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Teekay Offshore Partners L.P.$2.65$.051.92%

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 Teekay Offshore Partners Reports Fourth Quarter and Annual 2017 Results
   Thursday, February 22, 2018 2:03:53 AM ET

Highlights

-- Reported GAAP net income attributable to the partners and preferred unitholders of $15.4 million and adjusted net income attributable to the partners and preferred unitholdersof $11.3 million (excluding items listed in Appendix A to this release) in the fourth quarter of 2017.

-- Generated GAAP income from vessel operations of $51.0 million and total cash flow from vessel operationsof $144.9 million in the fourth quarter of 2017.

-- Generated distributable cash flow of $34.4 million, or $0.08 per common unit, in the fourth quarter of 2017.

-- The Randgrid FSO, the 50%-owned Pioneiro de Libra FPSO and the first two East Coast Canada shuttle tanker newbuildings commenced their respective charter contracts; and took delivery of the final two towage newbuilding vessels.

-- Completed the upgrades of the Petrojarl I FPSO; unit is currently undergoing field installation and testing on its Brazilian field prior to commencing its charter contract.

-- Entered into a contract extension for the Petrojarl Cidade de Rio das Ostras (Ostras) FPSO to May 2018, plus an extension option, and nearing completion of a contract extension for the Voyageur Spirit FPSO to at least April 2019.

Teekay Offshore GP LLC (TOO GP), 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, 2017.

                                                                           Three Months Ended                        Year Ended
                                                                           December 31, September 30,   December 31, December 31,     December 31,
                                                                           2017         2017            2016         2017             2016
(in thousands of U.S. Dollars)                                             (unaudited)  (unaudited)     (unaudited)  (unaudited)      (unaudited)
GAAP FINANCIAL COMPARISON
Revenues                                                                   295,728      273,626         274,920      1,110,284        1,152,390
Income (loss) from vessel operations                                       51,026       (273,707)       56,544       (116,005  )      230,853
Equity income                                                              2,126        4,416           4,087        14,442           17,933
Net income (loss)                                                          16,037       (320,276)       96,266       (299,442  )      44,475
Net income (loss) attributable to the partners and preferred unitholders   15,399       (317,491)       91,953       (303,206  )      32,617
NON-GAAP FINANCIAL COMPARISON
Total cash flow from vessel operations (CFVO)                              144,903      124,181         134,839      544,972          584,322
Distributable cash flow (DCF)                                              34,449       13,382          21,627       105,706          161,329
Adjusted net income attributable to the partners and preferred unitholders 11,329       3,064           8,487        39,977           86,007

-- 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).

-- Please refer to Appendices in the third quarter of 2017 release for a reconciliation of these non-GAAP measures to the most directly comparable financial measures under GAAP.

GAAP net income for the fourth quarter of 2017, compared to the same quarter of the prior year, was impacted by pre-operational costs related to the transit of the shuttle tanker newbuildings, the Beothuk Spirit and Norse Spirit, to the East Coast of Canada during the fourth quarter of 2017, and a decrease in unrealized gains on derivative instruments. GAAP net income and non-GAAP adjusted net income for the fourth quarter of 2017, compared to the same quarter of the prior year, were positively impacted by the commencement of operations of the Randgrid FSO and Pioneiro de Libra FPSO in the fourth quarter of 2017, partially offset by non-recurring repair and maintenance expenses in the fourth quarter of 2017 relating to two of the Partnership’s redelivered shuttle tankers.

CEO Commentary

"During the fourth quarter of 2017, we generated higher cash flow from vessel operations driven mainly by the delivery and contract start-up of two of our growth projects combined with lower G&A expenses," commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd.

"Recently, we finalized an agreement and are nearing completion of a second agreement in our FPSO segment which will extend the contract durations with existing customers on existing fields. We are pleased to report that we have entered into an agreement with Petrobras to extend the employment on the Ostras FPSO from January 2018 to May 2018, plus an extension option, and we are nearing completion of the previously-announced contract extension with Premier Oil for the Voyageur Spirit FPSO out to at least April 2019," commented Ms. Sæther. "In addition, ALP Maritime, our towage subsidiary, was recently awarded its largest contract to-date, which requires the use of five of its vessels."

"Looking ahead, we expect our cash flows to continue to grow as we pivot from project execution to harvesting cash flows from our projects, which will also further strengthen our balance sheet as we naturally delever over time," Ms. Sæther commented. "Over the past five months, the Randgrid FSO, Pioneiro de Libra FPSO and two East Coast Canada shuttle tanker newbuildings commenced their respective charter contracts and we completed the upgrades on our most challenging project, the Petrojarl I FPSO, which arrived at its Brazilian oil field in early January 2018. This FPSO is now undergoing field installation and testing activities and it is expected to commence its charter contract in April 2018. In aggregate, we expect these projects, along with our third East Coast Canada shuttle tanker, which is scheduled to commence its contract in May of this year, to generate approximately $200 million of annual cash flow from vessel operations on an annualized basis with a weighted average contract length of approximately 10 years."

"2017 represented a challenging but ultimately transformative year for Teekay Offshore," continued Ms. Sæther. "We successfully closed our strategic partnership with Brookfield, which enhanced our financial position while positioning us to better service our customers and take advantage of future growth opportunities as the global energy markets recover."

Summary of Recent Events

Growth Projects Update

In October 2017, the Randgrid FSO, which was converted from one of the Partnership’s shuttle tankers at Sembcorp’s Sembawang shipyard in Singapore, commenced its three-year charter contract with Statoil ASA (Statoil) on the Gina Krog oil and gas field in the Norwegian sector of the North Sea. This contract has 12 additional one-year options to extend.

In late-November 2017, the 50%-owned Pioneiro de Libra FPSO, which was converted from one of the Partnership’s shuttle tankers at Sembcorp’s Jurong shipyard in Singapore, commenced its 12-year charter contract with a consortium of international oil companies, including Petrobras, Total S.A., Shell, China National Petroleum Corporation and China National Offshore Oil Corporation, on the giant Libra block in the Santos Basin offshore Brazil. This joint venture is equity accounted by the Partnership and contributed only one month of cash flows in the fourth quarter of 2017.

In late 2017, the Partnership took delivery of the first two East Coast of Canada shuttle tanker newbuildings, the Beothuk Spirit and the Norse Spirit, with the third vessel, the Dorset Spirit, scheduled to deliver in early-March 2018. The first two newbuildings commenced long-term charter contracts in December 2017 and January 2018 with a group of companies that includes Canada Hibernia Holding Corporation, Chevron Canada, Exxon Mobil, Husky Energy, Mosbacher Operating Ltd., Murphy Oil, Nalcor Energy, Statoil and Suncor Energy, with the third newbuilding scheduled to commence its long-term charter contract in May 2018. The Beothuk Spirit and Norse Spirit replaced existing in-chartered vessels servicing the East Coast of Canada, the first of which the Partnership redelivered to its owner while the second the Partnership repositioned to the North Sea to operate in the Partnership’s contract of affreightment (CoA) portfolio.

In December 2017, the Partnership completed the upgrades of the Petrojarl I FPSO unit which arrived on the Atlanta field in Brazil in January 2018. The unit is now undergoing field installation and testing prior to commencing its five-year charter contract with Queiroz Galvão Exploracão e Producão SA (QGEP), which is expected to occur in April 2018.

In October 2017 and February 2018, the Partnership took delivery of the last two of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and offshore installation newbuildings, the ALP Sweeper and ALP Keeper, constructed by Niigata Shipbuilding & Repair in Japan.

Recontracting of FPSO Units

In January 2018, the Partnership entered into a contract extension with Petrobras to extend the employment of the Ostras FPSO for four months at a slightly lower fixed rate. Petrobras also has an option to extend the contract for an additional two months to July 2018.

The Partnership is nearing completion of the previously-announced contract extension with Premier Oil to extend the employment of the Voyageur Spirit FPSO unit on the Huntington field out to at least April 2019. The new contract, which will take effect in April 2018, will include a fixed charter rate component plus a component based on oil production and oil price.

New Growth Projects

In November 2017, the Partnership declared options with Samsung Heavy Industries Co. Ltd., to construct two additional Suezmax DP2 shuttle tanker newbuildings, for an aggregate fully built-up cost of approximately $265 million. These newbuildings will be constructed based on Teekay Offshore’s New Shuttle Spirit design. Upon delivery in 2020, these vessels will join the Partnership’s CoA portfolio in the North Sea.

ALP Contract Award

In February 2018, ALP Maritime, the Partnership’s towage subsidiary, was awarded a contract to provide five vessels to perform mobilization and field installation services in spring 2018. The contract is expected to require approximately 330 vessel equivalent days to service the project.

Operating Results

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

                                          Three Months Ended
                                          December 31, 2017
(in thousands of U.S. Dollars)            (unaudited)
                                          FPSO             Shuttle FSO     UMS       Towage    Conventional Eliminations Total
                                          Segment          Tanker  Segment Segment   Segment   Tanker
                                                           Segment                             Segment
GAAP FINANCIAL COMPARISON
Revenues                                  118,675          132,106 34,409  321       12,212    3,540        (5,535)      295,728
Income (loss) from vessel operations      39,304           13,582  12,119  (7,822 )  (5,114 )  (774  )      (269  )      51,026
Equity income                             2,126            --      --      --        --        --           --           2,126
NON-GAAP FINANCIAL COMPARISON
CFVO from (used for) consolidated vessels 69,391           47,869  24,698  (6,163 )  (743   )  (774  )      --           134,278
CFVO from equity accounted vessels        10,625           --      --      --        --        --           --           10,625
Total CFVO                                80,016           47,869  24,698  (6,163 )  (743   )  (774  )      --           144,903
                                          Three Months Ended
                                          December 31, 2016
(in thousands of U.S. Dollars)            (unaudited)
                                          FPSO             Shuttle FSO     UMS       Towage    Conventional Eliminations Total
                                          Segment          Tanker  Segment Segment   Segment   Tanker
                                                           Segment                             Segment
GAAP FINANCIAL COMPARISON
Revenues                                  116,429          129,092 12,037  3,821     9,794     3,747        --           274,920
Income (loss) from vessel operations      33,310           32,677  1,576   (6,443 )  (3,863 )  (713  )      --           56,544
Equity income                             4,087            --      --      --        --        --           --           4,087
NON-GAAP FINANCIAL COMPARISON
CFVO from (used for) consolidated vessels 65,925           60,038  6,787   (4,820 )  (435   )  (713  )      --           126,782
CFVO from equity accounted vessels        8,057            --      --      --        --        --           --           8,057
Total CFVO                                73,982           60,038  6,787   (4,820 )  (435   )  (713  )      --           134,839

-- 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 GAAP.

-- Includes revenues and expenses earned and incurred between segments of Teekay Offshore, during the three months ended December 31, 2017.

FPSO Segment

Income from vessel operations and cash flow from vessel operations increased for the three months ended December 31, 2017, compared to the same quarter of the prior year, primarily due to higher operational bonuses earned in the fourth quarter of 2017 compared to the same period in 2016, the commencement of operations of the Pioneiro de Libra FPSO in late-November 2017 and restructuring charges relating to the reorganization within the Partnership’s FPSO segment during the fourth quarter of 2016.

Shuttle Tanker Segment

Income from vessel operations and cash flow from vessel operations decreased for the three months ended December 31, 2017, compared to the same quarter of the prior year, primarily due to the redelivery of the Nordic Brasilia and Nordic Rio in August 2017 and October 2017, respectively, and approximately $6 million of non-recurring repairs and maintenance expenses incurred during the fourth quarter of 2017 to prepare these vessels for trade in the conventional tanker market, and pre-operational costs related to the transit of the Beothuk Spirit and Norse Spirit to the East Coast of Canada during the fourth quarter of 2017, which vessels commenced their respective charter contracts in December 2017 and January 2018, partially offset by higher charter renewal rates for the Petronordic and Petroatlantic from April 2017, higher average CoA rates, a decrease in crew costs due to changes in crew composition and fewer in-chartered vessel days during the fourth quarter of 2017.

FSO Segment

Income from vessel operations and cash flow from vessel operations increased for the three months ended December 31, 2017, compared to the same quarter of the prior year, primarily due to the Randgrid FSO commencing its charter contract in October 2017.

UMS Segment

Income from vessel operations and cash flow from vessel operations decreased for the three months ended December 31, 2017, compared to the same quarter of the prior year, primarily due to the non-payment of charter hire since November 2016 and the subsequent termination by Petrobras of the charter contract for the Arendal Spirit UMS in April 2017, and non-recurring expenses related to the transit of the Arendal Spirit UMS to its lay-up location during the fourth quarter of 2017, including $3.5 million of internal towage costs which are eliminated in the Partnership’s consolidated results.

Towage Segment

Income from vessel operations decreased for the three months ended December 31, 2017, compared to the same quarter of the prior year, reflecting the challenging towage markets.

Teekay Offshore’s Fleet

The following table summarizes Teekay Offshore’s fleet as of February 1, 2018.

                       Number of Vessels
                       Owned VesselsChartered-in Vessels Committed Newbuildings / Total
                                                         Conversions / Upgrade
FPSO Segment           7            --                   1                        8
Shuttle Tanker Segment 29           2                    5                        36
FSO Segment            6            --                   --                       6
UMS Segment            1            --                   --                       1
Towage Segment         9            --                   1                        10
Conventional Segment   --           2                    --                       2
Total                  52           4                    7                        63

-- Includes two FPSO units, the Cidade de Itajai and Pioneiro de Libra, in which Teekay Offshore’s ownership interest is 50 percent.

-- Consists of the Petrojarl I FPSO upgrade project, which upgrade was completed in December 2017 and which FPSO is scheduled to commence operations in April 2018.

-- Includes six shuttle tankers in which Teekay Offshore’s ownership interest is 50 percent and one HiLoad DP unit.

-- Includes one Suezmax-size DP2 shuttle tanker newbuilding scheduled to commence employment under the East Coast of Canada charter contracts in May 2018 and four Suezmax-size DP2 shuttle tanker newbuildings scheduled for delivery in late-2019 through 2020, two of which will operate under Teekay Offshore’s master agreement with Statoil and two of which will join Teekay Offshore’s CoA portfolio in the North Sea.

-- Consists of one long-distance towing and offshore installation vessel newbuilding, ALP Keeper, delivered in February 2018.

Liquidity Update

In October 2017, as part of the previously announced transaction with Brookfield Business Partners L.P. and its affiliates, the Partnership exercised the call option to repurchase the remaining outstanding balances under each of the Partnership’s Norwegian Kroner (NOK) 420 million senior unsecured bond agreement and the Partnership’s NOK 800 million senior unsecured bond agreement. These repurchases were settled in November 2017 in accordance with their respective terms.

In January 2018, the Partnership completed a public offering of $120 million of its 8.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (Series E Preferred Units), including $5 million Series E Preferred Units sold pursuant to the exercise of the underwriter’s over-allotment option, raising total net proceeds of approximately $116 million.

As of December 31, 2017, the Partnership had total liquidity of $221.9 million, excluding $24.3 million included in restricted cash relating to amounts deposited in escrow to pre-fund a portion of the remaining Petrojarl I FPSO upgrade project costs. Giving pro-forma effect to the issuance of the Series E Preferred Units completed in January 2018, the Partnership’s total liquidity as at December 31, 2017 would have been approximately $338 million.

Conference Call

The Partnership plans to host a conference call on Thursday, February 22, 2018 at 12:00 p.m. (ET) to discuss the results for the fourth quarter and fiscal year of 2017. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

-- By dialing 1-888-394-8218 or 647-484-0475, if outside North America, and quoting conference ID code 8526810.

-- 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 Fourth Quarter and Fiscal Year 2017 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

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 oil industry, primarily focusing on oil production-related activities of its customers and operating in 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 $5.6 billion, comprised of 63 offshore assets, including floating production, storage and offloading (FPSO) units, shuttle tankers, floating storage and offtake (FSO) units, a unit 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 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:

Ryan Hamilton

Tel: +1 (604) 609-2963

Website: www.teekay.com

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. These non-GAAP financial measures, which include Cash Flow from Vessel Operations, Adjusted Net Income, and Distributable Cash Flow are intended to provide additional information and should not be considered a substitute 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. The Partnership believes that certain investors use this information to evaluate the Partnership’s financial performance, as does management.

Non-GAAP Financial Measures

Cash Flow From (Used For) Vessel Operations (CFVO) represents income (loss) from vessel operations before depreciation and amortization expense, amortization of in-process revenue contracts, vessel write-downs, gains or losses on the sale of vessels, write-off of deferred revenues and operating expenses and adjustments for direct financing leases to a cash basis, but includes realized gains or losses on the settlement of foreign currency forward contracts. CFVO from Consolidated Vessels represents CFVO from vessels that are consolidated on the Partnership’s financial statements. CFVO from Equity-Accounted Vessels represents the Partnership’s proportionate share of CFVO from its equity-accounted vessels. The Partnership does not control its equity-accounted vessels and as a result, the Partnership does not have the unilateral ability to determine whether the cash generated by its equity-accounted vessels is retained within the entities in which the Partnership holds the equity-accounted investments or distributed to the Partnership and other owners. In addition, the Partnership does not control the timing of such distributions to the Partnership and other owners. Consequently, readers are cautioned when using total CFVO as a liquidity measure as the amount contributed from CFVO from Equity-Accounted Vessels may not be available to the Partnership in the periods such CFVO is generated by its equity-accounted vessels. CFVO is a non-GAAP financial measure used by certain investors and management to measure the operational financial performance of companies. Please refer to Appendices D and E of this release for reconciliations of these non-GAAP financial measures to income (loss) from vessel operations and income from vessel operations of equity-accounted vessels, respectively, the most directly comparable GAAP measures reflected in the Partnership’s consolidated financial statements.

Adjusted Net Income excludes items of income or loss from GAAP net income (loss) that are typically excluded by securities analysts in their published estimates of the Partnership’s financial results. The Partnership believes that certain investors use this information to evaluate the Partnership’s financial performance, as does management. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to net income (loss), the most directly comparable GAAP measure reflected in the Partnership’s consolidated financial statements.

Distributable Cash Flow (DCF) represents GAAP net income (loss) adjusted for depreciation and amortization expense, deferred income tax expense or recovery, vessel write-downs, gains or losses on the sale of vessels, vessel and business acquisition costs, distributions relating to equity financing of newbuilding installments and conversion costs, pre-operational expenses, distributions on the Partnership’s preferred units, gains on extinguishment of contingent liabilities and losses on non-cash accruals of contingent liabilities, amortization of the non-cash portion of revenue contracts, estimated maintenance capital expenditures, unrealized gains and losses from non-designated derivative instruments, ineffectiveness for derivative instruments designated as hedges for accounting purposes, adjustments for direct financing leases to a cash basis and foreign exchange related items, including the Partnership’s proportionate share of such items in equity-accounted for investments and non-controlling interests proportionate share of such interests. 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. DCF is a quantitative standard used in the publicly-traded partnership investment community and by management to assist in evaluating financial performance. Please refer to Appendix B of this release for a reconciliation of this non-GAAP financial measure to net income (loss), the most directly comparable GAAP measure reflected in the Partnership’s consolidated financial statements.

Teekay Offshore Partners L.P.

Summary Consolidated Statements of Income (Loss)

(in thousands of U.S. Dollars, except unit data)

                                                     Three Months Ended                                    Year Ended
                                                     December 31,      September 30,      December 31,     December 31,       December 31,
                                                     2017              2017               2016             2017               2016
                                                     (unaudited)       (unaudited)        (unaudited)      (unaudited)        (unaudited)
Revenues                                             295,728           273,626            274,920          1,110,284          1,152,390
Voyage expenses                                      (29,005     )     (25,102     )      (23,323     )    (99,444     )      (80,750     )
Vessel operating expenses                            (98,100     )     (86,769     )      (84,320     )    (353,564    )      (364,441    )
Time-charter hire expenses                           (18,375     )     (20,677     )      (22,440     )    (80,315     )      (75,485     )
Depreciation and amortization                        (85,658     )     (75,304     )      (76,873     )    (309,975    )      (300,011    )
General and administrative                           (14,383     )     (19,870     )      (12,631     )    (62,249     )      (56,122     )
Gain on sale and (write-down) of vessels             148               (316,726    )      3,571            (318,078    )      (40,079     )
Restructuring recovery (charge)                      671               (2,885      )      (2,360      )    (2,664      )      (4,649      )
Income (loss) from vessel operations                 51,026            (273,707    )      56,544           (116,005    )      230,853
Interest expense                                     (43,365     )     (38,819     )      (35,859     )    (154,890    )      (140,611    )
Interest income                                      1,245             710                262              2,707              1,257
Realized and unrealized gain (loss)
                   on derivative instruments         4,708             (19,232     )      81,967           (42,853     )      (20,313     )
Equity income                                        2,126             4,416              4,087            14,442             17,933
Foreign currency exchange (loss) gain                (693        )     (6,526      )      303              (14,006     )      (14,805     )
Other (expense) income - net                         (3,197      )     15,174             441              11,065             (21,031     )
Income (loss) before income tax recovery (expense)   11,850            (317,984    )      107,745          (299,540    )      53,283
Income tax recovery (expense)                        4,187             (2,292      )      (11,479     )    98                 (8,808      )
Net income (loss)                                    16,037            (320,276    )      96,266           (299,442    )      44,475
Non-controlling interests in net income (loss)       638               (2,785      )      4,313            3,764              11,858
Preferred unitholders’ interest in net income (loss) 5,376             11,917             12,387           42,065             45,836
General partner’s interest in net income (loss)      76                (6,373      )      1,590            (5,770      )      (267        )
Limited partners’ interest in net income (loss)      9,947             (323,035    )      77,976           (339,501    )      (12,952     )
Weighted-average number of common units:
- basic                                              410,045,210       170,657,562        144,704,887      220,755,937        124,747,207
- diluted                                            475,360,951       182,393,904        177,694,503      229,940,120        124,747,207
Total number of common units outstanding
                   at end of period                  410,045,210       410,045,210        147,514,113      410,045,210        147,514,113

(1) During the year ended December 31, 2017, the Partnership incurred a $318.1 million write-down related to the Petrojarl I FPSO unit due to increased costs and time associated with upgrade work on the unit, the Ostras FPSO unit due to the expected expiration of the charter in early-2018, three DP1 shuttle tankers as a result of a change in operational plans for the vessels, and the HiLoad DP unit due to a change in expectations for the future opportunities of the unit.

In June 2016, as part of the Partnership’s 2016 financing initiatives, the Partnership canceled the UMS construction contracts for its two UMS newbuildings. As a result, the Partnership incurred a $43.7 million write-down related to these two UMS newbuildings during the year ended December 31, 2016.

(2) Realized (loss) gain on derivative instruments relates to amounts the Partnership actually paid to settle derivative instruments, and the unrealized (loss) gain on derivative instruments relates to the change in fair value of such derivative instruments. During the three months ended September 30, 2017 and the year ended December 31, 2017, as part of the Brookfield Transaction, the Partnership amended certain interest rate swaps to lower the fixed rate interest rate on the swaps and recorded $38.0 million of related rate reset and transaction fees, which are included in the realized loss relating to interest rate swaps in the table below.

                                                                 Three Months Ended                          Year Ended
                                                                 December 31, September 30,   December 31,   December 31,   December 31,
                                                                 2017         2017            2016           2017           2016
Realized (loss) gain relating to:
                              Interest rate swaps                (8,360 )     (48,974 )       (11,830 )      (78,296 )      (52,819 )
                              Foreign currency forward contracts 260          1,048           (769    )      900            (7,153  )
                                                                 (8,100 )     (47,926 )       (12,599 )      (77,396 )      (59,972 )
Unrealized gain (loss) relating to:
                              Interest rate swaps                14,017       28,465          97,782         33,114         29,937
                              Foreign currency forward contracts (1,209 )     229             (3,216  )      1,429          9,722
                                                                 12,808       28,694          94,566         34,543         39,659
Total realized and unrealized gain (loss) on
                              derivative instruments             4,708        (19,232 )       81,967         (42,853 )      (20,313 )

(3) The Partnership entered into cross currency swaps to economically hedge the foreign currency exposure on the payment of interest and repayment of principal amounts of the Partnership’s Norwegian Kroner (NOK) bonds. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds. The Partnership has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK bonds and, thus, foreign currency exchange (loss) gain includes a realized loss relating to the amounts the Partnership paid to settle its non-designated cross currency swaps and an unrealized gain (loss) relating to the change in fair value of such swaps, partially offset by an unrealized (loss) gain on the revaluation of the NOK bonds, as detailed in the table below. During the three months and year ended December 31, 2017, the Partnership recorded realized losses of $33.3 million and $73.5 million, respectively, relating to the termination of certain cross currency swaps, which were offset by unrealized gains of $33.3 million and $73.5 million, respectively, which are included in the table below. During the three months and year ended December 31, 2017, the Partnership recorded a $67.7 million realized foreign exchange gain on the settlement of certain NOK bonds which is not included in the table below. During the year ended December 31, 2016, the Partnership’s realized loss on cross currency swaps includes a $32.6 million loss on the maturity of the swap associated with the NOK 500 million bond which settled in January 2016, which was offset by a $32.6 million realized foreign currency exchange gain on the settlement of the bond which is not included in the table below.

                                                   Three Months Ended                          Year Ended
                                                   December 31, September 30,   December 31,   December 31,   December 31,
                                                   2017         2017            2016           2017           2016
Realized loss on cross currency swaps              (34,704)     (42,987 )       (12,221 )      (84,205 )      (53,497 )
Unrealized gain (loss) on cross currency swaps     24,936       54,488          (12,148 )      91,914         46,127
Unrealized (loss) gain on revaluation of NOK bonds (57,937)     (12,823 )       21,910         (79,818 )      (39,897 )

(4) In September and October 2017, the Partnership settled certain claims from CeFront Technology AS and Sevan Marine ASA , respectively, and reversed related contingent liabilities recorded in June 2016 arising from the cancellations of two UMS newbuildings. As a result, a net gain of $15.0 million was reported in Other (expense) income - net for the three months ended September 30, 2017 and the year ended December 31, 2017.

During 2016, the Partnership accrued for potential damages resulting from the cancellations of the UMS newbuildings and reversed other contingent liabilities previously recorded that were subject to the delivery of the UMS newbuildings. This net loss provision of $23.4 million was reported in Other (expense) income - net for the year ended December 31, 2016. The UMS newbuilding contracts were held in separate subsidiaries of the Partnership and obligations of these subsidiaries were non-recourse to the Partnership.

Teekay Offshore Partners L.P.

Consolidated Balance Sheets

(in thousands of U.S. Dollars)

                                                       As at                As at                As at
                                                       December 31, 2017    September 30, 2017   December 31, 2016
                                                       (unaudited)          (unaudited)          (unaudited)
ASSETS
Current
Cash and cash equivalents                              221,934              416,346              227,378
Restricted cash - current                              28,360               27,470               92,265
Accounts receivable                                    162,691              138,462              114,576
Vessels held for sale                                  --                   12,400               6,900
Net investments in direct financing leases - current   5,199                6,004                4,417
Prepaid expenses                                       30,336               26,308               25,187
Due from affiliates                                    37,376               44,765               77,811
Other current assets                                   24,050               17,110               21,282
Total current assets                                   509,946              688,865              569,816
Restricted cash - long-term                            --                   --                   22,644
Vessels and equipment
At cost, less accumulated depreciation                 4,398,836            3,825,666            4,084,803
Advances on newbuilding contracts and conversion costs 288,658              689,252              632,130
Net investments in direct financing leases             12,008               12,769               13,169
Investment in equity accounted joint ventures          169,875              168,852              141,819
Deferred tax asset                                     28,110               23,760               24,659
Other assets                                           101,217              86,037               100,435
Goodwill                                               129,145              129,145              129,145
Total assets                                           5,637,795            5,624,346            5,718,620
LIABILITIES AND EQUITY
Current
Accounts payable                                       43,317               37,362               8,946
Accrued liabilities                                    187,687              210,434              150,281
Deferred revenues                                      69,668               58,484               57,373
Due to affiliates                                      108,483              124,711              96,555
Current portion of long-term debt                      589,767              731,326              586,892
Current portion of derivative instruments              42,515               53,646               55,002
Current portion of in-process revenue contracts        9,056                10,290               12,744
Other current liabilities                              --                   1,480                --
Total current liabilities                              1,050,493            1,227,733            967,793
Long-term debt                                         2,533,961            2,346,227            2,596,002
Derivative instruments                                 167,469              194,354              282,138
Due to affiliates                                      163,037              160,757              200,000
In-process revenue contracts                           41,225               43,204               50,281
Other long-term liabilities                            208,111              181,420              211,611
Total liabilities                                      4,164,296            4,153,695            4,307,825
Redeemable non-controlling interest                    (29       )          (34       )          962
Convertible preferred units                            --                   --                   271,237
Equity
Limited partners - common units                        1,004,077            999,616              784,056
Limited partners - preferred units                     266,925              266,925              266,925
General partner                                        15,996               14,910               20,658
Warrants                                               132,225              132,320              13,797
Accumulated other comprehensive loss                   (523      )          (2,768    )          (804      )
Non-controlling interests                              54,828               59,682               53,964
Total equity                                           1,473,528            1,470,685            1,138,596
Total liabilities and total equity                     5,637,795            5,624,346            5,718,620

Teekay Offshore Partners L.P.

Consolidated Statements of Cash Flows

(in thousands of U.S. Dollars)

                                                                                                         Year Ended
                                                                                                         December 31, 2017   December 31, 2016
                                                                                                         (unaudited)         (unaudited)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net (loss) income                                                                                        (299,442 )          44,475
Non-cash items:
Unrealized gain on derivative instruments                                                                (126,450 )          (86,467  )
Equity income, net of dividends received of $11,600 (2016: $7,206)                                       (2,842   )          (10,727  )
Depreciation and amortization                                                                            309,975             300,011
Write-down and (gain) on sale of vessels                                                                 318,078             40,079
Deferred income tax (recovery) expense                                                                   (1,870   )          4,854
Amortization of in-process revenue contracts                                                             (12,745  )          (12,779  )
Unrealized foreign currency exchange loss and other                                                      37,511              26,582
Change in non-cash working capital items related to operating activities                                 29,806              74,218
Expenditures for dry docking                                                                             (17,269  )          (26,342  )
Net operating cash flow                                                                                  234,752             353,904
FINANCING ACTIVITIES
Proceeds from long-term debt                                                                             1,295,751           456,697
Scheduled repayments of long-term debt                                                                   (649,198 )          (434,339 )
Prepayments of long-term debt                                                                            (729,341 )          (197,776 )
Debt issuance costs                                                                                      (17,268  )          (12,095  )
Decrease (increase) in restricted cash                                                                   86,549              (54,389  )
Proceeds from issuance of common units and warrants                                                      640,595             135,246
Proceeds from issuance of preferred units and warrants                                                   --                  100,000
Repurchase of preferred units                                                                            (250,022 )          --
Expenses relating to equity offerings                                                                    (12,155  )          (6,395   )
Cash distributions paid by the Partnership                                                               (60,593  )          (78,634  )
Cash distributions paid by subsidiaries to non-controlling interests                                     (9,891   )          (14,210  )
Equity contribution from joint venture partners                                                          6,000               750
Other                                                                                                    (483     )          (90      )
Net financing cash flow                                                                                  299,944             (105,235 )
INVESTING ACTIVITIES
Net payments for vessels and equipment, including advances on newbuilding contracts and conversion costs (533,260 )          (294,581 )
Proceeds from sale of vessels and equipment                                                              13,100              69,805
Repayment from joint ventures                                                                            (25,824  )          (54,873  )
Direct financing lease payments received (investments)                                                   5,844               (115     )
Net investing cash flow                                                                                  (540,140 )          (279,764 )
Decrease in cash and cash equivalents                                                                    (5,444   )          (31,095  )
Cash and cash equivalents, beginning of the year                                                         227,378             258,473
Cash and cash equivalents, end of the year                                                               221,934             227,378

Teekay Offshore Partners L.P.

Appendix A - Reconciliation of Non-GAAP Financial Measures

Adjusted Net Income

(in thousands of U.S. Dollars)

                                                                                          Three Months Ended                  Year Ended
                                                                                          December 31, 2017 December 31, 2016 December 31, 2017   December 31, 2016
                                                                                          (unaudited)       (unaudited)       (unaudited)         (unaudited)
Net income (loss) - GAAP basis                                                            16,037            96,266            (299,442 )          44,475
Adjustments:
               Net income attributable to non-controlling interests                       638               4,313             3,764               11,858
Net income (loss) attributable to the partners and preferred unitholders                  15,399            91,953            (303,206 )          32,617
Add (subtract) specific items affecting net income (loss):
               Unrealized gain on derivative instruments                                  (12,203)          (93,845)          (34,565  )          (42,930)
               Deferred income tax (recovery) expense relating to Norwegian tax structure (4,724 )          10,409            (2,669   )          10,409
               Foreign currency exchange (gains) losses                                   (785   )          (3,892 )          3,194               2,568
               Termination of Arendal Spirit UMS charter contract                         (671   )          --                11,102              --
               (Gain) on sale and write-down of vessels                                   (148   )          (3,571 )          318,078             40,079
               Realized loss on interest rate swap amendments                             --                --                37,950              --
               Net (gain) loss provision relating to cancellation of UMS newbuildings     --                --                (13,833  )          21,282
               Contingency settlements, restructuring charges and other                   3,102             3,935             11,387              7,655
               Pre-operational costs                                                      11,359            999               17,939              11,411
               Non-controlling interests’ share of items above                            --                2,499             (5,400   )          2,916
Total adjustments                                                                         (4,070 )          (83,466)          343,183             53,390
Adjusted net income attributable to the partners and preferred unitholders                11,329            8,487             39,977              86,007

-- Reflects the net unrealized gain due to changes in the mark-to-market value of interest rate swaps and foreign currency forward contracts that are not designated as hedges for accounting purposes, hedge ineffectiveness from derivative instruments designated as hedges for accounting purposes, the unrealized mark-to-market value of the interest rate swaps within the Cidade de Itajai FPSO equity accounted joint venture and hedge ineffectiveness within the Pioneiro de Libra FPSO equity accounted joint venture.

-- Reflects the (increase) decrease in the deferred income tax asset for the Partnership’s Norwegian tax structures.

-- Foreign currency exchange (gain) loss primarily relates 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 the unrealized gain or loss related to the Partnership’s cross currency swaps related to the Partnership’s NOK bonds and excludes the realized gain or loss relating to the Partnership’s cross currency swaps.

-- Includes the write-off (reversal) of deferred revenues and operating expenses as a result of the termination of the Arendal Spirit UMS charter contract in late-April 2017 and restructuring charges related to severance costs from the termination of the charter contract of the Arendal Spirit UMS.

-- See footnote (1) of the summary consolidated statements of income (loss) included in this release for further details.

-- See footnote (4) of the summary consolidated statements of income (loss) included in this release for further details.

-- Other items for the three months ended December 31, 2017 includes a loss on the repurchase of certain of the Partnership’s NOK bonds. Other items for the year ended December 31, 2017 also includes non-recurring general and administrative expenses relating to the Brookfield Transaction and an increase in the Piranema Spirit FPSO rate reduction contingency.

Other items for the three months ended December 31, 2016 mainly includes a restructuring charge relating to the reorganization within the Partnership’s FPSO segment. Other items for the year ended December 31, 2016 also includes an increase in depreciation expense as a result of the change in the estimated useful life of the shuttle component of the Partnership’s shuttle tankers from 25 years to 20 years effective January 1, 2016 (only includes adjustment for the initial period of adoption, which was the first quarter of 2016) and the write-down of equipment in one of its joint ventures, partially offset by an early termination fee received from Teekay Corporation related to the sale of the Kilimanjaro Spirit conventional tanker.

-- Items affecting net income (loss) include amounts attributable to the Partnership’s consolidated non-wholly-owned subsidiaries. Each item affecting net income (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 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 affecting net income (loss) listed in the table.

Teekay Offshore Partners L.P.

Appendix B - Reconciliation of Non-GAAP Financial Measures

Distributable Cash Flow

(in thousands of U.S. Dollars, except unit and per unit data)

                                                                                                             Three Months Ended                Year Ended
                                                                                                             December 31,                      December 31,
                                                                                                             2017              2016            2017              2016
                                                                                                             (unaudited)       (unaudited)     (unaudited)       (unaudited)
Net income (loss)                                                                                            16,037            96,266          (299,442    )     44,475
Add (subtract):
            Depreciation and amortization                                                                    85,658            76,873          309,975           300,011
            Realized loss on amendment/early termination of interest rate and cross currency swaps           33,254            --              111,371           --
            Partnership’s share of equity accounted joint venture’s distributable cash flow net of estimated 5,821             5,625           21,183            20,308
            maintenance capital expenditures
            Pre-operational costs                                                                            2,844             (536        )   13,646            5,933
            Distributions relating to equity financing of newbuildings and conversion costs                  --                4,461           15,014            16,335
            Net (reversal of) loss provision relating to cancellation of UMS newbuildings                    --                --              (13,833     )     21,282
            (Gain) on sale and write-down of vessels                                                         (148        )     (3,571      )   318,078           40,079
            Equity income                                                                                    (2,126      )     (4,087      )   (14,442     )     (17,933     )
            Amortization of non-cash portion of revenue contracts                                            (4,041      )     (4,032      )   (16,032     )     (16,058     )
            Deferred income tax (recovery) expense                                                           (4,547      )     10,867          (1,870      )     4,854
            Distributions on preferred units                                                                 (5,376      )     (12,386     )   (42,065     )     (45,836     )
            Unrealized gain on non-designated derivative instruments                                         (37,743     )     (94,566     )   (126,457    )     (39,659     )
            Estimated maintenance capital expenditures                                                       (40,412     )     (41,369     )   (156,074    )     (155,391    )
            Unrealized foreign exchange (gain) loss and other, net                                           (10,432     )     (6,830      )   9,189             3,730
Distributable cash flow before non-controlling interests                                                     38,789            26,715          128,241           182,130
            Non-controlling interests’ share of DCF                                                          (4,340      )     (5,088      )   (22,535     )     (20,801     )
Distributable Cash Flow                                                                                      34,449            21,627          105,706           161,329
Amount attributable to the General Partner                                                                   (31         )     (331        )   (429        )     (1,201      )
Limited partners’ Distributable Cash Flow                                                                    34,418            21,296          105,277           160,128
Weighted-average number of common units outstanding                                                          410,045,210       144,704,887     220,755,937       124,747,207
Distributable Cash Flow per limited partner unit                                                             0.08              0.15            0.48              1.28

-- Estimated maintenance capital expenditures relating to the Partnership’s equity accounted joint ventures were $2.6 million and $1.0 million for the three months ended December 31, 2017 and 2016, respectively, and $5.7 million and $4.2 million for the years ended December 31, 2017 and 2016, respectively.

-- See footnote (1) of the summary consolidated statements of income (loss) included in this release for further details.

-- Derivative instruments include interest rate swaps. cross currency swaps, and foreign currency forward contracts.

-- Estimated maintenance capital expenditures for the three months and year ended December 31, 2017 includes $8.1 million and $0.9 million reductions relating to cash compensation received from shipyards in connection with the delayed deliveries of the ALP Sweeper and the Beothuk Spirit, respectively, and additionally, the year ended December 31, 2017 includes a further $8.4 million reduction relating to cash compensation received from the shipyard in connection with the delayed delivery of the ALP Defender. Estimated maintenance expenditures for the year ended December 31, 2016 includes a $7.0 million reduction relating to cash compensation received from the shipyard in connection with the delayed delivery of the ALP Striker.

Teekay Offshore Partners L.P.

Appendix C - Supplemental Segment Information

(in thousands of U.S. Dollars)

                                         Three Months Ended December 31, 2017
                                         (unaudited)
                                         FPSO Segment       Shuttle Tanker Segment FSO Segment   UMS Segment   Towage Segment Conventional Tanker Segment Eliminations Total
Revenues                                 118,675            132,106                34,409        321           12,212         3,540                       (5,535)      295,728
Voyage expenses                          --                 (22,348  )             (159   )      (1,152 )      (5,617)        (248       )                519          (29,005 )
Vessel operating expenses                (38,165          ) (42,671  )             (10,337)      (5,329 )      (6,145)        --                          4,547        (98,100 )
Time-charter hire expenses               --                 (14,399  )             --            --            --             (3,976     )                --           (18,375 )
Depreciation and amortization            (34,064          ) (33,935  )             (11,678)      (1,659 )      (4,522)        --                          200          (85,658 )
General and administrative               (7,142           ) (4,717   )             (508   )      (884   )      (1,042)        (90        )                --           (14,383 )
(Loss) gain on sale of vessels           --                 (244     )             392           --            --             --                          --           148
Restructuring (charge) recovery          --                 (210     )             --            881           --             --                          --           671
Income (loss) from vessel operations     39,304             13,582                 12,119        (7,822 )      (5,114)        (774       )                (269  )      51,026
                                         Three Months Ended December 31, 2016
                                         (unaudited)
                                         FPSO Segment       Shuttle Tanker Segment FSO Segment   UMS Segment   Towage Segment Conventional Tanker Segment Eliminations Total
Revenues                                 116,429            129,092                12,037        3,821         9,794          3,747                       --           274,920
Voyage expenses                          --                 (17,437  )             (1,086 )      --            (4,785)        (15        )                --           (23,323 )
Vessel operating expenses                (34,714          ) (32,215  )             (5,443 )      (7,312 )      (4,509)        (127       )                --           (84,320 )
Time-charter hire expenses               --                 (18,213  )             --            --            --             (4,227     )                --           (22,440 )
Depreciation and amortization            (37,200          ) (31,919  )             (2,725 )      (1,623 )      (3,406)        --                          --           (76,873 )
General and administrative               (8,845           ) (1,185   )             (224   )      (1,329 )      (957  )        (91        )                --           (12,631 )
Gain on sale and (write-down) of vessels --                 4,554                  (983   )      --            --             --                          --           3,571
Restructuring charge                     (2,360           ) --                     --            --            --             --                          --           (2,360  )
Income (loss) from vessel operations     33,310             32,677                 1,576         (6,443 )      (3,863)        (713       )                --           56,544

-- Includes revenues and expenses earned and incurred between segments of Teekay Offshore during the three months ended December 31, 2017.

Teekay Offshore Partners L.P.

Appendix D - Reconciliation of Non-GAAP Financial Measures

Cash Flow From (Used For) Vessel Operations From Consolidated Vessels

(in thousands of U.S. Dollars)

                                                                   Three Months Ended                                                                            Year Ended
                                                                   December 31, 2017                                                                             December 31, 2017
                                                                   (unaudited)                                                                                   (unaudited)
                                                                                      Shuttle                                 Conventional
                                                                   FPSO               Tanker    FSO       UMS       Towage    Tanker
                                                                   Segment            Segment   Segment   Segment   Segment   Segment      Eliminations Total    Total
Income (loss) from vessel operations
                              (See Appendix C)                     39,304             13,582    12,119    (7,822 )  (5,114 )  (774  )      (269  )      51,026   (116,005 )
Depreciation and amortization                                      34,064             33,935    11,678    1,659     4,522     --           (200  )      85,658   309,975
Realized gain from the
                              settlements of non-designated
                              foreign currency forward contracts   64                 108       --        --        318       --           --           490      1,003
Amortization of non-cash portion of
                              revenue contracts                    (4,041           ) --        --        --        --        --                        (4,041 ) (16,032  )
Termination of Arendal Spirit UMS
                              charter contract                     --                 --        --        --        --        --           --           --       8,888
Loss (gain) on sale and writedown of vessels                       --                 244       (392   )  --        --        --           --           (148   ) 318,078
Falcon Spirit revenue accounted for
                              as a direct financing lease          --                 --        (368   )  --        --        --           --           (368   ) (1,635   )
Falcon Spirit cash flow from
                              time-charter contracts               --                 --        1,661     --        --        --           --           1,661    7,340
Eliminations upon consolidation                                    --                 --        --        --        (469   )  --           469          --
Cash flow from (used for) vessel
                              operations from consolidated vessels 69,391             47,869    24,698    (6,163 )  (743   )  (774  )      --           134,278  511,612
                                                                 Three Months Ended                                                                           Year Ended
                                                                 December 31, 2016                                                                            December 31, 2016
                                                                 (unaudited)                                                                                  (unaudited)
                                                                                    Shuttle                                Conventional
                                                                 FPSO               Tanker    FSO      UMS       Towage    Tanker                             YTD
                                                                 Segment            Segment   Segment  Segment   Segment   Segment      Eliminations Total    Total
Income (loss) from vessel operations
                            (See Appendix C)                     33,310             32,677    1,576    (6,443 )  (3,863 )  (713  )      --           56,544   230,853
Depreciation and amortization                                    37,200             31,919    2,725    1,623     3,406     --           --           76,873   300,011
Realized (loss) gain from the
                            settlements of non-designated
                            foreign currency forward contracts   (553             ) (4     )  --       --        22        --           --           (535   ) (6,744 )
Amortization of non-cash portion of
                            revenue contracts                    (4,032           ) --        --       --        --        --           --           (4,032 ) (16,058)
(Gain) on sale and write-down of vessels                         --                 (4,554 )  983      --        --        --           --           (3,571 ) 40,079
Falcon Spirit revenue accounted for
                            as a direct financing lease          --                 --        (729  )  --        --        --           --           (729   ) (2,829 )
Falcon Spirit cash flow from
                            time-charter contracts               --                 --        2,232    --        --        --           --           2,232    8,766
Cash flow from (used for) vessel
                            operations from consolidated vessels 65,925             60,038    6,787    (4,820 )  (435   )  (713  )      --           126,782  554,078

-- Includes revenues and expenses earned and incurred between segments of Teekay Offshore during the three months ended December 31, 2017.

Teekay Offshore Partners L.P.

Appendix E - Reconciliation of Non-GAAP Financial Measures

Cash Flow From Vessel Operations From Equity Accounted Vessels

(in thousands of U.S. Dollars)

                                                                     Three Months Ended         Three Months Ended
                                                                     December 31, 2017          December 31, 2016
                                                                     (unaudited)                (unaudited)
                                                                     At 100%  Partnership’s 50% At 100%  Partnership’s 50%
Revenues                                                             29,482   14,741            20,007   10,004
Vessel and other operating expenses                                  (8,234)  (4,116 )          (3,894)  (1,947 )
Depreciation and amortization                                        (8,226)  (4,113 )          (4,235)  (2,118 )
Income from vessel operations of equity accounted vessels            13,022   6,512             11,878   5,939
Net interest expense                                                 (8,538)  (4,269 )          (1,919)  (960   )
Realized and unrealized loss on derivative instruments               764      382               (1,465)  (733   )
Foreign currency exchange loss                                       (1,100)  (551   )          (2    )  (1     )
Total other items                                                    (8,874)  (4,438 )          (3,386)  (1,694 )
Net income / equity income of equity accounted vessels before income 4,148    2,074             8,492    4,245
tax recovery (expense)
Income tax recovery (expense)                                        103      52                (316  )  (158   )
Net income / equity income of equity accounted vessels               4,251    2,126             8,176    4,087
Income from vessel operations of equity accounted vessels            13,022   6,512             11,878   5,939
Depreciation and amortization                                        8,226    4,113             4,235    2,118
Cash flow from vessel operations from equity accounted vessels       21,248   10,625            16,113   8,057

-- Net interest expense for the three months ended December 31, 2017 includes an unrealized loss of $3.1 million ($1.5 million at the Partnership’s 50% share) related to interest rate swaps designated and qualifying as cash flow edges for the Pioneiro de Libra FPSO unit.

-- Realized and unrealized loss on derivative instruments for the three months ended December 31, 2017 and 2016 includes an unrealized gain of $1.2 million ($0.6 million at the Partnership’s 50% share) and an unrealized loss of $0.8 million ($0.4 million at the Partnership’s 50% share), respectively, related to interest rate swaps for the Cidade de Itajai FPSO unit.

                                                                     Year Ended                   Year Ended
                                                                     December 31, 2017            December 31, 2016
                                                                     (unaudited)                  (unaudited)
                                                                     At 100%    Partnership’s 50% At 100%    Partnership’s 50%
Revenues                                                             90,662     45,331            80,869     40,435
Vessel and other operating expenses                                  (23,942 )  (11,971)          (20,380 )  (10,190)
Depreciation and amortization                                        (21,439 )  (10,719)          (17,429 )  (8,715 )
Write-down and loss on sale of equipment                             --         --                (1,351  )  (675   )
Income from vessel operations of equity accounted vessels            45,281     22,641            41,709     20,855
Net interest expense                                                 (14,874 )  (7,437 )          (7,081  )  (3,541 )
Realized and unrealized (loss) gain on derivative instruments        (139    )  (70    )          1,609      805
Foreign currency exchange gain                                       (1,178  )  (589   )          372        186
Total other items                                                    (16,191 )  (8,096 )          (5,100  )  (2,550 )
Net income / equity income of equity accounted vessels before income 29,090     14,545            36,609     18,305
tax expense
Income tax expense                                                   (206    )  (103   )          (743    )  (372   )
Net income / equity income of equity accounted vessels               28,884     14,442            35,866     17,933
Income from vessel operations of equity accounted vessels            45,281     22,641            41,709     20,855
Depreciation and amortization                                        21,439     10,719            17,429     8,715
Write-down and loss on sale of equipment                             --         --                1,351      675
Cash flow from vessel operations from equity accounted vessels       66,720     33,360            60,489     30,245

-- Net interest expense for the year ended December 31, 2017 includes an unrealized loss of $2.6 million ($1.3 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.

-- Realized and unrealized (loss) gain on derivative instruments for the years ended December 31, 2017 and 2016 includes an unrealized gain of $2.0 million ($1.0 million at the Partnership’s 50% share) and an unrealized gain of $5.2 million ($2.6 million at the Partnership’s 50% share), respectively, related to interest rate swaps for the Cidade de Itajai FPSO units.

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: the estimated future cash flow from vessel operations, including the impact on the Partnership’s balance sheet, and weighted average contract length associated with the Partnership’s existing growth projects once delivered; the timing and cost of delivery and start-up of various newbuildings and conversion/upgrade projects and the commencement of related contracts; the timing and contract terms related to the extension of the employment of the Voyageur Spirit FPSO unit on the Huntington field and the expected impact on the life of the Huntington field; a potential global energy and offshore market recovery; the Partnership’s ability to benefit from future opportunities; and the number of vessel equivalent days for the new ALP contract. 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; significant changes in oil prices; variations in expected levels of field maintenance; increased operating expenses; potential early termination of contracts; shipyard delivery delays and cost overruns; delays in the commencement of charter contracts; the inability to negotiate final documentation related to the Voyageur Spirit FPSO heads of terms; the inability of charterers to make future charter payments; the inability of the Partnership to renew or replace long-term contracts on existing vessels; the ability to fund the Partnership’s remaining capital commitments and debt maturities; vessel demand under the new towage contract; 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, 2016. 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.

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