Vessel operating expenses for the fourth quarter of 2018 were $14.2 million, a decrease of $1.1 million from the third quarter. The increase was due to the position of bunker cost, scheduled dry docking of Hilda and Torill Knutsen which took place in Q3. Lower operating costs on average are also due to the strengthening of the US dollar against the Norwegian kroner. The decrease was partially offset by increased costs for the Ingrid Knutsen, which went offhire in the fourth quarter due to its scheduled drydocking. G&A expenses were $1.3 million in Q4 as Q3. Depreciation was $22.5 million for Q4, an increase of $0.1 million from Q3, mainly due to increased depreciation for Ingrid and Torill Knutsen due to drydock additions.

As a result, operating income for the Q4 of 2018 was $33 million compared to $31.7 million in Q3. Interest expense for Q4 was $13.4 million, which is a decrease of $0.1 million from Q3. Realized and unrealized gain-- sorry losses on derivative instruments was $10.9 million in the fourth quarter, compared to a gain of $3 million in the third quarter. The unrealized non-cash element of the mark-to-market loss was $11.3 million compared to the gain of $2.1 million in Q3. Of the unrealized losses for Q4, $9.9 million related to interest rate swaps and $1.4 million to foreign currency contracts. Net income for Q4 was therefore reduced to $8.8 million compared to $20.9 million for Q3.

Slide five, adjusted EBITDA. In Q4, the partnership generated EBITDA of $55.4 million compared to $54.1 million in Q3. Adjusted EBITDA refers to earnings before interest, taxation, depreciation and amortization and other financial items, that provides a proxy for cash flow. Adjusted EBITDA of course is a non-US GAAP measure used by our investors to measure partnership performance. With a wasting asset like a vessel, younger fleets tend to produce lower EBITDAs for every dollar invested. The annuity effect reduces the annual loss in the early years, which is factored into the replacement CapEx calculation for the distributable cash flow.

Slide six, distributable cash flow. Another non-US GAAP measure scrutinized by investors to establish distribution sustainability. Distributable Cash Flow or DCF represents a net income adjusted for depreciation on realized gains and losses from derivatives. Distributions in a Series A preference units, under the non-cash items and maintenance and replacement capital for drydocking and capital expenses, which are required to maintain long-term operating capacity of and therefore the revenue generated by the partnership capital assets.

DCF was $27.2 million in Q4 in comparison to $26.3 million in Q3. We maintained our distribution level for Q4 at $0.52 per unit, equivalent to an annual distribution of $2.08. The distribution coverage ratio was a healthy, our highest ever 1.51 times for Q4. Impacting the calculation, this quarter was also drydocking of Hilda and Torill Knutsen, first special survey, drydocking -- vessel operating MLP. The average coverage ratio was 1.50 times for the full-year 2018, which compares to 1.26 times for 2017. The distribution in excess of 11% of the current unit price today are largely invested (ph) Knutsen NYK would prefer increased coverage through investments and secondly deleveraging rather than increasing dividends.

The growing coverage ratio gives the partnership more flexibility, regarding both capital base and distributions going forward. Slide seven. At the end of Q4, the partnership had $70.4 million in available liquidity, which consisted of cash and cash equivalents of $41.7 million and $28.7 million of capacity under its revolving credit facilities. The revolving credit facility mature in August 2019, September 2023. We have a predictable cash flow and a healthy liquidity position.

The partnership's total interest bearing debt outstanding as of December 31st, 2018 was $1,087 million or $1,077 million net of debt issuance costs. The average margin paid on the partnership's outstanding debt in Q4 was approximately 2.1% over LIBOR. In Q4, the partnership interest rate swap agreements totaling $556 million, of which the partnership received interest based on LIBOR and paid at an average interest rate of 1.86%. These have an average maturity of approximately 4.9 years, while the partnership's net income is impacted by changes in the mark-to-market swap valuations, the cash flow is stabilized, mitigating the interest rate rise impact from the distributable cash flow. We also see rising interest rates in the US in 2018 and together with increased replacement CapEx in 2019, as the vessels gets older, our coverage will slightly be impacted this year, but overall 2019 again looks very solid.

Slide eight, long term contracts. The Bodil Knutsen, our largest shuttle tanker operating in the North Sea, is ice class and on charter to Statoil until May 2020. Following the end of that charter, there are four further annual extension options. Torill and Hilda operates on the Goliat, the first field to be developed in the Barents Sea, and it currently represents the world's most northerly offshore development. After initial five year term, both vessels, the Hilda time charter was extended for four more years, and in October the first of five one year annual extensions was exercised on the Torill. Four of our vessels are on long-term bareboat charter through to 2023 with Petrobras Transpetro. Dan Sabia and Dan Cisne are a unique size and Fortaleza and Recife shallow drafts with lots of thruster capacity.

Delivered in 2013, Carmen Knutsen is on charter to Repsol Sinopec until 2023. The Ingrid was delivered in 2013, and is operating in the North Sea on a time charter for Standard Marine Tonsberg. This will expire in the first quarter of 2024. The charter has options to extend the charter by up to five-one year periods. Raquel Knutsen was delivered in March 2015 and operates under a charter that will expires in the first quarter of 2025 to Repsol Sinopec in Brasil. There are options to extend until 2030. Tordis, Vigdis and Lena Knutsen are on five-year time charters to Brazil Shipping I, a subsidiary of Shell. These will expire in 2022, the charter has options to extend with two additional five-year options, totaling 15 years. The Brasil and Anna Knutsen are on charter to Galp Energia until 2022 with options to extend until 2028.

The KNOT fleet has an average remaining fixed contract duration of 3.7 years and additional 4.4 years on average in charterers option. Whilst we currently have two drop-down candidates, which means the near-term equity requirement is very limited, given the market outlook, we expect to grow the MLP significantly in coming years.

In summary, KNOT Offshore Partners should be considered as a mobile pipeline business with fully contracted revenue streams. KNOT has an elevated yield compared to most MLPs and is focused on building coverage and deleveraging. As of today, it is not making accretive investments. This quarter report another very strong quarterly performance, record revenues EBITDA and distributable cash flow.

For the full year, we set records for all the key financial measures revenue, EBITDA, distributable cash flow, unit distribution coverage and net income. KNOT has well-placed to complete in future tenders and currently two vessels are in order. We have a solid and profitable contract base generated by our modern fleet, which by the end of December, has an average age of around 5.75 years. Since the formation of KNOP, we have a very high levels of vessel utilization, on average about 99.6%, which financially translates into high and increasingly predictable revenues, adjusted EBITDA, and discounted cash flow as more vessels are added to the fleet. No one has more expertise in operating these sophisticated shuttle tankers of KNOT Offshore Partners and we operate these vessels with real expertise.

Today, supply is tightening and the market is expanding and with tenders backed, the sponsor expects to go a further drop-down inventory. We have a large and financially strong and supportive sponsor who knows his market as well as anyone. Thank you.

And that concludes the narrative for the slides. If anyone have any questions, I'll be happy to take them.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Hillary Cacanando of Wells Fargo Securities. Please go ahead.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

Hi, John. Thanks for taking my call. Quick question. Why was Windsor Knutsen charter are suspended with just one-off, get an idea of what is the view of --.

John Costain -- Chief Executive officer & Chief Financial Officer

They actually show approaches about -- a few months ago, and said, they had a bit of the surplus capacity in Brazil on the shell tankers, and they were asking, if we were interested in chartering a ship from them. And we obviously needed a vessel in West Africa, there weren't and actually prepared to give us a Windsor, but they said, OK, we ask them for one of our ships if we're going to do that. In the end, they agreed to let us have the Windsor back.

So we have good news in West Africa on a contract, we have there for eight to 10 months, probably the sponsors using it. So -- and he's paying back-to-back rate, which is the same as what was on the CP with Shell and effectively, that means that the MLP will see rather than the next as we're kicking in, they will continue with that charter at the back end of the substitution period. So effectively it extends the firm period on the vessel for the partnership and that's really what's happened. Shell, obviously, production hasn't quite been enough to (inaudible) vessel and it has just been -- bit more efficient than the process, if we needed the shipment that would take one of our back.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

Okay, got it. And so -- so there's no -- so this isn't a situation where like they could -- the suspension could continue after the --.

John Costain -- Chief Executive officer & Chief Financial Officer

No, no. They've got a firm period on that. They wanted the ship, they are happy with the Windsor Knutsen could be, but we thought if we're going to charter the ship, back to one of us, that's why we got four ships on charter to shell in Brazil and we'd rather have one of our ships to somebody else's logically.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

Okay, and then Bodil Knutsen, the extension options. Are they --?

John Costain -- Chief Executive officer & Chief Financial Officer

Yeah.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

I think the last one was at a lower rate, the last extent?

John Costain -- Chief Executive officer & Chief Financial Officer

Yes it is. Yeah. That's correct.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

So the remaining ones, are they going to be above the lower rate?

John Costain -- Chief Executive officer & Chief Financial Officer

They ask us an escalator on for the lower rate is increased. So basically, it stops at a lower level, but it escalates every year..

Hillary Cacanando -- Wells Fargo Securities -- Analyst

So like for the next one, that would be higher than the current pay.

John Costain -- Chief Executive officer & Chief Financial Officer

Now, the current rate is the old charter rate and then the new rate, the first new rate is lower and then the next new rate is still lower, but it's higher than the lower -- the other rates, so there's an escalator on the option periods basically.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

Okay, so it will higher than the previous one. Okay, got it.

John Costain -- Chief Executive officer & Chief Financial Officer

Yes, but not. Yeah, yeah.

Hillary Cacanando -- Wells Fargo Securities -- Analyst

Okay, got it. That's it for me. Thanks, John.

John Costain -- Chief Executive officer & Chief Financial Officer

Okay. Thanks, Hillery.

Operator

(Operator Instructions) Our next question comes from Ben Brownlow of Raymond James. Please go ahead.

Ben Brownlow -- Raymond James -- Analyst

HI, John. Just as a follow up on the Windsor Knutsen. Just a few months around the timing, there -- what's -- any specific variables or that will influence the recommencement of that charter with Shell?

John Costain -- Chief Executive officer & Chief Financial Officer

No, it's basically start on the 4th of March, between 10 and 12 months and then Shell take the ship back to -- down the remainder of the one year option and then the other options kick-in the enrollment.

Ben Brownlow -- Raymond James -- Analyst

Okay. And you said they were back-to-back. So, there is absolutely no cash impact from --..

John Costain -- Chief Executive officer & Chief Financial Officer

There's no difference on the rate.

Ben Brownlow -- Raymond James -- Analyst

-- repositioning or anything like that?

John Costain -- Chief Executive officer & Chief Financial Officer

No.

Ben Brownlow -- Raymond James -- Analyst

Okay. And -- on the Bodil Knutsen, can you just give some color around, kind of the demand backdrop you're seeing there around you looking cash per field?

John Costain -- Chief Executive officer & Chief Financial Officer

Well, I mean, I'm not sure that the things with the Bodil, it's always been 1 million barrel ships, slightly more than that. And generally in the North Sea, most of the vessels are aframax size, starts to trying with the idea on moving the ship. They might move it to Brazil. They might repay, and we're working in the Barents Sea. I mean, I don't -- we don't know exactly what their plans are at this stage. I mean, I would like (inaudible) from much longer, but I think that's an open discussion. We'll start update, definitely ship long term, just how they deploy the assets. It's has always been a bit of a tough story, had a bit of a heck on the rate, you know, because it's always been a bit of a non-standard ship like the Windsor as well.

These two vessels were not really built specifically for the fields that they're operating on now. The Windsor is an ice class tankers working in Brazil and the Bodil is a Suezmax tanker, which, was built with the idea of the Barents Sea in mind, because it's ice class, but it's -- it haven't been helpful at development yet in the Barents Sea, and at the moment most ships are being built of aframax size. We just think, the voyagers are shorter, really. And so, I don't know what at the moment, start to locate the ship anyway. I have no doubt about the rates. The rates, they're happy with the rate and they want to keep the ship long-term. And there's not that many shell tanks around the country, the demand is quite tight.

So, -- it's an issue that is just the case is what they want to do with the ship longer-term.

Ben Brownlow -- Raymond James -- Analyst

That's make sense. Thanks for the color and enjoyed working with you past few years.

John Costain -- Chief Executive officer & Chief Financial Officer

Yes, I knew Ben, thanks.

Ben Brownlow -- Raymond James -- Analyst

Thanks.

Operator

This concludes our question-and-answer session. I would now like to now turn the conference back over to John Costain for any closing remarks.

John Costain -- Chief Executive officer & Chief Financial Officer

I'd just like to say thank you and probably my second person this call -- probably we'll do on end of May.

Operator

Pardon me, Mr. Costine, a couple of questioner's just came in. Would you like to accept?

John Costain -- Chief Executive officer & Chief Financial Officer

Okay. I'll take them, line open.

Operator

Okay. Our next question comes from Robert Silvera of R.E. Silvera and Associates. Please go ahead.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Hi, John, and thank you very much for doing such a good job and I'm sorry to see you leave, but obviously you have future plans and that's good. My question is this, right now you have a coverage ratio of 1.51. Do you have an upper target in mind or anything like that for the future that if you reach that, you would increase the dividend? Is there anything kind of I expect (inaudible).

John Costain -- Chief Executive officer & Chief Financial Officer

I mean, it's to say, (inaudible) because I'm not strategically involved anymore with the business. But I think, you've always got look at how the capital market is because this is an MLP and you use the distribution as a means to sell the MLP and whether being a shipping company as well. If you're not adding vessels, you increase the distribution, you weaken the MLP in a way, because today it's obviously got a lot stronger because -- with added assets, without pushing the distribution. And, if the equity markets closed, it's hard to burn too much equity, now you don't want to do it in terms of the sponsor. Obviously, you're not hold the likes to receive cash, but, it's -- that's the balance you've got to strike with -- I mean at the end of the day, we are at the moment a very -- we've got a decent yield and the numbers look fine. So, I mean, I don't think they'll change anything. I think -- also Knutsen, NYK does a -- it's under the units. So they don't want to damage their own stake.

And that's also healthy for the individual unit holders, because I can see the sponsor has real investment in the MLP. That's really what I tried to emphasize, but I wouldn't like to comment too much on it because obviously -- my might -- things, my assumption is end of May, so, I don't really have a lot of input from the -- on the distribution policy, really. But I think, what they're doing is very sensible, today.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Okay, what is troubled me is if the distribution as past conference call says, is going to be pretty much fixed at the $0.52 a quarter and $2.08 per the year. If it stay fixed like that, the stock price has seemed to been depreciating and just as the assets of the ships are depreciating. So I guess.

John Costain -- Chief Executive officer & Chief Financial Officer

(Multiple Speakers) something by the market.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Yeah. It have to using that new ships, that's the thing, that's the key, because obviously these vessels deleverage, that's basically what we do with the excess cash we just patented. So we end up with less depth on the ships.

John Costain -- Chief Executive officer & Chief Financial Officer

Right. And then you, as the assets come along, you try and buy two leverage rather than approaching the market for equity. And that's the way you deal with it. Or at least take a portion of the vessel through deleveraging. That's how we built in the last two or three ships. So -- and if the more you save on distributions, from more you can do that in the longer run, it's a long game, it's better, because obviously if you can invest at a decent rates and you have to bear in mind as well as the sponsors of the business, and they have to buy ships.

And then they have to raise equity and they have to trade the vessels. And accordingly, the MLP market is closed to a lot smaller MLP, I would say, the mid-stream space not with this -- and you have to conserve a bit of equity, where you can. So we're in the market, we opens again, you can be a lot more optimistic and you can really push the distribution and nice capital.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Well, what do you see in the strategy that's now being carried out that would at least keep the prices stocks steady in that range?

John Costain -- Chief Executive officer & Chief Financial Officer

Well, I mean, obviously good to see -- I think, the changes in management doesn't really help. I think when you ever, see our results every quarter, you see our results, from the commitment of footprint down, people can be more comfortable with it. It sends out a message and over time, the history and the quality of the continued quality of the balance sheet, it helps building a distribution is fine, in the short term, but it's a short term fix if you are not having assets, then you're not going to raise equity. It's more difficult. So you have to balance it. But it's a definite balancing act, always was.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Yes.

John Costain -- Chief Executive officer & Chief Financial Officer

And requirement to MLP today in a way, we'd been trading for six years now. But yeah, I know, where we are coming from, and my preferences today in the current market is to be conservative really. I mean, I think, it's a sensible approach. At the end of the day, it got my mind as well as -- lot of people. And have got lot of players invest in this business. And a lot of the sponsors that they come to me, so it's important to keep stability and keep good footprint in a good trading history.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

All right. Well, that's what is concerned, as a company is investing in you as a company, love the dividends. But if the price is eroding on the stock at the same rate that the dividends are being paid, the net is not a good number.

John Costain -- Chief Executive officer & Chief Financial Officer

Because, something happened last two, three months and you, shouldn't start question too much and as long as the earnings come out well and you've got a good distribution is fine and we know -- trend the balance sheet.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

But we're in a -- long game, but we want to be comfortable that the stability of the stock prices is there and the strategy on you guys should be such that you maintain that price of the stock, is 20 to 22, somewhere in that neighborhood and not down at 17.5, 18, in effect for this last year we've lost the total of the distribution.

John Costain -- Chief Executive officer & Chief Financial Officer

Well, yes, that's -- you know it's a book loss, I mean, it will go back.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Okay. Well, thanks, John, and good luck in your new activities.

John Costain -- Chief Executive officer & Chief Financial Officer

Yes. Thank you.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

God bless you.

John Costain -- Chief Executive officer & Chief Financial Officer

Thank you.

Robert Silvera -- R.E. Silvera and Associates -- Analyst

Bye, bye. Thanks.

Operator

(Operator Instructions) Our next question comes from David Starkey of Morgan Stanley. Please go ahead.

David Starkey -- Morgan Stanley -- Analyst

Hey, John, congratulations on your job and situation it's been nice working with you over the years.

John Costain -- Chief Executive officer & Chief Financial Officer

Yes, thank you, David.

David Starkey -- Morgan Stanley -- Analyst

I have a question on the -- obviously, the stock prices are little frustrating, but we've seen this before and today we're getting a good reaction to the consistent with strong numbers you've been putting up. The question I have -- you talked about the strategy is not -- not raising the distribution, but starting to paydown some of that debt and I was wondered what kind of goal's you have in mind of -- you know, over the years and to do that and to clean the balance sheet up or get it even stronger.

John Costain -- Chief Executive officer & Chief Financial Officer

Well, it's -- I mean lot of us, I mean, shipping has been quite volatile in terms of asset values and it's difficult to gauge how the you know also , we've seen a team move into the market as well. So the market is growing quite rapidly but another competitor coming in, changing the mix of all that and you don't really know how things are going to settle down.

So it's an interesting environment and it's good to have in the current environment, it's good to have the flexibility on capital that we do have by having a bit stronger balance sheet. So, well, I mean, it's best if you can avoid having too many (inaudible) bonds in the balance sheet is always helpful because you keep the equity still we going in more strongly and that's quite important.

The response is very important because he's got a large amount of common units and really that's probably been the strategy behind what's driving the policy of a stable state environment. We haven't add a lot of ships to the MLP in the last two to three years that's been good in one way because it hasn't been the equity out that even build don't want to put into midstream, understandably, but on the other hand, for us, it can be quite frustrating because we haven't grown in scale, which would have allowed the normal pattern of an MLP. So it's -- it's a little bit of a trap. I mean investors are contrary at the moment. They want to see growth, they just don't want to see it now and they don't need to -- they don't want the best for equity now, but they want to see this in the future. So as you know, yourself, it must be very difficult running a firm today midstream. It's not a best place to be. But I mean, I think, this shows where we are as a solid company.

David Starkey -- Morgan Stanley -- Analyst

But, as you mentioned, the consistency of the long-term results have been good and that should be -- you were something over time. Are you comfortable with AGM strategy going forward with your replacement here ?

John Costain -- Chief Executive officer & Chief Financial Officer

Yeah, I mean, I think it's a safe. I don't really know the guy to be honest. I think, the nice thing is he's got good backgrounded within NYK, which shows and luckily very committed to the MLP and that's very good. That's by the way.

David Starkey -- Morgan Stanley -- Analyst

Still -- never running or hedging, are they going to be remaining in place?

John Costain -- Chief Executive officer & Chief Financial Officer

Sorry?

David Starkey -- Morgan Stanley -- Analyst

The people that are actually, the hedge trading and things to keep the balance sheet --.

John Costain -- Chief Executive officer & Chief Financial Officer

Yeah, yeah. I mean, opportunistically, I mean, obviously it's not cheap (inaudible) hedges, it was when we did those hedges. We would like to keep between about 50% to 70% of the interest charge hedge, because I mean you try to match up when you fix the charters with the interest rates at the time. So obviously, it makes sense to produce a stable income at the level of hedging, but you look at it today and it's not what it was in terms of pricing and it's come off a lot, admittedly this quarter as you can see from our losses on our portfolio, but we generally just ignore the day-to-day movements and we just try and take it opportunistically we have done in the past and it's been good. I mean last two years, obviously, hedging has not always been a great story.

David Starkey -- Morgan Stanley -- Analyst

They stabilized now and we won't see too much more of the wage increases on the lifetime?

John Costain -- Chief Executive officer & Chief Financial Officer

No, I think you're right and I'm just hoping to stabilize. But no, much of it out there either way, whether you buy hedge or not today, I think, the game is over, isn't it.

David Starkey -- Morgan Stanley -- Analyst

All right. Best of luck going forward, appreciate all of your time and energy and wish you the best going forward.

John Costain -- Chief Executive officer & Chief Financial Officer

Thanks, David. I appreciate working with you has been fun at times. bit of bit. There you go. Best of luck.

David Starkey -- Morgan Stanley -- Analyst

Thank you.

John Costain -- Chief Executive officer & Chief Financial Officer

All right.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Costain for any closing remarks.

John Costain -- Chief Executive officer & Chief Financial Officer

Okay, thank you. I just have to say thanks for all your interest and time on this call, and it's been interesting asking some, answering some other questions you put forward and I'll speak to one last time -- next time and hopefully, some of you got there by the end. Thank you.

Operator

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

Duration: 32 minutes

Call participants:

John Costain -- Chief Executive officer & Chief Financial Officer

Hillary Cacanando -- Wells Fargo Securities -- Analyst

Ben Brownlow -- Raymond James -- Analyst

Robert Silvera -- R.E. Silvera and Associates -- Analyst

David Starkey -- Morgan Stanley -- Analyst

More KNOP analysis

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