TOO Teekay Offshore Partners LP

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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

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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	)

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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

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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

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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

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2.	Accounting Pronouncements

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3.	Financial Instruments

a)	Fair Value Measurements

			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	)

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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	)

b)	Financing Receivables

	Credit Quality Indicator		Grade		March 31, 2017			December 31, 2016
					$			$
Direct financing leases	Payment activity		Performing		15,694			17,586

4.	Segment Reporting

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.

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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

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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 ).

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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.

	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

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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	)

(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 ).

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.

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.

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	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	)

	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	)

	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

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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

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.

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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

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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.

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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	)

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(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.

•	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.

•	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.

•	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.

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(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.

•	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.

•	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.

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	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.

(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.

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	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.

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(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.

•	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;

•	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.

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(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

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					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.

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•	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.

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		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	%

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(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.

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	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.

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 .

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•	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

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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

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