Form 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2010
Commission file number 1- 33198
TEEKAY OFFSHORE PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F þ Form 40- F o
Indicate
by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T
Rule 101(b)(1).
Yes o No þ
Indicate
by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T
Rule 101(b)(7).
Yes o No þ
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
INDEX
|
|
|
|
|
|
|
PAGE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
Page 2 of 35
ITEM 1 FINANCIAL STATEMENTS
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of U.S. dollars, except unit and per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
REVENUES (including $33,437 and $103,753 from related parties for
the three and nine months ended September 30, 2010,
respectively, and $37,294 and $110,382 for the three
and nine months ended September 30, 2009,
respectively notes 9a, 9b, 9c and 9d) |
|
|
200,379 |
|
|
|
204,509 |
|
|
|
637,769 |
|
|
|
608,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses |
|
|
27,692 |
|
|
|
29,363 |
|
|
|
97,595 |
|
|
|
76,405 |
|
Vessel operating expenses (including $1,142 and $3,379 from related
parties for the three and nine months ended September
30, 2010, respectively, and $1,102 and $3,691 and for
the three and nine months ended September 30, 2009,
respectively note 9g and 9k, note 10) |
|
|
61,105 |
|
|
|
55,837 |
|
|
|
176,126 |
|
|
|
174,766 |
|
Time-charter hire expense (including $nil from related parties for the
three and nine months ended September 30, 2010, and
$nil and $3,416 for the three and nine months ended
September 30, 2009, respectively note 9j) |
|
|
20,352 |
|
|
|
27,772 |
|
|
|
68,814 |
|
|
|
89,061 |
|
Depreciation and amortization |
|
|
42,623 |
|
|
|
40,981 |
|
|
|
128,009 |
|
|
|
121,366 |
|
General and administrative (including $10,584 and $31,773 from
related parties for the three and nine months ended
September 30, 2010, respectively, and $9,992 and
$30,679 for the three and nine months ended September
30, 2009, respectively notes 9e, 9f, 9g, 9h, 9k and
9l, note 10) |
|
|
14,450 |
|
|
|
12,840 |
|
|
|
44,138 |
|
|
|
38,993 |
|
Restructuring charge (note 7) |
|
|
|
|
|
|
371 |
|
|
|
119 |
|
|
|
4,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
166,222 |
|
|
|
167,164 |
|
|
|
514,801 |
|
|
|
504,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
34,157 |
|
|
|
37,345 |
|
|
|
122,968 |
|
|
|
103,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (including $nil and $(1,705) from related parties for
the three and nine months ended September 30, 2010,
respectively, and $(1,724) and $(6,452) for the three
and nine months ended September 30, 2009,
respectively note 9k and 9l, note 6) |
|
|
(7,308 |
) |
|
|
(9,147 |
) |
|
|
(22,959 |
) |
|
|
(33,532 |
) |
Interest income |
|
|
235 |
|
|
|
141 |
|
|
|
633 |
|
|
|
1,098 |
|
Realized and unrealized (loss) gain on derivative instruments
(including $nil from related parties for the three
and nine months ended September 30, 2010 and $(6,446)
and $6,842 for the three and nine months ended
September 30, 2009, respectively note 9k, note 10) |
|
|
(30,769 |
) |
|
|
(37,302 |
) |
|
|
(108,929 |
) |
|
|
37,716 |
|
Foreign currency exchange gain (loss)(note 10) |
|
|
1,737 |
|
|
|
(4,359 |
) |
|
|
1,173 |
|
|
|
(7,988 |
) |
Other income net (note 8) |
|
|
1,636 |
|
|
|
2,068 |
|
|
|
5,580 |
|
|
|
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items |
|
|
(34,469 |
) |
|
|
(48,599 |
) |
|
|
(124,502 |
) |
|
|
4,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax (expense) recovery |
|
|
(312 |
) |
|
|
(11,254 |
) |
|
|
(1,534 |
) |
|
|
108,165 |
|
Income tax (expense) recovery (note 11) |
|
|
(8,779 |
) |
|
|
(20,234 |
) |
|
|
8,686 |
|
|
|
(26,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(9,091 |
) |
|
|
(31,488 |
) |
|
|
7,152 |
|
|
|
81,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in net (loss) income |
|
|
(5,231 |
) |
|
|
(12,560 |
) |
|
|
(1,954 |
) |
|
|
32,831 |
|
Dropdown Predecessors interest in net (loss) income (note 1) |
|
|
|
|
|
|
(5,551 |
) |
|
|
921 |
|
|
|
11,378 |
|
General Partners interest in net (loss) income |
|
|
745 |
|
|
|
79 |
|
|
|
2,428 |
|
|
|
1,642 |
|
Limited partners interest:(note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(4,605 |
) |
|
|
(13,456 |
) |
|
|
5,757 |
|
|
|
35,386 |
|
Net (loss) income per: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common unit (basic and diluted) |
|
|
(0.10 |
) |
|
|
(0.37 |
) |
|
|
0.14 |
|
|
|
1.13 |
|
- Subordinated unit (basic and diluted) |
|
|
|
|
|
|
(0.42 |
) |
|
|
|
|
|
|
1.07 |
|
- Total unit (basic and diluted) |
|
|
(0.10 |
) |
|
|
(0.39 |
) |
|
|
0.14 |
|
|
|
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding:(note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Common units (basic and diluted) |
|
|
45,450,625 |
|
|
|
25,056,250 |
|
|
|
42,165,412 |
|
|
|
21,985,714 |
|
- Subordinated units (basic and diluted) |
|
|
|
|
|
|
9,800,000 |
|
|
|
|
|
|
|
9,800,000 |
|
- Total units (basic and diluted) |
|
|
45,450,625 |
|
|
|
34,856,250 |
|
|
|
42,165,412 |
|
|
|
31,785,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions declared per unit |
|
|
0.475 |
|
|
|
0.45 |
|
|
|
1.400 |
|
|
|
1.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 3 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
As at |
|
|
As at |
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
$ |
|
|
$ |
|
ASSETS |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Cash and cash equivalents (note 6) |
|
|
158,466 |
|
|
|
101,747 |
|
Accounts receivable |
|
|
45,738 |
|
|
|
66,992 |
|
Net investments in direct financing leases current |
|
|
21,510 |
|
|
|
22,656 |
|
Prepaid expenses |
|
|
33,138 |
|
|
|
34,787 |
|
Due from affiliates (note 9m) |
|
|
5,284 |
|
|
|
17,673 |
|
Current portion of derivative instruments (note 10) |
|
|
3,253 |
|
|
|
6,152 |
|
Other current assets |
|
|
2,345 |
|
|
|
1,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
269,734 |
|
|
|
251,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessels and equipment (note 6) |
|
|
|
|
|
|
|
|
At cost, less accumulated depreciation of $1,115,247 (December 31, 2009 - $993,330) |
|
|
1,851,239 |
|
|
|
1,917,248 |
|
|
|
|
|
|
|
|
|
|
Net investments in direct financing leases |
|
|
56,574 |
|
|
|
71,722 |
|
Derivative instruments (note 10) |
|
|
3,487 |
|
|
|
2,195 |
|
Other assets |
|
|
16,871 |
|
|
|
20,928 |
|
Intangible assets net (note 5) |
|
|
30,793 |
|
|
|
36,885 |
|
Goodwill shuttle tanker segment |
|
|
127,113 |
|
|
|
127,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
2,355,811 |
|
|
|
2,427,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
13,349 |
|
|
|
14,030 |
|
Accrued liabilities |
|
|
68,833 |
|
|
|
60,484 |
|
Due to affiliates (note 9m) |
|
|
34,717 |
|
|
|
40,220 |
|
Current portion of long-term debt (including a loan due to parent of $nil and $44,845 as
at September 30, 2010 and December 31, 2009, respectively note 6) |
|
|
152,562 |
|
|
|
153,004 |
|
Current portion of derivative instruments (note 10) |
|
|
32,153 |
|
|
|
31,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
301,614 |
|
|
|
299,590 |
|
|
|
|
|
|
|
|
Long-term debt (including a loan due to parent of $nil and $60,000 as at
September 30, 2010 and December 31, 2009, respectively note 6) |
|
|
1,339,981 |
|
|
|
1,627,455 |
|
Deferred income tax |
|
|
3,426 |
|
|
|
16,481 |
|
Derivative instruments (note 10) |
|
|
116,988 |
|
|
|
38,327 |
|
Other long-term liabilities |
|
|
16,399 |
|
|
|
18,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,778,408 |
|
|
|
2,000,292 |
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 6, 10, and 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest (note 1) |
|
|
43,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Dropdown Predecessor equity (note 1) |
|
|
|
|
|
|
(6,319 |
) |
Non-controlling interest |
|
|
156,632 |
|
|
|
219,692 |
|
Partners equity |
|
|
376,916 |
|
|
|
213,065 |
|
Accumulated other comprehensive income |
|
|
525 |
|
|
|
767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
534,073 |
|
|
|
427,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and total equity |
|
|
2,355,811 |
|
|
|
2,427,497 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 4 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
Cash and cash equivalents provided by (used for) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
|
7,152 |
|
|
|
81,237 |
|
Non-cash items: |
|
|
|
|
|
|
|
|
Unrealized loss (gain) on derivative instruments (note 10) |
|
|
80,099 |
|
|
|
(82,763 |
) |
Depreciation and amortization |
|
|
128,009 |
|
|
|
121,366 |
|
Deferred income tax (recovery) expense |
|
|
(12,675 |
) |
|
|
22,727 |
|
Foreign currency exchange loss and other |
|
|
3,630 |
|
|
|
1,007 |
|
Change in non-cash working capital items related to operating activities |
|
|
35,687 |
|
|
|
24,420 |
|
Expenditures for drydocking |
|
|
(16,374 |
) |
|
|
(27,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow |
|
|
225,528 |
|
|
|
140,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from drawdown of long-term debt |
|
|
119,400 |
|
|
|
119,575 |
|
Scheduled repayments of long-term debt (note 6) |
|
|
(53,236 |
) |
|
|
(24,124 |
) |
Prepayments of long-term debt |
|
|
(309,235 |
) |
|
|
(241,090 |
) |
Prepayments of joint venture partner advances |
|
|
|
|
|
|
(20,775 |
) |
Joint venture partner advances |
|
|
|
|
|
|
474 |
|
Repayment of long-term debt relating to Dropdown Predecessor relating to
Falcon Spirit (note 9l) |
|
|
(33,634 |
) |
|
|
|
|
Contribution of capital from Teekay Corporation to Dropdown Predecessor
relating to Petrojarl Varg (note 9k) |
|
|
|
|
|
|
110,386 |
|
Distribution to Teekay Corporation for the acquisition of Falcon Spirit (note 9l) |
|
|
(10,495 |
) |
|
|
|
|
Purchase of Petrojarl Varg from Teekay Corporation (note 9k) |
|
|
|
|
|
|
(100,000 |
) |
Equity contribution from Teekay Corporation to Dropdown Predecessor
relating to Falcon Spirit (note 9l) |
|
|
805 |
|
|
|
|
|
Equity contribution from joint venture partner |
|
|
233 |
|
|
|
4,772 |
|
Proceeds from equity offerings |
|
|
237,041 |
|
|
|
109,227 |
|
Expenses of equity offerings |
|
|
(11,117 |
) |
|
|
(4,945 |
) |
Cash distributions paid by the Partnership |
|
|
(60,579 |
) |
|
|
(42,788 |
) |
Cash distributions paid by subsidiaries to non-controlling interests |
|
|
(58,969 |
) |
|
|
(44,093 |
) |
Other |
|
|
(1,025 |
) |
|
|
(1,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow |
|
|
(180,811 |
) |
|
|
(134,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment |
|
|
(4,292 |
) |
|
|
(11,726 |
) |
Investment in direct financing lease assets |
|
|
(887 |
) |
|
|
|
|
Direct financing lease payments received |
|
|
17,181 |
|
|
|
17,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow |
|
|
12,002 |
|
|
|
5,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
56,719 |
|
|
|
11,398 |
|
Cash and cash equivalents, beginning of the period |
|
|
101,747 |
|
|
|
132,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
|
158,466 |
|
|
|
143,746 |
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure (note 14)
The accompanying notes are an integral part of the consolidated financial statements.
Page 5 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. dollars and units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTNERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Redeemable |
|
|
|
Dropdown |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Non- |
|
|
|
|
|
|
Non- |
|
|
|
Predecessor |
|
|
Limited Partners |
|
|
General |
|
|
Income (Loss) |
|
|
controlling |
|
|
Total |
|
|
controlling |
|
|
|
Equity |
|
|
Common |
|
|
Subordinated |
|
|
Partner |
|
|
(Note 10) |
|
|
Interest |
|
|
Equity |
|
|
Interest |
|
|
|
$ |
|
|
Units |
|
|
$ |
|
|
Units |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
Balance as at December 31, 2009 |
|
|
(6,319 |
) |
|
|
27,900 |
|
|
|
348,071 |
|
|
|
9,800 |
|
|
|
(143,590 |
) |
|
|
8,584 |
|
|
|
767 |
|
|
|
219,692 |
|
|
|
427,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of subordinated units
to common units (note
13) |
|
|
|
|
|
|
9,800 |
|
|
|
(143,590 |
) |
|
|
(9,800 |
) |
|
|
143,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
921 |
|
|
|
|
|
|
|
5,757 |
|
|
|
|
|
|
|
|
|
|
|
2,428 |
|
|
|
|
|
|
|
(1,954 |
) |
|
|
7,152 |
|
|
|
|
|
Reclassification of redeemable
non-controlling interest in net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144 |
) |
|
|
(144 |
) |
|
|
144 |
|
Unrealized net loss on qualifying
cash flow hedging instruments
(note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,768 |
) |
|
|
(1,695 |
) |
|
|
(3,463 |
) |
|
|
|
|
Realized net loss on qualifying
cash flow hedging instruments
(note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,526 |
|
|
|
1,466 |
|
|
|
2,992 |
|
|
|
|
|
Proceeds from equity offerings, net of
offering costs (note 3) |
|
|
|
|
|
|
11,098 |
|
|
|
221,183 |
|
|
|
|
|
|
|
|
|
|
|
4,741 |
|
|
|
|
|
|
|
|
|
|
|
225,924 |
|
|
|
|
|
Dilution loss on initiation of
majority owned subsidiary
(note 12a) |
|
|
|
|
|
|
|
|
|
|
(3,714 |
) |
|
|
|
|
|
|
|
|
|
|
(76 |
) |
|
|
|
|
|
|
(3,642 |
) |
|
|
(7,432 |
) |
|
|
7,432 |
|
Equity contribution from non-controlling interest (note 12a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,754 |
|
Cash distributions |
|
|
(1,878 |
) |
|
|
|
|
|
|
(57,587 |
) |
|
|
|
|
|
|
|
|
|
|
(2,992 |
) |
|
|
|
|
|
|
(57,091 |
) |
|
|
(119,548 |
) |
|
|
|
|
Net change in Parents equity in
Dropdown Predecessor (note 9l) |
|
|
11,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,882 |
|
|
|
|
|
Acquisition of Falcon Spirit from
Teekay Corporation (note 9l) |
|
|
(4,606 |
) |
|
|
|
|
|
|
(5,771 |
) |
|
|
|
|
|
|
|
|
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
(10,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at September 30, 2010 |
|
|
|
|
|
|
48,798 |
|
|
|
364,349 |
|
|
|
|
|
|
|
|
|
|
|
12,567 |
|
|
|
525 |
|
|
|
156,632 |
|
|
|
534,073 |
|
|
|
43,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 6 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Net (loss) income |
|
|
(9,091 |
) |
|
|
(31,488 |
) |
|
|
7,152 |
|
|
|
81,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss) on qualifying cash flow hedging instruments
(net of tax of ($274) and ($580) for the three and nine
months ended
September 30, 2009, respectively, note 10) |
|
|
6,476 |
|
|
|
14,154 |
|
|
|
(3,463 |
) |
|
|
26,106 |
|
Realized net loss on qualifying cash flow hedging instruments (net of
tax of ($30) and ($208) for the three and nine months ended
September 30, 2009, respectively, note 10) |
|
|
1,537 |
|
|
|
1,690 |
|
|
|
2,992 |
|
|
|
9,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
8,013 |
|
|
|
15,844 |
|
|
|
(471 |
) |
|
|
35,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
|
(1,078 |
) |
|
|
(15,644 |
) |
|
|
6,681 |
|
|
|
117,169 |
|
Less: Comprehensive (loss) income attributable to non-controlling
interests |
|
|
1,304 |
|
|
|
5,178 |
|
|
|
2,183 |
|
|
|
(49,446 |
) |
Less: Comprehensive (loss) income attributable to Dropdown
Predecessor (note 1) |
|
|
|
|
|
|
4,768 |
|
|
|
(921 |
) |
|
|
(13,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Partners |
|
|
226 |
|
|
|
(5,698 |
) |
|
|
7,943 |
|
|
|
54,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 7 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
1. |
|
Summary of Significant Accounting Policies |
Basis of presentation
The unaudited interim consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles (or GAAP). These financial statements
include the accounts of Teekay Offshore Partners L.P., which is a limited partnership organized
under the laws of the Republic of The Marshall Islands, its wholly owned or controlled
subsidiaries and the Dropdown Predecessor, as described below (collectively, the Partnership).
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain information and footnote disclosures required by GAAP for complete annual financial
statements have been omitted and, therefore, these interim financial statements should be read
in conjunction with the Partnerships audited consolidated financial statements for the year
ended December 31, 2009, which are included in our Annual Report on Form 20-F. In the opinion of
management of our general partner, Teekay Offshore GP L.L.C. (or the General Partner), these
interim unaudited consolidated financial statements reflect all adjustments, of a normal
recurring nature, necessary to present fairly, in all material respects, the Partnerships
consolidated financial position, results of operations, changes in total equity and cash flows
for the interim periods presented. The results of operations for the interim periods presented
are not necessarily indicative of those for a full fiscal year. Historically, the utilization of
shuttle tankers in the North Sea is higher in the winter months and lower in the summer months,
as generally there is higher maintenance in the oil fields during the summer months, which leads
to lower oil production, and thus, lower shuttle tanker utilization during that period.
Significant intercompany balances and transactions have been eliminated upon consolidation.
As required by Financial Accounting Standards Board (or FASB) Accounting Standards Codification
(or ASC) 805, Business Combinations, the Partnership accounted for the acquisition of interests
in vessels from Teekay Corporation as a transfer of a business between entities under common
control. The method of accounting for such transfers is similar to pooling of interests method
of accounting. Under this method, the carrying amount of net assets recognized in the balance
sheets of each combining entity is carried forward to the balance sheet of the combined entity,
and no other assets or liabilities are recognized as a result of the combination. The excess of
the proceeds paid, if any, by the Partnership over Teekay Corporations historical cost is
accounted for as an equity distribution to Teekay Corporation. In addition, transfers of net
assets between entities under common control are accounted for as if the transfer occurred from
the date that the Partnership and the acquired vessels were both under common control of Teekay
Corporation and had begun operations. As a result, the Partnerships financial statements prior
to the date the interests in these vessels were actually acquired by the Partnership are
retroactively adjusted to include the results of these vessels operated during the periods under
common control of Teekay Corporation.
On April 1, 2010, the Partnership acquired from Teekay Corporation a floating storage and
offtake (or FSO) unit, the Falcon Spirit, together with its charter contract. This transaction
was deemed to be a business acquisition between entities under common control. As a result, the
Partnerships balance sheet as at December 31, 2009, the Partnerships statement of income for
the nine months ended September 30, 2010 and the Partnerships statement of cash flows for the
nine months ended September 30, 2010 have been retroactively adjusted to include the results of
the acquired vessel (referred to herein, together with the results of the Petrojarl Varg
described below, as the Dropdown Predecessor), from the date that the Partnership and the
acquired vessel were both under common control of Teekay Corporation and had begun operations.
The vessel began operations under the ownership of Teekay Corporation on December 15, 2009. The
effect of adjusting the Partnerships financial statements to account for the common control
transfer of the Falcon Spirit increased the Partnerships net income by $0.9 million for the
nine months ended September 30, 2010.
On September 10, 2009, the Partnership acquired from Teekay Corporation a floating production,
storage and offloading (or FPSO) unit, the Petrojarl Varg, together with its operations and
charter contracts with Talisman Energy. This transaction was deemed to be a business acquisition
between entities under common control. As a result, the Partnerships statement of (loss) income
for the three and nine months ended September 30, 2009 and the Partnerships statement of cash
flows for the nine months ended September 30, 2009 have been retroactively adjusted to include
the results of the Petrojarl Varg from the date that the Partnership and the acquired vessel
were both under common control of Teekay Corporation and had begun operations. Teekay
Corporation acquired a 65% interest in the Petrojarl Varg on October 1, 2006, and acquired the
remaining 35% interest on June 30, 2008.
The effect of adjusting the Partnerships financial statements to account for the common control
transfer of the Petrojarl Varg were increases in the Partnerships net loss and comprehensive
loss of $5.6 million and $4.8 million, respectively, for the three months ended September 30,
2009 and increases in the Partnerships net income and comprehensive income of $11.4 million and
$13.4 million, respectively, for the nine months ended September 30, 2009.
The Partnership presents non-controlling ownership interests in subsidiaries in the consolidated
financial statements within the equity section, but separate from the Partners equity. However,
in instances in which certain redemption features that are not solely within the control of the
issuer are present, classification of non-controlling interests outside of permanent equity is
required. The holder of the non-controlling interest of one of the subsidiaries of Teekay
Offshore Operating L.P. (or OPCO) holds a put option which, if exercised, would obligate OPCO to
purchase the non-controlling interest (see Note 12a). As a result, the non-controlling interest
that is subject to this redemption feature is not included on the Partnerships consolidated
balance sheet as part of the total equity and is presented as redeemable non-controlling
interest above the equity section but below the liabilities section on the Partnerships
consolidated balance sheet.
Certain of the comparative figures have been reclassified to conform with the presentation
adopted in the current period, primarily related to the presentation of crew training costs in
the consolidated statements of (loss) income. For the three and nine months ended September 30,
2009,
crew training expenses of $1.0 million and $3.1 million, respectively, were recorded in general
and administrative expenses and have been reclassified to vessel operating expenses for
comparative purposes in the consolidated statements of (loss) income.
Page 8 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
Changes in Accounting Policies
In January 2010, the Partnership adopted an amendment to FASB ASC 810, Consolidations, that
eliminates certain exceptions to consolidating qualifying special-purpose entities, contains new
criteria for determining the primary beneficiary of a variable interest entity, and increases
the frequency of required reassessments to determine whether an entity is such a primary
beneficiary. This amendment also contains a new requirement that any term, transaction, or
arrangement that does not have a substantive effect on an entitys status as a variable interest
entity, an entitys power over a variable interest entity, or an entitys obligation to absorb
losses or its right to receive benefits of a variable interest entity must be disregarded. The
elimination of the qualifying special-purpose entity concept and its consolidation exceptions
means more entities will be subject to consolidation assessments and reassessments. During
February 2010, the scope of the revised standard was modified to indefinitely exclude certain
entities from the requirement to be assessed for consolidation. The adoption of this amendment
did not have an impact on the Partnerships consolidated financial statements.
2. |
|
Fair Value Measurements |
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
Cash and cash equivalents The fair value of the Partnerships cash and cash equivalents
approximate their carrying amounts reported in the accompanying consolidated balance sheets.
Due to / from affiliates The fair values of the amounts due to and from affiliates approximate
their carrying amounts reported in the accompanying consolidated balance sheets due to the
current nature of the balances.
Long-term debt The fair values of the Partnerships variable-rate long-term debt are either
based on quoted market prices or estimated using discounted cash flow analyses, based on rates
currently available for debt with similar terms and remaining maturities and the current credit
worthiness of the Partnership.
Derivative instruments The fair value of the Partnerships derivative instruments is the
estimated amount that the Partnership would receive or pay to terminate the agreements at the
reporting date, taking into account the fixed interest rate in the interest rate swaps, current
interest rates, foreign exchange rates and the current credit worthiness of both the Partnership
and the derivative counterparties. The estimated amount is the present value of future cash
flows. The Partnership transacts all of its derivative instruments through investment-grade
rated financial institutions at the time of the transaction and requires no collateral from
these institutions. Given current volatility in the credit markets, it is reasonably possible
that the amount recorded as a derivative liability could vary by a material amount in the near
term.
The Partnership categorizes its fair value estimates using a fair value hierarchy based on the
inputs used to measure fair value. The fair value hierarchy has three levels based on the
reliability of the inputs used to determine fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either
directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
The estimated fair value of the Partnerships financial instruments and categorization using the
fair value hierarchy for these financial instruments that are measured at fair value on a
recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Fair Value |
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
Hierarchy |
|
|
Asset (Liability) |
|
|
Asset (Liability) |
|
|
Asset (Liability) |
|
|
Asset (Liability) |
|
|
|
Level (1) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Cash and cash equivalents |
|
|
|
|
|
|
158,466 |
|
|
|
158,466 |
|
|
|
101,747 |
|
|
|
101,747 |
|
Due from affiliates (note 9m) |
|
|
|
|
|
|
5,284 |
|
|
|
5,284 |
|
|
|
17,673 |
|
|
|
17,673 |
|
Due to affiliates (note 9m) |
|
|
|
|
|
|
(34,717 |
) |
|
|
(34,717 |
) |
|
|
(40,220 |
) |
|
|
(40,220 |
) |
Long-term debt (note 6) |
|
|
|
|
|
|
(1,492,543 |
) |
|
|
(1,402,706 |
) |
|
|
(1,675,614 |
) |
|
|
(1,559,210 |
) |
Loan due to Parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104,845 |
) |
|
|
(104,845 |
) |
Derivative instruments (note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
Level 2 |
|
|
(157,606 |
) |
|
|
(157,606 |
) |
|
|
(76,072 |
) |
|
|
(76,072 |
) |
Foreign currency forward contracts |
|
Level 2 |
|
|
5,947 |
|
|
|
5,947 |
|
|
|
6,192 |
|
|
|
6,192 |
|
|
|
|
(1) |
|
The fair value hierarchy level is only applicable to each financial instrument on the
consolidated balance sheets that are recorded at fair value on a recurring basis. |
The Partnership has determined that there are no non-financial assets or non-financial
liabilities carried at fair value at September 30, 2010.
Page 9 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
On March 22, 2010, the Partnership completed a public offering of 5.1 million common units
(including 660,000 units issued upon exercise of the underwriters overallotment option) at a
price of $19.48 per unit, for gross proceeds of $100.6 million (including the General Partners
$2.0 million proportionate capital contribution). The Partnership used the total net proceeds of
$95.5 million from the equity offering to repay the remaining $60.0 million of the Teekay
Corporation vendor financing related to the acquisition of the Petrojarl Varg (see Note 6) and
to finance a portion of its acquisition of Teekay Corporations interest in the Falcon Spirit
(see Note 9l).
On August 20, 2010, the Partnership completed a public offering of 6.0 million common units
(including 787,500 units issued upon the exercise of the underwriters overallotment option) at
a price of $22.15 per unit, for gross proceeds of $136.5 million (including the General
Partners $2.7 million proportionate capital contribution). The Partnership used the net
proceeds of $130.4 million from the equity offering to repay a portion of its outstanding debt
under one of its revolving credit facilities.
The Partnership has four reportable segments: its shuttle tanker segment; its conventional
tanker segment; its FSO segment, and its FPSO segment. The Partnerships shuttle tanker segment
consists of shuttle tankers operating primarily on fixed-rate contracts of affreightment,
time-charter contracts or bareboat charter contracts. The Partnerships conventional tanker
segment consists of conventional tankers operating on fixed-rate, time-charter contracts or
bareboat charter contracts. The Partnerships FSO segment consists of its FSO units subject to
fixed-rate, time-charter contracts or bareboat charter contracts. The Partnerships FPSO segment
consists of its FPSO unit subject to operations and charter contracts. Segment results are
evaluated based on income from vessel operations. The accounting policies applied to the
reportable segments are the same as those used in the preparation of the Partnerships
consolidated financial statements.
The following tables include results for these segments for the periods presented in these
consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shuttle |
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
|
|
Tanker |
|
|
Tanker |
|
|
FSO |
|
|
FPSO |
|
|
|
|
Three Months ended September 30, 2010 |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
133,338 |
|
|
|
26,284 |
|
|
|
17,031 |
|
|
|
23,726 |
|
|
|
200,379 |
|
Voyage expenses |
|
|
23,270 |
|
|
|
4,168 |
|
|
|
254 |
|
|
|
|
|
|
|
27,692 |
|
Vessel operating expenses |
|
|
33,442 |
|
|
|
6,144 |
|
|
|
8,296 |
|
|
|
13,223 |
|
|
|
61,105 |
|
Time-charter hire expense |
|
|
20,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,352 |
|
Depreciation and amortization |
|
|
26,786 |
|
|
|
7,239 |
|
|
|
3,479 |
|
|
|
5,119 |
|
|
|
42,623 |
|
General and administrative (1) |
|
|
11,212 |
|
|
|
1,040 |
|
|
|
837 |
|
|
|
1,361 |
|
|
|
14,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
18,276 |
|
|
|
7,693 |
|
|
|
4,165 |
|
|
|
4,023 |
|
|
|
34,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shuttle |
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
|
|
Tanker |
|
|
Tanker |
|
|
FSO |
|
|
FPSO |
|
|
|
|
Three Months ended September 30, 2009 |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
132,794 |
|
|
|
31,409 |
|
|
|
14,781 |
|
|
|
25,525 |
|
|
|
204,509 |
|
Voyage expenses |
|
|
22,481 |
|
|
|
6,610 |
|
|
|
272 |
|
|
|
|
|
|
|
29,363 |
|
Vessel operating expenses |
|
|
32,418 |
|
|
|
6,380 |
|
|
|
7,019 |
|
|
|
10,020 |
|
|
|
55,837 |
|
Time-charter hire expense |
|
|
27,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,772 |
|
Depreciation and amortization |
|
|
23,670 |
|
|
|
6,208 |
|
|
|
5,470 |
|
|
|
5,633 |
|
|
|
40,981 |
|
General and administrative(1) |
|
|
10,506 |
|
|
|
954 |
|
|
|
749 |
|
|
|
631 |
|
|
|
12,840 |
|
Restructuring charge |
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
15,576 |
|
|
|
11,257 |
|
|
|
1,271 |
|
|
|
9,241 |
|
|
|
37,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 10 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shuttle |
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
|
|
Tanker |
|
|
Tanker |
|
|
FSO |
|
|
FPSO |
|
|
|
|
Nine Months ended September 30, 2010 |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
419,626 |
|
|
|
84,280 |
|
|
|
56,100 |
|
|
|
77,763 |
|
|
|
637,769 |
|
Voyage expenses |
|
|
82,355 |
|
|
|
14,661 |
|
|
|
579 |
|
|
|
|
|
|
|
97,595 |
|
Vessel operating expenses |
|
|
99,951 |
|
|
|
17,515 |
|
|
|
25,121 |
|
|
|
33,539 |
|
|
|
176,126 |
|
Time-charter hire expense |
|
|
68,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,814 |
|
Depreciation and amortization |
|
|
81,021 |
|
|
|
18,902 |
|
|
|
12,725 |
|
|
|
15,361 |
|
|
|
128,009 |
|
General and administrative (1) |
|
|
34,075 |
|
|
|
3,372 |
|
|
|
2,856 |
|
|
|
3,835 |
|
|
|
44,138 |
|
Restructuring charge |
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
53,291 |
|
|
|
29,830 |
|
|
|
14,819 |
|
|
|
25,028 |
|
|
|
122,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shuttle |
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
|
|
Tanker |
|
|
Tanker |
|
|
FSO |
|
|
FPSO |
|
|
|
|
Nine Months ended September 30, 2009 |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
396,721 |
|
|
|
92,738 |
|
|
|
45,970 |
|
|
|
73,031 |
|
|
|
608,460 |
|
Voyage expenses |
|
|
56,651 |
|
|
|
19,034 |
|
|
|
720 |
|
|
|
|
|
|
|
76,405 |
|
Vessel operating expenses |
|
|
108,213 |
|
|
|
18,029 |
|
|
|
19,412 |
|
|
|
29,112 |
|
|
|
174,766 |
|
Time-charter hire expense |
|
|
89,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,061 |
|
Depreciation and amortization |
|
|
70,010 |
|
|
|
18,166 |
|
|
|
16,291 |
|
|
|
16,899 |
|
|
|
121,366 |
|
General and administrative(1) |
|
|
30,066 |
|
|
|
3,354 |
|
|
|
1,895 |
|
|
|
3,678 |
|
|
|
38,993 |
|
Restructuring charge |
|
|
4,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
38,667 |
|
|
|
34,155 |
|
|
|
7,652 |
|
|
|
23,342 |
|
|
|
103,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated use of corporate
resources). |
A reconciliation of total segment assets to total assets presented in the accompanying
consolidated balance sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
$ |
|
|
$ |
|
Shuttle tanker segment |
|
|
1,448,104 |
|
|
|
1,516,988 |
|
Conventional tanker segment |
|
|
308,369 |
|
|
|
317,690 |
|
FSO segment |
|
|
126,394 |
|
|
|
143,308 |
|
FPSO segment |
|
|
304,582 |
|
|
|
324,912 |
|
Unallocated: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
158,466 |
|
|
|
101,747 |
|
Other assets |
|
|
9,896 |
|
|
|
22,852 |
|
|
|
|
|
|
|
|
Consolidated total assets |
|
|
2,355,811 |
|
|
|
2,427,497 |
|
|
|
|
|
|
|
|
As at September 30, 2010, intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Customer contracts (shuttle tanker segment) |
|
|
124,250 |
|
|
|
(94,057 |
) |
|
|
30,193 |
|
Customer contracts (FPSO segment) |
|
|
353 |
|
|
|
(143 |
) |
|
|
210 |
|
Other intangible assets (FPSO segment) |
|
|
390 |
|
|
|
|
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,993 |
|
|
|
(94,200 |
) |
|
|
30,793 |
|
|
|
|
|
|
|
|
|
|
|
Page 11 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
As at December 31, 2009, intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Customer contracts (shuttle tanker segment) |
|
|
124,250 |
|
|
|
(88,016 |
) |
|
|
36,234 |
|
Customer contracts (FPSO segment) |
|
|
353 |
|
|
|
(92 |
) |
|
|
261 |
|
Other intangible assets (FPSO segment) |
|
|
390 |
|
|
|
|
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,993 |
|
|
|
(88,108 |
) |
|
|
36,885 |
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense of intangible assets for the three and nine months ended
September 30, 2010 was $2.0 million and $6.1 million, respectively (2009 $2.3 million and $6.9
million, respectively), included in depreciation and amortization on the consolidated statements
of (loss) income. Amortization of intangible assets for the next five years subsequent to
September 30, 2010 is expected to be $2.0 million (remainder of 2010), $7.1 million (2011), $6.1
million (2012), $5.1 million (2013), and $4.0 million (2014).
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
$ |
|
|
$ |
|
U.S. Dollar-denominated Revolving Credit Facilities due through 2018 |
|
|
1,240,581 |
|
|
|
1,406,974 |
|
U.S. Dollar-denominated Terms Loan Due to Parent |
|
|
|
|
|
|
60,000 |
|
U.S. Dollar-denominated Loan Due to Parent by Dropdown Predecessor |
|
|
|
|
|
|
44,845 |
|
U.S. Dollar-denominated Term Loans due through 2017 |
|
|
251,962 |
|
|
|
268,640 |
|
|
|
|
|
|
|
|
Total |
|
|
1,492,543 |
|
|
|
1,780,459 |
|
Less current portion |
|
|
152,562 |
|
|
|
153,004 |
|
|
|
|
|
|
|
|
Long term portion |
|
|
1,339,981 |
|
|
|
1,627,455 |
|
|
|
|
|
|
|
|
As at September 30, 2010, the Partnership had nine long-term revolving credit facilities, which,
as at such date, provided for borrowings of up to $1.53 billion, of which $289.6 million was
undrawn. The total amount available under the revolving credit facilities reduces by $72.3
million (remainder of 2010), $177.0 million (2011), $187.1 million (2012), $333.7 million
(2013), $657.2 million (2014) and $102.9 million (thereafter). Six of the revolving credit
facilities are guaranteed by the Partnership and certain of its subsidiaries for all outstanding
amounts and contain covenants that require the Partnership to maintain the greater of a minimum
liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six
months to maturity) of at least $75.0 million and 5.0% of the Partnerships total consolidated
debt. The Partnership also has a revolving credit facility of which Teekay Corporation
guarantees $65.0 million of the final repayment. In addition to the Partnership covenants
described above, Teekay Corporation is also required to maintain the greater of a minimum
liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six
months to maturity) of at least $50.0 million and 5.0% of Teekay Corporations total
consolidated debt which has recourse to Teekay Corporation. The remaining two revolving credit
facilities are guaranteed by Teekay Corporation and contain covenants that require Teekay
Corporation to maintain the greater of a minimum liquidity (cash and cash equivalents) of at
least $50.0 million and 5.0% of Teekay Corporations total consolidated debt which has recourse
to Teekay Corporation. The revolving credit facilities are collateralized by first-priority
mortgages granted on 35 of the Partnerships vessels, together with other related security.
The Partnership had a U.S. Dollar-denominated term loan outstanding from Teekay Corporation,
which, as at December 31, 2009, totaled $60 million. This amount was repaid during the first
quarter using proceeds from the March 22, 2010 public offering (see Note 3).
As at December 31, 2009, the Dropdown Predecessor relating to the Falcon Spirit had $44.8
million in amounts due to Teekay Corporation. Immediately prior to the Partnership acquiring the
Falcon Spirit from Teekay Corporation, $11.2 million of the loan due to Teekay Corporation was
converted to equity. The Partnership repaid the remaining $33.6 million during the quarter ended
June 30, 2010 (see Note 9l).
As at September 30, 2010, the Partnerships six 50% owned subsidiaries each had an outstanding
term loan, which in the aggregate totaled $252.0 million. The term loans reduce over time with
quarterly and semi-annual payments and have varying maturities through 2017. All term loans are
collateralized by first-priority mortgages on the six vessels to which the loans relate,
together with other related security. As at September 30, 2010, the Partnership had guaranteed
$78.9 million of these term loans, which represents its 50% share of the outstanding vessel
mortgage debt of five of these 50% owned subsidiaries. The other owner and Teekay Corporation
have guaranteed $126.0 million and $47.1 million, respectively.
Interest payments on the revolving credit facilities and the term loans (excluding the term loan
due to parent) are based on LIBOR plus a margin. At September 30, 2010, the margins ranged
between 0.45% and 3.25%. The weighted-average effective interest rate on the Partnerships
variable rate long-term debt as at September 30, 2010 was 1.3%. This rate does not include the
effect of the Partnerships interest rate swaps (see Note 10).
The aggregate annual long-term debt principal repayments required to be made subsequent to
September 30, 2010 are $37.2 million (remainder of 2010), $187.4 million (2011), $164.3 million
(2012), $209.6 million (2013), $705.6 million (2014), and $188.4 million (thereafter).
As at September 30, 2010, the Partnership and Teekay Corporation were in compliance with all
covenants related to the credit facilities and long-term debt.
Page 12 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
During the nine months ended September 30, 2010, the Partnership completed the remaining
reflagging of two of its vessels from Norwegian flag to Bahamian flag and changing the
nationality mix of its crews. The Partnership commenced the reflagging of a total of seven
vessels in March 2009. During the three and nine months ended September 30, 2010, the
Partnership incurred $nil and $0.1 million (2009 $0.4 million and $4.1 million, respectively),
of restructuring costs. Under this plan, the Partnership recorded restructuring charges of
approximately $4.9 million in total since the plan began in 2009. At September 30, 2010 and
December 31, 2009, restructuring liabilities of $nil and $1.2 million, respectively, were
recorded in accrued liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Volatile organic compound emissions plant lease income |
|
|
1,154 |
|
|
|
1,662 |
|
|
|
3,874 |
|
|
|
5,428 |
|
Miscellaneous |
|
|
482 |
|
|
|
406 |
|
|
|
1,706 |
|
|
|
1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income net |
|
|
1,636 |
|
|
|
2,068 |
|
|
|
5,580 |
|
|
|
7,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. |
|
Related Party Transactions and Balances |
|
a. |
|
Nine of OPCOs conventional tankers are employed on long-term time-charter contracts
with a subsidiary of Teekay Corporation. Under the terms of six of these nine time-charter
contracts, OPCO is responsible for the bunker fuel expenses; however, OPCO adds the
approximate amounts of these expenses to the daily hire rate plus a 4.5% margin. Pursuant
to these time-charter contracts, OPCO earned revenues of $23.8 million and $76.8 million,
respectively, during the three and nine months ended September 30, 2010, compared to $28.9
million and $85.3 million, respectively, for the same periods last year. |
|
|
b. |
|
Two of OPCOs shuttle tankers are employed on long-term bareboat charters with a
subsidiary of Teekay Corporation. Pursuant to these charter contracts, OPCO earned revenues
of $3.8 million and $11.1 million, respectively, during the three and nine months ended
September 30, 2010, compared to $3.1 million and $9.3 million, respectively, for the same
periods last year. |
|
|
c. |
|
Two of OPCOs FSO units are employed on long-term bareboat charters with a subsidiary
of Teekay Corporation. Pursuant to these charter contracts, OPCO earned revenues of $3.3
million and $8.4 million, respectively, during the three and nine months ended September
30, 2010, compared to $2.8 million and $8.4 million, respectively, for the same periods
last year. |
|
|
d. |
|
Two of OPCOs conventional tankers are employed on long-term bareboat charters with a
joint venture in which Teekay Corporation has a 50% interest. Pursuant to these charter
contracts, OPCO earned revenues of $2.5 million and $7.4 million, respectively, during the
three and nine months ended September 30, 2010, compared to $2.5 million and $7.4 million,
respectively, for the same periods last year. |
|
|
e. |
|
A subsidiary of Teekay Corporation has entered into a service agreement with a
subsidiary of OPCO, pursuant to which the subsidiary of OPCO provides the Teekay
Corporation subsidiary with ship management services. Pursuant to this agreement, OPCO
earned management fees of $0.9 million and $2.7 million, respectively, during the three and
nine months ended September 30, 2010, compared to $0.7 million and $2.3 million,
respectively, for the same periods last year. |
|
|
f. |
|
Eight of OPCOS Aframax conventional oil tankers, three of the Partnerships FSO units
and the Partnerships FPSO unit are managed by subsidiaries of Teekay Corporation. Pursuant
to the associated management service agreements, the Partnership incurred general and
administrative expenses of $1.9 million and $6.0 million, respectively, during the three
and nine months ended September 30, 2010, compared to $0.8 million and $2.0 million,
respectively, for the same periods last year. |
|
|
g. |
|
The Partnership, OPCO and certain of OPCOs operating subsidiaries have entered into
service agreements with certain subsidiaries of Teekay Corporation in connection with the
Partnerships initial public offering, pursuant to which Teekay Corporation subsidiaries
provide the Partnership, OPCO and its operating subsidiaries with administrative, crew
training, advisory and technical services and ship management services. Pursuant to these
service agreements, the Partnership incurred expenses of $10.7 million and $31.2 million,
respectively, during the three and nine months ended September 30, 2010, compared to $10.2
million and $30.1 million, respectively, for the same periods last year. |
|
|
h. |
|
Pursuant to the Partnerships partnership agreement, the Partnership reimburses the
General Partner for all expenses incurred by the General Partner that are necessary or
appropriate for the conduct of the Partnerships business. Pursuant to this agreement, the
Partnership reimbursed $0.1 million and $0.4 million, respectively, of these costs during
the three and nine months ended September 30, 2010, compared to $0.3 million and $0.5
million, respectively, for the same periods last year. |
Page 13 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
|
i. |
|
The Partnership has entered into an omnibus agreement with Teekay Corporation, Teekay
LNG Partners L.P., the General Partner and others governing, among other things, when the
Partnership, Teekay Corporation and Teekay LNG Partners L.P. may compete with each other
and certain rights of first offering on liquefied natural gas carriers, oil tankers,
shuttle tankers, FSO units and FPSO units. |
|
|
j. |
|
From December 2008 to June 2009, OPCO entered into a bareboat charter contract to
in-charter one shuttle tanker from a subsidiary of Teekay Corporation. Pursuant to the
charter contract, OPCO incurred time-charter hire expenses of $3.4 million during the nine
months ended September 30, 2009. |
|
|
k. |
|
On September 10, 2009, the Partnership acquired from Teekay Corporation the FPSO unit,
the Petrojarl Varg, together with its operations and charter contracts with Talisman
Energy, for a purchase price of $320 million. The purchase price of $320 million was
accounted for as an equity distribution to Teekay Corporation. To the extent the purchase
price was greater than the corresponding book value, the excess is reflected as a reduction
in Partners Equity and the remainder was shown as a reduction in Dropdown Predecessor
Equity. The purchase was financed through vendor financing made available by Teekay
Corporation of $220 million. The remaining $100 million was paid in cash and financed from
existing credit facilities. The $220 million vendor financing from Teekay Corporation was
comprised of two tranches. The senior tranche was a $160 million short-term debt facility
bearing interest at LIBOR plus a margin of 3.25% and was repaid in November 2009. The
junior tranche of the vendor financing was a $60 million unsecured subordinated debt
facility bearing interest at 10% per annum. The junior tranche was repaid on March 22, 2010
using proceeds from a public offering (see Note 3). For the three and nine months ended
September 30, 2010, the Partnership incurred interest expense of $nil and $1.4 million,
respectively, in relation to the junior tranche of the $220 million vendor financing from
Teekay Corporation. (See Note 6). |
|
|
|
|
When the Partnership acquired the Petrojarl Varg, all assets and liabilities of the Petrojarl
Varg operations, except for the vessel and the contract with Talisman Energy, were retained
by Teekay Corporation. These net liabilities retained by Teekay Corporation totalled $175.0
million and were accounted for as a non-cash equity contribution from Teekay Corporation. |
|
|
|
|
The following costs attributable to the operations of the Petrojarl Varg were incurred by
Teekay Corporation, and have been allocated to the Partnership as part of the results of the
Dropdown Predecessor: |
|
|
|
General and administrative expenses (consisting primarily of salaries, defined
benefit pension plan benefits, and other employee related costs, office rent, legal and
professional fees, and travel and entertainment) of $0.6 million and $3.9 million for
the three and nine months ended September 30, 2009, respectively. |
|
|
|
|
Interest expense incurred by Teekay Corporation on its credit facilities that were
used to finance its acquisition of the Petrojarl Varg of $1.8 million and $6.5 million
for the three and nine months ended September 30, 2009, respectively. |
|
|
|
|
Teekay Corporation entered into interest rate swaps to offset increases or decreases
in the variable-rate interest payments of the credit facilities that were used to
finance its acquisition of the Petrojarl Varg. The realized and unrealized (losses)
gains on these interest rate swaps allocated to the Partnership were ($6.5) million and
$6.2 million for the three and nine months ended September 30, 2009, respectively. The
amounts are reflected in the realized and unrealized (losses) gains on non-designated
derivative instruments. |
|
|
|
|
Teekay Corporation entered into foreign exchange forward contracts to minimize the
impact from changes in the foreign exchange rate between the Norwegian Kroner and the
US Dollar on operating expenses of the Petrojarl Varg. These foreign exchange forward
contracts have been allocated to the Partnership. For the three and nine months ended
September 30, 2009, the amount of the gain allocated to the Partnership was $1.1
million and $2.6 million, respectively, of which ($0.1) million and ($0.5) million,
respectively, is reflected in vessel operating expenses, $0.2 million and $0.4 million,
respectively, in general and administrative expenses, $0.2 million and $0.7 million,
respectively, in realized and unrealized gains on non-designated derivative instruments
and $0.8 million and $2.0 million, respectively, in other comprehensive income. |
|
|
|
|
Teekay Corporation uses a centralized treasury system. As a result, cash and cash
equivalents attributable to the operations of the Petrojarl Varg, prior to the
acquisition of the vessel by the Partnership, were in certain cases co-mingled with
cash and cash equivalents from other operations of Teekay Corporation. Cash and cash
equivalents in co-mingled bank accounts are not reflected in the balance sheet of the
Dropdown Predecessor. However, any cash transactions from these bank accounts that were
made on behalf of the Dropdown Predecessor are reflected in these financial statements
as increases or decreases in Dropdown Predecessor Equity. The net amount of these
equity contributions were $110.4 million for the period from January 1, 2009 to
September 9, 2009. |
|
l. |
|
On April 1, 2010, the Partnership acquired Teekay Corporations 100% interest in an FSO
unit, the Falcon Spirit, together with its charter contract, for a purchase price of $44.1
million. The purchase was partially financed through proceeds from a public offering of
common units (see Note 3). The Falcon Spirit is chartered to Occidental Qatar Energy
Company LLC, a subsidiary of Occidental Petroleum of Qatar Ltd., on a fixed-rate time
charter contract for 7.5 years (beginning December 2009) with an option for the charterer
to extend the contract for an additional 1.5 years. The Falcon Spirit is a conversion of a
double-hull shuttle tanker built in 1986 and it began servicing the Al Raayan oil field off
the coast of Qatar in December 2009. |
Page 14 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
|
|
|
The acquisition consisted of the Partnership acquiring Teekay Corporations equity interest
in Teekay Al Raayan LLC for $10.5 million and Teekay Corporations interest in amounts due to
Teekay Corporation from Teekay Al Raayan LLC for $33.6 million. Immediately prior to the
acquisition, $11.2 million of amounts due to Teekay Corporation was converted to equity and
is treated as a non-cash transaction in
the Partnerships statement of cash flow. The portion of the purchase price for the
acquisition of the equity interest in Teekay Al Raayan LLC ($10.5 million) was accounted for
as an equity distribution to Teekay Corporation. To the extent the purchase price was greater
than the corresponding book value, the excess is reflected as a reduction in Partners Equity
and the remainder is shown as a reduction in Dropdown Predecessor Equity. The portion of the
purchase price for the acquisition of the intercorporate loan ($33.6 million) was accounted
for as repayment of debt. |
|
|
|
|
The following costs attributable to the operations of the Falcon Spirit were incurred by
Teekay Corporation, and have been allocated to the Partnership as part of the results of the
Dropdown Predecessor: |
|
|
|
General and administrative expenses (consisting primarily of vessel management fees
and legal and professional fees) of $0.3 million for the nine months ended September 30,
2010. |
|
|
|
|
Interest expense incurred by Teekay Corporation on its credit facilities that were
used to finance the acquisition of the Falcon Spirit of $0.4 million for the nine months
ended September 30, 2010. |
|
m. |
|
At September 30, 2010, due from affiliates totaled $5.3 million (December 31, 2009 -
$17.7 million) and due to affiliates totaled $34.7 million (December 31, 2009 $40.2
million). Amounts due to and from affiliates are non-interest bearing and unsecured. |
10. |
|
Derivative Instruments and Hedging Activities |
The Partnership uses derivatives to manage certain risks in accordance with its overall risk
management policies.
Foreign Exchange Risk
The Partnership economically hedges portions of its forecasted expenditures denominated in
foreign currencies with foreign currency forward contracts. Certain foreign currency forward
contracts are designated, for accounting purposes, as cash flow hedges of forecasted foreign
currency expenditures.
As at September 30, 2010, the Partnership was committed to the following foreign currency
forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract |
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Fair Value / Carrying |
|
|
|
|
|
|
|
|
|
in Foreign |
|
|
Amount of Asset/(Liability) |
|
|
Average |
|
|
Expected Maturity |
|
|
|
Currency |
|
|
(in thousands of U.S. Dollars) |
|
|
Forward |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
|
(thousands) |
|
|
Hedge |
|
|
Non-hedge |
|
|
Rate |
|
|
(in thousands of U.S. Dollars) |
|
Norwegian Kroner |
|
|
708,804 |
|
|
$ |
2,189 |
|
|
$ |
3,451 |
|
|
|
6.27 |
|
|
$ |
18,009 |
|
|
$ |
59,758 |
|
|
$ |
35,196 |
|
British Pound |
|
|
4,790 |
|
|
|
|
|
|
|
293 |
|
|
|
0.66 |
|
|
|
462 |
|
|
|
5,646 |
|
|
|
1,111 |
|
Euro |
|
|
20,973 |
|
|
|
|
|
|
|
14 |
|
|
|
0.74 |
|
|
|
5,298 |
|
|
|
17,031 |
|
|
|
6,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,189 |
|
|
$ |
3,758 |
|
|
|
|
|
|
$ |
23,769 |
|
|
$ |
82,435 |
|
|
$ |
42,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average forward rate represents the contracted amount of foreign currency one U.S. Dollar
will buy. |
Interest Rate Risk
The Partnership enters into interest rate swaps, which exchange a receipt of floating interest
for a payment of fixed interest to reduce the Partnerships exposure to interest rate
variability on its outstanding floating-rate debt. The Partnership has not designated, for
accounting purposes, its interest rate swaps as cash flow hedges of its U.S. Dollar
LIBOR-denominated borrowings.
As at September 30, 2010, the Partnership was committed to the following interest rate swap
agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
Average |
|
|
Fixed |
|
|
|
Interest |
|
|
Principal |
|
|
Assets |
|
|
Remaining |
|
|
Interest |
|
|
|
Rate |
|
|
Amount |
|
|
(Liability) |
|
|
Term |
|
|
Rate |
|
|
|
Index |
|
|
$ |
|
|
$ |
|
|
(years) |
|
|
(%) (1) |
|
U.S. Dollar-denominated interest rate swaps |
|
LIBOR |
|
|
500,000 |
|
|
|
(79,579 |
) |
|
|
8.7 |
|
|
|
4.2 |
|
U.S. Dollar-denominated interest rate swaps (2) |
|
LIBOR |
|
|
704,692 |
|
|
|
(78,027 |
) |
|
|
6.4 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,204,692 |
|
|
|
(157,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes the margin the Partnership pays on its variable-rate debt, which as at September
30, 2010, ranged between 0.45% and 3.25%. |
|
(2) |
|
Principal amount reduces quarterly or semi-annually. |
Page 15 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
Tabular disclosure
The following table presents the location and fair value amounts of derivative instruments,
segregated by type of contract, on the Partnerships balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
portion of |
|
|
|
|
|
|
|
|
|
|
portion of |
|
|
|
|
|
|
derivative |
|
|
Derivative |
|
|
Accrued |
|
|
derivative |
|
|
Derivative |
|
|
|
assets |
|
|
assets |
|
|
liabilities |
|
|
liabilities |
|
|
liabilities |
|
As at September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts cash flow hedges |
|
|
1,789 |
|
|
|
602 |
|
|
|
|
|
|
|
(202 |
) |
|
|
|
|
Foreign currency contracts not designated as hedges |
|
|
1,464 |
|
|
|
2,885 |
|
|
|
|
|
|
|
(590 |
) |
|
|
(1 |
) |
Interest rate swaps not designated as hedges |
|
|
|
|
|
|
|
|
|
|
(9,258 |
) |
|
|
(31,361 |
) |
|
|
(116,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,253 |
|
|
|
3,487 |
|
|
|
(9,258 |
) |
|
|
(32,153 |
) |
|
|
(116,988 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts cash flow hedges |
|
|
6,152 |
|
|
|
417 |
|
|
|
|
|
|
|
(15 |
) |
|
|
|
|
Foreign currency contracts not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(265 |
) |
|
|
(97 |
) |
Interest rate swaps not designated as hedges |
|
|
|
|
|
|
1,778 |
|
|
|
(8,048 |
) |
|
|
(31,572 |
) |
|
|
(38,230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,152 |
|
|
|
2,195 |
|
|
|
(8,048 |
) |
|
|
(31,852 |
) |
|
|
(38,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the periods indicated, the following table presents the effective portion of gains (losses)
on foreign currency forward contracts designated and qualifying as cash flow hedges that were
recognized in (1) other comprehensive income, (2) recorded in accumulated other comprehensive
income (or AOCI) during the term of the hedging relationship and reclassified to earnings, and
(3) the ineffective portion of gains (losses) on derivative instruments designated and
qualifying as cash flow hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
Three Months Ended September 30, 2009 |
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
Sheet |
|
|
|
|
(AOCI) |
|
|
Statement of (Loss) Income |
|
(AOCI) |
|
|
Statement of (Loss) Income |
Effective |
|
|
Effective |
|
|
Ineffective |
|
|
|
|
Effective |
|
|
Effective |
|
|
Ineffective |
|
|
|
Portion |
|
|
Portion |
|
|
Portion |
|
|
|
|
Portion |
|
|
Portion |
|
|
Portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,476 |
|
|
|
(227 |
) |
|
|
(428 |
) |
|
Vessel operating
expenses |
|
|
14,428 |
|
|
|
(494 |
) |
|
|
1,404 |
|
|
Vessel operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,310 |
) |
|
|
444 |
|
|
General and administrative
expenses |
|
|
|
|
|
|
(1,226 |
) |
|
|
1,382 |
|
|
General and administrative
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,476 |
|
|
|
(1,537 |
) |
|
|
16 |
|
|
|
|
|
14,428 |
|
|
|
(1,720 |
) |
|
|
2,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
Nine Months Ended September 30, 2009 |
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
Sheet |
|
|
|
|
(AOCI) |
|
|
Statement of (Loss) Income |
|
(AOCI) |
|
|
Statement of (Loss) Income |
Effective |
|
|
Effective |
|
|
Ineffective |
|
|
|
|
Effective |
|
|
Effective |
|
|
Ineffective |
|
|
|
Portion |
|
|
Portion |
|
|
Portion |
|
|
|
|
Portion |
|
|
Portion |
|
|
Portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,463 |
) |
|
|
(230 |
) |
|
|
(2,750 |
) |
|
Vessel operating
expenses |
|
|
26,686 |
|
|
|
(7,468 |
) |
|
|
2,871 |
|
|
Vessel operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,762 |
) |
|
|
(1,145 |
) |
|
General and administrative
expenses |
|
|
|
|
|
|
(2,566 |
) |
|
|
3,484 |
|
|
General and administrative
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,463 |
) |
|
|
(2,992 |
) |
|
|
(3,895 |
) |
|
|
|
|
26,686 |
|
|
|
(10,034 |
) |
|
|
6,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2010, the Partnerships accumulated other comprehensive income
consisted of unrealized gains on foreign currency forward contracts designated as cash flow
hedges. As at September 30, 2010, the Partnership estimated, based on the current foreign
exchange rates, that it would reclassify approximately $0.5 million of net gains on foreign
currency forward contracts from accumulated other comprehensive income to earnings during the
next 12 months.
Page 16 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
Realized and unrealized (losses) gains of interest rate swaps and foreign currency forward
contracts that are not designated for accounting purposes as cash flow hedges, are recognized in
earnings and reported in realized and unrealized (losses) gains on non-designated derivatives in
the consolidated statements of (loss) income. The effect of the (loss) gain on derivatives not
designated as hedging instruments on the consolidated statements of (loss) income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Realized losses relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(10,327 |
) |
|
|
(12,743 |
) |
|
|
(32,080 |
) |
|
|
(34,621 |
) |
Foreign currency forward contracts |
|
|
(150 |
) |
|
|
(93 |
) |
|
|
(645 |
) |
|
|
(4,071 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,477 |
) |
|
|
(12,836 |
) |
|
|
(32,725 |
) |
|
|
(38,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(28,275 |
) |
|
|
(24,942 |
) |
|
|
(80,327 |
) |
|
|
71,538 |
|
Foreign currency forward contracts |
|
|
7,983 |
|
|
|
476 |
|
|
|
4,123 |
|
|
|
4,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,292 |
) |
|
|
(24,466 |
) |
|
|
(76,204 |
) |
|
|
76,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized (losses) gains on
non-designated derivative instruments |
|
|
(30,769 |
) |
|
|
(37,302 |
) |
|
|
(108,929 |
) |
|
|
37,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Partnership is exposed to credit loss in the event of non-performance by the counter-parties
to the foreign currency forward contracts and the interest rate swap agreements. In order to
minimize counterparty risk, the Partnership only enters into derivative transactions with
counterparties that are rated A- or better by Standard & Poors or A3 or better by Moodys at
the time of the transactions. In addition, to the extent possible and practical, interest rate
swaps are entered into with different counterparties to reduce concentration risk.
11. |
|
Income Tax (Expense) Recovery |
The components of the provision for income tax (expense) recovery are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Current |
|
|
(374 |
) |
|
|
(4,079 |
) |
|
|
(3,989 |
) |
|
|
(4,201 |
) |
Deferred |
|
|
(8,405 |
) |
|
|
(16,155 |
) |
|
|
12,675 |
|
|
|
(22,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) recovery |
|
|
(8,779 |
) |
|
|
(20,234 |
) |
|
|
8,686 |
|
|
|
(26,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12. |
|
Commitments and Contingencies |
|
a) |
|
During the nine months ended September 30, 2010, an unrelated party contributed a
shuttle tanker with a value of $35.0 million to a subsidiary of OPCO for a 33% equity
interest in the subsidiary. The equity issuance resulted in a dilution loss of $7.4
million. The non-controlling interest owner in the subsidiary holds a put option which, if
exercised, would obligate OPCO to purchase the non-controlling interest owners 33% share
in the entity for cash in accordance with a defined formula. The redeemable non-controlling
interest is subject to remeasurement if the formulaic redemption amount exceeds the
carrying value. |
|
|
b) |
|
The Partnership may, from time to time, be involved in legal proceedings and claims
that arise in the ordinary course of business. The Partnership believes that any adverse
outcome, individually or in the aggregate, of any existing claims would not have a material
affect on its financial position, results of operations or cash flows, when taking into
account its insurance coverage and indemnifications from charterers or Teekay Corporation. |
13. |
|
Partners Equity and Net (Loss) Income Per Unit |
At September 30, 2010, of the Partnerships total limited partner units outstanding, 69.67% were
held by the public and the remaining units were held by a subsidiary of Teekay Corporation.
On January 1, 2010, all of the Partnerships subordinated units (9.8 million units) were
converted into an equal number of common units as provided for in the partnership agreement.
Page 17 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)
Net (Loss) Income Per Unit
Net (loss) income per unit is determined by dividing net (loss) income, after deducting the
amount of net (loss) income attributable to the Dropdown Predecessor, the non-controlling
interest and the General Partners interest, by the weighted-average number of units outstanding
during the applicable period.
The General Partners, common unit holders and, prior to the conversion thereof, subordinated
unitholders interests in net (loss) income are calculated as if all net (loss) income was
distributed according to the terms of the Partnerships partnership agreement, regardless of
whether those earnings would or could be distributed. The partnership agreement does not provide
for the distribution of net (loss) income; rather, it provides for the distribution of available
cash, which is a contractually defined term that generally means all cash on hand at the end of
each quarter less the amount of cash reserves established by the Partnerships board of
directors to provide for the proper conduct of the Partnerships business including reserves for
maintenance and replacement capital expenditure and anticipated credit needs. Unlike available
cash, net (loss) income is affected by non-cash items such as depreciation and amortization,
unrealized gains and losses on derivative instruments and foreign currency translation gains.
During the quarters ended September 30, 2010 and 2009, the cash distribution exceeded $0.4025
per unit and, consequently, the assumed distribution of net (loss) income resulted in the use of
the increasing percentages in accordance with the incentive distribution rights to calculate the
General Partners interest in net (loss) income for the purposes of the net (loss) income per
unit calculation.
Pursuant to the partnership agreement, allocations to partners are made on a quarterly basis.
14. |
|
Supplemental Cash Flow Information |
|
a) |
|
The Partnerships consolidated statement of cash flows for the nine months ended
September 30, 2009 reflects the Dropdown Predecessor as if the Partnership had acquired the
Dropdown Predecessor when the vessel began operations under the ownership of Teekay
Corporation. For non-cash changes related to the Dropdown Predecessor, see notes 9k and 9l. |
|
|
b) |
|
The contribution from the non-controlling interest owner described in note 12a has been
treated as a non-cash transaction in the Partnerships consolidated statement of cash
flows. |
15. |
|
Accounting Pronouncements Not Yet Adopted |
In September 2009, the FASB issued an amendment to FASB ASC 605, Revenue Recognition, that
provides for a new methodology for establishing the fair value for a deliverable in a
multiple-element arrangement. When vendor specific objective or third-party evidence for
deliverables in a multiple-element arrangement cannot be determined, the Partnership will be
required to develop a best estimate of the selling price of separate deliverables and to
allocate the arrangement consideration using the relative selling price method. This amendment
will be effective for the Partnership on January 1, 2011, although earlier adoption is allowed.
The Partnership is currently assessing the potential impacts, if any, on its consolidated
financial statements.
In July 2010, the FASB issued an amendment to FASB ASC 310, Receivables, that requires companies
to provide more information in their disclosures about the credit quality of their financing
receivables and the credit reserves held against them. The amendments that require disclosures
as of the end of a reporting period are effective for the periods ending on or after
December 15, 2010. The amendments that require disclosures about activity that occurs during a
reporting period are effective for the periods beginning on or after December 15, 2010. The
Partnership is currently assessing the potential impacts, if any, on its consolidated financial
statements.
|
a. |
|
During October 2010, the Partnership acquired from Teekay Corporation the Cidade de Rio
das Ostras (or Rio das Ostras) FPSO unit, which is on a long-term charter to Petroleo
Brasileiro SA (or Petrobras), for a purchase price of approximately $158 million. Also
during October 2010, OPCO acquired the newbuilding shuttle tanker, the Amundsen Spirit,
from Teekay Corporation for approximately $128 million and agreed to acquire two additional
newbuilding shuttle tankers, the Nansen Spirit and the Peary Spirit, from Teekay
Corporation for a total purchase price of approximately $260.1 million. The acquisitions of
these two newbuilding shuttle tankers are expected to coincide with the commencement of
their time-charter contracts scheduled for January 2011 and July 2011, respectively. |
|
|
b. |
|
During November 2010, the Partnership issued NOK 600 million in senior unsecured bonds
that mature in November 2013. The aggregate principal amount of the bonds is equivalent to
approximately $100 million U.S. dollars and all payments are at NIBOR plus 4.75% per annum.
The proceeds of the bonds are expected to be used for general partnership purposes including
repayment of existing credit facility debt. The Partnership will apply for listing of the
bonds on the Oslo Stock Exchange. |
Page 18 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
PART I FINANCIAL INFORMATION
|
|
|
ITEM 2 |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
We are an international provider of marine transportation, oil production and storage services to
the offshore oil industry. We were formed in August 2006 by Teekay Corporation (NYSE:TK), a leading
provider of marine services to the global oil and gas industries, to further develop its operations
in the offshore market. Our principal asset is a 51% controlling interest in Teekay Offshore
Operating L.P. (or OPCO), which operates a substantial majority of our shuttle tankers and floating
storage and offtake (or FSO) units and all of our conventional crude oil tankers. In addition, we
have direct ownership interests in two shuttle tankers, two FSO units and two floating production,
storage and offloading (or FPSO) units. Our growth strategy focuses on expanding our fleet of
shuttle tankers, FSO units and FPSO units under long-term, fixed-rate time charters or contracts.
We intend to continue our practice of acquiring shuttle tankers, FSO units and FPSO units as needed
for approved projects only after the long-term charters for the projects have been awarded, rather
than ordering vessels on a speculative basis. We may enter into joint ventures and partnerships
with companies that may provide increased access to these opportunities or we may engage in vessel
or business acquisitions. We seek to leverage the expertise, relationships and reputation of Teekay
Corporation and its affiliates to pursue these growth opportunities in the offshore sectors and may
consider other opportunities to which our competitive strengths are well suited. We view our
conventional tanker fleet primarily as a source of stable cash flow. Teekay Corporation, which
indirectly owns and controls our General Partner, beneficially owns a 31.7% interest in us,
including a 2% general partner interest.
SIGNIFICANT DEVELOPMENTS
On March 22, 2010, we completed a public offering of 5.1 million common units (including 660,000
units issued upon exercise of the underwriters overallotment option) at a price of $19.48 per
unit, for gross proceeds of $100.6 million (including the General Partners $2.0 million
proportionate capital contribution). We used net proceeds of $95.5 million to repay the remaining
$60.0 million of the Teekay Corporation vendor financing from the September 2009 acquisition of the
FPSO unit, the Petrojarl Varg, and to finance a portion of the acquisition of Teekay Corporations
interest in a FSO unit, the Falcon Spirit, together with its operations and time charter contract,
for $44.1 million on April 1, 2010.
On August 20, 2010, we completed a public offering of 6.0 million common units (including 787,500
units issued upon exercise of the underwriters overallotment option) at a price of $22.15 per
unit, for gross proceeds of $136.5 million (including the General Partners $2.7 million
proportionate capital contribution). We used the net proceeds of $130.4 million from the equity
offering to repay a portion of our outstanding debt under one of our revolving credit facilities.
On August 18, 2010, OPCO signed a life-of-field master agreement with Statoil ASA (or Statoil) that replaced our
existing volume-dependent contract of affreightment (or CoA) and covers fixed-rate, annual renewable
time-charter contracts initially for seven dedicated shuttle tankers. This new master agreement
became effective September 1, 2010. Under the terms of the master agreement, the vessels are
chartered under individual fixed-rate annual renewable time-charter contracts to service the Tampen and Haltenbanken
fields on the Norwegian Continental Shelf for the remaining life of field. The number of shuttle
tankers covered by the master agreement may be adjusted annually based on the requirements of the
fields serviced under the master agreement. The fixed-rate nature of the time-charter contracts is
expected to provide OPCO with more seasonally stable and predictable cash flows compared to the CoA
arrangement. The vessels chartered under this agreement include the newbuilding shuttle tanker
that OPCO acquired from Teekay Corporation and will include the two newbuilding shuttle tankers
that OPCO agreed to acquire during October 2010, as discussed below.
In addition, OPCO recently signed new time-charter contracts with Petroleo Brasileiro SA (or
Petrobras) for two shuttle tankers for periods of five years and two years, respectively, bringing
the total number of our shuttle tankers operating in Brazil to 13. OPCO also renewed a contract
for two shuttle tankers serving the Statoil-operated Heidrun field for an additional four years at
a higher charter rate.
During October 2010, we acquired the Cidade de Rio das Ostras (or Rio das Ostras) FPSO
from Teekay Corporation for a purchase price of approximately $158 million. Also during October
2010, OPCO acquired the newbuilding shuttle tanker, the Amundsen Spirit, from Teekay Corporation
for approximately $128 million and agreed to acquire two additional newbuilding shuttle tankers,
the Nansen Spirit and the Peary Spirit, from Teekay Corporation for a total purchase price of
approximately $260.1 million. The acquisitions of these two newbuilding shuttle tankers are expected
to coincide with the commencement of their time-charter contracts under the master agreement with
Statoil in January 2011 and July 2011, respectively.
During November 2010, we issued NOK 600 million in senior unsecured bonds that mature in November
2013. The aggregate principal amount of the bonds is equivalent to approximately $100 million U. S.
dollars and all payments are at NIBOR plus 4.75% per annum. The proceeds of the bonds are expected to be used for general
partnership purposes including repayment of existing credit facility debt. We will apply for
listing of the bonds on the Oslo Stock Exchange.
Potential Additional Shuttle Tanker, FSO and FPSO Projects
Pursuant to an omnibus agreement we entered into in connection with our initial public offering in
December 2006, Teekay Corporation is obligated to offer to us its interest in certain shuttle
tankers, FSO units, FPSO units and joint ventures it may acquire in the future, provided the
vessels are servicing contracts in excess of three years in length. We also may acquire additional
limited partner interests in OPCO or other vessels that Teekay Corporation may offer us from time
to time in the future.
Page 19 of 35
Pursuant to the omnibus agreement and a subsequent agreement, Teekay Corporation is obligated to
offer to sell to us the Foinaven FPSO, an existing FPSO unit of Teekay Petrojarl AS (or Teekay
Petrojarl), a wholly-owned subsidiary of Teekay Corporation, prior to July 9, 2012. The purchase
price for the Foinaven FPSO would be its fair market value plus any additional tax or other similar
costs to Teekay Petrojarl that would be required to transfer the FPSO unit to us.
On October 19, 2010, Teekay Corporation announced that it had signed a contract with Petrobras to
provide a FPSO unit for the Tiro and Sidon fields located in the Santos Basin offshore Brazil. The
contract with Petrobras will be serviced by a new converted FPSO unit, to be named the Petrojarl
Cidade de Itajai, which is currently under conversion from an existing Aframax tanker at Sembcorp
Marines Jurong Shipyard in Singapore, for a total estimated cost of approximately $370 million.
This new FPSO is scheduled to deliver in the second quarter of 2012 when it will commence
operations under a nine-year, fixed-rate time-charter contract with Petrobras with six additional
one-year extension options. Pursuant to the omnibus agreement, Teekay Corporation is obligated to
offer to us its interest in this FPSO unit at Teekay Corporations fully built-up cost within 365
days after the commencement of the charter to Petrobras.
RESULTS OF OPERATIONS
We use a variety of financial and operational terms and concepts when analyzing our results of
operations, which can be found in Item 5. Operating and Financial Review and Prospects in our
Annual Report on Form 20-F for the year ended December 31, 2009. In accordance with United States
generally accepted accounting principles (or GAAP), we report gross revenues in our income
statements and include voyage expenses among our operating expenses. However, shipowners base
economic decisions regarding the deployment of their vessels upon anticipated time charter
equivalent (or TCE) rates, and industry analysts typically measure bulk shipping freight rates in
terms of TCE rates. This is because under time charters and bareboat charters the customer usually
pays the voyage expenses, while under voyage charters and contracts of affreightment the shipowner
usually pays the voyage expenses, which typically are added to the hire rate at an approximate
cost. Accordingly, the discussion of revenue below focuses on net revenues (i.e. revenues less
voyage expenses) and TCE rates of our four reportable segments where applicable. TCE rates
represent net revenues divided by revenue days. Please read Item 1 Financial Statements: Note 4
Segment Reporting.
Items You Should Consider When Evaluating Our Results of Operations
You should consider the following factors when evaluating our historical financial performance and
assessing our future prospects:
|
|
|
Our financial results reflect the results of the interests in vessels acquired from
Teekay Corporation for all periods the vessels were under common control. In September
2009, we acquired from Teekay Corporation the Petrojarl Varg FPSO unit, together with its
operations and charter contracts. In April 2010, we acquired from Teekay Corporation the
Falcon Spirit FSO unit, together with its charter contract. These transactions were deemed
to be business acquisitions between entities under common control. Accordingly, we have
accounted for these transactions in a manner similar to the pooling of interest method.
Under this method of accounting, our financial statements prior to the date the interests
in these vessels were actually acquired by us are retroactively adjusted to include the
results of these acquired vessels. The periods retroactively adjusted include all periods
that we and the acquired vessels were both under common control of Teekay Corporation and
had begun operations. As a result, our applicable consolidated financial statements reflect
the vessels and their results of operations, referred to herein as the Dropdown
Predecessor, as if we had acquired them when the vessels began operations under the
ownership of Teekay Corporation on October 1, 2006 and December 15, 2009, respectively.
Please read Item 1 Financial Statements: Note 1 Basis of Presentation. |
|
|
|
The size of our fleet continues to change. Our results of operations reflect changes in
the size and composition of our fleet due to certain vessel deliveries and vessel
dispositions. Please read Results of Operations below for further details about vessel
dispositions and deliveries. Due to the nature of our business, we expect our fleet to
continue to fluctuate in size and composition. |
|
|
|
Our vessel operating costs are facing industry-wide cost pressures. The oil shipping
industry is experiencing a global manpower shortage due to growth in the world fleet. This
shortage resulted in significant crew wage increases during 2007, 2008, to a lesser degree
in 2009 and during the first nine months of 2010. We expect that going forward, there will
be more upward pressure on crew compensation which will result in higher manning costs as
we keep pace with market conditions. In addition, factors such as pressure on raw material
prices and changes in regulatory requirements could also increase operating expenditures.
We continue to take measures to improve operational efficiencies and mitigate the impact of
inflation and price escalations; however, we believe that future operational costs will
increase. |
|
|
|
Our financial results of operations are affected by fluctuations in currency exchange
rates. Under GAAP, all foreign currency-denominated monetary assets and liabilities (such
as cash and cash equivalents, accounts receivable, accounts payable, advances from
affiliates and deferred income taxes) are revalued and reported based on the prevailing
exchange rate at the end of the period. OPCO has entered into service agreements with
subsidiaries of Teekay Corporation whereby the subsidiaries operate and crew the vessels.
Payments under the service agreements are adjusted to reflect any change in Teekay
Corporations cost of providing services based on fluctuations in the value of the
Norwegian Kroner relative to the U.S. Dollar, which may result in increased payments under
the service agreements if the strength of the U.S. Dollar declines relative to the
Norwegian Kroner. |
|
|
|
Our net (loss) income is affected by fluctuations in the fair value of our derivatives.
Our interest rate swaps and some of our foreign currency forward contracts are not
designated as hedges for accounting purposes. Although we believe these derivative
instruments are economic hedges, the changes in their fair value are included in our
statements of (loss) income as unrealized gains or losses on non-designated derivatives.
The changes in fair value do not affect our cash flows, liquidity or cash distributions to
partners. |
|
|
|
Our operations are seasonal and our financial results vary as a consequence of
drydockings. Historically, the utilization of shuttle tankers in the North Sea is higher in
the winter months, as favorable weather conditions in the warmer months provide
opportunities for repairs and maintenance to our vessels and to offshore oil platforms.
Downtime for repairs and maintenance generally reduces oil production and, thus,
transportation requirements. In addition, we generally do not earn revenue when our vessels
are in scheduled and unscheduled drydocking. Eight vessels have completed drydocking in the
first nine months of 2010 and another two are anticipated to complete scheduled drydocking
during the fourth quarter of 2010. From time to time, unscheduled drydockings may cause
additional fluctuations in our financial results. |
Page 20 of 35
We manage our business and analyze and report our results of operations on the basis of four
business segments: the shuttle tanker segment, the conventional tanker segment, the FSO segment and
the FPSO segment, each of which are discussed below.
Shuttle Tanker Segment
As at September 30, 2010, our shuttle tanker fleet consisted of 34 vessels that operate under
fixed-rate contracts of affreightment, time charters and bareboat charters. Of the 34 shuttle
tankers, 26 were owned by OPCO (including five through 50% owned subsidiaries and three through a
67% owned subsidiary), six were chartered-in by OPCO and two were directly owned by us (including
one through a 50% owned subsidiary). All of these shuttle tankers provide transportation services
to energy companies, primarily in the North Sea and Brazil. Our shuttle tankers service the
conventional spot market from time to time.
The following table presents our shuttle tanker segments operating results for the three and nine
months ended September 30, 2010 and 2009, and compares its net revenues (which is a non-GAAP
financial measure) for the three and nine months ended September 30, 2010 and 2009 to revenues, the
most directly comparable GAAP financial measure, for the same periods. The following table also
provides a summary of the changes in calendar-ship-days by owned and chartered-in vessels for our
shuttle tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Three Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
133,338 |
|
|
|
132,794 |
|
|
|
0.4 |
|
Voyage expenses |
|
|
23,270 |
|
|
|
22,481 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
110,068 |
|
|
|
110,313 |
|
|
|
(0.2 |
) |
Vessel operating expenses |
|
|
33,442 |
|
|
|
32,418 |
|
|
|
3.2 |
|
Time-charter hire expense |
|
|
20,352 |
|
|
|
27,772 |
|
|
|
(26.7 |
) |
Depreciation and amortization |
|
|
26,786 |
|
|
|
23,670 |
|
|
|
13.2 |
|
General and administrative(1) |
|
|
11,212 |
|
|
|
10,506 |
|
|
|
6.7 |
|
Restructuring charge |
|
|
|
|
|
|
371 |
|
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
18,276 |
|
|
|
15,576 |
|
|
|
17.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
2,576 |
|
|
|
2,484 |
|
|
|
3.7 |
|
Chartered-in Vessels |
|
|
577 |
|
|
|
763 |
|
|
|
(24.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,153 |
|
|
|
3,247 |
|
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Nine Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
419,626 |
|
|
|
396,721 |
|
|
|
5.8 |
|
Voyage expenses |
|
|
82,355 |
|
|
|
56,651 |
|
|
|
45.4 |
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
337,271 |
|
|
|
340,070 |
|
|
|
(0.8 |
) |
Vessel operating expenses |
|
|
99,951 |
|
|
|
108,213 |
|
|
|
(7.6 |
) |
Time-charter hire expense |
|
|
68,814 |
|
|
|
89,061 |
|
|
|
(22.7 |
) |
Depreciation and amortization |
|
|
81,021 |
|
|
|
70,010 |
|
|
|
15.7 |
|
General and administrative(1) |
|
|
34,075 |
|
|
|
30,066 |
|
|
|
13.3 |
|
Restructuring charge |
|
|
119 |
|
|
|
4,053 |
|
|
|
(97.1 |
) |
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
53,291 |
|
|
|
38,667 |
|
|
|
37.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
7,589 |
|
|
|
7,371 |
|
|
|
3.0 |
|
Chartered-in Vessels |
|
|
1,877 |
|
|
|
2,497 |
|
|
|
(24.8 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,466 |
|
|
|
9,868 |
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the shuttle tanker segment based on estimated use of corporate
resources). |
The average size of our owned shuttle tanker fleet for the three and nine months ended September
30, 2010 increased compared to the same period last year due to the acquisition of one previously
in-chartered vessel in February 2010 by OPCOs majority owned subsidiary (or the 2010 Shuttle
Tanker Acquisition).
Page 21 of 35
The average size of our chartered-in shuttle tanker fleet decreased for the three and nine months
ended September 30, 2010, respectively, compared to the same period last year, primarily due to:
|
|
|
the redelivery of three chartered-in vessels to their owners in June 2009,
November 2009 and February 2010, respectively; and |
|
|
|
the 2010 Shuttle Tanker Acquisition. |
Net Revenues. Net revenues decreased for the three and nine months ended September 30, 2010 from
the same periods last year, primarily due to:
|
|
|
a decrease of $6.3 million for the nine months ended September 30, 2010 due to the
redelivery of one in-chartered vessel in June 2009 as it completed its time-charter
agreement; |
|
|
|
a decrease of $1.3 million for the nine months ended September 30, 2010 from a reduction
in the number of cargo liftings due to declining oil production at the Heidrun field, a
mature oil field in the North Sea that is serviced by certain shuttle tankers on contracts
of affreightment; |
|
|
|
a decrease of $0.9 million for the three and nine months ended September 30, 2010 from
the recovery of certain Norwegian environmental taxes from our customers in the Heidrun
field in the same periods last year; |
|
|
|
net decreases of $0.5 million and $0.2 million for the three and nine months ended
September 30, 2010, respectively, due to fewer revenue days from our shuttle tankers due to
declining oil production at mature oil fields in the North Sea, partially offset by an
increase in revenue days in the conventional spot market from increased demand for
conventional crude transportation; and |
|
|
|
a decrease of $0.3 million for the three months ended September 30,
2010 due to a decrease in rates on certain contracts of affreightment, partially offset by
an increase in rates on certain bareboat and time-charter contracts; |
|
|
|
an increase of $1.0 million for the nine months ended September 30, 2010 due to an
increase in reimbursable bunker costs and a net decrease in non-reimbursable bunker costs
resulting primarily from more revenue days in 2010, as compared to the same period last
year, partially offset by higher bunker prices as compared to the same period last year; |
|
|
|
an increase of $0.9 million for the three and nine months ended September 30, 2010 from
the recovery of certain taxes from a customer; |
|
|
|
a $0.8 million payment relating to a payment made to us by our joint venture partner
during the nine months ended September 30, 2010 as the number of drydock days for their
vessel exceeded the maximum allowed under our agreement with this joint venture partner; |
|
|
|
a net increase of $0.5 million for the three months ended September
30, 2010 due to an increase in reimbursable bunker costs partially offset by higher bunker
prices as compared to the same period last year; and |
|
|
|
a net increase of $2.8 million for the nine months ended September 30, 2010, due to
increased rates on certain bareboat and time-charter contracts, partially offset by a
decrease in rates on certain contracts of affreightment. |
Vessel Operating Expenses. Vessel operating expenses increased for the three months ended September 30, 2010 from the same period last year, primarily due to:
|
|
|
an increase of $1.4 million due to the 2010 Shuttle Tanker Acquisition; |
|
|
|
a net increase of $1.0 million due to an increase in maintenance activities performed
for certain vessels and the cost of services, spares and consumables during 2010, partially
offset by lower maintenance costs from drydockings compared to the same period last year;
and |
|
|
|
an increase of $0.4 million relating to crew training costs; |
|
|
|
a decrease of $0.7 million in crew and manning costs resulting primarily from cost
saving initiatives that commenced in 2009, as described below under restructuring charges; |
|
|
|
a decrease of $0.7 million relating to the net realized and unrealized changes in fair
value of our foreign currency forward contracts that are or have been designated as hedges
for accounting purposes; and |
|
|
|
a decrease of $0.3 million relating to port costs. |
Vessel Operating Expenses. Vessel operating expenses decreased for the nine months ended September
30, 2010 from the same period last year, primarily due to:
|
|
|
a decrease of $6.3 million relating to the net realized and unrealized changes in fair
value of our foreign currency forward contracts that are or have been designated as hedges
for accounting purposes; |
|
|
|
a decrease of $4.0 million due to decreases in the cost of services, spares and
consumables during 2010; |
|
|
|
a decrease of $3.5 million in crew and manning costs resulting primarily from cost
saving initiatives that commenced in 2009, as described below under restructuring charges; |
|
|
|
a decrease of $2.0 million due to the redelivery of one in-chartered vessel in June 2009
as it completed its time-charter agreement; and |
|
|
|
a decrease of $0.4 million relating to port costs; |
Page 22 of 35
|
|
|
an increase of $5.0 million due to the 2010 Shuttle Tanker Acquisition; |
|
|
|
an increase of $1.8 million relating to repairs and maintenance performed in 2010 on
certain vessels; and |
|
|
|
an increase of $1.2 million relating to crew training costs. |
Time-Charter Hire Expense. Time-charter hire expense decreased for the three and nine months ended
September 30, 2010, respectively, from the same periods last year, primarily due to:
|
|
|
decreases of $5.0 million and $19.3 million for the three and nine months ended
September 30, 2010, respectively, resulting from the redelivery of three in-chartered
vessels to their owners in June 2009, November 2009 and February 2010, respectively; and |
|
|
|
decreases of $3.6 million and $8.9 million for the three and nine months ended September
30, 2010, respectively, due to the 2010 Shuttle Tanker Acquisition; |
|
|
|
an increase of $1.8 million for the nine months ended September 30, 2010 due to less
off-hire in the in-chartered fleet; |
|
|
|
increases of $0.7 million and $4.3 million, respectively, for the three and nine months
ended September 30, 2010, due to increased spot in-chartering of vessels compared to the
same periods last year; |
|
|
|
increases of $0.2 million and $1.1 million, respectively, for the three and nine months
ended September 30, 2010, due to higher drydocking amortization relating to one of our
in-chartered vessels; and |
|
|
|
increases of $0.2 million and $0.5 million, respectively, for the three and nine months
ended September 30, 2010, due to increased rates on certain time-charter contracts. |
Depreciation and Amortization Expense. Depreciation and amortization expense increased for the
three and nine months ended September 30, 2010, respectively, from the same periods last year,
primarily due to a change in estimate of the useful life of certain capitalized drydocking expenditures,
increased drydockings in the second half of 2009 and the 2010 Shuttle Tanker Acquisition.
Restructuring Charges. Restructuring charges were $0.1 million for the nine months ended September
30, 2010 and $0.4 million and $4.1 million for the three and nine months ended September 30, 2009,
respectively, resulting from the completion of the reflagging of seven of our vessels from
Norwegian flag to Bahamian flag and a change in the nationality mix of our crews. Under this plan,
we recorded restructuring charges of approximately $4.9 million in total since the plan began in
2009. We expect the restructuring will result in a reduction in future crewing costs for these
vessels.
Conventional Tanker Segment
OPCO owns 11 Aframax conventional crude oil tankers, nine of which operate under fixed-rate time
charters with Teekay Corporation. The remaining two vessels, which have additional equipment for
lightering, operate under fixed-rate bareboat charters with Skaugen PetroTrans, Teekay
Corporations 50% owned joint venture.
The following table presents our conventional tanker segments operating results for the three and
nine months ended September 30, 2010 and 2009, and compares its net revenues (which is a non-GAAP
financial measure) for the three and nine months ended September 30, 2010 and 2009 to revenues, the
most directly comparable GAAP financial measure, for the same periods. The following table also
provides a summary of the changes in calendar-ship-days by owned vessels for our conventional
tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Three Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
26,284 |
|
|
|
31,409 |
|
|
|
(16.3 |
) |
Voyage expenses |
|
|
4,168 |
|
|
|
6,610 |
|
|
|
(36.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
22,116 |
|
|
|
24,799 |
|
|
|
(10.8 |
) |
Vessel operating expenses |
|
|
6,144 |
|
|
|
6,380 |
|
|
|
(3.7 |
) |
Depreciation and amortization |
|
|
7,239 |
|
|
|
6,208 |
|
|
|
16.6 |
|
General and administrative (1) |
|
|
1,040 |
|
|
|
954 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
7,693 |
|
|
|
11,257 |
|
|
|
(31.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
1,012 |
|
|
|
1,012 |
|
|
|
|
|
Page 23 of 35
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Nine Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
84,280 |
|
|
|
92,738 |
|
|
|
(9.1 |
) |
Voyage expenses |
|
|
14,661 |
|
|
|
19,034 |
|
|
|
(23.0 |
) |
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
69,619 |
|
|
|
73,704 |
|
|
|
(5.5 |
) |
Vessel operating expenses |
|
|
17,515 |
|
|
|
18,029 |
|
|
|
(2.9 |
) |
Depreciation and amortization |
|
|
18,902 |
|
|
|
18,166 |
|
|
|
4.1 |
|
General and administrative (1) |
|
|
3,372 |
|
|
|
3,354 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
29,830 |
|
|
|
34,155 |
|
|
|
(12.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
3,003 |
|
|
|
3,003 |
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the conventional tanker segment based on estimated use of corporate
resources). |
Net Revenues. Net revenues decreased for the three and nine months ended September 30, 2010, from
the same periods last year primarily due to:
|
|
|
decreases of $2.3 million and $5.4 million, respectively, for the three and nine months
ended September 30, 2010, due to an increased number of offhire days from scheduled
drydockings compared to the same periods last year; and |
|
|
|
a net decrease of $0.5 million in net bunker revenues for the three months ended
September 30, 2010 due to an increased number of offhire days from scheduled drydockings
compared to the same period last year, partially offset by an increase in bunker index
prices which is used to determine the recovery compared to the same period last year; |
|
|
|
a net increase of $0.9 million in net bunker revenues for the nine months ended
September 30, 2010 due to an increase in bunker index prices compared to the same period
last year, partially offset by an increased number of offhire days from scheduled
drydockings compared to the same period last year; and |
|
|
|
increases of $0.1 million and $0.5 million, respectively, for the three and nine months
ended September 30, 2010, from increases in the daily hire rates for all nine time-charter
contracts with Teekay Corporation. |
Vessel Operating Expenses. Vessel operating expenses decreased for the three and nine months ended
September 30, 2010, from the same periods last year, primarily due to:
|
|
|
a decrease of $0.5 million for the nine months ended September 30, 2010 due to decreases
in crew levels and transportation costs as a result of a vessel being managed by Teekay
Corporation that had been managed previously by an external party; |
|
|
|
decreases of $0.1 million and $0.3 million, respectively, relating to insurance costs
for the three and nine months ended September 30, 2010; |
|
|
|
a decrease of $0.1 million for the three months ended September 30, 2010 due to a
decrease in the consumption and use of consumables, lube oil, and freight; and |
|
|
|
an increase of $0.3 million for the nine months ended September 30, 2010 due to an
increase in the consumption and use of consumables, lube oil, and freight. |
Depreciation and Amortization Expense. Depreciation and amortization expense increased for the
three and nine months ended September 30, 2010, from the same periods last year, primarily due to
increased drydockings in 2010.
FSO Segment
Our FSO fleet consists of six vessels that operate under fixed-rate time charters or fixed-rate
bareboat charters. Of the six FSO units, four are owned by OPCO, and two are owned by us. FSO units
provide an on-site storage solution to oil field installations that have no oil storage facilities
or that require supplemental storage. Our revenues and vessel operating expenses for the FSO
segment are affected by fluctuations in currency exchange rates, as a significant component of
revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian
Dollars for certain vessels. The strengthening of the U.S. Dollar relative to the Norwegian Kroner
and Australian Dollar may result in a significant decrease in our revenues and a decrease in vessel
operating expenses.
Page 24 of 35
The following table presents our FSO segments operating results for the three and nine months
ended September 30, 2010 and 2009, and compares its net revenues (which is a non-GAAP financial
measure) for the three and nine months ended September 30, 2010 and 2009 to revenues, the most
directly comparable GAAP financial measure, for the same periods. The following table also provides
a summary of the changes in calendar-ship-days for our FSO segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Three Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
17,031 |
|
|
|
14,781 |
|
|
|
15.2 |
|
Voyage expenses |
|
|
254 |
|
|
|
272 |
|
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
16,777 |
|
|
|
14,509 |
|
|
|
15.6 |
|
Vessel operating expenses |
|
|
8,296 |
|
|
|
7,019 |
|
|
|
18.2 |
|
Depreciation and amortization |
|
|
3,479 |
|
|
|
5,470 |
|
|
|
(36.4 |
) |
General and administrative (1) |
|
|
837 |
|
|
|
749 |
|
|
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
4,165 |
|
|
|
1,271 |
|
|
|
227.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
552 |
|
|
|
460 |
|
|
|
20.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Nine Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
56,100 |
|
|
|
45,970 |
|
|
|
22.0 |
|
Voyage expenses |
|
|
579 |
|
|
|
720 |
|
|
|
(19.6 |
) |
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
55,521 |
|
|
|
45,250 |
|
|
|
22.7 |
|
Vessel operating expenses |
|
|
25,121 |
|
|
|
19,412 |
|
|
|
29.4 |
|
Depreciation and amortization |
|
|
12,725 |
|
|
|
16,291 |
|
|
|
(21.9 |
) |
General and administrative (1) |
|
|
2,856 |
|
|
|
1,895 |
|
|
|
50.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
14,819 |
|
|
|
7,652 |
|
|
|
93.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
1,638 |
|
|
|
1,365 |
|
|
|
20.0 |
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the FSO segment based on estimated use of corporate
resources). |
We acquired the Falcon Spirit from Teekay Corporation in April 2010. However, as a result of the
inclusion of the Dropdown Predecessor, the Falcon Spirit has been included for accounting purposes
in our results as if it was acquired on December 15, 2009, when the vessel began operations under
the ownership of Teekay Corporation. Please read Items You Should Consider When Evaluating Our
Results of Operations Our financial results reflect the results of the interests in vessels
acquired from Teekay Corporation for all periods the vessels were under common control.
Net Revenues. Net revenues increased for the three and nine months ended September 30, 2010,
respectively, from the same periods last year, primarily due to:
|
|
|
increases of $2.7 million and $7.9 million, respectively, for the three and
nine months ended September 30, 2010, due to the inclusion of the Falcon Spirit commencing
in December 2009; and |
|
|
|
increases of $0.4 million and $3.5 million, respectively, for the three and
nine months ended September 30, 2010, due to foreign currency exchange differences as
compared to the same periods last year; |
|
|
|
net decreases of $0.8 million and $1.0 million, respectively, for the three
and nine months ended September 30, 2010, due to a lower charter rate on the Navion Saga in
accordance with the charter contract that took effect in the second quarter of 2010 as
compared to the same periods last year, partially offset by a one-time reimbursement from
customers for certain crewing costs in the three months ended March 31, 2010. |
Vessel Operating Expenses. Vessel operating expenses increased for the three and nine months ended
September 30, 2010, from the same periods last year, primarily due to:
|
|
|
increases of $0.8 million and $2.5 million, respectively, for the three and
nine months ended September 30, 2010, due to the inclusion of the Falcon Spirit commencing
in December 2009; |
|
|
|
increase of $0.7 million for the nine months ended September 30, 2010 due to
an increase in crewing costs; |
|
|
|
increases of $0.1 million and $1.6 million, respectively, for the three and
nine months ended September 30, 2010, due to weakening of the U.S. Dollar against the
Australian Dollar compared to the same periods last year; and |
|
|
|
increases of $0.4 million and $0.9 million, respectively, for the three and
nine months ended September 30, 2010, due to increase in service and maintenance cost. |
Page 25 of 35
Depreciation and amortization. Depreciation decreased by $2.0 million and $3.6 million,
respectively, for the three and nine months ended September 30, 2010, from the same periods last
year as the costs relating to the conversion of the Navion Saga from a shuttle tanker to an FSO
unit were fully depreciated at the end of the fixed term of its contract in April 2010.
FPSO Segment
As at September 30, 2010, our FPSO fleet consisted of the Petrojarl Varg, which is owned by us and
operates under a fixed-rate time charter. We use the FPSO unit to provide production, processing
and storage services to oil companies operating offshore oil field installations. These services
are typically provided under long-term, fixed-rate charter contracts or FPSO service contracts.
Historically, the utilization of FPSO units and other vessels in the North Sea is higher in the
winter months, as favorable weather conditions in the summer months provide opportunities for
repairs and maintenance to our vessels and the offshore oil platforms, which generally reduces oil
production.
The following table presents our FPSO segments operating results for the three and nine months
ended September 30, 2010 and 2009 and also provides a summary of the calendar-ship-days for our
FPSO segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Three Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
23,726 |
|
|
|
25,525 |
|
|
|
(7.0 |
) |
Vessel operating expenses |
|
|
13,223 |
|
|
|
10,020 |
|
|
|
32.0 |
|
Depreciation and amortization |
|
|
5,119 |
|
|
|
5,633 |
|
|
|
(9.1 |
) |
General and administrative (1) |
|
|
1,361 |
|
|
|
631 |
|
|
|
115.7 |
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
4,023 |
|
|
|
9,241 |
|
|
|
(56.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
92 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
Nine Months Ended September 30, |
|
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
77,763 |
|
|
|
73,031 |
|
|
|
6.5 |
|
Vessel operating expenses |
|
|
33,539 |
|
|
|
29,112 |
|
|
|
15.2 |
|
Depreciation and amortization |
|
|
15,361 |
|
|
|
16,899 |
|
|
|
(9.1 |
) |
General and administrative (1) |
|
|
3,835 |
|
|
|
3,678 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
25,028 |
|
|
|
23,342 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
273 |
|
|
|
273 |
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the FPSO segment based on estimated use of corporate resources). |
We acquired the Petrojarl Varg from Teekay Corporation in September 2009. However, as a result of
the inclusion of the Dropdown Predecessor, the Petrojarl Varg has been included for accounting
purposes in our results as if it was acquired on October 1, 2006, when Teekay Corporation acquired
its initial 65% interest in the Petrojarl Varg. Please read Items You Should Consider When
Evaluating Our Results of Operations Our financial results reflect the results of the interests
in vessels acquired from Teekay Corporation for all periods the vessels were under common control.
Revenues. Revenues decreased for the three months ended September 30, 2010 from the same period
last year, primarily due to a planned maintenance shutdown of 13 days in the third quarter of 2010.
Revenues increased for the nine months ended September 30, 2010 from the same period last year, as
the Petrojarl Varg commenced a new four-year, fixed-rate contract extension with Talisman Energy
under a new rate structure beginning in the third quarter of 2009.
Vessel Operating Expenses. Vessel operating expenses increased for the three and nine months ended
September 30, 2010, from the same periods last year, primarily due to:
|
|
|
increases of $2.4 million and $2.1 million, respectively, for the three and nine months
ended September 30, 2010, due to increased repairs compared to the same periods last year; |
|
|
|
an increase of $1.8 million for the nine months ended September 30, 2010 due to the
weakening of the U.S. Dollar against the Norwegian Kroner compared to the same period last
year; and |
|
|
|
increases of $1.1 million for the three and nine months ended September 30, 2010,
respectively, due to higher crewing and manning costs compared to the same period last
year; |
Page 26 of 35
|
|
|
a decrease of $0.2 million for the three months ended September 30, 2010 due to the
strengthening of the U.S. Dollar against the Norwegian Kroner compared to the same period
last year; and |
|
|
|
decreases of $0.1 million and $0.5 million, respectively, relating to the net realized
and unrealized changes in fair value of our foreign currency forward contracts that are or
have been designated as hedges for accounting purposes. |
Depreciation and Amortization. Depreciation and amortization expense decreased for the three and
nine months ended September 30, 2010, respectively, from the same periods last year due to a
reassessment of the residual values of the Petrojarl Varg.
Other Operating Results
General and Administrative Expenses. General and administrative expenses increased to $14.5 million
and $44.1 million for the three and nine months ended September 30, 2010, respectively, from $12.8
million and $39.0 million, respectively, for the same periods last year, mainly due to an increase
in management fees payable to a subsidiary of Teekay Corporation for services rendered to us,
mainly from the acquisition of the Falcon Spirit and increases in office costs, and an increase in
unrealized losses on foreign currency forward contracts that are or have been designated as hedges
for accounting purposes.
Interest Expense. Interest expense, which excludes realized and unrealized gains and losses from
interest rate swaps, decreased to $7.3 million and $23.0 million, respectively, for the three and
nine months ended September 30, 2010, from $9.1 million and $33.5 million, respectively, for the
same periods last year, primarily due to:
|
|
|
decreases of $1.2 million and $10.2 million, respectively, due to lower interest rates
during the three and nine months ended September 30, 2010 compared to the same periods last
year; and |
|
|
|
decreases of $0.5 million and $1.6 million, respectively, for the three and nine months
ended September 30, 2010, related to scheduled repayments and prepayments of debt during
2009 and 2010; |
|
|
|
increases of $0.5 million and $1.4 million, respectively, for the three and nine months
ended September 30, 2010, related to loan costs; and |
|
|
|
an increase of $0.4 million for the nine months ended September 30, 2010 relating to the
interest expense attributable to the operations of the Falcon Spirit that was incurred by
Teekay Corporation and allocated to us as part of the results of the Dropdown Predecessor. |
Realized and Unrealized (Losses) Gains on Non-designated Derivatives. Net realized and unrealized
(losses) gains on non-designated derivatives were ($30.8) million and ($108.9) million,
respectively, for the three and nine months ended September 30, 2010, compared to ($37.3) million
and $37.7 million, respectively, for the same periods last year, as detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
(in thousands of U.S. dollars) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Realized losses relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(10,327 |
) |
|
|
(12,743 |
) |
|
|
(32,080 |
) |
|
|
(34,621 |
) |
Foreign currency forward contracts |
|
|
(150 |
) |
|
|
(93 |
) |
|
|
(645 |
) |
|
|
(4,071 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,477 |
) |
|
|
(12,836 |
) |
|
|
(32,725 |
) |
|
|
(38,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains relating to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(28,275 |
) |
|
|
(24,942 |
) |
|
|
(80,327 |
) |
|
|
71,538 |
|
Foreign currency forward contracts |
|
|
7,983 |
|
|
|
476 |
|
|
|
4,123 |
|
|
|
4,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,292 |
) |
|
|
(24,466 |
) |
|
|
(76,204 |
) |
|
|
76,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized (losses) gains on
non-designated derivative instruments |
|
|
(30,769 |
) |
|
|
(37,302 |
) |
|
|
(108,929 |
) |
|
|
37,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Exchange Gains (Losses). Foreign currency exchange gains were $1.7 million and
$1.2 million for the three and nine months ended September 30, 2010, compared to losses of ($4.4)
million and ($8.0) million, respectively, for the same periods last year. Our foreign currency
exchange losses and gains, substantially all of which are unrealized, are due primarily to the
relevant period-end revaluation of Norwegian Kroner-denominated monetary assets and liabilities for
financial reporting purposes. Gains reflect a stronger U.S. Dollar against the Norwegian Kroner on
the date of revaluation or settlement compared to the rate in effect at the beginning of the
period. Losses reflect a weaker U.S. Dollar against the Norwegian Kroner on the date of revaluation
or settlement compared to the rate in effect at the beginning of the period.
Page 27 of 35
Income Tax (Expense) Recovery. Income tax (expense) recovery was ($8.8) million and $8.7 for the
three and nine months ended September 30, 2010, compared to ($20.2) million and ($26.9) million,
respectively, for the same periods last year. The respective $11.5 million and $35.6 million
increases to income tax recovery were primarily due to increases in deferred income tax recoveries
relating to unrealized foreign exchange translation losses.
Other Income. Other income was $1.6 million and $5.6 million for the three and nine months ended
September 30, 2010, compared to $2.1 million and $7.1 million, respectively, for the same periods
last year, which was primarily comprised of leasing income from our volatile organic compound
equipment.
Net (Loss) Income. As a result of the foregoing factors, net (loss) income amounted to ($9.1)
million and $7.2 million for the three and nine months ended September 30, 2010, compared to net
(loss) income of ($31.5) million and $81.2 million, respectively, for the same periods last year.
Liquidity and Capital Resources
Liquidity and Cash Needs
As at September 30, 2010, our total cash and cash equivalents were $158.5 million, compared to
$101.7 million at December 31, 2009. Our total liquidity, including cash, cash equivalents and
undrawn long-term borrowings, was $448.0 million as at September 30, 2010, compared to $285.7
million as at December 31, 2009. The 2009 cash and liquidity amounts exclude amounts attributable
to the Dropdown Predecessor. The increase in liquidity is primarily the result of the equity
offering in August 2010 and from our cash flow from operations.
In addition to distributions on our equity interests, our primary short-term liquidity needs are to
fund general working capital requirements and drydocking expenditures, while our long-term
liquidity needs primarily relate to expansion and investment capital expenditures and maintenance
capital expenditures and debt repayment. Expansion capital expenditures are primarily for the
purchase or construction of vessels to the extent the expenditures increase the operating capacity
of or revenue generated by our fleet, while maintenance capital expenditures primarily consist of
drydocking expenditures and expenditures to replace vessels in order to maintain the operating
capacity of or revenue generated by our fleet. Investment capital expenditures are those capital
expenditures that are neither maintenance capital expenditures nor expansion capital expenditures.
We believe that our existing cash and cash equivalents and undrawn long-term borrowings, in
addition to all other sources of cash including cash from operations, will be sufficient to meet
our existing liquidity needs for at least the next 12 months. Generally, our long-term sources of
funds are from cash from operations, long-term bank borrowings and other debt or equity financings,
or a combination thereof. Because we and OPCO
distribute all of our and its available cash, we expect that we and OPCO will rely upon external
financing sources, including bank borrowings and the issuance of debt and equity securities, to
fund acquisitions and expansion and investment capital expenditures, including opportunities we may
pursue under the omnibus agreement with Teekay Corporation and other of its affiliates.
The passage of any climate control legislation or other regulatory initiatives that restrict
emissions of greenhouse gases could have a significant financial and operational impact on our
business, which we cannot predict with certainty at this time. Such regulatory measures could
increase our costs related to operating and maintaining our vessels and require us to install new
emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or
administer and manage a greenhouse gas emissions program. In addition, increased regulation of
greenhouse gases may, in the long term, lead to reduced demand for oil and reduced demand for our
services.
Cash Flows. The following table summarizes our sources and uses of cash for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(in thousands of U.S. dollars) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Net cash flow from operating activities |
|
|
225,528 |
|
|
|
140,606 |
|
Net cash flow used for financing activities |
|
|
(180,811 |
) |
|
|
(134,495 |
) |
Net cash flow used for investing activities |
|
|
12,002 |
|
|
|
5,287 |
|
Operating Cash Flows. Net cash flow from operating activities increased to $225.5 million for the
nine months ended September 30, 2010, from $140.6 million for the same period in 2009, due
primarily to a net increase in changes to non-cash working capital items, decreases in drydock
expenditures, time-charter hire expenses, and interest expense, increased rates from our shuttle
tanker operations, the acquisition of the Falcon Spirit, and an increase in the contract rate for
the Petrojarl Varg, partially offset by an increase in the number of offhire days related to
drydockings, less revenue days from our shuttle tanker operations, and the redelivery of one
in-chartered vessel.
Financing Cash Flows. During the nine months ended September 30, 2010, scheduled debt repayments
and prepayments on debt totaled $362.5 million. Net proceeds from long-term debt of $119.4 million
were used primarily to prepay long-term debt and to finance a portion of the acquisition of the
Falcon Spirit from Teekay Corporation.
On March 22, 2010, we completed a public offering of 5.1 million common units (including 660,000
common units acquired by the underwriters upon exercise of their overallotment option) at a price
of $19.48 per unit, for gross proceeds of $100.6 million (including the General Partners total
contribution of $2.0 million). We used the net proceeds of $95.5 million to repay the remaining
$60.0 million of the Teekay Corporation vendor financing related to the September 2009 acquisition
of the Petrojarl Varg, and to finance a portion of the acquisition of Teekay Corporations interest
in the Falcon Spirit.
Page 28 of 35
On August 20, 2010, we completed a public offering of 6.0 million common units (including 787,500
units issued upon the exercise of the underwriters overallotment option) at a price of $22.15 per
unit, for gross proceeds of $136.5 million (including the General Partners $2.7 million
proportionate capital contribution). We used the net proceeds of $130.4 million from the equity
offering to repay a portion of its outstanding debt under one of its revolving credit facilities.
During the nine months ended September 30, 2009, scheduled debt repayments and prepayments on debt
totaled $265.2 million.
Cash distributions paid by our subsidiaries to non-controlling interest during the nine months
ended September 30, 2010 and 2009 totaled $59.0 million and $44.1 million, respectively. Cash
distributions paid by us to our unitholders and our General Partner during the nine months ended
September 30, 2010 and 2009, totaled $60.6 million and $42.8 million, respectively. Subsequent to
September 30, 2010, cash distributions for the three months ended September 30, 2010 were declared
and paid on November 12, 2010 and totaled $24.5 million.
Investing Cash Flows. During the nine months ended September 30, 2010, net cash flow from investing
activities was $12.0 million, primarily relating to scheduled lease payments of $17.2 million
received from the leasing of our volatile organic compound emissions equipment and direct financing
lease assets, partially offset by expenditures for assets and equipment and investment in direct
financing lease assets.
During the nine months ended September 30, 2009, net cash flow from investing activities was $5.3
million, primarily relating to scheduled lease payments of $17.0 million received from the leasing
of our volatile organic compound emissions equipment, partially offset by expenditures for assets
and equipment.
Credit Facilities
As at September 30, 2010, our total debt was $1.49 billion, compared to $1.78 billion as at
December 31, 2009, including amounts attributable at December 31, 2009 to the Dropdown Predecessor.
Our revolving credit facilities and term loans are described in Item 1 Financial Statements:
Note 6 Long-Term Debt. All of our vessel financings are collateralized by the applicable
vessels. The term loans were used to finance our six 50% owned subsidiaries and our revolving
credit facility agreements contain typical covenants and other restrictions, including, in some
cases, those that restrict the relevant subsidiaries from:
|
|
|
incurring or guaranteeing indebtedness; |
|
|
|
changing ownership or structure, including by mergers, consolidations,
liquidations and dissolutions; |
|
|
|
making dividends or distributions when in default of the relevant loans; |
|
|
|
making capital expenditures in excess of specified levels; |
|
|
|
making certain negative pledges or granting certain liens; |
|
|
|
|
selling, transferring, assigning or conveying assets; or |
|
|
|
entering into a new line of business. |
We conduct our funding and treasury activities within corporate policies designed to minimize
borrowing costs and maximize investment returns while maintaining the safety of the funds and
appropriate levels of liquidity for our purposes. We hold cash and cash equivalents primarily in
U.S. Dollars.
Contractual Obligations and Contingencies
The following table summarizes our long-term contractual obligations as at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
2011 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
of |
|
|
and |
|
|
and |
|
|
Beyond |
|
|
|
Total |
|
|
2010 |
|
|
2012 |
|
|
2014 |
|
|
2014 |
|
|
|
(in millions of U.S. Dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
|
1,492.5 |
|
|
|
37.2 |
|
|
|
351.7 |
|
|
|
915.2 |
|
|
|
188.4 |
|
Chartered-in vessels (Operating leases) |
|
|
174.1 |
|
|
|
17.5 |
|
|
|
103.4 |
|
|
|
46.4 |
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
1,666.6 |
|
|
|
54.7 |
|
|
|
455.1 |
|
|
|
961.6 |
|
|
|
195.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes expected interest payments of $4.9 million (remainder of 2010), $33.8 million (2011
and 2012), $19.8 million (2013 and 2014) and $4.5 million (beyond 2014). Expected interest
payments are based on LIBOR, plus margins which ranged between 0.45% and 3.25% as at September
30, 2010. |
Page 29 of 35
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or
future material effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
We prepare our financial statements in accordance with GAAP, which require us to make estimates in
the application of our accounting policies based on our best assumptions, judgments and opinions.
On a regular basis, management reviews the accounting policies, assumptions, estimates and
judgments to ensure that our consolidated financial statements are presented fairly and in
accordance with GAAP. However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates, and such differences
could be material. Accounting estimates and assumptions discussed in this section are those that we
consider to be the most critical to an understanding of our financial statements because they
inherently involve significant judgments and uncertainties. For a further description of our
material accounting policies, please read Item 5 Operating and Financial Review and Prospects
in our Annual Report on Form 20-F for the year ended December 31, 2009.
Goodwill
As of September 30, 2010, the shuttle tanker segment had goodwill attributable to it. During the
third quarter of 2009, we determined there were indicators of impairment present within the shuttle
tanker segment. Consequently, an interim goodwill impairment test was conducted on this reporting
unit. This interim goodwill impairment test determined that the fair value of the reporting unit
exceeded its carrying value by approximately 75%; as a result we determined such goodwill was not
impaired at that date. As of September 30, 2010, the carrying value of goodwill for this reporting
unit was $127.1 million. Key assumptions that impact the fair value of this reporting unit include
our ability to do the following: maintain or improve the utilization of our vessels; redeploy
existing vessels on the expiry of their current charters; control or reduce operating expenses;
pass on operating cost increases to our customers in the form of higher charter rates; and continue
to grow the business. Other key assumptions include the operating life of our vessels, our cost of
capital, the volume of production from certain offshore oil fields, and the fair value of our
credit facilities. If actual future results are less favorable than expected results in one or more
of these key assumptions, an impairment of goodwill may occur.
However, certain factors that impact our goodwill impairment test are inherently difficult to
forecast and, as such, we cannot provide any assurances that an impairment will or will not occur
in the future. An assessment for impairment involves a number of assumptions and estimates that are
based on factors that are beyond our control. These are discussed in more detail in the following
section entitled Forward-Looking Statements.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the three and nine months ended September 30, 2010 contains certain
forward-looking statements (as such term is defined in Section 27A of the Securities Exchange Act
of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning
future events and our operations, performance and financial condition, including, in particular,
statements regarding:
|
|
|
our future growth prospects; |
|
|
|
results of operations and revenues and expenses; |
|
|
|
our belief that the master time charter arrangement with Statoil will
provide more seasonally stable cash flows and predictability and the use of the Aframax
newbuilding shuttle tankers under the new arrangement |
|
|
|
offshore and tanker market fundamentals, including the balance of supply and
demand in the offshore and tanker market; |
|
|
|
future capital expenditures and availability of capital resources to fund
capital expenditures; |
|
|
|
offers of shuttle tankers, FSOs and FPSOs and related contracts from Teekay
Corporation and our accepting the offers; |
|
|
|
obtaining offshore projects that we or Teekay Corporation bid on or may be
awarded; |
|
|
|
delivery dates of and financing for newbuildings or existing vessels; |
|
|
|
vessel operating and crewing costs for vessels; |
|
|
|
entrance into joint ventures and partnerships with companies; |
|
|
|
the commencement of service of newbuildings or existing vessels; |
Page 30 of 35
|
|
|
the duration of drydockings; |
|
|
|
potential newbuilding order cancellations; |
|
|
|
the future valuation of goodwill; |
|
|
|
our compliance with covenants under our credit facilities; |
|
|
|
our hedging activities relating to foreign exchange, interest rate and spot
market risks; |
|
|
|
the ability of the counterparties for our derivative contracts to fulfill
their contractual obligations; and |
|
|
|
our exposure to foreign currency fluctuations, particularly in Norwegian
Kroner. |
Forward-looking statements include, without limitation, any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and may contain the words believe,
anticipate, expect, estimate, project, will be, will continue, will likely result,
plan, intend or words or phrases of similar meanings. These statements involve known and
unknown risks and are based upon a number of assumptions and estimates that are inherently subject
to significant uncertainties and contingencies, many of which are beyond our control. Actual
results may differ materially from those expressed or implied by such forward-looking statements.
Important factors that could cause actual results to differ materially include, but are not limited
to: changes in production of oil from offshore oil fields; changes in the demand for offshore oil
transportation, production and storage services; greater or less than anticipated levels of vessel
newbuilding orders or greater or less than anticipated rates of vessel scrapping; changes in
trading patterns; changes in the Partnerships expenses; changes in applicable industry laws and
regulations and the timing of implementation of new laws and regulations; potential inability to
implement our growth strategy; competitive factors in the markets in which we operate; potential
for early termination of long-term contracts and our potential inability to renew or replace
long-term contracts; loss of any customer, time charter or vessel; shipyard production or vessel
delivery delays; our potential inability to raise financing to purchase additional vessels; our
exposure to currency exchange rate fluctuations; changes to the amount of proportion of revenues
and expenses denominated in foreign currencies; and other factors detailed from time to time in our
periodic reports filed with the SEC, including our Annual Report on Form 20-F for the year ended
December 31, 2009. We do not intend to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in our expectations with respect
thereto or any change in events, conditions or circumstances on which any such statement is based.
Page 31 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
PART I FINANCIAL INFORMATION
|
|
|
ITEM 3 |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our borrowings that require
us to make interest payments based on LIBOR. Significant increases in interest rates could
adversely affect operating margins, results of operations and our ability to service debt. We use
interest rate swaps to reduce exposure to market risk from changes in interest rates. The principal
objective of these contracts is to minimize the risks and costs associated with the floating-rate
debt.
In order to minimize counterparty risk, we only enter into derivative transactions with
counterparties that are rated A- or better by Standard & Poors or A3 or better by Moodys at the
time of the transactions. In addition, to the extent possible and practical, interest rate swaps
are entered into with different counterparties to reduce concentration risk.
The tables below provide information about financial instruments as at September 30, 2010 that are
sensitive to changes in interest rates. For long-term debt, the table presents principal payments
and related weighted-average interest rates by expected maturity dates. For interest rate swaps,
the table presents notional amounts and weighted-average interest rates by expected contractual
maturity dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date |
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
|
Value |
|
|
|
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
after |
|
|
Total |
|
|
Liability |
|
|
Rate (1) |
|
|
|
(in millions of U.S. dollars, except percentages) |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (2) |
|
|
37.2 |
|
|
|
187.4 |
|
|
|
164.3 |
|
|
|
209.6 |
|
|
|
705.6 |
|
|
|
188.4 |
|
|
|
1,492.5 |
|
|
|
(1,402.7 |
) |
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount (3) |
|
|
58.1 |
|
|
|
108.7 |
|
|
|
214.2 |
|
|
|
119.9 |
|
|
|
40.3 |
|
|
|
663.5 |
|
|
|
1,204.7 |
|
|
|
(157.6 |
) |
|
|
3.9 |
% |
Average Fixed Pay Rate (2) |
|
|
2.6 |
% |
|
|
2.7 |
% |
|
|
2.5 |
% |
|
|
2.6 |
% |
|
|
4.8 |
% |
|
|
4.8 |
% |
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Rate refers to the weighted-average effective interest rate for our debt, including the
margin paid on our floating-rate debt and the average fixed pay rate for interest rate swaps.
The average fixed pay rate for interest rate swaps excludes the margin paid on the
floating-rate debt, which as of September 30, 2010 ranged between 0.45% and 3.25%. |
|
(2) |
|
Interest payments on floating-rate debt and interest rate swaps are based on LIBOR. |
|
(3) |
|
The average variable receive rate for interest rate swaps is set quarterly at the 3-month
LIBOR or semi-annually at the 6-month LIBOR. |
Page 32 of 35
Foreign Currency Fluctuation Risk
Our functional currency is U.S. dollars because virtually all of our revenues and most of our
operating costs are in U.S. Dollars. We incur certain vessel operating expenses and general and
administrative expenses in foreign currencies, the most significant of which is the Norwegian
Kroner and, to a lesser extent, Australian Dollars, British Pounds, Euros and Singapore Dollars.
There is a risk that currency fluctuations will have a negative effect on the value of cash flows.
We may continue to seek to hedge certain of our currency fluctuation risks in the future. At
September 30, 2010, we were committed to the following foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Forward |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
|
(thousands) |
|
|
Rate (1) |
|
|
(in thousands of U.S. Dollars) |
|
Norwegian Kroner |
|
|
708,804 |
|
|
|
6.27 |
|
|
$ |
18,009 |
|
|
$ |
59,758 |
|
|
$ |
35,196 |
|
British Pound |
|
|
4,790 |
|
|
|
0.66 |
|
|
|
462 |
|
|
|
5,646 |
|
|
|
1,111 |
|
Euro |
|
|
20,973 |
|
|
|
0.74 |
|
|
|
5,298 |
|
|
|
17,031 |
|
|
|
6,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,769 |
|
|
$ |
82,435 |
|
|
$ |
42,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average forward rate represents the contracted amount of foreign currency one U.S. Dollar
will buy. |
Although the majority of transactions, assets and liabilities are denominated in U.S. Dollars, OPCO
had Norwegian Kroner-denominated deferred income taxes of approximately 76.4 million (U.S. Dollar
13.0 million) at September 30, 2010. Neither we nor OPCO have entered into any forward contracts to
protect against currency fluctuations on any future taxes.
Commodity Price Risk
We are exposed to changes in forecasted bunker fuel costs for certain vessels being
time-chartered-out and for vessels servicing certain contracts of affreightment. We may use bunker
fuel swap contracts as economic hedges to protect against changes in bunker fuel costs. As at
September 30, 2010, we are not committed to any bunker fuel swap contracts.
Page 33 of 35
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
PART II OTHER INFORMATION
|
|
|
Item 1 |
|
Legal Proceedings |
None
In addition to the other information set forth in this Report on Form 6-K, you should
carefully consider the risk factors discussed in Part I, Item 3. Key Information-Risk
Factors in our Annual Report on Form 20-F for the year ended December 31, 2009, which could
materially affect our business, financial condition or results of operations.
|
|
|
Item 2 |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
None
|
|
|
Item 3 |
|
Defaults Upon Senior Securities |
None
|
|
|
Item 5 |
|
Other Information |
None
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION
STATEMENT OF THE PARTNERSHIP:
|
|
REGISTRATION STATEMENT ON FORM S-8 (NO. 333-147682) FILED WITH THE SEC ON NOVEMBER 28,
2007 |
|
|
|
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-150682) FILED WITH THE SEC ON MAY 6, 2008 |
Page 34 of 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
TEEKAY OFFSHORE PARTNERS L.P.
By: Teekay Offshore GP L.L.C., its general partner
|
|
Date: November 29, 2010 |
By: |
/s/ Peter Evensen
|
|
|
|
Peter Evensen |
|
|
|
Chief Executive Officer and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Page 35 of 35