reduction in the rate was just very smaller and then also it compares to the cost savings we have due to the strengthen of dollar against [indiscernible] which is out huge part of the OpEx cost.

Fair enough, okay. One more I'll turn it over to just kind of transitioning to even more to the positive side what are your competitors in the many MLPs space raise the first batch as of growth equity earlier this summer after about a year and with those the list of marine MLPs that could reasonably think about raising capital for growth is pretty short and you guys are on there. Just curious when you think about where your yield is today, how close are you guys from the cost of capital perspectives to be able to hit the kind of accretion you do want to hit in terms of accessing the market and order your landscape looks today?

Well today the unit yields is about 11%, it’s still this is bit out there, when we are considering an equity assurance. Markets is obviously showing signs of improvement as are right it point out Michael, it makes at least about 50 million and much of the new capital currently being invested in MLPs tend to be of a preference or higher per capital. This isn’t our preferred way as we still consider our MLP to have a substantial growing in it and that's what well we would prefer to issue equity. We are obviously mark-to-market closely as it could be an avenue for raising capital the rates currently what we may use a hybrid instrument if we don’t see a lot more improvement and maybe a little bit more. It's something we are weighing up internally, we’d definitely want to keep it as a growth vehicle, through the outlook for the space. But I think not issuing equity can be seen as a little bit it slows up the growth of the units, obviously if you actually issue an equity the appreciation of the unit price is better, but it's something we have been discussing actively all the time. We got a lot of candidates dropping early.

Is there a limit to what how far you can push your leverage to drive more accretive growth, so I guess the question is -- given that the yield is relative, it’s wide, but it's certainly narrower than it has been on kind of a trailing 18 month basis so, do you need to see that reasonably get to a single digit level before you think about it or you in a scenario now where your kind you’re knocking on the door of an area where you're thinking you can make the math work?

Well you know we got a very young fleets and there is the same in the presentation, you can always consider all the ships because you can get a higher distribution off on all the ships with same amount of finance. The capital base is compressed on our vessel, that's an option as well but we haven’t thought about that through. There is nothing off the table for us, we're desperate to keep MLP going. But we are talking about it, we haven't made up her mind what to do yet.

But single digit is correct Mike.

You raised an interesting question on the older assets and if I kind of think about it just from the across the capital perspective the better return or you basically finding the better return on the older asset in terms of talking 100, 200 basis points you think you can gain in terms of acquiring older assets versus something on the water how much flexibility does that gives you in terms of thinking about where your hurdle rate is?

It depends on what we issues as well the thing is if you issue perhaps it can reduce the hurdle rates and then you can sell basically, but as I say it's not necessary right next to the partnership. There was quiet an intellectual discussion earlier, and I don't think -- Oystein and I haven't got to the end of it yet. But we are talking actively about it, so I don't want to say too much about it. We’re not far off doing something, that’s for sure, but we want to do the right thing.

[Operator Instructions] and our next question is from Nick Raza at Citi.

Thank you. Good afternoon guys, just a couple of quick questions in terms of your two vessels are do the shortest contracts particularly the Bodil and the Windsor, what sort of conversations that you are having with the current charters? Understanding that they are guaranteed through April 2018, but the existing charter what are they saying right now in terms of renewing their options?

Well they like optionality and we can't -- we’ll just stay with the existing agreements on the Bodil, it's escalate so we’re quite happy with it because it was picked quite a number of year ago. And the Windsor was part of the BG deal with the new ships, so we have to get some optionality. But we’re more looking at the tightness in the market and the fact that the ramping of the production in Brazil we don’t see an issue. We're not worried about Windsor at all. But it was just part of the deal when we did the original, BG -- we gave them to option two on one of the options to max and my guess waiting to see what happens with the new oil markets and see what we do. Basically the Windsor we just have to leave as it is. There is no problem with options a lot of people list them and I think realistically when you look at the outlook they will list the options on that each year. I think there is no way in our mind and also the price is cheaper on that ship than current contracts on the other. So it's actually a cheaper vessel for them so why wouldn’t they list those options than ordering new ships, so we don’t see an issue with it. But obviously it's not -- when looking them not -- what are this ships are.

Okay, but that means should we assume that once the option does come back, I mean the Windsor Knutsen is probably just to all your entire fleet right now that the rate would actually be lower, I think it's like nine years from what we calculated?

No, the options are great to prices is a great and the option is just a case of them, It's very flat. So it would just be a renewal -- the same boat. But they don't have the option and where we could have shipped that, I mean ship is old seven year, seven or eight years old, But we’re fixing ships 24 year old ships, one in Venezuela about 48, and we got a 13 year old ship is 51. So it's not unreasonable and it's not out of markets, it's the way the shores are today.

Next to summarize, we are very positive about the expansion on this vessels, [indiscernible] elapsing before they would have time to order a new vessel, and we do know that they need tonnage. So yes, we already comfortable with employment prospect of these two vessels and also in Vancouver [ph].

Okay, fair enough. In the absence of a drop-down potential and I'm assuming the multiple is still about nine times which is required by the parent, these sort of thing that distribution increase would be the next avenue to sort of make the security more attractive or the units more attractive?

Well, we haven't made her mind up yet, it's an option, we would have to think about the -- today the way the unit sets up and the way that MLP sets up without deleveraging, and I don’t thinks it’s a sensible the time to deleverage to right now because -- I think leverage in shipping generally is when the market settles down, it’s got a lot of volatility and asset prices. And this will play out, I mean in six to 12 months, once the asset prices sets and it seems to be settling now, than the normal financing market will come back. But what you’ve see in the last two or three years, you seen a bit of trade war in the yards and they’ve all been losing quite heavily cash wise, but there has been quite a lot of rationalization now and we will start to see fair prices on ship. We know the banks have been nervous because the classes are all over the place and not being prepared to finance. So we can't deleverage easily without -- there is no point today, so we would have to look at other ways of raising the distribution, introducing new assets I guess and that’s not easy. We haven't ruled it out, and obviously the incentive to increase the distribution for everybody. We would not obviously improve the unit price, we certainly want to do something because we don’t want to trade at this level of yield we’re getting and our gross prospects, our outlook. I think our outlook is excellent. I don’t think you’ll find many MLPs with our outlook period, I think the production growth in Brazil is massive and I think when you look at general MLP sector, the Alerian Index is about 8% yield and 80% for the MLP are costing that. And if you look at the U.S. generally predictions is going to stabilize maybe four, over the next two or three years. So MLP are no longer growth vehicle, for a lot of MLPs they’re just stable high yielding instruments and why I see the massive increase in price. We are a growth vehicles still and we don’t think we should be trading at these levels. So obviously we need to do something. We haven’t totally made up our minds yet, but we will. Over the next certain moments and they’re helpful.

Fair enough. That's helpful. And then I guess the other I just want to apologize on asking about a lot of different things, but you mentioned that operator ships for the Carcara field actually switched from Petrobras, how many of your vessels actually operate there, and how many of the your -- how many of the dropdown the potential vessels will operate in non-Petrobras operated fields?

While the most of our ships the four vessels that obviously we got fill with Petrobras, We have no more with them because we haven’t won any more orders since 2012 with Petrobras for whatever reason, you can speculate. But we have four obviously, got four with BG Shell and we've got one with Petrofab. So we've actually moved away from Petrobras we would like to get back into Petrobras because they have been our first class charter and I 'm sure once everything settles down in Brazil and everything is more open to tendering processors, more often so we can actually go out and win a few contracts, we haven’t been able to for quite a no of years. And you can speculate on that. Let say, we haven’t -- the latest additions we’ve had are not Petrobras.

Fair enough. And last question guys any additional potential for getting vessels there in East Canada for you guys?

We didn’t where we took like the cost, we found that the logistic supply chain is very difficult in East Canada and it does create a significant uplift in operating cost because getting crew and equipment out to that part of the world is quiet tricky. And we didn't think at the time when we tendered it, it was reflected in the tender. We are always game to obviously win contracts, but I don’t think East Canada at the moment is a big expansion area. I mean two main expansion areas are on the North Sea and Brazil. Brazil being the big game changer really, so yes its interesting East Canada and we do still have ships employed there under contract with our competitor and we don’t see it being a big area for us at the moment.

Fair enough. That's all I had. Thank you very much.

I'm sorry. We shows no further question at this time Mr. Costain would like to make any closing remarks.

Yes, I would just thank everyone for attending the meeting and I hope it has been informative and I hope you go out any buy units, really. Thank you.

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