Teekay Offshore Partners L.P.
NYSE : TOO

Teekay Offshore Partners L.P.

December 17, 2014 17:15 ET

Teekay Offshore Awarded New FPSO Contract for Petrojarl I FPSO and Agrees to Acquire Knarr FPSO

HAMILTON, BERMUDA--(Marketwired - Dec. 17, 2014) - Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE:TOO) today announced that it has entered into an agreement with a consortium led by Queiroz Galvão Exploração e Produção SA (QGEP) to provide a floating production, storage and offloading (FPSO) unit for the Atlanta field located in the Santos Basin offshore Brazil.

In connection with the contract with QGEP, the Partnership has agreed to acquire the Petrojarl I FPSO from Teekay Corporation (NYSE:TK) (Teekay) for $57 million. Subsequent to the acquisition, the FPSO will undergo upgrades at the Damen Shipyard Group's DSR Schiedam Shipyard in the Netherlands for a fully built-up cost of approximately $240 million, which includes the cost of acquiring the Petrojarl I. The FPSO is scheduled to commence operations in the first half of 2016 under a five-year charter contract with QGEP. The charter contract is expected to generate annual cash flow from vessel operations(1) of approximately $55 to $60 million.

The Petrojarl I FPSO will be used as an early production system (EPS) unit on the Atlanta field which is located 185 kilometers offshore from the Brazil coast at a water depth of approximately 1,550 meters and contains an estimated 260 million recoverable barrels of oil equivalent.

The acquisition of the Petrojarl I has been approved by the Partnership's Conflicts Committee and Board of Directors and the transaction is expected to close by the end of January 2015.

"We continue to secure new, accretive growth in our Offshore Production business with our second contract award in just three months," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. "The QGEP contract award further strengthens the Partnership's position in the fast-growing Brazilian offshore market and highlights the Partnership's ability to provide cost-effective solutions to its customers by redeploying our Sponsor's existing FPSO units."

"In addition to our acquisition of the Petrojarl 1 FPSO, the Partnership's Board of Directors also recently approved the acquisition of the Petrojarl Knarr FPSO from Teekay, subject to the unit achieving first oil and commencing its charter contract", Mr. Evensen continued. "The purchase price for the FPSO, which is based on a fully built-up cost of approximately $1.2 billion, is expected to be financed through the assumption of an existing $815 million long-term debt facility and up to $400 million of short-term credit financing from Teekay. The installation and offshore testing of the Petrojarl Knarr FPSO on its North Sea field is progressing; however, recent unfavorable weather conditions have delayed certain of these activities. Depending on weather conditions, the Partnership currently expects to complete the acquisition of the Petrojarl Knarr and commence its charter with BG Group during the first quarter of 2015."

  1. Cash flow from vessel operations represents income from vessel operations before depreciation and amortization expense and deferred gains, and includes the realized gains (losses) on the settlement of foreign exchange forward contracts and adjustments for direct financing leases to a cash basis. CFVO is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Cash flow from vessel operations is not defined by U.S. generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income of any other indicator of the Partnership's performance required by GAAP.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is an international provider of marine transportation, oil production, storage services and floating accommodation to the offshore oil industry focusing on the fast-growing, deepwater offshore oil regions of the North Sea and Brazil. Teekay Offshore is structured as a publicly-traded master limited partnership (MLP) and owns interests in 33 shuttle tankers (including two chartered-in vessels), eight floating production storage and offloading (FPSO) units (including three committed FPSO units), six floating storage and offtake (FSO) units (excluding one committed FSO conversion unit), one HiLoad Dynamic Positioning (DP) unit, ten long-haul towing and anchor handling vessels (including six vessels Teekay Offshore has agreed to acquire and four newbuildings), three floating accommodation unit newbuildings and four conventional oil tankers. The majority of Teekay Offshore's fleet is employed on medium-term, stable contracts. In addition, Teekay Offshore also has rights to participate in certain other FPSO, shuttle tanker and HiLoad DP opportunities provided by Teekay Corporation (NYSE:TK), Sevan Marine ASA (Oslo Bors: SEVAN) and Remora AS.

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

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 timing and certainty of completing the Partnership's acquisition of the Petrojarl I; the timing and estimated cost to acquire and complete the upgrades on the Petrojarl I, including the cost to acquire the unit from Teekay; the ability to meet QGEP's project specifications and timelines; the impact on the Partnership's distributable cash flow and cash flow from vessel operations resulting from the QGEP charter contract; the expected timing for the commencement of operations under the charter contract with QGEP and the length of the charter contract; the estimated reserves on the Atlanta field; and the acquisition of the Petrojarl Knarr FPSO, including the purchase price and the timing of achieving first oil and charter contract start-up. 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: failure by the Partnership to complete the acquisition of the Petrojarl I from Teekay; variances in the acquisition and upgrade costs of the Petrojarl 1 FPSO and the Partnership's ability to finance such costs; potential delays in the delivery of the upgraded Petrojarl 1 FPSO from the Damen Shipyard; variances in expected operating costs relating to the Petrojarl 1 FPSO; potential changes to the fully built-up cost of the Petrojarl Knarr FPSO prior to being acquired by the Partnership; potential delays in the commencement of operations of the Petrojarl Knarr FPSO unit; potential early termination of the charter contracts; and other factors discussed in Teekay Offshore Partners' filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2013. The Partnership expressly disclaims any obligation 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.

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