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,
2008
Commission
file number 1- 33198
TEEKAY
OFFSHORE PARTNERS L.P.
(Exact
name of Registrant as specified in its charter)
4
th
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.
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).
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).
Indicate
by check mark whether the registrant by furnishing the information contained in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
If “Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82-_______
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
REPORT
ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
INDEX
PART
I: FINANCIAL INFORMATION
|
PAGE
|
|
|
Item
1. Financial Statements (Unaudited)
|
|
|
|
|
|
Report
of Independent Registered Public Accounting
Firm
|
3
|
|
|
|
|
Unaudited
Consolidated Statements of Income
|
|
|
|
for
the three months ended March, 2008 and 2007
|
4
|
|
|
|
|
Unaudited
Consolidated Balance Sheets
|
|
|
|
as
at March 31, 2008 and December 31,
2007
|
5
|
|
|
|
|
Unaudited
Consolidated Statements of Cash Flows
|
|
|
for
the three months ended March 31, 2008 and 2007
|
6
|
|
|
|
|
Unaudited
Consolidated Statements of Changes In Partners’ Equity
|
|
|
|
for
the three months ended March 31,
2008
|
7
|
|
|
|
|
Notes
to the Unaudited Consolidated Financial Statements
|
8
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
14
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
22
|
|
|
PART
II: OTHER INFORMATION
|
23
|
|
|
SIGNATURES
|
24
|
ITEM
1 - FINANCIAL
STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Unitholders of
Teekay
Offshore Partners L.P.
We have
reviewed the consolidated balance sheet of Teekay Offshore Partners L.P. and
subsidiaries (or the
Partnership
) as of March 31, 2008, the related consolidated statements of
income and cash flows for the three months ended March 31, 2008 and 2007, and
changes in consolidated partners’ equity for the three months ended March 31,
2008. These financial statements are the responsibility of the Partnership's
management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the consolidated financial statements referred to above for them to be in
conformity with United States generally accepted accounting
principles.
We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Partnership as of December 31, 2007, and the related consolidated statements
of income, changes in partners’ equity and cash flows for the year then ended
(not presented herein), and in our report dated March 12, 2008, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2007, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Vancouver,
Canada
May 14,
2008
|
/s/ ERNST
& YOUNG LLP
Chartered
Accountants
|
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
(in
thousands of U.S. dollars, except unit and per unit data)
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
VOYAGE REVENUES
(including $40,019 and $38,914 for 2008 and 2007, respectively,
from related parties -
notes 8a, 8b and
8c)
|
|
|
203,786
|
|
|
|
190,752
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
51,377
|
|
|
|
34,535
|
|
Vessel
operating expenses (including ($396) for 2008 from related parties –
note
8h)
|
|
|
41,486
|
|
|
|
30,219
|
|
Time-charter
hire expense
|
|
|
33,646
|
|
|
|
38,115
|
|
Depreciation
and amortization
|
|
|
32,546
|
|
|
|
28,591
|
|
General
and administrative (including $12,817 and $13,136 for 2008 and 2007,
respectively, from related parties -
notes 8d, 8e and
8f)
|
|
|
15,594
|
|
|
|
15,174
|
|
Total
operating expenses
|
|
|
174,649
|
|
|
|
146,634
|
|
Income
from vessel operations
|
|
|
29,137
|
|
|
|
44,118
|
|
|
|
|
|
|
|
|
|
|
OTHER
ITEMS
|
|
|
|
|
|
|
|
|
Interest
expense
(note
5)
|
|
|
(23,967
|
)
|
|
|
(18,509
|
)
|
Interest
income
|
|
|
1,249
|
|
|
|
1,137
|
|
Foreign
currency exchange loss
|
|
|
(3,338
|
)
|
|
|
(4,160
|
)
|
Income
tax (expense) recovery
(note
10)
|
|
|
(197
|
)
|
|
|
3,906
|
|
Other
income - net
(note
7)
|
|
|
2,626
|
|
|
|
2,719
|
|
Total
other items
|
|
|
(23,627
|
)
|
|
|
(14,907
|
)
|
|
|
|
|
|
|
|
|
|
Net
income before non-controlling interest
|
|
|
5,510
|
|
|
|
29,211
|
|
Non-controlling
interest
|
|
|
(5,030
|
)
|
|
|
(22,379
|
)
|
Net
income
|
|
|
480
|
|
|
|
6,832
|
|
General
partner’s interest in net income
|
|
|
10
|
|
|
|
137
|
|
Limited
partners’ interest:
(note
11)
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
470
|
|
|
|
6,695
|
|
Net
income per:
-
Common unit (basic and diluted)
|
|
|
0.05
|
|
|
|
0.35
|
|
-
Subordinated unit (basic and diluted)
|
|
|
-
|
|
|
|
0.33
|
|
-
Total unit (basic and diluted)
|
|
|
0.02
|
|
|
|
0.34
|
|
Weighted
average number of units outstanding:
|
|
|
|
|
|
|
|
|
-
Common units (basic and diluted)
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
-
Subordinated units (basic and diluted)
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
-
Total units (basic and diluted)
|
|
|
19,600,000
|
|
|
|
19,600,000
|
|
Cash
distributions declared per unit
|
|
|
0.40
|
|
|
|
0.35
|
|
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,
2008
$
|
|
|
As
at
December
31,
2007
$
|
|
ASSETS
|
|
|
|
|
|
|
Current
Cash
and cash equivalents
(note
5)
|
|
|
137,791
|
|
|
|
121,224
|
|
Accounts
receivable, net
|
|
|
46,979
|
|
|
|
42,245
|
|
Net
investment in direct financing leases - current
|
|
|
21,851
|
|
|
|
22,268
|
|
Prepaid
expenses
|
|
|
31,156
|
|
|
|
34,219
|
|
Other
assets
|
|
|
8,916
|
|
|
|
8,440
|
|
Total
current assets
|
|
|
246,693
|
|
|
|
228,396
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment
(note
5)
At
cost, less accumulated depreciation of $702,747
(December
31, 2007 - $674,722)
|
|
|
1,683,238
|
|
|
|
1,662,865
|
|
|
|
|
|
|
|
|
|
|
Net
investment in direct financing leases
|
|
|
72,691
|
|
|
|
78,199
|
|
Other
assets
|
|
|
15,725
|
|
|
|
14,423
|
|
Intangible
assets - net
(note
4)
|
|
|
52,839
|
|
|
|
55,355
|
|
Goodwill
– shuttle tanker segment
|
|
|
127,113
|
|
|
|
127,113
|
|
Total
assets
|
|
|
2,198,299
|
|
|
|
2,166,351
|
|
LIABILITIES
AND PARTNERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Accounts
payable
|
|
|
22,801
|
|
|
|
12,076
|
|
Accrued
liabilities
|
|
|
33,712
|
|
|
|
38,464
|
|
Current
portion of long-term debt
(note
5)
|
|
|
82,743
|
|
|
|
64,060
|
|
Current
portion of derivative instruments
(note
9)
|
|
|
19,146
|
|
|
|
5,277
|
|
Total
current liabilities
|
|
|
158,402
|
|
|
|
119,877
|
|
Long-term
debt
(note
5)
|
|
|
1,476,680
|
|
|
|
1,453,407
|
|
Deferred
income taxes
|
|
|
81,325
|
|
|
|
75,706
|
|
Derivative
instruments
(note
9)
|
|
|
49,260
|
|
|
|
16,770
|
|
Other
long-term liabilities
|
|
|
27,190
|
|
|
|
27,977
|
|
Total
liabilities
|
|
|
1,792,857
|
|
|
|
1,693,737
|
|
Commitments
and contingencies
(notes
5, 8, 9 and 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
343,366
|
|
|
|
391,645
|
|
|
|
|
|
|
|
|
|
|
Partners’
equity
Partners’
equity
|
|
|
78,762
|
|
|
|
86,282
|
|
Accumulated
other comprehensive loss
(note
6)
|
|
|
(16,686
|
)
|
|
|
(5,313
|
)
|
Total
partners’ equity
|
|
|
62,076
|
|
|
|
80,969
|
|
Total
liabilities and partners’ equity
|
|
|
2,198,299
|
|
|
|
2,166,351
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
$
|
|
|
|
$
|
|
Cash
and cash equivalents provided by (used for)
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
480
|
|
|
|
6,832
|
|
Non-cash
items:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
32,546
|
|
|
|
28,591
|
|
Non-controlling
interest
|
|
|
5,030
|
|
|
|
22,379
|
|
Deferred
income tax expense (recovery)
|
|
|
197
|
|
|
|
(3,906
|
)
|
Foreign
currency exchange loss and other - net
|
|
|
7,977
|
|
|
|
8,239
|
|
Change
in non-cash working capital items related to operating
activities
|
|
|
6,802
|
|
|
|
(37,723
|
)
|
Distribution
from subsidiaries to non-controlling interest owners
|
|
|
(24,019
|
)
|
|
|
(2,846
|
)
|
Expenditures
for drydocking
|
|
|
(6,301
|
)
|
|
|
(5,527
|
)
|
Net
operating cash flow
|
|
|
22,712
|
|
|
|
16,039
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
67,000
|
|
|
|
-
|
|
Scheduled
repayments of long-term debt
|
|
|
(8,044
|
)
|
|
|
(2,661
|
)
|
Prepayments
of long-term debt
|
|
|
(17,000
|
)
|
|
|
(13,000
|
)
|
Expenses
from initial public offering of common units
|
|
|
-
|
|
|
|
(1,392
|
)
|
Cash
distributions paid
|
|
|
(8,000
|
)
|
|
|
(1,000
|
)
|
Net
financing cash flow
|
|
|
33,956
|
|
|
|
(18,053
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Expenditures
for vessels and equipment
|
|
|
(46,026
|
)
|
|
|
(2,530
|
)
|
Investment
in direct financing lease assets
|
|
|
(17
|
)
|
|
|
(155
|
)
|
Direct
financing lease payments received
|
|
|
5,942
|
|
|
|
5,056
|
|
Net
investing cash flow
|
|
|
(40,101
|
)
|
|
|
2,371
|
|
Increase
in cash and cash equivalents
|
|
|
16,567
|
|
|
|
357
|
|
Cash
and cash equivalents, beginning of the period
|
|
|
121,224
|
|
|
|
113,986
|
|
Cash
and cash equivalents, end of the period
|
|
|
137,791
|
|
|
|
114,343
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ EQUITY
(in
thousands of U.S. dollars and units)
|
|
PARTNERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
Limited
Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Subordinated
|
|
|
General
Partner
|
|
|
Accumulated
Other Comprehensive
Loss
|
|
|
Total
|
|
|
|
Units
|
|
|
|
$
|
|
|
Units
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Balance
as at December 31, 2007
|
|
|
9,800
|
|
|
|
114,196
|
|
|
|
9,800
|
|
|
|
(26,946
|
)
|
|
|
(968
|
)
|
|
|
(5,313
|
)
|
|
|
80,969
|
|
Net
income
|
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
480
|
|
Unrealized
net loss on qualifying cash flow hedging instruments
(notes 6 and
9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,359
|
)
|
|
|
(11,359
|
)
|
Realized
net gain on qualifying cash flow hedging instruments
(notes 6 and
9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Cash
distributions
|
|
|
|
|
|
|
(3,920
|
)
|
|
|
|
|
|
|
(3,920
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
(8,000
|
)
|
Balance
as at March 31, 2008
|
|
|
9,800
|
|
|
|
110,746
|
|
|
|
9,800
|
|
|
|
(30,866
|
)
|
|
|
(1,118
|
)
|
|
|
(16,686
|
)
|
|
|
62,076
|
|
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 Marshall
Islands, and its wholly owned or controlled subsidiaries (collectively, the
Partnership)
. The
preparation of 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, 2007. In the opinion of management of Teekay Offshore GP L.L.C. (or
the
General Partner
),
these interim consolidated financial statements reflect all adjustments, of a
normal recurring nature, necessary to present fairly, in all material respects,
the Partnership’s consolidated financial position, results of operations,
changes in partners’ 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. Significant intercompany balances
and transactions have been eliminated upon consolidation.
Certain
of the comparative figures have been reclassified to conform with the
presentation adopted in the current period.
2. Fair
Value Measurements
Effective
January 1, 2008, the Partnership adopted Statement of Financial Accounting
Standards (or
SFAS
)
No. 157,
Fair Value
Measurements
(or
SFAS
No. 157
). In accordance with Financial Accounting Standards Board
Staff Position No. FAS 157-2,
Effective Date of FASB Statement
No. 157
, the Partnership will defer the adoption of SFAS
No. 157 for its nonfinancial assets and nonfinancial liabilities, except
those items recognized or disclosed at fair value on an annual or more
frequently recurring basis, until January 1, 2009. The adoption of SFAS
No. 157 did not have a material impact on the Partnership’s fair value
measurements.
SFAS
No. 157 clarifies the definition of fair value, prescribes methods for
measuring fair value, establishes a fair value hierarchy based on the inputs
used to measure fair value and expands disclosures about the use of fair value
measurements. The fair value hierarchy has three levels based on the reliability
of the inputs used to determine fair value as follows:
Level
1. Observable inputs such as quoted prices in active
markets;
Level
2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
Level 3.
Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
The
following tables present the Partnership’s assets and liabilities that are
measured at fair value on a recurring basis and are categorized using the fair
value hierarchy.
|
|
Fair
Value at March 31, 2008 Asset /
(Liability)
$
|
|
|
Level
1
$
|
|
|
Level
2
$
|
|
|
Level
3
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap agreements
(1)
|
|
|
(69,168
|
)
|
|
|
-
|
|
|
|
(69,168
|
)
|
|
|
-
|
|
Foreign
currency forward contracts
(1)
|
|
|
3,882
|
|
|
|
-
|
|
|
|
3,882
|
|
|
|
-
|
|
(1) The
fair value of the Partnership’s derivative agreements is the estimated amount
that the Partnership would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates, foreign exchange
rates and the current credit worthiness of the swap counterparties. The
estimated amount is the present value of future cash flows.
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)
3. Segment
Reporting
The
Partnership has three reportable segments: its shuttle tanker segment; its
conventional tanker segment; and its floating storage and offtake (or
FSO
) segment. The
Partnership’s shuttle tanker segment consists of shuttle tankers operating
primarily on fixed-rate contracts of affreightment, time-charter contracts or
bareboat charter contracts. The Partnership’s conventional tanker segment
consists of conventional tankers operating on fixed-rate, time-charter
contracts. The Partnership’s FSO segment consists of its FSO units subject to
fixed-rate, time-charter contracts or bareboat charter contracts. Segment
results are evaluated based on income from vessel operations. The accounting
policies applied to the reportable segments are the same as those used in the
preparation of the Partnership’s consolidated financial statements for the year
ended December 31, 2007.
The
following tables present results for these segments for the three months ended
March 31, 2008 and 2007:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Shuttle
Tanker Segment
$
|
|
|
Conventional
Tanker
Segment
$
|
|
|
FSO
Segment
$
|
|
|
Total
$
|
|
|
Shuttle
Tanker Segment
$
|
|
|
Conventional
Tanker
Segment
$
|
|
|
FSO
Segment
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
153,059
|
|
|
|
33,681
|
|
|
|
17,046
|
|
|
|
203,786
|
|
|
|
146,146
|
|
|
|
38,889
|
|
|
|
5,717
|
|
|
|
190,752
|
|
Voyage
expenses
|
|
|
38,553
|
|
|
|
12,476
|
|
|
|
348
|
|
|
|
51,377
|
|
|
|
24,821
|
|
|
|
9,464
|
|
|
|
250
|
|
|
|
34,535
|
|
Vessel
operating expenses
|
|
|
29,215
|
|
|
|
5,959
|
|
|
|
6,312
|
|
|
|
41,486
|
|
|
|
22,743
|
|
|
|
6,002
|
|
|
|
1,474
|
|
|
|
30,219
|
|
Time-charter
hire expense
|
|
|
33,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,646
|
|
|
|
38,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,115
|
|
Depreciation
and amortization
|
|
|
22,551
|
|
|
|
4,891
|
|
|
|
5,104
|
|
|
|
32,546
|
|
|
|
20,695
|
|
|
|
5,585
|
|
|
|
2,311
|
|
|
|
28,591
|
|
General
and administrative
(1)
|
|
|
12,561
|
|
|
|
2,204
|
|
|
|
829
|
|
|
|
15,594
|
|
|
|
12,708
|
|
|
|
2,023
|
|
|
|
443
|
|
|
|
15,174
|
|
Income
from vessel operations
|
|
|
16,533
|
|
|
|
8,151
|
|
|
|
4,453
|
|
|
|
29,137
|
|
|
|
27,064
|
|
|
|
15,815
|
|
|
|
1,239
|
|
|
|
44,118
|
|
(1)
|
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated use
of corporate resources).
|
A
reconciliation of total segment assets to total assets presented in the
consolidated balance sheets is as follows:
|
|
March
31,
2008
$
|
|
|
December
31,
2007
$
|
|
|
|
|
|
|
|
|
Shuttle
tanker segment
|
|
|
1,578,237
|
|
|
|
1,559,261
|
|
Conventional
tanker segment
|
|
|
252,225
|
|
|
|
255,460
|
|
FSO
segment
|
|
|
127,270
|
|
|
|
131,080
|
|
Unallocated:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
137,791
|
|
|
|
121,224
|
|
Accounts
receivable, prepaid expenses and other assets
|
|
|
102,776
|
|
|
|
99,326
|
|
Consolidated
total assets
|
|
|
2,198,299
|
|
|
|
2,166,351
|
|
4. Intangible
Assets
As of March 31, 2008 and December 31,
2007, intangible assets consisted of contracts of affreightment with a
weighted-average amortization period of 10.2 years.
The
carrying amount of intangible assets as at March 31, 2008 and December 31, 2007
is as follows:
|
|
March
31,
2008
$
|
|
|
December
31,
2007
$
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
|
124,250
|
|
|
|
124,250
|
|
Accumulated
amortization
|
|
|
(71,411
|
)
|
|
|
(68,895
|
)
|
Net
carrying amount
|
|
|
52,839
|
|
|
|
55,355
|
|
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
Aggregate
amortization expense of intangible assets for the three months ended March 31,
2008 was $2.5 million ($3.0 million – 2007). Amortization of intangible assets
for the next five years subsequent to March 31, 2008 is expected to be $7.6
million (remainder of 2008), $9.1 million (2009), $8.1 million (2010), $7.0
million (2011) and $6.0 million (2012).
5. Long-Term
Debt
|
|
March
31,
2008
$
|
|
|
December
31,
2007
$
|
|
|
|
|
|
|
|
|
U.S.
Dollar-denominated Revolving Credit Facilities due through
2017
|
|
|
1,253,554
|
|
|
|
1,205,808
|
|
U.S.
Dollar-denominated Term Loans due through 2017
|
|
|
305,869
|
|
|
|
311,659
|
|
|
|
|
1,559,423
|
|
|
|
1,517,467
|
|
Less
current portion
|
|
|
82,743
|
|
|
|
64,060
|
|
Total
|
|
|
1,476,680
|
|
|
|
1,453,407
|
|
As at
March 31, 2008, the Partnership had three long-term revolving credit facilities
(collectively, the
Revolvers
), which, as at such
date, provided for borrowings of up to $1,369.1 million, of which
$115.5 million was undrawn. The total amount available under the Revolvers
reduces by $99.6 million (remainder of 2008), $108.2 million (2009),
$114.9 million (2010), $122.0 million (2011), $129.7 million
(2012) and $794.7 million (thereafter). Two of the Revolvers are
guaranteed by certain subsidiaries of the Partnership for all outstanding
amounts and contain covenants that require a subsidiary of the Partnership,
Teekay Offshore Operating L.P. (or
OPCO
) to maintain the greater
of a minimum liquidity (cash, cash equivalents and undrawn committed revolving
credit lines with at least six months to maturity) of at least
$75.0 million and 5.0% of OPCO’s total consolidated debt. The remaining
revolving credit facility is guaranteed by Teekay Corporation and contains
covenants that require Teekay Corporation to maintain the greater of a minimum
liquidity of at least $50.0 million and 5.0% of Teekay Corporation’s total
consolidated debt, which has recourse to Teekay Corporation. The Revolvers are
collateralized by first-priority mortgages granted on 28 of the Partnership’s
vessels, together with other related collateral.
As at
March 31, 2008, each of the Partnership’s six 50% controlled joint ventures had
an outstanding term loan, which in aggregate totaled $305.9 million. The term
loans have varying maturities through 2017 and semi-annual payments that reduce
over time. All term loans are collateralized by first-priority mortgages on the
vessels to which the loans relate, together with other related collateral. As at
March 31, 2008, the Partnership had guaranteed $100.9 million of these term
loans, which represents its 50% share of the outstanding vessel mortgage debt of
five of these 50% controlled joint venture companies. Teekay Corporation and the
Partnership’s joint venture partner have guaranteed the remaining $205.0
million.
Interest
payments on the Revolvers and term loans are based on LIBOR plus a margin. At
March 31, 2008 and December 31, 2007, the margins ranged between 0.45% and
0.80%. The weighted-average effective interest rate on the Partnership’s
long-term debt as at March 31, 2008 was 4.4% (December 31, 2007 – 5.7%). This
rate does not reflect the effect of the interest rate swaps (Note
9).
The
aggregate annual long-term debt principal repayments required to be made
subsequent to March 31, 2008 are $76.9 million (remainder of 2008), $124.8
million (2009), $127.0 million (2010), $164.0 million (2011), $141.8 million
(2012) and $924.9 million (thereafter).
6. Comprehensive
(Loss) Income
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
$
|
|
|
|
2007
$
|
|
Net
income
|
|
|
480
|
|
|
|
6,832
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
Unrealized
net (loss) gain on qualifying cash flow hedging
instruments
|
|
|
(11,359
|
)
|
|
|
141
|
|
Realized
net gain on qualifying cash flow hedging instruments
|
|
|
(14
|
)
|
|
|
(399
|
)
|
Comprehensive
(loss) income
|
|
|
(10,893
|
)
|
|
|
6,574
|
|
As at
March 31, 2008 and December 31, 2007, the Partnership’s accumulated other
comprehensive loss of $16.7 million and $5.3 million, respectively, consisted of
net unrealized losses on derivative instruments.
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
7. Other
Income - Net
|
|
Three
Months Ended March 31,
|
|
|
|
|
2008
$
|
|
|
|
2007
$
|
|
Volatile
organic compound emissions plant lease income
|
|
|
2,570
|
|
|
|
2,773
|
|
Miscellaneous
|
|
|
56
|
|
|
|
(54
|
)
|
Other
income - net
|
|
|
2,626
|
|
|
|
2,719
|
|
8. Related
Party Transactions
a.
|
Nine
of OPCO’s conventional tankers were employed on long-term time-charter
contracts with a subsidiary of Teekay Corporation. Under the terms of
eight of these nine time-charter contracts, OPCO is responsible for the
bunker fuel expenses; however, OPCO adds the approximate amounts of these
expenses to the daily hire rate. Pursuant to these charter contracts, OPCO
earned voyage revenues of $33.7 million and $32.9 million during the three
months ended March 31, 2008 and 2007,
respectively.
|
b.
|
Two
of OPCO’s shuttle tankers were employed on long-term bareboat charters
with a subsidiary of Teekay Corporation. Pursuant to these charter
contracts, OPCO earned voyage revenues of $3.5 million during both the
three months ended March 31, 2008 and 2007,
respectively.
|
c.
|
Two
of OPCO’s FSO units were employed on long-term bareboat charters with a
subsidiary of Teekay Corporation. Pursuant to these charter contracts,
OPCO earned voyage revenues of $2.8 million and $2.5 million during
the three months ended March 31, 2008 and 2007,
respectively.
|
d.
|
A
subsidiary of Teekay Corporation has entered into a services agreement
with a subsidiary of OPCO, pursuant to which the subsidiary of OPCO
provides the Teekay Corporation subsidiary with ship management
services. During the three months ended March 31, 2008 and
2007, OPCO earned management fees of $0.8 million and $0.6 million,
respectively, under the agreement.
|
e.
|
The
Partnership, OPCO and certain of OPCO’s operating subsidiaries have
entered into services agreements with certain subsidiaries of Teekay
Corporation, pursuant to which Teekay Corporation subsidiaries provide the
Partnership, OPCO and its operating subsidiaries with administrative,
advisory and technical services and ship management services. The
Partnership incurred $13.5 million of these costs during both the three
months ended March 31, 2008 and 2007,
respectively.
|
f.
|
Pursuant
to the Partnership's partnership agreement, the Partnership reimburses the
General Partner for all expenses incurred by the Partnership that are
necessary or appropriate for the conduct of the Partnership’s business.
During the three months ended March 31, 2008 and 2007, the Partnership
incurred $0.1 million and $0.2 million, respectively, of these
costs.
|
g.
|
The
Partnership has entered into an omnibus agreement with Teekay Corporation,
Teekay LNG Partners L.P., the General Partner and others governing, among
other things, when the Partnership, Teekay Corporation and Teekay LNG
Partners L.P. may compete with each other and certain rights of first
offering on liquefied natural gas carriers, oil tankers, shuttle tankers,
FSO units and floating production, storage and offloading
units.
|
h.
|
In
March 2008, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to repairs of $0.4 million on one of the Partnership’s shuttle
tankers. The vessel was purchased from Teekay Corporation in July 2007 and
had, as of the date of acquisition, an inherent minor defect that required
repairs.
|
i.
|
In
March 2008, a subsidiary of OPCO sold certain vessel equipment to a
subsidiary of Teekay Corporation, for proceeds equal to its net book value
of $1.4 million.
|
j.
|
At
March 31, 2008 and December 31, 2007, advances to affiliates totaled
$4.6 million and $0.8 million, respectively. Advances to and from
affiliates are non-interest bearing and unsecured. The balances as at
March 31, 2008 and December 31, 2007 are included in other current
assets.
|
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
9. Derivative
Instruments and Hedging Activities
The
Partnership uses derivatives only for hedging purposes. The following summarizes
the Partnership's risk strategies with respect to market risk from foreign
currency fluctuations and changes in interest rates.
The
Partnership hedges portions of its forecasted expenditures denominated in
foreign currencies with foreign exchange forward contracts. These foreign
exchange forward contracts are designated as cash flow hedges of forecasted
foreign currency expenditures. Where such instruments are designated and qualify
as cash flow hedges, the effective portion of the changes in their fair value is
recorded in accumulated other comprehensive income (loss), until the hedged item
is recognized in earnings. At such time, the respective amount in accumulated
other comprehensive income (loss) is released to earnings and is recorded within
operating expenses, based on the nature of the expense being
hedged.
As at
March 31, 2008, the Partnership was committed to the following foreign exchange
contracts for the forward purchase of foreign currency:
|
|
|
|
|
|
|
|
Expected
Maturity
|
|
|
|
Contract
Amount in
Foreign
Currency
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(millions)
|
|
|
|
|
|
(in
millions of U.S. Dollars)
|
|
Norwegian
Kroner
|
|
|
255.7
|
|
|
|
5.64
|
|
|
|
-
|
|
|
|
$45.4
|
|
Australian
Dollar
|
|
|
3.1
|
|
|
|
1.24
|
|
|
|
$2.5
|
|
|
|
-
|
|
Euro
|
|
|
4.0
|
|
|
|
0.68
|
|
|
|
$5.8
|
|
|
|
-
|
|
(1)
|
Foreign
currency per U.S. Dollar.
|
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. The
Partnership’s interest rate swaps are designated as cash flow hedges and mature
over various periods through 2026. The net gains or loss on the interest rate
swaps has been reported in a separate component of accumulated other
comprehensive income (loss), in the accompanying consolidated balance sheets and
statements of changes in partners’ equity, to the extent the hedges are
effective. The amount recorded in accumulated other comprehensive income (loss)
will subsequently be reclassified into earnings in the same period as the hedged
items affect earnings.
As at
March 31, 2008, the Partnership was committed to the following interest rate
swap agreements related to its LIBOR-based debt, whereby certain of the
Partnership’s floating-rate debt was swapped with fixed-rate
obligations:
|
Interest
Rate
Index
|
Principal
Amount
$
|
Fair
Value /
Carrying
Amount
of
Liability
$
|
Weighted-
Average
R
emaining
Term
(Years)
|
Fixed
Interest
Rate
(%)
(1)
|
U.S.
Dollar-denominated interest rate swaps
|
LIBOR
|
935,000
|
(38,660)
|
6.2
|
4.7
|
U.S.
Dollar-denominated interest rate swaps
(2)(3)
|
LIBOR
|
413,360
|
(30,508)
|
13.0
|
5.0
|
(1)
|
Excludes
the margin the Partnership pays on its variable-rate debt, which as at
March 31, 2008, ranged from 0.50% and 0.80%.
|
(2)
|
Principal
amount reduces quarterly or semiannually.
|
(3)
|
Included
in the principal amount and fair value of the interest rate swaps is $65.6
million and ($5.3) million, respectively, related to the
portion of the derivative instrument that the Partnership has not
designated as a cash flow hedge.
|
The
Partnership is exposed to credit loss in the event of non-performance by the
counter-parties to the foreign exchange 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 currently rated A or better by Standard & Poor’s or Aa3 by Moody’s. In
addition, to the extent possible and practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk
During
the three months ended March 31, 2008, the Partnership recognized a net loss of
$0.6 million, (2007 – nil), relating to the ineffective portion of its interest
rate swap agreements and foreign currency forward
contracts.
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
10. Income
Taxes
The
components of the provision for income taxes follow.
|
|
Three
Months Ended March 31,
|
|
|
|
|
200
8
$
|
|
|
|
2007
$
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(197
|
)
|
|
|
3,906
|
|
Income
tax (expense) recovery
|
|
|
(197
|
)
|
|
|
3,906
|
|
Net
income per unit is determined by dividing net income, after deducting the amount
of net income allocated to the General Partner’s interest, by the
weighted-average number of units outstanding during the applicable
period.
As
required by Emerging Issues Task Force Issue No. 03-6,
Participating Securities and
Two-Class Method under FASB Statement No. 128, Earnings Per Share
, the
General Partner’s, common unit holders’ and subordinated unitholder’s interests
in net income 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 after establishment
of cash reserves. Unlike available cash, net income is affected by non-cash
items such as depreciation and amortization, and foreign currency translation
gains (losses).
Under the
partnership agreement, the holder of the incentive distribution rights in the
Partnership, which is currently the General Partner, has the right to receive an
increasing percentage of cash distributions after the minimum quarterly
distribution of $0.4025 per quarter. Assuming there are no cumulative arrearages
on common unit distributions, the target distribution levels entitle the General
Partner to receive 2% of quarterly cash distributions up to $0.4025 per unit,
15% of quarterly cash distributions between $0.4025 and $0.4375 per unit, 25% of
quarterly cash distributions between $0.4375 and $0.525 per unit, and 50% of
quarterly cash distributions in excess of $0.525 per unit. During the quarters
ended March 31, 2008 and 2007, net income did not exceed $0.4025 per unit and,
consequently, the assumed distribution of net income did not result in the use
of the increasing percentages to calculate the General Partner’s interest in net
income.
Under the
partnership agreement, during a subordination period applicable to the
Partnership’s subordinated units, the common units have the right to receive
distributions of available cash from operating surplus in an amount equal to the
minimum quarterly distribution of $0.35 per quarter, plus any arrearages in the
payment of the minimum quarterly distribution on the common units from prior
quarters, before any distributions of available cash from operating surplus may
be made on the subordinated units. During the quarters ended March 31, 2008 and
2007, net income did not exceed the minimum quarterly distribution of $0.35 per
unit and, consequently, the assumed distribution of net income resulted in an
unequal distribution of net income between the subordinated unit holders and
common unit holders.
12.
|
Commitments
and Contingencies
|
The Partnership
may, from time to time, be involved in legal proceedings and claims that
arise in the ordinary course of business. The Partnership
believes that any adverse outcome, individually or in the aggregate,
would not have a material affect on its financial position, results of
operations or cash flows, when taking into
account its insurance coverage and indemnifications
from charterers or Teekay
Corporation.
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor
to Teekay Offshore Partners Predecessor)
MARCH
31, 2008
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 and storage services to the
offshore oil industry. We were formed in August 2006 by Teekay Corporation, a
leading provider of marine services to the global oil and natural gas
industries, to further develop its operations in the offshore market. Our
principal asset is a 26% interest in Teekay Offshore Operating L.P. (or
OPCO
),
which operates a
substantial majority of our shuttle tankers, conventional crude oil tankers and
FSO units. Our growth strategy focuses on expanding our fleet of shuttle tankers
and FSO units under long-term, fixed-rate time charters. We intend to continue
our practice of acquiring shuttle tankers and FSO units 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 intend to follow
this same practice in acquiring FPSO units, which produce and process oil
offshore in addition to providing storage and offloading capabilities. We seek
to capitalize on opportunities emerging from the global expansion of the
offshore transportation, storage and production sectors by selectively targeting
long-term, fixed-rate time charters. We may enter into joint ventures and
partnerships with companies that may provide increased access to these
opportunities or may engage in vessel or business acquisitions. We plan 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 view our conventional tanker fleet primarily as a source of stable
cash flow as we seek to expand our offshore operations.
SIGNIFICANT
DEVELOPMENTS
Acquisition
of Vessels in 2008
In June
2007, we exercised our option to purchase a 2001-built shuttle tanker for $41.7
million, which was included in our in-chartered shuttle tanker
fleet. The vessel was delivered to us in March 2008.
Potential
Additional Shuttle Tanker, FSO and FPSO Projects
Pursuant
to an omnibus agreement we entered into in connection with our initial public
offering, Teekay Corporation is obligated to offer us certain shuttle tankers,
FSO units, and FPSO units it may acquire in the future, provided the vessels are
servicing contracts in excess of three years in length.
Teekay
Corporation has ordered four Aframax shuttle tanker newbuildings, which are
scheduled to deliver in 2010 and 2011, for a total delivered cost of
approximately $467.4 million. It is anticipated that these vessels will be
offered to us and will be used to service either new long-term, fixed-rate
contracts Teekay Corporation may be awarded prior to delivery or OPCO’s
contracts-of-affreightment in the North Sea.
The
omnibus agreement also obligates Teekay Corporation to offer to us (a) its
interest in certain future FPSO and FSO projects it may undertake through its
50%-owned joint venture with Teekay Petrojarl ASA and (b) if Teekay Corporation
obtains 100% ownership of Teekay Petrojarl ASA, the existing FPSO units owned by
Teekay Petrojarl ASA that are servicing contracts in excess of three years in
length. As at March 31, 2008, Teekay Corporation had a 65% ownership interest in
Teekay Petrojarl ASA.
RESULTS
OF OPERATIONS
We use a
variety of financial and operational terms and concepts when analyzing our
results of operations, which can be found in Item 5. Operating and Financial
Review and Prospects in our Annual Report on Form 20-F for the year ended
December 31, 2007. 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, shipowners 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 voyage revenues (i.e. voyage revenues less
voyage expenses) and TCE rates of our three reportable segments where
applicable. TCE rates represent net voyage revenues divided by revenue days.
Please read Item 1 – Financial Statements: Note 3 – Segment
Reporting.
Items
You Should Consider When Evaluating Our Results of Operations
You
should consider the following factors when evaluating our historical financial
performance and assessing our future prospects:
§
|
The size of
our fleet continues to change.
Our results of operations reflect
changes in the size and composition of our fleet due to certain vessel
deliveries and vessel dispositions. For instance, the average number of
owned vessels in our shuttle tanker fleet increased from 24 in 2007 to 26
in 2008, and our FSO segment increased from 3 in 2007 to 5 in 2008. Please
read “— Results of Operations” below for further details about vessel
dispositions and deliveries. Due to the nature of our business, we expect
our fleet to continue to fluctuate in size and
composition.
|
§
|
Our vessel
operating costs are facing industry-wide cost
pressures
. The shipping industry is experiencing a
global manpower shortage due to significant growth in the world fleet.
This shortage has resulted in crew wage increases during 2007, the effect
of which is included the "Results of Operations". We expect a trend of
increasing crew compensation to continue throughout
2008.
|
§
|
Our
financial results of operations are affected by fluctuations in
currency
exchange
rates
. Under U.S. GAAP, all foreign currency-denominated monetary
assets and liabilities, such as cash and cash equivalents, accounts
receivable, accounts payable, advances from affiliates and deferred income
taxes are revalued and reported based on the prevailing exchange rate at
the end of the period. OPCO has entered into services agreements with
subsidiaries of Teekay Corporation whereby the subsidiaries operate and
crew the vessels. Under these service agreements, OPCO pays all vessel
operating expenses in U.S. Dollars, and will not be subject to
currency exchange fluctuations until 2009. Beginning in 2009, payments
under the service agreements will adjust to reflect any change in Teekay
Corporation’s cost of providing services based on fluctuations in the
value of the Norwegian Kroner relative to the U.S. Dollar, which may
result in increased payments under the services agreements if the strength
of the U.S. Dollar declines relative to the Norwegian Kroner. At March 31,
2008, we were committed to foreign exchange contracts for the forward
purchase of approximately Norwegian Kroner 255.7 million for U.S. Dollars
at an average rate of Norwegian Kroner 5.64 per U.S. Dollar, maturing in
2009.
|
§
|
Our
operations are seasonal.
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 our vessels and to the offshore oil platforms. Downtime
for repairs and maintenance generally reduces oil production and, thus,
transportation requirements.
|
We manage
our business and analyze and report our results of operations on the basis of
three business segments: the shuttle tanker segment, the conventional tanker
segment and the FSO segment.
Shuttle
Tanker Segment
Our
shuttle tanker fleet consists of 38 vessels that operate under fixed-rate
contracts of affreightment, time charters and bareboat charters. Of the 38
shuttle tankers, 25 are owned by OPCO (including 5 through 50% controlled joint
ventures), 11 are chartered-in by OPCO and 2 are owned by us (including one
through a 50% controlled joint venture). All of these shuttle tankers provide
transportation services to energy companies, primarily in the North Sea and
Brazil.
The
following table presents our shuttle tanker segment’s operating results for the
three months ended March 31, 2008 and 2007, and compares its net voyage revenues
(which is a non-GAAP financial measure) for the three months ended March 31,
2008 and 2007 to voyage 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 our
shuttle tanker segment:
|
|
Three
Months Ended March 31,
|
|
(in
thousands of U.S. dollars, except calendar-ship-days and
percentages)
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
153,059
|
|
|
|
146,146
|
|
|
|
4.7
|
|
Voyage
expenses
|
|
|
38,553
|
|
|
|
24,821
|
|
|
|
55.3
|
|
Net
voyage revenues
|
|
|
114,506
|
|
|
|
121,325
|
|
|
|
(5.6
|
)
|
Vessel
operating expenses
|
|
|
29,215
|
|
|
|
22,743
|
|
|
|
28.5
|
|
Time-charter
hire expense
|
|
|
33,646
|
|
|
|
38,115
|
|
|
|
(11.7
|
)
|
Depreciation
and amortization
|
|
|
22,551
|
|
|
|
20,695
|
|
|
|
9.0
|
|
General
and administrative
(1)
|
|
|
12,561
|
|
|
|
12,708
|
|
|
|
(1.2
|
)
|
Income
from vessel operations
|
|
|
16,533
|
|
|
|
27,064
|
|
|
|
(38.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
Vessels
|
|
|
2,373
|
|
|
|
2,160
|
|
|
|
9.9
|
|
Chartered-in
Vessels
|
|
|
952
|
|
|
|
1,084
|
|
|
|
(12.2
|
)
|
Total
|
|
|
3,325
|
|
|
|
3,244
|
|
|
|
2.5
|
|
_____________
(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).
|
The
average size of OPCO’s owned shuttle tanker fleet increased for the three months
ended March 31, 2008 compared to the same period last year, primarily due to the
acquisition of the 2000-built shuttle tanker (the
Navion Bergen
) and a 50%
interest in the 2006-built shuttle-tanker (the
Navion Gothenburg
) in July
2007 (collectively, the
2007
Shuttle Tanker Acquisitions
).
The
average size of OPCO’s chartered-in shuttle tanker fleet decreased for the three
months ended March 31, 2008 compared to the same period last year, primarily due
to the redelivery of two chartered-in vessels back to their owners in December
2007 and February 2008, respectively.
Net Voyage Revenues.
Net
voyage revenues decreased for the three months ended March 31, 2008, from the
same period last year. This decrease was primarily due
to:
§
|
a
decrease of $4.9 million due to an increased number of offhire days
resulting from an increase in scheduled drydockings and unexpected repairs
performed during the three months ended March 31, 2008, compared to the
same period last year;
|
§
|
a
decrease of $4.3 million due to a shuttle tanker servicing as a temporary
floating storage unit during the three months ended March 31, 2007, at per
day rates that were higher than the rates earned while employed as a
shuttle tanker;
|
§
|
a
decrease of $3.4 million due to fewer revenue days from shuttle tankers
servicing contracts of affreightment in the conventional spot market
compared to the same period last year;
and
|
§
|
a
decrease of $2.2 million due to customer performance claims under the
terms of charter party agreements;
|
partially
offset by
§
|
an
increase of $5.7 million due to the 2007 Shuttle Tanker
Acquisitions;
|
§
|
an
increase of $1.3 million due to the redeployment of one shuttle tanker
from servicing contracts of affreightment to a time-charter effective
October 2007, and earning a higher average daily charter rate than the
same period last year; and
|
§
|
an
increase of $1.2 million in revenues due to more revenue days for shuttle
tankers servicing contracts of affreightment compared to the same period
last year.
|
Vessel Operating Expenses.
Vessel operating expenses increased for the three months ended March 31,
2008, from the same period last year, primarily due to:
§
|
an
increase of $2.5 million in salaries for crew and officers primarily due
to general wage escalations and a change in the crew rotation
system;
|
§
|
an
increase of $1.7 million due to an increase in prices for consumables,
freight and lubricants; and
|
§
|
an
increase of $1.4 million relating to repairs and maintenance performed for
certain vessels during the three months ended March 31,
2008.
|
Time-Charter Hire Expense.
Time-charter hire expense decreased for the three months ended March 31,
2008, from the same period last year, primarily due to the redelivery of two
chartered-in vessels back to their owners in December 2007 and February 2008,
respectively.
Depreciation and Amortization.
Depreciation and amortization expense increased for the three months
ended March 31, 2008, from the same period last year, primarily due to the 2007
Shuttle Tanker Acquisitions.
Conventional
Tanker Segment
OPCO owns
nine Aframax-class conventional crude oil tankers, all of which operate under
fixed-rate time charters with Teekay Corporation.
The
following table presents our conventional tanker segment’s operating results for
the three months ended March 31, 2008 and 2007, and compares its net voyage
revenues (which is a non-GAAP financial measure) for the three months ended
March 31, 2008 and 2007 to voyage 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 vessels for our
conventional tanker segment:
|
|
Three
Months Ended March 31,
|
|
(in
thousands of U.S. dollars, except calendar-ship-days and
percentages)
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
33,681
|
|
|
|
38,889
|
|
|
|
(13.4
|
)
|
Voyage
expenses
|
|
|
12,476
|
|
|
|
9,464
|
|
|
|
31.8
|
|
Net
voyage revenues
|
|
|
21,205
|
|
|
|
29,425
|
|
|
|
(27.9
|
)
|
Vessel
operating expenses
|
|
|
5,959
|
|
|
|
6,002
|
|
|
|
(0.7
|
)
|
Depreciation
and amortization
|
|
|
4,891
|
|
|
|
5,585
|
|
|
|
(12.4
|
)
|
General
and administrative
(1)
|
|
|
2,204
|
|
|
|
2,023
|
|
|
|
8.9
|
|
Income
from vessel operations
|
|
|
8,151
|
|
|
|
15,815
|
|
|
|
(48.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
Vessels
|
|
|
819
|
|
|
|
900
|
|
|
|
(0.09
|
)
|
________________
(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).
|
During
2007, OPCO operated ten conventional crude oil tankers. The
Navion Saga
was included as a
conventional crude oil tanker within the conventional tanker segment until its
conversion to an FSO unit was completed and it commenced a three-year FSO time
charter contract in early May 2007.
Income
from vessel operations for the conventional tanker segment decreased during the
three months ended March 31, 2008, from the same period last year, primarily due
to:
§
|
a
decrease of $5.9 million in net bunker revenues. Under the
terms of eight of the nine time-charter contracts, OPCO is reponsible for
the bunker fuel expenses and the approximate amounts of these expenses are
added to the daily hire rate. During the annual review of the
daily hire rate in the third quarter of 2007, the rate per day was
adjusted downwards based on the average daily bunker consumption for the
preceding year; and
|
§
|
a
decrease of $2.3 million due to the transfer of the
Navion
Saga
to the FSO segment
in early May 2007.
|
FSO
Segment
Our FSO
fleet consists of five vessels that operate under fixed-rate time charters
or fixed-rate bareboat charters. Of the five FSO units, four are owned by OPCO
and one is owned by us. FSO units provide an on-site storage solution to oil
field installations that have no oil storage facilities or that require
supplemental storage.
The
following table presents our FSO segment’s operating results for the three
months ended March 31, 2008 and 2007, and compares its net voyage revenues
(which is a non-GAAP financial measure) for the three months ended March 31,
2008 and 2007 to voyage 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 vessels for our FSO
segment:
|
|
Three
Months Ended March 31,
|
|
(in
thousands of U.S. dollars, except calendar-ship-days and
percentages)
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
17,046
|
|
|
|
5,717
|
|
|
|
198.2
|
|
Voyage
expenses
|
|
|
348
|
|
|
|
250
|
|
|
|
39.2
|
|
Net
voyage revenues
|
|
|
16,698
|
|
|
|
5,467
|
|
|
|
205.4
|
|
Vessel
operating expenses
|
|
|
6,312
|
|
|
|
1,474
|
|
|
|
328.2
|
|
Depreciation
and amortization
|
|
|
5,104
|
|
|
|
2,311
|
|
|
|
120.9
|
|
General
and administrative
(1)
|
|
|
829
|
|
|
|
443
|
|
|
|
87.1
|
|
Income
from vessel operations
|
|
|
4,453
|
|
|
|
1,239
|
|
|
|
259.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
Vessels
|
|
|
455
|
|
|
|
270
|
|
|
|
68.5
|
|
______________
(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).
|
During
2007, we operated three FSO units. A fourth FSO unit, the
Navion Saga
, was included as
a conventional crude oil tanker within the conventional tanker segment until May
2007, as discussed above. In October 2007, we acquired from Teekay Corporation
our fifth FSO unit, the
Dampier Spirit.
As a result,
income from vessel operations for the FSO segment for the three months ended
March 31, 2008 increased from the same period in 2007.
Other
Operating Results
Interest Expense.
Interest
expense increased to $24.0 million for the three months ended March 31, 2008,
from $18.5 million for the same period last year, primarily due to:
§
|
an
increase of $2.5 million relating to the change in fair value of our
non-designated interest rate swap;
|
§
|
an
increase of $2.3 million due to the assumption of debt relating to the
2007 Shuttle Tanker
Acquisitions
; and
|
§
|
an
increase of $1.4 million relating to additional debt drawn under OPCO’s
long-term revolving credit facilities, which was used to partially finance
the acquisition of the
2007 Shuttle Tanker
Acquisitions
, the
Dampier Spirit
, and an
in-chartered shuttle tanker, the
Navion
Oslo
.
|
Foreign Currency Exchange
Losses.
Foreign currency exchange loss was $3.3 million for the three
months ended March 31, 2008, compared to $4.2 million for the same period last
year. Our foreign currency exchange losses and gains, substantially all of which
are unrealized, are due primarily to the relevant period-end revaluation of
Norwegian Kroner-denominated monetary assets and liabilities for financial
reporting purposes. Gains reflect a stronger U.S. Dollar against the Kroner on
the date of revaluation or settlement compared to the rate in effect at the
beginning of the period. Losses 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.
Income Tax (Expense) Recovery.
Income tax expense was $0.2 million for the three months ended March 31,
2008, compared to an income tax recovery of $3.9 million for the same
period last year. The $4.1 million increase to income tax expense was primarily
due to an increase in deferred income tax expense relating to unrealized foreign
exchange translation gains for the three months ended March 31,
2008.
Other Income.
Other income
for the three months ended March 31, 2008 and 2007 was $2.6 million and
$2.7 million, respectively, which was primarily comprised of leasing income from
our volatile organic compound emissions equipment.
Liquidity
and Capital Resources
Liquidity
and Cash Needs
As at
March 31, 2008, our total cash and cash equivalents were $137.8 million,
compared to $121.2 million at December 31, 2007. Our total liquidity, including
cash, cash equivalents and undrawn long-term borrowings, was $253.3 million as
at March 31, 2008, compared to $286.7 million as at December 31, 2007. The
decrease in liquidity was primarily the result of our payment for the purchase
of the
Navion Oslo
, the
payment of cash distributions by us and OPCO and expenditures for drydocking,
vessels and equipment, partially offset by cash generated by our operating
activities during the three months ended March 31, 2008.
In addition to distributions on our equity interests, our
primary short-term liquidity needs are to fund general working capital
requirements and drydocking expenditures, while our long-term liquidity needs
primarily relate to expansion and investment capital expenditures and other
maintenance capital expenditures and debt repayment. Expansion capital
expenditures are primarily for the purchase or construction of vessels to the
extent the expenditures increase the operating capacity of or revenue generated
by our fleet, while maintenance capital expenditures primarily consist of
drydocking expenditures and expenditures to replace vessels in order to maintain
the operating capacity of or revenue generated by our fleet. Investment capital
expenditures are those capital expenditures that are neither maintenance capital
expenditures
nor expansion capital expenditures.
We
anticipate that our primary sources of funds for our short-term liquidity needs
will be cash flows from operations. We believe that cash flows from operations
will be sufficient to meet our existing liquidity needs for at least the next
12 months. Generally, our long-term sources of funds will be from cash from
operations, long-term bank borrowings and other debt or equity financings, or a
combination thereof. Because we and OPCO distribute all of our and its available
cash, we expect that we and OPCO will rely upon external financing sources,
including bank borrowings and the issuance of debt and equity securities, to
fund acquisitions and expansion and investment capital expenditures, including
opportunities we may pursue under the omnibus agreement with Teekay Corporation
and other of its affiliates.
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
cash flow from operating activities
|
|
|
22,712
|
|
|
|
16,039
|
|
Net
cash flow from financing activities
|
|
|
33,956
|
|
|
|
(18,053
|
)
|
Net
cash flow from investing activities
|
|
|
(40,101
|
)
|
|
|
2,371
|
|
Operating Cash
Flows.
Net cash flow from operating activities increased to
$22.7 million for the three months ended March 31, 2008, from $16.0 million for
the same period in 2007, primarily reflecting the acquisition of the
Navion Bergen
and
Navion Gothenburg
in July
2007, and the
Dampier
Spirit
since October 2007, partially offset by a $21.2 million increase
in cash distributions paid by OPCO to non-controlling interest owners, a $0.8
million increase in drydocking expenditures, and an increase in interest expense
from the increase in debt due to our acquisition of the
Navion Bergen
and the
Dampier Spirit
,
and our 50% interest in
the
Navion Gothenburg
.
Net cash flow from operating activities depends upon the timing and amount of
drydocking expenditures, repairs and maintenance activity, vessel additions and
dispositions, foreign currency rates, changes in interest rates, fluctuations in
working capital balances and spot market hire rates. The number of vessel
drydockings tends to be uneven between years.
Financing Cash Flows.
Scheduled debt repayments were $8.0 million and $2.7 million during the
three months ended March 31, 2008 and 2007, respectively. Net proceeds from
long-term debt of $67.0 million were used to make debt prepayments of $17.0
million and to finance the acquisition of the
Navion Oslo
in March
2008.
Cash
distributions paid during the three months ended March 31, 2008 and 2007 totaled
8.0 million and $1.0 million, respectively. Subsequent to March 31, 2008, cash
distributions for the three months ended March 31, 2008 were declared and paid
during the second quarter of 2008 and totaled $8.0 million.
Investing Cash Flows.
During
the three months ended March 31, 2008, we incurred $46.0 million of
expenditures for vessels and equipment, primarily relating to the acquisition of
the
Navion Oslo
. During
the three months ended March 31, 2007, we incurred $2.5 million of expenditures
for vessels and equipment. During the three months ended March 31, 2008 and
2007, we received $5.9 million and $5.1 million, respectively, in scheduled
repayments received from the leasing of our volatile organic compound emissions
equipment.
Credit
Facilities
As at
March 31, 2008, our total debt was $1,559.4 million, compared to $1,517.5
million as at December 31, 2007. As at March 31, 2008, we had three revolving
credit facilities available, which, as at such date, provided for borrowings of
up to $1,369.1 million, of which $115.5 million was undrawn. As at
March 31, 2008, each of our six 50% controlled joint ventures had an outstanding
term loan, which, in aggregate, totaled $305.9 million. The joint venture term
loans reduce in semi-annual payments with varying maturities through 2017.
Please read Item 1 – Financial Statements: Note 5 – Long-Term Debt.
Our three
revolving credit facilities have the following terms:
§
|
$455 Million Revolving Credit
Facility
. This 8-year reducing revolving credit facility allows for
borrowing of up to $455 million (subject to scheduled reductions
through 2014) and may be used for acquisitions and for general partnership
purposes. As at March 31, 2008, we had $422.6 million available for
borrowing, of which $73.6 million was undrawn. Obligations under this
credit facility are collateralized by first-priority mortgages on eight of
OPCO’s vessels. Borrowings under the facility may be prepaid at any time
in amounts of not less than
$5.0 million.
|
§
|
$940 Million Revolving Credit
Facility
. This 8-year reducing revolving credit facility allows for
borrowing of up to $940 million (subject to scheduled reductions
through 2014) and may be used for acquisitions and for general partnership
purposes. As at March 31, 2008, we had $880.9 million available for
borrowing, of which $41.9 million was undrawn. Obligations under this
credit facility are collateralized by first-priority mortgages on 19 of
OPCO’s vessels. Borrowings under the facility may be prepaid at any time
in amounts of not less than $5.0 million. This credit facility allows
OPCO to incur working capital borrowings and loan the proceeds to us
(which we could use to make distributions, provided that such amounts are
paid down annually).
|
§
|
$70 Million Revolving Credit
Facility
. This 10-year reducing revolving credit facility allows
for borrowing of up to $70 million (subject to scheduled reductions
through 2017) and may be used for general partnership purposes. As at
March 31, 2008, we had $65.6 million available for borrowing, all of which
was drawn. Obligations under this credit facility are collateralized by a
first-priority mortgage on one of our vessels. Borrowings under the
facility may be prepaid at any time in amounts of not less than
$5.0 million.
|
Two of
the revolving credit facilities contain covenants that require OPCO to maintain
the greater of a minimum liquidity (cash, cash equivalents and undrawn committed
revolving credit lines with at least six months of maturity) of at least
$75.0 million and 5.0% of OPCO’s total consolidated debt. The remaining
revolving credit facility is guaranteed by Teekay Corporation and contains
covenants that require Teekay Corporation to maintain the greater of a minimum
liquidity of at least $50.0 million and 5.0% of Teekay Corporation’s total
debt which has recourse to Teekay Corporation. As at March 31, 2008, we,
OPCO and Teekay Corporation were in compliance with all of our covenants under
these credit facilities.
The term
loans of our 50% controlled joint ventures are collateralized by first-priority
mortgages on the vessels to which the loans relate, together with other related
collateral. As at March 31, 2008, we had guaranteed $100.9 million of these term
loans, which represents our 50% share of the outstanding vessel mortgage debt in
five of these 50% controlled joint venture companies. Teekay Corporation and our
joint venture partner have guaranteed the remaining $205.0 million.
Interest
payments on the revolving credit facilities and term loans are based on LIBOR
plus a margin. At March 31, 2008 and December 31, 2007, the margins ranged
between 0.45% and 0.80%.
All of
our vessel financings are collateralized by the applicable vessels. The term
loans used to finance the six 50% controlled joint venture shuttle tankers and
our three revolving credit facility agreements contain typical covenants and
other restrictions, including those that restrict the relevant subsidiaries
from:
•
|
incurring
or guaranteeing indebtedness (applicable to our term loans and the $70
million revolving credit facility
only);
|
•
|
changing
ownership or structure, including by mergers, consolidations, liquidations
and dissolutions;
|
•
|
making
dividends or distributions when in default of the relevant
loans;
|
•
|
making
capital expenditures in excess of specified
levels;
|
•
|
making
certain negative pledges or granting certain
liens;
|
•
|
selling,
transferring, assigning or conveying
assets; or
|
•
|
entering
into a new line of business.
|
We
conduct our funding and treasury activities within corporate policies designed
to minimize borrowing costs and maximize investment returns while maintaining
the safety of the funds and appropriate levels of liquidity for our
purposes. We hold cash and cash equivalents primarily in U.S.
Dollars.
Contractual
Obligations and Contingencies
The
following table summarizes our long-term contractual obligations as at March 31,
2008:
|
|
Total
|
|
|
Balance
of
2008
|
|
|
2009
and
2010
|
|
|
2011
and
2012
|
|
|
Beyond
2012
|
|
|
|
(in
millions of U.S. dollars)
|
|
Long-term
debt
(1)
|
|
|
1,559.4
|
|
|
|
76.9
|
|
|
|
251.8
|
|
|
|
305.8
|
|
|
|
924.9
|
|
Chartered-in
vessels (operating leases)
|
|
|
447.4
|
|
|
|
84.8
|
|
|
|
168.3
|
|
|
|
118.6
|
|
|
|
75.7
|
|
Total
contractual obligations
|
|
|
2,006.8
|
|
|
|
161.7
|
|
|
|
420.1
|
|
|
|
424.4
|
|
|
|
1,000.6
|
|
(1)
|
Excludes
expected interest payments of $48.3 million (remainder of 2008),
$115.0 million (2009 and 2010), $91.2 million (2011 and 2012)
and $62.7 million (beyond 2012). Expected interest payments are based
on LIBOR, plus margins which ranged between 0.45% and 0.80% as at March
31, 2008. The expected interest payments do not reflect the effect of
related interest rate swaps that hedge certain of the floating-rate
debt.
|
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
require 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 that we consider to
be the
most critical to an understanding of our financial statements because they
inherently involve significant judgments and uncertainties, can be found in Item
5. Operating and Financial Review and Prospects, in our Annual Report on Form
20-F for the year ended December 31, 2007.
FORWARD-LOOKING
STATEMENTS
This
Report on Form 6-K for the three months ended March 31, 2008 contains certain
forward-looking statements (as such term is defined in Section 27A of the
Securities Exchange 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;
|
·
|
results
of operations and revenues and
expenses;
|
·
|
offshore
and tanker market fundamentals, including the balance of supply and demand
in the offshore and tanker
market;
|
·
|
future
capital expenditures and availability of capital resources to fund capital
expenditures;
|
·
|
offers
of shuttle tankers, FSOs and FPSOs and related contracts from Teekay
Corporation;
|
·
|
obtaining
offshore projects that we or Teekay Corporation bid on or have been
awarded;
|
·
|
delivery
dates of and financing for newbuildings or existing
vessels;
|
·
|
the
commencement of service of newbuildings or existing
vessels;
|
·
|
our
exposure to foreign currency fluctuations, particularly in Norwegian
Kroner; and
|
·
|
the
outcome of claims and legal action arising from the collision involving
the
Navion
Hispania
.
|
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: changes in
production of oil from offshore oil fields; 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
applicable industry laws and regulations and 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 or vessel delivery delays; our potential inability to raise
financing to purchase additional vessels; our exposure to currency exchange rate
fluctuations; changes to the amount of proportion of revenues and expenses
denominated in foreign currencies; and other 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, 2007,. 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, 2008
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 borrowings
that require us to make interest payments based on LIBOR. Significant increases
in interest rates could adversely affect operating margins, results of
operations and our ability to service debt. We use interest rate swaps to reduce
exposure to market risk from changes in interest rates. The principal objective
of these contracts is to minimize the risks and costs associated with the
floating-rate debt.
In order
to minimize counterparty risk, we only enter into derivative transactions with
counterparties that are currently rated A or better by Standard & Poor’s or
Aa3 by Moody’s. 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,
2008 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 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
of
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair
Value
Liability
|
|
|
Rate
(1)
|
|
|
|
(in
millions of U.S. dollars, except percentages)
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate
(2)
|
|
|
76.9
|
|
|
|
124.8
|
|
|
|
127.0
|
|
|
|
164.0
|
|
|
|
141.8
|
|
|
|
924.9
|
|
|
|
1,559.4
|
|
|
|
(1,559.4
|
)
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Amount
(3)
|
|
|
16.1
|
|
|
|
552.6
|
|
|
|
18.1
|
|
|
|
18.7
|
|
|
|
19.2
|
|
|
|
723.7
|
|
|
|
1,348.4
|
|
|
|
(69.2
|
)
|
|
|
4.8
|
%
|
Average
Fixed Pay Rate
(2)
|
|
|
4.9
|
%
|
|
|
4.7
|
%
|
|
|
4.9
|
%
|
|
|
4.9
|
%
|
|
|
4.9
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
_________
(1)
|
Rate
refers to the weighted-average effective interest rate for our debt,
including the margin paid on our floating-rate debt and 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, 2008 ranged from 0.50% to
0.80%.
|
(2)
|
Interest
payments on floating-rate debt and interest rate swaps are based on
LIBOR.
|
(3)
|
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.
|
Foreign
Currency Risk
Our
primary economic environment is the international shipping market. This market
utilizes the U.S. Dollar as its functional currency. Consequently,
virtually all of our revenues and most of our operating costs are in
U.S. Dollars. We incur certain vessel operating expenses and general and
administrative expenses in foreign currencies, the most significant of which is
the Norwegian Kroner and, to a lesser extent, Australian Dollars, Euros and
Singapore Dollars. There is a risk that currency fluctuations will have a
negative effect on the value of cash flows.
On the
closing of our initial public offering in December 2006, OPCO entered into new
services agreements with subsidiaries of Teekay Corporation whereby the
subsidiaries operate and crew OPCO’s vessels. Under these service agreements,
OPCO pays all vessel operating expenses in U.S. Dollars and will not be
subject to Norwegian Kroner exchange fluctuations until 2009. Beginning in 2009,
payments under the service agreements will adjust to reflect any change in
Teekay Corporation’s cost of providing services based on fluctuations in the
value of the Norwegian Kroner relative to the U.S. Dollar. We have begun to
hedge this currency fluctuation risk . At March 31, 2008, we were committed to
foreign exchange contracts for the forward purchase of approximately Norwegian
Kroner 255.7 million, Australian Dollars 3.1 million, and Euros 4.0 million for
U.S. Dollars at an average rate of Norwegian Kroner 5.64 per U.S. Dollar,
Australian Dollar 1.24 per U.S. Dollar, and Euro 0.68 per U.S. Dollar. The
foreign exchange forward contracts mature as follows: $8.3 million in 2008; and
$45.4 million in 2009.
Although
the majority of transactions, assets and liabilities are denominated in
U.S. Dollars, OPCO had Norwegian Kroner-denominated deferred income taxes
of approximately 391.7 million ($76.8 million) at March 31, 2008. Neither we nor
OPCO has entered into any forward contracts to protect against currency
fluctuations on any future taxes.
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
MARCH
31, 2008
PART
II – OTHER INFORMATION
Item 1 – Legal
Proceedings
On November 13,
2006, a Teekay Offshore Operating L.P. (or
OPCO
) shuttle tanker, the
Navion Hispania
,
collided with the
Njord
Bravo
, a floating storage and offtake unit, while preparing to load an
oil cargo from the
Njord
Bravo
. The
Njord
Bravo
services the Njord field, which is operated by StatoilHydro
Petroleum AS (or
StatoilHydro
) and is located
off the Norwegian coast. At the time of the incident, StatoilHydro was
chartering the
Navion
Hispania
from OPCO. The
Navion Hispania
and the
Njord Bravo
both incurred
damages as a result of the collision.
In November
2007, Navion Offshore Loading AS, a subsidiary of OPCO, and two subsidiaries of
Teekay Corporation were named as co-defendants in a legal action filed by
Norwegian Hull Club (the hull and machinery insurers of the
Njord Bravo
), StatoilHydro
and various licensees in the Njord field. The claim seeks damages for vessel
repairs, expenses for a replacement vessel and other amounts related to
production stoppage on the field, totaling NOK256,000,000 (or approximately
USD$50 million). The court involved in this legal proceeding is Stavanger
Conciliation Council.
The
Partnership believes the likelihood of any losses relating to the claim is
remote. OPCO believes that the charter contract relating to the
Navion Hispania
requires that
StatoilHydro be responsible and indemnify Navion Offshore Loading AS for all
losses relating to the damage to the
Njord Bravo
. OPCO and Teekay
Corporation also maintain insurance for damages to the
Navion Hispania
and insurance
for collision-related costs and claims. The Partnership believes that these
insurance policies will cover the costs related to this incident, including any
costs not indemnified by StatoilHydro, subject to standard
deductibles. In addition, Teekay Corporation has agreed to indemnify
the Partnership, OPCO and OPCO’s subsidiaries for any losses they may incur in
connection with this incident.
Item 1A – Risk
Factors
In
addition to the other information set forth in this Quarterly 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, 2007, which could materially affect our
business, financial condition or results of operations. There have been no
material changes in our risk factors from those disclosed in our 2007 Annual
Report on Form 20-F.
Item 2 – Unregistered Sales
of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon
Senior Securities
None
Item 4 – Submission of
Matters to a Vote of Security Holders
None
Item 5 – Other
Information
None
Item 6 –
Exhibits
Exhibit
15.1 - Acknowledgement of Independent Registered Public
Accounting Firm
THIS
REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING
REGISTRATION STATEMENT 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. 333-150682) FILED WITH THE SEC ON MAY 6,
2008
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.
Date: May
27, 2008
|
TEEKAY
OFFSHORE PARTNERS L.P.
By: Teekay Offshore GP L.L.C., its general
partner
Peter Evensen
Chief Executive Officer and
Chief Financial Officer
(Principal Executive, Financial
and Accounting Officer)
|
Exhibit
15.1
ACKNOWLEDGEMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
May 27,
2008
To the
Board of Directors of Teekay Offshore GP L.L.C. and the Unitholders of Teekay
Offshore Partners L.P.
We are
aware of the incorporation by reference in the Registration Statement (Form S-8
No. 333-147682) pertaining to the Teekay Offshore Partners L.P. 2006 Long Term
Incentive Plan and in the Registration Statement (Form F-3 No. 333-150682) and
related prospectus of Teekay Offshore Partners L.P. for the registration of up
to $750,000,000 in total aggregate offering price of an indeterminate number of
common units and debt securities of our report dated May 14, 2008 relating to
the unaudited interim consolidated financial statements of Teekay Offshore
Partners L.P. and its subsidiaries that is included in its interim report (Form
6-K) for the three months ended March 31, 2008.
Pursuant
to Rule 436(c) of the Securities Act of 1933, our report is not a part of the
registration statement prepared or certified by accountants within the meaning
of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst
& Young LLP
Chartered
Accountants
Vancouver,
Canada
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