UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
(Mark One)
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2007
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report
For the transition period from
to
Commission file number 1-33198
TEEKAY OFFSHORE PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrants Name into English)
Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)
4
th
floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
(Address of principal executive offices)
Roy Spires
4
th
floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
Fax: (441) 292-3931
(Contact Information for Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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Title of each class
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Name of each exchange on which registered
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Common Units
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New York Stock Exchange
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
9,800,000 Common Units
9,800,000 Subordinated Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes
o
No
þ
If this report is an annual or transition report, indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
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Accelerated Filer
þ
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Non-Accelerated Filer
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Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
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U.S. GAAP
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International Financial Reporting Standards
as
issued by the International
Accounting
Standards Board
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Other
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If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow:
Item 17
o
Item 18
o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
þ
EXPLANATORY NOTE
Teekay Offshore Partners L.P. (generally referred to herein as
the Partnership
,
Teekay Offshore
Partners Predecessor
,
the Predecessor
,
we
,
our
or
us
) is filing this Annual Report on Form 20-F/A
for the year ended December 31, 2007 (this
Amendment
or this
2007
Form 20-F/A
Report
) to amend our
Annual Report on Form 20-F for the year ended December 31, 2007 (the
Original Filing
) that was
filed with the Securities and Exchange Commission (or
SEC
) on April 11, 2008.
(a)
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Derivative Instruments and Hedging Activities and Other
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In August 2008, we commenced a review of our application of Statement of Financial Accounting
Standards (or
SFAS
) No. 133,
Accounting for Derivative Instruments and Hedging Activities
, as
amended. Although we believe that our derivative transactions were consistent with our risk
management policies and that our overall risk management policies continue to be sound, based on
our review we concluded that certain of our derivative instruments did not qualify for hedge
accounting treatment under SFAS No. 133. Certain of our hedge documentation, in respect of our
assessment of effectiveness and measurement of ineffectiveness of our derivative instruments for
accounting purposes, was not in accordance with the technical requirements of SFAS No. 133 for
the years ended December 31, 2003 to 2007.
Accordingly, although we believe each of these derivative instruments were and continue to be
effective economic hedges, for accounting purposes we should have reflected changes in fair
value of these derivative instruments as increases or decreases to our net income (loss) on our
consolidated statements of income (loss), instead of being reflected as increases or decreases
to accumulated other comprehensive income (loss), a component of partners/owners equity on our
consolidated balance sheets and statements of changes in partners/owners equity.
The change in accounting for our derivative transactions does not affect the economics of the
derivative transactions.
We have also restated certain other items primarily related to accounting for the
non-controlling interest in one of our 50% owned subsidiaries and adjusting amounts related to
deferred income taxes and the fair value of derivative instruments at December 31, 2007.
The changes in accounting for these transactions do not affect or our cash flows, liquidity, or
cash distributions to partners.
(b)
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Vessels Acquired from Teekay Corporation
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In connection with assessing the potential impact of SFAS No. 141(R), which replaces SFAS No.
141,
Business Combinations
, and is effective for fiscal years beginning after December 15, 2008,
we re-assessed our accounting treatment for interests in vessels we purchased from Teekay
Corporation (
Teekay
) subsequent to our initial public offering in December 2006. We have
historically treated the acquisition of the interests in these vessels as asset acquisitions,
not business acquisitions. If the acquisitions were deemed to be business acquisitions, the
acquisitions would have been accounted for in a manner similar to the pooling of interest method
whereby our consolidated financial statements prior to the date the interests in these vessels
were acquired by us would be retroactively adjusted to include the results of these acquired
vessels (referred to herein as the
Dropdown Predecessor)
from the date that we and the acquired
vessels were both under the common control of Teekay and had begun operations. Although
substantially all of the value relating to these transactions is attributable to the vessels and
associated contracts, we have now determined that the acquisitions should have been accounted
for as business acquisitions under United States generally accepted accounting principles (or
GAAP
).
The impact of the retroactive Dropdown Predecessor adjustments does not affect our limited
partners interest in net income, earnings per unit, or cash distributions to partners. However,
the impact of the retroactive Dropdown Predecessor adjustments has resulted in an increase in
previously reported net income for the years ended December 31, 2007, 2006, 2005, 2004 and 2003.
(c) Discontinued Operations
In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
,
we have reclassified the operations of Navion Shipping Ltd., a subsidiary of Teekay Offshore
Partners Predecessor, as discontinued operations effective July 1, 2006 with retroactive
restatement for prior comparative periods. Prior to our initial public offering, on July 1,
2006, Teekay Offshore Partners Predecessor sold Navion Shipping Ltd. to a subsidiary of Teekay.
At the time of the sale, all of Teekay Offshore Partners Predecessors chartered-in conventional
tankers were chartered-in by Navion Shipping Ltd. and subsequently time chartered to a
subsidiary of Teekay. Although after the sale of Navion Shipping Ltd. we continue to own a fleet
of conventional tankers, which operate under long-term fixed-rate time-charter contracts, the
operations and cash flows of Navion Shipping Ltd. should have been eliminated from our ongoing
operations as a result of the sale and we do not have any significant continuing involvement in
the operations of the disposed component. Therefore, we have reclassified the operations of
Navion Shipping Ltd. as discontinued operations for all periods prior to its disposition on July
1, 2006.
The change in presentation of the results of Navion Shipping Ltd. to discontinued operations
does not affect total assets, total partners equity, net income, earnings per unit or cash
distributions to partners for any period.
(d)
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Vision Incentive Plan
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In the preparation of the combined consolidated financial statements of the Predecessor for the
period prior to the Partnerships initial public offering, general and administrative expenses
were allocated from Teekay to the Predecessor based on the Predecessors proportionate share of
Teekays total ship-operating (calendar) days for each of the periods presented. During 2005 and
2006, a portion of the general and administrative expense allocation included accrued costs
relating to a long-term share-based incentive plan (the
Vision Incentive Plan or VIP
) for senior
management. During 2005, Teekay had accrued and expensed a portion of the VIP without
consideration of certain vesting provisions as required under GAAP. Upon transition to SFAS 123R
on January 1, 2006, Teekay was required to account for the VIP based on the fair value of the
award as the VIP has a share priced-based component. However, Teekay continued to calculate
compensation expense for the VIP under the methodology it had followed in 2005 as Teekay did not
identify the VIP as within the scope of SFAS 123R. As a result, we have restated the general and
administrative expenses allocation for the periods before our initial public offering.
2
Because this change in general and administrative expenses is the result of a change in an
allocation of cost from Teekay to the Predecessor for the period prior to the Partnerships
initial public offering, this restatement will have no affect on the Partnerships equity,
liabilities or expenses for any period subsequent to the initial public offering.
As a result of the conclusions described above, we are restating in this 2007 Form 20-F/A our
historical balance sheets as of December 31, 2007 and 2006, our statements of income (loss), cash
flows and changes in partners/owners equity for the years ended 2007, 2006 and 2005 and selected
financial data as of and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003.
The following table sets forth a reconciliation of previously reported and restated net income
(loss) and owners equity as of the date and for the periods shown (in thousands of US dollars):
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Total
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Owners
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Equity
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(Predecessor
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and Dropdown
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Net Income (Loss)
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Predecessor)
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December 19
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January 1 to
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At
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to December
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December 18,
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December 31,
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2007
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31, 2006
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2006
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2005
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2004
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2003
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2002
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$
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$
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$
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$
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$
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$
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$
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As previously reported
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19,672
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848
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(33,563
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)
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84,747
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213,772
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63,513
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262,835
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Adjustments:
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Derivative instruments, net of
non-controlling interest and other
(1)
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(17,014
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500
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2,806
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756
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(648
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(1,178
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Dropdown Predecessor
(2)
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1,300
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114
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3,097
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2,910
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4,076
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6,768
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32,558
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Vision Incentive Plan
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(2,632
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7,500
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As restated
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3,958
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1,462
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(30,292
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95,913
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217,200
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69,103
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295,393
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(1)
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Includes an adjustment totaling ($3.6) million for the year ended December 31, 2007
relating to the accounting for the non-controlling interest in one of our 50% owned
subsidiaries and adjusting amounts relating to deferred income taxes and the fair value of
derivative instruments at December 31, 2007.
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(2)
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Relates to the results for the pre-acquisition periods in which we and the acquired
interests in vessels, as listed below, were both in operation and under the common control of
Teekay Corporation, as follows:
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Dampier Spirit
(FSO unit) for March 15, 1998 to September 30, 2007;
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Navion Bergen
(shuttle tanker) for April 16, 2007 to June 30, 2007; and
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Navion Gothenburg
(shuttle tanker) began operations concurrently with our acquisition of
it on July 24, 2007.
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Note 18 of the notes to the consolidated financial statements included in this 2007 Form 20-F/A
Report reflects the changes to our consolidated financial statements as a result of our restatement
and provides additional information about the restatement.
We have also restated in this 2007 Form 20-F/A our General Partners historical balance sheet as of
December 31, 2007. Note 15 of the notes to the General Partners consolidated financial statement
included in this 2007 Form 20-F/A Report reflects the changes to its consolidated balance sheet as
a result of our restatement and provides additional information about the restatement.
Management also has determined that there were control deficiencies relating to the preparation of
hedge documentation and the accounting for certain non-routine, complex financial arrangements,
which gave rise in part to this restatement, constituted material weaknesses in our internal
control over financial reporting. We believe, as of the date of this filing, that we have fully
remediated the material weaknesses in our internal control over financial reporting. Please read
Item 15. Controls and Procedures for additional discussion.
For the convenience of the reader, this 2007 Form 20-F/A Report sets forth the Original Filing in
its entirety, although we are only restating portions of Items 3, 4, 5, 7, 11, 15, 18 and 19
affected by the amended financial information. This 2007 Form 20-F/A Report includes
currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as
required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as the currently dated
consent of our independent registered public accounting firm. The changes we have made are a result
of and reflect the restatement described herein; no other information in the Original Filing has
been updated.
Except for the amended or restated information described above, this 2007 Form 20-F/A Report
continues to speak as of the date of the Original Filing. Other events occurring after the filing
of the Original Filing or other disclosures necessary to reflect subsequent events have been or
will be addressed in other reports filed with or furnished to the SEC subsequent to the date of the
Original Filing.
Because this 2007 Form 20-F/A Report restates all of the pertinent financial data for the affected
periods, we do not intend to amend our previously-filed Annual Reports on Form 20-F or previously
furnished Reports on Form 6-K for periods ended prior to December 31, 2007. As a result, the reader
should not rely on the prior filings, but should rely upon the restated financial statements,
reports of our independent registered public accounting firm and related financial information for
affected periods contained in this 2007 Form 20-F/A Report.
3
TEEKAY OFFSHORE PARTNERS L.P.
INDEX TO REPORT ON FORM 20-F/A
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Page
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Not applicable
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Not applicable
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6
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23
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Not applicable
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39
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56
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60
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63
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64
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65
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67
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Not applicable
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68
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68
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69
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70
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71
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71
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Not applicable
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Not applicable
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Not applicable
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72
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73
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74
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4
PART I
This Annual Report should be read in conjunction with the consolidated financial statements and
accompanying notes included in this report.
In addition to historical information, this Annual Report contains forward-looking statements that
involve risks and uncertainties. Such forward-looking statements relate to future events and our
operations, objectives, expectations, performance, financial condition and intentions. When used in
this Annual Report, the words expect, intend, plan, believe, anticipate, estimate and
variations of such words and similar expressions are intended to identify forward-looking
statements. Forward-looking statements in this Annual Report include, in particular, statements
regarding:
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our ability to make cash distributions on our units or any increases in quarterly
distributions;
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our future financial condition or results of operations and future revenues and
expenses;
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growth prospects of the offshore and tanker markets;
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offshore and tanker market fundamentals, including the balance of supply and demand in
the offshore and tanker markets;
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the expected lifespan of a new shuttle tanker, floating storage and off-take (or FSO)
unit and conventional tanker;
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estimated capital expenditures and the availability of capital resources to fund capital
expenditures;
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our ability to maintain long-term relationships with major crude oil companies;
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our ability to leverage to our advantage Teekay Corporations relationships and
reputation in the shipping industry;
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our continued ability to enter into fixed-rate time charters with customers;
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obtaining offshore projects that we or Teekay Corporation bid on or that Teekay
Corporation is awarded;
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our ability to maximize the use of our vessels, including the re-deployment or
disposition of vessels no longer under long-term time charter;
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the ability of the counterparties to our derivative contracts to fulfill their
contractual obligations;
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our pursuit of strategic opportunities, including the acquisition of vessels and
expansion into new markets vessels;
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our expected financial flexibility to pursue acquisitions and other expansion
opportunities;
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anticipated funds for liquidity needs and the sufficiency of cash flows;
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the expected cost of, and our ability to comply with, governmental regulations and
maritime self regulatory organization standards applicable to our business;
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the expected impact of heightened environmental and quality concerns of insurance
underwriters, regulators and charterers;
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anticipated taxation of our partnership and its subsidiaries;
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Teekay Corporation increasing its ownership interest in Teekay Petrojarl ASA (formally
Petrojarl ASA) or offering to us additional interest in Teekay Offshore Operating L.P;
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our general and administrative expenses as a public company and expenses under service
agreements with other affiliates of Teekay Corporation and for reimbursements of fees and
costs of our general partner; and
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our business strategy and other plans and objectives for future operations.
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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, or words or
phrases of similar meanings. These statements are necessarily estimates reflecting the judgment of
senior management, 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, those factors discussed below in Item 3: Key
InformationRisk Factors and other factors detailed from time to time in other reports we file with
the SEC.
5
We do not intend to revise any forward-looking statements in order to reflect any change in our
expectations or events or circumstances that may subsequently arise. You should carefully review
and consider the various disclosures included in this Annual Report and in our other filings made
with the SEC that attempt to advise interested parties of the risks and factors that may affect our
business, prospects and results of operations.
Item 1. Identity of Directors, Senior Management and Advisors
The information included in Item 1 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Not applicable.
Item 2. Offer Statistics and Expected Timetable
The information included in Item 2 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Not applicable.
Item 3. Key Information
Selected Financial Data (Restated)
The following tables present, in each case for the periods and as of the dates indicated, summary:
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historical financial and operating data of Teekay Offshore Partners Predecessor (as
defined below); and
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|
financial and operating data of Teekay Offshore Partners L.P. and its subsidiaries since
its initial public offering on December 19, 2006.
|
Prior to the closing of our initial public offering of common units on December 19, 2006, Teekay
Corporation transferred eight Aframax conventional crude oil tankers to a subsidiary of Norsk
Teekay Holdings Ltd. (or
Norsk Teekay
) and one FSO unit to Teekay Offshore Australia Trust. Teekay
Corporation then transferred to Teekay Offshore Operating L.P. (or
OPCO
) all of the outstanding
interests of four wholly-owned subsidiaries Norsk Teekay, Teekay Nordic Holdings Inc., Teekay
Offshore Australia Trust and Pattani Spirit L.L.C. These four wholly-owned subsidiaries, which
include the eight Aframax conventional crude oil tankers and the FSO unit, are collectively
referred to as
Teekay Offshore Partners Predecessor
or the
Predecessor.
The summary historical financial and operating data has been prepared on the following basis:
|
|
|
the historical financial and operating data of Teekay Offshore Partners Predecessor as
at and for the years ended December 31, 2003, 2004 and 2005 is derived from the combined
consolidated financial statements of Teekay Offshore Partners Predecessor;
|
|
|
|
the historical financial and operating data of Teekay Offshore Partners Predecessor for
the period from January 1, 2006 to December 18, 2006 are derived from the audited combined
consolidated financial statements of Teekay Offshore Partners Predecessor; and
|
|
|
|
the historical financial and operating data of Teekay Offshore Partners L.P. as at
December 31, 2006 and 2007, for the period from December 19, 2006 to December 31, 2006, and
for the year ended December 31, 2007, reflect our initial public offering and are derived
from our audited consolidated financial statements.
|
Our initial public offering and certain other transactions that occurred during 2006 and 2007 have
affected our historical performance or will affect our future performance. As a result, the
following tables should be read together with, and are qualified in their entirety by reference to,
(a) Item 5. Operating and Financial Review and Prospects, included herein, and (b) the historical
consolidated financial statements and the accompanying notes and the Report of Independent
Registered Public Accounting Firm therein (which are included herein), with respect to the
consolidated financial statements for the years ended December 31, 2007, 2006, and 2005 aggregated
as follows:
Year ended December 31, 2007
|
|
|
January 1 to December 31, 2007
|
Year ended December 31, 2006
|
|
|
January 1 to December 18, 2006
|
|
|
|
December 19 to December 31, 2006
|
Year ended December 31, 2005
|
|
|
January 1 to December 31, 2005
|
The information presented in the following tables and related footnotes have been adjusted to
reflect the restatement of our financial results which is described in the Explanatory Note above.
A reconciliation of our previously reported consolidated financial statements to our restated
consolidated financial statements as at December 31, 2007 and 2006 and for the years ended December
31, 2007, 2006 and 2005 is included in Note 18 of the notes to our consolidated financial
statements. A reconciliation of our previously reported consolidated financial information to our
restated consolidated financial information as at December 31, 2005, 2004 and 2003 and for the
years ended December 31, 2004 and 2003 follows the table below.
Our consolidated financial statements are prepared in accordance with United States generally
accepted accounting principles (or
GAAP
).
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to
|
|
|
December 19 to
|
|
|
Year Ended
|
|
|
|
Year Ended December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
(in thousands, except unit, per unit and fleet data)
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
$
|
507,236
|
|
|
$
|
723,217
|
|
|
$
|
613,246
|
|
|
$
|
617,514
|
|
|
$
|
24,397
|
|
|
$
|
785,203
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
(1)
|
|
|
69,652
|
|
|
|
90,414
|
|
|
|
74,543
|
|
|
|
91,321
|
|
|
|
3,102
|
|
|
|
151,637
|
|
Vessel operating expenses
(2)
|
|
|
89,415
|
|
|
|
109,278
|
|
|
|
109,480
|
|
|
|
107,991
|
|
|
|
4,297
|
|
|
|
149,660
|
|
Time-charter hire expense
|
|
|
107,792
|
|
|
|
177,050
|
|
|
|
169,687
|
|
|
|
159,973
|
|
|
|
5,641
|
|
|
|
150,463
|
|
Depreciation and amortization
|
|
|
93,946
|
|
|
|
120,197
|
|
|
|
109,824
|
|
|
|
100,823
|
|
|
|
3,726
|
|
|
|
124,370
|
|
General and administrative
|
|
|
18,049
|
|
|
|
45,941
|
|
|
|
56,726
|
|
|
|
63,014
|
|
|
|
2,177
|
|
|
|
62,404
|
|
Loss (gain) on sale of vessels and equipment
net of writedowns
|
|
|
63
|
|
|
|
(3,725
|
)
|
|
|
2,820
|
|
|
|
(4,778
|
)
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
|
|
|
|
|
|
|
|
955
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
378,917
|
|
|
|
539,155
|
|
|
|
524,035
|
|
|
|
519,176
|
|
|
|
18,943
|
|
|
|
638,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
128,319
|
|
|
|
184,062
|
|
|
|
89,211
|
|
|
|
98,338
|
|
|
|
5,454
|
|
|
|
146,669
|
|
Interest expense
|
|
|
(47,223
|
)
|
|
|
(44,268
|
)
|
|
|
(39,983
|
)
|
|
|
(64,462
|
)
|
|
|
(1,617
|
)
|
|
|
(126,304
|
)
|
Interest income
|
|
|
1,278
|
|
|
|
2,459
|
|
|
|
4,612
|
|
|
|
5,167
|
|
|
|
191
|
|
|
|
5,871
|
|
Equity income from joint ventures
|
|
|
5,047
|
|
|
|
5,514
|
|
|
|
5,955
|
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
Gain on sales of marketable securities
|
|
|
517
|
|
|
|
94,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange (loss) gain
(3)
|
|
|
(18,691
|
)
|
|
|
(37,840
|
)
|
|
|
34,228
|
|
|
|
(66,214
|
)
|
|
|
(118
|
)
|
|
|
(11,678
|
)
|
Income tax (expense) recovery
|
|
|
(22,064
|
)
|
|
|
(29,465
|
)
|
|
|
12,375
|
|
|
|
(3,260
|
)
|
|
|
(121
|
)
|
|
|
10,516
|
|
Other net
|
|
|
4,455
|
|
|
|
14,064
|
|
|
|
9,091
|
|
|
|
8,367
|
|
|
|
309
|
|
|
|
10,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
non-controlling interest
|
|
|
51,638
|
|
|
|
188,748
|
|
|
|
115,489
|
|
|
|
(15,743
|
)
|
|
|
4,098
|
|
|
|
35,477
|
|
Non-controlling interest
|
|
|
(2,763
|
)
|
|
|
(2,167
|
)
|
|
|
(229
|
)
|
|
|
(3,893
|
)
|
|
|
(2,636
|
)
|
|
|
(31,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
48,875
|
|
|
|
186,581
|
|
|
|
115,260
|
|
|
|
(19,636
|
)
|
|
|
1,462
|
|
|
|
3,958
|
|
Net income (loss) from
discontinued
operations
(11)
|
|
|
20,228
|
|
|
|
30,619
|
|
|
|
(19,347
|
)
|
|
|
(10,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
69,103
|
|
|
$
|
217,200
|
|
|
$
|
95,913
|
|
|
$
|
(30,292
|
)
|
|
$
|
1,462
|
|
|
$
|
3,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors interest in net income
|
|
$
|
6,768
|
|
|
$
|
4,076
|
|
|
$
|
2,910
|
|
|
$
|
3,097
|
|
|
$
|
114
|
|
|
$
|
1,300
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
733
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
42,107
|
|
|
|
182,505
|
|
|
|
112,350
|
|
|
|
(22,733
|
)
|
|
|
1,284
|
|
|
|
1,925
|
|
Net income (loss) from continuing operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit
(basic and diluted)
(4)
|
|
|
3.34
|
|
|
|
14.48
|
|
|
|
8.92
|
|
|
|
(1.80
|
)
|
|
|
0.07
|
|
|
|
0.12
|
|
Subordinated unit (basic and diluted)
(4)
|
|
|
3.34
|
|
|
|
14.48
|
|
|
|
8.92
|
|
|
|
(1.80
|
)
|
|
|
0.06
|
|
|
|
0.07
|
|
Total unit (basic and diluted)
(4)
|
|
|
3.34
|
|
|
|
14.48
|
|
|
|
8.92
|
|
|
|
(1.80
|
)
|
|
|
0.07
|
|
|
|
0.10
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
62,335
|
|
|
|
213,124
|
|
|
|
93,003
|
|
|
|
(33,389
|
)
|
|
|
1,284
|
|
|
|
1,925
|
|
Net income (loss) per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit (basic and diluted)
(4)
|
|
|
4.95
|
|
|
|
16.91
|
|
|
|
7.38
|
|
|
|
(2.65
|
)
|
|
|
0.07
|
|
|
|
0.12
|
|
Subordinated unit (basic and diluted)
(4)
|
|
|
4.95
|
|
|
|
16.91
|
|
|
|
7.38
|
|
|
|
(2.65
|
)
|
|
|
0.06
|
|
|
|
0.07
|
|
Total unit (basic and diluted)
(4)
|
|
|
4.95
|
|
|
|
16.91
|
|
|
|
7.38
|
|
|
|
(2.65
|
)
|
|
|
0.07
|
|
|
|
0.10
|
|
Cash distributions declared per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data
(at end of year):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities
(12)
|
|
$
|
160,957
|
|
|
$
|
143,729
|
|
|
$
|
128,986
|
|
|
|
|
|
|
$
|
113,986
|
|
|
$
|
121,224
|
|
Vessels and equipment
(5) (13)
|
|
|
1,446,978
|
|
|
|
1,440,167
|
|
|
|
1,310,135
|
|
|
|
|
|
|
|
1,532,743
|
|
|
|
1,662,865
|
|
Total assets
|
|
|
2,054,448
|
|
|
|
2,054,760
|
|
|
|
1,895,601
|
|
|
|
|
|
|
|
2,081,224
|
|
|
|
2,166,351
|
|
Total debt
(6)
|
|
|
1,328,985
|
|
|
|
1,178,132
|
|
|
|
943,319
|
|
|
|
|
|
|
|
1,303,352
|
|
|
|
1,517,467
|
|
Non-controlling interest
|
|
|
15,525
|
|
|
|
14,276
|
|
|
|
11,859
|
|
|
|
|
|
|
|
427,977
|
|
|
|
392,613
|
|
Dropdown Predecessors equity
|
|
|
39,420
|
|
|
|
44,016
|
|
|
|
47,784
|
|
|
|
|
|
|
|
51,792
|
|
|
|
|
|
Total partners/owners equity
|
|
|
529,794
|
|
|
|
659,212
|
|
|
|
747,879
|
|
|
|
|
|
|
|
138,942
|
|
|
|
77,401
|
|
Common units outstanding
(4)
|
|
|
2,800,000
|
|
|
|
2,800,000
|
|
|
|
2,800,000
|
|
|
|
2,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
Subordinated units outstanding
(4)
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
(7)
|
|
$
|
231,757
|
|
|
$
|
247,184
|
|
|
$
|
157,881
|
|
|
|
|
|
|
|
|
|
|
$
|
45,847
|
|
Financing activities
(7)
|
|
|
728,594
|
|
|
|
(74,302
|
)
|
|
|
(206,748
|
)
|
|
|
|
|
|
|
|
|
|
|
(23,905
|
)
|
Investing activities
(7)
|
|
|
(839,148
|
)
|
|
|
(190,110
|
)
|
|
|
34,124
|
|
|
|
|
|
|
|
|
|
|
|
(14,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
(8)
|
|
$
|
437,584
|
|
|
$
|
632,803
|
|
|
$
|
538,703
|
|
|
$
|
526,193
|
|
|
$
|
21,295
|
|
|
$
|
633,566
|
|
EBITDA
(9)
|
|
|
239,738
|
|
|
|
409,638
|
|
|
|
229,199
|
|
|
|
133,086
|
|
|
|
6,735
|
|
|
|
238,245
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
|
148,004
|
|
|
|
170,630
|
|
|
|
24,760
|
|
|
|
31,079
|
|
|
|
|
|
|
|
31,228
|
|
Expenditures for drydocking
|
|
|
11,980
|
|
|
|
9,174
|
|
|
|
8,906
|
|
|
|
31,255
|
|
|
|
|
|
|
|
49,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shuttle tankers
(10)
|
|
|
30.5
|
|
|
|
37.9
|
|
|
|
35.8
|
|
|
|
33.9
|
|
|
|
36.0
|
|
|
|
36.9
|
|
Average number of
conventional
tankers
(10)
|
|
|
27.4
|
|
|
|
40.7
|
|
|
|
41.2
|
|
|
|
22.0
|
|
|
|
10.0
|
|
|
|
9.3
|
|
Average number of FSO units
(10)
|
|
|
3.2
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.6
|
|
7
|
|
|
(1)
|
|
Voyage expenses are all expenses unique to a particular voyage, including any bunker
fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and
commissions.
|
|
(2)
|
|
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube
oils and communication expenses.
|
|
(3)
|
|
Substantially all of these foreign currency exchange gains and losses were unrealized and not
settled in cash. Under U.S. accounting guidelines, 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. For the periods prior to our initial
public offering, our primary source of foreign currency gains and losses were our Norwegian
Kroner-denominated advances from affiliates, which were settled by the Predecessor prior to
December 19, 2006.
|
|
(4)
|
|
Net income (loss) per unit is determined by dividing net income (loss), after deducting the
amount of net income (loss) attributable to the Dropdown Predecessor and the amount of net
income (loss) allocated to our general partners interest for periods subsequent to our
initial public offering on December 19, 2006, by the weighted-average number of units
outstanding during the period. For periods prior to December 19, 2006, such units are deemed
equal to the common and subordinated units received by Teekay Corporation in exchange for a
26.0% interest in OPCO in connection with our initial public offering.
|
|
(5)
|
|
Vessels and equipment consists of (a) vessels, at cost less accumulated depreciation,
(b) vessels under capital leases, at cost less accumulated depreciation, and (c) advances on
newbuildings.
|
|
(6)
|
|
Total debt includes long-term debt, capital lease obligations and advances from affiliates.
|
|
(7)
|
|
For the year ended December 31, 2006, cash flow data provided by (used in) operating
activities, financing activities and investing activities was $162,228, ($230,238) and
$53,010, respectively.
|
|
(8)
|
|
Consistent with general practice in the shipping industry, we use net voyage revenues
(defined as voyage revenues less voyage expenses) as a measure of equating revenues generated
from voyage charters to revenues generated from time charters, which assists us in making
operating decisions about the deployment of vessels and their performance. Under time charters
and bareboat charters, the charterer typically pays the voyage expenses, which are all
expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo
loading and unloading expenses, canal tolls, agency fees and commissions, whereas under voyage
charter contracts and contracts of affreightment the shipowner typically pays the voyage
expenses. Some voyage expenses are fixed, and the remainder can be estimated. If we or OPCO,
as the shipowner, pay the voyage expenses, we or OPCO typically pass the approximate amount of
these expenses on to the customers by charging higher rates under the contract or billing the
expenses to them. As a result, although voyage revenues from different types of contracts may
vary, the net revenues after subtracting voyage expenses, which we call net voyage revenues,
are comparable across the different types of contracts. We principally use net voyage
revenues, a non-GAAP financial measure, because it provides more meaningful information to us
than voyage revenues, the most directly comparable GAAP financial measure. Net voyage revenues
are also widely used by investors and analysts in the shipping industry for comparing
financial performance between companies in the shipping industry to industry averages. The
following table reconciles net voyage revenues with voyage revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
Year Ended December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
$
|
507,236
|
|
|
$
|
723,217
|
|
|
$
|
613,246
|
|
|
$
|
617,514
|
|
|
$
|
24,397
|
|
|
$
|
785,203
|
|
Voyage expenses
|
|
|
69,652
|
|
|
|
90,414
|
|
|
|
74,543
|
|
|
|
91,321
|
|
|
|
3,102
|
|
|
|
151,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
$
|
437,584
|
|
|
$
|
632,803
|
|
|
$
|
538,703
|
|
|
$
|
526,193
|
|
|
$
|
21,295
|
|
|
$
|
633,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
|
EBITDA. Earnings before interest, taxes, depreciation and amortization is used as a
supplemental financial measure by management and by external users of our financial
statements, such as investors, as discussed below:
|
|
|
|
Financial and operating performance.
EBITDA assists our management and investors
by increasing the comparability of the fundamental performance of us from period to
period and against the fundamental performance of other companies in our industry that
provide EBITDA information. This increased comparability is achieved by excluding the
potentially disparate effects between periods or companies of interest expense, taxes,
depreciation or amortization, which items are affected by various and possibly changing
financing methods, capital structure and historical cost basis and which items may
significantly affect net income between periods. We believe that including EBITDA as a
financial and operating measure benefits investors in (a) selecting between investing in
us and other investment alternatives and (b) monitoring the ongoing financial and
operational strength and health of us in assessing whether to continue to hold our
common units.
|
|
|
|
Liquidity.
EBITDA allows us to assess the ability of assets to generate cash
sufficient to service debt, make distributions and undertake capital expenditures. By
eliminating the cash flow effect resulting from the existing capitalization of us and
OPCO and other items such as drydocking expenditures, working capital changes and
foreign currency exchange gains and losses (which may vary significantly from period to
period), EBITDA provides a consistent measure of our ability to generate cash over the
long term. Management uses this information as a significant factor in determining
(a) our and OPCOs proper capitalization (including assessing how much debt to incur and
whether changes to the capitalization should be made) and (b) whether to undertake
material capital expenditures and how to finance them, all in light of existing cash
distribution commitments to unitholders. Use of EBITDA as a liquidity measure also
permits investors to assess the fundamental ability of OPCO and us to generate cash
sufficient to meet cash needs, including distributions on our common units.
|
8
EBITDA should not be considered an alternative to net income, operating income, cash flow from
operating activities or any other measure of financial performance or liquidity presented in
accordance with GAAP. EBITDA excludes some, but not all, items that affect net income
and operating income, and these measures may vary among other companies. Therefore, EBITDA as
presented below may not be comparable to similarly titled measures of other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
Year Ended December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of EBITDA to Net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
69,103
|
|
|
$
|
217,200
|
|
|
$
|
95,913
|
|
|
$
|
(30,292
|
)
|
|
$
|
1,462
|
|
|
$
|
3,958
|
|
Depreciation and amortization
|
|
|
93,946
|
|
|
|
120,197
|
|
|
|
109,824
|
|
|
|
100,823
|
|
|
|
3,726
|
|
|
|
124,370
|
|
Interest expense, net
|
|
|
45,945
|
|
|
|
41,809
|
|
|
|
35,371
|
|
|
|
59,295
|
|
|
|
1,426
|
|
|
|
120,433
|
|
Income taxes expense (recovery)
|
|
|
22,064
|
|
|
|
29,465
|
|
|
|
(12,375
|
)
|
|
|
3,260
|
|
|
|
121
|
|
|
|
(10,516
|
)
|
Depreciation and amortization and income tax
expense related to discontinued operations
|
|
|
8,680
|
|
|
|
967
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
$
|
239,738
|
|
|
$
|
409,638
|
|
|
$
|
229,199
|
|
|
$
|
133,086
|
|
|
$
|
6,735
|
|
|
$
|
238,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of EBITDA to Net
operating cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow
|
|
$
|
231,757
|
|
|
$
|
247,184
|
|
|
$
|
157,881
|
|
|
$
|
162,112
|
|
|
$
|
116
|
|
|
$
|
45,847
|
|
Non-controlling interest
|
|
|
(2,763
|
)
|
|
|
(2,167
|
)
|
|
|
(229
|
)
|
|
|
(3,893
|
)
|
|
|
(2,636
|
)
|
|
|
(31,519
|
)
|
Expenditures for drydocking
|
|
|
11,980
|
|
|
|
9,174
|
|
|
|
8,906
|
|
|
|
31,255
|
|
|
|
|
|
|
|
49,053
|
|
Interest expense, net
|
|
|
45,945
|
|
|
|
41,809
|
|
|
|
35,371
|
|
|
|
59,295
|
|
|
|
1,426
|
|
|
|
120,433
|
|
(Loss) gain on sale of vessels
|
|
|
(63
|
)
|
|
|
3,725
|
|
|
|
9,423
|
|
|
|
6,928
|
|
|
|
|
|
|
|
|
|
Gain on sale of marketable securities, net of
writedowns
|
|
|
(4,393
|
)
|
|
|
94,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on writedown
of vessels and equipment
|
|
|
|
|
|
|
|
|
|
|
(12,243
|
)
|
|
|
(2,150
|
)
|
|
|
|
|
|
|
|
|
Write-off of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,790
|
)
|
|
|
|
|
|
|
|
|
Equity income (net of dividends received)
|
|
|
(1,234
|
)
|
|
|
(1,986
|
)
|
|
|
3,205
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
Change in working capital
|
|
|
(10,586
|
)
|
|
|
36,757
|
|
|
|
(26,539
|
)
|
|
|
(50,673
|
)
|
|
|
7,134
|
|
|
|
33,706
|
|
Distribution from
subsidiaries to minority owners
|
|
|
3,060
|
|
|
|
2,347
|
|
|
|
9,618
|
|
|
|
4,224
|
|
|
|
|
|
|
|
78,107
|
|
Change in fair value of interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,647
|
|
|
|
699
|
|
|
|
(45,491
|
)
|
Foreign currency exchange
(loss) gain and other, net
|
|
|
(33,965
|
)
|
|
|
(21,427
|
)
|
|
|
43,806
|
|
|
|
(74,188
|
)
|
|
|
(4
|
)
|
|
|
(11,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
(1)
|
|
$
|
239,738
|
|
|
$
|
409,638
|
|
|
$
|
229,199
|
|
|
$
|
133,086
|
|
|
$
|
6,735
|
|
|
$
|
238,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
EBITDA is net of non-controlling interest expense of $2.8 million, $2.2 million, $0.2
million, $3.9 million, $2.6 million and $31.5 million for the years ended December 31,
2003, 2004 and 2005, and for the periods January 1 to December 18, 2006 and December 19 to
December 31, 2006, and for the year ended December 31, 2007, respectively.
|
EBITDA also includes the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
Year Ended December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(Loss) gain on sale of vessels and
equipment, net of writedowns
|
|
$
|
(63
|
)
|
|
$
|
3,725
|
|
|
$
|
(2,820
|
)
|
|
$
|
4,778
|
|
|
$
|
|
|
|
$
|
|
|
Gain on sale of marketable securities, net of
writedowns
|
|
|
(4,393
|
)
|
|
|
94,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on foreign
exchange forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(466
|
)
|
Foreign currency exchange (loss) gain
|
|
|
(18,691
|
)
|
|
|
(37,840
|
)
|
|
|
34,228
|
|
|
|
(66,214
|
)
|
|
|
(118
|
)
|
|
|
(11,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(23,147
|
)
|
|
$
|
60,107
|
|
|
$
|
31,408
|
|
|
$
|
(61,436
|
)
|
|
$
|
(118
|
)
|
|
$
|
(12,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
|
Average number of ships consists of the average number of owned and chartered-in vessels
(including those in discontinued operations) that were in our possession during the period
(excluding the five vessels owned by OPCOs 50% joint ventures for periods prior to December
1, 2006, but including two vessels deemed to be in our possession for accounting purposes as a
result of the inclusion of the Dropdown Predecessor prior to our actual acquisition of such
vessels). On December 1, 2006, the operating agreements for these five joint ventures were
amended, resulting OPCO controlling these entities and in their consolidation with OPCO in
accordance with GAAP.
|
|
(11)
|
|
On July 1, 2006, the Predecessor sold Navion Shipping Ltd. to a subsidiary of Teekay
Corporation for $53.7 million. At the time of the sale, all of the Predecessors chartered-in
conventional tankers were chartered-in by Navion Shipping Ltd. and subsequently time chartered
to a subsidiary of Teekay Corporation at charter rates that provided a fixed 1.25% profit margin.
These chartered-in conventional tankers were operated in the spot market by the subsidiary of
Teekay Corporation.
|
9
|
|
|
(12)
|
|
Cash and marketable securities includes cash from discontinued operations of $15.2
million, $13.4 million and $2.5 million as at December 31, 2003, 2004, and 2005, respectively.
|
|
(13)
|
|
Vessels and equipment includes a vessel held for sale of $20.6 million and $19.6 million
as at December 31, 2003 and 2004, respectively.
|
|
(14)
|
|
Expenditures for vessels and equipment excludes non-cash investing activities. Please read
Item 18 Financial Statements: Note 14 Supplemental Cash Flow Information.
|
|
(15)
|
|
A reconciliation of our previously reported consolidated financial information to our
restated consolidated financial information as at December 31, 2005, 2004 and 2003 and for the
years ended December 31, 2004 and 2003 is contained in the following table. Only those line
items in the selected financial data table that are both from our consolidated financial
information and were affected by the restatement are contained below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(in thousands, except unit and per unit data)
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
$
|
986,504
|
|
|
|
|
|
|
|
14,790
|
|
|
|
(278,077
|
)
|
|
|
|
|
|
$
|
723,217
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
118,819
|
|
|
|
|
|
|
|
|
|
|
|
(28,405
|
)
|
|
|
|
|
|
|
90,414
|
|
Vessel operating expenses
|
|
|
105,595
|
|
|
|
|
|
|
|
5,749
|
|
|
|
(2,066
|
)
|
|
|
|
|
|
|
109,278
|
|
Time-charter hire expense
|
|
|
372,449
|
|
|
|
|
|
|
|
|
|
|
|
(195,399
|
)
|
|
|
|
|
|
|
177,050
|
|
Depreciation and amortization
|
|
|
118,460
|
|
|
|
|
|
|
|
2,704
|
|
|
|
(967
|
)
|
|
|
|
|
|
|
120,197
|
|
General and administrative
|
|
|
65,819
|
|
|
|
|
|
|
|
743
|
|
|
|
(20,621
|
)
|
|
|
|
|
|
|
45,941
|
|
Loss (gain) on sale of vessels
and equipment net of writedowns
|
|
|
(3,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
777,417
|
|
|
|
|
|
|
|
9,196
|
|
|
|
(247,458
|
)
|
|
|
|
|
|
|
539,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
209,087
|
|
|
|
|
|
|
|
5,594
|
|
|
|
(30,619
|
)
|
|
|
|
|
|
|
184,062
|
|
Interest expense
|
|
|
(43,957
|
)
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,268
|
)
|
Interest income
|
|
|
2,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,459
|
|
Equity income from joint ventures
|
|
|
6,162
|
|
|
|
(648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,514
|
|
Gain on sales of marketable securities
|
|
|
94,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,222
|
|
Foreign currency exchange (loss) gain
|
|
|
(37,910
|
)
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
(37,840
|
)
|
Income tax expense
|
|
|
(28,188
|
)
|
|
|
|
|
|
|
(1,277
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,465
|
)
|
Other net
|
|
|
14,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
non-controlling interest
|
|
|
215,939
|
|
|
|
(648
|
)
|
|
|
4,076
|
|
|
|
(30,619
|
)
|
|
|
|
|
|
|
188,748
|
|
Non-controlling interest
|
|
|
(2,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
213,772
|
|
|
|
(648
|
)
|
|
|
4,076
|
|
|
|
(30,619
|
)
|
|
|
|
|
|
|
186,581
|
|
Net income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,619
|
|
|
|
|
|
|
|
30,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
213,772
|
|
|
$
|
(648
|
)
|
|
$
|
4,076
|
|
|
$
|
|
|
|
|
|
|
|
$
|
217,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors interest in net income
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,076
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
213,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,505
|
|
Net income from continuing operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit (basic and diluted)
|
|
|
16,97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.48
|
|
Subordinated unit (basic and diluted)
|
|
|
16.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.48
|
|
Total unit (basic and diluted)
|
|
|
16.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.48
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
213,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,124
|
|
Net income per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit (basic and diluted)
|
|
|
16,97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.91
|
|
Subordinated unit (basic and diluted)
|
|
|
16.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.91
|
|
Total unit (basic and diluted)
|
|
|
16.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.91
|
|
Cash distributions declared per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(in thousands, except unit and per unit data)
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
$
|
747,383
|
|
|
|
(1,178
|
)
|
|
|
14,580
|
|
|
|
(253,549
|
)
|
|
|
|
|
|
$
|
507,236
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
146,893
|
|
|
|
|
|
|
|
|
|
|
|
(77,241
|
)
|
|
|
|
|
|
|
69,652
|
|
Vessel operating expenses
|
|
|
87,507
|
|
|
|
|
|
|
|
4,914
|
|
|
|
(3,006
|
)
|
|
|
|
|
|
|
89,415
|
|
Time-charter hire expense
|
|
|
235,976
|
|
|
|
|
|
|
|
|
|
|
|
(128,184
|
)
|
|
|
|
|
|
|
107,792
|
|
Depreciation and amortization
|
|
|
93,269
|
|
|
|
|
|
|
|
2,568
|
|
|
|
(1,891
|
)
|
|
|
|
|
|
|
93,946
|
|
General and administrative
|
|
|
33,968
|
|
|
|
|
|
|
|
291
|
|
|
|
(16,210
|
)
|
|
|
|
|
|
|
18,049
|
|
Loss (gain) on sale of vessels and
equipment net of writedowns
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
597,676
|
|
|
|
|
|
|
|
7,773
|
|
|
|
(226,532
|
)
|
|
|
|
|
|
|
378,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
149,707
|
|
|
|
(1,178
|
)
|
|
|
6,807
|
|
|
|
(27,017
|
)
|
|
|
|
|
|
|
128,319
|
|
Interest expense
|
|
|
(46,872
|
)
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
(47,223
|
)
|
Interest income
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,278
|
|
Equity income from joint ventures
|
|
|
5,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,047
|
|
Gain on sales of marketable securities
|
|
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
517
|
|
Foreign currency exchange loss
|
|
|
(17,821
|
)
|
|
|
|
|
|
|
(870
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,691
|
)
|
Income tax (expense) recovery
|
|
|
(30,035
|
)
|
|
|
|
|
|
|
1,182
|
|
|
|
6,789
|
|
|
|
|
|
|
|
(22,064
|
)
|
Other net
|
|
|
4,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before non-controlling interest
|
|
|
66,276
|
|
|
|
(1,178
|
)
|
|
|
6,768
|
|
|
|
(20,228
|
)
|
|
|
|
|
|
|
51,638
|
|
Non-controlling interest
|
|
|
(2,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
63,513
|
|
|
|
(1,178
|
)
|
|
|
6,768
|
|
|
|
(20,228
|
)
|
|
|
|
|
|
|
48,875
|
|
Net income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,228
|
|
|
|
|
|
|
|
20,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
63,513
|
|
|
$
|
(1,178
|
)
|
|
$
|
6,768
|
|
|
$
|
|
|
|
|
|
|
|
$
|
69,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors interest in net income
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,768
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
63,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,107
|
|
Net income from continuing operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit (basic and diluted)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.34
|
|
Subordinated unit (basic and diluted)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.34
|
|
Total unit (basic and diluted)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.34
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
63,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,335
|
|
Net income per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit (basic and diluted)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.95
|
|
Subordinated unit (basic and diluted)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.95
|
|
Total unit (basic and diluted)
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.95
|
|
Cash distributions declared per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of year):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities
|
|
$
|
128,986
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128,986
|
|
Vessels and equipment
|
|
|
1,300,064
|
|
|
|
|
|
|
|
10,071
|
|
|
|
|
|
|
|
|
|
|
|
1,310,135
|
|
Total assets
|
|
|
1,884,017
|
|
|
|
|
|
|
|
11,584
|
|
|
|
|
|
|
|
|
|
|
|
1,895,601
|
|
Total debt
|
|
|
991,855
|
|
|
|
|
|
|
|
(41,036
|
)
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
943,319
|
|
Non-controlling interest
|
|
|
11,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,859
|
|
Dropdown Predecessors equity
|
|
|
|
|
|
|
|
|
|
|
47,784
|
|
|
|
|
|
|
|
|
|
|
|
47,784
|
|
Total partners/owners equity
|
|
|
740,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
747,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities
|
|
$
|
143,729
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
143,729
|
|
Vessels and equipment
|
|
|
1,427,481
|
|
|
|
|
|
|
|
12,686
|
|
|
|
|
|
|
|
|
|
|
|
1,440,167
|
|
Total assets
|
|
|
2,040,642
|
|
|
|
|
|
|
|
14,118
|
|
|
|
|
|
|
|
|
|
|
|
2,054,760
|
|
Total debt
|
|
|
1,210,998
|
|
|
|
|
|
|
|
(32,866
|
)
|
|
|
|
|
|
|
|
|
|
|
1,178,132
|
|
Non-controlling interest
|
|
|
14,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,276
|
|
Dropdown Predecessors equity
|
|
|
|
|
|
|
|
|
|
|
44,016
|
|
|
|
|
|
|
|
|
|
|
|
44,016
|
|
Total partners/owners equity
|
|
|
659,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
659,212
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(in thousands, except unit and per unit data)
|
|
Balance Sheet Data (at end of year):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities
|
|
$
|
160,957
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
160,957
|
|
Vessels and equipment
|
|
|
1,431,947
|
|
|
|
|
|
|
|
15,031
|
|
|
|
|
|
|
|
|
|
|
|
1,446,978
|
|
Total assets
|
|
|
2,037,855
|
|
|
|
|
|
|
|
16,593
|
|
|
|
|
|
|
|
|
|
|
|
2,054,448
|
|
Total debt
|
|
|
1,354,392
|
|
|
|
|
|
|
|
(25,407
|
)
|
|
|
|
|
|
|
|
|
|
|
1,328,985
|
|
Non-controlling interest
|
|
|
15,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,525
|
|
Dropdown Predecessors equity
|
|
|
|
|
|
|
|
|
|
|
39,420
|
|
|
|
|
|
|
|
|
|
|
|
39,420
|
|
Total partners/owners equity
|
|
|
529,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
240,245
|
|
|
$
|
|
|
|
$
|
6,939
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
247,184
|
|
Financing activities
|
|
|
(67,363
|
)
|
|
|
|
|
|
|
(6,939
|
)
|
|
|
|
|
|
|
|
|
|
|
(74,302
|
)
|
Investing activities
|
|
|
(190,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
224,237
|
|
|
$
|
|
|
|
$
|
7,520
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
231,757
|
|
Financing activities
|
|
|
734,389
|
|
|
|
|
|
|
|
(5,795
|
)
|
|
|
|
|
|
|
|
|
|
|
728,594
|
|
Investing activities
|
|
|
(837,423
|
)
|
|
|
|
|
|
|
(1,725
|
)
|
|
|
|
|
|
|
|
|
|
|
(839,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
$
|
170,630
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
170,630
|
|
Expenditures for drydocking
|
|
|
9,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
$
|
146,279
|
|
|
$
|
|
|
|
$
|
1,725
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
148,004
|
|
Expenditures for drydocking
|
|
|
11,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,980
|
|
RISK FACTORS
Except for the changes in percentages of our consolidated voyage revenues from continuing
operations generated from Teekay Corporation, Petrobras Transporte S.A. and StatoilHydro ASA, the
information included in Item 3 Risk Factors in the Original Filing has not been updated for
information or events occurring after the date of the Original Filing and has not been updated to
reflect the passage of time since the date of the Original Filing.
Our cash flow depends substantially on OPCOs ability to make distributions to its partners,
including us.
Until July 2007, our partnership interest in OPCO represented our only cash generating asset. We
still derive a substantial majority of our cash flow from OPCOs distributions to us as one of its
partners. The amount of cash OPCO can distribute to its partners principally depends upon the
amount of cash it generates from its operations, which may fluctuate from quarter to quarter based
on, among other things:
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the rates it obtains from its charters and contracts of affreightment (whereby OPCO
carries an agreed quantity of cargo for a customer over a specified trade route within a
given period of time);
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the price and level of production of, and demand for, crude oil, particularly the level
of production at the offshore oil fields OPCO services under contracts of affreightment;
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the level of its operating costs, such as the cost of crews and insurance;
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the number of off-hire days for its fleet and the timing of, and number of days required
for, drydocking of its vessels;
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the rates, if any, at which OPCO may be able to redeploy shuttle tankers in the spot
market as conventional oil tankers during any periods of reduced or terminated oil
production at fields serviced by contracts of affreightment;
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delays in the delivery of any newbuildings or vessels undergoing conversion and the
beginning of payments under charters relating to those vessels;
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prevailing global and regional economic and political conditions;
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currency exchange rate fluctuations; and
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the effect of governmental regulations and maritime self-regulatory organization
standards on the conduct of its business.
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The actual amount of cash OPCO has available for distribution also depends on other factors
such as:
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the level of capital expenditures it makes, including for maintaining vessels or
converting existing vessels for other uses and complying with regulations;
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its debt service requirements and restrictions on distributions contained in its debt
instruments;
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fluctuations in its working capital needs;
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its ability to make working capital borrowings; and
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the amount of any cash reserves, including reserves for future maintenance capital
expenditures, working capital and other matters, established by the Board of Directors of
our general partner.
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OPCOs limited partnership agreement provides that it distributes its available cash (as defined in
the partnership agreement) to its partners on a quarterly basis. OPCOs available cash includes
cash on hand less any reserves that may be appropriate for operating its business. The amount of
OPCOs quarterly distributions, including the amount of cash reserves not distributed, is
determined by the Board of Directors of our general partner on our behalf.
The amount of cash OPCO generates from operations may differ materially from its profit or loss for
the period, which will be affected by non-cash items. As a result of this and the other factors
mentioned above, OPCO may make cash distributions during periods when it records losses and may not
make cash distributions during periods when it records net income.
We may not have sufficient cash from operations to enable us to pay the minimum quarterly
distribution on our common units or to maintain or increase distributions.
The source of our earnings and cash flow consists nearly exclusively of cash distributions from our
subsidiaries, primarily OPCO. Therefore, the amount of distributions we are able to make to our
unitholders will fluctuate based on the level of distributions made to us by our subsidiaries.
Neither OPCO nor any other subsidiaries may make quarterly distributions at a level that will
permit us to make distributions to our common unitholders at the minimum quarterly distribution
level set forth in our partnership agreement or to maintain or increase our quarterly distributions
in the future. In addition, while we would expect to increase or decrease distributions to our
unitholders if our subsidiaries increase or decrease distributions to us, the timing and amount of
any such increased or decreased distributions will not necessarily be comparable to the timing and
amount of the increase or decrease in distributions made by our subsidiaries to us.
Our ability to distribute to our unitholders any cash we may receive from our subsidiaries is or
may be limited by a number of factors, including, among others:
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interest expense and principal payments on any indebtedness we incur;
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restrictions on distributions contained in any of our current or future debt agreements;
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fees and expenses of us, our general partner, its affiliates or third parties we are
required to reimburse or pay, including expenses we incur as a result of being a public
company; and
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reserves our general partner believes are prudent for us to maintain for the proper
conduct of our business or to provide for future distributions.
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Many of these factors will reduce the amount of cash we may otherwise have available for
distribution. We may not be able to pay distributions, and any distributions we do make may not be
at or above our minimum quarterly distribution. The actual amount of cash that is available for
distribution to our unitholders will depend on several factors, many of which are beyond the
control of us or our general partner.
Our ability to grow may be adversely affected by our cash distribution policy. OPCOs ability to
meet its financial needs and grow may be adversely affected by its cash distribution policy.
Our cash distribution policy, which is consistent with our partnership agreement, requires us to
distribute all of our available cash (as defined in our partnership agreement) each quarter.
Accordingly, our growth may not be as fast as businesses that reinvest their available cash to
expand ongoing operations.
OPCOs cash distribution policy requires it to distribute all of its available cash each quarter.
In determining the amount of cash available for distribution by OPCO, the Board of Directors of our
general partner, in making the determination on our behalf, will approve the amount of cash
reserves to set aside by OPCO, including reserves for future maintenance capital expenditures,
working capital and other matters. OPCO also relies upon external financing sources, including
commercial borrowings, to fund its capital expenditures. Accordingly, to the extent OPCO does not
have sufficient cash reserves or is unable to obtain financing, its cash distribution policy may
significantly impair its ability to meet its financial needs or to grow.
13
We must make substantial capital expenditures to maintain the operating capacity of our fleet,
which will reduce cash available for distribution. In addition, each quarter our general partner is
required to deduct estimated maintenance capital expenditures from operating surplus, which may
result in less cash available to unitholders than if actual maintenance capital expenditures were
deducted.
We must make substantial capital expenditures to maintain, over the long term, the operating
capacity of our fleet. We intend to continue to expand our fleet, which would increase the level of
our maintenance capital expenditures. Maintenance capital expenditures include capital expenditures
associated with drydocking a vessel, modifying an existing vessel or acquiring a new vessel to the
extent these expenditures are incurred to maintain the operating capacity of our fleet. These
expenditures could increase as a result of changes in:
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the cost of labor and materials;
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customer requirements;
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increases in fleet size or the cost of replacement vessels;
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governmental regulations and maritime self-regulatory organization standards relating to
safety, security or the environment; and
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competitive standards.
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In addition, actual maintenance capital expenditures vary significantly from quarter to quarter
based on the number of vessels drydocked during that quarter. Significant maintenance capital
expenditures reduce the amount of cash that OPCO has available to distribute to us and that we have
available for distribution to our unitholders.
Our partnership agreement requires our general partner to deduct our estimated, rather than actual,
maintenance capital expenditures from operating surplus each quarter in an effort to reduce
fluctuations in operating surplus (as defined in our partnership agreement). The amount of
estimated maintenance capital expenditures deducted from operating surplus is subject to review and
change by the conflicts committee of our general partner at least once a year. In years when
estimated maintenance capital expenditures are higher than actual maintenance capital expenditures,
the amount of cash available for distribution to unitholders is lower than if actual maintenance
capital expenditures were deducted from operating surplus. If our general partner underestimates
the appropriate level of estimated maintenance capital expenditures, we may have less cash
available for distribution in future periods when actual capital expenditures begin to exceed our
previous estimates.
We require substantial capital expenditures to expand the size of our fleet. We generally are
required to make significant installment payments for acquisitions of newbuilding vessels or for
the conversion of existing vessels prior to their delivery and generation of revenue. Depending on
whether we finance our expenditures through cash from operations or by issuing debt or equity
securities, our ability to make cash distributions may be diminished or our financial leverage may
increase or our unitholders may be diluted.
We make substantial capital expenditures to increase the size of our fleet. In 2007, we purchased
from Teekay Corporation its interests in two shuttle tankers and one FSO unit. Teekay Corporation
is obligated to offer us its interests in additional vessels. Please read Item 4: Information on
the PartnershipOverview, History and Development, for information about these recent and potential
acquisitions.
Currently, the total delivered cost for a shuttle tanker is approximately $60 to $150 million, the
cost of converting an existing tanker to an FSO unit is approximately $20 to $50 million and an
FPSO unit is approximately $100 million to $1.5 billion, although actual costs vary significantly
depending on the market price charged by shipyards, the size and specifications of the vessel,
governmental regulations and maritime self-regulatory organization standards.
We and Teekay Corporation regularly evaluate and pursue opportunities to provide marine
transportation services for new or expanding offshore projects. Teekay Corporation currently is
seeking to provide transportation services for several offshore projects. Under an omnibus
agreement that we have entered into in connection with our initial public offering, Teekay
Corporation is required to offer to us, within 365 days of their deliveries, certain shuttle
tankers, FSO units and FPSO units Teekay Corporation may acquire. Neither we nor Teekay Corporation
may be awarded charters or contracts of affreightment relating to any of the projects we pursue or
it pursues, and we may choose not to purchase the vessels Teekay Corporation is required to offer
to us under the omnibus agreement. If we obtain from Teekay Corporation any offshore project, we
will incur significant capital expenditures to build the offshore vessels needed to fulfill the
project requirements.
We generally are required to make installment payments on newbuildings prior to their delivery. We
typically must pay between 10% to 20% of the purchase price of a shuttle tanker upon signing the
purchase contract, even though delivery of the completed vessel will not occur until much later
(approximately three to four years from the time the order is placed). If we finance these
acquisition costs by issuing debt or equity securities, we will increase the aggregate amount of
interest or minimum quarterly distributions we must make prior to generating cash from the
operation of the newbuilding.
To fund the remaining portion of existing or future capital expenditures, we will be required to
use cash from operations or incur borrowings or raise capital through the sale of debt or
additional equity securities. Use of cash from operations will reduce cash available for
distribution to unitholders. Our ability to obtain bank financing or to access the capital markets
for future offerings may be limited by our financial condition at the time of any such financing or
offering as well as by adverse market conditions resulting from, among other things, general
economic conditions and contingencies and uncertainties that are beyond our control. Our failure to
obtain the funds for future capital expenditures could have a material adverse effect on our
business, results of operations and financial condition and on our ability to make cash
distributions. Even if we are successful in obtaining necessary funds, the terms of such financings
could limit our ability to pay cash distributions to unitholders. In addition, incurring additional
debt may significantly increase our interest expense and financial leverage, and issuing additional
equity securities may result in significant unitholder dilution and would increase the aggregate
amount of cash required to meet our minimum quarterly distribution to unitholders, which could have
a material adverse effect on our ability to make cash distributions.
14
Our substantial debt levels may limit our flexibility in obtaining additional financing, pursuing
other business opportunities and paying distributions to you.
If we are awarded contracts for additional offshore projects, our consolidated debt may
significantly increase. As at December 31, 2007, our total debt was $1,517.5 million and we had the
ability to borrow an additional $165.5 million under our revolving credit facilities, subject to
limitations in the credit facilities. We may incur additional debt under these or future credit
facilities. Our level of debt could have important consequences to us, including:
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our ability to obtain additional financing, if necessary, for working capital, capital
expenditures, acquisitions or other purposes may be impaired or such financing may not be
available on favorable terms;
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we will need a substantial portion of our cash flow to make principal and interest
payments on our debt, reducing the funds that would otherwise be available for operations,
future business opportunities and distributions to unitholders;
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our debt level may make us more vulnerable than our competitors with less debt to
competitive pressures or a downturn in our industry or the economy generally; and
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our debt level may limit our flexibility in responding to changing business and economic
conditions.
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Our ability to service our debt will depend upon, among other things, our future financial and
operating performance, which will be affected by prevailing economic conditions and financial,
business, regulatory and other factors, some of which are beyond our control. If our operating
results are not sufficient to service our current or future indebtedness, we will be forced to take
actions such as reducing distributions, reducing or delaying our business activities, acquisitions,
investments or capital expenditures, selling assets, restructuring or refinancing our debt, or
seeking additional equity capital or bankruptcy protection. We may not be able to effect any of
these remedies on satisfactory terms, or at all.
Financing agreements containing operating and financial restrictions may restrict our business and
financing activities.
The operating and financial restrictions and covenants in our financing arrangements and any future
financing agreements for us could adversely affect our ability to finance future operations or
capital needs or to engage, expand or pursue our business activities. For example, the arrangements
may restrict our or OPCOs ability to:
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incur or guarantee indebtedness;
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change ownership or structure, including mergers, consolidations, liquidations and
dissolutions;
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make dividends or distributions;
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make certain negative pledges and grant certain liens;
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sell, transfer, assign or convey assets;
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make certain investments; and
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enter into a new line of business.
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In addition, two revolving credit facilities require OPCO to maintain a minimum liquidity (cash,
cash equivalents and undrawn committed revolving credit lines with at least six months of maturity)
of $75.0 million, with aggregate liquidity of not less than 5.0% of the total consolidated debt of
OPCO and its subsidiaries. Another revolving credit facility is guaranteed by Teekay Corporation
and requires Teekay Corporation to maintain the greater of a minimum liquidity of at least
$50.0 million and 5.0% of its total consolidated debt. Teekay Corporations, OPCOs or our ability
to comply with covenants and restrictions contained in debt instruments may be affected by events
beyond their, its or our control, including prevailing economic, financial and industry conditions.
If market or other economic conditions deteriorate, compliance with these covenants may be
impaired. If restrictions, covenants, ratios or tests in the financing agreements are breached, a
significant portion of the obligations may become immediately due and payable, and the lenders
commitment to make further loans may terminate. Neither Teekay Corporation, OPCO nor we might have,
or be able to obtain, sufficient funds to make these accelerated payments. In addition, obligations
under our credit facilities are secured by certain vessels, and if we are unable to repay debt
under the credit facilities, the lenders could seek to foreclose on those assets.
Restrictions in our debt agreements may prevent OPCO or us from paying distributions.
The payment of principal and interest on our debt reduces cash available for distribution to us and
on our units. In addition, our and OPCOs financing agreements prohibit the payment of
distributions upon the occurrence of the following events, among others:
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failure to pay any principal, interest, fees, expenses or other amounts when due;
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failure to notify the lenders of any material oil spill or discharge of hazardous
material, or of any action or claim related thereto;
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breach or lapse of any insurance with respect to vessels securing the facilities;
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breach of certain financial covenants;
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failure to observe any other agreement, security instrument, obligation or covenant
beyond specified cure periods in certain cases;
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default under other indebtedness;
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bankruptcy or insolvency events;
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failure of any representation or warranty to be materially correct;
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a change of control, as defined in the applicable agreement; and
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a material adverse effect, as defined in the applicable agreement.
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We derive a substantial majority of our revenues from a limited number of customers, and the loss
of any such customers could result in a significant loss of revenues and cash flow.
We have derived, and we believe we will continue to derive, a substantial majority of revenues and
cash flow from a limited number of customers. StatoilHydro ASA, Teekay Corporation and Petrobras
Transporte S.A. accounted for approximately 39%, 20% and 13%, respectively, of consolidated voyage
revenues from continuing operations during 2007. Teekay Corporation and StatoilHydro ASA accounted
for approximately 12% and 30%, respectively, of consolidated voyage revenues from continuing
operations during 2006. StatoilHydro ASA accounted for approximately 30% of consolidated voyage
revenues from continuing operations during 2005. No other customer accounted for 10% or more of
revenues from continuing operations during any of these periods.
If we lose a key customer, we may be unable to obtain replacement long-term charters or contracts
of affreightment and may become subject, with respect to any shuttle tankers redeployed on
conventional oil tanker trades, to the volatile spot market, which is highly competitive and
subject to significant price fluctuations. If a customer exercises its right under some charters to
purchase the vessel, we may be unable to acquire an adequate replacement vessel. Any replacement
newbuilding would not generate revenues during its construction and we may be unable to charter any
replacement vessel on terms as favorable to us as those of the terminated charter.
The loss of any of our significant customers could have a material adverse effect on our business,
results of operations and financial condition and our ability to make cash distributions.
We depend on Teekay Corporation to assist us in operating our businesses and competing in our
markets.
We, OPCO and operating subsidiaries of us and OPCO have entered into various services agreements
with certain subsidiaries of Teekay Corporation pursuant to which those subsidiaries will provide
to us and OPCO all of our and OPCOs administrative services and to the operating subsidiaries
substantially all of their managerial, operational and administrative services (including vessel
maintenance, crewing, purchasing, shipyard supervision, insurance and financial services) and other
technical and advisory services. Our operational success and ability to execute our growth strategy
depends significantly upon the satisfactory performance of these services by the Teekay Corporation
subsidiaries. Our business will be harmed if such subsidiaries fail to perform these services
satisfactorily or if they stop providing these services to us, OPCO or the operating subsidiaries.
Our ability to compete for offshore oil marine transportation, processing and storage projects and
to enter into new charters or contracts of affreightment and expand our customer relationships
depends largely on our ability to leverage our relationship with Teekay Corporation and its
reputation and relationships in the shipping industry. If Teekay Corporation suffers material
damage to its reputation or relationships, it may harm our or OPCOs ability to:
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renew existing charters and contracts of affreightment upon their expiration;
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obtain new charters and contracts of affreightment;
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successfully interact with shipyards during periods of shipyard construction constraints;
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obtain financing on commercially acceptable terms; or
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maintain satisfactory relationships with suppliers and other third parties.
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If our ability to do any of the things described above is impaired, it could have a material
adverse effect on our business, results of operations and financial condition and our ability to
make cash distributions.
Our operating subsidiaries may also contract with certain subsidiaries of Teekay Corporation for
the Teekay Corporation subsidiaries to have newbuildings constructed or existing vessels converted
on behalf of the operating subsidiaries and to incur the construction-related financing. The
operating subsidiaries would purchase the vessels on or after delivery based on an agreed-upon
price. None of our operating subsidiaries currently has this type of arrangement with Teekay
Corporation or any of its affiliates.
Our growth depends on continued growth in demand for offshore oil transportation, processing and
storage services.
Our growth strategy focuses on expansion in the shuttle tanker, FSO and FPSO sectors. Accordingly,
our growth depends on continued growth in world and regional demand for these offshore services,
which could be negatively affected by a number of factors, such as:
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decreases in the actual or projected price of oil, which could lead to a reduction in or
termination of production of oil at certain fields we service or a reduction in exploration
for or development of new offshore oil fields;
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increases in the production of oil in areas linked by pipelines to consuming areas, the
extension of existing, or the development of new, pipeline systems in markets we may serve,
or the conversion of existing non-oil pipelines to oil pipelines in those markets;
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decreases in the consumption of oil due to increases in its price relative to other
energy sources, other factors making consumption of oil less attractive or energy
conservation measures;
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availability of new, alternative energy sources; and
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negative global or regional economic or political conditions, particularly in oil
consuming regions, which could reduce energy consumption or its growth.
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Reduced demand for offshore marine transportation, processing or storage services would have a
material adverse effect on our future growth and could harm our business, results of operations and
financial condition.
Because payments under our contracts of affreightment are based on the volume of oil transported,
utilization of our shuttle tanker fleet and the success of our shuttle tanker business depends upon
continued production from existing or new oil fields it services, which is beyond our control and
generally declines naturally over time. Any decrease in the volume of oil transported under
contracts of affreightment could adversely affect our business and operating results.
A majority of our shuttle tankers operate under contracts of affreightment. Payments under these
contracts of affreightment are based upon the volume of oil transported, which depends upon the
level of oil production at the fields we service under the contracts. Oil production levels are
affected by several factors, all of which are beyond our control, including: geologic factors,
including general declines in production that occur naturally over time; the rate of technical
developments in extracting oil and related infrastructure and implementation costs; and operator
decisions based on revenue compared to costs from continued operations. Factors that may affect an
operators decision to initiate or continue production include: changes in oil prices; capital
budget limitations; the availability of necessary drilling and other governmental permits; the
availability of qualified personnel and equipment; the quality of drilling prospects in the area;
and regulatory changes. In addition, the volume of oil transported may be adversely affected by
extended repairs to oil field installations or suspensions of field operations as a result of oil
spills or otherwise.
The rate of oil production at fields we service may decline from existing or future levels, and may
be terminated. If such a reduction or termination occurs, the spot market rates, if any, in the
conventional oil tanker trades at which we may be able to redeploy the affected shuttle tankers may
be lower than the rates previously earned by the vessels under the contracts of affreightment,
which would reduce our results of operations and ability to make cash distributions.
The duration of many of our shuttle tanker and FSO contracts is the life of the relevant oil field
or is subject to extension by the field operator or vessel charterer. If the oil field no longer
produces oil or is abandoned or the contract term is not extended, we will no longer generate
revenue under the related contract and will need to seek to redeploy affected vessels.
Many of our shuttle tanker contracts have a life-of-field duration, which means that the contract
continues until oil production at the field ceases. If production terminates for any reason, we no
longer will generate revenue under the related contract. Other shuttle tanker and FSO contracts
under which our vessels operate are subject to extensions beyond their initial term. The likelihood
of these contracts being extended may be negatively affected by reductions in oil field reserves,
low oil prices generally or other factors. If we are unable to promptly redeploy any affected
vessels at rates at least equal to those under the contracts, if at all, our operating results will
be harmed. Any potential redeployment may not be under long-term contracts, which may affect the
stability of our cash flow and our ability to make cash distributions.
The results of our shuttle tanker operations in the North Sea are subject to seasonal fluctuations.
Due to harsh winter weather conditions, oil field operators in the North Sea typically schedule oil
platform and other infrastructure repairs and maintenance during the summer months. Because the
North Sea is our primary existing offshore oil market, this seasonal repair and maintenance
activity contributes to quarter-to-quarter volatility in our results of operations, as oil
production typically is lower in the second and third quarters in this region compared with
production in the first and fourth quarters. Because a significant portion of our North Sea shuttle
tankers operate under contracts of affreightment, under which revenue is based on the volume of oil
transported, the results of these shuttle tanker operations in the North Sea under these contracts
generally reflect this seasonal production pattern. When we redeploy affected shuttle tankers as
conventional oil tankers while platform maintenance and repairs are conducted, the overall
financial results for the North Sea shuttle tanker operations may be negatively affected as the
rates in the conventional oil tanker markets at times may be lower than contract of affreightment
rates. In addition, we seek to coordinate some of the general drydocking schedule of our fleet with
this seasonality, which may result in lower revenues and increased drydocking expenses during the
summer months.
Our growth depends on our ability to expand relationships with existing customers and obtain new
customers, for which we will face substantial competition.
One of our principal objectives is to enter into additional long-term, fixed-rate time charters and
contracts of affreightment. The process of obtaining new long-term time charters and contracts of
affreightment is highly competitive and generally involves an intensive screening process and
competitive bids, and often extends for several months. Shuttle tanker, FSO and FPSO contracts are
awarded based upon a variety of factors relating to the vessel operator, including:
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industry relationships and reputation for customer service and safety;
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experience and quality of ship operations;
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quality, experience and technical capability of the crew;
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relationships with shipyards and the ability to get suitable berths;
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construction management experience, including the ability to obtain on-time delivery of new
vessels according to customer specifications;
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willingness to accept operational risks pursuant to the charter, such as allowing
termination of the charter for force majeure events; and
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competitiveness of the bid in terms of overall price.
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We expect substantial competition for providing services for potential shuttle tanker, FSO and FPSO
projects from a number of experienced companies, including state-sponsored entities. OPCOs Aframax
conventional tanker business also faces substantial competition from major oil companies,
independent owners and operators and other sized tankers. Many of our competitors have
significantly greater financial resources than do we, OPCO or Teekay Corporation, which also may
compete with us. We anticipate that an increasing number of marine transportation companies
including many with strong reputations and extensive resources and experience will enter the FSO
and FPSO sectors. This increased competition may cause greater price competition for charters. As a
result of these factors, we may be unable to expand our relationships with existing customers or to
obtain new customers on a profitable basis, if at all, which would have a material adverse effect
on our business, results of operations and financial condition and our ability to make cash
distributions.
17
Delays in deliveries of newbuilding vessels or of conversions of existing vessels could harm our
operating results.
The delivery of any newbuildings or vessel conversions we may order could be delayed, which would
delay our receipt of revenues under the charters or other contracts related to the vessels. In
addition, under some charters we may enter into that are related to a newbuilding or conversion, if
our delivery of the newbuilding or converted vessel to our customer is delayed, we may be required
to pay liquidated damages during the delay. For prolonged delays, the customer may terminate the
charter and, in addition to the resulting loss of revenues, we may be responsible for substantial
liquidated damages.
The completion and delivery of newbuildings or vessel conversions could be delayed because of:
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quality or engineering problems, the risk of which may be increased with FPSO units due to
their technical complexity;
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changes in governmental regulations or maritime self-regulatory organization standards;
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work stoppages or other labor disturbances at the shipyard;
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bankruptcy or other financial crisis of the shipbuilder;
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a backlog of orders at the shipyard;
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political or economic disturbances;
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weather interference or catastrophic event, such as a major earthquake or fire;
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requests for changes to the original vessel specifications;
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shortages of or delays in the receipt of necessary construction materials, such as steel;
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inability to finance the construction or conversion of the vessels; or
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inability to obtain requisite permits or approvals.
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If delivery of a vessel is materially delayed, it could adversely affect our results of operations
and financial condition and our ability to make cash distributions.
Charter rates for conventional oil tankers may fluctuate substantially over time and may be lower
when we are or OPCO is attempting to recharter conventional oil tankers, which could adversely
affect operating results. Any changes in charter rates for shuttle tankers or FSO or FPSO units
could also adversely affect redeployment opportunities for those vessels.
Our ability to recharter OPCOs conventional oil tankers following expiration of existing
time-charter contracts commencing in 2011 and the rates payable upon any renewal or replacement
charters will depend upon, among other things, the state of the conventional tanker market.
Conventional oil tanker trades are highly competitive and have experienced significant fluctuations
in charter rates based on, among other things, oil and vessel demand. For example, an oversupply of
conventional oil tankers can significantly reduce their charter rates. There also exists some
volatility in charter rates for shuttle tankers and FSO and FPSO units.
Six of OPCOs fixed-term charters and eleven contracts of affreightment (representing approximately
6% of OPCOs aggregate contract of affreightment volumes) are scheduled to expire prior to December
31, 2008. If, upon expiration or termination of these or other contracts, long-term recharter rates
are lower than existing rates, our earnings and cash flow under any new contracts could be
adversely affected.
Over time, the value of our vessels may decline, which could adversely affect our operating
results.
Vessel values for shuttle tankers, conventional oil tankers and FSO and FPSO units can fluctuate
substantially over time due to a number of different factors, including:
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prevailing economic conditions in oil and energy markets;
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a substantial or extended decline in demand for oil;
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increases in the supply of vessel capacity; and
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the cost of retrofitting or modifying existing vessels, as a result of technological
advances in vessel design or equipment, changes in applicable environmental or other
regulations or standards, or otherwise.
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If operation of a vessel is not profitable, or if we cannot re-deploy a vessel at attractive rates
upon termination of a time charter or contract of affreightment, rather than continue to incur
costs to maintain and finance the vessel, we may seek to dispose of it. Our inability to dispose of
the vessel at a reasonable value could result in a loss on its sale and adversely affect our
results of operations and financial condition. Further, if we determine at any time that a
vessels future useful life and earnings require us to impair its value on our financial
statements, we may need to recognize a significant charge against our earnings.
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We may be unable to make or realize expected benefits from acquisitions, and implementing our
growth strategy through acquisitions may harm our business, financial condition and operating
results.
Our growth strategy includes selectively acquiring existing shuttle tankers and FSO and FPSO units
or businesses that own or operate these types of vessels. Historically, there have been very few
purchases of existing vessels and businesses in the FSO and FPSO segments. Factors that may
contribute to a limited number of acquisition opportunities for FSO units and FPSO units in the
near term include the relatively small number of independent FSO and FPSO fleet owners. In
addition, competition from other companies, many of which have significantly greater financial
resources than do we or Teekay Corporation, could reduce our acquisition opportunities or cause us
to pay higher prices.
Any acquisition of a vessel or business may not be profitable at or after the time of acquisition
and may not generate cash flow sufficient to justify the investment. In addition, our acquisition
growth strategy exposes us to risks that may harm our business, financial condition and operating
results, including risks that we may:
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fail to realize anticipated benefits, such as new customer relationships, cost-savings or
cash flow enhancements;
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be unable to hire, train or retain qualified shore and seafaring personnel to manage and
operate our growing business and fleet;
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decrease our liquidity by using a significant portion of available cash or borrowing
capacity to finance acquisitions;
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significantly increase our interest expense or financial leverage if we incur additional
debt to finance acquisitions;
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incur or assume unanticipated liabilities, losses or costs associated with the business
or vessels acquired; or
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incur other significant charges, such as impairment of goodwill or other intangible
assets, asset devaluation or restructuring charges.
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Unlike newbuildings, existing vessels typically do not carry warranties as to their condition.
While we generally inspect existing vessels prior to purchase, such an inspection would normally
not provide us with as much knowledge of a vessels condition as we would possess if it had been
built for us and operated by us during its life. Repairs and maintenance costs for existing vessels
are difficult to predict and may be substantially higher than for vessels we have operated since
they were built. These costs could decrease our cash flow and reduce our liquidity.
Terrorist attacks, increased hostilities or war could lead to further economic instability,
increased costs and disruption of business.
Terrorist attacks, and the current conflicts in Iraq and Afghanistan and other current and future
conflicts, may adversely affect our business, operating results, financial condition, and ability
to raise capital and future growth. Continuing hostilities in the Middle East may lead to
additional armed conflicts or to further acts of terrorism and civil disturbance in the United
States or elsewhere, which may contribute further to economic instability and disruption of oil
production and distribution, which could result in reduced demand for our services.
In addition, oil facilities, shipyards, vessels, pipelines and oil fields could be targets of
future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss
of life, vessel or other property damage, increased vessel operational costs, including insurance
costs, and the inability to transport oil to or from certain locations. Terrorist attacks, war or
other events beyond our control that adversely affect the distribution, production or
transportation of oil to be shipped by us could entitle customers to terminate the charters and
impact the use of shuttle tankers under contracts of affreightment, which would harm our cash flow
and business.
Our substantial operations outside the United States expose us to political, governmental and
economic instability, which could harm our operations.
Because our operations are primarily conducted outside of the United States, they may be affected
by economic, political and governmental conditions in the countries where we engage in business or
where our vessels are registered. Any disruption caused by these factors could harm our business,
including by reducing the levels of oil exploration, development and production activities in these
areas. We derive some of our revenues from shipping oil from politically unstable regions.
Conflicts in these regions have included attacks on ships and other efforts to disrupt shipping.
Hostilities or other political instability in regions where we operate or where we may operate
could have a material adverse effect on the growth of our business, results of operations and
financial condition and ability to make cash distributions. In addition, tariffs, trade embargoes
and other economic sanctions by the United States or other countries against countries in Southeast
Asia or elsewhere as a result of terrorist attacks, hostilities or otherwise may limit trading
activities with those countries, which could also harm our business and ability to make cash
distributions. Finally, a government could requisition one or more of our vessels, which is most
likely during war or national emergency. Any such requisition would cause a loss of the vessel and
could harm our cash flow and financial results.
Marine transportation is inherently risky, particularly in the extreme conditions in which many of
our vessels operate. An incident involving significant loss of product or environmental
contamination by any of our vessels could harm our reputation and business.
Vessels and their cargoes and oil production facilities we service are at risk of being damaged or
lost because of events such as:
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grounding, capsizing, fire, explosions and collisions;
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Our shuttle tanker fleet primarily operates in the North Sea. Harsh weather conditions in this
region (or other regions in which our vessels operate) may increase the risk of collisions, oil
spills, or mechanical failures.
An accident involving any of our vessels could result in any of the following:
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death or injury to persons, loss of property or damage to the environment and natural
resources;
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delays in the delivery of cargo;
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loss of revenues from charters or contracts of affreightment;
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liabilities or costs to recover any spilled oil or other petroleum products and to
restore the eco-system where the spill occurred;
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governmental fines, penalties or restrictions on conducting business;
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higher insurance rates; and
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damage to our reputation and customer relationships generally.
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Any of these results could have a material adverse effect on our business, financial condition and
operating results. In addition, any damage to, or environmental contamination involving, oil
production facilities serviced could suspend that service and result in loss of revenues.
Insurance may be insufficient to cover losses that may occur to our property or result from our
operations.
The operation of shuttle tankers, conventional oil tankers and FSO and FPSO units is inherently
risky. All risks may not be adequately insured against, and any particular claim may not be paid by
insurance. In addition, substantially all of our vessels are not insured against loss of revenues
resulting from vessel off-hire time, based on the cost of this insurance compared to our off-hire
experience. Any significant off-hire time of our vessels could harm our business, operating results
and financial condition. Any claims relating to our operations covered by insurance would be
subject to deductibles, and since it is possible that a large number of claims may be brought, the
aggregate amount of these deductibles could be material. Certain insurance coverage is maintained
through mutual protection and indemnity associations, and as a member of such associations we may
be required to make additional payments over and above budgeted premiums if member claims exceed
association reserves.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the
future. For example, more stringent environmental regulations have led in the past to increased
costs for, and in the future may result in the lack of availability
of, insurance against risks of environmental damage or pollution. A catastrophic oil spill or marine disaster could exceed the
insurance coverage, which could harm our business, financial condition and operating results. Any
uninsured or underinsured loss could harm our business and financial condition. In addition, the
insurance may be voidable by the insurers as a result of certain actions, such as vessels failing
to maintain certification with applicable maritime self-regulatory organizations.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of
insurance more difficult to obtain. In addition, the insurance that may be available may be
significantly more expensive than existing coverage.
We may experience operational problems with vessels that reduce revenue and increase costs.
Shuttle tankers are complex and their operation is technically challenging. To the extent we
acquire FPSO units, this complexity and challenge will increase. Marine transportation operations
are subject to mechanical risks and problems. Operational problems may lead to loss of revenue or
higher than anticipated operating expenses or require additional capital expenditures. Any of these
results could harm our business, financial condition and operating results.
The offshore shipping and storage industry is subject to substantial environmental and other
regulations, which may significantly limit operations or increase expenses.
Our operations are affected by extensive and changing international, national and local
environmental protection laws, regulations, treaties and conventions in force in international
waters, the jurisdictional waters of the countries in which our vessels operate, as well as the
countries of our vessels registration, including those governing oil spills, discharges to air and
water, and the handling and disposal of hazardous substances and wastes. Many of these requirements
are designed to reduce the risk of oil spills and other pollution. In addition, we believe that the
heightened environmental, quality and security concerns of insurance underwriters, regulators and
charterers will lead to additional regulatory requirements, including enhanced risk assessment and
security requirements and greater inspection and safety requirements on vessels. We expect to incur
substantial expenses in complying with these laws and regulations, including expenses for vessel
modifications and changes in operating procedures.
These requirements can affect the resale value or useful lives of our vessels, require a reduction
in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased
availability of insurance coverage for environmental matters or result in the denial of access to
certain jurisdictional waters or ports, or detention in, certain ports. Under local, national and
foreign laws, as well as international treaties and conventions, we could incur material
liabilities, including cleanup obligations, in the event that there is a release of petroleum or
other hazardous substances from our vessels or otherwise in connection with our operations. We
could also become subject to personal injury or property damage claims relating to the release of
or exposure to hazardous materials associated with our operations. In addition, failure to comply
with applicable laws and regulations may result in administrative and civil penalties, criminal
sanctions or the suspension or termination of our operations, including, in certain instances,
seizure or detention of our vessels.
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The United States Oil Pollution Act of 1990 (or
OPA 90
), for instance, allows for potentially
unlimited liability for owners, operators and bareboat charterers for oil pollution and related
damages in U.S. waters, which include the U.S. territorial sea and the 200-nautical mile exclusive
economic zone around the United States, without regard to fault of such owners, operators and
bareboat charterers. OPA 90 expressly permits individual states to impose their own liability
regimes with regard to hazardous materials and oil pollution incidents occurring within their
boundaries. Coastal states in the United States have enacted pollution prevention liability and
response laws, many providing for unlimited liability. Similarly, the International Convention on
Civil Liability for Oil Pollution Damage, 1969, as amended, which has been adopted by many
countries outside of the United States, imposes liability for oil pollution in international
waters. In addition, in complying with OPA 90, regulations of the International Maritime
Organization (or
IMO
), European Union directives and other existing laws and regulations and those
that may be adopted, ship-owners may incur significant additional costs in meeting new maintenance
and inspection requirements, in developing contingency arrangements for potential spills and in
obtaining insurance coverage.
Various jurisdictions are considering regulating the management of ballast water to prevent the
introduction of non-indigenous species considered to be invasive. For example, the United States
Clean Water Act prohibits the discharge of oil or hazardous substances in U.S. navigable waters and
imposes strict liability in the form of penalties for unauthorized discharges. Certain exemptions
promulgated by the Environmental Protection Agency (or
EPA
) under the Clean Water Act allow vessels
in U.S. ports to discharge certain substances, including ballast water, without obtaining a permit
to do so. However, a U.S. district court has invalidated the exemption. If the EPA does not
successfully appeal the district court decision, we may be subject to ballast water treatment
obligations that could increase the costs of operating in the United States.
In addition to international regulations affecting oil tankers generally, countries having
jurisdiction over North Sea areas also impose regulatory requirements applicable to operations in
those areas. Operators of North Sea oil fields impose further requirements. As a result, we must
make significant expenditures for sophisticated equipment, reporting and redundancy systems on our
shuttle tankers. Additional regulations and requirements may be adopted or imposed that could limit
our ability to do business or further increase the cost of doing business in the North Sea or other
regions in which we operate or may operate in the future.
Exposure to currency exchange rate fluctuations results in fluctuations in cash flows and operating
results.
We currently are paid partly in Norwegian Kroners under some of our time-charters and contracts of
affreightment. In addition, we, OPCO and our and its operating subsidiaries have entered into
services agreements with certain subsidiaries of Teekay Corporation pursuant to which those
subsidiaries provide to us and OPCO administrative services and to our and OPCOs operating
subsidiaries managerial, operational and administrative services. Under the services agreements,
the applicable subsidiaries of Teekay Corporation are paid in U.S. dollars for reasonable direct
and indirect expenses incurred in providing the services. A substantial majority of those expenses
are in Norwegian Kroners. The Teekay Corporation subsidiaries are paid under the services
agreements based on a fixed U.S. Dollar/Norwegian Kroner exchange rate until December 31, 2008.
Thereafter, the exchange rate is not fixed, which may result in increased payments under the
services agreements if the strength of the U.S. Dollar declines relative to the Norwegian Kroner.
The redeployment risk of FPSO units is high given their lack of alternative uses and significant
costs.
FPSO units are specialized vessels that have very limited alternative uses and high fixed costs. If
we acquire FPSO units and they are not, as a result of contract termination or otherwise, subject
to a long-term profitable contract, we may be required to bid for projects at unattractive rates in
order to reduce our losses relating to the vessels.
Many seafaring employees are covered by collective bargaining agreements and the failure to renew
those agreements or any future labor agreements may disrupt operations and adversely affect our
cash flows.
A significant portion of Teekay Corporations seafarers that crew certain some of our vessels and
Norwegian-based onshore operational staff that provide services to us are employed under collective
bargaining agreements. Teekay Corporation may become subject to additional labor agreements in the
future. Teekay Corporation may suffer labor disruptions if relationships deteriorate with the
seafarers or the unions that represent them. The collective bargaining agreements may not prevent
labor disruptions, particularly when the agreements are being renegotiated. Salaries are typically
renegotiated annually or bi-annually for seafarers and annually for onshore operational staff and
higher compensation levels will increase our costs of operations. Although these negotiations have
not caused labor disruptions in the past, any future labor disruptions could harm our operations
and could have a material adverse effect on our business, results of operations and financial
condition and ability to make cash distributions.
Teekay Corporation may be unable to attract and retain qualified, skilled employees or crew
necessary to operate our business.
Our success depends in large part on Teekay Corporations ability to attract and retain highly
skilled and qualified personnel. In crewing our vessels, we require technically skilled employees
with specialized training who can perform physically demanding work. Competition to attract and
retain qualified crew members is intense. We expect crew costs to increase in 2008. If we are not
able to increase our rates to compensate for any crew cost increases, our financial condition and
results of operations may be adversely affected. Any inability we experience in the future to hire,
train and retain a sufficient number of qualified employees could impair our ability to manage,
maintain and grow our business.
Teekay Corporation and its affiliates may engage in competition with us.
Teekay Corporation and its affiliates may engage in competition with us. Pursuant to an omnibus
agreement we entered into in connection with our initial public offering, Teekay Corporation,
Teekay LNG Partners L.P. (NYSE: TGP). and their respective controlled affiliates (other than us,
OPCO and its and our subsidiaries) generally have agreed not to engage in, acquire or invest in any
business that owns, operates or charters (a) dynamically-positioned shuttle tankers (other than
those operating in the conventional oil tanker trade under contracts with a remaining duration of
less than three years, excluding extension options), (b) FSO units or (c) FPSO units (collectively
offshore vessels
) without the consent of our general partner. The omnibus agreement, however,
allows Teekay Corporation, Teekay LNG Partners L.P. and any of such controlled affiliates to:
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own, operate and charter offshore vessels if the remaining duration of the time charter
or contract of affreightment for the vessel, excluding any extension options, is less than
three years;
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own, operate and charter offshore vessels and related time charters or contracts of
affreightment acquired as part of a business or package of assets and operating or
chartering those vessels if a majority of the value of the total assets or business acquired
is not attributable to the offshore vessels and related contracts, as determined in good
faith by Teekay Corporations Board of Directors or the conflicts committee of the Board of
Directors of Teekay LNG Partners L.P.s general partner, as applicable; however, if at any
time Teekay Corporation or Teekay LNG Partners L.P. completes such an acquisition, it must,
within 365 days of the closing of the transaction, offer to sell the offshore vessels and
related contracts to us for their fair market value plus any additional tax or other similar
costs to Teekay Corporation or Teekay LNG Partners L.P. that would be required to transfer
the vessels and contracts to us separately from the acquired business or package of
assets; or
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own, operate and charter offshore vessels and related time charters and contracts of
affreightment that relate to tender, bid or award for a proposed offshore project that
Teekay Corporation or any of its subsidiaries has submitted or received hereafter submits or
receives; however,
at least 365 days after the delivery date of any such offshore vessel, Teekay Corporation must
offer to sell the vessel and related time charter or contract of affreightment to us, with the
vessel valued (a) for newbuildings originally contracted by Teekay Corporation, at its
fully-built-up cost (which represents the aggregate expenditures incurred (or to be incurred
prior to delivery to us) by Teekay Corporation to acquire, construct and/or convert and bring
such offshore vessel to the condition and location necessary for our intended use, plus project
development costs for completed projects and projects that were not completed but, if
completed, would have been subject to an offer to us) and (b) for any other vessels, Teekay
Corporations cost to acquire a newbuilding from a third party or the fair market value of an
existing vessel, as applicable, plus in each case any subsequent expenditures that would be
included in the fully-built-up cost of converting the vessel prior to delivery to us.
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If we decline the offer to purchase the offshore vessels and time charters described in the
immediately preceding two bullet points, Teekay Corporation or Teekay LNG Partners L.P., as
applicable, may own and operate the offshore vessels, but may not expand that portion of its
business.
In addition, pursuant to the omnibus agreement, Teekay Corporation, Teekay LNG Partners L.P. and
any of their respective controlled affiliates (other than us and our subsidiaries) may:
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acquire, operate and charter offshore vessels and related time charters and contracts of
affreightment if our general partner has previously advised Teekay Corporation or Teekay LNG
Partners L.P. that our general partners Board of Directors has elected, with the approval
of its conflicts committee, not to cause us or our controlled affiliates to acquire or
operate the vessels and related time charters and contracts of affreightment;
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acquire up to a 9.9% equity ownership, voting or profit participation interest in any
publicly-traded company that engages in, acquires or invests in any business that owns or
operates or charters offshore vessels and related time charters and contracts of
affreightment;
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provide ship management services relating to owning, operating or chartering offshore
vessels and related time charters and contracts of affreightment; or
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own a limited partner interest in OPCO or own shares of Teekay Petrojarl ASA (formally
Petrojarl ASA. And referred to herein as
Petrojarl
).
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In addition, Petrojarl has the right to continue to own, operate and charter its four FPSOs and
one shuttle tanker until such time, if ever, Teekay Corporation acquires 100% of Petrojarl. If that
happens, Teekay Corporation will be required to offer to us certain of Petrojarls fleet and
Petrojarls interests in its joint venture projects with Teekay Corporation. As at March 31, 2008,
Teekay Corporation owned 65% of Petrojarl.
If there is a change of control of Teekay Corporation or of the general partner of Teekay LNG
Partners L.P., the non-competition provisions of the omnibus agreement may terminate, which
termination could have a material adverse effect on our business, results of operations and
financial condition and our ability to make cash distributions.
Our general partner and its other affiliates own a controlling interest in us and have conflicts of
interest and limited fiduciary duties, which may permit them to favor their own interests to those
of unitholders.
Teekay Corporation indirectly owns the 2.0% general partner interest and a 57.75% limited partner
interest in us and owns and controls our general partner, which controls us. Although our general
partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, the
directors and officers of our general partner have a fiduciary duty to manage our general partner
in a manner beneficial to Teekay Corporation. Furthermore, certain directors and officers of our
general partner are directors or officers of affiliates of our general partner. Conflicts of
interest may arise between Teekay Corporation and its affiliates, including our general partner, on
the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our
general partner may favor its own interests and the interests of its affiliates over the interests
of our unitholders. These conflicts include, among others, the following situations:
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neither our partnership agreement nor any other agreement requires Teekay Corporation or
its affiliates (other than our general partner) to pursue a business strategy that favors us
or utilizes our assets, and Teekay Corporations officers and directors have a fiduciary
duty to make decisions in the best interests of the stockholders of Teekay Corporation,
which may be contrary to our interests;
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the Chief Executive Officer and Chief Financial Officer and three of the directors of our
general partner also serve as executive officers or directors of Teekay Corporation and the
general partner of Teekay LNG Partners L.P.;
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our general partner is allowed to take into account the interests of parties other than
us, such as Teekay Corporation, in resolving conflicts of interest, which has the effect of
limiting its fiduciary duty to our unitholders;
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our general partner has limited its liability and reduced its fiduciary duties under the
laws of the Marshall Islands, while also restricting the remedies available to our
unitholders and unitholders are treated as having agreed to the modified standard of
fiduciary duties and to certain actions that may be taken by our general partner, all as set
forth in our partnership agreement;
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our general partner determines the amount and timing of our asset purchases and sales,
capital expenditures, borrowings, issuances of additional partnership securities and
reserves, each of which can affect the amount of cash that is available for distribution to
our unitholders;
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in some instances, our general partner may cause us to borrow funds in order to permit
the payment of cash distributions, even if the purpose or effect of the borrowing is to make
a distribution on the subordinated units or to make incentive distributions (in each case to
affiliates of Teekay Corporation) or to accelerate the expiration of the subordination
period relating to our subordinated units held by Teekay Corporation;
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our general partner determines which costs incurred by it and its affiliates are
reimbursable by us;
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our partnership agreement does not restrict our general partner from causing us to pay it
or its affiliates for any services rendered to us on terms that are fair and reasonable or
entering into additional contractual arrangements with any of these entities on our behalf;
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our general partner intends to limit its liability regarding our contractual and other
obligations;
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our general partner may exercise its right to call and purchase common units if it and
its affiliates own more than 80.0% of our common units;
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our general partner controls the enforcement of obligations owed to us by it and its
affiliates; and
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our general partner decides whether to retain separate counsel, accountants or others to
perform services for us.
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Although we control OPCO through our ownership of its general partner, OPCOs general partner owes
fiduciary duties to OPCO and OPCOs other partner, Teekay Corporation, which may conflict with the
interests of us and our unitholders.
Conflicts of interest may arise as a result of the relationships between us and our unitholders, on
the one hand, and OPCO, its general partner and its other limited partner, Teekay Corporation, on
the other hand. Teekay Corporation owns a 74.0% limited partner interest in OPCO and controls our
general partner, which appoints the directors of OPCOs general partner. The directors and officers
of OPCOs general partner have fiduciary duties to manage OPCO in a manner beneficial to us, as
such general partners owner. At the same time, OPCOs general partner has a fiduciary duty to
manage OPCO in a manner beneficial to OPCOs limited partners, including Teekay Corporation. The
Board of Directors of our general partner may resolve any such conflict and has broad latitude to
consider the interests of all parties to the conflict. The resolution of these conflicts may not be
in the best interest of us or our unitholders.
For example, conflicts of interest may arise in the following situations:
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the allocation of shared overhead expenses to OPCO and us;
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the interpretation and enforcement of contractual obligations between us and our
affiliates, on the one hand, and OPCO or its subsidiaries, on the other hand;
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the determination and timing of the amount of cash to be distributed to OPCOs partners
and the amount of cash to be reserved for the future conduct of OPCOs business;
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the decision as to whether OPCO should make asset or business acquisitions or
dispositions, and on what terms;
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the determination or the amount and timing of OPCOs capital expenditures;
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the determination of whether OPCO should use cash on hand, borrow funds or issue equity
to raise cash to finance maintenance or expansion capital projects, repay indebtedness, meet
working capital needs or otherwise; and
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any decision we make to engage in business activities independent of, or in competition
with, OPCO.
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The fiduciary duties of the officers and directors of our general partner may conflict with those
of the officers and directors of OPCOs general partner.
Our general partners officers and directors have fiduciary duties to manage our business in a
manner beneficial to us and our partners. However, the Chief Executive Officer and Chief Financial
Officer and all of the non-independent directors of our general partner also serve as executive
officers or directors of OPCOs general partner and of Teekay Corporation and the general partner
of Teekay LNG Partners L.P., and, as a result, have fiduciary duties, among others, to manage the
business of OPCO in a manner beneficial to OPCO and its partners, including Teekay Corporation.
Consequently, these officers and directors may encounter situations in which their fiduciary
obligations to OPCO, Teekay Corporation or Teekay LNG Partners L.P., on one hand, and us, on the
other hand, are in conflict. The resolution of these conflicts may not always be in the best
interest of us or our unitholders.
Item 4. Information on the Partnership
Except for the changes in percentages of our consolidated voyage revenues from continuing
operations generated from Teekay Corporation, Petrobras Transporte S.A. and StatoilHydro ASA and
the percentages of our net voyage revenues from continuing operations earned by each of our
segments, the information included in Item 4 in the Original Filing has not been updated for
information or events occurring after the date of the Original Filing and has not been updated to
reflect the passage of time since the date of the Original Filing.
A. Overview, History and Development
Overview and History
We are an international provider of marine transportation and storage services to the offshore oil
industry. We were formed as a Marshall Islands limited partnership in August 2006 by Teekay
Corporation (NYSE: TK), a leading provider of marine services to the global oil and natural gas
industries, to further develop its operations in the offshore market. We plan to leverage the
expertise, relationships and reputation of Teekay Corporation and our controlled affiliates to
pursue growth opportunities in this market. As of December 31, 2007, Teekay Corporation, which owns
and controls our general partner, owned a 57.75% limited partner interest in us.
We own a 26.0% interest in Teekay Offshore Operating L.P. (or
OPCO
), which owns and operates the
worlds largest fleet of shuttle tankers, in addition to floating storage and offtake (or
FSO
)
units and double-hull conventional oil tankers. We control OPCO through our ownership of its
general partner, and Teekay Corporation owns the remaining 74.0% interest in OPCO.
23
In July 2007, we directly acquired interests in two double-hull shuttle tankers and related
charters. These interests, which we acquired from Teekay Corporation, include a 100% interest in
the 2000-built
Navion Bergen
and a 50% interest in the 2006-built
Navion Gothenburg
, together with
their respective 13-year, fixed-rate bareboat charters to a subsidiary of Petrobras Transporte
S.A., the shipping arm of Petroleo Brasileiro S.A.
In October 2007, we also directly acquired from Teekay Corporation one FSO unit, the
Dampier
Spirit
, which operates under a 7-year fixed-rate, time-charter to Apache Corporation of Australia.
As of December 31, 2007, our fleet consisted of:
|
|
|
Shuttle Tankers.
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, 24 are owned by OPCO (including 5 through 50% owned subsidiaries), 12 are
chartered-in by OPCO and 2 are owned by us (including one through a 50% owned subsidiary).
All of the shuttle tankers operate under contracts of affreightment for various offshore oil
fields or under fixed-rate time charter or bareboat charter contracts for specific oil field
installations. The majority of the contracts of affreightment volumes are life-of-field,
which have an estimated weighted-average remaining life of approximately 16 years. The time
charters and bareboat charters have an average remaining contract term of approximately 5
years. As of December 31, 2007, our shuttle tankers, which had a total cargo capacity of
approximately 4.6 million deadweight tonnes (or
dwt
), represented approximately 65% of the
total tonnage of the world shuttle tanker fleet.
|
|
|
|
Conventional Tankers.
OPCO has a fleet of nine Aframax conventional crude oil tankers.
The conventional tankers all have fixed-rate time charters with Teekay Corporation, with an
average remaining term of approximately 7 years. As of December 31, 2007, our conventional
tankers had a total cargo capacity of approximately 0.9 million dwt.
|
|
|
|
FSO Units.
We have a fleet of five FSO units. All of the FSO units operate under
fixed-rate contracts, with an average remaining term of approximately 4 years. As of
December 31, 2007, our FSO units had a total cargo capacity of approximately 0.6 million
dwt.
|
We were formed under the laws of the Republic of The Marshall Islands as Teekay Offshore Partners
L.P. and maintain our principal executive headquarters at 4th Floor, Belvedere Building, 69 Pitts
Bay Road, Hamilton, HM 08, Bermuda. Our telephone number at such address is (441) 298-2530. Our
principal operating office is located at Suite 2000, Bentall 5, 550 Burrard Street, Vancouver,
British Columbia, Canada, V6C 2K2. Our telephone number at such address is (604) 683-3529.
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 $416.9 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 OPCOs
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. Please see Item 5 Major Unitholders and Related Party Transactions.
B. Business Overview
Shuttle Tanker Segment
A shuttle tanker is a specialized ship designed to transport crude oil and condensates from
offshore oil field installations to onshore terminals and refineries. Shuttle tankers are equipped
with sophisticated loading systems and dynamic positioning systems that allow the vessels to load
cargo safely and reliably from oil field installations, even in harsh weather conditions. Shuttle
tankers were developed in the North Sea as an alternative to pipelines. The first cargo from an
offshore field in the North Sea was shipped in 1977, and the first dynamically-positioned shuttle
tankers were introduced in the early 1980s. Shuttle tankers are often described as floating
pipelines because these vessels typically shuttle oil from offshore installations to onshore
facilities in much the same way a pipeline would transport oil along the ocean floor.
Our shuttle tankers are primarily subject to long-term, fixed-rate time-charter contracts for a
specific offshore oil field or under contracts of affreightment for various fields. The number of
voyages performed under these contracts of affreightment normally depends upon the oil production
of each field. Competition for charters is based primarily upon price, availability, the size,
technical sophistication, age and condition of the vessel and the reputation of the vessels
manager. Technical sophistication of the vessel is especially important in harsh operating
environments such as the North Sea. Although the size of the world shuttle tanker fleet has been
relatively unchanged in recent years, conventional tankers could be converted into shuttle tankers
by adding specialized equipment to meet customer requirements. Shuttle tanker demand may also be
affected by the possible substitution of sub-sea pipelines to transport oil from offshore
production platforms.
As of December 31, 2007, there were approximately 74 vessels in the world shuttle tanker fleet
(including newbuildings), the majority of which operate in the North Sea. Shuttle tankers also
operate in Brazil, Canada, Russia and Africa. As of December 31, 2007, we owned 26 shuttle tankers
and chartered-in an additional 12 shuttle tankers. Other shuttle tanker owners in the North Sea
include Knutsen OAS Shipping AS, JJ Ugland Group and Penny Ugland, which as of December 31, 2007
controlled fleets of two to ten shuttle tankers each. We believe that we have significant
competitive advantages in the shuttle tanker market as a result of the quality, type and dimensions
of our vessels combined with our market share in the North Sea.
24
The following tables provide additional information about our shuttle tankers as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity
|
|
|
|
|
|
|
|
|
|
|
Position-
|
|
|
Operating
|
|
|
|
|
|
|
|
|
Remaining
|
Vessel
|
|
(dwt)
|
|
|
Built
|
|
|
Ownership
|
|
|
ing system
|
|
|
Region
|
|
|
Contract Type (1)
|
|
|
Charterer
|
|
Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Navion Hispania
|
|
|
126,700
|
|
|
|
1999
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
|
|
|
Navion Oceania
|
|
|
126,300
|
|
|
|
1999
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
|
|
|
Navion Anglia
|
|
|
126,300
|
|
|
|
1999
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
|
|
|
Navion Scandia
|
|
|
126,700
|
|
|
|
1998
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
|
|
|
Navion Britannia (2)
|
|
|
124,200
|
|
|
|
1998
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
StatoilHydro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chevron
|
|
|
Navion Norvegia (2)
|
|
|
130,600
|
|
|
|
1995
|
|
|
100%
|
|
DP
|
|
|
North Sea
|
|
CoA
|
Marathon Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hess
|
|
|
Navion Europa (2)
|
|
|
130,300
|
|
|
|
1995
|
|
|
100%
|
|
DP
|
|
|
North Sea
|
|
CoA
|
ExxonMobil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eni
Mongstad
|
|
Majority of
volumes are
|
Navion Fennia (2)
|
|
|
95,200
|
|
|
|
1992
|
|
|
100%
|
|
DP
|
|
|
North Sea
|
|
CoA
|
Terminal Draugen
|
|
life-of-field
|
Grena
|
|
|
148,000
|
|
|
|
2003
|
|
|
In-chartered
(until 2013) (3)
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
Transport
BP
|
|
|
Bertora
|
|
|
100,300
|
|
|
|
2001
|
|
|
In-chartered
(until 2008) (10)
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
ConocoPhillips
Shell
|
|
|
Sallie Knutsen
|
|
|
153,600
|
|
|
|
1999
|
|
|
In-chartered
(until 2015)
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
Total
Talisman
|
|
|
Karen Knutsen
|
|
|
153,600
|
|
|
|
1999
|
|
|
In-chartered
(until 2013)
|
|
DP2
|
|
|
North Sea
|
CoA
|
|
Nexen
DONG
|
|
|
Elisabeth Knutsen
|
|
|
124,700
|
|
|
|
1997
|
|
|
In-chartered
(until 2008)
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
Danoil
Denerco
|
|
|
Gerd Knutsen
|
|
|
146,200
|
|
|
|
1996
|
|
|
In-chartered
(until 2008)
|
|
DP
|
|
|
North Sea
|
|
CoA
|
Idemitsu
Lundin
|
|
|
Aberdeen
|
|
|
87,000
|
|
|
|
1996
|
|
|
In-chartered
(until 2009)
|
|
DP
|
|
|
North Sea
|
|
CoA
|
DNO (6)
|
|
|
Randgrid (2)
|
|
|
124,500
|
|
|
|
1995
|
|
|
In-chartered
(until 2014) (4)
|
|
DP
|
|
|
North Sea
|
|
CoA
|
|
|
|
Tordis Knutsen
|
|
|
123,800
|
|
|
|
1993
|
|
|
In-chartered
(unit 2010)
|
|
DP
|
|
|
North Sea
|
|
CoA
|
|
|
|
Vigdis Knutsen
|
|
|
123,400
|
|
|
|
1993
|
|
|
In-chartered
(until 2008)
|
|
DP
|
|
|
North Sea
|
|
CoA
|
|
|
|
Navion Akarita
|
|
|
107,200
|
|
|
|
1991
|
|
|
Lease
(until 2012) (5)
|
|
DP
|
|
|
North Sea
|
|
CoA
|
|
|
|
Tove Knutsen (2)
|
|
|
106,300
|
|
|
|
1989
|
|
|
In-chartered
(until 2009)
|
|
DP2
|
|
|
North Sea
|
|
CoA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stena Sirita
|
|
|
127,400
|
|
|
|
1999
|
|
|
50%(7)
|
|
DP2
|
|
|
North Sea
|
|
Time charter
|
|
ExxonMobil (8)
|
|
2 years
|
Navion Clipper
|
|
|
78,200
|
|
|
|
1993
|
|
|
100%
|
|
DP
|
|
|
Brazil
|
|
Time charter
|
|
Petrobras
|
|
2 years
|
Nordic Marita
|
|
|
103,900
|
|
|
|
1999
|
|
|
100%
|
|
DP
|
|
|
Brazil
|
|
Time charter
|
|
Petrobras
|
|
1.5 years
|
Stena Natalita
|
|
|
108,000
|
|
|
|
2001
|
|
|
50%(7)
|
|
DP2
|
|
|
North Sea
|
|
Time charter
|
|
ExxonMobil (8)
|
|
1.5 years
|
Stena Alexita
|
|
|
127,400
|
|
|
|
1998
|
|
|
50%(7)
|
|
DP2
|
|
|
North Sea
|
|
Time charter
|
|
ExxonMobil (8)
|
|
1 year
|
Nordic Svenita
|
|
|
106,500
|
|
|
|
1997
|
|
|
100%
|
|
DP
|
|
|
Brazil
|
|
Time charter
|
|
Petrobas
|
|
1 year
|
Nordic Savonita
|
|
|
108,100
|
|
|
|
1992
|
|
|
100%
|
|
DP
|
|
|
Brazil
|
|
Time charter
|
|
Petrobras
|
|
2 years
|
Nordic Torinita
|
|
|
106,800
|
|
|
|
1992
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
Time charter
|
|
Knutsen (8)
|
|
1 year
|
Basker Spirit
|
|
|
97,000
|
|
|
|
1992
|
|
|
100%
|
|
DP
|
|
|
Australia
|
|
Time charter
|
|
Anzon (8)
|
|
1 year
|
Navion Stavanger
|
|
|
147,500
|
|
|
|
2003
|
|
|
100%
|
|
DP2
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
12 years
|
Nordic Spirit
|
|
|
151,300
|
|
|
|
2001
|
|
|
100%
|
|
DP
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
11 years
|
Stena Spirit
|
|
|
151,300
|
|
|
|
2001
|
|
|
50%(7)
|
|
DP
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
10 years
|
Nordic Brasilia
|
|
|
151,300
|
|
|
|
2004
|
|
|
100%
|
|
DP
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
10 years
|
Nordic Rio
|
|
|
151,300
|
|
|
|
2004
|
|
|
50%(7)
|
|
DP
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
10 years
|
Navion Bergen
|
|
|
105,600
|
|
|
|
2000
|
|
|
100%
|
|
DP2
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
13 years
|
Navion Gothenburg
|
|
|
152,200
|
|
|
|
2006
|
|
|
50%(7)
|
|
DP2
|
|
|
Brazil
|
|
Bareboat
|
|
Petrobras (9)
|
|
13 years
|
Petroatlantic
|
|
|
92,900
|
|
|
|
2003
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
Bareboat
|
|
Petrojarl (9)
|
|
2 years
|
Petronordic
|
|
|
92,900
|
|
|
|
2002
|
|
|
100%
|
|
DP2
|
|
|
North Sea
|
|
Bareboat
|
|
Petrojarl (9)
|
|
2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capacity
|
|
|
4,644,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
CoA refers to contracts of affreightment.
|
|
(2)
|
|
The vessel is capable of loading from a submerged turret loading buoy.
|
|
(3)
|
|
OPCO has options to extend the time charter or purchase the vessel.
|
|
(4)
|
|
The time charter period is linked to the term of the transportation service agreement for the
Heidrun field on the Norwegian continental shelf, which term is in turn linked to the
production level at the field.
|
25
|
|
|
(5)
|
|
OPCO has options to extend the bareboat lease.
|
|
(6)
|
|
Not all of the contracts of affreightment customers utilize every ship in the contract of
affreightment fleet.
|
|
(7)
|
|
Owned through a 50% owned subsidiary. The parties share in the profits and losses of the
subsidiary in proportion to each partys relative capital contributions. Teekay Corporation
subsidiaries provide operational services for these vessels.
|
|
(8)
|
|
Charterer has an option to extend the time charter.
|
|
(9)
|
|
Charterer has the right to purchase the vessel at end of the bareboat charter.
|
|
(10)
|
|
In June 2007, OPCO exercised its option to purchase this vessel. The vessel delivered in
March 2008.
|
On the Norwegian continental shelf, regulations have been imposed on the operators of offshore
fields related to vaporized crude oil that is formed and emitted during loading operations and
which is commonly referred to as VOC. To assist the oil companies in their efforts to meet the
regulations on VOC emissions from shuttle tankers, OPCO and Teekay Corporation have played an
active role in establishing a unique co-operation among all of the approximately 26 owners of
offshore fields in the Norwegian sector. The purpose of the co-operation is to implement VOC
recovery systems on selected shuttle tankers and to ensure a high degree of VOC recovery at a
minimum cost followed by joint reporting to the authorities. Currently, there are 12 VOC plants
installed aboard shuttle tankers operated or owned by OPCO. The oil companies that participate in
the co-operation have engaged OPCO to undertake the day-to-day administration, technical follow-up
and handling of payments through a dedicated clearing house function.
During 2007, approximately 75% of our net voyage revenues from continuing operations were earned by
the vessels in the shuttle tanker segment, compared to approximately 82% in 2006 and 83% in 2005.
Please read Item 5 Operating and Financial Review and Prospects: Results of Operations.
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.
Conventional Tanker Segment
Conventional oil tankers are used primarily for transcontinental seaborne transportation of oil.
Conventional oil tankers are operated by both major oil companies (including state-owned companies)
that generally operate captive fleets, and independent operators that charter out their vessels for
voyage or time charter use. Most conventional oil tankers controlled by independent fleet operators
are hired for one or a few voyages at a time at fluctuating market rates based on the existing
tanker supply and demand. These charter rates are extremely sensitive to this balance of supply and
demand, and small changes in tanker utilization have historically led to relatively large changes
in short-term rates. Long-term, fixed-rate charters for crude oil transportation, such as those
applicable to OPCOs conventional tanker fleet, are less typical in the industry. As used in this
discussion, conventional oil tankers exclude those vessels that can carry dry bulk and ore,
tankers that currently are used for storage purposes and shuttle tankers.
Oil tanker demand is a function of several factors, including the location of oil production,
refining and consumption and world oil demand and supply. Tanker demand is based on the amount of
crude oil transported in tankers and the distance over which the oil is transported. The distance
over which oil is transported is determined by seaborne trading and distribution patterns, which
are principally influenced by the relative advantages of the various sources of production and
locations of consumption.
The majority of crude oil tankers range in size from approximately 80,000 to approximately 320,000
dwt. Aframax tankers are the mid-size of the various primary oil tanker types, typically sized from
80,000 to 119,999 dwt. As of December 31, 2007, the world Aframax tanker fleet consisted of
approximately 726 vessels, of which 576 crude tankers and 150 coated tankers are termed
conventional tankers. As of December 31, 2007, there were approximately 287 conventional Aframax
newbuildings on order for delivery through 2011. Delivery of a vessel typically occurs within three
to four years after ordering.
As of December 31, 2007, our Aframax conventional crude oil tankers had an average age of
approximately 11.0 years, compared to the average age of 9.5 years for the world Aframax
conventional tanker fleet. New Aframax tankers generally are expected to have a lifespan of
approximately 25 to 30 years, based on estimated hull fatigue life. However, United States and
international regulations require the phase-out of double-hulled vessels by 25 years. All of our
Aframax tankers are double-hulled.
Because all of the vessels in OPCOs conventional Aframax fleet are subject to long-term,
fixed-rate charters, we do not expect to compete for deployment of the Aframax vessels until the
first charter is scheduled to end in December 2011. The shuttle tankers in OPCOs contract of
affreightment fleet may operate in the conventional spot market during downtime or maintenance
periods for oil field installations or otherwise, which provides greater capacity utilization for
the fleet.
26
The following table provides additional information about our conventional tankers as of December
31, 2007:
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|
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|
|
|
|
|
|
|
|
|
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|
Contract
|
|
|
|
|
|
|
|
Vessel
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|
Capacity (dwt)
|
|
|
Built
|
|
|
Ownership
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|
|
Type
|
|
|
Charterer
|
|
|
Remaining Term (1)
|
|
Kilimanjaro Spirit
|
|
|
115,000
|
|
|
|
2004
|
|
|
|
100
|
%
|
|
Time charter
|
|
Teekay
|
|
11 years
|
Fuji Spirit
|
|
|
106,300
|
|
|
|
2003
|
|
|
|
100
|
%
|
|
Time charter
|
|
Teekay
|
|
11 years
|
Hamane Spirit
|
|
|
105,200
|
|
|
|
1997
|
|
|
|
100
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%
|
|
Time charter
|
|
Teekay
|
|
8 years
|
Poul Spirit
|
|
|
105,300
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|
|
|
1995
|
|
|
|
100
|
%
|
|
Time charter
|
|
Teekay
|
|
7 years
|
Gotland Spirit
|
|
|
95,300
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|
|
|
1995
|
|
|
|
100
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%
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Time charter
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|
Teekay
|
|
7 years
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Torben Spirit
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|
|
98,600
|
|
|
|
1994
|
|
|
|
100
|
%
|
|
Time charter
|
|
Teekay
|
|
5 years
|
Scotia Spirit (2)
|
|
|
95,000
|
|
|
|
1992
|
|
|
|
100
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%
|
|
Time charter
|
|
Teekay
|
|
4 years
|
Leyte Spirit
|
|
|
98,700
|
|
|
|
1992
|
|
|
|
100
|
%
|
|
Time charter
|
|
Teekay
|
|
4 years
|
Luzon Spirit
|
|
|
98,600
|
|
|
|
1992
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|
|
|
100
|
%
|
|
Time charter
|
|
Teekay
|
|
4 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total capacity
|
|
|
918,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
(1)
|
|
Charterer has options to extend each time charter on an annual basis for a total of five
years after the initial term. Charterer also has the right to purchase the vessel beginning on
the third anniversary of the contract at a specified price.
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(2)
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|
This vessel has been equipped with FSO equipment and OPCO can terminate the charter upon
30-days notice if it has arranged an FSO project for the vessel.
|
During 2007, approximately 16% of our net voyage revenues from continuing operations were earned by
the vessels in the conventional tanker segment, compared to approximately 12% in 2006 and 10% in
2005. Please read Item 5 Operating and Financial Review and Prospects: Results of Operations.
FSO Segment
FSO units provide on-site storage for oil field installations that have no storage facilities or
that require supplemental storage. An FSO unit is generally used in combination with a jacked-up
fixed production system, floating production systems that do not have sufficient storage facilities
or as supplemental storage for fixed platform systems, which generally have some on-board storage
capacity. An FSO unit is usually of similar design to a conventional tanker, but has specialized
loading and offtake systems required by field operators or regulators. FSO units are moored to the
seabed at a safe distance from a field installation and receive the cargo from the production
facility via a dedicated loading system. An FSO unit is also equipped with an export system that
transfers cargo to shuttle or conventional tankers. Depending on the selected mooring arrangement
and where they are located, FSO units may or may not have any propulsion systems. FSO units are
usually conversions of older single-hull conventional oil tankers. These conversions, which include
installation of a loading and offtake system and hull refurbishment, can generally extend the
lifespan of a vessel as an FSO unit by up to 20 years over the normal conventional tanker lifespan
of 25 years.
Our FSO units are generally placed on long-term, fixed-rate time charters or bareboat charters as
an integrated part of the field development plan, which provides more stable cash flow to us.
As of December 2007, there were approximately 86 FSO units operating and ten FSO units on order in
the world fleet, and we had five FSO units. The major markets for FSO units are Asia, the Middle
East, West Africa, South America and the North Sea. Our primary competitors in the FSO market are
conventional tanker owners, who have access to tankers available for conversion, and oil field
services companies and oil field engineering and construction companies who compete in the floating
production system market. Competition in the FSO market is primarily based on price, expertise in
FSO operations, management of FSO conversions and relationships with shipyards, as well as the
ability to access vessels for conversion that meet customer specifications.
The following table provides additional information about our FSO units as of December 31, 2007:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity
|
|
|
|
|
|
|
|
|
|
|
Field name and
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Vessel
|
|
(dwt)
|
|
|
Built
|
|
|
Ownership
|
|
|
location
|
|
|
Contract Type
|
|
|
Charterer
|
|
|
Term
|
|
Pattani Spirit
|
|
|
113,800
|
|
|
|
1988
|
|
|
|
100
|
%
|
|
Platong, Thailand
|
|
Bareboat
|
|
Teekay
|
|
6 years (1)
|
Nordic Apollo
|
|
|
126,900
|
|
|
|
1978
|
|
|
|
89
|
%
|
|
Banff, U.K.
|
|
Bareboat
|
|
Teekay
|
|
7 years (2)
|
Navion Saga
|
|
|
149,000
|
|
|
|
1991
|
|
|
|
100
|
%
|
|
Volve, Norway
|
|
Time charter
|
|
StatoilHydro
|
|
2 years (3)
|
Karratha Spirit
|
|
|
106,600
|
|
|
|
1988
|
|
|
|
100
|
%
|
|
Legendre, Australia
|
|
Time charter
|
|
Woodside
|
|
1 year (3)
|
Dampier Spirit
|
|
|
106,700
|
|
|
|
1987
|
|
|
|
100
|
%
|
|
Stag, Australia
|
|
Time charter
|
|
Apache
|
|
6 year (3)
|
|
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|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capacity
|
|
|
603,0000
|
|
|
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|
(1)
|
|
This vessel is on a back-to-back charter between Teekay and Unocol for a remaining term of
six years.
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|
(2)
|
|
Charterer is required to charter the vessel for as long as a specified FPSO unit, the
Petrojarl Banff
, produces the Banff field in the North Sea, which could extend to 2014
depending on the field operator.
|
|
(3)
|
|
Charterer has option to extend the time charter after the initial fixed period.
|
27
During 2007 approximately 9% of our net voyage revenues from continuing operations were earned by
the vessels in the FSO segment, compared to 6% in 2006 and 7% in 2005. Please read Item 5
Operating and Financial Review and Prospects: Results of Operations.
Business Strategies
Our primary business objective is to increase distributions per unit by executing the
following strategies:
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|
Expand global operations in high growth regions.
We seek to expand our shuttle tanker and
FSO unit operations into growing offshore markets such as Brazil and Australia. In addition,
we intend to pursue opportunities in new markets such as Arctic Russia, Eastern Canada, the
Gulf of Mexico, Asia and Africa.
|
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|
Pursue opportunities in the FPSO sector.
We believe that Teekay Corporations control of
Petrojarl will enable us to competitively pursue FPSO projects anywhere in the world by
combining Petrojarls engineering and operational expertise with Teekay Corporations global
marketing organization and extensive customer and shipyard relationships.
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|
Acquire additional vessels on long-term, fixed-rate contracts.
We intend to continue
acquiring shuttle tankers and FSO units with long-term contracts, rather than ordering
vessels on a speculative basis, and we intend to follow this same practice in acquiring FPSO
units. We believe this approach facilitates the financing of new vessels based on their
anticipated future revenues and ensures that new vessels will be employed upon acquisition,
which should stabilize cash flows. Additionally, we anticipate growing by acquiring
additional limited partner interests in OPCO that Teekay Corporation may offer us in the
future.
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|
Provide superior customer service by maintaining high reliability, safety, environmental
and quality standards.
Energy companies seek transportation partners that have a reputation
for high reliability, safety, environmental and quality standards. We intend to leverage
OPCOs and Teekay Corporations operational expertise and customer relationships to further
expand a sustainable competitive advantage with consistent delivery of superior customer
service.
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|
Manage our conventional tanker fleet to provide stable cash flows.
We believe the
fixed-rate time charters for these tankers will provide stable cash flows during their terms
and a source of funding for expanding offshore operations. Depending on prevailing market
conditions during and at the end of each existing charter, we may seek to extend the
charter, enter into a new charter, operate the vessel on the spot market or sell the vessel,
in an effort to maximize returns on the conventional fleet while managing residual risk.
|
Competitive Strengths
We believe that we are well positioned to execute our business strategies because of the following
competitive strengths:
|
|
|
Leading position in the shuttle tanker sector.
We are the worlds largest owner and
operator of shuttle tankers, as we owned or operated 38 of the 74 vessels in the world
shuttle tanker fleet as at December 31, 2007. Our large fleet size enables us to provide
comprehensive coverage of charterers requirements and provides opportunities to enhance the
efficiency of operations and increase fleet utilization.
|
|
|
|
Offshore operational expertise and enhanced growth opportunities through our relationship
with Teekay Corporation.
Teekay Corporation has achieved a global brand name in the shipping
industry and the offshore market, developed an extensive network of long-standing
relationships with major energy companies and earned a reputation for reliability, safety
and excellence. Some benefits we believe we receive due to our relationship with Teekay
Corporation include:
|
|
|
|
access through services agreements to its comprehensive market intelligence and
operational and technical sophistication gained from over 25 years of providing shuttle
tanker services and FSO services to offshore energy customers. We believe this expertise
will also assist us in successfully expanding into the FPSO sector through Teekay
Corporations control of Petrojarl and our rights to participate in certain FPSO
projects under the omnibus agreement;
|
|
|
|
access to Teekay Corporations general commercial and financial core
competencies, practices and systems, which we believe enhances the efficiency and
quality of operations;
|
|
|
|
enhanced growth opportunities and added competitiveness in bidding for
transportation requirements for offshore projects and in attracting and retaining
long-term contracts throughout the world; and
|
|
|
|
improved leverage with leading shipyards during periods of vessel production
constraints, which are anticipated over the next few years, due to Teekay Corporations
established relationships with these shipyards and the high number of newbuilding orders
it places.
|
|
|
|
Cash flow stability from contracts with leading energy companies.
We benefit from
stability in cash flows due to the long-term, fixed-rate contracts underlying most of our
business. We have been able to secure long-term contracts because our services are an
integrated part of offshore oil field projects and a critical part of the logistics chain of
the fields. Due to the integrated nature of our services, the high cost of field development
and the need for uninterrupted oil production, contractual relationships with customers with
respect to any given field typically last until the field is no longer producing.
|
|
|
|
Disciplined vessel acquisition strategy and successful project execution.
Our fleet has
been built through successful new project tenders and acquisitions, and this strategy has
contributed significantly to our leading position in the shuttle tanker market. A
significant portion of OPCOs shuttle tanker fleet was established through the acquisition
of Ugland Nordic Shipping AS in 2001 and Navion AS, StatoilHydro ASAs shipping subsidiary,
in 2003. In addition, we have increased the size of our fleet through customized shuttle
tanker and FSO projects for major energy companies around the world.
|
28
|
|
|
We have financial flexibility to pursue acquisitions and other expansion opportunities
through additional debt borrowings and the issuance of additional partnership units.
As of
March 31, 2008, our existing revolving credit facilities provided us access to $115.5
million of undrawn financing for working capital and acquisition purposes. We believe that
borrowings available under our revolving credit facilities, access to other bank financing
facilities and the debt capital markets, and our ability to issue additional partnership
units will provide us with financial flexibility to pursue acquisition and expansion
opportunities.
|
Customers
We provide marine transportation and storage services to energy and oil service companies or their
affiliates. Our most important customer measured by annual voyage revenue excluding Teekay
Corporation, is StatoilHydro ASA, which is Norways largest energy company and one of the worlds
largest producers of crude oil. StatoilHydro created the shuttle tanker industry beginning in the
late 1970s and developed the current operating model in the North Sea. StatoilHydro chose Teekay
Corporation to purchase its shuttle tanker operations in 2003, and Teekay Corporation and we
continue to have a close working relationship with StatoilHydro.
StatoilHydro, Teekay Corporation and Petrobras Transporte S.A. accounted for approximately 39%, 20%
and 13%, respectively, of our consolidated voyage revenues from continuing operations during the
year ended December 31, 2007. Teekay Corporation and StatoilHydro ASA accounted for approximately
12% and 30%, respectively, of consolidated voyage revenues from continuing operations during 2006.
StatoilHydro ASA accounted for approximately 30% of combined consolidated voyage revenues from
continuing operations during 2005. No other customer accounted for 10% or more of revenues during
any of these periods.
Safety, Management of Ship Operations and Administration
Safety and environmental compliance are our top operational priorities. We operate our vessels in a
manner intended to protect the safety and health of our employees, the general public and the
environment. We seek to manage the risks inherent in our business and are committed to eliminating
incidents that threaten the safety and integrity of our vessels. In 2007 Teekay Corporation
introduced a behavior-based safety program called Safety in Action to improve the safety culture
in our fleet. We are also committed to reducing our emissions and waste generation.
Key performance indicators facilitate regular monitoring of our operational performance. Targets
are set on an annual basis to drive continuous improvement, and indicators are reviewed monthly to
determine if remedial action is necessary to reach the targets.
Teekay Corporation, through certain of its subsidiaries, assists our operating subsidiaries in
managing their ship operations. Det Norske Veritas, the Norwegian classification society, has
approved Teekay Corporations safety management system as complying with the International Safety
Management Code (or
ISM Code
), the International Standards Organizations (or
ISO
) 9001 for Quality
Assurance, ISO 14001 for Environment Management Systems, and Occupational Health and Safety
Advisory Services (or
OHSAS
) 18001, and this system has been implemented on all our ships.
Australias flag administration has approved this safety management system for our
Australian-flagged vessel. As part of Teekay Corporations ISM Code compliance, all the vessels
safety management certificates are being maintained through ongoing internal audits performed by
Teekay Corporations certified internal auditors and intermediate external audits performed by Det
Norske Veritas and Australias flag administration. Subject to satisfactory completion of these
internal and external audits, certification is valid for five years.
Teekay Corporation provides, through certain of its subsidiaries, expertise in various functions
critical to the operations of our operating subsidiaries. We believe this arrangement affords a
safe, efficient and cost-effective operation. Teekay subsidiaries also provide to us access to
human resources, financial and other administrative functions pursuant to administrative services
agreements.
Critical ship management functions that certain subsidiaries of Teekay Corporation provide to our
operating subsidiaries through the Teekay Marine Services division located in various offices
around the world include:
|
|
|
financial management services.
|
These functions are supported by onboard and onshore systems for maintenance, inventory, purchasing
and budget management.
In addition, Teekay Corporations day-to-day focus on cost control is applied to our operations. In
2003, Teekay Corporation and two other shipping companies established a purchasing alliance, Teekay
Bergesen Worldwide, which leverages the purchasing power of the combined fleets, mainly in such
commodity areas as lube oils, paints and other chemicals. Through our arrangements with Teekay
Corporation, we benefit from this purchasing alliance.
We believe that the generally uniform design of some of our existing and newbuilding vessels and
the adoption of common equipment standards provides operational efficiencies, including with
respect to crew training and vessel management, equipment operation and repair, and spare parts
ordering.
29
Risk of Loss, Insurance and Risk Management
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters,
death or injury of persons and property losses caused by adverse weather conditions, mechanical
failures, human error, war, terrorism, piracy and other circumstances or events. The occurrence of
any of these events may result in loss of revenues or increased costs.
We carry hull and machinery (marine and war risks) and protection and indemnity insurance coverage
to protect against most of the accident-related risks involved in the conduct of our business. Hull
and machinery insurance covers loss of or damage to a vessel due to marine perils such as
collisions, grounding and weather. Protection and indemnity insurance indemnifies against other
liabilities incurred while operating vessels, including injury to the crew, third parties, cargo
loss and pollution. The current available amount of our coverage for pollution is $1 billion per
vessel per incident. We also carry insurance policies covering war risks (including piracy and
terrorism).
Under bareboat charters, the customer is responsible to insure the vessel. We believe that current
insurance coverage is adequate to protect against most of the accident-related risks involved in
the conduct of our business and that we maintain appropriate levels of environmental damage and
pollution coverage. However, we cannot assure that all covered risks are adequately insured
against, that any particular claim will be paid or that we will be able to procure adequate
insurance coverage at commercially reasonable rates in the future. More stringent environmental
regulations at times in the past have resulted in increased costs for, and may result in the lack
of availability of, insurance against the risks of environmental damage or pollution. Substantially
all of our vessels are not insured against loss of revenues resulting from vessel off-hire time,
based on the cost of this insurance compared to our off-hire experience.
We use in our operations Teekay Corporations thorough risk management program that includes, among
other things, computer-aided risk analysis tools, maintenance and assessment programs, a seafarers
competence training program, seafarers workshops and membership in emergency response
organizations.
Classification, Audits and Inspections
All of our shuttle tankers and conventional oil tankers have been classed by one of the major
classification societies: Det Norske Veritas, Lloyds Register of Shipping or the American Bureau
of Shipping. Although FSO and FPSO units are not required to be classed, each of our FSO units
has been inspected and certified as such. The classification society certifies that the vessel has
been built and maintained in accordance with its rules and complies with applicable rules and
regulations of the country of registry, although for some vessels this latter certification is
obtained directly from the relevant flag state authorities. Each vessel is inspected by a
classification society surveyor annually, with either the second or third annual inspection being a
more detailed survey (an
Intermediate Survey
) and the fifth annual inspection being the most
comprehensive survey (a
Special Survey
). The inspection cycle resumes after each Special Survey.
Vessels may be required to be drydocked at each Intermediate and Special Survey for inspection of
the underwater area and fittings. However, many of our vessels have qualified with their respective
classification societies for drydocking every five years and are no longer subject to the
Intermediate Survey drydocking process. To qualify, the resiliency of the underwater coatings of
each vessel was enhanced and the hull was marked to accommodate underwater inspections by divers.
In addition to classification inspections:
|
|
|
the vessels flag state, or the vessels classification society if nominated by the flag
state, inspect the vessels to ensure they comply with applicable rules and regulations of
the country of registry of the vessel and the international conventions of which that
country is a signatory;
|
|
|
|
port state control authorities, such as the U.S. Coast Guard and Australian Maritime
Safety Authority, inspect vessels at regular intervals; and
|
|
|
|
customers regularly inspect our vessels as a condition to chartering, and regular
inspections are standard practice under long-term charters.
|
In addition to third-party audits and inspections, our seafarers regularly inspect their vessels
and perform much of the necessary routine maintenance. Shore-based operational and technical
specialists also inspect the vessels at least twice a year for conformity with established
criteria. Upon completion of each inspection, recommendations are made for improving the overall
condition of the vessel and its maintenance, safety and crew welfare. All recommendations are
monitored until they are completed. The objective of these inspections are to:
|
|
|
ensure adherence to our operating standards;
|
|
|
|
maintain the structural integrity of the vessel is being maintained;
|
|
|
|
maintain machinery and equipment to give full reliability in service;
|
|
|
|
optimize performance in terms of speed and fuel consumption; and
|
|
|
|
ensure the vessels appearance will support our brand and meet customer expectations.
|
To achieve the vessel structural integrity objective, we use a comprehensive Structural Integrity
Management System developed by Teekay Corporation. This system is designed to monitor the
condition of the vessels closely and to ensure that structural strength and integrity are
maintained throughout a vessels life.
Teekay Corporation, which assists us in managing our ship operations through its subsidiaries, has
obtained approval for its safety management system as being in compliance with the ISM Code. To
maintain compliance, the system is audited regularly by either the vessels flag state or, when
nominated by the flag state, a classification society. Certification is valid for five years
subject to satisfactorily completing internal and external audits.
30
Regulations
General
Our business and the operation of our vessels are significantly affected by international
conventions and national, state and local laws and regulations in the jurisdictions in which our
vessels operate, as well as in the country or countries of their registration. Because these
conventions, laws and regulations change frequently, we cannot predict the ultimate cost of
compliance or their impact on the resale price or useful life of the vessels. Additional
conventions, laws and regulations may be adopted that could limit our ability to do business or
increase the cost of doing business and that may materially adversely affect operations. We are
required by various governmental and quasi-governmental agencies to obtain permits, licenses and
certificates with respect to our operations. Subject to the discussion below and to the fact that
the kinds of permits, licenses and certificates required for the operations of the vessels we own
will depend on a number of factors, we believe that we will be able to continue to obtain all
permits, licenses and certificates material to the conduct of operations.
We believe that the heightened environmental and quality concerns of insurance underwriters,
regulators and charterers will generally lead to greater inspection and safety requirements on all
vessels in the oil tanker markets and will accelerate the scrapping of older vessels throughout
these markets.
Regulation International Maritime Organization (or IMO)
The IMO is the United Nations agency for maritime safety. IMO regulations include the
International Convention for Safety of Life at Sea (or
SOLAS
), including amendments to SOLAS
implementing the International Security Code for Ports and Ships (or
ISPS
), the ISM Code, the
International Convention on Prevention of Pollution from Ships (or the
MARPOL Convention
), the
International Convention on Civil Liability for Oil Pollution Damage of 1969, the International
Convention on Load Lines of 1966. The IMO Marine Safety Committee has also published guidelines for
vessels with dynamic positioning (
DP
) systems, which would apply to shuttle tankers and DP-assisted
FSO units and FPSO units. SOLAS provides rules for the construction of and equipment required for
commercial vessels and includes regulations for safe operation. Flag states which have ratified the
convention and the treaty generally employ the classification societies, which have incorporated
SOLAS requirements into their class rules, to undertake surveys to confirm compliance.
SOLAS and other IMO regulations concerning safety, including those relating to treaties on training
of shipboard personnel, lifesaving appliances, radio equipment and the global maritime distress and
safety system, are applicable to our operations. Non-compliance with IMO regulations, including
SOLAS, the ISM Code, ISPS and the specific requirements for shuttle tankers, FSO units and FPSO
units under the NPD (Norway) and HSE (United Kingdom) regulations, may subject us to increased
liability or penalties, may lead to decreases in available insurance coverage for affected vessels
and may result in the denial of access to or detention in some ports. For example, the Coast Guard
and European Union authorities have indicated that vessels not in compliance with the ISM Code will
be prohibited from trading in U.S. and European Union ports.
The ISM Code requires vessel operators to obtain a safety management certification for each vessel
they manage, evidencing the shipowners compliance with requirements of the ISM Code relating to
the development and maintenance of an extensive Safety Management System. Such a system includes,
among other things, the adoption of a safety and environmental protection policy setting forth
instructions and procedures for safe operation and describing procedures for dealing with
emergencies. Each of the existing vessels in our fleet currently is ISM Code-certified, and we
expect to obtain safety management certificates for each newbuilding upon delivery.
Under IMO regulations an oil tanker must be of double-hull construction, be of a mid-deck design
with double-side construction or be of another approved design ensuring the same level of
protection against oil pollution in the event that such tanker:
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is the subject of a contract for a major conversion or original construction on or after
July 6, 1993;
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commences a major conversion or has its keel laid on or after January 6, 1994; or
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completes a major conversion or is a newbuilding delivered on or after July 6, 1996.
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In December 2003, the IMO revised its regulations relating to the prevention of pollution from oil
tankers. These regulations, which became effective April 5, 2005, accelerate the mandatory
phase-out of single-hull tankers and impose a more rigorous inspection regime for older tankers.
All of our shuttle and conventional oil tankers are double-hulled and were delivered after July 6,
1996, so those tankers will not be affected directly by these IMO regulations.
Shuttle Tanker, FSO Unit and FPSO Unit Regulation
Our shuttle tankers primarily operate in the North Sea. In addition to the regulations imposed by
the IMO, countries having jurisdiction over North Sea areas impose regulatory requirements in
connection with operations in those areas, including HSE in the United Kingdom and NPD in Norway.
These regulatory requirements, together with additional requirements imposed by operators in North
Sea oil fields, require that we make further expenditures for sophisticated equipment, reporting
and redundancy systems on the shuttle tankers and for the training of seagoing staff. Additional
regulations and requirements may be adopted or imposed that could limit our ability to do business
or further increase the cost of doing business in the North Sea. In Brazil, Petrobras serves in a
regulatory capacity and has adopted standards similar to those in the North Sea.
Environmental Regulations The United States Regulations
The United States has enacted an extensive regulatory and liability regime for the protection and
cleanup of the environment from oil spills, including discharges of oil cargoes, bunker fuels or
lubricants, primarily through the Oil Pollution Act of 1990 (or
OPA 90
) and the Comprehensive
Environmental Response, Compensation and Liability Act (or
CERCLA
). OPA 90 affects all owners,
bareboat charterers and operators whose vessels trade to the United States or its territories or
possessions or whose vessels operate in United States waters, which include the U.S. territorial
sea and 200-mile exclusive economic zone around the United States.
31
Under OPA 90, vessel owners, operators and bareboat charterers are responsible parties and are
jointly, severally and strictly liable (unless the spill results solely from the act or omission of
a third party, an act of God or an act of war and the responsible party reports the incident and
reasonably cooperates with the appropriate authorities) for all containment and clean-up costs and
other damages arising from discharges or threatened discharges of oil from their vessels. These
other damages are defined broadly to include:
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natural resources damages and the related assessment costs;
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real and personal property damages;
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net loss of taxes, royalties, rents, fees and other lost revenues;
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lost profits or impairment of earning capacity due to property or natural resources
damage;
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net cost of public services necessitated by a spill response, such as protection from
fire, safety or health hazards; and
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loss of subsistence use of natural resources.
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OPA 90 limits the liability of responsible parties. Effective as of October 9, 2006, the limit for
double-hulled tank vessels was increased to the greater of $1,900 per gross ton or $16 million per
double-hulled tanker per incident, subject to adjustment for inflation. These limits of liability
would not apply if the incident were proximately caused by violation of applicable U.S. federal
safety, construction or operating regulations, including IMO conventions to which the United States
is a signatory, or by the responsible partys gross negligence or willful misconduct, or if the
responsible party fails or refuses to report the incident or to cooperate and assist in connection
with the oil removal activities. In addition, CERCLA, which applies to the discharge of hazardous
substances (other than oil) whether on land or at sea, contains a similar liability regime and
provides for cleanup, removal and natural resource damages. Liability under CERCLA is limited to
the greater of $300 per gross ton or $5 million, unless the incident is caused by gross negligence,
willful misconduct, or a violation of certain regulations, in which case liability is unlimited. We
currently maintain for each vessel pollution liability coverage in the maximum coverage amount of
$1 billion per incident. A catastrophic spill could exceed the coverage available, which could harm
our business, financial condition and results of operations.
Under OPA 90, with limited exceptions, all newly built or converted tankers delivered after January
1, 1994 and operating in U.S. waters must be built with double-hulls. All of our existing tankers
are, and all of our newbuildings will be, double-hulled.
In December 1994, the U.S. Coast Guard (or
Coast Guard
) implemented regulations requiring evidence
of financial responsibility in the amount of $1,500 per gross ton for tankers, coupling the
then-applicable OPA limitation on liability of $1,200 per gross ton with the CERCLA liability limit
of $300 per gross ton. The financial responsibility limits have not been increased to comport with
the amended statutory limits of OPA. However, the Coast Guard has issued a notice of policy change
indicating its intention to change the financial responsibility regulations accordingly. Under the
regulations, such evidence of financial responsibility may be demonstrated by insurance, surety
bond, self-insurance, guaranty or an alternate method subject to agency approval. Under OPA 90, an
owner or operator of a fleet of vessels is required only to demonstrate evidence of financial
responsibility in an amount sufficient to cover the tanker in the fleet having the greatest maximum
limited liability under OPA 90 and CERCLA.
The Coast Guards regulations concerning certificates of financial responsibility (or
COFR
)
provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or
guarantor that furnishes COFR. In addition, in the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defense that it may have had against the
responsible party and is limited to asserting those defenses available to the responsible party and
the defense that the incident was caused by the willful misconduct of the responsible party.
Certain organizations, which had typically provided COFR under pre-OPA 90 laws, including the major
protection and indemnity organizations have declined to furnish evidence of insurance for vessel
owners and operators if they are subject to direct actions or required to waive insurance policy
defenses. The Coast Guard has indicated that it intends to propose a rule that would increase the
required amount of such COFRs to $2,200 per gross ton to reflect the higher limits on liability
imposed by OPA 90, as described above.
The Coast Guards financial responsibility regulations may also be satisfied by evidence of surety
bond, guaranty or by self-insurance. Under the self-insurance provisions, the ship-owner or
operator must have a net worth and working capital, measured in assets located in the United States
against liabilities located anywhere in the world, that exceeds the applicable amount of financial
responsibility. We have complied with the Coast Guard regulations by obtaining financial guarantees
from a third-party. If other vessels in our fleet trade into the United States in the future, we
expect to obtain additional guarantees from third-party insurers or to provide guarantees through
self-insurance.
OPA 90 and CERCLA permit individual states to impose their own liability regimes with regard to oil
or hazardous substance pollution incidents occurring within their boundaries if the states
regulations are equally or more stringent, and some states have enacted legislation providing for
unlimited strict liability for spills. Several coastal states, including California, Washington and
Alaska, require state specific COFR and vessel response plans. We intend to comply with all
applicable state regulations in the ports where our vessels call.
Owners or operators of tank vessels operating in United States waters are required to file vessel
response plans with the Coast Guard, and their tank vessels are required to operate in compliance
with their Coast Guard approved plans. Such response plans must, among other things:
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address a worst case scenario and identify and ensure, through contract or other
approved means, the availability of necessary private response resources to respond to a
worst case discharge;
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describe crew training and drills; and
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identify a qualified individual with full authority to implement removal actions.
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We have filed vessel response plans with the Coast Guard for the vessels we own and have received
approval of such plans for all vessels in our fleet to operate in United States waters. In
addition, we conduct regular oil spill response drills in accordance with the guidelines set out in
OPA 90. The Coast Guard has announced it intends to propose similar regulations requiring certain
vessels to prepare response plans for the release of hazardous substances.
Environmental Regulation Other Environmental Initiatives
Although the United States is not a party, many countries have ratified and follow the liability
scheme adopted by the IMO and set out in the International Convention on Civil Liability for Oil
Pollution Damage, 1969, as amended (or
CLC
)
,
and the Convention for the Establishment of an
International Fund for Oil Pollution of 1971, as amended. Under these conventions, which are
applicable to vessels that carry persistent oil as cargo, a vessels registered owner is strictly
liable for pollution damage caused in the territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defenses. Many of the countries that have ratified the
CLC have increased the liability limits through a 1992 Protocol to the CLC. The liability limits in
the countries that have ratified this Protocol are currently approximately $7.4 million plus
approximately $1,040 per gross registered tonne above 5,000 gross tonnes with an approximate
maximum of $148 million per vessel and the exact amount tied to a unit of account which varies
according to a basket of currencies. The right to limit liability is forfeited under the CLC when
the spill is caused by the owners actual fault or privity and, under the 1992 Protocol, when the
spill is caused by the owners intentional or reckless conduct. Vessels trading to contracting
states must provide evidence of insurance covering the limited liability of the owner. In
jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern,
and liability is imposed either on the basis of fault or in a manner similar to the CLC.
In September 1997, the IMO adopted Annex VI to the International Convention for the Prevention of
Pollution from Ships (or
Annex VI
) to address air pollution from ships. Annex VI, which became
effective in May 2005, sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts
and prohibit deliberate emissions of ozone depleting substances, such as halons,
chlorofluorocarbons, emissions of volatile compounds from cargo tanks and prohibition of shipboard
incineration of specific substances. Annex VI also includes a global cap on the sulfur content of
fuel oil and allows for special areas to be established with more stringent controls on sulfur
emissions. We plan to operate our vessels in compliance with Annex VI. Additional or new
conventions, laws and regulations may be adopted that could adversely affect our ability to manage
our ships.
In addition, the IMO, various countries and states, such as Australia, the United States and the
State of California, and various regulators, such as port authorities, the U.S. Coast Guard and the
U.S. Environmental Protection Agency, have either adopted legislation or regulations, or are
separately considering the adoption of legislation or regulations, aimed at regulating the
discharge of ballast water and the discharge of bunkers as potential pollutants, and requiring the
installation on ocean-going vessels of pollution prevention equipment such as oily water separators
and bilge alarms.
The United States Clean Water Act prohibits the discharge of oil or hazardous substances in U.S.
navigable waters and imposes strict liability in the form of penalties for unauthorized discharges.
The Clean Water Act also imposes substantial liability for the costs of removal, remediation and
damages and complements the remedies available under OPA 90 and CERCLA discussed above. Pursuant to
regulations promulgated by the EPA in the early 1970s, the discharge of sewage and effluent from
properly functioning marine engines was exempted from the permit requirements of the National
Pollution Discharge Elimination System. This exemption allowed vessels in U.S. ports to discharge
certain substances, including ballast water, without obtaining a permit to do so. However, on
March 30, 2005, a U.S. District Court for the Northern District of California granted summary
judgment to certain environmental groups and U.S. states that had challenged the EPA regulations,
arguing that the EPA exceeded its authority in promulgating them. On September 18, 2006, the U.S.
District Court in that action issued an order invalidating the exemption in EPAs regulations for
all discharges incidental to the normal operation of a vessel as of September 30, 2008, and
directing EPA to develop a system for regulating all discharges from vessels by that date.
The EPA has appealed this decision. Oral arguments on this appeal were heard by the Ninth Circuit
Court of Appeals on August 14, 2007. No decision has yet been issued. If the exemption is repealed,
we would be subject to the Clean Water Act permit requirements that could include ballast water
treatment obligations that could increase the costs of operating in the United States. For example,
this ruling could require the installation of equipment on our vessels to treat ballast water
before it is discharged, require the implementation of other port facility disposal arrangements or
procedures at potentially substantial cost, and otherwise restrict our vessels traffic in U.S.
waters.
In Norway, the Norwegian Pollution Control Authority requires the installation of volatile organic
compound emissions (or
VOC equipment)
on most shuttle tankers serving the Norwegian continental
shelf. Oil companies bear the cost to install and operate the VOC equipment onboard the shuttle
tankers.
Vessel Security Regulation
The ISPS was adopted by the IMO in December 2002 in the wake of heightened concern over worldwide
terrorism and became effective on July 1, 2004. The objective of ISPS is to enhance maritime
security by detecting security threats to ships and ports and by requiring the development of
security plans and other measures designed to prevent such threats. The United States implemented
ISPS with the adoption of the Maritime Transportation Security Act of 2002 (or
MTSA
), which
requires vessels entering U.S. waters to obtain certification of plans to respond to emergency
incidents there, including identification of persons authorized to implement the plans. Each of the
existing vessels in our fleet currently complies with the requirements of ISPS and MTSA.
C. Organizational Structure
Our sole general partner is Teekay Offshore GP L.L.C., which is a wholly owned subsidiary of Teekay
Corporation. Teekay Corporation also controls its public subsidiaries Teekay LNG Partners L.P.
(NYSE: TGP) and Teekay Tankers Ltd. (NYSE: TNK).
Please read Exhibit 8.1 to this Annual Report for a list of our significant subsidiaries as of
December 31, 2007
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D. Properties
Other than our vessels and VOC plants mentioned above, we do not have any material property.
E. Taxation of the Partnership
United States Taxation
This discussion is based upon provisions of the U.S. Internal Revenue Code of 1986, as amended (or
the
Code
) as in effect on the date of this Annual Report, existing final and temporary regulations
thereunder (or
Treasury Regulations
), and current administrative rulings and court decisions, as in
effect on the date of this Annual Report, all of which are subject to change, possibly with
retroactive effect. Changes in these authorities may cause the tax consequences to vary
substantially from the consequences described below. The following discussion is for general
information purposes only and does not purport to be a comprehensive description of all of the
U.S. federal income tax considerations applicable to us.
Election to be Taxed as a Corporation.
We have elected to be taxed as a corporation for
U.S. federal income tax purposes. As such, we are subject to U.S. federal income tax on our income
to the extent it is from U.S. sources or otherwise is effectively connected with the conduct of a
trade or business in the United States as discussed below.
Taxation of Operating Income.
We expect that substantially all of our gross income will be
attributable to the transportation of crude oil and related products. For this purpose, gross
income attributable to transportation (or
Transportation Income
) includes income derived from, or
in connection with, the use (or hiring or leasing for use) of a vessel to transport cargo, or the
performance of services directly related to the use of any vessel to transport cargo, and thus
includes both time charter or bareboat charter income.
Transportation Income that is attributable to transportation that begins or ends, but that does not
both begin and end, in the United States (or
U.S. Source International Transportation Income
) will
be considered to be 50.0% derived from sources within the United States. Transportation Income
attributable to transportation that both begins and ends in the United States (or
U.S. Source
Domestic Transportation Income
) will be considered to be 100.0% derived from sources within the
United States. Transportation Income attributable to transportation exclusively between
non-U.S. destinations will be considered to be 100% derived from sources outside the United States.
Transportation Income derived from sources outside the United States generally will not be subject
to U.S. federal income tax.
Based on our current operations, we expect substantially all of our Transportation Income to be
from sources outside the United States and not subject to U.S. federal income tax. However, certain
of our activities could give rise to U.S. Source International Transportation Income, and future
expansion of our operations could result in an increase in the amount of U.S. Source International
Transportation Income, as well as give rise to U.S. Source Domestic Transportation Income, all of
which could be subject to U.S. federal income taxation, unless the exemption from U.S. taxation
under Section 883 of the Code (or the
Section 883 Exemption
) applies.
The Section 883 Exemption.
In general, the Section 883 Exemption provides that if a
non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury
Regulations thereunder (or the
Section 883 Regulations
), it will not be subject to the net basis
and branch taxes or 4.0% gross basis tax described below on its U.S. Source International
Transportation Income. The Section 883 Exemption only applies to U.S. Source International
Transportation Income. As discussed below, we believe that under our current ownership structure,
the Section 883 Exemption will apply and we will not be taxed on our U.S. Source International
Transportation Income. The Section 883 Exemption does not apply to U.S. Source Domestic
Transportation Income.
A non-U.S. corporation will qualify for the Section 883 Exemption if it is organized in a
jurisdiction outside the United States that grants an equivalent exemption from tax to corporations
organized in the United States (or an
Equivalent Exemption
), it meets one of three ownership tests
(or the
Ownership Test
) described in the Final Section 883 Regulations and it meets certain
substantiation, reporting and other requirements.
We are organized under the laws of the Republic of the Marshall Islands. The U.S. Treasury
Department has recognized the Republic of the Marshall Islands as a jurisdiction that grants an
Equivalent Exemption. Consequently, our U.S. Source International Transportation Income (including
for this purpose, any such income earned by our subsidiaries that have properly elected to be
treated as partnerships or disregarded as entities separate from us for U.S. federal income tax
purposes) will be exempt from U.S. federal income taxation provided we meet the Ownership Test
described in the Final Section 883 Regulations. We believe that we should satisfy the Ownership
Test based upon the ownership of more than 50% of the value of us by Teekay Corporation. However,
the determination of whether we satisfy the Ownership Test at any given time depends upon a
multitude of factors, including Teekay Corporations ownership of us, whether Teekay Corporations
stock is publicly traded, the concentration of ownership of Teekay Corporations own stock and the
satisfaction of various substantiation and documentation requirements. There can be no assurance
that we will satisfy these requirements at any given time and thus that our U.S. Source
International Shipping Income would be exempt from U.S. federal income taxation by reason of
Section 883 in any of our taxable years.
The Net Basis Tax and Branch Profits Tax.
If we earn U.S. Source International Transportation
Income and the Section 883 Exemption does not apply, such income may be treated as effectively
connected with the conduct of a trade or business in the United States (or
Effectively Connected
Income
) if we have a fixed place of business in the United States and substantially all of our
U.S. Source International Transportation Income is attributable to regularly scheduled
transportation or, in the case of bareboat charter income, is attributable to a fixed placed of
business in the United States. Based on our current operations, none of our potential U.S. Source
International Transportation Income is attributable to regularly scheduled transportation or is
received pursuant to bareboat charters. As a result, we do not anticipate that any of our
U.S. Source International Transportation Income will be treated as Effectively Connected Income.
However, there is no assurance that we will not earn income pursuant to regularly scheduled
transportation or bareboat charters attributable to a fixed place of business in the United States
in the future, which would result in such income being treated as Effectively Connected Income.
34
U.S. Source Domestic Transportation Income generally is treated as Effectively Connected Income.
Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal
corporate income tax (the highest statutory rate is currently 35.0%). In addition, if we earn
income that is treated as Effectively Connected Income, a 30.0% branch profits tax imposed under
Section 884 of the Code generally would apply to such income, and a branch interest tax could be
imposed on certain interest paid or deemed paid by us.
On the sale of a vessel that has produced Effectively Connected Income, we could be subject to the
net basis corporate income tax and to the 30.0% branch profits tax with respect to our gain not in
excess of certain prior deductions for depreciation that reduced Effectively Connected Income.
Otherwise, we would not be subject to U.S. federal income tax with respect to gain realized on the
sale of a vessel, provided the sale is considered to occur outside of the United States under
U.S. federal income tax principles.
The 4.0% Gross Basis Tax.
If the Section 883 Exemption does not apply and the net basis tax does
not apply, we would be subject to a 4.0% U.S. federal income tax on the U.S. source portion of our
gross U.S. Source International Transportation Income, without benefit of deductions.
Marshall Islands Taxation
Because we and our controlled affiliates do not, and we do not expect that we and our controlled
affiliates will, conduct business or operations in the Republic of The Marshall Islands, neither we
nor our controlled affiliates are subject to income, capital gains, profits or other taxation under
current Marshall Islands law. As a result, distributions by OPCO or other controlled affiliates to
us are not subject to Marshall Islands taxation.
Norway Taxation
The following discussion is based upon the current tax laws of the Kingdom of Norway and
regulations, the Norwegian tax administrative practice and judicial decisions thereunder, all as in
effect as of the date of this Annual Report and subject to possible change on a retroactive basis.
The following discussion is for general information purposes only and does not purport to be a
comprehensive description of all of the Norwegian income tax considerations applicable to us.
Our Norwegian subsidiaries are subject to taxation in Norway on their income regardless of where
the income is derived. The generally applicable Norwegian income tax rate is 28.0%.
Taxation of Norwegian Subsidiaries Engaged in Business Activities.
All of our Norwegian
subsidiaries are subject to normal Norwegian taxation. Generally, a Norwegian resident company is
taxed on its income realized for tax purposes. The starting point for calculating taxable income is
the companys income as shown on its annual accounts, calculated under generally accepted
accounting principles and as adjusted for tax purposes. Gross income will include capital gains,
interest, dividends from certain corporations and foreign exchange gains.
The Norwegian companies also are taxed on any gains resulting from the sale of depreciable assets.
The gain on these assets is taken into income for Norwegian tax purposes at a rate of 20.0% per
year on a declining balance basis.
Norway does not allow consolidation of the income of companies in a corporate group for Norwegian
tax purposes. However, a group of companies that is ultimately owned more than 90.0% by a single
company can transfer its Norwegian taxable income to another Norwegian resident company in the
group by making a transfer to the other company (this is referred to as making a group
contribution). The ultimate parent in the corporate group can be a foreign company.
Group contributions are deductible for the contributing company for tax purposes and are included
in the taxable income of the receiving company in the income year in which the contribution is
made. Group contributions are subject to the same rules as dividend distributions under the
Norwegian Companies Act. In other words, group contributions are restricted to the amount that is
available to distribute as dividends for corporate law purposes.
Taxation of Dividends.
Generally, dividends received by a Norwegian resident company are exempt
from Norwegian taxation. The exemption does not apply to dividends from companies resident outside
the European Economic Area if (a) the country of residence is a low-tax country or (b) the
ownership of shares in the distributing company is considered to be a portfolio investment (
i.e.
less than 10.0% share ownership or less than two years continuous ownership period). Dividends not
exempt from Norwegian taxation are subject to the general 28.0% income tax rate when received by
the Norwegian resident company. We believe that dividends received by our Norwegian subsidiaries
will not be subject to Norwegian tax.
Correction Income Tax.
Our Norwegian subsidiaries may be subject to a tax, called
correction income
tax,
on their dividend distributions. Norwegian correction tax is levied if a dividend distribution
leads to the companys balance sheet equity at year end being lower than the companys paid-in
share capital (including share premium), plus a calculated amount equal to 72.0% of the net
positive temporary timing differences between the companys book values and tax values.
As a result, correction tax is effectively levied if dividend distributions result in the companys
financial statement equity for accounting purposes being reduced below its equity calculated for
tax purposes (
i.e.
when dividends are paid out of accounting earnings that have not been subject to
taxation in Norway). In addition to dividend distributions, correction tax may also be levied on
the partial liquidation of the share capital of the company or if the company makes group
contributions that are in excess of taxable income for the year.
Taxation of Interest Paid by Norwegian Entities.
Norway does not levy any tax or withholding tax on
interest paid by a Norwegian resident company to a company that is not resident in Norway (provided
that the interest rate and the debt/equity ratio are based on arms-length principles). Therefore,
any interest paid by our Norwegian subsidiaries to companies that are not resident in Norway will
not be subject to Norwegian withholding tax.
35
Taxation on Distributions by Norwegian Entities.
Norway levies a 25.0% withholding tax on
non-residents of Norway that receive dividends from a Norwegian resident company. However, if the
recipient of the dividend is resident in a country that has an income tax treaty with Norway or
that is a member of the European Economic Area, the Norwegian withholding tax may be reduced or
eliminated. We believe that distributions by our Norwegian subsidiaries will be subject to a
reduced amount of Norwegian withholding tax or not be subject to Norwegian withholding tax.
Luxembourg Taxation
The following discussion is based upon the current tax laws of Luxembourg and regulations, the
Luxembourg tax administrative practice and judicial decisions thereunder, all as in effect as of
the date of this Annual Report and subject to possible change on a retroactive basis. The following
discussion is for general information purposes only and does not purport to be a comprehensive
description of all of the Luxembourg income tax considerations applicable to us.
Our operating subsidiary, Teekay Offshore Partners L.P. owns all of the shares of Norsk Teekay
Holdings Ltd. (or
Norsk Teekay
), a Marshall Islands company. Norsk Teekay owns all of the shares of
Teekay European Holdings S.a.r.l. (or
TEHS
), a Luxembourg company. TEHS owns all of the shares of
Teekay Netherlands European Holdings BV (or
Teekay Netherlands
), a Netherlands company.
TEHS was primarily capitalized with a discounted loan from Norsk Teekay (the proceeds of which TEHS
used to purchase shares in Norsk Teekay, which were immediately then contributed to Teekay
Netherlands), which we believe were compliant with the Luxembourg thin capitalization threshold and
a fixed interest loan from OPCO. Its only significant assets are shares of Teekay Netherlands and a
fixed interest loan to Navion Offshore Loading AS (or
NOL
).
TEHS is considered a Luxembourg resident company subject to taxation in Luxembourg on its income
regardless of where the income is derived. The generally applicable Luxembourg income tax rate is
approximately 30%.
Taxation of Interest Income.
TEHS loans to NOL generate interest income. However, this interest
income is substantially offset by interest expense on the loan made by OPCO to TEHS. Accordingly,
at TEHS current level of indebtedness and provided that TEHS does not bear any foreign exchange
risk, TEHS should earn a minimum level of net interest income equal to 0.09375% or less of the loan
balance to NOL, an immaterial amount that will be subject to taxation in Luxembourg. The net
interest income generated from the loans to NOL can also, to the extent the interest due on the
discounted loan from Norsk Teekay exceeds any dividend income from Teekay Netherlands during the
same year be offset by interest expense on TEHS discounted loan payable to Norsk Teekay. The
deduction of interest expense on the discounted loan is subject to recapture in the future, as
discussed below.
Taxation of Potential Foreign Currency Exchange Net Gain.
TEHS holds it accounts in Euros, while
the loan to NOL is denominated in Norwegian Kroners. Regardless whether they are realized or
unrealized, foreign currency exchange gains are fully taxable in Luxembourg to the extent they are
reflected in the accounts (under Luxembourg GAAP). Foreign currency exchange losses are in
principle deductible from the taxable base of TEHS under the same conditions. We minimized such
foreign exchange exposure by having the loan from OPCO also Norwegian Kroner denominated and with
the exact same terms and conditions (same principal amount and same effective date and maturity
save for a differential in the interest rates leading to the small net interest income noted above)
as the loan to NOL. Accordingly, we believe that the foreign exchange net gain on the loan from
OPCO and on the loan to NOL should be minimized in Luxembourg.
Taxation of Interest Payments.
Luxembourg does not levy a withholding tax on interest paid to
non-residents of Luxembourg, such as Norsk Teekay and OPCO, unless the interest represents a right
to participate in profits of the interest-paying entity and the debt has certain other
characteristics or the interest payment relates to the portion of debt used to acquire share
capital, and the debt exceeds a Luxembourg thin capitalization threshold, or the interest rate is
not regarded to be at arms length. We believe that the interest paid by TEHS on the types of loans
made to it by Norsk Teekay and OPCO does not represent a right to participate in its profits and is
consistent with Luxembourg transfer pricing rules. Furthermore, we have capitalized TEHS to meet
the thin capitalization threshold. Accordingly, we believe that interest payments made by TEHS to
Norsk Teekay and OPCO are not subject to Luxembourg withholding tax.
Taxation of Dividends and Capital Gains.
Pursuant to Luxembourg law, dividends received by TEHS
from Teekay Netherlands and capital gains realized on any disposal of shares of Teekay Netherlands
generally are exempt from Luxembourg taxation if the following requirements are met:
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TEHS is a capital company resident in Luxembourg and fully subject to tax in this
country;
|
|
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|
TEHS owns more than 10% of Teekay Netherlands, or alternatively, TEHS acquisition price
for the shares of Teekay Netherlands equals or exceeds Euro 1.2 million for purposes of the
dividend exemption or Euro 6.0 million for purposes of the capital gains exemption;
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|
At the time of the dividend or disposal of shares, TEHS has owned the shares for at least
12 months (or, alternatively in the case of dividends, TEHS commits to hold the shares for
at least 12 months and in the case of capital gains, TEHS commits to continue to hold at
least 10% of the shares of Teekay Netherlands for at least 12 months); and
|
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|
|
Teekay Netherlands is a resident of the Netherlands for Dutch tax purposes and is covered
by the European Union Parent-Subsidiary Directive.
|
TEHS meets the ownership threshold and has owned the shares in Teekay Netherlands for at least
12 months. In addition, assuming that Teekay Netherlands is a resident of the Netherlands for Dutch
tax purposes and is fully subject to the Dutch general corporate tax regime (even if it has
subsidiaries that may be subject to special shipping regimes), we believe that Teekay Netherlands
is covered by the European Union Parent-Subsidiary Directive. Therefore, we believe that any
dividend received on or any capital gain resulting from the disposition of the shares of Teekay
Netherlands will be exempt from taxation in Luxembourg.
36
Notwithstanding this exemption, Luxembourg law does not permit the deduction of interest expense on
loans used to purchase shares eligible for the dividend and capital gain exemption noted above, to
the extent of the dividend received. Similarly, capital gains, although generally eligible for the
exemption discussed above, are subject to Luxembourg taxation to the extent of any such related
interest expense that has been deducted from TEHS taxable income (such as the net interest income
on loans to NOL), in the year of disposal and for any previous year the shares have been held.
We intend to operate TEHS such that it will not dispose of its shares in Teekay Netherlands.
Accordingly, we believe that TEHS will not be subject to Luxembourg dividend or capital gains
taxation, and, even if it were, it would only be affected to the extent of the recapture of
interest deductions discussed above.
Taxation of TEHS Dividends.
Luxembourg levies a 15% withholding tax on dividends paid by a
Luxembourg company to a non-EU resident, absent an Income Tax Treaty, which would apply to
dividends paid by TEHS to Norsk Teekay. However, we currently do not expect to cause TEHS to pay
dividends, but to distribute all of its available cash through the payment of interest and
principal on its loans owing to Norsk Teekay and/or OPCO. In addition, under current Luxembourg tax
rules, it is possible to releverage the Luxembourg operations with new debt, which would allow a
new Luxco to continue to distribute all of its available cash through payments of interest and
principal on the new debt.
Net Wealth Tax.
Luxembourg companies are also subject to a net wealth tax, which normally is based
on the companys net asset value. Capital stock held by a company that qualifies for the dividend
and capital gains exemption discussed above are excluded from net asset value in calculating this
tax. Liabilities related to shareholdings excluded from the net wealth tax are not deductible from
other assets subject to the net wealth tax. Furthermore, cash amounts held on January 1 with
respect to the payments of interest or dividends to TEHS are subject to the net wealth tax. The
cash balance on the last closed financial statements is generally used to determine the cash
amount. Because the shares of Teekay Netherlands and the discounted loan from Norsk Teekay should
be excluded from the net asset value according to the above, and taking into account that the loan
to NOL should be offset by corresponding loan from OPCO, Luxco should be required to pay a nominal
amount of Luxembourg net wealth tax.
Netherlands Taxation
The following discussion is based upon the current tax laws of the Kingdom of the Netherlands and
regulations, the Dutch tax administrative practice and judicial decisions thereunder, all as in
effect as of the date of this Annual Report and subject to possible change on a retroactive basis.
The following discussion is for general information purposes only and does not purport to be a
comprehensive description of all of the Dutch income tax considerations applicable to us.
Teekay Netherlands is capitalized solely with equity from TEHS. Its only significant asset are the
shares of Norsk Teekay AS, which is an intermediate holding company and is the direct or indirect
parent of various operating subsidiaries in Norway and Singapore, including Teekay Norway AS, NOL
and Teekay Offshore Loading Pte Ltd.
Taxation of Dividends and Capital Gains.
Pursuant to Dutch law, dividends received by Teekay
Netherlands from Norsk Teekay AS and capital gains realized on any disposal of the shares of Norsk
Teekay AS generally will be exempt from Dutch taxation (the
participation exemption
) if the
following conditions are met:
|
|
|
Teekay Netherlands is a shareholder of at least 5.0% of the par value of the paid up
share capital of Norsk Teekay AS;
|
|
|
|
Norsk Teekay AS is subject to Norwegian profits tax;
|
|
|
|
the shares are not held as stock in trade; and
|
|
|
|
the shares of Norsk Teekay AS are not held as a portfolio investment.
|
Since Norsk Teekay AS is an intermediate holding company that fulfills a key position between the
activities of its parent companies and the activities of operational subsidiaries, the shares in
Norsk Teekay AS are not deemed to be held as a portfolio investment. However, shares are deemed to
be held as a portfolio investment if the subsidiary is mainly involved in passive group financing.
If the activities of the subsidiaries of Teekay Netherlands consist mostly (more than 50.0%) of
direct or indirect financing of related entities, or the financing of business assets of those
entities, including providing for the use or right to use those assets, the shares of the
subsidiaries will be considered a portfolio investment.
Teekay Netherlands meets the ownership threshold, and we currently expect that Teekay Netherlands
will maintain its 100.0% ownership interest in Norsk Teekay AS for the foreseeable future. In
addition, assuming that Norsk Teekay AS is a resident of Norway for Norwegian tax purposes, we
expect Norsk Teekay AS to be fully subject to the Norwegian general corporate tax regime. In
addition, we expect that the shares of Norsk Teekay AS will not be held as stock in trade or as a
portfolio investment. Therefore, we believe that any dividend received on or any capital gain
resulting from the disposition of the shares of Norsk Teekay AS should be exempt from taxation in
the Netherlands.
Capital losses on a disposition of the shares of Norsk Teekay AS will not be tax deductible.
Taxation of Teekay Netherlands Dividends.
In general, the Netherlands levies a 25.0% withholding
tax on dividends paid by a Dutch company. The withholding tax is reduced to zero if the dividend is
paid by Teekay Netherlands to TEHS, if TEHS meets the conditions of the European Union
Parent-Subsidiary Directive. The Directive requires that TEHS hold at least 10.0% of the shares of
Teekay Netherlands for at least one year before the dividend distribution. TEHS has owned the
shares of Teekay Netherlands for at least 12 months. We currently expect that TEHS will maintain
its 100.0% ownership interest in Teekay Netherlands for the foreseeable future. Therefore, we
believe that Dutch withholding tax will not apply to dividends paid by Teekay Netherlands to TEHS.
In addition, TEHS should not be liable to Dutch corporate income tax with regards to the dividends
received.
37
2007 Tax Reform in the Netherlands.
On November 28, 2006 the Dutch parliament passed the Corporate
Income Tax 2007 Bill, which became effective on January 1, 2007. This new legislation affects the
participation exemption. Under the new law, the requirements for the participation exemption
include;
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|
|
Teekay Netherlands must be a shareholder of at least 5.0% of the par value of the paid up
share capital of Norsk Teekay AS; and
|
|
|
|
the shares in Norsk Teekay AS must not be considered a portfolio investment in a company
that is not subject to an adequate profit tax.
|
Whether or not a shareholders interest in a company is a portfolio investment is determined by
the consolidated assets of that company. If the consolidated assets are predominantly free
portfolio investments or consist predominantly of assets used for group financing activities, the
shares would in principle be considered a portfolio investment. Accordingly, the assessment of the
activities of the subsidiaries (active or passive) would remain very significant. If the
activities test were not met, the participation exemption would not apply to that entity, unless
the profits of the entity were subjected to an adequate profit tax. The taxation would be
considered adequate if the profits are taxed against an effective tax rate of at least 10.0% over a
taxable base determined according to Dutch standards.
Singapore Taxation
Taxation of Singapore Companies Operating Ships in International Traffic.
OPCO has one subsidiary
that is incorporated and tax resident in Singapore for Singapore tax purposes, Teekay Navion
Offshore Loading Pte. Ltd. (or
TNOL
)
.
Taxation of Charter Income from Non-Singapore-Registered Ships.
In respect of the charter income
that TNOL earns from its non-Singapore-registered ships, they are currently exempt from Singapore
tax under a tax incentive being enjoyed by TNOL. TNOL was conferred the Singapore Approved
International Shipping (or
AIS
) status with effect from January 1, 2005. The AIS status was granted
for an initial period of 10 years subject to a review at the end of the fifth year to ensure that
TNOL has complied with the qualifying conditions of the incentive. At the end of the first
10 years, TNOL can apply for a further 10-year extension of the incentive.
Under Section 13F of the Singapore Income Tax Act and the terms of the AIS incentive approval
letter from the Maritime Port Authority of Singapore (or
MPA
) dated January 2005, the types of
income that would qualify for tax exemption include:
|
|
|
charter hire/freight income from the operation of non-Singapore-registered vessels outside
the limits of the port of Singapore;
|
|
|
|
dividends from approved shipping subsidiaries;
|
|
|
|
gains from the disposition of non-Singapore-registered ships for a period of 5 years from
January 1, 2004 to December 13, 2008; and
|
|
|
|
foreign exchange, interest rate swaps and other derivative gains would be
automatically regarded as tax exempt hedging gains for a period of 5 years from January
1 2004 to December 31, 2008.
|
The AIS status awarded to TNOL is subject to TNOL meeting and continuing to meet the following
conditions:
|
|
|
be a tax resident in Singapore;
|
|
|
|
own and operate a significant fleet of ships;
|
|
|
|
implement the business plan agreed with the MPA at the time of application of the
incentive or such other modified plans as approved by the MPA;
|
|
|
|
the companys shipping operations should be controlled and managed in Singapore;
|
|
|
|
incur directly attributable business spending in Singapore an average of S$4 million a year
or S$20 million over a 5 year period;
|
|
|
|
support and make significant use of Singapores trade infrastructure, such as
banking, financial, business training, arbitration, and other ancillary services;
|
|
|
|
all ships chartered-in must be conducted on an arms-length basis;
|
|
|
|
inform the MPA of any changes to its Group shareholdings and operations;
|
|
|
|
keep proper books and records and submit annual audited accounts to the MPA,
together with an annual audited statement comparing the actual total business spending in
Singapore against the projected amount within 3 months of their completion; and
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|
|
disclose such information to and permit such inspection of its premises by the Singapore
Government, as required.
|
TNOL intends to operate such that substantially all of its charter income will be exempt from
Singapore tax under the AIS incentive. It also intends to operate and charter out all of its
non-Singapore-registered ships in international waters outside the limits of the port of Singapore.
On this basis, it expects that all of its income from the charter of its non-Singapore-registered
ships should be exempt from Singapore tax under Section 13F of the Singapore Income Tax Act.
Taxation of Investment Income.
Any investment income earned by TNOL would be subject to the normal
corporate tax rules. With respect to the interest income earned from deposits placed outside
Singapore, the interest will be taxable in Singapore at the prevailing corporate tax rate
(currently 18.0%) when received or deemed received in Singapore.
38
Taxation of Ship Management Income.
In addition to the above, since October 2006 TNOL has provided
ship management services to related and third party companies. Income from such activities does not
qualify for exemption under the AIS incentive. Accordingly, the income derived from these
activities is subject to tax at the prevailing corporate tax rate of 18.0%.
Australian Taxation
The following discussion is based upon the current tax laws of Australia and regulations, the
Australian tax administrative practice and judicial decisions thereunder, all as in effect as of
the date of this Annual Report and subject to possible change on a retroactive basis. The following
discussion is for general information purposes only and does not purport to be a comprehensive
description of all Australian income tax considerations applicable to us. This discussion only
considers Australia income tax.
Teekay Offshore Australia Trust (or the
Trust"
), which owns and operates the
Karratha Spirit
vessel in Australian waters, is treated as a company for Australian tax purposes. OPCO is the
beneficiary of the Trust.
As a beneficiary of the Trust, OPCO is subject to Australian tax on the taxable income of the Trust
derived from Australian sources. Since the Trust only operates one asset, the
Karratha Spirit
, it
is expected that all taxable income of the Trust has an Australian source.
Since, however, OPCO is not a resident of Australia, the trustee of the Trust is required to pay
the Australian tax due, on behalf of OPCO (the non-resident beneficiary). This is at 30.0% of the
taxable income of the Trust.
The Trust is required to file an Australian tax return disclosing the taxable income related to the
Trust and receives a credit for the tax paid by the trustee. Hence, no further Australian income
tax should be due by the Trust. Generally, the Trust will be taxable on its income attributable to
its operations in Australia calculated under generally accepted accounting principles, as adjusted
for tax purposes. Gross income will include capital gains, interest and realized foreign exchange
gains and losses. Trusts are subject to capital gains on the disposition of different classes of
assets, including those which are used to carry on a business in Australia, and land and buildings
situated in Australia. Capital gains can be offset by any capital losses incurred in the current
year, in addition to any carried forward capital losses. Net capital gains generated by a trust are
taxed at the general corporate rate of 30.0%.
Generally, a Trust is allowed to deduct the expenses it incurs in a taxation year, to the extent
the expenses are incurred to earn the Australian sourced income. The Australian operations of the
Trust is partly financed by debt. As such, to the extent the interest expense is allocable to the
Australian sourced income it should generate interest deductions, subject to thin capitalization
restrictions.
Teekay Australia Offshore Holdings Pty Ltd. (or
TAOH
) was incorporated in July of 2007 and is
owned directly by the Partnership. TAOH is the sole member of Dampier Spirit LLC, which owns and
operates the
Dampier Spirit
vessel in Australian waters. Together, TAOH and Dampier Spirit LLC
form a tax consolidated group for Australian tax reporting purposes. The consolidated group is
taxed as a regular Australian company and is subject to Australian domestic tax law. The
consolidated group is taxed on its consolidated taxable income at the Australian corporate tax rate
of 30% and is required to file an Australian tax return.
Thin capitalization measures apply which limit the deductibility of interest expenditure incurred
by non-residents carrying on a business in Australia. The measures apply to the total debt of the
Australian operations of multinational groups such that interest deductions are denied to the
extent that borrowings exceed a safe harbor ratio or, alternatively, an arms length debt amount
(as so calculated under the provisions of the Australian income tax legislation). Broadly, the safe
harbor maximum amount of Australian debt for the Australian operations of a non-resident is 75.0%
of the accounting book value of the assets of the Australian operation after being reduced by
non-debt liabilities (calculated on an average basis).
Taxation of Interest Paid in Respect of the Australian Operations.
Australia levies withholding tax
on interest paid to a non-resident where the interest relates to Australian operations. Therefore,
any interest paid to non-residents will be subject to Australian withholding tax. Withholding tax
is levied on payments of interest made to non residents, regardless of whether the interest
deduction is allowed pursuant to other provisions of the Australian tax legislation. The
withholding tax rate on interest is generally 10.0%, with the exception of certain interest
payments to U.S. and U.K. resident financial institutions, whereby the rate is reduced to 0.0%.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report. The information below has been adjusted solely to
reflect the impact of the restatement on our financial results which is more fully described in
Note 18 of the notes to the consolidated financial statements contained in this report and to
include the section entitled Restatement of Previously Issued Financial Statements below and does
not reflect any subsequent information or events occurring after the date of the Original Filing or
update any disclosure herein to reflect the passage of time since the date of the Original Filing.
39
Restatement of Previously Issued Financial Statements
Please read Note 18 of the notes to the consolidated financial statements for a more detailed
discussion of our restated results and the basis for them. The following table sets forth a
reconciliation of previously reported and restated net income (loss) for the periods shown (in
thousands of US dollars):
|
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|
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|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
|
|
|
|
|
January 1 to
|
|
|
December 19 to
|
|
|
|
|
|
|
|
|
|
|
December 18,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
|
19,672
|
|
|
|
(33,563
|
)
|
|
|
848
|
|
|
|
84,747
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments, net of
non-controlling interest and other
(1)
|
|
|
(17,014
|
)
|
|
|
2,806
|
|
|
|
500
|
|
|
|
756
|
|
Dropdown Predecessor
(2)
|
|
|
1,300
|
|
|
|
3,097
|
|
|
|
114
|
|
|
|
2,910
|
|
Vision Incentive Plan
|
|
|
|
|
|
|
(2,632
|
)
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
3,958
|
|
|
|
(30,292
|
)
|
|
|
1,462
|
|
|
|
95,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes an adjustment totaling ($3.6) million for the year ended
December 31, 2007 relating to the accounting for the non-controlling interest in
one of our 50% owned subsidiaries and adjusting amounts related to deferred
income taxes and the fair value of derivative instruments at December 31, 2007.
|
|
(2)
|
|
Relates to the results for the pre-acquisition periods in which we
and the acquired interests in vessels, as listed below, were both in operation and
under the common control of Teekay Corporation, as follows:
|
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|
|
Dampier Spirit
(FSO unit) for March 15, 1998 to September 30, 2007;
|
|
|
|
|
Navion Bergen
(shuttle tanker) for April 16, 2007 to June 30, 2007; and
|
|
|
|
|
Navion Gothenburg
(shuttle tanker) began operations concurrently with the
Partnerships acquisition of it on July 24, 2007.
|
Managements 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 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
Our Initial Public Offering
On December 19, 2006, we completed our initial public offering of 8.05 million common units at a
price of $21.00 per unit. The net proceeds from the offering were $155.2 million. The offering
included 1.05 million common units sold to the underwriters in connection with the exercise of
their over-allotment option. We used the net proceeds to repay a $134.6 million promissory note to
Teekay Corporation and to redeem 1.05 million common units from Teekay Corporation for $20.6
million.
Prior to the closing of this offering, Teekay Corporation contributed entities owning and operating
a fleet of shuttle tankers, FSO units and Aframax conventional crude oil tankers to Teekay Offshore
Operating L.P. (or
OPCO
). Upon the closing of our initial public offering, we acquired from Teekay
Corporation a 26.0% interest in OPCO. Teekay Corporation owns the remaining 74.0% interest in OPCO.
Prior to June 30, 2007, our 26.0% interest in OPCO represented our only cash-generating asset. The
results prior to our initial public offering discussed below are the results of the entities that
were contributed to OPCO, which we refer to collectively as Teekay Offshore Partners Predecessor.
The entities contributed to OPCO do not own some of the assets and operations they owned during the
year ended December 31, 2007. References in this Item 5 Managements Discussion and Analysis of
Financial Condition and Results of Operations to OPCO refer to Teekay Offshore Partners
Predecessor for periods prior to December 19, 2006 and to OPCO and its subsidiaries for periods on
or after December 19, 2006.
Acquisition of Vessels in 2007
In July 2007, we directly acquired interests in two double-hull shuttle tankers and related
charters for a total cost of approximately $159.1 million, including assumption of debt of $93.7
million. These interests, which we acquired from Teekay Corporation, include a 100% interest in the
2000-built
Navion Bergen
and a 50% interest in the 2006-built
Navion Gothenburg
, together with
their respective 13-year, fixed-rate bareboat charters to a subsidiary of Petrobras Transporte
S.A., the shipping arm of Petroleo Brasileiro S.A.
40
On October 1, 2007, we directly acquired one FSO unit, the
Dampier Spirit
, for a total cost of
approximately $30.3 million. The
Dampier Spirit
operates under a 7-year fixed-rate, time-charter
to Apache Corporation of Australia.
The Partnership accounts for the acquisition of vessels as business combinations between entities
under common control.
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 $416.9 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 OPCOs
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.
Our Contracts of Affreightment and Charters
We generate revenues by charging customers for the transportation and storage of their crude oil
using our vessels. Historically, these services generally have been provided under the following
basic types of contractual relationships:
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Contracts of affreightment
, whereby we carry an agreed quantity of cargo for a customer
over a specified trade route within a given period of time;
|
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|
Time charters
, whereby vessels we operate and are responsible for crewing are chartered
to customers for a fixed period of time at rates that are generally fixed, but may contain a
variable component based on inflation, interest rates or current market rates;
|
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|
|
Bareboat charters
, whereby customers charter vessels for a fixed period of time at rates
that are generally fixed, but the customers operate the vessels with their own crews; and
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|
Voyage charters
, which are charters for shorter intervals that are priced on a current,
or spot, market rate.
|
The table below illustrates the primary distinctions among these types of charters and contracts:
|
|
|
|
|
|
|
|
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|
Contract of Affreightment
|
|
Time Charter
|
|
Bareboat Charter
|
|
Voyage Charter(1)
|
Typical contract length
|
|
One year or more
|
|
One year or more
|
|
One year or more
|
|
Single voyage
|
Hire rate basis(2)
|
|
Typically daily
|
|
Daily
|
|
Daily
|
|
Varies
|
Voyage expenses(3)
|
|
We pay
|
|
Customer pays
|
|
Customer pays
|
|
We pay
|
Vessel operating expenses(3)
|
|
We pay
|
|
We pay
|
|
Customer pays
|
|
We pay
|
Off-hire (4)
|
|
Customer typically does not pay
|
|
Varies
|
|
Customer typically pays
|
|
Customer does not pay
|
|
|
|
(1)
|
|
Under a consecutive voyage charter, the customer pays for idle time.
|
|
(2)
|
|
Hire
rate refers to the basic payment from the charterer for the use of the vessel.
|
|
(3)
|
|
Defined below under Important Financial and Operational Terms and Concepts.
|
|
(4)
|
|
Off-hire
refers to the time a vessel is not available for service.
|
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts. These include the following:
Voyage Revenues.
Voyage revenues primarily include revenues from contracts of affreightment, time
charters, bareboat charters and voyage charters. Voyage revenues are affected by hire rates and the
number of days a vessel operates. Voyage revenues are also affected by the mix of business between
contracts of affreightment, time charters, bareboat charters and voyage charters. Hire rates for
voyage charters are more volatile, as they are typically tied to prevailing market rates at the
time of a voyage.
Voyage Expenses.
Voyage expenses are all expenses unique to a particular voyage, including any
bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and
commissions. Voyage expenses are typically paid by the customer under time charters and bareboat
charters and by the shipowner under voyage charters and contracts of affreightment. When we pay
voyage expenses, they typically are added to the hire rates at an approximate cost.
Net Voyage Revenues.
Net voyage revenues represent voyage revenues less voyage expenses incurred by
us. Because the amount of voyage expenses we incur for a particular charter depends upon the type
of charter, we use net voyage revenues to improve the comparability between periods of reported
revenues that are generated by the different types of charters. We principally use net voyage
revenues, a non-GAAP financial measure, because it provides more meaningful information to us about
the deployment of our vessels and their performance than voyage revenues, the most directly
comparable financial measure under accounting principles generally accepted in the United States
(or
GAAP
).
41
Vessel Operating Expenses.
Under all types of charters except for bareboat charters, the shipowner
is responsible for vessel operating expenses, which include crewing, repairs and maintenance,
insurance, stores, lube oils and communication expenses. The two largest components of our vessel
operating expenses are crews and repairs and maintenance.
Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs
and maintenance typically occur during periodic drydockings. Please read Drydocking below. We
expect these expenses to increase as the fleet matures and expands, particularly to the extent we
acquire vessels directly through our wholly owned subsidiaries rather than through OPCO.
Time Charter Hire Expenses.
Time charter hire expenses represent the cost to charter-in a vessel
for a fixed period of time.
Income from Vessel Operations.
To assist us in evaluating operations by segment, we sometimes
analyze the income we receive from each segment after deducting operating expenses, but prior to
the deduction of interest expense, taxes, foreign currency exchange gains and losses and other
income and losses.
Drydocking.
We must periodically drydock our shuttle tankers and conventional oil tankers for
inspection, repairs and maintenance and any modifications to comply with industry certification or
governmental requirements. We may drydock FSO units if we desire to qualify them for shipping
classification. Generally, each shuttle tanker and conventional oil tanker is drydocked every two
and a half to five years, depending upon the type of vessel and its age. We capitalize a
substantial portion of the costs incurred during drydocking and amortize those costs on a
straight-line basis from the completion of a drydocking to the estimated completion of the next
drydocking. We expense as incurred costs for routine repairs and maintenance performed during
drydocking that do not improve or extend the useful lives of the assets. The number of drydockings
undertaken in a given period and the nature of the work performed determine the level of drydocking
expenditures.
Depreciation and Amortization.
Depreciation and amortization expense typically consists of:
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|
|
charges related to the depreciation of the historical cost of our fleet (less an
estimated residual value) over the estimated useful lives of the vessels;
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|
|
|
charges related to the amortization of drydocking expenditures over the estimated number
of years to the next scheduled drydocking; and
|
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|
|
charges related to the amortization of the fair value of contracts of affreightment where
amounts have been attributed to those items in acquisitions; these amounts are amortized
over the period in which the asset is expected to contribute to future cash flows.
|
Revenue Days.
Revenue days are the total number of calendar days our vessels were in our possession
during a period, less the total number of off-hire days during the period associated with major
repairs, or drydockings. Consequently, revenue days represent the total number of days available
for the vessel to earn revenue. Idle days, which are days when the vessel is available to earn
revenue, yet is not employed, are included in revenue days. We use revenue days to show changes in
net voyage revenues between periods.
Calendar-Ship-Days.
Calendar-ship-days are equal to the total number of calendar days that our
vessels were in our possession during a period. We use calendar-ship-days primarily to highlight
changes in vessel operating expenses, time charter hire expense and depreciation and amortization.
For periods prior to our initial public offering in December 2006, calendar-ship days are based on
OPCOs owned and chartered-in fleet, excluding vessels owned by OPCOs five 50% owned subsidiaries.
For periods on or after our initial public offering, calendar-ship days are based on our and OPCOs
owned and chartered-in fleet, including vessels owned by our 50% owned subsidiaries, as OPCO
obtained control of five of these subsidiaries as of December 1, 2006, and we purchased a 50%
interest in one subsidiary in July 2007.
VOC Equipment.
We assemble, install, operate and lease equipment that reduces volatile organic
compound emissions (or
VOC equipment
) during loading, transportation and storage of oil and oil
products. Leasing of the VOC equipment is accounted for as a direct financing lease, with lease
payments received being allocated between the net investment in the lease and other income using
the effective interest method so as to produce a constant periodic rate of return over the lease
term.
Items You Should Consider When Evaluating Our Results
You should consider the following factors when evaluating our historical financial performance and
assessing our future prospects:
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|
|
Our financial results reflect the results of the interests in vessels acquired from
Teekay Corporation for all periods the vessels were under common control.
In July 2007, we
acquired from Teekay Corporation ownership of its 100% interest in the 2000-built shuttle
tanker
Navion Bergen
and its 50% interest in the 2006-built shuttle tanker
Navion
Gothenburg
, respectively. The acquisitions included the assumption of debt, related
interest rate swap agreements and Teekay Corporations rights and obligations under
13-year, fixed-rate bareboat charters. In October 2007, we acquired from Teekay Corporation
its interest in the FSO unit
Dampier Spirit
, along with its 7-year fixed-rate time-charter.
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|
|
|
|
These transactions were deemed to be business acquisitions between entities under common
control. Accordingly, we have accounted for these transactions in a manner similar to the
pooling of interest method. Under this method of accounting, our financial statements prior
to the date the interests in these vessels were actually acquired by us are retroactively
adjusted to include the results of these acquired vessels. The periods retroactively adjusted
include all periods that we and the acquired vessels were both under common control of Teekay
Corporation and had begun operations. As a result, our statements of income (loss) for the
years ended December 31, 2007, 2006 and 2005 reflect these vessels, referred to herein as the
Dropdown Predecessor
, as if we had acquired them when each respective vessel began operations
under the ownership of Teekay Corporation. These vessels began operations on April 16, 2007
(
Navion Bergen
), July 24, 2007 (
Navion Gothenburg
) and March 15, 1998 (
Dampier Spirit
).
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Our cash flow will be reduced by distributions on Teekay Corporations interest in OPCO.
Following the closing of our initial public offering, Teekay Corporation has held a 74%
limited partner interest in OPCO. OPCOs partnership agreement requires it to distribute
all of its available cash each quarter. In determining the amount of cash available for
distribution, the Board of Directors of our general partner must approve the amount of cash
reserves to be set aside, including reserves for future maintenance capital expenditures,
working capital and other matters. Distributions to Teekay Corporation for periods
following our initial public offering reduce our cash flow compared to historical results.
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42
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On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are included
in results of operation prior to that date.
On July 1, 2006, and in anticipation of our
December 2006 initial public offering, OPCO transferred to Teekay Corporation a subsidiary
of Norsk Teekay Holdings Ltd. (Navion Shipping Ltd.) that chartered-in approximately 25
conventional tankers since 2004 and subsequently time-chartered the vessels back to a
subsidiary of Teekay Corporation at charter rates that provided for a 1.25% fixed profit
margin. We have disclosed the results of Navion Shipping Ltd. for periods prior to its sale
on July 1, 2006 as discontinued operations. In addition, OPCO transferred to Teekay
Corporation a 1987-built shuttle tanker (the
Nordic Trym
), a 1992-built in-chartered
shuttle tanker (the
Borga
) and certain other assets (collectively with Navion Shipping
Ltd., the
Non-OPCO Assets
).
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Amendments to certain operating agreements in December 2006 have resulted in five 50%
owned subsidiaries being consolidated with us under GAAP.
Our results of operations prior
to December 1, 2006 reflect OPCOs investment in five 50% joint venture companies,
accounted for using the equity method, whereby the investment is carried at the original
cost plus OPCOs proportionate share of undistributed earnings. On December 1, 2006, the
operating agreements for these subsidiaries were amended such that OPCO obtained control of
these subsidiaries, resulting in the consolidation of these five subsidiaries in accordance
with GAAP. Although our net income did not change due to this change in accounting, the
results of the subsidiaries have been reflected in our income from operations since
December 1, 2006. As noted above, this change also resulted in the five shuttle tankers
owned by these subsidiaries being included in the vessels used to calculate
calendar-ship-days.
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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, in addition to the decrease in chartered-in vessels associated
with the transfer of Navion Shipping Ltd. described above, the average number of owned
vessels in our shuttle tanker fleet increased from 21 in 2006 to 25 in 2007, and our FSO
segment increased from 4 in 2006 to 5 in 2007. 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.
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Our financial results of operations reflect different time charter terms for OPCOs nine
conventional tankers.
On October 1, 2006, OPCO entered into new fixed-rate time charters
with a subsidiary of Teekay Corporation for OPCOs nine conventional tankers at rates we
believed reflected then-prevailing market rates. Please read item 18 Financial
Statements: Note 10 Related Party Transactions. At various times prior to October 2006,
eight of these nine conventional tankers were employed on time charters with the same
subsidiary of Teekay Corporation. However, the charter rates were generally lower than
market-based charter rates, as they were based on the cash flow requirements of each
vessel, which included operating expenses, loan principal and interest payments and drydock
expenditures. The ninth conventional tanker was employed on voyage and bareboat charters.
Under the terms of eight of the nine new time-charter contracts, OPCO is responsible for
the bunker fuel expenses and the approximate amounts of these expenses are added to the
daily hire rate.
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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 crewing wage increases during 2007, the effect of
which is explained in our comparison of vessel operating expenses incurred in the year
ended December 31, 2007 versus the year ended December 31, 2006. We expect a trend of
increasing crew compensation to continue into 2008.
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Our financial results of operations are affected by fluctuations in currency exchange
rates
. Under US 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. Most of our historical foreign currency gains and
losses prior to our initial public offering are attributable to this revaluation in respect
of our foreign currency denominated advances from affiliates. In addition, a substantial
majority of OPCOs crewing expenses historically have been denominated in Norwegian Kroner,
which is primarily a function of the nationality of the crew. Fluctuations in the Norwegian
Kroner relative to the U.S. Dollar have caused fluctuations in operating results. Prior to
our initial public offering, OPCO settled its then-outstanding foreign currency denominated
advances from affiliates and also 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 Corporations 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 December 31,
2007, 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.
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We are incurring additional general and administrative expenses.
Prior to our initial
public offering, general and administrative expenses were allocated based on OPCOs
proportionate share of Teekay Corporations total ship-operating (calendar) days for
applicable periods presented. In connection with our initial public offering, we, OPCO and
certain of its subsidiaries entered into services agreements with subsidiaries of Teekay
Corporation, pursuant to which those subsidiaries provide certain services, including
administrative, advisory and technical services and ship management. Our cost for these
services depends on the amount and types of services provided during each period. The
services are valued at an arms-length rate that include reimbursement of reasonable direct
and indirect expenses incurred to provide the services. We also reimburse our general
partner for all expenses it incurs on our behalf, including compensation and expenses of
its executive officers and directors and we may grant equity compensation that would result
in an expense to us. Since becoming a publicly traded limited partnership, we have also
incurred costs associated with annual reports to unitholders and SEC filings, investor
relations, NYSE annual listing fees and additional tax compliance expenses
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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.
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43
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.
Year Ended December 31, 2007 versus Year Ended December 31, 2006
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, 24 are owned by OPCO
(including 5 through 50% owned subsidiaries), 12 are chartered-in by OPCO and 2 are owned by us
(including one through a 50% owned subsidiary). 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 segments operating results for the years ended
December 31, 2007 and 2006, and compares its net voyage revenues (which is a non-GAAP financial
measure) for the years ended December 31, 2007 and 2006 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:
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Year Ended December 31,
|
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|
|
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(in thousands of U.S. dollars, except calendar-ship-days and percentages)
|
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2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
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|
|
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|
|
|
|
|
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Voyage revenues
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590,611
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|
|
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535,972
|
|
|
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10.2
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Voyage expenses
|
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114,157
|
|
|
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88,446
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29.1
|
|
|
|
|
|
|
|
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Net voyage revenues
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476,454
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|
|
|
447,526
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6.5
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Vessel operating expenses
|
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|
103,809
|
|
|
|
80,307
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29.3
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Time-charter hire expense
|
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|
150,463
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|
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|
165,614
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(9.1
|
)
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Depreciation and amortization
|
|
|
86,502
|
|
|
|
71,367
|
|
|
|
21.2
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|
General and administrative
(1)
|
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50,776
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|
|
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50,353
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|
|
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0.8
|
|
Gain on sale of vessels and equipment net of writedowns
|
|
|
|
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(4,778
|
)
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(100.0
|
)
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|
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Income from vessel operations
|
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84,904
|
|
|
|
84,663
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0.3
|
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|
|
|
|
|
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|
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Calendar-Ship-Days
|
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Owned Vessels
|
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9,180
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7,559
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21.4
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Chartered-in Vessels
|
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4,297
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4,824
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(10.9
|
)
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Total
|
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13,477
|
|
|
|
12,383
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
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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 our owned shuttle tanker fleet increased for 2007 compared to 2006, primarily
due to:
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the consolidation into our results of the five vessels owned by OPCOs 50% owned
subsidiaries, effective December 1, 2006 upon amendments to the applicable operating
agreements that granted OPCO control of the subsidiaries (the
Consolidation of 50%-Owned
Subsidiaries
). Prior to December 1, 2006, these entities were equity accounted for as
joint ventures. Please read Items You Should Consider When Evaluating Our Results of
Operations Amendments to certain operating agreements in December 2006 have resulted in
five 50% owned subsidiaries being consolidated with us under GAAP above; and
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the acquisition in July 2007 of the 2000-built shuttle tanker (the
Navion Bergen
) and
a 50% interest in the 2006-built shuttle-tanker (the
Navion Gothenburg
) (the
2007
Shuttle Tanker Acquisitions
). However, as a result of the inclusion of the Dropdown
Predecessor, the
Navion Bergen
had been included for accounting purposes in our results
as if it had been acquired on April 16, 2007, when it completed its conversion and began
operations as a shuttle tanker for Teekay Corporation. The
Navion Gothenburg
completed
its conversion and began operations as a shuttle tanker concurrently with its
acquisition in July 2007. Please read Items You Should Consider When Evaluating Our
Results of Operations Our financial results reflect the results of the interests in
vessels acquired from Teekay Corporation for all periods the vessels were under common
control above;
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partially offset by
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the sale of a 1981-built shuttle tanker (the
Nordic Laurita
) in July 2006 to a third
party and the sale of a 1987-built shuttle tanker (the
Nordic Trym
) to Teekay
Corporation in November 2006 (collectively, the
2006 Shuttle Tanker Dispositions
).
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The average size of our chartered-in shuttle tanker fleet decreased in 2007 compared to 2006,
primarily due to:
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the redelivery of one chartered-in vessel back to its owner in April 2006; and
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the sale in July 2006 to Teekay Corporation of a time charter-in contract for a
1992-built shuttle tanker (the
Borga
).
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Net Voyage Revenues.
Net voyage revenues increased for 2007 from 2006, primarily due to:
|
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an increase of $40.8 million due to the Consolidation of 50%-Owned Subsidiaries;
|
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an increase of $12.2 million due to the 2007 Shuttle Tanker Acquisitions (including
the impact of the Dropdown Predecessor); and
|
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an increase of $3.6 million due to the renewal of certain vessels on time charter
contracts at higher daily rates during 2006;
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44
partially offset by
|
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a decrease of $13.6 million in revenues due to (a) fewer revenue days for shuttle
tankers servicing contracts of affreightment during 2007 due to a decline in oil
production from mature oil fields in the North Sea and (b) the redeployment of idle
shuttle tankers
servicing contracts of affreightment in the conventional spot market at a lower average
charter rate during the fourth quarter of 2007 due to a weaker spot tanker market;
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a decrease of $7.6 million due to the 2006 Shuttle Tanker Dispositions;
|
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a decrease of $4.4 million due to the sale of the time charter-in contract for the
Borga;
and
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a decrease of $2.9 million from the redelivery of one chartered-in vessel to its
owner in April 2006.
|
Vessel Operating Expenses.
Vessel operating expenses increased for 2007 from 2006, primarily due
to:
|
|
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an increase of $17.3 million due to the Consolidation of 50%-Owned Subsidiaries;
|
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|
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an increase of $7.0 million in salaries for crew and officers primarily due to
general wage escalations from the renegotiation of seafarer contracts, changes in crew
composition and a change in the crew rotation system; and
|
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|
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an increase of $1.9 million relating to an increase in services due to the rising
cost of consumables, lubes, and freight during 2007;
|
partially offset by
|
|
|
a decrease of $3.2 million due to the 2006 Shuttle Tanker Dispositions.
|
Time-Charter Hire Expense.
Time-charter hire expense decreased for 2007 from 2006, primarily due to
the decrease in the average number of vessels chartered-in.
Depreciation and Amortization.
Depreciation and amortization expense increased for 2007 from 2006,
primarily due to:
|
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an increase of $13.7 million due to the Consolidation of 50%-Owned Subsidiaries;
|
|
|
|
an increase of $4.1 million due to the 2007 Shuttle Tanker Acquisitions (including
the impact of the Dropdown Predecessor); and
|
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|
|
an increase of $3.9 million from the amortization of vessel upgrades and drydock
costs incurred during 2006 and 2007;
|
partially offset by
|
|
|
a decrease of $5.7 million relating to the 2006 Shuttle Tanker Dispositions.
|
Gain on sale of vessels equipment net of writedowns.
Gain on sale of vessels and equipment net
of writedowns for 2006 was a net gain of $4.8 million, which was comprised primarily of:
|
|
|
a $6.4 million gain relating to the sale of a 1981-built shuttle tanker (the
Nordic
Laurita
) in July 2006;
|
partially offset by
|
|
|
a $2.2 million writedown in 2006 of certain offshore equipment servicing a marginal
oil field that was prematurely shut down in June 2005 due to lower than expected oil
production. This writedown occurred due to a reassessment of the estimated net
realizable value of the equipment and follows a $12.2 million writedown in 2005 arising
from the early termination of a contract for the equipment (some of this equipment was
re-deployed on another field in October 2005).
|
45
Conventional Tanker Segment
OPCO owns nine Aframax conventional crude oil tankers, all of which operate under fixed-rate time
charters with Teekay Corporation.
The following table presents our conventional tanker segments operating results for the years
ended December 31, 2007 and 2006, and compares its net voyage revenues (which is a non-GAAP
financial measure) for the years ended December 31, 2007 and 2006 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 for our conventional tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
(in thousands of U.S. dollars, except calendar-ship-days and percentages)
|
|
|
2007
|
|
2006
|
|
|
% Change
|
|
|
|
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
135,922
|
|
|
|
70,056
|
|
|
|
94.0
|
|
Voyage expenses
|
|
|
36,594
|
|
|
|
4,892
|
|
|
|
648.0
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
99,328
|
|
|
|
65,164
|
|
|
|
52.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel operating expenses
|
|
|
24,175
|
|
|
|
19,378
|
|
|
|
24.8
|
|
Depreciation and amortization
|
|
|
21,324
|
|
|
|
21,212
|
|
|
|
0.5
|
|
General and administrative
(1)
|
|
|
7,828
|
|
|
|
11,789
|
|
|
|
(33.6
|
)
|
Restructuring charge
|
|
|
|
|
|
|
832
|
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
46,001
|
|
|
|
11,953
|
|
|
|
284.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels
|
|
|
3,405
|
|
|
|
3,650
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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).
|
The average size of the conventional crude oil tanker fleet decreased for 2007 compared to 2006,
primarily due to the transfer of the
Navion Saga
to the FSO segment as a result of the completion
of its conversion to an FSO unit and commencing a three-year FSO time charter contract in early May
2007 (prior to the completion of the vessels conversion to an FSO unit, it was included as a
conventional crude oil tanker within the conventional tanker segment).
Net Voyage Revenues.
Net voyage revenues increased for 2007 from 2006, primarily due to higher hire
rates earned by the nine owned Aframax conventional tankers on time charters with a subsidiary of
Teekay Corporation (please read
Items You Should Consider When Evaluating Our Results Our
financial results of operations reflect different time charter terms for OPCOs nine conventional
tankers
).
Vessel Operating Expenses.
Vessel operating expenses increased for 2007 from 2006, primarily due to
an increase in salaries for crew and officers as a result of general wage escalations and an
increase in services and repairs and maintenance. In addition, one of the nine owned Aframax
conventional tankers was employed by Teekay Corporation during 2006 on a short-term
bareboat-charter under which the customer was responsible for vessel operating expenses, and was
employed during 2007 on a time-charter contract under which we are responsible for vessel operating
expenses.
Depreciation and Amortization.
Depreciation and amortization expense increased slightly for 2007
from 2006, primarily due to an increase from the amortization of drydock costs incurred during
2007, partially offset by a $1.3 million decrease due to the transfer of the
Navion Saga
to the FSO
segment in early May 2007.
46
FSO Segment
We own five FSO units that operate under fixed-rate time charters or fixed-rate bareboat charters.
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 segments operating results for the years ended December 31,
2007 and 2006, and compares its net voyage revenues (which is a non-GAAP financial measure) for the
years ended December 31, 2007 and 2006 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 for our FSO segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
(in thousands of U.S. dollars, except calendar-ship-days and percentages)
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
58,670
|
|
|
|
35,883
|
|
|
|
63.5
|
|
Voyage expenses
|
|
|
886
|
|
|
|
1,085
|
|
|
|
(18.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
57,784
|
|
|
|
34,798
|
|
|
|
66.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel operating expenses
|
|
|
21,676
|
|
|
|
12,603
|
|
|
|
72.0
|
|
Depreciation and amortization
|
|
|
16,544
|
|
|
|
11,970
|
|
|
|
38.2
|
|
General and administrative
(1)
|
|
|
3,800
|
|
|
|
3,049
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
15,764
|
|
|
|
7,176
|
|
|
|
119.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels
|
|
|
1,705
|
|
|
|
1,460
|
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2006, we were deemed to have operated four FSO units, including the
Dampier Spirit
as a
result of the inclusion of the Dropdown Predecessor, which we acquired from Teekay Corporation in
October 2007. The
Dampier Spirit
has been included in our results as if it was acquired on March
15, 1998, when it completed its conversion and began operations as a FSO unit for Teekay
Corporation. Please read Items You Should Consider When Evaluating Our Results of Operations Our
financial results reflect the results of the interests in vessels acquired from Teekay Corporation
for all periods the vessels were under common control above.
A fifth FSO unit, the
Navion Saga
, was included as a conventional crude oil tanker within the
conventional tanker segment until May 2007, when its conversion to an FSO unit was completed and it
commenced operating under a three-year FSO time charter contract. The change in operating results
for the FSO segment from 2006 to 2007 was primarily due to the inclusion of the
Navion Saga.
Other Operating Results
General and Administrative Expenses.
General and administrative expenses decreased slightly to
$62.4 million for 2007, from $65.2 million for 2006, primarily due to:
|
|
|
a decrease in management fees owing to subsidiaries of Teekay Corporation (prior to
our initial public offering, general and administrative expenses were allocated based on
OPCOs proportionate share of Teekay Corporations total ship-operating (calendar) days
for each of the periods presented; since the initial public offering, we have incurred
general and administrative expenses primarily through services agreements between us,
OPCO and certain of its subsidiaries and subsidiaries of Teekay Corporation);
|
partially offset by
|
|
|
an increase of $2.4 million relating to additional expenses as a result of our being
a publicly-traded limited partnership since our initial public offering in December
2006.
|
Interest Expense.
Interest expense increased to $126.3 million for 2007, from $66.1 million for
2006, primarily due to:
|
|
|
an increase of $48.9 million relating to the unrealized change in fair value of our
interest rate swaps;
|
|
|
|
an increase of $35.9 million relating to a full year of interest incurred on debt
under a revolving credit facility OPCO entered into during the fourth quarter of 2006;
|
|
|
|
an increase of $11.3 million due to the Consolidation of 50%-Owned Subsidiaries; and
|
|
|
|
increase of $4.7 million due to the assumption of debt relating to the 2007 Shuttle
Tanker Acquisitions (including the
Navion Bergen
s interest expense from April 16, 2007
until we acquired it on July 1, 2007);
|
partially offset by
|
|
|
a decrease of $14.2 million in interest incurred on a Norwegian Kroner-denominated
loan owing by a subsidiary of OPCO to Teekay Corporation from October 2006 until our
initial public offering in December 2006 (Teekay Corporation sold this loan receivable
to OPCO immediately before our initial public offering);
|
|
|
|
a decrease of $12.9 million relating to the settlement of interest-bearing advances
from affiliates during the fourth quarter of 2006;
|
47
|
|
|
a decrease of $7.5 million relating to interest incurred under a revolving credit
facility that was prepaid and cancelled prior to our initial public offering; and
|
|
|
|
a decrease of $6.3 million relating to interest incurred by Teekay Offshore Partners
Predecessor on one of its revolving credit facilities, which was not transferred to OPCO
prior to our initial public offering.
|
We have not designated our interest rate swaps as hedges for accounting purposes, and as such, the
unrealized changes in fair value of the swaps are reflected in interest expense in our consolidated
statements of income (loss).
Equity Income From Joint Ventures.
Equity income from OPCOs 50% joint ventures was $6.3 million
for 2006. On December 1, 2006, the operating agreements for these joint ventures were amended,
resulting in OPCO obtaining control of these entities and, consequently, OPCO has consolidated
these entities since December 1, 2006.
Foreign Currency Exchange Losses.
Foreign currency exchange loss was $11.7 million for 2007
compared to a $66.3 million loss for 2006. In 2006, the foreign currency exchange loss of $66.3
million was primarily due to the revaluation of Norwegian Kroner-denominated advances from
affiliates prior to our initial public offering. These foreign currency exchange losses and gains,
substantially all of which were 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 Kroner on the date of revaluation or settlement compared to the rate in
effect at the beginning of the period.
Income Tax Recovery (Expense).
Income tax recovery was $10.5 million for 2007 compared to an income
tax expense of $3.4 million for 2006. The $13.9 million increase to income tax recoveries was
primarily due to deferred income tax recoveries resulting from the financial restructuring of our
Norwegian shuttle tanker operations during 2006, partially offset by an increase in deferred income
tax expense relating to unrealized foreign exchange translation gains.
Other Income.
Other income for 2007 and 2006 was $10.4 million and $8.7 million, respectively,
which was primarily comprised of leasing income from our VOC equipment.
Net Loss from Discontinued Operations.
On July 1, 2006, OPCO sold to Teekay Corporation Navion
Shipping Ltd., which chartered-in approximately 25 conventional tankers since 2004 and subsequently
time-chartered the vessels back to a subsidiary of Teekay Corporation at charter rates that
provided for a 1.25% fixed profit margin (please read
Items You Should Consider When Evaluating
Our Results On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are
included in results of operations prior to that date
). These operations prior to July 1, 2006 were
reported within the conventional tanker segment. Net loss from discontinued operations was $10.5
million for 2006.
Year Ended December 31, 2006 versus Year Ended December 31, 2005
Shuttle Tanker Segment
The following table presents our shuttle tanker segments operating results for the years ended
December 31, 2006 and 2005, and compares its net voyage revenues (which is a non-GAAP financial
measure) for the years ended December 31, 2006 and 2005 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
(in thousands of U.S. dollars, except calendar-ship-days and percentages)
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
535,972
|
|
|
|
516,758
|
|
|
|
3.7
|
|
Voyage expenses
|
|
|
88,446
|
|
|
|
68,308
|
|
|
|
29.5
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
447,526
|
|
|
|
448,450
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel operating expenses
|
|
|
80,307
|
|
|
|
75,196
|
|
|
|
6.8
|
|
Time-charter hire expense
|
|
|
165,614
|
|
|
|
169,687
|
|
|
|
(2.4
|
)
|
Depreciation and amortization
|
|
|
71,367
|
|
|
|
77,083
|
|
|
|
(7.4
|
)
|
General and administrative
(1)
|
|
|
50,353
|
|
|
|
44,063
|
|
|
|
14.3
|
|
Gain on sale of vessels and equipment net of writedowns
|
|
|
(4,778
|
)
|
|
|
2,820
|
|
|
|
269.4
|
|
Restructuring charge
|
|
|
|
|
|
|
955
|
|
|
|
(100.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
84,663
|
|
|
|
78,646
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels
|
|
|
7,559
|
|
|
|
8,120
|
|
|
|
(6.9
|
)
|
Chartered-in Vessels
|
|
|
4,824
|
|
|
|
4,963
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,383
|
|
|
|
13,083
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 OPCOs owned shuttle tanker fleet decreased in 2006 compared to 2005, primarily
the result of:
|
|
|
the sale of two older shuttle tankers in March and October 2005, respectively (or the
2005 Shuttle Tanker Dispositions
); and
|
|
|
|
the 2006 Shuttle Tanker Dispositions.
|
48
The average size of OPCOs chartered-in shuttle tanker fleet decreased in 2006 compared to 2005,
primarily the result of:
|
|
|
the redelivery of one chartered-in vessel back to its owner in April 2006; and
|
|
|
|
the sale in July 2006 of the
Borga
to Teekay Corporation;
|
partially offset by
|
|
|
the inclusion of two additional chartered-in vessels commencing May and June 2005.
|
In addition, during March 2005 OPCO sold and leased back an older shuttle tanker. This had the
effect of increasing the average number of chartered-in vessels and decreasing the average number
of owned vessels during 2006 compared to 2005.
Net Voyage Revenues.
Net voyage revenues decreased slightly for 2006 from 2005, primarily due to:
|
|
|
a decrease of $5.9 million from the 2005 Shuttle Tanker Dispositions;
|
|
|
|
a decrease of $4.5 million due to an extended drydocking of the
Nordic Trym
during
the second half of 2006;
|
|
|
|
a decrease of $2.9 million from the redelivery of one chartered-in vessel to its
owner in April 2006; and
|
|
|
|
a decrease of $2.2 million from the 2006 Shuttle Tanker Dispositions;
|
partially offset by
|
|
|
an increase of $5.4 million from the 2006 transfer of certain of our shuttle tankers
servicing contracts of affreightment to short-term time-charter contracts, which had
higher average rates;
|
|
|
|
an increase of $4.9 million due to the renewal of three vessels on time charter at
higher daily rates during 2006; and
|
|
|
|
an increase of $3.8 million due to the change in accounting treatment resulting from
the Consolidation of 50%-Owned Subsidiaries.
|
Vessel Operating Expenses.
Vessel operating expenses increased for 2006 from 2005, primarily due
to:
|
|
|
an increase of $5.8 million in salaries for crew and officers primarily due to a
change in crew composition on one vessel upon the commencement of a new short-term time
charter contract in 2005, a one-time bonus payment and general wage escalations;
|
|
|
|
a total increase of $1.5 million relating to repairs and maintenance for certain
vessels during 2006 and an increase in the cost of lubricants as a result of higher
crude oil costs; and
|
|
|
|
an increase of $1.2 million from the Consolidation of 50%-Owned Subsidiaries;
|
partially offset by
|
|
|
a decrease of $2.8 million from the 2005 Shuttle Tanker Dispositions.
|
Time-Charter Hire Expense.
Time-charter hire expense decreased for 2006 from 2005, primarily due to
the decrease in the average number of vessels chartered-in;
Depreciation and Amortization.
Depreciation and amortization expense decreased for 2006 from 2005,
primarily due to:
|
|
|
a decrease of $4.3 million relating to the 2006 Shuttle Tanker Dispositions and the
2005 Shuttle Tanker Dispositions, the sale of the
Nordic Trym
in November 2006 and the
sale and leaseback of one shuttle tanker in March 2005; and
|
|
|
|
a decrease of $2.8 million relating to a reduction in amortization from the
expiration during 2005 of two contracts of affreightment and from the contracts of
affreightment acquired as part of the purchase of Navion AS in 2003, which are being
amortized over their respective lives, with the amount amortized each year being
weighted based on the projected revenue to be earned under the contracts;
|
partially offset by
|
|
|
an increase of $1.2 million due to the Consolidation of 50%-Owned Subsidiaries.
|
Gain on sale of vessels and equipment net of writedowns.
Gain on sale of vessels and equipment -
net of writedowns for 2006 was a net gain of $4.8 million, which was comprised primarily of:
|
|
|
a $6.4 million gain relating to the sale of the
Nordic Laurita
in July 2006;
|
partially offset by
|
|
|
a $2.2 million writedown of certain offshore equipment servicing a marginal oil field
that was prematurely shut down in June 2005 due to lower than expected oil production.
This writedown occurred due to a reassessment of the estimated net realizable value of
the equipment and follows a $12.2 million writedown in 2005 arising from the early
termination of a contract for the equipment (some of this equipment was re-deployed on
another field in October 2005).
|
49
Gain on sale of vessels net of writedowns for 2005 was a net loss of $2.8 million, which was
comprised of:
|
|
|
a $12.2 million write-down from the previously mentioned offshore equipment;
|
partially offset by
|
|
|
a $9.1 million gain on the 2005 Shuttle Tanker Dispositions.
|
Restructuring Charges.
Restructuring charges of $1.0 million in 2005 relate to the closure of our
Sandefjord, Norway office. We incurred no restructuring charges in 2006 in the shuttle tanker
segment.
Conventional Tanker Segment
The following table presents our conventional tanker segments operating results for the year ended
December 31, 2006 and 2005, and compares its net voyage revenues (which is a non-GAAP financial
measure) for the years ended December 31, 2006 and 2005 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 for our conventional tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
(in thousands of U.S. dollars, except calendar-ship-days and percentages)
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
70,056
|
|
|
|
57,454
|
|
|
|
21.9
|
|
Voyage expenses
|
|
|
4,892
|
|
|
|
5,419
|
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
65,164
|
|
|
|
52,035
|
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel operating expenses
|
|
|
19,378
|
|
|
|
21,574
|
|
|
|
(10.2
|
)
|
Depreciation and amortization
|
|
|
21,212
|
|
|
|
20,646
|
|
|
|
2.7
|
|
General and administrative
(1)
|
|
|
11,789
|
|
|
|
9,634
|
|
|
|
22.4
|
|
Restructuring charge
|
|
|
832
|
|
|
|
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
11,953
|
|
|
|
181
|
|
|
|
6,503.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels
|
|
|
3,650
|
|
|
|
3,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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).
|
Net Voyage Revenues.
Net voyage revenues increased for 2006 from 2005, primarily due to an increase
in the hire rate earned by the nine owned Aframax conventional tankers on time charters with a
subsidiary of Teekay Corporation (please read
Items You Should Consider When Evaluating Our
Results Our financial results of operations reflect different time charter terms for OPCOs nine
conventional tankers
).
Vessel Operating Expenses.
Vessel operating expenses decreased for 2006 from 2005, primarily due to
a $2.3 million decrease relating to one of our conventional tankers, which was on a time-charter
contract during 2005 and the first half of 2006 and on a bareboat contract during the second half
of 2006 with a subsidiary of Teekay Corporation.
Depreciation and Amortization.
Depreciation and amortization expense increased for 2006 from 2005,
primarily due to an increase of $0.9 million in the amortization of drydock expenditures incurred
during 2006 and 2005.
Restructuring Charges.
Restructuring charges of $0.8 million in 2006 relate to the relocation of
certain operational functions to Singapore.
50
FSO Segment
The following table presents our FSO segments operating results for the year ended December 31,
2006 and 2005, and compares its net voyage revenues (which is a non-GAAP financial measure) for the
years ended December 31, 2006 and 2005 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 for our FSO segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
(in thousands of U.S. dollars, except calendar-ship-days and percentages)
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
35,883
|
|
|
|
39,034
|
|
|
|
(8.1
|
)
|
Voyage expenses
|
|
|
1,085
|
|
|
|
816
|
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
34,798
|
|
|
|
38,218
|
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel operating expenses
|
|
|
12,603
|
|
|
|
12,710
|
|
|
|
(0.8
|
)
|
Depreciation and amortization
|
|
|
11,970
|
|
|
|
12,095
|
|
|
|
(1.0
|
)
|
General and administrative
(1)
|
|
|
3,049
|
|
|
|
3,029
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
7,176
|
|
|
|
10,384
|
|
|
|
(30.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels
|
|
|
1,460
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2006 and 2005, OPCO was deemed to operate four FSO units, including the
Dampier Spirit
as a
result of the inclusion of the Dropdown Predecessor, which we acquired from Teekay Corporation in
October 2007. Net voyage revenues decreased for 2006 from 2005, primarily due to a scheduled
drydocking of one of our FSO units during 2006 and due to the
Dampier Spirit
entering into a new
time-charter contract in April 2006 at a daily rate less than that earned in 2005. Vessel operating
expenses and depreciation and amortization in 2006 remained substantially unchanged from 2005.
Other Operating Results
General and Administrative Expenses.
General and administrative expenses increased to $65.2 million
for 2006, from $56.7 million for 2005, primarily due to an increase in costs associated with our
long-term incentive program for management.
Interest Expense.
Interest expense increased to $66.1 million for 2006, from $40.0 million for
2005, primarily due to:
|
|
|
an increase of $14.2 million in interest incurred on a Norwegian Kroner-denominated
loan owing by a subsidiary of OPCO to Teekay Corporation from October 2006 until our
initial public offering in December 2006 (Teekay Corporation sold this loan receivable
to OPCO immediately before our initial public offering);
|
|
|
|
an increase of $7.1 million relating to additional debt of $745 million from a
revolving credit facility entered into during the fourth quarter of 2006;
|
|
|
|
an increase of $4.6 million due to a higher average balance for one of OPCOs
existing revolving credit facilities in 2006 compared to 2005;
|
|
|
|
an increase of $4.0 million relating to an increase in the weighted-average interest
rate on OPCOs floating-rate debt in 2006 compared to 2005; and
|
|
|
|
an increase of $1.4 million due to the Consolidation of 50%-Owned Subsidiaries;
|
partially offset by
|
|
|
a decrease of $3.3 million relating to the unrealized change in fair value of our
interest rate swaps; and
|
|
|
|
a decrease of $1.9 million relating to the settlement of interest-bearing advances
from affiliates during 2005.
|
We have not designated our interest rate swaps as hedges for accounting purposes, and as such, the
unrealized changes in fair value of the swaps are reflected in interest expense in our consolidated
statements of income (loss).
Interest Income.
Interest income increased to $5.4 million for 2006, from $4.6 million for 2005,
primarily due to an increase in interest rates.
Equity Income From Joint Ventures.
Equity income from joint ventures increased to $6.3 million for
2006, from $6.0 million for 2005, primarily due to a decrease in repair and maintenance activity on
the shuttle tankers owned by the joint ventures, partially offset by the Consolidation of 50%-Owned
Subsidiaries.
Foreign Currency Exchange Gains (Losses).
Foreign currency exchange losses were $66.3 million for
2006, compared to foreign currency exchange gains of $34.2 million for 2005. Historically, OPCOs
foreign currency exchange gains and losses have been due primarily to period-end revaluations of
Norwegian Kroner-denominated advances from affiliates. In 2006, the foreign currency exchange loss
of $66.3 million was primarily due to the revaluation of Norwegian Kroner-denominated advances from
affiliates prior to our initial public offering. 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 Kroner on the date of revaluation or
settlement compared to the rate in effect at the beginning of the period. Please
read
Items You Should Consider When Evaluating Our Results Our financial results of operations
are affected by fluctuations in currency exchange rates
.
51
Income Tax Recovery (Expense).
Income tax expense was $3.4 million for 2006, compared to an income
tax recovery of $12.4 million for 2005. This $15.8 million increase in tax expense was primarily
due to a $25.1 million increase in deferred income tax expense relating to unrealized foreign
exchange translation gains (losses) for 2006 and 2005, partially offset by a $4.7 million increase
in deferred income tax recovery from the financial restructuring of our Norwegian shuttle tanker
operations during 2006.
Other Income.
Other income for 2006 was $8.7 million, which was primarily comprised of
$11.4 million of leasing income from the VOC equipment, partially offset by a $2.8 million
write-off of unamortized capitalized loan costs from one of OPCOs revolving credit facilities that
was prepaid and cancelled prior to our initial public offering.
Other income for 2005 was $9.1 million, which was primarily comprised of $11.0 million of leasing
income from the VOC equipment, partially offset by $1.9 million primarily relating to fees for
early termination of certain ship management contracts.
Net Loss from Discontinued Operations.
On July 1, 2006, OPCO sold to Teekay Corporation Navion
Shipping Ltd., which chartered-in approximately 25 conventional tankers since 2004 and subsequently
time-chartered the vessels back to a subsidiary of Teekay Corporation at charter rates that
provided for a 1.25% fixed profit margin (please read
Items You Should Consider When Evaluating
Our Results On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are
included in results of operations prior to that date
). These operations prior to July 1, 2006 were
reported within the conventional tanker segment. Net loss from discontinued operations was $10.7
million and $19.3 million for 2006 and 2005, respectively.
Liquidity and Capital Resources
Liquidity and Cash Needs
As at December 31, 2007, our total cash and cash equivalents were $121.2 million, compared to
$114.0 million at December 31, 2006. Our total liquidity, including cash, cash equivalents and
undrawn long-term borrowings, was $286.7 million as at December 31, 2007, compared to
$429.0 million as at December 31, 2006. The decrease in liquidity was primarily the result of our
purchase of the
Navion Bergen LLC
and
Navion Gothenburg LLC
in July 2007 and the
Dampier Spirit LLC
in October 2007, the payment of cash distributions by us and OPCO, and expenditures for vessels and
equipment, partially offset by cash generated by our operating activities during 2007.
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 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
are 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:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
($000s)
|
|
|
($000s)
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
Net cash flow from operating activities
|
|
|
45,847
|
|
|
|
162,228
|
|
Net cash flow from financing activities
|
|
|
(23,905
|
)
|
|
|
(230,238
|
)
|
Net cash flow from investing activities
|
|
|
(14,704
|
)
|
|
|
53,010
|
|
Operating Cash Flows.
Net cash flow from operating activities decreased to $45.8 million in 2007,
from $162.2 million in 2006, primarily reflecting a $73.9 million increase in cash distributions
paid by OPCO to its non-controlling interest owners, a $17.8 million increase in expenditures for
drydocking, and an increase in interest expense resulting from the revolving credit facility we
entered into during the fourth quarter of 2006 as well as 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, partially offset by an increase in cash flows from operations due to an increase in the
hire rate earned by our nine conventional tankers, which are on time charters with a subsidiary of
Teekay Corporation and the inclusion of the results of the Navion Bergen and Navion Gothenburg
since April and July 2007, respectively. 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.
52
Income Tax Recovery (Expense).
Income tax expense was $3.4 million for 2006, compared to an income
tax recovery of $12.4 million for 2005. This $15.8 million increase in tax expense was primarily
due to a $25.1 million increase in deferred income tax expense relating to unrealized foreign
exchange translation gains (losses) for 2006 and 2005, partially offset by a $4.7 million increase
in deferred income tax recovery from the financial restructuring of our Norwegian shuttle tanker
operations during 2006.
Other Income.
Other income for 2006 was $8.7 million, which was primarily comprised of $11.4
million of leasing income from the VOC equipment, partially offset by a $2.8 million write-off of
unamortized capitalized loan costs from one of OPCOs revolving credit facilities that was prepaid
and cancelled prior to our initial public offering.
Other income for 2005 was $9.1 million, which was primarily comprised of $11.0 million of leasing
income from the VOC equipment, partially offset by $1.9 million primarily relating to fees for
early termination of certain ship management contracts.
Net Loss from Discontinued Operations.
On July 1, 2006, OPCO sold to Teekay Corporation Navion
Shipping Ltd., which chartered-in approximately 25 conventional tankers since 2004 and subsequently
time-chartered the vessels back to a subsidiary of Teekay Corporation at charter rates that
provided for a 1.25% fixed profit margin (please read
Items You Should Consider When Evaluating
Our Results On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are
included in results of operations prior to that date
). These operations prior to July 1, 2006 were
reported within the conventional tanker segment. Net loss from discontinued operations was $10.7
million and $19.3 million for 2006 and 2005, respectively.
Liquidity and Capital Resources
Liquidity and Cash Needs
As at December 31, 2007, our total cash and cash equivalents were $121.2 million, compared to
$114.0 million at December 31, 2006. Our total liquidity, including cash, cash equivalents and
undrawn long-term borrowings, was $286.7 million as at December 31, 2007, compared to $429.0
million as at December 31, 2006. The decrease in liquidity was primarily the result of our purchase
of the
Navion Bergen LLC
and
Navion Gothenburg LLC
in July 2007 and the
Dampier Spirit LLC
in
October 2007, the payment of cash distributions by us and OPCO, and expenditures for vessels and
equipment, partially offset by cash generated by our operating activities during 2007.
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 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
are 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:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
($000's)
|
|
|
($000's)
|
|
|
|
(restated)
|
|
|
(restated)
|
|
Net cash flow from operating activities
|
|
|
45,847
|
|
|
|
162,228
|
|
Net cash flow from financing activities
|
|
|
(23,905
|
)
|
|
|
(230,238
|
)
|
Net cash flow from investing activities
|
|
|
(14,704
|
)
|
|
|
53,010
|
|
Operating Cash Flows.
Net cash flow from operating activities decreased to $45.8 million in 2007,
from $162.2 million in 2006, primarily reflecting a $73.9 million increase in cash distributions
paid by OPCO to its non-controlling interest owners, a $17.8 million increase in expenditures for
drydocking, and an increase in interest expense resulting from the revolving credit facility we
entered into during the fourth quarter of 2006 as well as 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, partially offset by an increase in cash flows from operations due to an increase in the
hire rate earned by our nine conventional tankers, which are on time charters with a subsidiary of
Teekay Corporation and the inclusion of the results of the Navion Bergen and Navion Gothenburg
since April and July 2007, respectively. 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.
53
Financing Cash Flows.
Prior to our initial public offering in December 2006, advances under
revolving credit facilities, advances from Teekay Corporation and net cash flow from operations
were used to finance OPCOs investments in vessels and equipment and direct financing leases. In
addition, advances under revolving credit facilities were loaned to Teekay Corporation to
temporarily finance vessel construction and for other general corporate purposes. In effect, these
revolving credit facilities previously were used as corporate-related debt of Teekay Corporation.
Net
proceeds from long-term debt, prepayments of long-term debt and net advances to affiliates during
the periods prior to our initial public offering reflect this use. In connection with our initial
public offering, OPCO settled its advances from affiliates.
Scheduled debt repayments were $17.3 million during 2007 compared to $119.9 million during 2006.
Net proceeds from long-term debt of $298.4 million were used primarily to make debt prepayments of
$152.0 million during 2007 and to finance the acquisition of the
Navion Bergen
and the
Dampier
Spirit
and our 50% interest in the
Navion Gothenburg
, which is explained in more detail below. The
amount of the distribution paid to Teekay Corporation relating to the purchase of Navion Bergen
L.L.C., Dampier Spirit L.L.C. and a 50% interest in Navion Gothenburg L.L.C. was $85.4 million and
is reflected as a financing cash flow.
Cash distributions paid during 2007 totaled $22.7 million. Subsequent to December 31, 2007, cash
distributions were declared and paid on February 14, 2008 for the three months ended December 31,
2007 and totaled $8.0 million.
Investing Cash Flows.
During 2007, net cash used by investing activities includes the $10.2 million
acquisition from Teekay Corporation of a 50% interest in Navion Gothenburg L.L.C. Since this
ownership interest was purchased from Teekay Corporation, the transaction was between entities
under common control, and has been accounted for at historical cost. Therefore the amount reflected
as cash used in investing activities for this purchase represents the historical cost to Teekay
Corporation. Additionally, net cash used in investing activities includes expenditures of
$21.0 million and $31.1 million during 2007 and 2006, respectively, for vessels and equipment, and
we paid $8.4 million and $13.3 million, respectively, relating to investments in direct financing
leases. During 2007 and 2006, we received $21.7 million and $19.3 million, respectively, in
scheduled repayments from the leasing of our VOC equipment. During 2007 and 2006, we received $3.2
million and $61.7 million, respectively, in proceeds from the sale of certain offshore equipment
and two older shuttle tankers, respectively.
Credit Facilities
As at December 31, 2007, our total debt was $1,517.5 million, compared to $1,303.4 million as at
December 31, 2006. As at December 31, 2007, we had three revolving credit facilities available,
which, as at such date, provided for borrowings of up to $1,371.3 million, of which $165.5 million
was undrawn. As at December 31, 2007, each of our six 50% owned subsidiaries had an outstanding
term loan, which, in aggregate, totaled $311.7 million. The term loans of our 50% owned
subsidiaries reduce in semi-annual payments with varying maturities through 2017. Please read Item
18 Financial Statements: Note 6 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 OPCO and it subsidiaries to borrow up to $455 million (subject to scheduled reductions
through 2014) and may be used for acquisitions and for general partnership purposes.
Obligations under this credit facility are collateralized by first-priority mortgages on
eight of OPCOs 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. Obligations under this
credit facility are collateralized by first-priority mortgages on 19 of OPCOs 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. 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 OPCOs 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 Corporations total debt which is recourse to Teekay Corporation.
As at December 31, 2007, we, OPCO and Teekay Corporation were in compliance with all of our
covenants under these credit facilities.
The term loans of our 50% owned subsidiaries are collateralized by first-priority mortgages on the
vessels to which the loans relate, together with other related collateral. As at December 31, 2007,
we had guaranteed $103.8 million of these term loans, which represents our 50% share of the
outstanding vessel mortgage debt in five of these 50% owned subsidiaries. The other owner and
Teekay Corporation have guaranteed the remaining $207.9 million.
Interest payments on the revolving credit facilities and term loans are based on LIBOR plus a
margin. At December 31, 2007 and December 31, 2006, 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% owned subsidiaries 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;
|
54
|
|
|
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 December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
Total
|
|
|
2008
|
|
|
2010
|
|
|
2012
|
|
|
Beyond 2012
|
|
|
|
(in millions of U.S. dollars)
|
|
Long-term debt
(1)
|
|
|
1,517.5
|
|
|
|
64.1
|
|
|
|
222.6
|
|
|
|
305.8
|
|
|
|
925.0
|
|
Chartered-in vessels (operating leases)
|
|
|
480.4
|
|
|
|
117.8
|
|
|
|
168.3
|
|
|
|
118.6
|
|
|
|
75.7
|
|
Purchase obligation
(2)
|
|
|
41.7
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
|
2,039.6
|
|
|
|
223.6
|
|
|
|
390.9
|
|
|
|
424.4
|
|
|
|
1,000.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes expected interest payments of $84.9 million (2008), $153.1 million (2009 and 2010),
$122.6 million (2011 and 2012) and $87.2 million (beyond 2012). Expected interest payments are
based on LIBOR, plus margins which ranged between 0.45% and 0.80% as at December 31, 2007.
|
|
(2)
|
|
In June 2007, we exercised our option to purchase a 2001-built shuttle tanker, which is
currently part of our in-chartered shuttle tanker fleet. The vessel will be delivered to us in
March 2008.
|
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. Management of our general partner reviews our accounting policies, assumptions,
estimates and judgments on a regular basis 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 will differ from our assumptions and estimates,
and such differences could be material. Accounting estimates and assumptions discussed in this
section are those that we consider to be the most critical to an understanding of our financial
statements because they inherently involve significant judgments and uncertainties. For a further
description of our material accounting policies, please read Item 18 Financial Statements: Note 1
Summary of Significant Accounting Policies.
Revenue Recognition
Description.
We generate a majority of our revenues from voyages servicing contracts of
affreightment and time charters and, to a lesser extent, bareboat charters and spot voyages. Within
the shipping industry, the two methods used to account for voyage revenues and expenses are the
percentage of completion and the completed voyage methods. Most shipping companies, including us,
use the percentage of completion method. For each method, voyages may be calculated on either a
load-to-load or discharge-to-discharge basis. In other words, revenues are recognized ratably
either from the beginning of when product is loaded for one voyage to when it is loaded for another
voyage, or from when product is discharged (unloaded) at the end of one voyage to when it is
discharged after the next voyage. We recognize revenues from time charters and bareboat charters
daily over the term of the charter as the applicable vessel operates under the charter. We do not
recognize revenues during days that the vessel is off-hire.
Judgments and Uncertainties.
In applying the percentage of completion method, we believe that in
most cases the discharge-to-discharge basis of calculating voyages more accurately reflects voyage
results than the load-to-load basis. At the time of cargo discharge, we generally have information
about the next load port and expected discharge port, whereas at the time of loading we are
normally less certain what the next load port will be. We use this method of revenue recognition
for all spot voyages. In the case of our shuttle tankers servicing contracts of affreightment, a
voyage commences with tendering of notice of readiness at a field, within the agreed lifting range,
and ends with tendering of notice of readiness at a field for the next lifting. In all cases we do
not begin recognizing voyage revenue for any of our vessels until a charter has been agreed to by
the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated
load port on its next voyage.
Effect if Actual Results Differ from Assumptions.
Our revenues could be overstated or understated
for any given period to the extent actual results are not consistent with our estimates in applying
the percentage of completion method.
Vessel Lives and Impairment
Description.
The carrying value of each of our vessels represents its original cost at the time of
delivery or purchase less depreciation or impairment charges. We depreciate our vessels on a
straight-line basis over each vessels estimated useful life, less an estimated residual value. The
carrying values of our vessels may not represent their fair market value at any point in time
because the market prices of second-hand vessels tend to fluctuate with changes in charter rates
and the cost of newbuildings. Both charter rates and newbuilding costs tend to be cyclical in
nature. We review vessels and equipment for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. We measure the recoverability of
an asset by comparing its carrying amount to future undiscounted cash flows that the asset is
expected to generate over its remaining useful life.
55
Judgments and Uncertainties.
Depreciation is calculated using an estimated useful life of 25 years
for our vessels, commencing the date the vessel was originally delivered from the shipyard, or a
shorter period if regulations prevent us from operating the vessels for 25 years. In the shipping
industry, the use of a 25-year vessel life has become the prevailing standard. However, the actual
life of a vessel may be different, with a shorter life resulting in an increase in the quarterly
depreciation and potentially resulting in an impairment loss. The estimates and assumptions
regarding expected cash flows require considerable judgment and are based upon existing contracts,
historical experience, financial forecasts and industry trends and conditions. We are not aware of
any indicators of impairments nor any regulatory changes or environmental liabilities that we
anticipate will have a material impact on our current or future operations.
Effect if Actual Results Differ from Assumptions.
If we consider a vessel or equipment to be
impaired, we recognize a loss in an amount equal to the excess of the carrying value of the asset
over its fair market value. The new lower cost basis will result in a lower annual depreciation
expense than before the vessel impairment.
Drydocking
Description.
We drydock each of our shuttle tankers and conventional oil tankers periodically for
inspection, repairs and maintenance and for any modifications to comply with industry certification
or governmental requirements. We may drydock FSO units if we desire to qualify them for shipping
classification. We capitalize a substantial portion of the costs we incur during drydocking and
amortize those costs on a straight-line basis from the completion of the drydocking to the
estimated completion of the next drydocking. We expense as incurred costs for routine repairs and
maintenance performed during drydocking that do not improve or extend the useful lives of the
assets.
Judgments and Uncertainties.
Amortization of capitalized drydock expenditures requires us to
estimate the period of the next drydocking. While we typically drydock each shuttle tanker and
conventional oil tanker every two and a half to five years, we may drydock the vessels at an
earlier date.
Effect if Actual Results Differ from Assumptions.
A change in our estimate of the next drydock date
will have a direct effect on our annual amortization of drydocking expenditures.
Goodwill and Intangible Assets
Description.
We allocate the cost of acquired companies to the identifiable tangible and intangible
assets and liabilities acquired, with the remaining amount being classified as goodwill. Certain
intangible assets, such as time charters, are amortized over time. Our future operating performance
will be affected by the amortization of intangible assets and potential impairment charges related
to goodwill. Accordingly, the allocation of purchase price to intangible assets and goodwill may
significantly affect our future operating results. Goodwill is not amortized, but reviewed for
impairment annually, or more frequently if impairment indicators arise.
Judgments and Uncertainties
.
The allocation of the purchase price of acquired companies to
intangible assets and goodwill requires management to make significant estimates and assumptions,
including estimates of future cash flows expected to be generated by the acquired assets and the
appropriate discount rate to value these cash flows. In addition, the process of evaluating the
potential impairment of goodwill and intangible assets is highly subjective and requires
significant judgment at many points during the analysis. The fair value of our reporting units was
estimated based on discounted expected future cash flows using a weighted-average cost of capital
rate. The estimates and assumptions regarding expected cash flows and the appropriate discount
rates require considerable judgment and are based upon existing contracts, historical experience,
financial forecasts and industry trends and conditions.
Effect if Actual Results Differ from Assumptions.
In the fourth quarter of 2007, we completed our
annual impairment testing of goodwill using the methodology described above, and determined there
was no impairment. If actual results are not consistent with assumptions and estimates, we may be
exposed to a goodwill impairment charge. As at December 31, 2007 and 2006, the net book value of
goodwill was $127.1 million.
Amortization expense of intangible assets for 2007 and 2006 was $11.1 million and $12.1 million,
respectively. If actual results are not consistent with our estimates used to value our intangible
assets, we may be exposed to an impairment charge and a decrease in the annual amortization expense
of our intangible assets. As at December 31, 2007 and 2006, the net book value of intangible assets
was $55.4 million and $66.4 million, respectively.
Valuation of Derivative Financial Instruments
Description.
Our risk management policies permit the use of derivative financial instruments to
manage interest rate and foreign currency fluctuation risks. Changes in fair value of derivative
financial instruments that are not designated as cash flow hedges for accounting purposes are
recognized in earnings. Changes in fair value of derivative financial instruments that are
designated as cash flow hedges for accounting purposes are recorded in other comprehensive income
and are reclassified to earnings when the hedged transaction is reflected in earnings. Ineffective
portions of the hedges are recognized in earnings as they occur. During the life of the hedge, we
formally assess whether each derivative designated as a hedging instrument continues to be highly
effective in offsetting changes in the fair value or cash flows of hedged items. If it is
determined that a hedge has ceased to be highly effective for accounting purposes, we will
discontinue hedge accounting prospectively.
Judgments and Uncertainties.
The fair value of our derivative financial instruments is the
estimated amount that we would receive or pay to terminate the agreements in an arms length
transaction under normal business conditions at the reporting date, taking into account current
interest rates, foreign exchange rates and the current credit worthiness of ourselves and the
counterparties. Inputs used to determine the fair value of our derivative instruments are
observable either directly or indirectly in active markets.
Effect if Actual Results Differ from Assumptions.
If our estimates of fair value are inaccurate,
this could result in a material adjustment to the carrying amount of derivative asset or liability
and consequently the change in fair value for the applicable period that would have been recognized
in earnings or other comprehensive income.
56
Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (or
FASB)
ratified a consensus opinion
reached by the Emerging Issues Task Force (or
EITF
) on EITF Issue No. 07-4,
Application of the
Two-Class Method under FASB Statement No. 128, Earnings per Share to Master Limited Partnerships
(or
EITF Issue No. 07-4
). The guidance in EITF Issue No. 07-4 requires incentive distribution
rights in a master limited partnership,
such as ourselves, to be treated as participating securities for the purposes of computing earnings
per share and provides guidance on how earnings should be allocated to the various partnership
interests. EITF Issue No. 07-4 is effective for fiscal years beginning after December 15, 2008. We
are currently evaluating the potential impact, if any, of the
adoption of EITF Issue No. 07-4 on our
consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 141(R):
Business Combinations
(or
SFAS 141(R
)), which
replaces SFAS No. 141
, Business Combinations
. This statement establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS 141(R) is
effective for fiscal years beginning after December 15, 2008. We are currently evaluating the
potential impact, if any, of the adoption of SFAS 141(R) on our consolidated results of operations
and financial condition.
In December 2007, the FASB issued SFAS No. 160:
Non-controlling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin No. 51
(or
SFAS 160
). This statement
establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the non-controlling interest, changes in a parents ownership interest, and the valuation of
retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. We are currently evaluating the potential impact, if any, of the
adoption of SFAS 160 on our consolidated results of operations and financial condition.
In February 2007, the FASB issued SFAS No. 159:
The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115
(or
SFAS 159
). This statement permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years
beginning after November 15, 2007.
In September 2006, the FASB issued SFAS No. 157:
Fair Value Measurements
(or
SFAS 157
). This
statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, and accordingly, does not require
any new fair value measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007. In February 2008, the FASB delayed for one year the effective date of adoption with
respect to certain non-financial assets and liabilities.
Item 6. Directors, Senior Management and Employees
The information included in Item 6 in the Original Filing has not been updated
for information or
events occurring after the date of the Original Filing and has not
been updated to reflect the passage of time since the date of the Original Filing.
A. Directors and Senior Management
Management of Teekay Offshore Partners L.P.
Teekay Offshore GP L.L.C., our general partner, manages our operations and activities. Unitholders
are not entitled to elect the directors of our general partner or directly or indirectly
participate in our management or operation.
Our general partner owes a fiduciary duty to our unitholders. Our general partner is liable, as
general partner, for all of our debts (to the extent not paid from our assets), except for
indebtedness or other obligations that are expressly non-recourse to it. Whenever possible, our
general partner intends to cause us to incur indebtedness or other obligations that are
non-recourse to it.
The directors of our general partner oversee our operations. The day-to-day affairs of our business
are managed by the officers of our general partner and key employees of certain of our controlled
affiliates, including OPCO. Employees of certain subsidiaries of Teekay Corporation provide
assistance to us and OPCO pursuant to services agreements. Please see Item 7- Major Unitholders and
Related Party transactions.
The Chief Executive Officer and Chief Financial Officer of our general partner, Peter Evensen,
allocates his time between managing our business and affairs and the business and affairs of Teekay
Corporation and its subsidiaries Teekay LNG Partners L.P. (NYSE: TGP) (or
Teekay LNG
) and Teekay
Tankers Ltd. (NYSE: TNK) (or
Teekay Tankers
). Mr. Evensen is the Executive Vice President and Chief
Strategy Officer of Teekay Corporation, and the Chief Executive Officer and Chief Financial Officer
of Teekay LNGs general partner, and the Executive Vice President of Teekay Tankers. The amount of
time Mr. Evensen allocates among our business and the businesses of Teekay Corporation, Teekay LNG
and Teekay Tankers varies from time to time depending on various circumstances and needs of the
businesses, such as the relative levels of strategic activities of the businesses. We believe
Mr. Evensen devotes sufficient time to our business and affairs as is necessary for their proper
conduct.
Teekay Offshore Operating GP L.L.C., the general partner of OPCO, manages OPCOs operations and
activities. The Board of Directors of Teekay Offshore GP L.L.C., our general partner, has the
authority to appoint and elect the directors of Teekay Offshore Operating GP L.L.C., who in turn
appoint the officers of Teekay Offshore Operating GP L.L.C. Some of the directors and officers of
our general partner also serve as directors or executive officers of OPCOs general partner. Any
amendment to OPCOs partnership agreement or to the limited liability company agreement of OPCOs
general partner must be approved by the conflicts committee of the Board of Directors of our
general partner, Teekay Offshore GP L.L.C. Other actions affecting OPCO, including, among other
things, the amount of its cash reserves, must be approved by our general partners Board of
Directors on our behalf.
Officers of our general partner and those individuals providing services to us, OPCO or our
subsidiaries may face a conflict regarding the allocation of their time between our business and
the other business interests of Teekay Corporation or its other affiliates. Our general partner
intends to seek to cause its officers to devote as much time to the management of our business and
affairs as is necessary for the proper conduct of our business and affairs.
57
Directors and Executive Officers of Teekay Offshore GP L.L.C.
The following table provides information about the directors and executive officers of our general
partner, Teekay Offshore GP L.L.C. Directors are elected for one-year terms. The business address
of each of our directors and executive officers listed below is c/o 4th Floor, Belvedere Building,
69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Ages of the directors are as of December 31, 2007.
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
C. Sean Day
|
|
|
58
|
|
|
Chairman
(1)
|
Bjorn Moller
|
|
|
50
|
|
|
Vice Chairman
(1)
|
Peter Evensen
|
|
|
49
|
|
|
Chief Executive Officer, Chief Financial Officer and Director
|
David L. Lemmon
|
|
|
65
|
|
|
Director
(2)
|
Carl Mikael L.L. von Mentzer
|
|
|
63
|
|
|
Director
(2)
|
John J. Peacock
|
|
|
64
|
|
|
Director
(2)
|
|
|
|
(1)
|
|
Member of Corporate Governance Committee
|
|
(2)
|
|
Member of Audit Committee and Conflicts Committee
|
Certain biographical information about each of these individuals is set forth below.
C. Sean Day
has served as Chairman of Teekay Offshore GP L.L.C. and of Teekay Offshore Operating GP
L.L.C. since they were formed in August and September 2006, respectively. Mr. Day has served as
Chairman of Teekay Corporations Board of Directors since 1999. From 1989 to 1999, he was President
and Chief Executive Officer of Navios Corporation, a large bulk shipping company based in Stamford,
Connecticut. Prior to Navios, Mr. Day held a number of senior management positions in the shipping
and finance industries. Mr. Day has served as the Chairman of Teekay GP L.L.C., the general partner
of Teekay LNG, and of Teekay Tankers since they were formed in November 2004 and October 2007,
respectively. Mr. Day also serves as the Chairman of Compass Diversified Trust and as a director of
Kirby Corporation.
Bjorn Moller
has served as the Vice Chairman of Teekay Offshore GP L.L.C. and of Teekay Offshore
Operating GP L.L.C. since they were formed in August and September 2006, respectively. Mr. Moller
is the President and Chief Executive Officer of Teekay Corporation and has held those positions
since April 1998. Mr. Moller has over 25 years experience in the shipping industry and has served
in senior management positions with Teekay Corporation for more than 15 years. He has headed its
overall operations since January 1997, following his promotion to the position of Chief Operating
Officer. Prior to this, Mr. Moller headed Teekay Corporations global chartering operations and
business development activities. Mr. Moller has also served as the Vice Chairman of Teekay GP
L.L.C. and as the Chief Executive Officer and as a director of Teekay Tankers since they were
formed in November 2004 and October 2007, respectively. In December 2006, he was appointed Chairman
of the International Tankers Owners Pollution Federation.
Peter Evensen
has served as the Chief Executive Officer and Chief Financial Officer and as a
Director of Teekay Offshore GP L.L.C. and of Teekay Offshore Operating GP L.L.C. since they were
formed in August and September 2006, respectively. Mr. Evensen is also the Executive Vice President
and Chief Strategy Officer of Teekay Corporation. He joined Teekay Corporation in May 2003 as
Senior Vice President, Treasurer and Chief Financial Officer. He served as Executive Vice President
and Chief Financial Officer of Teekay Corporation from February 2004 until he was appointed to his
current role in November 2006. Mr. Evensen has also served as Chief Executive Officer and Chief
Financial Officer of Teekay GP L.L.C. since it was formed in November 2004, as a director of Teekay
GP L.L.C. since January 2005, and as the Executive Vice President and as a Director of Teekay
Tankers since it was formed in October 2007. Mr. Evensen has over 20 years experience in banking
and shipping finance. Prior to joining Teekay Corporation, Mr. Evensen was Managing Director and
Head of Global Shipping at J.P. Morgan Securities Inc. and worked in other senior positions for its
predecessor firms. His international industry experience includes positions in New York, London and
Oslo.
David L. Lemmon
has served as a Director of Teekay Offshore GP L.L.C. since December 2006. Mr.
Lemmon currently serves on the Board of Directors of Kirby Corporation and Deltic Timber
Corporation, positions he has held since April 2006 and February 2007, respectively. He also served
on the Board of Directors of Pacific Energy Partners, L.P. from 2002 through 2006. Mr. Lemmon was
President and Chief Executive Officer of Colonial Pipeline Company from 1997 until his retirement
from that company in March 2006. Prior to joining Colonial Pipeline Company, he served as President
of Amoco Pipeline Company.
Carl Mikael L.L. von Mentzer
has served as a Director of Teekay Offshore GP L.L.C. since December
2006. Mr. von Menzer has over 30 years experience in the shipbuilding and offshore oil industries.
Since 1998, Mr. von Mentzer has served as a non-executive director of Concordia Maritime AB in
Gothenburg, Sweden and since 2002 has served as its Deputy Chairman of its Board of Directors.
Prior to this, Mr. von Mentzer served in executive positions with various shipping and offshore oil
companies, including Gotaverken Ardenal AB and Safe Partners AB in Gothenburg, Sweden and OAG Ltd.
in Aberdeen, Scotland. He has also previously served as a director for Northern Offshore Ltd., in
Oslo, Norway, and GVA Consultants in Gothenburg, Sweden.
John J. Peacock
has served as a Director of Teekay Offshore GP L.L.C. since December 2006. Mr.
Peacock is currently a director of the Fednav Group of companies, a Canadian ocean-going dry-bulk
shipowning and chartering group. He was the President, Chief Operating Officer, Executive
Vice-President and director of Fednav Limited from 1998 until February 2007. Mr. Peacock joined
Fednav Limited in 1979 as its Treasurer, and in 1984 became Vice President, Finance. He has over 40
years accounting experience. Prior to joining the Fednav Group, Mr. Peacock was a partner with
Clarkson Gordon (now Ernst & Young) in Montreal, Canada.
58
Directors and Executive Officers of Teekay Offshore Operating GP L.L.C.
The following table provides information about the directors and executive officers of Teekay
Offshore Operating GP L.L.C., the general partner of OPCO. Directors are appointed for one-year
terms. The business address of each director and executive officer of Teekay Offshore Operating GP
L.L.C. listed below is c/o 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08,
Bermuda. Ages of the directors are as of December 31, 2007.
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
C. Sean Day
|
|
|
58
|
|
|
Chairman
|
Bjorn Moller
|
|
|
50
|
|
|
Vice Chairman
|
Peter Evensen
|
|
|
49
|
|
|
Chief Executive Officer, Chief Financial Officer and Director
|
As described above, the directors and executive officers of Teekay Offshore Operating GP L.L.C.
also serve as directors or executive officers of Teekay Offshore GP L.L.C. The business experience
of these individuals is included above.
B. Compensation
Reimbursement of Expenses of Our General Partner
Our general partner does not receive any management fee or other compensation for managing us. Our
general partner and its other affiliates are reimbursed for expenses incurred on our behalf. These
expenses include all expenses necessary or appropriate for the conduct of our business and
allocable to us, as determined by our general partner. During 2007, we reimbursed our general
partner for $0.8 million in expenses that it incurred on our behalf during the year. Our general
partner did not incur any of such expenses during 2006.
Executive Compensation
We and our general partner were formed in August 2006. OPCOs general partner was formed in
September 2006. Neither our general partner nor OPCOs general partner paid any compensation to its
directors or officers or accrued any obligations with respect to management incentive or retirement
benefits for the directors and officers prior to our initial public offering in December 2006.
Because Peter Evensen, the Chief Executive Officer and Chief Financial Officer of our general
partner and of OPCOs general partner, is an employee of a subsidiary of Teekay Corporation, his
compensation (other than any awards under the long-term incentive plan described below) is set and
paid by the Teekay Corporation subsidiary, and we reimburse the Teekay Corporation subsidiary for
time he spends on our partnership matters. Please read Item 7. Major Unitholders and Related Party
Transactions.
Compensation of Directors
Officers of our general partner or Teekay Corporation who also serve as directors of our general
partner or OPCOs general partner do not receive additional compensation for their service as
directors. During 2007, each non-management director received compensation for attending meetings
of the Board of Directors, as well as committee meetings. Non-management directors received a
director fee of $30,000 for the year and common units with an aggregate maximum value of
approximately $15,000 for the year. The Chairman received an additional annual fee of $85,000,
members of the audit and conflicts committees each received a committee fee of $5,000 for the year,
and the chairs of the audit committee and conflicts committee received an additional fee of $5,000
for the year for serving in that role. In addition, each director was reimbursed for out-of-pocket
expenses in connection with attending meetings of the Board of Directors or committees. Each
director is fully indemnified by us for actions associated with being a director to the extent
permitted under Marshall Islands law.
During 2007, the four non-employee directors received, in the aggregate, $245,000 in director and
committee fees and reimbursement of $84,687 of their out-of-pocket expenses from us relating to
their board service. We reimbursed our general partner for these expenses as they were incurred for
the conduct of our business. In March 2007, our general partners Board of Directors granted to
each of the four non-employee directors 714 units at $21.00 per unit. During December 2007, the
Board authorized the award by us to each of the four non-employee directors of common units with a
value of approximately $15,000 for the 2008 year. These common units were purchased by us in the
open market during the first quarter of 2008.
2006 Long-Term Incentive Plan
Our general partner adopted the Teekay Offshore Partners L.P. 2006 Long-Term Incentive Plan for
employees and directors of and consultants to our general partner and employees and directors of
and consultants to its affiliates, who perform services for us. The plan provides for the award of
restricted units, phantom units, unit options, unit appreciation rights and other unit or
cash-based awards. Other than the previously mentioned 2,856 common units awarded to our general
partners non-employee directors, we did not make any awards in 2007 under the 2006 Long-Term
Incentive Plan.
C. Board Practices
Teekay Offshore GP L.L.C., our general partner, manages our operations and activities. Unitholders
are not entitled to elect the directors of our general partner or directly or indirectly
participate in our management or operation.
Our general partners Board of Directors (or
the Board
) currently consists of six members.
Directors are appointed to serve until their successors are appointed or until they resign or are
removed.
There are no service contracts between us and any of our directors providing for benefits upon
termination of their employment or service.
59
The Board has the following three committees: Audit Committee, Conflicts Committee, and Corporate
Governance Committee. The membership of these committees and the function of each of the committees
are described below. Each of the committees is currently comprised solely of independent members,
except for the Corporate Governance Committee, and operates under a written charter adopted by the
Board, other than the Conflicts Committee. The committee charters for the Audit Committee, the
Conflicts Committee and the Corporate Governance Committee are available under Other
InformationPartnership Governance in the Investor Centre of our web site at
www.teekayoffshore.com. During 2007, the Board held five meetings. Each director attended all Board
meetings and all applicable committee meetings.
Audit Committee
. The Audit Committee of our general partner is composed of three or more directors,
each of whom must meet the independence standards of the NYSE, the SEC and any other applicable
laws and regulations governing independence from time to time. This committee is currently
comprised of directors John J. Peacock (Chair), David L. Lemmon and Carl Mikael L.L. von Mentzer.
All members of the committee are financially literate and the Board has determined that Mr. Lemmon
qualifies as an audit committee financial expert.
The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of:
|
|
|
the integrity of our financial statements;
|
|
|
|
our compliance with legal and regulatory requirements;
|
|
|
|
the qualifications and independence of our independent auditor; and
|
|
|
|
the performance of our internal audit function and our independent auditor.
|
Conflicts Committee.
The Conflicts Committee of our general partner is composed of the same
directors constituting the Audit Committee, being David L. Lemmon (Chair), John J. Peacock, and
Carl Mikael L.L. von Mentzer. The members of the Conflicts Committee may not be officers or
employees of our general partner or directors, officers or employees of its affiliates, and must
meet the heightened NYSE and SEC director independence standards applicable to audit committee
membership and certain other requirements.
The Conflicts Committee:
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|
|
reviews specific matters that the Board believes may involve conflicts of interest; and
|
|
|
|
determines if the resolution of the conflict of interest is fair and reasonable to us.
|
Any matters approved by the Conflicts Committee will be conclusively deemed to be fair and
reasonable to us, approved by all of our partners, and not a breach by our general partner of any
duties it may owe us or our unitholders. The Board is not obligated to seek approval of the
Conflicts Committee on any matter, and may determine the resolution of any conflict of interest
itself.
Corporate Governance Committee.
The Corporate Governance Committee of our general partner is
composed of at least two directors. This committee is currently comprised of directors C. Sean Day
(Chair) and Bjorn Moller.
The Corporate Governance Committee:
|
|
|
oversees the operation and effectiveness of the Board and its corporate governance.
|
|
|
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develops, updates and recommends to the Board corporate governance principles and
policies applicable to us and our general partner and monitors compliance with these
principles and policies; and
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oversees director compensation and the long-term incentive plan described above.
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D. Employees
Crewing and Staff
As of December 31, 2007, approximately 2,100 seagoing staff served on our vessels and approximately
200 staff served on shore in technical, commercial and administrative roles in various countries.
Certain subsidiaries of Teekay Corporation employ the crews, who serve on the vessels pursuant to
agreements with the subsidiaries, and Teekay Corporation subsidiaries also provide on-shore
advisory, operational and administrative support to our operating subsidiaries pursuant to service
agreements. Please see Item 7- Major Unitholders and Related Party transactions.
Teekay Corporation regards attracting and retaining motivated seagoing personnel as a top priority,
and offers seafarers what we believe are highly competitive employment packages and comprehensive
benefits and opportunities for personal and career development, which relates to a philosophy of
promoting internally.
Teekay Corporation has entered into a Collective Bargaining Agreement with the Philippine
Seafarers Union, an affiliate of the International Transport Workers Federation (or
ITF
), and a
Special Agreement with ITF London, which covers substantially all of the officers and seamen that
operate our and OPCOs Bahamian-flagged vessels. Substantially all officers and seamen for the
Norway-flagged vessels are covered by a collective bargaining agreement with Norwegian unions
(Norwegian Maritime Officers Association, Norwegian Union of Marine Engineers and the Norwegian
Seafarers Union). We believe Teekay Corporations relationships with these labor unions are good.
Our commitment to training is fundamental to the development of the highest caliber of seafarers
for marine operations. Teekay Corporations cadet training approach is designed to balance academic
learning with hands-on training at sea. Teekay Corporation has relationships with training
institutions in Canada, Croatia, India, Norway, Philippines, Turkey and the United Kingdom. After
receiving formal instruction at one of these institutions, cadet training continues on board
vessels. Teekay Corporation also has a career development plan that was devised to ensure a
continuous flow of qualified officers who are trained on its vessels and familiarized with its
operational standards, systems and policies. We believe that high-quality crewing and training
policies will play an increasingly important role in distinguishing larger independent shipping
companies that have in-house or affiliate capabilities from smaller companies that must rely on
outside ship managers and crewing agents on the basis of customer service and safety.
60
E. Unit Ownership
The following table sets forth certain information regarding beneficial ownership, as of March 15,
2008, of our units by all directors and officers of our general partner as a group. The information
is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a
person beneficially owns any units that the person has the right to acquire as of May 14, 2008 (60
days after March 15, 2008) through the exercise of any unit option or other right. Unless otherwise
indicated, each person has sole voting and investment power (or shares such powers with his or her
spouse) with respect to the units set forth in the following table. Information for all persons
listed below is based on information delivered to us.
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Percentage of
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Percentage of
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Percentage of
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Total Common
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Common Units
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Common Units
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Subordinated
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Subordinated
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and Subordinated
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Identity of Person or Group
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Owned
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Owned
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Units Owned
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Units Owned
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Units Owned
(3)
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All directors and officers
as a group
(6 persons) (1) (2)
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292,725
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2.99
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%
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1.49
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%
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(1)
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Excludes units owned by Teekay Corporation, which controls us and on the board of which
serve the directors of our general partner, C. Sean Day and Bjorn Moller. In addition, Mr.
Moller is Teekay Corporations President and Chief Executive Officer, and Peter Evensen,
our general partners Chief Executive Officer and Chief Financial Officer and a Director,
is Teekay Corporations Executive Vice President and Chief Strategy Officer. Please read
Item 7: Major Shareholders and Related Party Transactions for more detail.
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(2)
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Each director, executive officer and key employee beneficially owns less than one
percent of the outstanding common and subordinated units.
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(3)
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Excludes the 2% general partner interest held by our general partner, a wholly owned
subsidiary of Teekay Corporation.
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Item 7. Major Unitholders and Related Party Transactions
Except for certain information below in paragraphs (e), (h), (n) and (o) of B. Related Party
Transactions, the information included in Item 7 in the Original Filing has not been updated for
information or events occurring after the date of the Original Filing and has not been updated to
reflect the passage of time since the date of the Original Filing.
A. Major Unitholders
The following table sets forth the beneficial ownership, as of March 15, 2008, of our common and
subordinated units by each person we know to beneficially own more than 5% of the outstanding
common or subordinated units. The number of units beneficially owned by each person is determined
under SEC rules and the information is not necessarily indicative of beneficial ownership for any
other purpose. Under SEC rules a person beneficially owns any units as to which the person has or
shares voting or investment power. In addition, a person beneficially owns any units that the
person or entity has the right to acquire as of May 14, 2008 (60 days after March 15, 2008) through
the exercise of any unit option or other right. Unless otherwise indicated, each unitholder listed
below has sole voting and investment power with respect to the units set forth in the following
table.
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Percentage of Total
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Percentage of
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Percentage of
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Common and
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Common Units
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Common Units
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Subordinated
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Subordinated
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Subordinated Units
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Identity of Person or Group
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Owned
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Owned
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Units Owned
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Units Owned
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Owned
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Teekay Corporation
(1)
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1,750,000
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17.9
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%
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9,800,000
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100.0
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%
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58.9
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%
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Luxor Capital Group, LP, Luxor
Management, LLC, and Mr. Christian
Leone, as a group
(2)
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1,269,799
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13.0
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%
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6.5
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%
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Neuberger Berman, Inc. and Neuberger
Berman, LLC, as a group
(3)
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820,974
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8.4
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%
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4.2
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%
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(1)
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Excludes the 2% general partner interest held by our general partner, a wholly owned
subsidiary of Teekay Corporation.
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(2)
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Includes shared voting power and shared dispositive power as to 1,269,799 units. Luxor
Capital Group, LP, Luxor Management, LLC, and Mr. Christian Leone all have shared voting and
dispositive power. Luxor Capital Group, LP serves as an investment manager of Luxor Capital
Group, LPs mutual funds. This information is based on the Schedule 13G/A filed by this
group with the SEC on February 14, 2008.
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(3)
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Includes sole voting power as to 745,924 units and shared dispositive power as to 820,974
units. Both Neuberger Berman, LLC and Neuberger Berman Inc. have shared dispositive power.
Neuberger Berman, LLC and Neuberger Berman Management Inc. serve as sub-advisor and
investment manager, respectively, of Neuberger Berman Inc.s mutual funds. This information
is based on the Schedule 13G filed by this group with the SEC on February 12, 2008.
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Our majority unitholders have the same voting rights as our other unitholders. We are controlled by
Teekay Corporation. We are not aware of any arrangements, the operation of which may at a
subsequent date result in a change in control of us.
61
B. Related Party Transactions
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a)
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On October 1, 2006, OPCO entered into time-charter contracts for its nine Aframax
conventional tankers with a subsidiary of Teekay Corporation at then-prevailing
market-based daily rates for terms of five to twelve years. 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 time-charter contracts, OPCO earned voyage revenues of $128.4 million
during 2007.
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b)
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Effective October 1, 2006, two of OPCOs shuttle tankers commenced employment on
long-term bareboat charters with a subsidiary of Teekay Corporation. Pursuant to these
charter contracts, OPCO earned voyage revenues of $14.2 million during 2007.
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c)
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Two of OPCOs 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
$12.0 million during 2007.
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d)
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On October 1, 2006, a subsidiary of Teekay Corporation 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 2007, OPCO earned
management fees of $3.3 million under the agreement.
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e)
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Eight of OPCOS Aframax conventional oil tankers and two FSO units (including the
Dampier Spirit
) are managed by subsidiaries of Teekay Corporation. Pursuant to the
associated management services agreements, OPCO incurred general and administrative
expenses of $4.5 million during 2007. During the year ended December 31, 2007, $0.1 million
of general and administrative expenses attributable to the operations of the
Dampier Spirit
were incurred by Teekay Corporation and have been allocated to us as part of the results of
the Dropdown Predecessor. Please read Note 18, Restatement of Previously Issued Financial
Statements, to the consolidated financial statements included in this Report.
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f)
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In December 2006, we, OPCO, and certain of our and its subsidiaries have entered into
services agreements with certain subsidiaries of Teekay Corporation, pursuant to which the
Teekay Corporation subsidiaries provide to us, OPCO, and our and its subsidiaries
administrative, advisory and technical services and ship management. These services are
provided in a commercially reasonably manner and upon the reasonable request of our general
partner or our or OPCOs operating subsidiaries, as applicable. The Teekay Corporation
subsidiaries that are parties to the services agreements provide these services directly or
subcontract for certain of these services with other entities, including other Teekay
Corporation subsidiaries. We pay arms-length fees for the services that include
reimbursement of the reasonable cost of any direct and indirect expenses the Teekay
Corporation subsidiaries incur in providing these services. During 2007, we incurred $52.7
million of costs under these agreements.
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g)
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Pursuant to our partnership agreement, we reimburse our general partner for all
expenses necessary or appropriate for the conduct of our business. During 2007, we incurred
$0.8 million of these costs.
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h)
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In July 2007, we acquired interests in two double-hull shuttle tankers from Teekay
Corporation for a total cost of $159.1 million, including assumption of debt of $93.7
million and the related interest rate swap agreement. We acquired Teekay Corporations 100%
interest in the 2000-built
Navion Bergen
and its 50% interest in the 2006-built
Navion
Gothenburg
, together with their respective 13-year, fixed-rate bareboat charters to
Petroleo Brasileiro S.A. We financed the purchases with one of our existing revolving
credit facilities and the assumption of debt. The excess of the proceeds we paid over
Teekay Corporations historical cost were accounted for as an equity distribution to Teekay
Corporation of $25.4 million.
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i)
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In October 2007, we acquired from Teekay Corporation an FSO unit, the
Dampier Spirit
,
along with its 7-year fixed-rate time-charter to Apache Corporation for a total cost of
$30.3 million. We financed the purchase with one of our existing revolving credit
facilities. The excess of the proceeds we paid over Teekay Corporations historical cost
was accounted for as an equity distribution to Teekay Corporation of $13.9 million.
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j)
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In December 2007, Teekay Corporation contributed a $65.6 million, nine-year, 4.98%
interest rate swap agreement (used to hedge the debt assumed in the purchase of the
Navion
Bergen
) having a fair value liability of $2.6 million, to us for no consideration and was
accounted for as an equity distribution to Teekay Corporation.
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k)
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In December 2007, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to events which occurred prior to our initial public offering, totaling $4.8
million, including the settlement of a customer dispute in respect of vessels delivered
prior to our initial public offering and other costs.
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l)
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C. Sean Day is the Chairman of our general partner, Teekay Offshore GP L.L.C., and of
Teekay Offshore Operating GP L.L.C., the general partner of OPCO. He also is the Chairman
of Teekay Corporation, Teekay Tankers and Teekay GP L.L.C., the general partner of Teekay
LNG.
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Bjorn Moller is the Vice Chairman of Teekay Offshore GP L.L.C., Teekay Offshore Operating GP
L.L.C. and Teekay GP L.L.C. He also is the President and Chief Executive Officer and a
director of Teekay Corporation and the Chief Executive Officer and a director of Teekay
Tankers.
Peter Evensen is the Chief Executive Officer and Chief Financial Officer and a director of
Teekay Offshore GP L.L.C., Teekay Offshore Operating GP L.L.C. and Teekay GP L.L.C. He also
is the Executive Vice President and Chief Strategy Officer of Teekay Corporation and the
Executive Vice President and a director of Teekay Tankers.
Because Mr. Evensen is an employee of a subsidiary of Teekay Corporation, his compensation
(other than any awards under the long-term incentive plan) is set and paid by the Teekay
Corporation subsidiary. Pursuant to our partnership agreement, we have agreed to reimburse
the Teekay Corporation subsidiary for time spent by Mr. Evensen on our management matters as
our Chief Executive Officer and Chief Financial Officer.
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m)
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We have entered into an amended and restated omnibus agreement with our general
partner, Teekay Corporation, Teekay LNG and
related parties. The following discussion describes certain provisions of the omnibus
agreement.
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62
Noncompetition
. Under the omnibus agreement, Teekay Corporation and Teekay LNG have agreed,
and have caused their controlled affiliates (other than us) to agree, not to own, operate or
charter offshore vessels (i.e. dynamically positioned shuttle tankers (other than those
operating in the conventional oil tanker trade under contracts with a remaining duration of
less that three years, excluding extension options), FSOs and FPSOs). This restriction does
not prevent Teekay Corporation, Teekay LNG or any of their other controlled affiliates from,
among other things:
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owning, operating or chartering offshore vessels if the remaining duration of the
time charter or contract of affreightment for the vessel, excluding any extension
options, is less than three years;
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acquiring offshore vessels and related time charters or contracts of affreightment as
part of a business or package of assets and operating or chartering those vessels if a
majority of the value of the total assets or business acquired is not attributable to
the offshore vessels and related contracts, as determined in good faith by the board of
directors of Teekay Corporation or the conflicts committee of the board of directors of
Teekay LNGs general partner; however, if Teekay Corporation or Teekay LNG completes
such an acquisition, it must, within one year after completing the acquisition, offer to
sell the offshore vessels and related contracts to us for their fair market value plus
any additional tax or other similar costs to Teekay Corporation or Teekay LNG that would
be required to transfer the offshore vessels and contracts to us separately from the
acquired business or package of assets;
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owning, operating or chartering offshore vessels and related time charters and
contracts of affreightment that relate to a tender, bid or award for a proposed offshore
project that Teekay Corporation or any of its subsidiaries has submitted or hereafter
submits or receives; however, at least one year after the delivery date of any such
offshore vessel, Teekay Corporation must offer to sell the offshore vessel and related
contract to us, with the vessel valued (i) for newbuildings originally contracted by
Teekay Corporation, at its fully-built-up cost (which represents the aggregate
expenditures incurred (or to be incurred prior to delivery to us) by Teekay Corporation
to acquire, construct, and/or convert and bring such offshore vessel to the condition
and location necessary for our intended use, plus project development costs for
completed projects and projects that were not completed but, if completed, would have
been subject to an offer to us pursuant to the omnibus agreement) and (ii) for any other
vessels, Teekay Corporations cost to acquire a newbuilding from a third party or the
fair market value of any existing vessel, as applicable, plus in each case any
subsequent expenditures that would be included in the fully-built-up cost of
converting the vessel prior to delivery to us;
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acquiring, operating or chartering offshore vessels if our general partner has
previously advised Teekay Corporation or Teekay LNG that the board of directors of our
general partner has elected, with the approval of its conflicts committee, not to cause
us or our subsidiaries to acquire or operate the vessels; or
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owing a limited partner interest in OPCO or owning shares of Teekay Petrojarl ASA
(
Petrojarl
).
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In addition, unless Teekay Corporation acquires 100% of Teekay Petrojarl, Petrojarl may
continue to own, operate and charter its current fleet. If Teekay Corporation acquires 100%
of Petrojarl, we have certain rights to acquire its offshore vessels as described below.
In addition, under the omnibus agreement we have agreed not to own, operate or charter crude
oil tankers or liquefied natural gas (or LNG) carriers. This restriction does not apply to
any of the Aframax tankers in our current fleet, and the ownership, operation or chartering
of any oil tankers that replace any of those oil tankers in connection with certain events.
In addition, the restriction does not prevent us from, among other things:
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acquiring oil tankers or LNG carriers and any related time charters as part of a
business or package of assets and operating or chartering those vessels, if a majority
of the value of the total assets or business acquired is not attributable to the oil
tankers and LNG carriers and any related charters, as determined by the conflicts
committee of our general partners board of directors; however, if at any time we
complete such an acquisition, we are required to promptly offer to sell to Teekay
Corporation the oil tankers and time charters or to Teekay LNG the LNG carriers and time
charters for fair market value plus any additional tax or other similar costs to us that
would be required to transfer the vessels and contracts to Teekay Corporation or Teekay
LNG separately from the acquired business or package of assets; or
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acquiring, operating or chartering oil tankers or LNG carriers if Teekay Corporation
or Teekay LNG, respectively, has previously advised our general partner that it has
elected not to acquire or operate those vessels.
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Rights of First Offer on Conventional Tankers, LNG Carriers and Offshore Vessels.
Under the
omnibus agreement, we have granted to Teekay Corporation and Teekay LNG a 30-day right of
first offer on certain (a) sales, transfers or other dispositions of any of our Aframax
tankers, in the case of Teekay Corporation, or certain LNG carriers in the case of Teekay
LNG, or (b) re-charterings of any of our Aframax tankers or LNG carriers pursuant to a time
charter or contract of affreightment with a term of at least three years if the existing
charter expires or is terminated early. Likewise, each of Teekay Corporation and Teekay LNG
has granted a similar right of first offer to us for any offshore vessels it might own that,
at the time of the proposed offer, is subject to a time charter or contract of affreightment
with a remaining term, excluding extension options, of at least three years. These rights of
first offer do not apply to certain transactions.
We also have the right under the omnibus agreement to purchase, for fair market value,
Petrojarl existing offshore vessels and any of its joint venture interest (in each case to
the extent involving an offshore vessel subject to a time charter or contract of
affreightment with a remaining term of at least three years, excluding extension options) if
Teekay Corporation acquires 100% of Petrojarl. Petrojarl has four FPSOs and one shuttle
tanker.
63
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n)
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In January 2007, Teekay Corporation contributed foreign exchange contracts for the
forward purchase of a total of Australian Dollars 4.5 million having a fair value asset of
$0.1 million, net of non-controlling interest, to OPCO for no consideration and was
accounted for as an equity contribution from Teekay Corporation. The foreign exchange
forward contracts matured by December 2007.
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o)
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During the year ended December 31, 2007, $1.2 million of interest expense attributable
to the operations of the
Navion Bergen
was incurred by Teekay Corporation and has been
allocated to us as part of the results of the Dropdown Predecessor.
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Item 8. Financial Information
The information included in Item 8 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
A. Consolidated Financial Statements and Other Financial Information
Consolidated Financial Statements and Notes
Please see Item 18 below for additional information required to be disclosed under this Item.
Legal Proceedings
From time to time we have been, and expect to continue to be, subject to legal proceedings and
claims in the ordinary course of our business, principally personal injury and property casualty
claims. These claims, even if lacking merit, could result in the expenditure of significant
financial and managerial resources. We are not aware of any legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse effect on us.
Cash Distribution Policy
Rationale for Our Cash Distribution Policy
Our cash distribution policy reflects a basic judgment that our unitholders are better served by
our distributing our cash available (as defined in our partnership agreement and after deducting
expenses, including estimated maintenance capital expenditures and reserves) rather than our
retaining it. Because we believe we will generally finance any expansion capital expenditures from
external financing sources, we believe that our investors are best served by our distributing all
of our available cash. Our cash distribution policy is consistent with the terms of our partnership
agreement, which requires that we distribute all of our available cash quarterly (after deducting
expenses, including estimated maintenance capital expenditures and reserves).
Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
There is no guarantee that unitholders will receive quarterly distributions from us. Our
distribution policy is subject to certain restrictions and may be changed at any time, including:
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Our unitholders have no contractual or other legal right to receive distributions other
than the obligation under our partnership agreement to distribute available cash on a
quarterly basis, which is subject to our general partners broad discretion to establish
reserves and other limitations.
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The Board of Directors of OPCOs general partner, Teekay Offshore Operating GP L.L.C.
(subject to approval by the Board of Directors of our general partner), has authority to
establish reserves for the prudent conduct of OPCOs business. The establishment of these
reserves could result in a reduction in cash distributions.
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While our partnership agreement requires us to distribute all of our available cash,
our partnership agreement, including provisions requiring us to make cash distributions
contained therein, may be amended. Although during the subordination period (defined in our
partnership agreement), with certain exceptions, our partnership agreement may not be
amended without the approval of non-affiliated common unitholders, our partnership
agreement can be amended with the approval of a majority of the outstanding common units
after the subordination period has ended.
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Even if our cash distribution policy is not modified or revoked, the amount of
distributions we pay under our cash distribution policy and the decision to make any
distribution is determined by the Board of Directors of our general partner, taking into
consideration the terms of our partnership agreement.
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Under Section 51 of the Marshall Islands Limited Partnership Act, we may not make a
distribution to unitholders if the distribution would cause our liabilities to exceed the
fair value of our assets.
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We may lack sufficient cash to pay distributions to our unitholders due to decreases in
net voyage revenues or increases in operating expenses, principal and interest payments on
outstanding debt, tax expenses, working capital requirements, maintenance capital
expenditures or anticipated cash needs.
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Our distribution policy may be affected by restrictions on distributions under our and
OPCOs credit facility agreements, which contain material financial tests and covenants
that must be satisfied. Should we or OPCO be unable to satisfy these restrictions included
in the credit agreements or if we or OPCO is otherwise in default under the credit
agreements, we or it would be prohibited from making cash distributions, which would
materially hinder our ability to make cash distributions to unitholders, notwithstanding
our stated cash distribution policy.
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If we make distributions out of capital surplus, as opposed to operating surplus (as
such terms are defined in our partnership agreement), such distributions will constitute a
return of capital and will result in a reduction in the minimum quarterly distribution and
the target distribution levels under our partnership agreement. We do not anticipate that
we will make any distributions from capital surplus.
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64
Minimum Quarterly Distribution
Common unitholders are entitled under our partnership agreement to receive a minimum quarterly
distribution of $0.35 per unit, or $1.40 per unit per year, prior to any distribution on our
subordinated units to the extent we have sufficient cash from our operations after establishment of
cash reserves and payment of fees and expenses, including payments to our general partner. Our
general partner has the authority to determine the amount of our available cash for any quarter.
This determination must be made in good faith. There is no guarantee that we will pay the minimum
quarterly distribution on the common units in any quarter, and we will be prohibited from making
any distributions to unitholders if it would cause an event of default, or an event of default is
existing, under our credit agreements.
Commencing after the date of our initial public offering until the third quarter of 2007, cash
distributions declared were $0.35 per unit per quarter. For the quarter ended December 31, 2006,
cash distributions declared were prorated for the period of December 19, 2006 to December 31, 2006.
Our cash distributions were increased to $0.385 per unit and $0.40 per unit for distributions
effective for the third and fourth quarter of 2007, respectively.
Subordination Period
During the subordination period applicable to the subordinated units held by Teekay Corporation,
the common units have the right to receive distributions of available cash from operating surplus
in an amount equal to the minimum quarterly distribution, 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. The purpose of the
subordinated units is to increase the likelihood that during the subordination period there will be
available cash to be distributed on the common units.
Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing percentage of quarterly
distributions of available cash from operating surplus (as defined in our partnership agreement)
after the minimum quarterly distribution and the target distribution levels have been achieved. Our
general partner currently holds the incentive distribution rights, but may transfer these rights
separately from its general partner interest, subject to restrictions in our partnership agreement.
Except for transfers of incentive distribution rights to an affiliate or another entity as part of
our general partners merger or consolidation with or into, or sale of all or substantially all of
its assets to such entity, the approval of a majority of our common units (excluding common units
held by our general partner and its affiliates), voting separately as a class, generally is
required for a transfer of the incentive distributions rights to a third party prior to December
31, 2016.
The following table illustrates the percentage allocations of the additional available cash from
operating surplus among the unitholders and our general partner up to the various target
distribution levels. The amounts set forth under Marginal Percentage Interest in Distributions
are the percentage interests of the unitholders and our general partner in any available cash from
operating surplus we distribute up to and including the corresponding amount in the column Total
Quarterly Distribution Target Amount, until available cash from operating surplus we distribute
reaches the next target distribution level, if any. The percentage interests shown for the
unitholders and our general partner for the minimum quarterly distribution are also applicable to
quarterly distribution amounts that are less than the minimum quarterly distribution. The
percentage interests shown for our general partner include its 2% general partner interest and
assume the general partner has contributed any capital necessary to maintain its 2.0% general
partner interest and has not transferred the incentive distribution rights.
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|
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|
|
Marginal Percentage Interest
|
|
|
|
Total Quarterly
|
|
in Distributions
|
|
|
|
Distribution Target Amount
|
|
Unitholders
|
|
|
General Partner
|
|
Minimum Quarterly Distribution
|
|
$0.35
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
First Target Distribution
|
|
Up to $0.4025
|
|
|
98.0
|
%
|
|
|
2.0
|
%
|
Second Target Distribution
|
|
Above $0.4025 up to $0.4375
|
|
|
85.0
|
%
|
|
|
15.0
|
%
|
Third Target Distribution
|
|
Above $0.4375 up to $0.525
|
|
|
75.0
|
%
|
|
|
25.0
|
%
|
Thereafter
|
|
Above $0.525
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
B. Significant Changes
No significant changes have occurred since the date of the annual financial statements included
herein.
Item 9. The Offer and Listing
The information included in Item 9 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Our common units are traded on the NYSE under the symbol TOO. The following table sets forth the
high and low closing sales prices for our common units on the NYSE for each of the periods
indicated:
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|
|
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|
|
Dec. 31,
|
|
|
Dec. 31,
|
|
Year Ended
|
|
2007
|
|
|
2006
(1)
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
37.45
|
|
|
$
|
26.77
|
|
Low
|
|
|
24.04
|
|
|
|
21.00
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31,
|
|
|
Sept. 30,
|
|
|
June 30,
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
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Quarter Ended
|
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2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
(1)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
29.38
|
|
|
$
|
37.45
|
|
|
$
|
35.40
|
|
|
$
|
31.66
|
|
|
$
|
26.77
|
|
Low
|
|
|
24.04
|
|
|
|
28.00
|
|
|
|
29.79
|
|
|
|
26.00
|
|
|
|
21.00
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Feb. 29,
|
|
|
Jan. 31,
|
|
|
Dec. 31,
|
|
|
Nov. 30,
|
|
|
Oct. 31,
|
|
Months Ended
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
25.32
|
|
|
$
|
26.46
|
|
|
$
|
25.86
|
|
|
$
|
26.37
|
|
|
$
|
29.20
|
|
|
$
|
29.38
|
|
Low
|
|
|
20.71
|
|
|
|
22.07
|
|
|
|
22.75
|
|
|
|
24.41
|
|
|
|
24.04
|
|
|
|
27.25
|
|
(1) Period beginning December 13, 2006.
Item 10. Additional Information
The information included in Item 10 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Memorandum and Articles of Association
The information required to be disclosed under Item 10.B is incorporated by reference to the
following sections of the Rule 424(b) prospectus filed with the SEC on December 14, 2006: The
Partnership Agreement, Description of the Common Units The Units, Conflicts of Interest and
Fiduciary Duties and Our Cash Distribution Policy and Restrictions on Distributions.
Material Contracts
The following is a summary of each material contract, other than material contracts entered into in
the ordinary course of business, to which we or any of our subsidiaries is a party, for the two
years immediately preceding the date of this Annual Report, each of which is included in the list
of exhibits in Item 19:
|
a)
|
|
Agreement, dated June 26, 2003, for a U.S. $455,000,000 Revolving Credit Facility
between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. This
facility bears interest at LIBOR plus a margin of 0.625%. The amount available under the
facility reduces semi-annually, with a bullet reduction of $131.0 million on maturity in
October 2014. The credit facility may be used for acquisitions and for general partnership
purposes. Our obligations under the facility are secured by first-priority mortgages on
seven shuttle tankers and one FSO unit.
|
|
b)
|
|
Agreement, dated October 2, 2006, for a U.S. $940,000,000 Revolving Credit Facility
between Teekay Offshore Operating L.P., Den Norske Bank ASA and various other banks. This
facility bears interest at LIBOR plus a margin of 0.625%. The amount available under the
facility reduces semi-annually, with a bullet reduction of $350.0 million on maturity in
October 2014. The credit facility may be used for acquisitions and for general partnership
purposes. In addition, this facility allows OPCO to make working capital borrowings and
loan the proceeds to us, which we could use to make distributions, provided that such
amounts are paid down annually. Our obligations under the facility are secured by
first-priority mortgages on 11 shuttle tankers and eight conventional tankers.
|
|
c)
|
|
Amended and Restated Omnibus Agreement, dated December 19, 2006, among us, our general
partner, Teekay Corporation, Teekay LNG and related parties. Please read Item 7 Major
Unitholders and Related Party Transactions for a summary of certain contract terms.
|
|
d)
|
|
We, OPCO and certain of our and its operating subsidiaries have entered into services
agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay
Corporation subsidiaries provide us, OPCO, and our and its operating subsidiaries with
administrative, advisory, technical, strategic consulting services and ship management
services for a reasonable fee that includes reimbursement of their direct and indirect
expenses incurred in providing these services. Please read Item 7 Major Unitholders and
Related Party Transactions for a summary of certain contract terms.
|
|
e)
|
|
Contribution, Conveyance and Assumption Agreement. Pursuant to this agreement, prior
to the closing of our initial public offering on December 19, 2006, Teekay Corporation sold
to us a 25.99% limited partner interest in OPCO and its subsidiaries and a 100% interest in
Teekay Offshore Operating GP L.L.C., which owns the 0.01% general partner interest in OPCO,
in exchange for (a) the issuance to Teekay Corporation of 2,800,000 common units and
9,800,000 subordinated units in us and a $134.6 million non-interest bearing promissory
note and (b) the issuance of the 2.0% general partner interest in us and all of our
incentive distribution rights to Teekay Offshore GP L.L.C., a wholly owned subsidiary of
Teekay Corporation.
|
|
f)
|
|
Teekay Offshore Partners L.P. 2006 Long-Term Incentive
Plan. Please read Item 6
Directors, Senior Management and Employees for a summary of certain plan terms.
|
Exchange Controls and Other Limitations Affecting Unitholders
We are not aware of any governmental laws, decrees or regulations, including foreign exchange
controls, in the Republic of The Marshall Islands that restrict the export or import of capital, or
that affect the remittance of dividends, interest or other payments to non-resident holders of our
securities.
We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote
our securities imposed by the laws of the Republic of The Marshall Islands or our partnership
agreement.
66
Taxation
Teekay Offshore Partners, L.P. was formed as a Marshall Islands limited partnership in August 2006.
The following provides information regarding taxes to which a U.S. Holder of our common units may
be subject to.
United States Tax Consequences.
We have elected to be taxed as a corporation for U.S. federal
income tax purposes. Subject to the discussion of passive foreign investment companies (or
PFICs
)
below, any distributions made by us with respect to our common units to a U.S. Holder generally
will constitute dividends, which may be taxable as ordinary income or qualified dividend income
as described in more detail below, to the extent of our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles. Distributions in excess of our
earnings and profits will be treated first as a nontaxable return of capital to the extent of the
U.S. Holders tax basis in its common units on a dollar-for-dollar basis and thereafter as capital
gain. U.S. Holders that are corporations generally will not be entitled to claim a dividends
received deduction with respect to any distributions they receive from us. Dividends paid with
respect to our common units generally will be treated as passive category income or, in the case
of certain types of U.S. Holders, general category income for purposes of computing allowable
foreign tax credits for U.S. federal income tax purposes.
Dividends paid on our common units to a U.S. Holder who is an individual, trust or estate (or a
U.S. Individual Holder
) will be treated as qualified dividend income that currently is taxable to
such U.S. Individual Holder at preferential capital gain tax rates provided that: (i) our common
units are readily tradable on an established securities market in the United States (such as the
New York Stock Exchange on which our common units are traded); (ii) we are not a PFIC for the
taxable year during which the dividend is paid or the immediately preceding taxable year (which we
do not believe we are, have been or will be, as discussed below); (iii) the U.S. Individual Holder
has owned the common units for more than 60 days in the 121-day period beginning 60 days before the
date on which the common units become ex-dividend; and (iv) the U.S. Individual Holder is not under
an obligation to make related payments with respect to positions in substantially similar or
related property. There is no assurance that any dividends paid on our common units will be
eligible for these preferential rates in the hands of a U.S. Individual Holder. Any dividends paid
on our common units not eligible for these preferential rates will be taxed as ordinary income to a
U.S. Individual Holder. In the absence of legislation extending the term of the preferential tax
rates for qualified dividend income, all dividends received by a taxpayer in tax years beginning on
January 1, 2011 or later will be taxed at ordinary graduated tax rates.
Special rules may apply to any extraordinary dividend paid by us. An extraordinary dividend is,
generally, a dividend with respect to a share of stock if the amount of the dividend is equal to or
in excess of 10.0% of a stockholders adjusted basis (or fair market value in certain
circumstances) in such stock. If we pay an extraordinary dividend on our common units that is
treated as qualified dividend income, then any loss derived by a U.S. Individual Holder from the
sale or exchange of such common units will be treated as long-term capital loss to the extent of
such dividend.
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be a PFIC in
any taxable year in which, after taking into account the income and assets of the corporation and
certain subsidiaries pursuant to a look through rule, either: (i) at least 75.0% of its gross
income is passive income; or (ii) at least 50.0% of the average value of its assets is
attributable to assets that produce passive income or are held for the production of passive
income.
While there are legal uncertainties involved in this determination, we do not believe that we
should be a PFIC based principally on the position that we derive at least a majority of our gross
income from our time and voyage charters (which generally is not passive income). Correspondingly,
the assets that we own and operate in connection with the production of such income, in particular
the vessels operating under time or voyage charters, should not constitute passive assets for
purposes of determining whether we are a PFIC. Legal authority concerning the characterization of
income derived from time charters, voyage charters and similar contracts for other tax purposes
supports this position. Because there is no legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree with this position. In addition,
there is no assurance that the nature of our assets, income and operations will remain the same in
the future.
If we were classified as a PFIC, for any year during which a U.S. Holder owns common units, such
U.S. Holder generally will be subject to special rules (regardless of whether we continue
thereafter to be a PFIC) with respect to: (i) any excess distribution (generally, any
distribution received by a unitholder in a taxable year that is greater than 125.0% of the average
annual distributions received by the unitholder in the three preceding taxable years or, if
shorter, the unitholders holding period for the shares), and (ii) any gain realized upon the sale
or other disposition of units. Under these rules:
|
|
|
the excess distribution or gain will be allocated ratably over the unitholders
holding period;
|
|
|
|
|
the amount allocated to the current taxable year and any year prior to the first
year in which we were a PFIC will be taxed as ordinary income in the current year;
|
|
|
|
|
the amount allocated to each of the other taxable years in the unitholders
holding period will be subject to U.S. federal income tax at the highest rate in effect
for the applicable class of taxpayer for that year; and
|
|
|
|
|
an interest charge for the deemed deferral benefit will be imposed with respect
to the resulting tax attributable to each such other taxable year.
|
Certain elections that would alter the tax consequences to a U.S. Holder, such as a qualified
electing fund election or mark to market election, may be available to a U.S. Holder if we are
classified as a PFIC. If we determine that we are or will be a PFIC, we will provide unitholders
with information concerning the potential availability of such elections.
As described above, current law provides that dividends received by a U.S. Individual Holder from a
qualified foreign corporation are subject to U.S. federal income tax at preferential rates through
2010. However, if we are classified as a PFIC for a taxable year in which we pay a dividend or the
immediately preceding taxable year, we would not be considered a qualified foreign corporation, and
a U.S. Individual Holder receiving such dividends would not be eligible for the reduced rate of
U.S. federal income tax.
67
If more than 50.0% of either the total combined voting power of our outstanding units entitled to
vote or the total value of all of our outstanding units were owned, directly, indirectly or
constructively, by citizens or residents of the United States, U.S. partnerships or corporations,
or U.S. estates or trusts (as defined for U.S. federal income tax purposes), each of which owned, directly, indirectly
or constructively, 10.0% or more of the total combined voting power of our outstanding units
entitled to vote (each, a
United States Stockholder
), we generally would be treated as a controlled
foreign corporation (or
CFC
). United States Stockholders of a CFC are treated as receiving current
distributions of their shares of certain income of the CFC (not including, under current law,
certain undistributed earnings attributable to shipping income) without regard to any actual
distributions and are subject to other burdensome U.S. federal income tax and administrative
requirements but generally are not also subject to the requirements generally applicable to owners
of a PFIC. Although we currently are not a CFC, U.S. persons purchasing a substantial interest in
us should consult their tax advisors about the potential implications of being treated as a United
States Stockholder in the event we were to become a CFC in the future.
Assuming we do not constitute a PFIC for any taxable year, a U.S. Holder generally will recognize
taxable gain or loss upon a sale, exchange or other disposition of our common units in an amount
equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or
other disposition and the U.S. Holders tax basis in such units. Subject to the discussion of
extraordinary dividends above, such gain or loss will be treated as long-term capital gain or loss
if the U.S. Holders holding period is greater than one year at the time of the sale, exchange or
other disposition, and subject to preferential capital gain tax rates. Such capital gain or loss
will generally be treated as U.S.-source gain or loss, as applicable, for U.S. foreign tax credit
purposes. A U.S. Holders ability to deduct capital losses is subject to certain limitations. A
disposition or sale of units by a shareholder who owns, or has owned, 10.0% or more of the total
voting power of us may result in a different tax treatment under section 1248 of the Code. U.S.
Holders purchasing a substantial interest in us should consult their tax advisors.
Marshall Islands
Tax Consequences.
Because we and our subsidiaries do not, and we do not expect
that we and our subsidiaries will, conduct business or operations in the Republic of The Marshall
Islands, and because all documentation related to our initial public offering was executed outside
of the Republic of The Marshall Islands, under current Marshall Islands law, no taxes or
withholdings will be imposed by the Republic of the Marshall Islands on distributions, including
upon a return of capital, made to unitholders, so long as such persons do not reside in, maintain
offices in, nor engage in business in the Republic of The Marshall Islands. Furthermore, no stamp,
capital gains or other taxes will be imposed by the Republic of The Marshall Islands on the
purchase, ownership or disposition by such persons of our common units.
Canadian Federal
Income Tax Consequences.
The following discussion is a summary of the material
Canadian federal income tax consequences under the Income Tax Act (Canada) (or the
Canada Tax Act
),
that we believe are relevant to holders of common units who are, at all relevant times, for the
purposes of the Canada Tax Act and the Canada-United States Tax Convention 1980 (or the
Canada-U.S.
Treaty
) resident in the United States and who deal at arms length with us and Teekay Corporation
(or
U.S. Resident Holders
).
Under the Canada Tax Act, no taxes on income (including taxable capital gains) are payable by U.S.
Resident Holders in respect of the acquisition, holding, disposition or redemption of the common
units, provided that we do not carry on business in Canada and such U.S. Resident Holders do not,
for the purposes of the Canada-U.S. Treaty, otherwise have a permanent establishment or fixed base
in Canada to which such common units pertain and, in addition, do not use or hold and are not
deemed or considered to use or hold such common units in the course of carrying on a business in
Canada and, in the case of any U.S. Resident Holders that carry on an insurance business in Canada
and elsewhere, such U.S. Resident Holders establish that the common units are not effectively
connected with their insurance business carried on in Canada.
In this connection, we believe that our activities and affairs and the activities and affairs of
OPCO, a Marshall Island Limited Partnership in which we own a 26.0% limited partnership interest,
are conducted in a manner that both we and OPCO are not carrying on business in Canada. As a
result, U.S. Resident Holders should not be considered to be carrying on business in Canada for
purposes of the Canada Tax Act solely by reason of the acquisition, holding, disposition or
redemption of their common units. We intend that this is the case, notwithstanding that certain
services will be provided to Teekay Offshore Partners L.P., OPCO and its operating subsidiaries
indirectly through arrangements with a subsidiary of Teekay Corporation that is resident and based
in Bermuda, by Canadian service providers. However we cannot assure this result.
Documents on Display
Documents concerning us that are referred to herein may be inspected at our principal executive
headquarters at 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Those
documents electronically filed via the SECs Electronic Data Gathering, Analysis, and Retrieval (or
EDGAR
) system may also be obtained from the SECs website at
www.sec.gov
, free of charge, or from
the SECs Public Reference Section at 100 F Street, NE, Washington, D.C. 20549, at prescribed
rates. Further information on the operation of the SEC public reference rooms may be obtained by
calling the SEC at 1-800-SEC-0330.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
With the exception of the description of the accounting treatment of our derivative instruments,
the information included in Item 11 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our floating-rate
borrowings. Significant increases in interest rates could adversely affect operating margins,
results of operations and our ability to service debt. From time to time, 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 rated A or better by Standard & Poors or Aa3 by Moodys at the time of the
transactions. In addition, to the extent possible and practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk.
68
The tables below provide information about financial instruments as at December 31, 2007 that are
sensitive to changes in interest rates. For debt obligations, 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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
|
|
|
Asset/(Liability)
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
(restated)
|
|
|
Rate
(1)
|
|
|
|
(in millions of U.S. dollars, except percentages)
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Dollar-
denominated
(2)
|
|
|
64.1
|
|
|
|
115.6
|
|
|
|
107.0
|
|
|
|
164.0
|
|
|
|
141.8
|
|
|
|
925.0
|
|
|
|
1,517.5
|
|
|
|
(1,517.5
|
)
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount
(3)
|
|
|
17.1
|
|
|
|
552.6
|
|
|
|
18.1
|
|
|
|
18.7
|
|
|
|
19.2
|
|
|
|
723.7
|
|
|
|
1,349.4
|
|
|
|
(21.0
|
)
|
|
|
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 OPCOs 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 December 31, 2007 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 6-month LIBOR.
|
Foreign Currency Fluctuation 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. For the years
ended December 31, 2007 and 2006, approximately 52.6% and 44.1%, respectively, of vessel operating
costs and general and administrative expenses were denominated in Norwegian Kroner. 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, OPCO entered into new services agreements with
subsidiaries of Teekay Corporation whereby the subsidiaries operate and crew OPCOs 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 Corporations cost of providing
services based on fluctuations in the value of the Norwegian Kroner relative to the U.S. Dollar. At
December 31, 2007, 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. At December 31, 2007, we were also committed to
foreign exchange contracts for the forward purchase of approximately Australian Dollars 5.0
million, Euros 4.0 million, and Singapore Dollars 4.1 million for U.S. Dollars at an average rate
of Australian Dollar 1.25 per U.S. Dollar, Euro 0.68 per U.S. Dollar and Singapore Dollar 1.44 per
U.S. Dollar, all maturing in 2008. We may continue to seek to hedge these currency fluctuation
risks in the future.
To the extent the hedge is effective, changes in the fair value of the forward contract are either
offset against the fair value of assets or liabilities through income, or recognized in other
comprehensive income until the hedged item is recognized in income. The ineffective portion of a
forward contracts change in fair value is immediately recognized in income.
Although the majority of transactions, assets and liabilities are denominated in U.S. Dollars, OPCO
had Norwegian Kroner-denominated deferred income taxes of approximately 394.8 million ($72.6
million) at December 31, 2007. Neither we nor OPCO has entered into any forward contracts to
protect against currency fluctuations on any future taxes.
Item 12. Description of Securities Other than Equity Securities
The information included in Item 12 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
The information included in Item 13 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
None.
Item 14. Material Modifications to the Rights of Unitholders and Use of Proceeds
The information included in Item 14 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
None.
69
Item 15. Controls and Procedures
Restatement of Financial Statements
a. Derivative Instruments and Hedging Activities
In August 2008, we commenced a review of our application of Statement of Financial Accounting
Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities
, as
amended. Our findings are as follows:
|
|
|
One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based
on our review, we concluded that the prospective hedge effectiveness assessment that was
conducted for certain of our interest rate swap agreements on the date of designation was
not sufficient to conclude that the interest rate swaps would be highly effective, in
accordance with the technical requirements of SFAS No. 133, in achieving offsetting changes
in cash flows attributable to the risk being hedged.
|
|
|
|
To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of our
interest rate swap agreements did not clearly specify the method to be used to measure
hedge ineffectiveness.
|
|
|
|
Certain of our derivative instruments were designated as hedges when the derivative
instruments had a non-zero fair value. However, this designation was not appropriate as we
used certain methods of measuring ineffectiveness that are not allowed in the case of
non-zero fair value derivatives.
|
Accordingly, although we believe each of these derivative instruments were and continue to be
effective economic hedges, for accounting purposes we should have reflected changes in fair value
of these derivative instruments as increases or decreases to our net income (loss) on our
consolidated statements of income (loss), instead of being reflected as increases or decreases to
accumulated other comprehensive income, a component of partners/owners equity on our consolidated
balance sheets and statements of changes in partners/owners equity.
b. Vision Incentive Plan
In the preparation of the combined consolidated financial statements of the Predecessor for the
period prior to the Partnerships initial public offering, general and administrative expenses
were allocated from Teekay Corporation (
Teekay
) to the Predecessor based on the Predecessors
proportionate share of Teekays total ship-operating (calendar) days for each of the periods
presented. During 2005 and 2006, a portion of the general and administrative expense allocation
included accrued costs relating to a long-term share-based incentive plan (the
Vision Incentive
Plan or VIP
) for senior management. During 2005, Teekay had accrued and expensed a portion of
the VIP without consideration of certain vesting provisions as required under GAAP. Upon
transition to SFAS 123R on January 1, 2006, Teekay was required to account for the VIP based on
the fair value of the award , as the VIP has a share priced-based component. However, Teekay
continued to calculate compensation expense for the VIP under the methodology it had followed in
2005 as Teekay did not identify the VIP as within the scope of SFAS 123R. As a result, we have
restated the general and administrative expenses allocation for the periods before our initial
public offering.
Note 18 of the Notes to the Consolidated Financial Statements in our 2007 Form 20-F/A Report
contains the impact on the consolidated financial statements and additional information related to
our restatement. As a result of the foregoing, we are restating herein our historical balance
sheets as of December 31, 2007 and 2006; our statements of income (loss), cash flows and
partners/owners equity for the years ending 2007, 2006, and 2005; and selected financial data as
of and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003.
Management also has determined that a control deficiency relating to the preparation of hedge
documentation and to the accounting for non-routine, complex financial arrangements such as the
Vision Incentive Plan, which in part gave rise to this restatement, constituted material weaknesses
in our internal control over financial reporting. In light of these material weaknesses,
management:
|
|
|
Restated our results for the affected periods to reflect the changes in fair value of
certain derivative transactions as unrealized gains and losses through earnings
|
|
|
|
Discontinued hedge accounting for all derivative transactions to which the restatement
applied; and
|
|
|
|
Restated our accounting for the Vision Incentive Plan as described above.
|
Evaluation of Disclosure Controls and Procedures
In connection with the restatement, under the direction of the Chief Executive Officer and the
Chief Financial Officer of our general partner, we re-evaluated the assessment of our disclosure
controls and procedures. We identified material weaknesses in our internal control over financial
reporting relating to the preparation of hedge documentation and the accounting for non-routine,
complex financial arrangements such as the Vision Incentive Plan. Solely as a result of these
material weaknesses, we, including the Chief Executive Officer and the Chief Financial Officer of
our general partner, have now concluded that our disclosure controls and procedures were not
effective as of December 31, 2007.
In connection with this 2007 Form 20-F/A Report, we have again conducted an evaluation of our
disclosure controls and procedures under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer of our general partner. Based on the evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, including the remedial actions
described below in Remediation of a Material Weakness in Internal Control Over Financial
Reporting, as of April 2, 2009, our disclosure controls and procedures were effective to ensure
that information required to be disclosed by us in the reports we file or furnish under the
Securities and Exchange Act of 1934 is accumulated and
communicated to our management, including the principal executive and principal financial officers
of our general partner, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
70
Aside from the material weaknesses discussed below, during 2007, there was no change in our
internal control over financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Remediation of Material Weaknesses in Internal Controls Over Financial Reporting
We believe, as of the date of this filing, that we have fully remediated the material weaknesses in
our internal control over financial reporting relating to the preparation of hedge documentation
and to the accounting for non-routine, complex financial arrangements. Our remediation actions
included us:
|
|
|
Not applying hedge accounting to our derivative instruments, other than certain foreign
currency forward contracts; and
|
|
|
|
Implementing a more rigorous process to determine the appropriate accounting treatment
for complex accounting issues such as hedge accounting and non-routine, complex financial
arrangements, including the engagement of appropriately qualified external expertise.
|
Managements Annual Report on Internal Control over Financial Reporting (restated)
|
1.
|
|
Management of our general partner is responsible for establishing and maintaining for
us adequate internal controls over financial reporting.
|
|
2.
|
|
Our internal controls were designed to provide reasonable assurance as to the
reliability of our financial reporting and the preparation and presentation of the
consolidated financial statements for external purposes in accordance with accounting
principles generally accepted in the United States. Our internal controls over financial
reporting includes those policies and procedures that 1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; 2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of the financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made in
accordance with authorizations of management and the directors of our general partnership;
and 3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
|
|
3.
|
|
We conducted an evaluation of the effectiveness of our internal control over financial
reporting based upon the framework in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included
review of the documentation of controls, evaluation of the design effectiveness of
controls, testing of the operating effectiveness of controls and a conclusion on this
evaluation.
|
|
4.
|
|
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements even when determined to be effective and can only provide
reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
|
|
5.
|
|
Based on the evaluation, management of our general partner believes that the
documentation of controls and the design effectiveness of controls were appropriate.
However, management of our general partner believes that, as of December 31, 2007, the
controls were not operating effectively to ensure that the accounting was appropriate for
non-routine, complex financial arrangements such as the Vision Incentive Plan, and that
hedge documentation requirements were met for certain derivative instruments, in accordance
with generally accepted accounting principles. These control deficiencies resulted in an
amendment of our Annual Report on Form 20-F for the year ended December 31, 2007, in order
to restate the consolidated financial statements for 2005 and 2006. The financial
statements for 2007 were also restated as it relates to hedge documentation requirements
for certain derivative instruments. Accordingly, management of our general partner has
concluded that these control deficiencies constitute material weaknesses.
|
|
6.
|
|
In Managements Report on Internal Control Over Financial Reporting included in our
original Annual Report on Form 20-F for the year ended December 31, 2007, management of our
general partner concluded that we maintained effective internal control over financial
reporting as of December 31, 2007. Solely as a result of the material weaknesses described
above, management of our general partner has revised its earlier assessment and has now
concluded that our internal control over financial reporting relating to accounting for
non-routine, complex financial arrangements, and the preparation of hedge documentation was
not effective as of December 31, 2007, based on the criteria in
Internal Control -
Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Accordingly, management of our general partner has restated its report on
internal control over financial reporting.
|
|
7.
|
|
Our independent auditors, Ernst & Young LLP, a registered public accounting firm has
audited the accompanying consolidated financial statements and our internal control over
financial reporting. Their attestation report on the effectiveness of our internal control
over financial reporting can be found on page F-2 of this Form 20-F/A.
|
Item 16A. Audit Committee Financial Expert
The information included in Item 16A in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
The Board of Directors of our general partner has determined that director David L. Lemmon
qualifies as an audit committee financial expert and is independent under applicable NYSE and SEC
standards.
71
Item 16B. Code of Ethics
The information included in Item 16B in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Our general partner has adopted Standards of Business Conduct that include a Code of Ethics for all
our employees and the employees and directors of our general partner. This document is available
under Other Information Partnership Governance in the Investor Centre of our web site
(www.teekayoffshore.com). We intend to disclose, under Other Information Partnership Governance
in the Investor Centre of our web site, any waivers to or amendments of the Code of Ethics for the
benefit of any directors and executive officers of our general partner.
Item 16C. Principal Accountant Fees and Services
The information included in Item 16C in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Our principal accountant for 2007 and 2006 was Ernst & Young LLP, Chartered Accountants. The
following table shows the fees we or our predecessor paid or accrued for audit services provided by
Ernst & Young LLP for 2007 and 2006.
|
|
|
|
|
|
|
|
|
Fees
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
(1)
|
|
$
|
429,300
|
|
|
$
|
575,400
|
|
Audit-Related Fees
(2)
|
|
|
8,500
|
|
|
|
40,000
|
|
Tax Fees
(3)
|
|
|
15,800
|
|
|
|
144,300
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
453,600
|
|
|
$
|
759,700
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Audit fees represent fees for professional services provided in connection with the audit of
our consolidated financial statements, review of our quarterly consolidated financial
statements and audit services provided in connection with other statutory or regulatory
filings, including professional services in connection with the review of our regulatory
filings for our initial public offering of common units in December 2006.
|
|
(2)
|
|
Audit-related fees consisted primarily of accounting consultations.
|
|
(3)
|
|
For 2007 and 2006, respectively, tax fees principally included corporate tax compliance fees
of $15,800 and $39,500. Tax fees in 2006 also included personal and expatriate tax services
fees of $94,800 and international tax planning fees of $10,000.
|
The Audit Committee of our general partners Board of Directors has the authority to pre-approve
permissible audit-related and non-audit services not prohibited by law to be performed by our
independent auditors and associated fees. Engagements for proposed services either may be
separately pre-approved by the Audit Committee or entered into pursuant to detailed pre-approval
policies and procedures established by the Audit Committee, as long as the Audit Committee is
informed on a timely basis of any engagement entered into on that basis. The Audit Committee
separately pre-approved all engagements and fees paid to our principal accountant in 2007.
Item 16D. Exemptions from the Listing Standards for Audit Committees
The information included in Item 16D in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Not applicable.
Item 16E. Purchases of Units by the Issuer and Affiliated Purchasers
The information included in Item 16E in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Not applicable.
72
PART III
Item 17. Financial Statements
The information included in Item 17 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
Not applicable.
Item 18. Financial Statements
The following financial statements, together with the related reports of Ernst & Young LLP,
Independent Registered Public Accounting Firm thereon, are filed as part of this Annual Report:
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
F-1, F-2
|
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
F-8
|
|
All schedules for which provision is made in the applicable accounting regulations of the SEC are
not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial
Statements and therefore have been omitted.
73
Item 19. Exhibits
The following exhibits are filed as part of this Annual Report:
|
|
|
|
|
|
1.1
|
|
|
Certificate of Limited Partnership of Teekay Offshore Partners L.P. (1)
|
|
1.2
|
|
|
First Amended and Restated Agreement of Limited Partnership of Teekay Offshore Partners L.P. (2)
|
|
1.3
|
|
|
Certificate of Formation of Teekay Offshore GP L.L.C. (1)
|
|
1.4
|
|
|
Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C. (1)
|
|
1.5
|
|
|
Certificate of Limited Partnership of Teekay Offshore Operating L.P. (1)
|
|
1.6
|
|
|
Amended and
Restated Agreement of Limited Partnership of Teekay Offshore Operating
Partners
L.P. (1)
|
|
1.7
|
|
|
Certificate of Formation of Teekay Offshore Operating GP L.L.C. (1)
|
|
1.8
|
|
|
Amended
and Restated Limited Liability Company Agreement of Teekay Offshore Operating
GP
L.L.C. (1)
|
|
4.1
|
|
|
Agreement, dated June 26, 2003, for a U.S $455,000,000 Revolving Credit Facility between Norsk Teekay
Holdings Ltd., Den Norske Bank ASA and various other banks (1)
|
|
4.2
|
|
|
Agreement, dated October 2, 2006, for a U.S $940,000,000 Revolving Credit Facility between Teekay
Offshore Operating L.P., Den Norske Bank ASA and various other banks (1)
|
|
4.3
|
|
|
Contribution, Conveyance and Assumption Agreement (1)
|
|
4.4
|
|
|
Teekay Offshore Partners L.P. 2006 Long-Term Incentive Plan (1)
|
|
4.5
|
|
|
Amended and Restated Omnibus Agreement (1)
|
|
4.6
|
|
|
Administrative
Services Agreement between Teekay Offshore Operating Partners L.P.
and Teekay
Limited (3)
|
|
4.7
|
|
|
Advisory, Technical and Administrative Services Agreement (3)
|
|
4.8
|
|
|
Administrative Services Agreement between Teekay Offshore Partners L.P. and Teekay Limited (3)
|
|
8.1
|
|
|
List of Subsidiaries of Teekay Offshore Partners L.P.
|
|
12.1
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Teekay Offshore Partners L.P.s Chief Executive Officer
|
|
12.2
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Teekay Offshore Partners L.P.s Chief Financial Officer
|
|
13.1
|
|
|
Teekay Offshore Partners L.P. Certification of Peter Evensen, Chief Executive Officer and Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
15.1
|
|
|
Consent of Ernst & Young LLP, as independent registered public accounting firm.
|
|
15.2
|
|
|
Consolidated Balance Sheet of Teekay Offshore GP L.L.C. (restated)
|
|
|
|
(1)
|
|
Previously filed as an exhibit to the Partnerships Registration Statement on Form F-1 (File
No. 333-139116), filed with the SEC on December 4, 2006, and hereby incorporated by reference
to such Registration Statement.
|
|
(2)
|
|
Previously filed as Appendix A to the Partnerships Rule 424(b)(4) Prospectus filed with the
SEC on December 14, 2006, and hereby incorporated by reference to such Prospectus.
|
|
(3)
|
|
Previously filed as an exhibit to the Partnerships Amendment No. 1 to Registration Statement
on Form F-1 (File No. 333-139116), filed with the SEC on December 8, 2006, and hereby
incorporated by reference to such Registration Statement.
|
74
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
|
|
|
|
TEEKAY OFFSHORE PARTNERS L.P.
|
|
|
By:
|
Teekay Offshore GP L.L.C., its general partner
|
|
|
|
|
Dated: April 2, 2009
|
By:
|
/s/ Peter Evensen
|
|
|
|
Peter Evensen
|
|
|
|
Chief Executive Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Teekay Offshore GP L.L.C.,
General Partner of Teekay Offshore Partners L.P.,
and the Limited Partners of Teekay Offshore Partners L.P.
We have audited the accompanying consolidated balance sheets of
Teekay Offshore Partners L.P.
(successor to Teekay Offshore Partners Predecessor)
and subsidiaries
(or the
Partnership
) as of
December 31, 2007 and 2006, and the related consolidated statements of income (loss) for the years
ended December 31, 2007, 2006 and 2005 aggregated as follows:
Year Ended December 31, 2007
|
|
|
o
January 1 to December 31, 2007
|
Year Ended December 31, 2006
|
|
|
o
January 1 to December 18, 2006
|
|
|
|
|
o
December 19 to December 31, 2006
|
Year Ended December 31, 2005
|
|
|
o
January 1 to December 31, 2005
|
We have also audited the consolidated statements of the changes in partners equity/owners equity
and cash flows for the three years ended December 31, 2007, 2006 and 2005. These financial
statements are the responsibility of the Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Teekay Offshore Partners L.P. and subsidiaries at
December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows
for each of the three years ended December 31, 2007 in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 18 to the accompanying consolidated financial statements, the Partnership has
restated its financial statements for the years ended December 31, 2007, 2006 and 2005.
As discussed in Note 1 to the consolidated financial statements, on January 1, 2006, the
Partnership adopted the provisions of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment.
As discussed in Note 1 to the consolidated financial statements, on January 1, 2007, the
Partnership adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation
No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109
.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Teekay Offshore Partners L.P.s internal control over financial reporting as
of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March
12, 2008, except for paragraphs 5 through 7 of Managements Annual Report on Internal Control over
Financial Reporting (as restated), as to which the date is April 2, 2009, expressed an adverse
opinion thereon.
|
|
|
Vancouver, Canada
|
|
/s/ Ernst & Young LLP
|
March 12,
2008,
|
|
Chartered
Accountants
|
except for Notes 18 and 19, as to which the
|
|
|
date is April 2, 2009.
|
|
|
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Teekay Offshore GP L.L.C.,
General Partner of Teekay Offshore Partner L.P.,
and the Limited Partners of Teekay Offshore Partners L.P.
We have audited Teekay Offshore Partners L.P.s (or the
Partnerships
) internal control over
financial reporting as of December 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (or the
COSO criteria
). Teekay Offshore Partners L.P.s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Partnerships internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the
Partnership are being made only in accordance with authorizations of management and directors of
the Partnership; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Partnerships assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the Partnerships annual or interim financial statements will not be prevented or detected on a
timely basis.
In its assessment management has identified material weaknesses in controls over its process of
accounting for both derivative financial instruments and the accounting for certain financial
arrangements. These material weaknesses were considered in determining the nature, timing and
extent of our audit tests applied in our audit of the 2007 financial statements, and this report
does not affect our report dated March 12, 2008, except for Notes 18 and 19, as to which the date
is April 2, 2009, on those financial statements.
In our opinion, because of the effect of the material weaknesses described above on the achievement
of the objectives of the control criteria, Teekay Offshore Partners L.P. has not maintained
effective internal control over financial reporting as of December 31, 2007 based on the COSO
criteria.
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Vancouver, Canada
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/s/ Ernst & Young LLP
|
March 12, 2008,
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|
Chartered Accountants
|
except for paragraphs 5 through 7 of Managements
Annual Report on
Internal Control over Financial
Reporting (as restated), as to which the date is
April 2, 2009.
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F - 2
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands of U.S. dollars, except unit and per unit data)
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
Restated
Note 18
|
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|
|
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|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
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|
Year Ended
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOYAGE REVENUES
($154,605, $74,651 and $60,109 for 2007, 2006 and 2005,
respectively, from related parties notes
10c, 10h, 10i, 10j, 10k, and
10l
)
|
|
|
785,203
|
|
|
|
617,514
|
|
|
|
24,397
|
|
|
|
613,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
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|
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Voyage expenses
|
|
|
151,637
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|
|
|
91,321
|
|
|
|
3,102
|
|
|
|
74,543
|
|
Vessel operating expenses
(note 11)
|
|
|
149,660
|
|
|
|
107,991
|
|
|
|
4,297
|
|
|
|
109,480
|
|
Time-charter hire expense
|
|
|
150,463
|
|
|
|
159,973
|
|
|
|
5,641
|
|
|
|
169,687
|
|
Depreciation and amortization
|
|
|
124,370
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|
|
|
100,823
|
|
|
|
3,726
|
|
|
|
109,824
|
|
General and administrative (
note 11
, and $55,543, $28,102 and $21,720
for 2007, 2006 and 2005, respectively, from related parties notes
10m, 10n, 10o, and 10p
)
|
|
|
62,404
|
|
|
|
63,014
|
|
|
|
2,177
|
|
|
|
56,726
|
|
Gain on sale of vessels and equipment net of writedowns
(note 15)
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|
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|
|
|
|
(4,778
|
)
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|
|
|
|
|
|
2,820
|
|
Restructuring charge
(note 9)
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|
|
832
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|
|
|
|
|
955
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
638,534
|
|
|
|
519,176
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|
|
|
18,943
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|
|
|
524,035
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|
|
|
|
|
|
|
|
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|
Income from vessel operations
|
|
|
146,669
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|
|
|
98,338
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|
|
|
5,454
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|
|
|
89,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
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OTHER ITEMS
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|
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Interest expense
(note 6
,
note 11
, and $1,236, $27,056 and $14,772 for
2007, 2006 and 2005, respectively, from related parties
notes 10f,
10g and 10x)
|
|
|
(126,304
|
)
|
|
|
(64,462
|
)
|
|
|
(1,617
|
)
|
|
|
(39,983
|
)
|
Interest income
|
|
|
5,871
|
|
|
|
5,167
|
|
|
|
191
|
|
|
|
4,612
|
|
Equity income from joint ventures
(note 11)
|
|
|
|
|
|
|
6,321
|
|
|
|
|
|
|
|
5,955
|
|
Foreign currency exchange (loss) gain
(note 11)
|
|
|
(11,678
|
)
|
|
|
(66,214
|
)
|
|
|
(118
|
)
|
|
|
34,228
|
|
Income tax recovery (expense)
(note 12)
|
|
|
10,516
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|
|
|
(3,260
|
)
|
|
|
(121
|
)
|
|
|
12,375
|
|
Other income net
(note 9)
|
|
|
10,403
|
|
|
|
8,367
|
|
|
|
309
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
(111,192
|
)
|
|
|
(114,081
|
)
|
|
|
(1,356
|
)
|
|
|
26,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
Income (loss) from continuing operations before non-controlling interest
|
|
|
35,477
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|
|
|
(15,743
|
)
|
|
|
4,098
|
|
|
|
115,489
|
|
Non-controlling interest
|
|
|
(31,519
|
)
|
|
|
(3,893
|
)
|
|
|
(2,636
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
3,958
|
|
|
|
(19,636
|
)
|
|
|
1,462
|
|
|
|
115,260
|
|
Net loss from discontinued operations
(note 19)
|
|
|
|
|
|
|
(10,656
|
)
|
|
|
|
|
|
|
(19,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
|
3,958
|
|
|
|
(30,292
|
)
|
|
|
1,462
|
|
|
|
95,913
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown predecessors interest in net income
(note 1)
|
|
|
1,300
|
|
|
|
3,097
|
|
|
|
114
|
|
|
|
2,910
|
|
General partners interest in net income
|
|
|
733
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
Limited partners interest:
(note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
1,925
|
|
|
|
(22,733
|
)
|
|
|
1,284
|
|
|
|
112,350
|
|
Net income (loss) from continuing operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
0.12
|
|
|
|
(1.80
|
)
|
|
|
0.07
|
|
|
|
8.92
|
|
- Subordinated unit (basic and diluted)
|
|
|
0.07
|
|
|
|
(1.80
|
)
|
|
|
0.06
|
|
|
|
8.92
|
|
- Total unit (basic and diluted)
|
|
|
0.10
|
|
|
|
(1.80
|
)
|
|
|
0.07
|
|
|
|
8.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
(10,656
|
)
|
|
|
|
|
|
|
(19,347
|
)
|
Net income (loss) from discontinued operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
|
|
|
|
(0.85
|
)
|
|
|
|
|
|
|
(1.54
|
)
|
- Subordinated unit (basic and diluted)
|
|
|
|
|
|
|
(0.85
|
)
|
|
|
|
|
|
|
(1.54
|
)
|
- Total unit (basic and diluted)
|
|
|
|
|
|
|
(0.85
|
)
|
|
|
|
|
|
|
(1.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,925
|
|
|
|
(33,389
|
)
|
|
|
1,284
|
|
|
|
93,003
|
|
Net income (loss) per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
0.12
|
|
|
|
(2.65
|
)
|
|
|
0.07
|
|
|
|
7.38
|
|
- Subordinated unit (basic and diluted)
|
|
|
0.07
|
|
|
|
(2.65
|
)
|
|
|
0.06
|
|
|
|
7.38
|
|
- Total unit (basic and diluted)
|
|
|
0.10
|
|
|
|
(2.65
|
)
|
|
|
0.07
|
|
|
|
7.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common units (basic and diluted)
|
|
|
9,800,000
|
|
|
|
2,800,000
|
|
|
|
9,800,000
|
|
|
|
2,800,000
|
|
- Subordinated units (basic and diluted)
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
|
|
9,800,000
|
|
- Total units (basic and diluted)
|
|
|
19,600,000
|
|
|
|
12,600,000
|
|
|
|
19,600,000
|
|
|
|
12,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions declared per unit
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
Restated Note 18
|
|
|
|
As at
|
|
|
As at
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
(note 6)
|
|
|
121,224
|
|
|
|
113,986
|
|
Accounts receivable, net of allowance for doubtful accounts of $nil (December 31, 2006
$401)
|
|
|
42,245
|
|
|
|
25,826
|
|
Due from affiliate
(notes 10u and 10v)
|
|
|
796
|
|
|
|
30,757
|
|
Net investment in direct financing leases current
|
|
|
22,268
|
|
|
|
21,764
|
|
Prepaid expenses
|
|
|
34,219
|
|
|
|
24,608
|
|
Other current assets
|
|
|
7,644
|
|
|
|
7,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
228,396
|
|
|
|
224,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment
(note 6)
|
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation of $694,258 (December 31, 2006
$585,146)
|
|
|
1,662,865
|
|
|
|
1,532,743
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
|
78,199
|
|
|
|
92,018
|
|
Other assets
|
|
|
14,423
|
|
|
|
38,198
|
|
Intangible assets net
(note 4)
|
|
|
55,355
|
|
|
|
66,425
|
|
Goodwill shuttle tanker segment
|
|
|
127,113
|
|
|
|
127,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,166,351
|
|
|
|
2,081,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS EQUITY
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
12,076
|
|
|
|
7,459
|
|
Accrued liabilities
(note 5)
|
|
|
38,464
|
|
|
|
45,633
|
|
Current portion of long-term debt
(note 6)
|
|
|
64,060
|
|
|
|
17,656
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
114,600
|
|
|
|
70,748
|
|
|
|
|
|
|
|
|
Long-term debt
(note 6)
|
|
|
1,453,407
|
|
|
|
1,285,696
|
|
Deferred income taxes
(note 12)
|
|
|
77,306
|
|
|
|
73,906
|
|
Other long-term liabilities
(note 11)
|
|
|
51,024
|
|
|
|
32,163
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,696,337
|
|
|
|
1,462,513
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(notes 7, 10 and 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
392,613
|
|
|
|
427,977
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors equity
(note 1)
|
|
|
|
|
|
|
51,792
|
|
Partners equity
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
77,108
|
|
|
|
138,942
|
|
Accumulated other comprehensive income
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners equity
|
|
|
77,401
|
|
|
|
190,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity
|
|
|
2,166,351
|
|
|
|
2,081,224
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
Note 18
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Cash and cash equivalents provided by (used for)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,958
|
|
|
|
(28,830
|
)
|
|
|
95,913
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on derivative instruments
(note 11)
|
|
|
45,957
|
|
|
|
(3,346
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
124,370
|
|
|
|
104,549
|
|
|
|
110,290
|
|
Non-controlling interest
|
|
|
31,519
|
|
|
|
6,529
|
|
|
|
229
|
|
Gain on sale of vessels
|
|
|
|
|
|
|
(6,928
|
)
|
|
|
(9,423
|
)
|
Loss on writedown of vessels and equipment
|
|
|
|
|
|
|
2,150
|
|
|
|
12,243
|
|
Equity income (net of dividends received: December 31, 2006 $6,002; December
31, 2005 $2,750)
|
|
|
|
|
|
|
(319
|
)
|
|
|
(3,205
|
)
|
Deferred income tax (recovery) expense
|
|
|
(10,516
|
)
|
|
|
425
|
|
|
|
(16,214
|
)
|
Foreign currency exchange loss (gain) and other
|
|
|
11,425
|
|
|
|
72,438
|
|
|
|
(39,967
|
)
|
Change in non-cash working capital items related to operating activities
(note 14)
|
|
|
(33,706
|
)
|
|
|
51,039
|
|
|
|
19,039
|
|
Distribution from subsidiaries to minority owners
|
|
|
(78,107
|
)
|
|
|
(4,224
|
)
|
|
|
(9,618
|
)
|
Expenditures for drydocking
|
|
|
(49,053
|
)
|
|
|
(31,255
|
)
|
|
|
(8,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow
|
|
|
45,847
|
|
|
|
162,228
|
|
|
|
150,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
298,443
|
|
|
|
1,290,750
|
|
|
|
1,226,804
|
|
Capitalized loan costs
|
|
|
|
|
|
|
(6,178
|
)
|
|
|
(639
|
)
|
Scheduled repayments of long-term debt
|
|
|
(17,328
|
)
|
|
|
(119,900
|
)
|
|
|
(39,884
|
)
|
Prepayments of long-term debt
|
|
|
(152,000
|
)
|
|
|
(493,527
|
)
|
|
|
(1,382,140
|
)
|
Repayments of capital lease obligations
|
|
|
|
|
|
|
(34,245
|
)
|
|
|
(1,248
|
)
|
Proceeds from issuance of common units
|
|
|
|
|
|
|
157,963
|
|
|
|
|
|
Expenses from issuance of common units
|
|
|
(2,793
|
)
|
|
|
|
|
|
|
|
|
Net advances to affiliates
|
|
|
(42,935
|
)
|
|
|
(793,488
|
)
|
|
|
(10,999
|
)
|
Equity distribution from (to) Teekay Corporation
|
|
|
1,819
|
|
|
|
(230,886
|
)
|
|
|
858
|
|
Investment in subsidiaries from non-controlling interest owners
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
Excess of purchase price over the contributed basis of a 50% interest in Navion
Gothenburg LLC (
note 10r
)
|
|
|
(6,358
|
)
|
|
|
|
|
|
|
|
|
Distribution to Teekay Corporation relating to purchase of Navion Bergen LLC
(
note 10r
)
|
|
|
(48,800
|
)
|
|
|
|
|
|
|
|
|
Distribution to Teekay Corporation relating to purchase of Dampier LLC
(note 10s)
|
|
|
(30,253
|
)
|
|
|
|
|
|
|
|
|
Cash distributions paid
|
|
|
(22,700
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1,000
|
)
|
|
|
(727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow
|
|
|
(23,905
|
)
|
|
|
(230,238
|
)
|
|
|
(199,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
|
(20,997
|
)
|
|
|
(31,079
|
)
|
|
|
(24,760
|
)
|
Proceeds from sale of vessels and equipment
|
|
|
3,225
|
|
|
|
61,713
|
|
|
|
73,220
|
|
Purchase of a 50% interest in Navion Gothenburg LLC
(note 10r)
|
|
|
(10,231
|
)
|
|
|
|
|
|
|
|
|
Investment in direct financing lease assets
|
|
|
(8,378
|
)
|
|
|
(13,256
|
)
|
|
|
(23,708
|
)
|
Direct financing lease payments received
|
|
|
21,677
|
|
|
|
19,323
|
|
|
|
12,440
|
|
Cash assumed upon consolidation of 50%-owned subsidiaries
|
|
|
|
|
|
|
17,055
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(746
|
)
|
|
|
(3,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow
|
|
|
(14,704
|
)
|
|
|
53,010
|
|
|
|
34,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
7,238
|
|
|
|
(15,000
|
)
|
|
|
(14,743
|
)
|
Adjustment for net change in cash and cash equivalents in discontinued operations
|
|
|
|
|
|
|
2,456
|
|
|
|
10,970
|
|
Cash and cash equivalents, beginning of the year
|
|
|
113,986
|
|
|
|
126,530
|
|
|
|
130,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
|
121,224
|
|
|
|
113,986
|
|
|
|
126,530
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure
(note 14)
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS EQUITY/OWNERS EQUITY
(in thousands of U.S. dollars and units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
Note 18
|
|
|
|
OWNERS EQUITY (PREDECESSOR
|
|
|
|
|
|
|
AND DROPDOWN PREDECESSOR)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Total Owners
|
|
|
|
Owners Equity
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance as at December 31, 2004
|
|
|
703,170
|
|
|
|
58
|
|
|
|
703,228
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
95,913
|
|
|
|
|
|
|
|
95,913
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on marketable securities
|
|
|
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
95,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in parents equity in Dropdown Predecessor
|
|
|
858
|
|
|
|
|
|
|
|
858
|
|
Norwegian group tax contributions (
note 10a
)
|
|
|
(1,185
|
)
|
|
|
|
|
|
|
(1,185
|
)
|
Loss on sale of
Dania Spirit
(
note 10b
)
|
|
|
(3,093
|
)
|
|
|
|
|
|
|
(3,093
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2005
|
|
|
795,663
|
|
|
|
|
|
|
|
795,663
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss (January 1 to December 18, 2006)
|
|
|
(30,292
|
)
|
|
|
|
|
|
|
(30,292
|
)
|
Net change in parents equity in Dropdown Predecessor
|
|
|
798
|
|
|
|
|
|
|
|
798
|
|
Gain on sale of Navion Shipping Ltd. to Teekay Corporation (
notes 10c and 19
)
|
|
|
18,468
|
|
|
|
|
|
|
|
18,468
|
|
Gain on sale of Norwegian subsidiaries to Teekay Corporation (
note 10e
)
|
|
|
23,260
|
|
|
|
|
|
|
|
23,260
|
|
Loss on sale of the
Borga
to Teekay Corporation (
note 10d
)
|
|
|
(11,900
|
)
|
|
|
|
|
|
|
(11,900
|
)
|
Stock compensation expense (
note 1
)
|
|
|
1,048
|
|
|
|
|
|
|
|
1,048
|
|
Excess purchase price over the contributed basis of Teekay Offshore Partners
Predecessor (
note 1
)
|
|
|
(231,684
|
)
|
|
|
|
|
|
|
(231,684
|
)
|
Purchase of a 26% interest in Teekay Offshore Operating L.P. from Teekay
Corporation (
note 1
)
|
|
|
(134,629
|
)
|
|
|
|
|
|
|
(134,629
|
)
|
Reclassification adjustment for Teekay Corporations 74% non-controlling
interest in Teekay Offshore Operating L.P.
(note 1)
|
|
|
(376,089
|
)
|
|
|
|
|
|
|
(376,089
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 18, 2006
|
|
|
54,643
|
|
|
|
|
|
|
|
54,643
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS EQUITY/OWNERS EQUITY
(in thousands of U.S. dollars and units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated Note 18
|
|
|
|
Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
and
|
|
|
PARTNERS EQUITY
|
|
|
Other
|
|
|
|
|
|
|
Dropdown
|
|
|
Limited Partners
|
|
|
General
|
|
|
Comprehensive
|
|
|
|
|
|
|
Predecessor)
|
|
|
Common
|
|
|
Subordinated
|
|
|
Partner
|
|
|
Income
|
|
|
Total
|
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
Units
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance as at December 18, 2006
|
|
|
54,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Predecessor and
Dropdown Predecessors equity to
unitholders (
note 1
)
|
|
|
(2,965
|
)
|
|
|
2,800
|
|
|
|
634
|
|
|
|
9,800
|
|
|
|
2,220
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
Proceeds from initial public
offering of
limited partnership interests,
net of offering costs of
$13,788 (
note 2
)
|
|
|
|
|
|
|
8,050
|
|
|
|
155,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,262
|
|
Redemption of common units from
Teekay Corporation (
note 2
)
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
(20,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,633
|
)
|
Net income (December 19 31, 2006)
|
|
|
114
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
606
|
|
|
|
64
|
|
|
|
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2006
|
|
|
51,792
|
|
|
|
9,800
|
|
|
|
135,941
|
|
|
|
9,800
|
|
|
|
2,826
|
|
|
|
175
|
|
|
|
|
|
|
|
190,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (January 1 December 31,
2007)
|
|
|
1,300
|
|
|
|
|
|
|
|
1,225
|
|
|
|
|
|
|
|
700
|
|
|
|
733
|
|
|
|
|
|
|
|
3,958
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain on qualifying
cash flow hedging instruments
(
note 11
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281
|
|
|
|
281
|
|
Realized net loss on qualifying
cash flow hedging instruments
(
note 11
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of foreign exchange
forward contracts from Teekay
Corporation
(note 10w)
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
89
|
|
|
|
4
|
|
|
|
|
|
|
|
109
|
|
Offering costs from public offering
of limited partnership interests
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
Net change in parents equity in
Dropdown Predecessor
(note 14e)
|
|
|
(6,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,939
|
)
|
Purchase of Navion Bergen LLC and
Navion Gothenburg LLC from Teekay
Corporation
(
note 10r
)
|
|
|
(29,756
|
)
|
|
|
|
|
|
|
(3,720
|
)
|
|
|
|
|
|
|
(20,832
|
)
|
|
|
(850
|
)
|
|
|
|
|
|
|
(55,158
|
)
|
Purchase of Dampier Spirit LLC from
Teekay Corporation
(
note 10s
)
|
|
|
(16,397
|
)
|
|
|
|
|
|
|
(2,029
|
)
|
|
|
|
|
|
|
(11,363
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
(30,253
|
)
|
Contribution of interest rate swap
agreement from Teekay Corporation
(
note 10t
)
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
|
|
|
|
|
|
(2,092
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
(2,550
|
)
|
Cash distributions
|
|
|
|
|
|
|
|
|
|
|
(11,123
|
)
|
|
|
|
|
|
|
(11,123
|
)
|
|
|
(454
|
)
|
|
|
|
|
|
|
(22,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2007
|
|
|
|
|
|
|
9,800
|
|
|
|
119,844
|
|
|
|
9,800
|
|
|
|
(41,795
|
)
|
|
|
(941
|
)
|
|
|
293
|
|
|
|
77,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes
are an integral part of the consolidated financial statements.
F - 7
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
1.
|
|
Summary of Significant Accounting Policies
|
Basis of presentation
During August 2006, Teekay Corporation formed Teekay Offshore Partners L.P., a Marshall Islands
limited partnership (the
Partnership
), as part of its strategy to expand in the marine
transportation, processing and storage sectors of the offshore oil industry and for the
Partnership to acquire, in connection with the Partnerships initial public offering of its
common units, a 26.0% interest in Teekay Offshore Operating L.P. (or
OPCO
), consisting of a
25.99% limited partner interest to be held directly by the Partnership and a 0.01% general
partner interest to be held through the Partnerships ownership of Teekay Offshore Operating GP
L.L.C., OPCOs sole general partner.
Prior to the closing of the Partnerships initial public offering on December 19, 2006, Teekay
Corporation transferred eight Aframax conventional crude oil tankers to a subsidiary of Norsk
Teekay Holdings Ltd. (or
Norsk Teekay
) and one floating storage and offtake (or
FSO
) unit to
Teekay Offshore Australia Trust. Teekay Corporation then transferred to OPCO all of the
outstanding interests of four wholly-owned subsidiaries Norsk Teekay, Teekay Nordic Holdings
Inc., Teekay Offshore Australia Trust and Pattani Spirit L.L.C. These four wholly-owned
subsidiaries, the assets of which include the eight Aframax conventional crude oil tankers and
the FSO unit, are collectively referred to as
Teekay Offshore Partners Predecessor
or the
Predecessor
. The excess of the price paid by the Partnership over the book value of these assets
was $231.7 million and was accounted for as an equity distribution to Teekay Corporation.
Immediately prior to the closing of the Partnerships initial public offering, Teekay
Corporation sold to the Partnership the 25.99% limited partner interest in OPCO and its
subsidiaries and a 100% interest in Teekay Offshore Operating GP L.L.C., which owns the 0.01%
general partner interest in OPCO, in exchange for (a) the issuance to Teekay Corporation of
2,800,000 common units and 9,800,000 subordinated units of the Partnership and a $134.6 million
non-interest bearing promissory note and (b) the issuance of the 2.0% general partner interest
in the Partnership and all of the Partnerships incentive distribution rights to Teekay Offshore
GP L.L.C., a wholly owned subsidiary of Teekay Corporation (or
the General Partner
). The
Partnership controls OPCO through its ownership of OPCOs general partner, and Teekay
Corporation owns the remaining 74.0% interest in OPCO. These transfers represented a
reorganization of entities under common control and were recorded at historical cost.
Immediately preceding the public offering, the net book equity of the Partnerships 26% share of
these assets was $3.5 million.
As required by Statement of Financial Accounting Standards (or SFAS) No. 141, the Partnership
accounts for the acquisition of interests in vessels from Teekay Corporation as a transfer of a
business between entities under common control. The method of accounting prescribed by SFAS No.
141 for such transfers is similar to pooling of interests method of accounting. Under this
method, the carrying amount of net assets recognized in the balance sheets of each combining
entity are carried forward to the balance sheet of the combined entity, and no other assets or
liabilities are recognized as a result of the combination. The excess of the proceeds paid, if
any, by the Partnership over Teekay Corporations historical cost is accounted for as an equity
distribution to Teekay Corporation. In addition, transfers of net assets between entities under
common control are accounted for as if the transfer occurred from the date that the Partnership
and the acquired vessels were both under common control of Teekay Corporation and had begun
operations. As a result, the Partnerships financial statements prior to the date the interests
in these vessels were actually acquired are retroactively adjusted to include the results of
these vessels operated during the periods under common control of Teekay Corporation.
In July 2007, the Partnership acquired from Teekay Corporation ownership of its 100%
interest in the 2000-built shuttle tanker
Navion Bergen
and its 50% interest in the 2006-built
shuttle tanker
Navion Gothenburg
. The acquisitions included the assumption of debt, related
interest rate swap agreements and Teekay Corporations rights and obligations under 13-year,
fixed-rate bareboat charters. In October 2007, the Partnership acquired from Teekay Corporation
its interest in the FSO unit
Dampier Spirit
, along with its 7-year fixed-rate time-charter.
These transactions were deemed to be business acquisitions between entities under common
control. As a result, the Partnerships balance sheet as at December 31, 2006, and the
Partnerships statements of income (loss), cash flows and changes in partners equity/owners
equity for the years ended December 31, 2007, 2006 and 2005 reflect these vessels and their
related operations, referred to herein as the
Dropdown Predecessor
, as if the Partnership had
acquired them when each respective vessel began operations under the ownership of Teekay
Corporation. These vessels began operations on April 16, 2007 (
Navion Bergen
), July 24, 2007
(
Navion Gothenburg
) and March 15, 1998 (
Dampier Spirit
).
The consolidated financial statements reflect the combined consolidated financial position,
results of operations and cash flows of the Predecessor and its subsidiaries, including the
Dropdown Predecessor. In the preparation of these consolidated financial statements, general and
administrative expenses and interest expense were not identifiable as relating solely to each
specific vessel. General and administrative expenses (consisting primarily of salaries and other
employee related costs, office rent, legal and professional fees, and travel and entertainment)
were allocated based on the Predecessors or Dropdown Predecessors proportionate share of
Teekay Corporations total ship-operating (calendar) days for each of the periods presented. In
addition, if any of the Predecessor, its subsidiaries and the Dropdown Predecessor were
capitalized in part with non-interest bearing loans from Teekay Corporation and its
subsidiaries, these intercompany loans were generally used to finance the acquisition of the
vessels. Interest expense includes the allocation of interest to the Predecessor and the
Dropdown Predecessor from Teekay Corporation and its subsidiaries based upon the
weighted-average outstanding balance of these intercompany loans and the weighted-average
interest rate outstanding on Teekay Corporations loan facilities that were used to finance
these intercompany loans. Management believes these allocations reasonably present the general
and administrative expenses and interest expense of the Predecessor and the Dropdown
Predecessor.
F - 8
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor) (Contd)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The consolidated financial statements have been prepared in conformity with United States
generally accepted accounting principles (or
GAAP
). They include the accounts of the
Predecessor and its subsidiaries and the Dropdown Predecessor for periods prior to December 19,
2006. For the periods commencing December 19, 2006, the consolidated financial statements
include the accounts of Teekay Offshore Partners L.P. and its subsidiaries and the Dropdown
Predecessor. In addition, the consolidated financial statements include the accounts of the
Predecessors and the Partnerships 50% owned subsidiaries from December 1, 2006. Significant
intercompany balances and transactions have been eliminated upon consolidation.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results may differ from those estimates.
Certain of the accompanying consolidated financial statements have been restated. The nature of
the restatements and the effect on the consolidated financial statement line items is discussed
in Note 18 of the Notes to Consolidated Financial Statements. In addition, certain disclosures
in the following notes have been restated to be consistent with the consolidated financial
statements.
Reporting currency
The consolidated financial statements are stated in U.S. dollars. The functional currency of the
Partnership is U.S. dollars because the Partnership operates in international shipping markets,
the Partnerships primary economic environment, which typically utilize the U.S. dollar as the
functional currency. Transactions involving other currencies during the year are converted into
U.S. dollars using the exchange rates in effect at the time of the transactions. At the balance
sheet dates, monetary assets and liabilities that are denominated in currencies other than the
U.S. dollar are translated to reflect the year-end exchange rates. Resulting gains or losses are
reflected separately in the accompanying consolidated statements of income (loss).
Operating revenues and expenses
The Partnership recognizes revenues from time charters and bareboat charters daily over the term
of the charter as the applicable vessel operates under the charter. The Partnership does not
recognize revenue during days that the vessel is off-hire. Shuttle tanker voyages servicing
contracts of affreightment with offshore oil fields commence with tendering of notice of
readiness at a field, within the agreed lifting range, and ends with tendering of notice of
readiness at a field for the next lifting. All other voyage revenues from voyage charters are
recognized on a percentage of completion method. The Partnership uses a discharge-to-discharge
basis in determining percentage of completion for all spot voyages, whereby it recognizes
revenue ratably from when product is discharged (unloaded) at the end of one voyage to when it
is discharged after the next voyage. The Partnership does not begin recognizing voyage revenue
until a charter has been agreed to by the customer and the Partnership, even if the vessel has
discharged its cargo and is sailing to the anticipated load port on its next voyage. The
consolidated balance sheets reflect the deferred portion of revenues and expenses, which will be
earned and incurred, respectively, in subsequent periods. As at December 31, 2007 and 2006,
there was no deferred revenue. As at December 31, 2007 and 2006, the deferred portion of
expenses, which are included in prepaid expenses, was $25.4 million and $16.4 million,
respectively.
Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses,
port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils
and communication expenses. Voyage expenses and vessel operating expenses are recognized when
incurred. For periods prior to October 1, 2006, the Predecessor recognized voyage expenses
ratably over the length of each voyage. The impact of recognizing voyage expenses ratably over
the length of each voyage was not materially different on a quarterly and annual basis from a
method of recognizing such costs as incurred.
Cash and cash equivalents
The Partnership classifies all highly liquid investments with a maturity date of three months or
less when purchased as cash and cash equivalents.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance
for doubtful accounts is the Partnerships best estimate of the amount of probable credit losses
in existing accounts receivable. The Partnership determines the allowance based on historical
write-off experience and customer economic data. The Partnership reviews the allowance for
doubtful accounts regularly and past due balances are reviewed for collectibility. Account
balances are charged off against the allowance when the Partnership believes that the receivable
will not be recovered.
Vessels and equipment
All pre-delivery costs incurred during the construction of newbuildings, including interest,
supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to
restore used vessels purchased by the Partnership to the standards required to properly service
the Partnerships customers are capitalized.
F - 9
TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
Depreciation is calculated on a straight-line basis over a vessels estimated useful life, less
an estimated residual value. Depreciation is calculated using an estimated useful life of 25
years, commencing from the date the vessel is delivered from the shipyard, or a shorter period
if regulations prevent the Partnership from operating the vessel for 25 years. Depreciation of
vessels and equipment (including depreciation attributable to the Dropdown Predecessor) for the
year ended December 31, 2007, the periods from December 19, 2006 to December 31, 2006, and from
January 1, 2006 to December 18, 2006 and the year ended December 31, 2005 totaled $98.5 million,
$2.9 million, $81.3 million, and $88.8 million, respectively. Depreciation and amortization
includes depreciation on all owned vessels and amortization of vessels accounted for as capital
leases.
Generally, the Partnership drydocks each shuttle tanker and conventional oil tanker every two
and a half to five years. FSO units are generally not drydocked. The Partnership capitalizes a
substantial portion of the costs incurred during drydocking and amortizes those costs on a
straight-line basis from the completion of a drydocking to the estimated completion of the next
drydocking. The Partnership expenses as incurred costs related to routine repairs and
maintenance performed during drydocking that do not improve or extend the useful lives of the
assets. When significant drydocking expenditures occur prior to the expiration of the original
amortization period, the remaining unamortized balance of the original drydocking cost are
expensed in the month of the subsequent drydocking. Amortization of drydocking expenditures
(including amortization attributable to the Dropdown Predecessor) for the year ended December
31, 2007, the periods from December 19, 2006 to December 31, 2006, January 1, 2006 to December
18, 2006 and the year ended December 31, 2005 totaled $14.8 million, $0.3 million, $7.8 million
and $6.7 million, respectively.
Vessels and equipment that are held and used are assessed for impairment when events or
circumstances indicate the carrying amount of the asset may not be recoverable. If the assets
net carrying value exceeds the net undiscounted cash flows expected to be generated over its
remaining useful life, the carrying amount of the asset is reduced to its estimated fair value.
Estimated fair value is determined based on discounted cash flows or appraised values depending
on the nature of the asset.
Direct financing leases
The Partnership assembles, installs, operates and leases equipment that reduces volatile organic
compound emissions (or
VOC equipment
) during loading, transportation and storage of oil and oil
products. Leasing of the VOC equipment is accounted for as a direct financing lease with lease
payments received by the Partnership being allocated between the net investment in the lease and
other income using the effective interest method so as to produce a constant periodic rate of
return over the lease term.
Investment in joint ventures
Investments in companies over which the Partnership exercises significant influence but does not
consolidate are accounted for using the equity method, whereby the investment is carried at the
Partnerships original cost plus its proportionate share of undistributed earnings. The excess
carrying value of the Partnerships investment over its underlying equity in the net assets is
included in the consolidated balance sheet as investment in joint ventures. On December 1, 2006,
the operating agreements for the five 50%-owned joint ventures, each of which owns one shuttle
tanker, were amended. These amendments resulted in the Partnership obtaining control of these
entities and, consequently, the Partnership has consolidated these entities effective December
1, 2006. As at December 31, 2007, the Partnership had a 50% controlling interest in six
subsidiaries.
Debt issuance costs
Debt issuance costs, including fees, commissions and legal expenses, are presented as other
assets and capitalized and amortized on a straight-line basis over the term of the relevant
loan. Amortization of debt issuance costs is included in interest expense.
Goodwill and intangible assets
Goodwill is not amortized, but reviewed for impairment annually, or more frequently if
impairment indicators arise. A fair value approach is used to identify potential goodwill
impairment and, when necessary, measure the amount of impairment. The Partnership uses a
discounted cash flow model to determine the fair value of reporting units, unless there is a
readily determinable fair market value. Intangible assets with finite lives are amortized over
their useful lives.
The Partnerships intangible assets, which consist of contracts of affreightment acquired as
part of the Predecessors purchase of Navion AS in 2003, are amortized over their respective
lives, with the amount amortized each year being weighted based on the projected revenue to be
earned under the contracts.
Derivative instruments
All derivative instruments are initially recorded at cost as either assets or liabilities in the
accompanying consolidated balance sheets and subsequently remeasured to fair value, regardless
of the purpose or intent for holding the derivative. The method of recognizing the resulting
gain or loss is dependent on whether the derivative contract is designed to hedge a specific
risk and also qualifies for hedge accounting. The Partnership generally does not designate its
interest rate swap agreements as cash flow hedges for accounting purposes. The Partnership
generally designates foreign exchange forward contracts as cash flow hedges for accounting
purposes. (Please see Note 18.)
When a derivative is designated as a cash flow hedge, the Partnership formally documents the
relationship between the derivative and the hedged item. This documentation includes the
strategy and risk management objective for undertaking the hedge and the method that will be
used to assess the effectiveness of the hedge. Any hedge ineffectiveness is recognized
immediately in earnings, as are any gains and losses on the derivative that are excluded from
the assessment of hedge effectiveness. The Partnership does not apply hedge accounting if it is
determined that the hedge was not effective or will no longer be effective, the derivative was
sold or exercised, or the hedged item was sold, repaid or no longer possible of occurring.
F - 10
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
For derivative financial instruments designated and qualifying as cash flow hedges, changes in
the fair value of the effective portion of the derivative financial instruments are initially
recorded as a component of accumulated other comprehensive income in partners equity. In the
periods when the hedged items affect earnings, the associated fair value changes on the hedging
derivatives are transferred from partners equity to the corresponding earnings line item. The
ineffective portion of the change in fair value of the derivative financial instruments is
immediately recognized in earnings. If a cash flow hedge is terminated and the originally hedged
items may still possibly affect earnings, the gains and losses initially recognized in partners
equity remain until the hedged item impacts earnings, at which point they are transferred to the
corresponding earnings line item. If the hedged items may no longer affect earnings, amounts
recognized in partners equity are immediately transferred to earnings.
For derivative financial instruments that are not designated or that do not qualify as hedges
under Statement of Financial Accounting Standards (or
SFAS
) No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, as amended, the changes in the fair value of the derivative
financial instruments are recognized in earnings.
Gains and losses from the Partnerships non-designated interest rate swaps related to long-term
debt are recorded in interest expense. Gains and losses from the Partnerships foreign exchange
forward contracts are recorded within operating expenses, based on the nature of the expense
being hedged.
Income taxes
The Partnerships Norwegian subsidiaries and Australian subsidiary are subject to income taxes.
Deferred income taxes were $77.3 million and $73.9 million as at December 31, 2007 and 2006,
respectively. The Partnership accounts for such taxes using the liability method pursuant to
SFAS No. 109,
Accounting for Income Taxes
(or
SFAS 109
).
In July 2006, the Financial Accounting Standards Board (or
FASB
) issued FASB Interpretation No.
48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109
(or
FIN 48
). This interpretation clarifies the accounting for uncertainty in income taxes recognized
in financial statements in accordance with SFAS 109. FIN 48 requires companies to determine
whether it is more-likely-than-not that a tax position taken or expected to be taken in a tax
return will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. If a tax position meets the
more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to
recognize in the financial statements based on guidance in the interpretation.
The Partnership adopted FIN 48 as of January 1, 2007. The adoption of FIN 48 did not have a
significant impact on the Partnerships financial position and results of operations. As of
January 1 and December 31, 2007, the Partnership did not have any material unrecognized tax
benefits or material accrued interest and penalties relating to taxes. The Partnership does not
expect any material changes to its unrecognized tax positions within the next twelve months.
The Partnership recognizes interest and penalties related to uncertain tax positions in income
tax expense. The 2006 and 2007 tax years remain open to examination by the major taxing
jurisdiction to which the Partnership is subject.
Accounting for stock-based compensation
Effective January 1, 2006, the Predecessor adopted the fair value recognition provisions of SFAS
No. 123(R),
Share-Based Payment
(or
SFAS 123(R)
), using the modified prospective method. Under
this transition method, compensation cost is recognized in the consolidated financial statements
beginning with the effective date for all share-based payments granted after January 1, 2006 and
for all awards granted to employees prior to, but not yet vested as of January 1, 2006.
Accordingly, prior period amounts have not been restated.
Prior to January 1, 2006, the Predecessor accounted for stock options under APB No. 25, using
the intrinsic value method, as permitted by SFAS No. 123,
Accounting for Stock-Based
Compensation.
As the exercise price of the Predecessors employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense was recognized
under APB No. 25.
Certain employees of the Predecessor participate in the stock option plan of the Partnerships
parent, Teekay Corporation. Stock options granted under this plan have a 10-year term and vest
equally over three years from the grant date. All outstanding options expire between May 28,
2006 and March 7, 2016, ten years after the date of each respective grant.
During the fourth quarter of 2006, substantially all of the Predecessors employees were
transferred to subsidiaries of Teekay Corporation, and, subsequently, stock-based compensation
has been allocated to the Partnership through a service agreement with a subsidiary of Teekay
Corporation (Note 10(o)).
F - 11
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
Recent Accounting Pronouncements
In March 2008, the FASB ratified a consensus opinion reached by the Emerging Issues Task Force
(or
EITF
) on EITF Issue No. 07-4,
Application of the Two-Class Method under FASB Statement No.
128, Earnings per Share to Master Limited Partnerships
(or
EITF Issue No. 07-4
). The guidance in
EITF Issue No. 07-4 requires incentive distribution rights in a master limited partnership, such
as the Partnership, to be treated as participating securities for the purposes of computing
earnings per share and provides guidance on how earnings should be allocated to the various
partnership interests. EITF Issue No. 07-4 is effective for fiscal years beginning after
December 15, 2008. The Partnership is currently evaluating the potential impact, if any, of the
adoption of EITF Issue No. 07-4 on its consolidated results of operations and financial
condition.
In December 2007, the FASB issued SFAS No. 141(R):
Business Combinations
(or
SFAS 141(R
)), which
replaces SFAS No. 141
, Business Combinations
. This statement establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business combination. SFAS
141(R) is effective for fiscal years beginning after December 15, 2008. The Partnership is
currently evaluating the potential impact, if any, of the adoption of SFAS 141(R) on its
consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160:
Non-controlling Interests in Consolidated
Financial Statements, an Amendment of Accounting Research Bulletin No. 51
(or
SFAS 160
). This
statement establishes accounting and reporting standards for ownership interests in subsidiaries
held by parties other than the parent, the amount of consolidated net income attributable to the
parent and to the non-controlling interest, changes in a parents ownership interest, and the
valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between
the interests of the parent and the interests of the non-controlling owners. SFAS 160 is
effective for fiscal years beginning after December 15, 2008. The Partnership is currently
evaluating the potential impact, if any, of the adoption of SFAS 160 on its consolidated results
of operations and financial condition.
In February 2007, the FASB issued SFAS No. 159:
The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115
(or
SFAS 159
). This statement
permits entities to choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective for fiscal years beginning after November 15, 2007.
In September 2006, the FASB issued SFAS No. 157:
Fair Value Measurements
(or
SFAS 157
). This
statement defines fair value, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, and accordingly, does not require
any new fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB delayed for one year the effective date of
adoption with respect to certain non-financial assets and liabilities.
2.
|
|
Initial Public Offering
|
On December 19, 2006, the Partnership completed its initial public offering (or the
Offering
) of
8.05 million common units at a price of $21.00 per unit. This included 1.05 million common units
sold to the underwriters in connection with the exercise of their over-allotment option. The
proceeds received by the Partnership from the Offering and the use of those proceeds are
summarized as follows:
|
|
|
|
|
Proceeds received:
|
|
|
|
|
Sale of 8,050,000 common units at $21.00 per unit
|
|
$
|
169,050
|
|
|
|
|
|
|
|
|
|
|
Use of proceeds from sale of common units:
|
|
|
|
|
Underwriting and structuring fees
|
|
$
|
11,088
|
|
Professional fees and other offering expenses to third parties
|
|
|
2,793
|
|
Repayment of promissory notes and redemption of 1.05 million
common units from Teekay Corporation
|
|
|
155,169
|
|
|
|
|
|
|
|
$
|
169,050
|
|
|
|
|
|
F - 12
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The Partnership is engaged in the international marine transportation of crude oil through the
operation of its oil tankers and FSO units. The Partnerships revenues are earned in
international markets.
The Partnership has three reportable segments: its shuttle tanker segment; its conventional
tanker segment; and its FSO segment. The Partnerships shuttle tanker segment consists of
shuttle tankers operating primarily on fixed-rate contracts of affreightment, time-charter
contracts or bareboat charter contracts. The Partnerships conventional tanker segment consists
of conventional oil tankers primarily operating on fixed-rate time-charter contracts. The
Partnerships 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 is the same as those used
in the preparation of the Partnerships consolidated financial statements.
The following table presents voyage revenues and percentage of consolidated voyage revenues from
continuing operations for customers that accounted for more than 10.0% of the Partnerships
consolidated voyage revenues from continuing operations during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
Year Ended
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
(U.S. dollars in millions)
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
StatoilHydro ASA
(1) (2)
|
|
$309.6 or 39
|
%
|
|
$187.6 or 30
|
%
|
|
$6.9 or 28
|
%
|
|
$184.7 or 30
|
%
|
Teekay Corporation
(3)
|
|
$154.6 or 20
|
%
|
|
$68.9 or 11
|
%
|
|
$5.3 or 22
|
%
|
|
|
|
|
Petrobras Transporte S.A
(1) (2)
|
|
$100.8 or 13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Shuttle tanker segment.
|
|
(2)
|
|
Statoil ASA and Petrobras Transporte S.A. are international oil companies.
|
|
(3)
|
|
Shuttle tanker, conventional tanker and FSO segments.
|
The following tables include results for these segments from continuing operations for the periods
presented in these consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Shuttle
|
|
|
Conventional
|
|
|
|
|
|
|
|
|
|
Tanker
|
|
|
Tanker
|
|
|
FSO
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
590,611
|
|
|
|
135,922
|
|
|
|
58,670
|
|
|
|
785,203
|
|
Voyage expenses
|
|
|
114,157
|
|
|
|
36,594
|
|
|
|
886
|
|
|
|
151,637
|
|
Vessel operating expenses
|
|
|
103,809
|
|
|
|
24,175
|
|
|
|
21,676
|
|
|
|
149,660
|
|
Time charter hire expense
|
|
|
150,463
|
|
|
|
|
|
|
|
|
|
|
|
150,463
|
|
Depreciation and amortization
|
|
|
86,502
|
|
|
|
21,324
|
|
|
|
16,544
|
|
|
|
124,370
|
|
General and administrative
(1)
|
|
|
50,776
|
|
|
|
7,828
|
|
|
|
3,800
|
|
|
|
62,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
84,904
|
|
|
|
46,001
|
|
|
|
15,764
|
|
|
|
146,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
(2)
|
|
|
18,189
|
|
|
|
1,998
|
|
|
|
11,041
|
|
|
|
31,228
|
|
F - 13
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
January 1 to December 18, 2006
|
|
|
December 19 to December 31, 2006
|
|
|
|
Shuttle
|
|
|
Conventional
|
|
|
|
|
|
|
|
|
|
|
Shuttle
|
|
|
Conventional
|
|
|
|
|
|
|
|
|
|
Tanker
|
|
|
Tanker
|
|
|
FSO
|
|
|
|
|
|
|
Tanker
|
|
|
Tanker
|
|
|
FSO
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
516,187
|
|
|
|
66,673
|
|
|
|
34,654
|
|
|
|
617,514
|
|
|
|
19,785
|
|
|
|
3,383
|
|
|
|
1,229
|
|
|
|
24,397
|
|
Voyage expenses
|
|
|
85,451
|
|
|
|
4,841
|
|
|
|
1,029
|
|
|
|
91,321
|
|
|
|
2,995
|
|
|
|
51
|
|
|
|
56
|
|
|
|
3,102
|
|
Vessel operating expenses
|
|
|
77,085
|
|
|
|
18,754
|
|
|
|
12,152
|
|
|
|
107,991
|
|
|
|
3,222
|
|
|
|
624
|
|
|
|
451
|
|
|
|
4,297
|
|
Time charter hire expense
|
|
|
159,973
|
|
|
|
|
|
|
|
|
|
|
|
159,973
|
|
|
|
5,641
|
|
|
|
|
|
|
|
|
|
|
|
5,641
|
|
Depreciation and amortization
|
|
|
68,784
|
|
|
|
20,507
|
|
|
|
11,532
|
|
|
|
100,823
|
|
|
|
2,583
|
|
|
|
705
|
|
|
|
438
|
|
|
|
3,726
|
|
General and
administrative
(1)
|
|
|
48,490
|
|
|
|
11,571
|
|
|
|
2,953
|
|
|
|
63,014
|
|
|
|
1,863
|
|
|
|
218
|
|
|
|
96
|
|
|
|
2,177
|
|
Gain on sale of vessels and equipment
net of writedowns
|
|
|
(4,778
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge
|
|
|
|
|
|
|
832
|
|
|
|
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
81,182
|
|
|
|
10,168
|
|
|
|
6,988
|
|
|
|
98,338
|
|
|
|
3,481
|
|
|
|
1,785
|
|
|
|
188
|
|
|
|
5,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income from joint ventures
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
|
|
6,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and
equipment
(2)
|
|
|
25,055
|
|
|
|
6,024
|
|
|
|
|
|
|
|
31,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
Conventional
|
|
|
|
|
|
|
|
|
|
Shuttle Tanker
|
|
|
Tanker
|
|
|
FSO
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues
|
|
|
516,758
|
|
|
|
57,454
|
|
|
|
39,034
|
|
|
|
613,246
|
|
Voyage expenses
|
|
|
68,308
|
|
|
|
5,419
|
|
|
|
816
|
|
|
|
74,543
|
|
Vessel operating expenses
|
|
|
75,196
|
|
|
|
21,574
|
|
|
|
12,710
|
|
|
|
109,480
|
|
Time charter hire expense
|
|
|
169,687
|
|
|
|
|
|
|
|
|
|
|
|
169,687
|
|
Depreciation and amortization
|
|
|
77,083
|
|
|
|
20,646
|
|
|
|
12,095
|
|
|
|
109,824
|
|
General and administrative
(1)
|
|
|
44,063
|
|
|
|
9,634
|
|
|
|
3,029
|
|
|
|
56,726
|
|
Gain on sale of
vessels and equipment net of writedowns
|
|
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
2,820
|
|
Restructuring charge
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from vessel operations
|
|
|
78,646
|
|
|
|
181
|
|
|
|
10,384
|
|
|
|
89,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity income (loss) from joint ventures
|
|
|
5,991
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
5,955
|
|
Investments in joint ventures
|
|
|
34,663
|
|
|
|
495
|
|
|
|
|
|
|
|
35,158
|
|
Expenditures for vessels and equipment
(2)
|
|
|
22,760
|
|
|
|
2,000
|
|
|
|
|
|
|
|
24,760
|
|
|
|
|
(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)
|
|
Excludes non-cash investing activities (see Note 14).
|
F - 14
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
A reconciliation of total segment assets to total assets presented in the accompanying
consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
Shuttle tanker segment
|
|
|
1,559,261
|
|
|
|
1,445,830
|
|
Conventional tanker segment
|
|
|
255,460
|
|
|
|
310,699
|
|
FSO segment
|
|
|
131,080
|
|
|
|
83,534
|
|
Cash and cash equivalents
|
|
|
121,224
|
|
|
|
113,986
|
|
Accounts receivable and other assets
|
|
|
99,326
|
|
|
|
127,175
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
|
2,166,351
|
|
|
|
2,081,224
|
|
|
|
|
|
|
|
|
As at December 31, 2007 and 2006, intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(years)
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Contracts of affreightment
|
|
|
10.2
|
|
|
|
124,250
|
|
|
|
(68,895
|
)
|
|
|
55,355
|
|
|
|
124,250
|
|
|
|
(57,825
|
)
|
|
|
66,425
|
|
Aggregate amortization expense of intangible assets for the year ended December 31, 2007 was
$11.1 million ($12.1 million 2006, $14.9 million 2005). Amortization of intangible assets
for the five fiscal years subsequent to December 31, 2007 is expected to be $10.1 million
(2008), $9.1 million (2009), $8.1 million (2010), $7.0 million (2011) and $6.0 million (2012).
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
Voyage and vessel
|
|
|
26,015
|
|
|
|
32,471
|
|
Interest
|
|
|
10,932
|
|
|
|
6,717
|
|
Payroll and benefits
|
|
|
1,517
|
|
|
|
6,445
|
|
|
|
|
|
|
|
|
|
|
|
38,464
|
|
|
|
45,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated Revolving Credit Facilities due through 2017
|
|
|
1,205,808
|
|
|
|
1,080,000
|
|
U.S. Dollar-denominated Term Loans due through 2017
|
|
|
311,659
|
|
|
|
223,352
|
|
|
|
|
|
|
|
|
|
|
|
1,517,467
|
|
|
|
1,303,352
|
|
Less current portion
|
|
|
64,060
|
|
|
|
17,656
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,453,407
|
|
|
|
1,285,696
|
|
|
|
|
|
|
|
|
As at December 31, 2007, the Partnership had three long-term revolving credit facilities
(collectively, the
Revolvers
), which, as at such date, provided for borrowings of up to
$1,371.3 million, of which $165.5 million was undrawn. The total amount available under the
Revolvers reduces by $101.8 million (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 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 the OPCOs 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 Corporations total consolidated debt which is recourse to
Teekay Corporation. The Revolvers are collateralized by first-priority mortgages granted on 28
of the Partnerships vessels, together with other related collateral.
F - 15
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
As at December 31, 2007, each of the Partnerships six 50% owned subsidiaries had an outstanding
term loan, which in the aggregate totaled $311.7 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 December 31, 2007, OPCO had guaranteed $103.8 million of these term
loans, which represents its 50% share of the outstanding vessel mortgage debt of five of these
50% owned subsidiaries. The other owner and Teekay Corporation have guaranteed the remaining
$207.9 million.
Interest payments on the Revolvers and the term loans are based on LIBOR plus a margin. At
December 31, 2007 and December 31, 2006, the margins ranged between 0.45% and 0.80%. The
weighted-average effective interest rate on the Partnerships long-term debt as at December 31,
2007 was 5.7% (December 31, 2006 6.0%). This rate does not reflect the effect of our interest
rate swaps (Note 11).
The aggregate annual long-term debt principal repayments required to be made subsequent to
December 31, 2007 are $64.1 million (2008), $115.6 million (2009), $107.0 million (2010),
$164.0 million (2011), $141.8 million (2012), and $925.0 million (thereafter).
Charters-out and Direct Financing Lease
Time charters and bareboat charters of the Partnerships vessels to customers are accounted for
as operating leases. The carrying amount of the vessels employed on operating leases at December
31, 2007 was $1.3 billion (2006 $1.1 billion). Leasing of the VOC equipment is accounted for
as direct financing leases. As at December 31, 2007, the minimum lease payments receivable under
the direct financing leases approximated $125.6 million, including unearned income of
$25.1 million.
As at December 31, 2007, minimum scheduled future revenues under time charters and bareboat
charters and future scheduled payments under the direct financing leases, to be received by the
Partnership, then in place were approximately $1,846.2 million, comprised of $366.1 million
(2008), $292.1 million (2009), $218.4 million (2010), $166.6 million (2011), $155.2 million
(2012) and $647.8 million (thereafter).
The minimum scheduled future revenues should not be construed to reflect total charter hire
revenues for any of the years.
Charters-in
As at December 31, 2007, minimum commitments owing by the Partnership under vessel operating
leases by which the Partnership charters-in vessels were approximately $480.4 million, comprised
of $117.8 million (2008) $87.4 million (2009), $80.9 million (2010), $61.8 million (2011), $56.8
million (2012) and $75.7 million (thereafter). The Partnership recognizes the expense from these
charters, which is included in time-charter hire expense, on a straight-line basis over the firm
period of the charters.
8.
|
|
Fair Value of Financial Instruments
|
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
Cash and cash equivalents
The fair value of the Partnerships cash and cash equivalents
approximate their carrying amounts reported in the accompanying consolidated balance sheets.
Derivative instruments
The fair value of the Partnerships derivative instruments 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 fair value of the Partnerships financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
121,224
|
|
|
|
121,224
|
|
|
|
113,986
|
|
|
|
113,986
|
|
Advances to affiliate (
note 10v
)
|
|
|
796
|
|
|
|
796
|
|
|
|
30,757
|
|
|
|
30,757
|
|
Long-term debt
|
|
|
(1,517,467
|
)
|
|
|
(1,517,467
|
)
|
|
|
(1,303,352
|
)
|
|
|
(1,303,352
|
)
|
Derivative instruments
(1)
(
note 11
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(21,050
|
)
|
|
|
(21,050
|
)
|
|
|
22,440
|
|
|
|
22,440
|
|
Foreign currency forward contracts
|
|
|
1,122
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Partnership transacts all of its derivative instruments through investment-grade
rated financial institutions at the time of the transaction and requires no collateral from
these institutions.
|
F - 16
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
9.
|
|
Restructuring Charge and Other Income Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
Year Ended
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
Volatile organic
compound emissions
plant lease income
|
|
|
10,960
|
|
|
|
11,037
|
|
|
|
408
|
|
|
|
11,001
|
|
Miscellaneous
|
|
|
(557
|
)
|
|
|
(2,670
|
)
|
|
|
(99
|
)
|
|
|
(1,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income net
|
|
|
10,403
|
|
|
|
8,367
|
|
|
|
309
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2006, the Predecessor relocated certain operational functions
to Singapore. As a result, the Predecessor incurred $0.8 million of restructuring costs during
2006. During the year ended December 31, 2005, the Predecessor relocated certain operational
functions within Norway and closed its office in Sandefjord, Norway. As a result, the
Predecessor incurred $1.0 million of restructuring costs during 2005.
10.
|
|
Related Party Transactions
|
|
a.
|
|
During 2005, rate-effected income tax losses of $1.2 million that were generated by the
Predecessors Norwegian subsidiaries were transferred to the Norwegian subsidiaries of
Teekay Corporation. The transfer of these income tax losses was accounted for as an equity
distribution.
|
|
b.
|
|
During 2005, the Predecessor sold the
Dania Spirit,
a 2000-built liquid petroleum gas
carrier, to a subsidiary of Teekay Corporation for $18.0 million. The resulting
$3.1 million loss on sale has been accounted for as an equity distribution to Teekay
Corporation.
|
|
c.
|
|
On July 1, 2006, the Predecessor sold Navion Shipping Ltd. to a subsidiary of Teekay
Corporation for $53.7 million. The resulting gain on sale of $18.5 million was accounted
for as an equity contribution by Teekay Corporation. Please read Note 19.
|
Three of the Predecessors conventional tankers were employed on time-charters with a
subsidiary of Teekay Corporation. Pursuant to these charter contracts, OPCO earned voyage
revenues of $5.3 million and $11.9 million during the first half of 2006 and the year
ended December 31, 2005, respectively.
During the first half of 2006 and the year ended December 31, 2005, the Predecessor
earned $5.1 million and $8.2 million, respectively, of management fees from ship
management services provided to a subsidiary of Teekay Corporation, relating to the
vessels chartered from Navion Shipping Ltd.
|
d.
|
|
During 2006, the Predecessor paid $11.9 million to Teekay Corporation for it to assume
the time-charter contract for one of the Predecessors in-chartered shuttle tankers, the
Borga. The resulting $11.9 million loss on sale was accounted for as an equity distribution
to Teekay Corporation.
|
|
e.
|
|
In 2006, prior to the Offering, the Predecessor sold to Teekay Corporation certain
subsidiaries and fixed assets for $64.7 million. The resulting $23.3 million gain on sale
was accounted for as an equity contribution by Teekay Corporation.
|
|
f.
|
|
Prior to the Offering, the Predecessor settled its Norwegian Kroner-denominated demand
promissory note of 1.1 billion Norwegian Kroner ($166.3 million) and its Australian
Dollar-denominated demand promissory note of 25.5 million Australian Dollars ($19.2
million) owing to Teekay Corporation. Interest expense incurred on these demand promissory
notes for the period prior to the Offering (January 1 to December 18, 2006) and for the
year ended December 31, 2005 were $12.9 million and $14.8 million, respectively.
|
|
g.
|
|
In October 2006, Teekay Corporation loaned 5.6 billion Norwegian Kroner ($863.0
million) to a subsidiary of OPCO primarily for the purchase of eight Aframax conventional
crude oil tankers from Teekay Corporation. Immediately preceding the Offering, this
interest-bearing loan was sold to OPCO. The interest expense incurred on this loan prior to
its sale to OPCO was $14.2 million.
|
|
h.
|
|
OPCOs shuttle tankers, which are typically employed on long-term time-charters,
previously were employed on short-term time charters with a subsidiary of Teekay
Corporation when there were periods between the ending of one long-term time-charter and
the beginning of another long-term time-charter. Pursuant to these short-term
time-charters, OPCO earned voyage revenues of $1.2 million during the year ended December
31, 2005.
|
F - 17
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
|
i.
|
|
On October 1, 2006, OPCO entered into time-charter contracts for its nine Aframax
conventional tankers with a subsidiary of Teekay Corporation at then-prevailing
market-based daily rates for terms of five to twelve years. 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 time-charter contracts, OPCO earned voyage revenues of $128.4 million and
$22.3 million for the year ended December 31, 2007 and the three months ended December 31,
2006, respectively.
|
During the first nine months of 2006 and the year ended December 31, 2005, seven of these
nine tankers were employed on time-charter contracts with a subsidiary of Teekay Corporation.
The rates earned by each vessel, which were generally lower than market rates, depended upon
the cash flow requirements of each vessel, which included operating expenses, loan principal
and interest payments and drydock expenditures. Pursuant to these time-charter contracts, the
Predecessor earned voyage revenues of $24.6 million and $27.9 million during the first nine
months of 2006 and the year ended December 31, 2005, respectively.
|
j.
|
|
One of OPCOs FSO units and one of OPCOs conventional tankers were employed on
short-term bareboat charters with a subsidiary of Teekay Corporation during the last half
of 2006. Pursuant to these charter contracts, OPCO earned voyage revenues of $3.4 million
revenues during the last half of 2006.
|
|
k.
|
|
Effective October 1, 2006, two of OPCOs shuttle tankers have been employed on
long-term bareboat charters with a subsidiary of Teekay Corporation. Pursuant to these
charter contracts, OPCO earned voyage revenues of $14.2 million and $3.6 million during the
year ended December 31, 2007 and the three months ended December 31, 2006, respectively.
|
|
l.
|
|
Two of OPCOs 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
$12.0 million, $10.2 million and $10.8 million during the years ended December 31, 2007,
2006 and 2005, respectively.
|
|
m.
|
|
On October 1, 2006, a subsidiary of Teekay Corporation 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 year ended
December 31, 2007 and the three months ended December 31, 2006, OPCO earned management fees
of $3.3 million and $0.5 million, respectively, under the agreement.
|
|
n.
|
|
Eight of OPCOS Aframax conventional oil tankers and two FSO units (including the
Dampier Spirit
) were managed by subsidiaries of Teekay Corporation. Pursuant to the
associated management services agreements, OPCO incurred general and administrative
expenses of $4.5 million, $6.1 million and $6.1 million during the years ended December 31,
2007, 2006, and 2005, respectively. During the years ended December 31, 2007, 2006, and
2005, $0.1 million, $0.8 million, and $0.9 million, respectively, of general and
administrative expenses attributable to the operations of the
Dampier Spirit
were incurred
by Teekay Corporation and have been allocated to the Partnership as part of the results of
the Dropdown Predecessor.
|
|
o.
|
|
The Partnership, OPCO and certain of OPCOs operating subsidiaries have entered into
services agreements with certain subsidiaries of Teekay Corporation in connection with the
initial public offering, pursuant to which Teekay Corporation subsidiaries provide the
Partnership, OPCO and its operating subsidiaries with administrative, advisory and
technical services and ship management services. During the year ended December 31, 2007
and the period from December 19, 2006 to December 31, 2006, the Partnership incurred $52.7
million and $0.3 million, respectively, of these costs. Prior to the Offering, the
shore-based staff who provided these services to the Predecessor were transferred to a
subsidiary of Teekay Corporation. During the years ended December 31, 2006, and 2005, $21.6
million and $14.8 million, respectively, of general and administrative expenses
attributable to the operations of the Predecessor prior to the Offering were incurred by
Teekay Corporation and have been allocated to the Predecessor.
|
|
p.
|
|
Pursuant to the Partnerships 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 Partnerships business. During the year ended December
31, 2007, the Partnership incurred $0.8 million of these costs.
|
|
q.
|
|
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.
|
|
r.
|
|
In July 2007, the Partnership acquired interests in two double-hull shuttle tankers
from Teekay Corporation for a total cost of $159.1 million, including assumption of debt of
$93.7 million and the related interest rate swap agreement. The Partnership acquired Teekay
Corporations 100% interest in the 2000-built
Navion Bergen
and its 50% interest in the
2006-built
Navion Gothenburg
, together with their respective 13-year, fixed-rate bareboat
charters to Petroleo Brasileiro S.A. The purchases were financed with one of the
Partnerships existing Revolvers and the assumption of debt. The excess of the proceeds
paid by the Partnership over Teekay Corporations historical cost was accounted for as an
equity distribution to Teekay Corporation of $25.4 million.
|
F - 18
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
|
s.
|
|
In October 2007, the Partnership acquired from Teekay Corporation an FSO unit, the
Dampier Spirit
, along with its 7-year fixed-rate time-charter to Apache Corporation for a
total cost of $30.3 million. The purchase was financed with one of the Partnerships
existing Revolvers. The excess of the proceeds paid by the Partnership over Teekay
Corporations historical cost was accounted for as an equity distribution to Teekay
Corporation of $13.9 million.
|
|
t.
|
|
In December 2007, Teekay Corporation contributed a $65.6 million, nine-year, 4.98%
interest rate swap agreement (used to hedge the debt assumed in the purchase of the
Navion
Bergen
) having a fair value liability of $2.6 million (Note 11), to the Partnership for no
consideration and was accounted for as an equity distribution to Teekay Corporation.
|
|
u.
|
|
In December 2007, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to events which occurred prior to the Offering, totalling $4.8 million, including
the settlement of a customer dispute in respect of vessels delivered prior to the Offering
and other costs.
|
|
v.
|
|
At December 31, 2007 and 2006, advances to affiliates totaled $0.8 million and $30.8
million, respectively. Advances to and from affiliates are non-interest bearing and
unsecured.
|
|
w.
|
|
In January 2007, Teekay Corporation contributed foreign exchange contracts for the
forward purchase of a total of Australian Dollars 4.5 million having a fair value asset of
$0.1 million, net of non-controlling interest, to OPCO for no consideration and was
accounted for as an equity contribution from Teekay Corporation. The foreign exchange
forward contracts matured by December 2007.
|
|
x.
|
|
During the year ended December 31, 2007, $1.2 million of interest expense attributable
to the operations of the
Navion Bergen
was incurred by Teekay Corporation and has been
allocated to the Partnership as part of the results of the Dropdown Predecessor.
|
11.
|
|
Derivative Instruments and Hedging Activities
|
The Partnership uses derivatives in accordance with its overall risk management policies. The
following summarizes the Partnerships 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 generally
designated, for accounting purpose, 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. The
ineffective portion of these foreign exchange forward contracts has also been reported in
operating expenses, based on the nature of the expense being economically hedged. During the
year ended December 31, 2007, the Partnership recognized unrealized losses of $0.1 million in
general and administrative expenses, relating to the ineffective portion of its foreign exchange
forward contracts; (2006 nil; 2005 nil).
Changes in fair value of foreign exchange forward contracts that are not designated, for
accounting purposes, as cash flow hedges are recognized in earnings and are reported in
operating expenses, based on the nature of the related expense. During the year ended December
31, 2007, the Partnership recognized unrealized losses of $0.4 million in vessel operating
expenses and unrealized gains of $0.1 million in foreign currency exchange (loss) gain,
respectively, relating to foreign exchange forward contracts that are not designated as cash
flow hedges; (2006 nil; 2005- nil).
As at December 31, 2007, the Partnership was committed to the following foreign exchange
contracts for the forward purchase of foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract amount in
|
|
|
Average
|
|
|
Expected maturity
|
|
|
|
foreign currency
|
|
|
forward rate
|
|
|
2008
|
|
|
2009
|
|
|
|
(millions)
|
|
|
|
|
|
(in millions of U.S. Dollars)
|
|
Norwegian Kroner
|
|
|
255.7
|
|
|
|
5.64
|
|
|
|
|
|
|
$
|
45.4
|
|
Australian Dollar
|
|
|
5.0
|
|
|
|
1.25
|
|
|
$
|
4.0
|
|
|
|
|
|
Singapore Dollar
|
|
|
4.1
|
|
|
|
1.44
|
|
|
$
|
2.9
|
|
|
|
|
|
Euro
|
|
|
4.0
|
|
|
|
0.68
|
|
|
$
|
5.8
|
|
|
|
|
|
As at December 31, 2007, the Partnerships accumulated other comprehensive income of
$0.3 million consisted of unrealized gains on foreign exchange forward contracts designated as
cash flow hedges. As at December 31, 2007, the Partnership estimated, based on then current
foreign exchange rates, that it would reclassify approximately $0.1 million of net gains on
foreign exchange forward contracts from accumulated other comprehensive gain to earnings during
the net 12 months due to actual vessel operating and general and administrative expenditures.
The Partnership enters into interest rate swaps which exchange a receipt of floating interest
for a payment of fixed interest to reduce the Partnerships exposure to interest rate
variability on its outstanding floating rate debt. The Partnership has not designated, for
accounting purposes, its interest rate swaps as cash flow hedges of its USD LIBOR-denominated
borrowings. Unrealized gains or losses relating to changes in fair value of the Partnerships
interest rate swaps have been reported in interest expense in the consolidated statements of
income (loss). During the year ended December 31, 2007, the Partnership recognized an unrealized
loss in interest expense of $45.5 million (2006 $3.3 million unrealized gain; 2005 nil),
relating to the changes in fair value of its interest rate swaps. During the years ended
December 31, 2006 and 2005, the Partnership recognized an unrealized gain in equity income from
joint ventures of $0.8 million and $0.2 million, respectively, relating to the changes in fair
value of an interest rate swap held in a joint venture.
F - 19
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
As at December 31, 2007, the Partnership was committed to the following interest rate swap
agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value /
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
Principal
|
|
|
Amount of
|
|
|
Remaining
|
|
|
Fixed
|
|
|
|
Rate
|
|
Amount
|
|
|
Liability
|
|
|
Term
|
|
|
Interest Rate
|
|
|
|
Index
|
|
$
|
|
|
$
|
|
|
(years)
|
|
|
(%)
(1)
|
|
U.S. Dollar-denominated interest rate swaps (restated)
|
|
LIBOR
|
|
|
935,000
|
|
|
|
(9,374
|
)
|
|
|
6.5
|
|
|
|
4.7
|
|
U.S. Dollar-denominated interest rate swaps
(2)
|
|
LIBOR
|
|
|
414,373
|
|
|
|
(11,676
|
)
|
|
|
13.3
|
|
|
|
5.0
|
|
|
|
|
(1)
|
|
Excludes the margin the Partnership pays on its variable-rate debt, which as at December 31,
2007, ranged from 0.50% and 0.80%.
|
|
(2)
|
|
Principal amount reduces quarterly or semiannually.
|
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; however, the
Partnership does not anticipate non-performance by any of the counter-parties.
The significant components of the Partnerships deferred tax liabilities and assets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Vessels and equipment
|
|
|
84,077
|
|
|
|
62,497
|
|
Goodwill and intangible assets
|
|
|
266
|
|
|
|
|
|
Long-term debt
|
|
|
94,071
|
|
|
|
34,504
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
178,414
|
|
|
|
97,001
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets
|
|
|
|
|
|
|
368
|
|
Provisions
|
|
|
1,012
|
|
|
|
1,012
|
|
Tax losses carried forward
(1)
|
|
|
100,096
|
|
|
|
21,715
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
101,108
|
|
|
|
23,095
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
77,306
|
|
|
|
73,906
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of net deferred
tax liabilities
|
|
|
77,306
|
|
|
|
73,906
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The net operating loss carryfowards are available to offset future taxable income in the
respective jurisdictions, and can be carried forward indefinitely.
|
Substantially all of the Partnerships net income (loss) resulted from the operations of
companies that were subject to income taxes in their countries of incorporation.
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
Year Ended
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
Current
|
|
|
|
|
|
|
(2,850
|
)
|
|
|
(106
|
)
|
|
|
(3,839
|
)
|
Deferred
|
|
|
10,516
|
|
|
|
(410
|
)
|
|
|
(15
|
)
|
|
|
16,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery (expense)
|
|
|
10,516
|
|
|
|
(3,260
|
)
|
|
|
(121
|
)
|
|
|
12,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 20
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
Reconciliations of the actual income tax rate attributable to pretax income and the applicable
statutory income tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
Year Ended
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
Actual income tax provision (credit) rate
|
|
|
(49.5
|
)
|
|
|
(12.1
|
)
|
|
|
3.0
|
|
|
|
(14.8
|
)
|
Income not subject to income taxes
|
|
|
77.5
|
|
|
|
40.1
|
|
|
|
25.0
|
|
|
|
42.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable statutory income tax provision rate
|
|
|
28.0
|
|
|
|
28.0
|
|
|
|
28.0
|
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
|
Commitments and Contingencies
|
In June 2007, the Partnership exercised its option to purchase a 2001-built shuttle tanker,
which is currently part of the Partnerships in-chartered shuttle tanker fleet. As of December
31, 2007, the Partnership was committed to acquiring this vessel for $41.7 million. The vessel
will be delivered to the Partnership in March 2008 and the Partnership financed the purchase
through one of its revolving credit facilities.
14.
|
|
Supplemental Cash Flow Information
|
|
a)
|
|
The changes in non-cash working capital items related to operating activities for the
years ended December 31, 2007, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(16,206
|
)
|
|
|
3,452
|
|
|
|
13,031
|
|
Prepaid expenses and other assets
|
|
|
(1,957
|
)
|
|
|
4,164
|
|
|
|
(17,487
|
)
|
Accounts payable and accrued liabilities
|
|
|
(6,126
|
)
|
|
|
4,643
|
|
|
|
9,132
|
|
Advances (to) from affiliate
|
|
|
(9,417
|
)
|
|
|
38,780
|
|
|
|
14,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,706
|
)
|
|
|
51,039
|
|
|
|
19,039
|
|
|
|
|
|
|
|
|
|
|
|
|
b)
|
|
Cash interest paid (including interest paid by the Dropdown Predecessor) during the
years ended December 31, 2007, 2006 and 2005 totaled $73.9 million, $44.0 million and $38.3
million, respectively.
|
|
c)
|
|
Taxes paid (including taxes paid by the Dropdown Predecessor) during the years ended
December 31, 2007, December 31, 2006 and December 31, 2005 totaled $1.8 million, $0.2
million and $6.5 million, respectively.
|
|
d)
|
|
The Partnerships consolidated statement of cash flows for the years ended December 31,
2007, 2006 and 2005 reflect the Dropdown Predecessor as if the Partnership had acquired the
Dropdown Predecessor when each respective vessel began operations under the ownership of
Teekay Corporation. If Teekay Corporation financed the construction or purchase of the
vessel prior to the Dropdown Predecessor being included in the results of the Partnership,
the expenditures for the vessel by Teekay Corporation have been treated as a non-cash
transaction in the Partnerships consolidated statement of cash flows. The non-cash
investing activities related to the Dropdown Predecessor are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
|
71,646
|
|
|
|
|
|
|
|
|
|
|
e)
|
|
Net change in parents equity in the Dropdown Predecessor includes the equity of the
Dropdown Predecessor when initially pooled for accounting purposes and any subsequent
non-cash equity transactions of the Dropdown Predecessor.
|
F - 21
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
15.
|
|
Vessel Sales and Write-downs on Vessels and Equipment
|
a) Vessel Sales
During 2006, the Predecessor sold a 1981-built shuttle tanker. The Predecessor recorded a gain
of $6.4 million and a minority interest expense of $3.2 million relating to the sale.
During 2005, the Predecessor sold two shuttle tankers built in 1981 and 1986. The results for
the year ended December 31, 2005 include a gain on sale from these vessels totaling
$9.1 million. In addition, the Predecessor sold and leased back, under an operating lease, a
1991-built shuttle tanker. The sale generated a $2.8 million gain, which has been deferred and
is being amortized over the 6.5 year term of the lease.
b) Equipment Writedowns
During 2006, the Predecessor incurred a $2.2 million write-down of certain offshore equipment.
This writedown occurred due to a reassessment of the estimated net realizable value of this
equipment and follows a $12.2 million write-down in 2005 arising from the early termination of a
contract for the equipment.
16.
|
|
Partners Capital and Net Income (Loss) Per Unit
|
At December 31, 2007, of our total units outstanding, 40.25% were held by the public and the
remaining units were held by a subsidiary of Teekay Corporation.
Limited Partners Rights
Significant rights of the limited partners include the following:
|
|
|
Right to receive distribution of available cash within approximately 45 days after the
end of each quarter.
|
|
|
|
No limited partner shall have any management power over the Partnerships business and
affairs; the general partner shall conduct, direct and manage our activities.
|
|
|
|
The General Partner may be removed if such removal is approved by unitholders holding at
least 66 2/3% of the outstanding units voting as a single class, including units held by
the General Partner and its affiliates.
|
Subordinated Units
All of the Partnerships subordinated units are held by a subsidiary of Teekay Corporation.
Under the partnership agreement, during the subordination period applicable to the Partnerships
subordinated units, the common units will 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. Distribution arrearages do not accrue on the
subordinated units. The purpose of the subordinated units is to increase the likelihood that
during the subordination period there will be available cash to be distributed on the common
units.
For the purpose of the net income (loss) per unit calculation (as defined below), during the
first quarter of 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. During
the second quarter of 2007, net income exceeded the minimum quarterly distribution of $0.35 per
unit and, consequently, the assumed distribution of net income resulted in an equal distribution
of net income between the subordinated unit holders and common unit holders. During the last two
quarters of 2007, the Partnership incurred net losses and, consequently, the assumed
distributions of net losses resulted in equal distributions of net losses between the
subordinated unit holders and common unit holders.
Incentive Distribution Rights
The General Partner is entitled to incentive distributions if the amount the Partnership
distributes to unitholders with respect to any quarter exceeds specified target levels shown
below:
|
|
|
|
|
|
|
|
|
Quarterly Distribution Target Amount (per unit)
|
|
Unitholders
|
|
|
General Partner
|
|
Minimum quarterly distribution of $0.35
|
|
|
98
|
%
|
|
|
2
|
%
|
Up to $0.4025
|
|
|
98
|
%
|
|
|
2
|
%
|
Above $0.4025 up to $0.4375
|
|
|
85
|
%
|
|
|
15
|
%
|
Above $0.4375 up to $0.525
|
|
|
75
|
%
|
|
|
25
|
%
|
Above $0.525
|
|
|
50
|
%
|
|
|
50
|
%
|
F - 22
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
For the purpose of the net income (loss) per unit calculation, during the first quarter of 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
Partners interest in net income. During the second quarter of 2007, net income exceeded $0.4025
per unit and, consequently, the assumed distribution of net income resulted in the use of the
increasing percentages to calculate the General Partners interest in net income. During the
last two quarters of 2007, the Partnership incurred net losses and, consequently, the assumed
distributions of net losses did not result in the use of the increasing percentages to calculate
the General Partners interest in net losses.
Net Income (Loss) Per Unit
Net income (loss) per unit is determined by dividing net income, after deducting the amount of
net income attributable to the Dropdown Predecessor and the amount of net income (loss)
allocated to the General Partners interest from the issuance date of the common units of
December 19, 2006, by the weighted-average number of units outstanding during the applicable
period. For periods prior to December 19, 2006, such units are deemed equal to the common and
subordinated units received by Teekay Corporation in exchange for net assets contributed to the
Partnership in connection with its initial public offering, or 12,600,000 units.
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 interests of the General Partner,
common unit holders and subordinated unitholders in net income are calculated as if all net
income for periods subsequent to December 19, 2006 was distributed according to the terms of the
Partnerships 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, unrealized gains and losses on derivative instruments and foreign
currency translation gains (losses).
Pursuant to the partnership agreement, income allocations are made on a quarterly basis;
therefore, earnings per limited partner unit for each year is calculated as the sum of the
quarterly earnings per limited partner unit for each of the four quarters in the year.
17.
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning
|
|
|
Balance at end
|
|
|
|
of year
|
|
|
of year
|
|
|
|
$
|
|
|
$
|
|
Allowance for bad debts:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006
|
|
|
987
|
|
|
|
401
|
|
Year ended December 31, 2007
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring cost accrual:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006
|
|
|
955
|
|
|
|
71
|
|
Year ended December 31, 2007
|
|
|
71
|
|
|
|
|
|
18.
|
|
Restatement of Previously Issued Financial Statements
|
(a) Derivative Instruments and Hedging Activities and Other
In August 2008, the Partnership commenced a review of its application of Statement of Financial
Accounting Standards (or
SFAS
) No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, as amended. Based on its review the Partnership concluded that certain of its
interest rate swap agreements and foreign currency forward contracts did not qualify for hedge
accounting treatment under SFAS No. 133 for the years ended December 31, 2003 to 2007. The
Partnerships findings were as follows:
|
|
|
One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based
on the Partnerships review, the Partnership concluded that the prospective hedge
effectiveness assessment that was conducted for certain of the Partnership interest rate
swap agreements on the date of designation was not sufficient to conclude that the interest
rate swaps would be highly effective in accordance with the technical requirements of SFAS
No. 133, in achieving offsetting changes in cash flows attributable to the risk being
hedged.
|
|
|
|
To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of the
Partnerships interest rate swap agreements did not clearly specify the method to be used
to measure hedge ineffectiveness.
|
|
|
|
Certain of the Partnerships derivative instruments were designated as hedges when the
derivative instruments had a non-zero fair value. However, this designation was not
appropriate as the Partnership used certain methods of measuring ineffectiveness that are
not allowed in the case of non-zero fair value derivatives.
|
F - 23
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
For accounting purposes the Partnership should have reflected changes in fair value of these
derivative instruments as increases or decreases to the Partnerships net income (loss) on its
consolidated statements of income (loss), instead of being reflected as increases or decreases
to accumulated other comprehensive income (loss), a component of partners/owners equity on the
consolidated balance sheets and statements of changes in partners/owners equity.
The Partnership has also restated certain other items primarily related to accounting for the
non-controlling interest in one of its 50% pwned subsidiaries and adjusting estimates relating
to deferred income taxes and the fair value of derivative instruments at December 31, 2007.
The change in accounting for these transactions does not affect the Partnerships cash flows,
liquidity or cash distributions to partners.
(b) Vessels Acquired from Teekay Corporation
In connection with the Partnership assessing the potential impact of SFAS No. 141(R), which
replaces SFAS No. 141,
Business Combinations
, and is effective for fiscal years beginning after
December 15, 2008, the Partnership re-assessed its accounting treatment of interests in vessels
it purchased from Teekay Corporation (
Teekay
) subsequent to the Partnerships initial public
offering in December 2006. The Partnership has historically treated the acquisition of interests
in these vessels as asset acquisitions, not business acquisitions. If the acquisitions were
deemed to be business acquisitions, the acquisitions would have been accounted for in a manner
similar to the pooling of interest method whereby the Partnerships consolidated financial
statements prior to the date the interests in these vessels were acquired by it would be
retroactively adjusted to include the results of these acquired vessels (referred to herein as
the
Dropdown Predecessor)
from the date that the Partnership and the acquired vessels were both
under common control of Teekay and had begun operations. The Partnership now has determined that
the acquisitions should have been accounted for as business acquisitions under United States
generally accepted accounting principles.
The impact of the retroactive Dropdown Predecessor adjustments does not affect the limited
partners interest in net income, earnings per unit, or cash distributions to partners. However,
the impact of the retroactive Dropdown Predecessor adjustments has resulted in an increase in
previously reported net income for the years ended December 31, 2007, 2006 and 2005.
In July 2007, the Partnership acquired from Teekay ownership of its 100% interest in the
2000-built shuttle tanker
Navion Bergen
and its 50% interest in the 2006-built shuttle tanker
Navion Gothenburg
, respectively. The acquisitions included the assumption of debt, related
interest rate swap agreements and Teekay rights and obligations under 13-year, fixed-rate
bareboat charters. In October 2007, the Partnership acquired from Teekay Corporation its
interest in the FSO unit
Dampier Spirit
, along with its 7-year fixed-rate time-charter. These
transactions were deemed to be business acquisitions between entities under common control. As a
result, the Partnerships balance sheet as at December 31, 2006, and its statements of income
(loss), cash flows and changes in partners equity/owners equity for the years ended December
31, 2007, 2006 and 2005 reflect these vessels as if the Partnership had acquired them when each
respective vessel began operations under the ownership of Teekay. These vessels began operations
on April 16, 2007 (
Navion Bergen
), July 24, 2007 (
Navion Gothenburg
) and March 15, 1998 (
Dampier
Spirit
).
(c) Discontinued Operations
In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
,
the Partnership has reclassified the operations of Navion Shipping Ltd., a subsidiary of Teekay
Offshore Partners Predecessor, as discontinued operations effective July 1, 2006 with
retroactive restatement for comparative periods. Prior to the Partnerships initial public
offering, on July 1, 2006, Teekay Offshore Partners Predecessor sold Navion Shipping Ltd. to a
subsidiary of Teekay. At the time of the sale, all of Teekay Offshore Partners Predecessors
chartered-in conventional tankers were chartered-in by Navion Shipping Ltd. and subsequently
time chartered to a subsidiary of Teekay. The operations and cash flows of Navion Shipping Ltd.
should have been eliminated from the Partnerships ongoing operations as a result of the sale
and the Partnership does not have any significant continuing involvement in the operations of
the disposed component. Therefore, the Partnership has reclassified the operations of Navion
Shipping Ltd. as discontinued operations for all periods prior to its disposition on July 1,
2006.
The change in presentation of the results of Navion Shipping Ltd. to discontinued operations
does not affect total assets, total partners equity, net income, earnings per unit or cash
distributions to partners for any period.
(d) Vision Incentive Plan
In the preparation of the combined consolidated financial statements of the Predecessor for the
period prior to the Partnerships initial public offering, general and administrative expenses
were not identifiable as relating solely to the vessels. General and administrative expenses
were allocated from Teekay to the Predecessor based on the Predecessors proportionate share of
Teekays total ship-operating (calendar) days for each of the periods presented. During 2005 and
2006, a portion of the general and administrative expense allocation included accrued costs
relating to a long-term share-based incentive plan (the
Vision Incentive Plan or VIP
) for senior
management. During 2005, Teekay had accrued and expensed a portion of the VIP without
consideration of certain vesting provisions as required under GAAP. Upon transition to SFAS 123R
on January 1, 2006, Teekay was required to account for the VIP based on the fair value of the
award , as the VIP has a share priced-based component. However, Teekay continued to calculate
compensation expense for the VIP under the methodology it had followed in 2005 as Teekay did not
identify the VIP as within the scope of SFAS 123R. As a result, the Partnership has restated the
general and adminstrative expenses allocation for the periods before the initial public
offering.
F - 24
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
Because this change in general and administrative expenses is the result of a change in an
allocation of cost from Teekay to the Predecessor for the period prior to the Partnerships
initial public offering, this restatement will have no affect on the Partnerships equity,
liabilities or expenses for any period subsequent to the initial public offering.
As a result of the conclusions described above in this Note 18, the Partnership is restating
herein its historical balance sheets as of December 31, 2007 and 2006; its statements of income
(loss), cash flows and changes in partners equity/owners equity for the years ended December
31, 2007, 2006 and 2005.
The following table sets forth a reconciliation of the Partnerships previously reported and
restated net income (loss) and owners equity as of the date and for the periods shown (in
thousands of US dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners Equity
|
|
|
|
Net Income (Loss)
|
|
|
(Predecessor
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
and Dropdown
|
|
|
|
|
|
|
|
January 1
|
|
|
December 19
|
|
|
|
|
|
|
Predecessor)
|
|
|
|
Year Ended
|
|
|
to
|
|
|
to
|
|
|
Year Ended
|
|
|
At
|
|
|
|
December 31,
|
|
|
December 18,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
|
19,672
|
|
|
|
(33,563
|
)
|
|
|
848
|
|
|
|
84,747
|
|
|
|
659,212
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments, net of
non-controlling interest and other
(1)
|
|
|
(17,014
|
)
|
|
|
2,806
|
|
|
|
500
|
|
|
|
756
|
|
|
|
|
|
Dropdown Predecessor
(2)
|
|
|
1,300
|
|
|
|
3,097
|
|
|
|
114
|
|
|
|
2,910
|
|
|
|
44,016
|
|
Vision Incentive Plan
|
|
|
|
|
|
|
(2,632
|
)
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
3,958
|
|
|
|
(30,292
|
)
|
|
|
1,462
|
|
|
|
95,913
|
|
|
|
703,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes an adjustment totaling ($3.6) million for the year ended December 31, 2007
relating to the accounting for the non-controlling interest in one of our 50% owned
subsidiaries and adjusting amounts related to deferred income taxes and the fair value of
derivative instruments at December 31, 2007.
|
|
(2)
|
|
Relates to the results for the pre-acquisition periods in which the Partnership and the
acquired interests in vessels, as listed below, were both in operation and under the common
control of Teekay Corporation, as follows:
|
|
|
Dampier Spirit
(FSO unit) for March 15, 1998 to September 30, 2007;
|
|
|
|
Navion Bergen
(shuttle tanker) for April 16, 2007 to June 30, 2007; and
|
|
|
|
Navion Gothenburg
(shuttle tanker) began operations concurrently with the Partnerships
acquisition of it on July 24, 2007.
|
F - 25
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Consolidated
Statement of Income (Loss) (in thousands of U.S. dollars, except unit and per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
As
|
|
|
Instruments
|
|
|
Dropdown
|
|
|
As
|
|
|
|
Reported
|
|
|
and Other
|
|
|
Predecessor
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOYAGE REVENUES
|
|
|
775,969
|
|
|
|
|
|
|
|
9,234
|
|
|
|
785,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
151,583
|
|
|
|
|
|
|
|
54
|
|
|
|
151,637
|
|
Vessel operating expenses
|
|
|
143,247
|
|
|
|
365
|
|
|
|
6,048
|
|
|
|
149,660
|
|
Time-charter hire expense
|
|
|
150,463
|
|
|
|
|
|
|
|
|
|
|
|
150,463
|
|
Depreciation and amortization
|
|
|
122,415
|
|
|
|
|
|
|
|
1,955
|
|
|
|
124,370
|
|
General and administrative
|
|
|
61,530
|
|
|
|
(40
|
)
|
|
|
914
|
|
|
|
62,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
629,238
|
|
|
|
325
|
|
|
|
8,971
|
|
|
|
638,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from vessel operations
|
|
|
146,731
|
|
|
|
(325
|
)
|
|
|
263
|
|
|
|
146,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(79,768
|
)
|
|
|
(45,192
|
)
|
|
|
(1,344
|
)
|
|
|
(126,304
|
)
|
Interest income
|
|
|
5,774
|
|
|
|
|
|
|
|
97
|
|
|
|
5,871
|
|
Foreign currency exchange (loss) gain
|
|
|
(12,144
|
)
|
|
|
(626
|
)
|
|
|
1,092
|
|
|
|
(11,678
|
)
|
Income tax recovery (expense)
|
|
|
10,924
|
|
|
|
(1,600
|
)
|
|
|
1,192
|
|
|
|
10,516
|
|
Other income net
|
|
|
10,403
|
|
|
|
|
|
|
|
|
|
|
|
10,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
(64,811
|
)
|
|
|
(47,418
|
)
|
|
|
1,037
|
|
|
|
(111,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before non-controlling interest
|
|
|
81,920
|
|
|
|
(47,743
|
)
|
|
|
1,300
|
|
|
|
35,477
|
|
Non-controlling interest
|
|
|
(62,248
|
)
|
|
|
30,729
|
|
|
|
|
|
|
|
(31,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
19,672
|
|
|
|
(17,014
|
)
|
|
|
1,300
|
|
|
|
3,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
General partners interest in net income
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
733
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
19,279
|
|
|
|
|
|
|
|
|
|
|
|
1,925
|
|
Net income per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
0.12
|
|
- Subordinated unit (basic and diluted)
|
|
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
0.07
|
|
- Total unit (basic and diluted)
|
|
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 26
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Consolidated
Statement of Income (Loss) (in thousands of U.S. dollars, except unit and per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to December 18, 2006
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOYAGE REVENUES
|
|
|
684,766
|
|
|
|
|
|
|
|
12,762
|
|
|
|
(80,014
|
)
|
|
|
|
|
|
|
617,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
91,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,321
|
|
Vessel operating expenses
|
|
|
102,311
|
|
|
|
|
|
|
|
5,680
|
|
|
|
|
|
|
|
|
|
|
|
107,991
|
|
Time-charter hire expense
|
|
|
239,311
|
|
|
|
|
|
|
|
|
|
|
|
(79,338
|
)
|
|
|
|
|
|
|
159,973
|
|
Depreciation and amortization
|
|
|
98,386
|
|
|
|
|
|
|
|
2,437
|
|
|
|
|
|
|
|
|
|
|
|
100,823
|
|
General and administrative
|
|
|
70,387
|
|
|
|
|
|
|
|
1,327
|
|
|
|
(11,332
|
)
|
|
|
2,632
|
|
|
|
63,014
|
|
Gain on sale of vessels and equipment, net
of writedowns
|
|
|
(4,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,778
|
)
|
Restructuring charge
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
597,770
|
|
|
|
|
|
|
|
9,444
|
|
|
|
(90,670
|
)
|
|
|
2,632
|
|
|
|
519,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
86,996
|
|
|
|
|
|
|
|
3,318
|
|
|
|
10,656
|
|
|
|
(2,632
|
)
|
|
|
98,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(67,225
|
)
|
|
|
2,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,462
|
)
|
Interest income
|
|
|
5,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,167
|
|
Equity income from joint ventures
|
|
|
6,162
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,321
|
|
Foreign currency exchange (loss) gain
|
|
|
(66,574
|
)
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
(66,214
|
)
|
Income tax expense
|
|
|
(2,672
|
)
|
|
|
|
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,260
|
)
|
Other income net
|
|
|
8,360
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
8,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
(116,782
|
)
|
|
|
2,922
|
|
|
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
(114,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before non-controlling interest
|
|
|
(29,786
|
)
|
|
|
2,922
|
|
|
|
3,097
|
|
|
|
10,656
|
|
|
|
(2,632
|
)
|
|
|
(15,743
|
)
|
Non-controlling interest
|
|
|
(3,777
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(33,563
|
)
|
|
|
2,806
|
|
|
|
3,097
|
|
|
|
10,656
|
|
|
|
(2,632
|
)
|
|
|
(19,636
|
)
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,656
|
)
|
|
|
|
|
|
|
(10,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(33,563
|
)
|
|
|
2,806
|
|
|
|
3,097
|
|
|
|
|
|
|
|
(2,632
|
)
|
|
|
(30,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown predecessors interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,097
|
|
General partners interest in net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(33,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,733
|
)
|
Net loss from continuing operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.80
|
)
|
- Subordinated unit (basic and diluted)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.80
|
)
|
- Total unit (basic and diluted)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,656
|
)
|
Net loss from discontinued operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.85
|
)
|
- Subordinated unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.85
|
)
|
- Total unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(33,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,389
|
)
|
Net loss per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.65
|
)
|
- Subordinated unit (basic and diluted)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.65
|
)
|
- Total unit (basic and diluted)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common units (basic and diluted)
|
|
|
2,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,800,000
|
|
- Subordinated units (basic and diluted)
|
|
|
9,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,800,000
|
|
- Total units (basic and diluted)
|
|
|
12,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions declared per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 27
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Consolidated
Statement of Income (in thousands of U.S. dollars, except unit and per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 19 to December 31, 2006
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOYAGE REVENUES
|
|
|
23,926
|
|
|
|
|
|
|
|
471
|
|
|
|
24,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
3,102
|
|
|
|
|
|
|
|
|
|
|
|
3,102
|
|
Vessel operating expenses
|
|
|
4,087
|
|
|
|
|
|
|
|
210
|
|
|
|
4,297
|
|
Time-charter hire expense
|
|
|
5,641
|
|
|
|
|
|
|
|
|
|
|
|
5,641
|
|
Depreciation and amortization
|
|
|
3,636
|
|
|
|
|
|
|
|
90
|
|
|
|
3,726
|
|
General and administrative
|
|
|
2,129
|
|
|
|
|
|
|
|
48
|
|
|
|
2,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
18,595
|
|
|
|
|
|
|
|
348
|
|
|
|
18,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
5,331
|
|
|
|
|
|
|
|
123
|
|
|
|
5,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,200
|
)
|
|
|
583
|
|
|
|
|
|
|
|
(1,617
|
)
|
Interest income
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
191
|
|
Foreign currency exchange (loss) gain
|
|
|
(131
|
)
|
|
|
|
|
|
|
13
|
|
|
|
(118
|
)
|
Income tax expense
|
|
|
(99
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
(121
|
)
|
Other income net
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
(1,930
|
)
|
|
|
583
|
|
|
|
(9
|
)
|
|
|
(1,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before non-controlling interest
|
|
|
3,401
|
|
|
|
583
|
|
|
|
114
|
|
|
|
4,098
|
|
Non-controlling interest
|
|
|
(2,553
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
(2,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
848
|
|
|
|
500
|
|
|
|
114
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
General partners interest in net income
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
1,284
|
|
Net income per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
0.07
|
|
- Subordinated unit (basic and diluted)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
0.06
|
|
- Total unit (basic and diluted)
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 28
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Consolidated
Statement of Income (in thousands of U.S. dollars, except unit and per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOYAGE REVENUES
|
|
|
807,548
|
|
|
|
|
|
|
|
14,837
|
|
|
|
(209,139
|
)
|
|
|
|
|
|
|
613,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses
|
|
|
74,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,543
|
|
Vessel operating expenses
|
|
|
104,475
|
|
|
|
|
|
|
|
6,110
|
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
109,480
|
|
Time-charter hire expense
|
|
|
373,536
|
|
|
|
|
|
|
|
|
|
|
|
(203,849
|
)
|
|
|
|
|
|
|
169,687
|
|
Depreciation and amortization
|
|
|
107,542
|
|
|
|
|
|
|
|
2,748
|
|
|
|
(466
|
)
|
|
|
|
|
|
|
109,824
|
|
General and administrative
|
|
|
85,856
|
|
|
|
|
|
|
|
1,436
|
|
|
|
(23,066
|
)
|
|
|
(7,500
|
)
|
|
|
56,726
|
|
Gain on sale of vessels and equipment
|
|
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,820
|
|
Restructuring charge
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
749,727
|
|
|
|
|
|
|
|
10,294
|
|
|
|
(228,486
|
)
|
|
|
(7,500
|
)
|
|
|
524,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
57,821
|
|
|
|
|
|
|
|
4,543
|
|
|
|
19,347
|
|
|
|
7,500
|
|
|
|
89,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(39,791
|
)
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
(39,983
|
)
|
Interest income
|
|
|
4,605
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
4,612
|
|
Equity income from joint ventures
|
|
|
5,199
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,955
|
|
Foreign currency exchange gain
|
|
|
34,178
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
34,228
|
|
Income tax recovery (expense)
|
|
|
13,873
|
|
|
|
|
|
|
|
(1,498
|
)
|
|
|
|
|
|
|
|
|
|
|
12,375
|
|
Other income net
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items
|
|
|
27,155
|
|
|
|
756
|
|
|
|
(1,633
|
)
|
|
|
|
|
|
|
|
|
|
|
26,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before non-controlling interest
|
|
|
84,976
|
|
|
|
756
|
|
|
|
2,910
|
|
|
|
19,347
|
|
|
|
7,500
|
|
|
|
115,489
|
|
Non-controlling interest
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
84,747
|
|
|
|
756
|
|
|
|
2,910
|
|
|
|
19,347
|
|
|
|
7,500
|
|
|
|
115,260
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,347
|
)
|
|
|
|
|
|
|
(19,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
84,747
|
|
|
|
756
|
|
|
|
2,910
|
|
|
|
|
|
|
|
7,500
|
|
|
|
95,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown predecessors interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,910
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
84,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,350
|
|
Net income from continuing operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.92
|
|
- Subordinated unit (basic and diluted)
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.92
|
|
- Total unit (basic and diluted)
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,347
|
)
|
Net loss from discontinued operations per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.54
|
)
|
- Subordinated unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.54
|
)
|
- Total unit (basic and diluted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
84,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,003
|
|
Net income per:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted)
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.38
|
|
- Subordinated unit (basic and diluted)
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.38
|
|
- Total unit (basic and diluted)
|
|
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common units (basic and diluted)
|
|
|
2,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,800,000
|
|
- Subordinated units (basic and diluted)
|
|
|
9,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,800,000
|
|
- Total units (basic and diluted)
|
|
|
12,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions declared per unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 29
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Consolidated
Balance Sheets (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
As
|
|
|
Instruments and
|
|
|
As
|
|
|
|
Reported
|
|
|
Other
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
121,224
|
|
|
|
|
|
|
|
121,224
|
|
Accounts receivable, net
|
|
|
42,245
|
|
|
|
|
|
|
|
42,245
|
|
Due from affiliate
|
|
|
796
|
|
|
|
|
|
|
|
796
|
|
Net investment in direct financing leases current
|
|
|
22,268
|
|
|
|
|
|
|
|
22,268
|
|
Prepaid expenses
|
|
|
34,219
|
|
|
|
|
|
|
|
34,219
|
|
Other current assets
|
|
|
7,644
|
|
|
|
|
|
|
|
7,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
228,396
|
|
|
|
|
|
|
|
228,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation
|
|
|
1,662,865
|
|
|
|
|
|
|
|
1,662,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
|
78,199
|
|
|
|
|
|
|
|
78,199
|
|
Other assets
|
|
|
14,423
|
|
|
|
|
|
|
|
14,423
|
|
Intangible assets net
|
|
|
55,355
|
|
|
|
|
|
|
|
55,355
|
|
Goodwill shuttle tanker segment
|
|
|
127,113
|
|
|
|
|
|
|
|
127,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,166,351
|
|
|
|
|
|
|
|
2,166,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
12,076
|
|
|
|
|
|
|
|
12,076
|
|
Accrued liabilities
|
|
|
38,464
|
|
|
|
|
|
|
|
38,464
|
|
Current portion of long-term debt
|
|
|
64,060
|
|
|
|
|
|
|
|
64,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
114,600
|
|
|
|
|
|
|
|
114,600
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,453,407
|
|
|
|
|
|
|
|
1,453,407
|
|
Deferred income taxes
|
|
|
75,706
|
|
|
|
1,600
|
|
|
|
77,306
|
|
Other long-term liabilities
|
|
|
50,024
|
|
|
|
1,000
|
|
|
|
51,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,693,737
|
|
|
|
2,600
|
|
|
|
1,696,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
391,645
|
|
|
|
968
|
|
|
|
392,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
86,282
|
|
|
|
(9,174
|
)
|
|
|
77,108
|
|
Accumulated other comprehensive (loss) income
|
|
|
(5,313
|
)
|
|
|
5,606
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners equity
|
|
|
80,969
|
|
|
|
(3,568
|
)
|
|
|
77,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners equity
|
|
|
2,166,351
|
|
|
|
|
|
|
|
2,166,351
|
|
|
|
|
|
|
|
|
|
|
|
F - 30
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Consolidated
Balance Sheets (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
113,986
|
|
|
|
|
|
|
|
|
|
|
|
113,986
|
|
Accounts receivable, net
|
|
|
24,635
|
|
|
|
|
|
|
|
1,191
|
|
|
|
25,826
|
|
Due from affiliate
|
|
|
|
|
|
|
|
|
|
|
30,757
|
|
|
|
30,757
|
|
Net investment in direct financing leases current
|
|
|
21,764
|
|
|
|
|
|
|
|
|
|
|
|
21,764
|
|
Prepaid expenses
|
|
|
24,608
|
|
|
|
|
|
|
|
|
|
|
|
24,608
|
|
Other current assets
|
|
|
7,732
|
|
|
|
|
|
|
|
54
|
|
|
|
7,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
192,725
|
|
|
|
|
|
|
|
32,002
|
|
|
|
224,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation
|
|
|
1,524,842
|
|
|
|
|
|
|
|
7,901
|
|
|
|
1,532,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
|
92,018
|
|
|
|
|
|
|
|
|
|
|
|
92,018
|
|
Other assets
|
|
|
38,198
|
|
|
|
|
|
|
|
|
|
|
|
38,198
|
|
Intangible assets net
|
|
|
66,425
|
|
|
|
|
|
|
|
|
|
|
|
66,425
|
|
Goodwill shuttle tanker segment
|
|
|
127,113
|
|
|
|
|
|
|
|
|
|
|
|
127,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,041,321
|
|
|
|
|
|
|
|
39,903
|
|
|
|
2,081,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
7,366
|
|
|
|
|
|
|
|
93
|
|
|
|
7,459
|
|
Accrued liabilities
|
|
|
42,987
|
|
|
|
|
|
|
|
2,646
|
|
|
|
45,633
|
|
Current portion of long-term debt
|
|
|
17,656
|
|
|
|
|
|
|
|
|
|
|
|
17,656
|
|
Due to affiliate
|
|
|
16,951
|
|
|
|
|
|
|
|
(16,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
84,960
|
|
|
|
|
|
|
|
(14,212
|
)
|
|
|
70,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,285,696
|
|
|
|
|
|
|
|
|
|
|
|
1,285,696
|
|
Deferred income taxes
|
|
|
71,583
|
|
|
|
|
|
|
|
2,323
|
|
|
|
73,906
|
|
Other long-term liabilities
|
|
|
32,163
|
|
|
|
|
|
|
|
|
|
|
|
32,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,474,402
|
|
|
|
|
|
|
|
(11,889
|
)
|
|
|
1,462,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
427,977
|
|
|
|
|
|
|
|
|
|
|
|
427,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dropdown Predecessors equity
|
|
|
|
|
|
|
|
|
|
|
51,792
|
|
|
|
51,792
|
|
Partners equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
133,642
|
|
|
|
5,300
|
|
|
|
|
|
|
|
138,942
|
|
Accumulated other comprehensive income (loss)
|
|
|
5,300
|
|
|
|
(5,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners equity and dropdown predecessors
equity
|
|
|
138,942
|
|
|
|
|
|
|
|
51,792
|
|
|
|
190,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, partners equity and dropdown
predecessors equity
|
|
|
2,041,321
|
|
|
|
|
|
|
|
39,903
|
|
|
|
2,081,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 31
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Statements of
Cash Flows (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
As
|
|
|
Instruments and
|
|
|
Dropdown
|
|
|
As
|
|
|
|
Reported
|
|
|
Other
|
|
|
Predecessor
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents provided by (used for)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
19,672
|
|
|
|
(17,014
|
)
|
|
|
1,300
|
|
|
|
3,958
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments
|
|
|
|
|
|
|
45,957
|
|
|
|
|
|
|
|
45,957
|
|
Depreciation and amortization
|
|
|
122,415
|
|
|
|
|
|
|
|
1,955
|
|
|
|
124,370
|
|
Non-controlling interest
|
|
|
62,248
|
|
|
|
(30,729
|
)
|
|
|
|
|
|
|
31,519
|
|
Deferred income tax recovery
|
|
|
(10,924
|
)
|
|
|
1,600
|
|
|
|
(1,192
|
)
|
|
|
(10,516
|
)
|
Foreign currency exchange loss (gain) and other
|
|
|
11,841
|
|
|
|
186
|
|
|
|
(602
|
)
|
|
|
11,425
|
|
Change in non-cash working capital items related
to operating activities
|
|
|
(31,588
|
)
|
|
|
|
|
|
|
(2,118
|
)
|
|
|
(33,706
|
)
|
Distribution from subsidiaries to minority owners
|
|
|
(78,107
|
)
|
|
|
|
|
|
|
|
|
|
|
(78,107
|
)
|
Expenditures for drydocking
|
|
|
(39,626
|
)
|
|
|
|
|
|
|
(9,427
|
)
|
|
|
(49,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow
|
|
|
55,931
|
|
|
|
|
|
|
|
(10,084
|
)
|
|
|
45,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
247,243
|
|
|
|
|
|
|
|
51,200
|
|
|
|
298,443
|
|
Scheduled repayments of long-term debt
|
|
|
(17,328
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,328
|
)
|
Prepayments of long-term debt
|
|
|
(152,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(152,000
|
)
|
Expenses from issuance of common units
|
|
|
(2,793
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,793
|
)
|
Net advances from affiliates
|
|
|
|
|
|
|
|
|
|
|
(42,935
|
)
|
|
|
(42,935
|
)
|
Equity distribution to Teekay Corporation
|
|
|
|
|
|
|
|
|
|
|
1,819
|
|
|
|
1,819
|
|
Distribution to Teekay Corporation relating to
purchase of Navion Bergen LLC and purchase of a
50% interest in Navion Gothenburg LLC
|
|
|
|
|
|
|
|
|
|
|
(55,158
|
)
|
|
|
(55,158
|
)
|
Distribution to Teekay Corporation relating to
purchase of Dampier LLC
|
|
|
|
|
|
|
|
|
|
|
(30,253
|
)
|
|
|
(30,253
|
)
|
Cash distributions paid
|
|
|
(22,700
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,700
|
)
|
Other
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow
|
|
|
51,422
|
|
|
|
|
|
|
|
(75,327
|
)
|
|
|
(23,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
|
(20,997
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,997
|
)
|
Proceeds from sale of vessels and equipment
|
|
|
3,225
|
|
|
|
|
|
|
|
|
|
|
|
3,225
|
|
Investment in direct financing lease assets
|
|
|
(8,378
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,378
|
)
|
Direct financing lease payments received
|
|
|
21,677
|
|
|
|
|
|
|
|
|
|
|
|
21,677
|
|
Purchase of Navion Bergen LLC and a 50% interest
in Navion Gothenburg LLC
|
|
|
(65,389
|
)
|
|
|
|
|
|
|
65,389
|
|
|
|
|
|
Purchase of a 50% interest in Navion Gothenburg LLC
|
|
|
|
|
|
|
|
|
|
|
(10,231
|
)
|
|
|
(10,231
|
)
|
Purchase of Dampier LLC
|
|
|
(30,253
|
)
|
|
|
|
|
|
|
30,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow
|
|
|
(100,115
|
)
|
|
|
|
|
|
|
85,411
|
|
|
|
(14,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
7,238
|
|
|
|
|
|
|
|
|
|
|
|
7,238
|
|
Cash and cash equivalents, beginning of the year
|
|
|
113,986
|
|
|
|
|
|
|
|
|
|
|
|
113,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
|
121,224
|
|
|
|
|
|
|
|
|
|
|
|
121,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 32
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Statements of
Cash Flows (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents provided by (used for)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(32,715
|
)
|
|
|
3,306
|
|
|
|
3,211
|
|
|
|
|
|
|
|
(2,632
|
)
|
|
|
(28,830
|
)
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivative instruments
|
|
|
|
|
|
|
(3,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,346
|
)
|
Depreciation and amortization
|
|
|
102,022
|
|
|
|
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
|
|
104,549
|
|
Non-controlling interest
|
|
|
6,330
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,529
|
|
Gain on sale of vessels
|
|
|
(6,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,928
|
)
|
Loss on writedown of vessels and equipment
|
|
|
2,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,150
|
|
Equity income, net of dividends received
|
|
|
(160
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(319
|
)
|
Deferred income tax expense (recovery)
|
|
|
2,771
|
|
|
|
|
|
|
|
(2,346
|
)
|
|
|
|
|
|
|
|
|
|
|
425
|
|
Foreign currency exchange loss (gain) and
other
|
|
|
72,768
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
72,438
|
|
Change in non-cash working capital items
related to operating activities
|
|
|
40,727
|
|
|
|
|
|
|
|
2,812
|
|
|
|
|
|
|
|
7,500
|
|
|
|
51,039
|
|
Distribution from subsidiaries to minority
owners
|
|
|
(4,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,224
|
)
|
Expenditures for drydocking
|
|
|
(31,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow
|
|
|
151,486
|
|
|
|
|
|
|
|
5,874
|
|
|
|
|
|
|
|
4,868
|
|
|
|
162,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
1,290,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,290,750
|
|
Capitalized loan costs
|
|
|
(6,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,178
|
)
|
Scheduled repayments of long-term debt
|
|
|
(119,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,900
|
)
|
Prepayments of long-term debt
|
|
|
(493,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(493,527
|
)
|
Repayments of capital lease obligations
|
|
|
(34,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,245
|
)
|
Proceeds from issuance of common units
|
|
|
157,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,963
|
|
Net advances to affiliates
|
|
|
(786,816
|
)
|
|
|
|
|
|
|
(6,672
|
)
|
|
|
|
|
|
|
|
|
|
|
(793,488
|
)
|
Equity distribution (to) from Teekay Corporation
|
|
|
(226,816
|
)
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
(4,868
|
)
|
|
|
(230,886
|
)
|
Other
|
|
|
(727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow
|
|
|
(219,496
|
)
|
|
|
|
|
|
|
(5,874
|
)
|
|
|
|
|
|
|
(4,868
|
)
|
|
|
(230,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
|
(31,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,079
|
)
|
Proceeds from sale of vessels and equipment
|
|
|
61,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,713
|
|
Investment in direct financing lease assets
|
|
|
(13,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,256
|
)
|
Direct financing lease payments received
|
|
|
19,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,323
|
|
Cash assumed upon consolidation of 50%-owned
subsidiaries
|
|
|
17,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,055
|
|
Other
|
|
|
(746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow
|
|
|
53,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(15,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,000
|
)
|
Adjustment for net change in cash and cash
equivalents in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,456
|
|
|
|
|
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the year
|
|
|
128,986
|
|
|
|
|
|
|
|
|
|
|
|
(2,456
|
)
|
|
|
|
|
|
|
126,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
|
113,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 33
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the effect of the restatement on the Partnerships Statements of
Cash Flows (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vision
|
|
|
|
|
|
|
As
|
|
|
Derivative
|
|
|
Dropdown
|
|
|
Discontinued
|
|
|
Incentive
|
|
|
As
|
|
|
|
Reported
|
|
|
Instruments
|
|
|
Predecessor
|
|
|
Operations
|
|
|
Plan
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash and cash equivalents provided by
(used for)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
84,747
|
|
|
|
756
|
|
|
|
2,910
|
|
|
|
|
|
|
|
7,500
|
|
|
|
95,913
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
107,542
|
|
|
|
|
|
|
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
110,290
|
|
Non-controlling interest
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
Gain on sale of vessels
|
|
|
(9,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,423
|
)
|
Loss on writedown of vessels and
equipment
|
|
|
12,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,243
|
|
Equity income, net of dividends
received
|
|
|
(2,449
|
)
|
|
|
(756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,205
|
)
|
Deferred income tax (recovery) expense
|
|
|
(14,202
|
)
|
|
|
|
|
|
|
(2,012
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,214
|
)
|
Foreign currency exchange (gain) loss
and other
|
|
|
(40,045
|
)
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
(39,967
|
)
|
Change in non-cash working capital items
related to operating activities
|
|
|
22,951
|
|
|
|
|
|
|
|
3,588
|
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
19,039
|
|
Distribution from subsidiaries to minority
owners
|
|
|
(9,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,618
|
)
|
Expenditures for drydocking
|
|
|
(8,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow
|
|
|
143,069
|
|
|
|
|
|
|
|
7,312
|
|
|
|
|
|
|
|
|
|
|
|
150,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
1,226,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,226,804
|
|
Capitalized loan costs
|
|
|
(639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(639
|
)
|
Scheduled repayments of long-term debt
|
|
|
(29,884
|
)
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(39,884
|
)
|
Prepayments of long-term debt
|
|
|
(1,382,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,382,140
|
)
|
Repayments of capital lease obligations
|
|
|
(1,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,248
|
)
|
Net advances to affiliates
|
|
|
(12,829
|
)
|
|
|
|
|
|
|
1,830
|
|
|
|
|
|
|
|
|
|
|
|
(10,999
|
)
|
Equity distribution from Teekay Corporation
|
|
|
|
|
|
|
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
858
|
|
Investment in subsidiaries from
non-controlling interest owners
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow
|
|
|
(191,936
|
)
|
|
|
|
|
|
|
(7,312
|
)
|
|
|
|
|
|
|
|
|
|
|
(199,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment
|
|
|
(24,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,760
|
)
|
Proceeds from sale of vessels and
equipment
|
|
|
73,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,220
|
|
Investment in direct financing lease assets
|
|
|
(23,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,708
|
)
|
Direct financing lease payments received
|
|
|
12,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,440
|
|
Other
|
|
|
(3,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow
|
|
|
34,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(14,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,743
|
)
|
Adjustment for change in cash and cash
equivalents in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,970
|
|
|
|
|
|
|
|
10,970
|
|
Cash and cash equivalents, beginning of
the year
|
|
|
143,729
|
|
|
|
|
|
|
|
|
|
|
|
(13,426
|
)
|
|
|
|
|
|
|
130,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
|
128,986
|
|
|
|
|
|
|
|
|
|
|
|
(2,456
|
)
|
|
|
|
|
|
|
126,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 34
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
19.
|
|
Discontinued Operations
|
On July 1, 2006, the Predecessor sold Navion Shipping Ltd. to a subsidiary of Teekay Corporation
for $53.7 million. The resulting gain on sale of $18.5 million was accounted for as an equity
contribution by Teekay Corporation. At the time of the sale, all of the Predecessors chartered-in
conventional tankers were chartered-in by Navion Shipping Ltd. and subsequently time chartered to
a subsidiary of Teekay Corporation at charter rates that provided a fixed 1.25% profit margin.
These chartered-in conventional tankers were operated in the spot market by the subsidiary of
Teekay Corporation.
The loss from discontinued operations of Navion Shipping Ltd. is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
January 1
|
|
|
January 1
|
|
|
|
to
|
|
|
to
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
Voyage revenues
(1)
|
|
$
|
80,014
|
|
|
$
|
209,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income tax expense
|
|
$
|
(10,656
|
)
|
|
$
|
(19,347
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(10,656
|
)
|
|
$
|
(19,347
|
)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
During the six months ended June 30, 2006 and the year ended December 31, 2005, the
Predecessor earned $79.5 million and $194.0 million, respectively, of time charter
revenue from a subsidiary of Teekay Corporation pursuant to the agreement with Navion
Shipping Ltd.
|
|
|
|
During the six months ended June 30, 2006 and the year ended December 31, 2005, $10.7
million and $21.9 million, respectively, of general and administrative expenses
attributable to the operations of Navion Shipping Ltd. were incurred by Teekay
Corporation and have been allocated to Navion Shipping Ltd.
|
Prior to being reported as discontinued operations, these results were reported within the
conventional tanker segment.
F - 35
EXHIBIT 8.1
LIST OF SIGNIFICANT SUBSIDIARIES
The following is a list of Teekay Offshore Partners L.P.s significant subsidiaries as at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
Proportion of
|
|
|
|
State or
|
|
Ownership
|
|
Name of Significant Subsidiary
|
|
Jurisdiction of Incorporation
|
|
Interest
|
|
|
|
|
|
|
|
|
TEEKAY AUSTRALIA OFFSHORE HOLDINGS PTY LTD.
|
|
AUSTRALIA
|
|
|
100
|
%
|
NAVION
BERGEN L.L.C.
|
|
MARSHALL ISLANDS
|
|
|
100
|
%
|
NAVION
GOTHENBURG L.L.C.
|
|
MARSHALL ISLANDS
|
|
|
50
|
%
|
NAVION OFFSHORE LOADING AS
|
|
NORWAY
|
|
|
26
|
%
|
NORSK TEEKAY AS
|
|
NORWAY
|
|
|
26
|
%
|
NORSK TEEKAY HOLDINGS LTD.
|
|
MARSHALL ISLANDS
|
|
|
26
|
%
|
TEEKAY
EUROPEAN HOLDINGS S.A.R.L.
|
|
LUXEMBOURG
|
|
|
26
|
%
|
TEEKAY NAVION OFFSHORE LOADING PTE. LTD.
|
|
SINGAPORE
|
|
|
26
|
%
|
TEEKAY
NETHERLANDS EUROPEAN HOLDINGS BV.
|
|
NETHERLANDS
|
|
|
26
|
%
|
TEEKAY
NORDIC HOLDINGS INC.
|
|
MARSHALL ISLANDS
|
|
|
26
|
%
|
TEEKAY NORWAY AS
|
|
NORWAY
|
|
|
26
|
%
|
TEEKAY OFFSHORE OPERATING L.P.
|
|
MARSHALL ISLANDS
|
|
|
26
|
%
|
UGLAND NORDIC SHIPPING AS
|
|
NORWAY
|
|
|
26
|
%
|
F - 36
EXHIBIT 12.1
CERTIFICATION
I, Peter Evensen, certify that:
|
1.
|
|
I have reviewed this Annual Report on Form 20-F/A of Teekay Offshore Partners, L.P. (the
Registrant
);
|
|
2.
|
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
|
|
3.
|
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;
|
|
4.
|
|
I and the Registrants other certifying officer (which is also myself) are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
a)
|
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared;
|
|
b)
|
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
|
|
c)
|
|
Evaluated the effectiveness of the Registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
|
|
d)
|
|
Disclosed in this report any change in the Registrants internal control over
financial reporting that occurred during the Registrants most recent fiscal quarter
(the fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrants internal
control over financial reporting; and
|
|
5.
|
|
I and the Registrants other certifying officer (which is also myself) have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the
Registrants auditors and the audit committee of the board of directors of the Registrants
general partner (or persons performing the equivalent functions):
|
|
a)
|
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the Registrants ability to record, process, summarize and report financial
information; and
|
|
b)
|
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the Registrants internal control over financial
reporting.
|
|
|
|
|
|
Dated: April 2, 2009
|
By:
|
/s/ Peter Evensen
|
|
|
|
Peter Evensen
|
|
|
|
Chief Executive Officer
|
|
F - 37
EXHIBIT 12.2
CERTIFICATION
I, Peter Evensen, certify that:
|
1.
|
|
I have reviewed this Annual Report on Form 20-F/A of Teekay Offshore Partners, L.P. (the
Registrant
);
|
|
2.
|
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
|
|
3.
|
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;
|
|
4.
|
|
I and the Registrants other certifying officer (which is also myself) are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13(a)-15(e) and 15(d)-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:
|
|
a)
|
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared;
|
|
b)
|
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
|
|
c)
|
|
Evaluated the effectiveness of the Registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
|
|
d)
|
|
Disclosed in this report any change in the Registrants internal control over
financial reporting that occurred during the Registrants most recent fiscal quarter
(the fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrants internal
control over financial reporting; and
|
|
5.
|
|
I and the Registrants other certifying officer (which is also myself) have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the
Registrants auditors and the audit committee of the board of directors of the Registrants
general partner (or persons performing the equivalent functions):
|
|
a)
|
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the Registrants ability to record, process, summarize and report financial
information; and
|
|
b)
|
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the Registrants internal control over financial
reporting.
|
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|
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Dated: April 2, 2009
|
By:
|
/s/ Peter Evensen
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|
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Peter Evensen
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Chief Financial Officer
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F - 38
EXHIBIT 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Teekay Offshore Partners
L.P. (the
Partnership
) on Form
20-F/A for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on
the date hereof (the
Form 20-F/A
), I, Peter Evensen, Chief Executive Officer and Chief Financial
Officer of the Partnership, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of
the Sarbanes-Oxley Act of 2002, that:
(1)
|
|
The Form 20-F/A fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
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(2)
|
|
The information contained in the Form 20-F/A fairly presents, in all material respects, the
financial condition and results of operations of the Partnership.
|
Dated: April 2, 2009
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|
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By:
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/s/ Peter Evensen
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|
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|
Peter Evensen
|
|
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Chief Executive Officer and Chief Financial Officer
|
|
|
F - 39
EXHIBIT 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to 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 of its common units of our
report dated March 12, 2008, except for Notes 18 and 19, as to which the date is April 2, 2009,
with respect to the consolidated financial statements of Teekay Offshore Partners L.P. and its
subsidiaries, and our report dated March 12, 2008, except for paragraphs 5 through 7 of
Managements Annual Report on Internal Control over Financial Reporting (as restated), as to which
the date is April 2, 2009, on the effectiveness of internal control over financial reporting of
Teekay Offshore Partners L.P., and our report dated March 12, 2008, except for Notes 15 and 16, as
to which the date is April 2, 2009, on the consolidated balance sheet of Teekay Offshore GP L.L.C.,
included in the Annual Report (Form 20-F/A) for the year ended December 31, 2007.
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Vancouver, Canada
|
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/s/ ERNST & YOUNG LLP
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April 2, 2009
|
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Chartered Accountants
|
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F - 40
Exhibit 15.2
CONSOLIDATED BALANCE SHEET
OF
TEEKAY OFFSHORE GP L.L.C.
F - 42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
TEEKAY OFFSHORE GP L.L.C.
We have audited the accompanying consolidated balance sheet of Teekay Offshore GP L.L.C. as of
December 31, 2007. The balance sheet is the responsibility of the Companys management. Our
responsibility is to express an opinion on this consolidated balance sheet based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material misstatement. We were not
engaged to perform an audit of the Companys internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statements presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated balance sheet referred to above presents fairly, in all material
respects, the financial position of Teekay Offshore GP L.L.C. at December 31, 2007 in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 15 to the accompanying consolidated financial statement, the Company has
restated its consolidated balance sheet as of December 31, 2007.
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Vancouver, Canada
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/s/ Ernst & Young LLP
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March 12, 2008,
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Chartered Accountants
|
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except for Notes 15 and 16, as to
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|
as to which the date is April 2, 2009
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F - 36
TEEKAY OFFSHORE GP L.L.C. (Note 1)
CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)
|
|
|
|
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As at
|
|
|
|
December 31,
|
|
|
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2007
|
|
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(restated)
|
|
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$
|
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ASSETS
|
|
|
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Current
|
|
|
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Cash and cash equivalents
(note 6)
|
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121,506
|
|
Accounts receivable, net of allowance for doubtful accounts of $nil
|
|
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42,245
|
|
Net investment in direct financing leases current
|
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|
22,268
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Prepaid expenses
|
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34,219
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Other current assets
(notes 9f)
|
|
|
8,613
|
|
|
|
|
|
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Total current assets
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|
228,851
|
|
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|
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|
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|
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Vessels and equipment
(note 6)
|
|
|
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At cost, less accumulated depreciation of $674,722
|
|
|
1,662,865
|
|
|
|
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Net investment in direct financing leases
|
|
|
78,199
|
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Other assets
|
|
|
14,423
|
|
Intangible assets net
(note 4)
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55,355
|
|
Goodwill shuttle tanker segment
|
|
|
127,113
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|
|
|
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Total assets
|
|
|
2,166,806
|
|
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LIABILITIES AND MEMBERS EQUITY
|
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Current
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Accounts payable
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|
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12,076
|
|
Accrued liabilities (
note 5
)
|
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38,464
|
|
Current portion of long-term debt
(note 6)
|
|
|
64,060
|
|
|
|
|
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|
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Total current liabilities
|
|
|
114,600
|
|
|
|
|
|
Long-term debt
(note 6)
|
|
|
1,453,407
|
|
Deferred income taxes
(note 11)
|
|
|
77,306
|
|
Other long-term liabilities
(note 10)
|
|
|
51,024
|
|
|
|
|
|
|
|
|
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Total liabilities
|
|
|
1,696,337
|
|
|
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Commitments and contingencies
(notes 7, 9 and 12)
|
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|
|
|
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|
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Non-controlling interest
|
|
|
468,466
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|
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|
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Members equity
|
|
|
|
|
Members equity
|
|
|
1,997
|
|
Accumulated other comprehensive income
|
|
|
6
|
|
|
|
|
|
|
|
|
|
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Total members equity
|
|
|
2,003
|
|
|
|
|
|
|
|
|
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Total liabilities and members equity
|
|
|
2,166,806
|
|
|
|
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The accompanying notes are an integral part of the Consolidated Balance Sheet.
F - 43
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
1.
|
|
Summary of Significant Accounting Policies
|
Basis of presentation
Teekay Offshore GP L.L.C. (the
Company
or the
General Partner
), a Marshall Islands limited
liability company, was formed on August 25, 2006 to become the general partner of Teekay
Offshore Partners L.P. (the
Partnership
). The Company is a wholly owned subsidiary of Teekay
Corporation. On August 25, 2006, Teekay Corporation contributed $1,000 to the Company in
exchange for a 100% ownership interest. The Company initially invested $20 in the Partnership
for its 2% general partner interest.
During August 2006, Teekay Corporation formed the Partnership, a Marshall Islands limited
partnership, as part of its strategy to expand in the marine transportation, processing and
storage sectors of the offshore oil industry and for the Partnership to acquire, in connection
with the Partnerships initial public offering of its common units, a 26.0% interest in Teekay
Offshore Operating L.P. (or
OPCO
), consisting of a 25.99% limited partner interest to be held
directly by the Partnership and a 0.01% general partner interest to be held through the
Partnerships ownership of Teekay Offshore Operating GP L.L.C., OPCOs sole general partner.
Prior to the closing of the Partnerships initial public offering on December 19, 2006, Teekay
Corporation transferred eight Aframax conventional crude oil tankers to a subsidiary of Norsk
Teekay Holdings Ltd. (or
Norsk Teekay
) and one floating storage and offtake (or
FSO
) unit to
Teekay Offshore Australia Trust. Teekay Corporation then transferred to OPCO all of the
outstanding interests of four wholly-owned subsidiaries Norsk Teekay, Teekay Nordic Holdings
Inc., Teekay Offshore Australia Trust and Pattani Spirit L.L.C. These four wholly-owned
subsidiaries, the assets of which include the eight Aframax conventional crude oil tankers and
the FSO unit, are collectively referred to as
Teekay Offshore Partners Predecessor
or the
Predecessor
.
Immediately prior to the closing of the Partnerships initial public offering, Teekay
Corporation sold to the Partnership the 25.99% limited partner interest in OPCO and its
subsidiaries and a 100% interest in Teekay Offshore Operating GP L.L.C., which owns the 0.01%
general partner interest in OPCO. In exchange for the equity interests, Teekay Corporation
received 2,800,000 common units and 9,800,000 subordinated units from the Partnership and a
$134.6 million non-interest bearing promissory note. The Company received a 2.0% general partner
interest and all of the incentive distribution rights in the Partnership.
This consolidated balance sheet has been prepared in accordance with United States generally
accepted accounting principles (or
GAAP
). Effective January 1, 2007, we began consolidating the
Partnership on a prospective basis in accordance with Emerging Issues Task Force Issue No. 04-5,
Determining Whether a General Partner, of the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain Rights (EITF 04-5). EITF
04-5 presumes that a general partner controls a limited partnership and therefore should
consolidate the partnership in the financial statements of the general partner. Significant
intercompany balances and transactions have been eliminated upon consolidation. The preparation
of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the balance sheet and accompanying notes. Actual
results may differ from those estimates.
Reporting currency
The consolidated balance sheet and accompanying notes are stated in U.S. dollars. The functional
currency of the Partnership is U.S. dollars because the Partnership operates in international
shipping markets, the Partnerships primary economic environment, which typically utilize the
U.S. dollar as the functional currency. Transactions involving other currencies during the year
are converted into U.S. dollars using the exchange rates in effect at the time of the
transactions. At the balance sheet dates, monetary assets and liabilities that are denominated
in currencies other than the U.S. dollar are translated to reflect the year-end exchange rates.
Operating revenues and expenses
The Partnership recognizes revenues from time charters and bareboat charters daily over the term
of the charter as the applicable vessel operates under the charter. The Partnership does not
recognize revenue during days that the vessel is off-hire. Shuttle tanker voyages servicing
contracts of affreightment with offshore oil fields commence with tendering of notice of
readiness at a field, within the agreed lifting range, and ends with tendering of notice of
readiness at a field for the next lifting. All other voyage revenues from voyage charters are
recognized on a percentage of completion method. The Partnership uses a discharge-to-discharge
basis in determining percentage of completion for all spot voyages, whereby it recognizes
revenue ratably from when product is discharged (unloaded) at the end of one voyage to when it
is discharged after the next voyage. The Partnership does not begin recognizing voyage revenue
until a charter has been agreed to by the customer and the Partnership, even if the vessel has
discharged its cargo and is sailing to the anticipated load port on its next voyage. The
consolidated balance sheets reflect the deferred portion of revenues and expenses, which will be
earned and incurred, respectively, in subsequent periods. As at December 31, 2007, there was no
deferred revenue. As at December 31, 2007, the deferred portion of expenses, which are included
in prepaid expenses, was $25.4 million.
Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses,
port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils
and communication expenses. Voyage expenses and vessel operating expenses are recognized when
incurred.
F - 44
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
Cash and cash equivalents
The Partnership classifies all highly liquid investments with a maturity date of three months or
less when purchased as cash and cash equivalents.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance
for doubtful accounts is the Partnerships best estimate of the amount of probable credit losses
in existing accounts receivable. The Partnership determines the allowance based on historical
write-off experience and customer economic data. The Partnership reviews the allowance for
doubtful accounts regularly and past due balances are reviewed for collectibility. Account
balances are charged off against the allowance when the Partnership believes that the receivable
will not be recovered.
Vessels and equipment
All pre-delivery costs incurred during the construction of newbuildings, including interest,
supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to
restore used vessels purchased by the Partnership to the standards required to properly service
the Partnerships customers are capitalized.
Depreciation is calculated on a straight-line basis over a vessels estimated useful life, less
an estimated residual value. Depreciation is calculated using an estimated useful life of 25
years, commencing from the date the vessel is delivered from the shipyard, or a shorter period
if regulations prevent the Partnership from operating the vessel for 25 years.
Generally, the Partnership drydocks each shuttle tanker and conventional oil tanker every two
and a half to five years. FSO units are generally not drydocked. The Partnership capitalizes a
substantial portion of the costs incurred during drydocking and amortizes those costs on a
straight-line basis from the completion of a drydocking to the estimated completion of the next
drydocking. The Partnership expenses as incurred costs related to routine repairs and
maintenance performed during drydocking that do not improve or extend the useful lives of the
assets. When significant drydocking expenditures occur prior to the expiration of the original
amortization period, the remaining unamortized balance of the original drydocking cost are
expensed in the month of the subsequent drydocking.
Vessels and equipment that are held and used are assessed for impairment when events or
circumstances indicate the carrying amount of the asset may not be recoverable. If the assets
net carrying value exceeds the net undiscounted cash flows expected to be generated over its
remaining useful life, the carrying amount of the asset is reduced to its estimated fair value.
Estimated fair value is determined based on discounted cash flows or appraised values depending
on the nature of the asset.
Direct financing leases
The Partnership assembles, installs, operates and leases equipment that reduces volatile organic
compound emissions (or
VOC equipment
) during loading, transportation and storage of oil and oil
products. Leasing of the VOC equipment is accounted for as a direct financing lease with lease
payments received by the Partnership being allocated between the net investment in the lease and
other income using the effective interest method so as to produce a constant periodic rate of
return over the lease term.
Investment in joint ventures
Investments in companies over which the Partnership exercises significant influence but does not
consolidate are accounted for using the equity method, whereby the investment is carried at the
Partnerships original cost plus its proportionate share of undistributed earnings. The excess
carrying value of the Partnerships investment over its underlying equity in the net assets is
included in the consolidated balance sheet as investment in joint ventures. On December 1, 2006,
the operating agreements for the five 50%-owned joint ventures, each of which owns one shuttle
tanker, were amended. These amendments resulted in the Partnership obtaining control of these
entities and, consequently, the Partnership has consolidated these entities effective December
1, 2006. As at December 31, 2007, the Partnership had a 50% controlling interest in six
subsidiaries.
Debt issuance costs
Debt issuance costs, including fees, commissions and legal expenses, are presented as other
assets and capitalized and amortized on a straight-line basis over the term of the relevant
loan. Amortization of debt issuance costs is included in interest expense.
Goodwill and intangible assets
Goodwill is not amortized, but reviewed for impairment annually, or more frequently if
impairment indicators arise. A fair value approach is used to identify potential goodwill
impairment and, when necessary, measure the amount of impairment. The Partnership uses a
discounted cash flow model to determine the fair value of reporting units, unless there is a
readily determinable fair market value. Intangible assets with finite lives are amortized over
their useful lives.
F - 45
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
The Partnerships intangible assets, which consist of contracts of affreightment acquired as
part of the Predecessors purchase of Navion AS in 2003, are amortized over their respective
lives, with the amount amortized each year being weighted based on the projected revenue to be
earned under the contracts.
Derivative instruments
All derivative instruments are initially recorded at cost as either assets or liabilities in the
accompanying consolidated balance sheet and subsequently remeasured to fair value, regardless of
the purpose or intent for holding the derivative. The method of recognizing the resulting gain
or loss is dependent on whether the derivative contract is designed to hedge a specific risk and
also qualifies for hedge accounting. The Partnership generally does not designate its interest
rate swap agreements as cash flow hedges for accounting purposes. The Partnership generally
designates foreign exchange forward contracts as cash flow hedges for accounting purposes.
When a derivative is designated as a cash flow hedge, the Partnership formally documents the
relationship between the derivative and the hedged item. This documentation includes the
strategy and risk management objective for undertaking the hedge and the method that will be
used to assess the effectiveness of the hedge. Any hedge ineffectiveness is recognized
immediately in earnings, as are any gains and losses on the derivative that are excluded from
the assessment of hedge effectiveness. The Partnership does not apply hedge accounting if it is
determined that the hedge was not effective or will no longer be effective, the derivative was
sold or exercised, or the hedged item was sold, repaid or no longer possible of occurring.
For derivative financial instruments designated and qualifying as cash flow hedges, changes in
the fair value of the effective portion of the derivative financial instruments are initially
recorded as a component of accumulated other comprehensive income in partners equity. In the
periods when the hedged items affect earnings, the associated fair value changes on the hedging
derivatives are transferred from partners equity to the corresponding earnings line item. The
ineffective portion of the change in fair value of the derivative financial instruments is
immediately recognized in earnings. If a cash flow hedge is terminated and the originally hedged
items may still possibly affect earnings, the gains and losses initially recognized in partners
equity remain until the hedged item impacts earnings, at which point they are transferred to the
corresponding earnings line item. If the hedged items may no longer affect earnings, amounts
recognized in partners equity are immediately transferred to earnings.
For derivative financial instruments that are not designated or that do not qualify as hedges
under Statement of Financial Accounting Standards (or
SFAS
) No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, as amended, the changes in the fair value of the derivative
financial instruments are recognized in earnings.
Gains and losses from the Partnerships non-designated interest rate swaps that related to
long-term debt are recorded in interest expense. Gains and losses from the Partnerships foreign
exchange forward contracts are recorded within operating expenses, based on the nature of the
expense being hedged.
Income taxes
The Partnerships Norwegian subsidiaries and Australian subsidiary are subject to income taxes.
Deferred income taxes were $77.3 million as at December 31, 2007. The Partnership accounts for
such taxes using the liability method pursuant to SFAS No. 109,
Accounting for Income Taxes
(or
SFAS 109
).
In July 2006, the Financial Accounting Standards Board (or
FASB
) issued FASB Interpretation No.
48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109
(or
FIN 48
). This interpretation clarifies the accounting for uncertainty in income taxes recognized
in financial statements in accordance with SFAS 109. FIN 48 requires companies to determine
whether it is more-likely-than-not that a tax position taken or expected to be taken in a tax
return will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. If a tax position meets the
more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to
recognize in the financial statements based on guidance in the interpretation.
The Partnership adopted FIN 48 as of January 1, 2007. The adoption of FIN 48 did not have a
significant impact on the Partnerships financial position and results of operations. As of
January 1 and December 31, 2007, the Partnership did not have any material unrecognized tax
benefits or material accrued interest and penalties relating to taxes. The Partnership does not
expect any material changes to its unrecognized tax positions within the next twelve months.
The Partnership recognizes interest and penalties related to uncertain tax positions in income
tax expense. The 2006 and 2007 tax years remain open to examination by the major taxing
jurisdiction to which the Partnership is subject.
Recent Accounting Pronouncements
In March 2008, the FASB ratified a consensus opinion reached by the Emerging Issues Task Force
(or
EITF
) on EITF Issue No. 07-4,
Application of the Two-Class Method under FASB Statement No.
128, Earnings per Share to Master Limited Partnerships
(or
EITF Issue No. 07-4
). The guidance in
EITF Issue No. 07-4 requires incentive distribution rights in a master limited partnership, such
as the Partnership, to be treated as participating securities for the purposes of computing
earnings per share and provides guidance on how earnings should be allocated to the various
partnership interests. EITF Issue No. 07-4 is effective for fiscal years beginning after
December 15, 2008. The Partnership is currently evaluating the potential impact, if any, of the
adoption of EITF Issue No. 07-4 on its consolidated results of operations and financial
condition.
F - 46
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
In December 2007, the FASB issued SFAS No. 141(R):
Business Combinations
(or
SFAS 141(R
)), which
replaces SFAS No. 141
, Business Combinations
. This statement establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business combination. SFAS
141(R) is effective for fiscal years beginning after December 15, 2008. The Partnership is
currently evaluating the potential impact, if any, of the adoption of SFAS 141(R) on its
consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160:
Non-controlling Interests in Consolidated
Financial Statements, an Amendment of Accounting Research Bulletin No. 51
(or
SFAS 160
). This
statement establishes accounting and reporting standards for ownership interests in subsidiaries
held by parties other than the parent, the amount of consolidated net income attributable to the
parent and to the non-controlling interest, changes in a parents ownership interest, and the
valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between
the interests of the parent and the interests of the non-controlling owners. SFAS 160 is
effective for fiscal years beginning after December 15, 2008. The Partnership is currently
evaluating the potential impact, if any, of the adoption of SFAS 160 on its consolidated results
of operations and financial condition.
In February 2007, the FASB issued SFAS No. 159:
The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115
(or
SFAS 159
). This statement
permits entities to choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective for fiscal years beginning after November 15, 2007.
In September 2006, the FASB issued SFAS No. 157:
Fair Value Measurements
(or
SFAS 157
). This
statement defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value measurements.
This statement applies under other accounting pronouncements that require or permit fair value
measurements, and accordingly, does not require any new fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB delayed
for one year the effective date of adoption with respect to certain non-financial assets and
liabilities.
2.
|
|
Initial Public Offering
|
On December 19, 2006, the Partnership completed its initial public offering (or the
Offering
) of
8.05 million common units at a price of $21.00 per unit. This included 1.05 million common units
sold to the underwriters in connection with the exercise of their over-allotment option. The
proceeds received by the Partnership from the Offering and the use of those proceeds are
summarized as follows:
|
|
|
|
|
Proceeds received:
|
|
|
|
|
Sale of 8,050,000 common units at $21.00 per unit
|
|
$
|
169,050
|
|
|
|
|
|
|
|
|
|
|
Use of proceeds from sale of common units:
|
|
|
|
|
Underwriting and structuring fees
|
|
$
|
11,088
|
|
Professional fees and other offering expenses to third parties
|
|
|
2,793
|
|
Repayment of promissory notes and redemption of 1.05 million
common units from Teekay Corporation
|
|
|
155,169
|
|
|
|
|
|
|
|
$
|
169,050
|
|
|
|
|
|
The Partnership has three reportable segments: its shuttle tanker segment; its conventional
tanker segment; and its FSO segment. The Partnerships shuttle tanker segment consists of
shuttle tankers operating primarily on fixed-rate contracts of affreightment, time-charter
contracts or bareboat charter contracts. The Partnerships conventional tanker segment consists
of conventional oil tankers primarily operating on fixed-rate time-charter contracts. The
Partnerships 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 is the same as those used
in the preparation of the Partnerships consolidated financial statements.
F - 47
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
A reconciliation of total segment assets to total assets presented in the Companys accompanying
consolidated balance sheet is as follows:
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
$
|
|
|
|
|
|
|
Shuttle tanker segment
|
|
|
1,559,261
|
|
Conventional tanker segment
|
|
|
255,460
|
|
FSO segment
|
|
|
131,080
|
|
Cash and cash equivalents
|
|
|
121,506
|
|
Accounts receivable and other assets
|
|
|
99,499
|
|
|
|
|
|
Consolidated total assets
|
|
|
2,166,806
|
|
|
|
|
|
As at December 31, 2007, intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(years)
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Contracts of affreightment
|
|
|
10.2
|
|
|
|
124,250
|
|
|
|
(68,895
|
)
|
|
|
55,355
|
|
Amortization of intangible assets for the five fiscal years subsequent to December 31, 2007 is
expected to be $10.1 million (2008), $9.1 million (2009), $8.1 million (2010), $7.0 million
(2011) and $6.0 million (2012).
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
$
|
|
|
|
|
|
|
Voyage and vessel
|
|
|
26,015
|
|
Interest
|
|
|
10,932
|
|
Payroll and benefits
|
|
|
1,517
|
|
|
|
|
|
|
|
|
38,464
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
$
|
|
|
|
|
|
|
U.S. Dollar-denominated Revolving Credit Facilities due through 2017
|
|
|
1,205,808
|
|
U.S. Dollar-denominated Term Loans due through 2017
|
|
|
311,659
|
|
|
|
|
|
|
|
|
1,517,467
|
|
Less current portion
|
|
|
64,060
|
|
|
|
|
|
Total
|
|
|
1,453,407
|
|
|
|
|
|
As at December 31, 2007, the Partnership had three long-term revolving credit facilities
(collectively, the
Revolvers
), which, as at such date, provided for borrowings of up to $1,371.3
million, of which $165.5 million was undrawn. The total amount available under the Revolvers
reduces by $101.8 million (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 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 the OPCOs 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 Corporations total consolidated debt which is recoursed to Teekay
Corporation. The Revolvers are collateralized by first-priority mortgages granted on 28 of the
Partnerships vessels, together with other related collateral.
As at December 31, 2007, each of the Partnerships six 50% owned subsidiaries had an outstanding
term loan, which in the aggregate totaled $311.7 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 December 31, 2007, OPCO had guaranteed $103.8 million of these term
loans, which represents its 50% share of the outstanding vessel mortgage debt of five of these
50% owned subsidiaries. The other owner and Teekay Corporation have guaranteed the remaining
$207.9 million.
F - 48
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
Interest payments on the Revolvers and the term loans are based on LIBOR plus a margin. At
December 31, 2007, the margins ranged between 0.45% and 0.80%. The weighted-average effective
interest rate on the Partnerships long-term debt as at December 31, 2007 was 5.7%. This rate
does not reflect the effect of our interest rate swaps (Note 10).
The aggregate annual long-term debt principal repayments required to be made subsequent to
December 31, 2007 are $64.1 million (2008), $115.6 million (2009), $107.0 million (2010), $164.0
million (2011), $141.8 million (2012), and $925.0 million (thereafter).
Charters-out and Direct Financing Lease
Time charters and bareboat charters of the Partnerships vessels to customers are accounted for
as operating leases. The carrying amount of the vessels employed on operating leases at December
31, 2007 was $1.3 billion (2006 $1.1 billion). Leasing of the VOC equipment is accounted for
as direct financing leases. As at December 31, 2007, the minimum lease payments receivable under
the direct financing leases approximated $125.6 million, including unearned income of $25.1
million.
As at December 31, 2007, minimum scheduled future revenues under time charters and bareboat
charters and future scheduled payments under the direct financing leases, to be received by the
Partnership, then in place were approximately $1,846.2 million, comprised of $366.1 million
(2008), $292.1 million (2009), $218.4 million (2010), $166.6 million (2011), $155.2 million
(2012) and $647.8 million (thereafter).
The minimum scheduled future revenues should not be construed to reflect total charter hire
revenues for any of the years.
Charters-in
As at December 31, 2007, minimum commitments owing by the Partnership under vessel operating
leases by which the Partnership charters-in vessels were approximately $480.4 million, comprised
of $117.8 million (2008) $87.4 million (2009), $80.9 million (2010), $61.8 million (2011), $56.8
million (2012) and $75.7 million (thereafter). The Partnership recognizes the expense from these
charters, which is included in time-charter hire expense, on a straight-line basis over the firm
period of the charters.
8.
|
|
Fair Value of Financial Instruments
|
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
Cash
and cash equivalents
The fair value of the Companys cash and cash equivalents
approximate their carrying amounts reported in the accompanying consolidated balance sheet.
Derivative
instruments
The fair value of the Partnerships derivative instruments 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 fair value of the Companys financial instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
|
$
|
|
|
$
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
121,506
|
|
|
|
121,506
|
|
Advances to (from) affiliate (
note 9f
)
|
|
|
969
|
|
|
|
969
|
|
Long-term debt
|
|
|
(1,517,467
|
)
|
|
|
(1,517,467
|
)
|
Derivative instruments
(1)
(
note 10
)
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
(21,050
|
)
|
|
|
(21,050
|
)
|
Foreign currency forward contracts
|
|
|
1,122
|
|
|
|
1,122
|
|
|
|
|
(1)
|
|
The Partnership transacts all of its derivative instruments through investment-grade rated
financial institutions at the time of the transaction and requires no collateral from these
institutions.
|
F - 49
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
9.
|
|
Related Party Transactions
|
|
a.
|
|
The Partnership has entered into an omnibus agreement with Teekay Corporation, Teekay
LNG Partners L.P. 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.
|
|
b.
|
|
In July 2007, the Partnership acquired interests in two double-hull shuttle tankers
from Teekay Corporation for a total cost of $159.1 million, including assumption of debt of
$93.7 million and the related interest rate swap agreement. The Partnership acquired Teekay
Corporations 100% interest in the 2000-built
Navion Bergen
and its 50% interest in the
2006-built
Navion Gothenburg
, together with their respective 13-year, fixed-rate bareboat
charters to Petroleo Brasileiro S.A. The purchases were financed with one of the
Partnerships existing Revolvers and the assumption of debt.
|
|
c.
|
|
In October 2007, the Partnership acquired from Teekay Corporation an FSO unit, the
Dampier Spirit
, along with its 7-year fixed-rate time-charter to Apache Corporation for a
total cost of $30.3 million. The purchase was financed with one of the Partnerships
existing Revolvers.
|
|
d.
|
|
In December 2007, Teekay Corporation contributed a $65.6 million, nine-year, 4.98%
interest rate swap agreement (used to hedge the debt assumed in the purchase of the
Navion
Bergen
) having a fair value liability of $2.6 million (Note 10), to the Partnership for no
consideration.
|
|
e.
|
|
In December 2007, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to events which occurred prior to the Offering, totalling $4.8 million, including
the settlement of a customer dispute in respect of vessels delivered prior to the Offering
and other costs. This amount is included in other current assets.
|
|
f.
|
|
At December 31, 2007, advances to affiliates totaled $1.0 million. Advances to
affiliates are non-interest bearing and unsecured. This amount is included in other
current assets.
|
10.
|
|
Derivative Instruments and Hedging Activities
|
The Partnership uses derivatives in accordance with its overall risk management policies. The
following summarizes the Partnerships 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 generally
designated, for accounting purposes, 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 economically
hedged.
Changes in fair value of foreign exchange forward contracts that are not designated, for
accounting purposes, as cash flow hedges are recognized in earnings and are reported in
operating expenses, based on the nature of the expense being hedged.
As at December 31, 2007, the Partnership was committed to the following foreign exchange
contracts for the forward purchase of foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract amount in
|
|
|
Average
|
|
|
Expected maturity
|
|
|
|
foreign currency
|
|
|
forward rate
|
|
|
2008
|
|
|
2009
|
|
|
|
(millions)
|
|
|
|
|
|
(in millions of U.S. Dollars)
|
|
Norwegian Kroner
|
|
|
255.7
|
|
|
|
5.64
|
|
|
|
|
|
|
$
|
45.4
|
|
Australian Dollar
|
|
|
5.0
|
|
|
|
1.25
|
|
|
$
|
4.0
|
|
|
|
|
|
Singapore Dollar
|
|
|
4.1
|
|
|
|
1.44
|
|
|
$
|
2.9
|
|
|
|
|
|
Euro
|
|
|
4.0
|
|
|
|
0.68
|
|
|
$
|
5.8
|
|
|
|
|
|
As at December 31, 2007, the Companys accumulated other comprehensive income consisted of
unrealized gains on foreign exchange forward contracts designated as cash flow hedges.
The Partnership enters into interest rate swaps which exchange a receipt of floating interest
for a payment of fixed interest to reduce the Partnerships exposure to interest rate
variability on its outstanding floating rate debt. The Partnership has not designated, for
accounting purposes, its interest rate swaps as cash flow hedges of its USD LIBOR-denominated
borrowings.
F - 50
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
As at December 31, 2007, the Partnership was committed to the following interest rate swap
agreements related to its LIBOR-based debt, whereby certain of the Partnerships floating-rate
debt was swapped with fixed-rate obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value /
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Average
|
|
|
|
|
|
|
Interest
|
|
|
Principal
|
|
|
Amount of
|
|
|
Remaining
|
|
|
Fixed Interest
|
|
|
|
Rate
|
|
|
Amount
|
|
|
Liability
|
|
|
Term
|
|
|
Rate
|
|
|
|
Index
|
|
|
$
|
|
|
$
|
|
|
(years)
|
|
|
(%)
(1)
|
|
U.S. Dollar-denominated
interest rate swaps (restated)
|
|
LIBOR
|
|
|
935,000
|
|
|
|
(9,374
|
)
|
|
|
6.5
|
|
|
|
4.7
|
|
U.S. Dollar-denominated interest rate swaps
(2)
|
|
LIBOR
|
|
|
414,373
|
|
|
|
(11,676
|
)
|
|
|
13.3
|
|
|
|
5.0
|
|
|
|
|
(1)
|
|
Excludes the margin the Partnership pays on its variable-rate debt, which as at December 31, 2007, ranged from 0.50% and 0.80%.
|
|
(2)
|
|
Principal amount reduces quarterly or semiannually.
|
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; however, the
Partnership does not anticipate non-performance by any of the counter-parties.
The significant components of the deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
$
|
|
|
|
(restated)
|
|
Deferred tax liabilities:
|
|
|
|
|
Vessels and equipment
|
|
|
84,077
|
|
Goodwill and intangible assets
|
|
|
266
|
|
Long-term debt
|
|
|
94,071
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
178,414
|
|
Deferred tax assets:
|
|
|
|
|
Provisions
|
|
|
1,012
|
|
Tax losses carried forward
(1)
|
|
|
100,096
|
|
|
|
|
|
Total deferred tax assets
|
|
|
101,108
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
77,306
|
|
Current portion
|
|
|
|
|
|
|
|
|
Long-term portion of net deferred tax liabilities
|
|
|
77,306
|
|
|
|
|
|
|
|
|
(1)
|
|
The net operating loss carryfowards are available to offset future taxable income in the
respective jurisdictions, and can be carried forward indefinitely.
|
12.
|
|
Commitments and Contingencies
|
In June 2007, the Partnership exercised its option to purchase a 2001-built shuttle tanker,
which is currently part of the Partnerships in-chartered shuttle tanker fleet. As of December
31, 2007, the Partnership was committed to acquiring this vessel for $41.7 million. The vessel
will be delivered to the Partnership in March 2008 and the Partnership financed the purchase
through one of its revolving credit facilities.
13.
|
|
Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning
|
|
|
Balance at end of
|
|
|
|
of year
|
|
|
year
|
|
|
|
$
|
|
|
$
|
|
Allowance for bad debts:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring cost accrual:
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
71
|
|
|
|
|
|
F - 51
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
14.
|
|
Supplemental information
|
The following balance sheet shows the consolidation of the Teekay Offshore GP L.L.C. balance
sheet on a stand-alone basis with the balance sheet of Teekay Offshore Partners L.P., as of
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Teekay Offshore
|
|
|
Consolidation of
|
|
|
Teekay Offshore
|
|
|
|
G.P. L.L.C.
|
|
|
Teekay Offshore
|
|
|
G.P. L.L.C.
|
|
|
|
Stand-alone
|
|
|
Partners L.P.
|
|
|
Consolidated
|
|
|
|
|
|
|
(restated)
|
|
|
(restated)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
282
|
|
|
|
121,224
|
|
|
|
121,506
|
|
Accounts receivable, net of allowance for doubtful accounts of $nil
|
|
|
|
|
|
|
42,245
|
|
|
|
42,245
|
|
Net investment in direct financing leases current
|
|
|
|
|
|
|
22,268
|
|
|
|
22,268
|
|
Prepaid expenses
|
|
|
|
|
|
|
34,219
|
|
|
|
34,219
|
|
Other current assets
|
|
|
173
|
|
|
|
8,440
|
|
|
|
8,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
455
|
|
|
|
228,396
|
|
|
|
228,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation of $693,338
|
|
|
|
|
|
|
1,662,865
|
|
|
|
1,662,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
|
|
|
|
|
78,199
|
|
|
|
78,199
|
|
Other assets
|
|
|
3,046
|
|
|
|
11,377
|
|
|
|
14,423
|
|
Intangible assets net
|
|
|
|
|
|
|
55,355
|
|
|
|
55,355
|
|
Goodwill shuttle tanker segment
|
|
|
|
|
|
|
127,113
|
|
|
|
127,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
3,501
|
|
|
|
2,163,305
|
|
|
|
2,166,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS/PARTNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
12,076
|
|
|
|
12,076
|
|
Accrued liabilities
|
|
|
|
|
|
|
38,464
|
|
|
|
38,464
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
64,060
|
|
|
|
64,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
114,600
|
|
|
|
114,600
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
1,453,407
|
|
|
|
1,453,407
|
|
Deferred income taxes
|
|
|
|
|
|
|
77,306
|
|
|
|
77,306
|
|
Other long-term liabilities
|
|
|
|
|
|
|
51,024
|
|
|
|
51,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
1,696,337
|
|
|
|
1,696,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
|
|
|
|
468,466
|
|
|
|
468,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members/Partners equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Members/Partners equity
|
|
|
3,501
|
|
|
|
(1,504
|
)
|
|
|
1,997
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members/partners equity
|
|
|
3,501
|
|
|
|
(1,498
|
)
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members/partners equity
|
|
|
3,501
|
|
|
|
2,163,305
|
|
|
|
2,166,806
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
|
Restatement of Previously Issued Financial Statements
|
In August 2008, the Partnership commenced a review of its application of Statement of Financial
Accounting Standards (or
SFAS
) No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, as amended. Based on its review the Partnership concluded that certain of its
interest rate swap agreements and foreign currency forward contracts did not qualify for hedge
accounting treatment under SFAS No. 133 for the years ended December 31, 2003 to 2007. The
Partnerships findings were as follows:
|
|
|
One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based
on the Partnerships review, the Partnership concluded that the prospective hedge
effectiveness assessment that was conducted for certain of the Partnership interest rate
swaps on the date of designation was not sufficient to conclude that the interest rate
swaps would be highly effective in accordance with the technical requirements of SFAS No.
133, in achieving offsetting changes in cash flows attributable to the risk being hedged.
|
F - 52
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
|
|
|
To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of the
Partnerships interest rate swap agreements did not clearly specify the method to be used
to measure hedge ineffectiveness.
|
|
|
|
Certain of the Partnerships derivative instruments were designated as hedges when the
derivative instruments had a non-zero fair value. However, this designation was not
appropriate as the Partnership used certain methods of measuring ineffectiveness that are
prohibited in the case of non-zero fair value derivatives.
|
For accounting purposes the Partnership should have reflected changes in fair value of these
derivative instruments as increases or decreases to the Partnerships net income (loss) on its
consolidated statements of income (loss), instead of being reflected as increases or decreases
to accumulated other comprehensive income, a component of partners/owners equity on the
consolidated balance sheet.
The Partnership has also restated certain other items primarily related to accounting for the
non-controlling interest in one of its 50% owned subsidiaries and adjusting estimates related to
deferred income taxes and the fair value of derivative instruments at December 31, 2007.
As a result, the General Partner is restating herein its historical consolidated balance sheet
as of December 31, 2007. The following table presents the effect of the restatement on the
General Partners consolidated balance sheet (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
As
|
|
|
Instruments
|
|
|
As
|
|
|
|
Reported
|
|
|
and Other
|
|
|
Restated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
121,506
|
|
|
|
|
|
|
|
121,506
|
|
Accounts receivable, net of allowance for doubtful accounts of $nil
|
|
|
42,245
|
|
|
|
|
|
|
|
42,245
|
|
Net investment in direct financing leases current
|
|
|
22,268
|
|
|
|
|
|
|
|
22,268
|
|
Prepaid expenses
|
|
|
34,219
|
|
|
|
|
|
|
|
34,219
|
|
Other current assets
|
|
|
8,613
|
|
|
|
|
|
|
|
8,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
228,851
|
|
|
|
|
|
|
|
228,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation
|
|
|
1,662,865
|
|
|
|
|
|
|
|
1,662,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in direct financing leases
|
|
|
78,199
|
|
|
|
|
|
|
|
78,199
|
|
Other assets
|
|
|
14,423
|
|
|
|
|
|
|
|
14,423
|
|
Intangible assets net
|
|
|
55,355
|
|
|
|
|
|
|
|
55,355
|
|
Goodwill shuttle tanker segment
|
|
|
127,113
|
|
|
|
|
|
|
|
127,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,166,806
|
|
|
|
|
|
|
|
2,166,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS/PARTNERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
12,076
|
|
|
|
|
|
|
|
12,076
|
|
Accrued liabilities
|
|
|
38,464
|
|
|
|
|
|
|
|
38,464
|
|
Current portion of long-term debt
|
|
|
64,060
|
|
|
|
|
|
|
|
64,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
114,600
|
|
|
|
|
|
|
|
114,600
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,453,407
|
|
|
|
|
|
|
|
1,453,407
|
|
Deferred income taxes
|
|
|
75,706
|
|
|
|
1,600
|
|
|
|
77,306
|
|
Other long-term liabilities
|
|
|
50,024
|
|
|
|
1,000
|
|
|
|
51,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,693,737
|
|
|
|
2,600
|
|
|
|
1,696,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
470,995
|
|
|
|
(2,529
|
)
|
|
|
468,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members/Partners equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Members/Partners equity
|
|
|
2,181
|
|
|
|
(184
|
)
|
|
|
1,997
|
|
Accumulated other comprehensive (loss) income
|
|
|
(107
|
)
|
|
|
113
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total members/partners equity
|
|
|
2,074
|
|
|
|
(71
|
)
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members/partners equity
|
|
|
2,166,806
|
|
|
|
|
|
|
|
2,166,806
|
|
|
|
|
|
|
|
|
|
|
|
F - 53
TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
|
(a)
|
|
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.
|
|
(b)
|
|
On June 18, 2008, the Partnership completed a follow-on public offering of 7.0 million
common units at a price of $20.00 per unit, for gross proceeds of $140.0 million.
Concurrently with the public offering, Teekay Corporation acquired 3.25 million common units
of the Partnership at the same public offering price for a total cost of $65.0 million. On
July 16, 2008, the underwriters for the public offering partially exercised their
over-allotment option and purchased an additional 375,000 common units for an additional $7.5
million in gross proceeds to the Partnership.
|
As a result of these equity transactions, the Partnership raised gross proceeds of $216.8
million (including the General Partners proportionate 2% capital contribution), and Teekay
Corporations ownership of the Partnership was reduced from 59.8% to 50.0% (including its
indirect 2% general partner interest). The Partnership used the net proceeds from the equity
offerings of approximately $210.7 million to fund the acquisition of an additional 25% interest
in OPCO from Teekay Corporation on June 18, 2008 and to repay a portion of advances to the
Partnership from OPCO.
|
(c)
|
|
On June 18, 2008, OPCO acquired from Teekay Corporation two ship owning subsidiaries (SPT
Explorer L.L.C. and the SPT Navigator L.L.C.) for a total cost of approximately $106.0
million, including the assumption of debt of $90.0 million. The acquired subsidiaries own two
2008-built Aframax lightering tankers and their related 10-year, fixed-rate bareboat charters
(with options exercisable by the charterer to extend up to an additional five years) entered
into with Skaugen PetroTrans Inc., a company in which Teekay Corporation owns a 50%
beneficial interest. These two lightering tankers are specially designed to be used in
ship-to-ship oil transfer operations. This purchase was financed with the assumption of debt,
together with cash balances.
|
F - 54
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