Teekay Offshore Partners L.P.
NYSE : TOO

Teekay Offshore Partners L.P.

May 15, 2009 08:30 ET

Teekay Offshore Partners Reports Fourth Quarter and Annual Results

Highlights - Declared a cash distribution of $0.45 per unit for both the fourth quarter of 2008 and first quarter of 2009. - Generated distributable cash flow of $11.7 million in the fourth quarter of 2008, an increase from $6.5 million in the same quarter one year ago.

HAMILTON, BERMUDA--(Marketwire - May 15, 2009) - Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE:TOO) today reported its fourth quarter and annual results for 2008. The Partnership generated distributable cash flow(1) of $11.7 million in the fourth quarter of 2008, an increase from $6.5 million for the fourth quarter of 2007, primarily as a result of the Partnership's acquisition of an additional 25 percent interest in Teekay Offshore Operating Partners L.P. (OPCO) in June 2008.

On February 2, 2009, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended December 31, 2008 which represents $1.80 per unit on an annualized basis. The cash distribution was paid on February 13, 2009, to all unitholders of record on February 6, 2009.

On May 4, 2009, the Partnership declared a cash distribution of $0.45 per unit for quarter ended March 31, 2009. The cash distribution is payable on May 15, 2009, to all unitholders of record on May 8, 2009.

"Our distributable cash flow is supported by our large portfolio of medium-term fixed-rate contracts with strong counterparties and is not exposed to oil price risk," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. Mr. Evensen continued, "We remain excited about the Partnership's opportunities for growth in the next several years. In particular, we have the options to acquire five existing FPSOs and four shuttle tanker newbuildings from our sponsor, Teekay Corporation, which, if acquired, will add to our distributable cash flow."

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet, including vessels owned by OPCO, as of March 31, 2009:



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Number of Vessels
---------------------------------------
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Owned Chartered-in
Vessels Vessels Total
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Shuttle Tanker Segment 27(i) 10 37

Conventional Tanker Segment 11 - 11

FSO Segment 5 - 5
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Total 43 10 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.


(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 GAAP financial measure.

Future Growth Opportunities

Teekay Corporation (Teekay) is obligated to offer Teekay Offshore shuttle tankers, FSO units, and Floating Production Storage and Offloading (FPSO) units it may acquire in the future, provided the vessels are servicing fixed-rate contracts of three or more years in length.

Shuttle Tankers

Teekay has four Aframax shuttle tanker newbuildings on order that are scheduled to deliver between the third quarter of 2010 and the third quarter of 2011. It is anticipated that these vessels will be offered to the Partnership and will be used to service either new long-term, fixed-rate contracts Teekay may be awarded prior to their delivery or OPCO's contracts-of-affreightment in the North Sea.

FPSO Units

On July 9, 2008, Teekay completed the acquisition of the remaining 35.3 percent of Teekay Petrojarl ASA it did not previously own. Teekay Petrojarl is a leading operator of FPSO units, with four units operating in the North Sea and one unit operating in Brazil.

Based on a pre-existing agreement, Teekay is obligated to offer Teekay Offshore its interests in Teekay Petrojarl's existing FPSO units that operate under charter contracts with remaining terms greater than three years. Teekay is also obligated to offer Teekay Offshore its interest in future FPSO projects with charter contracts greater than three years.

Teekay's Remaining Interest in OPCO

Teekay may offer to Teekay Offshore additional limited partner interests in OPCO that Teekay owns. Teekay currently owns 49 percent of OPCO and Teekay Offshore owns the remaining 51 percent.

Financial Summary

The Partnership reported a net loss of $50.7 million for the quarter ended December 31, 2008, compared to a net loss of $6.0 million for the same period of the prior year. The results for the quarters ended December 31, 2008 and December 31, 2007 included a number of specific non-cash items which had the net effect of decreasing net income by $55.6 million and $11.1 million, respectively, as detailed in Appendix A to this release. Excluding these items, net income for the quarters ended December 31, 2008 and December 31, 2007 would have been $4.9 million and $5.0 million, respectively. Net voyage revenues(1) for the fourth quarter of 2008 increased to $164.8 million from $160.2 million for the same period of the prior year.

The Partnership reported a net loss for the year ended December 31, 2008 of $17.6 million, compared to net income of $4.0 million for the same period of the prior year. The results for the years ended December 31, 2008 and December 31, 2007 included a number of specific non-cash items which had the net effect of decreasing net income by $56.2 million and $24.2 million, respectively, as detailed in Appendix A to this release. Excluding these items, net income for the years ended December 31, 2008 and December 31, 2007 would have been $38.6 million and $28.2 million, respectively. Net voyage revenues(1) for the year ended December 31, 2008 increased to $647.5 million from $633.6 million for the prior year.

For accounting purposes, the Partnership is required to recognize the changes in the fair value of certain derivative instruments through the statement of income (loss). This revaluation does not affect the Partnership's cash flows or the calculation of distributable cash flow, but results in the recognition of unrealized gains or losses on the statement of income (loss).

(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.

Operating Results

The following table highlights certain financial information for Teekay Offshore's three main segments: the shuttle tanker segment, the conventional tanker segment, and the FSO 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 Three Months Ended
December 31, 2008 December 31, 2007
------------------ ------------------
(unaudited) (unaudited)

(in Conven- Conven-
thousands Shuttle tional Shuttle tional
of U.S. Tanker Tanker FSO Tanker Tanker FSO
dollars) Segment Segment Segment Total Segment Segment Segment Total
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Net voyage
revenues 124,137 26,205 14,494 164,836 119,959 22,549 17,685 160,193

Vessel
operating
expenses 36,810 6,612 6,108 49,530 30,483 6,988 6,950 44,421
Time-
charter
hire
expense 34,852 - - 34,852 38,714 - - 38,714
Deprecia-
tion &
amortiza-
tion 23,247 6,288 5,501 35,036 22,912 5,576 4,985 33,473

Cash flow
from
vessel
opera-
tions(i) 40,383 17,450 7,672 65,505 40,437 13,661 9,689 63,787
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(i) Cash flow from vessel operations represents income from vessel
operations before depreciation and amortization expense and amortization
of deferred gains. 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.


Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's shuttle tanker segment was consistent with the same period one year ago.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership's conventional tanker segment increased to $17.5 million for the fourth quarter of 2008, compared to $13.7 million for the same quarter one year ago. This is primarily due to the acquisition of two vessels, the SPT Explorer and the SPT Navigator from Teekay in the second quarter of 2008 and a one-time contractual recovery of $2.9 million relating to cost increases on the nine Aframax tankers.

FSO Segment

Cash flow from vessel operations from the Partnership's FSO segment decreased to $7.7 million for the fourth quarter of 2008, compared to $9.7 million for the same quarter one year ago primarily due to foreign currency exchange fluctuations and increased spending on offshore equipment.

Liquidity

As of December 31, 2008, the Partnership had total liquidity of $274.2 million, which consisted of $131.5 million in cash and cash equivalents and $142.7 million in undrawn revolving credit facilities.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P., a publicly-traded master limited partnership formed by Teekay Corporation (NYSE:TK), is an international provider of marine transportation 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 ten chartered-in vessels), four FSO units, nine double-hull conventional oil tankers and two lightering vessels. In addition, Teekay Offshore has direct ownership interests in two shuttle tankers and one FSO unit. Teekay Offshore also has rights to participate in certain FPSO 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)
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Three Months Ended Year Ended
----------------------------------- -----------------------
December September December December December
31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- ----------- -----------

VOYAGE REVENUES 216,129 226,947 203,978 872,492 785,203
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OPERATING
EXPENSES
Voyage expenses 51,293 62,548 43,785 225,029 151,637
Vessel operating
expenses(1) 49,530 47,448 44,421 184,416 149,660
Time-charter
hire expense 34,852 31,474 38,714 132,234 150,463
Depreciation
and amortization 35,036 34,042 33,473 138,437 124,370
General and
administra-
tive(1) 19,141 14,087 14,337 64,230 62,404
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189,852 189,599 174,730 744,346 638,534
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Income from
vessel
operations 26,277 37,348 29,248 128,146 146,669
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OTHER ITEMS
Interest
expense (1) (139,099) (32,592) (56,465) (215,727) (126,304)
Interest income 885 901 1,506 4,086 5,871
Income tax
recovery 21,852 29,485 12,007 56,704 10,516
Foreign exchange
gain (loss) (1) 5,737 2,179 1,587 4,343 (11,678)
Other income -
net 2,666 2,352 2,137 11,936 10,403
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Net (loss) income
before non-
controlling
interest (81,682) 39,673 (9,980) (10,512) 35,477
Non-controlling
interest 30,947 (19,048) 3,956 (7,122) (31,519)
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Net (loss) income (50,735) 20,625 (6,024) (17,634) 3,958
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Limited partners'
units
outstanding:
Weighted-average
number of common
units
outstanding
- Basic and
diluted 20,425,000 20,359,783 19,600,000 15,461,202 9,800,000
Weighted-average
number of
subordinated
units
outstanding
- Basic and
diluted 9,800,000 9,800,000 19,600,000 9,800,000 9,800,000
Weighted-average
number of total
units
outstanding
- Basic and
diluted 30,225,000 30,159,783 19,600,000 25,261,202 19,600,000
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(1) The Partnership has entered into foreign exchange forward contracts,
which are economic hedges of vessel operating expenses and general and
administrative expenses, and interest rate swaps, which are economic
hedges of interest bearing debt. Certain of these forward contracts and
all of the interest rate swaps are not designated as cash flow hedges
pursuant to US GAAP. Unrealized gains and losses from these undesignated
forward contracts and designated forward contracts with sources of
ineffectiveness are reflected in vessel operating expenses, general and
administrative expenses, and foreign exchange gains (losses) in the
above Statements of Income (Loss). Unrealized gains and losses from
these undesignated swap contracts are reflected in interest expense in
the above Statements of Income (Loss). The Partnership recorded the
following unrealized gains (losses), relating to these foreign currency
forward contracts and interest rate swaps:

Three Months Ended Year Ended
------------------ ----------
December September December December December
-------- --------- -------- -------- --------
31, 2008 30, 2008 31, 2007 31, 2008 31, 2007
-------- -------- -------- -------- --------
Vessel operating
expenses (1,300) (118) (300) (1,400) (429)
General and
administrative (2,733) (465) 40 (2,737) (57)
Foreign exchange
gain - - - 8 59
Interest expense (117,495) (11,808) (35,124) (132,617) (45,523)



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TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
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As at As at
----- -----
December 31, 2008 December 31, 2007
----------------- -----------------
(unaudited) (unaudited)
----------- -----------
ASSETS
Cash and cash equivalents 131,488 121,224
Other current assets 100,470 124,726
Vessels and equipment 1,708,006 1,662,865
Other assets 67,725 92,622
Intangible assets 45,290 55,355
Goodwill 127,113 127,113
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Total Assets 2,180,092 2,183,905
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LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued
liabilities 54,368 50,540
Other current liabilities 29,734 21,088
Current portion of long-term debt 125,503 64,060
Current portion of derivative
instruments 54,937 5,277
Long-term debt 1,440,933 1,453,407
Other long-term liabilities 172,368 119,519
Non-controlling interest 201,383 392,613
Partners' equity 100,866 77,401
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Total Liabilities and Partners' Equity 2,180,092 2,183,905
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TEEKAY OFFSHORE PARTNERS L.P.
SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
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Year Ended
----------
December 31,
------------
2008 2007
---- ----
(unaudited) (unaudited)
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
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Net operating cash flow 122,566 45,847
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FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 191,000 298,443
Capitalized loan costs (1,500) -
Scheduled repayments of long-term debt (68,031) (17,328)
Prepayments of long-term debt (119,000) (152,000)
Net advances to affiliate (46,544) (42,935)
Equity distribution from Teekay Corporation - 1,819
Proceeds from issuance of common units 216,837 -
Expenses from issuance of common units (6,192) (2,793)
Equity contribution from JV Partner 5,200 -
Joint venture partner advances 17,485 -
Distribution to Teekay Corporation
relating to purchase of SPT Explorer LLC and
SPT Navigator LLC (16,661) -
Excess of purchase price over the contributed
basis of a 25% interest in Teekay Offshore
Operating LP (91,562) -
Distribution to Teekay Corporation relating to
purchase of Navion Bergen LLC - (48,800)
Excess of purchase price over the contributed
basis of a 50% interest in Navion Gothenburg
LLC - (6,358)
Distribution to Teekay Corporation relating to
purchase of Dampier Spirit LLC - (30,253)
Cash distributions paid (42,226) (22,700)
Other - (1,000)
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Net financing cash flow 38,806 (23,905)
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INVESTING ACTIVITIES
Expenditures for vessels and equipment (57,858) (20,997)
Proceeds from sale of vessels and equipment - 3,225
Purchase of a 25% interest in OPCO (115,066) -
Purchase of Navion Gothenburg LLC and Navion
Bergen LLC - (10,231)
Investment in direct financing lease assets (536) (8,378)
Direct financing lease payments received 22,352 21,677
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Net investing cash flow (151,108) (14,704)
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Increase in cash and cash equivalents 10,264 7,238
Cash and cash equivalents, beginning of the
year 121,224 113,986
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Cash and cash equivalents, end of the year 131,488 121,224
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TEEKAY OFFSHORE PARTNERS L.P.
APPENDIX A - SPECIFIC ITEMS AFFECTING NET INCOME
(in thousands of U.S. dollars)

Set forth below are some of the significant items of income and expense that
affected the Partnership's net income for the three months and year ended
December 31, 2008 and 2007, all of which items are typically excluded by
securities analysts in their published estimates of the Partnership's
financial results:
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Three Months Ended Year Ended
------------------ ----------
December 31, 2008 December 31, 2008
----------------- -----------------
(unaudited) (unaudited)
Foreign currency exchange gains (1) 1,704 206
Deferred income tax recovery on
unrealized foreign exchange
losses (2) 20,000 28,200
Unrealized losses from interest rate
swaps (3) (117,495) (132,617)
Non-controlling interests' share of
above items (4) 40,188 48,024
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Total (55,603) (56,187)
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Three Months Ended Year Ended
------------------ ----------
December 31, 2007 December 31, 2007
----------------- -----------------
(unaudited) (unaudited)
Foreign currency exchange gains
(losses) (1) 1,327 (12,164)
Deferred income tax recovery (expense)
on unrealized foreign exchange
(losses) gains (2) 1,100 (18,600)
Unrealized losses from interest rate
swaps (3) (35,124) (45,523)
Non-controlling interests' share of
above items (4) 21,627 52,082
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Total (11,070) (24,205)
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(1) Foreign currency exchange gains (losses) primarily relate to the
Partnership's revaluation of all foreign currency-denominated monetary
assets and liabilities based on the prevailing exchange rate at the end
of each reporting period and also reflects 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.
(2) Portion of deferred income tax related to unrealized foreign exchange
gains and losses.
(3) Reflects the unrealized losses due to changes in the mark-to-market
value of non-designated interest rate swaps.
(4) Primarily relates to Teekay's non-controlling interest share of the
items noted above.


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TEEKAY OFFSHORE PARTNERS L.P.
APPENDIX B -RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
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Description of Non-GAAP Financial Measure - Distributable Cash Flow (DCF)

Distributable cash flow represents net income (loss) 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, income taxes and foreign exchange related items. 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 (loss).



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Three Months Ended
------------------
December 31, 2008
-----------------
(unaudited)
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Net Loss (50,735)
Add:

Depreciation and amortization 35,036
Change in fair value of interest rate swaps 117,495

Less:
Non-controlling interest (30,947)
Foreign exchange and other, net (3,411)
Income tax recovery (21,852)
Estimated maintenance capital expenditures (20,288)
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Distributable Cash Flow before Non-Controlling Interest 25,298
Non-controlling interests' share of DCF (13,634)
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Distributable Cash Flow 11,664
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TEEKAY OFFSHORE PARTNERS L.P.
APPENDIX C -SUPPLEMENTAL SEGMENT INFORMATION
(in thousands of U.S. dollars)
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Three Months Ended December 31, 2008
------------------------------------
(unaudited)

Shuttle Conventional
Tanker Tanker FSO
Segment Segment Segment Total
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Net voyage revenues (1) 124,137 26,205 14,494 164,836
Vessel operating expenses 36,810 6,612 6,108 49,530
Time-charter hire expense 34,852 - - 34,852
Depreciation and amortization 23,247 6,288 5,501 35,036
General and administrative 16,284 2,143 714 19,141
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Income from vessel operations 12,944 11,162 2,171 26,277
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Three Months Ended December 31, 2007
------------------------------------
(unaudited)

Shuttle Conventional
Tanker Tanker FSO
Segment Segment Segment Total
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Net voyage revenues (1) 119,959 22,549 17,685 160,193
Vessel operating expenses 30,483 6,988 6,950 44,421
Time-charter hire expense 38,714 - - 38,714
Depreciation and amortization 22,912 5,576 4,985 33,473
General and administrative 11,391 1,900 1,046 14,337
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Income from vessel operations 16,459 8,085 4,704 29,248
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(1) Net voyage revenues represents voyage revenues less voyage expenses,
which comprise all expenses relating to certain voyages, including
bunker fuel expenses, port fees, canal tolls and brokerage commissions.
Net voyage revenues is a non-GAAP financial measure used by certain
investors to measure the financial performance of shipping companies.
Please see the Partnership's web site at www.teekayoffshore.com for a
reconciliation of this non-GAAP measure as used in this release to the
most directly comparable GAAP financial measure.


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 stability of the Partnership's distributable cash flow; the Partnership's future growth prospects; the potential for Teekay to offer up to four Aframax shuttle tanker newbuildings either with new long-term fixed-rate contracts, or to service the contracts-of-affreightment in the North Sea; the potential for Teekay to offer Teekay Petrojarl's existing FPSO units; the potential for Teekay to secure future FPSO projects through its wholly-owned subsidiary, Teekay Petrojarl ASA; the potential for Teekay to offer to Teekay Offshore additional limited partner interests in OPCO; and the Partnership's exposure to foreign currency fluctuations, particularly in Norwegian Kroner. 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: changes in production of offshore oil, either generally or in particular regions; changes in trading patterns significantly affecting overall vessel tonnage requirements; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; the potential for early termination of long-term contracts and inability of the Partnership or OPCO to renew or replace long-term contracts; the failure of Teekay to offer additional interests in OPCO to Teekay Offshore; required approvals by the board of directors of Teekay and Teekay Offshore, as well as the conflicts committee of Teekay Offshore to acquire additional 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; and other factors discussed in Teekay Offshore's filings from time to time with the SEC, including its Report on Form 20-F/A for the fiscal year ended December 31, 2007. 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