Bermuda: Teekay Offshore Cash Flow Increased Significantly in 4Q 2010

 

Teekay Offshore GP L.L.C., the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership), today reported the Partnership’s results for the quarter ended December 31, 2010. During the fourth quarter of 2010, the Partnership generated distributable cash flow(1) of $26.9 million, compared to $20.8 million in the quarter ended September 30, 2010.

On January 26, 2011, a cash distribution of $0.475 per unit was declared for the quarter ended December 31, 2010. The cash distribution was paid on February 14, 2011, to all unitholders of record on February 7, 2011.

“The Partnership’s cash flow increased significantly in the fourth quarter, compared to the third quarter, due to a full quarter of earnings from the amended Statoil shuttle tanker master agreement and a return to normal production for the Petrojarl Varg FPSO unit,” commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP L.L.C. “The Partnership’s fourth quarter cash flow also benefited from the completion of the acquisition of the Cidade de Rio das Ostras FPSO unit and two shuttle tanker newbuildings, the second of which delivered ahead of schedule in December 2010.” Mr. Evensen continued, “However, shuttle tanker operating costs increased during the fourth quarter primarily due to the acquisition of the newbuildings Amundsen Spirit and Nansen Spirit, unexpected repair costs relating to certain shuttle tankers, and the delayed completion of certain seasonal repair and maintenance activities. We expect shuttle tanker operating costs to decline next quarter as the seasonal and non-recurring expenditures are reduced. We are pleased to have the opportunity to acquire the remaining 49 percent ownership interest in Teekay Offshore Operating L.P., a transaction which we expect will be accretive to the Partnership’s distributable cash flow per unit and will also simplify its ownership structure. In addition, the bond and equity financings we completed during the fourth quarter have further strengthened the Partnership’s financial position which has enabled us to pursue such acquisition opportunities.”

Petrojarl Varg FPSO

Summary of OPCO Offer and Other Recent Transactions

In January 2011, the Partnership received an offer to acquire from Teekay Corporation (Teekay) the remaining 49 percent interest in Teekay Offshore Operating L.P. which the Partnership does not currently own. OPCO currently operates a fleet of 34 shuttle tankers, four Floating Storage and Offtake (FSO) units, nine double-hull conventional oil tankers and two lightering vessels. The offer is currently being reviewed by the Board of Directors of the Partnership’s general partner and its Conflicts Committee. If accepted, the Partnership anticipates financing the acquisition through a combination of $175 million in cash, which approximates the proceeds raised in the Partnership’s December 2010 equity offering, and the remainder in the form of new limited partner and general partner units to be issued to Teekay.

During December 2010, the Partnership completed a follow-on equity offering of 6.44 million common units, which provided net proceeds to the Partnership of $175.2 million (including 840,000 units from the underwriters’ over-allotment option exercised in full and the general partner’s contribution). The net proceeds from the offering were applied towards repaying a portion of outstanding debt under the Partnership’s revolving credit facilities, which can be later redrawn for general partnership purposes, including funding acquisitions.

During November 2010, the Partnership issued NOK 600 million in senior unsecured bonds that mature in November 2013. All interest and principal payments relating to the bond have been swapped into U.S. dollars. The aggregate principal amount of the bonds is equivalent to approximately USD 98.5 million and the interest rate is at LIBOR + 5.04 percent.

On October 1, 2010, the Partnership completed the acquisition of the Cidade de Rio das Ostras (Rio das Ostras) FPSO unit from Teekay, which is on a long-term charter with Petroleo Brasileiro SA (Petrobras), for a purchase price of $158 million. In addition, OPCO, the 51 percent-owned subsidiary of Teekay Offshore, acquired on October 1, 2010 and December 10, 2010, respectively, the newbuilding shuttle tankers, the Amundsen Spirit and the Nansen Spirit for a cost of $129 million per vessel. OPCO also agreed to acquire an additional newbuilding shuttle tanker, the Peary Spirit, for approximately $133 million, concurrent with the commencement of its time-charter contract in July 2011.

Future Growth Opportunities

Pursuant to an omnibus agreement that Teekay Offshore entered into in connection with its initial public offering in December 2006, Teekay is obligated to offer to the Partnership its interest in certain shuttle tankers, FSO units, FPSO units and joint ventures it may acquire in the future, provided the vessels are servicing contracts in excess of three years in length. Teekay Offshore may also acquire other vessels that Teekay may offer the Partnership from time to time.

FPSO Units

Pursuant to the omnibus agreement and a subsequent agreement, Teekay is obligated to offer to sell the Petrojarl Foinaven FPSO unit, an existing FPSO unit of Teekay’s operating under a long-term contract in the North Sea, to Teekay Offshore prior to July 9, 2012. The purchase price for the Petrojarl Foinaven FPSO unit would be at its fair market value plus any additional tax or other similar costs to Teekay that would be required to transfer the FPSO unit to the Partnership.

On October 19, 2010, Teekay announced that it had signed a long-term contract with Petrobras to provide a FPSO unit for the Tiro and Sidon fields located in the Santos Basin offshore Brazil. The contract with Petrobras will be serviced by a newly converted FPSO unit, named Petrojarl Cidade de Itajai. The new FPSO unit is scheduled to deliver in the second quarter of 2012, when it will commence operations under a nine-year, fixed-rate time-charter contract to Petrobras with six additional one-year extension options. Pursuant to the omnibus agreement, Teekay is obligated to offer to the Partnership its interest in this FPSO project at Teekay’s fully built-up cost, within 365 days after the commencement of the charter with Petrobras.

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Source: Teekay Offshore, February  24, 2011;

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