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 Teekay Offshore Partners Reports Second Quarter 2019 Results
   Wednesday, July 31, 2019 2:00:00 AM ET
  • Revenues of $319.8 million and net loss of $28.0 million, or ($0.09) per common unit
  • Adjusted net income attributable to the partners and preferred unitholders(1) of $4.7 million and an adjusted net loss attributable to the limited partners' interest of ($0.01) per common unit (excluding items listed in Appendix B to this release)
  • Adjusted EBITDA(1) of $158.9 million
  • In May 2019, completed a $450 million refinancing of a long-term debt facility secured by 16 shuttle tankers
  • In May 2019, received an unsolicited non-binding proposal from Brookfield to acquire all issued and outstanding publicly held common units that Brookfield does not already own in exchange for $1.05 in cash per common unit

HAMILTON, Bermuda, July 31, 2019 (GLOBE NEWSWIRE) -- Teekay Offshore GP LLC (TOO GP), 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 June 30, 2019.

Consolidated Financial Summary

  Three Months Ended
  June 30,March 31,June 30,
(in thousands of U.S. Dollars, except per unit data)20192019 (2)2018
(unaudited)(unaudited)(unaudited)
GAAP FINANCIAL RESULTS   
Revenues319,774 336,637 320,354 
Net loss(27,979)(2,598)(168,492)
Limited partners' interest in net loss per common unit - basic(0.09)(0.03)(0.43)
    
NON-GAAP FINANCIAL RESULTS:   
Adjusted EBITDA (1)158,941 188,150 160,198 
Adjusted net income (loss) attributable to the partners and preferred unitholders (1)4,735 29,510 (732)
Limited partners' interest in adjusted net income (loss) per common unit (1)(0.01)0.05 (0.02)
  1. These are non-GAAP financial measures. Please refer to "Definitions and Non-GAAP Financial Measures" and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).
  2. Please refer to Appendices to the release announcing the results for the first quarter of 2019 attached as Exhibit 1 to the Form 6-K filed with the Securities and Exchange Commission on April 30, 2019, for a reconciliation of these non-GAAP measures to the most directly comparable financial measures under GAAP.

Second Quarter of 2019 Compared to Second Quarter of 2018

Revenues were $320 million in the second quarter of 2019, which was consistent with the same quarter of the prior year.

Net loss decreased to $28 million in the second quarter of 2019 compared to $168 million in the same quarter of the prior year primarily due to the timing of recognition of write-downs and gains on sales of vessels and a decrease in unrealized fair value losses on derivative instruments resulting from movement in interest rates. In the second quarter of 2019, net loss included a gain on the sale of three vessels of $13 million whereas in the second quarter of 2018, net loss included write-downs of $180 million relating to two FPSO units.

Non-GAAP Adjusted EBITDA was $159 million in the second quarter of 2019, which was consistent with the same quarter of 2018. An increase in Adjusted EBITDA of $11 million from the shuttle tanker segment was offset by a  decrease of $11 million from the FPSO segment.

Non-GAAP Adjusted Net Income was $5 million in the second quarter of 2019, an increase of $5 million compared to the same quarter of the prior year, primarily due to a decrease in depreciation and amortization of $7 million.

Second Quarter of 2019 Compared to First Quarter of 2019

Revenues decreased by $17 million and net loss increased by $25 million in the second quarter of 2019, compared to the prior quarter, primarily due to the absence of a $15 million amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit, which was fully amortized during the first quarter of 2019; a $7 million decrease in contributions from the completion of the Rio das Ostras FPSO unit charter contract in March 2019 and a $5 million decrease from lower utilization in the towage fleet. Revenues and vessel operating expenses in the second quarter of 2019 also included the recognition of deferred revenues and deferred costs of $13 million and $15 million, respectively, upon termination of the Cheviot Field agreement relating to the Petrojarl Varg FPSO unit. Other items impacting the change in net loss included a $13 million gain on the sale of three vessels recognized in the second quarter of 2019 and a $9 million increase in unrealized fair value losses on derivative instruments.

Non-GAAP Adjusted EBITDA and Adjusted Net Income decreased by $29 million and $25 million, respectively, in the second quarter of 2019, compared to the prior quarter, primarily due to the changes in revenue and vessel operating expenses as described above.

Please refer to “Operating Results” for additional information on variances by segment and Appendices A and B for  reconciliations between GAAP net (loss) income and non-GAAP Adjusted EBITDA and Adjusted Net Income (Loss), respectively.

CEO Commentary

“We are pleased to announce another good operational quarter with Adjusted EBITDA of $159 million. The Shuttle Tanker and the FSO segment results were in line with first quarter, while the FPSO segment result decreased by $22 million, primarily on non-cash items. The Towage segment was basically EBITDA neutral,” commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd.

“During the quarter we decided to terminate the agreement with Alpha Petroleum for the redeployment of the Petrojarl Varg FPSO on the U.K. Cheviot field. Given the increased activity on a number of field developments in the North Sea, it was important for us to either reach a final contract award with Alpha Petroleum on the Cheviot field, or make the unit available for other field developments where it can offer an attractive field development solution.”

Ms. Sæther added, "On the financing side, we were pleased to announce during the quarter the closing of the refinancing of the $450 million revolving credit facility backed by 16 of our shuttle tankers on attractive terms, in addition to the long-term financing of the first four shuttle tanker newbuildings and the refinancing of three FPSOs with $100 million, both as announced in the last quarterly release."

Summary of Recent Events

Brookfield Investment

In late-May 2019, the Partnership received an unsolicited non-binding proposal from Brookfield Business Partners L.P. (NYSE:BBU)(TSX:BBU.UN), together with its institutional partners (collectively Brookfield), to acquire all issued and outstanding publicly held common units representing limited partnership interests of the Partnership that Brookfield does not already own in exchange for $1.05 in cash per common unit. The Partnership's Conflicts Committee, consisting only of non-Brookfield affiliated Teekay Offshore Directors, is evaluating the proposed offer on behalf of the owners of the non-Brookfield owned limited partnership interests. The proposed transaction is subject to a number of contingencies, including the approval of the Conflicts Committee, and the satisfaction of any conditions to the consummation of a transaction that may be set forth in any definitive agreement concerning the transaction. There can be no assurance that definitive documentation will be executed or that any transaction will materialize on the terms described above or at all.

In May 2019, Brookfield purchased all of Teekay Corporation's remaining interests in the Partnership, including its 49% general partner interest, 13.8% interest in common units, 17.3 million common unit equivalent warrants and a $25 million loan receivable outstanding under an unsecured revolving credit facility, for total proceeds of $100 million.

Financings

On July 30, 2019, the remaining $75 million principal of our outstanding five-year 6.0% senior unsecured bonds matured and was repaid by drawing $75 million from the Partnership's capacity under an existing revolving credit facility.

In May 2019, the Partnership secured a $450 million refinancing of 16 shuttle tankers. The facility was used to refinance an existing revolving credit facility dated September 2017, which bore interest at LIBOR plus a margin of 300 basis points and had a remaining tenor of 3.4 years. The new revolving credit facility bears interest at LIBOR plus a margin of 250 basis points and has a tenor of five years with a profile of 8.4 years.

In late-April 2019, the Partnership closed a $100 million refinancing of the Piranema Spirit, Voyageur Spirit, and Petrojarl Varg FPSO units. The previous credit facility matured at the same time with a balloon payment of $35 million. The new revolving credit facility bears interest at LIBOR plus a margin of 300 basis points and reduces to $45 million over three years, reflecting the relative short current contract backlog for these FPSO units.

In April 2019, the Partnership secured a new $414 million long-term debt facility to be used to finance four LNG-fueled Suezmax DP2 shuttle tanker newbuildings. Upon anticipated delivery in 2019 and 2020, two of the vessels will commence operations under the Partnership’s master agreement with Equinor, while the remaining two vessels will join the Partnership’s contract of affreightment (CoA) shuttle tanker portfolio in the North Sea. The new facility is funded and guaranteed by both Canadian and Norwegian export credit agencies and commercial banks, bears interest at LIBOR plus a margin of 225 basis points, and has a tenor for up to 12 years from the delivery date of each vessel and a blended repayment profile of 18 years.

Termination of Cheviot Field Agreement

In June 2019, the Partnership announced that an agreement with Alpha Petroleum Resources Limited (or Alpha) relating to the use of the Petrojarl Varg FPSO unit was terminated as a result of Alpha being unable to satisfy certain conditions precedent, including Alpha providing initial funding to cover life extension and upgrade costs, by the contractual deadline. The Partnership is currently pursing alternative deployment opportunities for the Petrojarl Varg FPSO unit.

Change to Board of Directors

In July 2019, Brookfield appointed Gregory Morrison as a member of the Board of Directors of the general partner of Teekay Offshore, replacing Walter Weathers, who was appointed by Brookfield in September 2017.

Liquidity Update

As of June 30, 2019, the Partnership had total liquidity of $202 million, an increase of $19 million compared to March 31, 2019. The increase in liquidity was primarily due to the refinancing of the Partnership's FPSO revolving credit facility and proceeds received from the sale of the Pattani Spirit FSO and the Nordic Spirit and Alexita Spirit shuttle tankers during the second quarter of 2019.

Operating Results

The commentary below compares certain results of our operating segments for the three months ended June 30, 2019 to the same period of the prior year, unless otherwise noted.

FPSO Segment

 Three Months Ended
 June 30,March 31,June 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues127,478 136,560 124,053 
Adjusted EBITDA72,169 94,420 83,429 

Adjusted EBITDA (including Adjusted EBITDA of equity-accounted vessels) decreased by $11 million primarily due to:  a decrease of $8 million due to the completion of the charter contract for the Rio das Ostras FPSO unit in March 2019; and a decrease of $6 million resulting from a contract extension for the Piranema Spirit FPSO unit at lower charter rates than the original contract and a decrease in the amortization of non-cash deferred revenue; partially offset by an increase of $6 million from the commencement of operations of the Petrojarl I FPSO unit in May 2018.

Adjusted EBITDA decreased by $22 million compared to the three months ended March 31, 2019 primarily due to: the absence of a $15 million amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit; and a $5 million decrease from the completion of the Rio das Ostras FPSO unit charter contract in March 2019.

Shuttle Tanker Segment

 Three Months Ended
 June 30,March 31,June 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues137,050 137,337 142,047 
Adjusted EBITDA67,688 67,337 56,254 

Adjusted EBITDA increased by $11 million primarily due to: $4 million from higher CoA utilization and rates during the second quarter of 2019; $4 million from a decrease in vessel operating expenses and general and administrative expenses; and $3 million due to the timing of dry-docking of vessels.

Adjusted EBITDA was in line with first quarter 2019.

FSO Segment

 Three Months Ended
 June 30,March 31,June 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues34,605 34,654 33,840 
Adjusted EBITDA22,761 23,335 22,717 

Adjusted EBITDA was consistent with prior periods.

UMS Segment

 Three Months Ended
 June 30,March 31,June 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues431 1,622  
Adjusted EBITDA(1,884)1,316 (2,208)

Adjusted EBITDA was consistent with the same quarter of the prior year.

Adjusted EBITDA decreased by $3 million compared to the three months ended March 31, 2019, primarily due to an insurance settlement received in the first quarter of 2019.

Towage Segment

 Three Months Ended
 June 30,March 31,June 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues16,716 21,986 15,510 
Adjusted EBITDA(426)4,120 2,048 

Adjusted EBITDA decreased by $2 million due to an increase in vessel operating expenses relating to the reactivation of the ALP Forward in June 2019, which was previously in lay-up.

Adjusted EBITDA decreased by $5 million compared to the three months ended March 31, 2019, due to a decrease in the utilization of the towage fleet from 96% to 67% and an increase in vessel operating expenses relating to the reactivation of the ALP Forward in June 2019.

Conventional Tanker Segment

 Three Months Ended
 June 30,March 31,June 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues3,494 4,478 4,904 
Adjusted EBITDA(225)(1,203)(2,412)

Adjusted EBITDA increased by $2 million. The Partnership redelivered the two in-chartered vessels to their owners in March and April 2019, respectively, and no longer has activity in the conventional tanker segment.

Teekay Offshore’s Fleet

The following table summarizes Teekay Offshore’s fleet as of July 31, 2019. Teekay Offshore's fleet is consistent in comparison to the previously-reported fleet table in the release for the first quarter of 2019.

 Number of Vessels
 Owned
Vessels
Chartered-in
Vessels
Committed
Newbuildings
Total
FPSO Segment(i)— — 
Shuttle Tanker Segment25 (ii)(iii)33 
FSO Segment— — 
UMS Segment— — 
Towage Segment10 — — 10 
Conventional Segment— — — — 
Total49 57 
  1. Includes two FPSO units, the Cidade de Itajai and Pioneiro de Libra, in which Teekay Offshore’s ownership interest is 50 percent.
  2. Includes four shuttle tankers in which Teekay Offshore’s ownership interest is 50 percent and one HiLoad DP unit.
  3. Includes six DP2 shuttle tanker newbuildings scheduled for delivery in late-2019 through early-2021, two of which will operate under Teekay Offshore's master agreement with Equinor and four of which will join Teekay Offshore's CoA portfolio in the North Sea.

Conference Call

The Partnership plans to host a conference call on Wednesday, July 31, 2019 at 12:00 p.m. (ET) to discuss the results for the second quarter of 2019. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

  • By dialing 1-800-367-2403 or +1 (647) 490-5367, if outside North America, and quoting conference ID code 9980688
  • By accessing the webcast, which will be available on Teekay Offshore's website at www.teekay.com  (the archive will remain on the website for a period of one year).

An accompanying Second Quarter 2019 Earnings Presentation will also be available at www.teekay.com  in advance of the conference call start time.



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, among others: opportunities for the Petrojarl Varg FPSO unit; Brookfield's proposal to acquire all issued and outstanding publicly held common units of the Partnership, and any potential resulting transactions; the anticipated financing for two newbuilds; the timing of shuttle tanker newbuilding deliveries and the commencement of related contracts. 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 exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth, particularly in or related to North Sea, Brazil and East Coast of Canada offshore fields; shipyard delivery delays and cost overruns; delays in the commencement of charter contracts; the Partnership’s ability to collect the amounts due under the settlement agreement with Petrobras; new opportunities for the Petrojarl Varg FPSO 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, 2018. 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.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is a leading international midstream services provider to the offshore oil production industry, primarily focused on the ownership and operation of critical infrastructure assets in offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Teekay Offshore has consolidated assets of approximately $5.2 billion, comprised of 57 offshore assets, including floating production, storage and offloading (FPSO) units, shuttle tankers (including six newbuildings), floating storage and offtake (FSO) units, long-distance towing and offshore installation vessels and a unit for maintenance and safety (UMS). The majority of Teekay Offshore’s fleet is employed on medium-term, stable contracts. Brookfield owns 100 percent of Teekay Offshore’s general partner.

Teekay Offshore's common units and preferred units trade on the New York Stock Exchange under the symbols "TOO", "TOO PR A", "TOO PR B" and "TOO PR E", respectively.

For Investor Relations enquiries contact:

Jan Rune Steinsland
Tel:  +47 9705 2533
Website: www.teekayoffshore.com


Teekay Offshore Partners L.P.
Summary Consolidated Statements of Loss

  Three Months EndedSix Months Ended
  June 30,March 31,June 30,June 30,June 30,
(in thousands of U.S. Dollars, except per unit data)20192019201820192018
(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)
       
Revenues319,774 336,637 320,354 656,411 643,553 
       
Voyage expenses(32,624)(34,066)(36,486)(66,690)(71,492)
Vessel operating expenses(118,718)(101,219)(110,298)(219,937)(225,680)
Time-charter hire expenses(10,619)(12,453)(13,464)(23,072)(26,191)
Depreciation and amortization(88,666)(89,466)(95,440)(178,132)(189,744)
General and administrative(17,212)(16,992)(17,890)(34,204)(35,676)
Gain on sale and (write-down) of vessels11,756  (178,795)11,756 (207,291)
Operating income (loss)63,691 82,441 (132,019)146,132 (112,521)
      
Interest expense(51,443)(52,414)(49,662)(103,857)(91,235)
Interest income1,253 1,070 734 2,323 1,392 
Realized and unrealized (loss) gain     
 on derivative instruments(40,839)(31,390)9,441 (72,229)43,892 
Equity income2,388 886 8,346 3,274 22,344 
Foreign currency exchange gain (loss)1,789 (568)(3,860)1,221 (5,803)
Other expense - net(1,640)(354)(592)(1,994)(3,863)
Loss before income tax expense(24,801)(329)(167,612)(25,130)(145,794)
Income tax expense(3,178)(2,269)(880)(5,447)(6,638)
Net loss(27,979)(2,598)(168,492)(30,577)(152,432)
      
Non-controlling interests in net loss1 285 8 286 (7,852)
Preferred unitholders' interest in net loss8,038 8,038 8,038 16,076 15,409 
General partner’s interest in net loss(274)(83)(1,342)(357)(1,217)
Limited partners’ interest in net loss(35,744)(10,838)(175,196)(46,582)(158,772)
Limited partner's interest in net (loss) income     
 per common unit     
  - basic(0.09)(0.03)(0.43)(0.11)(0.39)
  - diluted(0.09)(0.03)(0.43)(0.11)(0.39)
Weighted-average number of common units:     
  - basic410,595,551 410,342,692 410,310,586 410,469,820 410,206,610 
  - diluted410,595,551 410,342,692 410,310,586 410,469,820 410,206,610 
Total number of common units outstanding     
 at end of period410,707,764 410,400,988 410,314,977 410,707,764 410,314,977 


Teekay Offshore Partners L.P.
Consolidated Balance Sheets

  As atAs atAs at
  June 30, 2019March 31, 2019December 31, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
ASSETS   
Current   
Cash and cash equivalents201,567 182,791 225,040 
Restricted cash8,963 6,349 8,540 
Accounts receivable169,137 122,083 141,903 
Vessels held for sale13,756 20,027 12,528 
Prepaid expenses29,277 30,062 32,199 
Due from related parties 39,118 58,885 
Other current assets6,272 9,506 11,879 
Total current assets428,972 409,936 490,974 
     
     
Vessels and equipment   
At cost, less accumulated depreciation4,010,862 4,103,831 4,196,909 
Advances on newbuilding contracts184,987 140,553 73,713 
Investment in equity accounted joint ventures215,304 213,047 212,202 
Deferred tax asset7,295 8,746 9,168 
Due from related parties 954 949 
Other assets207,796 214,943 198,992 
Goodwill129,145 129,145 129,145 
Total assets5,184,361 5,221,155 5,312,052 
     
LIABILITIES AND EQUITY   
Current   
Accounts payable55,544 10,990 16,423 
Accrued liabilities138,204 108,577 129,896 
Deferred revenues61,721 59,325 55,750 
Due to related parties50,000 167,292 183,795 
Current portion of derivative instruments21,693 18,245 23,290 
Current portion of long-term debt487,018 480,484 554,336 
Other current liabilities5,344 10,002 15,062 
Total current liabilities819,524 854,915 978,552 
     
Long-term debt2,589,431 2,561,154 2,543,406 
Derivative instruments152,143 120,103 94,354 
Other long-term liabilities211,449 238,049 236,616 
Total liabilities3,772,547 3,774,221 3,852,928 
     
Equity   
Limited partners - common units837,405 873,126 883,090 
Limited partners - preferred units 384,274 384,274 384,274 
General Partner 14,696 14,969 15,055 
Warrants132,225 132,225 132,225 
Accumulated other comprehensive income6,892 7,187 7,361 
Non-controlling interests 36,322 35,153 37,119 
Total equity1,411,814 1,446,934 1,459,124 
Total liabilities and total equity5,184,361 5,221,155 5,312,052 


Teekay Offshore Partners L.P.
Consolidated Statements of Cash Flows

 Six Months Ended
 June 30, 2019June 30, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)
Cash, cash equivalents and restricted cash provided by (used for)  
OPERATING ACTIVITIES  
Net loss(30,577)(152,432)
Adjustments to reconcile net loss to net operating cash flow:  
Unrealized loss (gain) on derivative instruments63,468 (67,795)
Equity income550 (17,644)
Depreciation and amortization178,132 189,744 
(Gain) on sale and write-down of vessels(11,756)207,291 
Deferred income tax expense2,351 5,435 
Amortization of in-process revenue contracts(15,062)(6,101)
Expenditures for dry docking(10,593)(9,995)
Other(19,415)(992)
Change in non-cash working capital items related to operating activities30,148 (70,456)
Net operating cash flow187,246 77,055 
FINANCING ACTIVITIES  
Proceeds from long-term debt148,480 226,520 
Scheduled repayments of long-term debt and settlement of related swaps(169,214)(345,970)
Prepayments of long-term debt (40,000)
Debt issuance costs(13,208)(8,346)
Proceeds from issuance of preferred units 120,000 
Expenses relating to equity offerings (3,997)
Proceeds from credit facility due to related parties 125,000 
Prepayments of credit facility due to related parties(75,000) 
Cash distributions paid by the Partnership(16,075)(22,330)
Cash distributions paid by subsidiaries to non-controlling interests(2,583)(664)
Cash contributions paid from non-controlling interests to subsidiaries1,500  
Other(864)(715)
Net financing cash flow(126,964)49,498 
INVESTING ACTIVITIES  
Net payments for vessels and equipment, including advances on newbuilding contracts and conversion costs(112,849)(160,175)
Proceeds from sale of vessels and equipment33,341 10,410 
Investment in equity accounted joint ventures(3,824)(1,700)
Direct financing lease payments received 2,991 
Acquisition of companies from Teekay Corporation (net of cash acquired of $26.6 million) 25,254 
Net investing cash flow(83,332)(123,220)
Decrease in cash, cash equivalents and restricted cash(23,050)3,333 
Cash, cash equivalents and restricted cash, beginning of the period233,580 250,294 
Cash, cash equivalents and restricted cash, end of the period210,530 253,627 

Definitions and Non-GAAP Financial Measures

This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the U.S. Securities and Exchange Commission (SEC). These non-GAAP financial measures, including Consolidated Adjusted EBITDA, Adjusted EBITDA and Adjusted Net Income, are intended to provide additional information and should not be considered substitutes for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized meanings, and may not be comparable to similar measures presented by other companies. These non-GAAP measures are used by management, and the Partnership believes that these supplementary metrics assist investors and other users of its financial reports in comparing financial and operating performance of the Partnership across reporting periods and with other companies.

Non-GAAP Financial Measures

Consolidated Adjusted EBITDA represents net loss before interest, taxes, and depreciation and amortization and is adjusted to exclude certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance. Such adjustments include vessel write-downs, gains or losses on the sale of vessels, unrealized gains or losses on derivative instruments, foreign exchange gains or losses, losses on debt repurchases, and certain other income or expenses. Consolidated Adjusted EBITDA also excludes realized gains or losses on interest rate swaps as management, in assessing the Partnership's performance, views these gains or losses as an element of interest expense, and realized gains or losses on derivative instruments resulting from amendments or terminations of the underlying instruments.  Consolidated Adjusted EBITDA also excludes equity income as the Partnership does not control its equity-accounted investments, and as a result, the Partnership does not have the unilateral ability to determine whether the cash generated by its equity-accounted investments is retained within the entity in which the Partnership holds the equity-accounted investment or distributed to the Partnership and other owners. In addition, the Partnership does not control the timing of any such distributions to the Partnership and other owners.

Adjusted EBITDA represents Consolidated Adjusted EBITDA further adjusted to include the Partnership's proportionate share of consolidated adjusted EBITDA from its equity-accounted joint ventures and to exclude the non-controlling interests' proportionate share of the consolidated adjusted EBITDA from the Partnership's consolidated joint ventures. Readers are cautioned when using Adjusted EBITDA as a liquidity measure as the amount contributed from Adjusted EBITDA from the equity-accounted investments may not be available or distributed to the Partnership in the periods such Adjusted EBITDA is generated by the equity-accounted investments. Please refer to Appendices A and C of this release for reconciliations of Adjusted EBITDA to net loss and equity income, respectively, the most directly comparable GAAP measures reflected in the Partnership’s consolidated financial statements.

Adjusted Net Income represents net loss adjusted to exclude the impact of certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance consistent with the calculation of Adjusted EBITDA. Adjusted Net Income includes realized gains or losses on interest rate swaps as an element of interest expense and excludes income tax expenses or recoveries from changes in valuation allowance or uncertain tax provisions. Please refer to Appendix B of this release for a reconciliation of this non-GAAP financial measure to net loss, the most directly comparable GAAP measure reflected in the Partnership’s consolidated financial statements.

Teekay Offshore Partners L.P.
Appendix A - Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA

   Three Months EndedSix Months Ended
  June 30,June 30,
   2019201820192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)(unaudited)
       
Net loss(27,979)(168,492)(30,577)(152,432)
 Depreciation and amortization88,666 95,440 178,132 189,744 
 Interest expense, net of interest income50,190 48,928 101,534 89,843 
 Income tax expense3,178 880 5,447 6,638 
EBITDA114,055 (23,244)254,536 133,793 
Add (subtract) specific income statement items affecting EBITDA:    
 (Gain) on sale and write-down of vessels(11,756)178,795 (11,756)207,291 
 Realized and unrealized loss (gain) on derivative instruments40,839 (9,441)72,229 (43,892)
 Equity income(2,388)(8,346)(3,274)(22,344)
 Foreign currency exchange (gain) loss(1,789)3,860 (1,221)5,803 
 Other expense - net1,640 592 1,994 3,863 
 Realized (loss) gain on foreign currency forward contracts(1,142)370 (2,317)990 
Total adjustments25,404 165,830 55,655 151,711 
Consolidated Adjusted EBITDA139,459 142,586 310,191 285,504 
 Add: Adjusted EBITDA from equity-accounted vessels (See Appendix C)22,619 22,556 43,415 44,485 
 Less: Adjusted EBITDA attributable to non-controlling interests (1)(3,137)(4,944)(6,515)(9,344)
Adjusted EBITDA158,941 160,198 347,091 320,645 
  1. Adjusted EBITDA attributable to non-controlling interests is summarized in the table below.
   Three Months EndedSix Months Ended
  June 30,June 30,
   2019201820192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)(unaudited)
Net loss attributable to non-controlling interests1 8 286 (7,852)
 Depreciation and amortization2,749 4,104 5,433 8,668 
 Interest expense, net of interest income381 528 793 1,105 
EBITDA attributable to non-controlling interests3,131 4,640 6,512 1,921 
Add (subtract) specific income statement items affecting EBITDA:    
 Write-down of vessels 290  7,386 
 Foreign currency exchange loss6 14 3 37 
Total adjustments6 304 3 7,423 
Adjusted EBITDA attributable to non-controlling interests3,137 4,944 6,515 9,344 


Teekay Offshore Partners L.P.
Appendix B - Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income (Loss)

   Three Months EndedSix Months Ended
   June 30,June 30,
   2019201820192018
(in thousands of U.S. Dollars, except per unit data)(unaudited)(unaudited)(unaudited)(unaudited)
Net loss(27,979)(168,492)(30,577)(152,432)
Adjustments:    
 Net loss attributable to non-controlling interests1 8 286 (7,851)
Net loss attributable to the partners and preferred unitholders(27,980)(168,500)(30,863)(144,581)
Add (subtract) specific items affecting net loss:    
 (Gain) on sale and write-down of vessels(11,757)178,795 (11,757)207,291 
 Unrealized loss (gain) on derivative instruments36,225 (14,914)63,468 (65,890)
 Realized loss on interest rate swap amendments   10,000 
 Foreign currency exchange (gain) loss (1)(1,789)2,416 (1,657)3,066 
 Other expense - net 1,639 592 1,993 3,863 
 Deferred income tax expense relating to Norwegian tax structure1,523 735 1,957 5,409 
 Other adjustments (2)  161  973 
 Adjustments related to equity-accounted vessels (3)6,868 287 11,101 (5,145)
 Adjustments related to non-controlling interests (4)6 (304)3 (7,422)
Total adjustments32,715 167,768 65,108 152,145 
Adjusted net income (loss) attributable to the partners and preferred unitholders4,735 (732)34,245 7,564 
     
Preferred unitholders' interest in adjusted net income (loss)8,038 8,038 16,076 15,409 
General Partner's interest in adjusted net income (loss)(25)(67)138 (60)
Limited partners' interest in adjusted net income (loss)(3,278)(8,703)18,031 (7,785)
Limited partners' interest in adjusted net income (loss) per common unit, basic(0.01)(0.02)0.04 (0.02)
Weighted-average number of common units outstanding, basic410,595,551 410,310,586 410,469,820 410,206,610 
  1. Foreign currency exchange (gain) loss primarily relates to the Partnership's revaluation of all foreign currency-denominated assets and liabilities based on the prevailing exchange rate at the end of each reporting period and unrealized gain or loss related to the Partnership's cross-currency swaps related to the Partnership's Norwegian Krone (NOK) bonds, and excludes the realized gain or loss relating to the Partnership's cross-currency swaps and NOK bonds.
  2. Other adjustments primarily reflects voyage expenses, vessel operating expense, depreciation and amortization expense, general and administrative expenses relating to the Petrojarl I FPSO unit while undergoing upgrades.
  3. Reflects the Partnership's proportionate share of specific items affecting the net income of the Cidade de Itajai FPSO unit and Pioneiro de Libra FPSO unit equity-accounted joint ventures, including the unrealized gain or loss on derivative instruments and the foreign exchange gain or loss.
  4. Items affecting net loss include amounts attributable to the Partnership’s consolidated non-wholly-owned subsidiaries. Each item affecting net loss is analyzed to determine whether any of the amounts originated from a consolidated non-wholly-owned subsidiary. Each amount that originates from a consolidated non-wholly-owned subsidiary is multiplied by the non-controlling interests’ percentage share in this subsidiary to arrive at the non-controlling interests’ share of the amount. The adjustments relate to the gain on sale or write-down of vessels and foreign currency exchange gain or loss within the Partnership's consolidated non-wholly-owned subsidiaries.


Teekay Offshore Partners L.P.
Appendix C - Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA From Equity-Accounted Vessels

  Three Months EndedThree Months Ended
  June 30, 2019June 30, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)
  At 100%Partnership's 50%At 100%Partnership's 50%
Revenues57,719 28,860 61,794 30,897 
Vessel and other operating expenses(12,481)(6,241)(16,682)(8,341)
Depreciation and amortization(16,294)(8,146)(15,455)(7,728)
Operating income of equity-accounted vessels28,944 14,473 29,657 14,828 
Net interest expense(10,604)(5,302)(11,849)(5,925)
Realized and unrealized (loss) gain on derivative instruments (1)(13,957)(6,979)357 179 
Foreign currency exchange gain (loss)326 163 (987)(494)
Total other items(24,235)(12,118)(12,479)(6,240)
Net income / equity income of equity-accounted vessels before income tax expense4,709 2,355 17,178 8,588 
Income tax recovery (expense)66 33 (484)(242)
Net income / equity income of equity-accounted vessels4,775 2,388 16,694 8,346 
 Depreciation and amortization16,294 8,146 15,455 7,728 
 Net interest expense10,604 5,302 11,849 5,925 
 Income tax (recovery) expense(66)(33)484 242 
EBITDA31,607 15,803 44,482 22,241 
Add (subtract) specific items affecting EBITDA:    
 Realized and unrealized loss (gain) on derivative instruments (1)13,957 6,979 (357)(179)
 Foreign currency exchange (gain) loss(326)(163)987 494 
Adjusted EBITDA from equity-accounted vessels45,238 22,619 45,112 22,556 
  1. Realized and unrealized (loss) gain on derivative instruments includes an unrealized loss of $14.1 million ($7.0 million at the Partnership’s 50% share) for the three months ended June 30, 2019 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units and an unrealized gain of $0.4 million ($0.2 million at the Partnership’s 50% share) for the three months ended June 30, 2018 related to interest rate swaps for the Cidade de Itajai FPSO unit.
  Six Months EndedSix Months Ended
  June 30, 2019June 30, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)
  At 100%Partnership's 50%At 100%Partnership's 50%
Revenues117,444 58,722 121,451 60,726 
Vessel and other operating expenses(30,614)(15,307)(32,482)(16,241)
Depreciation and amortization(33,464)(16,732)(30,181)(15,090)
Operating income of equity-accounted vessels53,366 26,683 58,788 29,395 
Net interest expense (1)(22,684)(11,342)(13,368)(6,684)
Realized and unrealized (loss) gain on derivative instruments (2)(24,222)(12,111)1,725 863 
Foreign currency exchange gain (loss)324 162 (1,643)(822)
Total other items(46,582)(23,291)(13,286)(6,643)
Net income / equity income of equity-accounted vessels before income tax expense6,784 3,392 45,502 22,752 
Income tax expense(238)(118)(815)(408)
Net income / equity income of equity-accounted vessels6,546 3,274 44,687 22,344 
 Depreciation and amortization33,464 16,732 30,181 15,090 
 Net interest expense (1)22,684 11,342 13,368 6,684 
 Income tax expense238 118 815 408 
EBITDA62,932 31,466 89,051 44,526 
Add (subtract) specific items affecting EBITDA:    
 Realized and unrealized loss on derivative instruments (2)24,222 12,111 (1,725)(863)
 Foreign currency exchange (gain) loss(324)(162)1,643 822 
Adjusted EBITDA from equity-accounted vessels86,830 43,415 88,969 44,485 
  1. Net interest expense for the six months ended June 30, 2018 includes an unrealized gain of $9.7 million ($4.9 million at the Partnership's 50% share) related to interest rate swaps designated and qualifying as cash flow hedges for the Pioneiro de Libra FPSO unit.
  2. Realized and unrealized (loss) gain on derivative instruments includes an unrealized loss of $22.6 million ($11.3 million at the Partnership’s 50% share) for the six months ended June 30, 2019 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units and an unrealized gain of $2.2 million ($1.1 million at the Partnership’s 50% share) for the six months ended June 30, 2018 related to interest rate swaps for the Cidade de Itajai FPSO unit.

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Source: Teekay Offshore Partners L.P.


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