Teekay Offshore Partners L.P.
NYSE : TOO

Teekay Offshore Partners L.P.

November 13, 2009 08:04 ET

Teekay Offshore Partners Reports Third Quarter Results

HAMILTON, BERMUDA--(Marketwire - Nov. 13, 2009) - Teekay Offshore Partners L.P. (NYSE:TOO) -

Highlights

- Generated distributable cash flow of $12.9 million in the third quarter of 2009, up from $9.0 million in the previous quarter.

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

- Acquired the Petrojarl Varg FPSO unit from Teekay Corporation on September 10, 2009.

- Completed $260 million revolving credit facility secured by the Petrojarl Varg FPSO.

Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE:TOO), today reported the Partnership's results for the quarter ended September 30, 2009. During the third quarter, the Partnership generated distributable cash flow(1) of $12.9 million, an increase from $9.0 million in the quarter ended June 30, 2009, primarily as a result of the acquisition of the Petrojarl Varg FPSO, and decreases in operating and time-charter hire expenses compared to the previous quarter.

On October 20, 2009, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended September 30, 2009. The cash distribution will be paid on November 13, 2009, to all unitholders of record on October 27, 2009.

"Distributable cashflow increased by over 40 percent from the low level of the previous quarter as we made good progress this quarter on both increasing the profitability of our existing operations and realizing our ambition to expand into the ownership and operation of FPSOs," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. "Operating costs in our shuttle tanker segment declined by approximately 6 percent from the previous quarter and we hope to achieve more savings in future quarters. Because we completed our follow-on equity offering in July and did not complete an acquisition until relatively late in the quarter, the full benefits of the Petrojarl Varg FPSO acquisition won't be seen until the fourth quarter. In addition, the Partnership's financial position was strengthened as a result of the recently completed $260 million external bank facility secured by the Petrojarl Varg FPSO, which increased the Partnership's liquidity by approximately $100 million."

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of November 1, 2009, 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 27(i) 9 36
Conventional Tanker Segment 11 - 11
FSO Segment 5 - 5
FPSO Segment 1 - 1
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Total 44 9 53
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(i) Includes five shuttle tankers in which OPCO's ownership
interest is 50% and two shuttle tankers directly owned by
Teekay Offshore, of which one is 50% owned.


OPCO's fleet includes 34 shuttle tankers (including nine 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 Offloading units (FSO) and Floating Production Storage and Offloading (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 vessels that Teekay may offer the Partnership from time to time in the future.

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 $460 million. Teekay Offshore anticipates that these vessels will be offered to the Partnership pursuant to the Omnibus Agreement and will be used to service either new long-term, fixed-rate contracts Teekay may be awarded prior to the vessel deliveries or OPCO's contracts-of-affreightment in the North Sea.

FSO Unit

Teekay has recently entered into a fixed-rate FSO contract with a major oil company, which will involve converting one of its existing shuttle tankers to a FSO unit. The conversion is progressing as anticipated and is expected to be completed in December 2009, at which time it will commence operating in the Qatar offshore region under a 7.5 year fixed-rate charter (plus extension options). Under the Omnibus Agreement, Teekay is obligated to offer its interest in this FSO project to the Partnership within one year after the commencement of the charter.

FPSO Units

Teekay Petrojarl, a wholly-owned subsidiary of Teekay, is a leading operator of FPSO units with four units operating in the North Sea and one unit operating in Brazil. In September 2009, Teekay Petrojarl sold one of the FPSO units, the Petrojarl Varg FPSO, to Teekay Offshore for $320 million.

Teekay Offshore has the right to 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 $8.0 million for the quarter ended September 30, 2009, compared to $7.0 million for the previous quarter. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $19.0 million and increasing net income by $26.5 million for the quarters ended September 30 and June 30, 2009, respectively, as detailed in Appendix A. Including these items, the Partnership reported a net loss attributable to the partners of $11.0 million (as detailed in Appendix A to this release) on a GAAP basis, for the third quarter of 2009, compared to net income of $33.5 million(2), for the previous quarter. Net voyage revenues(3) for the third quarter of 2009 increased to $176.7 million from $173.7 million for the previous quarter.

For accounting purposes, the Partnership is required to recognize the changes in the fair value of certain derivative instruments as unrealized gains or losses, through the statements of income. 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. The Partnership has recast its historical financial results to include the results of the Petrojarl Varg FPSO relating to the periods prior to its acquisition by the Partnership from Teekay, which pre-acquisition results are referred to in this release as the Dropdown Predecessor.

Teekay Offshore's annual results on Form 20-F for the year ended December 31, 2008, as filed with the United States Securities and Exchange Commission, can be found on the Partnership's website www.teekayoffshore.com or alternatively can be requested free of charge by contacting Teekay Offshore Investor Relations.

(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's Fleet" section of this release above and Appendix C for further details).



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Three Months Ended
September 30, 2009
(unaudited)

Convent-
Shuttle ional
Tanker Tanker FSO FPSO
(in thousands of U.S. dollars) Segment Segment Segment Segment(3) Total
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Net voyage revenues 109,413 24,799 14,509 27,954 176,675

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) 36,192 17,465 6,741 3,398 63,796
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Three Months Ended
June 30, 2009
(unaudited)

Convent-
Shuttle ional
Tanker Tanker FSO FPSO
(in thousands of U.S. dollars) Segment Segment Segment Segment(3) Total
---------------------------------------------------------------------------

Net voyage revenues 109,860 25,043 15,888 22,879 173,670

Vessel operating expenses(1) 34,737 5,942 6,257 9,887 56,823
Time-charter hire expense 29,144 - - - 29,144
Depreciation and amortization 23,185 5,984 5,419 5,633 40,221

Cash flow from vessel
operations(2) 31,833 17,818 8,611 - 58,262

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(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 flows 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 Corporation, are
referred to as the Dropdown Predecessor. The amounts included in this
release related to the Dropdown Predecessor are preliminary, and will
be finalized for inclusion in the Partnership's Form 6-K for the third
quarter of 2009. Any revisions to the preliminary Dropdown Predecessor
figures are only expected to impact the accounting for periods prior to
the date the Petrojarl Varg FPSO was acquired by the Partnership, and
therefore will have no effect on the adjusted net (loss) income
attributable to the partners or distributable cash flow of the
Partnership for any period, including the third quarter of 2009.


Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's shuttle tanker segment increased to $36.2 million for the third quarter of 2009, compared to $31.8 million for the previous quarter, primarily due to decreases in vessel operating expenses, restructuring costs, and reduced in-chartering of spot vessels.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership's conventional tanker segment remained consistent with the prior quarter.

FSO Segment

Cash flow from vessel operations from the Partnership's FSO segment decreased to $6.7 million in the third quarter of 2009 from $8.6 million in the second quarter of 2009, primarily due to the scheduled drydocking of one FSO.

FPSO Segment

With the acquisition of the Petrojarl Varg FPSO on September 10, 2009, the Partnership has added a new FPSO reporting segment. Cash flow from vessel operations from the Partnership's FPSO segment was $3.4 million for the 21 days the unit was owned by the Partnership in the third quarter of 2009.

Liquidity

As of September 30, 2009, the Partnership had total liquidity of $258.7 million, which consisted of $143.7 million in cash and cash equivalents and $115.0 million in undrawn revolving credit facilities. Liquidity is expected to increase by approximately $100 million as a result of the Partnership's entering into a $260 million revolving credit facility in November 2009 in connection with its acquisition of the Petrojarl Varg.

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 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 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.

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



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

VOYAGE REVENUES 206,938 195,899 252,232 608,460 728,416
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OPERATING
EXPENSES
Voyage expenses 30,263 22,229 62,548 77,305 173,736
Vessel
operating
expenses(1) 54,857 56,823 57,358 171,619 165,998
Time-charter
hire expense 27,772 29,144 31,474 89,061 97,382
Depreciation
and
amortization 40,981 40,221 39,675 121,366 117,864
General and
administrative
(1) 13,820 14,949 14,537 42,140 49,640
Restructuring
charge(2) 371 1,481 0 4,053 0
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168,064 164,847 205,592 505,544 604,620
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Income from
vessel
operations 38,874 31,052 46,640 102,916 123,796
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OTHER ITEMS
Interest
expense (9,176) (10,904) (19,359) (32,957) (63,910)
Interest income 141 129 913 1,098 3,265
Realized and
unrealized
(loss) gain
on derivative
instruments(3) (37,302) 54,000 (26,120) 37,716 (33,019)
Foreign
exchange (loss)
gain(1) (4,485) (1,954) 2,330 (8,400) (1,371)
Income tax
(expense)
recovery (13,804) 3,037 33,323 (14,905) 39,236
Other income -
net 2,068 1,910 3,067 7,055 9,436
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Net (loss)
income (23,684) 77,270 40,794 92,523 77,433
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Net (loss)
income
attributable
to:
Non-
controlling
interests(4) (10,298) 30,715 19,048 35,093 41,857
Dropdown
Predecessor(5) (2,363) 13,090 1,121 18,048 3,808
Partners (11,023) 33,465 20,625 39,382 31,768
Limited
partners' units
outstanding:
Weighted-
average
number of
common units
outstanding
- Basic and
diluted 25,056,250 20,425,000 20,359,783 21,985,714 13,794,526
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 34,856,250 30,225,000 30,159,783 31,785,714 23,594,526

(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, 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 Nine Months Ended
-------------------------- --------------------
September June September September September
30, 30, 30, 30, 30,
2009 2009 2008 2009 2008
--------- ---- --------- --------- ---------
Vessel operating expenses 1,404 697 1,474 2,871 1,275
General and administrative 1,382 757 772 3,484 632
Foreign exchange loss - - - - 8

(2) Restructuring charges were incurred in connection with the re-flagging
of certain of the Partnership's vessels, which will result in lower
future crewing costs. The Partnership expects to incur an additional
$0.3 million in similar restructuring charges in the fourth quarter of
2009.

(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 Nine Months Ended
----------------------------- -------------------
September June September September September
30, 30, 30, 30, 30,
2009 2009 2008 2009 2008
--------- ------- --------- --------- ---------
Realized (losses) gains
relating to:
Interest rate swaps (12,743) (11,915) (8,048) (34,621) (13,752)
Foreign currency forward
contract (93) (830) 730 (4,071) 2,415
-------------------------------------------------
(12,836) (12,745) (7,318) (38,692) (11,337)

Unrealized (losses) gains
relating to:
Interest rate swaps (24,942) 65,244 (13,830) 71,538 (17,326)
Foreign currency forward
contracts 476 1,501 (4,972) 4,870 (4,356)
-------------------------------------------------
(24,466) 66,745 (18,802) 76,408 (21,682)
-------------------------------------------------
Total realized and
unrealized (losses)
gains on non-
designated derivative
instruments (37,302) 54,000 (26,120) 37,716 (33,019)
-------------------------------------------------

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

(5) Results for the Petrojarl Varg FPSO for the periods prior to its
acquisition by the Partnership when it was owned and operated by Teekay
Corporation, are referred to as the Dropdown Predecessor. The amounts
included in this release related to the Dropdown Predecessor are
preliminary, and will be finalized for inclusion in the Partnership's
Form 6-K for the third quarter of 2009. Any revisions to the
preliminary Dropdown Predecessor figures are only expected to impact
the accounting for periods prior to the date the Petrojarl Varg FPSO
was acquired by the Partnership, and therefore will have no effect on
the adjusted net (loss) income or distributable cash flow of the
Partnership for any period, including the third quarter of 2009.


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TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
--------------------------------------------------------------------------
As at As at As at
September 30, June 30, December 31,
2009 2009(1) 2008(1)
(unaudited) (unaudited) (unaudited)
------------ ---------- -----------
ASSETS
Cash and cash equivalents 143,746 98,986 132,348
Other current assets 123,810 112,673 114,071
Vessels and equipment 1,952,912 1,967,007 2,028,150
Other assets 58,955 56,518 68,107
Intangible assets 39,164 41,444 46,004
Goodwill 127,113 127,113 127,113
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Total Assets 2,445,700 2,403,741 2,515,793
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES AND EQUITY
Accounts payable and accrued
liabilities 71,285 58,833 65,535
Other current liabilities 37,633 51,479 29,734
Current portion of long-term
debt 77,322 85,417 125,503
Current portion of derivative
instruments 31,203 53,798 66,135
Long-term debt 1,694,116 1,547,241 1,711,711
Other long-term liabilities 113,587 102,771 212,319
Equity:
Non-controlling interest 213,770 228,520 201,383
Partners' equity 206,784 275,682 103,473
--------------------------------------------------------------------------
Total Liabilities and Equity 2,445,700 2,403,741 2,515,793
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) In accordance with GAAP, the balance sheets at June 30, 2009 and
December 31, 2008 include 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. The amounts included in this
release related to the Dropdown Predecessor are preliminary, and will
be finalized for inclusion in the Partnership's Form 6-K for the third
quarter of 2009. Any revisions to the preliminary Dropdown Predecessor
figures would only impact the accounting for periods prior to the date
the Petrojarl Varg FPSO was acquired by the Partnership, and therefore
will have no effect on the adjusted net (loss) income or distributable
cash flow of the Partnership for any period, including the third
quarter of 2009.


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TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
--------------------------------------------------------------------------
Nine Months Ended
September 30,
2009(1) 2008(1)
--------- ---------
(unaudited) (unaudited)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
--------------------------------------------------------------------------
Net operating cash flow 141,180 181,062
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FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 339,575 259,262
Scheduled repayments of long-term debt (24,124) (24,923)
Prepayments of long-term debt (241,090) (138,085)
Net advances to affiliates - (46,544)
Prepayments of joint venture partner advances (20,775) -
Net proceeds from equity offering 104,282 210,666
Equity contribution by joint venture partner 4,772 -
(Return of capital to) contribution of capital
from Teekay Corporation relating to purchase
of Petrojarl Varg by the Partnership (210,188) 64,339
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. - (94,882)
Cash distributions paid by the Partnership (42,788) (28,337)
Cash distributions paid by subsidiaries to
non-controlling interest (44,093) (58,641)
Other (640) (1,538)
--------------------------------------------------------------------------
Net financing cash flow (135,069) 124,656
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INVESTING ACTIVITIES
Expenditures for vessels and equipment (11,726) (52,990)
Purchase of 35% of Petrojarl Varg by Teekay
Corporation - (126,202)
Investment in direct financing lease assets - (537)
Direct financing lease payments received 17,013 16,956
Purchase of 25% interest in Teekay Offshore
Operating L.P. - (111,746)
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Net investing cash flow 5,287 (274,519)
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Increase in cash and cash equivalents 11,398 31,199
Cash and cash equivalents, beginning of the period 132,348 128,859
--------------------------------------------------------------------------
Cash and cash equivalents, end of the period 143,746 160,058
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(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. The
amounts included in this release related to the Dropdown Predecessor
are preliminary, and will be finalized for inclusion in the
Partnership's Form 6-K for the third quarter of 2009. Any revisions to
the preliminary Dropdown Predecessor figures are only expected to
impact the accounting for periods prior to the date the Petrojarl Varg
FPSO was acquired by the Partnership, and therefore will have no
effect on the adjusted net (loss) income or distributable cash flow of
the Partnership for any period, including the third quarter of 2009.


TEEKAY OFFSHORE PARTNERS L.P.

APPENDIX A - SPECIFIC ITEMS AFFECTING NET (LOSS) INCOME

(in thousands of U.S. dollars)

Set forth below is a reconciliation of the Partnership's unaudited adjusted net income 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 for the three months ended September 30 and June 30, 2009, all of which items are typically excluded by securities analysts in their published estimates of the Partnership's financial results. Also set forth below is a reconciliation of the Partnership's unaudited net income (loss) attributable to partners to net income as determined in accordance with GAAP:



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Three Months Three Months
Ended Ended
September 30, June 30,
2009 2009
------------ ------------
(unaudited) (unaudited)
Net (loss) income - GAAP basis (23,684) 77,270
Adjustments:
Net (loss) income attributable to
non-controlling interests (10,298) 30,715
Net (loss) income attributable to
Dropdown Predecessor (2,363) 13,090
--------------------------------------------------------------------------
Net (loss) income attributable to
the partners (11,023) 33,465
Add (subtract) specific items
affecting net income:
Restructuring charges(1) 371 1,481
Foreign exchange losses(2) 3,414 1,353
Foreign currency exchange gains
resulting from hedging
ineffectiveness(3) (2,630) (1,232)
Deferred income tax expense relating
to unrealized foreign exchange gains(4) 14,586 1,904
Unrealized losses (gains) on
derivative instruments(5) 19,778 (54,131)
Non-controlling interests' share of
items above(6) (16,533) 24,116
--------------------------------------------------------------------------
Total adjustments 18,986 (26,509)
--------------------------------------------------------------------------
Adjusted net income attributable to
the partners 7,963 6,956
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(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 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 $1.1 million and $0.6 million relating to
the Dropdown Predecessor for the three months ended September 30 and
June 30, 2009, respectively.
(3) Foreign currency exchange gains resulting from hedging ineffectiveness
includes the unrealized gains 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 resulting from hedging ineffectiveness of $0.2 million
and $0.3 million, respectively, relating to the Dropdown Predecessor
for the three months ended September 30 and June 30, 2009, respectively.
(4) Portion of deferred income tax 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 (losses) gains
of ($4.7) million and $12.6 million relating to the Dropdown
Predecessor for the three months ended September 30 and June 30, 2009,
respectively.
(6) Primarily relates to Teekay's non-controlling interest share of the
items noted above.


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.



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

Net loss (23,684)
Add:
Depreciation and amortization 40,981
Income tax expense 13,338
Foreign exchange and other, net 2,325
Unrealized losses on non-designated derivative instruments 24,466

Less:
Other non-cash items attributable to Dropdown Predecessor (10,505)
Estimated maintenance capital expenditures (20,776)
---------------------------------------------------------------------------
Distributable Cash Flow before Non-Controlling Interest 26,145
Non-controlling interests' share of DCF (13,254)
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Distributable Cash Flow 12,891
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TEEKAY OFFSHORE PARTNERS L.P.

APPENDIX C - SUPPLEMENTAL SEGMENT INFORMATION

(in thousands of U.S. dollars)

Three Months Ended September 30, 2009
-------------------------------------
(unaudited)
Convent-
Shuttle ional
Tanker Tanker FSO FPSO
Segment Segment Segment Segment(3) Total
---------------------------------------------------------------------------
Net voyage revenues (1) 109,413 24,799 14,509 27,954 176,675
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
Income from vessel operations 14,676 11,257 1,271 11,670 38,874


Three Months Ended June 30, 2009
--------------------------------
(unaudited)
Convent-
Shuttle ional
Tanker Tanker FSO FPSO
Segment Segment Segment Segment(3) Total
---------------------------------------------------------------------------
Net voyage revenues (1) 109,860 25,043 15,888 22,879 173,670
Vessel operating expenses(2) 34,737 5,942 6,257 9,887 56,823
Time-charter hire expense 29,144 - - - 29,144
Depreciation and amortization 23,185 5,984 5,419 5,633 40,221
General and administrative(2) 11,048 1,283 1,020 1,598 14,949
Restructuring charges 1,481 - - - 1,481
Income from vessel operations 10,265 11,834 3,192 5,761 31,052

(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 acquisition by the Partnership when it was owned and operated by
Teekay Corporation, are referred to as the Dropdown Predecessor. The
amounts included in this release related to the Dropdown Predecessor are
preliminary, and will be finalized for inclusion in the Partnership's
Form 6-K for the third quarter of 2009. Any revisions to the preliminary
Dropdown Predecessor figures are only expected to impact the accounting
for periods prior to the date the Petrojarl Varg FPSO was acquired by
the Partnership, and therefore will have no effect on the adjusted net
(loss) income or distributable cash flow of the Partnership for any
period, including the third quarter of 2009.


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 expected increase in the Partnership's distributable cash flow in the fourth quarter of 2009; the impact on the Partnership's operating expenses due to cost management initiatives; the Partnership's future growth prospects; 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; increases in the Partnership's liquidity; and conversion dates for an FSO unit and commencement dates under the related charter. 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; any delays in the conversion of the FSO unit; 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