In the case of KNOT Offshore Partners (KNOP), most headlines still revolve around the partnership’s 2023 distribution cut.
Dig a little deeper, however, and you’ll find a very different story taking shape, one that could push the units materially higher over the coming year.
2025 Is Already a Quiet Turnaround Year
Hard numbers first. In Q1 2025, KNOP generated $84 million of revenue, $23 million of operating income, and $52 million of adjusted EBITDA, all comfortably ahead of management’s internal budget.
Liquidity finished the quarter at $100.8 million, enough to cover every scheduled dry-dock this year twice over.
After suspending payouts during 2023’s refinancing scare, KNOP reinstated a token $0.026 quarterly distribution in April and paid it on May 8. Management has now guided to “modest, sustainable growth” in the payout as balance-sheet headwinds ease.
That matters because shuttle-tanker partnerships live and die by investor confidence in their distributions. Even a symbolic restart signals that the capital markets door is open again.
A Fleet Few Investors Realize Is Still Growing
Ask ten retail traders how many tankers KNOP owns and half will guess “a dozen.” The correct answer today is eighteen, soon to be nineteen.
The little-noticed catalyst is the acquisition of the 2022-built Daqing Knutsen that the partnership announced. The Suezmax-class shuttle tanker is on a fixed contract with PetroChina that runs to July 2027 and carries a five-year extension option, effectively eight years of line-of-sight cash flow.
Critically, the purchase is expected to be funded 50% with debt amortizing over the charter life and 50% with internal cash, limiting dilution.
That financing split went unnoticed in this morning’s press release footnote but should matter to anyone modeling per-unit distributable cash flow.
Contract Backlog Few Investors Appreciate
Because shuttle tankers operate much like floating pipelines, KNOP’s vessels sail on fixed-rate, take-or-pay charters to oil majors and national oil companies. Management’s investor deck quietly notes that no single customer represents more than 10% of EBITDA, a diversification data point even seasoned analysts miss.
Layer in the charter attached to the Daqing Knutsen and KNOP now enjoys an average remaining contract term of 3.3 years, plus extension options that, if exercised, push backlog past 2029. That means roughly 90% of next year’s top line sales is already spoken for before a single spot fixture is negotiated.
Debt Wall Is Real But Manageable
Bears will point out that several credit facilities mature in late 2025 and 2026. Management conceded the issue on the latest call, noting that negotiations are under way with a syndicate of European banks.
Fitch’s January review of non-bank issuers concluded that most have “sufficient liquidity” to handle 2025–26 maturities, even after the Basel-III endgame. KNOP’s $100 million cash position and the amortizing nature of its vessel debt give it more bargaining power than many dry-bulk or container peers.
One thing that’s overlooked largely is half of the partnership’s bank debt is SOFR plus 190 basis points, an unusually tight spread. Even if base rates stay sticky, repricing risk is lower than feared.
Supply-Demand Setup Favors Shuttle Owners
While the mainstream tanker press obsesses over VLCC day-rates, the global shuttle fleet is growing at only 1–2% annually through 2026 even as offshore production climbs.
Brazil is the swing factor. Petrobras alone intends to boost pre-salt output 19% by 2029 and commission 48 additional support vessels (FPSOs, supply ships, and tankers) by 2026. Every incremental barrel that surfaces 200 km off Rio still has to reach shore, and pipelines remain politically fraught. Shuttle ton-miles, in other words, are set to grow faster than shuttle hulls.
For KNOP, roughly a third of its fleet already works off Brazil. The company’s local operating history, plus the Daqing Knutsen charter with PetroChina, positions it to win additional term work in the region without building expensive new ships from scratch.
Valuation Is Cheap Even by Troubled MLP Standards
Average includes Teekay Shuttle Tankers, Altera Infrastructure notes, and Höegh LNG Partners.
Short interest sits below 1% of float, offering little structural resistance if good news hits the tape.
How High Could the Units Sail by July 2026?
Below is a sanity-check framework rather than a crystal ball:
Using 7×–8× distributable cash flow multiples, in line with peer averages.
Even the base case implies 30–50% upside, without heroic macro assumptions. The bull case, incidentally, aligns almost perfectly with the Street’s $13 target.
What Could Go Wrong?
A refinancing hiccup has the potential to derail the investment thesis, for example, if a single lender dragging its feet delays balance-sheet clean-up and keep the distribution token-sized for longer.
Another worry is downtime because KNOP’s specialty vessels use complex dynamic-positioning gear; an unplanned thruster failure can erase a quarter’s cash coverage.
Sponsor conflict throws a wrench in the system too because parent Knutsen NYK must balance its own capital needs with dropdown pricing. An overpriced deal would spook limited-partners.
While shuttle charters are “pipe-like,” a deepwater spending freeze would dent re-chartering rates in 2027 and beyond.
Where Will KNOP Stock Be In 1 Year?
Analysts who still cover the name, only three do, peg fair value at $13.23, more than 100% above today’s $6.90 quote.
Wall Street largely moved on after KNOP’s 2023 payout cut, leaving the units orphaned in ETF purgatory but the data tell a different story of a refreshed, cash-generating fleet with contracts stretching past the decade’s midpoint and distribution growth that has already restarted, however modestly
Manageable refinancing needs, backstopped by $100 million in on-hand liquidity and a macro backdrop of tight shuttle-tanker supply and accelerating Brazilian offshore output.
Put those pieces together and the path to $9–10 by mid-2026 looks more probable than not, with $12-plus achievable if management threads the refinancing needle and resumes meaningful payout hikes.
In essence, KNOP may still trade like a recovery story, but the recovery itself is now well under way. Long-term-minded investors who can stomach some maritime noise could find themselves owning a cash-gushing niche asset, exactly the kind that Mr. Market loves to rerate when the first dividend raise hits their Bloomberg screens.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
