UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 6-K
_________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 2017
Commission file number 1- 33198
_________________________
TEEKAY OFFSHORE PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
_________________________
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
(Address of principal executive office)
_________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F
ý
Form 40- F
¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).
Yes
¨
No
ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7). Yes
¨
No
ý
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2017
INDEX
ITEM 1 - FINANCIAL STATEMENTS
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME (LOSS)
(in thousands of U.S. Dollars, except unit and per unit data)
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Revenues
(note 6)
|
276,138
|
|
|
306,708
|
|
Voyage expenses
|
(25,141
|
)
|
|
(18,344
|
)
|
Vessel operating expenses
(note 6)
|
(78,990
|
)
|
|
(95,352
|
)
|
Time-charter hire expenses
|
(21,756
|
)
|
|
(15,322
|
)
|
Depreciation and amortization
|
(74,726
|
)
|
|
(74,922
|
)
|
General and administrative
(notes 6 and 11)
|
(14,617
|
)
|
|
(14,469
|
)
|
Restructuring charge
|
(450
|
)
|
|
—
|
|
Income from vessel operations
|
60,458
|
|
|
88,299
|
|
|
|
|
|
|
|
Interest expense
(notes 5, 6 and 7)
|
(36,104
|
)
|
|
(36,026
|
)
|
Interest income
|
346
|
|
|
404
|
|
Realized and unrealized loss on derivative instruments
(note 7)
|
(6,532
|
)
|
|
(60,490
|
)
|
Equity income
|
4,475
|
|
|
5,283
|
|
Foreign currency exchange loss
(note 7)
|
(223
|
)
|
|
(2,838
|
)
|
Other income - net
(note 3)
|
222
|
|
|
9
|
|
Income (loss) before income tax (expense) recovery
|
22,642
|
|
|
(5,359
|
)
|
Income tax (expense) recovery
(note 8)
|
(1,379
|
)
|
|
2,836
|
|
Net income (loss)
|
21,263
|
|
|
(2,523
|
)
|
|
|
|
|
|
|
Non-controlling interests in net income (loss)
|
2,372
|
|
|
1,888
|
|
Preferred unitholders' interest in net income (loss)
(note 10)
|
12,386
|
|
|
10,750
|
|
General Partner’s interest in net income (loss)
|
130
|
|
|
(304
|
)
|
Limited partners' interest in net income (loss)
|
6,375
|
|
|
(14,857
|
)
|
Limited partners' interest in net income (loss) for basic net income (loss) per common unit
(note 10)
|
5,575
|
|
|
(14,857
|
)
|
Limited partner's interest in net income (loss) per common unit
|
|
|
|
|
|
- basic
(note 10)
|
0.04
|
|
|
(0.14
|
)
|
- diluted
(note 10)
|
0.04
|
|
|
(0.14
|
)
|
Weighted-average number of common units outstanding:
|
|
|
|
|
|
- basic
|
148,633,906
|
|
|
107,055,382
|
|
- diluted
|
149,662,366
|
|
|
107,055,382
|
|
Cash distributions declared per unit
|
0.1100
|
|
|
0.1100
|
|
Related party transactions
(note
6
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
(in thousands of U.S. Dollars, except unit and per unit data)
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Net income (loss)
|
21,263
|
|
|
(2,523
|
)
|
Other comprehensive income:
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
|
Unrealized gain (loss) on qualifying cash flow hedging instruments
(note 7)
|
157
|
|
|
(13,531
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
To interest expense:
|
|
|
|
Realized loss on qualifying cash flow hedging instruments
(note 7)
|
56
|
|
|
—
|
|
Other comprehensive income (loss)
|
213
|
|
|
(13,531
|
)
|
Comprehensive income (loss)
|
21,476
|
|
|
(16,054
|
)
|
Non-controlling interests in comprehensive income (loss)
|
2,372
|
|
|
1,888
|
|
Preferred unitholders' interest in comprehensive income (loss)
|
12,386
|
|
|
10,750
|
|
General and limited partners' interest in comprehensive income (loss)
|
6,718
|
|
|
(28,692
|
)
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
As at
March 31,
|
|
As at
December 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
ASSETS
|
|
|
|
Current
|
|
|
|
Cash and cash equivalents
|
193,419
|
|
|
227,378
|
|
Restricted cash
(notes 5, 7 and 9e)
|
97,310
|
|
|
92,265
|
|
Accounts receivable, including non-trade of $13,293 (December 31, 2016 - $13,032)
|
132,415
|
|
|
114,576
|
|
Vessels held for sale
|
6,900
|
|
|
6,900
|
|
Net investments in direct financing leases - current
(note 3b)
|
1,994
|
|
|
4,417
|
|
Prepaid expenses
|
30,628
|
|
|
25,187
|
|
Due from affiliates
(note 6c)
|
20,013
|
|
|
77,811
|
|
Other current assets
(note 7)
|
21,316
|
|
|
21,282
|
|
Total current assets
|
503,995
|
|
|
569,816
|
|
Restricted cash - long-term
(note 7)
|
2,970
|
|
|
22,644
|
|
Vessels and equipment
|
|
|
|
At cost, less accumulated depreciation of $1,568,510 (December 31, 2016 - $1,494,038)
|
4,012,105
|
|
|
4,084,803
|
|
Advances on newbuilding contracts and conversion costs
(notes 9a,9b,9e and 9f)
|
680,439
|
|
|
632,130
|
|
Net investments in direct financing leases
(note 3b)
|
13,700
|
|
|
13,169
|
|
Investment in equity accounted joint ventures
(notes 9d and 12)
|
154,048
|
|
|
141,819
|
|
Deferred tax asset
|
23,765
|
|
|
24,659
|
|
Other assets
(note 7)
|
96,992
|
|
|
100,435
|
|
Goodwill
|
129,145
|
|
|
129,145
|
|
Total assets
|
5,617,159
|
|
|
5,718,620
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current
|
|
|
|
Accounts payable
|
15,454
|
|
|
8,946
|
|
Accrued liabilities
(notes 7 and 11)
|
139,771
|
|
|
150,281
|
|
Deferred revenues
|
57,017
|
|
|
57,373
|
|
Due to affiliates
(note 6c)
|
70,774
|
|
|
96,555
|
|
Current portion of derivative instruments
(note 7)
|
60,119
|
|
|
55,002
|
|
Current portion of long-term debt
(note 5)
|
620,803
|
|
|
586,892
|
|
Current portion of in-process revenue contracts
|
12,744
|
|
|
12,744
|
|
Total current liabilities
|
976,682
|
|
|
967,793
|
|
Long-term debt
(note 5)
|
2,500,306
|
|
|
2,596,002
|
|
Derivative instruments
(note 7)
|
268,578
|
|
|
282,138
|
|
Due to affiliates
(notes 6b, 6c and 6g)
|
200,000
|
|
|
200,000
|
|
In-process revenue contracts
|
47,139
|
|
|
50,281
|
|
Other long-term liabilities
|
207,297
|
|
|
211,611
|
|
Total liabilities
|
4,200,002
|
|
|
4,307,825
|
|
Commitments and contingencies
(notes 5, 7 and 9)
|
|
|
|
Redeemable non-controlling interest
|
955
|
|
|
962
|
|
Convertible Preferred Units
(12.5 million units issued and outstanding at March 31, 2017 and December 31, 2016)
(note 10)
|
272,053
|
|
|
271,237
|
|
Equity
|
|
|
|
Limited partners - common units (149.7 million and 147.5 million units issued and outstanding at March 31, 2017 and December 31, 2016, respectively)
(notes 10 and 11)
|
787,065
|
|
|
784,056
|
|
Limited partners - preferred units (11.0 million units issued and outstanding at March 31, 2017 and December 31, 2016)
(note 10)
|
266,925
|
|
|
266,925
|
|
General Partner
|
20,720
|
|
|
20,658
|
|
Warrants
(note 10)
|
13,797
|
|
|
13,797
|
|
Accumulated other comprehensive loss
|
(591
|
)
|
|
(804
|
)
|
Non-controlling interests
|
56,233
|
|
|
53,964
|
|
Total equity
|
1,144,149
|
|
|
1,138,596
|
|
Total liabilities and total equity
|
5,617,159
|
|
|
5,718,620
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Cash and cash equivalents provided by (used for)
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
Net income (loss)
|
21,263
|
|
|
(2,523
|
)
|
Non-cash items:
|
|
|
|
Unrealized gain on derivative instruments
(note 7)
|
(8,680
|
)
|
|
(9,356
|
)
|
Equity income
|
(4,475
|
)
|
|
(5,283
|
)
|
Depreciation and amortization
|
74,726
|
|
|
74,922
|
|
Deferred income tax expense (recovery)
(note 8)
|
1,436
|
|
|
(3,538
|
)
|
Amortization of in-process revenue contracts
|
(3,143
|
)
|
|
(3,177
|
)
|
Unrealized foreign currency exchange (gain) loss and other
|
7,190
|
|
|
24,991
|
|
Change in non-cash working capital items related to operating activities
|
10,802
|
|
|
52,860
|
|
Expenditures for dry docking
|
(1,140
|
)
|
|
(3,445
|
)
|
Net operating cash flow
|
97,979
|
|
|
125,451
|
|
FINANCING ACTIVITIES
|
|
|
|
Proceeds from long-term debt
(note 5)
|
94,169
|
|
|
50,410
|
|
Scheduled repayments of long-term debt
(note 5)
|
(161,369
|
)
|
|
(125,030
|
)
|
Prepayments of long-term debt
(note 5)
|
—
|
|
|
(21,607
|
)
|
Debt issuance costs
(note 5)
|
(1,054
|
)
|
|
(99
|
)
|
Proceeds from issuance of common units
(note 10)
|
240
|
|
|
—
|
|
Expenses relating to equity offerings
|
(212
|
)
|
|
—
|
|
Decrease in restricted cash
(note 7)
|
14,629
|
|
|
37,820
|
|
Cash distributions paid by the Partnership
|
(17,137
|
)
|
|
(22,763
|
)
|
Cash distributions paid by subsidiaries to non-controlling interests
|
(110
|
)
|
|
(110
|
)
|
Other
|
(372
|
)
|
|
(294
|
)
|
Net financing cash flow
|
(71,216
|
)
|
|
(81,673
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
Net payments for vessels and equipment, including advances on newbuilding contracts and conversion costs
|
(55,205
|
)
|
|
(25,277
|
)
|
Proceeds from sale of vessels and equipment
|
—
|
|
|
55,450
|
|
(Investment in) return of capital from equity accounted joint ventures
|
(7,409
|
)
|
|
1,931
|
|
Direct financing lease payments received
|
1,892
|
|
|
1,396
|
|
Net investing cash flow
|
(60,722
|
)
|
|
33,500
|
|
(Decrease) increase in cash and cash equivalents
|
(33,959
|
)
|
|
77,278
|
|
Cash and cash equivalents, beginning of the period
|
227,378
|
|
|
258,473
|
|
Cash and cash equivalents, end of the period
|
193,419
|
|
|
335,751
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars and units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Units
#
|
|
Common
Units and
Additional
Paid-in Capital
$
|
|
Preferred
Units
#
|
|
Preferred
Units
$
|
|
Warrants
$
|
|
General
Partner
$
|
|
Accumulated Other Comprehensive Loss
$
|
|
Non-
controlling
Interests
$
|
|
Total
Equity
$
|
|
Convertible Preferred Units
#
|
|
Convertible Preferred Units
$
|
|
Redeemable
Non-
controlling
Interest
$
|
Balance as at December 31, 2016
|
147,514
|
|
|
784,056
|
|
|
11,000
|
|
|
266,925
|
|
|
13,797
|
|
|
20,658
|
|
|
(804
|
)
|
|
53,964
|
|
|
1,138,596
|
|
|
12,517
|
|
|
271,237
|
|
|
962
|
|
Net income
|
—
|
|
|
6,375
|
|
|
—
|
|
|
5,375
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
2,379
|
|
|
14,259
|
|
|
—
|
|
|
7,011
|
|
|
(7
|
)
|
Other comprehensive income
(note 7)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
213
|
|
|
—
|
|
|
213
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash distributions
|
—
|
|
|
(11,762
|
)
|
|
—
|
|
|
(5,375
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Payment-in-kind distributions
(note 10)
|
2,065
|
|
|
7,342
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(331
|
)
|
|
—
|
|
|
—
|
|
|
7,011
|
|
|
—
|
|
|
(7,011
|
)
|
|
—
|
|
Distribution to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(110
|
)
|
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Contribution of capital from Teekay Corporation
(note 6h)
|
—
|
|
|
1,836
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
—
|
|
|
1,873
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Proceeds from equity offerings, net of offering costs
(note 10)
|
—
|
|
|
(208
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
237
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity based compensation and other
(note 11)
|
140
|
|
|
(574
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
(585
|
)
|
|
—
|
|
|
816
|
|
|
—
|
|
Balance as at March 31, 2017
|
149,719
|
|
|
787,065
|
|
|
11,000
|
|
|
266,925
|
|
|
13,797
|
|
|
20,720
|
|
|
(591
|
)
|
|
56,233
|
|
|
1,144,149
|
|
|
12,517
|
|
|
272,053
|
|
|
955
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
1. Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (or
GAAP
). These financial statements include the accounts of Teekay Offshore Partners L.P., which is a limited partnership organized under the laws of the Republic of The Marshall Islands, and its wholly owned or controlled subsidiaries (collectively, the
Partnership
).
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2016, which are included in the Partnership’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or
SEC
) on April 12, 2017. In the opinion of management of the Partnership’s general partner, Teekay Offshore GP L.L.C. (or the
general partner
), these interim unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly, in all material respects, the Partnership’s consolidated financial position, results of operations, changes in total equity and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Historically, the utilization of shuttle tankers in the North Sea is higher in the winter months as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to the Partnership’s vessels and the offshore oil platforms. Downtime for repairs and maintenance generally reduces oil production and, thus, transportation requirements. Intercompany balances and transactions have been eliminated upon consolidation.
|
|
2.
|
Accounting Pronouncements
|
In May 2014, the Financial Accounting Standards Board (or
FASB
) issued Accounting Standards Update 2014-09,
Revenue from Contracts with Customers
(or
ASU 2014-09
). ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue as each performance obligation is satisfied. ASU 2014-09 is effective for the Partnership January 1, 2018 and shall be applied, at the Partnership’s option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Partnership expects that the adoption of ASU 2014-09 may result in a change in the method of recognizing revenue from contracts of affreightments whereby revenue will be recognized over the voyage until discharge is complete, instead of over the voyage until tendering notice for the next voyage. This will result in all revenue being fully recognized upon discharge of cargo whereas currently revenue recognition extends into the period the vessel returns to the oil field. This change may result in revenue being recognized earlier which may cause additional volatility in revenue and earnings between periods. In addition, the Partnership expects that the adoption of ASU 2014-09 may result in a change in the method of recognizing revenue for voyage charters, whereby the Partnership’s method of determining proportional performance will change from discharge-to-discharge to load-to-discharge. This will result in no revenue being recognized from discharge of the prior voyage to loading of the current voyage and all revenue being recognized from loading of the current voyage to discharge of the current voyage. This change will result in revenue being recognized later in the voyage which may cause additional volatility in revenue and earnings between periods. The Partnership is in the process of validating aspects of its preliminary assessment of ASU 2014-09, determining the transitional impact and completing other items required for the adoption of ASU 2014-09.
In February 2016, the FASB issued Accounting Standards Update 2016-02,
Leases
(or
ASU 2016-02
). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right of use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Partnership expects to adopt ASU 2016-02 effective January 1, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Partnership expects that the adoption of ASU 2016-02 will result in a change in accounting method for the lease portion of the daily charter hire for the Partnership's chartered-in vessels accounted for as operating leases with firm periods of greater than one year. Under ASU 2016-02, the Partnership will recognize a right of use asset and a lease liability on the balance sheet for these charters, whereas currently no right of use asset or lease liability is recognized. This will have the result of increasing the Partnership’s assets and liabilities. The pattern of expense recognition of chartered-in vessel is expected to remain substantially unchanged, unless the right of use asset becomes impaired. The Partnership is in the process of validating aspects of its preliminary assessment of ASU 2016-02, determining the transitional impact and completing other items required for the adoption of ASU 2016-02
In March 2016, the FASB issued Accounting Standards Update 2016-09,
Improvements to Employee Share-Based Payment Accounting
(or
ASU 2016-09
). ASU 2016-09 simplifies aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 became effective for the Partnership January 1, 2017. The impact of adopting this new accounting guidance is a change in the Partnership's presentation of cash payments for tax withholdings on share settled equity awards from an operating cash outflow to a financing cash outflow on the Partnership's statement of cash flows.
In June 2016, the FASB issued Accounting Standards Update 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
(or
ASU 2016-13
). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
This update is effective for the Partnership January 1, 2020, with a modified-retrospective approach. The Partnership is currently evaluating the effect of adopting this new guidance.
In August 2016, the FASB issued Accounting Standards Update 2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
(or
ASU 2016-15
), which, among other things, provides guidance on two acceptable approaches of classifying distributions received from equity method investees in the statement of cash flows. ASU 2016-15 is effective for the Partnership January 1, 2018, with a retrospective approach. The Partnership is currently evaluating the effect of adopting this new guidance.
|
|
a)
|
Fair Value Measurements
|
For a description of how the Partnership estimates fair value and for a description of the fair value hierarchy levels, see Note 4 in the Partnership’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended
December 31, 2016
. The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis, as well as the estimated fair value of the Partnership’s financial instruments that are not accounted for at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Fair Value
Hierarchy
Level
|
|
Carrying
Amount
Asset
(Liability)
$
|
|
Fair Value
Asset
(Liability)
$
|
|
Carrying
Amount
Asset
(Liability)
$
|
|
Fair Value
Asset
(Liability)
$
|
Recurring:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash
|
Level 1
|
|
293,699
|
|
|
293,699
|
|
|
342,287
|
|
|
342,287
|
|
Derivative instruments
(note 7)
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
Level 2
|
|
(201,301
|
)
|
|
(201,301
|
)
|
|
(203,106
|
)
|
|
(203,106
|
)
|
Cross currency swap agreements
|
Level 2
|
|
(132,949
|
)
|
|
(132,949
|
)
|
|
(137,379
|
)
|
|
(137,379
|
)
|
Foreign currency forward contracts
|
Level 2
|
|
(1,056
|
)
|
|
(1,056
|
)
|
|
(1,786
|
)
|
|
(1,786
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-Recurring:
|
|
|
|
|
|
|
|
|
|
Vessels held for sale
|
Level 2
|
|
—
|
|
|
—
|
|
|
6,900
|
|
|
6,900
|
|
Vessels and equipment
|
Level 2
|
|
—
|
|
|
—
|
|
|
11,300
|
|
|
11,300
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
Long-term debt - public
(note 5)
|
Level 1
|
|
(552,891
|
)
|
|
(513,307
|
)
|
|
(550,525
|
)
|
|
(480,710
|
)
|
Long-term debt - non-public
(note 5)
|
Level 2
|
|
(2,568,218
|
)
|
|
(2,509,992
|
)
|
|
(2,632,369
|
)
|
|
(2,551,697
|
)
|
Long-term debt - related party (
note 6g
)
|
Level 2
|
|
(200,000
|
)
|
|
(193,758
|
)
|
|
(200,000
|
)
|
|
(192,982
|
)
|
Contingent consideration liability
– In August 2014, the Partnership acquired
100%
of the outstanding shares of Logitel Offshore Holding AS (or
Logitel
), a Norway-based company focused on high-end Units for Maintenance and Safety (or
UMS
), from Cefront Technology AS (or
Cefront
) for
$4.0 million
. The Partnership paid the purchase price in cash at closing, plus a commitment to pay an additional amount of up to
$27.6 million
, depending on certain performance criteria. For a description of the performance criteria, please refer to the Partnership's Annual Report on Form 20-F for the year ended December 31, 2015.
The
Arendal Spirit was
delivered to the Partnership on February 16, 2015 and began its three-year charter contract on June 7, 2015.
During
the second quarter of 2016, the Partnership canceled the UMS construction contracts for its
two
remaining UMS newbuildings. This is expected to eliminate any future purchase price contingent consideration payments. Consequently, the contingent liability was reversed in the second quarter of 2016. The gain associated with this reversal is included in Other (expense) income - net on the Partnership's consolidated statements of income for the year ended
December 31, 2016
, filed as part of the Partnership's Annual Report on Form 20-F for the year ended 31 December 2016.
Changes in the estimated fair value of the Partnership’s contingent consideration liability relating to the acquisition of Logitel, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), during the
three
months ended
March 31,
2016
are as follows:
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
|
Asset (Liability)
|
|
|
$
|
|
$
|
|
Balance at beginning of period
|
—
|
|
|
(14,830
|
)
|
|
Loss included in Other income - net
|
—
|
|
|
(391
|
)
|
|
Balance at end of period
|
—
|
|
|
(15,221
|
)
|
|
The following table contains a summary of the Partnership’s financing receivables by type of borrower and the method by which the Partnership monitors the credit quality of its financing receivables on a quarterly basis:
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality
Indicator
|
|
Grade
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
|
$
|
|
$
|
Direct financing leases
|
Payment activity
|
|
Performing
|
|
15,694
|
|
|
17,586
|
|
The following tables include results for the Partnership’s floating production storage and offloading (or
FPSO
) unit segment; shuttle tanker segment; floating storage and off-take (or
FSO
) unit segment; UMS segment; towage segment; and conventional tanker segment for the periods presented in these consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
FPSO Segment
|
|
Shuttle Tanker Segment
|
|
FSO
Segment
|
|
UMS Segment
|
|
Towage
Segment
|
|
Conventional Tanker Segment
|
|
Total
|
Revenues
|
112,855
|
|
|
136,233
|
|
|
11,489
|
|
|
827
|
|
|
10,898
|
|
|
3,836
|
|
|
276,138
|
|
Voyage expenses
|
—
|
|
|
(21,278
|
)
|
|
(325
|
)
|
|
—
|
|
|
(3,510
|
)
|
|
(28
|
)
|
|
(25,141
|
)
|
Vessel operating expenses
|
(35,093
|
)
|
|
(27,429
|
)
|
|
(5,079
|
)
|
|
(6,485
|
)
|
|
(4,914
|
)
|
|
10
|
|
|
(78,990
|
)
|
Time-charter hire expenses
|
—
|
|
|
(16,698
|
)
|
|
—
|
|
|
—
|
|
|
(925
|
)
|
|
(4,133
|
)
|
|
(21,756
|
)
|
Depreciation and amortization
|
(36,502
|
)
|
|
(30,613
|
)
|
|
(2,552
|
)
|
|
(1,633
|
)
|
|
(3,426
|
)
|
|
—
|
|
|
(74,726
|
)
|
General and administrative
(1)
|
(7,830
|
)
|
|
(3,143
|
)
|
|
(501
|
)
|
|
(1,992
|
)
|
|
(1,061
|
)
|
|
(90
|
)
|
|
(14,617
|
)
|
Restructuring charge
|
(450
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(450
|
)
|
Income (loss) from vessel operations
|
32,980
|
|
|
37,072
|
|
|
3,032
|
|
|
(9,283
|
)
|
|
(2,938
|
)
|
|
(405
|
)
|
|
60,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
FPSO Segment
|
|
Shuttle Tanker Segment
|
|
FSO
Segment
|
|
UMS Segment
|
|
Towage
Segment
|
|
Conventional Tanker Segment
|
|
Total
|
Revenues
(2)
|
132,784
|
|
|
126,184
|
|
|
14,363
|
|
|
13,482
|
|
|
11,083
|
|
|
8,812
|
|
|
306,708
|
|
Voyage expenses
|
—
|
|
|
(13,938
|
)
|
|
(212
|
)
|
|
—
|
|
|
(3,518
|
)
|
|
(676
|
)
|
|
(18,344
|
)
|
Vessel operating expenses
|
(46,915
|
)
|
|
(28,881
|
)
|
|
(5,473
|
)
|
|
(7,927
|
)
|
|
(4,885
|
)
|
|
(1,271
|
)
|
|
(95,352
|
)
|
Time-charter hire expenses
|
—
|
|
|
(14,812
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(510
|
)
|
|
(15,322
|
)
|
Depreciation and amortization
|
(37,583
|
)
|
|
(30,648
|
)
|
|
(2,172
|
)
|
|
(1,696
|
)
|
|
(2,823
|
)
|
|
—
|
|
|
(74,922
|
)
|
General and administrative
(1)
|
(8,674
|
)
|
|
(3,957
|
)
|
|
(238
|
)
|
|
(693
|
)
|
|
(734
|
)
|
|
(173
|
)
|
|
(14,469
|
)
|
Income (loss) from vessel operations
|
39,612
|
|
|
33,948
|
|
|
6,268
|
|
|
3,166
|
|
|
(877
|
)
|
|
6,182
|
|
|
88,299
|
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
|
|
|
(2)
|
Revenues includes a
$4.0 million
early termination fee received from Teekay Corporation during the three months ended
March 31, 2016
, which is included in the Partnership's conventional tanker segment.
|
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
A reconciliation of total segment assets to total assets presented in the accompanying consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
FPSO segment
|
2,660,474
|
|
|
2,672,100
|
|
Shuttle tanker segment
|
1,647,673
|
|
|
1,673,348
|
|
FSO segment
|
418,242
|
|
|
407,634
|
|
UMS segment
|
209,919
|
|
|
213,829
|
|
Towage segment
|
382,015
|
|
|
382,973
|
|
Conventional tanker segment
|
4,563
|
|
|
4,818
|
|
Unallocated:
|
|
|
|
Cash and cash equivalents and restricted cash
|
293,699
|
|
|
342,287
|
|
Other assets
|
574
|
|
|
21,631
|
|
Consolidated total assets
|
5,617,159
|
|
|
5,718,620
|
|
5.
Long-Term Debt
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
U.S. Dollar-denominated Revolving Credit Facilities due through 2019
|
257,101
|
|
|
291,764
|
|
Norwegian Kroner Bonds due through 2019
|
258,184
|
|
|
256,927
|
|
U.S. Dollar-denominated Term Loans due through 2018
|
108,564
|
|
|
112,406
|
|
U.S. Dollar-denominated Term Loans due through 2028
|
2,081,231
|
|
|
2,109,926
|
|
U.S. Dollar Non-Public Bonds due through 2024
|
166,680
|
|
|
166,680
|
|
U.S. Dollar Bonds due through 2019
|
300,000
|
|
|
300,000
|
|
Total principal
|
3,171,760
|
|
|
3,237,703
|
|
Less debt issuance costs and other
|
(50,651
|
)
|
|
(54,809
|
)
|
Total debt
|
3,121,109
|
|
|
3,182,894
|
|
Less current portion
|
(620,803
|
)
|
|
(586,892
|
)
|
Long-term portion
|
2,500,306
|
|
|
2,596,002
|
|
As at
March 31, 2017
, the Partnership had
four
revolving credit facilities (December 31, 2016 -
five
), which, as at such date, provided for total borrowings of up to
$280.4 million
(December 31, 2016 -
$325.1 million
), of which $
23.3 million
(December 31, 2016 -
$33.3 million
) was undrawn. The total amount available under the revolving credit facilities reduces by
$122.0 million
(remainder of
2017
),
$115.4 million
(
2018
) and
$43.0 million
(
2019
). The
four
revolving credit facilities are guaranteed by the Partnership and certain of its subsidiaries for all outstanding amounts and contain covenants that require the Partnership to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) in an amount equal to the greater of
$75.0 million
and
5.0%
of the Partnership’s total consolidated debt.
One
revolving credit facility, that, as at December 31, 2016, was guaranteed by Teekay Corporation, matured during the three months ended March 31, 2017. The revolving credit facilities are collateralized by first-priority mortgages granted on
20
of the Partnership’s vessels, together with other related security.
As at
March 31, 2017
, the Partnership had Norwegian Kroner (or
NOK
)
1,000 million
outstanding in senior unsecured bonds that mature in January 2019 in the Norwegian bond market. As of
March 31, 2017
, the carrying amount of the bonds was
$116.3 million
. The bonds are listed on the Oslo Stock Exchange. The interest payments on the bonds are based on
NIBOR
plus a margin of
4.25%
. The Partnership has entered into cross currency rate swaps to swap all interest and principal payments into U.S. Dollars, with the interest payments fixed at a rate of
7.45%
, and the transfer of the principal amount fixed at
$162.2 million
upon maturity in exchange for NOK
1,000 million
(see note
7
).
As at
March 31, 2017
, the Partnership had NOK
800 million
outstanding in senior unsecured bonds in the Norwegian bond market. NOK
160 million
is repayable in January 2018 with the remaining balance of NOK
640 million
repayable in December 2018 at
103%
of the amount outstanding. The Partnership was granted an option, exercisable at any time, to prepay the bonds in amounts ranging from
101%
to
103%
of the amount of bonds outstanding depending on the timing of settlement. The bonds are listed on the Oslo Stock Exchange. Interest payments are based on NIBOR plus a margin of
5.75%
. As at
March 31, 2017
, the carrying amount of the remaining bonds was
$93.0 million
. The Partnership has entered into cross currency rate swaps to swap all interest and principal payments into U.S. Dollars, with interest payments fixed at a rate of
7.58%
, and the transfer of the principal amount fixed at
$28.7 million
in exchange for NOK
160 million
on the tranche maturing in January 2018 and
$118.3 million
in exchange for NOK
659 million
on the tranche maturing in December 2018 (see note
7
).
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
As at
March 31, 2017
, the Partnership had NOK
420 million
outstanding in senior unsecured bonds in the Norwegian bond market. NOK
180 million
is repayable in October 2017 and NOK
240 million
is repayable in November 2018 at
103%
of the amount outstanding. The Partnership was granted an option, exercisable at any time, to prepay the bonds in amounts ranging from
101%
to
103%
of the amount of bonds outstanding depending on the timing of settlement. The bonds are listed on the Oslo Stock Exchange. Interest payments are based on
NIBOR
plus a margin of
5.75%
. As at
March 31, 2017
, the carrying amount of the bonds was
$48.8 million
. The Partnership has entered into cross currency rate swaps to swap all interest and principal payments into U.S. Dollars, with the interest payments fixed at a rate of
8.84%
, and the transfer of the principal amount fixed at
$30.4 million
in exchange for NOK
180 million
on the tranche maturing in October 2017 and
$41.8 million
in exchange for NOK
247 million
on the tranche maturing in November 2018 (see note
7
).
As at
March 31, 2017
,
three
of the Partnership’s
50%
-owned subsidiaries each had an outstanding term loan, which in the aggregate totaled
$108.6 million
. The term loans reduce over time with quarterly and semi-annual payments and have varying maturities through 2018. These term loans are collateralized by first-priority mortgages on the
three
shuttle tankers to which the loans relate, together with other related security. As at
March 31, 2017
, the Partnership had guaranteed
$23.9 million
of
two
of these term loans, which represents its
50%
share of the outstanding term loans, Teekay Corporation had guaranteed
$30.4 million
of
one
of these term loans and the other owner had guaranteed
$54.3 million
of these term loans.
As at
March 31, 2017
, the Partnership had term loans outstanding for
six
shuttle tankers
,
for
three
East Coast of Canada shuttle tanker newbuildings, for the
Suksan Salamander
and
Gina Krog
FSO units, for
four
FPSO units, for
ten
towing and offshore installation vessels and vessel newbuildings, and for the
Arendal Spirit
UMS, which totaled
$2.1 billion
in the aggregate. For the term loans for
two
shuttle tankers, one tranche reduces in semi-annual payments while another tranche correspondingly is drawn up every six months with final bullet payments of
$29.0 million
due in 2022 and
$29.1 million
due in 2023, respectively. The other term loans reduce over time with quarterly or semi-annual payments. These term loans have varying maturities through 2028 and are collateralized by first-priority mortgages on the vessels to which the loans relate, together with other related security. As at
March 31, 2017
, the Partnership had guaranteed
$1.8 billion
of these term loans and Teekay Corporation had guaranteed
$292.1 million
. In late-April 2017, Petroleo Brasileiro S.A. (or
Petrobras
), notified Logitel Offshore Norway AS, a subsidiary of the Partnership, of its termination of the charter contract for the
Arendal Spirit
UMS and confirmed to Logitel Offshore Norway AS that Petrobras does not intend to pay the charter hire payments from November 2016. The term loan outstanding for the
Arendal Spirit
UMS, which as at
March 31, 2017
had a balance of
$120 million
, is payable within
180
days of the cancellation unless a replacement contract is obtained or a lender waiver is received. If a replacement contract or a lender waiver is not received, this will likely result in a reclassification of
$105 million
of long-term debt to the current portion of long-term debt during the second quarter of 2017. The Partnership has disputed the grounds for termination and is reviewing its legal options, including the initiation of a claim for unpaid standby fees and damages for wrongful termination of the time-charter contract.
In February 2015, the Partnership issued
$30.0 million
in senior bonds that mature in June 2024 in a U.S. private placement. As of
March 31, 2017
, the carrying amount of the bonds was
$23.4 million
. The interest payments on the bonds are fixed at a rate of
4.27%
. The bonds are collateralized by a first-priority mortgage on the
Dampier Spirit
FSO unit, together with other related security, and are guaranteed by the Partnership.
In September 2013 and November 2013, the Partnership issued, in a U.S. private placement, a total of
$174.2 million
of
ten
-year senior bonds that mature in December 2023, to finance the
Bossa Nova Spirit
and
Sertanejo Spirit
shuttle tankers. The bonds accrue interest at a fixed combined rate of
4.96%
. The bonds are collateralized by first-priority mortgages on the
two
vessels to which the bonds relate, together with other related security. The Partnership makes semi-annual repayments on the bonds and as of
March 31, 2017
, the carrying amount of the bonds was
$143.3 million
.
In May 2014, the Partnership issued
$300.0 million
five
-year senior unsecured bonds that mature in July 2019 in the U.S. bond market. As of
March 31, 2017
, the carrying amount of the bonds was
$300.0 million
. The bonds are listed on the New York Stock Exchange. The interest payments on the bonds are fixed at a rate of
6.00%
.
Interest payments on the revolving credit facilities and the term loans are based on LIBOR plus margins, except for
$57.2 million
of one tranche of the term loan for the ALP newbuilding towing and offshore installation vessels, which is fixed at
2.93%
. At
March 31, 2017
and
December 31, 2016
, the margins ranged between
0.30%
and
4.00%
. The weighted-average effective interest rate on the Partnership’s variable rate long-term debt as at
March 31, 2017
was
3.2%
(
December 31, 2016
-
3.0%
). This rate does not include the effect of the Partnership’s interest rate swaps (see note
7
) or fixed rate facilities.
The aggregate annual long-term debt principal repayments required to be made subsequent to
March 31, 2017
are
$472.4 million
(remainder of
2017
),
$687.1 million
(
2018
),
$774.0 million
(
2019
),
$299.1 million
(
2020
),
$241.9 million
(
2021
), and
$697.3 million
(thereafter).
As at
March 31, 2017
, the Partnership had
$20.0 million
(
December 31, 2016
-
$20.0 million
) held as security for a contractual requirement with the charterer of the
Petrojarl Knarr
FPSO unit. The amount is presented in Restricted cash on the consolidated balance sheets.
Obligations under the Partnership’s credit facilities are secured by certain vessels, and if the Partnership is unable to repay debt under the credit facilities, the lenders could seek to foreclose on those assets. The Partnership has
two
revolving credit facilities and
five
term loans that require the Partnership to maintain vessel values to drawn principal balance ratios of a minimum range of
113%
to
125%
. Such requirement is assessed either on a semi-annual or annual basis, with reference to vessel valuations compiled by one or more agreed upon third parties. Should the ratio drop below the required amount, the lender may request the Partnership to either prepay a portion of the loan in the amount of the shortfall or provide additional collateral in the amount of the shortfall, at the Partnership's option. As at
March 31, 2017
, these ratios were estimated to range from
117%
to
439%
and were in compliance with the minimum ratios required. The vessel values used in calculating these ratios are the appraised values provided by third parties where available, or prepared by the Partnership based on second-hand sale
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
and purchase market data. Changes in the shuttle tanker, towing and offshore installation, UMS, FPSO or FSO markets could negatively affect these ratios.
Please read Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity and Capital Needs for a description of certain covenants contained in the Partnership’s credit facilities and loan agreements. As at
March 31, 2017
, the Partnership and Teekay Corporation were in compliance with all covenants related to the credit facilities and long-term debt.
6. Related Party Transactions and Balances
|
|
a)
|
During the three months ended
March 31, 2017
,
two
shuttle tankers and
three
FSO units of the Partnership were employed on long-term bareboat contracts with subsidiaries of Teekay Corporation.
|
|
|
b)
|
Teekay Corporation and its wholly-owned subsidiaries directly and indirectly provide substantially all of the Partnership’s commercial, technical, crew training, strategic, business development and administrative service needs. In addition, the Partnership reimburses the general partner, a wholly owned subsidiary of Teekay Corporation, for expenses incurred by the general partner that are necessary or appropriate for the conduct of the Partnership’s business. Such related party transactions were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Revenues
(1)
|
10,011
|
|
|
14,789
|
|
Vessel operating expenses
(2)
|
(7,762
|
)
|
|
(9,336
|
)
|
General and administrative
(3)
|
(7,141
|
)
|
|
(9,543
|
)
|
Interest expense
(4)(5)(6)(7)
|
(6,863
|
)
|
|
(4,256
|
)
|
_______________
|
|
(1)
|
Includes revenue from time-charter-out or bareboat contracts with subsidiaries or affiliates of Teekay Corporation, including management fees from ship management services provided by the Partnership to a subsidiary of Teekay Corporation. The three months ended
March 31, 2016
, includes an early termination fee received by the Partnership from Teekay Corporation of
$4.0 million
.
|
|
|
(2)
|
Includes ship management and crew training services provided by Teekay Corporation.
|
|
|
(3)
|
Includes commercial, technical, strategic, business development and administrative management fees charged by Teekay Corporation and reimbursements to Teekay Corporation and the general partner for costs incurred on the Partnership’s behalf.
|
|
|
(4)
|
Includes a guarantee fee related to the final bullet payment of the
Piranema Spirit
FPSO debt facility, which was repaid during the three months ended
March 31, 2017
, and for the Partnership's liabilities associated with the long-term debt financing relating to the East Coast of Canada shuttle tanker newbuildings and certain of the Partnerships interest rate swaps and cross currency swaps (see notes
6h
and
7
).
|
|
|
(5)
|
Includes interest expense of
$4.9 million
for the three months ended
March 31, 2017
, incurred on a
$200.0 million
subordinated promissory note issued to a subsidiary of Teekay Corporation effective July 1, 2016 (see note
6g
) (the
2016 Teekay Corporation Promissory Not
e). The subordinated promissory note bears interest at an annual rate of
10.00%
on the outstanding principal balance, which as at
March 31, 2017
, was
$200.0 million
. The outstanding principal balance, together with accrued interest, is payable in full on January 1, 2019.
|
|
|
(6)
|
Includes interest expense of
$1.6 million
for the three months ended
March 31, 2016
, incurred on a convertible promissory note issued to Teekay Corporation, which bore interest at an annual rate of
6.50%
on the outstanding principal balance, which as at
March 31, 2016
, was
$100.0 million
. The convertible promissory note was refinanced on July 1, 2016 under the 2016 Teekay Corporation Promissory Note.
|
|
|
(7)
|
Includes interest expense of
$2.5 million
for the three months ended
March 31, 2016
, incurred on a
$100.0 million
, six-month loan made by Teekay Corporation to the Partnership on January 1, 2016, which bore interest at an annual rate of
10.00%
on the outstanding principal balance, which as at
March 31, 2016
, was
$100.0 million
. The loan was refinanced on July 1, 2016 under the 2016 Teekay Corporation Promissory Note.
|
|
|
c)
|
At
March 31, 2017
, due from affiliates totaled
$20.0 million
(
December 31, 2016
-
$77.8 million
) and due to affiliates totaled
$270.8 million
(
December 31, 2016
-
$296.6 million
). Amounts due to and from affiliates, other than the
$200.0 million
subordinated promissory note to Teekay Corporation (see b(5) above), are non-interest bearing and unsecured, and all current due to and from affiliates balances are expected to be settled within the next fiscal year in the normal course of operations or from financings.
|
|
|
d)
|
In May 2013, the Partnership entered into an agreement with Statoil ASA (or
Statoil
), on behalf of the field license partners, to provide an FSO unit for the Gina Krog oil and gas field located in the North Sea. The contract will be serviced by a new FSO unit that is being converted from the
Randgrid
shuttle tanker, which commenced its conversion during the second quarter of 2015 (see note
9a
). The Partnership has received project management and engineering services from certain subsidiaries of Teekay Corporation relating to this FSO unit conversion. These costs are capitalized and included as part of advances on newbuilding contracts and conversion costs and will be reclassified to vessels and equipment upon completion of the conversion in mid-2017. Cumulative project management and engineering costs paid to Teekay Corporation subsidiaries amounted to
$15.6 million
as at
March 31, 2017
(
December 31, 2016
-
$13.8 million
).
|
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
|
|
e)
|
In December 2014, the Partnership entered into an agreement with a consortium led by Queiroz Galvão Exploração e Produção SA (or
QGEP
) to provide an FPSO unit for the Atlanta field located in the Santos Basin offshore Brazil. In connection with the contract with QGEP, the Partnership acquired the
Petrojarl
I FPSO from Teekay Corporation for a purchase price of
$57 million
(see note
9e
). The Partnership has received project management and engineering services from certain subsidiaries of Teekay Corporation relating to this FPSO unit upgrade. These costs are capitalized and included as part of advances on newbuilding contracts and conversion costs and will be reclassified to vessels and equipment upon completion of the upgrades in late-2017. Cumulative project management and engineering costs paid to Teekay Corporation subsidiaries amounted to
$3.1 million
as at
March 31, 2017
(
December 31, 2016
-
$2.8 million
).
|
|
|
f)
|
In June 2015, the Partnership entered into
15
-year contracts, plus extension options, with a group of oil companies to provide shuttle tanker services for oil production on the East Coast of Canada. The Partnership has entered into contracts to construct
three
Suezmax DP2 shuttle tanker newbuildings. These vessels will replace the existing vessels servicing the East Coast of Canada. The
three
newbuildings are expected to be delivered in late-2017 through the first half of 2018 (see note
9f
). The Partnership has received project management and engineering services from certain subsidiaries of Teekay Corporation relating to the construction of these shuttle tankers. These costs are capitalized and included as part of advances on newbuilding contracts and conversion costs and will be reclassified to vessels and equipment upon delivery of the vessels in late-2017 through the first half of 2018. Cumulative project management and engineering costs paid to Teekay Corporation subsidiaries amounted to
$2.6 million
as at
March 31, 2017
(
December 31, 2016
-
$2.2 million
).
|
|
|
g)
|
Effective July 1, 2016, the Partnership issued a
$200.0 million
subordinated promissory note to a subsidiary of Teekay Corporation. The subordinated promissory note bears interest at an annual rate of
10.00%
on the outstanding principal balance, which is payable quarterly and, of which (a)
5.00%
is payable in cash and (b)
5.00%
is payable in common units of the Partnership, or in cash, at the election of Teekay Corporation. If the Partnership pays cash for the second
5.00%
of interest, the Partnership must raise at least an equal amount of cash proceeds from the issuance of common units in advance of or within six months of the applicable interest payment date. The outstanding principal balance of the subordinated promissory note, together with accrued interest, is payable in full on January 1, 2019. During the three months ended
March 31, 2017
, the Partnership incurred
$4.9 million
of interest expense (
three months ended March 31, 2016
-
nil
), of which
$2.5 million
was paid in cash and the remainder was settled in April 2017 through the issuance of
0.5 million
common units of the Partnership under the terms of the subordinated promissory note.
|
|
|
h)
|
In June 2016, as part of various other financing initiatives, Teekay Corporation agreed to provide financial guarantees for the Partnership's liabilities associated with the long-term debt financing relating to the East Coast of Canada newbuilding shuttle tankers until their deliveries, which are expected to be in the late-2017 through the first half of 2018 (see note
9f
), and for certain of the Partnership's interest rate swaps and cross currency swaps until early-2019. The guarantees cover liabilities totaling up to a maximum amount of
$495 million
. During the three months ended
March 31, 2017
, a guarantee fee of
$1.9 million
(
three months ended March 31, 2016
-
nil
) was recognized in interest expense on the Partnership's consolidated statements of
income (loss)
, which represents the estimated fee a third party would charge to provide such financial guarantees. The guarantee fee was accounted for as an equity contribution by Teekay Corporation in the Partnership's consolidated statement of changes in total equity as Teekay Corporation has provided such financial guarantees at no cost to the Partnership.
|
7. Derivative Instruments and Hedging Activities
The Partnership uses derivatives to manage certain risks in accordance with its overall risk management policies.
Foreign Exchange Risk
The Partnership economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. The Partnership has not designated, for accounting purposes, any of the foreign currency forward contracts held during the three months ended
March 31, 2017
as cash flow hedges.
As at
March 31, 2017
, the Partnership was committed to the following foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
in Foreign
Currency
(thousands)
|
|
Fair Value / Carrying
Amount of Asset (Liability)
(in thousands of U.S. Dollars)
Non-hedge
|
|
Average
Forward
Rate
(1)
|
Expected Maturity
|
|
|
|
|
2017
|
2018
|
|
|
|
|
(in thousands of U.S. Dollars)
|
Norwegian Kroner
|
300,000
|
|
|
(921
|
)
|
|
8.35
|
|
|
28,098
|
|
|
7,829
|
|
Euro
|
10,750
|
|
|
(135
|
)
|
|
0.92
|
|
|
11,659
|
|
|
—
|
|
|
|
|
(1,056
|
)
|
|
|
|
39,757
|
|
|
7,829
|
|
(1)
Average forward rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
In connection with its issuance of NOK bonds, the Partnership has entered into cross currency swaps pursuant to which it receives the principal amount in NOK on the repayment and maturity dates, in exchange for payments of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and repayments of principal amounts of the Partnership’s NOK bonds due from late-2017 to 2019 (see note
5
). In addition, the cross currency swaps economically hedge
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
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. As at
March 31, 2017
, the Partnership was committed to the following cross currency swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
NOK
(thousands)
|
|
Principal
Amount
USD
(thousands)
|
|
Floating Rate Receivable
|
|
Fixed Rate
Payable
|
|
Fair Value /
Asset (Liability)
$
|
|
Remaining
Term
(years)
|
|
|
Reference
Rate
|
|
Margin
|
|
|
|
|
|
420,000
(1)(2)
|
|
|
70,946
|
|
|
NIBOR
|
|
5.75
|
%
|
|
8.84
|
%
|
|
(24,874
|
)
|
|
1.7
|
800,000
(1)(3)
|
|
|
143,536
|
|
|
NIBOR
|
|
5.75
|
%
|
|
7.58
|
%
|
|
(54,784
|
)
|
|
1.8
|
1,000,000
|
|
|
162,200
|
|
|
NIBOR
|
|
4.25
|
%
|
|
7.45
|
%
|
|
(53,291
|
)
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
(132,949
|
)
|
|
|
(1) Notional amount reduces equally with NOK bond repayments (see note
5
).
|
|
(2)
|
Excludes an economic hedge on the foreign currency exposure for a
three
percent premium upon maturity of the NOK bonds which exchanges NOK
7.2 million
for
$1.2 million
(see note
5
).
|
(3) Excludes an economic hedge on the foreign currency exposure for a
three
percent premium upon maturity of the NOK bonds which exchanges NOK
19.2 million
for
$3.4 million
(see note
5
).
Interest Rate Risk
The Partnership enters into interest rate swaps, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Partnership’s exposure to interest rate variability on its outstanding floating-rate debt. Certain of these interest rate swaps are designated and accounted for as hedges in the consolidated financial statements or within our equity-accounted for investments.
As at
March 31, 2017
, the Partnership was committed to the following interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate
Index
|
|
Notional
Amount
$
|
|
Fair Value /
Carrying
Amount of
Asset (Liability)
$
|
|
Weighted-
Average
Remaining
Term
(years)
|
|
Fixed
Interest
Rate
(%)
(1)
|
U.S. Dollar-denominated interest rate swaps
(2)
|
LIBOR
|
|
600,000
|
|
|
(150,274
|
)
|
|
7.7
|
|
5.0
|
%
|
U.S. Dollar-denominated interest rate swaps
(3)
|
LIBOR
|
|
1,281,144
|
|
|
(51,027
|
)
|
|
4.9
|
|
2.7
|
%
|
|
|
|
1,881,144
|
|
|
(201,301
|
)
|
|
|
|
|
|
|
(1)
|
Excludes the margin the Partnership pays on its variable-rate debt, which as at
March 31, 2017
, ranged between
0.30%
and
4.00%
|
|
|
(2)
|
Notional amount remains constant over the term of the swap.
|
|
|
(3)
|
Principal amount reduces quarterly or semi-annually.
|
For the periods indicated, the following table presents the effective and ineffective portion of (losses) gains on interest rate swap agreements designated and qualifying as cash flow hedges. The following table excludes any interest rate swap agreements designated and qualifying as cash flow hedges in the Partnership’s equity accounted joint ventures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Three Months Ended March 31, 2016
|
Effective
|
|
Effective
|
|
|
|
|
|
Effective
|
|
Effective
|
|
|
|
Portion
|
|
Portion
|
|
|
|
|
|
Portion
|
|
Portion
|
|
|
|
Recognized
|
|
Reclassified
|
|
Ineffective
|
|
|
|
Recognized
|
|
Reclassified
|
|
Ineffective
|
|
in AOCI
(1)
|
|
from AOCI
(2)
|
|
Portion
(3)
|
|
|
|
in AOCI
(1)
|
|
from AOCI
(2)
|
|
Portion
(3)
|
|
(22
|
)
|
|
(56
|
)
|
|
67
|
|
|
Interest expense
|
|
(3,188
|
)
|
|
—
|
|
|
51
|
|
Interest expense
|
(22
|
)
|
|
(56
|
)
|
|
67
|
|
|
|
|
(3,188
|
)
|
|
—
|
|
|
51
|
|
|
|
|
(1)
|
Effective portion of designated and qualifying cash flow hedges recognized in accumulated other comprehensive income (or
AOCI
).
|
|
|
(2)
|
Effective portion of designated and qualifying cash flow hedges recorded in AOCI during the term of the hedging relationship and reclassified to earnings.
|
|
|
(3)
|
Ineffective portion of designated and qualifying cash flow hedges.
|
As at
March 31, 2017
, the Partnership had multiple interest rate swaps, cross currency swaps and foreign currency forward contracts governed by the same master agreement. Each of these master agreements provides for the net settlement of all derivatives subject to that master agreement through a single payment in the event of default or termination of any one derivative. The fair value of these derivatives is presented on a gross basis in the Partnership’s consolidated balance sheets. As at
March 31, 2017
, these derivatives had an aggregate fair value asset amount of
$0.2 million
and an aggregate fair value liability amount of
$209.6 million
(December 31, 2016 - an aggregate fair value asset amount of
$0.1 million
and an aggregate fair value liability amount of
$216.7 million
). As at
March 31, 2017
, the Partnership had
$20.3 million
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
on deposit with the relevant counterparties as security for cross currency swap liabilities under certain master agreements (December 31, 2016 -
$30.2 million
). The deposit is presented in Restricted cash and Restricted cash - long-term on the consolidated balance sheets.
Tabular disclosure
The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Partnership’s balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets
$
|
|
Other Assets
$
|
|
Accrued
Liabilities
$
|
|
Current
Portion of
Derivative
Liabilities
$
|
|
Derivative
Liabilities
$
|
As at March 31, 2017
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
69
|
|
|
—
|
|
|
—
|
|
|
(1,117
|
)
|
|
(8
|
)
|
Cross currency swaps
|
—
|
|
|
—
|
|
|
(2,324
|
)
|
|
(29,621
|
)
|
|
(101,004
|
)
|
Interest rate swaps
|
398
|
|
|
2,646
|
|
|
(7,398
|
)
|
|
(29,381
|
)
|
|
(167,566
|
)
|
|
467
|
|
|
2,646
|
|
|
(9,722
|
)
|
|
(60,119
|
)
|
|
(268,578
|
)
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2016
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
119
|
|
|
—
|
|
|
—
|
|
|
(1,634
|
)
|
|
(271
|
)
|
Cross currency swaps
|
—
|
|
|
—
|
|
|
(2,375
|
)
|
|
(20,281
|
)
|
|
(114,723
|
)
|
Interest rate swaps
|
181
|
|
|
2,597
|
|
|
(5,653
|
)
|
|
(33,087
|
)
|
|
(167,144
|
)
|
|
300
|
|
|
2,597
|
|
|
(8,028
|
)
|
|
(55,002
|
)
|
|
(282,138
|
)
|
Total realized and unrealized
loss
on interest rate swaps and foreign currency forward contracts that are not designated for accounting purposes as cash flow hedges are recognized in earnings and reported in realized and unrealized
loss
on derivative instruments in the consolidated statements of
income (loss)
. The effect of the
loss
on these derivatives in the consolidated statements of
income (loss)
for the
three
months ended
March 31, 2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Realized loss on derivative instruments
|
|
|
|
Interest rate swaps
|
(10,666
|
)
|
|
(13,967
|
)
|
Foreign currency forward contracts
|
(100
|
)
|
|
(2,933
|
)
|
|
(10,766
|
)
|
|
(16,900
|
)
|
Unrealized gain (loss) on derivative instruments
|
|
|
|
Interest rate swaps
|
3,503
|
|
|
(51,921
|
)
|
Foreign currency forward contracts
|
731
|
|
|
8,331
|
|
|
4,234
|
|
|
(43,590
|
)
|
Total realized and unrealized loss on derivative instruments
|
(6,532
|
)
|
|
(60,490
|
)
|
Total realized and unrealized
gains
on cross currency swaps are recognized in earnings and reported in foreign currency exchange
loss
in the consolidated statements of
income (loss)
. The effect of the
gains
on cross currency swaps in the consolidated statements of
income (loss)
for the
three
months ended
March 31, 2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Realized losses
|
(3,204
|
)
|
|
(35,276
|
)
|
Unrealized gains
|
4,379
|
|
|
52,895
|
|
Total realized and unrealized gains on cross currency swaps
|
1,175
|
|
|
17,619
|
|
The Partnership is exposed to credit loss in the event of non-performance by the counterparties, all of which are financial institutions, to the foreign currency forward contracts and the interest rate swap agreements. In order to minimize counterparty risk, the Partnership only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
transactions. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
8. Income Tax
The components of the provision for income tax are as follows:
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Current
|
57
|
|
|
(702
|
)
|
Deferred
|
(1,436
|
)
|
|
3,538
|
|
Income tax (expense) recovery
|
(1,379
|
)
|
|
2,836
|
|
9. Commitments and Contingencies
|
|
a)
|
In May 2013, the Partnership entered into an agreement with Statoil, on behalf of the field license partners, to provide an FSO unit for the Gina Krog oil and gas field located in the North Sea. The contract will be serviced by a new FSO unit that is being converted from the
Randgrid
shuttle tanker, which the Partnership purchased in August 2015 from a
67%
-owned subsidiary. The FSO conversion project is expected to cost approximately
$349 million
, including amounts reimbursable upon delivery of the unit relating to installation and mobilization. As at
March 31, 2017
, payments made towards this commitment totaled
$266.9 million
and the remaining payments required to be made are
$82.3 million
(remainder of
2017
). Following scheduled completion of the conversion in mid-2017, the FSO unit will commence operations under a
three
-year time-charter contract to Statoil, which includes
12
additional
one
-year extension options. In December 2015, the Partnership secured a long-term debt facility providing total borrowings up to
$230 million
to finance the conversion project, of which
$16.3 million
was undrawn as at
March 31, 2017
.
|
|
|
b)
|
In March 2014, the Partnership acquired
100%
of the shares of ALP Maritime Services (or
ALP
), a Netherlands-based provider of long-haul ocean towage and offshore installation services to the global offshore oil and gas industry. Concurrently with this transaction, the Partnership and ALP entered into an agreement with Niigata Shipbuilding & Repair of Japan for the construction of
four
state-of-the-art SX-157 Ulstein Design ultra-long distance towing and anchor handling vessel newbuildings.
One
vessel was delivered to the Partnership during September 2016 and the remaining
three
vess
el newbuildings are scheduled for delivery during 2017 through early-2018. The total cost to acquire these newbuildings is approximately
$249 million
. As at
March 31, 2017
, payments made towards these commitments totaled
$182.5 million
. The remaining payments required to be made under these newbuilding contracts are
$43.6 million
(remainder of
2017
) and
$23.3 million
(
2018
). During
2016
, the Partnership received a reimbursement of
$7.0 million
from the shipyard, resulting from a delay in the delivery of the
ALP Striker,
and in April 2017, the Partnership received an advance of
$24.3 million
from the shipyard resulting from a delay in the delivery of the remaining
three
newbuildings.
The Partnership secured a long-term debt facility of approximately
$185 million
to finance the newbuilding installments, of which
$68.3 million
was undrawn as at
March 31, 2017
.
|
|
|
c)
|
In August 2014, the Partnership acquired
100%
of the outstanding shares of Logitel, a Norway-based company focused on high-end UMS. As part of this transaction, the Partnership assumed
three
UMS newbuilding contracts ordered from the COSCO (Nantong) Shipyard (or
COSCO
) in China. The Partnership took delivery of
one
of the UMS newbuildings, the
Arendal Spirit,
in February 2015.
|
In June 2016, the Partnership canceled the UMS construction contracts for the
two
remaining UMS newbuildings, the
Stavanger Spirit
and the
Nantong Spirit
. As a result of this cancellation, during the second quarter of 2016, the Partnership wrote-off
$43.7 million
of assets related to these newbuildings and reversed contingent liabilities of
$14.5 million
associated with the delivery of these assets. The estimate of potential damages for the cancellation of the
Stavanger Spirit
newbuilding contract is based on the amount due for the final yard installment of approximately
$170 million
less the estimated fair value of the
Stavanger Spirit
. Given the unique design of the vessel as well as the lack of recent sale and purchase transactions for this type of asset, the value of this vessel, and thus ultimately the amount of potential damages that may result from the cancellation, is uncertain. Pursuant to the
Stavanger Spirit
newbuilding contract and related agreements, COSCO only has recourse to the single purpose subsidiary that was a party to the
Stavanger Spirit
newbuilding contract and its immediate parent company, Logitel Offshore Pte. Ltd., for damages incurred.
The estimate of potential damages for the cancellation of the
Nantong Spirit
newbuilding contract is based upon estimates of a number of factors, including accumulated costs incurred by COSCO, sub-supplier contract cancellation costs, as well as how such costs are treated under the termination provisions in the contract. The Partnership estimates that the amount of potential damages related to the cancellation of the
Nantong Spirit
contract could range between
$10 million
and
$40 million
. Pursuant to the
Nantong Spirit
newbuilding contract, COSCO only has recourse to the single purpose subsidiary that was a party to the
Nantong Spirit
newbuilding contract.
During September 2016, Sevan Marine ASA (or
Sevan
) commenced an action against Logitel, in the Oslo District Court. The action relates to the agreements between Sevan and CeFront Technology AS (or
CeFront
), related to the 2013 transfer to Logitel Offshore Pte. Ltd. or its wholly-owned subsidiaries (collectively
Logitel Offshore
) of
two
hulls to be converted into UMS, including a
$60 million
bond loan (of which
$41 million
was a vendor credit and
$19 million
was a cash loan) granted by a Sevan affiliate to Logitel (or the
2013 Transaction
). The action also relates to agreements between Sevan and the Partnership entered into in connection with the Partnership's acquisition of Logitel from CeFront in 2014 (or the
2014 Transaction
). Sevan has claimed that the
$60 million
bond loan to Logitel contravened certain provisions of the Norwegian Corporate Law and that, Sevan is entitled to the remaining payment of
$50 million
plus
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
interest set at the court’s discretion. Logitel is disputing these claims. In addition, Sevan has presented the Partnership with a formal notice of claim and request for arbitration seeking
$10 million
for license and service fees, which Sevan claims is payable in connection with the delivery of the
Arendal Spirit
. The parties have convened an arbitration tribunal in Oslo and Sevan has served submissions of claim. Logitel is preparing to respond to the claim by late-May 2017 (although Logitel may seek an extension to file).
In addition, in September 2016, CeFront commenced an action against Logitel in the Oslo District Court, claiming that
$3.6 million
is due under a management agreement as at March 31, 2017, and a total of
$3.8 million
will fall due by May 2017 under that agreement. CeFront also claims that
$3.3 million
is due under the earn-out provisions of the contracts related to the
Arendal Spirit
and that
$20.2 million
is due or will become due related to the earn-out provisions of the contracts for the
Stavanger Spirit
and
Nantong Spirit
. The Partnership is defending these claims based on the interpretation of the agreement. The Partnership is uncertain as to the ultimate resolution of these claims.
As at
March 31, 2017
, the Partnership has accrued
$67.9 million
in the aggregate related to the above claims and potential claims related to Logitel from Sevan, COSCO and CeFront.
|
|
d)
|
In October 2014, the Partnership sold a 1995-built shuttle tanker, the
Navion Norvegia,
to a
50
/50 joint venture of the Partnership and Odebrecht Oil and Gas S.A. (or
OOG
) on behalf of its field license partners. The vessel was converted into a new FPSO for the Libra field located in the Santos Basin offshore Brazil. The conversion project has been completed at Sembcorp Marine’s Jurong Shipyard in Singapore and the FPSO unit is scheduled to commence operations at the end of the second quarter of 2017 under a
12
-year fixed-rate contract with a consortium led by Petrobras. The FPSO conversion is expected to cost approximately
$1.0 billion
. As at
March 31, 2017
, payments made by the joint venture towards these commitments totaled
$857.1 million
and the remaining payments required to be made by the joint venture are
$146.7 million
(
2017
). The joint venture secured a long-term debt facility in 2015 providing total borrowings of up to
$804 million
for the FPSO conversion (see note
12
), of which
$111.4 million
was undrawn as at
March 31, 2017
.
|
|
|
e)
|
In December 2014, the Partnership acquired the
Petrojarl I
FPSO unit from Teekay Corporation for
$57 million
. The
Petrojarl I
is undergoing upgrades at the Damen Shipyard Group’s DSR Schiedam Shipyard (or
Damen
) in the Netherlands with an estimated cost of approximately
$365 million
, which includes the cost of acquiring the
Petrojarl I
. The FPSO is scheduled to commence operations in early-2018 under a
five
-year charter contract with Queiroz Galvão Exploração e Produção SA (or
QGEP
). As at
March 31, 2017
, payments made towards these commitments, including the acquisition of the
Petrojarl I
FPSO unit from Teekay Corporation, totaled
$266.6 million
and the remaining payments required to be made are estimated to be
$98.4 million
(remainder of
2017
). The Partnership has financed
$171.2 million
of the
Petrojarl I
FPSO upgrade cost through a fully-drawn long-term loan. Due to project delays in the delivery of the unit resulting from shipyard delays, an increased scope of work relating to field-specific requirements and the age of the unit, the Partnership is currently in discussions with QGEP, Damen and its lenders in the
Petrojarl I
loan facility to agree on revised delivery and charterer acceptance dates for the unit and other terms associated with the charter, shipyard contract and loan facility. In October 2016, December 2016, February 2017, and April 2017 the lenders agreed to extend the availability date of the loan for successive periods of
two
months, as the loan was subject to a mandatory prepayment provision, initially in early October 2016, if the unit was not accepted at that time by QGEP. These interim extensions provide additional time for the Partnership to negotiate a revised schedule for the delivery of the unit and thereafter, amend the loan facility to reflect the revised delivery schedule. As at
March 31, 2017
and
December 31, 2016
, the Partnership had
$60 million
held in escrow to fund the final upgrade costs. This amount is presented in Restricted cash on the consolidated balance sheet.
|
|
|
f)
|
In June 2015, the Partnership entered into
15
-year contracts, plus extension options, with a group of oil companies to provide shuttle tanker services for oil production on the East Coast of Canada. These contracts were initially being serviced by
three
third party-owned shuttle tankers operating on the East Coast of Canada, which were chartered-in to the Partnership.
One
of these vessels was replaced by
one
of the Partnership’s existing shuttle tankers, the
Navion Hispania
, during the third quarter of 2015. The Partnership has entered into contracts to construct
three
Suezmax DP2 shuttle tanker newbuildings for an aggregate fully built-up cost of approximately
$372 million
. These vessels will replace the existing vessels servicing the East Coast of Canada. The
three
newbuildings are expected to be delivered in late-2017 through the first half of 2018. As at
March 31, 2017
, payments made towards these commitments totaled
$86.8 million
and the remaining payments required to be made under these newbuilding contracts were
$214.4 million
(remainder of
2017
) and
$70.8 million
(
2018
). The Partnership secured long-term debt financing of
$250 million
to finance the newbuilding installments, of which
$190.8 million
was undrawn as at
March 31, 2017
.
|
|
|
g)
|
In March 2016, Petrobras claimed that the Partnership’s November 2011 cessation of paying certain agency fees with respect to the
Piranema Spirit
FPSO unit’s charter contract should have resulted in a corresponding
2%
rate reduction on the FPSO contract with Petrobras. The Partnership has estimated the maximum amount of the claim at
$7.5 million
, consisting of
$5.7 million
(which is the amount accrued by the Partnership as at
March 31, 2017
) (
$5.4 million
as at
December 31, 2016
) from a return of
2%
of the charter hire previously paid by Petrobras to the Partnership for the period from November 2011 up to
March 31, 2017
, and
$1.8 million
from a
2%
reduction of future charter hire to the end of the term of the FPSO contract with Petrobras.
|
|
|
h)
|
In October 2016, the Partnership received a claim from Royal Dutch Shell Plc (or
Shell
) for liquidated damages of
$23.6 million
based on Shell's allegation that the
Petrojarl Knarr
FPSO did not meet the conditions for achieving the Offshore Completion milestone on time. Shell is also claiming that the inability of the Partnership to meet the Offshore Completion milestone date in excess of the grace period has in effect resulted in a
20%
reduction in the purchase price for which Shell may purchase the
Petrojarl Knarr
FPSO from the Partnership pursuant to an option granted in the Purchase Option Agreement. In the counterclaim, the Partnership has alleged that Offshore Completion was achieved after the milestone but within the grace period and that Shell had caused delays due to certain defaults in Shell’s specifications, as well as other events. It is the Partnership’s position that, due to delays caused by Shell, the Partnership is entitled to the daily lease rate for the unit for a period of time prior to when Shell actually started paying such rate and that Shell is not entitled to a reduction in the purchase option price. The duration of the period that the Partnership claims to be entitled to receive additional daily
|
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
lease payments is in dispute. However, the Partnership expects that the amount of its claim relating to the counterclaim will exceed Shell's claim for liquidated damages. Nevertheless, uncertainty exists as to the resolution of the claims which the Partnership has commenced commercial negotiations with Shell to resolve.
|
|
i)
|
In early-November 2016, the
Arendal Spirit
UMS experienced an operational incident relating to its dynamic positioning system. As a result of this operational incident, and a gangway incident that occurred in April 2016, the charterer, Petrobras, initiated an operational review and suspended its charter hire payments beginning in November 2016. The Partnership has completed an investigation to identify the cause of such incidents and has implemented corrective actions. In late-April 2017, Petrobras notified Logitel Offshore Norway AS, a subsidiary of the Partnership, of its termination of the charter contract for the
Arendal Spirit
UMS and confirmed to Logitel Offshore Norway AS that Petrobras does not intend to pay the charter hire payments from November 2016. The Partnership has disputed the grounds for termination and is reviewing its legal options, including the initiation of a claim for unpaid standby fees and damages for wrongful termination of the time-charter contract.
|
|
|
j)
|
In February 2017, the Partnership received a notice from Transocean Offshore International Ventures Limited (or
Transocean
) that it intends to file a claim against the Partnership arising from the towage of the Transocean Winner oil rig by
one
of the Partnerships towage vessels, the
ALP Forward
. Transocean intends to file a claim to recover losses it claims to have incurred relating to the grounding of the Transocean Winner in August 2016, including the costs associated with the salvage and replacement tow and other costs payable by Transocean as a result of this incident. The Partnership intends to dispute these claims, and also believes that any such claims would be covered by insurance. As of
March 31, 2017
, the Partnership had not accrued for any potential liability relating to these claims. An estimate of the possible loss or range of loss cannot be made at this time.
|
|
|
k)
|
As of
December 31, 2016
, the Partnership adopted ASC-205-40,
Presentation of Financial Statements - Going Concern
, which requires management to assess if the Partnership will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. Despite generating
$21 million
of net income and
$98 million
of cash flows from operating activities during the three months ended
March 31, 2017
, the Partnership ended the first quarter of
2017
with a working capital deficit of
$473 million
. This working capital deficit is driven primarily from scheduled maturities and repayments of outstanding debt during the 12 months ending
March 31,
2018
of
$621 million
, which were classified as current liabilities as at
March 31, 2017
. In addition to these obligations, the Partnership also anticipates making payments related to commitments to fund vessels under construction or undergoing conversions/upgrades during the remainder of 2017 and early 2018 of approximately
$606 million
, of which
$331
million is expected to be funded from pre-arranged financing and a further
$60 million
is held in escrow as funding for the
Petrojarl I
FPSO project. The Partnership has also included the possibility of the repayment of the term loan associated with the
Arendal Spirit
UMS within
180
days of the cancellation of the charter contract in its liquidity assessment.
|
Based on these factors, over the one-year period following the issuance of its financial statements, the Partnership will need to obtain additional sources of financing, in addition to amounts generated from operations, to meet its minimum liquidity requirements under its financial covenants. These anticipated sources of financing include refinancing debt facilities that mature during the one-year period, raising additional capital through equity issuances, increasing amounts available under existing debt facilities and entering into new debt facilities, negotiating extensions or redeployments of existing assets and the sale of partial interests in assets.
The Partnership is actively pursuing the funding alternatives described above, which it considers probable of completion based on the Partnership’s history of being able to raise equity, refinance loan facilities for similar types of vessels, and indicative offers received from potential investors. The Partnership is in various stages of completion on these matters.
Based on the Partnership’s liquidity at the date these consolidated financial statements were issued, the liquidity it expects to generate from operations over the following year, and by incorporating the Partnership’s plans to raise additional liquidity that it considers probable of completion, the Partnership estimates that it will have sufficient liquidity to enable the Partnership to continue as a going concern for at least the one-year period following the issuance of these consolidated financial statements.
10. Total Capital and Net
Income (Loss)
Per Common Unit
At
March 31, 2017
, a total of
72.3%
of the Partnership’s common units outstanding were held by the public. The remaining common units, as well as the
2%
general partner interest, were held by subsidiaries of Teekay Corporation. All of the Partnership’s outstanding Series A Cumulative Redeemable Preferred Units (or the
Series A Preferred Units
), Series B Cumulative Redeemable Preferred Units (or the
Series B Preferred Units
), the Series C-1 Cumulative Convertible Perpetual Preferred Units (or the
Series C-1 Preferred Units
), and
74.0%
of the Series D Cumulative Convertible Perpetual Preferred Units (or the
Series D Preferred Units
) and the related warrants to purchase common units are held by entities other than Teekay Corporation and its affiliates. A total of
26.0%
of the Series D Preferred Units and the related warrants are held by subsidiaries of Teekay Corporation.
In June 2016, the Partnership and the holders of the Series C Cumulative Convertible Perpetual Preferred Units (or the
Series C Preferred Units
) exchanged approximately
1.9 million
of the Series C Preferred Units for approximately
8.3 million
common units of the Partnership and exchanged the remaining approximately
8.5 million
Series C Preferred Units for approximately
8.5 million
Series C-1 Preferred Units.
Common Units
In February 2017, the Partnership issued
2.1 million
common units with a total value of
$12.0 million
(including the general partner's
2%
proportionate capital contribution of
$0.2 million
) as a payment-in-kind for the distributions on the Partnership's Series C-1 and Series D Preferred Units and on the Partnership's common units and general partner interest held by subsidiaries of Teekay Corporation. In June 2016,
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
the Partnership agreed with Teekay Corporation that, until the Partnership's Norwegian Kroner bonds maturing in 2018 have been repaid, all cash distributions (other than with respect to distributions, if any, on incentive distribution rights) to be paid by the Partnership to Teekay Corporation or its affiliates, including the Partnership's general partner, will instead be paid in common units or from the proceeds of the sale of common units.
Net
Income (Loss)
Per Common Unit
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
Limited partners' interest in net income (loss)
|
6,375
|
|
|
(14,857
|
)
|
Preferred units - periodic accretion
|
(800
|
)
|
|
—
|
|
Limited partners' interest in net income (loss) for basic net income (loss) per common unit
|
5,575
|
|
|
(14,857
|
)
|
Weighted average number of common units
|
148,633,906
|
|
|
107,055,382
|
|
Dilutive effect of unit based compensation and warrants
|
1,028,460
|
|
|
—
|
|
Common units and common unit equivalents
|
149,662,366
|
|
|
107,055,382
|
|
|
|
|
|
Limited partner's interest in net income (loss) per common unit
|
|
|
|
- basic
|
0.04
|
|
|
(0.14
|
)
|
- diluted
|
0.04
|
|
|
(0.14
|
)
|
Limited partners’ interest in net
income (loss)
per common unit – basic is determined by dividing net income (loss), after deducting the amount of net income attributable to the non-controlling interests, the general partner’s interest, the distributions on the Series A, B, C, C-1 and D Preferred Units and the periodic accretion of the Series D Preferred Units, by the weighted-average number of common units outstanding during the period. The distributions payable and paid on the preferred units for the three months ended
March 31, 2017
and
2016
were
$12.4 million
and
$10.8 million
, respectively.
The computation of limited partners’ interest in net income per common unit - diluted assumes the issuance of common units for all potential dilutive securities, consisting of restricted units (see note
11
), warrants and Series C, C-1 and D Preferred Units. Consequently, the net income attributable to limited partners’ interest is exclusive of any distributions on the Series C, C-1 and D Preferred Units and the periodic accretion of the Series D Preferred Units. In addition, the weighted average number of common units outstanding has been increased assuming exercise of the restricted units and warrants using the treasury stock method and the Series C, C-1 and D Preferred Units are converted to common units using the if-converted method. The computation of limited partners’ interest in net income per common unit - diluted does not assume the issuance of common units pursuant to the restricted units, warrants and Series C, C-1 and D Preferred Units if the effect would be anti-dilutive. In periods where a loss is attributable to common unitholders all restricted units, warrants, the Series C, C-1 and D Preferred Units are anti-dilutive. In periods where income is allocated to common unitholders, the Series C-1 and D Preferred Units can be anti-dilutive.
For the three months ended
March 31, 2017
, a total of
32.9 million
common unit equivalent Series C-1 and D Preferred Units and
2.3 million
common unit equivalent warrants were excluded from the computation of limited partners’ interest in net income per common unit - diluted, as their effect was anti-dilutive. For the three months ended
March 31, 2016
, a total of
10.4 million
Series C Preferred Units and
22,537
restricted units were excluded from the computation of limited partners’ interest in net income per common unit - diluted, as their effect was anti-dilutive.
The general partner’s and common unitholders’ interests in net income (loss) are calculated as if all net income was distributed according to the terms of the Partnership’s partnership agreement, regardless of whether those earnings would or could be distributed. The partnership agreement does not provide for the distribution of net income; rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter less, among other things, the amount of cash reserves established by the general partner’s board of directors to provide for the proper conduct of the Partnership’s business including reserves for maintenance and replacement capital expenditure, anticipated capital requirements and any accumulated distributions on, or redemptions of, the Series A Preferred Units, Series B Preferred Units, Series C-1 Preferred Units and Series D Preferred Units. Unlike available cash, net income is affected by non-cash items such as depreciation and amortization, unrealized gains and losses on derivative instruments and unrealized foreign currency translation gains and losses.
The general partner is entitled to incentive distributions based on the amount of quarterly cash distributions per common unit. For more information on the increasing percentages, which may be used to calculate the general partner’s interest in net income or loss, please refer to the Partnership’s Annual Report on Form 20-F for the year ended December 31, 2016. Cash distributions were below
$0.35
per common unit during the
three
months ended
March 31, 2017
and
2016
. Consequently, the increasing percentages were not used to calculate the general partner’s interest in net
income (loss)
for the purposes of the net
income (loss)
per common unit calculation for the
three
months ended
March 31, 2017
and
2016
.
Pursuant to the partnership agreement, allocations to partners are made on a quarterly basis.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)
11. Unit Based Compensation
During the
three
months ended
March 31, 2017
, a total of
56,950
common units, with an aggregate value of
$0.3 million
, were granted and issued to the non-management directors of the general partner as part of their annual compensation for
2017
.
The Partnership grants restricted unit-based compensation awards as incentive-based compensation to certain employees of Teekay Corporation’s subsidiaries that provide services to the Partnership. During March 2017 and 2016, the Partnership granted restricted unit-based compensation awards with respect to
321,318
and
601,368
units, respectively, with aggregate grant date fair values of
$1.6 million
and
$2.4 million
, respectively, based on the Partnership’s closing unit price on the grant dates. Each restricted unit is equal in value to
one
of the Partnership’s common units.
Each award represents the specified number of the Partnership’s common units plus reinvested distributions from the grant date to the vesting date.
The awards vest equally over
three years
from the grant date. Any portion of an award that is not vested on the date of a recipient’s termination of service is canceled, unless the termination arises as a result of the recipient’s retirement and, in this case, the award will continue to vest in accordance with the vesting schedule. Upon vesting, the awards are paid to each grantee in the form of common units or cash.
During the
three
months ended
March 31, 2017
, restricted unit-based awards with respect to a total of
255,370
common units with a fair value of
$2.2 million
, based on the Partnership’s closing unit price on the grant date, vested and the amount paid to the grantees was made by issuing
83,060
common units and by paying
$0.6 million
in cash.
During the
three
months ended
March 31, 2016
, restricted unit-based awards with respect to a total of
76,637
common units with a fair value of
$2.0 million
, based on the Partnership’s closing unit price on the grant date, vested and the amount paid to the grantees was made by issuing
25,286
common units and by paying
$0.2 million
in cash.
The Partnership recorded unit-based compensation expense of
$0.7 million
and
$1.4 million
, during the
three
months ended
March 31, 2017
and
2016
, respectively, in general and administrative expenses in the Partnership’s consolidated statements of
income (loss)
.
As of
March 31, 2017
and
December 31, 2016
, liabilities relating to cash settled restricted unit-based compensation awards of
$1.2 million
and
$1.1 million
, respectively, were recorded in accrued liabilities on the Partnership’s consolidated balance sheets. As at
March 31, 2017
, the Partnership had
$2.2 million
of non-vested awards not yet recognized, which the Partnership expects to recognize over a weighted average period of
1.1 years
.
12. Investment in Equity Accounted Joint Ventures and Advances to Joint Venture
In October 2014, the Partnership sold a 1995-built shuttle tanker, the
Navion Norvegia
, to OOG-TK Libra GmbH & Co KG (or
Libra Joint Venture
), a
50
/
50
joint venture with OOG, and was converted to a new FPSO unit for the Libra field in Brazil. The FPSO unit is scheduled to commence operations at the end of the second quarter of 2017 (see note
9d
). In conjunction with the conversion project, in late-2015, the Libra Joint Venture entered into a
ten
-year plus construction period loan facility providing total borrowings of up to
$804 million
, of which
$692.3 million
was drawn as of
March 31, 2017
. The interest payments of the loan facility are based on LIBOR, plus margins which range between
2.50%
to
2.65%
. The final payment under the loan facility is due
October 2027
. The Partnership and OOG have severally guaranteed to the banks their
50%
shares of the equity contributions scheduled to fund the conversion project, and have jointly guaranteed any unexpected equity requirements. In addition, the Libra Joint Venture entered into
ten
-year interest rate swap agreements to economically hedge expected interest payments on the loan facility from 2017 to 2027, with an aggregate notional amount of $
301 million
which amortizes quarterly over the term of the interest rate swap agreements. These interest rate swap agreements exchange the receipt of LIBOR-based interest for the payment of a fixed rate of
2.49%
. These interest rate swap agreements have been designated as qualifying cash flow hedging instruments for accounting purposes. During 2016, as a result of certain defaults on interest payments by an OOG affiliate which OOG had guaranteed, the Libra Joint Venture was required to obtain cross default waivers from the lenders of the construction period loan facility. The current waiver is due to expire on June 16, 2017. Although the Libra Joint Venture expects to obtain further cross default waivers from the facility lenders, a failure to do so could adversely affect its ability to fund the Libra FPSO conversion (see note
9d
).
In June 2013, the Partnership acquired Teekay Corporation’s
50%
interest in OOG-TKP FPSO GmbH & Co KG, a joint venture with OOG, which owns the
Itajai
FPSO unit. Included in the joint venture is an
eight
-year loan facility, which as at
March 31, 2017
had an outstanding balance of
$183.8 million
. The interest payments of the loan facility are based on LIBOR, plus margins which range between
2.15%
and
2.45%
. The final payment under the loan facility is due
October 2021
. The Partnership has guaranteed its
50%
share of the loan facility. In addition, the joint venture entered into
ten
-year interest rate swap agreements with an aggregate notional amount of
$82.1 million
as at
March 31, 2017
, which amortizes semi-annually over the term of the interest rate swap agreements. These interest rate swap agreements exchange the receipt of LIBOR-based interest for the payment of a fixed rate of
2.63%
. These interest rate swap agreements are not designated as qualifying cash flow hedging instruments for accounting purposes.
As at
March 31, 2017
and
December 31, 2016
, the Partnership had total investments of
$154.0 million
and
$141.8 million
, respectively, in joint ventures.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
MARCH 31, 2017
PART I – FINANCIAL INFORMATION
ITEM
2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are 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 focusing on the deep-water offshore oil regions of the North Sea, Brazil and the East Coast of Canada. We operate shuttle tankers, floating production, storage and off-loading (or
FPSO
) units, floating storage and off-take (or
FSO
) units, units for maintenance and safety (or
UMS
), long-distance towing and offshore installation vessels and conventional crude oil tankers. As at
March 31, 2017
, our fleet consisted of 31 shuttle tankers (including three chartered-in vessels and one HiLoad Dynamic Positioning (or
DP
) unit), six FPSO units, seven FSO units, seven long-distance towing and offshore installation vessels, one UMS and two chartered-in conventional oil tankers, in which our interests range from 50% to 100%. We also have one FPSO conversion, which delivered in March 2017 and is en route to Brazil, one FPSO upgrade scheduled for delivery in late-2017, three long-distance towing and offshore installation vessel newbuildings scheduled for delivery mid-2017 through early-2018, and three newbuilding shuttle tankers scheduled for delivery from late-2017 through to mid-2018.
Global crude oil prices have significantly declined since mid-2014. This decline, combined with other factors beyond our control, has adversely affected energy and master limited partnership capital markets and available sources of financing. Based on upcoming capital requirements for our committed growth projects and scheduled debt repayment obligations, coupled with uncertainty regarding how long it will take for the energy and master limited partnership capital markets to normalize, we believe it is in the best interests of our common unitholders to conserve more of our internally generated cash flows to fund these projects and to reduce debt levels. As a result, in December 2015, we reduced our quarterly cash distributions to $0.11 per common unit, and our near-to-medium-term business strategy is primarily focused on funding and implementing existing growth projects and repaying or refinancing scheduled debt obligations rather than pursuing additional growth projects. Our distributions paid for 2016 were all paid at this reduced rate. Despite significant weakness in the global energy and capital markets, our operating cash flows remain largely stable and will grow as we take delivery of our various capital projects, supported by a large and well-diversified portfolio of fee-based contracts with high-quality counterparties.
In addition to its effect on the energy and capital markets, the decline in global crude oil prices may also result in our vessels being employed on customer contracts that are cancellable or the failure of customers to exercise charter extension options, potentially resulting in increased off-hire for affected vessels. Conversely, we expect that a continuation of lower oil prices will motivate charterers to use existing FPSO units on new projects, given their lower cost relative to a newbuilding unit. Our operational focus over the short-term is to increase the efficiency of our business to ensure we are a cost-effective supplier in the offshore sector, as well as focusing on the redeployment of our assets that are scheduled to come off charter over the next few years.
Our long-term growth strategy focuses on expanding our fleet of shuttle tankers, and our FPSO and FSO units. Over the long-term, we intend to continue our practice of primarily acquiring vessels as needed for approved projects only after the long-term charters for the projects have been awarded to us, rather than ordering vessels on a speculative basis. We seek to capitalize on opportunities in the offshore transportation, production and storage sectors by selectively targeting long-term, fixed-rate time charters. We have entered and may enter into joint ventures and partnerships with companies that may provide increased access to long-term, fixed-rate time charter opportunities or may engage in vessel or business acquisitions. We seek to leverage the expertise, relationships and reputation of Teekay Corporation and its affiliates to pursue these growth opportunities in the offshore sectors and may consider other opportunities to which our competitive strengths are well suited. We have rights to participate in certain other FPSO, FSO and shuttle tanker opportunities provided by Teekay Corporation, Sevan and Remora. Our operating fleet primarily trades on medium to long-term, stable contracts and we are structured as a publicly-traded master limited partnership.
SIGNIFICANT DEVELOPMENTS
New North Sea Shuttle Tanker contracts
In March 2017, we finalized the previously announced five-year shuttle tanker contracts of affreightment (or
CoA
), plus extension options, with a consortium of oil companies to service a development located in the U.K. Central North Sea. This CoA is expected to commence during the first quarter of 2018 and will be serviced by our existing CoA shuttle tanker fleet. The CoA will require the use of up to approximately 0.6 shuttle tanker equivalents per annum.
In April 2017, we were awarded a new three-year shuttle tanker CoA to service a development in the U.K. North Sea. This CoA is expected to commence during the third quarter of 2017 and will be serviced by our existing CoA shuttle tanker fleet. The CoA will require the use of up to approximately 0.6 shuttle tanker equivalents per annum.
Petrojarl Varg
F
ront-End Engineering and Design Study
In March 2017, we entered into a six-month customer-funded front-end engineering and design (or
FEED
) study agreement for the
Petrojarl Varg
FPSO unit with Alpha Petroleum Resources Limited, which is backed by private equity firm Petroleum Equity, for the development of the Cheviot field, formerly known as the Emerald field, located in the U.K. sector of the North Sea. The purpose of the FEED study is to define the modifications required for the
Petrojarl Varg
FPSO and to negotiate the terms of a potential FPSO lease and operate contract for the development of the Cheviot field.
Arendal Spirit
UMS
In late-April 2017, Petrobras Brasileiro S.A. (or
Petrobras
) notified Logitel Offshore Norway AS, a subsidiary of ours, of its termination of the charter contract for the
Arendal Spirit
UMS and confirmed to Logitel Offshore Norway AS that Petrobras does not intend to pay the charter hire payments from November 2016. We have disputed the termination and are reviewing our legal options, including our ability to collect amounts under the contract.
Falcon Spirit
contract extension
In May 2017, we completed a five-year contract extension, plus extension options, for the
Falcon Spirit
FSO unit, commencing June 1, 2017. The
Falcon Spirit
FSO unit operates on the Al Rayyan field located offshore Qatar.
Potential Additional Shuttle Tanker, FSO and FPSO Projects
Pursuant to an omnibus agreement that we entered into in connection with our initial public offering in December 2006, Teekay Corporation is obligated to offer to us its interest in certain shuttle tankers, FSO units and FPSO units Teekay Corporation owns or may acquire in the future, provided the vessels are servicing contracts with remaining durations of greater than three years. We may also acquire other vessels that Teekay Corporation may offer us from time to time and we intend to pursue direct acquisitions from third parties and new offshore projects. However, our current near-term business strategy is primarily to focus on funding and implementing existing growth projects and repaying or refinancing scheduled debt obligations rather than pursuing additional growth projects.
In May 2011, Teekay Corporation entered into a joint venture agreement with Oderbrecht Oil & Gas S.A. (or
OOG)
to jointly pursue FPSO projects in Brazil. OOG is a Brazil-based company that operates in the engineering and construction, petrochemical, bioenergy, energy, oil and gas, real estate and environmental engineering sectors. Through the joint venture agreement, OOG is a 50 percent partner with us in the
Cidade de Itajai
(or
Itajai
) FPSO unit and the
Libra
FPSO project.
RESULTS OF OPERATIONS
There are a number of factors that should be considered when evaluating our historical financial performance and assessing our future prospects and we use a variety of financial and operational terms and concepts when analyzing our results of operations. These can be found in Part I, Item 5 – “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended
December 31, 2016
. In accordance with United States generally accepted accounting principles (or
GAAP
), we report gross revenues in our income statements and include voyage expenses among our operating expenses. However, ship owners often base economic decisions regarding the deployment of their vessels upon anticipated time charter equivalent (or
TCE
) rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. This is because under time charters and bareboat charters the customer usually pays the voyage expenses while under voyage charters and contracts of affreightment the shipowner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Accordingly, the discussion of revenue below focuses on net revenues (i.e. revenues less voyage expenses) and TCE rates for our reportable segments (other than our FPSO and UMS segments). TCE rates represent net revenues divided by revenue days. Please read Item 1 – Financial Statements: Note 4. Segment Reporting.
We manage our business and analyze and report our results of operations on the basis of our six business segments: the FPSO segment, the shuttle tanker segment, the FSO segment, the UMS segment, the towage segment and the conventional tanker segment, each of which are discussed below.
FPSO Segment
As at
March 31, 2017
, our FPSO fleet consisted of the
Petrojarl Knarr
,
the
Petrojarl Varg,
the
Cidade de Rio das Ostras
(or
Rio das Ostras
)
,
the
Piranema Spirit
, the
Voyageur Spirit
, and
the
Petrojarl I
FPSO units
,
all of which we own 100%, and the
Itajai
and the
Libra
FPSO units, of which we own 50%. One equity accounted FPSO unit, the
Libra
FPSO unit owned through our 50/50 joint venture with OOG, has completed its conversion into an FPSO unit and is en route to the Libra field located in the Santos Basin offshore Brazil where it is expected to commence operations at the end of the second quarter of 2017. The
Petrojarl I
FPSO unit is currently undergoing upgrades at the Damen Shipyard Group's DSR Schiedam Shipyard (or
Damen
) in the Netherlands and is scheduled to commence operations under a five-year fixed-rate charter contract with Queiroz Galvão Exploração e Produção SA (or
QGEP
) in early-2018.
In late-2015, we received a termination notice for the
Petrojarl Varg
FPSO charter contract from Repsol S.A. (or
Repsol
), based on a termination right that is specific to the
Petrojarl Varg
FPSO contract. In accordance with the termination provision of the charter contract, the charterer ceased paying the capital component of the charter hire six months prior to the redelivery date, which redelivery occurred at the end of July 2016.
FPSO units provide production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate FPSO contracts, some of which also include certain incentive compensation or penalties based on the level of oil production and other operational measures. Historically, the utilization of FPSO units and other vessels in the North Sea, where the
Petrojarl Knarr
and
Voyageur Spirit
operate, is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to our vessels and the offshore oil platforms, which generally reduces oil production. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Brazilian Real, and British Pound may result in significant decreases or increases, respectively, in our revenues and vessel operating expenses.
The following table presents the FPSO segment’s operating results for the
three
months ended
March 31, 2017
and
2016
and also provides a summary of the calendar-ship-days for the FPSO segment. The table excludes the results of the
Itajai
and the
Libra
FPSO units, which are accounted for as equity investments.
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except calendar-ship-days and percentages)
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
% Change
|
Revenues
|
112,855
|
|
|
132,784
|
|
|
(15.0
|
)
|
Vessel operating expenses
|
(35,093
|
)
|
|
(46,915
|
)
|
|
(25.2
|
)
|
Depreciation and amortization
|
(36,502
|
)
|
|
(37,583
|
)
|
|
(2.9
|
)
|
General and administrative
(1)
|
(7,830
|
)
|
|
(8,674
|
)
|
|
(9.7
|
)
|
Restructuring charge
|
(450
|
)
|
|
—
|
|
|
100.0
|
|
Income from vessel operations
|
32,980
|
|
|
39,612
|
|
|
(16.7
|
)
|
Calendar-Ship-Days
|
|
|
|
|
|
Owned Vessels
|
540
|
|
|
546
|
|
|
(1.1
|
)
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the FPSO segment based on estimated use of corporate resources). See the discussion under “Other Operating Results” below.
|
Revenues.
Revenues
decreased
for the three months ended
March 31, 2017
, compared to the same period last year, primarily due to:
|
|
•
|
a decrease of $15.7 million due to no longer receiving the capital portion of the charter hire for the
Petrojarl Varg
since February 1, 2016 and the unit being in lay-up since August 1, 2016 subsequent to the termination of the charter contract by Repsol;
|
|
|
•
|
a decrease of $2.6 million due to revenue received for offshore field studies associated with the
Petrojarl Varg
during the first quarter of 2016 (this revenue is offset by operating expenses incurred, as indicated below); and
|
|
|
•
|
a decrease of $1.2 million due to one less calendar day in the first quarter of 2017 compared to the same period last year.
|
Vessel operating expenses.
Vessel operating expenses decreased for the three months ended
March 31, 2017
, compared to the same period last year, primarily due to:
|
|
•
|
a decrease of $5.7 million due to lower costs as the
Petrojarl Varg
was decommissioned at the end of July 2016 and is now in lay-up;
|
|
|
•
|
a decrease of $2.3 million due to expenditures incurred for offshore field studies for the
Petrojarl Varg
during the first quarter of 2016;
|
|
|
•
|
a decrease of $2.2 million due to lower crew and repair and maintenance costs for the
Petrojarl Knarr
FPSO relating to the unit preparing for the final performance test during the first quarter of 2016, that was completed during the third quarter of 2016; and
|
|
|
•
|
a decrease of $1.6 million due to lower repair and maintenance costs on the
Piranema Spirit
due to the timing of repair and maintenance costs.
|
Depreciation and amortization expense.
Depreciation and amortization expense decreased for the three months ended
March 31, 2017
, compared to the same period last year, primarily due to:
|
|
•
|
a decrease of $0.6 million due to an increase in the expected useful life of the
Petrojarl I
FPSO effective from January 1, 2017; and
|
|
|
•
|
a decrease of $0.5 million due to the amortization of credits received from the ship yard during 2016 related to the construction of the
Petrojarl
Knarr
FPSO unit.
|
Shuttle Tanker Segment
As at
March 31, 2017
, our shuttle tanker fleet consisted of 30 vessels that operate under fixed-rate contracts of affreightment, time charters and bareboat charters, three shuttle tanker newbuildings, and the
HiLoad DP
unit, which is currently in lay-up. Of these 34 shuttle tankers, six are owned through 50%-owned subsidiaries and three were chartered-in. The remaining vessels are owned 100% by us. All of our operating shuttle tankers, with the exception of the
HiLoad DP
unit, provide transportation services to energy companies in the North Sea, Brazil and the East Coast of Canada. Our shuttle tankers occasionally service the conventional spot tanker market. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Euro and Brazilian Real may result in significant decreases or increases, respectively, in our vessel operating expenses.
The following table presents the shuttle tanker segment’s operating results for the
three
months ended
March 31, 2017
and
2016
, and compares its net revenues (which is a non-GAAP financial measure) for the
three
months ended
March 31, 2017
and
2016
, to revenues, the most directly comparable GAAP financial measure, for the same periods. The following table also provides a summary of the changes in calendar-ship-days by owned and chartered-in vessels for the shuttle tanker segment:
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except calendar-ship-days and percentages)
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
% Change
|
Revenues
|
136,233
|
|
|
126,184
|
|
|
8.0
|
|
Voyage expenses
|
(21,278
|
)
|
|
(13,938
|
)
|
|
52.7
|
|
Net revenues
|
114,955
|
|
|
112,246
|
|
|
2.4
|
|
Vessel operating expenses
|
(27,429
|
)
|
|
(28,881
|
)
|
|
(5.0
|
)
|
Time-charter hire expenses
|
(16,698
|
)
|
|
(14,812
|
)
|
|
12.7
|
|
Depreciation and amortization
|
(30,613
|
)
|
|
(30,648
|
)
|
|
(0.1
|
)
|
General and administrative
(1)
|
(3,143
|
)
|
|
(3,957
|
)
|
|
(20.6
|
)
|
Income from vessel operations
|
37,072
|
|
|
33,948
|
|
|
9.2
|
|
Calendar-Ship-Days
|
|
|
|
|
|
Owned Vessels
|
2,520
|
|
|
2,660
|
|
|
(5.3
|
)
|
Chartered-in Vessels
|
319
|
|
|
318
|
|
|
0.3
|
|
Total
|
2,839
|
|
|
2,978
|
|
|
(4.7
|
)
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the shuttle tanker segment based on estimated use of corporate resources). See the discussion under “Other Operating Results” below.
|
The average size of our owned shuttle tanker fleet decreased for the
three
months ended
March 31, 2017
, compared to the same period last year, primarily due to the sale of the
Navion Torinita
and the
Navion Europa
in January 2016 and November 2016, respectively. Three shuttle tanker newbuildings have been excluded from calendar-ship-days until they are delivered to us.
Net revenues.
Net revenues
increased
for the three months ended
March 31, 2017
, compared to the same period last year, primarily due to:
|
|
•
|
an increase of $6.5 million due to an increase in revenues in our contract of affreightment fleet mainly due to higher fleet utilization, an increase in project revenues and an increase in rates as provided in certain contracts in our time-chartered-out fleet.
|
partially offset by
|
|
•
|
a decrease of $2.5 million due to the redelivery of one vessel to us in June 2016 as it completed its time-charter-out agreement; and
|
|
|
•
|
a decrease of $1.3 million due to lower average rates and fewer opportunities to trade excess shuttle tanker capacity in the conventional tanker spot market.
|
Vessel operating expenses.
Vessel operating expenses
decreased
for the three months ended
March 31, 2017
, compared to the same period last year, primarily due to the sale of the
Navion Europa
in November 2016.
Time-charter hire expenses.
Time-charter hire expenses
increased
for the three months ended
March 31, 2017
, compared to the same period last year, primarily due to the in-chartering of the
Grena Knutsen
from September 2016, partially offset by the redelivery of the
Aberdeen
by us in December 2016.
FSO Segment
As at
March 31, 2017
, our FSO fleet consisted of five units that operate under fixed-rate time charters or fixed-rate bareboat charters, for which our ownership interests ranged from 89% to 100%, one shuttle tanker, the
Randgrid
, currently completing its conversion into an FSO unit, for which our ownership interest was 100% and one idle unit, the
Navion Saga
, for which our ownership interest was 100%. The
Navion Saga
FSO unit was held for sale as at March 31, 2017.
FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage. Our revenues and vessel operating expenses for the FSO segment are affected by fluctuations in currency exchange rates, as a significant component of revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian Dollars for certain vessels. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner or Australian Dollar may result in significant decreases or increases, respectively, in our revenues and vessel operating expenses.
The following table presents the FSO segment’s operating results for the
three
months ended
March 31, 2017
and
2016
, and compares its net revenues (which is a non-GAAP financial measure) for the
three
months ended
March 31, 2017
and
2016
, to revenues, the most directly comparable GAAP financial measure, for the same periods. The following table also provides a summary of the changes in calendar-ship-days for the FSO segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in thousands of U.S. Dollars, except calendar-ship-days and percentages)
|
2017
|
|
2016
|
|
% Change
|
Revenues
|
11,489
|
|
|
14,363
|
|
|
(20.0
|
)
|
Voyage expenses
|
(325
|
)
|
|
(212
|
)
|
|
53.3
|
|
Net revenues
|
11,164
|
|
|
14,151
|
|
|
(21.1
|
)
|
Vessel operating expenses
|
(5,079
|
)
|
|
(5,473
|
)
|
|
(7.2
|
)
|
Depreciation and amortization
|
(2,552
|
)
|
|
(2,172
|
)
|
|
17.5
|
|
General and administrative
(1)
|
(501
|
)
|
|
(238
|
)
|
|
110.5
|
|
Income from vessel operations
|
3,032
|
|
|
6,268
|
|
|
(51.6
|
)
|
Calendar-Ship-Days
|
|
|
|
|
|
Owned Vessels
|
630
|
|
|
637
|
|
|
(1.1
|
)
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the FSO segment based on estimated use of corporate resources). See the discussion under “Other Operating Results” below.
|
Net revenues and vessel operating expenses.
Net revenues and vessel operating expenses
decreased
for the
three
months ended
March 31, 2017
, compared to the same period last year, primarily due to the redelivery of the
Navion Saga
in October 2016, following the completion of its time-charter-out contract.
UMS Segment
As at
March 31, 2017
, our UMS fleet consisted of one unit, the
Arendal Spirit
, in which we own a 100% interest.
The following table presents the UMS segment’s operating results and calendar-ship-days for the
three
months ended
March 31, 2017
and
2016
. The
Arendal Spirit was
delivered to us on February 16, 2015 and began its three-year charter contract on June 7, 2015. In mid-April 2016, during the process of lifting off the gangway connecting the
Arendal Spirit
to an FPSO unit, the gangway of the
Arendal Spirit
suffered damage. During the gangway replacement, the
Arendal Spirit
was declared off-hire. The gangway was replaced in mid-June 2016 and the
Arendal Spirit
was declared on-hire in early-July 2016. In early-November 2016 the unit experienced an operational incident relating to the dynamic positioning system and, as a result, Petrobras suspended its charter hire payments beginning in November 6, 2016 to complete an operational review resulting from this incident. In late-April 2017, Petrobras notified Logitel Offshore Norway AS, a subsidiary of ours, of its termination of the charter contract for the
Arendal Spirit
UMS and confirmed to Logitel Offshore Norway AS that Petrobras does not intend to pay the charter hire payments from November 2016. We have disputed the grounds for termination and are reviewing our legal options, including the initiation of a claim for unpaid standby fees and damages for wrongful termination of the time-charter contract.
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except calendar-ship-days and percentages)
|
Three Months Ended March 31,
|
|
% Change
|
2017
|
|
2016
|
|
Revenues
|
827
|
|
|
13,482
|
|
|
(93.9
|
)
|
Vessel operating expenses
|
(6,485
|
)
|
|
(7,927
|
)
|
|
(18.2
|
)
|
Depreciation and amortization
|
(1,633
|
)
|
|
(1,696
|
)
|
|
(3.7
|
)
|
General and administrative
(1)
|
(1,992
|
)
|
|
(693
|
)
|
|
187.4
|
|
(Loss) income from vessel operations
|
(9,283
|
)
|
|
3,166
|
|
|
(393.2
|
)
|
Calendar-Ship-Days
|
|
|
|
|
|
Owned Vessels
|
90
|
|
|
91
|
|
|
(1.1
|
)
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the UMS segment based on estimated use of corporate resources). See the discussion under “Other Operating Results” below.
|
Revenues.
Revenues decreased for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the charterer not paying charter hire payments since early-November 2016 and the subsequent charter contract termination in late-April 2017.
Vessel operating expenses.
Vessel operating expenses decreased for the
three
months ended
March 31, 2017
, compared to the same period last year, mainly due to lower repairs and maintenance expenditure as a result of the timing of purchases of spare parts.
Towage Segment
As at
March 31, 2017
, our towage vessel fleet consisted of seven long-distance towing and offshore installation vessels and three long-distance towing and offshore installation vessel newbuildings, which are scheduled to deliver during 2017 through early-2018. We own a 100% interest in each of the vessels in our towage fleet.
Long-distance towing and offshore installation vessels are used for the towage, station-keeping, installation and decommissioning of large floating objects, such as exploration, production and storage units, including FPSO units, FLNG units and floating drill rigs.
The following table presents the towage segment’s operating results for the
three
months ended
March 31, 2017
and
2016
, and compare its net revenues (which is a non-GAAP financial measure) for the
three
months ended
March 31, 2017
and
2016
, to revenues, the most directly comparable GAAP financial measure, for the same periods. The following table also provides a summary of the changes in calendar-ship-days by owned and chartered-in vessels for the towage segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
% Change
|
(in thousands of U.S. Dollars, except calendar-ship-days and percentages)
|
2017
|
|
2016
|
|
Revenues
|
10,898
|
|
|
11,083
|
|
|
(1.7
|
)
|
Voyage expenses
|
(3,510
|
)
|
|
(3,518
|
)
|
|
(0.2
|
)
|
Net revenues
|
7,388
|
|
|
7,565
|
|
|
(2.3
|
)
|
Vessel operating expenses
|
(4,914
|
)
|
|
(4,885
|
)
|
|
0.6
|
|
Time-charter hire expenses
|
(925
|
)
|
|
—
|
|
|
100.0
|
|
Depreciation and amortization
|
(3,426
|
)
|
|
(2,823
|
)
|
|
21.4
|
|
General and administrative
(1)
|
(1,061
|
)
|
|
(734
|
)
|
|
44.6
|
|
Loss from vessel operations
|
(2,938
|
)
|
|
(877
|
)
|
|
235.0
|
|
Calendar-Ship-Days
|
|
|
|
|
|
Owned Vessels
|
630
|
|
|
546
|
|
|
15.4
|
|
Chartered-in Vessels
|
52
|
|
|
—
|
|
|
100.0
|
|
Total
|
682
|
|
|
546
|
|
|
24.9
|
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the towage segment based on estimated use of corporate resources). See the discussion under “Other Operating Results” below.
|
The average number of our owned towing and offshore installation vessels increased for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the delivery of our first towage newbuilding vessel, the
ALP Striker
, in September 2016.
The average number of our chartered-in towing and offshore installation vessels increased for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the in-chartering of two vessels for a project completed during the
three
months ended
March 31, 2017
.
Net revenues.
Net revenues decreased for the
three
months ended
March 31, 2017
, compared to the same period last year, mainly due to a decrease in utilization for the towage vessel fleet due to volatility in the offshore market, partially offset by an increase in the owned and chartered-in fleet size.
Time-charter hire expenses.
Time-charter hire expenses increased for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the in-chartering of two vessels during the
three
months ended
March 31, 2017
in support of an FPSO installation project. The time-charter hire expense was reimbursed by the customer, which is included in Revenues.
Depreciation and amortization expense.
Depreciation and amortization expense
increased
for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the delivery of the
ALP Striker
in September 2016.
Conventional Tanker Segment
As at
March 31, 2017
, our conventional tanker fleet consisted of two in-chartered conventional tankers. One vessel is fixed on a two-year time-charter-out contract that commenced during 2016 and the other vessel is trading in the spot conventional tanker market.
The following tables present the conventional tanker segment’s operating results for the
three
months ended
March 31, 2017
and
2016
, and compare its net revenues (which is a non-GAAP financial measure) for the
three
months ended
March 31, 2017
and
2016
, to revenues, the most directly comparable GAAP financial measure, for the same periods. The following tables also provide a summary of the changes in calendar-ship-days by owned and chartered-in vessels for the conventional tanker segment:
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except calendar-ship-days and percentages)
|
Three Months Ended March 31,
|
|
% Change
|
2017
|
|
2016
|
|
Revenues
|
3,836
|
|
|
8,812
|
|
|
(56.5
|
)
|
Voyage expenses
|
(28
|
)
|
|
(676
|
)
|
|
(95.9
|
)
|
Net revenues
|
3,808
|
|
|
8,136
|
|
|
(53.2
|
)
|
Vessel operating expenses
|
10
|
|
|
(1,271
|
)
|
|
(100.8
|
)
|
Time-charter hire expenses
|
(4,133
|
)
|
|
(510
|
)
|
|
710.4
|
|
General and administrative
(1)
|
(90
|
)
|
|
(173
|
)
|
|
(48.0
|
)
|
(Loss) income from vessel operations
|
(405
|
)
|
|
6,182
|
|
|
(106.6
|
)
|
Calendar-Ship-Days
|
|
|
|
|
|
Owned Vessels
|
—
|
|
|
160
|
|
|
(100.0
|
)
|
Chartered-in Vessels
|
180
|
|
|
22
|
|
|
718.2
|
|
Total
|
180
|
|
|
182
|
|
|
(1.1
|
)
|
|
|
(1)
|
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the conventional tanker segment based on estimated use of corporate resources). See the discussion under “Other Operating Results” below.
|
The average number of our owned conventional tankers decreased for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the sales of the
Kilimanjaro Spirit
and the
Fuji Spirit
conventional tankers in March 2016, which were subsequently renamed
Blue Pride
and
Blue Power
, respectively, by the new owners.
The average number of our chartered-in conventional tankers increased for the
three
months ended
March 31, 2017
, compared to the same period last year, due to us in-chartering of the
Blue Pride
and
Blue Power
conventional tankers from March 2016 for three years.
Net Revenues.
Net revenues
decreased
for the
three
months ended
March 31, 2017
, compared to the same period last year, mainly due to a $4.0 million termination fee received from Teekay Corporation during the
three
months ended
March 31, 2016
for the early termination of the time-charter-out contract of the
Kilimanjaro Spirit
in March 2016.
Vessel operating expenses.
Vessel operating expenses
decreased
for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the sale of two conventional tankers in March 2016.
Time-charter hire expenses.
Time-charter hire expenses
increased
for the
three
months ended
March 31, 2017
, compared to the same period last year, due to the in-chartering of the
Blue Pride
and the
Blue Power
conventional tankers from March 2016.
Other Operating Results
General and Administrative Expenses.
General and administrative expenses were
$14.6 million
for the
three
months ended
March 31, 2017
, compared to
$14.5 million
for the same period last year. General and administrative expenses increased due to management and legal fees incurred relating to the canceled UMS construction contracts (refer to Item 1 - Financial Statements: Note 3a - Financial Instruments), which were partially offset by lower management fees relating to the shuttle tanker segment primarily from our cost saving initiatives and lower expenses as a result of the redelivery and lay-up of the
Petrojarl Varg
FPSO unit in August 2016.
Interest Expense.
Interest expense was
$36.1 million
for the
three
months ended
March 31, 2017
, compared to
$36.0 million
for the same period last year. Interest expense increased primarily due to:
|
|
•
|
an increase of $2.3 million due to an increase in the weighted-average effective interest rates on our long-term debt; and
|
|
|
•
|
an increase of $1.9 million due to a non-cash guarantee fee to Teekay Corporation associated with the long-term financing for the East Coast of Canada shuttle tanker newbuildings and certain of our interest rate swaps and cross currency swaps commencing during the second quarter of 2016;
|
partially offset by
|
|
•
|
a decrease of $2.8 million due to interest expense incurred relating to costs associated with the delay in the delivery of a UMS newbuilding in the first quarter of 2016, which was subsequently canceled during the second quarter of 2016; and
|
|
|
•
|
a decrease of $1.2 million due to a decrease in our total debt balance.
|
Realized and Unrealized Loss on Derivative Instruments
. Net realized and unrealized loss on non-designated derivative instruments were
$6.5 million
for the
three
months ended
March 31, 2017
, compared to
$60.5 million
for the same period last year.
During the three months ended
March 31, 2017
and
2016
, we had interest rate swap agreements with aggregate average outstanding notional amounts of approximately $1.9 billion and $2.1 billion, respectively, and average fixed rates of approximately 3.4% and 3.2%, respectively. Short-term variable benchmark interest rates during the three months ended
March 31, 2017
and
2016
were generally 1.4% or less and 0.9% or less,
respectively, and, as such, we incurred a realized loss of
$10.7 million
and
$14.0 million
during the three months ended
March 31, 2017
and
2016
, respectively, under the interest rate swap agreements.
During the
three
months ended
March 31, 2017
and
2016
, we were committed to foreign currency forward contracts to hedge portions of our forecasted expenditures denominated in Norwegian Kroner, Euro and the Singapore Dollar, which incurred a realized loss of
$0.1 million
and
$2.9 million
during the
three
months ended
March 31, 2017
and
2016
, respectively.
The
$54.0 million
decrease in net realized and unrealized loss on non-designated derivatives for the
three
months ended
March 31, 2017
compared to the same period last year was primarily due to a $55.4 million increase in unrealized gains on interest rate swaps relating to an increase in long-term LIBOR benchmark rates as at
March 31, 2017
relative to December 31, 2016, compared to a decrease in long-term LIBOR benchmark rates as at
March 31, 2016
relative to December 31, 2015, a decrease in the realized loss on interest rate swaps of $3.3 million due to an increase in LIBOR during the first quarter of 2017 compared to the same period last year and a $2.8 million decrease in the realized loss on foreign currency forward contracts due to a decrease in the transfer of previously unrealized losses to realized losses during the first quarter of 2017 related to actual cash settlements, partially offset by a $7.6 million decrease in the unrealized gain on foreign currency forward contracts from the U.S. Dollar weakening less against the Norwegian Kroner as at
March 31, 2017
relative to December 31, 2016, compared to as at March 31, 2016 relative to December 31, 2015.
Foreign Currency Exchange Loss
.
Foreign currency exchange
losses
were
$0.2 million
for the
three
months ended
March 31, 2017
, compared to
$2.8 million
for the same period last year. Our foreign currency exchange
losses
are due primarily to the relevant period-end revaluation of Norwegian Kroner-denominated monetary assets and liabilities for financial reporting purposes and the realized and unrealized gains and losses on our cross currency swaps. Gains on Norwegian Kroner-denominated net monetary liabilities reflect a stronger U.S. Dollar against the Norwegian Kroner on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on Norwegian Kroner-denominated net monetary liabilities reflect a weaker U.S. Dollar against the Norwegian Kroner on the date of revaluation or settlement compared to the rate in effect at the beginning of the period.
For the
three
months ended
March 31, 2017
, foreign currency exchange losses include realized losses of
$3.2 million
(
2016
- losses of
$35.3 million
) and unrealized gains of
$4.4 million
(
2016
- gains of
$52.9 million
) on the cross currency swaps and unrealized losses of $1.3 million (
2016
- losses of $51.5 million), on the revaluation of the Norwegian Kroner denominated debt. During the
three
months ended March 31, 2016, NOK 500 million of our senior unsecured bonds matured and we recorded a $32.6 million realized foreign currency exchange gain on the repayment of the bonds and a $32.6 million realized loss on the maturity of its associated cross currency swap. There were additional realized and unrealized foreign exchange losses of $0.1 million for the
three
months ended
March 31, 2017
(
2016
- losses of $1.6 million) on all other monetary assets and liabilities.
Income Tax (Expense) Recovery
.
Income tax (expense) recovery was
$(1.4) million
for the
three
months ended
March 31, 2017
, compared to
$2.8 million
for the same period last year.
The increase in income tax expense for the
three
months ended
March 31, 2017
, compared to the same period last year, was primarily due to an increase in deferred tax expense during the
three
months ended
March 31, 2017
due to changes in our future income assumptions given the sustained low oil price, and a reversal of an uncertain tax position during the three months ended March 31, 2016 as a result of receiving a favorable ruling from the relevant tax authority.
Liquidity and Capital Resources
Liquidity and Cash Needs
Our business model is to employ our vessels on fixed-rate contracts with major oil companies, typically with terms between three to ten years. Prior to the fourth quarter of 2015, the operating cash flow our vessels generated each quarter, excluding a reserve for maintenance capital expenditures and distributions on our preferred units, was generally paid out to our common unitholders within approximately 45 days after the end of each quarter. Global crude oil prices have significantly declined since mid-2014 and this decline, combined with other factors beyond our control, has adversely affected energy and master limited partnership capital markets and available sources of financing. Based on upcoming equity capital requirements for our committed growth projects and scheduled debt repayment obligations, coupled with the uncertainty regarding how long it will take for the energy and master limited partnership capital markets to normalize, we believe that it is in the best interests of our common unitholders to conserve more of our internally generated cash flows to fund these projects and to reduce debt levels. As a result, in December 2015, we reduced our quarterly cash distributions to $0.11 per common unit, and our near-to-medium-term business strategy is primarily focused on funding and implementing existing growth projects and repaying or refinancing scheduled debt obligations rather than pursuing additional growth projects. Despite significant weakness in the global energy and capital markets, our operating cash flows remain largely stable and growing, supported by a large and well-diversified portfolio of fee-based contracts with high quality counterparties.
As at
March 31, 2017
, our total consolidated cash and cash equivalents were
$193.4 million
, compared to
$227.4 million
at
December 31, 2016
. Our total consolidated liquidity, including cash, cash equivalents and undrawn revolving credit facilities was
$216.7 million
as at
March 31, 2017
, compared to $260.7 million as at
December 31, 2016
. The decrease in liquidity was primarily due to: the scheduled repayments of outstanding term loans and revolving credit facilities, cash distributions paid by us and payments for committed newbuildings and conversions (please read Item 1 - Financial Statements: Note
9
. Commitments and Contingencies); partially offset by net operating cash flows and a decrease in collateral on cross currency swaps.
As at
March 31, 2017
, we had a working capital deficit of
$472.7 million
, compared to a working capital deficit of
$398.0 million
at
December 31, 2016
. Accounts receivable increased mainly due to the timing of collections. Accrued liabilities decreased mainly due to the timing of expenses related to our committed newbuildings and conversions. The net due to affiliates balance increased mainly due to the timing of settlements. The current portion of long-term debt increased mainly due to reclassification of one term loan maturing in the first quarter of 2018, and NOK
160 million
of one of our NOK denominated bonds, repayable in January 2018, to the current portion of long-term debt as at
March 31, 2017
, partially offset by the maturity and repayment of one revolving credit facility during the three months ended
March 31, 2017
.
Our primary liquidity needs for the remainder of 2017 and 2018 are to pay existing, committed capital expenditures, to make scheduled repayments of debt, to pay debt service costs, quarterly distributions on outstanding common and preferred units, operating expenses and dry docking expenditures, to fund general working capital requirements, to settle claims and potential claims against us and manage our working capital deficit. We anticipate that our primary sources of funds for the remainder of 2017 and 2018 will be cash flows from operations, bank debt, equity and bond issuances, and proceeds from the sale of partial interests in certain assets. As at
March 31, 2017
, our total future contractual obligations for vessels and newbuildings and committed conversions, including our 50% interest in the
Libra
FPSO conversion, were estimated to be
$606 million
, consisting of
$512 million
(remainder of 2017) and
$94 million
(2018). Of this
$606 million
of future contractual obligations, we have pre-arranged financing in place of
$331
million, a further $60 million held in escrow as funding for the
Petrojarl I
FPSO project and
$24 million
advanced from the ship yard relating to a delay in the delivery of three towing and offshore installation newbuildings,
with a remaining requirement of $191 million, which mainly relates to 2017. We expect to manage these funding requirements from existing and expected liquidity.
Primarily as a result of the working capital deficit and committed capital expenditures, over the one-year period following the issuance of our
March 31, 2017
unaudited consolidated financial statements we will need to obtain additional sources of financing, in addition to amounts generated from operations, to meet our minimum liquidity requirements under our financial covenants. These anticipated sources of financing include refinancing debt facilities that mature during the one-year period, raising additional capital through equity issuances, increasing amounts available under existing debt facilities and entering into new debt facilities, negotiating extensions or redeployments of existing assets and the sale of partial interests of assets. We are actively pursuing the funding alternatives described above, which we consider probable of completion based on our history of being able to raise equity, refinance loan facilities for similar types of vessels, and indicative offers received from potential investors. We are in various stages of completion on these matters. Please refer to Item 1 - Financial Statements: Note
9k
- Commitments and Contingencies.
Our revolving credit facilities and term loans are described in Item 1 - Financial Statements: Note
5
. Long-Term Debt. They contain covenants and other restrictions typical of debt financing secured by vessels that restrict the ship-owning subsidiaries from incurring or guaranteeing indebtedness; changing ownership or structure, including mergers, consolidations, liquidations and dissolutions; making dividends or distributions if we are in default; making capital expenditures in excess of specified levels; making certain negative pledges and granting certain liens; selling, transferring, assigning or conveying assets; making certain loans and investments; or entering into a new line of business. Certain of our revolving credit facilities and term loans include financial covenants. Should we not meet these financial covenants, the lender may accelerate the repayment of the revolving credit facilities and term loans, thus having an impact on our short-term liquidity requirements. We have
two
revolving credit facilities and
five
term loans that require us to maintain vessel values to drawn principal balance ratios of a minimum range of
113%
to
125%
. Such requirement is assessed either on a semi-annual or annual basis, with reference to vessel valuations compiled by one or more agreed upon third parties. Should the ratio drop below the required amount, the lender may request us to either prepay a portion of the loan in the amount of the shortfall or provide additional collateral in the amount of the shortfall, at our option. As at
March 31, 2017
, these ratios were estimated to range from
117%
to
439%
and exceeded the minimum ratios required. The vessel values used in calculating these ratios are appraised values provided by third parties where available, or are prepared by us based on second-hand sale and purchase market data. Changes in the shuttle tanker, towing and offshore installation, UMS, FPSO or FSO markets could negatively affect these ratios. In October 2016, December 2016, February 2017 and April 2017, the lenders for our loan relating to the
Petrojarl I
FPSO unit agreed to extend the availability date of the loan for successive periods of two months, as the loan was subject to a mandatory prepayment provision, initially in early October 2016, if the unit was not accepted at that time by the charterer. These interim extensions provide additional time for us to negotiate a revised schedule for the delivery of the unit and thereafter, amend the loan facility accordingly to reflect the revised delivery schedule. As at
March 31, 2017
, we had $60 million held in escrow to fund the final upgrade costs. In late-April 2017, Petrobras notified Logitel Offshore Norway AS, a subsidiary of ours, of its termination of the charter contract for the
Arendal Spirit
UMS and confirmed to Logitel Offshore Norway AS that Petrobras does not intend to pay the charter hire payments from November 2016. The term loan outstanding for the
Arendal Spirit
UMS, which as at
March 31, 2017
had a balance of
$120 million
, is payable within
180
days of the cancellation unless a replacement is obtained or a lender waiver is received prior to the end of the 180 day period. If a replacement contract or a lender waiver is not received, this will likely result in a reclassification of
$105 million
of long-term debt to the current portion of long-term debt during the second quarter of 2017. The Partnership has disputed the grounds for termination and is reviewing its legal options, including the initiation of a claim for unpaid standby fees and damages for wrongful termination of the time-charter contract. As at
March 31, 2017
, we and our affiliates were in compliance with all covenants relating to the revolving credit facilities and term loans.
The passage of any climate control legislation or other regulatory initiatives that restrict emissions of greenhouse gases could have a significant financial and operational impact on our business, which we cannot predict with certainty at this time. Such regulatory measures could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. In addition, increased regulation of greenhouse gases may, in the long term, lead to reduced demand for oil and reduced demand for our services.
Cash Flows.
The following table summarizes our sources and uses of cash for the periods presented:
|
|
|
|
|
|
|
(in thousands of U.S. Dollars)
|
Three months ended March 31,
|
2017
|
|
2016
|
Net cash flow from operating activities
|
97,979
|
|
|
125,451
|
|
Net cash flow used for financing activities
|
(71,216
|
)
|
|
(81,673
|
)
|
Net cash flow (used for) from investing activities
|
(60,722
|
)
|
|
33,500
|
|
Operating Cash Flows.
Net cash flow from operating activities
decreased
to
$98.0 million
for the
three
months ended
March 31, 2017
, from
$125.5 million
for the same period in
2016
, primarily due to the redelivery of the
Petrojarl Varg
FPSO unit, the redelivery of one shuttle tanker and one FSO unit, as they completed their time-charter-out agreements during 2016, the charterer of the
Arendal Spirit
UMS not paying charter hire payments since early-November 2016 and the sale of two conventional tankers during 2016 which were subsequently chartered-in by us, partially offset by lower repairs and maintenance expenses on our FPSO units, higher average rates and higher utilization from our shuttle tanker fleet and a decrease in the realized loss on derivative instruments.
The decrease in non-cash working capital items for the
three
months ended
March 31, 2017
compared to the same period last year is primarily due to the timing of payments made to vendors and received from customers, partially offset by the timing of settlements of intercompany balances with related parties.
For a further discussion of changes in income statement items described above for our six reportable segments, please read “Results of Operations”.
Financing Cash Flows
.
We use our revolving credit facilities to finance capital expenditures and for general partnership purposes. Occasionally, we will do this until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer-term financings to prepay outstanding amounts under the revolving credit facilities. Our proceeds from long-term debt, net of debt issuance costs and prepayments of long-term debt, were
$93.1 million
for the
three
months ended
March 31, 2017
, and
$28.7 million
for the same period in
2016
.
Net proceeds from the issuance of long-term debt for the
three
months ended
March 31, 2017
mainly related to the refinancing of a debt facility and the drawdown of two existing debt facilities, the proceeds of which we used primarily for the final bullet payment on an existing debt facility and to fund the installment payments on the three shuttle tanker newbuildings being constructed for the East Coast of Canada contract and the
Gina Krog
FSO conversion.
Net proceeds from the issuance of long-term debt for the
three
months ended
March 31, 2016
mainly related to the drawdown of one existing revolving credit facility and two existing term loans, the proceeds of which we used primarily to fund the installment payments on the four towing and offshore installation newbuildings and upgrades on the
Petrojarl I
FPSO unit.
We actively manage the maturity profile of our outstanding financing arrangements. Our scheduled repayments of long-term debt increased to
$161.4 million
for the
three
months ended
March 31, 2017
, from
$125.0 million
for the same period in
2016
, mainly due to the maturity of two term loans and repayments on the on the
Petrojarl I
FPSO debt facility during the
three
months ended
March 31, 2017
, partially offset by the maturity of a NOK 500 million tranche of our senior unsecured bonds in January 2016.
The decrease of
$14.6 million
and
$37.8 million
in restricted cash for the
three
months ended
March 31, 2017
and
2016
, respectively, relate to a decrease in collateral on our cross currency swaps.
The decrease in distributions to our common and preferred unitholders and our general partner was mainly due to the issuance of 1.6 million common units for a total value of $9.2 million, as a payment-in-kind for the distributions on our Series C-1 Preferred Units and our common units and general partner interest held by subsidiaries of Teekay Corporation for the distribution relating to the first quarter of 2017, partially offset by an increase in distributions due to the issuance of 38.1 million common units, excluding common units issued to subsidiaries of Teekay Corporation, during 2016.
Subsequent to
March 31, 2017
, distributions of $16.8 million on our outstanding common units and general partner interest related to the
first
quarter of
2017
were declared, of which $11.9 million relating to common units held by the public were paid in cash and $4.9 million relating to our common units and the general partner interest held by a subsidiary of Teekay Corporation were settled in the form of our common units in place of cash on May 12, 2017. Subsequent to
March 31, 2017
, cash distributions of $5.4 million for our Series A and Series B Preferred Units relating to the
first
quarter of
2017
were declared and were paid in cash on May 15, 2017. Subsequent to
March 31, 2017
, distributions of $7.0 million for our Series C-1 and Series D Preferred Units relating to the
first
quarter of
2017
were declared and were settled in common units in place of cash on May 15, 2017.
Investing Cash Flows.
During the
three
months ended
March 31, 2017
, net cash flow used for investing activities was
$60.7 million
, primarily relating to
$55.2 million
of payments for vessels and equipment (including conversion costs on the
Gina Krog
FSO conversion, upgrade costs on the
Petrojarl I
FPSO unit and installment payments on the newbuilding towing and offshore installation vessels and the East Coast of Canada newbuilding shuttle tankers) and
$7.4 million
of investments in our joint ventures, partially offset by scheduled lease payments of
$1.9 million
received from leasing our direct financing lease assets.
During the
three
months ended
March 31, 2016
, net cash flow provided by investing activities was
$33.5 million
, primarily relating to proceeds of $55.5 million from the sale of the
Navion Torinita
shuttle tanker and the
Fuji Spirit
and
Kilimanjaro Spirit
conventional tankers, a net cash flow of $1.9 million relating to the
Libra
FPSO joint venture, consisting of a $3.3 million construction credit received partially offset by a $1.3 million investment, and scheduled lease payments of $1.4 million received from leasing our direct financing lease assets, partially offset by $25.3 million of net payments for vessels and equipment.
Contractual Obligations and Contingencies
The following table summarizes our long-term contractual obligations as at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
Beyond
|
|
|
Total
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2021
|
|
|
(in millions of U.S. Dollars)
|
U.S. Dollar-Denominated Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond repayments
(1)
|
|
300.0
|
|
|
—
|
|
|
—
|
|
|
300.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Secured debt - scheduled repayments
(1)
|
|
1,985.0
|
|
|
308.7
|
|
|
412.0
|
|
|
332.7
|
|
|
259.1
|
|
|
227.0
|
|
|
445.5
|
|
Secured debt - repayments on maturity
(1)
|
|
628.6
|
|
|
142.8
|
|
|
154.1
|
|
|
25.0
|
|
|
40.0
|
|
|
14.9
|
|
|
251.8
|
|
Subordinated promissory note - repayment on maturity
(2)
|
|
200.0
|
|
|
—
|
|
|
—
|
|
|
200.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Chartered-in vessels (operating leases)
|
|
104.0
|
|
|
51.4
|
|
|
35.4
|
|
|
17.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition of vessels and newbuildings and committed conversion costs
(3)
|
|
606.2
|
|
|
512.1
|
|
|
94.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Norwegian Kroner-Denominated Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond repayments
(4)
|
|
258.2
|
|
|
20.9
|
|
|
121.0
|
|
|
116.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
|
4,082.0
|
|
|
1,035.9
|
|
|
816.6
|
|
|
991.2
|
|
|
299.1
|
|
|
241.9
|
|
|
697.3
|
|
|
|
(1)
|
Excludes expected interest payments of
$72.0 million
(remainder of
2017
),
$78.7 million
(
2018
),
$54.8 million
(
2019
),
$34.6 million
(
2020
),
$26.1 million
(
2021
) and
$35.3 million
(beyond
2021
). Expected interest payments are based on existing interest rates (fixed-rate loans) and LIBOR plus margins which ranged between
0.30%
and
4.00%
(variable-rate loans) as at
March 31, 2017
. The expected interest payments do not reflect the effect of related interest rate swaps that we have used as an economic hedge of certain of our variable rate debt. Also excludes the impact of the potential reclassification of the term loan outstanding for the
Arendal Spirit
UMS, which as at
March 31, 2017
had a balance of
$120 million
. If a replacement contract or a lender waiver is not received, this will likely result in a reclassification of
$105 million
of long-term debt to the current portion of long-term debt during the second quarter of 2017 as the balance of the term loan will be due within
180
days of the cancellation of the charter contract.
|
|
|
(2)
|
Consists of the repayment of the $200.0 million subordinated promissory note, issued to a subsidiary of Teekay Corporation effective July 1, 2016. The promissory note bears interest at an annual rate of 10.00% on the outstanding principal balance, one half of which will be paid in cash, and the other half of which will be paid in common units or from the proceeds of the sale of equity securities. Excludes maximum expected interest payments of
$15.1 million
(remainder of
2017
) and
$20.0 million
(
2018
).
|
|
|
(3)
|
Consists of the estimated remaining payments for the acquisition of three towing and offshore installation newbuildings, three shuttle tanker newbuildings, our 50% interest in an FPSO conversion for the Libra field, upgrades for the
Petrojarl I
FPSO unit, and the FSO conversion for the
Randgrid
shuttle tanker. Please read Item 1 - Financial Statements: Note
9a
,
9b
,
9d
,
9e
and
9f
- Commitments and Contingencies. We have pre-arranged undrawn financing of approximately
$331.1
million relating to our capital expenditure commitments,
$60 million
held in escrow as funding for the
Petrojarl I
FPSO project and an advance of
$24 million
from the shipyard resulting from a delay in the delivery of the remaining
three
towing and offshore installation
newbuildings.
|
|
|
(4)
|
Norwegian Kroner-denominated bond repayments are based on the foreign exchange rate as at
March 31, 2017
and exclude the impact of the cross currency swaps. Excludes expected interest payments of
$11.3 million
(remainder of
2017
),
$14.2 million
(
2018
) and
$0.5 million
(
2019
). Expected interest payments are based on NIBOR, plus margins which ranged between 4.25% and 5.75% as at
March 31, 2017
. The expected interest payments do not reflect the effect of related cross currency swaps that we have used as an economic hedge of certain of our Norwegian Kroner-denominated obligations.
|
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements, because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read Part I, Item 18 - Financial Statements: Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 20-F for the year ended
December 31, 2016
.
At
March 31, 2017
, the shuttle tanker and towage segments had goodwill attributable to them. Based on conditions that existed at
March 31, 2017
, we do not believe that there is a reasonable possibility that the goodwill attributable to these reporting units might be impaired for the remainder of the year. However, certain factors that impact this assessment are inherently difficult to forecast and, as such, we cannot provide any assurance that an impairment will or will not occur in the future. An assessment for impairment involves a number of assumptions and estimates that are based on factors that are beyond our control. These are described in our Annual Report on Form 20-F for the year ended
December 31, 2016
.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, in particular, statements regarding:
|
|
•
|
our future growth prospects, business strategy and other plans and objectives for future operations;
|
|
|
•
|
future capital expenditures and availability of capital resources to fund capital expenditures;
|
|
|
•
|
our liquidity needs and meeting our going concern requirements, including our working capital deficit, anticipated funds and sources of financing for liquidity needs and the sufficiency of cash flows, and our estimation that we will have sufficient liquidity for a one-year period;
|
|
|
•
|
our ability to refinance existing debt obligations, to raise additional debt and equity capital, to fund capital expenditures, negotiate extensions or redeployments of existing assets and the sale of partial interests of certain assets;
|
|
|
•
|
the negative impact of low oil prices on the likelihood of certain contract extensions;
|
|
|
•
|
the outcome and cost of claims and potential claims against us, including claims and potential claims by Sevan, CeFront and COSCO relating to Logitel and cancellation of the UMS newbuildings, Petrobras associated with the
Piranema Spirit
FPSO, Shell associated with the
Petrojarl Knarr
FPSO and Transocean associated with the
ALP Forward
;
|
|
|
•
|
the outcome of the
Arendal Spirit
UMS charter contract termination, including the outcome of the Partnership’s dispute of the contract termination by Petrobras and ability to collect amounts under the contract, discussions with the lenders under the unit’s related credit facility and the potential for alternative employment of the unit;
|
|
|
•
|
the outcome of the negotiations for the lease and operate contract for the
Petrojarl Varg
FPSO unit;
|
|
|
•
|
offers of shuttle tankers, FSO units, or FPSO units and related contracts from Teekay Corporation and our accepting such offers;
|
|
|
•
|
acquisitions from third parties and obtaining offshore projects, that we or Teekay Corporation bid on or may be awarded;
|
|
|
•
|
certainty of completion, estimated delivery and completion dates, commencement of charter, intended financing and estimated costs for newbuildings, acquisitions, conversions and upgrades, including the towing and offshore installation vessel newbuildings, conversion of the
Randgrid
to an FSO unit to serve the Gina Krog oil and gas field, conversion of the
Libra
FPSO unit to serve the Libra field, the upgrade of the
Petrojarl I
FPSO unit and shuttle tanker newbuildings;
|
|
|
•
|
the timing of the new shuttle tanker contract of affreightment (or
CoA
) contracts and the number of shuttle tankers to serve these new CoAs;
|
|
|
•
|
expected employment and trading of older shuttle tankers;
|
|
|
•
|
payment of additional contingent consideration for our acquisitions of ALP and Logitel and the capabilities of the ALP vessels;
|
|
|
•
|
the expectations as to the chartering of unchartered vessels, including towing newbuilding and the
HiLoad DP
unit;
|
|
|
•
|
our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
|
|
|
•
|
timing of settlement of amounts due to and from affiliates;
|
|
|
•
|
the future valuation of goodwill;
|
|
|
•
|
our compliance with covenants under our credit facilities;
|
|
|
•
|
the ability of the counterparties for our derivative contracts to fulfill their contractual obligations;
|
|
|
•
|
our hedging activities relating to foreign exchange, interest rate and spot market risks;
|
|
|
•
|
our exposure to foreign currency fluctuations, particularly in Norwegian Kroner;
|
|
|
•
|
distributions on our common units and our ability to maintain or increase distributions in the future;
|
|
|
•
|
increasing the efficiency of our business and redeploying vessels as charters expire or terminate; and
|
|
|
•
|
our ability to pay dividends on our common units.
|
Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, “plan”, “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: failure to achieve or the delay in achieving expected benefits of our financing initiatives; changes in production of oil from offshore oil fields; changes in oil prices; changes in the demand for offshore oil transportation, production and storage services; greater or less than anticipated levels of vessel newbuilding orders or greater or less than anticipated rates of vessel scrapping; changes in trading patterns; changes in our expenses; the timing of implementation of new laws and regulations; potential inability to implement our growth strategy; competitive factors in the markets in which we operate; potential for early termination of long-term contracts and our potential inability to renew or replace long-term contracts; loss of any customer, time charter or vessel; shipyard production, conversion or vessel delivery delays; the inability of the joint venture between Teekay Corporation and OOG to secure new Brazil FPSO projects that may be offered for sale to us; failure to obtain required approvals by the Conflicts Committee of our general partner to acquire other vessels or offshore projects from Teekay Corporation or third parties; our potential inability to raise financing to refinance debt maturities, fund existing projects or purchase additional vessels; our cash flows and levels of available cash, and the levels of cash reserves established by the board of directors of our general partners and required by any financing agreements; the effects of the issuance of additional common units and other equity securities on cash distributions; the outcome of discussions or legal action with Sevan, CeFront, COSCO, Petrobras, Shell, Transocean and third parties relating to existing or potential claims; the outcome of discussions with QGEP, Damen and lenders of the
Petrojarl I
loan facility relating to the project delays in the delivery of the unit; our exposure to currency exchange rate fluctuations; changes to the amount or proportion of revenues and expenses denominated in foreign currencies; potential inability to obtain charters related to the towage newbuildings; our ability to successfully operate in new markets, including the East Coast of Canada; our inability to successfully make a claim against, and collect from, Petrobras for the
Arendal Spirit
UMS; our inability to negotiate acceptable terms with the lenders of the
Arendal Spirit
UMS debt facility; delays in the start-up of offshore oil fields related to the CoA contracts or the actual vessel equivalent requirements of new CoAs; and other risk factors detailed from time to time in our periodic reports filed with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2016. We do not intend to release publicly any updates
or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
MARCH 31, 2017
PART I – FINANCIAL INFORMATION
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to the impact of interest rate changes, primarily through our floating-rate borrowings that require us to make interest payments based on LIBOR or NIBOR. Significant increases in interest rates could adversely affect operating margins, results of operations and our ability to service our debt. From time to time, we use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating-rate debt.
We are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, we only enter into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transactions. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
The tables below provide information about financial instruments as at
March 31, 2017
that are sensitive to changes in interest rates. For long-term debt, the table presents principal payments and related weighted-average interest rates by expected contractual maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by expected contractual maturity dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
There-
|
|
|
Value
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
after
|
|
Total
|
|
Liability
|
|
Rate
(1)
|
|
|
(in millions of U.S. dollars, except percentages)
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate ($U.S.)
(2)
|
|
439.8
|
|
|
540.8
|
|
|
330.4
|
|
|
273.2
|
|
|
212.4
|
|
|
593.0
|
|
|
2,389.6
|
|
|
2,287.7
|
|
|
3.2
|
%
|
Variable Rate (NOK)
(3)
|
|
20.9
|
|
|
121.0
|
|
|
116.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
258.2
|
|
|
244.1
|
|
|
6.1
|
%
|
Fixed Rate Debt ($U.S.)
(4)
|
|
11.7
|
|
|
25.3
|
|
|
527.3
|
|
|
25.9
|
|
|
29.5
|
|
|
104.3
|
|
|
724.0
|
|
|
685.3
|
|
|
6.6
|
%
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
(5)(6)
|
|
126.4
|
|
|
229.0
|
|
|
406.0
|
|
|
459.9
|
|
|
37.4
|
|
|
622.4
|
|
|
1,881.1
|
|
|
201.3
|
|
|
3.4
|
%
|
Average Fixed Pay Rate
(2)
|
|
2.3
|
%
|
|
1.8
|
%
|
|
4.3
|
%
|
|
2.9
|
%
|
|
2.4
|
%
|
|
4.3
|
%
|
|
3.4
|
%
|
|
|
|
|
|
|
________________
|
|
(1)
|
Rate relating to long-term debt refers to the weighted-average effective interest rate for our debt, including the margin paid on our floating-rate debt. Rate relating to interest rate swaps refers to the average fixed pay rate for interest rate swaps. The average fixed pay rate for interest rate swaps excludes the margin paid on the floating-rate debt, which as of
March 31, 2017
ranged between
0.30%
and
4.00%
based on LIBOR and between 4.25% and 5.75% based on NIBOR.
|
|
|
(2)
|
Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR.
|
|
|
(3)
|
Interest payments on NOK-denominated debt and interest rate swaps are based on NIBOR. Our NOK-denominated debt has been economically hedged with cross currency swaps, to swap all interest and principal payments at maturity into U.S. Dollars. Please see the table in the Foreign Currency Fluctuation Risk section below and read Item 1 – Financial Statements: Note 7 – Derivative Instruments and Hedging Activities.
|
|
|
(4)
|
Includes amounts related to a subordinated promissory note owing to a subsidiary of Teekay Corporation.
|
|
|
(5)
|
The average variable receive rate for interest rate swaps is set quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR.
|
|
|
(6)
|
Includes six interest rate swaps, which as at
March 31, 2017
, had a total notional amount of $758.5 million and a total fair value liability of $180.1 million. These interest rate swaps include early termination provisions, which if exercised, would terminate these interest rate swaps in the second half of 2017 through to early-to-mid-2019.
|
Foreign Currency Fluctuation Risk
Our functional currency is the U.S. Dollar because virtually all of our revenues and most of our operating costs are in U.S. Dollars. We incur certain vessel operating expenses, general and administrative expenses and a portion of our capital conversion and upgrade projects in foreign currencies, the most significant of which is the Norwegian Kroner and, to a lesser extent, the Australian Dollar, Brazilian Real, British Pound, Euro and Singapore Dollar. There is a risk that currency fluctuations will have a negative effect on the value of our cash flows.
We may continue to seek to hedge certain of our currency fluctuation risks in the future. At
March 31, 2017
, we were committed to the following foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
in Foreign Currency
(thousands)
|
|
Average
Forward
Rate
(1)
|
|
Expected Maturity
|
Fair Value / Carrying
Amount of Asset (Liability)
(in thousands of U.S. Dollars)
Non-hedge
|
|
2017
|
|
2018
|
|
|
(in thousands of U.S. Dollars)
|
Norwegian Kroner
|
300,000
|
|
|
8.35
|
|
|
28,098
|
|
|
7,829
|
|
|
(921
|
)
|
Euro
|
10,750
|
|
|
0.92
|
|
|
11,659
|
|
|
—
|
|
|
(135
|
)
|
|
|
|
|
|
39,757
|
|
|
7,829
|
|
|
(1,056
|
)
|
|
|
(1)
|
Average forward rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
|
We incur interest expense on our NOK-denominated bonds. We have entered into cross currency swaps to economically hedge the foreign exchange risk on the principal and interest for these bonds. Please read Item 1 – Financial Statements: Note 7. Derivative Instruments and Hedging Activities.
As at
March 31, 2017
, we were committed to the following cross currency swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
NOK
(thousands)
|
|
Principal
Amount
USD
(thousands)
|
|
Floating Rate Receivable
|
|
Fixed Rate
Payable
|
|
Fair Value /
Asset (Liability)
(in thousands of U.S. Dollars)
|
|
Remaining
Term
(years)
|
|
|
Reference
Rate
|
|
Margin
|
|
|
|
|
|
420,000
(1)(2)
|
|
|
70,946
|
|
|
NIBOR
|
|
5.75
|
%
|
|
8.84
|
%
|
|
(24,874
|
)
|
|
1.7
|
800,000
(1)(3)
|
|
|
143,536
|
|
|
NIBOR
|
|
5.75
|
%
|
|
7.58
|
%
|
|
(54,784
|
)
|
|
1.8
|
1,000,000
|
|
|
162,200
|
|
|
NIBOR
|
|
4.25
|
%
|
|
7.45
|
%
|
|
(53,291
|
)
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
(132,949
|
)
|
|
|
|
|
(1)
|
Notional amount reduces equally with NOK bond repayments.
|
|
|
(2)
|
Excludes an economic hedge on the foreign currency exposure for a
three
percent premium upon maturity of the NOK bonds which exchanges NOK
7.2 million
for
$1.2 million
.
|
|
|
(3)
|
Excludes an economic hedge on the foreign currency exposure for a
three
percent premium upon maturity of the NOK bonds which exchanges NOK
19.2 million
for
$3.4 million
.
|
Commodity Price Risk
We are exposed to changes in forecasted bunker fuel costs for certain vessels being time-chartered-out and for vessels servicing certain contracts of affreightment. We may use bunker fuel swap contracts as economic hedges to protect against changes in bunker fuel costs. As at
March 31, 2017
, we were not committed to any bunker fuel swap contracts.
ITEM 4 - CONTROLS AND PROCEDURES
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the
three
months ended
March 31, 2017
, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
MARCH 31, 2017
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
Occasionally we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources.
Please read Item 1 - Financial Statements: Note
9
- Commitments and Contingencies: Parts c), g), h) and j) for a description of certain potential claims and claims made against us.
Item 1A – Risk Factors
In addition to the other information set forth in this Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, Item 3. Key Information - Risk Factors in our Annual Report on Form 20-F for the year ended December 31, 2016.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
None
Item 5 – Other Information
None
Item 6 – Exhibits
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENTS OF THE PARTNERSHIP:
|
|
•
|
REGISTRATION STATEMENT ON FORM S-8 (NO. 333-147682) FILED WITH THE SEC ON NOVEMBER 28, 2007
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-175685) FILED WITH THE SEC ON JULY 21, 2011
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-178620) FILED WITH THE SEC ON DECEMBER 19, 2011
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-183225) FILED WITH THE SEC ON AUGUST 10, 2012
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-188393) FILED WITH THE SEC ON MAY 7, 2013
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-188543) FILED WITH THE SEC ON MAY 10, 2013
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-193301) FILED WITH THE SEC ON JANUARY 10, 2014
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3ASR (NO. 333-196098) FILED WITH THE SEC ON MAY 20, 2014
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-197053) FILED WITH THE SEC ON JUNE 26, 2014
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-206461) FILED WITH THE SEC ON AUGUST 19, 2015
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-212782) FILED WITH THE SEC ON JULY 29, 2016
|
|
|
•
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-213229) FILED WITH THE SEC ON AUGUST 22, 2016
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
TEEKAY OFFSHORE PARTNERS L.P.
|
|
|
|
|
By:
|
Teekay Offshore GP L.L.C., its general partner
|
|
|
|
Date: May 30, 2017
|
By:
|
/s/ Edith Robinson
|
|
|
Edith Robinson
Secretary
|
Teekay Offshore Partners (NYSE:TOO)
Historical Stock Chart
From Apr 2024 to May 2024
Teekay Offshore Partners (NYSE:TOO)
Historical Stock Chart
From May 2023 to May 2024