Form
20-F
|
X
|
Form
40- F
|
Yes
|
No
|
X
|
Yes
|
No
|
X
|
Yes
|
No
|
X
|
PART I: FINANCIAL INFORMATION |
PAGE
|
||
Item 1. Financial Statements (Unaudited) | |||
Report
of Independent Registered Public Accounting Firm
|
3
|
||
Unaudited
Consolidated Statements of Income for
the three months ended March 31, 2007 and 2006
|
4
|
||
|
|||
Unaudited
Consolidated Balance Sheets as
at March 31, 2007 and December 31, 2006
|
5
|
||
Unaudited
Consolidated Statements of Cash Flows for
the three months ended March 31, 2007 and 2006
|
6
|
||
|
|
||
Unaudited
Consolidated Statements of Changes In Partners’ Equity for
the three months ended March 31, 2007
|
7
|
||
Notes
to the Unaudited Consolidated Financial Statements
|
8
|
||
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
15
|
||
Item
3. Quantitative and Qualitative Disclosures about Market Risk
|
28
|
||
PART
II: OTHER INFORMATION
|
30
|
||
SIGNATURES
|
31
|
Vancouver, Canada
May 21, 2007
|
/s/ ERNST & YOUNG LLP
Chartered
Accountants
|
Three
Months Ended March 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
VOYAGE
REVENUES (including
$36,013 and $58,058 from related parties for 2007 and 2006, respectively
-
notes
10a, 10b, 10d, and 10g)
|
190,752
|
205,016
|
|||||
OPERATING
EXPENSES
|
|||||||
Voyage
expenses
|
34,535
|
24,298
|
|||||
Vessel
operating expenses
|
30,219
|
26,896
|
|||||
Time-charter
hire expense
|
38,115
|
87,587
|
|||||
Depreciation
and amortization
|
28,591
|
25,870
|
|||||
General
and administrative (including $13,590 and $1,360 from related parties
for
2007 and 2006, respectively - notes
10c, 10f, and 10h)
|
15,174
|
21,851
|
|||||
Total
operating expenses
|
146,634
|
186,502
|
|||||
Income
from vessel operations
|
44,118
|
18,514
|
|||||
|
|||||||
OTHER
ITEMS
|
|||||||
Interest
expense (note
7)
|
(18,509
|
)
|
(11,660
|
)
|
|||
Interest
income
|
1,137
|
1,579
|
|||||
Equity
income from joint ventures
|
-
|
1,938
|
|||||
Foreign
currency exchange loss
|
(4,160
|
)
|
(4,953
|
)
|
|||
Income
tax recovery (expense) (note
12)
|
3,906
|
(2,444
|
)
|
||||
Other
income - net (note
9)
|
2,719
|
2,670
|
|||||
Total
other items
|
(14,907
|
)
|
(12,870
|
)
|
|||
Net
income before non-controlling interest
|
29,211
|
5,644
|
|||||
Non-controlling
interest (note
1)
|
(22,379
|
)
|
(163
|
)
|
|||
Net
income
|
6,832
|
5,481
|
|||||
General
partner’s interest in net income
|
137
|
-
|
|||||
Limited
partners’ interest: (note
14)
|
|||||||
Net
income
|
6,695
|
5,481
|
|||||
Net
income per:
|
|||||||
-
Common unit (basic and diluted)
|
0.35
|
0.44
|
|||||
-
Subordinated unit (basic and diluted)
|
0.33
|
0.44
|
|||||
-
Total unit (basic and diluted)
|
0.34
|
0.44
|
|||||
Weighted-average number of units outstanding:
|
|||||||
-
Common units (basic and diluted)
|
9,800,000
|
2,800,000
|
|||||
-
Subordinated units (basic and diluted)
|
9,800,000
|
9,800,000
|
|||||
-
Total units (basic and diluted)
|
19,600,000
|
12,600,000
|
|||||
Cash
distributions declared per unit
|
0.35
|
-
|
|
As
at
March
31,
2007
$
|
As
at
December
31,
2006
$
|
|||||
ASSETS
|
|||||||
Current | |||||||
Cash
and cash equivalents (note
7)
|
114,343
|
113,986
|
|||||
Accounts
receivable, net
|
34,959
|
24,635
|
|||||
Net
investment in direct financing leases - current (note
13a)
|
22,183
|
21,764
|
|||||
Prepaid
expenses
|
29,050
|
24,608
|
|||||
Other
assets
|
9,853
|
7,732
|
|||||
Total
current assets
|
210,388
|
192,725
|
|||||
Vessels
and equipment (note
7)
At
cost, less accumulated depreciation of $607,566 (December
31, 2006 - $581,994)
|
1,502,354
|
1,524,842
|
|||||
Net
investment in direct financing leases
(note 13a)
|
86,682
|
92,018
|
|||||
Other
assets
|
34,023
|
38,198
|
|||||
Intangible
assets - net (note
5)
|
63,406
|
66,425
|
|||||
Goodwill
(note
5)
|
127,113
|
127,113
|
|||||
Total
assets
|
2,023,966
|
2,041,321
|
|||||
LIABILITIES
AND PARTNERS’ EQUITY
|
|||||||
Current | |||||||
Accounts
payable
|
3,878
|
7,366
|
|||||
Accrued
liabilities
|
29,423
|
42,987
|
|||||
Current
portion of long-term debt (note
7)
|
18,980
|
17,656
|
|||||
Advances
from affiliate (note
10i)
|
10,713
|
16,951
|
|||||
Total
current liabilities
|
62,994
|
84,960
|
|||||
Long-term
debt (note
7)
|
1,268,711
|
1,285,696
|
|||||
Deferred
income taxes
|
69,661
|
71,583
|
|||||
Other
long-term liabilities
|
31,343
|
32,163
|
|||||
Total
liabilities
|
1,432,709
|
1,474,402
|
|||||
Commitments
and contingencies (notes
7, 10, 11 and 13)
|
|||||||
Non-controlling
interest
|
446,685
|
427,977
|
|||||
Partners’ equity
|
|||||||
Partners’
equity
|
139,530
|
133,642
|
|||||
Accumulated
other comprehensive income (note
8)
|
5,042
|
5,300
|
|||||
Total
partners’ equity
|
144,572
|
138,942
|
|||||
Total
liabilities and partners’ equity
|
2,023,966
|
2,041,321
|
Three
Months Ended March 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Cash
and cash equivalents provided by (used for)
|
|||||||
OPERATING
ACTIVITIES
|
|||||||
Net
income
|
6,832
|
5,481
|
|||||
Non-cash
items:
|
|||||||
Depreciation
and amortization
|
28,591
|
25,870
|
|||||
Non-controlling
interest
|
22,379
|
163
|
|||||
Deferred
income tax (recovery) expense
|
(3,906
|
)
|
2,179
|
||||
Equity
loss (net of dividends received: March 31, 2006 - $2,500)
|
-
|
562
|
|||||
Unrealized
foreign currency exchange loss and other - net
|
8,239
|
6,675
|
|||||
Change
in non-cash working capital items related to operating
activities
|
(37,723
|
)
|
(39,347
|
)
|
|||
Expenditures
for drydocking
|
(5,527
|
)
|
(66
|
)
|
|||
Net
operating cash flow
|
18,885
|
1,517
|
|||||
FINANCING
ACTIVITIES
|
|||||||
Proceeds
from long-term debt
|
-
|
221,855
|
|||||
Scheduled
repayments of long-term debt
|
(2,661
|
)
|
-
|
||||
Prepayment
of long-term debt
|
(13,000
|
)
|
(79,080
|
)
|
|||
Expenses
from initial public offering of common units
|
(1,392
|
)
|
-
|
||||
Net
advances to affiliate
|
-
|
(175,301
|
)
|
||||
Distribution
from subsidiaries to minority owners
|
(2,846
|
)
|
-
|
||||
Cash
distributions paid
|
(1,000
|
)
|
-
|
||||
Other
|
-
|
(313
|
)
|
||||
Net
financing cash flow
|
(20,899
|
)
|
(32,839
|
)
|
|||
INVESTING
ACTIVITIES
|
|||||||
Expenditures
for vessels and equipment
|
(2,530
|
)
|
(1,516
|
)
|
|||
Investment
in direct financing leases
|
(155
|
)
|
(1,609
|
)
|
|||
Repayment
of direct financing leases
|
5,056
|
4,496
|
|||||
Net
investing cash flow
|
2,371
|
1,371
|
|||||
Increase
(decrease) in cash and cash equivalents
|
357
|
(29,951
|
)
|
||||
Cash
and cash equivalents, beginning of the period
|
113,986
|
128,986
|
|||||
Cash
and cash equivalents, end of the period
|
114,343
|
99,035
|
PARTNERS’
EQUITY
|
||||||||||||||||||||||
Limited
Partners
|
||||||||||||||||||||||
Common
|
Subordinated
|
General
Partner
|
Accumulated
Other Comprehensive Income
|
Total
|
||||||||||||||||||
Units
|
|
$
|
Units
|
$
|
$
|
$
|
$
|
|||||||||||||||
Balance
as at December 31, 2006
|
9,800
|
134,714
|
9,800
|
(1,052
|
)
|
(20
|
)
|
5,300
|
138,942
|
|||||||||||||
Net
income (January 1 - March 31, 2007)
|
3,430
|
3,265
|
137
|
6,832
|
||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||
Unrealized
gain on derivative instruments (notes
8 and 11)
|
141
|
141
|
||||||||||||||||||||
Reclassification
adjustment for gain on derivative instruments included in
net
income (notes
8 and 11)
|
(399
|
)
|
(399
|
)
|
||||||||||||||||||
Offering
costs from public offering of limited partnership
interests
|
56
|
56
|
||||||||||||||||||||
Cash
distribution
|
(490
|
)
|
(490
|
)
|
(20
|
)
|
(1,000
|
)
|
||||||||||||||
Balance
as at March 31, 2007
|
9,800
|
137,710
|
9,800
|
1,723
|
97
|
5,042
|
144,572
|
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
|
2,644
|
|||
Repayment
of promissory note and redemption of 1.05 million common units from
Teekay
Shipping Corporation
|
155,318
|
|||
$
|
169,050
|
Three
Months Ended March 31,
|
|||||||||||||||||||||||||
2007
|
2006
|
||||||||||||||||||||||||
Shuttle
Tanker Segment
$
|
Conventional
Tanker
Segment
$
|
FSO
Segment
$
|
Total
$
|
Shuttle
Tanker Segment
$
|
Conventional
Tanker
Segment
$
|
FSO
Segment
$
|
Total
$
|
||||||||||||||||||
Voyage
revenues
|
146,146
|
38,889
|
5,717
|
190,752
|
139,610
|
59,403
|
6,003
|
205,016
|
|||||||||||||||||
Voyage
expenses
|
24,821
|
9,464
|
250
|
34,535
|
22,441
|
1,595
|
262
|
24,298
|
|||||||||||||||||
Vessel
operating expenses
|
22,743
|
6,002
|
1,474
|
30,219
|
19,685
|
5,585
|
1,626
|
26,896
|
|||||||||||||||||
Time
charter hire expense
|
38,115
|
-
|
-
|
38,115
|
45,837
|
41,750
|
-
|
87,587
|
|||||||||||||||||
Depreciation
and amortization
|
20,695
|
5,585
|
2,311
|
28,591
|
18,139
|
5,379
|
2,352
|
25,870
|
|||||||||||||||||
General
and administrative(1)
|
12,708
|
2,023
|
443
|
15,174
|
13,966
|
7,408
|
477
|
21,851
|
|||||||||||||||||
Income
from vessel operations
|
27,064
|
15,815
|
1,239
|
44,118
|
19,542
|
(2,314
|
)
|
1,286
|
18,514
|
||||||||||||||||
Voyage
revenues - intersegment
|
-
|
-
|
-
|
-
|
1,133
|
-
|
-
|
1,133
|
|||||||||||||||||
Expenditures
for vessels and equipment
|
670
|
1,848
|
12
|
2,530
|
991
|
525
|
-
|
1,516
|
(1) |
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated
use
of corporate resources).
|
March
31,
2007
$
|
December
31,
2006
$
|
||||||
Shuttle
tanker segment
|
1,421,486
|
1,445,830
|
|||||
Conventional
tanker segment
|
307,151
|
310,699
|
|||||
FSO
segment
|
73,101
|
75,633
|
|||||
Unallocated: | |||||||
Cash
and cash equivalents
|
114,343
|
113,986
|
|||||
Accounts
receivable, prepaid expenses and other assets
|
107,885
|
95,173
|
|||||
Consolidated
total assets
|
2,023,966
|
2,041,321
|
Shuttle
Tanker
Segment
$
|
Conventional
Tanker
Segment
$
|
FSO
Segment
$
|
Total
$
|
||||||||||
Balance
as of March 31, 2007 and December 31, 2006
|
127,113
|
-
|
-
|
127,113
|
March
31, 2007
|
December
31, 2006
|
|||||||||||||||||||||
Weighted-Average
Amortization
Period
(years)
|
Gross
Carrying
Amount
$
|
Accumulated
Amortization
$
|
Net
Carrying
Amount
$
|
Gross
Carrying Amount
$
|
Accumulated
Amortization
$
|
Net
Carrying
Amount
$
|
||||||||||||||||
Contracts
of affreightment
|
10.2
|
124,250
|
(60,844)
|
|
63,406
|
124,250
|
(57,825)
|
|
66,425
|
March
31,
2007
$
|
December
31,
2006
$
|
||||||
U.S.
Dollar-denominated Revolving Credit Facilities due through
2014
|
1,067,000
|
1,080,000
|
|||||
U.S.
Dollar-denominated Term Loans due through 2015
|
220,691
|
223,352
|
|||||
1,287,691
|
1,303,352
|
||||||
Less
current portion
|
18,980
|
17,656
|
|||||
Total
|
1,268,711
|
1,285,696
|
Three
Months Ended March 31,
|
|||||||
2007
$
|
2006
$
|
||||||
Net
income
|
6,832
|
5,481
|
|||||
Other
comprehensive income:
|
|||||||
Unrealized
gain on derivative instruments
|
141
|
677
|
|||||
Reclassification
adjustment for (gain) loss on derivative instruments included in
net
income
|
(399
|
)
|
1
|
||||
Comprehensive
income
|
6,574
|
6,159
|
Three
Months Ended March 31,
|
|||||||
2007
$
|
2006
$
|
||||||
Volatile
organic compound emissions plant lease income
|
2,773
|
2,654
|
|||||
Miscellaneous
|
(54
|
)
|
16
|
||||
Other
income - net
|
2,719
|
2,670
|
a. |
Navion
Shipping Ltd., a subsidiary of the Predecessor, time-chartered vessels
to
a subsidiary of Teekay Shipping Corporation at charter rates that
provided
for a 1.25% fixed profit margin. Pursuant to this arrangement, the
Predecessor earned voyage revenues of $44.8 million during the three
months ended March 31, 2006.
|
b. |
On
October 1, 2006, OPCO entered into new time-charter contracts for
its nine
Aframax-class conventional tankers with a subsidiary of Teekay Shipping
Corporation at 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 will add
the
approximate amounts of these expenses to the daily hire rate. Pursuant
to
these time-charter contracts, OPCO earned voyage revenues of $32.9
million
for the three months ended March 31,
2007.
|
c. |
Eight
of OPCO’S Aframax conventional oil tankers and two FSO units have been
managed by subsidiaries of Teekay Shipping Corporation. Pursuant
to the
associated management services agreements, the Partnership incurred
general and administrative expenses of $1.1 million and $1.4 million
during the three months ended March 31, 2007 and 2006, respectively.
|
d. |
Two
of OPCO’s FSO units have been employed on long-term bareboat charters with
subsidiaries of Teekay Shipping Corporation. Pursuant to these charter
contracts, the Partnership has earned voyage revenues of $2.5 million
and
$2.6 million during the three months ended March 31, 2007 and 2006,
respectively.
|
e. |
The
Partnership has entered into an omnibus agreement with Teekay Shipping
Corporation, Teekay LNG Partners L.P., the General Partner and others
governing, among other things, when the Partnership, Teekay Shipping
Corporation and Teekay LNG Partners L.P. may compete with each other
and
certain rights of first offering on LNG carriers, oil tankers, shuttle
tankers, FSO units and floating production, storage and offloading
units.
|
f. |
The
Partnership, OPCO and certain of OPCO’s operating subsidiaries have
entered into services agreements with certain subsidiaries of Teekay
Shipping Corporation, pursuant to which Teekay Shipping Corporation
subsidiaries provide the Partnership, OPCO and its operating subsidiaries
with administrative, advisory, technical and strategic consulting
services
and ship management services. During the three months ended March
31,
2007, the Partnership incurred $12.4 million of these costs. Prior
to the
Offering, the shore-based staff providing these services to the
Predecessor were transferred to a subsidiary of Teekay Shipping
Corporation.
|
g. |
A
subsidiary of Teekay Shipping Corporation has entered into a services
agreement with a subsidiary of OPCO, pursuant to which the subsidiary
of
OPCO provides Teekay Shipping Corporation’s subsidiary with ship
management services. During the three months ended March 31, 2007,
the
Partnership earned management fees of $0.6 million.
|
h. |
The
Partnership reimburses the General Partner for all expenses incurred
by
the Partnership that are necessary or appropriate for the conduct
of the
Partnership’s business. During the three months ended March 31, 2007, the
Partnership incurred $0.1 million of these
costs.
|
i. |
Advances
from affiliates are non-interest bearing and
unsecured.
|
|
Interest
Rate
Index
|
Principal
Amount
$
|
Fair
Value/
Carrying
Amount
of
Liability
$
|
Weighted-
Average
Remaining
Term
(years)
|
Fixed
Interest
Rate
(%)(1)
|
U.S.
Dollar-denominated interest rate swaps(2)
|
LIBOR
|
55,000
|
755
|
7.3
|
4.7
|
U.S.
Dollar-denominated interest rate swaps
|
LIBOR
|
1,423,987
|
19,746
|
7.4
|
4.9
|
Three
Months Ended March 31,
|
|||||||
2007
$
|
2006
$
|
||||||
Current
|
-
|
(265
|
) | ||||
Deferred | 3,906 |
(2,179
|
)
|
||||
Income tax recovery (expense) | 3,906 |
(2,444
|
)
|
|
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)
|
OPCO
pays
|
Customer
pays
|
Customer
pays
|
OPCO
pays
|
Vessel
operating expenses (3)
|
OPCO
pays
|
OPCO
pays
|
Customer
pays
|
OPCO
pays
|
Off-hire
(4)
|
Customer
typically does not pay
|
Varies
|
Customer
typically pays
|
Customer
does not pay
|
§ |
Our
cash flow is reduced by distributions on Teekay
Shipping Corporation’s
interest in OPCO. Following
the closing of our initial public offering, Teekay Shipping Corporation
has a 74% limited partner interest in OPCO. OPCO’s 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 at OPCO, including reserves for future maintenance
capital
expenditures, working capital and other matters. Distributions by
OPCO to
Teekay Shipping Corporation as one of its limited partners will reduce
our
cash flow compared to historical
results.
|
§ |
On
July 1, 2006, OPCO transferred certain assets to Teekay
Shipping Corporation
that are included in historical results of operations.
On
July 1, 2006, prior to our initial public offering, OPCO transferred
to Teekay Shipping 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
Teekay Shipping Corporation at charter rates that provided for a
1.25%
fixed profit margin. In addition, OPCO transferred to Teekay Shipping
Corporation a 1987-built shuttle tanker (the Nordic
Trym),
OPCO’s single-anchor loading equipment, a 1992-built in-chartered shuttle
tanker (the Borga)
and a 50% interest in Alta Shipping S.A., which has no material assets
(collectively with Navion Shipping Ltd., the Non-OPCO Assets).
During the three months ended March 31, 2006, the Non-OPCO Assets
accounted for approximately 26.3% of OPCO’s net voyage revenues.
|
§ |
Amendments
to OPCO’s joint venture agreements have resulted in
five 50%-owned
joint venture companies being consolidated with us under GAAP.
Our
historical results of operations prior to December 1, 2006 reflect
OPCO’s
investment in five 50%-owned joint venture companies, accounted for
using
the equity method, whereby the investment is carried at the original
cost
plus OPCO’s proportionate share of undistributed earnings. On December 1,
2006, the operating agreements for these joint ventures were amended
such
that OPCO obtained control of these joint ventures, resulting in
the
consolidation of these five joint venture companies in accordance
with
GAAP. Although our net income will not change due to this change
in
accounting, the results of the joint ventures are reflected in our
income
from operations, commencing December 1, 2006. This change also resulted
in
the five shuttle tankers owned by these joint ventures to be included
in
the number of vessels in OPCO’s owned fleet for periods subsequent to
December 1, 2006.
|
§ |
The
size of OPCO’s fleet continues to change. Our
historical results of operations reflect changes in the size and
composition of OPCO’s 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 OPCO’s shuttle tanker fleet
increased from 21 in 2006 to 24 during the three months ended March
31,
2007. In addition, the Navion
Saga
completed its conversion from a conventional oil tanker to an FSO
unit and
commenced operations as an FSO unit during the second quarter of
2007. As
a result, OPCO’s FSO fleet will include four vessels commencing in the
second quarter of 2007, compared to three during recent years. Please
read
“— Results of Operations” below for further details about vessel
dispositions and deliveries. Due to the nature of our business, we
expect
our fleet to continue to fluctuate in size and
composition.
|
§ |
Our
financial results of operations reflect different time charter terms
for
OPCO’s nine conventional tankers.On
October 1, 2006, OPCO entered into new fixed-rate time charters with
a
subsidiary of Teekay Shipping Corporation for OPCO’s nine conventional
tankers at rates we believe were market-based charter rates. Under
the
terms of eight of these nine time-charter contracts, OPCO is responsible
for the bunker fuel expenses; however, OPCO will add the approximate
amounts of these expenses to the daily hire rate. Please read Item
1 -
Financial Statements: Note 10 - Related Party Transactions. At various
times during the previous three years, eight of these nine conventional
tankers were employed on time charters with the same subsidiary of
Teekay
Shipping 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. A ninth
conventional tanker was employed on voyage charters. The new fixed-rate
time charters have increased our voyage revenues as well as provided
more
stable voyage revenues for these
vessels.
|
§ |
Our
financial results of operations are affected by fluctuations in
currency exchange
rates.
Prior to the closing of our initial public offering, OPCO settled
its
foreign currency denominated advances. In October 2006, Teekay Shipping
Corporation loaned 5.6 billion Norwegian Kroner ($863.0 million)
to a
subsidiary of OPCO primarily for the purchase of eight Aframax-class
conventional crude oil tankers from Teekay Shipping Corporation.
Immediately preceding the initial public offering, this interest-bearing
loan was sold to OPCO. Under 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 OPCO’s crewing expenses historically have been denominated in Norwegian
Kroners, 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 entered into new services agreements with subsidiaries
of
Teekay Shipping 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 Shipping
Corporation’s cost of providing services based on fluctuations in the
value of the Kroner relative to the U.S. Dollar. We may seek to hedge
this currency fluctuation risk in the future.
|
§ |
We
have entered into services agreements with subsidiaries of Teekay
Shipping
Corporation. Prior
to the closing of our initial public offering, we, OPCO and certain
of its
subsidiaries entered into services agreements with subsidiaries of
Teekay
Shipping Corporation, pursuant to which those subsidiaries provide
certain
services, including strategic consulting, advisory, ship management,
technical and administrative services. Our cost for these services
depends
on the amount and types of services provided during each period.
The
services are valued at an arm’s-length rate that will include
reimbursement of reasonable direct or indirect expenses incurred
to
provide the services. We also reimburse our general partner for all
expenses it incurs on our behalf, including CEO/CFO compensation
and
expenses relating to its Board of Directors, including compensation,
travel and liability insurance costs. We may also grant equity
compensation that would result in an expense to us.
|
§ |
We
are incurring additional general and administrative expenses.
As
a result of being a publicly-traded limited partnership, since
our initial
public offering on December 19, 2006, we have begun to incur costs
associated with annual reports to unitholders and SEC filings,
investor
relations, NYSE annual listing fees and tax compliance
expenses.
|
|
Three
Months Ended
March
31, 2007
|
Three
Months Ended
March
31, 2006
|
|||||||||||||||||||||||
Shuttle
Tanker
Segment
|
Conventional
Tanker
Segment
|
FSO
Segment
|
Total
|
Shuttle
Tanker
Segment
|
Conventional
Tanker
Segment
|
FSO
Segment
|
Total
|
||||||||||||||||||
($000’s)
|
($000’s)
|
($000’s)
|
($000’s)
|
($000’s)
|
($000’s)
|
($000’s)
|
($000’s)
|
||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Voyage
revenues
|
146,146
|
38,889
|
5,717
|
190,752
|
139,610
|
59,403
|
6,003
|
205,016
|
|||||||||||||||||
Voyage
expenses
|
24,821
|
9,464
|
250
|
34,535
|
22,441
|
1,595
|
262
|
24,298
|
|||||||||||||||||
Net
voyage revenues
|
121,325
|
29,425
|
5,467
|
156,217
|
117,169
|
57,808
|
5,741
|
180,718
|
|||||||||||||||||
Vessel
operating expenses
|
22,743
|
6,002
|
1,474
|
30,219
|
19,685
|
5,585
|
1,626
|
26,896
|
|||||||||||||||||
Time
charter expense
|
38,115
|
-
|
-
|
38,115
|
45,837
|
41,750
|
-
|
87,587
|
|||||||||||||||||
Depreciation
and amortization
|
20,695
|
5,585
|
2,311
|
28,591
|
18,139
|
5,379
|
2,352
|
25,870
|
|||||||||||||||||
General
and administrative
(1)
|
12,708
|
2,023
|
443
|
15,174
|
13,966
|
7,408
|
477
|
21,851
|
|||||||||||||||||
Income
from vessel operations
|
27,064
|
15,815
|
1,239
|
44,118
|
19,542
|
(2,314
|
)
|
1,286
|
18,514
|
Three
Months Ended March 31,
|
||||||||||
2007
(Average
Number of Ships)
|
2006
(Average
Number of Ships)
|
Percentage
Change
(%)
|
||||||||
Owned
Vessels
|
24
|
21
|
14.3
|
|||||||
Chartered-in
Vessels
|
12
|
15
|
(20.0)
|
|
||||||
Total
|
36
|
36
|
0.0
|
§ |
the
consolidation into our results of the five vessels owned by OPCO’s
50%-owned joint ventures, effective December 1, 2006 upon amendments
to
the applicable operating agreements, which granted OPCO control of
the
joint ventures (the Consolidation
of Joint Ventures);
|
§ |
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 Shipping Corporation in November 2006 (collectively, the
2006
Shuttle Tanker Dispositions).
|
§ |
the
redelivery of one chartered-in vessel back to its owner in April
2006;
and
|
§ |
the
sale in July 2006 of a time charter-in contract for a 1992-built
shuttle
tanker (the Borga)
to Teekay Shipping Corporation.
|
§ |
an
increase of $11.7 million due to the Consolidation of Joint Ventures;
and
|
§ |
an
increase of $2.2 million due to the renewal of three vessels on time
charter at higher daily rates during
2006;
|
§ |
a
decrease of $3.6 million due to the 2006 Shuttle Tanker Dispositions;
|
§ |
a
decrease of $2.7 million from the redelivery of one chartered-in
vessel to
its owner in April 2006;
|
§ |
a
decrease of $2.4 million due to the sale of the time charter-in contract
for the Borga;
and
|
§ |
a
decrease of $1.4 million in revenues earned by our shuttle tankers
servicing contracts of affreightment due to a decline in oil production
at
mature oil fields in the North Sea, net of revenue from the redeployment
of excess capacity to a bareboat
charter.
|
§ |
an
increase of $3.9 million due to the Consolidation of Joint Ventures;
and
|
§ |
an
increase of $1.3 million in salaries for crew and officers primarily
due
to general wage escalations and a change in the crew rotation
system;
|
§ |
a
decrease of $1.2 million due to the 2006 Shuttle Tanker Dispositions;
and
|
§ |
a
decrease of $1.1 million relating to repairs and maintenance for
certain vessels during the three months ended March 31,
2006.
|
§ |
an
increase of $3.7 million due to the Consolidation of Joint Ventures;
and
|
§ |
an
increase of $0.6 million from the amortization of drydocking costs
incurred during 2006;
|
§ |
a
decrease of $1.7 million relating to the 2006 Shuttle Tanker
Dispositions.
|
Three
Months Ended March 31,
|
||||||||||
2007
(Average
Number of Ships)
|
2006
(Average
Number of Ships)
|
Percentage
Change
(%)
|
||||||||
Owned
Vessels
|
10
|
10
|
0.0
|
|||||||
Chartered-in
Vessels
|
-
|
25
|
(100.0)
|
|
||||||
Total
|
10
|
35
|
(71.4)
|
|
§ |
a
decrease of $42.2 million from the sale of Navion Shipping Ltd.;
|
§ |
an
increase of $10.9 million from higher hire rates earned by the nine
owned Aframax-class conventional tankers on time charters with a
subsidiary of Teekay Shipping Corporation (please read Items
You Should Consider When Evaluating Our Results - Our financial results
of
operations reflect different time charter terms for OPCO’s nine
conventional tankers);
and
|
§ |
an
increase of $2.9 million relating to the Navion
Saga
temporarily trading in the spot market as a conventional crude oil
tanker
during the three months ended March 31, 2007, compared to the same
period
last year when the vessel was employed on a time charter with a subsidiary
of Teekay Shipping Corporation at a lower daily hire rate.
|
Three
Months Ended March 31,
|
||||||||||
2007
(Average
Number of Ships)
|
2006
(Average
Number of Ships)
|
Percentage
Change
(%)
|
||||||||
Owned
Vessels
|
3
|
3
|
0.0
|
§ |
a
decrease of $6.4 million in general and administrative expenses (through
services agreements we, OPCO and certain of its subsidiaries entered
into
with subsidiaries of Teekay Shipping Corporation in connection with
our
initial public offering), allocated to us from Teekay Shipping Corporation
as a result of the sale of Navion Shipping Ltd. to Teekay Shipping
Corporation in July 2006. Prior to our initial public offering,
general
and administrative expenses were allocated based on OPCO’s proportionate
share of Teekay Shipping Corporation’s total ship-operating (calendar)
days for each of the periods presented;
|
§ |
an
increase of $0.5 million relating to additional expenses as a result
of
our being a publicly-traded limited partnership since our initial
public
offering in December 2006.
|
§ |
an
increase of $10.3 million relating to additional debt of $745 million
under a new revolving credit facility entered into during the fourth
quarter of 2006; and
|
§ |
an
increase of $3.2 million due to the Consolidation of Joint Ventures;
|
§ |
a
decrease of $3.4 million relating to the settlement of
interest-bearing advances from affiliates during the fourth quarter
of
2006;
|
§ |
a
decrease of $2.3 million relating to interest incurred by the
Predecessor on one of its revolving credit facilities during the
three
months ended March 31, 2006, which was not transferred to OPCO prior
to
our initial public offering; and
|
§ |
a
decrease of $1.7 million relating to interest incurred on one of
the
revolving credit facilities during the three months ended March 31,
2006,
which was prepaid and cancelled prior to our initial public
offering.
|
Three
Months Ended March 31,
|
|||||||
2007
($000’s)
|
2006
($000’s)
|
||||||
Net
cash flow from operating activities
|
18,885
|
1,517
|
|||||
Net
cash flow from financing activities
|
(20,899
|
)
|
(32,839
|
)
|
|||
Net
cash flow from investing activities
|
2,371
|
1,371
|
§ |
Amended
Revolving Credit Facility.
This 8-year amended reducing revolving credit facility allows OPCO
and it
subsidiaries to borrow up to $455 million and may be used for
acquisitions and for general partnership purposes. Obligations under
this
credit facility are collaterized by first-priority mortgages on eight
of
our vessels. Borrowings under the facility may be prepaid at any
time in
amounts of not less than
$5.0 million.
|
§ |
New
Revolving Credit Facility.
This 8-year reducing revolving credit facility allows for borrowing
of up
to $940 million and may be used for acquisitions and for general
partnership purposes. Obligations under this credit facility are
secured
by first-priority mortgages on 19 of our 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 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).
|
Total
|
Balance
of
2007
|
2008
and
2009
|
2010
and
2011
|
Beyond
2011
|
||||||||||||
(in
millions of U.S. dollars)
|
||||||||||||||||
Long-term
debt (1)
|
1,287.7
|
13.2
|
104.9
|
238.2
|
931.4
|
|||||||||||
Chartered-in
vessels (operating leases)
|
560.0
|
110.6
|
180.7
|
137.2
|
131.5
|
|||||||||||
Advances
from affiliates
|
10.7
|
10.7
|
-
|
-
|
-
|
|||||||||||
Commitment
for volatile organic compound emissions equipment
|
9.2
|
9.2
|
-
|
-
|
-
|
|||||||||||
Total
contractual obligations
|
1,867.6
|
143.7
|
285.6
|
375.4
|
1,062.9
|
(1) |
Excludes
expected interest payments of $57.4 million (remainder of 2007),
$146.0 million (2008 and 2009), $127.8 million (2010 and 2011)
and $116.1 million (beyond 2011). Expected interest payments are
based on LIBOR, plus margins which ranged between 0.45% and 0.80%
as at
March 31, 2007. The expected interest payments do not reflect the
effect
of related interest rate swaps that hedge certain of the floating-rate
debt.
|
· |
our
future growth prospects;
|
· |
results
of operations and revenues and expenses;
|
· |
offshore
and tanker market fundamentals, including the balance of supply and
demand
in the offshore and tanker market;
|
· |
future
capital expenditures and availability of capital resources to fund
capital
expenditures;
|
· |
offers
of shuttle tankers, FSOs and FPSOs and associated contracts from
Teekay
Shipping Corporation;
|
· |
obtaining
offshore projects that we or Teekay Shipping Corporation bid on or
have
been awarded;
|
· |
delivery
dates of and financing for newbuildings;
|
· |
the
commencement of service of newbuildings under long-term contracts;
|
· |
our
liquidity needs; and
|
· |
our
exposure to foreign currency fluctuations, particularly in Norwegian
Kroner.
|
Expected
Maturity Date
|
||||||||||||||||||||||||||||
Balance
of
2007
|
2008
|
2009
|
2010
|
2011
|
Thereafter
|
Total
|
Fair
Value
Asset/
(Liability)
|
Rate
(1)
|
||||||||||||||||||||
(in
millions of U.S. dollars, except percentages)
|
||||||||||||||||||||||||||||
Long-Term
Debt:
|
||||||||||||||||||||||||||||
U.S.
Dollar-denominated (2)
|
13.2
|
55.7
|
49.2
|
84.2
|
154.0
|
931.4
|
1,287.7
|
(1,287.7
|
)
|
6.0
|
%
|
|||||||||||||||||
Interest
Rate Swaps:
|
||||||||||||||||||||||||||||
Contract
Amount (3)
|
296.4
|
8.5
|
543.5
|
8.5
|
8.5
|
613.6
|
1,479.0
|
20.5
|
4.9
|
%
|
||||||||||||||||||
Average
Fixed Pay Rate (2)
|
5.4
|
%
|
4.9
|
%
|
4.7
|
%
|
4.9
|
%
|
4.9
|
%
|
4.8
|
%
|
4.9
|
%
|
(1) |
Rate
refers to the weighted-average effective interest rate for OPCO’s debt,
including the margin paid on our floating-rate debt and the average
fixed
pay rate for interest rate swaps. The average fixed pay rate for
interest
rate swaps excludes the margin paid on the floating-rate debt, which
as of
March 31, 2007 ranged from 0.45% to 0.80%.
|
(2) |
Interest
payments on floating-rate debt and interest rate swaps are based
on
LIBOR.
|
(3) |
The
average variable receive rate for interest rate swaps is set quarterly
at
the 3-month LIBOR or semi-annually at the 6-month
LIBOR.
|
3.1
|
Certificate
of Limited Partnership of Teekay Offshore Partners L.P.
(1)
|
3.2
|
First
Amended and Restated Agreement of Limited Partnership of Teekay Offshore
Partners L.P. (2)
|
3.3
|
Certificate
of Formation of Teekay Offshore GP L.L.C. (1)
|
3.4
|
Amended
and Restated Limited Liability Company Agreement of Teekay Offshore
GP
L.L.C. (1)
|
3.5
|
Certificate
of Limited Partnership of Teekay Offshore Operating L.P.
(1)
|
3.6
|
Amended
and Restated Agreement of Limited Partnership of Teekay Offshore
Operating
Partners L.P. (1)
|
3.7
|
Certificate
of Formation of Teekay Offshore Operating GP L.L.C. (1)
|
3.8
|
Amended
and Restated Limited Liability Company Agreement of Teekay Offshore
Operating GP L.L.C. (1)
|
(1) |
Previously
filed as an exhibit to the Partnership’s 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 Partnership’s Rule 424(b)(4) Prospectus filed
with the SEC on December 14, 2006, and hereby incorporated by reference
to
such Prospectus.
|
Date: May
29, 2007
|
TEEKAY
OFFSHORE PARTNERS L.P.
By:
Teekay Offshore GP L.L.C., its general partner
By:
/s/ Peter Evensen
Peter
Evensen
Chief
Executive Officer and Chief Financial Officer
(Principal
Executive, Financial and Accounting
Officer)
|