Teekay Offshore Partners L.P.
NYSE : TOO

Teekay Offshore Partners L.P.

November 25, 2008 09:10 ET

Teekay Offshore Partners Reports Restated Historical Results

HAMILTON, BERMUDA--(Marketwire - Nov. 25, 2008) -

Highlights

- Teekay Offshore has completed its previously announced financial restatement.

- As anticipated, there is no impact on the Partnership's previously reported distributable cash flow, liquidity or cash distributions in any period.

- All restatement adjustments are non-cash in nature and do not affect the economics of the Partnership.

- The Partnership will host a conference call on Tuesday, November 25, 2008 to discuss its restated results and key elements of its financial position and outlook.

Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE:TOO) today reported that it has restated its previously reported financial results, including results for fiscal years 2003 through 2007 and the first and second quarters of 2008, to adjust its accounting treatment for:

- certain derivative transactions under the Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging (SFAS 133), as more fully discussed below under "Restatement for Accounting under SFAS 133 and Other";

- certain vessels it acquired from Teekay Corporation (Teekay) subsequent to the Partnership's December 2006 initial public offering, whereby the Partnership's financial statements have been retroactively adjusted to include the historical results of the vessels from the date they were originally acquired by Teekay and began operating, as more fully discussed below under "Restatement for Changes to Accounting for Dropdown Transactions"; and

- a subsidiary, Navion Shipping Ltd., which was disposed of on July 1, 2006 prior to the Partnership's initial public offering and which has been reflected as a discontinued operation for all periods prior to its disposition. The reclassification of the operations of this subsidiary as discontinued operations for 2006 and prior periods does not affect total assets, total partners' equity, net income, earnings per unit or cash flows for any period.

"It is important to emphasize that all of the restatement adjustments have no impact on the Partnership's distributable cash flow(1), liquidity or cash distributions in any period," stated Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC, the Partnership's general partner. "Any adjustments to the Partnership's financial statements are due to changes in accounting treatment only and have no impact on the economics of the Partnership or its actual cash flows."

Mr. Evensen continued, "Any adjustments to net income resulting from the change in the Partnership's accounting treatment for hedge transactions are exclusively due to unrealized gains or losses as a result of the change in the mark-to-market value of our hedging instruments at the end of each reporting period, which have no cash impact. Additional adjustments, which came into scope as a result of the Partnership's detailed and thorough restatement audit, also have no cash impact. The change to our accounting treatment for vessel dropdowns simply means that vessels acquired from Teekay are now reflected in the Partnership's comparative historical financial statements for periods prior to the Partnership's actual acquisition of the vessels as if they had been acquired by the Partnership at the time of their original purchase by Teekay. This adjustment has no impact on the Partnership's financial results subsequent to the date the vessels were acquired by the Partnership."

(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 refer to Appendix A to this release for a reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure.

A summary of financial information reflecting the restatement adjustments for the three and six months ended June 30, 2008 and 2007 and the three months ended March 31, 2008 is presented below. Appendix B to this release provides a summary of the impact of the restatements on reported net income for the fiscal years ended December 31, 2003 through 2007. Please see "Information on SEC Filings" below for information about the Partnership's upcoming filings with the U.S. Securities and Exchange Commission (SEC) relating to the restatements.

Summary of Restated Second Quarter 2008 Results

Since the restatement adjustments are all non-cash in nature, they have not impacted the Partnership's distributable cash flow(1) or cash distributions. During the three months ended June 30, 2008, the Partnership generated $10.5 million of distributable cash flow, an increase from $6.8 million for the quarter ended March 31, 2008, primarily as a result of higher shuttle tanker utilization, fewer drydockings performed during the second quarter and increased cash flow as a result of the acquisition of an additional 25 percent interest in Teekay Offshore Operating L.P. (OPCO) and OPCO's acquisition of two Aframax lightering vessels on June 18, 2008. On August 1, 2008, the Partnership declared a cash distribution of $0.40 per unit for the quarter ended June 30, 2008. The cash distribution was paid on August 14, 2008 to all unitholders of record on August 7, 2008.

On November 3, 2008, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended September 30, 2008, an increase of $0.05 per unit, or 12.5 percent, from the previous quarter. This distribution increase reflects the acquisitions completed on June 18, 2008. This cash distribution was paid on November 14, 2008 to all unitholders of record on November 7, 2008.

The effect of the accounting adjustments noted above on previously reported net income for the three and six months ended June 30, 2008 and 2007 and for the three months ended March 31, 2008 is summarized in the table below. The results of vessels acquired from Teekay relating to the periods prior to their acquisition by the Partnership are referred to herein as the Dropdown Predecessor.



--------------------------------------------------------------------------
Net Income (Loss)
--------------------------------------------------------------------------
Three Months Ended Six Months Ended
(in thousands
of U.S. June 30, March 31, June 30, June 30, June 30,
dollars) 2008 2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
-------------------------------------------------- ----------------------

As Previously
Reported $ 19,234 $ 480 $ 3,714 $ 19,714 $ 10,546
Adjustments:
Derivative
Instruments
and Other (2) 5,143 (13,714) 7,531 (8,571) 7,164
Dropdown
Predecessor (3) 848 485 509 1,333 1,278
-------------------------------------------------- ----------------------
As Restated $ 25,225 $ (12,749) $ 11,754 $ 12,476 $ 18,988
-------------------------------------------------- ----------------------


For the three months ended June 30, 2008, the Partnership now reports net income of $25.2 million, compared to net income of $11.8 million for the same period last year. In the second quarter of 2008, net income before non-controlling interest includes a non-cash net gain of $48.9 million relating primarily to unrealized gains on derivative instruments not qualifying for hedge accounting and deferred income tax recoveries, net of foreign currency translation losses. In the second quarter of 2007, net income before non-controlling interest includes a non-cash net gain totaling $23.0 million relating primarily to unrealized gains on derivative instruments not qualifying for hedge accounting, net of foreign currency translation losses and deferred income tax expenses. Net voyage revenues(4) for the three months ended June 30, 2008 increased to $164.7 million from $156.4 million in the same period last year.

(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 refer to Appendix A to this release for a reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure.

(2) Please refer to "Restatement for Accounting under SFAS 133 and Other" included in this release.

(3) Please refer to "Restatement for Changes to Accounting for Dropdown Transactions" included in this release.

(4) 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.

Net income for the six months ended June 30, 2008 is now $12.5 million, compared to net income of $19.0 million for the same period last year. For the six months ended June 30, 2008, net income before non-controlling interest includes a non-cash net gain of $0.6 million relating primarily to deferred income tax recoveries, net of unrealized losses on derivative instruments not qualifying for hedge accounting and foreign currency translation losses. In the six months ended June 30, 2007, net income before non-controlling interest includes a non-cash net gain totaling $21.1 million relating primarily to unrealized gains on derivative instruments not qualifying for hedge accounting and deferred income tax recoveries, net of foreign currency translation losses. Net voyage revenues(1) for the six months ended June 30, 2008 increased to $318.2 million from $314.1 million for the same period last year.

Further Information Regarding Restatement Items

Restatement for Accounting under SFAS 133 and Other

On August 7, 2008, the Partnership announced that it would restate its historical financial statements to adjust its accounting treatment for certain derivative transactions under SFAS 133. This restatement adjusts for certain interest rate swap agreements and foreign exchange forward contracts that did not qualify for hedge accounting treatment under SFAS 133 as aspects of the Partnership's hedge documentation did not meet the strict technical requirements of the standard.

Accordingly, the Partnership has now recognized the changes in the fair value of these derivatives through the statement of income (loss) rather than directly to partners' equity on the balance sheet. This restatement, which is non-cash in nature, has resulted in adjustments to Teekay Offshore's previously reported net income, but does not affect the economics of any hedging transactions or have any impact on the Partnership's previously reported distributable cash flow, liquidity or cash distributions. The Partnership believes that the applicable derivative transactions were consistent with its risk management policies and that its overall hedging strategy continues to be sound.

The Partnership has discontinued the use of hedge accounting for its interest rate swap agreements. As a result, the unrealized gains and losses due to the change in the fair values of these derivative instruments will be reflected as increases or decreases to the Partnership's interest expense going forward. This change will not impact the economics of hedging transactions, nor the Partnership's distributable cash flow, liquidity or cash distributions in any future period.

The Partnership has also restated certain other items primarily relating to amounts attributable to non-controlling interests.

Restatement for Changes to Accounting for Dropdown Transactions

Subsequent to the release of its preliminary second quarter financial results, the Partnership reviewed and revised its accounting treatment for certain vessels it acquired through dropdown transactions from Teekay. The Partnership has historically accounted for the acquisition of vessel interests from Teekay as asset acquisitions (rather than business acquisitions) and recorded the financial results of these vessels commencing from the date the vessels were acquired by Teekay Offshore.

Although substantially all of the value relating to these transactions is attributable to the vessels and associated time-charters, the Partnership has now determined that these related-party vessel acquisitions should have been accounted for as business acquisitions (rather than asset acquisitions) under the provision of the Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141). Under SFAS 141, business acquisitions for entities under common control which 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.

(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.

Accordingly, the Partnership has recast its historical financial results, including results for the quarters ended June 30, 2008 and March 31, 2008 and the fiscal years ended December 31, 2003 through 2007. The table below lists the four vessels acquired by Teekay Offshore from Teekay subsequent to the Partnership's December 2006 initial public offering that were formerly operated by Teekay. A fifth vessel, the Navion Gothenburg, has not been included as part of the Dropdown Predecessor as it began operations concurrently with the Partnership's acquisition of a 50 percent interest in this vessel from Teekay on July 24, 2007.



----------------------------------------------------------------
Vessel Dropdown Predecessor Period
----------------------------------------------------------------
Dampier Spirit March 15, 1998 to September 30, 2007
Navion Bergen April 16, 2007 to June 30, 2007
SPT Explorer January 7, 2008 to June 17, 2008
SPT Navigator March 28, 2008 to June 17, 2008
----------------------------------------------------------------


The retroactive adjustments to reflect the results of the Dropdown Predecessor have resulted in changes to Teekay Offshore's previously reported net income and total partners' equity. As they are non-cash in nature, these adjustments have not resulted in changes to the Partnership's previously reported distributable cash flow, liquidity or cash distributions. The effects of these adjustments relating to the Dropdown Predecessor on the Partnership's previously reported net income for the three and six months ended June 30, 2008 are increases of $0.8 million and $1.3 million, respectively. The Dropdown Predecessor adjustments have no effect on the previously reported partners' equity as at June 30, 2008.

Information on SEC Filings

More detailed financial information relating to the restatements will be included in the amended Form 20-F/A for the fiscal year ended December 31, 2007 (certain financial information will be included for annual fiscal periods from 2003 through 2007), in the amended Form 6-K/A for the quarter ended March 31, 2008 and in the Form 6-K for the quarter ended June 30, 2008, which the Partnership expects to file with or furnish to, as applicable, the SEC and make available on the its web site at www.teekayoffshore.com no later than December 5, 2008. For a summary of the impact of the restatements on reported net income for the fiscal years ended December 31, 2003 through 2007, please refer to Appendix B of this release.

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 and storage services to the offshore oil industry. Teekay Offshore Partners owns a 51 percent interest in and controls Teekay Offshore Operating L.P., a Marshall Islands limited partnership with a fleet of 34 shuttle tankers (including nine chartered-in vessels), four FSO units, nine double-hull conventional oil tankers and two lightering vessels. In addition, Teekay Offshore Partners L.P. has direct ownership interests in two shuttle tankers and one FSO unit. Teekay Offshore Partners also has rights to participate in certain FPSO opportunities.

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

Conference Call

Teekay Offshore plans to host a conference call at 3:00 p.m. ET on Tuesday, November 25, 2008, to discuss the Partnership's restated results. In addition, the Partnership will take the opportunity to discuss key elements of its financial position and outlook. All unitholders and interested parties are invited to listen to the live conference call at www.teekayoffshore.com or by dialing (866) 322-1159, or (416) 640-3404 if outside North America, and quoting confirmation code 2910084. The Partnership plans to make available a recording of the conference call until midnight December 2, 2008 by dialing (888) 203-1112 or (647) 436-0148, and entering access code 2910084, or via the Partnership's web site until December 24, 2008.

An investor presentation to accompany this conference call will be made available on the Partnership's web site at www.teekayoffshore.com prior to the start of the call.



--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED STATEMENT OF INCOME
(in thousands of U.S. dollars, except unit data)
--------------------------------------------------------------------------

Three Months Ended June 30, 2008
--------------------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Restated
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------

VOYAGE REVENUES 222,282 - 2,202 224,484
--------------------------------------------------------------------------

OPERATING EXPENSES
Voyage expenses 59,811 - - 59,811
Vessel operating
expenses (3) 45,970 (463) - 45,507
Time-charter hire expense 32,262 - - 32,262
Depreciation and
amortization 35,747 - 700 36,447
General and
administrative (3) 15,869 (185) - 15,684
--------------------------------------------------------------------------
189,659 (648) 700 189,711
--------------------------------------------------------------------------
Income from vessel
operations 32,623 648 1,502 34,773
--------------------------------------------------------------------------
OTHER ITEMS
Interest (expense)
gain (4)(5) 17,860 5,947 (654) 23,153
Interest income 1,051 - - 1,051
Income tax recovery 5,942 1,600 - 7,542
Foreign exchange loss (3) (533) (577) - (1,110)
Other income - net 2,314 - - 2,314
--------------------------------------------------------------------------
Net income before
non-controlling interest 59,257 7,618 848 67,723
Non-controlling interest (40,023) (2,475) - (42,498)
--------------------------------------------------------------------------
Net income 19,234 5,143 848 25,225
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Limited partners'
units outstanding:
Weighted-average number
of common units
outstanding
- Basic and diluted 11,151,648 11,151,648
Weighted-average number
of subordinated units
outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of total units
outstanding
- Basic and diluted 20,951,648 20,951,648
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) Relates to the results of the Dropdown Predecessor for two vessels, the
SPT Explorer and the SPT Navigator, from April 1, 2008 to June 17,
2008, when these vessels were operating and under the common control of
Teekay prior to their acquisition by Teekay Offshore. Please refer to
"Restatement for Changes to Accounting for Dropdown Transactions"
included in this release.
(3) Adjustments to vessel operating expenses, general and administrative
and foreign exchange loss reflect the unrealized gains and losses from
the change in fair value of certain foreign exchange forward contracts
that do not qualify as effective hedges for accounting purposes.
(4) Interest (expense) gain has been restated to reflect the unrealized
gains and losses on interest rate swap agreements that do not qualify
as effective hedges for accounting purposes.
(5) Restated interest (expense) gain includes $41.9 million of unrealized
gains for the three months ended June 30, 2008 relating to the change
in fair value of interest rate swap agreements.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED STATEMENT OF INCOME (LOSS)
(in thousands of U.S. dollars, except unit data)
--------------------------------------------------------------------------

Three Months Ended March 31, 2008
---------------------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Restated
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------


VOYAGE REVENUES 203,786 - 1,146 204,932
--------------------------------------------------------------------------

OPERATING EXPENSES
Voyage expenses 51,377 - - 51,377
Vessel operating
expenses (3) 41,486 445 - 41,931
Time-charter hire expense 33,646 - - 33,646
Depreciation and
amortization 32,546 - 366 32,912
General and
administrative (3) 15,594 (276) - 15,318
--------------------------------------------------------------------------
174,649 169 366 175,184
--------------------------------------------------------------------------
Income (loss) from vessel
operations 29,137 (169) 780 29,748
--------------------------------------------------------------------------
OTHER ITEMS
Interest expense (4)(5) (23,967) (42,927) (295) (67,189)
Interest income 1,249 - - 1,249
Income tax expense (197) - - (197)
Foreign exchange
(loss) gain (3) (3,338) 875 - (2,463)
Other income - net 2,626 - - 2,626
--------------------------------------------------------------------------
Net income (loss) before
non-controlling interest 5,510 (42,221) 485 (36,226)
Non-controlling interest (5,030) 28,507 - 23,477
--------------------------------------------------------------------------
Net income (loss) 480 (13,714) 485 (12,749)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Limited partners'
units outstanding:
Weighted-average number
of common units
outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of subordinated
units outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of total units
outstanding
- Basic and diluted 19,600,000 19,600,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) Relates to the results of the Dropdown Predecessor (as at June 30,
2008) for two vessels, the SPT Explorer and the SPT Navigator, from
January 7, 2008 and March 28, 2008, respectively, to March 31, 2008,
when these vessels were operating and under the common control of
Teekay prior to their acquisition by Teekay Offshore. Please refer
to "Restatement for Changes to Accounting for Dropdown Transactions"
included in this release.
(3) Adjustments to vessel operating expenses, general and administrative
and foreign exchange (loss) gain reflect the unrealized gains and
losses from the change in fair value of certain foreign exchange
forward contracts that do not qualify as effective hedges for
accounting purposes.
(4) Interest expense has been restated to reflect the unrealized gains and
losses on interest rate swap agreements that do not qualify as
effective hedges for accounting purposes.
(5) Restated interest expense includes $45.4 million of unrealized losses
for the three months ended March 31, 2008 relating to the change in
fair value of interest rate swap agreements.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED STATEMENT OF INCOME
(in thousands of U.S. dollars, except unit data)
--------------------------------------------------------------------------

Three Months Ended June 30, 2007
--------------------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Restated
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------

VOYAGE REVENUES 189,189 - 4,025 193,214
--------------------------------------------------------------------------

OPERATING EXPENSES
Voyage expenses 36,805 - 54 36,859
Vessel operating
expenses (3) 33,559 11 2,566 36,136
Time-charter hire expense 36,473 - - 36,473
Depreciation and
amortization 29,033 - 1,095 30,128
General and administrative 16,248 - 342 16,590
--------------------------------------------------------------------------
152,118 11 4,057 156,186
--------------------------------------------------------------------------
Income (loss) from vessel
operations 37,071 (11) (32) 37,028
--------------------------------------------------------------------------
OTHER ITEMS
Interest (expense)
gain (4)(5) (17,553) 29,485 (1,338) 10,594
Interest income 1,347 - 97 1,444
Income tax (expense) recovery (532) - 559 27
Foreign exchange
(loss) gain (3) (5,797) (4) 1,223 (4,578)
Other income - net 2,582 - - 2,582
--------------------------------------------------------------------------
Net income before
non-controlling interest 17,118 29,470 509 47,097
Non-controlling interest (13,404) (21,939) - (35,343)
--------------------------------------------------------------------------
Net income 3,714 7,531 509 11,754
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Limited partners'
units outstanding:
Weighted-average number
of common units
outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of subordinated
units outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of total units
outstanding
- Basic and diluted 19,600,000 19,600,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) Relates to the results of the Dropdown Predecessor for two vessels, the
Dampier Spirit and the Navion Bergen, from April 1, 2007 and April 16,
2007, respectively, to June 30, 2007, when these vessels were operating
and under the common control of Teekay prior to their acquisition by
Teekay Offshore. Please refer to "Restatement for Changes to Accounting
for Dropdown Transactions" included in this release.
(3) Adjustments to vessel operating expenses and foreign exchange (loss)
gain reflect the unrealized gains and losses from the change in fair
value of certain foreign exchange forward contracts that do not qualify
as effective hedges for accounting purposes.
(4) Interest (expense) gain has been restated to reflect the unrealized
gains and losses on interest rate swap agreements that do not qualify
as effective hedges for accounting purposes.
(5) Restated interest (expense) gain includes $30.1 million of unrealized
gains for the three months ended June 30, 2007 relating to the change
in fair value of interest rate swap agreements.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED STATEMENT OF INCOME
(in thousands of U.S. dollars, except unit data)
--------------------------------------------------------------------------

Six Months Ended June 30, 2008
------------------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Restated
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------

VOYAGE REVENUES 426,068 - 3,348 429,416
--------------------------------------------------------------------------

OPERATING EXPENSES
Voyage expenses 111,188 - - 111,188
Vessel operating
expenses (3) 87,456 (18) - 87,438
Time-charter hire expense 65,908 - - 65,908
Depreciation and
amortization 68,293 - 1,066 69,359
General and
administrative (3) 31,463 (461) - 31,002
--------------------------------------------------------------------------
364,308 (479) 1,066 364,895
--------------------------------------------------------------------------
Income from vessel
operations 61,760 479 2,282 64,521
--------------------------------------------------------------------------
OTHER ITEMS
Interest expense (4)(5) (6,107) (36,980) (949) (44,036)
Interest income 2,300 - - 2,300
Income tax recovery 5,745 1,600 - 7,345
Foreign exchange
(loss) gain (3) (3,871) 298 - (3,573)
Other income - net 4,940 - - 4,940
--------------------------------------------------------------------------
Net income (loss) before
non-controlling
interest 64,767 (34,603) 1,333 31,497
Non-controlling interest (45,053) 26,032 - (19,021)
--------------------------------------------------------------------------
Net income (loss) 19,714 (8,571) 1,333 12,476
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Limited partners' units
outstanding:
Weighted-average number
of common units
outstanding
- Basic and diluted 10,475,824 10,475,824
Weighted-average number
of subordinated
units outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of total units
outstanding
- Basic and diluted 20,275,824 20,275,824
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) Relates to the results of the Dropdown Predecessor for two vessels, the
SPT Explorer and the SPT Navigator, from January 7, 2008 and March 28,
2008, respectively, to June 17, 2008, when these vessels were operating
and under the common control of Teekay prior to their acquisition by
Teekay Offshore. Please refer to "Restatement for Changes to Accounting
for Dropdown Transactions" included in this release.
(3) Adjustments to vessel operating expenses, general and administrative
and foreign exchange (loss) gain reflect the unrealized gains and
losses from the change in fair value of certain foreign exchange
forward contracts that do not qualify as effective hedges for
accounting purposes.
(4) Interest expense has been restated to reflect the unrealized gains and
losses on interest rate swap agreements that do not qualify as
effective hedges for accounting purposes.
(5) Restated interest expense includes $3.5 million of unrealized losses
for the six months ended June 30, 2008 relating to the change in fair
value of interest rate swap agreements.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED STATEMENT OF INCOME
(in thousands of U.S. dollars, except unit data)
--------------------------------------------------------------------------

Six Months Ended June 30, 2007
------------------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Restated
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------


VOYAGE REVENUES 379,941 - 5,573 385,514
--------------------------------------------------------------------------

OPERATING EXPENSES
Voyage expenses 71,340 - 54 71,394
Vessel operating
expenses (3) 63,778 22 3,694 67,494
Time-charter hire expense 74,588 - - 74,588
Depreciation and
amortization 57,624 - 1,328 58,952
General and administrative 31,422 - 637 32,059
--------------------------------------------------------------------------
298,752 22 5,713 304,487
--------------------------------------------------------------------------
Income (loss) from vessel
operations 81,189 (22) (140) 81,027
--------------------------------------------------------------------------
OTHER ITEMS
Interest (expense)
gain (4)(5) (36,062) 27,985 (1,344) (9,421)
Interest income 2,484 - 97 2,581
Income tax recovery 3,374 - 1,254 4,628
Foreign exchange
(loss) gain (3) (9,957) (4) 1,411 (8,550)
Other income - net 5,301 - - 5,301
--------------------------------------------------------------------------
Net income before
non-controlling interest 46,329 27,959 1,278 75,566
Non-controlling interest (35,783) (20,795) - (56,578)
--------------------------------------------------------------------------
Net income 10,546 7,164 1,278 18,988
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Limited partners'
units outstanding:
Weighted-average number
of common units
outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of subordinated
units outstanding
- Basic and diluted 9,800,000 9,800,000
Weighted-average number
of total units
outstanding
- Basic and diluted 19,600,000 19,600,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) Relates to the results of the Dropdown Predecessor for two vessels, the
Dampier Spirit and the Navion Bergen, from January 1, 2007 and April
16, 2007, respectively, to June 30, 2007, when these vessels were
operating and under the common control of Teekay prior to their
acquisition by Teekay Offshore. Please refer to "Restatement for
Changes to Accounting for Dropdown Transactions" included in this
release.
(3) Adjustments to vessel operating expenses and foreign exchange (loss)
gain reflect the unrealized gains and losses from the change in fair
value of certain foreign exchange forward contracts that do not qualify
as effective hedges for accounting purposes.
(4) Interest (expense) gain has been restated to reflect the unrealized
gains and losses on interest rate swap agreements that do not qualify
as effective hedges for accounting purposes.
(5) Restated interest (expense) gain includes $28.6 million of unrealized
gains for the six months ended June 30, 2007 relating to the change in
fair value of interest rate swap agreements.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)
--------------------------------------------------------------------------

As at June 30, 2008
-------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Reported
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
ASSETS
Cash and cash equivalents 113,021 - - 113,021
Other current assets 112,456 - - 112,456
Vessels and equipment 1,751,281 - - 1,751,281
Other assets 80,379 - - 80,379
Intangible assets 50,323 - - 50,323
Goodwill 127,113 - - 127,113
--------------------------------------------------------------------------
Total Assets 2,234,573 - - 2,234,573
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES AND
PARTNERS' EQUITY
Accounts payable and
accrued liabilities 56,596 - - 56,596
Advances from affiliates 9,472 - - 9,472
Current portion of
long-term debt 96,988 - - 96,988
Current portion of
derivative instruments 17,377 - - 17,377
Long-term debt 1,521,519 - - 1,521,519
Other long-term liabilities 111,168 - - 111,168
Non-controlling interest 244,219 2,365 - 246,584
Partners' equity 177,234 (2,365) - 174,869
--------------------------------------------------------------------------
Total Liabilities and
Partners' Equity 2,234,573 - - 2,234,573
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) There is no balance sheet impact at June 30, 2008 due to the results of
the Dropdown Predecessor for the SPT Explorer and the SPT Navigator, as
these vessels were acquired by the Partnership on June 18, 2008. Please
refer to "Restatement for Changes to Accounting for Dropdown
Transactions" included in this release.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)
--------------------------------------------------------------------------

As at December 31, 2007
-----------------------

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Restated
(unaudited) (unaudited) (unaudited) (unaudited)
---------- ---------- ---------- ----------
ASSETS
Cash and cash equivalents 121,224 - - 121,224
Other current assets 107,172 - - 107,172
Vessels and equipment 1,662,865 - - 1,662,865
Other assets 92,622 - - 92,622
Intangible assets 55,355 - - 55,355
Goodwill 127,113 - - 127,113
--------------------------------------------------------------------------
Total Assets 2,166,351 - - 2,166,351
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES AND
PARTNERS' EQUITY
Accounts payable and
accrued liabilities 50,540 - - 50,540
Current portion of
long-term debt 64,060 - - 64,060
Current portion of
derivative instruments 5,277 - - 5,277
Long-term debt 1,453,407 - - 1,453,407
Other long-term liabilities 120,453 2,600 - 123,053
Non-controlling interest 391,645 968 - 392,613
Partners' equity 80,969 (3,568) - 77,401
--------------------------------------------------------------------------
Total Liabilities and
Partners' Equity 2,166,351 - - 2,166,351
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) There is no balance sheet impact at December 31, 2007 due to the
results of the Dropdown Predecessor for the Dampier Spirit and the
Navion Bergen, as these vessels were acquired by the Partnership on
July 1, 2007 and October 1, 2007, respectively. Please refer to
"Restatement for Changes to Accounting for Dropdown Transactions"
included in this release.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of U.S. dollars)
--------------------------------------------------------------------------

Six Months Ended June 30, 2008
------------------------------

Adjustments
-----------

Derivative
Prior to Instru- Dropdown
Retroactive ments and Predec- As
Adjustment Other (1) essor (2) Reported
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ---------- ---------- ----------
Cash and cash equivalents
provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------
Net operating cash flow 52,946 - 2,493 55,439
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Net proceeds from
long-term debt 67,000 - 44,338 111,338
Scheduled repayments of
long-term debt (14,298) - - (14,298)
Prepayments of
long-term debt (41,000) - - (41,000)
Net advances to affiliates - - (46,544) (46,544)
Proceeds from issuance
of common units 209,184 - - 209,184
Expenses from issuance
of common units (5,431) - - (5,431)
Distribution to Teekay
Corporation relating to
the purchase of
SPT Explorer L.L.C.
and SPT Navigator L.L.C. (16,661) - - (16,661)
Excess of purchase price
over the contributed basis
of a 25% interest in Teekay
Offshore Operating L.P. (93,782) - - (93,782)
Cash distribution paid (16,000) - - (16,000)
Other (1,032) (287) (1,319)
-------------------------------------------------------------------------
Net financing cash flow 87,980 - (2,493) 85,487
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Expenditures for vessels
and equipment (49,055) - - (49,055)
Investment in direct
financing lease assets (29) - - (29)
Direct financing lease
payments received 11,701 - - 11,701
Purchase of a 25% interest
in Teekay Offshore
Operating L.P. (111,746) - - (111,746)
-------------------------------------------------------------------------
Net investing cash flow (149,129) - - (149,129)
-------------------------------------------------------------------------

Decrease in cash and
cash equivalents (8,203) - - (8,203)
Cash and cash equivalents,
beginning of the period 121,224 - - 121,224
-------------------------------------------------------------------------
Cash and cash equivalents,
end of the period 113,021 - - 113,021
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Please refer to "Restatement for Accounting under SFAS 133 and Other"
included in this release.
(2) Relates to classification adjustments for the Dropdown Predecessor for
two vessels, the SPT Explorer and the SPT Navigator, from January 7,
2008 and March 28, 2008, respectively, to June 17, 2008, when these
vessels were operating and under the common control of Teekay prior to
their acquisition by Teekay Offshore. Please refer to "Restatement for
Changes to Accounting for Dropdown Transactions" included in this
release.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
APPENDIX A - RESTATED 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, income taxes and foreign exchange related items. Unrealized gains and losses on derivative instruments that do not qualify for hedge accounting and cash flow attributable to the Dropdown Predecessor are non-cash items to the Partnership and thus, have no impact on the Partnership's distributable cash flow. 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 required by United States generally accepted accounting principles and should not be considered as an alternative to net income or any other indicator of the Partnership's performance required by United States generally accepted accounting principles. The table below reconciles distributable cash flow to net income.



--------------------------------------------------------------------------
Three Months Ended June 30, 2008

Adjustments
-----------

Derivative
As Prev- Instru- Dropdown
iously ments and Predec- As
Reported Other (1) essor (2) Reported
(unaudited) (unaudited) (unaudited) (unaudited)
--------------------------------------------------------------------------

Net Income 19,234 5,143 848 25,225
Add:
Depreciation and
amortization 35,747 - 700 36,447
Non-controlling interest 40,023 2,475 - 42,498
Foreign exchange
and other, net 680 133 - 813
Less:
Unrealized gain on
interest rate swaps (35,976) (5,947) - (41,923)
Unrealized gain on
forward contracts - (204) - (204)
Income tax recovery (5,942) (1,600) - (7,542)
Cash flow attributable
to the Dropdown
Predecessor - - (1,548) (1,548)
Estimated maintenance
capital expenditures (19,951) - - (19,951)
--------------------------------------------------------------------------
Distributable Cash Flow
before Non-Controlling
Interest 33,815 - - 33,815
Non-controlling interests'
share of DCF (23,319) - - (23,319)
--------------------------------------------------------------------------
Distributable Cash Flow 10,496 - - 10,496
--------------------------------------------------------------------------

(1) Results are net of non-controlling interest. Please refer to
"Restatement for Accounting under SFAS 133 and Other" included in this
release.
(2) Relates to the results of the Dropdown Predecessor for activities
related to the SPT Explorer and the SPT Navigator from April 1, 2008 to
June 17, 2008, when these vessels were operating and under the common
control of Teekay prior to their acquisition by Teekay Offshore.
Please refer to "Restatement for Changes to Accounting for Dropdown
Transactions" included in this release.


--------------------------------------------------------------------------
TEEKAY OFFSHORE PARTNERS L.P.
APPENDIX B - SUMMARY OF RESTATED AND RETROACTIVELY
ADJUSTED FINANCIAL RESULTS

(in thousands of U.S. dollars)
--------------------------------------------------------------------------


The table below summarizes the impact on the Partnership's previously reported net income for fiscal years ended December 31, 2003 through 2007, as a result of the restatements described in this release under "Restatement for Accounting under SFAS 133 and Other" and "Restatement for Changes to Accounting for Dropdown Transactions". Retroactive adjustments in the table below to reflect the results of the Dropdown Predecessor are based on acquisitions completed by the Partnership as of December 31, 2007. The restatement for discontinued operations did not impact net income (loss) in any period.



--------------------------------------------------------------------------
Net Income (Loss)
--------------------------------------------------------------------------
(in thousands Year Ended December 31,
of U.S. 2007 2006 2005 2004 2003
dollars) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
--------------------------------------------------------------------------
As Previously
Reported $ 19,672 $ (32,715) $ 84,747 $ 213,772 $ 63,513
Adjustments:
Derivative
Instruments
and Other (1) (17,014) 3,306 756 (648) (1,178)
Dropdown
Predecessor (2) 1,300 3,211 2,910 4,076 6,768
--------------------------------------------------------------------------
As Restated $ 3,958 $ (26,198) $ 88,413 $ 217,200 $ 69,103
--------------------------------------------------------------------------

(1) Relates to unrealized gains (losses) as a result of the change in fair
value of certain derivative instruments. Results are net of non-
controlling interest. Please refer to "Restatement for Accounting under
SFAS 133 and Other" included in this release.
(2) Relates to the results of the Dropdown Predecessor for two vessels, the
Dampier Spirit from January 1, 2003 to September 30, 2007 and the
Navion Bergen from April 16, 2007 to June 30, 2007, when the vessels
were operating and under the common control of Teekay but prior to
their acquisition by Teekay Offshore. Please refer to "Restatement for
Changes to Accounting for Dropdown Transactions" included in this
release.


Contact Information

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