Knot Offshore Partners LP Earnings Release

Interim Results for the Period Ended March 31, 2017


Aberdeen, Scotland - 16.05.2017

Highlights

For the three months ended March 31, 2017, KNOT Offshore Partners LP (“KNOT Offshore Partners” or the “Partnership”):

• Generated total revenues of $45.0 million, operating income of $17.5 million and net income of $11.4 million.

• Generated Adjusted EBITDA of $33.2 million.1

• Generated distributable cash flow of $15.6 million1

• Fleet operated with 98.6% utilization2 for scheduled operations and 93.2% utilization taking into account the scheduled drydocking of the Windsor Knutsen, which was completed within 54.1 days.

(1) EBITDA, Adjusted EBITDA and distributable cash flow are non-GAAP financial measures used by management and external users of our financial statements. Please see Appendix A for definitions of EBITDA, Adjusted EBITDA and distributable cash flow and a reconciliation to net income, the most directly comparable GAAP financial measure.

(2) Utilization rate takes into account 14 deductible days of offhire for the Raquel Knutsen.

Other events:

• On January 10, 2017, the Partnership sold 2,500,000 common units in a public offering, raising total net proceeds of $54.9 million.

• On February 2, 2017, the Partnership issued and sold in a private placement 2,083,333 Series A Convertible Preferred Units (“Series A Preferred Units”) at a price of $24.00 per unit.

• On May 16, 2017, the Partnership entered into an agreement to issue and sell an additional 1,666,667 Series A Preferred Units at a price of $24.00 per unit in a private placement which is expected to close by June 30, 2017, subject to customary closing conditions.

• On March 1, 2017, the Partnership completed the acquisition of the entity that owns the Tordis Knutsen.

• On March 31, 2017, the Partnership entered into a $100 million loan agreement to refinance the credit facility secured by the Hilda Knutsen.

• On May 15, 2017, the Partnership paid a cash distribution of $0.52 per common unit and a $0.3093 per Series A Preferred Unit with respect to the quarter ended March 31, 2017.

• On May 16, 2017, the Partnership’s wholly owned subsidiary, KNOT Shuttle Tankers AS, entered into a share purchase agreement with Knutsen NYK Offshore Tankers AS (“Knutsen NYK”) to acquire KNOT Shuttle Tankers 25 AS (“KNOT 25”), the company that owns the shuttle tanker, Vigdis Knutsen, from Knutsen NYK (the “Acquisition”). The Partnership expects the Acquisition to close by June 1, 2017, subject to customary closing conditions.

Financial Results Overview

Total revenues were $45.0 million for the three months ended March 31, 2017 (the “first quarter”) compared to $45.0 million for the three months ended December 31, 2016 (the “fourth quarter”). The first quarter revenues were positively affected by the time charter earnings of the Raquel Knutsen and the Tordis Knutsen being included in the results of operations from December 1, 2016 and March 1, 2017, respectively. The increase was offset by reduced revenues from the Windsor Knutsen as a result of its scheduled drydocking during the first quarter. Due to a technical fault with its controllable pitch propeller, the Raquel Knutsen went offhire during the first quarter, which resulted in a loss of hire insurance claim. The 14-day deductible for offhire under the related insurance policy also adversely affected revenues during the first quarter.

Vessel operating expenses for the first quarter of 2017 were $10.3 million, an increase of $2.6 million from $7.7 million in the fourth quarter of 2016. The increase was mainly due to the Raquel Knutsen and the Tordis Knutsen being included in the fleet commencing December 1, 2016 and March 1, 2017, respectively. In the vessel operating expenses for the first quarter, $0.6 million is related to bunkers consumption in connection with the drydocking of the Windsor Knutsen and $0.6 million is related to the cost of repair of Raquel Knutsen which is expected to be covered by insurance less a deductible of $150,000.

General and administrative expenses increased $0.3 million from $1.2 million in the fourth quarter of 2016 to $1.5 million in the first quarter of 2017. The increase primarily reflects the effect of additional activity in connection with the year-end accounts.

As a result, operating income for the first quarter of 2017 was $17.5 million compared to $21.6 million in the fourth quarter of 2016.

Interest expense for the first quarter of 2017 was $6.2 million, compared to $5.7 million for the fourth quarter of 2016. The increase was mainly due to the additional debt incurred in connection with the acquisition of the Raquel Knutsen and the Tordis Knutsen.

Realized and unrealized gain on derivative instruments was $0.5 million in the first quarter of 2017, compared to $4.0 million in the fourth quarter of 2016. The unrealized non-cash element of the mark-to-market gain was $1.3 million for the three months ended March 31, 2017 and $4.5 million for the three months ended December 31, 2016. Of the unrealized gain for the first quarter of 2017, $1.1 million related to mark-to-market gains on interest rate swaps due to an increase in swap rate during the quarter, and an unrealized gain of $0.2 million related to foreign exchange contracts due to a slightly stronger U.S. Dollar against the Norwegian Kroner (NOK). Of the unrealized gain for the fourth quarter of 2016, $7.4 million related to mark-to-market gains on interest rate swaps due to an increase in swap rate during the quarter, and an unrealized loss of $2.9 million related to foreign exchange contracts due to the strengthening of the U.S. Dollar against the NOK.

As a result, net income for the three months ended March 31, 2017 was $11.4 million compared to $19.5 million for the three months ended December 31, 2016.

Net income for the three months ended March 31, 2017 increased by $0.8 million compared to net income for the three months ended March 31, 2016. The operating income for the first quarter of 2017, decreased by $1.7 million compared to the first quarter of 2016, mainly due to reduced revenues from the Windsor Knutsen as a result of its drydocking during the first quarter of 2017. The decrease was partially offset by increased earnings from the Raquel Knutsen and Tordis Knutsen being included in the Partnership’s results of operations from December 1, 2016 and March 1, 2017, respectively, and a full quarter of earnings from the Bodil Knutsen in first quarter of 2017 compared to 20.9 days of offhire due to a planned drydocking in the first quarter of 2016. Total finance expense for the three months ended March 31, 2017 decreased by $2.5 million compared to the first quarter of 2016, mainly due to changes in unrealized gain and loss on derivative instruments. This was partially offset by increased interest expense due to additional debt due to the acquisitions of the Raquel Knutsen and Tordis Knutsen.

Distributable cash flow was $15.6 million for the first quarter of 2017, compared to $20.8 million for the fourth quarter of 2016. The decrease in distributable cash flow is mainly due to the scheduled drydocking of the Windsor Knutsen and the offhire for the vessel the Raquel Knutsen. The distribution declared for the first quarter of 2017 was $0.52 per common unit, equivalent to an annualized distribution of $2.08.

Operational review

On February 22, 2017, the Raquel Knutsen developed a technical default with its controllable pitch propeller and went offhire. As a result, the vessel went to Europe to drydock for repair. The Raquel Knutsen went back on charter on May 5, 2017. Total offhire was 71.3 days, but under its loss of hire insurance policies, the Partnership’s insurer will pay the hire rate agreed in respect of the Raquel Knutsen for each day in excess of 14 deductible days while the vessel was offhire. All of our vessels under time charter have such loss of hire insurance to mitigate the loss of revenues as well as hull & machinery insurance to cover repair costs, if any. Our four vessels under bareboat charter are insured by each charterer at its cost and carry no offhire risk as there are no offhire provisions in these contracts.

During the first quarter of 2017, the Windsor Knutsen completed her 10-year special survey drydocking at Brest shipyard in France on time and on budget. The Windsor Knutsen began receiving charterhire under her charter with Shell in Brazil on April 3, 2017 but will receive charter hire for approximately 3 additional days for vessel testing.

The Partnership’s vessels operated throughout the first quarter of 2017 with 98.6% utilization for scheduled operations taking into account the 14 deductible days of offhire for the Raquel Knutsen and 93.2% utilization when taking into account the scheduled drydocking of the Windsor Knutsen.

KNOT Offshore Partners LP press release