Teekay Offshore Partners L.P.
NYSE : TOO

Teekay Offshore Partners L.P.

March 04, 2010 08:08 ET

Teekay Offshore Partners Reports Fourth Quarter and Annual Results

HAMILTON, BERMUDA--(Marketwire - March 4, 2010) - Teekay Offshore Partners L.P. (NYSE:TOO) -

Highlights

- Generated distributable cash flow of $18.2 million in the fourth quarter of 2009, up from $13.4 million in the third quarter of 2009.

- Declared and paid cash distribution of $0.45 per unit for the fourth quarter of 2009.

Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership), today reported the Partnership's results for the quarter and year ended December 31, 2009. During the fourth quarter of 2009, the Partnership generated distributable cash flow(1) of $18.2 million, an increase from $13.4 million in the previous quarter, primarily as a result of the acquisition of the Petrojarl Varg floating production, storage and offloading (FPSO) unit on September 10, 2009.

On January 27, 2010, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended December 31, 2009. The cash distribution was paid on February 12, 2010, to all unitholders of record on February 5, 2010.

"2009 was a challenging year operationally for Teekay Offshore Partners," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP L.L.C. "Distributable cash flow from our shuttle tanker segment was weaker than expected because of lower revenues caused primarily by new oil fields coming on line later than planned and higher operating expenses. We moved aggressively to manage costs and in the fourth quarter, distributable cashflow rebounded from the depressed levels of the second and third quarter as shuttle tanker operating expenses began to reduce and we completed the acquisition of the Varg FPSO. In 2010, we expect higher cashflows from both the existing shuttle tanker fleet as we continue to improve profitability and the Varg FPSO because of higher oil production.

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of February 28, 2010, including vessels owned by Teekay Offshore Operating L.P. (or OPCO), of which the Partnership owns a 51 percent interest:



-------------------------------------------------------------
Number of Vessels
--------------------------------
Owned Chartered-in
Vessels Vessels Total
--------------------------------
Shuttle Tanker Segment 28(i) 7 35
Conventional Tanker Segment 11 - 11
FSO Segment 5 - 5
FPSO Segment 1 - 1
-------------------------------------------------------------
Total 45 7 52
-------------------------------------------------------------
(i) Includes five shuttle tankers in which OPCO's ownership
interest is 50%, three shuttle tankers in which OPCO's
ownership is 67% and one shuttle tanker in which Teekay
Offshore's direct ownership interest is 50%.


OPCO's fleet includes 33 shuttle tankers (including seven chartered-in vessels), four FSO units, nine conventional oil tankers and two lightering vessels.

(1) Distributable cash flow is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please see Appendix B for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under United States generally accepted accounting principles (GAAP).

Future Growth Opportunities

Pursuant to an Omnibus Agreement that Teekay Offshore entered into in connection with its initial public offering in December 2006, Teekay Corporation (Teekay) is obligated to offer to the Partnership its interest in certain shuttle tankers, floating storage and sffloading (FSO) units and FPSO units and joint ventures it may acquire in the future, provided the vessels are servicing contracts in excess of three years in length. Teekay Offshore also may acquire additional limited partner interests in OPCO or other vessels that Teekay may offer the Partnership from time to time in the future. Teekay currently owns 49 percent of OPCO and Teekay Offshore owns the remaining 51 percent, including a general partner interest.

Shuttle Tankers

Teekay has ordered four Aframax shuttle tanker newbuildings that are scheduled to deliver in 2010 and 2011, for a total cost of approximately $480 million. Pursuant to the Omnibus Agreement, Teekay is obligated to offer its interest in these vessels to Teekay Offshore within 365 days of the delivery of the vessels, provided the vessels are servicing time-charter contracts or contracts of affreightment in excess of three years.

FSO Unit

In December 2009, Teekay completed the conversion of one of its existing shuttle tankers to a FSO unit and the unit commenced operations in the Qatar offshore region under a 7.5 year fixed-rate charter (excluding a 1.5 year extension option) with a major oil company. Under the Omnibus Agreement, Teekay is obligated to offer its interest in this FSO project to the Partnership within 365 days after the commencement of the charter.

FPSO Units

Teekay Petrojarl, a wholly-owned subsidiary of Teekay, owns three units operating in the North Sea and operates for the Partnership the Petrojarl Varg FPSO, which the Partnership purchased from Teekay Petrojarl in September 2009 for $320 million. In addition, Teekay directly owns one FPSO unit operating in Brazil. Pursuant to existing agreements, the Partnership may acquire Teekay Petrojarl's other FPSO units that are servicing contracts in excess of three years in length.

Teekay's Remaining Interest in OPCO

Teekay may offer to Teekay Offshore additional limited partner interests in OPCO. Teekay currently owns 49 percent of OPCO and Teekay Offshore owns the remaining 51 percent, including a general partner interest.

Financial Summary

The Partnership reported adjusted net income attributable to the partners(1) (as detailed in Appendix A to this release) of $14.7 million for the quarter ended December 31, 2009, compared to $8.4 million for the quarter ended September 30, 2009. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of increasing net income by $12.0 million and decreasing net income by $21.8 million for the quarters ended December 31 and September 30, 2009, respectively, as detailed in Appendix A. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $26.7 million (as detailed in Appendix A to this release) for the fourth quarter of 2009, compared to a net loss of $13.4 million(2) in the previous quarter. Net voyage revenues(3) for the fourth quarter of 2009 increased to $178.8 million from $175.1 million in the previous quarter.

The Partnership reported adjusted net income attributable to the partners(1) (as detailed in Appendix A to this release) of $37.6 million for the year ended December 31, 2009, compared to $34.5 million for the year ended December 31, 2008. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of increasing net income by $26.1 million and decreasing net income by $53.5 million for the years ended December 31, 2009 and 2008, respectively, as detailed in Appendix A. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $63.7 million (as detailed in Appendix A to this release) for the year ended December 31, 2009, compared to a net loss of $19.0 million(2). Net voyage revenues(3) for the year ended December 31, 2009 decreased to $710.8 million from $743.9 million in the previous year.

For accounting purposes, the Partnership is required to recognize, through the consolidated statements of income (loss), changes in the fair value of certain derivative instruments as unrealized gains or losses, through the consolidated statements of income (loss). This revaluation does not affect the economics of any hedging transactions or have any impact on the Partnership's actual cash flows or the calculation of its distributable cash flow.

In accordance with GAAP, business acquisitions of entities under common control that have begun operations are required to be accounted for in a manner whereby the Partnership's financial statements are retroactively adjusted to include the historical results of the acquired vessels from the date the vessels were originally under the control of Teekay. Accordingly, the Partnership has recast its historical financial results to include the results of the Petrojarl Varg FPSO for the periods prior to its September 10, 2009 acquisition, which pre-acquisition results are referred to in this release as the Dropdown Predecessor.

(1) Adjusted net income attributable to the partners is a non-GAAP financial measure. Please refer to Appendix A included in this release for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under GAAP and information about specific items affecting net income which are typically excluded by securities analysts in their published estimates of the Partnership's financial results.

(2) Commencing in 2009 and applied retroactively, the Partnership's net income (loss) is presented including non-controlling interest on the Consolidated Statements of Income (Loss). Net income (loss) attributable to partners represents the net income (loss) attributable to the limited partners and general partner of Teekay Offshore.

(3) Net voyage revenues represents voyage revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, canal tolls and brokerage commissions. Net voyage revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Please see the Partnership's web site at www.teekayoffshore.com for a reconciliation of this non-GAAP measure as used in this release to the most directly comparable GAAP financial measure.

Operating Results

The following table highlights certain financial information for Teekay Offshore's four main segments: the shuttle tanker segment, the conventional tanker segment, the FSO segment, and the FPSO segment (please refer to the "Teekay Offshore Fleet" section of this release above and Appendix C for further details).



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Three Months Ended
December 31, 2009
(unaudited)

Conven-
Shuttle tional FPSO
Tanker Tanker FSO Segment
(in thousands of U.S. dollars) Segment Segment Segment (3) Total
----------------------------------------------------------------------------
Net voyage revenues 109,197 26,461 16,121 26,996 178,775

Vessel operating expenses(1) 34,741 5,961 7,614 13,326 61,642
Time-charter hire expense 28,141 - - - 28,141
Depreciation and amortization 28,003 5,876 5,472 5,633 44,984

Cash flow from vessel
operations(2) 35,142 18,671 7,764 11,653 73,230
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Three Months Ended
September 30, 2009
(unaudited)

Conven-
Shuttle tional FPSO
Tanker Tanker FSO Segment
(in thousands of U.S. dollars) Segment Segment Segment (3) Total
----------------------------------------------------------------------------
Net voyage revenues 110,313 24,799 14,509 25,525 175,146

Vessel operating expenses(1) 31,751 6,210 6,876 10,020 54,857
Time-charter hire expense 27,772 - - - 27,772
Depreciation and amortization 23,670 6,208 5,470 5,633 40,981

Cash flow from vessel
operations(2) 37,092 17,465 6,741 3,398 64,696
----------------------------------------------------------------------------

(1) Commencing in 2009 and applied retroactively, the gains and losses
related to non-designated derivative instruments have been reclassified
to a separate line item in the Consolidated Statements of Income (Loss)
and are no longer included in the amounts above.

(2) Cash flow from vessel operations represents income from vessel
operations before depreciation and amortization expense and amortization
of deferred gains, and includes the realized gains (losses) on the
settlements of foreign currency exchange forward contracts. Cash flow
from vessel operations is a non-GAAP financial measure used by certain
investors to measure the financial performance of shipping companies.
Please see the Partnership's web site at www.teekayoffshore.com for a
reconciliation of this non-GAAP measure as used in this release to the
most directly comparable GAAP financial measure.

(3) Cash flow from vessel operations for the FPSO segment reflects only the
cash flow generated by the Petrojarl Varg FPSO subsequent to its
acquisition by the Partnership on September 10, 2009. Results for the
Petrojarl Varg FPSO for the periods prior to its acquisition by the
Partnership when it was owned and operated by Teekay are referred to as
the Dropdown Predecessor.


Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's shuttle tanker segment decreased to $35.1 million for the fourth quarter of 2009, compared to $37.1 million for the previous quarter, primarily due to increases in repairs and maintenance expenses and restructuring costs, and a decrease in net voyage revenues due to increased offhire and drydock days.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership's conventional tanker segment increased to $18.7 million in the fourth quarter of 2009 from $17.5 million in the third quarter of 2009, primarily due to a decrease in drydock days.

FSO Segment

Cash flow from vessel operations from the Partnership's FSO segment increased to $7.8 million in the fourth quarter of 2009 from $6.7 million in the third quarter of 2009, primarily due to a scheduled drydocking in the third quarter.

FPSO Segment

Cash flow from vessel operations from the Partnership's FPSO segment increased to $11.7 million for the fourth quarter of 2009 from $3.4 million for the third quarter of 2009 as a result of the Partnership's acquisition of the Petrojarl Varg FPSO on September 10, 2009. The results for the full fourth quarter included higher operating expenses primarily due to certain repairs and maintenance activities completed during the quarter and higher general and administrative costs, partially offset by higher revenues due to increased oil production (the Petrojarl Varg contract includes an upside tariff component based on the volume of oil produced).

Liquidity

As of December 31, 2009, the Partnership had total liquidity of $285.7 million, which consisted of $101.7 million in cash and cash equivalents and $184.0 million in undrawn revolving credit facilities.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P., a publicly-traded master limited partnership formed by Teekay Corporation (NYSE:TK), is an international provider of marine transportation, production and storage services to the offshore oil industry. Teekay Offshore owns a 51 percent interest in and controls Teekay Offshore Operating L.P., a Marshall Islands limited partnership with a fleet of 33 shuttle tankers (including seven chartered-in vessels), four FSO units, nine conventional oil tankers and two lightering vessels. In addition, Teekay Offshore has direct ownership interests in two shuttle tankers, one FSO unit, and one FPSO unit. Teekay Offshore also has rights to participate in certain other FPSO and FSO opportunities of Teekay Corporation.

Teekay Offshore's common units trade on the New York Stock Exchange under the symbol "TOO".



---------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands of U.S. dollars, except unit data)
---------------------------------------------------------------------------
Three Months Ended Twelve Months Ended
--------------------------------- ----------------------
December September December December December
31, 30, 31, 31, 31,
2009 2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
--------- --------- --------- --------- ---------

VOYAGE REVENUES 213,396 204,509 240,492 821,856 968,908
---------------------------------------------------------------------------
OPERATING
EXPENSES
Voyage expenses 34,621 29,363 51,293 111,026 225,029
Vessel operating
expenses(1) 61,642 54,857 58,237 233,261 224,235
Time-charter
hire expense 28,141 27,772 34,852 117,202 132,234
Depreciation and
amortization 44,984 40,981 40,669 166,350 158,533
General and
administrative(1) 15,876 13,820 19,880 58,016 69,519
Goodwill
impairment
charge - - 127,403 - 127,403
Restructuring
charge(2) 955 371 - 5,008 -
---------------------------------------------------------------------------
186,219 167,164 332,334 690,863 936,953
---------------------------------------------------------------------------
Income from
vessel
operations 27,177 37,345 (91,842) 130,993 31,955
---------------------------------------------------------------------------
OTHER ITEMS
Interest expense (9,787) (9,147) (21,480) (43,319) (85,169)
Interest income 138 141 892 1,236 4,157
Realized and
unrealized gain
(loss) on
derivative
instruments(3) 15,844 (37,302) (155,763) 53,560 (188,782)
Foreign exchange
gain (loss)(1) 1,837 (4,359) 5,088 (6,151) 4,293
Income tax
recovery
(expense) 14,290 (20,234) 27,523 (12,638) 62,344
Other income -
net 1,863 2,068 2,493 8,918 11,929
---------------------------------------------------------------------------
Net income
(loss) 51,362 (31,488) (233,089) 132,599 (159,273)
---------------------------------------------------------------------------
Net income
(loss)
attributable to:
Non-controlling
interests(4) 24,659 (12,560) (30,947) 57,490 10,863
Dropdown
Predecessor(5) - (5,551) (151,407) 11,378 (151,169)
Partners 26,703 (13,377) (50,735) 63,731 (18,967)
Limited
partners' units
outstanding:
Weighted-average
number of
common units
outstanding
- Basic and
diluted 27,900,000 25,056,250 20,425,000 23,476,438 15,461,202
Weighted-average
number of
subordinated
units
outstanding
- Basic and
diluted 9,800,000 9,800,000 9,800,000 9,800,000 9,800,000
Weighted-average
number of total
units
outstanding
- Basic and
diluted 37,700,000 34,856,250 30,225,000 33,276,438 25,261,202

(1) The Partnership has entered into foreign exchange forward contracts,
which are economic hedges for certain vessel operating expenses and
general and administrative expenses. Certain of these forward contracts
have been designated as cash flow hedges pursuant to GAAP. Unrealized
gains and losses arising from hedge ineffectiveness from such forward
contracts, including forward contracts relating to the Dropdown
Predecessor (see Note 5 below), are reflected in vessel operating
expenses, general and administrative expenses, and foreign exchange
gains (losses) in the above Consolidated Statements of Income (Loss)
as detailed in the table below:


Three Months Ended Twelve Months Ended
--------------------------------- ----------------------
December September December December December
31, 30, 31, 31, 31,
2009 2009 2008 2009 2008
--------- --------- --------- --------- ---------

Vessel operating
expenses (379) 1,404 (444) 2,492 831
General and
administrative (101) 1,382 (2,017) 3,383 (1,385)
Foreign exchange
loss - - - - 8

(2) Restructuring charges were incurred in connection with the re-flagging
of certain of the Partnership's vessels, which are expected to result in
lower future crewing costs. The Partnership expects to incur an
additional $0.1 million in similar restructuring charges in the first
quarter of 2010.

(3) Commencing in 2009 and applied retroactively, the realized and
unrealized gains and losses related to derivative instruments that are
not designated as hedges for accounting purposes, including
non-designated derivatives relating to the Dropdown Predecessor, have
been reclassified to a separate line item in the Consolidated Statements
of Income (Loss). The realized gains (losses) relate to the amounts the
Partnership actually paid or received to settle such derivative
instruments and the unrealized gains (losses) relate to the change in
fair value of such derivative instruments as detailed in the table
below:


Three Months Ended Twelve Months Ended
--------------------------------- ----------------------
December September December December December
31, 30, 31, 31, 31,
2009 2009 2008 2009 2008
--------- --------- --------- --------- ---------
Realized
(losses) gains
relating to:
Interest rate
swaps (11,925) (12,743) (5,911) (46,546) (19,663)
Foreign
currency forward
contract (125) (93) (443) (4,196) 1,972
---------------------------------------------------------
(12,050) (12,836) (6,354) (50,742) (17,691)
---------------------------------------------------------
Unrealized gains
(losses)
relating to:
Interest rate
swaps 28,202 (24,942) (145,965) 99,740 (163,291)
Foreign
currency forward
contracts (308) 476 (3,444) 4,562 (7,800)
---------------------------------------------------------
27,894 (24,466) (149,409) 104,302 (171,091)
---------------------------------------------------------
Total realized
and unrealized
gains (losses)
on non-
designated
derivative
instruments 15,844 (37,302) (155,763) 53,560 (188,782)
---------------------------------------------------------

(4) Commencing in 2009 and applied retroactively, net income (loss) includes
the net income (loss) attributable to non-controlling interests.

(5) Results for the Petrojarl Varg FPSO for the periods prior to its
acquisition on September 10, 2009 by the Partnership when it was owned
and operated by Teekay Corporation, are referred to as the Dropdown
Predecessor.



---------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
---------------------------------------------------------------------------
As at As at As at
December September December 31,
31, 2009 30, 2009 2008(1)
(unaudited) (unaudited) (unaudited)
--------- --------- ---------
ASSETS
Cash and cash equivalents 101,747 143,746 132,348
Other current assets 146,777 124,710 114,071
Vessels and equipment 1,917,248 1,952,912 2,028,150
Other assets 58,041 58,955 74,438
Intangible assets 36,885 39,164 46,004
Goodwill 127,113 127,113 127,113
---------------------------------------------------------------------------
Total Assets 2,387,811 2,446,600 2,522,124
---------------------------------------------------------------------------
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities 73,698 74,898 65,529
Other current liabilities 39,876 38,387 29,734
Current portion of long-term debt 108,159 77,322 125,503
Current portion of derivative instruments 31,852 31,203 66,135
Long-term debt 1,627,455 1,694,116 1,711,711
Other long-term liabilities 73,247 114,736 212,319
Equity:
Non-controlling interest 219,692 211,508 201,383
Partners' equity(1) 213,832 204,430 109,810
---------------------------------------------------------------------------
Total Liabilities and Equity 2,387,811 2,446,600 2,522,124
---------------------------------------------------------------------------

(1) In accordance with GAAP, the balance sheet at December 31, 2008 includes
the Dropdown Predecessor for the Petrojarl Varg FPSO, which was acquired
by the Partnership on September 10, 2009, to reflect ownership of the
vessel from the time it was acquired by Teekay Corporation on October
1, 2006.



---------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
---------------------------------------------------------------------------
Twelve Months Ended
December 31,
2009(1) 2008(1)
(unaudited) (unaudited)
--------- ---------
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
---------------------------------------------------------------------------
Net operating cash flow 168,213 205,011
---------------------------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 279,575 259,261
Scheduled repayments of long-term debt (34,948) (73,331)
Prepayments of long-term debt (426,090) (138,085)
Net advances to affiliates - (46,544)
Prepayments of joint venture partner advances (21,532) -
Joint venture partner advances 477 17,485
Net proceeds from equity offering 104,127 210,645
Equity contribution from joint venture partner 4,772 5,200
Contribution of capital from Teekay Corporation
to Dropdown Predecessor relating to Petrojarl Varg 110,386 73,062
Purchase of Petrojarl Varg from Teekay Corporation (100,000) -
Distribution to Teekay Corporation relating to
purchase of SPT Explorer L.L.C. and SPT
Navigator L.L.C. - (16,661)
Excess of purchase price over the contributed basis
of a 25% interest in Teekay Offshore Operating L.P. - (91,562)
Cash distributions paid by the Partnership (60,452) (42,226)
Cash distributions paid by subsidiaries to
non-controlling interest (61,065) (71,976)
Other (5,089) (1,500)
---------------------------------------------------------------------------
Net financing cash flow (209,839) 83,768
---------------------------------------------------------------------------

INVESTING ACTIVITIES
Expenditures for vessels and equipment (11,365) (57,858)
Purchase of 35% of Petrojarl Varg by Teekay
Corporation - (134,183)
Investment in direct financing lease assets (579) (536)
Direct financing lease payments received 22,969 22,352
Purchase of 25% interest in Teekay Offshore
Operating L.P. - (115,066)
---------------------------------------------------------------------------
Net investing cash flow 11,025 (285,291)
---------------------------------------------------------------------------

(Decrease) increase in cash and cash equivalents (30,601) 3,488
Cash and cash equivalents, beginning of the year 132,348 128,860
---------------------------------------------------------------------------
Cash and cash equivalents, end of the year 101,747 132,348
---------------------------------------------------------------------------

(1) In accordance with GAAP, the Consolidated Statements of Cash Flows
includes the cash flows relating to the Dropdown Predecessor for the
Petrojarl Varg FPSO, for the period from October 1, 2006 to September
10, 2009, when the vessel was under the common control of Teekay
Corporation, but prior to its acquisition by the Partnership.


TEEKAY OFFSHORE PARTNERS L.P.

APPENDIX A - SPECIFIC ITEMS AFFECTING NET INCOME

(in thousands of U.S. dollars)

Set forth below is a reconciliation of the Partnership's unaudited adjusted net income (loss) attributable to the partners, a non-GAAP financial measure, to net income as determined in accordance with GAAP, adjusted for some of the significant items of income and expense that affected the Partnership's net income (loss) for the three months ended December 31, 2009 and September 30, 2009, and for the twelve months ended December 31, 2009 and 2008, all of which items are typically excluded by securities analysts in their published estimates of the Partnership's financial results:



Three Months Ended Twelve Months Ended
--------------------- ---------------------
December September December December
31, 2009 30, 2009 31, 2009 31, 2008
(unaudited) (unaudited) (unaudited) (unaudited)
--------- --------- --------- ---------
Net income (loss) - GAAP
basis 51,362 (31,488) 132,599 (159,273)

Adjustments:
Net income (loss)
attributable
to non-controlling
interests 24,659 (12,560) 57,490 10,863
Net income (loss)
attributable
to Dropdown Predecessor - (5,551) 11,378 (151,169)
---------------------------------------------------------------------------
Net income (loss)
attributable
to the partners 26,703 (13,377) 63,731 (18,967)
Add (subtract) specific
items affecting net
income:
Restructuring charges(1) 955 371 5,008 -
Foreign exchange (gains)
losses(2) (1,837) 3,414 5,178 (4,343)
Foreign currency
exchange losses (gains)
resulting from hedging
ineffectiveness(3) 480 (2,630) (5,319) 222
Deferred income tax
(recovery) expense relating
to unrealized foreign
exchange gains and losses(4) (470) 14,586 24,384 (28,223)
Unrealized (gains) losses
on derivative instruments(5) (27,894) 19,778 (91,224) 136,648
Other(6) 3,714 5,516 9,230 -
Non-controlling interests'
share of items above 13,091 (19,236) 26,600 (50,850)
---------------------------------------------------------------------------
Total adjustments (11,961) 21,800 (26,143) 53,454
---------------------------------------------------------------------------
Adjusted net income
attributable to the partners 14,742 8,423 37,588 34,487
---------------------------------------------------------------------------

(1) Restructuring charges were incurred in connection with the re-flagging
of certain of the Partnership's vessels, which are expected to result
in lower future crewing costs.
(2) Foreign exchange (gains) losses primarily relate to the Partnership's
revaluation of all foreign currency-denominated monetary assets and
liabilities based on the prevailing exchange rate at the end of each
reporting period, excluding losses relating to the Dropdown Predecessor
of $0.9 million for the three months ended September 30, 2009, and $1.0
million and $0.1 million, respectively, for the twelve months ended
December 31, 2009 and 2008.
(3) Foreign currency exchange gains (losses) resulting from hedging
ineffectiveness includes the unrealized gains (losses) arising from
hedge ineffectiveness from foreign exchange forward contracts that are
or have been designated as hedges for accounting purposes. This excludes
foreign currency exchange gains (losses) resulting from hedging
ineffectiveness relating to the Dropdown Predecessor of $0.2 million for
the three months ended September 30, 2009, and $0.6 million and ($0.3)
million, respectively, for the twelve months ended December 31, 2009 and
2008.
(4) Portion of deferred income tax (recovery) expense related to unrealized
foreign exchange gains and losses.
(5) Reflects the unrealized gain or loss due to changes in the
mark-to-market value of derivative instruments that are not designated
as hedges for accounting purposes, excluding unrealized gains (losses)
relating to the Dropdown Predecessor of ($4.7) million for the three
months ended September 30, 2009, and $13.1 million and ($34.4) million,
respectively, for the twelve months ended December 31, 2009 and 2008.
(6) Relates primarily to non-recurring adjustments to tax accruals and a
cumulative adjustment to depreciation expense.


TEEKAY OFFSHORE PARTNERS L.P.

APPENDIX B -RECONCILIATION OF NON-GAAP FINANCIAL MEASURE

(in thousands of U.S. dollars)

Description of Non-GAAP Financial Measure - Distributable Cash Flow (DCF)

Distributable cash flow represents net income adjusted for depreciation and amortization expense, non-controlling interest, non-cash items, estimated maintenance capital expenditures, gains and losses on vessel sales, unrealized gains and losses from derivatives, non-cash income taxes, unrealized foreign exchange related items and income (loss) attributable to Dropdown Predecessor. Maintenance capital expenditures represent those capital expenditures required to maintain over the long-term the operating capacity of, or the revenue generated by, the Partnership's capital assets. Distributable cash flow is a quantitative standard used in the publicly-traded partnership investment community to assist in evaluating a partnership's ability to make quarterly cash distributions. Distributable cash flow is not defined by GAAP and should not be considered as an alternative to net income or any other indicator of the Partnership's performance required by GAAP. The table below reconciles distributable cash flow to net income.



-------------------------------------------------------------------------
Three Months Ended
December 31, 2009
(unaudited)
-------------------------------------------------------------------------
Net income 51,362
Add:
Depreciation and amortization 44,984
Foreign exchange and other, net 315

Less:
Unrealized gains on non-designated derivative instruments (27,894)
Income tax recovery (14,482)
Estimated maintenance capital expenditures (22,428)
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Distributable Cash Flow before Non-Controlling Interest 31,857
Non-controlling interests' share of DCF (13,638)
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Distributable Cash Flow 18,219
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TEEKAY OFFSHORE PARTNERS L.P.
APPENDIX C - SUPPLEMENTAL SEGMENT INFORMATION
(in thousands of U.S. dollars)
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Three Months Ended December 31, 2009
------------------------------------
(unaudited)

Shuttle Conventional
Tanker Tanker FSO FPSO
Segment Segment Segment Segment Total
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Net voyage revenues(1) 109,197 26,461 16,121 26,996 178,775
Vessel operating expenses(2) 34,741 5,961 7,614 13,326 61,642
Time-charter hire expense 28,141 - - - 28,141
Depreciation and amortization 28,003 5,876 5,472 5,633 44,984
General and administrative(2) 11,542 1,555 743 2,036 15,876
Restructuring charges 681 274 - - 955
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Income from vessel operations 6,089 12,795 2,292 6,001 27,177
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Three Months Ended September 30, 2009
-------------------------------------
(unaudited)

Shuttle Conventional
Tanker Tanker FSO FPSO
Segment Segment Segment Segment(3) Total
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Net voyage revenues(1) 110,313 24,799 14,509 25,525 175,146
Vessel operating expenses(2) 31,751 6,210 6,876 10,020 54,857
Time-charter hire expense 27,772 - - - 27,772
Depreciation and amortization 23,670 6,208 5,470 5,633 40,981
General and administrative(2) 11,173 1,124 892 631 13,820
Restructuring charges 371 - - - 371
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Income from vessel operations 15,576 11,257 1,271 9,241 37,345
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(1) Net voyage revenues represents voyage revenues less voyage expenses,
which comprise all expenses relating to certain voyages, including
bunker fuel expenses, port fees, canal tolls and brokerage commissions.
Net voyage revenues is a non-GAAP financial measure used by certain
investors to measure the financial performance of shipping companies.
Please see the Partnership's web site at www.teekayoffshore.com for a
reconciliation of this non-GAAP measure as used in this release to the
most directly comparable GAAP financial measure.

(2) Commencing in 2009 and applied retroactively, the gains and losses
related to derivative instruments that are not designated as hedges
for accounting purposes have been reclassified to a separate line item
in the Consolidated Statements of Income (Loss) and are no longer
included in the amounts above.

(3) Income from operations for the Petrojarl Varg FPSO for the periods
prior to its September 10, 2009 acquisition by the Partnership when it
was owned and operated by Teekay Corporation, are required by GAAP to
be included in our results for such prior periods.


FORWARD LOOKING STATEMENTS

This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management's current views with respect to certain future events and performance, including statements regarding: the Partnership's future growth prospects; profitability of our shuttle tankers; the potential for Teekay to offer additional vessels to the Partnership, and the Partnership's acquisitions of any such vessels; the potential for Teekay to offer to the Partnership additional limited partner interests in OPCO; the Partnership's exposure to foreign currency fluctuations; and lower crewing expenses for re-flagged vessels. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: vessel operations and production volumes of the Petrojarl Varg FPSO; failure of Teekay to offer to the Partnership additional vessels or ownership interests in OPCO; required approvals by the Conflicts Committee of Teekay Offshore's general partner to acquire from Teekay vessels or ownership interests in OPCO; the Partnership's ability to raise financing to purchase additional vessels and/or interests in OPCO; changes to the amount or proportion of revenues, expenses, or debt service costs denominated in foreign currencies; revenue generated by our shuttle tankers under contracts of affreightment; and other factors discussed in Teekay Offshore's filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2008. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

Contact Information

  • Teekay Offshore Partners L.P.
    Kent Alekson
    Investor Relations Enquiries
    +1 (604) 609-6442
    or
    Teekay Offshore Partners L.P.
    Alana Duffy
    Media Enquiries
    +1 (604) 844-6605
    www.teekayoffshore.com