•	Shuttle Tankers — 36 shuttle tankers, 24 of which are owned fully or jointly and 12 of which are chartered-in, and all of which 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 contract of affreightment volumes are life-of-field, which, according to data provided by Wood MacKenzie Ltd., have a weighted-average remaining life of 16 years. The time charters and bareboat charters have an average remaining contract term of approximately 6 years.

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	Because our partnership interest in OPCO currently represents our only cash-generating asset, our cash flow initially will depend completely on OPCO’s ability to make distributions to its partners, including us.

	•	the rates its obtains from its charters and contracts of affreightment;
	•	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;
	•	the level of its operating costs, such as the cost of crews and insurance;
	•	the number of off-hire days for its fleet and the timing of, and number of days required for, drydocking of its vessels;
	•	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;
	•	delays in the delivery of any newbuildings or vessels undergoing conversion and the beginning of payments under charters relating to those vessels;
	•	prevailing global and regional economic and political conditions;
	•	currency exchange rate fluctuations; and
	•	the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of its business.

	•	the level of capital expenditures it makes, including for maintaining vessels or converting existing vessels for other uses and complying with regulations;
	•	its debt service requirements and restrictions on distributions contained in its debt instruments;
	•	fluctuations in its working capital needs;
	•	its ability to make working capital borrowings; and
	•	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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	We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units or to increase distributions.

	•	interest expense and principal payments on any indebtedness we incur;
	•	restrictions on distributions contained in any of our current or future debt agreements;
	•	fees and expenses of us, our general partner, its affiliates or third parties we are required to reimburse or pay, including expenses we will incur as a result of being a public company; and
	•	reserves our general partner believes are prudent for us to maintain for the proper conduct of our business or to provide for future distributions.

	The assumptions underlying our estimate of cash available for distribution that we include in “Our Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

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	Our ability to grow may be adversely affected by our cash distribution policy. OPCO’s ability to meet its financial needs and grow may be adversely affected by its cash distribution policy.

OPCO must make substantial capital expenditures to maintain the operating capacity of its 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.

	•	the cost of labor and materials;
	•	customer requirements;
	•	increases in fleet size or the cost of replacement vessels;
	•	governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and
	•	competitive standards.

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We will be required to make substantial capital expenditures to expand the size of our fleet. We generally will be 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 could increase or our unitholders could be diluted.

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	OPCO’s substantial debt levels may limit its or our flexibility in obtaining additional financing, pursuing other business opportunities and paying distributions to you.

	•	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;
	•	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;
	•	our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and
	•	our debt level may limit our flexibility in responding to changing business and economic conditions.

	Financing agreements containing operating and financial restrictions may restrict OPCO’s and our business and financing activities.

	•	incur or guarantee indebtedness;
	•	change ownership or structure, including mergers, consolidations, liquidations and dissolutions;
	•	make dividends or distributions;
	•	make certain negative pledges and grant certain liens;
	•	sell, transfer, assign or convey assets;
	•	make certain investments; and
	•	enter into a new line of business.

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	Restrictions in OPCO’s debt agreements may prevent it or us from paying distributions.

	•	failure to pay any principal, interest, fees, expenses or other amounts when due;
	•	failure to notify the lenders of any material oil spill or discharge of hazardous material, or of any action or claim related thereto;
	•	breach or lapse of any insurance with respect to the vessels;
	•	breach of certain financial covenants;
	•	failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;
	•	default under other indebtedness;
	•	bankruptcy or insolvency events;
	•	failure of any representation or warranty to be materially correct;
	•	a change of control, as defined in the applicable agreement; and
	•	a material adverse effect, as defined in the applicable agreement, occurs.

	Net voyage revenues for Teekay Offshore Partners Predecessor declined for the first half of 2006 compared to the first half of 2005.

	•	a decrease in the number of chartered-in conventional oil tankers held by an entity that OPCO sold to Teekay Shipping Corporation on July 1, 2006; and
	•	reduced volumes transported under contracts of affreightment during the second quarter of 2006 due to earlier-than-normal annual maintenance of certain North Sea oil field facilities, which typically occurs in the third quarter.

	OPCO derives a substantial majority of its 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.

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	We will depend on Teekay Shipping Corporation to assist us and OPCO in operating our businesses and competing in our markets. In the past, OPCO generally fulfilled its own managerial, operational and administrative needs.

	•	renew existing charters and contracts of affreightment upon their expiration;
	•	obtain new charters and contracts of affreightment;
	•	successfully interact with shipyards during periods of shipyard construction constraints;
	•	obtain financing on commercially acceptable terms; or
	•	maintain satisfactory relationships with suppliers and other third parties.

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	Our growth depends on continued growth in demand for offshore oil transportation, processing and storage services.

	•	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;
	•	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;
	•	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;
	•	availability of new, alternative energy sources; and
	•	negative global or regional economic or political conditions, particularly in oil consuming regions, which could reduce energy consumption or its growth.

Because payments under OPCO’s contracts of affreightment are based on the volume of oil it transports, OPCO’s utilization of its shuttle tanker fleet and the success of its shuttle tanker business depends upon continued production from existing or new oil fields it services, which is beyond our or OPCO’s control and generally declines naturally over time. Any decrease in the volume of oil OPCO transports under contracts of affreightment could adversely affect our business and operating results.

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	The duration of many of OPCO’s 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, OPCO will no longer generate revenue under the related contract and will need to seek to redeploy affected vessels.

	The results of OPCO’s shuttle tanker operations in the North Sea are subject to seasonal fluctuations.

	Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.

	•	industry relationships and reputation for customer service and safety;
	•	experience and quality of ship operations;
	•	quality, experience and technical capability of the crew;
	•	relationships with shipyards and the ability to get suitable berths;
	•	construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;
	•	willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
	•	competitiveness of the bid in terms of overall price.

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	Delays in deliveries of newbuilding vessels or of conversions of existing vessels could harm our operating results.

	•	quality or engineering problems, the risk of which may be increased with FPSO units due to their technical complexity;
	•	changes in governmental regulations or maritime self-regulatory organization standards;
	•	work stoppages or other labor disturbances at the shipyard;
	•	bankruptcy or other financial crisis of the shipbuilder;
	•	a backlog of orders at the shipyard;
	•	political or economic disturbances;
	•	weather interference or catastrophic event, such as a major earthquake or fire;
	•	requests for changes to the original vessel specifications;
	•	shortages of or delays in the receipt of necessary construction materials, such as steel;
	•	inability to finance the construction or conversion of the vessels; or
	•	inability to obtain requisite permits or approvals.

	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.

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	Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are or OPCO is attempting to dispose of vessels, we or OPCO may incur a loss.

	•	prevailing economic conditions in oil and energy markets;
	•	a substantial or extended decline in demand for oil;
	•	increases in the supply of vessel capacity; and
	•	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.

	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.

	•	fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;
	•	be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
	•	decrease our liquidity by using a significant portion of available cash or borrowing capacity to finance acquisitions;
	•	significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
	•	incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or
	•	incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

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	Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of business.

	Operations outside the United States expose us and OPCO to political, governmental and economic instability, which could harm our and its operations.

	Marine transportation is inherently risky, particularly in the extreme conditions in which many of OPCO’s vessels operate. An incident involving significant loss of product or environmental contamination by any of its vessels could harm its and our reputation and business.

	•	marine disasters;
	•	bad weather;

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	•	mechanical failures;
	•	grounding, capsizing, fire, explosions and collisions;
	•	piracy;
	•	human error; and
	•	war and terrorism.

	•	death or injury to persons, loss of property or damage to the environment and natural resources;
	•	delays in the delivery of cargo;
	•	loss of revenues from charters or contracts of affreightment;
	•	liabilities or costs to recover any spilled oil or other petroleum products and to restore the eco-system where the spill occurred;
	•	governmental fines, penalties or restrictions on conducting business;
	•	higher insurance rates; and
	•	damage to our and OPCO’s reputation and customer relationships generally.

	Insurance may be insufficient to cover losses that may occur to our or OPCO’s property or result from our or its operations.

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	We or OPCO may experience operational problems with vessels that reduce revenue and increase costs.

	The offshore shipping and storage industry is subject to substantial environmental and other regulations, which may significantly limit operations or increase expenses.

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	Exposure to currency exchange rate fluctuations will result in fluctuations in cash flows and operating results.

	Our lack of experience in FPSO operations and reliance on Petrojarl ASA could affect our ability to enter and operate in the FPSO sector.

	The redeployment risk of FPSO units is high given their lack of alternative uses and significant costs.

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	We have no history operating as a separate publicly traded entity and will incur increased costs as a result of being a publicly traded limited partnership.

	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.

	Teekay Shipping Corporation and its affiliates may engage in competition with OPCO and us.

	•	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;
	•	own, operate and charter offshore vessels and related time charters or contracts of affreightment acquired as part of a business or package of assets 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 Shipping Corporation’s board of directors or the conflicts committee of the board of directors of Teekay LNG Partners’ general partner, as applicable; however, if at any time Teekay Shipping Corporation or Teekay LNG Partners 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 Shipping Corporation or Teekay LNG Partners that would be required to transfer the vessels and contracts to us separately from the acquired business or package of assets; or
	•	own, operate and charter 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 Shipping

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		Corporation or any of its subsidiaries has submitted or received or hereafter submits or receives; however, at least 365 days after the delivery date of any such offshore vessel, Teekay Shipping 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 Shipping Corporation, at its “fully-built-up cost” (which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Shipping 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 Shipping Corporation’s 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.

	•	acquire, operate and charter offshore vessels and related time charters and contracts of affreightment if our general partner has previously advised Teekay Shipping Corporation or Teekay LNG Partners that our general partner’s 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;
	•	acquire up to a 9.9% equity ownership, voting or profit participation interest in any publicly-traded company engages in, acquires or invests in any business that owns, operates or charters offshore vessels and related time charters and contracts of affreightment;
	•	provide ship management services relating to owning, operating or chartering offshore vessels and related time charters and contracts of affreightment; or
	•	own a limited partner interest in OPCO or own shares of Petrojarl ASA.

	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 your detriment.

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	•	neither our partnership agreement nor any other agreement requires Teekay Shipping Corporation or its affiliates (other than our general partner) to pursue a business strategy that favors us or utilizes our assets, and Teekay Shipping Corporation’s officers and directors have a fiduciary duty to make decisions in the best interests of the stockholders of Teekay Shipping Corporation, which may be contrary to our interests;
	•	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 Shipping Corporation and the general partner of Teekay LNG Partners L.P.;
	•	our general partner is allowed to take into account the interests of parties other than us, such as Teekay Shipping Corporation, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
	•	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, as a result of purchasing common units, 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;
	•	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;
	•	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 or to accelerate the expiration of the subordination period;
	•	our general partner determines which costs incurred by it and its affiliates are reimbursable by us;
	•	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;
	•	our general partner intends to limit its liability regarding our contractual and other obligations;
	•	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;
	•	our general partner controls the enforcement of obligations owed to us by it and its affiliates; and
	•	our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

	Although we control OPCO through our ownership of its general partner, OPCO’s general partner owes fiduciary duties to OPCO and OPCO’s other partner, Teekay Shipping Corporation, which may conflict with the interests of us and our unitholders.

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	•	the allocation of shared overhead expenses to OPCO and us;
	•	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;
	•	the determination and timing of the amount of cash to be distributed to OPCO’s partners and the amount of cash to be reserved for the future conduct of OPCO’s business;
	•	the decision as to whether OPCO should make asset or business acquisitions or dispositions, and on what terms;
	•	the determination or the amount and timing of OPCO’s capital expenditures;
	•	the determination of whether OPCO should use cash on hand, borrow or issue equity to raise cash to finance maintenance or expansion capital projects, repay indebtedness, meet working capital needs or otherwise; and
	•	any decision we make to engage in business activities independent of, or in competition with, OPCO.

	The fiduciary duties of the officers and directors of our general partner may conflict with those of the officers and directors of OPCO’s general partner.

	Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner.

	•	permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such cases it has no duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or our unitholders. Decisions made by our general partner in its individual capacity will be made by its sole owner, Teekay Shipping Corporation, and not by the board of directors of our general partner. Examples include the exercise of its call right, its voting rights with respect to the units it owns, its registration rights and its determination whether to consent to any merger or consolidation of the partnership;

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	•	provides that our general partner is entitled to make other decisions in “good faith” if it reasonably believes that the decision is in our best interests;
	•	generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us; and
	•	provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud, willful misconduct or gross negligence.

	Fees and cost reimbursements, which our general partner will determine for services provided to us, will be substantial and will reduce our cash available for distribution to you.

	Our general partner, which is owned and controlled by Teekay Shipping Corporation, makes all decisions on our behalf, subject to the limited voting rights of our common unitholders. Even if public unitholders are dissatisfied, they cannot initially remove our general partner without Teekay Shipping Corporation’s consent.

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	The control of our general partner may be transferred to a third party without unitholder consent.

	If we cease to control OPCO, we may be deemed to be an investment company under the Investment Company Act of 1940.

	You will experience immediate and substantial dilution of $16.72 per common unit.

	We may issue additional equity securities without your approval, which would dilute your ownership interests.

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	•	our unitholders’ proportionate ownership interest in us will decrease;
	•	the amount of cash available for distribution on each unit may decrease;
	•	because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
	•	the relative voting strength of each previously outstanding unit may be diminished; and
	•	the market price of the common units may decline.

	In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.

	Our general partner has a call right that may require you to sell your common units at an undesirable time or price.

	Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

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	You may not have limited liability if a court finds that unitholder action constitutes control of our business.

	We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.

	Increases in interest rates may cause the market price of our common units to decline.

	There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.

	Unitholders may have liability to repay distributions.

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	We have been organized as a limited partnership under the laws of the Republic of The Marshall Islands, which does not have a well-developed body of partnership law.

	Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

	U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. holders.

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	The preferential tax rates applicable to qualified dividend income are temporary, and the enactment of proposed legislation could affect whether dividends paid by us constitute qualified dividend income eligible for the preferential rate.

	We will be subject to taxes, which will reduce our cash available for distribution to you.

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	You may be subject to income tax in one or more non-U.S. countries, including Canada, as a result of owning our common units if, under the laws of any such country, we or OPCO are considered to be carrying on business there. Such laws may require you to file a tax return with and pay taxes to those countries.

	The ratio of dividend income to distributions on our common units is subject to business, economic and other uncertainties as well as tax reporting positions with which the IRS may disagree, which could result in a higher ratio of dividend income to distributions and adversely affect the value of the common units.

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	•	our historical capitalization as of June 30, 2006; and
	•	our pro forma capitalization as of June 30, 2006, adjusted to reflect the offering of the common units, the application of the net proceeds we receive in this offering in the manner described under “Use of Proceeds” on the preceding page and related formation and contribution transactions. Please read “Summary — The Transactions.”

					As of June 30, 2006
					Actual				Pro Forma
					(in thousands)
Total cash and cash equivalents(1)(2)(3)						$133,962				$90,000
Long-term debt, including current portion:
	Advances from affiliates (including accrued interest)(2)					394,849				—
	Long-term debt(1)(4)					543,543				1,317,314
	Obligation under capital lease(5)					33,600				—
		Total long-term debt				971,992				1,317,314
Non-controlling interest(6)						11,770				437,450
Equity:
	Owners’/ partners’ equity					727,801				—
	Held by public:
		Common units				—				134,377
	Held by the general partner and its affiliates:
		Common units				—				868
		Subordinated units				—				3,036
		General partner interest				—				124
			Total equity			727,801				138,405
			Total capitalization			$1,711,563				$1,893,169

(1)	increase its borrowings under its revolving credit facilities to $1.08 billion (excluding debt relating to its five 50%-owned joint ventures, which as of June 30, 2006 totaled $237.3 million). As at June 30, 2006, the net amount of the additional debt would have been $536.5 million;
(2)	repay all of its advances from affiliates;
(3)	declare and pay a dividend to Teekay Shipping Corporation in an amount sufficient to decrease OPCO’s outstanding cash balance to approximately $90.0 million. As at June 30, 2006, this amount would have been $154.1 million, although we anticipate the actual amount will be approximately $160 million based on our estimated cash balance at the closing of this offering. To the extent OPCO’s advances from affiliates are settled through ways that do not involve cash, such as conversion to equity or contribution of the advances to OPCO, the amount of the dividend will be increased by a corresponding amount; and
(4)	modify its five 50%-owned joint venture agreements such that it will consolidate the debt referred to in note (1) above, which totaled $237.3 million as of June 30, 2006.
(5)	In September 2006, OPCO purchased the Fuji Spirit, an Aframax-class conventional crude oil tanker that was financed under a capital lease.
(6)	Prior to or at the closing of this offering, we will acquire a 26.0% interest in OPCO (including the 25.99% limited partner interest we will hold directly and the 0.01% general partner interest we will hold through our ownership of OPCO’s sole general partner, Teekay Offshore Operating GP L.L.C.), thus leaving Teekay Shipping Corporation with a 74.0% direct interest in OPCO. As at June 30, 2006, Teekay Shipping Corporation’s 74.0% pro forma share of the net assets of OPCO would have been $393.9 million.

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Initial public offering price per common unit							$	21.00
	Pro forma net tangible book value per common unit before this offering(1)		$	(3.75	)
	Increase in net tangible book value per common unit attributable to purchasers in this offering			8.03
Less: Pro forma net tangible book value per common unit after this offering(2)								4.28
Immediate dilution in net tangible book value per common unit to purchasers in this offering							$	16.72

(1)	Determined by dividing the total number of units (2,800,000 common units, 9,800,000 subordinated units and the 2.0% general partner interest represented by 400,000 general partner units) to be issued to our general partner and its affiliates for their contribution of assets and liabilities to us into the net tangible book value of the contributed assets and liabilities.
(2)	Determined by dividing the total number of units (9,800,000 common units, 9,800,000 subordinated units and the 2.0% general partner interest represented by 400,000 general partner units) to be outstanding after this offering into our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering.

			Units Acquired								Total Consideration
			Number				Percent				Amount				Percent
General partner and its affiliates(1)(2)				13,000,000				65.0	%		$	4,028,895				2.7	%
New investors				7,000,000				35.0				147,000,000				97.3	%
	Total			20,000,000				100.0	%		$	151,028,895				100.0	%

(1)	Upon the consummation of the transactions contemplated by this prospectus, our general partner and its affiliates will own an aggregate of 2,800,000 common units and 9,800,000 subordinated units and the 2.0% general partner interest represented by 400,000 general partner units.
(2)	The assets contributed by our general partner and its affiliates were recorded at historical book value, rather than fair value, in accordance with GAAP. Book value of the consideration provided by our general partner and its affiliates, as of June 30, 2006, was $4.0 million.

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	Rationale for Our Cash Distribution Policy

	Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

	•	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 partner’s broad discretion to establish reserves and other limitations.
	•	The board of directors of OPCO’s 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 OPCO’s business. The establishment of these reserves could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy.
	•	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, 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. At the closing of this offering, Teekay Shipping Corporation will own 28.6% of the outstanding common units and 100.0% of the outstanding subordinated units.
	•	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.
	•	Under Section 51 of the Marshall Islands Limited Partnership Act, we may not make a distribution to you if distribution would cause our liabilities to exceed the fair value of our assets.
	•	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.
	•	Our distribution policy will be affected by restrictions on distributions under OPCO’s credit facility agreements, which contain material financial tests and covenants that must be satisfied. These financial tests and covenants are described in this prospectus in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources —

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		Covenants and Other Restrictions in Our Financing Agreements.” Should OPCO be unable to satisfy these restrictions included in the credit agreements or if OPCO is otherwise in default under the credit agreements, it would be prohibited from making cash distributions to us, which would materially hinder our ability to make cash distributions to you, notwithstanding our stated cash distribution policy.
	•	If we make distributions out of capital surplus, as opposed to operating surplus, such distributions will constitute a return of capital and will result in a reduction in the minimum quarterly distribution and the target distribution levels. We do not anticipate that we will make any distributions from capital surplus.

	Our Ability to Grow Depends on Our and OPCO’s Ability to Access External Expansion Capital

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	Initial Distribution Rate

		Number of Units				One Quarter				Four Quarters
Common units			9,800,000			$	3,430,000			$	13,720,000
Subordinated units			9,800,000				3,430,000				13,720,000
2% general partner interest(1)			400,000				140,000				560,000
Total			20,000,000			$	7,000,000			$	28,000,000

(1)	The number of general partner units is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 98.0%) by the general partner’s 2.0% general partner interest.

	•	Pro Forma Results of Operations for the year ended December 31, 2005 and the twelve months ended June 30, 2006, and Forecasted Results of Operations for the year ending December 31, 2007.
	•	Pro Forma Cash Available for Distribution for the year ended December 31, 2005 and the twelve months ended June 30, 2006, and the Forecasted Cash Available for Distribution for the year ending December 31, 2007.

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	•	our acquisition from Teekay Shipping Corporation of a 26.0% interest in OPCO, including a 25.99% limited partner interest held directly by us and the 0.01% general partner interest held by us through our ownership of Teekay Offshore Operating GP L.L.C., OPCO’s sole general partner;
	•	Teekay Shipping Corporation’s transfer to OPCO of all of the outstanding interests of Norsk Teekay Holdings Ltd., Teekay Nordic Holdings Inc., Teekay Offshore Australia Trust and Pattani Spirit L.L.C. (the OPCO Operating Subsidiaries);

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	•	OPCO’s entry into new fixed-rate time-charter contracts with Teekay Shipping Corporation for nine of OPCO’s Aframax-class conventional crude oil tankers;
	•	OPCO’s transfer to Teekay Shipping Corporation of all chartered-in conventional crude oil and product tankers in Navion Shipping Ltd. (a subsidiary of Norsk Teekay), a 1987-built shuttle tanker (the Nordic Trym), OPCO’s single anchor loading equipment, a 1992-built chartered-in shuttle tanker (the Borga) and a 50.0% interest in Alta Shipping S.A., which has no material assets (collectively, the Non-OPCO Assets);
	•	OPCO’s purchase of the Fuji Spirit, an Aframax-class conventional crude oil tanker financed under a capital lease until its purchase by OPCO in September 2006;
	•	OPCO’s entry into amended operating agreements for its five 50%-owned joint ventures whereby OPCO will have unilateral control of each joint venture, which will require OPCO to consolidate the joint ventures in accordance with GAAP;
	•	OPCO’s incurrence of additional debt to increase its outstanding debt to $1.08 billion (excluding debt relating to the five joint ventures, which totaled $237.3 million as at June 30, 2006);
	•	Teekay Shipping Corporation’s contribution to OPCO of interest rate swaps with a notional principal amount of $1.09 billion, a weighted-average fixed interest rate of 5.5% (including the margin OPCO pays on its floating-rate debt) and a weighted-average remaining term of 9.7 years;
	•	OPCO’s repayment of all of its advances from affiliates;
	•	OPCO’s declaration and payment of a dividend to Teekay Shipping Corporation in an amount sufficient to decrease OPCO’s outstanding cash balance to $90.0 million;
	•	the completion of this offering; and
	•	the use of the net proceeds of this offering to repay non-interest bearing promissory notes we will issue to Teekay Shipping Corporation, as described in “Use of Proceeds.”

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				Consolidated
				Pro Forma								Forecast
				Year				Twelve Months				Year
				Ended				Ended				Ending
				December 31,				June 30,				December 31,
				2005				2006				2007
				(unaudited)
				(in thousands, except for per unit amounts)
Voyage revenues					$678,888				$688,666				$749,312
Operating expenses:
Voyage expenses					93,935				112,866				146,739
Vessel operating expenses					114,843				113,977				124,038
Time-charter hire expense					145,423				152,797				146,418
Depreciation and amortization					116,922				113,473				115,647
General and administrative					61,546				65,779				64,615
Gain of sale of vessels					(9,423	)			(4,897	)			—
Restructuring charge					955				1,408				—
Total operating expenses					524,201				555,403				597,457
Income from vessel operations					154,687				133,263				151,855
Other items:
Interest expense					(73,458	)			(74,953	)			(73,245	)
Interest income					5,265				6,590				3,600
Foreign currency exchange gain (loss)					9,281				(5,137	)			—
Income tax recovery (expense)					13,873				(9,675	)			4,000
Other — net					4,718				10,663				10,917
Income before non-controlling interest					114,366				60,751				97,127
Non-controlling interest					(87,248	)			(47,494	)			(74,997	)
Net income					$27,118				$13,257				$22,130
General partner’s interest in net income					$542				$265				$443
Limited partners’ interest:
	Net income				$26,576				$12,992				$21,687
	Net income per:
		- Common unit (basic and diluted)			$1.40				$1.33				$1.40
		- Subordinated unit (basic and diluted)			$1.31				$—				$0.81
		- Unit (basic and diluted)			$1.36				$0.66				$1.11

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Note 1.	Basis of Presentation

Note 2:	Summary of Significant Accounting Policies

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Note 3:	Summary of Significant Forecast Assumptions

	•	the sale of two older shuttle tankers in March and October 2005 (collectively, the 2005 Shuttle Tanker Dispositions);
	•	the sale of an older shuttle tanker in July 2006 (the 2006 Shuttle Tanker Disposition);
	•	the sale and lease back of an older shuttle tanker in March 2005;
	•	the sale of a 2000-built liquid petroleum gas carrier (the Dania Spirit) to a subsidiary of Teekay Shipping Corporation in June 2005 (or the 2005 Conventional Tanker Disposition); and
	•	the conversion of the Navion Saga, a Suezmax-class conventional crude oil tanker, to an FSO unit and the subsequent commencement of a three-year FSO time-charter contract beginning in the second quarter of 2007.

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	•	a pro forma $3.4 million write-off of capitalized loan costs on January 1, 2005;
	•	$2.8 million and $0.9 million of other expenses incurred during the year ended December 31, 2005 and the twelve months ended June 30, 2006, respectively;

	•	an estimated $0.6 million decrease in the income received from our VOC Equipment during the year ending December 31, 2007 compared to the twelve months ended June 30, 2006.

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	•	no material nonperformance or credit-related defaults by suppliers, customers or vendors;
	•	no new regulation or any interpretation of existing regulations that, in either case, would be materially adverse to our or OPCO’s business.
	•	no material accidents, releases, weather-related incidents, unscheduled downtime or similar unanticipated events;
	•	no major adverse change in the markets in which OPCO operates resulting from production disruptions, reduced demand for oil or significant changes in the market prices of oil;
	•	no material changes to market, regulatory and overall economic conditions; and
	•	an annual inflation rate of 2.0% to 3.0%, depending upon the applicable jurisdiction.

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			Consolidated Pro Forma								Forecast(1)
			Year				Twelve Months				Year
			Ended				Ended				Ending
			December 31,				June 30,				December 31,
			2005				2006				2007
			(unaudited)
			(dollars in thousands except per unit amounts)
EBITDA(2)				$198,360				$204,769				$203,423
	Adjustments for other non-cash items:
	Non-controlling interest			87,248				47,494				74,997
	Write-off of capitalized loan costs			3,402				—				—
	Foreign currency exchange loss (gain)			(9,281	)			5,137				—
	Gain on sale of vessels			(9,423	)			(4,897	)			—
				270,306				252,503				278,420
	Adjustments for cash items and maintenance capital expenditures reserves:
	Minority owners share of cash available for distribution from joint ventures			(15,328	)			(14,351	)			(11,863	)
	Cash interest expense			(72,238	)			(73,733	)			(72,285	)
	Cash interest income			5,265				6,590				3,600
	Cash income tax expense			(2,762	)			(2,699	)			(1,000	)
	Public partnership expenses			1,500				1,500				1,500
	Drydocking capital expenditure reserve(3)			(12,240	)			(12,240	)			(12,240	)
	Replacement capital expenditure reserve(3)			(61,680	)			(61,680	)			(61,680	)
Cash available for distribution from OPCO				112,823				95,890				124,452
TSC’s 74.0% limited partner share of OPCO’s available cash				(83,489	)			(70,959	)			(92,094	)
Public partnership expenses				(1,500	)			(1,500	)			(1,500	)
Cash available for distribution				$27,834				$23,431				$30,858
Expected distributions:
Distributions per unit				$1.40				$1.40				$1.40
Distributions to our public common unitholders(4)				9,800				9,800				9,800
Distributions to TSC — common units(4)				3,920				3,920				3,920
Distributions to TSC — subordinated units				13,720				13,720				13,720
Distributions to TSC — general partner interest				560				560				560
Total distributions(5)				$28,000				$28,000				$28,000
Excess (shortfall)				$(166	)			$(4,569	)			$2,858
Annualized initial quarterly distribution per unit				$1.40				$1.40				$1.40
Aggregate distributions based on annualized minimum quarterly distribution				$28,000				$28,000				$28,000
Percent of minimum quarterly distributions payable to common unitholders				100.0	%			100.0	%			100.0	%
Percent of minimum quarterly distributions payable to subordinated unitholders				98.8	%			67.4	%			100.0	%

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(1)	The forecasted column is based on the assumptions set forth in “— Pro Forma and Forecasted Results of Operations — Summary of Significant Accounting Policies and Assumptions.”
(2)	EBITDA is a non-GAAP financial measure, which we use as it is an important supplemental measure of performance and liquidity. EBITDA means earnings before interest, taxes, depreciation and amortization. This measure is not calculated or presented in accordance with GAAP. We explain this measure below and reconcile it to its most directly comparable financial measures calculated and presented in accordance with GAAP.

	•	the financial and operating performance of assets without regard to financing methods, capital structure, income taxes or historical cost basis; and
	•	the ability to generate cash sufficient to service debt, make distributions to our unitholders and undertake capital expenditures.

		Consolidated Pro Forma								Forecast
		Year				Twelve Months				Year
		Ended				Ended				Ending
		December 31,				June 30,				December 31,
		2005				2006				2007
		(unaudited)
		(in thousands)
Reconciliation of “EBITDA” to “Net operating cash flow”:
Net operating cash flow			$212,382				$185,553				$188,146
Non-controlling interest			(87,248	)			(47,494	)			(74,997	)
Interest expense, net			66,973				67,143				68,685
Change in working capital			(22,951	)			(9,162	)			—
Foreign currency exchange gain (loss) and other, net			15,248				(5,747	)			1,000
Gain on sale of vessels			9,423				4,897				—
Expenditures for drydocking			8,906				10,007				20,589
Write-off of capitalized loan costs			(3,402	)			—				—
Equity loss (net of dividends received)			(971	)			(428	)			—
EBITDA			$198,360				$204,769				$203,423

(3)

Our partnership agreement requires that an estimate of the maintenance capital expenditures necessary to maintain our asset base be subtracted from operating surplus each quarter, as opposed to amounts actually spent. Because our interest in OPCO will represent our only cash-generating asset upon the closing of this offering, an estimate of its maintenance capital expenditures is more meaningful. The board of directors of our general partner, Teekay Offshore GP L.L.C., will approve the amount of OPCO’s reserves for maintenance capital expenditures and other purposes. Our initial estimated maintenance capital expenditures for OPCO are $73.9 million per year. The amount of estimated maintenance capital expenditures attributable to future drydocking expenses is based on the

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	average annual anticipated drydocking over the remaining useful lives of OPCO’s vessels. The actual cost of maintenance capital expenditures, including for drydocking, vessel replacement and other items, will depend on a number of factors, including, among others, prevailing market conditions, charter hire rates and the availability and cost of financing at the time of vessel replacement. We may elect to fund some or all maintenance capital expenditures through the issuance of additional common units, which may be dilutive to existing unitholders. Please read “Risk Factors — Risks Inherent in Our Business — OPCO must make substantial capital expenditures to maintain the operating capacity of its 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.”
(4)	Assumes the underwriters’ option to purchase additional common units is not exercised. The net proceeds from any exercise of the underwriters’ option to purchase additional common units will be used to redeem common units from Teekay Shipping Corporation. The number of units redeemed would equal the number of units for which the underwriters exercise their over-allotment option.
(5)	Represents the amount required to fund distributions to our unitholders and our general partner for four quarters based upon our minimum quarterly distribution rate of $0.35 per unit.

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	General

	Available Cash

	•	less the amount of cash reserves (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) established by our general partner to:

	•	provide for the proper conduct of our business (including reserves for future capital expenditures and for anticipated credit needs);
	•	comply with applicable law, any debt instruments or other agreements; or
	•	provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;

	•	plus all cash on hand (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own) on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are made under credit agreements and in all cases are used solely for working capital purposes or to pay distributions to partners.

	Intent to Distribute the Minimum Quarterly Distribution

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	Overview

	Definition of Operating Surplus

	•	$15.0 million; plus
	•	all cash receipts (including our proportionate share of cash receipts for certain subsidiaries we do not wholly own, including OPCO) after the closing of this offering, excluding cash from (1) borrowings, other than working capital borrowings, (2) sales of equity and debt securities, (3) sales or other dispositions of assets outside the ordinary course of business, (4) termination of interest rate swap agreements, (5) capital contributions or (6) corporate reorganizations or restructurings; plus
	•	working capital borrowings (including our proportionate share of working capital borrowings for certain subsidiaries we do not wholly own) made after the end of a quarter but before the date of determination of operating surplus for the quarter; plus
	•	interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case (and including our proportionate share of such interest and cash distributions paid by certain subsidiaries we do not wholly own), to finance all or any portion of the construction, expansion or improvement of a capital asset such as vessels during the period from such financing until the earlier to occur of the date the capital asset is put into service or the date that it is abandoned or disposed of; plus
	•	interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case (and including our proportionate share of such interest and cash distributions paid by certain subsidiaries we do not wholly own), to pay the construction period interest on debt incurred (including periodic net payments under related interest rate swap agreements), or to pay construction period distributions on equity issued, to finance the construction projects described in the immediately preceding bullet; less
	•	all of our operating expenditures (including our proportionate share of operating expenditures by certain subsidiaries we do not wholly own) after the closing of this offering and the repayment of working capital borrowings, but not (1) the repayment of other borrowings, (2) actual maintenance capital expenditures, or expansion capital expenditures or investment capital expenditures, (3) transaction expenses (including taxes) related to interim capital transactions or (4) distributions; less
	•	estimated maintenance capital expenditures and the amount of cash reserves (including our proportionate share of cash reserves for certain subsidiaries we do not wholly own) established by our general partner to provide funds for future operating expenditures.

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	Capital Expenditures

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	•	it will reduce the risk that actual maintenance capital expenditures in any one quarter will be large enough to make operating surplus less than the minimum quarterly distribution to be paid on all the units for that quarter and subsequent quarters;
	•	it will reduce the need for us to borrow to pay distributions;
	•	it will be more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions to our general partner; and
	•	it will reduce the likelihood that a large maintenance capital expenditure in a period will prevent our general partner’s affiliates from being able to convert some or all of their subordinated units into common units since the effect of an estimate is to spread the expected expense over several periods, mitigating the effect of the actual payment of the expenditure on any single period.

	Definition of Capital Surplus

	•	borrowings other than working capital borrowings;
	•	sales of debt and equity securities; and
	•	sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or non-current assets sold as part of normal retirements or replacements of assets.

	Characterization of Cash Distributions

	General

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	Definition of Subordination Period

	•	distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three, consecutive, non-overlapping four-quarter periods immediately preceding that date;
	•	the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted basis and the related distribution on the 2% general partner interest during those periods; and
	•	there are no arrearages in payment of the minimum quarterly distribution on the common units.

	•	distributions of available cash from operating surplus on each of the outstanding common units, subordinated units and general partner units equaled or exceeded $2.10 (150.0% of the annualized minimum quarterly distribution) for any four-quarter period immediately preceding the date of determination; and
	•	the “adjusted operating surplus” (as defined below) generated during any four-quarter period immediately preceding the date of determination equaled or exceeded the sum of a distribution of $2.10 per common unit (150.0% of the annualized minimum quarterly distribution) on all of the outstanding common and subordinated units on a fully diluted basis; and
	•	there are no arrearages in payment of the minimum quarterly distribution on the common units.

	Definition of Adjusted Operating Surplus

	•	operating surplus generated with respect to that period; less
	•	any net increase in working capital borrowings (including our proportionate share of any changes in working capital borrowings of certain subsidiaries we do not wholly own, including OPCO) with respect to that period; less
	•	any net reduction in cash reserves (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus
	•	any net decrease in working capital borrowings (including our proportionate share of any changes in working capital borrowings of certain subsidiaries we do not wholly own) with respect to that period; plus

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	•	any net increase in cash reserves (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.

	Effect of Expiration of the Subordination Period

	•	the subordination period will end and each subordinated unit will immediately convert into one common unit;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	our general partner will have the right to convert its general partner interest and, if any, its incentive distribution rights into common units or to receive cash in exchange for those interests.

	•	first, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
	•	second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
	•	third, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and
	•	thereafter, in the manner described in “— Incentive Distribution Rights” below.

	•	first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
	•	thereafter, in the manner described in “— Incentive Distribution Rights” below.

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	•	we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and
	•	we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

	•	first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until each unitholder receives a total of $0.4025 per unit for that quarter (the “first target distribution”);
	•	second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives a total of $0.4375 per unit for that quarter (the “second target distribution”);
	•	third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives a total of $0.525 per unit for that quarter (the “third target distribution”); and
	•	thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

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						Marginal Percentage
						Interest in Distributions
		Total Quarterly 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	%

	How Distributions From Capital Surplus Will Be Made

	•	first, 98.0% to all unitholders, pro rata, and 2.0% to our general partner, until we distribute for each common unit that was issued in this offering, an amount of available cash from capital surplus equal to the initial public offering price; and
	•	second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and
	•	thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus.

	Effect of a Distribution From Capital Surplus

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	•	the minimum quarterly distribution;
	•	the target distribution levels; and
	•	the initial unit price.

	•	any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; plus
	•	the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation);

	•	first, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to the current market price of our common units;
	•	second, 98.0% to the subordinated unitholders, pro rata, and 2.0% to our general partner, until we distribute for each subordinated unit an amount equal to the current market price of our common units; and

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	•	thereafter, 50.0% to all unitholders, pro rata, 48.0% to holders of incentive distribution rights and 2.0% to our general partner.

	•	any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; plus
	•	the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation);

	•	first, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation);
	•	second, 98.0% to the common unitholders, pro rata, and 2.0% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
	•	third, 98.0% to the subordinated unitholders and 2.0% to our general partner, until we distribute for each outstanding subordinated unit an amount equal to the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation); and
	•	thereafter, 50.0% to all unitholders, pro rata, 48.0% to holders of incentive distribution rights and 2.0% to our general partner.

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	•	historical financial and operating data of Teekay Offshore Partners Predecessor; and
	•	pro forma financial and operating data of Teekay Offshore Partners L.P.

	•	the historical financial and operating data of Teekay Offshore Partners Predecessor as at and for the years ended December 31, 2001, 2002 and 2003 are derived from the unaudited combined consolidated financial statements of Teekay Offshore Partners Predecessor, which are not included in this prospectus;
	•	the historical financial and operating data of Teekay Offshore Partners Predecessor as at and for the years ended December 31, 2004 and 2005 are derived from the audited combined consolidated financial statements of Teekay Offshore Partners Predecessor included elsewhere in this prospectus; and
	•	the historical financial and operating data of Teekay Offshore Partners Predecessor as at and for the six months ended June 30, 2005 and June 30, 2006 are derived from the unaudited combined consolidated financial statements of Teekay Offshore Partners Predecessor, which, other than the unaudited combined balance sheet as at June 30, 2005, are included elsewhere in this prospectus.

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			Historical																												Pro Forma
																							Six
																							Months												Six
																							Ended												Months
			Years Ended December 31,																				June 30,								Year Ended				Ended
																															December 31,				June 30,
			2001				2002				2003				2004				2005				2005				2006				2005				2006
			(unaudited)												(audited)								(unaudited)								(unaudited)
			(in thousands, except per unit and fleet data)
Income Statement Data:
Voyage revenues				$137,258				$156,745				$747,383				$986,504				$807,548				$400,315				$386,724				$678,888				$349,299
Operating expenses:
	Voyage expenses(1)			7,447				8,894				146,893				118,819				74,543				32,400				48,344				93,935				60,186
	Vessel operating expenses(2)			31,617				42,395				87,507				105,595				104,475				52,900				52,954				114,843				57,545
	Time-charter hire expenses			—				—				235,976				372,449				373,536				176,276				165,935				145,423				76,288
	Depreciation and amortization			45,167				49,579				93,269				118,460				107,542				55,620				51,331				116,922				56,138
	General and administrative			10,424				11,733				33,968				65,819				85,856				37,838				43,469				61,546				32,265
	Vessel and equipment writedowns and (gain) loss on sale of vessels			—				—				63				(3,725	)			2,820				5,369				1,845				(9,423	)			(305	)
	Restructuring charge			—				—				—				—				955				—				453				955				453
Total operating expenses				94,655				112,601				597,676				777,417				749,727				360,403				364,331				524,201				282,570
Income from vessel operations				42,603				44,144				149,707				209,087				57,821				39,912				22,393				154,687				66,729
Interest expense				(31,090	)			(28,136	)			(46,872	)			(43,957	)			(39,791	)			(20,100	)			(24,504	)			(73,458	)			(36,961	)
Interest income				999				549				1,278				2,459				4,605				2,271				3,291				5,265				3,834
Equity income (loss) from joint ventures				2,634				4,597				5,047				6,162				5,199				2,573				3,191				(971	)			(49	)
Gain (loss) on sale of marketable securities				(1,415	)			(1,227	)			517				94,222				—				—				—				—				—
Foreign currency exchange gain (loss)(3)				3,685				(35,121	)			(17,821	)			(37,910	)			34,178				25,730				(18,688	)			9,281				(4,339	)
Income tax recovery (expense)				(4,963	)			(8,116	)			(30,035	)			(28,188	)			13,873				15,786				(7,762	)			13,873				(7,762	)
Other — net				2,923				1,313				4,455				14,064				9,091				3,694				5,694				5,689				5,694
Non-controlling interest				(2,345	)			(1,212	)			(2,763	)			(2,167	)			(229	)			(692	)			(414	)			(87,248	)			(21,541	)
Net income (loss)				$13,031				$(23,209	)			$63,513				$213,772				$84,747				$69,174				$(16,799	)			$27,118				$5,605
Pro forma net income per common unit (basic and diluted)(4)																																$1.40				$0.56
Balance Sheet Data (at end of period):
Cash and marketable securities				$32,605				$39,754				$160,957				$143,729				$128,986				$119,495				$133,962								$90,000
Vessels and equipment(5)				709,787				725,263				1,431,947				1,427,481				1,300,064				1,346,328				1,260,765								1,528,480
Total assets				878,816				1,002,452				2,037,855				2,040,642				1,884,017				1,913,756				1,866,330								2,038,218
Total debt(6)				456,761				673,074				1,354,392				1,210,998				991,855				1,045,094				971,992								1,317,314
Non-controlling interest(7)				13,199				14,412				15,525				14,276				11,859				14,597				11,770								437,450
Total owner’s/partners’ equity				369,287				262,835				529,794				659,212				740,379				727,052				727,801								138,405
Cash Flow Data:
Net cash provided by (used in):
	Operating activities			$34,054				$12,110				$227,297				$242,592				$152,687				$81,232				$48,705
	Financing activities			298,471				151,340				731,329				(69,710	)			(201,554	)			(153,647	)			(42,602	)
	Investing activities			(299,920	)			(156,301	)			(837,423	)			(190,110	)			34,124				48,182				(1,127	)
Other Financial Data:
Net voyage revenues				$129,811				$147,851				$600,490				$867,685				$733,005				$367,915				$338,380				$584,953				$289,113
EBITDA(8)				93,252				62,073				232,411				401,918				213,602				126,837				63,507				198,360				102,632
Capital expenditures:
	Expenditures for vessels and equipment			128,297				56,017				146,279				170,630				24,760				7,116				5,054				23,675				5,054
	Expenditures for drydocking			4,774				9,038				11,980				9,174				8,906				2,679				3,780				8,906				3,780
Fleet Data:
Average number of shuttle tankers(9)				8.7				11.1				30.5				37.9				35.8				35.9				35.1				37.9				37.2
Average number of conventional tankers(9)				7.1				7.0				27.4				40.7				41.2				40.2				34.3				10.5				10.0
Average number of FSO units(9)				1.7				2.0				2.2				3.0				3.0				3.0				3.0				3.0				3.0

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(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. Our primary source for the foreign currency gains and losses is our Norwegian Kroner-denominated advances from affiliates, which totaled $157.6 million at June 30, 2006, $164.6 million at December 31, 2005 and $188.5 million at December 31, 2004.
(4)	Please read Note 6 of our unaudited pro forma consolidated financial statements included in this prospectus for a calculation of our pro forma net income per unit.
(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)	Historical non-controlling interest represents minority interests of third parties in joint ventures to which OPCO or its subsidiaries were a party. Pro forma non-controlling interest represents these minority interests and the minority interests in OPCO’s five 50%-owned joint ventures that OPCO has consolidated on a pro forma basis, together with Teekay Shipping Corporation’s 74.0% limited partner interest in OPCO.
(8)	EBITDA is calculated as net income (loss) before interest, taxes, depreciation and amortization, as set forth in “— Non-GAAP Financial Measures” below, which also includes reconciliations of EBITDA to our most directly comparable GAAP financial measures. EBITDA includes the following items:

		Historical																												Pro Forma
																						Six
																						Months												Six
																						Ended												Months
		Years Ended December 31,																				June 30,								Year Ended				Ended
																														December 31,				June 30,
		2001				2002				2003				2004				2005				2005				2006				2005				2006
		(unaudited)												(audited)								(unaudited)								(unaudited)
		(in thousands)
Vessel and equipment writedowns and gain (loss) on sale of vessels			$—				$—				$(63	)			$3,725				$(2,820	)			$(5,369	)			$(1,845	)			$9,423				$305
Gain (loss) on sale of marketable securities			(1,415	)			(1,227	)			517				94,222				—				—				—				—				—
Foreign currency exchange gain (loss)			3,685				(35,121	)			(17,821	)			(37,910	)			34,178				25,730				(18,688	)			9,281				(4,339	)
Total			$2,270				$(36,348	)			$(17,367	)			$60,037				$31,358				$20,361				$(20,533	)			$18,704				$(4,034	)

(9)

Historical average number of ships consists of the average number of owned (excluding vessels owned by OPCO’s five 50%-owned joint ventures) and chartered-in vessels that were in OPCO’s possession during a period. Pro forma average number of ships consists of the average number of chartered-in and owned (including vessels owned by the five 50%-owned joint ventures, as OPCO has consolidated the joint ventures on a pro forma basis) in OPCO’s possession during the pro forma periods.

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	Non-GAAP Financial Measures

	•	Non-GAAP financial measures included above in “Selected Historical and Pro Forma Financial and Operating Data;” and
	•	Reconciliations of these non-GAAP financial measures to our most directly comparable financial measures under GAAP.

		Historical																												Pro Forma
																						Six
																						Months												Six
																						Ended												Months
		Year Ended December 31,																				June 30,								Year Ended				Ended
																														December 31,				June 30,
		2001				2002				2003				2004				2005				2005				2006				2005				2006
		(unaudited)												(audited)								(unaudited)								(unaudited)
		(in thousands)
Voyage revenues		$	137,258			$	156,745			$	747,383			$	986,504			$	807,548			$	400,315			$	386,724			$	678,888			$	349,299
Voyage expenses			7,447				8,894				146,893				118,819				74,543				32,400				48,344				93,935				60,186
Net voyage revenues		$	129,811			$	147,851			$	600,490			$	867,685			$	733,005			$	367,915			$	338,380			$	584,953			$	289,113

	•	Financial and operating performance. EBITDA assists our management and investors by increasing the comparability of the fundamental performance of OPCO and 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 OPCO and us in assessing whether to continue to hold 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

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		resulting from the existing capitalization of 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 OPCO’s ability to generate cash over the long term. Management uses this information as a significant factor in determining (a) OPCO’s 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.

		Historical																												Pro Forma
																						Six
																						Months								Year				Six
																						Ended								Ended				Months
		Years Ended December 31,																				June 30,								December				Ended
																														31,				June 30,
		2001				2002				2003				2004				2005				2005				2006				2005				2006
		(unaudited)												(audited)								(unaudited)								(unaudited)
		(in thousands)
Reconciliation of “EBITDA” to “Net income (loss)”:
Net income (loss)		$	13,031			$	(23,209	)		$	63,513			$	213,772			$	84,747			$	69,174			$	(16,799	)		$	27,118			$	5,605
Depreciation and amortization			45,167				49,579				93,269				118,460				107,542				55,620				51,331				116,922				56,138
Interest expense, net			30,091				27,587				45,594				41,498				35,186				17,829				21,213				68,193				33,127
Provision (benefit) for income taxes			4,963				8,116				30,035				28,188				(13,873	)			(15,786	)			7,762				(13,873	)			7,762
EBITDA		$	93,252			$	62,073			$	232,411			$	401,918			$	213,602			$	126,837			$	63,507			$	198,360			$	102,632
Reconciliation of “EBITDA” to “Net operating cash flow”:
Net operating cash flow		$	34,054			$	12,110			$	227,297			$	242,592			$	152,687			$	81,232			$	48,705			$	212,382			$	81,895
Non-controlling interest			(2,345	)			(1,212	)			(2,763	)			(2,167	)			(229	)			(692	)			(414	)			(87,248	)			(21,541	)
Expenditures for drydocking			4,774				9,038				11,980				9,174				8,906				2,679				3,780				8,906				3,780
Interest expense, net			30,091				27,587				45,594				41,498				35,186				17,829				21,213				66,973				32,516
Gain (loss) on sale of vessels			—				—				(63	)			3,725				9,423				4,831				305				9,423				305
Gain on sale of marketable securities, net of writedowns			(1,415	)			(1,227	)			(4,393	)			94,222				—				—				—				—				—
Loss on writedown of vessels and equipment			—				—				—				—				(12,243	)			(10,200	)			(2,150	)			—				—
Write-off of capitalized loan costs			—				—				—				—				—				—				—				(3,402	)			—
Equity income (net of dividends received)			2,540				2,849				(1,234	)			(1,338	)			2,449				2,573				691				(971	)			(49	)
Change in working capital			25,341				12,000				(10,602	)			37,709				(22,951	)			(3,918	)			9,870				(22,951	)			9,870
Foreign currency exchange gain (loss) and other, net			212				928				(33,405	)			(23,497	)			40,374				32,503				(18,493	)			15,248				(4,144	)
EBITDA		$	93,252			$	62,073			$	232,411			$	401,918			$	213,602			$	126,837			$	63,507			$	198,360			$	102,632

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	OPCO’s Contracts of Affreightment and Charters

	•	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;
	•	Time charters, whereby vessels OPCO operates and is 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;
	•	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
	•	Voyage charters, which are charters for shorter intervals that are priced on a current, or “spot,” market rate.

		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

(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.

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	•	Crews. For the six months ended June 30, 2006, crews represented 54.7%, 60.9% and 54.2% of vessel operating expenses for the shuttle tanker, FSO and conventional tanker segments, respectively. For the year ended December 31, 2005, these percentages were 50.8%, 65.6% and 52.7% for those respective segments. A substantial majority of OPCO’s crewing expenses 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. However, prior to the closing this offering OPCO will enter into new services agreements with subsidiaries of Teekay Shipping Corporation whereby the subsidiaries will operate and crew OPCO’s vessels. Under these service agreements, OPCO will pay all vessel operating expenses in U.S. Dollars and will not be subject to currency exchange fluctuations prior to 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 Norwegian Kroner relative to the U.S. Dollar. We may seek to hedge this currency fluctuation risk in the future.
	•	Repairs and Maintenance. For the six months ended June 30, 2006, repairs and maintenance represented 31.5%, 22.6% and 34.1% of vessel operating expenses for the shuttle tanker, FSO and conventional tanker segments, respectively. For the year ended December 31, 2005, these percentages were 29.2%, 16.7% and 32.3% for those respective segments. 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.

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	•	charges related to the depreciation of the historical cost of OPCO’s fleet (less an estimated residual value) over the estimated useful lives of the vessels;
	•	charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking; and
	•	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 the asset is expected to contribute to future cash flows.

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	•	Our cash flow will be reduced by distributions on Teekay Shipping Corporation’s interest in OPCO. Following the closing of this offering, Teekay Shipping Corporation will own 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, including reserves for future maintenance capital expenditures, working capital and other matters. Distributions to Teekay Shipping Corporation 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, 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). In 2005 and the six months ended June 30, 2006, the Non-OPCO Assets accounted for approximately 31.3% and 26.0%, respectively, of OPCO’s net voyage revenues. Please read the unaudited pro forma consolidated financial statements and related notes of Teekay Offshore Partners L.P. included elsewhere in this prospectus for further details regarding the impact of the transfer of the Non-OPCO Assets.
	•	Proposed amendments to OPCO’s joint venture agreements would result in five 50%-owned joint venture companies being consolidated with us under GAAP. Our historical results of operations 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. Prior to the closing of this offering, we anticipate that the operating agreements for these joint ventures will be amended such that OPCO will have unilateral control of these joint ventures, which would require consolidation of these five joint venture companies in accordance with GAAP. Although our net income would not change due to this change in accounting, the results of the joint ventures would be reflected in our income from operations. This change would also cause the five shuttle tankers owned by these joint ventures to be included in the size of OPCO’s owned fleet for purposes of explaining future results of operations.
	•	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 (excluding the five joint venture vessels) decreased from 24.5 during 2004 to 21.0 during the six months ended June 30, 2006, while the number of chartered-in vessels in the shuttle tanker fleet increased from 13.4 to 14.1 during the same periods. Upon the closing of this offering, the number of owned shuttle tankers is expected to be 24.0 — excluding two vessels that have been sold and including the five joint venture vessels, assuming consolidation of the joint ventures as discussed above — and the number of chartered-in shuttle tankers is expected to be 12.0 — excluding one older vessel under a charter that OPCO did not renew, one joint venture vessel under

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		a charter that will be consolidated and one older vessel that will be transferred to Teekay Shipping Corporation. Upon the closing of this offering, OPCO will initially own nine conventional tankers compared to an average of over 10.0 tankers during most of the past two years. In addition, the Navion Saga is being converted from a conventional oil tanker to an FSO unit. When it commences operations as an FSO unit, scheduled for the second quarter of 2007, OPCO’s FSO fleet will include four vessels, 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 historical results of operations reflect different time charter terms for OPCO’s nine conventional tankers. Prior to the closing of this offering, OPCO will enter into new fixed-rate time charters with a subsidiary of Teekay Shipping Corporation for OPCO’s nine conventional tankers at rates we believe are market-based charter rates. Please read “Certain Relationships and Related Party Transactions — Aframax Tanker Time-Charter Contracts With Teekay Shipping Corporation.” 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 lower, as they were based on the cash flow requirements of each vessel, which included operating expenses, loan principal and interest payments and drydock expenditures, such that OPCO achieved break-even cash flow. A ninth conventional tanker traded on voyage charters. The new fixed-rate time charters should provide additional, more stable voyage revenues for these vessels. Please read the unaudited pro forma consolidated financial statements and related notes of Teekay Offshore Partners L.P. included elsewhere in this prospectus for further details regarding the impact of these new time charters.
	•	Our historical results of operations are affected by fluctuations in currency exchange rates. Prior to the closing of this offering, we will repay our foreign currency denominated advances from affiliates. As at June 30, 2006, these advances, all from Teekay Shipping Corporation, amounted to 1.0 billion Norwegian Kroner ($157.6 million) and 25.5 million Australian Dollars ($18.9 million). Under U.S. GAAP, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, advances from affiliates and deferred income taxes are revalued and reported based on the prevailing exchange rate at the end of the period. Most of our foreign currency gains and losses 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 the closing of this offering, OPCO’s operating subsidiaries will enter into new services agreements with certain subsidiaries of Teekay Shipping Corporation whereby the Teekay Shipping Corporation subsidiaries will operate and crew the vessels. Under these service agreements, OPCO’s operating subsidiaries will pay all vessel operating expenses in U.S. Dollars, and will not be subject to currency exchange fluctuations prior to 2009. Beginning in 2009, payments under the service agreements will adjust to reflect any change in the cost to the Teekay Shipping Corporation subsidiaries 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. Please read “Certain Relationships and Related Party Transactions — Advisory and Administrative Services Agreements” for a description of these service agreements.
	•	We will incur additional general and administrative expenses. Prior to the closing of this offering, we, OPCO and its operating subsidiaries will enter into services agreements with certain subsidiaries of Teekay Shipping Corporation, pursuant to which those subsidiaries will provide to us and OPCO administrative services and to OPCO’s operating subsidiaries certain services, including strategic consulting, advisory, ship management, technical and administrative services. Our cost for these services will depend on the amount and type of services provided during each period. The services will be valued at a reasonable, arm’s-length rate that will include reimbursement of reasonable

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		direct or indirect expenses incurred to provide the services. We will 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. In addition, we will incur expenses as a result of being a publicly-traded limited partnership, including costs associated with annual reports to unitholders and SEC filings, investor relations, NYSE annual listing fees and tax compliance expenses. For the year ending December 31, 2007, we estimate these services and general partner reimbursements and public-company costs will increase our expenses by an additional $1.5 million. Please read the unaudited pro forma consolidated financial statements and related notes of Teekay Offshore Partners L.P. included elsewhere in this prospectus for further details regarding the estimated impact of these additional expenses. We may also grant equity compensation that would result in an expense to us, which may result in an increase in expenses, although we currently do not have an estimate of the possible expense. Please read “Management — 2006 Long-Term Incentive Plan.”

		Six Months Ended June 30,
		2005																2006
		Shuttle				Conventional												Shuttle				Conventional
		Tanker				Tanker				FSO								Tanker				Tanker				FSO
		Segment				Segment				Segment				Total				Segment				Segment				Segment				Total
		(in thousands)
Voyage revenues			$260,373				$128,030				$11,912				$400,315				$263,203				$111,555				$11,966				$386,724
Voyage expenses			29,681				2,326				393				32,400				44,690				3,131				523				48,344
Net voyage revenues			230,692				125,704				11,519				367,915				218,513				108,424				11,443				338,380
Vessel operating expense			37,903				11,890				3,107				52,900				38,407				11,031				3,516				52,954
Time charter expense			81,035				95,241				—				176,276				86,597				79,338				—				165,935
Depreciation and amortization			40,054				10,771				4,795				55,620				35,811				10,787				4,733				51,331
General and administrative(1)			23,720				13,162				956				37,838				27,187				15,313				969				43,469
Vessel and equipment writedowns and loss on sale of vessels			5,369				—				—				5,369				1,845				—				—				1,845
Restructuring charge			—				—				—				—				—				453				—				453
Income (loss) from vessel operations			$42,611				$(5,360	)			$2,661				$39,912				$28,666				$(8,498	)			$2,225				$22,393

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		Year Ended December 31,
		2004																2005
		Shuttle				Conventional												Shuttle				Conventional
		Tanker				Tanker				FSO								Tanker				Tanker				FSO
		Segment				Segment				Segment				Total				Segment				Segment				Segment				Total
		(in thousands)
Voyage revenues			$550,445				$411,181				$24,878				$986,504				$516,758				$266,593				$24,197				$807,548
Voyage expenses			69,362				49,457				—				118,819				68,308				5,419				816				74,543
Net voyage revenues			481,083				361,724				24,878				867,685				448,450				261,174				23,381				733,005
Vessel operating expenses			76,197				22,790				6,608				105,595				75,196				22,679				6,600				104,475
Time charter hire expense			177,576				194,873				—				372,449				169,687				203,849				—				373,536
Depreciation and amortization			89,593				20,561				8,306				118,460				77,083				21,112				9,347				107,542
General and administrative(1)			45,403				19,097				1,319				65,819				55,010				29,026				1,820				85,856
Vessels and equipment writedowns and (gain) loss on sale of vessels			(3,725	)			—				—				(3,725	)			2,820				—				—				2,820
Restructuring charge			—				—				—				—				955				—				—				955
Income (loss) from vessel operations			$96,039				$104,403				$8,645				$209,087				$67,699				$(15,492	)			$5,614				$57,821

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

	Shuttle Tanker Segment

		Six Months Ended June 30,
		2005				2006				Percentage Change
		(Average Number of Ships)				(Average Number of Ships)				(%)
Owned Vessels			22.9				21.0				(8.3	)%
Chartered-in Vessels			13.0				14.1				8.5
Total			35.9				35.1				(2.2	)%

	•	the sale of two older shuttle tankers in March and October 2005 (collectively, the 2005 Shuttle Tanker Dispositions); and
	•	the redelivery of one chartered-in vessel back to its owner in April 2006;

	•	the inclusion of two additional chartered-in vessels commencing May and June 2005.

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	•	a decrease of $9.8 million from shuttle tankers servicing contracts of affreightment, which is explained in further detail below;
	•	a decrease of $5.9 million from the 2005 Shuttle Tanker Dispositions; and
	•	a decrease of $1.4 million from certain offshore equipment servicing a marginal oil field that was prematurely shut down in June 2005 due to lower than expected oil production;

	•	an increase of $4.0 million due to the commencement of two long-term time charters during 2005; and
	•	an increase of $0.9 million due to adjustments to certain daily charter rates based on increases from rising interest rates and inflation in accordance with the bareboat charters for certain shuttle tankers.

	•	an increase of $3.0 million for increased salaries for crew and officers due to a change in crew composition on one vessel upon the commencement of a new short-term time-charter contract in 2005 as well as general wage escalations; and
	•	an increase of $0.6 million due to repairs and maintenance relating to certain vessels and an increase in the cost of lubricants as a result of higher crude costs;

	•	a decrease of $2.8 million from the 2005 Shuttle Tanker Dispositions.

	•	a 8.5% increase in the average number of vessels chartered-in;

	partially offset by

	•	a 1.0% decrease in the average per day time-charter hire expense to $33,998 from $34,332 for the same period in 2005.

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	•	a decrease of $1.9 million relating to a reduction in amortization from the expiration during 2005 of two contracts of affreightment and declines in revenue from remaining contracts of affreightment;
	•	a decrease of $1.0 million relating to a $12.2 million write-down during 2005 of the carrying value of certain offshore equipment servicing a marginal oil field that was prematurely shut down due to lower than expected oil production; and
	•	a decrease of $0.9 million relating to the 2005 Shuttle Tanker Dispositions and the sale and leaseback of one shuttle tanker in March 2005.

	•	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;

	•	$0.3 million of amortization of a deferred gain on the sale and leaseback of one shuttle tanker in March 2005.

	•	a $10.2 million writedown of the previously-mentioned equipment;

	•	a $4.9 million gain on the sale of an older shuttle tanker in the first quarter of 2005.

	Conventional Tanker Segment

		Six Months Ended June 30,
		2005				2006				Percentage Change
		(Average Number of Ships)				(Average Number of Ships)				(%)
Owned Vessels			11.0				10.0				(9.1	)%
Chartered-in Vessels			29.2				24.3				(16.8	)
Total			40.2				34.3				(14.7	)%

	•	the sale of a 2000-built liquid petroleum gas carrier (the Dania Spirit) to a subsidiary of Teekay Shipping Corporation in June 2005 (or the 2005 Conventional Tanker Disposition); and

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	•	a reduction in the average number of chartered-in conventional tankers to 24 during the six months ended June 30, 2006, from 29 in the same period in 2005. The chartered-in fleet declined as we did not renew a number of in-charters due to high rates in the time charter market.

	•	a decrease of $17.0 million from the decrease in the average number of chartered-in vessels; and
	•	a decrease of $2.4 million relating to the 2005 Conventional Tanker Disposition;

	•	an increase of $1.1 million from a 1.0% increase in our average per day TCE rate to $17,472 for the six months ended June 30, 2006, from $17,292 for the same period in 2005.

	•	an increase of $0.5 million from the amortization of drydock costs incurred during the second half of 2005;

	•	a decrease of $0.5 million from the 2005 Conventional Tanker Disposition.

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	FSO Segment

		Six Months Ended June 30,
		2005				2006				Percentage Change
		(Average Number of Ships)				(Average Number of Ships)				(%)
Owned Vessels			3				3				—

	Other Operating Results

	•	an increase of $6.2 million in allocated general and administrative expenses, including employee stock compensation, from Teekay Shipping Corporation;

	•	a decrease of $0.9 million relating to a reduction in costs associated with our long-term employee bonus plan.

	•	an increase of $3.1 million due to an increase in the weighted-average interest rate on OPCO’s floating-rate debt; and
	•	an increase of $2.9 million relating to additional debt of $171.1 million incurred during the second half of 2005;

	•	a decrease of $1.0 million relating to the repayment of interest-bearing advances from affiliates; and
	•	a decrease of $0.2 million relating to the repayment of 8.32% First Preferred Ship Mortgage Notes during the first half of 2005.

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	Shuttle Tanker Segment

		2004				2005				Percentage Change
		(Average Number of Ships)				(Average Number of Ships)				(%)
Owned Vessels			24.5				22.2				(9.4	)%
Chartered-in Vessels			13.4				13.6				1.5
Total			37.9				35.8				(5.5	)%

	•	the 2005 Shuttle Tanker Dispositions and the sale of one older shuttle tanker in 2004 (or the 2004 Shuttle Tanker Disposition);

	•	the delivery of a shuttle tanker newbuilding (or the 2004 Shuttle Tanker Delivery) in March 2004 that commenced service under a long-term bareboat charter in August 2004.

	•	a decrease of $22.3 million from shuttle tankers servicing contracts of affreightment, which is explained in further detail below;
	•	a decrease of $10.3 million from the 2005 Shuttle Tanker Dispositions;
	•	a decrease of $1.7 million due to the 2004 Shuttle Tanker Disposition; and

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	•	a decrease of $1.6 million from certain offshore equipment servicing a marginal oil field that was prematurely shut down in June 2005 due to lower than expected oil production;

	•	an increase of $1.2 million due to adjustments to the daily charter rate based on increases from rising interest rates in accordance with the bareboat charters for two shuttle tankers.

	•	a decrease of $4.5 million as a result of the 2005 Shuttle Tanker Dispositions; and
	•	a decrease of $1.2 million as a result of a shuttle tanker commencing a long-term bareboat charter in September 2004 after it had completed a five month time charter;

	•	an increase of $2.3 million due to increased repairs and maintenance relating to certain older shuttle tankers; and
	•	an increase of $1.9 million due to a weaker U.S. Dollar relative to the Norwegian Kroner during 2005 as compared to 2004.

	•	a 5.8% decrease in the average per day time-charter hire expense to $34,190 for 2005, from $36,277 for the same period in 2004;

	•	a 1.5% increase in the average number of vessels chartered-in.

	•	a decrease of $9.9 million relating to the 2005 Shuttle Tanker Dispositions, the 2004 Shuttle Tanker Disposition, and the sale and leaseback of one shuttle tanker in 2005;
	•	a decrease of $2.7 million relating to a reduction in amortization from the expiration during 2005 of two of OPCO’s contracts of affreightment; and
	•	a decrease of $1.5 million relating to a $12.2 million write-down during 2005 of the carrying value of certain offshore equipment servicing a marginal oil field that was prematurely shut down due to lower than expected oil production;

	•	an increase of $2.5 million relating to the 2004 Shuttle Tanker Delivery.

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	•	a $12.2 million write-down of the carrying value of certain offshore equipment servicing a marginal oil field that was prematurely shut down in June 2005 (some of this equipment was re-deployed on another field in October 2005);

	•	a $9.1 million gain on the 2005 Shuttle Tanker Dispositions; and
	•	a $0.3 million gain from amortization of a deferred gain, which relates to the sale and leaseback of an older shuttle tanker in the first quarter of 2005.

	Conventional Tanker Segment

		2004				2005				Percentage Change
		(Average Number of Ships)				(Average Number of Ships)				(%)
Owned Vessels			10.3				10.5				1.9	%
Chartered-in Vessels			30.4				30.7				1.0
Total			40.7				41.2				1.2	%

	•	the delivery of a new conventional tanker in the third quarter of 2004 (or the 2004 Conventional Tanker Delivery);

	•	the 2005 Conventional Tanker Disposition.

	•	a decrease of $45.9 million relating to a decrease in the hire rate earned by five owned conventional tankers on time charters with TCL;
	•	a decrease of $44.0 million from the change in employment of the chartered-in conventional tankers from spot voyage charters with unrelated parties to TCL during the second quarter of 2004;
	•	a decrease of $11.0 million from the change in employment of one owned vessel from spot voyage charters with unrelated parties during 2004 to the subsequent charter of this vessel to TCL under the terms described below; and
	•	a decrease of $2.6 million relating to the 2005 Conventional Tanker Disposition;

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	•	an increase of $3.2 million relating to the 2004 Conventional Tanker Delivery.

	FSO Segment

		2004				2005				Percentage Change
		(Average Number of Ships)				(Average Number of Ships)				(%)
Owned Vessels			3				3				—

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	•	a decrease of $2.8 million due a negotiated reduction to the daily bareboat charter rate on one of the FSO units;

	•	an increase of $1.5 million from a full year of operations of the Pattani Spirit during 2005 compared to 2004.

	Other Operating Results

	•	an increase of $8.4 million relating to the adoption of a long-term employee bonus plan during 2005;
	•	an increase of $7.2 million in allocated general and administrative expenses from Teekay Shipping Corporation;
	•	an increase of $4.5 million relating to the grant of restricted stock units of Teekay Shipping Corporation to employees in March 2005;
	•	an increase of $3.1 million from the strengthening in the average Norwegian Kroner/ U.S. Dollar exchange rate in 2005 compared to 2004; and
	•	an increase of $0.7 million in ship management fees paid to a subsidiary of Teekay Shipping Corporation for the 2004 Conventional Tanker Delivery and one FSO unit;

	•	special bonuses of $3.8 million accrued during 2004 in addition to regular bonuses under the annual bonus plan.

	•	a decrease of $6.5 million relating to the repayment of long-term debt; and
	•	a decrease of $2.4 million relating to the repayment of interest-bearing advances from affiliates;

	•	an increase of $4.7 million relating to an increase in the weighted-average interest rate on OPCO’s floating-rate debt.

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	Liquidity and Cash Needs

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	Cash Flows

		Years Ended								Six Months Ended
		December 31,								June 30,
		2004				2005				2005				2006
		(in thousands)
Net cash flow from operating activities			$242,592				$152,687				$81,232				$48,705
Net cash flow from financing activities			(69,710	)			(201,554	)			(153,647	)			(42,602	)
Net cash flow from investing activities			(190,110	)			34,124				48,182				(1,127	)

	Operating Cash Flows

	Financing Cash Flows

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	Investing Cash Flows

	Ongoing Capital Expenditures

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	Historical Capital Expenditures

			Years Ended								Six Months Ended
			December 31,								June 30,
			2004				2005				2005				2006
			(in thousands)
Expenditures for drydocking			$	9,174			$	8,906			$	2,679			$	3,780
Expenditures for vessels and equipment				170,630				24,760				7,116				5,054
	Total capital expenditures		$	179,804			$	33,666			$	9,795			$	8,834

	Ship Financing Arrangements

	•	Term Loans. OPCO has a 50.0% interest in five joint venture companies, each of which owns one shuttle tanker. The vessels in the joint venture have been financed with term loans that are secured by first-priority mortgages on the vessels and related collateral. Either OPCO or one of its subsidiaries guarantees 50.0% of the term loans.
	•	Revolving Credit Facilities. OPCO and one of its subsidiaries financed the purchases of certain vessels with long-term revolving credit facilities that are secured by first-priority mortgages on certain vessels and related collateral. We amended or replaced these facilities, as discussed below.

	Credit Facilities

	•	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 secured by first-priority mortgages on eight shuttle tankers and one FSO unit. Borrowings under the facility bear interest at LIBOR plus a margin and may be prepaid at any time in amounts of not less than $5.0 million.
	•	New Revolving Credit Facility. The new 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 in 11 shuttle tankers and 8 conventional tankers. Borrowings under the facility bear interest at LIBOR plus a margin and may be prepaid at any time in amounts of not less than $5.0 million. OPCO’s new credit facility allows it 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).

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	Covenants and Other Restrictions in Our Financing Agreements

	•	incurring or guaranteeing indebtedness (applicable to term loans only);
	•	changing ownership or structure, including mergers, consolidations, liquidations and dissolutions;
	•	making dividends or distributions when in default of the relevant loans;
	•	making capital expenditures in excess of specified levels;
	•	making certain negative pledges or granting certain liens;
	•	selling, transferring, assigning or conveying assets; or
	•	entering into a new line of business.

							Balance of				2007 and				2009 and				Beyond
			Total				2006				2008				2010				2010
			(in millions)
Long-term debt(1)				$543.5				$—			$	299.0				$21.6			$	222.9
Chartered-in vessels (operating leases)				895.4				166.2				356.5				169.7				203.0
Commitments under capital lease				55.3				2.1				8.2				8.2				36.8
Advances from affiliates				394.9				394.9				—				—				—
Commitment for VOC equipment				18.0				18.0				—				—				—
	Total contractual obligations			$1,907.1				$581.2			$	663.7				$199.5			$	462.7

(1)	Excludes interest payments of $15.9 million (remainder of 2006), $45.2 million (2007 and 2008), $18.7 million (2009 and 2010) and $30.4 million (beyond 2010). Expected interest payments are based on LIBOR at June 30, 2006, plus margins that ranged between 0.60% and 0.70%.

	•	OPCO’s incurrence of additional debt to increase its outstanding debt to $1.08 billion (excluding debt relating to five joint ventures, which totaled $237.3 million as of June 30, 2006);
	•	OPCO’s transfer to Teekay Shipping Corporation of all chartered-in conventional crude oil and product tankers in Navion Shipping Ltd.;
	•	OPCO’s purchase from Teekay Shipping Corporation of the Fuji Spirit; and
	•	OPCO’s repayment of all advances from Teekay Shipping Corporation;

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							Balance of				2007 and				2009 and				Beyond
			Total				2006				2008				2010				2010
			(in millions)
Long-term debt(1)			$	1,317.3			$	8.8			$	193.9			$	196.5				$918.1
Chartered-in vessels (operating leases)				638.8				75.3				222.9				148.0				192.6
Commitment for VOC equipment				18.0				18.0				—				—				—
	Total pro forma contractual obligations		$	1,974.1			$	102.1			$	416.8			$	344.5				$1,110.7

(1)

Excludes interest payments of $35.5 million (remainder of 2006), $132.2 million (2007 and 2008), $109.0 million (2009 and 2010) and $140.6 million (beyond 2010). Expected interest payments are based on LIBOR at June 30, 2006, plus margins that ranged up to 0.80%. Please read “— Liquidity and Capital Resources — Credit Facilities” above, “Use of Proceeds” and the unaudited pro forma consolidated financial statements included elsewhere in this prospectus.

	Revenue Recognition

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	Vessel Lives and Impairment

	Drydocking

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	Goodwill and Intangible Assets

	Derivative Instruments

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	Interest Rate Risk

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							Expected Maturity Date
			Total				2006				2007				2008				2009				2010				Thereafter				Rate(1)
			(in millions of U.S. dollars)
Long-Term Debt and Advances from Affiliates:
	Variable Rate Debt (U.S.$)			543.5				—				15.0				284.0				10.8				10.8				222.9				5.9	%
	Fixed-Rate Debt (Norwegian Kroner)			157.6				157.6				—				—				—				—				—				7.5	%
	Fixed-Rate Debt (Australian Dollar)			18.9				18.9				—				—				—				—				—				8.0	%
Capital Lease Obligations:(2)
	Fixed-Rate (U.S.$)			33.6				0.7				1.5				1.6				1.7				1.9				26.2				8.3	%

(1)	Rate refers to the weighted-average effective interest rate for OPCO’s debt, including the margin it pays on variable-rate debt, as at June 30, 2006, and the interest rate implicit in its capital lease obligation at the inception of the lease.
(2)	The capital lease obligation represents the present value of minimum lease payments, together with the purchase obligation. During June 2006, OPCO exercised the option to purchase the conventional Aframax tanker subject to the capital lease (the Fuji Spirit), and acquired the vessel in September 2006.

	•	OPCO’s incurrence of additional debt to increase OPCO’s outstanding debt to $1.08 billion (excluding debt relating to five 50%-owned joint ventures, which totaled $237.3 million as at June 30, 2006);
	•	OPCO’s purchase of the Fuji Spirit;
	•	OPCO’s repayment of all advances from Teekay Shipping Corporation; and
	•	Teekay Shipping Corporation’s contribution to OPCO of interest rate swaps with a notional principal amount of $1.09 billion, a weighted-average fixed interest rate of 5.5% (including the margin OPCO pays on its floating-rate debt) and a weighted-average remaining term of 9.7 years.

							Expected Maturity Date
			Total				2006				2007				2008				2009				2010				Thereafter				Rate(1)
			(in millions)
Long-Term Debt:
	Variable Rate Debt(2)			$1,312.2				$8.8				$76.8				$117.1				$115.4				$81.1				$913.0				5.4	%
Interest Rate Swaps:
	Contract Amount(3)			$1,147.2				$4.4				$297.4				$8.5				$208.5				$8.5				$619.9				4.9	%
	Average Fixed Pay Rate(2)			4.9	%			4.7	%			5.4	%			4.9	%			4.3	%			4.9	%			4.8	%

(1)	Rate refers to the weighted-average effective interest rate for OPCO’s debt, including the margin it pays on variable-rate debt as at June 30, 2006, and the average fixed pay rate for interest rate swap agreements, which excludes the margin OPCO pays on variable-rate debt. Interest payments for interest rate swaps are based on LIBOR.
(2)	Interest payments on variable-rate debt and interest rate swaps are based on LIBOR.
(3)	The average variable receive rate for our interest rate swaps is set quarterly at the 3-month LIBOR or semi-annually at 6-month LIBOR.

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	Foreign Currency Fluctuation Risk

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	Infrastructure for Offshore Oil Field Production

	•	the number, location and type of wells required to efficiently produce the field’s reserves, which are determined by several factors, including the geology of the reservoir and its depth;
	•	the production system required to produce the field’s reserves, which is determined by a number of factors, including the water depth, geography, surrounding infrastructure and the size and content of the discovery. Depending on these factors, the production system could be a fixed installation (i.e., attached to the ocean floor), floating or both; and
	•	the processing, storage and transportation systems required to handle the field’s production and economically bring the oil to market, including the decision to use pipelines or shuttle tankers for transportation.

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	•	offloading and transportation of cargo from oil field installations to onshore terminals via dynamically-positioned offshore loading shuttle tankers; and
	•	floating storage for oil field installations via FSO units.

	Overview

	•	Field operators can avoid expensive pipeline installations and tariff regimes. Shuttle tankers can therefore represent a more favorable cost solution than pipelines, especially in cases where offshore oil fields are located in deep water or remote locations with fields expected to have shorter production lives.
	•	Shuttle tankers can lift and transport oil from several loading facilities and transport the cargo to any port directed by the customer, thus providing destination flexibility versus a pipeline, which has dedicated receiving terminals.
	•	Pipeline grids, unlike shuttle tankers, often blend crude oil with varying qualities from different fields. A field operator can often achieve a better price if a cargo is sold as unblended. Field operators also have the option to segregate different crude qualities on board the shuttle tanker, which is not possible with pipelines.
	•	Major shuttle tanker operators have backup vessels if the primary vessel goes “off-hire” for maintenance or repair. If a pipeline network requires maintenance or repair, the network may be shut down, interrupting the supply of oil from an installation.

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	Unique Attributes of Shuttle Tankers

	•	Design. Shuttle tankers are designed with variable pitch propellers and side thrusters, higher cargo pumping capability, dynamic positioning systems, specific loading systems for loading cargo at offshore facilities, reinforced hull design for fatigue prevention, and a wide range of area/customer specific equipment and systems.
	•	Voyage Length. Shuttle tanker voyages are typically short-haul to regional terminals and refineries, while conventional oil tankers traditionally trade on longer-haul voyages. The short voyages, continual loading operations and unique systems give rise to far more complex technical and performance issues for shuttle tankers than conventional tankers.
	•	Stringent Standards. The shuttle tanker industry is affected by standards and regulations applicable to the offshore industry, certain of which are more stringent than those applicable to conventional oil tankers.
	•	Nature of Contracts. Shuttle tankers are an integrated part of an offshore field development project and a critical part of the logistics chain of a field. As a result, cooperation between the

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		shuttle tanker operator and the field operator is much closer than in the case of conventional tanker business, and there are usually long-term contractual arrangements between the field operator and shuttle tanker owner to lift the production from an oil field installation. By contrast, the conventional tanker market is predominantly conducted on short-term contracts, typically for one or a few voyages.
	•	Specialized Crewing and Staff. The workload for the crew onboard and for shore-based personnel for offshore operations is higher compared to conventional shipping, given the shorter voyage lengths and additional complexity of offshore loading operations. Maneuvering and safe handling of shuttle tankers in close proximity to offshore installations, operating the loading and dynamic positioning systems, and complying with additional offshore regulations and practices require highly skilled crew. Tailor-made training, including extensive simulator training, is an integral part of the shuttle tanker business. In addition to the normal maritime certificates for deck officers, a shuttle tanker dynamic positioning operator must qualify for a dedicated dynamic positioning certificate.

	Offshore Loading System

	•	Single Point Mooring (SPM). SPM was the first system introduced in the North Sea and allows a shuttle tanker to weathervane, or position the vessel in order to be less affected by the weather conditions, around a mooring point such as a floating buoy anchored to the seabed. In the 1970s, the first SPM systems relied on a taut hawser operation, in which a hawser is connected to the export system and the vessel reverses, which creates tension on the hawser. Tug or standby vessel assistance is often required under a taut hawser arrangement. A hose from the export system is then connected to the loading system on the vessel. The introduction of dynamic positioning systems in the early 1980s significantly reduced wear-and-tear on equipment related to SPM operations.

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	•	Ugland Kongsberg Offshore Loading System (OLS). In 1986, OLS was introduced as a considerably less expensive system than the traditional SPM buoys. While SPM allowed for a taut hawser operation, OLS systems were the first to be totally dependant on the dynamic positioning system of a shuttle tanker.

	•	Submerged Turret Loading (STL). Introduced in 1994, STL consists of a submerged buoy that is pulled through a cone-shaped turret located on the keel of the shuttle tanker. The loading hose runs through the buoy to a rotating connector, allowing the ship to weathervane freely. STL is deployed in the most extreme weather conditions, such as those off Northwest Europe. This export system does not operate with a bow loading system.

	•	Single Anchor Loading (SAL). Introduced in the late 1990s, SAL provides a simple, cost effective export solution used primarily in shallow waters. A SAL system consists of a single anchor on the seabed with equipment for mooring and oil transfer to shuttle tankers.

	•	Tandem Loading. In a tandem loading operation, shuttle tankers connect to the stern of an FPSO unit or FSO unit. The first tandem operation was carried out in 1991. Dynamic positioning systems continuously monitor the movements and relative positions of the two units.

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	Dynamic Positioning System

	•	wider operating range, including the capability to load in conditions with up to 17 foot significant wave height (a measure of average wave height that corresponds to approximately 30 foot maximum wave height); and
	•	less risk of damage and wear and tear both to the field export system and the vessels’ loading systems since no heavy loads are introduced to the system during loading.

	Markets

		Operating				On Order				Total
North Sea			39				0				39
Brazil			11				2				13
Eastern Canada			6				0				6
Russia Arctic			0				5				5
Australia			1				0				1
South Africa			1				0				1
Total(1)			58				7				65

(1)	Excludes five older shuttle tankers that are awaiting conversion to FSO or FPSO units or are operating in the conventional tanker market.

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	Competition

	Contract Structures

	Overview

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	Markets

		Operating				On Order				Total
Asia			30				4				34
Middle East			18				0				18
Western Africa			14				0				14
North Sea			8				1				9
Mediterranean			5				0				5
Australia			4				0				4
Gulf of Mexico/ Caribbean			4				0				4
Brazil			3				1				4
Total			86				6				92

	Competition

	Contract Structure

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	Overview

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	Markets

		Operating				On Order				Total
Western Africa			27				7				34
Asia			28				4				32
North Sea			19				4				23
Brazil			15				8				23
Australia			10				5				15
Mediterranean			5				0				5
Gulf of Mexico/ Caribbean			2				1				3
Eastern Canada			2				0				2
Middle East			1				0				1
No contract			2				7				9
Total			111				36				147

	•	the major oil companies have begun to outsource operations that are outside their core business and expertise; and
	•	there are an increasing number of smaller oil companies operating offshore oil field installations.

	Competition

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	Contract Structure

	Overview

	Oil Tanker Demand

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		2000				2001				2002				2003				2004				2005				2006E				2007E
		(millions of barrels per day)
OECD* North America Demand			24.1				24.0				24.1				24.5				25.4				25.5				25.4				25.8
OECD Europe Demand			15.2				15.3				15.3				15.4				15.5				15.5				15.5				15.5
OECD Pacific Demand			8.6				8.5				8.5				8.6				8.5				8.6				8.5				8.5
Total OECD Demand			47.9				47.9				47.9				48.6				49.3				49.6				49.4				49.7
Total NON-OECD Demand			28.6				29.2				29.9				30.7				33.1				34.0				35.1				36.2
Total Demand			76.5				77.1				77.8				79.3				82.4				83.6				84.5				85.9

*	OECD indicates countries that are members of the international Organization for Economic Cooperation and Development.

	Oil Tanker Supply

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	Types of Conventional Oil Tankers

	•	Ultra Large Crude Carriers of 320,000 dwt or more;
	•	Very Large Crude Carriers of 200,000 to 320,000 dwt;
	•	Suezmax tankers of 120,000 to 200,000 dwt;
	•	Aframax tankers of 80,000 to 120,000 dwt; and
	•	Smaller tankers (such as Panamax and Handysize) of less than 80,000 dwt.

	Aframax-class Tankers

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	Competition

(1)	Conventional oil tankers exclude those vessels that can carry dry bulk and ore, tankers that currently are used for storage purposes, and shuttle tankers that are designed to transport oil from offshore production platforms to onshore storage and refinery facilities.
(2)	Data for Teekay Shipping Corporation includes OPCO’s Aframax tankers.
(3)	Aframax International operates a pool of tankers managed by OSG Corporation.

	Contract Structure

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	•	Shuttle Tankers. OPCO is the world’s largest owner and operator of shuttle tankers, with a fleet consisting of 36 vessels, 24 of which are owned fully or jointly and 12 of which are chartered-in. 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 contract of affreightment volumes are life-of-field, which, according to data provided by Wood MacKenzie Ltd. (or WoodMac), have a weighted-average remaining life of 16 years. The time charter and bareboat charters have an average remaining contract term of approximately 6 years.
	•	FSO Units. OPCO has a fleet of four FSO units. All of the FSO units operate under fixed-rate contracts, with an average remaining term of approximately 5 years.
	•	Conventional Tankers. OPCO has a fleet of nine Aframax-class conventional crude oil tankers. The conventional tankers all have fixed-rate time charters with Teekay Shipping Corporation, with an average remaining term of approximately 8 years.

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	•	Growing offshore oil production. According to Douglas-Westwood, offshore oil production is forecast to grow from approximately 33% of global oil production in 2005 to approximately 37% by 2015. Douglas-Westwood also forecasts that deepwater oil production will increase from approximately 3 million barrels per day in 2005 to over 8 million in 2015, and that approximately 25% of offshore oil will come from deep waters in 2015 compared to just 12% in 2005, and after 2010 all global offshore oil production growth will be from deep waters. We believe demand for shuttle tankers and FPSO units will increase from this forecasted growth in deepwater offshore oil production because production from deep waters and remote areas may be expensive or technically demanding to transport via pipeline. In addition, oil production from deep waters may be costly or not technically feasible for fixed production platforms, which creates opportunities for the deployment of floating production units.
	•	Increased outsourcing of offshore services. We believe there is a growing trend among oil field operators to outsource to independent contractors offshore transportation, processing and storage functions. For instance, Teekay Shipping Corporation was chosen by Statoil ASA, Norway’s largest energy company, to purchase its shuttle tanker operation in 2003. In addition, according to International Maritime Associates, approximately 58% of the FPSO units installed since 2001 and approximately 67% of the FPSO units on order as of July 2006 are owned by independent FPSO contractors. We also believe there is a growing number of smaller oil companies entering the offshore sector, as oil demand and prices drive future exploration and production. Smaller oil companies generally outsource their offshore service requirements due to capital expenditure constraints and lack of in-house expertise. These smaller companies are primarily focused on marginal or remote projects that favor the employment of shuttle tankers, FSO units and FPSO units.
	•	Customer demand for dependable and integrated solutions. Many new and existing offshore projects, particularly those located in deep waters or remote locations, require a combination of the types of offshore services OPCO provides. Moreover, the major oil companies are highly selective in their choice of contractors due to the high level of capital investment and the requirement for uninterrupted production from the oil fields. We believe we can bundle services and offer a reliable, integrated “one-stop-shop” solution for customers in the offshore sector.

	•	Leading position in the shuttle tanker sector. OPCO is the world’s largest owner and operator of shuttle tankers, as it owned or operated 36 of the 58 vessels in the world shuttle tanker fleet as at November 1, 2006. OPCO’s large fleet size ensures that it can provide comprehensive coverage of

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		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 Shipping Corporation. Teekay Shipping 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 expect to receive due to our relationship with Teekay Shipping 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 Shipping Corporation’s control of and joint venture with Petrojarl ASA and our rights to participate in certain FPSO projects under the omnibus agreement;
	•	access to Teekay Shipping Corporation’s general commercial and financial core competencies, practices and systems, which we believe will enhance 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 Shipping Corporation’s 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 OPCO’s business. OPCO is able to secure long-term contracts because its 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 OPCO’s 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. OPCO’s fleet has been built through successful new project tenders and acquisitions, and this strategy has contributed significantly to its leading position in the shuttle tanker market. A significant portion of OPCO’s shuttle tanker fleet was established through the acquisition of Ugland Nordic Shipping AS in 2001 and Navion AS, Statoil ASA’s shipping subsidiary, in 2003. In addition, OPCO has increased the size of its fleet through customized shuttle tanker and FSO projects for major energy companies around the world.
	•	Financial flexibility to pursue acquisitions and other expansion opportunities. We believe our financial flexibility will provide us with acquisition and expansion opportunities. In October 2006 OPCO amended an existing revolving credit facility and entered into another that provides it access to a total of approximately $1.6 billion for working capital and acquisition purposes, approximately $300 million of which we anticipate will be undrawn immediately after the closing of this offering.

	•	Expand global operations in high growth regions. As offshore exploration and production activity continues to accelerate worldwide, we will seek to continue to expand shuttle tanker and FSO unit operations into growing offshore markets such as Brazil and Australia. In addition, we intend to

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		pursue opportunities in new markets such as Arctic Russia, Eastern Canada, the Gulf of Mexico, Asia and Africa.
	•	Pursue opportunities in the FPSO sector. We believe that Teekay Shipping Corporation’s control of and joint venture with Petrojarl ASA will enable us to competitively pursue FPSO projects anywhere in the world by combining Petrojarl’s engineering and operational expertise with Teekay Shipping Corporation’s global marketing organization and extensive customer and shipyard relationships.
	•	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 Shipping Corporation may offer us in the future.
	•	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 OPCO’s and Teekay Shipping Corporation’s operational expertise and customer relationships to further expand a sustainable competitive advantage with consistent delivery of superior customer service by:

	•	responsiveness, reliability, professionalism and integrity;
	•	adoption of responsible environmental practices and strict adherence to environmental regulations;
	•	dedication to safe operations; and
	•	use of customer feedback and industry and internal performance measures to drive continuous improvements.

	•	Manage the conventional tanker fleet to provide stable cash flows. The terms for OPCO’s existing long-term conventional tanker charters are 5 to 12 years. 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 order to maximize returns on the conventional fleet while managing residual risk.

	Shuttle Tankers

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Capacity

Positioning

Operating

Contract

Remaining

Vessel

(dwt)

Built

Ownership

System

Region

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

Navion Norvegia(2)

130,600

1995

100%

DP

North Sea

CoA

Statoil

Navion Europa(2)

130,300

1995

100%

DP

North Sea

CoA

Chevron

Navion Clipper

78,200

1993

100%

DP

North Sea

CoA

Marathon Oil

Navion Fennia(2)

95,200

1992

100%

DP

North Sea

CoA

Hess

Chartered-in

ExxonMobil

Grena

148,000

2003

(until 2013)(3)

DP2

North Sea

CoA

Norsk Hydro

Chartered-in

Eni

Majority

Bertora

100,300

2001

(until 2011)(3)

DP2

North Sea

CoA

Mongstad Terminal

of

Chartered-in

Draugen Transport

volumes

Sallie Knutsen

153,600

1999

(until 2015)

DP2

North Sea

CoA

BP

are

Chartered-in

ConocoPhillips

life-of-

Karen Knutsen

153,600

1999

(until 2013)

DP2

North Sea

CoA

Shell

field

Chartered-in

Total Talisman

Elisabeth Knutsen

124,700

1997

(until 2007)

DP2

North Sea

CoA

DONG

Chartered-in

Danoil

Gerd Knutsen

146,200

1996

(until 2008)

DP

North Sea

CoA

Denerco

Chartered-in

Idemitsu

Aberdeen

87,000

1996

(until 2009)

DP

North Sea

CoA

RWE Dea

Chartered-in

Lundin

Randgrid(2)

124,500

1995

(until 2014)(4)

DP

North Sea

CoA

DNO(6)

Chartered-in

Tordis Knutsen

123,800

1993

(until 2007)

DP

North Sea

CoA

Chartered-in

Vigdis Knutsen

123,400

1993

(until 2008)

DP

North Sea

CoA

Lease

Navion Akarita

107,200

1991

(until 2012)(5)

DP

North Sea

CoA

Chartered-in

Tove Knutsen(2)

106,300

1989

(until 2007)

DP2

North Sea

CoA

Stena Sirita

127,400

1999

50%(7)

DP2

North Sea

Time charter

ExxonMobil(8)

3 years

Nordic Marita

103,900

1999

100%

DP

Brazil

Time charter

Petrobras(8)

3 years

Stena Natalita

108,000

2001

50%(7)

DP2

North Sea

Time charter

ExxonMobil(8)

2 years

Stena Alexita

127,400

1998

50%(7)

DP2

North Sea

Time charter

ExxonMobil(8)

2 years

Navion Svenita

106,500

1997

100%

DP

Brazil

Time charter

Petrobras(8)

2 years

Nordic Savonita

108,100

1992

100%

DP

Brazil

Time charter

Petrobras(8)

2 years

Nordic Torinita

106,800

1992

100%

DP2

North Sea

Time charter

Knutsen(8)

2 years

Basker Spirit

97,000

1992

100%

DP

Australia

Time charter

Anzon(8)

2 years

Navion Stavanger

147,500

2003

100%

DP2

Brazil

Bareboat

Petrobras(9)

13 years

Nordic Spirit

151,300

2001

100%

DP

Brazil

Bareboat

Petrobras(9)

12 years

Stena Spirit

151,300

2001

50%(7)

DP

Brazil

Bareboat

Petrobras(9)

12 years

Nordic Brasilia

151,300

2004

100%

DP

Brazil

Bareboat

Petrobras(9)

11 years

Nordic Rio

151,300

2004

50%(7)

DP

Brazil

Bareboat

Petrobras(9)

11 years

Petroatlantic

92,900

2003

100%

DP2

North Sea

Bareboat

Petrojarl(9)

3 years

Petronordic

92,900

2002

100%

DP2

North Sea

Bareboat

Petrojarl(9)

3 years

Total capacity

4,386,700

(1)	“CoA” refers to contracts of affreightment.
(2)	The vessel is capable of loading from an STL 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.
(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.

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(7)	Owned through a 50% joint venture with Stena. The parties share in the profits and losses of the joint venture in proportion to each party’s relative capital contributions. Teekay Shipping Corporation subsidiaries provide operational services for these vessels.
(8)	Charterer has an option to extend the time charter or bareboat charter.
(9)	Charterer has the right to purchase the vessel at end of the bareboat charter.

	FSO Units

Capacity

Field Name and

Remaining

Vessel

(dwt)

Built

Ownership

Location

Contract Type

Charterer

Term

Pattani Spirit

113,800

1988

100

%

Platong, Thailand

Bareboat

Unocal

8 years

Apollo Spirit

126,900

1978

89

%

Banff, UK

Time charter

Petrojarl

8  years(1)

Navion Saga(2)

149,000

1991

100

%

Volve, Norway

Time charter

Statoil

3  years(3)

Karratha Spirit

106,600

1988

100

%

Legendre, Australia

Time charter

Woodside

1 year(3)

Total capacity

496,300

(1)	Charterer is required to charter the vessel for as long as a specified FPSO unit, the Ramform Banff, produces the Banff field, which could extend to 2014 depending on the field operator.
(2)	This vessel will be in drydock for FSO conversion and will trade in the spot conventional market before the FSO time charter begins, which is scheduled for the second quarter of 2007.
(3)	Charterer has option to extend the time charter after the initial fixed period.

	Conventional Tankers

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Capacity

Remaining

Vessel

(dwt)

Built

Ownership

Contract Type

Charterer

Term(1)

Kilimanjaro Spirit

115,000

2004

100%

Time charter

Teekay

12 years

Fuji Spirit

106,300

2003

100%

Time charter

Teekay

12 years

Hamane Spirit

105,200

1997

100%

Time charter

Teekay

9 years

Poul Spirit

105,300

1995

100%

Time charter

Teekay

8 years

Gotland Spirit

95,300

1995

100%

Time charter

Teekay

8 years

Torben Spirit

98,600

1994

100%

Time charter

Teekay

6 years

Scotia Spirit(2)

95,000

1992

100%

Time charter

Teekay

5 years

Leyte Spirit

98,700

1992

100%

Time charter

Teekay

5 years

Luzon Spirit

98,600

1992

100%

Time charter

Teekay

5 years

Total capacity

918,000

(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. Please read “— Vessel Contracts” below.
(2)	This vessel has been equipped with FSO equipment and OPCO can end the charter upon 30-days notice if it has arranged an FSO project for the vessel.

	Contracts of Affreightment

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	Time Charters and Bareboat Charters

	•	chartered-in to its fleet eleven shuttle tankers under time charters and one shuttle tanker under a bareboat charter, all for use in its contract of affreightment fleet; and
	•	chartered to its customers eight shuttle tankers, three FSO units and nine conventional Aframax tankers under time charters and seven shuttle tankers and one FSO unit under bareboat charters.

	•	operational deficiencies; drydocking for repairs, maintenance or inspection; equipment breakdowns; or delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or
	•	the shipowner’s failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

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	VOC Agreements

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	•	The vessel’s flag state, or the vessel’s classification 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 some of the vessels.
	•	Many customers regularly inspect OPCO’s vessels as a precondition to chartering. Regular inspections are standard practice under long-term charters.

	•	ensure adherence to operating standards;
	•	maintain the structural integrity of the vessel;
	•	maintain machinery and equipment to give full reliability in service;
	•	optimize performance in terms of speed and fuel consumption; and
	•	ensure the vessel’s appearance will support the Teekay Shipping Corporation brand and meet customer expectations.

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	•	vessel maintenance;
	•	crewing;
	•	purchasing;
	•	shipyard supervision;
	•	insurance; and
	•	financial management services.

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	General

	Regulation — International Maritime Organization (or IMO)

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	•	is the subject of a contract for a major conversion or original construction on or after July 6, 1993;
	•	commences a major conversion or has its keel laid on or after January 6, 1994; or
	•	completes a major conversion or is a newbuilding delivered on or after July 6, 1996.

	Shuttle Tanker, FSO Unit and FPSO Unit Regulation

	Environmental Regulations — The United States Oil Pollution Act of 1990 (or OPA 90)

	•	natural resources damages and the related assessment costs;
	•	real and personal property damages;
	•	net loss of taxes, royalties, rents, fees and other lost revenues;
	•	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
	•	loss of subsistence use of natural resources.

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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”;
	•	describe crew training and drills; and
	•	identify a qualified individual with full authority to implement removal actions.

	Environmental Regulation — Other Environmental Initiatives

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	United States Taxation

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	•	it is organized in a jurisdiction outside the United States that grants an equivalent exemption from tax to corporations organized in the United States (an Equivalent Exemption);
	•	it satisfies one of the following three ownership tests (discussed in more detail below): (a) the more than 50.0% ownership test (or the Ownership Test); (b) the controlled foreign corporation test (or the CFC Test); or (c) the Publicly Traded Test (as described below); and
	•	it meets certain substantiation, reporting, and other requirements.

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	Marshall Islands Taxation

	Norway Taxation

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145

---

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	Luxembourg Taxation

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	•	Luxco is a capital company resident in Luxembourg and fully subject to tax in this country;
	•	Luxco owns more than 10% of Dutchco, or alternatively, Luxco’s acquisition price for the shares of Dutchco 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;
	•	At the time of the dividend or disposal of shares, Luxco has owned the shares for at least 12 months (or, alternatively in the case of dividends, Luxco commits to hold the shares for at least 12 months and in the case of capital gains, Luxco commits to continue to hold at least 10% of the shares of Dutchco for at least 12 months); and
	•	Dutchco is a resident of the Netherlands for Dutch tax purposes and is covered by the European Union Parent-Subsidiary Directive.

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	Netherlands Taxation

	•	Dutchco 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;

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	•	the shares are not held as stock in trade; and
	•	the shares of Norsk Teekay AS are not held as a portfolio investment.

	•	Dutchco 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.

	Singapore Taxation

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	• freight income from the carriage of passengers, mails, livestock or goods;
	• charter-hire income; and
	• towage and salvage income.

	• 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 period of 5 years from January 1, 2004 to December 31, 2008.

	• 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 company’s shipping operations should be controlled and managed in Singapore;
	• incur directly attributable business spending in Singapore at an average of S$4 million a year or S$20 million over a 5 year period;
	• support and make significant use of Singapore’s trade infrastructure, such as banking, financial, business training, arbitration, and other ancillary services;
	• all ships chartered-in must be conducted on an arm’s-length basis;
	• inform the MPA of any changes to its Group shareholdings and operations;

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	• 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
	• disclose such information to and permit such inspection of its premises by the Singapore Government, as required.

	Australian Taxation

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Name		Age				Position
C. Sean Day			57			Chairman
Bjorn Moller			49			Vice Chairman
Peter Evensen			48			Chief Executive Officer, Chief Financial Officer and Director
David L. Lemmon			64			Director*
Carl Mikael L.L. von Mentzer			62			Director*
John J. Peacock			63			Director*

*	To be appointed to the board of directors prior to the closing of this offering.

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Name		Age				Position
C. Sean Day			57			Chairman
Bjorn Moller			49			Vice Chairman
Peter Evensen			48			Chief Executive Officer, Chief Financial Officer and Director

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Percentage of

Percentage of

Percentage of

Total Common

Common

Common

Subordinated

Subordinated

and Subordinated

Units to be

Units to be

Units to be

Units to be

Units to be

Beneficially

Beneficially

Beneficially

Beneficially

Beneficially

Name of Beneficial Owner

Owned

Owned

Owned

Owned

Owned

Teekay Shipping Corporation(1)(2)

2,800,000

28.6

%

9,800,000

100.0

%

64.3

%

All directors and officers as a group (6 persons)(3)

*

*

—

—

*

	*	Less than 1.0%

	(1)	Excludes the 2.0% general partner interest held by our general partner, a wholly owned subsidiary of Teekay Shipping Corporation.
	(2)	If the underwriters exercise the over-allotment option in full, Teekay Shipping Corporation’s percentage of common units to be beneficially owned will decrease to 17.9% and its percentage of total common and subordinated units to be beneficially owned will decrease to 58.9%.
	(3)	Excludes units owned by Teekay Shipping Corporation, on the board of which serve the directors of our general partner, C. Sean Day and Bjorn Moller. In addition, Mr. Moller is Teekay Shipping Corporation’s President and Chief Executive Officer, and Peter Evensen, our general partner’s Chief Executive Officer and Chief Financial Officer and a Director, is Teekay Shipping Corporation’s Executive Vice President and Chief Strategy Officer. Please read “Certain Relationships and Related Party Transactions — Directors and Officers of Our General Partner.”

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	Formation Stage

The consideration received by our general partner and its affiliates for the contribution to us of a 26.0% interest in OPCO (consisting of the 0.01% general partner interest and a 25.99% limited partner interest), such contribution to occur at or prior to the closing of this offering		• 2,800,000 common units; • 9,800,000 subordinated units;
		• 2.0% general partner interest in us;
		• the incentive distribution rights; and
		• the net proceeds from this offering, as described in “Use of Proceeds.”
		Please read “Summary — The Transactions” for further information about our formation and assets contributed to us in connection with the closing of this offering.
		The common units and subordinated units owned by Teekay Shipping Corporation represent a 63.0% limited partner interest in us, which gives it the ability to control the outcome of unitholder votes on certain matters. For more information, please read “The Partnership Agreement — Voting Rights” and “— Amendment of the Partnership Agreement.”

	Operational Stage

Distributions of available cash to our general partner and its affiliates		We will generally make cash distributions 98.0% to unitholders (including Teekay Shipping Corporation, the owner of our general partner and the holder of 2,800,000 common units and 9,800,000 subordinated units) and the remaining 2.0% to our general partner.
		In addition, if distributions exceed the minimum quarterly distribution and other higher target levels, our general partner, as the holder of the incentive distribution rights, will be entitled to increasing percentages of the distributions, up to 50.0%

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		(including distributions on the 2.0% general partner interest) of the distributions above the highest target level. We refer to the rights to the increasing distributions as “incentive distribution rights.” Please read “How We Make Cash Distributions — Incentive Distribution Rights” for more information about the incentive distribution rights.
		Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters, but no distributions in excess of the full minimum quarterly distribution, our general partner would receive an annual distribution of approximately $0.6 million on its 2.0% general partner interest and Teekay Shipping Corporation would receive an annual distribution of approximately $18.2 million on its common units and subordinated units.
Payments to our general partner and its affiliates		Our general partner will not receive a management fee or other compensation for the management of our partnership. Our general partner and its affiliates will be entitled to reimbursement for all direct and indirect expenses they incur on our behalf. In addition, we and OPCO will (and any of our future operating subsidiaries may) pay fees to certain subsidiaries of Teekay Shipping Corporation for administrative services and OPCO’s operating subsidiaries will pay fees to certain subsidiaries of Teekay Shipping Corporation for strategic consulting, advisory, ship management, technical and administrative services. Please read “— Omnibus Agreement” and “— Advisory and Administrative Services Agreements” below.
Withdrawal or removal of our general partner		If our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. Please read “The Partnership Agreement — Withdrawal or Removal of the General Partner.”

	Liquidation Stage

Liquidation		Upon our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions as described in “The Partnership Agreement — Liquidation and Distribution of Proceeds.”

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	Noncompetition

	•	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;
	•	owning, operating or chartering offshore vessels and related time charters or contracts of affreightment acquired as part of a business or package of assets if a majority of the value of the total assets or business acquired is not attributable to the offshore vessels and related time charters and contracts of affreightment, as determined in good faith by Teekay Shipping Corporation’s 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 Shipping 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 time charters and contracts of affreightment to us for their fair market value plus any additional tax or other similar costs to Teekay Shipping Corporation or Teekay LNG Partners L.P. that would be required to transfer the offshore vessels and related time charters and contracts of affreightment to us separately from the acquired business or package of assets;
	•	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 Shipping Corporation has submitted or received or hereafter submits or receives; however, at least 365 days after the delivery date of any such offshore vessel, Teekay Shipping 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 Shipping Corporation, at its “fully-built-up cost” (which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Shipping 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 Shipping Corporation’s 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;
	•	owning, operating or chartering offshore vessels subject to the offers to us described in the immediately preceding two paragraphs pending our general partner’s determination whether to accept such offers and pending the closing of any offers we accept;

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	•	owning, operating or chartering offshore vessels and related time charters and contracts of affreightment if our general partner has previously advised Teekay Shipping Corporation or Teekay LNG Partners L.P. that our general partner’s board of directors has elected, with the approval of its conflicts committee, not to cause us or our controlled affiliates to acquire the vessels and related time charters and contracts of affreightment;
	•	acquiring 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, operates or charters offshore vessels and related time charters or contracts of affreightment;
	•	owning a limited partner interest in OPCO or owning shares of Petrojarl; or
	•	providing ship management services relating to owning, operating or chartering offshore vessels and related time charters or contracts of affreightment.

	•	apply to any conventional crude oil tankers owned, operated or chartered by us or any of our controlled affiliates as of the closing of this offering, or the ownership, operation or chartering of any conventional crude oil tankers that replace any of those oil tankers (or Replacement Oil Tankers) in connection with:

	l	the destruction or total loss of the original tanker; the tanker being damaged to an extent that makes repairing it uneconomical or renders it permanently unfit for normal use, as determined in good faith by our general partner within 90 days after the occurrence of the damage; or the tanker’s condemnation, confiscation, requisition or a similar taking of title to or use of it that continues for at least six months; or
	l	the replacement of a time charter existing on the closing of this offering, where the tanker that was subject to the charter has been sold or transferred due to the exercise by the customer of its right under the charter to cause the sale or transfer;

	•	prevent us or any of our controlled affiliates from:

	l	owning, operating or chartering conventional crude oil tankers and any related time charters acquired as part of a business or package of assets, if a majority of the value of the total assets or business acquired is not attributable to the crude oil tankers and any related charters, as determined in good faith by the conflicts committee of our general partner’s board of directors; however, if at any time we complete such an acquisition we must, within 30 days of the closing of the acquisition, offer to sell the oil tankers and time charters to Teekay Shipping Corporation for fair market value plus any additional tax or other similar costs to us that would be required to transfer the oil tankers and time charters to Teekay Shipping Corporation separately from the acquired business or package of assets;
	l	owning, operating or chartering conventional crude oil tankers and related charters subject to the offer to Teekay Shipping Corporation described in the preceding paragraph pending its determination whether to accept such offer and pending the closing of any offer it accepts;

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	l	acquiring 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, operates or charters conventional crude oil tankers and related charters;
	l	owning, operating or chartering conventional crude oil tankers and related charters if Teekay Shipping Corporation has previously advised our general partner that it has elected not to acquire those tankers; or
	l	operating our shuttle tankers in conventional crude oil tanker trades under contracts with a duration of less than three years.

	Rights of First Offer on Shuttle Tankers, FSO Units, FPSO Units, Conventional Oil Tankers and LNG Carriers

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	Indemnification

	•	certain defects in title to OPCO’s assets as of the closing of this offering and any failure to obtain, prior to the closing of this offering, certain consents and permits necessary to own and operate such assets, to the extent we notify Teekay Shipping Corporation within three years after the closing of this offering; and
	•	tax liabilities attributable to the operation of OPCO’s assets prior to the closing of this offering.

	Amendments

	•	effecting any merger or consolidation involving OPCO;
	•	effecting any sale or exchange of all or substantially all of OPCO’s assets;
	•	dissolving or liquidating OPCO;

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	•	creating or causing to exist any consensual restriction on the ability of OPCO or its subsidiaries to make distributions, pay any indebtedness, make loans or advances or transfer assets to us or our subsidiaries;
	•	settling or compromising any claim, dispute or litigation directly against, or otherwise relating to indemnification by OPCO of, any of the directors or officers of Teekay Offshore Operating GP L.L.C.; or
	•	issuing additional partnership interests in OPCO.

	Administrative Services Agreements With Teekay Shipping Limited

	•	legal, investor relations and financial compliance services;
	•	bookkeeping and accounting services; and
	•	banking and finance services.

	Advisory, Technical and Administrative Services Agreements Between OPCO’s Subsidiaries and Teekay Shipping Limited

	•	vessel maintenance;
	•	crewing;
	•	purchasing;

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	•	shipyard supervision;
	•	insurance;
	•	financial services;
	•	strategic planning;
	•	integration of any acquired businesses; and
	•	client relations.

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	•	approved by the conflicts committee, although our general partner is not obligated to seek such approval;
	•	approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates, although our general partner is not obligated to seek such approval;

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	•	on terms no less favorable to us than those generally being provided to or available from unrelated third parties, but our general partner is not required to obtain confirmation to such effect from an independent third party; or
	•	“fair and reasonable” to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us.

	Actions taken by our general partner may affect the amount of cash available for distribution to unitholders or accelerate the right to convert subordinated units.

	•	the amount and timing of asset purchases and sales;
	•	cash expenditures;
	•	borrowings;
	•	the issuance of additional units; and
	•	the creation, reduction or increase of reserves in any quarter.

	•	enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or
	•	hastening the expiration of the subordination period.

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Neither our partnership agreement nor any other agreement requires Teekay Shipping Corporation to pursue a business strategy that favors us or utilizes our assets or dictates what markets to pursue or grow. Teekay Shipping Corporation’s directors and officers have a fiduciary duty to make these decisions in the best interests of the stockholders of Teekay Shipping Corporation, which may be contrary to our interests.

	Our general partner is allowed to take into account the interests of parties other than us, such as Teekay Shipping Corporation, in resolving conflicts of interest.

	We do not have any officers and rely solely on officers of Teekay Offshore GP L.L.C.

	We will reimburse our general partner and its affiliates for expenses.

	Our general partner intends to limit its liability regarding our obligations.

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	Common unitholders will have no right to enforce obligations of our general partner and its affiliates under agreements with us.

	Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arms’-length negotiations.

	•	on terms no less favorable to us then those generally being provided to or available from unrelated third parties; or
	•	“fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).

	Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.

	•	the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into securities of the partnership, and the incurring of any other obligations;
	•	the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdictions over our business or assets;
	•	the negotiation, execution and performance of any contracts, conveyances or other instruments;
	•	the distribution of partnership cash;
	•	the selection and dismissal of employees and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;
	•	the maintenance of insurance for our benefit and the benefit of our partners;
	•	the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any other limited or general partnerships, joint ventures, corporations, limited liability companies or other relationships;
	•	the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense and the settlement of claims and litigation;

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	•	the indemnification of any person against liabilities and contingencies to the extent permitted by law;
	•	the purchase, sale or other acquisition or disposition of our securities, or the issuance of additional options, rights, warrants and appreciation rights relating to our securities; and
	•	the entering into of agreements with any of its affiliates to render services to us, our controlled affiliates or to itself in the discharge of its duties as our general partner.

	Common units are subject to our general partner’s call right.

	We may choose not to retain separate counsel for ourselves or for the holders of common units.

	Our general partner’s affiliates, including Teekay Shipping Corporation, may compete with us.

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	•	the fiduciary duties imposed on our general partner by the Marshall Islands Act;
	•	material modifications of these duties contained in our partnership agreement; and
	•	certain rights and remedies of unitholders contained in the Marshall Islands Act.

Marshall Islands law fiduciary duty standards		Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Marshall Islands limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
Partnership agreement modified standards		Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties under the laws of the Marshall Islands. For example, Section 7.9 of our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under the laws of the Marshall Islands. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partner would otherwise be held.
		Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our general partner must be:
		• on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
		• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).
		If our general partner does not seek approval from the conflicts committee, and the board of directors of our general partner determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed

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		that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.
		In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non- appealable judgment by a court of competent jurisdiction determining that the general partner or its officers and directors acted in bad faith or engaged in fraud, willful misconduct or gross negligence.
Rights and remedies of unitholders		The provisions of the Marshall Islands Act resemble the provisions of the limited partnership act of Delaware. For example, like Delaware, the Marshall Islands Act favors the principles of freedom of contract and enforceability of partnership agreements and allows the partnership agreement to contain terms governing the rights of the unitholders. The rights of our unitholders, including voting and approval rights and the ability of the partnership to issue additional units, are governed by the terms of our partnership agreement. Please read “The Partnership Agreement.”
		As to remedies of unitholders, the Marshall Islands Act permits a limited partner to institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of the partnership agreement.

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	Duties

	•	surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
	•	special charges for services requested by a holder of a common unit; and
	•	other similar fees or charges.

	Resignation or Removal

	•	represent that the transferee has the capacity, power and authority to become bound by our partnership agreement;
	•	agree to be bound by the terms and conditions of, and to have executed, our partnership agreement; and
	•	give the consents and approvals contained in our partnership agreement, such as the approval of all transactions and agreements that we are entering into in connection with our formation and this offering.

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	•	with regard to distributions of available cash, please read “How We Make Cash Distributions;”
	•	with regard to the fiduciary duties of our general partner, please read “Conflicts of Interest and Fiduciary Duties;” and
	•	with regard to the transfer of common units, please read “Description of the Common Units — Transfer of Common Units.”

	•	during the subordination period, the approval of a majority of the common units, excluding those common units held by our general partner and its affiliates, and a majority of the subordinated units, voting as separate classes; and
	•	after the subordination period, the approval of a majority of the common units.

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Action		Unitholder Approval Required
Issuance of additional units		No approval rights.
Amendment of the partnership agreement		Certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read “— Amendment of the Partnership Agreement.”
Amendment of the partnership agreement of OPCO or the limited liability company agreement of OPCO’s general partner, or other action taken by us as an equity holder of OPCO’s general partner		No approval rights. However, approval by the conflicts committee of the board of directors of our general partner is required for these amendments and by our general partner’s board of directors for certain actions affecting OPCO. Please read “Certain Relationships and Related Party Transactions — OPCO Partnership Agreement and Teekay Offshore Operating GP L.L.C. Limited Liability Company Agreement.”
Merger of our partnership or the sale of all or substantially all of our assets		Unit majority. Please read “— Merger, Sale or Other Disposition of Assets.”
Dissolution of our partnership		Unit majority. Please read “— Termination and Dissolution.”
Reconstitution of our partnership upon dissolution		Unit majority. Please read “— Termination and Dissolution.”
Withdrawal of the general partner		Under most circumstances, the approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required for the withdrawal of the general partner prior to December 31, 2016 in a manner which would cause a dissolution of our partnership. Please read “— Withdrawal or Removal of the General Partner.”
Removal of the general partner		Not less than 662/3% of the outstanding units, voting as a single class, including units held by our general partner and its affiliates. Please read “— Withdrawal or Removal of the General Partner.”

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Action		Unitholder Approval Required
Transfer of the general partner interest in us		Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to such person. The approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest to a third party prior to December 31, 2016. Please read “— Transfer of General Partner Interest.”
Transfer of incentive distribution rights		Except for transfers to an affiliate or another person as part of the general partner’s merger or consolidation with or into, or sale of all or substantially all of its assets to such person, the approval of a majority of the common units, excluding common units held by our general partner and its affiliates, voting separately as a class, is required in most circumstances for a transfer of the incentive distribution rights to a third party prior to December 31, 2016. Please read “— Transfer of Incentive Distribution Rights.”
Transfer of ownership interests in the general partner		No approval required at any time. Please read “— Transfer of Ownership Interests in General Partner.”

	•	to remove or replace our general partner;
	•	to approve some amendments to our partnership agreement; or
	•	to take other action under our partnership agreement;

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	General

	Prohibited Amendments

	(1) increase the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected;
	(2) increase the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to the general partner or any of its affiliates without the consent of the general partner, which may be given or withheld at its option;
	(3) change the term of our partnership;
	(4) provide that our partnership is not dissolved upon an election to dissolve our partnership by our general partner that is approved by the holders of a unit majority; or
	(5) give any person the right to dissolve our partnership other than our general partner’s right to dissolve our partnership with the approval of the holders of a unit majority.

	No Unitholder Approval

	(1) a change in our name, the location of our principal place of business, our registered agent or our registered office;
	(2) the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
	(3) a change that our general partner determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction;
	(4) an amendment that is necessary, upon the advice of our counsel, to prevent us or our general partner or its directors, officers, agents, or trustees from in any manner being subjected to the provisions of the U.S. Investment Company Act of 1940, the U.S. Investment Advisors Act of 1940, or plan asset regulations adopted under the U.S. Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;

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	(5) an amendment that the general partner determines to be necessary or appropriate for the authorization of additional partnership securities or rights to acquire partnership securities;
	(6) any amendment expressly permitted in the partnership agreement to be made by the general partner acting alone;
	(7) an amendment effected, necessitated, or contemplated by a merger agreement that has been approved under the terms of the partnership agreement;
	(8) any amendment that the general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by the partnership agreement;
	(9) a change in our fiscal year or taxable year and related changes;
	(10) certain mergers or conveyances as set forth in our partnership agreement; or
	(11) any other amendments substantially similar to any of the matters described in (1) through (10) above.

	(1) do not adversely affect the limited partners (or any particular class of limited partners) in any material respect;
	(2) are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;
	(3) are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading;
	(4) are necessary or appropriate for any action taken by the general partner relating to splits or combinations of units under the provisions of the partnership agreement; or
	(5) are required to effect the intent expressed in this prospectus or the intent of the provisions of the partnership agreement or are otherwise contemplated by the partnership agreement.

	Opinion of Counsel and Unitholder Approval

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	(1) the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
	(2) the sale, exchange, or other disposition of all or substantially all of our assets and properties and our subsidiaries;
	(3) the entry of a decree of judicial dissolution of us; or
	(4) the withdrawal or removal of our general partner or any other event that results in its ceasing to be the general partner other than by reason of a transfer of its general partner interest in accordance with the partnership agreement or withdrawal or removal following approval and admission of a successor.

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	•	the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	the general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of the interests at the time.

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	•	an affiliate of the general partner (other than an individual); or
	•	another entity as part of the merger or consolidation of our general partner with or into another entity or the transfer by the general partner of all or substantially all of its assets to another entity,

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	•	the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	the general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.

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	(1) our general partner;
	(2) any departing general partner;
	(3) any person who is or was an affiliate of our general partner or any departing general partner;
	(4) any person who is or was an officer, director, member or partner of any entity described in (1), (2) or (3) above;
	(5) any person who is or was serving as a director, officer, member, partner, fiduciary or trustee of another person at the request of our general partner or any departing general partner; or
	(6) any person designated by our general partner.

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	(1) a current list of the name and last known address of each partner;
	(2) a copy of our tax returns;
	(3) information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each became a partner;
	(4) copies of the partnership agreement, the certificate of limited partnership of the partnership, related amendments and powers of attorney under which they have been executed;
	(5) information regarding the status of our business and financial condition; and
	(6) any other information regarding our affairs as is just and reasonable.

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	•	1.0% of the total number of the class of securities outstanding; or
	•	the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale.

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	Distributions

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	Ratio of Dividend Income to Distributions

	Consequences of Possible PFIC Classification

	•	the income derived from our time charters and contracts of affreightment will be greater than 25.0% of our total gross income at all relevant times; and
	•	the gross value of our vessels servicing our contracts of affreightment or operating under time charters will exceed the gross value of all other assets we own at all relevant times.

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	•	the excess distribution or gain will be allocated ratably over the unitholder’s 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 unitholder’s 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.

	Consequences of Possible Controlled Foreign Corporation Classification

	Sale, Exchange or other Disposition of Common Units

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	Special Reporting Requirements

	Distributions

	Disposition of Units

	•	fails to provide an accurate taxpayer identification number;
	•	is notified by the IRS that he has failed to report all interest or distributions required to be shown on his U.S. federal income tax returns; or
	•	in certain circumstances, fails to comply with applicable certification requirements.

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	•	Teekay Shipping Limited for the provision of advisory, technical, ship management and administrative services; and
	•	Teekay Shipping Canada Ltd., a Canadian subsidiary of Teekay Shipping Corporation, for the provision of strategic advisory and consulting services.

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	•	whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
	•	whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(l)(C) of ERISA; and
	•	whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return.

	•	the equity interests acquired by employee benefit plans are publicly offered securities; i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under specified provisions of the federal securities laws;
	•	the entity is an “operating company” (i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority owned subsidiary or subsidiaries); or
	•	there is no significant investment by benefit plan investors, which means that less than 25% of the value of each class of equity interest, disregarding some interests held by our general partner, its affiliates and any other persons who have the ability to control our assets or who provide investment advice with respect to such assets, is held by the employee benefit plans referred to above, IRAs and other employee benefit plans not subject to ERISA, including governmental plans, and entities whose underlying assets include employee benefit plan (or IRA) assets by reason of an employee benefit plan’s (or IRA’s) investment in such entities.

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			Number of
Underwriter			Common Units
Citigroup Global Markets Inc.				1,890,000
Merrill Lynch, Pierce, Fenner & Smith  Incorporated				1,890,000
Morgan Stanley & Co. Incorporated				1,050,000
A.G. Edwards & Sons, Inc.				630,000
Deutsche Bank Securities Inc.				630,000
Raymond James & Associates, Inc.				630,000
Simmons & Company International				140,000
DnB NOR Markets, Inc.				70,000
Fortis Securities LLC				70,000
	Total			7,000,000

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	•	during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event; or
	•	prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period,

		Paid by Teekay Offshore
		Partners L.P.
		No Exercise				Full Exercise
Per common unit		$	1.3388			$	1.3388
Total		$	9,371,600			$	10,777,340

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	•	the balance sheets of Teekay Offshore Partners Predecessor as at December 31, 2004 and 2005 and the related financial statements for the years ended December 31, 2004 and 2005; and
	•	the balance sheets for Teekay Offshore Partners L.P. and Teekay Offshore GP L.L.C. as at August 31, 2006 and August 25, 2006, respectively.

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U.S. Securities and Exchange Commission registration fee			$18,089
National Association of Securities Dealers, Inc. filing fee			17,405
New York Stock Exchange listing fee			150,000
Legal fees and expenses			1,350,000
Accounting fees and expenses			350,000
Printing and engraving costs			700,000
Transfer agent fees and miscellaneous expenses			5,000
Miscellaneous			109,506
Total			$2,700,000

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	•	forecasts of our ability to make cash distributions on the units;
	•	future financial condition or results of operations and future revenues and expenses;
	•	results of operations for the quarter ended September 30, 2006;
	•	the repayment of debt;
	•	expected compliance with financing agreements and the expected effect of restrictive covenants in such agreements;
	•	future crude oil prices and production;
	•	planned capital expenditures and availability of capital resources to fund capital expenditures;
	•	future supply of, and demand for, crude oil;
	•	the ability to maintain long-term relationships with major crude oil companies;
	•	the ability to leverage Teekay Shipping Corporation’s relationships and reputation in the shipping industry;
	•	the continued ability to enter into fixed-rate time charters with customers;
	•	obtaining offshore projects that we or Teekay Shipping Corporation bid on;
	•	increasing our ownership interest in OPCO;
	•	Teekay Shipping Corporation increasing its ownership interest in Petrojarl ASA;
	•	the ability to maximize the use of vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
	•	expected pursuit of strategic opportunities, including the acquisition of vessels and expansion into new markets vessels;
	•	expected financial flexibility to pursue acquisitions and other expansion opportunities;
	•	the ability to compete successfully for future chartering and newbuilding opportunities;
	•	the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards applicable to our business;
	•	the anticipated impact of future regulatory changes or environmental liabilities;
	•	the anticipated incremental general and administrative expenses as a public company and expenses under service agreements with other affiliates of Teekay Shipping Corporation and for reimbursements of fees and costs of our general partner;

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	•	the anticipated taxation of our partnership and distributions to our unitholders, including our estimate of the percentage of our distributions that will constitute dividends;
	•	estimated future maintenance capital expenditures;
	•	expected demand in the offshore and crude oil shipping sectors in general and the demand for vessels in particular;
	•	customers’ increasing emphasis on environmental and safety concerns;
	•	anticipated restructuring charges;
	•	anticipated funds for liquidity needs and the sufficiency of cash flows;
	•	the expected effect of off-balance sheet arrangements; and
	•	our business strategy and other plans and objectives for future operations.

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TEEKAY OFFSHORE PARTNERS L.P.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS			F-2
Introduction			F-3
Unaudited Pro Forma Consolidated Statement of Income for the year ended December 31, 2005			F-4
Unaudited Pro Forma Consolidated Statement of Income for the six months ended June 30, 2006			F-5
Unaudited Pro Forma Consolidated Balance Sheet as at June 30, 2006			F-6
Notes to Unaudited Pro Forma Consolidated Financial Statements			F-7
TEEKAY OFFSHORE PARTNERS PREDECESSOR
AUDITED COMBINED CONSOLIDATED FINANCIAL STATEMENTS			F-12
Report of Independent Registered Public Accounting Firm			F-13
Audited Combined Consolidated Statements of Income for the years ended December 31, 2004 and 2005			F-14
Audited Combined Consolidated Balance Sheets as at December 31, 2004 and 2005			F-15
Audited Combined Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2005			F-16
Audited Combined Consolidated Statements of Changes in Owner’s Equity for the years ended December 31, 2004 and 2005			F-17
Notes to the Audited Combined Consolidated Financial Statements			F-18
UNAUDITED COMBINED CONSOLIDATED FINANCIAL STATEMENTS			F-33
Report of Independent Registered Public Accounting Firm			F-34
Unaudited Combined Consolidated Statements of Income for the six months ended June 30, 2005 and 2006			F-35
Unaudited Combined Consolidated Balance Sheets as at December 31, 2005 and June 30, 2006			F-36
Unaudited Combined Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2006			F-37
Unaudited Combined Consolidated Statements of Changes in Owner’s Equity for the year ended December 31, 2005 and the six months ended June 30, 2006			F-38
Notes to Unaudited Combined Consolidated Audited Financial Statements			F-39
TEEKAY OFFSHORE PARTNERS L.P.
AUDITED BALANCE SHEET			F-49
Report of Independent Registered Public Accounting Firm			F-50
Audited Balance Sheet as at August 31, 2006			F-51
Notes to Audited Balance Sheet			F-52
TEEKAY OFFSHORE GP L.L.C.
AUDITED BALANCE SHEET			F-53
Report of Independent Registered Public Accounting Firm			F-54
Audited Balance Sheet as at August 25, 2006			F-55
Notes to Audited Balance Sheet			F-56

F-1

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F-2

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F-3

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			Year Ended December 31, 2005
			Teekay				Pre-Initial				Teekay
			Offshore				Public				Offshore				Initial Public				Teekay
			Partners				Offering				Partners				Offering				Offshore
			Predecessor				Transaction				Predecessor				Transaction				Partners L.P.
			Historical				Adjustments				Pro Forma				Adjustments				Pro Forma
			(in thousands of U.S. dollars, except for unit and per unit data)
VOYAGE REVENUES			$	807,548				$59,058	(3a)		$	678,888							$	678,888
								(229,351	)(3b)
								41,633	(3d)
OPERATING EXPENSES
Voyage expenses				74,543				19,392	(3a)			93,935								93,935
Vessel operating expenses				104,475				(3,558	)(3b)			114,843								114,843
								13,926	(3d)
Time-charter hire expense				373,536				(217,223	)(3b)			145,423								145,423
								(10,890	)(3d)
Depreciation and amortization				107,542				(5,375	)(3b)			116,922								116,922
								148	(3c)
								14,607	(3d)
General and administrative				85,856				(27,180	)(3b)			60,046				$1,500	(4a)			61,546
								1,370	(3d)
Vessel and equipment writedowns and (gain) loss on sale of vessels				2,820				(12,243	)(3b)			(9,423	)							(9,423	)
Restructuring charge				955								955								955
Total operating expenses				749,727				(227,026	)			522,701				1,500				524,201
Income from vessel operations				57,821				98,366				156,187				(1,500	)			154,687
OTHER ITEMS
Interest expense				(39,791	)			2,877	(3c)			(73,458	)							(73,458	)
								(11,577	)(3d)
								(39,739	)(3e)
								14,772	(3f)
Interest income				4,605				660	(3d)			5,265								5,265
Equity income (loss) from joint ventures				5,199				(602	)(3b)			(971	)							(971	)
								(5,568	)(3d)
Foreign currency exchange gain				34,178				(138	)(3b)			9,281								9,281
								(567	)(3d)
								(24,192	)(3f)
Income tax recovery				13,873								13,873								13,873
Other — net				9,091				(3,402	)(3e)			5,689								5,689
Total other items				27,155				(67,476	)			(40,321	)			—				(40,321	)
Income before non-controlling interest				84,976				30,890				115,866				(1,500	)			114,366
Non-controlling interest				(229	)			(5,568	)(3d)			(5,797	)			(81,451	)(4d)			(87,248	)
Net income				$84,747				$25,322			$	110,069				$(82,951	)			$27,118
General partner’s interest in net income																				$542
Limited partners’ interest:
	Net income																			$26,576
Net income per:
	— Common unit (basic and diluted) (note 6)																			$1.40
	— Subordinated unit (basic and diluted) (note 6)																			$1.31
	— Unit (basic and diluted) (note 6)																			$1.36
Weighted-average number of units outstanding (in thousands):
	— Common units (basic and diluted) (note 6)																			9,800
	— Subordinated units (basic and diluted) (note 6)																			9,800
	— Total limited partner units (basic and diluted) (note 6)																			19,600

F-4

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			Six Months Ended June 30, 2006
			Teekay				Pre-Initial				Teekay
			Offshore				Public				Offshore				Initial Public				Teekay
			Partners				Offering				Partners				Offering				Offshore
			Predecessor				Transaction				Predecessor				Transaction				Partners L.P.
			Historical				Adjustments				Pro Forma				Adjustments				Pro Forma
			(in thousands of U.S. dollars, except unit and per unit data)
VOYAGE REVENUES			$	386,724			$	31,751	(3a)		$	349,299							$	349,299
								(90,657	)(3b)
								21,481	(3d)
OPERATING EXPENSES
Voyage expenses				48,344				14,442	(3a)			60,186								60,186
								(2,600	)(3b)
Vessel operating expenses				52,954				(2,053	)(3b)			57,545								57,545
								6,644	(3d)
Time-charter hire expense				165,935				(84,920	)(3b)			76,288								76,288
								(4,727	)(3d)
Depreciation and amortization				51,331				(2,551	)(3b)			56,138								56,138
								74	(3c)
								7,284	(3d)
General and administrative				43,469				(12,810	)(3b)			31,515			$	750	(4a)			32,265
Vessel and equipment writedowns and								856	(3d)
	(gain) loss on sale of vessels			1,845				(2,150	)(3b)			(305	)							(305	)
Restructuring charge				453								453								453
Total operating expenses				364,331				(82,511	)			281,820				750				282,570
Income from vessel operations				22,393				45,086				67,479				(750	)			66,729
OTHER ITEMS
Interest expense				(24,504	)			1,409	(3c)			(36,961	)							(36,961	)
								(6,579	)(3d)
								(14,126	)(3e)
								6,839	(3f)
Interest income				3,291				543	(3d)			3,834								3,834
Equity income (loss) from joint ventures				3,191				(203	)(3b)			(49	)							(49	)
								(3,037	)(3d)
Foreign currency exchange loss				(18,688	)			612	(3b)			(4,339	)							(4,339	)
								686	(3d)
								13,051	(3f)
Income tax expense				(7,762	)							(7,762	)							(7,762	)
Other — net				5,694								5,694								5,694
Total other items				(38,778	)			(805	)			(39,583	)			—				(39,583	)
Income before non-controlling interest				(16,385	)			44,281				27,896				(750	)			27,146
Non-controlling interest				(414	)			(3,037	)(3d)			(3,451	)			(18,090	)(4d)			(21,541	)
Net income				$(16,799	)		$	41,244				$24,445			$	(18,840	)		$	5,605
General partner’s interest in net income																				$112
Limited partners’ interest:
	Net income																			$5,493
Net income per:
	— Common unit (basic and diluted) (note 6)																			$0.56
	— Subordinated unit (basic and diluted) (note 6)																			$—
	— Unit (basic and diluted) (note 6)																			$0.28
Weighted-average number of units outstanding (in thousands):
	— Common units (basic and diluted) (note 6)																			9,800
	— Subordinated units (basic and diluted) (note 6)																			9,800
	— Total limited partner units (basic and diluted) (note 6)																			19,600

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		As at June 30, 2006
		Teekay				Pre-Initial				Teekay
		Offshore				Public				Offshore				Initial Public				Teekay
		Partners				Offering				Partners				Offering				Offshore
		Predecessor				Transaction				Predecessor				Transaction				Partners L.P.
		Historical				Adjustments				Pro Forma				Adjustments				Pro Forma
		(in thousands of U.S. dollars)
ASSETS
Current
Cash and cash equivalents			$133,962				$(4,325	)(3b)			$90,000				$147,000	(4b)			$90,000
							17,880	(3d)							(12,623	)(4c)
							536,457	(3e)							(134,377	)(4e)
							(6,000	)(3e)
							(433,849	)(3f)
							(154,125	)(3g)
Accounts receivable			28,355				(4,500	)(3b)			25,096								25,096
							1,241	(3d)
Vessels held for sale			2,500								2,500								2,500
Net investment in direct financing leases — current			20,790								20,790								20,790
Prepaid expenses and other assets			71,239				(18,943	)(3b)			56,210								56,210
							3,914	(3d)
Total current assets			256,846				(62,250	)			194,596				—				194,596
Vessels and equipment
At cost less accumulated depreciation			1,227,007				(25,278	)(3b)			1,528,480								1,528,480
							39,158	(3c)
							287,593	(3d)
Vessels under capital leases			33,758				(33,758	)(3c)			—								—
Total vessels and equipment			1,260,765				267,715				1,528,480				—				1,528,480
Net investment in direct financing leases			95,116								95,116								95,116
Other assets			50,590				(4,942	)(3b)			17,013								17,013
							(31,756	)(3d)
							6,000	(3e)
							(2,879	)(3e)
Intangible assets — net			72,464								72,464								72,464
Goodwill			130,549								130,549								130,549
Total assets		$	1,866,330				$171,888			$	2,038,218				—			$	2,038,218
LIABILITIES AND OWNERS’/ PARTNERS’ EQUITY
Current
Accounts payable			$14,312				$(7,383	)(3b)			$7,030								$7,030
							101	(3d)
Accrued liabilities			34,687				(2,693	)(3b)			32,251								32,251
							257	(3d)
Current portion of long-term debt			—				17,656	(3d)			17,656								17,656
Current obligation under capital leases			1,412				(1,412	)(3c)			—								—
Advances from affiliates			394,849				39,000	(3c)			—				134,377	(4d)			—
							(433,849	)(3f)							(134,377	)(4e)
Total current liabilities			445,260				(388,323	)			56,937				—				56,937
Long-term debt			543,543				219,658	(3d)			1299,658								1,299,658
							536,457	(3e)
Obligation under capital leases			32,188				(32,188	)(3c)			—								—
Deferred income taxes			73,740								73,740								73,740
Other long-term liabilities			32,028								32,028								32,028
Total liabilities			1,126,759				335,604				1,462,363				—				1,462,363
Commitments and contingencies (note 5)
Non-controlling interest			11,770				31,756	(3d)			43,526				393,924	(4d)			437,450
Owners’/partners’ equity			727,801				(47,912	)(3b)			532,329				147,000	(4b)
							9,444	(3d)							(12,623	)(4c)
							(2,879	)(3e)							(393,924	)(4d)
							(154,125	)(3g)							(134,377	)(4d)
General partner																			124
Limited partners																			138,281
Total liabilities and owners’/partners’ equity		$	1,866,330				$171,888			$	2,038,218				—			$	2,038,218

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1.	Basis of Presentation

	The Pre-Initial Public Offering Transactions of OPCO

	•	Teekay Shipping Corporation’s transfer to OPCO of all of the outstanding shares of the OPCO Subsidiaries. Teekay Offshore Partners Predecessor’s historical audited combined consolidated financial statements for the year ended December 31, 2005 and Teekay Offshore Partners Predecessor’s historical unaudited combined consolidated financial statements as at and for the six months ended June 30, 2006 contain the operations of all of these assets and, as such, no pro forma adjustment was required.
	•	OPCO’s entry into new time-charter contracts for nine of OPCO’s Aframax-class conventional crude oil tankers for terms of 5 to 12 years. OPCO will be responsible for bunker fuel costs on eight of these vessels. However, under the terms of the time-charter contracts, OPCO will recover the approximate amount of these bunker fuel costs from Teekay Shipping Corporation.
	•	OPCO’s transfer to Teekay Shipping Corporation of all chartered-in conventional crude oil and product tankers in Navion Shipping Ltd. (a subsidiary of Norsk Teekay), a 1987-built shuttle tanker (the Nordic Trym), OPCO’s single anchor loading equipment, a 1992-built chartered-in shuttle tanker (the Borga) and a 50.0% interest in Alta Shipping S.A., which has no material assets (collectively, the Non-OPCO Assets).
	•	OPCO’s purchase of the Fuji Spirit, an Aframax-class conventional crude oil tanker currently accounted for as a capital lease, for $39.0 million.
	•	OPCO’s entry into amended operating agreements for five of its 50%-owned joint ventures, whereby OPCO will have unilateral control of each joint venture, which will require OPCO to consolidate these five joint venture companies in accordance with GAAP.
	•	OPCO’s incurrence of additional debt to increase its outstanding debt to $1.08 billion (excluding debt relating to its five 50%-owned joint ventures, which as of June 30, 2006 totaled $237.3 million). As at June 30, 2006, the net amount of the additional debt would have been $536.5 million.
	•	Teekay Shipping Corporation’s contribution to OPCO of interest rate swaps with a notional principal amount of $1.09 billion, a weighted-average fixed interest rate of 5.5% (including the margin OPCO pays on its floating-rate debt) and a weighted-average remaining term of 9.7 years.
	•	OPCO’s repayment of all of its advances from affiliates, which advances as of January 1, 2005 and June 30, 2006 were $630.9 million and $433.8 million, respectively.
	•	OPCO’s declaration and payment of a dividend to Teekay Shipping Corporation in an amount sufficient to decrease OPCO’s outstanding cash balance to $90.0 million. As of June 30, 2006, this amount would have been $154.1 million.

	The Initial Public Offering Transactions

	•	Teekay Shipping Corporation’s transfer to the Partnership of a 26.0% interest in OPCO, including a 25.99% limited partner interest held directly by the Partnership and a 0.01% general partner interest

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		held by the Partnership through its ownership of OPCO’s general partner, Teekay Offshore Operating GP L.L.C., in exchange for:

	•	the issuance to Teekay Shipping Corporation of 2,800,000 common units and 9,800,000 subordinated units of the Partnership and non-interest bearing promissory notes (the TSC Notes); and
	•	the issuance to Teekay Offshore GP L.L.C., a wholly owned subsidiary of Teekay Shipping Corporation, of the 2.0% general partner interest in the Partnership and all of the Partnership’s incentive distribution rights.

	•	The Partnership’s issuance of 7,000,000 common units to the public at an initial public offering price of $21.00 per common unit, resulting in aggregate gross proceeds to the Partnership of $147.0 million.
	•	The Partnership’s payment of estimated underwriting discounts, commissions and structuring fees of $9.9 million and estimated offering expenses of $2.7 million.
	•	The repayment of the TSC Notes with net proceeds of the public offering.

2.	Summary of Significant Accounting Policies

3.	Pre-Initial Public Offering Transactions of OPCO — Pro Forma Adjustments and Assumptions

(a) OPCO’s entry into new time-charter contracts for OPCO’s nine Aframax-class conventional tankers (including the Fuji Spirit) 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 will also be responsible for the bunker fuel expenses; however, OPCO will add the approximate amount of these expenses to the daily hire rate. During the year ended December 31, 2005 and the six months ended June 30, 2006, eight of these nine tankers were employed on time-charter contracts with a subsidiary of Teekay Shipping Corporation at cash-flow break-even rates. As a result, the rates earned by each vessel, which were lower, depended upon the cash flow requirements of each vessel, which included operating expenses, loan principal and interest payments and drydock expenditures. The ninth Aframax tanker was operated on the spot market. Had these time charter contracts been entered into on January 1, 2005, OPCO’s voyage revenues and voyage expenses would have increased by $59.1 million and $19.4 million, respectively, for the year ended

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	December 31, 2005 and $31.8 million and $14.4 million, respectively, for the six months ended June 30, 2006.
	(b) OPCO’s transfer of the Non-OPCO Assets to Teekay Shipping Corporation.
	(c) OPCO’s purchase of the Fuji Spirit, an Aframax-class conventional crude oil tanker currently accounted for as a capital lease, for $39.0 million, which purchase was financed with a $39.0 million non-interest bearing loan from Teekay Shipping Corporation. The excess of the $39.0 million purchase price over the $33.6 million capital lease obligation at June 30, 2006 would have increased OPCO’s pro forma net book value of the Fuji Spirit from $33.8 million to $39.2 million at such date. The excess of the $39.0 million purchase price over the $35.5 million capital lease obligation at January 1, 2005 resulted in additional depreciation expense of $0.1 million each for the year ended December 31, 2005 and the six months ended June 30, 2006. The repayment of the lease obligation resulted in a reduction in interest expense of $2.9 million for the year ended December 31, 2005 and $1.4 million for the six months ended June 30, 2006.
	(d) The consolidation into OPCO of five 50%-owned joint venture companies, each of which owns one shuttle tanker. These five joint ventures are currently accounted for using the equity method, whereby the investment is carried at OPCO’s original cost plus its proportionate share of undistributed earnings. OPCO will enter into amended operating agreements for these joint ventures, whereby OPCO will obtain unilateral control of each joint venture, which will require OPCO to consolidate the five joint venture companies in accordance with GAAP.
	(e) OPCO’s incurrence of additional debt to increase its outstanding debt to $1.08 billion (excluding debt relating to its five 50%-owned joint ventures, which as of June 30, 2006 totaled $237.3 million) and Teekay Shipping Corporation’s contribution to OPCO of interest rate swaps with a notional principal amount of $1.09 billion, a weighted-average fixed interest rate of 5.5% (including the margin OPCO pays on its floating-rate debt) and a weighted-average remaining term of 9.7 years. As of June 30, 2006, the net amount of the additional debt would have been $536.5 million. In connection with this additional debt and a restructuring of OPCO’s debt facilities, OPCO would have incurred $6.0 million of loan arrangement and amendment fees and written off the unamortized balance of the capitalized loan costs on one of its revolving credit facilities that was prepaid and will be cancelled prior to the closing of the Partnership’s initial public offering. As at January 1, 2005 and June 30, 2006, this write-off would have been $3.4 million and $2.9 million, respectively. Had these transactions been completed on January 1, 2005 and had there been no prepayments of debt during the period from January 1, 2005 to June 30, 2006, OPCO’s interest expense would have increased by $39.7 million and $14.1 million for the year ended December 31, 2005 and the six months ended June 30, 2006, respectively. Consequently, the Partnership’s pro forma interest expense for the year end December 31, 2005 and the six months ended June 30, 2006 includes interest of $60.0 million and $29.5 million, respectively, from $1.08 billion of outstanding debt at a weighted-average fixed rate of 5.5%, amortization of capitalized loan costs of $1.2 million and $0.6 million, and commitment commissions on the undrawn portion of OPCO’s revolving credit facilities of $0.7 million and $0.3 million for the year ended December 31, 2005 and the six months ended June 30, 2006, respectively.
	(f) OPCO’s repayment of all of its advances from affiliates, which advances as of January 1, 2005 and June 30, 2006 were $630.9 million and $433.8 million, respectively. Had this repayment been made on January 1, 2005, OPCO’s interest expense would have decreased by $14.8 million and $6.8 million, respectively, and OPCO’s foreign currency exchange gain and loss would have decreased by $24.2 million and $13.1 million, respectively, for the year ended December 31, 2005 and the six months ended June 30, 2006.

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(g) OPCO’s declaration and payment of a dividend to Teekay Shipping Corporation in an amount sufficient to decrease OPCO’s outstanding cash balance to $90.0 million. As of June 30, 2006, this amount would have been $154.1 million. To the extent OPCO’s advances from affiliates are settled through ways that do not involve cash, such as conversion to equity or contribution of the advances to OPCO, it is assumed that the amount of the dividend would be increased by a corresponding amount.

4.	Initial Public Offering Transactions of the Partnership — Pro Forma Adjustments and Assumptions

	(a) The Partnership’s incurrence of estimated incremental general and administrative expenses of $1.5 million annually, or $0.4 million quarterly, including costs associated with annual reports to shareholders, corporate tax compliance, investor relations, registrar and transfer agent’s fees, director and officer liability insurance costs and directors compensation and travel expenses, including expenses associated with the 2006 Long-Term Incentive Plan. The Partnership has estimated this amount based on the experience of its affiliate, Teekay LNG Partners L.P., which is a publicly-traded limited partnership.
	(b) The Partnership’s receipt of gross proceeds of $147.0 million from the issuance and sale of 7,000,000 common units to the public, at an initial public offering price of $21.00 per common unit.
	(c) The Partnership’s payment of estimated underwriting discounts, commissions and structuring fees of $9.9 million and estimated offering expenses of $2.7 million in connection with the initial public offering.
	(d) The Partnership’s acquisition from Teekay Shipping Corporation of a 25.99% limited partner interest in OPCO and the 0.01% general partner interest in OPCO through the Partnership’s ownership of OPCO’s general partner, Teekay Offshore Operating GP L.L.C., in exchange for the Partnership’s:

	•	issuance to Teekay Shipping Corporation of 2,800,000 common units and 9,800,000 subordinated units of the Partnership;
	•	issuance to Teekay Offshore GP L.L.C., a wholly owned subsidiary of Teekay Shipping Corporation, of the 2.0% general partner interest in the Partnership and all of the Partnership’s incentive distribution rights; and
	•	issuance to Teekay Shipping Corporation of the TSC Notes, which will occur prior to the closing of this offering. The amount of the TSC Notes will approximate the amount of the net proceeds from the initial public offering, which are estimated to be $134.4 million.

	The pro forma non-controlling interest (represented by Teekay Shipping Corporation’s 74.0% limited partner interest) of the net income of OPCO for the year ended December 31, 2005 and the six months ended June 30, 2006 was $81.5 million and $18.1 million, respectively.
	(e) The repayment of the TSC Notes due to Teekay Shipping Corporation with the net proceeds from the initial public offering.

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5.	Commitments and Contingencies

6.	Net Income Per Unit

			Common				Subordinated				All Unit
			Unit Holders				Unit Holders				Holders
			(in thousands, except number of units and per
			unit data)
Year Ended December 31, 2005
	Pro forma Net Income			$13,720				$12,856				$26,576
	Pro forma Weighted Average Number of Units Outstanding			9,800,000				9,800,000				19,600,000
	Pro forma Net Income Per Unit			$1.40				$1.31				$1.36
Six Months Ended June 30, 2006
	Pro forma Net Income			$5,493				$—				$5,493
	Pro forma Weighted Average Number of Units Outstanding			9,800,000				9,800,000				19,600,000
	Pro forma Net Income Per Unit			$0.56				$—				$0.28

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	/s/ Ernst & Young LLP
	Chartered Accountants

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		Years Ended December 31,
		2004				2005
		(in thousands of U.S. dollars)
VOYAGE REVENUES (including $249,837 for 2004 and $254,080 for 2005 of voyage revenues from related parties — notes 11b, 11e, 11g, 11i and 11j)			$986,504				$807,548
OPERATING EXPENSES
Voyage expenses (including $336 for 2004 and $600 for 2005 of voyage expenses from related parties — note 11h)			118,819				74,543
Vessel operating expenses			105,595				104,475
Time-charter hire expense			372,449				373,536
Depreciation and amortization			118,460				107,542
General and administrative (including $4,724 for 2004 and $5,438 for 2005 of general and administrative expenses from related parties — note 11f)			65,819				85,856
Vessel and equipment writedowns and (gain) loss on sale of vessels (note 16)			(3,725	)			2,820
Restructuring charge (note 10)			—				955
Total operating expenses			777,417				749,727
Income from vessel operations			209,087				57,821
OTHER ITEMS
Interest expense			(43,957	)			(39,791	)
Interest income			2,459				4,605
Equity income from joint ventures			6,162				5,199
Gain on sale of marketable securities (note 11k)			94,222				—
Foreign currency exchange gain (loss) (note 5)			(37,910	)			34,178
Income tax recovery (expense) (note 13)			(28,188	)			13,873
Other — net (note 10)			11,897				8,862
Total other items			4,685				26,926
Net income			$213,772				$84,747

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		As at December 31,
		2004				2005
		(in thousands of U.S. dollars)
ASSETS
Current
Cash and cash equivalents (notes 1 and 6)			$143,729				$128,986
Accounts receivable, net of allowance for doubtful accounts of $987 (December 31, 2004 — $461)			47,554				34,425
Vessels held for sale (note 16)			19,116				—
Net investment in direct financing leases — current (notes 1 and 14b)			12,440				20,240
Prepaid expenses			16,451				36,475
Other current assets			11,927				6,218
Total current assets			251,217				226,344
Vessels and equipment (notes 1 and 6)
At cost, less accumulated depreciation of $436,753 (December 31, 2004 — $445,954)			1,391,720				1,265,630
Vessels under capital leases, at cost, less accumulated depreciation of $3,308 (December 31, 2004 — $1,899) (note 8)			35,761				34,434
Total vessels and equipment			1,427,481				1,300,064
Net investment in direct financing leases (notes 1 and 14b)			96,775				100,996
Investment in joint ventures (notes 1 and 14a)			31,134				34,402
Other assets			12,089				13,160
Intangible assets — net (note 3)			93,370				78,502
Goodwill (note 3)			128,576				130,549
Total assets			$2,040,642				$1,884,017
LIABILITIES AND OWNER’S EQUITY
Current
Accounts payable			$8,641				$16,808
Accrued liabilities (note 4)			28,872				30,750
Current portion of long-term debt (note 6)			48,597				—
Current obligation under capital leases (note 8)			1,247				1,355
Advances from affiliates (note 5)			591,925				559,250
Total current liabilities			679,282				608,163
Long-term debt (note 6)			534,983				398,360
Obligation under capital lease (note 8)			34,246				32,890
Deferred income taxes (notes 1 and 13)			113,713				57,884
Other long-term liabilities			4,930				34,482
Total liabilities			1,367,154				1,131,779
Commitments and contingencies (notes 7, 8, 12 and 14)
Minority interest			14,276				11,859
Owner’s equity			659,212				740,379
Total liabilities and owner’s equity			$2,040,642				$1,884,017

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			Years Ended December 31,
			2004				2005
			(in thousands of U.S. dollars)
Cash and cash equivalents provided by (used for):
OPERATING ACTIVITIES
Net income				$213,772				$84,747
Non-cash items:
	Depreciation and amortization			118,460				107,542
	(Gain) loss on sale of vessels			(3,725	)			(9,423	)
	(Gain) loss on sale of marketable securities, net of writedowns			(94,222	)			—
	Loss on writedown of vessels and equipment			—				12,243
	Equity income (net of dividends received: December 31, 2004 — $7,500; December 31, 2005 — $2,750)			1,338				(2,449	)
	Income taxes			28,019				(14,202	)
	Unrealized foreign exchange (gain) loss and other — net			25,833				(39,816	)
Change in non-cash working capital items related to operating activities (note 15)				(37,709	)			22,951
Expenditures for drydocking				(9,174	)			(8,906	)
Net operating cash flow				242,592				152,687
FINANCING ACTIVITIES
Proceeds from long-term debt				403,000				1,226,804
Capitalized loan costs				(4,333	)			(639	)
Scheduled repayments of long-term debt				(58,480	)			(29,884	)
Prepayments of long-term debt				(662,715	)			(1,382,140	)
Repayments of capital lease obligations				(1,159	)			(1,248	)
Investment in subsidiaries from minority owners				—				8,000
Distribution from subsidiaries to minority owners				(2,347	)			(9,618	)
Net (advances to)/proceeds from affiliates				256,324				(12,829	)
Net financing cash flow				(69,710	)			(201,554	)
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(170,630	)			(24,760	)
Proceeds from sale of vessels and equipment				58,742				73,220
Purchase of marketable securities				(163,869	)			—
Proceeds from sale of marketable securities				135,357				—
Investment in direct financing leases				(53,273	)			(23,708	)
Repayment of direct financing leases				9,381				12,440
Other				(5,818	)			(3,068	)
Net investing cash flow				(190,110	)			34,124
(Decrease) in cash and cash equivalents				(17,228	)			(14,743	)
Cash and cash equivalents, beginning of the period				160,957				143,729
Cash and cash equivalents, end of the period				$143,729				$128,986
Supplemental cash flow disclosure (notes 1 and 15)
Non-cash financing activities (note 11c)

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							Accumulated
							Other
							Comprehensive								Total
			Owner’s				Income				Comprehensive				Owner’s
			Equity				(Loss)				Income				Equity
			(in thousands of U.S. dollars)
Balance as at December 31, 2003				$530,677				$(883	)							$529,794
Net income				213,772								213,772				213,772
Other comprehensive income:
	Unrealized loss on marketable securities							93,985				93,985				93,985
	Reclassification adjustment for gain on marketable securities included in net income							(94,222	)			(94,222	)			(94,222	)
	Unrealized gain on derivative instruments (note 12)							53				53				53
	Reclassification adjustment for loss on derivatives included in net income (note 12)							477				477				477
Comprehensive income												214,065
Norwegian group tax contributions (note 11a)				1,415												1,415
Sale of chartering rights (note 11b)				5,225												5,225
Equity contribution by Teekay Shipping Corporation (note 11c)				35,291												35,291
Sale of marketable securities (note 11k)				(126,578	)											(126,578	)
Balance as at December 31, 2004				659,802				(590	)							659,212
Net income				84,747								84,747				84,747
Other comprehensive income:
	Unrealized gain on derivative instruments (note 12)							792				792				792
	Reclassification adjustment for gain on derivatives included in net income (note 12)							(94	)			(94	)			(94	)
Comprehensive income												85,445
Norwegian group tax contributions (note 11a)				(1,185	)											(1,185	)
Sale of Dania Spirit (note 11d)				(3,093	)											(3,093	)
Balance as at December 31, 2005				$740,271				$108								$740,379

F-17

---

Table of Contents

1.	Summary of Significant Accounting Policies

	Basis of presentation

	Reporting currency

F-18

---

Table of Contents

	Operating revenues and expenses

	Cash and cash equivalents

	Marketable securities

	Vessels and equipment

F-19

---

Table of Contents

	Direct financing leases

	Investment in joint ventures

F-20

---

Table of Contents

	Loan costs

	Goodwill and intangible assets

	Derivative instruments

	Income taxes

	Comprehensive income (loss)

	Recent accounting pronouncements

F-21

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Table of Contents

2.	Segment Reporting

		Year Ended				Year Ended
		December 31,				December 31,
		2004				2005
Teekay Shipping Corporation subsidiaries(1)		$	396.8 or 40	%		$	253.1 or 31	%
Statoil ASA(2)(3)		$	189.7 or 19	%		$	184.7 or 23	%

(1)	Conventional tanker and FSO segments.
(2)	Shuttle tanker segment.
(3)	Statoil ASA is an international oil company.

F-22

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Table of Contents

		Shuttle				Conventional
		Tanker				Tanker				FSO
Year Ended December 31, 2004		Segment				Segment				Segment				Total
Voyage revenues			$550,445				$411,181				$24,878				$986,504
Voyage expenses			69,362				49,457				—				118,819
Vessel operating expenses			76,197				22,790				6,608				105,595
Time charter hire expense			177,576				194,873				—				372,449
Depreciation and amortization			89,593				20,561				8,306				118,460
General and administrative(1)			45,403				19,097				1,319				65,819
Vessels and equipment writedowns/(gain) loss on sale of vessels			(3,725	)			—				—				(3,725	)
Income from vessel operations			$96,039				$104,403				$8,645				$209,087
Voyage revenues — intersegment			$4,607				—				—				$4,607
Equity income (loss) from joint ventures			6,351				(189	)			—				6,162
Investments in joint ventures at December 31, 2004			30,603				531				—				31,134
Total assets at December 31, 2004			1,408,028				319,688				81,176				1,808,892
Expenditures for vessels and equipment			117,792				37,003				15,835				170,630

		Shuttle				Conventional
		Tanker				Tanker				FSO
Year Ended December 31, 2005		Segment				Segment				Segment				Total
Voyage revenues			$516,758				$266,593				$24,197				$807,548
Voyage expenses			68,308				5,419				816				74,543
Vessel operating expenses			75,196				22,679				6,600				104,475
Time charter hire expense			169,687				203,849				—				373,536
Depreciation and amortization			77,083				21,112				9,347				107,542
General and administrative(1)			55,010				29,026				1,820				85,856
Vessels and equipment writedowns/(gain) loss on sale of vessels			2,820				—				—				2,820
Restructuring charge			955				—				—				955
Income from vessel operations			$67,699				$(15,492	)			$5,614				$57,821
Voyage revenues — intersegment			4,607				—				—				4,607
Equity income (loss) from joint ventures			5,235				(36	)			—				5,199
Investments in joint ventures at December 31, 2005			33,907				495				—				34,402
Total assets at December 31, 2005			1,277,195				315,086				72,472				1,664,753
Expenditures for vessels and equipment			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).

F-23

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Table of Contents

			December 31,				December 31,
			2004				2005
Shuttle tanker segment				$1,408,028				$1,277,195
Conventional tanker segment				319,688				315,086
FSO segment				81,176				72,472
Cash and cash equivalents				143,729				128,986
Accounts receivable, prepaid expenses and other assets				88,021				90,278
	Combined consolidated total assets			$2,040,642				$1,884,017

3.	Goodwill and Intangible Assets

		Shuttle				Conventional
		Tanker				Tanker				FSO
		Segment				Segment				Segment				Total
Balance as of December 31, 2004			$128,576				—				—				$128,576
Goodwill acquired			1,973				—				—				1,973
Balance as of December 31, 2005			$130,549				—				—				$130,549

December 31, 2004

December 31, 2005

Weighted-

Average

Gross

Net

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

Amount

Amortization

Amount

(years)

Contracts of affreightment

10.2

$124,250

$(30,880

)

$93,370

$124,250

$(45,748

)

$78,502

4.	Accrued Liabilities

		December 31,				December 31,
		2004				2005
Voyage and vessel			$21,598				$24,793
Interest			777				712
Payroll and benefits			6,497				4,290
Restructuring costs			—				955
			$28,872				$30,750

F-24

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Table of Contents

5.	Advances from Affiliates

		December 31,				December 31,
		2004				2005
Norwegian Kroner-denominated Demand Promissory Note (7.5%)			$175,830				$157,842
Norwegian Kroner-denominated Demand Promissory Note (non-interest bearing)			12,691				6,797
Australian Dollar-denominated Demand Promissory Note (8.0%)			19,898				18,720
Other (non-interest bearing with no fixed terms of repayment)			383,506				375,891
			$591,925				$559,250

6.	Long-Term Debt

		December 31,				December 31,
		2004				2005
Revolving Credit Facilities			$495,000				$398,360
First Preferred Ship Mortgage Notes (8.32%)			29,088				—
Term Loans due through 2019			59,492				—
			583,580				398,360
Less current portion			48,597				—
			$534,983				$398,360

F-25

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Table of Contents

7.	Operating Leases

	Charters-out

	Charters-in

8.	Capital Lease Obligation

F-26

---

Table of Contents

Year		Commitment
2006			$4.1 million
2007			4.1 million
2008			4.1 million
2009			4.1 million
2010			4.1 million
Thereafter			36.8 million

9.	Fair Value of Financial Instruments

		December 31, 2004								December 31, 2005
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Cash and cash equivalents		$	143,729			$	143,729			$	128,986			$	128,986
Long-term debt			583,580				584,047				398,360				398,360
Capital lease obligation			35,493				42,684				34,245				40,015
Derivative instruments (note 12)
Interest rate swap agreements			(649	)			(649	)			108				108

10.	Restructuring Charge and Other Income

		Year Ended				Year Ended
		December 31,				December 31,
		2004				2005
Minority interest expense			$(2,167	)			$(229	)
Write-down in the carrying value of marketable securities			—				—
Volatile organic compound emissions plant lease income			8,448				11,001
Dividend income			5,679				—
Miscellaneous			(63	)			(1,910	)
Other — net			$11,897				$8,862

F-27

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Table of Contents

11.	Related Party Transactions

F-28

---

Table of Contents

12.	Derivative Instruments and Hedging Activities

Fair Value/

Weighted-

Carrying

Average

Fixed

Interest Rate

Principal

Amount of

Remaining

Interest

Index

Amount

Liability

Term

Rate(1)

(years)

U.S. Dollar-denominated interest rate swap(2)

LIBOR

$

29,700

$

108

8.5

4.7%

(1)	Excludes the margins the Company pays on its variable-rate debt (including the debt of its joint ventures), which as at December 31, 2005, ranged from 0.6% to 0.8%.
(2)	Principal amount reduces semiannually by $1.1 million.

F-29

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Table of Contents

13.	Income Taxes

			December 31,				December 31,
			2004				2005
Deferred tax liabilities:
	Vessels and equipment			$79,221				$51,483
	Long-term debt			40,387				8,120
Total deferred tax liabilities				119,608				59,603
Deferred tax assets:
	Goodwill and intangible assets			4,789				1,304
	Provisions			1,106				415
Total deferred tax assets				5,895				1,719
Net deferred tax liabilities				113,713				57,884
Current portion				—				—
Long-term portion of net deferred tax liabilities				$113,713				$57,884

		December 31,				December 31,
		2004				2005
Foreign		$	241,960			$	70,874
Domestic			—				—
		$	241,960			$	70,874

		December 31,				December 31,
		2004				2005
Current			$(589	)			$(3,546	)
Deferred			(27,599	)			17,419
Income tax recovery (expense)			$(28,188	)			$13,873

F-30

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Table of Contents

			December 31,				December 31,
			2004				2005
Actual income tax provision/(credit) rate				11.6	%			(19.6	)%
	Income not subject to income taxes			16.4				47.6
Applicable statutory income tax provision rate				28.0	%			28.0	%

14.	Commitments and Contingencies

	a) Joint Ventures

	b) Volatile Organic Compound Emissions Plants

	c) Other

15.	Change in Non-Cash Working Capital Items Related to Operating Activities

		Year Ended				Year Ended
		December 31,				December 31,
		2004				2005
Accounts receivable			$34,755				$13,129
Prepaid expenses and other assets			(10,857	)			(17,471	)
Accounts payable and accrued liabilities			(11,360	)			5,429
Advances from affiliates			(50,247	)			21,864
Change in non-cash working capital items			$(37,709	)			$22,951

F-31

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Table of Contents

16.	Vessel Sales and Writedowns on Vessels and Equipment

17.	Subsequent Events

18.	Valuation and Qualifying Accounts

			Balance at				Balance at
			beginning of				end of
			year				year
Allowance for bad debts:
	Year ended December 31, 2004		$	407			$	461
	Year ended December 31, 2005			461				987
Restructuring cost accrual:
	Year ended December 31, 2004		$	—			$	—
	Year ended December 31, 2005			—				955

F-32

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Table of Contents

F-33

---

Table of Contents

	/s/ Ernst & Young LLP
	Chartered Accountants

F-34

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Table of Contents

		Six Months Ended
		June 30,
		2005				2006
		(in thousands of
		U.S. dollars)
VOYAGE REVENUES (including $120,518 for 2005 and $112,119 for 2006 of voyage revenues from related parties — notes 10b, 10d, 10f and 10h)			$400,315				$386,724
OPERATING EXPENSES
Voyage expenses (including $131 for 2005 and $357 for 2006 of voyage expenses from related parties — note 10g)			32,400				48,344
Vessel operating expenses			52,900				52,954
Time-charter hire expense			176,276				165,935
Depreciation and amortization			55,620				51,331
General and administrative (including $3,079 for 2005 and $2,694 for 2006 of general and administrative expenses from related parties — note 10e)			37,838				43,469
Vessel and equipment writedowns and loss on sale of vessels (note 14)			5,369				1,845
Restructuring charge (note 8)			—				453
Total operating expenses			360,403				364,331
Income from vessel operations			39,912				22,393
OTHER ITEMS
Interest expense			(20,100	)			(24,504	)
Interest income			2,271				3,291
Equity income from joint ventures			2,573				3,191
Foreign exchange (loss) gain (note 5)			25,730				(18,688	)
Income tax recovery (expense) (note 12)			15,786				(7,762	)
Other — net (note 8)			3,002				5,280
Total other items			29,262				(39,192	)
Net income (loss)			$69,174				$(16,799	)

F-35

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Table of Contents

		As at				As at
		December 31,				June 30,
		2005				2006
		(in thousands of U.S. dollars)
ASSETS
Current
Cash and cash equivalents (note 6)			$128,986				$133,962
Accounts receivable			34,425				28,355
Vessels held for sale			—				2,500
Net investment in direct financing leases — current (note 13c)			20,240				20,790
Prepaid expenses			36,475				53,373
Other current assets			6,218				17,866
Total current assets			226,344				256,846
Vessels and equipment (note 6)
At cost, less accumulated depreciation of $468,765 (December 31, 2005 — $436,753)			1,265,630				1,227,007
Vessels under capital leases, at cost, less accumulated depreciation of $4,014 (December 31, 2005 — $3,308) (note 7)			34,434				33,758
Total vessels and equipment			1,300,064				1,260,765
Net investment in direct financing leases (note 13c)			100,996				95,116
Investment in joint ventures (note 13b)			34,402				36,260
Other assets			13,160				14,330
Intangible assets — net (note 3)			78,502				72,464
Goodwill (note 3)			130,549				130,549
Total assets			$1,884,017				$1,866,330
LIABILITIES AND OWNER’S EQUITY
Current
Accounts payable			$16,808				$14,312
Accrued liabilities			30,750				34,687
Current obligation under capital leases (note 7)			1,355				1,412
Advances from affiliates (note 5)			559,250				394,849
Total current liabilities			608,163				445,260
Long-term debt (note 6)			398,360				543,543
Obligation under capital leases (note 7)			32,890				32,188
Deferred income taxes			57,884				73,740
Other long-term liabilities			34,482				32,028
Total liabilities			1,131,779				1,126,759
Commitments and contingencies (notes 7 and 13)
Minority interest			11,859				11,770
Owner’s equity			740,379				727,801
Total liabilities and owner’s equity			$1,884,017				$1,866,330

F-36

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Table of Contents

			Six Months Ended
			June 30,
			2005				2006
			(in thousands of U.S. dollars)
Cash and cash equivalents provided by (used for):
OPERATING ACTIVITIES
Net income (loss)				$69,174				$(16,799	)
Non-cash items:
	Depreciation and amortization			55,620				51,331
	Gain on sale of vessels			(4,831	)			(305	)
	Loss on writedown of vessels and equipment			10,200				2,150
	Equity income (net of dividends received: June 30, 2006 — $2,500; June 30, 2005 — nil)			(2,573	)			(691	)
	Income taxes			(18,573	)			8,636
	Unrealized foreign exchange (gain) loss and other — net			(29,024	)			18,033
Change in non-cash working capital items related to operating activities				3,918				(9,870	)
Expenditures for drydocking				(2,679	)			(3,780	)
Net operating cash flow				81,232				48,705
FINANCING ACTIVITIES
Proceeds from long-term debt				626,319				238,710
Scheduled repayments of long-term debt				(29,884	)			—
Prepayments of long-term debt				(1,083,696	)			(93,527	)
Repayments of capital lease obligations				(594	)			(646	)
Investment in subsidiaries from minority owners				8,000				—
Distribution from subsidiaries to minority owners				(8,075	)			(495	)
Net (advances to)/proceeds from affiliates				334,283				(186,644	)
Net financing cash flow				(153,647	)			(42,602	)
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(7,116	)			(5,054	)
Proceeds from sale of vessels and equipment				64,550				—
Investment in direct financing leases				(11,671	)			(5,177	)
Repayment of direct financing leases				5,756				9,104
Other				(3,337	)			—
Net investing cash flow				48,182				(1,127	)
(Decrease) increase in cash and cash equivalents				(24,233	)			4,976
Cash and cash equivalents, beginning of the period				143,729				128,986
Cash and cash equivalents, end of the period				$119,496				$133,962
Supplemental cash flow disclosure (note 4)

F-37

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Table of Contents

							Accumulated
							Other
							Comprehensive								Total
			Owner’s				Income				Comprehensive				Owner’s
			Equity				(Loss)				Income				Equity
							(in thousands of U.S. dollars)
Balance as at December 31, 2004				$659,802				$(590	)							$659,212
Net income				84,747								84,747				84,747
Other comprehensive income:
	Unrealized gain on derivative instruments (note 11)							792				792				792
	Reclassification adjustment for gain on derivatives included in net income (note 11)							(94	)			(94	)			(94	)
Comprehensive income												85,445
Norwegian group tax contributions (note 10a)				(1,185	)											(1,185	)
Sale of Dania Spirit (note 10c)				(3,093	)											(3,093	)
Balance as at December 31, 2005				740,271				108								740,379
Net loss				(16,799	)							(16,799	)			(16,799	)
Other comprehensive income:
	Unrealized gain on derivative instruments (note 11)							1,168				1,168				1,168
	Reclassification adjustment for loss on derivatives included in net income (note 11)							2				2				2
Comprehensive loss												(15,629	)
Norwegian group tax contributions (note 10a)				2,567												2,567
Stock compensation expense (note 1)				484												484
Balance as at June 30, 2006				$726,523				$1,278								$727,801

F-38

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Table of Contents

1.	Basis of presentation

F-39

---

Table of Contents

	Change in Accounting Policy

2.	Segment Reporting

F-40

---

Table of Contents

		Shuttle				Conventional
		Tanker				Tanker				FSO
Six Months Ended June 30, 2005		Segment				Segment				Segment				Total
Voyage revenues			$260,373				$128,030				$11,912				$400,315
Voyage expenses			29,681				2,326				393				32,400
Vessel operating expenses			37,903				11,890				3,107				52,900
Time charter hire expense			81,035				95,241				—				176,276
Depreciation and amortization			40,054				10,771				4,795				55,620
General and administrative(1)			23,720				13,162				956				37,838
Vessels and equipment writedowns and loss on sale of vessels			5,369				—				—				5,369
Income (loss) from vessel operations			$42,611				$(5,360	)			$2,661				$39,912
Voyage revenues — intersegment			$2,291				—				—				$2,291
Expenditures for vessels and equipment			6,311				137				668				7,116

		Shuttle				Conventional
		Tanker				Tanker				FSO
Six Months Ended June 30, 2006		Segment				Segment				Segment				Total
Voyage revenues			$263,203				$111,555				$11,966				$386,724
Voyage expenses			44,690				3,131				523				48,344
Vessel operating expenses			38,407				11,031				3,516				52,954
Time charter hire expense			86,597				79,338				—				165,935
Depreciation and amortization			35,811				10,787				4,733				51,331
General and administrative(1)			27,187				15,313				969				43,469
Vessels and equipment writedowns and loss on sale of vessels			1,845				—				—				1,845
Restructuring charge			—				453				—				453
Income (loss) from vessel operations			$28,666				$(8,498	)			$2,225				$22,393
Voyage revenues — intersegment			$2,618				—				—				$2,618
Expenditures for vessels and equipment			1,954				418				2,682				5,054

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

F-41

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Table of Contents

			December 31,				June 30,
			2005				2006
Shuttle tanker segment				$1,277,195				$1,243,549
Conventional tanker segment				315,086				304,816
FSO segment				72,472				70,079
Cash and cash equivalents				128,986				133,962
Accounts receivable, prepaid expenses and other assets				90,278				113,924
	Consolidated total assets			$1,884,017				$1,866,330

3.	Goodwill and Intangible Assets

Shuttle

Conventional

Tanker

Tanker

FSO

Segment

Segment

Segment

Total

Balance as of June 30, 2006 and December 31, 2005

$130,549

—

—

$130,549

December 31, 2005

June 30, 2006

Weighted-

Average

Gross

Net

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

Amount

Amortization

Amount

(years)

Contracts of affreightment

10.2

$

124,250

$

(45,748

)

$

78,502

$

124,250

$

(51,786

)

$

72,464

4.	Cash Flows

F-42

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Table of Contents

5.	Advances from Affiliates

		December 31,				June 30,
		2005				2006
Norwegian Kroner-denominated Demand Promissory Note (7.5%)		$	157,842			$	157,596
Norwegian Kroner-denominated Demand Promissory Note (non-interest bearing)			6,797				—
Australian Dollar-denominated Demand Promissory Note (8.0%)			18,720				18,942
Other (non-interest bearing with no fixed terms of repayment)			375,891				218,311
		$	559,250			$	394,849

6.	Long-Term Debt

		December 31,				June 30,
		2005				2006
Revolving Credit Facilities		$	398,360			$	543,543

F-43

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Table of Contents

7.	Capital Lease Obligation

Year		Commitment
2006			$2.1 million
2007			4.1 million
2008			4.1 million
2009			4.1 million
2010			4.1 million
Thereafter			36.8 million

8.	Restructuring Charge and Other Income

		Six Months Ended
		June 30,				June 30,
		2005				2006
Minority interest expense			$(692	)			$(414	)
Volatile organic compound emissions plant lease income			5,056				5,657
Miscellaneous			(1,362	)			37
Other — net			$3,002				$5,280

F-44

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Table of Contents

9.	Comprehensive Income

		Six Months Ended
		June 30,				June 30,
		2005				2006
Net income (loss)			$69,174				$(16,799	)
Other comprehensive income:
Unrealized gain on derivative instruments			330				1,168
Reclassification adjustment for (gain) loss on derivatives included in net income			(72	)			2
Comprehensive income (loss)			$69,432				$(15,629	)

10.	Related Party Transactions

F-45

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Table of Contents

11.	Derivative Instruments and Hedging Activities

Fair Value/

Weighted-

Interest

Carrying

Average

Fixed

Rate

Principal

Amount of

Remaining

Interest

Index

Amount

Liability

Term

Rate(1)

(years)

U.S. Dollar-denominated interest rate swap(2)

LIBOR

$

28,600

$

1,278

8.0

4.7%

(1)	Excludes the margins the Company pays on its variable-rate debt (including the debt of its joint ventures), which as at June 30, 2006 ranged from 0.6% to 0.8%.
(2)	Principal amount reduces semiannually by $1.1 million.

12.	Income Taxes

		Six Months Ended
		June 30,				June 30,
		2005				2006
Current			$(315	)			$(77	)
Deferred			16,101				(7,685	)
Income tax recovery (expense)			$15,786				$(7,762	)

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13.	Commitments and Contingencies

	a) Vessel Purchases and Conversions

	b) Joint Ventures

	c) Volatile Organic Compound Emissions Plants

	d) Other

14.	Vessel Sales

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15.	Subsequent Events

16.	Recent Accounting Pronouncements

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	/s/ Ernst & Young LLP
	Chartered Accountants

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			As at
			August 31, 2006
			(U.S. Dollars)
ASSETS
Current
Cash and cash equivalents			$	1,000
	Total assets		$	1,000
Commitments and contingencies (note 2)
PARTNERS’ EQUITY
Limited Partner				$980
General Partner				20
	Total partners’ equity		$	1,000

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1.	Nature of Operations

2.	Subsequent Events

	•	Teekay Shipping Corporation will transfer to the Partnership a 26.0% interest in OPCO;
	•	The Partnership will issue to Teekay Shipping Corporation 2,800,000 common units and 9,800,000 subordinated units, representing a 63.0% limited partner interest in the Partnership, and the Partnership will be obligated to Teekay Shipping Corporation pursuant to non-interest bearing promissory notes (the TSC Notes)
	•	The Partnership will issue to the General Partner a 2.0% general partner interest in the Partnership and all of the Partnership’s incentive distribution rights;
	•	The Partnership will issue 7,000,000 common units to the public in the Offering and use the net proceeds to repay the TSC Notes and to pay expenses associated with the public offering and related transactions;
	•	The Partnership will enter into an omnibus agreement with Teekay Shipping Corporation, the General Partner and others governing, among other things, when the Partnership and Teekay Shipping Corporation may compete with each other; and
	•	The Partnership and certain of its operating subsidiaries will enter into services agreements with certain subsidiaries of Teekay Shipping Corporation pursuant to which the Teekay Shipping Corporation subsidiaries will agree to provide to the Partnership administrative services and to such operating subsidiaries strategic consulting, advisory, ship management, technical and administrative services. These services will be valued at a reasonable, arms’-length fee that will include reimbursement of reasonable direct or indirect expenses incurred to provide these services.

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	/s/ Ernst & Young LLP
	Chartered Accountants

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			As at
			August 25, 2006
			(U.S. Dollars)
ASSETS
Current
Cash and cash equivalents				$980
Investment in Teekay Offshore Partners L.P.				20
	Total assets		$	1,000
MEMBER’S EQUITY
Member’s equity			$	1,000
	Total member’s equity		$	1,000

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1.	Nature of Operations

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ARTICLE I DEFINITIONS					A-1
Section 1.1		Definitions.			A-1
Section 1.2		Construction.			A-13
ARTICLE II ORGANIZATION					A-13
Section 2.1		Formation.			A-13
Section 2.2		Name.			A-13
Section 2.3		Registered Office; Registered Agent; Principal Office; Other Offices.			A-13
Section 2.4		Purpose and Business.			A-14
Section 2.5		Powers.			A-14
Section 2.6		Power of Attorney.			A-14
Section 2.7		Term.			A-15
Section 2.8		Title to Partnership Assets.			A-15
ARTICLE III RIGHTS OF LIMITED PARTNERS					A-16
Section 3.1		Limitation of Liability.			A-16
Section 3.2		Management of Business.			A-16
Section 3.3		Outside Activities of the Limited Partners.			A-16
Section 3.4		Rights of Limited Partners.			A-16
ARTICLE IV CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS					A-17
Section 4.1		Certificates.			A-17
Section 4.2		Mutilated, Destroyed, Lost or Stolen Certificates.			A-17
Section 4.3		Record Holders.			A-18
Section 4.4		Transfer Generally.			A-18
Section 4.5		Registration and Transfer of Limited Partner Interests.			A-18
Section 4.6		Transfer of the General Partner’s General Partner Interest.			A-19
Section 4.7		Transfer of Incentive Distribution Rights.			A-19
Section 4.8		Restrictions on Transfers.			A-20
ARTICLE V CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS					A-20
Section 5.1		Organizational Contributions.			A-20
Section 5.2		Initial Unit Issuances; General Partner Pre-emptive Rights.			A-20
Section 5.3		Contributions by Initial Limited Partners and Distributions to the General Partner and its Affiliates.			A-20
Section 5.4		Interest and Withdrawal.			A-21
Section 5.5		Issuances of Additional Partnership Securities.			A-21
Section 5.6		Limitations on Issuance of Additional Partnership Securities.			A-22
Section 5.7		Conversion of Subordinated Units.			A-22
Section 5.8		Limited Preemptive Right.			A-22
Section 5.9		Splits and Combinations.			A-23
Section 5.10		Fully Paid and Non-Assessable Nature of Limited Partner Interests.			A-23

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ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS					A-23
Section 6.1		Allocations.			A-23
Section 6.2		Requirement and Characterization of Distributions; Distributions to Record Holders.			A-24
Section 6.3		Distributions of Available Cash from Operating Surplus.			A-24
Section 6.4		Distributions of Available Cash from Capital Surplus.			A-26
Section 6.5		Adjustment of Minimum Quarterly Distribution and Target Distribution Levels.			A-26
Section 6.6		Special Provisions Relating to the Holders of Subordinated Units.			A-26
Section 6.7		Special Provisions Relating to the Holders of Incentive Distribution Rights.			A-26
ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS					A-27
Section 7.1		Management.			A-27
Section 7.2		Certificate of Limited Partnership.			A-28
Section 7.3		Restrictions on the General Partner’s Authority.			A-28
Section 7.4		Reimbursement of the General Partner.			A-29
Section 7.5		Outside Activities.			A-30
Section 7.6		Loans from the General Partner; Loans or Contributions from the Partnership or Group Members.			A-30
Section 7.7		Indemnification.			A-31
Section 7.8		Liability of Indemnitees.			A-32
Section 7.9		Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties.			A-33
Section 7.10		Other Matters Concerning the General Partner.			A-34
Section 7.11		Purchase or Sale of Partnership Securities.			A-34
Section 7.12		Registration Rights of the General Partner and its Affiliates.			A-35
Section 7.13		Reliance by Third Parties.			A-37
ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS					A-37
Section 8.1		Records and Accounting.			A-37
Section 8.2		Fiscal Year.			A-37
Section 8.3		Reports.			A-37
ARTICLE IX TAX MATTERS					A-38
Section 9.1		Tax Elections and Information.			A-38
Section 9.2		Withholding.			A-38
Section 9.3		Conduct of Operations.			A-38
ARTICLE X ADMISSION OF PARTNERS					A-38
Section 10.1		Admission of Initial Limited Partners.			A-38
Section 10.2		Admission of Additional Limited Partners.			A-39
Section 10.3		Admission of Successor General Partner.			A-39
Section 10.4		Amendment of Agreement and Certificate of Limited Partnership.			A-39
ARTICLE XI WITHDRAWAL OR REMOVAL OF PARTNERS					A-40
Section 11.1		Withdrawal of the General Partner.			A-40
Section 11.2		Removal of the General Partner.			A-41

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Section 11.3		Interest of Departing General Partner and Successor General Partner.			A-41
Section 11.4		Termination of Subordination Period, Conversion of Subordinated Units and Extinguishment of Cumulative Common Unit Arrearages.			A-42
Section 11.5		Withdrawal of Limited Partners.			A-43
ARTICLE XII DISSOLUTION AND LIQUIDATION					A-43
Section 12.1		Dissolution.			A-43
Section 12.2		Continuation of the Business of the Partnership After Dissolution.			A-43
Section 12.3		Liquidator.			A-44
Section 12.4		Liquidation.			A-44
Section 12.5		Cancellation of Certificate of Limited Partnership.			A-45
Section 12.6		Return of Contributions.			A-46
Section 12.7		Waiver of Partition.			A-46
ARTICLE XIII AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE					A-46
Section 13.1		Amendments to be Adopted Solely by the General Partner.			A-46
Section 13.2		Amendment Procedures.			A-47
Section 13.3		Amendment Requirements.			A-47
Section 13.4		Special Meetings.			A-48
Section 13.5		Notice of a Meeting.			A-48
Section 13.6		Record Date.			A-48
Section 13.7		Adjournment.			A-49
Section 13.8		Waiver of Notice; Approval of Meeting; Approval of Minutes.			A-49
Section 13.9		Quorum and Voting.			A-49
Section 13.10		Conduct of a Meeting.			A-49
Section 13.11		Action Without a Meeting.			A-50
Section 13.12		Right to Vote and Related Matters.			A-50
ARTICLE XIV MERGER					A-50
Section 14.1		Authority.			A-50
Section 14.2		Procedure for Merger or Consolidation.			A-51
Section 14.3		Approval by Limited Partners of Merger or Consolidation.			A-51
Section 14.4		Certificate of Merger.			A-52
Section 14.5		Amendment of Partnership Agreement.			A-52
Section 14.6		Effect of Merger.			A-52
ARTICLE XV RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS					A-53
Section 15.1		Right to Acquire Limited Partner Interests.			A-53
ARTICLE XVI GENERAL PROVISIONS					A-54
Section 16.1		Addresses and Notices.			A-54
Section 16.2		Further Action.			A-54
Section 16.3		Binding Effect.			A-54
Section 16.4		Integration.			A-54

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Section 16.5		Creditors.			A-55
Section 16.6		Waiver.			A-55
Section 16.7		Counterparts.			A-55
Section 16.8		Applicable Law.			A-55
Section 16.9		Invalidity of Provisions.			A-55
Section 16.10		Consent of Partners.			A-55
Section 16.11		Facsimile Signatures.			A-55
Section 16.12		Third-Party Beneficiaries.			A-55

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	(a) the sum of (i) all cash and cash equivalents of the Partnership Group (or the Partnership’s proportionate share of cash and cash equivalents in the case of Subsidiaries that are not wholly owned) on hand at the end of such Quarter, and (ii) all additional cash and cash equivalents of the Partnership Group (or the Partnership’s proportionate share of cash and cash equivalents in the case of Subsidiaries that are not wholly owned) on hand on the date of determination of Available Cash with respect to such Quarter resulting from Working Capital Borrowings made subsequent to the end of such Quarter, less
	(b) the amount of any cash reserves (or the Partnership’s proportionate share of cash reserves in the case of Subsidiaries that are not wholly owned) established by the General Partner to (i) provide for the proper conduct of the business of the Partnership Group (including reserves for future capital expenditures and for anticipated future credit needs of the Partnership Group) subsequent to such Quarter, (ii) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which any Group Member is a party or by which it is bound or its assets are subject or (iii) provide funds for distributions under Section 6.3 or 6.4 in respect of any one or more of the next four Quarters; provided, however, that the General Partner may not establish cash reserves pursuant to (iii) above if the effect of such reserves would be that the Partnership is unable to distribute the Minimum Quarterly Distribution on all Common Units, plus any Cumulative Common Unit Arrearage on all Common Units, with respect to such Quarter; and, provided further, that disbursements made by a Group Member or cash reserves established, increased or reduced after the end of such Quarter but on or before the date of determination of Available Cash with respect to such Quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, within such Quarter if the General Partner so determines.
	Notwithstanding the foregoing, “Available Cash” with respect to the Quarter in which the Liquidation Date occurs and any subsequent Quarter shall equal zero.

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	(a) repayment of Working Capital Borrowings deducted from Operating Surplus pursuant to clause (b)(iii) of the definition of Operating Surplus shall not constitute Operating Expenditures when actually repaid;
	(b) payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than Working Capital Borrowings shall not constitute Operating Expenditures; and
	(c) Operating Expenditures shall not include (i) Expansion Capital Expenditures, Investment Capital Expenditures or actual Maintenance Capital Expenditures, but shall include Estimated Maintenance Capital Expenditures, (ii) payment of transaction expenses (including taxes) relating to Interim Capital Transactions or (iii) distributions to Partners.
	Where capital expenditures consist of both (x) Maintenance Capital Expenditures and (y) Expansion Capital Expenditures and/or Investment Capital Expenditures, the General Partner, with the concurrence of the Conflicts Committee, shall determine the allocation between the amounts paid for each.

(a) the sum of (i) $15 million, (ii) all cash receipts of the Partnership Group (or the Partnership’s proportionate share of cash receipts in the case of Subsidiaries that are not wholly owned) for the period beginning on the Closing Date and ending on the last day of such period, other than cash receipts from Interim Capital Transactions, (iii) all cash receipts of the Partnership Group (or the Partnership’s proportionate share of cash receipts in the case of Subsidiaries that are not wholly owned) after the end of such period but on or before the date of determination of Operating Surplus with respect to such period resulting from Working Capital Borrowings and (iv) the amount of distributions paid on equity issued in connection with the construction of a Capital Improvement or replacement asset and paid during the period beginning on the date that the Group Member enters into a binding obligation to commence construction of such Capital Improvement or replacement asset and ending on the earlier to occur of the date that such Capital Improvement or replacement asset Commences Commercial Service or the date that it is abandoned or disposed of (equity issued to fund the construction period interest payments on debt incurred (including periodic net payments

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	under related interest rate swap agreements), or construction period distributions on equity issued, to finance the construction of a Capital Improvement or replacement asset shall also be deemed to be equity issued to finance the construction of a Capital Improvement or replacement asset for purposes of this clause (iv)), less
	(b) the sum of (i) Operating Expenditures for the period beginning on the Closing Date and ending on the last day of such period, (ii) the amount of cash reserves (or the Partnership’s proportionate share of cash reserves in the case of Subsidiaries that are not wholly owned) established by the General Partner to provide funds for future Operating Expenditures and (iii) all Working Capital Borrowings not repaid within twelve months after having been incurred; provided, however, that disbursements made (including contributions to a Group Member or disbursements on behalf of a Group Member) or cash reserves established, increased or reduced after the end of such period but on or before the date of determination of Available Cash with respect to such period shall be deemed to have been made, established, increased or reduced, for purposes of determining Operating Surplus, within such period if the General Partner so determines.

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	(a) the first day of any Quarter beginning after December 31, 2009, in respect of which (i)(A) distributions of Available Cash from Operating Surplus on each of the Outstanding Common Units, Subordinated Units, General Partner Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units equaled or exceeded the Minimum Quarterly Distribution during each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date and (B) the Adjusted Operating Surplus for each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the Common Units, Subordinated Units, General Partner Units and any other Units that are senior or equal in right of distribution to the Subordinated Units that were Outstanding during such periods on a Fully Diluted Basis with respect to each such period and (ii) there are no Cumulative Common Unit Arrearages; and
	(b) the date on which the General Partner is removed as general partner of the Partnership upon the requisite vote by holders of Outstanding Units under circumstances where Cause does not exist and no Units held by the General Partner and its Affiliates are voted in favor of such removal.

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(i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) all certificates, documents and other instruments (including this Agreement and the Certificate of Limited Partnership and all amendments or restatements hereof or thereof) that the General Partner or the Liquidator determines to be necessary or appropriate to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the Marshall Islands and in all other jurisdictions in which the Partnership may conduct business or own property; (B) all certificates, documents and other instruments that the General Partner or the Liquidator determines to be necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement; (C) all certificates, documents and other instruments (including conveyances and a certificate of cancellation) that the General Partner or the Liquidator determines to be necessary or appropriate to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement; (D) all certificates, documents and other instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Articles IV, X, XI or XII; (E) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of any class or series of Partnership Securities issued pursuant to Section 5.5; and (F) all certificates, documents and other instruments (including agreements and a certificate of merger) relating to a merger, consolidation or conversion of the Partnership pursuant to Article XIV; and

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(ii) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments that the General Partner or the Liquidator determines to be necessary or appropriate to (A) make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or (B) effectuate the terms or intent of this Agreement; provided, however, that when required by Section 13.3 or any other provision of this Agreement that establishes a percentage of the Limited Partners or of the Limited Partners of any class or series required to take any action, the General Partner and the Liquidator may exercise the power of attorney made in this Section 2.6(a)(ii) only after the necessary vote, consent or approval of the Limited Partners or of the Limited Partners of such class or series, as applicable.

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	(i) obtain, promptly after becoming available, a copy of the Partnership’s financial statements or income tax returns, if applicable, for each year;
	(ii) have furnished to him a current list of the name and last known business, residence or mailing address of each Partner;
	(iii) obtain true and full information regarding the amount of cash and a description and statement of the Net Agreed Value of any other Capital Contribution by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner;
	(iv) have furnished to him a copy of this Agreement and the Certificate of Limited Partnership and all amendments thereto, together with a copy of the executed copies of all powers of attorney pursuant to which this Agreement, the Certificate of Limited Partnership and all amendments thereto have been executed;
	(v) obtain true and full information regarding the status of the business and financial condition of the Partnership Group; and
	(vi) obtain such other information regarding the affairs of the Partnership as is just and reasonable.

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	(i) makes proof by affidavit, in form and substance satisfactory to the General Partner, that a previously issued Certificate has been lost, destroyed or stolen;
	(ii) requests the issuance of a new Certificate before the General Partner has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;
	(iii) if requested by the General Partner, delivers to the General Partner a bond, in form and substance satisfactory to the General Partner, with surety or sureties and with fixed or open penalty as the General Partner may direct to indemnify the Partnership, the Partners, the General Partner and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and
	(iv) satisfies any other reasonable requirements imposed by the General Partner.

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	(i) distributions of Available Cash from Operating Surplus under Section 6.3(a) on each of the Outstanding Common Units, Subordinated Units, General Partner Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units equaled or exceeded the Third Target Distribution during the four-Quarter period immediately preceding such date;
	(ii) the Adjusted Operating Surplus for the four-Quarter period immediately preceding such date equaled or exceeded the sum of the Third Target Distribution on all of the Common Units, Subordinated Units, General Partner Units and any other Units that are senior or equal in right of distribution to the Subordinated Units that were Outstanding during such period on a Fully Diluted Basis with respect to such period; and
	(iii) there are no Cumulative Common Unit Arrearages.

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	(a) in a taxable year (or portion thereof) in which items of income and gain exceed items of loss and deduction, in a manner such that the allocations to the Partners (i) first reverse any allocations made to the Partners pursuant to Section 6.1(b)(ii) and (ii) thereafter, are in proportion to the distributions of Available Cash from Operating Surplus (actual or deemed) made to the Partners pursuant to Article VI and Section 12.4; and
	(b) in a taxable year (or portion thereof) in which items of loss and deduction exceed items of income and gain, in a manner such that the allocations to the Partners (i) first reverse any allocations made to the Partners pursuant to Section 6.1(a)(ii) and (ii) thereafter, are in proportion to the Partners’ Percentage Interests.

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	(i) First, (x) to the General Partner in accordance with its Percentage Interest and (y) to all the Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;
	(ii) Second, (x) to the General Partner in accordance with its Percentage Interest and (y) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Cumulative Common Unit Arrearage existing with respect to such Quarter;
	(iii) Third, (x) to the General Partner in accordance with its Percentage Interest and (y) to all Unitholders holding Subordinated Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Subordinated Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;
	(iv) Fourth, to the General Partner and all Unitholders, in accordance with their respective Percentage Interests, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution for such Quarter;
	(v) Fifth, (A) to the General Partner in accordance with its Percentage Interest; (B) 13% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (v) until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution for such Quarter;

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	(vi) Sixth, (A) to the General Partner in accordance with its Percentage Interest, (B) 23% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this subclause (vi), until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution for such Quarter; and
	(vii) Thereafter, (A) to the General Partner in accordance with its Percentage Interest; (B) 48% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (vii);

	(i) First, 100% to the General Partner and the Unitholders in accordance with their respective Percentage Interests, until there has been distributed in respect of each Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter
	(ii) Second, 100% to the General Partner and the Unitholders in accordance with their respective Percentage Interests, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution for such Quarter;
	(iii) Third, (A) to the General Partner in accordance with its Percentage Interest; (B) 13% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (iii), until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution for such Quarter;
	(iv Fourth, (A) to the General Partner in accordance with its Percentage Interest; (B) 23% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclause (A) and (B) of this clause (iv), until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution for such Quarter; and
	(v) Thereafter, (A) to the General Partner in accordance with its Percentage Interest; (B) 48% to the holders of the Incentive Distribution Rights, Pro Rata; and (C) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (A) and (B) of this clause (v);

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	(i) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into Partnership Securities, and the incurring of any other obligations;
	(ii) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership;
	(iii) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership or the merger, consolidation or other combination of the Partnership with or into another Person (the matters described in this clause (iii) being subject, however, to any prior approval that may be required by Section 7.3 and Article XIV);
	(iv) the use of the assets of the Partnership (including cash on hand) for any purpose consistent with the terms of this Agreement, including the financing of the conduct of the operations of the Partnership Group; subject to Section 7.6(a), the lending of funds to other Persons (including other Group Members); the repayment or guarantee of obligations of any Group Member; and the making of capital contributions to any Group Member;
	(v) the negotiation, execution and performance of any contracts, conveyances or other instruments (including instruments that limit the liability of the Partnership under contractual arrangements to all or particular assets of the Partnership, with the other party to the contract to have no recourse against the General Partner or its assets other than its interest in the Partnership, even if such non-recourse provision results in the terms of the transaction being less favorable to the Partnership than would otherwise be the case);
	(vi) the distribution of Partnership cash;
	(vii) the selection and dismissal of employees (including employees having titles such as “president,” “vice president,” “secretary” and “treasurer”) and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;
	(viii) the maintenance of insurance for the benefit of the Partnership Group, the Partners and Indemnitees;
	(ix) the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited or general partnerships, joint ventures, corporations, limited liability companies or other relationships (including the acquisition of interests in, and the contributions of property to, any Group Member from time to time) subject to the restrictions set forth in Section 2.4;

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	(x) the control of any matters affecting the rights and obligations of the Partnership, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expenses and the settling of claims and litigation;
	(xi) the indemnification of any Person against liabilities and contingencies to the extent permitted by law;
	(xii) the entering into of listing agreements with any National Securities Exchange and the delisting of some or all of the Limited Partner Interests from, or requesting that trading be suspended on, any such exchange (subject to any prior approval that may be required under Section 4.8);
	(xiii) the purchase, sale or other acquisition or disposition of Partnership Securities, or the issuance of options, rights, warrants and appreciation rights relating to Partnership Securities;
	(xiv) the undertaking of any action in connection with the Partnership’s participation in any Group Member; and
	(xv) the entering into of agreements with any of its Affiliates to render services to a Group Member or to itself in the discharge of its duties as General Partner of the Partnership.

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	(i) The General Partner voluntarily withdraws from the Partnership by giving written notice to the other Partners;
	(ii) The General Partner transfers all of its rights as General Partner pursuant to Section 4.6;
	(iii) The General Partner is removed pursuant to Section 11.2;
	(iv) The General Partner (A) makes a general assignment for the benefit of creditors; (B) files a voluntary petition in bankruptcy; (C) files a petition or answer seeking for itself a liquidation, dissolution or similar relief (but not a reorganization) under any law; (D) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in a proceeding of the type described in clauses (A), (B) or (C) of this Section 11.1(a)(iv); or (E) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the General Partner or of all or any substantial part of its properties;
	(v) The General Partner is adjudged bankrupt or insolvent, or has entered against it an order for relief in any bankruptcy or insolvency proceeding;
	(vi) (A) in the event the General Partner is a corporation, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter and the expiration of ninety (90) days after the date of notice to the corporation of revocation without a reinstatement of its charter; (B) in the event the General Partner is a partnership or a limited liability company, the dissolution and commencement of winding up of the General Partner; (C) in the event the General Partner is acting in such capacity by virtue of being a trustee of a trust, the termination of the trust; (D) in the event the General Partner is a natural person, his death or adjudication of incompetency; and (E) otherwise in the event of the termination of the General Partner.

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	(a) an election to dissolve the Partnership by the General Partner that is approved by the holders of a Unit Majority;
	(b) at any time there are no Limited Partners, unless the Partnership is continued without dissolution in accordance with the Marshall Islands Act;
	(c) the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Marshall Islands Act; or
	(d) an Event of Withdrawal of the General Partner as provided in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an Opinion of Counsel is received as provided in Sections 11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant to Section 10.3.

	(i) the Partnership shall continue without dissolution unless earlier dissolved in accordance with this Article XII;
	(ii) if the successor General Partner is not the former General Partner, then the interest of the former General Partner shall be treated in the manner provided in Section 11.3; and
	(iii) the successor General Partner shall be admitted to the Partnership as General Partner, effective as of the Event of Withdrawal, by agreeing in writing to be bound by this Agreement; provided, however, that the right of the holders of a Unit Majority to approve a successor General

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	Partner and to reconstitute and to continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an Opinion of Counsel that the exercise of the right would not result in the loss of limited liability of any Limited Partner.

	(a) The assets may be disposed of by public or private sale or by distribution in kind to one or more Partners on such terms as the Liquidator and such Partner or Partners may agree. If any property is distributed in kind, the Partner receiving the property shall be deemed for purposes of Section 12.4(c) to have received cash equal to its fair market value, and contemporaneously therewith, appropriate cash distributions must be made to the other Partners. The Liquidator may defer liquidation or distribution of the Partnership’s assets for a reasonable time if it determines that an immediate sale or distribution of all or some of the Partnership’s assets would be impractical or would cause undue loss to the Partners. The Liquidator may distribute the Partnership’s assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Partners.
	(b) Liabilities of the Partnership include amounts owed to the Liquidator as compensation for serving in such capacity (subject to the terms of Section 12.3) and amounts to Partners otherwise than in respect of their distribution rights under Article VI. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it thinks appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be distributed as additional liquidation proceeds.

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	(c) All property and all cash in excess of that required to discharge liabilities as provided in Section 12.4(b) shall be distributed as follows:

	(i) If the Current Market Price of the Common Units as of the date three trading days prior to the announcement of the proposed liquidation exceeds the Unrecovered Capital for a Common Unit plus the Cumulative Common Unit Arrearage:

	(A) First, (x) to the General Partner in accordance with its Percentage Interest and (y) to all the Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to such Current Market Price of a Common Unit;
	(B) Second (x) to the General Partner in accordance with its Percentage Interest and (y) to all Unitholders holding Subordinated Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Subordinated Unit then Outstanding an amount equal to such Current Market Price of a Common Unit; and
	(C) Thereafter (x) to the General Partner in accordance with its Percentage Interest; (y) 48% to the holders of the Incentive Distribution Rights, Pro Rata; and (z) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (x) and (y) of this clause (i)(C);

	(ii) If the Current Market Price of the Common Units as of the date three trading days prior to the announcement of the proposed liquidation is equal to or less than the Unrecovered Capital for a Common Unit plus the Cumulative Common Unit Arrearage:

	(A) First, (x) to the General Partner in accordance with its Percentage Interest and (y) to all the Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Unrecovered Capital for a Common Unit;
	(B) Second, (x) to the General Partner in accordance with its Percentage Interest and (y) to all Unitholders holding Common Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Cumulative Common Unit Arrearage;
	(C) Third, (x) to the General Partner in accordance with its Percentage Interest and (y) to all Unitholders holding Subordinated Units, Pro Rata, a percentage equal to 100% less the General Partner’s Percentage Interest, until there has been distributed in respect of each Subordinated Unit then Outstanding an amount equal to the Unrecovered Capital for a Common Unit (as calculated prior to the distribution specified in clause (ii)(A) above); and
	(D) Thereafter, (x) to the General Partner in accordance with its Percentage Interest; (y) 48% to the holders of the Incentive Distribution Rights, Pro Rata; and (z) to all Unitholders, Pro Rata, a percentage equal to 100% less the sum of the percentages applicable to subclauses (x) and (y) of this clause (ii)(D);

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	(a) a change in the name of the Partnership, the location of the principal place of business of the Partnership, the registered agent of the Partnership or the registered office of the Partnership;
	(b) admission, substitution, withdrawal or removal of Partners in accordance with this Agreement;
	(c) a change that the General Partner determines to be necessary or appropriate to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the Limited Partners have limited liability under the laws of The Marshall Islands or to ensure that the Group Members will not be treated as associations taxable as corporations or otherwise taxed as entities for Marshall Islands income tax purposes;
	(d) a change that the General Partner determines (i) does not adversely affect the Limited Partners (including any particular class of Partnership Interests as compared to other classes of Partnership Interests) in any material respect, (ii) to be necessary or appropriate to (A) satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any Marshall Islands authority (including the Marshall Islands Act) or (B) facilitate the trading of the Units (including the division of any class or classes of Outstanding Units into different classes to facilitate uniformity of tax consequences within such classes of Units) or comply with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are or will be listed, (iii) to be necessary or appropriate in connection with action taken by the General Partner pursuant to Section 5.10 or (iv) is required to effect the intent expressed in the Registration Statement or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement;
	(e) a change in the fiscal year or taxable year of the Partnership and any other changes that the General Partner determines to be necessary or appropriate as a result of a change in the fiscal year or taxable year of the Partnership including, if the General Partner shall so determine, a change in the definition of “Quarter” and the dates on which distributions are to be made by the Partnership;
	(f) an amendment that is necessary, in the Opinion of Counsel, to prevent the Partnership, or the General Partner or its directors, officers, trustees or agents from in any manner being subjected to the provisions of the U.S. Investment Company Act of 1940, as amended, the U.S. Investment Advisers Act of 1940, as amended, or “plan asset” regulations adopted under the U.S. Employee

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	Retirement Income Security Act of 1974, as amended, regardless of whether such regulations are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor;
	(g) an amendment that the General Partner determines to be necessary or appropriate in connection with the authorization of issuance of any class or series of Partnership Securities pursuant to Section 5.5;
	(h) any amendment expressly permitted in this Agreement to be made by the General Partner acting alone;
	(i) an amendment effected, necessitated or contemplated by a Merger Agreement approved in accordance with Section 14.3;
	(j) an amendment that the General Partner determines to be necessary or appropriate to reflect and account for the formation by the Partnership of, or investment by the Partnership in, any corporation, partnership, joint venture, limited liability company or other Person, in connection with the conduct by the Partnership of activities permitted by the terms of Section 2.4;
	(k) a conversion, merger or conveyance pursuant to Section 14.3(d); or
	(l) any other amendments substantially similar to the foregoing.

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	(a) the names and jurisdictions of formation or organization of each of the business entities proposing to merge or consolidate;
	(b) the name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger or consolidation (the “Surviving Business Entity”);
	(c) the terms and conditions of the proposed merger or consolidation;
	(d) the manner and basis of exchanging or converting the equity securities of each constituent business entity for, or into, cash, property or interests, rights, securities or obligations of the Surviving Business Entity; and (i) if any general or limited partner interests, securities or rights of any constituent business entity are not to be exchanged or converted solely for, or into, cash, property or interests, rights, securities or obligations of the Surviving Business Entity, the cash, property or general or limited partner interests, rights, securities or obligations of any general or limited partnership, corporation, trust, limited liability company, unincorporated business or other Person (other than the Surviving Business Entity) which the holders of such interests, securities or rights are to receive in exchange for, or upon conversion of their interests, securities or rights, and (ii) in the case of securities represented by certificates, upon the surrender of such certificates, which cash, property or interests, rights, securities or obligations of the Surviving Business Entity or any general or limited partnership, corporation, trust, limited liability company, unincorporated business or other Person (other than the Surviving Business Entity), or evidences thereof, are to be delivered;
	(e) a statement of any changes in the constituent documents or the adoption of new constituent documents (the articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger or consolidation;
	(f) the effective time of the merger, which may be the date of the filing of the certificate of merger pursuant to Section 14.4 or a later date specified in or determinable in accordance with the Merger Agreement (provided, that if the effective time of the merger is to be later than the date of the filing of such certificate of merger, the effective time shall be fixed at a date or time certain at or prior to the time of the filing of such certificate of merger and stated therein); and
	(g) such other provisions with respect to the proposed merger or consolidation that the General Partner determines to be necessary or appropriate.

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	(i) all of the rights, privileges and powers of each of the business entities that has merged or consolidated, and all property, real, personal and mixed, and all debts due to any of those business entities and all other things and causes of action belonging to each of those business entities, shall be vested in the Surviving Business Entity and after the merger or consolidation shall be the property of the Surviving Business Entity to the extent they were of each constituent business entity;
	(ii) the title to any real property vested by deed or otherwise in any of those constituent business entities shall not revert and is not in any way impaired because of the merger or consolidation;

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	(iii) all rights of creditors and all liens on or security interests in property of any of those constituent business entities shall be preserved unimpaired; and
	(iv) all debts, liabilities and duties of those constituent business entities shall attach to the Surviving Business Entity and may be enforced against it to the same extent as if the debts, liabilities and duties had been incurred or contracted by it.

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	GENERAL PARTNER:
	Teekay Offshore GP L.L.C.

	By:

	Name:
	Title:
	ORGANIZATIONAL LIMITED PARTNER:
	Teekay Shipping Corporation

	By:

	Name:
	Title:
	LIMITED PARTNERS:
	All Limited Partners now and hereafter admitted as Limited Partners of the Partnership, pursuant to powers of attorney now and hereafter executed in favor of, and granted and delivered to the General Partner.
	Teekay Offshore GP L.L.C.

	By:

	Name:
	Title:

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No.			Common Units

Dated:		Teekay Offshore Partners L.P.
Countersigned and Registered by:		By: Teekay Offshore GP L.L.C.,      its General Partner
		By:
as Transfer Agent and Registrar		Title:
By:		By:
Authorized Signature		Secretary

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TEN COM		—		as tenants in common		UNIF GIFT/TRANSFERS MIN ACT
						Custodian
TEN ENT		—		as tenants by the entireties		(Cust)                                (Minor)
JT TEN		—		as joint tenants with right of survivorship and not as tenants in common		under Uniform Gifts /Transfers to CD Minors Act (State)

(Please print or typewrite name and address of Assignee)		(Please insert Social Security or other identifying number of Assignee)

Date:		NOTE:		The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.
THE SIGNATURE(S) MUST BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS,				(Signature)
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION				(Signature)
PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15

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Adjusted operating surplus:		For any period, operating surplus generated during that period is adjusted to:
		(a) Decrease operating surplus by:
		(1) any net increase in working capital borrowings (including our proportionate share of any changes in working capital borrowings by certain subsidiaries we do not wholly own, including OPCO) with respect to that period; and
		(2) any net reduction in cash reserves for operating expenditures (including our proportionate share of such cash reserves of certain subsidiaries we do not wholly own) with respect to that period not relating to an operating expenditure made with respect to that period; and
		(b) increase operating surplus by:
		(1) any net decrease in working capital borrowings (including our proportionate share of any changes in working capital borrowings of certain subsidiaries we do not wholly own) with respect to that period; and
		(2) any net increase in cash reserves for operating expenditures (including our proportionate share of such cash reserves of certain subsidiaries we do not wholly own) with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
		Adjusted operating surplus does not include that portion of operating surplus included in clause (a)(1) of the definition of operating surplus.
Aframax tanker:		An oil tanker generally between 75,000 and 119,999 dwt in size. Certain external statistical compilations define an “Aframax tanker” slightly differently, some going as high as 125,000 dwt and others as low at 70,000 dwt. External data used in this prospectus has been adjusted so that the definition is consistent throughout.
Available cash:		For any quarter ending prior to liquidation:
		(a) the sum of:
		(1) all cash and cash equivalents of Teekay Offshore Partners and its subsidiaries on hand at the end of that quarter (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own, including OPCO); and
		(2) all additional cash and cash equivalents of Teekay Offshore Partners and its subsidiaries on hand (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own) on the date of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter;

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		(b) less the amount of cash reserves (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) established by our general partner to:
		(1) provide for the proper conduct of the business of Teekay Offshore Partners and its subsidiaries (including reserves for future capital expenditures and for future credit needs of Teekay Offshore Partners and its subsidiaries) after that quarter;
		(2) comply with applicable law or any debt instrument or other agreement or obligation to which Teekay Offshore Partners or any of its subsidiaries is a party or its assets are subject; and
		(3) provide funds for minimum quarterly distributions and cumulative common unit arrearages for any one or more of the next four quarters;
		provided, however, that our general partner may not establish cash reserves for distributions to the subordinated units unless our general partner has determined that the establishment of reserves will not prevent Teekay Offshore Partners from distributing the minimum quarterly distribution on all common units and any cumulative common unit arrearages thereon for the next four quarters; and
		provided, further, that disbursements made by Teekay Offshore Partners or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that quarter if our general partner so determines.
Bareboat charter:		A charter in which the customer (the charterer) pays a fixed daily rate for a fixed period of time for the full use of the vessel and becomes responsible for all crewing, management and navigation of the vessel and the expenses therefor.
Bunker fuel:		Any hydrocarbon mineral oil used or intended to be used for the operation or propulsion of a ship.
Capital surplus:		All available cash distributed by us from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of the initial public offering equals the operating surplus as of the end of the quarter before that distribution. Any excess available cash will be deemed to be capital surplus.
Charter:		The hiring of a vessel, or use of its carrying capacity, for either (1) a specified period of time or (2) a specific voyage or set of voyages.
Chartered-in:		Vessels to which the operator has access pursuant to a charter. Also commonly referred to as “in-chartered” vessels.
CLC:		International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended.
Closing price:		The last sale price on a day, regular way, or in case no sale takes place on that day, the average of the closing bid and asked prices on

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		that day, regular way, as reported in the principal consolidated transaction reporting system for securities listed on the principal national securities exchange on which the units of that class are listed. If the units of that class are not listed on any national securities exchange, the last quoted price on that day. If no quoted price exists, the average of the high bid and low asked prices on that day in the over-the-counter market, as reported by the NASDAQ Global Market or any other system then in use. If on any day the units of that class are not quoted by any organization of that type, the average of the closing bid and asked prices on that day as furnished by a professional market maker making a market in the units of the class selected by our general partner. If on that day no market maker is making a market in the units of that class, the fair value of the units on that day as determined reasonably and in good faith by our general partner.
Contract of affreightment:		A contract where the vessel operator commits to be available to transport the quantity of cargo requested by the customer from time to time over a specified trade route within a given period of time.
COFR:		Certificates of financial responsibility sufficient to meet potential liabilities under OPA 90 and CERCLA, which owners and operators of vessels, including crude oil tankers, must establish and maintain with the United States Coast Guard.
Common unit arrearage:		The amount by which the minimum quarterly distribution for a quarter during the subordination period exceeds the distribution of available cash from operating surplus actually made for that quarter on a common unit, cumulative for that quarter and all prior quarters during the subordination period.
Deepwater:		Water with depths of more than 1,000 feet.
Current market price:		For any class of units listed on any national securities exchange as of any date, the average of the daily closing prices for the 20 consecutive trading days immediately prior to that date.
Double hull:		Hull construction technique by which a ship has an inner and outer hull, separated by void space, usually several feet in width.
Dynamic positioning system:		Also referred to as “DP,” these computerized steering and positioning systems allow shuttle tankers to remain in position in open seas, even in harsh environmental conditions. These systems monitor wind, currents, swells and tide changes and control the possibility of the vessel through variable pitch propellers and lateral thrusters on the vessel, and are classed as DP1 or DP2, depending upon the equipment redundancy and the vessel’s capability to maintain its position. The type of system used is determined by the weather conditions in the region and requirements of the field operator.
Dwt:		Deadweight, a measure of oil tanker carrying capacity, usually in tons, based upon weight of cargo and other items necessary to submerge the vessel to its maximum permitted draft.
EBITDA:		Earnings before interest, taxes, depreciation and amortization.
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		Partners will incur over the long-term. The estimate will be made annually and whenever an event occurs that is likely to result in a material adjustment to the amount of maintenance capital expenditures on a long-term basis.
Expansion capital expenditures:		Cash capital expenditures for acquisitions or capital improvements. Expansion capital expenditures include the cash cost of equity and debt capital during construction of a capital asset. Expansion capital expenditures do not include maintenance capital expenditures or investment capital expenditures.
Export system:		The system for exporting oil from a storage or production facility.
FPSO unit:		Floating production, storage and offloading unit. An FPSO unit is a type of floating tank system designed to process and store crude oil. An FPSO unit typically has onboard the capability to carry out the oil separation process, obviating the need for such facilities to be located on the fixed platform. The processed oil is periodically offloaded onto shuttle tankers or ocean-going barges for transport to shore.
FSO unit:		Floating storage and offtake unit. An FSO unit is an oil tanker that has been moored in an oil field and modified to store oil.
GAAP:		Accounting principles generally accepted in the United States.
General and administrative expenses:		General and administrative expenses consist of employment costs of shoreside staff and cost of facilities, as well as legal, audit and other administrative costs.
Hire Rate:		The agreed sum or rate to be paid by the charterer for the use of the vessel.
IMO:		International Maritime Organization, a United Nations agency that issues international trade standards for shipping.
Incentive distribution right:		A non-voting limited partner partnership interest issued to the general partner. The partnership interest will confer upon its holder only the rights and obligations specifically provided in the partnership agreement for incentive distribution rights.
Incentive distributions:		The distributions of available cash from operating surplus initially made to the general partner that are in excess of our general partner’s aggregate 2.0% general partner interest.
Interim capital transactions:		The following transactions if they occur prior to liquidation:
		(a) Borrowings, refinancings or refundings of indebtedness and sales of debt securities (other than for working capital borrowings and other than for items purchased on open account in the ordinary course of business) by Teekay Offshore Partners or any of its subsidiaries;
		(b) sales of equity interests by Teekay Offshore Partners or any of its subsidiaries;
		(c) sales or other voluntary or involuntary dispositions of any assets of Teekay Offshore Partners or any of its subsidiaries (other than sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, and sales or other

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		dispositions of assets as a part of normal retirements or replacements);
		(d) the termination of interest rate swap agreements;
		(e) capital contributions; or
		(f) corporate reorganizations or restructurings.
Investment capital expenditures:		Capital expenditures other than Maintenance Capital Expenditures or Expansion Capital Expenditures.
ISM Code:		International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, which, among other things, requires vessel owners to obtain a safety management certification for each vessel they manage.
ISPS:		International Security Code for Ports and Ships, which enacts measures to detect and prevent security threats to ships and ports.
Life of field contract:		A contract with a duration that lasts during the useful life of an oil field.
Long-term charter:		A charter for a term greater than five years.
Maintenance capital expenditure:		Cash capital expenditures (including expenditures for the addition or improvement to our capital assets or for the acquisition of existing, or the construction of new, capital assets) if such expenditure is made to maintain over the long term the operating capacity of or the revenue generated by Teekay Offshore Partners’ capital assets, as such assets existed at the time of such expenditure. Maintenance capital expenditures include the cash cost of equity and debt capital during construction of a capital asset. Maintenance capital expenditures do not include expansion capital expenditures or investment capital expenditures.
Newbuilding:		A new vessel under construction.
Off-hire:		The time during which a vessel is not available for service.
Off-field:		The time during which a vessel is not utilized in an oil field.
Offshore loading system:		A system on a shuttle tanker by which liquid cargo is transferred in open waters from either a fixed or floating platform or installation. The system is located on the bow or the keel of the vessel and connects with an export system.
OPA 90:		The United States Oil Pollution Act of 1990, as amended.
OPCO:		Teekay Offshore Operating L.P., a limited partnership organized in the Marshall Islands.
Operating expenditures:		All cash expenditures of Teekay Offshore Partners and its subsidiaries (including our proportionate share of cash expenditures of certain subsidiaries we do not wholly own, including OPCO), including, but not limited to, taxes, reimbursements of the general partner,

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		repayment of working capital borrowings, debt service payments and capital expenditures, subject to the following:
		(a) Payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness, other than working capital borrowings will not constitute operating expenditures.
		(b) Operating expenditures will not include expansion capital expenditures or actual maintenance capital expenditures or investment capital expenditures, but will include estimated maintenance capital expenditures.
		(c) Operating expenditures will not include:
		(1) Payment of transaction expenses (including taxes) relating to interim capital transactions; or
		(2) Distributions to partners.
		Where capital expenditures consist of both maintenance capital expenditures and expansion capital expenditures, the general partner, with the concurrence of the conflicts committee, shall determine the allocation between the portion consisting of maintenance capital expenditures and the portion consisting of expansion capital expenditures, and the period over which the maintenance capital expenditures will be deducted as an operating expenditure in calculating operating surplus.
Operating surplus:		For any period prior to liquidation, on a cumulative basis and without duplication:
		(a) the sum of
		(1) $15.0 million;
		(2) all cash receipts of Teekay Offshore Partners and its subsidiaries (including our proportionate share of cash receipts for certain subsidiaries we do not wholly own, including OPCO) for the period beginning on the closing date of the initial public offering and ending with the last day of that period, other than cash receipts from interim capital transactions;
		(3) all cash receipts of Teekay Offshore Partners and its subsidiaries after the end of that period but on or before the date of determination of operating surplus for the period resulting from working capital borrowings (including our proportionate share of working capital borrowings by certain subsidiaries we do not wholly own);
		(4) interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case (and including our proportionate share of such interest and cash distributions paid by certain subsidiaries we do not wholly own), to finance all or any portion of the construction of a capital improvement or replacement asset and paid during the period prior to the earlier of the completion of construction or being abandoned or disposed of; and

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		(5) interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions on equity securities issued, in each case (and including our proportionate share of such interest and cash distributions paid by certain subsidiaries we do not wholly own), to pay the construction period interest, or to pay construction period distributions or equity issued to finance all or any portion of the construction of a capital improvement or replacement asset as described in (4) above, less
		(b) the sum of:
		(1) operating expenditures (including our proportionate share of operating expenditures by certain subsidiaries we do not wholly own) for the period beginning on the closing date of the initial public offering and ending with the last day of that period, including estimated maintenance capital expenditures and the repayment of working capital borrowings, but not (x) the repayment of other borrowings or (y) expenditures incurred in connection with the expansion or increase in the transportation capacity of our fleet or investment capital expenditures; and
		(2) the amount of cash reserves (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) established by our general partner to provide funds for future operating expenditures; provided, however, that disbursements made (including contributions to a member of Teekay Offshore Partners and its subsidiaries or disbursements on behalf of a member of Teekay Offshore Partners and its subsidiaries) or cash reserves established, increased or reduced after the end of that period but on or before the date of determination of available cash for that period shall be deemed to have been made, established, increased or reduced for purposes of determining operating surplus, within that period if the general partner so determines.
Shallow water:		Water with depths less than 1,000 feet.
Short-term charter:		A charter for a term less than five years.
Shuttle tanker:		A dynamically-positioned vessel generally between 80,000 and 150,000 dwt in size that contains sophisticated equipment designed to transport oil from offshore production platforms or FPSO units or FSO units to onshore storage and refinery facilities, often in harsh weather conditions.
SOLAS:		International Convention for Safety of Life at Sea, which provides, among other things, rules for the construction and equipment of commercial vessels.
Spot market:		The market for chartering a vessel for single voyages.

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Subordination period:		The subordination period will generally extend from the closing of the initial public offering until the first to occur of:
		(a) the first day of any quarter beginning after December 31, 2009 for which:
		(1) distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
		(2) the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the common units and subordinated units that were outstanding during those periods on a fully diluted basis, and the related distribution on the general partner interest in Teekay Offshore Partners; and
		(3) there are no outstanding cumulative common unit arrearages.
		(b) the date on which the general partner is removed as general partner of Teekay Offshore Partners upon the requisite vote by the limited partners under circumstances where cause does not exist and units held by our general partner and its affiliates are not voted in favor of the removal;
		provided, however, that subordinated units may convert into common units before December 31, 2009 as described in “How We Make Cash Distributions — Subordination Period.”
Taut hawser operation:		A shuttle tanker operation in which a cable or rope, sometimes supported by a tug vessel, is connected to the vessel’s export system, pulling the tanker backwards until taut.
Time charter:		A charter in which the charterer pays for the use of a ship’s cargo capacity for a specified period of time. The owner provides the ship with crew, stores and provisions, ready in all aspects to load cargo and proceed on a voyage as directed by the charterer. The charterer usually pays for bunkering and all voyage-related expenses, including canal tolls and port charges.
VOC:		Volatile Organic Compounds. The common term for vaporized crude oil that is formed and emitted during offshore loading operations involving shuttle tankers.

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Voyage charter:		A charter in which the charterer pays for the use of a ship’s cargo capacity for one, or sometimes more than one, voyage between specified ports. Under this type of charter, the ship owner pays all the operating costs of the ship (including bunker fuel, canal and port charges, pilotage, towage and ship’s agency) while payment for cargo handling charges are subject of agreement between the parties. Freight is generally paid per unit of cargo, such as a ton, based on an agreed quantity, or as a lump sum irrespective of the quantity loaded.
Working capital borrowings:		Borrowings used exclusively for working capital purposes or to pay distributions to partners made pursuant to a credit facility, commercial paper facility or other similar financing arrangement; provided that when incurred it is the intent of the borrower to repay such borrowings within 12 months from other than additional working capital borrowings.

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Citigroup	Merrill Lynch & Co.