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Units of KNOT Offshore Partners (KNOP -33.62%) are plummeting today, down by nearly 40% as of 10:30 a.m. ET. The sharp move lower came after the master limited partnership (MLP) focused on the shuttle tanker market made a significant distribution cut.
KNOT Offshore Partners declared its fourth-quarter distribution payment. It’s paying $0.026 per unit. That’s a massive 95% reduction from the company’s prior payout of $0.52 per unit each quarter.
KNOT Offshore Partners had previously warned that it was having trouble finding work for its fleet in the North Sea. While the company made some progress securing additional charters for its fleet, many vessels are still looking for contracts. As a result, CEO Gary Chapman stated in the press release, “[W]e currently lack the forward visibility on earnings that we have historically had.”
That led the company to reduce its distribution and enhance its liquidity to navigate the current challenging period. By shoring up its liquidity, KNOT would also be in a better position to take advantage of potential opportunities.
KNOT Offshore Partners believes it will eventually be able to find charters for more of its fleet. It’s also confident in the longer-term market as more oil companies drill for oil offshore. Because of that, KNOT thinks it can provide investors with an attractive and sustainable distribution over the long term.
However, the near-term picture is muddled, so units could remain under pressure until there’s more visibility into the company’s future cash flows and distribution level. Interested investors should wait for more clarity before diving into this beaten-down shuttle tanker operator.
Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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