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Teekay Offshore Partners L.P.$1.52($.04)(2.56%)

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 Teekay Offshore Partners Reports Fourth Quarter and Annual 2015 Results
   Thursday, February 18, 2016 6:44:43 AM ET

Highlights


--  Generated distributable cash flow of $67.0 million, or $0.62 per common
    unit, in the fourth quarter of 2015 and $244.7 million, or $2.29 per
    common unit, during 2015.
--  Generated cash flow from vessel operations of $172.9 million and $588.4
    million in the fourth quarter and fiscal year of 2015, respectively,
    increases of 38 percent and 25 percent from the same periods of the
    prior year.
--  Declared fourth quarter 2015 cash distribution of $0.11 per common unit.
--  Completed the sale of two conventional tankers and agreed to sell the
    remaining two conventional tankers for total gross proceeds of
    approximately $130 million.
--  Total liquidity of approximately $283 million as at December 31, 2015.


Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (TOO ), today reported the Partnership’s results for the quarter and year ended December 31, 2015. During the fourth quarter of 2015, the Partnership generated distributable cash flow(1) of $67.0 million, compared to $50.0 million in the same period of the prior year. The increase in distributable cash flow was primarily due to the acquisition of the Petrojarl Knarr (Knarr) floating production, storage and offloading (FPSO) unit in July 2015, the acquisition of six long-distance towing and offshore installation vessels during the first seven months of 2015, the commencement of the Arendal Spirit unit for maintenance and safety (UMS) charter contract in early-June 2015 and a production bonus recorded in the fourth quarter of 2015 relating to the Voyageur Spirit FPSO. These increases were partially offset by the expiration of two shuttle tanker contracts in the second quarter of 2015 and the sale of two conventional tankers, the SPT Explorer and Navigator Spirit, in the fourth quarter of 2015.

On January 20, 2016, the Partnership declared a cash distribution of $0.11 per unit for the quarter ended December 31, 2015. The cash distribution was paid on February 12, 2016 to all unitholders of record on February 5, 2016.


(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 distributable cash flow to the most directly
     comparable financial measure under United States generally accepted
     accounting principles (GAAP).


CEO Commentary

"Despite the challenging macro energy environment affecting our customers, the Partnership grew its cash flows during the fourth quarter and fiscal year 2015, highlighting the stability of our business which plays an integral role in our customers’ oil production logistics chains," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. "The growth was driven mostly by the delivery and acquisition of several offshore units during 2015, including our largest FPSO acquisition to date, the Knarr FPSO, the Arendal Spirit UMS and six long-distance towing and offshore installation vessels."

Mr. Evensen added "Teekay Offshore’s fleet continues to operate with high uptime and fleet utilization, generating stable cash flow, supported by a diversified portfolio of long-term contracts with high quality counterparties."

"The decision in December to temporarily reduce Teekay Offshore’s distributions was a difficult decision and was caused by the inability to access competitively priced capital in the current negative capital market environment and was not caused by a shortfall in the cash flows of our operations," Mr. Evensen continued, "We believe the reduction is in the best interests of long-term unitholders as the reallocation of a significant portion of our internally generated cash flows to fund our profitable growth projects that will deliver over the next several years will result in higher available distributable cash flow per unit."

"We are pleased to announce the sale of our four remaining non-core conventional tankers, further improving the Partnership’s liquidity position," Mr. Evensen continued. "These asset sales take advantage of strong tanker asset prices and represent one of many ways that the Partnership is able to supplement its internally generated cash flows to fund our financing requirements."

Mr. Evensen added "Looking ahead to 2016, despite the sale of the conventional tankers and the anticipated redelivery of the Varg FPSO after operating on the Varg field for almost 18 years, the Partnership’s cash flows are expected to increase compared to 2015 supported by high uptime and fleet utilization and the delivery of various growth projects in 2016, including the Petrojarl I FPSO project and the delivery of four newbuilding long-distance towing and offshore installation vessels. We remain focused on completing our existing growth pipeline and are now pivoting our business strategy to focus on the future redeployment of our existing assets onto new contracts instead of new organic growth projects, implementing various cost saving initiatives, and addressing our remaining funding needs."

Business Outlook for 2016 and 2017

The Partnership plans to host a conference call on Thursday, February 18, at 12:30 p.m. (ET) to discuss the results contained in this news release as well as its business outlook, which includes additional forecasted cash flows for 2016 and 2017. A copy of the Fourth Quarter 2015 Earnings and Business Outlook Presentation, which will be discussed during this conference call, is available at http://media3.marketwire.com/docs/1043411p.pdf .

Summary of Recent Events

Sale of Four Conventional Tankers

The Partnership completed the sale of two conventional tankers and has entered into an agreement to sell its remaining two conventional tankers for aggregate sales proceeds of approximately $130 million. The first two conventional tankers, the SPT Explorer and Navigator Spirit, were sold to Teekay Tankers Ltd. (Teekay Tankers) in mid-December 2015 and the two remaining conventional tankers, the Kilimanjaro Spirit and Fuji Spirit, are expected to be delivered to a third party in March 2016. After repaying existing debt secured by these assets and the novation of an existing $50 million revolving credit facility to Teekay Tankers, these transactions are expected to add approximately $60 million to the Partnership’s liquidity position. As part of the sale of the Kilimanjaro Spirit and the Fuji Spirit, the Partnership has agreed to charter-in both vessels for a period of three-years at $23,000 per day and $22,750 per day, respectively. Both vessels are expected to operate on the spot tanker market in Teekay’s Aframax RSA pool.

Termination of the Petrojarl Varg FPSO Contract

In November 2015, the Partnership received a termination notice for the Petrojarl Varg (Varg) FPSO charter contract from Repsol S.A. (Repsol), formerly Talisman Energy, based on a termination right that is specific to the Varg FPSO contract. Following discussions with Repsol, the Partnership currently expects the Varg FPSO to be redelivered to the Partnership in August 2016. The Partnership is currently pursuing various redeployment opportunities for the Varg FPSO, a unit which meets the strict Norwegian petroleum industry (NORSOK) standards.

Financial Summary

The Partnership reported adjusted net income attributable to the partners(1) of $53.7 million for the quarter ended December 31, 2015, compared to $40.1 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $9.8 million and $63.4 million for the quarters ended December 31, 2015 and 2014, respectively, as detailed in Appendix A to this release. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $43.9 million for the fourth quarter of 2015, compared to a net loss attributable to the partners of $23.3 million in the same period of the prior year. Net revenues(2) increased to $312.5 million for the fourth quarter of 2015, compared to $236.3 million in the same period of the prior year.

The Partnership reported adjusted net income attributable to the partners(1) of $165.7 million for the year ended December 31, 2015, compared to $123.8 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $89.6 million and $116.7 million for the years ended December 31, 2015 and 2014, respectively, as detailed in Appendix A to this release. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $76.1 million for the year ended December 31, 2015, compared to $7.2 million in the same period of the prior year. Net revenues(2) increased to $1.1 billion for the year ended December 31, 2015, compared to $907.0 million in the same period of the prior year.

Adjusted net income attributable to the partners for the three months and year ended December 31, 2015 increased from the same period in the prior year mainly due to the acquisition of the Knarr FPSO unit on July 1, 2015, the acquisition of six long-distance towing and offshore installation vessels during the first seven months of 2015, the Arendal Spirit UMS commencing its charter contract in early-June 2015 and a production bonus recorded in the fourth quarter of 2015 relating to the Voyageur Spirit FPSO. These increases were partially offset by a temporary shut-down on the Piranema Spirit FPSO for unscheduled repairs during the third quarter of 2015, the expiration of two shuttle tanker contracts in the second quarter of 2015, the sale of the Navion Svenita shuttle tanker in March 2015, and the sale of the SPT Explorer and Navigator Spirit conventional tankers during the fourth quarter of 2015.

For accounting purposes, the Partnership is required to recognize, through the consolidated statements of income (loss), changes in the fair value of derivative instruments as unrealized gains or losses. This revaluation does not affect the economics of any hedging transactions nor does it have any impact on the Partnership’s actual cash flows or the calculation of its distributable cash flow.


(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 (loss) that are typically excluded by
     securities analysts in their published estimates of the Partnership’s
     financial results.
(2)  Net revenues is a non-GAAP financial measure used by certain investors
     to measure the financial performance of shipping companies. Please
     refer to Appendix C included in this release for a reconciliation of
     this non-GAAP measure to the most directly comparable financial measure
     under GAAP.


Operating Results

The following table highlights certain financial information for Teekay Offshore’s six segments: the Shuttle Tanker segment, the FPSO segment, the FSO segment, the Conventional Tanker segment, the Towage segment and the UMS segment (please refer to the "Teekay Offshore’s Fleet" section of this release below and Appendices C through F for further details).


----------------------------------------------------------------------------
                                     Three Months Ended
                                     December 31, 2015
(in thousands of
 U.S. Dollars)                          (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional              UMS
                  Tanker    FPSO     FSO   Tanker  Towage  Segment
                 Segment Segment Segment  Segment Segment      (1)    Total

----------------------------------------------------------------------------
Net revenues(2)  117,994 153,669  14,093    5,571   8,297   12,911  312,535
Vessel operating
 expenses        (33,906)(55,148) (6,603)  (1,726) (4,763)  (6,774)(108,920)
Time-charter
 hire expense    (15,112)      -       -        -       -        -  (15,112)
Depreciation and
 amortization    (25,666)(37,595) (2,584)  (1,558) (2,874)  (1,697) (71,974)
----------------------------------------------------------------------------
CFVO from
 consolidated
 vessels(3)       63,223  83,761   8,679    3,690   2,753    5,732  167,838
CFVO from equity
 accounted
 vessels(4)            -   5,091       -        -       -        -    5,091
----------------------------------------------------------------------------
Total CFVO(3)(4)  63,223  88,852   8,679    3,690   2,753    5,732  172,929
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                                     Three Months Ended
                                     December 31, 2014
(in thousands of
U.S. Dollars)                           (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional              UMS
                  Tanker    FPSO     FSO   Tanker  Towage  Segment
                 Segment Segment Segment  Segment Segment      (1)    Total
----------------------------------------------------------------------------

Net revenues(2)  119,301  94,595  14,830    7,417     110        -  236,253
Vessel operating
 expenses        (40,386)(35,211) (7,275)  (1,422)      -        -  (84,294)
Time-charter
 hire expense     (7,618)      -       -        -       -        -   (7,618)
Depreciation and
 amortization    (28,300)(18,629) (3,059)  (1,844)      -        -  (51,832)
----------------------------------------------------------------------------
CFVO from
 consolidated
 vessels(3)       60,713  47,439   7,453    5,498    (562)    (203) 120,338
CFVO from equity
 accounted
 vessel(4)             -   5,133       -        -       -        -    5,133
----------------------------------------------------------------------------
Total CFVO(3)(4)  60,713  52,572   7,453    5,498    (562)    (203) 125,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1)  The Partnership acquired 100 percent of the outstanding shares of
     Logitel Offshore Holding AS (Logitel) during the third quarter of 2014
     and operations began in the second quarter of 2015.
(2)  Net revenues is a non-GAAP financial measure used by certain investors
     to measure the financial performance of shipping companies. Please
     refer to Appendix C, included in this release for a reconciliation of
     this non-GAAP measure to the most directly comparable GAAP financial
     measure.
(3)  Cash flow from vessel operations (CFVO) from consolidated vessels
     represents income (loss) from vessel operations before depreciation and
     amortization expense, write-down and gain on sale of vessels, and
     amortization of the non-cash portion of revenue contracts, and includes
     the realized gains and losses on the settlement of foreign exchange
     forward contracts and adjusts 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. CFVO should
     not be considered as an alternative to net income, equity income or any
     other indicator of the Partnership’s performance required by GAAP.
     Please refer to Appendix E included in this release for a description
     and reconciliation of this non-GAAP measure to the most directly
     comparable GAAP financial measure.
(4)  CFVO from equity accounted vessels represents the Partnership’s
     proportionate share of CFVO from its equity-accounted vessels, the
     Cidade de Itajai FPSO unit and the Libra FPSO conversion project.
     Please see Appendix F for a description and reconciliation of CFVO from
     equity accounted vessels (a 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 increased to $63.2 million for the fourth quarter of 2015 compared to $60.7 million for the same period of the prior year, primarily due to the commencement of the shuttle tanker contract for the East Coast of Canada in June 2015, mobilization costs expensed on the HiLoad DP unit during the fourth quarter of 2014, and a reduction in operating expenses resulting from cost-saving initiatives and the depreciation of certain foreign currencies, partially offset by the sale of Navion Svenita in March 2015 and an increase in repair and crew training costs in the fourth quarter of 2015.

FPSO Segment

Cash flow from vessel operations from the Partnership’s FPSO segment (which also includes the results from two equity-accounted FPSO units), increased to $88.9 million for the fourth quarter of 2015 compared to $52.6 million for the same period of the prior year, primarily due to the acquisition of the Knarr FPSO unit from Teekay Corporation in July 2015 and a production bonus recorded in the fourth quarter of 2015 relating to the Voyageur Spirit FPSO, partially offset by a retroactive increase in charter rates for the Cidade de Rio das Ostras FPSO unit recorded in the fourth quarter of 2014 and higher repairs and maintenance on the Piranema Spirit FPSO unit in the fourth quarter of 2015.

FSO Segment

Cash flow from vessel operations from the Partnership’s FSO segment increased to $8.7 million for the fourth quarter of 2015, compared to $7.5 million for the same period of the prior year, primarily due to a decrease in management fees resulting from cost-saving initiatives.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership’s Conventional Tanker segment decreased to $3.7 million for the fourth quarter of 2015, compared to $5.5 million for the same period of the prior year, primarily due to net early termination fees paid to Teekay Corporation of $1.8 million relating to the charter contract terminations for the SPT Explorer, Navigator Spirit and the Fuji Spirit during the fourth quarter of 2015.

Towage Segment

Cash flow from vessel operations from the Partnership’s Towage segment of $2.8 million for the fourth quarter of 2015, primarily relates to the acquisition of the six towage vessels during the first seven months of 2015.

UMS Segment

Cash flow from vessel operations from the Partnership’s UMS segment increased to $5.7 million for the fourth quarter of 2015, primarily related to the Arendal Spirit UMS, which commenced its charter contract with Petrobras in June 2015.

Teekay Offshore’s Fleet

The following table summarizes Teekay Offshore’s fleet as of February 1, 2016.


----------------------------------------------------------------------------
                                        Number of Vessels
----------------------------------------------------------------------------
                                                     Committed
                                                Newbuildings /
                                    Chartered-in Conversions /
                     Owned Vessels       Vessels       Upgrade         Total
----------------------------------------------------------------------------
Shuttle Tanker
 Segment                     30(i)             3         3(ii)            36
FPSO Segment                6(iii)             -         2(iv)             8
FSO Segment                      6             -          1(v)             7
Towage Segment                   6             -         4(vi)            10
Conventional Segment             2             -             -             2
UMS Segment                      1             -        2(vii)             3
----------------------------------------------------------------------------
Total                           51             3            12            66
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i)   Includes six shuttle tankers in which Teekay Offshore’s ownership
      interest is 50 percent, one shuttle tanker in which Teekay Offshore’s
      ownership interest is 67 percent and one Hiload DP unit.
(ii)  Includes three Suezmax-size, DP2 shuttle tanker newbuildings scheduled
      to be delivered in the fourth quarter of 2017 through the first half
      of 2018 for employment under the East Coast of Canada contract.
(iii) Includes one FPSO unit, the Cidade de Itajai, in which Teekay
      Offshore’s ownership interest is 50 percent.
(iv)  Consists of the Petrojarl I FPSO upgrade project and Teekay Offshore’s
      50 percent ownership interest in the Libra FPSO conversion project.
(v)   Consists of the Randgrid shuttle tanker, which is being converted into
      an FSO unit for use with the Gina Krog FSO project.
(vi)  Consists of four long-distance towing and offshore installation vessel
      newbuildings scheduled to deliver in 2016.
(vii) Consists of two UMS newbuildings currently scheduled to deliver in the
      fourth quarter of 2016 and the second quarter of 2019.


Liquidity Update

As of December 31, 2015, the Partnership had total liquidity of $282.7 million (comprised of $258.5 million in cash and cash equivalents and $24.2 million in undrawn credit facilities).

Conference Call

The Partnership plans to host a conference call on Thursday, February 18, 2016 at 12:30 pm (ET) to discuss the results for the fourth quarter and fiscal year of 2015 as well as its business outlook. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:


--  By dialing 1-866-738-4015 or 416-204-9524, if outside North America, and
    quoting conference ID code 4410522.

--  By accessing the webcast, which will be available on Teekay Offshore’s
    website at www.teekayoffshore.com (the archive will remain on the
    website for a period of 30 days).


A supporting Fourth Quarter and Fiscal Year 2015 Earnings and Business Outlook Presentation will also be available at www.teekayoffshore.com in advance of the conference call start time.

The conference call will be recorded and available until Thursday, March 3, 2016. This recording can be accessed following the live call by dialing 1-888-203-1112 or 647-436-0148, if outside North America, and entering access code 4410522.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is an international provider of marine transportation, oil production, storage, long-distance towing and offshore installation and maintenance and safety services to the offshore oil industry, primarily focusing on the deepwater offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Teekay Offshore is structured as a publicly-traded master limited partnership (MLP) with consolidated assets of approximately $5.7 billion, comprised of 66 offshore assets, including shuttle tankers, floating production, storage and offloading (FPSO) units, floating storage and offtake (FSO) units, units for maintenance and safety (UMS), long-distance towing and offshore installation vessels and conventional tankers. The majority of Teekay Offshore’s fleet is employed on medium-term, stable contracts.

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


Teekay Offshore Partners L.P.
Summary Consolidated Statements of Income (Loss)
(in thousands of U.S. Dollars, except unit data)
----------------------------------------------------------------------------
                                              Three Months Ended
                                   December 31, September 30,  December 31,
                                           2015          2015          2014
                                    (unaudited)   (unaudited)   (unaudited)
----------------------------------------------------------------------------
Revenues                                339,142       314,054       260,461

Voyage expenses                         (26,607)      (28,166)      (24,208)
Vessel operating expenses              (108,920)      (95,172)      (84,294)
Time-charter hire expense               (15,112)      (18,893)       (7,618)
Depreciation and amortization           (71,974)      (72,827)      (51,832)
General and administrative (2)          (14,190)      (27,321)      (20,575)
(Write-down) and gain on sale of
 vessels(3)                             (55,645)            -         3,121
Restructuring (charge) recovery            (276)         (157)            -
----------------------------------------------------------------------------
Income from vessel operations            46,418        71,518        75,055

Interest expense                        (33,013)      (33,645)      (24,982)
Interest income                             203           153           207
Realized and unrealized gains
 (losses) derivative instruments
 (4)                                     16,478       (77,102)      (59,495)
Equity income (loss)                        913        (7,052)        1,764
Foreign currency exchange loss(5)          (827)      (10,257)      (11,590)
Other income (loss) - net                   825          (373)          597
----------------------------------------------------------------------------
Income (loss) before income tax
 expense                                 30,997       (56,758)      (18,444)
Income tax recovery (expense)            15,703         5,465           734
----------------------------------------------------------------------------
Net income (loss)                        46,700       (51,293)      (17,710)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Non-controlling interests in net
 income                                   2,829         3,446         5,547
Dropdown Predecessor’s interest in
 net income(1)                                -             -             -
Preferred unitholders’ interest in
 net income                              10,750        10,349         2,719
General Partner’s interest in net
 income                                     662         5,738         3,643
Limited partners’ interest in net
 income (loss)                           32,459       (70,826)      (29,619)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-average number of common
 units:
  - basic                           107,016,572   102,009,737    88,159,388
  - diluted                         107,047,391   102,009,737    88,159,388
Total number of common units
 outstanding at end of period       107,026,979   107,003,043    92,386,383
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                                                  Year Ended
                                  December 31, 2015(1)    December 31, 2014
                                           (unaudited)          (unaudited)
----------------------------------------------------------------------------
Revenues                                     1,229,413            1,019,539

Voyage expenses                                (98,006)            (112,540)
Vessel operating expenses                     (378,480)            (352,209)
Time-charter hire expense                      (51,750)             (31,090)
Depreciation and amortization                 (274,599)            (198,553)
General and administrative (2)                 (72,613)             (67,516)
(Write-down) and gain on sale of
 vessels(3)                                    (69,998)              (1,638)
Restructuring (charge) recovery                   (568)                 225
----------------------------------------------------------------------------
Income from vessel operations                  283,399              256,218

Interest expense                              (122,838)             (88,381)
Interest income                                    633                  719
Realized and unrealized gains
 (losses) derivative instruments
 (4)                                           (73,704)            (143,703)
Equity income (loss)                             7,672               10,341
Foreign currency exchange loss(5)              (17,467)             (16,140)
Other income (loss) - net                        1,091                  781
----------------------------------------------------------------------------
Income (loss) before income tax
 expense                                        78,786               19,835
Income tax recovery (expense)                   21,357               (2,179)
----------------------------------------------------------------------------
Net income (loss)                              100,143               17,656
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Non-controlling interests in net
 income                                         13,911               10,503
Dropdown Predecessor’s interest in
 net income(1)                                  10,100                    -
Preferred unitholders’ interest in
 net income                                     28,609               10,875
General Partner’s interest in net
 income                                         16,317               15,658
Limited partners’ interest in net
 income (loss)                                  31,206              (19,380)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-average number of common
 units:
  - basic                                   98,507,732           86,212,290
  - diluted                                 98,602,412           86,212,290
Total number of common units
 outstanding at end of period              107,026,979           92,386,383
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)  The Partnership has recast its financial results to include the
     financial results of the Knarr FPSO unit relating to the period prior
     to its acquisition by the Partnership from Teekay Corporation when it
     was under common control, which pre-acquisition results are referred to
     in this release as the Dropdown Predecessor. 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 Corporation.
     For these purposes, the Knarr FPSO unit was under common control by
     Teekay Corporation from March 9, 2015 to July 1, 2015, when it was sold
     to the Partnership.
(2)  General and administrative expenses for the three months ended
     September 30, 2015 and the year ended December 31, 2015 include one-
     time business development fees of $13.9 million paid to Teekay
     Corporation relating to the purchases of the Knarr FPSO unit, six
     towage vessels and the Arendal Spirit UMS.
(3)  The write-down for the three months ended December 31, 2015 includes
     the impairment of two of the Partnership’s 2000s-built conventional
     tankers and five of the Partnership’s 1990s-built shuttle tankers to
     their estimated fair value, using appraised values. The write-down of
     the two conventional tankers was the result of the expected sale of the
     vessels and the vessels were classified as held for sale on the
     Partnership’s consolidated balance sheet as at December 31, 2015. The
     write-down of the five shuttle tankers, which have an average age of
     17.5 years, was the result of changes in our expectations of their
     future opportunities, primarily due to their advanced age. While we
     expect four of the five vessels to continue to actively trade as
     shuttle tankers over the near-term and the fifth vessel to actively
     trade in the conventional tanker market, we anticipate fewer
     opportunities for alternative usage and increased age discrimination
     over time.
(4)  Realized losses on derivative instruments relate to amounts the
     Partnership actually paid to settle derivative instruments, and the
     unrealized gains (losses) on derivative instruments relate to the
     change in fair value of such derivative instruments, as detailed in the
     table below:

----------------------------------------------------------------------------
                                Three Months Ended           Year Ended
                           December September  December  December  December
                           31, 2015  30, 2015  31, 2014  31, 2015  31, 2014
----------------------------------------------------------------------------
Realized losses relating
 to:
  Interest rate swaps       (15,363)  (15,857)  (13,729)  (60,741)  (55,588)
  Interest rate swap
   termination                    -   (10,876)        -   (10,876)        -
  Foreign currency forward
   contracts                 (3,909)   (4,064)   (1,331)  (13,799)   (1,912)
----------------------------------------------------------------------------
                            (19,272)  (30,797)  (15,060)  (85,416)  (57,500)
----------------------------------------------------------------------------

Unrealized gains (losses)
 relating to:
  Interest rate swaps        34,255   (43,453)  (35,625)   11,952   (75,777)
  Foreign currency forward
   contracts                  1,495    (2,852)   (8,810)     (240)  (10,426)
----------------------------------------------------------------------------
                             35,750   (46,305)  (44,435)   11,712   (86,203)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Total realized and
 unrealized gains (losses)
 on derivative instruments   16,478   (77,102)  (59,495)  (73,704) (143,703)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(5)  Foreign currency exchange loss includes realized losses relating to the
     amounts the Partnership paid to settle its non-designated cross
     currency swaps that were entered into as an economic hedge relating to
     the Partnership’s Norwegian Kroner (NOK)-denominated unsecured bonds as
     detailed in the table below. The Partnership issued NOK 600 million of
     unsecured bonds in 2012 maturing in 2017, NOK 1,300 million of
     unsecured bonds in 2013 maturing in 2016 and 2018, and NOK 1,000
     million of unsecured bonds in 2014 maturing in 2019. Foreign currency
     exchange loss also includes unrealized losses relating to the change in
     fair value of such derivative instruments, partially offset by
     unrealized gains on the revaluation of the NOK bonds, as detailed in
     the table below:


----------------------------------------------------------------------------
                                Three Months Ended           Year Ended
                           December September  December  December  December
                           31, 2015  30, 2015  31, 2014  31, 2015  31, 2014
----------------------------------------------------------------------------
Realized losses on cross
 currency swaps              (2,967)   (2,840)   (1,473)  (10,140)   (1,992)
Unrealized losses on cross
 currency swaps              (9,409)  (32,649)  (68,455)  (61,734)  (93,953)
Unrealized gains on
 revaluation of NOK bonds    12,615    28,722    62,127    61,217    85,989
----------------------------------------------------------------------------



Teekay Offshore Partners L.P.
Consolidated Balance Sheets
(in thousands of U.S. Dollars)
----------------------------------------------------------------------------
                                       As at          As at            As at
                                December 31,  September 30,     December 31,
                                        2015           2015             2014
                                 (unaudited)    (unaudited)      (unaudited)
----------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents            258,473        251,058          252,138
Restricted cash - current             51,431         40,241            4,704
Accounts receivable                  153,662        154,965          103,665
Vessels held for sale                 55,450          5,000                -
Net investments in direct
 financing leases - current            5,936          5,781            4,987
Prepaid expenses                      34,027         42,450           30,211
Due from affiliates                   81,271         44,829           44,225
Advances to joint venture                  -              -            5,225
Other current assets                  20,490         20,284            4,626
----------------------------------------------------------------------------
Total current assets                 660,740        564,608          449,781
----------------------------------------------------------------------------

Restricted cash - long-term            9,089          9,109           42,056

Vessels and equipment
At cost, less accumulated
 depreciation                      4,348,535      4,579,915        3,010,689
Advances on newbuilding
 contracts and conversion
 costs                               395,084        327,286          172,776
Net investments in direct
 financing leases                     11,535         13,038           17,471
Investment in equity
 accounted joint ventures             77,647         70,458           54,955
Deferred tax assets                   30,050         15,046            5,959
Other assets                          82,341         86,035           35,005
Goodwill                             129,145        129,145          129,145
----------------------------------------------------------------------------
Total assets                       5,744,166      5,794,640        3,917,837
----------------------------------------------------------------------------

LIABILITIES AND EQUITY
Current
Accounts payable                      15,899         36,865           15,064
Accrued liabilities                   91,065        100,506           68,013
Deferred revenues                     54,378         50,220           25,669
Due to affiliates                    304,583        296,683          108,941
Current portion of
 derivative instruments              201,456        124,414           85,318
Current portion of long-term
 debt                                470,589        453,651          249,671
Current portion of in-
 process revenue contracts            12,779         12,779           12,744
----------------------------------------------------------------------------
Total current liabilities          1,150,749      1,075,118          565,420
----------------------------------------------------------------------------
Long-term debt                     2,893,285      2,864,036        2,158,925
Derivative instruments               221,329        324,051          257,754
In-process revenue contracts          63,026         66,238           75,805
Other long-term liabilities          192,258        214,481           44,238
----------------------------------------------------------------------------
Total liabilities                  4,520,647      4,543,924        3,102,142
----------------------------------------------------------------------------

Redeemable non-controlling
 interest                              3,173          5,574           12,842
Convertible Preferred Units
 (10.4 million and nil units
 issued and outstanding at
 December 31, 2015 and
 December 31, 2014,
 respectively)                       252,498        254,724                -

Equity
Limited partners - common
 units (107.0 million and
 92.4 million units issued
 and outstanding at December
 31, 2015 and December 31,
 2014, respectively)                 629,264        641,320          589,165
Limited partners - preferred
 units (11.0 million and 6.0
 million units issued and
 outstanding at December 31,
 2015 and December 31, 2014,
 respectively)                       266,925        266,924          144,800
General Partner                       17,608         25,039           21,038
Non-controlling interests             53,355         58,220           47,850
Accumulated other
 comprehensive income (loss)             696         (1,085)               -
----------------------------------------------------------------------------
Total equity                         967,848        990,418          802,853
----------------------------------------------------------------------------
Total liabilities and total
 equity                            5,744,166      5,794,640        3,917,837
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Teekay Offshore Partners L.P.
Consolidated Statements of Cash Flows
(in thousands of U.S. Dollars)

----------------------------------------------------------------------------
                                                       Year Ended
                                               December 31,    December 31,
                                                       2015            2014
                                             (unaudited)(1)     (unaudited)
----------------------------------------------------------------------------
Cash and cash equivalents provided by (used
 for)
OPERATING ACTIVITIES
Net income                                          100,143          17,656
Non-cash items:
  Unrealized loss on derivative instruments          51,072         180,156
  Equity income, net of dividends received
   of $7,843 (2014 - $16,803)                           171           6,462
  Depreciation and amortization                     274,599         198,553
  Write-down and (gain) on sale of vessels           69,998           1,638
  Deferred income tax (recovery) expense            (23,007)            889
  Amortization of in-process revenue
   contracts                                        (12,745)        (12,744)
  Foreign currency exchange gain and other         (101,853)        (84,719)
Change in non-cash working capital items
 related to operating activities                     25,903        (111,484)
Expenditures for dry docking                        (13,060)        (36,221)
----------------------------------------------------------------------------
Net operating cash flow                             371,221         160,186
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from long-term debt                        785,577       1,350,096
Scheduled repayments of long-term debt             (341,837)       (804,704)
Prepayments of long-term debt                      (123,606)       (418,625)
Debt issuance costs                                 (22,587)        (15,555)
Purchase of Teekay Knarr AS and Knarr L.L.C
 from Teekay Corporation (net of cash
 acquired of $14.2 million)                        (112,710)              -
Increase in restricted cash                         (13,760)        (46,760)
Proceeds from issuance of common units                9,674         186,353
Proceeds from issuance of preferred units           375,000               -
Expenses relating to equity offerings                (4,459)           (228)
Cash distributions paid by the Partnership         (257,900)       (214,656)
Settlement of contingent consideration
 liability                                           (3,303)              -
Cash distributions paid by subsidiaries to
 non-controlling interests                          (23,575)        (27,939)
Equity contribution from joint venture
 partners                                             5,500          27,267
Purchase of Voyageur LLC from Teekay
 Corporation                                              -           6,181
Other                                                 1,124             974
----------------------------------------------------------------------------
Net financing cash flow                             273,138          42,404
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Expenditures for vessels and equipment,
 including advances on newbuilding contracts
 and conversion costs                              (664,667)       (172,169)
Proceeds from sale of vessels and equipment           8,918          13,364
Repayment (advances) from (to) joint venture
 partners and equity accounted joint
 ventures                                             5,225          (5,225)
Direct financing lease payments received              4,987           5,097
Investment in equity accounted joint
 ventures                                           (22,855)        (12,413)
Acquisition of ALP Maritime Services B.V.
 (net of cash acquired of $0.3 million)                   -          (2,322)
Acquisition of Logitel Offshore Holding AS
 (net of cash acquired of $8.1 million)                   -           4,090
Proceeds from sale of SPT Explorer L.L.C.
 and Navigator Spirit L.L.C.                         30,368               -
----------------------------------------------------------------------------
Net investing cash flow                            (638,024)       (169,578)
----------------------------------------------------------------------------

Increase in cash and cash equivalents                 6,335          33,012
Cash and cash equivalents, beginning of the
 year                                               252,138         219,126
----------------------------------------------------------------------------
Cash and cash equivalents, end of the year          258,473         252,138
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)  In accordance with GAAP, the Consolidated Statement of Cash Flows for
     the year ended December 31, 2015 includes the cash flows relating to
     the Knarr FPSO unit Dropdown Predecessor for the period from March 9,
     2015 to July 1, 2015, when the vessel was under the common control of
     Teekay Corporation, but prior to its acquisition by the Partnership.


Teekay Offshore Partners L.P.
Appendix A - Specific Items Affecting Net Income (Loss)
(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 (loss) attributable to the partners as determined in accordance with GAAP. The Partnership believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Partnership’s financial performance. The items below are also typically excluded by securities analysts in their published estimates of the Partnership’s financial results. Adjusted net income attributable to the partners is intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP.


----------------------------------------------------------------------------
                               Three Months Ended          Year Ended
                               December    December    December    December
                               31, 2015    31, 2014    31, 2015    31, 2014
                            (unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------------------------------------------
Net income (loss) - GAAP
 basis                           46,700     (17,710)    100,143      17,656
Adjustments:
  Net income attributable to
   non-controlling interests     (2,829)     (5,547)    (13,911)    (10,503)
  Net income attributable to
   Dropdown Predecessor               -           -     (10,100)          -
----------------------------------------------------------------------------
Net income (loss)
 attributable to the
 partners                        43,871     (23,257)     76,132       7,153
----------------------------------------------------------------------------
Add (subtract) specific
 items affecting net income
 (loss):
  Foreign currency exchange
   (gains) losses(1)             (2,140)     10,117       5,231      14,148
  Unrealized (gains) losses
   on derivative
   instruments(2)               (34,886)     45,147      (5,844)     86,615
  Realized loss on swap
   termination                        -           -      10,876           -
  Write-down and (gain) on
   sale of vessels(3)            55,645      (3,121)     69,998       1,638
  Deferred income tax
   recovery relating to
  Norwegian tax structure(4)    (15,455)          -     (21,289)          -
  Pre-operational costs(5)        3,890           -      10,474           -
  Business development fees
   and other(6)                   2,323       8,833      18,029      10,812
  Non-controlling interests’
   share of items above(7)          437       2,387       2,088       3,480
----------------------------------------------------------------------------
Total adjustments                 9,814      63,363      89,563     116,693
----------------------------------------------------------------------------
Adjusted net income
 attributable to the
 partners(8)                     53,685      40,106     165,695     123,846
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 unrealized gains or losses related to the
     Partnership’s cross currency swaps for outstanding Norwegian bonds of
     the Partnership and excludes the realized gains and losses relating to
     the cross currency swaps.
(2)  Reflects the unrealized (gains) losses due to changes in the mark-to-
     market value of interest rate swaps and foreign exchange forward
     contracts that are not designated as hedges for accounting purposes,
     including the unrealized mark-to-market value of the interest rate
     swaps within the Cidade de Itajai FPSO and Libra FPSO equity accounted
     joint ventures.
(3)  Please refer to footnote (3) of the summary consolidated statements of
     income (loss) about the write-down of vessels for the three months
     ended December 31, 2015. Results for the year ended December 31, 2015
     also include the write-down of two of the Partnership’s 1990s-built
     shuttle tankers and a gain on the sale of a 1997-built shuttle tanker,
     the Navion Svenita. The write-down of one of these shuttle tankers was
     a result of the expected sale of the vessel and the vessel was
     classified as held for sale as at December 31, 2015. This vessel was
     subsequently sold in January 2016 for gross proceeds of $5.1 million.
     The write-down of the second shuttle tanker was a result of a change in
     the operating plan of the vessel.
(4)  Reflects the increase in the deferred income tax assets within the
     Partnership’s Norwegian tax group.
(5)  Reflects the realized losses on foreign currency forward contracts
     relating to upgrade costs on the Petrojarl I FPSO unit, depreciation
     and amortization expense relating to the Petrojarl I FPSO unit while
     undergoing conversion, and costs associated to the delivery deferral of
     the Stavanger Spirit UMS.
(6)  Other items for the three months ended December 31, 2015 include net
     early termination fees paid to Teekay Corporation of $1.8 million, a
     restructuring charge of $0.3 million relating to a seafarer redundancy
     accrual in the Partnership’s shuttle tanker fleet and a $0.3 million
     write-down of inventory assets. Other items for the year ended December
     31, 2015 include one-time business development fees of $13.9 million
     paid to Teekay Corporation relating to the purchases of the Knarr FPSO
     unit, six towage vessels, and the Arendal Spirit UMS, the ineffective
     portion of losses on interest rate swaps designated and qualifying as
     cash flow hedges of $1.1 million, a $0.7 million write-down of
     inventory assets, and a restructuring charge of $0.6 million relating
     to seafarer redundancy in the Partnership’s shuttle tanker fleet. Other
     items for the three months and year ended December 31, 2014 include
     $4.7 million of mobilization costs related to the HiLoad DP unit, fees
     of $2.1 million paid to Teekay Corporation associated with the
     Partnership’s acquisition of the Petrojarl I FPSO unit, and a $2.0
     million and $1.4 million charge, respectively, related to pension
     adjustments. Other items for the year ended December 31, 2014 also
     include fees of $2.6 million associated with the Partnership’s
     acquisition of ALP.
(7)  Items affecting net income (loss) include items from the Partnership’s
     consolidated non-wholly-owned subsidiaries. The specific items
     affecting net income (loss) are 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 amount identified as "non-controlling
     interests’ share of items above" in the table above is the cumulative
     amount of the non-controlling interests’ proportionate share of items
     listed in the table.
(8)  For the year ended December 31, 2014, adjusted net income attributable
     to the partners excludes $3.5 million of indemnification payments from
     Teekay Corporation relating to the loss of revenues and certain
     unrecovered vessel operating expenses for the Voyageur Spirit FPSO.


Teekay Offshore Partners L.P.
Appendix B - Reconciliation of Non-GAAP Financial Measure
Distributable Cash Flow
(in thousands of U.S. Dollars)


Distributable cash flow represents net income (loss) adjusted for depreciation and amortization expense, non-controlling interests, non-cash items, distributions relating to equity financing of newbuilding installments, distributions on our preferred units, vessel and business acquisition costs, estimated maintenance capital expenditures, write-down and gains on sale of vessels, unrealized gains and losses from derivatives, realized losses on termination of interest rate swaps, non-cash income taxes and unrealized 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 defined by GAAP and should not be considered as an alternative to net income (loss) or any other indicator of the Partnership’s performance required by GAAP. The table below reconciles distributable cash flow to net income (loss) for the quarters and years ended December 31, 2015 and December 31, 2014, respectively.


----------------------------------------------------------------------------
                               Three Months Ended          Year Ended
                                  December 31,            December 31,
                                   2015        2014        2015        2014
                            (unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------------------------------------------

Net income (loss)                46,700    (17,710)     100,143      17,656
Net income attributable to
 Dropdown Predecessor                 -           -    (10,100)           -
----------------------------------------------------------------------------
Net income attributable to
 the partners and non-
 controlling interests’          46,700     (17,710)     90,043      17,656

Depreciation and
 amortization                    71,974      51,832     252,269     198,553
Vessel and business
 acquisition costs(1)                 -           -      13,920           -
Realized loss on termination
 of interest rate swap                -           -      10,876           -
Equity income from joint
 ventures                          (913)     (1,764)     (7,672)    (10,341)
Distributions relating to
 equity financing of
newbuildings and conversion
 costs                            3,034       2,824      19,210       8,393
Partnership’s share of
 equity accounted joint
 venture’s distributable
 cash flow net of estimated
 maintenance capital
 expenditures                     2,754       2,525      16,985      14,451
Write-down and (gain on
 sale) of vessels                55,645      (3,121)     69,998       1,638
Distributions relating to
 preferred units                (10,525)     (2,719)    (28,608)    (10,876)
Estimated maintenance
 capital expenditures(2)        (39,718)    (28,240)   (137,194)   (114,338)
Unrealized (gains) losses on
 derivative instruments(3)      (35,750)     44,435      (9,976)     86,203
Foreign currency exchange
 and other, net                 (21,484)      8,560     (22,510)     11,342
----------------------------------------------------------------------------
Distributable cash flow
 before non-controlling
 interests                       71,717      56,622     267,341     206,155
Non-controlling interests’
 share of DCF                    (4,718)     (6,667)    (22,617)    (19,842)
----------------------------------------------------------------------------
Distributable Cash Flow          66,999      49,955     244,724     186,313
Amount attributable to the
 General Partner                   (240)     (5,262)    (19,174)    (19,891)
----------------------------------------------------------------------------
Limited partners’
 Distributable Cash Flow         66,759      44,693     225,550     166,422
Weighted-average number of
 common units outstanding   107,016,572  88,159,388  98,507,732  86,212,290
----------------------------------------------------------------------------
Distributable Cash Flow per
 limited partner unit              0.62        0.51        2.29        1.93
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)  Vessel and business acquisition costs relate to business development
     fees of $13.9 million paid to Teekay Corporation relating to the
     purchases of the Knarr FPSO unit, the six towage vessels and the
     Arendal Spirit UMS.
(2)  Estimated maintenance capital expenditures relating to the
     Partnership’s equity accounted joint venture for the three months ended
     December 31, 2015 and 2014 were $1.0 million and $1.0 million,
     respectively, and for the years ended December 31, 2015 and 2014 were
     $4.2 million and $4.2 million, respectively.
(3)  Derivative instruments include interest rate swaps and foreign exchange
     forward contracts.


Teekay Offshore Partners L.P.
Appendix C - Reconciliation of Non-GAAP Financial Measure
Net Revenues
(in thousands of U.S. Dollars)


Net revenues represents revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Net revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies, however, it is not required by GAAP and should not be considered as an alternative to revenues or any other indicator of the Partnership’s performance required by GAAP.


----------------------------------------------------------------------------
                            Three Months Ended December 31, 2015
                                        (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional             UMS
                  Tanker    FPSO     FSO   Tanker  Towage Segment
                 Segment Segment Segment  Segment Segment     (1)     Total
----------------------------------------------------------------------------
Revenues         139,422 153,669  14,506    5,917  12,717  12,911   339,142
Voyage expenses  (21,428)      -    (413)    (346) (4,420)      -   (26,607)
----------------------------------------------------------------------------
Net revenues     117,994 153,669  14,093    5,571   8,297  12,911   312,535
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                            Three Months Ended December 31, 2014
                                        (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional             UMS
                  Tanker    FPSO     FSO   Tanker  Towage Segment
                 Segment Segment Segment  Segment Segment     (1)     Total
----------------------------------------------------------------------------
Revenues         142,065  94,595  15,120    8,527     154       -   260,461
Voyage expenses  (22,764)      -    (290)  (1,110)    (44)      -   (24,208)
----------------------------------------------------------------------------
Net revenues     119,301  94,595  14,830    7,417     110       -   236,253
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                                Year Ended December 31, 2015
                                        (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional             UMS
                  Tanker    FPSO     FSO   Tanker  Towage Segment
                 Segment Segment Segment  Segment Segment     (1)     Total
----------------------------------------------------------------------------
Revenues         541,792 531,554  57,391   30,230  40,112  28,334 1,229,413
Voyage expenses  (82,777)      -    (851)  (2,326)(12,052)      -   (98,006)
----------------------------------------------------------------------------
Net revenues     459,015 531,554  56,540   27,904  28,060  28,334 1,131,407
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
                                Year Ended December 31, 2014
                                        (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional             UMS
                  Tanker    FPSO     FSO   Tanker  Towage Segment
                 Segment Segment Segment  Segment Segment     (1)     Total
----------------------------------------------------------------------------
Revenues         577,064 354,518  53,868   33,566     523       - 1,019,539
Voyage expenses (105,562)      -  (1,500)  (5,373)   (105)      -  (112,540)
----------------------------------------------------------------------------
Net revenues     471,502 354,518  52,368   28,193     418       -   906,999
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)  The Partnership acquired 100% of the outstanding shares of Logitel
     during the third quarter of 2014 and operations began in the second
     quarter of 2015.


Teekay Offshore Partners L.P.
Appendix D - Supplemental Segment Information
(in thousands of U.S. Dollars)
----------------------------------------------------------------------------
                            Three Months Ended December 31, 2015
                                        (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional
                  Tanker    FPSO     FSO   Tanker  Towage      UMS
                 Segment Segment Segment  Segment Segment  Segment    Total
----------------------------------------------------------------------------
Net revenues
 (See Appendix
 C)              117,994 153,669  14,093    5,571   8,297   12,911  312,535
Vessel operating
 expenses        (33,906)(55,148) (6,603)  (1,726) (4,763)  (6,774)(108,920)
Time-charter
 hire expense    (15,112)      -       -        -       -        -  (15,112)
Depreciation and
 amortization    (25,666)(37,595) (2,584)  (1,558) (2,874)  (1,697) (71,974)
General and
 administrative   (3,535) (9,155)   (159)    (155)   (781)    (405) (14,190)
Write-down on
 sale of vessel  (51,248)      -       -   (3,897)      -     (500) (55,645)
Restructuring
 recovery           (276)      -       -        -       -        -     (276)
----------------------------------------------------------------------------
Income (loss)
 from vessel
 operations      (11,749) 51,771   4,747   (1,765)   (121)   3,535   46,418
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
                            Three Months Ended December 31, 2014
                                        (unaudited)
----------------------------------------------------------------------------
                                          Conven-
                 Shuttle                   tional
                  Tanker    FPSO     FSO   Tanker  Towage      UMS
                 Segment Segment Segment  Segment Segment  Segment    Total
----------------------------------------------------------------------------
Net revenues
 (See Appendix
 C)              119,301  94,595  14,830    7,417     110        -  236,253
Vessel operating
 expenses        (40,386)(35,211) (7,275)  (1,422)      -        -  (84,294)
Time-charter
 hire expense     (7,618)      -       -        -       -        -   (7,618)
Depreciation and
 amortization    (28,300)(18,629) (3,059)  (1,844)      -        -  (51,832)
General and
 administrative   (9,470) (8,516) (1,217)    (497)   (672)    (203) (20,575)
Gain on sale of
 vessel            3,121       -       -        -       -        -    3,121
----------------------------------------------------------------------------
Income (loss)
 from vessel
 operations       36,648  32,239   3,279    3,654    (562)    (203)  75,055
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Teekay Offshore Partners L.P.
Appendix E - Reconciliation of Non-GAAP Financial Measure
Cash Flow From Vessel Operations From Consolidated Vessels
(in thousands of U.S. Dollars)


Cash flow from vessel operations from consolidated vessels represents (loss) income from vessel operations before depreciation and amortization expense, write-down and gain on sale of vessels, and amortization of the non-cash portion of revenue contracts, and includes the realized gains and losses on the settlement of foreign exchange forward contracts and adjusts for direct financing leases to a cash basis. Cash flow from vessel operations is included because certain investors use this data to measure a company’s financial performance. Cash flow from vessel operations is not required by GAAP and should not be considered as an alternative to net income (loss) or any other indicator of the Partnership’s performance required by GAAP.


----------------------------------------------------------------------------
                                               Three Months Ended
                                                  December 31,
                                                      2015
                                                   (unaudited)
----------------------------------------------------------------------------
                                     Shuttle                   Conventional
                                      Tanker     FPSO      FSO       Tanker
                                     Segment  Segment  Segment      Segment
----------------------------------------------------------------------------
Income (loss) from vessel operations
 (See Appendix D)                    (11,749)  51,771    4,747       (1,765)
Depreciation and amortization         25,666   37,595    2,584        1,558
Realized losses from the
settlements of non-designated
 foreign exchange forward contracts   (1,942)  (1,564)       -            -
Amortization of non-cash portion of
revenue contracts                          -   (4,041)       -            -
Write-down of vessels                 51,248        -        -        3,897
Falcon Spirit revenue accounted for
as direct financing lease                  -        -     (836)           -
Falcon Spirit cash flow from
time-charter contracts                     -        -    2,184            -
----------------------------------------------------------------------------
Cash flow from vessel operations
 from consolidated vessels            63,223   83,761    8,679        3,690
----------------------------------------------------------------------------
----------------------------------------------------------------------------



----------------------------------------------------------------------------
                                        Three Months Ended      Year Ended
                                           December 31,        December 31,
                                               2015                2015
                                            (unaudited)         (unaudited)
----------------------------------------------------------------------------
                                      Towage       UMS
                                     Segment   Segment   Total        Total
----------------------------------------------------------------------------
Income (loss) from vessel operations
 (See Appendix D)                       (121)    3,535  46,418      260,620
Depreciation and amortization          2,874     1,697  71,974      252,269
Realized losses from the
settlements of non-designated
 foreign exchange forward contracts        -         -  (3,506)     (12,409)
Amortization of non-cash portion of
revenue contracts                          -         -  (4,041)     (14,401)
Write-down of vessels                      -       500  55,645       69,998
Falcon Spirit revenue accounted for
as direct financing lease                  -         -    (836)      (3,658)
Falcon Spirit cash flow from
time-charter contracts                     -         -   2,184        8,644
----------------------------------------------------------------------------
Cash flow from vessel operations
 from consolidated vessels             2,753     5,732 167,838      561,063
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
                                               Three Months Ended
                                                  December, 31
                                                       2014
                                                   (unaudited)
----------------------------------------------------------------------------
                                     Shuttle                    Conventional
                                      Tanker     FPSO      FSO        Tanker
                                     Segment  Segment  Segment       Segment
----------------------------------------------------------------------------
Income (loss) from vessel operations
 (See Appendix D)                     36,648   32,239    3,279         3,654
Depreciation and amortization         28,300   18,629    3,059         1,844
Realized losses from the settlements
 of non-designated foreign exchange
 forward contracts                    (1,114)    (217)       -             -
Amortization of non-cash portion of
 revenue contracts                         -   (3,212)       -             -
Write-down and (gain) on sale of
 vessels                              (3,121)       -        -             -
Falcon Spirit revenue accounted for
 as direct financing lease                 -        -   (1,054)            -
Falcon Spirit cash flow from time-
 charter contracts                         -        -    2,169             -
----------------------------------------------------------------------------
Cash flow from (used for) vessel
 operations from consolidated
 vessels                              60,713   47,439    7,453         5,498
----------------------------------------------------------------------------
----------------------------------------------------------------------------



----------------------------------------------------------------------------
                                        Three Months Ended      Year Ended
                                           December, 31        December, 31
                                                2014               2014
                                            (unaudited)         (unaudited)
----------------------------------------------------------------------------
                                      Towage      UMS
                                     Segment  Segment    Total        Total
----------------------------------------------------------------------------
Income (loss) from vessel operations
 (See Appendix D)                       (562)    (203)  75,055      256,218
Depreciation and amortization              -        -   51,832      198,553
Realized losses from the settlements
 of non-designated foreign exchange
 forward contracts                         -        -   (1,331)      (1,910)
Amortization of non-cash portion of
 revenue contracts                         -        -   (3,212)     (12,743)
Write-down and (gain) on sale of
 vessels                                   -        -   (3,121)       1,638
Falcon Spirit revenue accounted for
 as direct financing lease                 -        -   (1,054)      (4,483)
Falcon Spirit cash flow from time-
 charter contracts                         -        -    2,169        8,618
----------------------------------------------------------------------------
Cash flow from (used for) vessel
 operations from consolidated
 vessels                                (562)    (203) 120,338      445,891
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Teekay Offshore Partners L.P.
Appendix F - Reconciliation of Non-GAAP Financial Measure
Cash Flow From Vessel Operations From Equity Accounted Vessels
(in thousands of U.S. Dollars)


Cash flow from vessel operations from equity accounted vessels represents income from vessel operations before depreciation and amortization expense. Cash flow from equity accounted vessel represents the Partnership’s proportionate share of cash flow from vessel operations from its equity-accounted vessels, the Cidade de Itajai FPSO unit and the Libra FPSO conversion project. Cash flow from vessel operations from equity accounted vessels is included because certain investors use cash flow from vessel operations to measure a company’s financial performance, and to highlight this measure for the Partnership’s equity accounted joint ventures. Cash flow from vessel operations from equity accounted vessels is not required by GAAP and should not be considered as an alternative to equity income or any other indicator of the Partnership’s performance required by GAAP.


----------------------------------------------------------------------------
                               Three Months Ended      Three Months Ended
                               December 31, 2015       December 31, 2014
                                  (unaudited)             (unaudited)
----------------------------------------------------------------------------
                                   At Partnership’s        At Partnership’s
                                 100%           50%      100%           50%
----------------------------------------------------------------------------
Voyage revenues                19,254         9,627    19,166         9,583
Vessel and other operating
 expenses                      (9,071)       (4,536)   (9,018)       (4,509)
Depreciation and
 amortization                  (3,901)       (1,951)   (2,226)       (1,113)
General and administrative          -             -       118            59
----------------------------------------------------------------------------
Income from vessel
 operations of equity
 accounted vessels              6,282         3,140     8,040         4,020
----------------------------------------------------------------------------
Net interest expense           (1,720)         (860)   (1,884)         (942)
Realized and unrealized
 losses on derivative
 instruments(1)                (2,810)       (1,405)   (2,746)       (1,373)
----------------------------------------------------------------------------
Total other items              (4,530)       (2,265)   (2,746)       (2,315)
----------------------------------------------------------------------------
Net income / equity income
 of equity accounted vessel
 before income tax recovery     1,752           875     3,410         1,705
Income tax recovery                76            38       118            59
----------------------------------------------------------------------------
Net income / equity income
 of equity accounted vessels    1,828           913     3,528         1,764
----------------------------------------------------------------------------

Income from vessel
 operations of equity
 accounted vessels              6,282         3,140     8,040         4,020
Depreciation and
 amortization                   3,901         1,951     2,226         1,113
----------------------------------------------------------------------------
Cash flow from vessel
 operations from equity
 accounted vessels             10,183         5,091    10,266         5,133
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)  Realized and unrealized losses on derivative instruments for the three
     months ended December 31, 2015 and 2014 include total unrealized losses
     of $1.7 million ($0.9 million at the Partnership’s 50% share) and
     unrealized losses of $1.4 million ($0.7 million at the Partnership’s
     50% share), respectively, related to interest rate swaps for the Libra
     FPSO conversion project and the Cidade de Itajai FPSO unit.


----------------------------------------------------------------------------
                                   Year Ended              Year Ended
                               December 31, 2015       December 31, 2014
                                  (unaudited)             (unaudited)
----------------------------------------------------------------------------
                                   At Partnership’s        At Partnership’s
                                 100%           50%      100%           50%
----------------------------------------------------------------------------
Voyage revenues                82,831        41,416    82,845        41,423
Vessel and other operating
 expenses                     (28,188)      (14,095)  (31,424)      (15,712)
Depreciation and
 amortization                 (16,711)       (8,356)  (16,172)       (8,086)
General and administrative         (2)           (1)       21            11
Loss on sale of asset            (579)         (290)        -             -
----------------------------------------------------------------------------
Income from vessel
 operations of equity
 accounted vessels             37,351        18,674    35,270        17,636
----------------------------------------------------------------------------
Net interest expense           (8,468)       (4,234)   (7,997)       (3,999)
Realized and unrealized
 losses on derivative
 instruments(1)               (13,214)       (6,607)   (6,656)       (3,328)
----------------------------------------------------------------------------
Total other items             (21,682)      (10,841)  (14,653)       (7,327)
----------------------------------------------------------------------------
Net income / equity income
 of equity accounted vessel
 before income tax (expense)
 recovery                      15,669         7,833    20,617        10,309
Income tax (expense)
 recovery                        (321)         (161)       63            32
----------------------------------------------------------------------------
Net income / equity income
 of equity accounted vessels   15,348         7,672    20,680        10,341
----------------------------------------------------------------------------

Income from vessel
 operations of equity
 accounted vessels             37,351        18,674    35,270        17,636
Depreciation and
 amortization                  16,711         8,356    16,172         8,086
Loss on sale of asset             579           290         -             -
----------------------------------------------------------------------------
Cash flow from vessel
 operations from equity
 accounted vessels             54,641        27,320    51,442        25,722
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)  Realized and unrealized losses on derivative instruments for the year
     ended December 31, 2015 and 2014 include total unrealized losses of
     $8.3 million ($4.1 million at the Partnership’s 50% share) and
     unrealized losses of $0.8 million ($0.4 million at the Partnership’s
     50% share), respectively, related to interest rate swaps for the Libra
     FPSO conversion project and the Cidade de Itajai FPSO unit.


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 Partnership’s use of internally generated cash flows to contribute to the funding of growth projects; the impact of cash distribution reductions on the Partnership’s financial position; the potential for future cash distribution changes; the pending sale of the Kilimanjaro Spirit and Fuji Spirit, including the impact on future liquidity; the stability and growth of the Partnership’s future cash flows; the impact of growth projects on the Partnership’s future distributable cash flow per unit; the expected redelivery date and potential redeployment of the Varg FPSO; the timing of newbuilding, conversion and upgrade vessel or offshore unit deliveries and commencement of their respective charter contracts; and the Partnership’s focus on the future redeployment of existing assets onto new contracts instead of new organic growth projects, implementing various cost saving initiatives, and addressing remaining funding needs. 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 oil production volumes; significant changes in oil prices; variations in expected levels of field maintenance; increased operating expenses; different-than-expected levels of oil production in the North Sea, Brazil and East Coast of Canada offshore fields; potential early termination of contracts; shipyard delivery or vessel conversion and upgrade delays and cost overruns; changes in exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth; delays in the commencement of charter contracts; potential delays in the sale of the Kilimanjaro Spirit and Fuji Spirit; the Partnership’s ability to raise adequate financing for existing growth projects, refinance future debt maturities, and other financing requirements; failure by the Partnership to secure a contract for the Varg FPSO; 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, 2014 and Form 6-K for the quarters ended March 31, 2015, June 30, 2015 and September 30, 2015. 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.

FOR FURTHER INFORMATION PLEASE CONTACT: Investor Relations Enquiries: Ryan Hamilton +1 (604) 609-6442 www.teekayoffshore.com

SOURCE: Teekay Offshore Partners L.P.




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