KNOT Offshore Partners (KNOP) has slashed its quarterly dividend by 95% because of concerns about the strength of the shuttle tanker market.
It announced late on Wednesday that shareholders will receive just $0.026 for the quarter compared with the previous dividend of $0.52.
“In this near-term period of heightened uncertainty for the shuttle tanker market, as we have previously set out, a top operational priority has been to secure additional charter coverage for our fleet at an acceptable rate that ensures the sustainability of our business,” said chief executive Gary Chapman.
“We have made progress in this regard and continue to believe that the medium-term market environment in the North Sea and Brazil should improve materially on the basis of significant committed growth capex in their respective offshore production sectors.”
But Chapman added that the company faces “multiple dry-docks” in the year ahead and it lacks the “forward visibility on earnings that we have historically had”.
Although KNOP expects to employ its open vessels in possibly a combination of short-term shuttle tanker and spot conventional opportunities, this is “highly likely to lead to a temporary but material reduction in vessel utilisation rates and income”.
In addition, it said it has not yet finalised new charters for four vessels operating on bareboat contracts in Brazil.
“In this context, and until such time as we have re-established a greater degree of forward visibility on earnings and liquidity, our board has determined that a reduction in our quarterly distribution is prudent,” Chapman said.
“We believe that this reduced distribution level will position us not only to weather the challenging interim period and manage our 2023 dry-docking schedule, but to take advantage of what we expect will be a strong medium-term market to the benefit of our unitholders.”
In November 2022, KNOP warned that it might have to switch some of its shuttle tankers to the conventional tanker market to offset weak prospects in the North Sea.
The delayed resumption of activity in the North Sea, particularly in the Norwegian sector, has dampened shuttle tanker demand and charter rates where four of KNOP’s vessels typically operate.
