Teekay Offshore Partners L P : Reports Fourth Quarter and Annual 2016 Results

HAMILTON, BERMUDA--(Marketwired - Feb 23, 2017) -

Highlights

• Reported GAAP net income attributable to the partners and preferred unitholders of $92.0 million and adjusted net income attributable to the partners and preferred unitholders⁽¹⁾ of $8.5 million (excluding items listed in Appendix A to this release) in the fourth quarter of 2016 .
• Generated GAAP income from vessel operations of $56.5 million and $230.9 million, respectively, and total cash flow from vessel operations⁽¹⁾ of $134.8 million and $584.3 million, respectively, in the fourth quarter and fiscal year 2016.
• Generated distributable cash flow⁽¹⁾ of $21.6 million, or $0.15 per common unit, in the fourth quarter of 2016 and $161.3 million, or $1.28 per common unit, during 2016.
• Finalizing a new five-year North Sea shuttle tanker contract of affreightment (CoA) in January 2017.
• Sold a 1995-built shuttle tanker, the Navion Europa, for net proceeds of $14.4 million, resulting in a gain of approximately $7 million in November 2016.

Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (NYSE:TOO) (Teekay Offshore or the Partnership), today reported the Partnership's results for the quarter and year ended December 31, 2016.

CEO Commentary

"The Partnership's results for the fourth quarter of 2016 were impacted by an operational incident relating to the Arendal Spirit UMS, which, together with a gangway incident in the spring of 2016, triggered an operational review by the charterer," commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd. "As a result of this review, charter hire revenue for this unit has been suspended since November 2016. We have been in dialogue with the charterer, Petrobras, to address their concerns in order to bring the unit back into operation as soon as possible. On the efficiency front, we are pleased to see that our various cost saving initiatives implemented during the past year are resulting in lower run-rate operating and general and administrative expenses."

"Looking ahead, we continue to execute on our existing growth pipeline which will provide significant cash flow growth in the future," commented Ms. Sæther. "Our East Coast Canada shuttle tanker project and our largest project, the Libra FPSO conversion, are on track and on budget to commence operations from mid-2017 through to the first half of 2018; our long-haul towage vessels are scheduled for delivery in 2017; and we have experienced a slight delay in the Gina Krog FSO project, which is now scheduled to commence operations by mid-2017. However, as mentioned during our third quarter earnings in November 2016, we have experienced delays and additional costs on the Petrojarl I FPSO upgrade, which is now scheduled to commence operations in the fourth quarter of 2017, and we are still in negotiations with the charterer, shipyard and our lenders."

Ms. Sæther added, "In addition to delivering our existing growth projects, as we have highlighted previously, we continue to focus on securing contract extensions for our three FPSOs charters that are coming up for renewal in 2018 and 2019 as well as optimizing our asset portfolio to continue reducing our overall financial leverage and increasing our liquidity."

"Lastly, I'm pleased to report that our commercial team is in the final stages of securing another shuttle tanker contract of affreightment (CoA) contract after having secured a three-year CoA contract for the Glen Lyon project in September 2016," commented Ms. Sæther. "We anticipate signing this new, five-year CoA contract, plus extension options, in the North Sea, which is expected to add future cash flow through higher shuttle tanker fleet utilization without the need for incremental capital expenditures. We continue to see strong demand for further shuttle services, particularly in the North Sea."

Summary of Recent Events

New North Sea Shuttle Tanker Contract

In January 2017, the Partnership received a letter of award for a new, five-year shuttle tanker CoA, plus extension options, with a consortium of oil companies to service a development located in the U.K. Central North Sea. Subject to the finalization of the terms of the CoA, the CoA is expected to commence during the first quarter of 2018 and will be serviced by the Partnership's existing CoA shuttle tanker fleet.

Arendal Spirit UMS

In November 2016, the Arendal Spirit UMS experienced an operational incident relating to its dynamic-positioning system. As a result of this operational incident, and a gangway incident that occurred in April 2016, the charterer, Petrobras, initiated an operational review. The operational review is currently ongoing and thus, Petrobras has suspended its charter hire payments since November 2016. The Partnership has completed an investigation to identify the cause of the incidents and has implemented corrective measures. The Partnership has been in dialogue with Petrobras to address its concerns to bring the unit back into operations as soon as possible.

Operating Results

The following table highlights certain financial information for Teekay Offshore's six segments: the floating production, storage and off-loading (FPSO) segment, the shuttle tanker segment, the floating storage and off-take (FSO) segment, the units for maintenance and safety (UMS) segment, the towage segment and the conventional tanker segment (please refer to the "Teekay Offshore's Fleet" section of this release below and Appendices C through E for further details).

FPSO Segment

Income from vessel operations and cash flow from vessel operations declined for the three months ended December 31, 2016 compared to the same quarter of the prior year primarily due to the redelivery to the Partnership and associated decommissioning costs of the Varg FPSO at the end of July 2016, after operating on the Varg field for almost 18 years, and lower revenues due to lower operational bonuses earned in the fourth quarter of 2016 compared to the same period in 2015, mainly as a result of a dispute with a charterer, partially offset by lower operating expenses for the Knarr FPSO, following the successful completion of the final performance test in August 2016, and the Piranema FPSO, due to repair work performed during the fourth quarter of 2015.

Shuttle Tanker Segment

Income from vessel operations and cash flows from vessel operations were affected by several temporary factors, including the repositioning of the Navion Anglia from Brazil to operate as part of the Partnership's North Sea CoA fleet, upon completion of its time-charter out contract in June 2016, and higher time-charter hire expenses due to the in-chartering of the Grena Knutsen during the fourth quarter of 2016 to provide additional vessel capacity required to service new CoA contracts which are expected to commence in 2017. Income from vessel operations was higher in the fourth quarter of 2016 compared to the same quarter of the prior year due to the write-down of five shuttle tankers in the fourth quarter of 2015 and a gain on the sale of a shuttle tanker in the fourth quarter of 2016, partially offset by higher vessel depreciation and amortization expense in the fourth quarter of 2016 as a result of the change in the estimated useful life of the shuttle component of the Partnership's shuttle tankers, effective January 1, 2016, and the write-down of a shuttle tanker in the fourth quarter of 2016.

FSO Segment

Income from vessel operations and cash flow from vessel operations declined for the three months ended December 31, 2016 compared to the same quarter of the prior year mainly due to the redelivery of the Navion Saga to the Partnership in October 2016 upon completion of its time-charter out contract.

UMS Segment

Income from vessel operations and cash flow from vessel operations for the three months ended December 31, 2016 compared to the same quarter of the prior year were impacted by the on-going operational review by the charterer, Petrobras, on the Arendal Spirit and Petrobras suspending its charter hire payments since early-November 2016.

Towage Segment

Income from vessel operations and cash flow from vessel operations declined for the three months ended December 31, 2016 compared to the same quarter of the prior year primarily due to lower towage fleet charter rates and utilization, partially offset by the delivery of the towage newbuilding, the ALP Striker, in September 2016.

Conventional Tanker Segment

Income from vessel operations increased for the three months ended December 31, 2016 compared to the same quarter of the prior year due to the write-down of the Fuji Spirit and Kilimanjaro Spirit and net early termination fees paid to Teekay Corporation relating to the contract terminations of SPT Explorer, Navigator Spirit and the Fuji Spirit during the fourth quarter of 2015, partially offset by the sale of the SPT Explorer and Navigator Spirit in the fourth quarter of 2015 and lower earnings after the sale-leaseback transactions related to the Fuji Spirit and Kilimanjaro Spirit during the first quarter of 2016. Cash flow from vessel operations declined due to the vessel sales and sale-leaseback transactions. The Kilimanjaro Spirit is currently trading in the spot conventional tanker market and the Fuji Spirit is employed under a two-year fixed-rate time-charter contract expiring in May 2018.

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of February 1, 2017.

Liquidity and Continuous Offering Program Update

During the fourth quarter of 2016, the Partnership sold 1,855,551 of its common units under its Continuous Offering Program (COP), generating net proceeds of approximately $9.6 million (including the general partner's 2% proportionate capital contribution and net of offering costs). The net proceeds from the issuance of these common units will be used for general partnership purposes.

As of December 31, 2016, the Partnership had total liquidity of $260.7 million (comprised of $227.4 million in cash and cash equivalents and $33.3 million in undrawn credit facilities), excluding $60 million reclassified to restricted cash relating to amounts deposited in escrow to pre-fund a portion of the remaining Petrojarl I FPSO upgrade costs.

Conference Call

The Partnership plans to host a conference call on Thursday, February 23, 2017 at 12:00 p.m. (ET) to discuss the results for the fourth quarter and fiscal year 2016. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

• By dialing 1-866-222-0265 or 416-642-5209, if outside North America, and quoting conference ID code 7626495.
• By accessing the webcast, which will be available on Teekay Offshore's website at www.teekay.com (the archive will remain on the website for a period of 30 days).

An accompanying Fourth Quarter and Fiscal Year 2016 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

The conference call will be recorded and available until Thursday, March 9, 2017. This recording can be accessed following the live call by dialing 1-888-203-1112 or 647-436-0148, if outside North America, and entering access code 7626495.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is an international provider of marine transportation, oil production, storage, long-distance towing and offshore installation and maintenance and safety services to the oil industry, primarily focusing on oil production-related activities of its customers and operating in offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Teekay Offshore is structured as a publicly-traded master limited partnership (MLP) with consolidated assets of approximately $5.7 billion, comprised of 62 offshore assets, including floating production, storage and offloading (FPSO) units, shuttle tankers, floating storage and offtake (FSO) units, units for maintenance and safety (UMS), long-distance towing and offshore installation vessels and conventional tankers. The majority of Teekay Offshore's fleet is employed on medium-term, stable contracts.

Teekay Offshore's common units trade on the New York Stock Exchange under the symbol "TOO", and certain preferred units trade on the New York Stock Exchange under the symbols "TOO PR A " and "TOO PR B".

Definitions and Non-GAAP Financial Measures

This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the U.S. Securities and Exchange Commission. Cash Flow from (used for) Vessel Operations, Adjusted Net Income, and Distributable Cash Flow are non-GAAP financial measures. These measures are intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized meanings, and may not be comparable to similar measures presented by other companies. The Partnership believes that certain investors use this information to evaluate the Partnership's financial performance.

Cash Flow from (used for) Vessel Operations

Cash flow from (used for) vessel operations (CFVO) represents income from vessel operations before depreciation and amortization expense, amortization of in-process revenue contracts, vessel write-downs, gains or losses on the sale of vessels, and adjustments for direct financing leases to a cash basis, but includes realized gains or losses on the settlement of foreign currency forward contracts. CFVO from Consolidated Vessels represents CFVO from vessels that are consolidated on the Partnership's financial statements. CFVO from Equity Accounted Vessels represents the Partnership's proportionate share of CFVO from its equity-accounted vessels. CFVO - Equity Accounted Vessels has been included as a component of the Partnership's total CFVO. CFVO - Equity Accounted Vessels represents the Partnership's proportionate share of CFVO from its equity-accounted vessels. The Partnership does not control its equity-accounted vessels. Consequently, the Partnership does not have the unilateral ability to determine whether the cash generated by its equity-accounted vessels is retained within the equity accounted investments or distributed to the Partnership and other shareholders. In addition, the Partnership does not control the timing of such distributions to the Partnership and other shareholders. Consequently, readers are cautioned when using total CFVO as a liquidity measure as the amount contributed from CFVO - Equity Accounted Vessels may not be available to the Partnership in the periods such CFVO is generated by the equity-accounted vessels. CFVO is a non-GAAP financial measure used by certain investors to measure the financial performance of companies. Please refer to Appendices D and E of this release for reconciliations of these non-GAAP financial measures to income from vessel operations, the most directly comparable GAAP measures reflected in the Partnership's consolidated financial statements.

Adjusted Net Income

Adjusted net income excludes items of income or loss from GAAP net income that are typically excluded by securities analysts in their published estimates of the Partnership's financial results. The Partnership believes that certain investors use this information to evaluate the Partnership's financial performance. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to net income, the most directly comparable GAAP measure reflected in the Partnership's consolidated financial statements.

Distributable Cash Flow

Distributable cash flow (DCF) represents GAAP net income adjusted for depreciation and amortization, deferred income tax expense or recovery, vessel write-downs and gains or losses on the sale of vessels, vessel and business acquisition costs, distributions relating to equity financing of newbuilding installments and conversion costs, pre-operational expenses, distributions on the Partnership's preferred units, gains on extinguishment of contingent liabilities and losses on non-cash accruals of contingent liabilities, amortization of the non-cash portion of revenue contracts, estimated maintenance capital expenditures, unrealized gains and losses from non-designated derivative instruments, ineffectiveness for derivative instruments designated as hedges for accounting purposes, adjustments to direct financing leases to a cash basis and unrealized foreign exchange related items, including the Partnership's proportionate share of such items in equity accounted investments. Maintenance capital expenditures represent those capital expenditures required to maintain over the long-term the operating capacity of, or the revenue generated by, the Partnership's capital assets. DCF is a quantitative standard used in the publicly-traded partnership investment community to assist in evaluating financial performance. Please refer to Appendix B of this release for a reconciliation of this non-GAAP financial measure to net income, the most directly comparable GAAP measure reflected in the Partnership's consolidated financial statements.

Teekay Offshore Partners L.P.
Summary Consolidated Statements of Income
(in thousands of U.S. Dollars, except unit data)

Teekay Offshore Partners L.P.
Consolidated Balance Sheets
(in thousands of U.S. Dollars)

Teekay Offshore Partners L.P.
Consolidated Statements of Cash Flows
(in thousands of U.S. Dollars)

Teekay Offshore Partners L.P.
Appendix A - Reconciliation of Non-GAAP Financial Measures
Specific Items Affecting Net Income
(in thousands of U.S. Dollars)

Teekay Offshore Partners L.P.
Appendix B - Reconciliation of Non-GAAP Financial Measures
Distributable Cash Flow
(in thousands of U.S. Dollars, except per unit and per unit data)

Teekay Offshore Partners L.P.
Appendix C - Supplemental Segment Information
(in thousands of U.S. Dollars)

Teekay Offshore Partners L.P.
Appendix D - Reconciliation of Non-GAAP Financial Measures
Cash Flow From (Used For) Vessel Operations From Consolidated Vessels
(in thousands of U.S. Dollars)

Teekay Offshore Partners L.P.
Appendix E - Reconciliation of Non-GAAP Financial Measures
Cash Flow From Vessel Operations From Equity Accounted Vessels
(in thousands of U.S. Dollars)

Forward-Looking Statements

This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management's current views with respect to certain future events and performance, including: the potential new shuttle tanker CoA contract, including the timing of start-up; the effect of the potential new CoA on the Partnership's future cash flows, including the Partnership's fleet utilization; the outcome of dialogue with the charterer on the Arendal Spirit UMS, including the timing and certainty of the unit returning to operation; the fundamentals in the shuttle tanker market; the impact of growth projects on the Partnership's future cash flows; the Partnership's timing of delivery and costs of various newbuildings and conversion/upgrade projects, including potential delays and additional costs on the Petrojarl I FPSO; and the outcome of discussions on the Petrojarl I FPSO with the charterer, shipyard and lenders. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: vessel operations and oil production volumes; significant changes in oil prices; variations in expected levels of field maintenance; increased operating expenses; different-than-expected levels of oil production in the North Sea, Brazil and East Coast of Canada offshore fields; potential early termination of contracts; shipyard delivery or vessel conversion and upgrade delays and cost overruns; changes in exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth; the inability of the Partnership to finalize the new shuttle tanker CoA contract and delays in project start-up; the inability of the Partnership to meet the charterer's requirements for the Arendal Spirit UMS to return to operations; delays in the commencement of charter contracts; the inability of the Partnership to negotiate acceptable terms with the charterer, shipyard and lenders related to the delay of the Petrojarl I FPSO; the ability to fund the Partnership's remaining capital commitments and debt maturities; other factors discussed in Teekay Offshore's filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2015 and Form 6-K for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.