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Teekay Offshore Partners Reports Second Quarter 2014 Results

HAMILTON, BERMUDA -- (Marketwired) -- 08/07/14 -- Highlights


--  Generated distributable cash flow of $40.1 million in the second quarter
    of 2014.
--  Declared second quarter 2014 cash distribution of $0.5384 per common
    unit.
--  In August 2014, completed acquisition of Logitel Offshore, an offshore
    floating accommodation company using the Sevan cylindrical hull design.
--  Completed the conversion of the Salamander FSO in July 2014, which is
    expected to commence full operations under its charter contract by mid-
    August 2014.
--  Remora HiLoad DP unit is expected to complete its testing during August
    2014 at which time it is expected to commence its ten-year charter
    contract.
--  Teekay Offshore's 50/50 joint venture with Odebrecht was recently
    nominated by Petrobras as the lead commercial bidder on the Libra FPSO
    project in Brazil, subject to final contract negotiations.
--  Liquidity of approximately $531 million as at June 30, 2014.

Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE: TOO), today reported the Partnership's results for the quarter ended June 30, 2014. During the second quarter of 2014, the Partnership generated distributable cash flow(1) of $40.1 million, compared to $43.0 million in the same period of the prior year. The decrease in the distributable cash flow was primarily due to the expiration of time-charter contracts relating to four existing shuttle tankers since the first quarter of 2013, operating expenses relating to the HiLoad DP unit in the second quarter of 2014, the drydocking of the Dampier Spirit FSO unit during the second quarter of 2014 and due to the sale of three conventional tankers since the first quarter of 2013, partially offset by additional cash flows relating to the acquisition of the Voyageur Spirit FPSO unit and a 50 percent interest in the Cidade de Itajai FPSO unit in May 2013 and June 2013, respectively, and the delivery of the four BG Shuttle Tanker newbuildings in June, August and November 2013 and January 2014.


(1) Distributable cash flow is a non-GAAP financial measure used by certain
    investors to measure the financial performance of the Partnership and
    other master limited partnerships. Please see Appendix B for a
    reconciliation of distributable cash flow to the most directly
    comparable financial measure under United States generally accepted
    accounting principles (GAAP).

On July 9, 2014, a cash distribution of $0.5384 per common unit was declared for the quarter ended June 30, 2014. The cash distribution is payable on August 8, 2014 to all unitholders of record on July 25, 2014.

"The reduction in the Partnership's second quarter distributable cash flow mainly reflects a combination of temporary operational issues and cash flow timing differences related to certain of our offshore contracts," commented Peter Evensen, Teekay Offshore GP LLC's Chief Executive Officer. "While these matters have now largely been resolved, on a full-quarter basis, the affected fixed-rate contracts would have generated an additional $8 million of distributable cash flow during the second quarter of 2014."

"Looking forward, since reporting our first quarter results in May, the Partnership has completed its acquisition of Logitel Offshore and has made significant progress on its existing organic growth projects," Mr. Evensen continued. "The Logitel Offshore acquisition solidifies Teekay Offshore's entry into the high-specification floating accommodation sector, which provides the Partnership with further diversification and a complementary new channel for future distributable cash flow growth. In July, the conversion project of the Salamander FSO was completed and the unit has been installed on the Bualuang field in Thailand where it is currently undergoing testing in preparation for the expected commencement of its ten-year charter contract during August. And lastly, the operational testing of the innovative Remora HiLoad DP unit, the first of its kind, has been successful so far and is also expected to be completed in August, at which point the unit will commence its ten-year charter contract with Petrobras."

Mr. Evensen added, "In addition to these and other growth projects which provide a pipeline of direct growth for the Partnership between 2014 and 2017, we also have a number of dropdown growth opportunities available from our sponsor, Teekay Corporation, including up to five FPSO units, which must be offered to us once they are operating under eligible fixed-rate contracts. The largest and most near-term dropdown candidate, the Petrojarl Knarr FPSO, left the South Korean shipyard in July and is currently in transit to its North Sea field in preparation for its scheduled start-up in the fourth quarter of 2014."

Summary of Recent Events

Completed Logitel Acquisition

In August 2014, the Partnership acquired Logitel Offshore Holdings Ltd. (Logitel), a Norway-based company focused on the high-end floating accommodation market. Logitel is currently constructing two newbuilding floating accommodation units (FAUs), based on the Sevan Marine ASA (Sevan) cylindrical hull design, at the COSCO (Nantong) Shipyard (COSCO) in China. The Partnership intends to immediately exercise one of its existing six options with COSCO to construct a third FAU, subject to final documentation. Prior to the acquisition, Logitel secured a three-year fixed-rate charter contract, plus extension options, with Petroleo Brasileiro SA (Petrobras) in Brazil for the first FAU, which is scheduled to deliver in the first quarter of 2015. The Partnership expects to secure charter contracts for the remaining two newbuilding FAUs prior to their respective scheduled deliveries in the fourth quarter of 2015 and the third quarter of 2016. The construction agreements with COSCO for the newbuilding FAUs have a favorable payment schedule, with the majority of the purchase price due upon delivery. The Partnership intends to finance the initial newbuilding payments through its existing liquidity and expects to secure long-term debt financing for the units prior to their scheduled deliveries.

Libra FPSO Project

Odebrecht Oil & Gas S.A (Odebrecht), on behalf of the Partnership's 50/50 joint venture with Odebrecht, was recently nominated by Petrobras as the lead commercial bidder on the Libra FPSO project in Brazil, and has been invited by Petrobras to conclude contract negotiations. The FPSO unit is expected to be owned and operated by the Partnership's 50/50 joint venture with Odebrecht and will service the Libra pre-salt field in the Santos Basin offshore Brazil, which is expected to commence operations in early-2017. The final contract negotiations are expected to be completed during the third quarter of 2014.

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of August 1, 2014.


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                      Number of Vessels
                 -----------------------------------------------------------
                 -----------------------------------------------------------
                                                 Committed
                       Owned  Chartered-in  Newbuildings /  Conversion
                     Vessels       Vessels     Conversions  Candidates Total
                 -----------------------------------------------------------
                 -----------------------------------------------------------
Shuttle Tanker
 Segment          31(i) (ii)             2               -      2(iii)    35
FPSO Segment           5(iv)             -               -           -     5
FSO Segment                6             -               -           -     6
Conventional
 Tanker Segment            4             -               -           -     4
Towage Segment             -             -            4(v)           -     4
Floating
 Accommodation
 Segment                   -             -           3(vi)           -     3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total                     46             2               7           2    57
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(i)   Includes six shuttle tankers in which Teekay Offshore's ownership
      interest is 50 percent and three shuttle tankers in which Teekay
      Offshore's ownership interest is 67 percent. One of the 67 percent
      owned shuttle tankers, the Randgrid, will commence its conversion to
      an FSO unit for the Gina Krog FSO project after its current shuttle
      tanker charter contract expires in 2015.
(ii)  Includes one HiLoad DP unit expected to commence its 10-year contract
      in the third quarter of 2014 once operational testing has been
      completed.
(iii) Includes two shuttle tankers which are currently in lay-up and are
      candidates for conversion to offshore assets.
(iv)  Includes one FPSO unit in which Teekay Offshore's ownership interest
      is 50 percent.
(v)   Includes four long-haul towing and anchor handling vessel newbuildings
      scheduled to deliver in 2016.
(vi)  Includes three FAU newbuildings scheduled to deliver between the first
      quarter of 2015 and the third quarter of 2016.

Other Future Growth Opportunities

Pursuant to an omnibus agreement that the Partnership entered into in connection with our initial public offering in December 2006, Teekay Corporation is obligated to offer to the Partnership its interest in certain shuttle tankers, FSO units and FPSO units Teekay Corporation owns or may acquire in the future, provided the vessels are servicing contracts with remaining durations of greater than three years. The Partnership may also acquire other vessels that Teekay Corporation may offer it from time to time and also intends to pursue direct acquisitions from third parties and new organic offshore projects.

Shuttle Tankers (including HiLoad DP Units)

In September 2013, the Partnership acquired a 2010-built HiLoad Dynamic Positioning (DP) unit from Remora AS (Remora), a Norway-based offshore marine technology company, for a total purchase price of approximately $60 million, including modification and mobilization costs. The HiLoad DP unit is currently in the final stages of the charterer's operational testing, which is expected to be completed during the third quarter of 2014. Upon completion of the testing, the unit will commence its ten-year time-charter contract with Petrobras in Brazil. Under the terms of an agreement between Remora and Teekay Offshore, the Partnership has a right of first refusal to acquire any future HiLoad DP projects developed by Remora. In July 2013, Remora was awarded a contract by BG E&P Brasil Ltd. to perform a front-end engineering and design (FEED) study to develop the next generation of HiLoad DP units. The design, which is based on the main parameters of the first generation design, is expected to include new features, such as increased engine power and the capability to maneuver vessels larger than Suezmax conventional tankers.

FPSO Units

In June 2011, Teekay Corporation entered into a contract with BG Norge Limited (BG) to provide a harsh weather FPSO unit to operate in the North Sea. The contract will be serviced by a newbuilding FPSO unit, Petrojarl Knarr, which completed construction in late-June 2014. On July 11, 2014, the Petrojarl Knarr FPSO sailed away from the Samsung shipyard for the North Sea and following installation and offshore testing, the unit is expected to commence its ten-year time-charter contract with BG. Pursuant to the omnibus agreement, Teekay Corporation is obligated to offer to the Partnership its interest in the Petrojarl Knarr FPSO project at Teekay Corporation's fully built-up cost within a year after the commencement of the charter, which commencement is expected to occur in the fourth quarter of 2014.

Pursuant to the omnibus agreement and subsequent agreements, Teekay Corporation is obligated to offer to sell to the Partnership the Petrojarl Foinaven FPSO unit, an existing unit owned by Teekay Corporation and operating under a long-term contract in the North Sea, subject to approvals required from the charterer. The purchase price for the Petrojarl Foinaven would be based on fair market value.

Teekay Corporation owns three additional FPSO units, the Hummingbird Spirit FPSO, the Petrojarl Banff FPSO and the Petrojarl 1 FPSO, which may also be offered to the Partnership in the future pursuant to the omnibus agreement.

In May 2011, Teekay Corporation entered into a joint venture agreement with Odebrecht (a member of the Odebrecht group) to jointly pursue FPSO projects in Brazil. Odebrecht is a well-established Brazil-based company that operates in the engineering and construction, petrochemical, bioenergy, energy, oil and gas, real estate and environmental engineering sectors, with over 120,000 employees and a presence in over 20 countries. Through the joint venture agreement, Odebrecht became a 50 percent partner in the Cidade de Itajai FPSO and the Partnership is currently working with Odebrecht on other FPSO project opportunities.

FSO Units

In May 2013, the Partnership entered into a ten-year charter contract, plus extension options, with Salamander Energy plc (Salamander) to supply an FSO unit in Asia. In July 2014, the Partnership completed the conversion of its 1993-built shuttle tanker, the Navion Clipper, into an FSO unit for an estimated fully built-up cost of approximately $73 million, including mobilization costs. The unit is currently undergoing field installation and is expected to commence its charter contract with Salamander in the third quarter of 2014.

In May 2013, the Partnership entered into an agreement with Statoil Petroleum AS (Statoil), on behalf of the field license partners, to provide an FSO unit for the Gina Krog oil and gas field located in the North Sea. The contract will be serviced by a new FSO unit that will be converted from the 1995-built shuttle tanker, the Randgrid, which the Partnership currently owns through a 67 percent-owned subsidiary and will acquire full ownership of the vessel prior to its conversion. The FSO conversion project is expected to cost approximately $280 million, including amounts reimbursable upon delivery of the unit relating to installation and mobilization, and the cost of acquiring the remaining 33 percent ownership interest in the Randgrid shuttle tanker. Following scheduled completion in early-2017, the newly converted FSO unit will commence operations under a three-year time-charter contract to Statoil, which includes 12 additional one-year extension options.

Towage Vessels

In March 2014, Teekay Offshore acquired ALP Maritime Services B.V. (ALP), a Netherlands-based provider of long-haul ocean towage and offshore installation services to the global offshore oil and gas industry. ALP currently provides these services through a fleet of third-party owned vessels. As part of the transaction, the Partnership and ALP entered into an agreement with Niigata Shipbuilding & Repair of Japan for the construction of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and anchor handling vessel newbuildings, which will be equipped with dynamic positioning capability, for a fully built-up cost of approximately $261 million, which includes the cost of acquiring ALP. These newbuildings will be capable of ultra-long distance towing and offshore unit installation and decommissioning of large floating exploration, production and storage units, including FPSO units, floating liquefied natural gas (FLNG) units and floating drill rigs and are scheduled to deliver throughout 2016.

Financial Summary

The Partnership reported adjusted net income attributable to the partners(1) of $23.8 million for the quarter ended June 30, 2014, compared to $9.7 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $29.2 million and increasing net income by $47.9 million for the quarters ended June 30, 2014 and 2013, respectively, as detailed in Appendix A to this release. Including these items, the Partnership reported, on a GAAP basis, net loss attributable to the partners of $5.5 million for the second quarter of 2014, compared to net income of $57.6 million in the same period of the prior year. Net revenues(2) increased to $215.1 million for the second quarter of 2014, compared to $199.1 million in the same period of the prior year.

The Partnership reported adjusted net income attributable to the partners(1) of $54.9 million for the six months ended June 30, 2014, compared to $28.6 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $53.0 million and increasing net income by $49.2 million for the six months ended June 30, 2014 and 2013, respectively, as detailed in Appendix A to this release. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $1.9 million for the six months ended June 30, 2014, compared to $77.7 million in the same period of the prior year. Net revenues(2) increased to $440.9 million for the six months ended June 30, 2014, compared to $388.3 million in the same period of the prior year.


(1) Adjusted net income attributable to the partners is a non-GAAP financial
    measure. Please refer to Appendix A included in this release for a
    reconciliation of this non-GAAP measure to the most directly comparable
    financial measure under GAAP and information about specific items
    affecting net (loss) income that are typically excluded by securities
    analysts in their published estimates of the Partnership's financial
    results.
(2) Net revenues is a non-GAAP financial measure used by certain investors
    to measure the financial performance of shipping companies. Please refer
    to Appendix C included in this release for a reconciliation of this non-
    GAAP measure to the most directly comparable financial measure under
    GAAP.

Adjusted net income attributable to the partners for the three and six months ended June 30, 2014 increased from the same periods in the prior year, mainly due to the acquisitions of the Voyageur Spirit FPSO unit and a 50 percent interest in the Cidade de Itajai FPSO unit in the second quarter of 2013 and the commencement of the time-charters with a subsidiary of BG Group plc for four newbuilding shuttle tankers (BG Shuttle Tankers) in June, August and November 2013 and January 2014. These increases were partially offset by the sale or lay-up of four older shuttle and conventional tankers during 2013 and 2014 as their related charter contracts expired or terminated. For the three and six months ended June 30, 2013, the indemnification payments received from Teekay Corporation for the Voyageur Spirit FPSO off-hire of $12.5 million was not included in adjusted net income but rather accounted for as an equity adjustment.

For accounting purposes, the Partnership is required to recognize, through the consolidated statements of (loss) income, changes in the fair value of derivative instruments as unrealized gains or losses. This revaluation does not affect the economics of any hedging transactions nor does it have any impact on the Partnership's actual cash flows or the calculation of its distributable cash flow.

Operating Results

The following table highlights certain financial information for Teekay Offshore's four segments: the Shuttle Tanker segment, the FPSO segment, the FSO segment, and the Conventional Tanker segment (please refer to the "Teekay Offshore's Fleet" section of this release above and Appendices C through F for further details).



----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                      Three Months Ended
                 -----------------------------------------------------------
                                        June 30, 2014
                 -----------------------------------------------------------
                                         (unaudited)
                 -----------------------------------------------------------
                 -----------------------------------------------------------
                     Shuttle                         Conventional
(in thousands of      Tanker                               Tanker
 U.S. dollars)       Segment FPSO Segment FSO Segment     Segment  Total (4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net revenues(1)      112,226       83,984      11,524       7,412    215,146
Vessel operating
 expenses             39,715       39,472       7,532       1,465     88,184
Time-charter hire
 expense               4,975            -           -           -      4,975
Depreciation and
 amortization         27,378       18,186       1,298       1,612     48,474
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CFVO from
 consolidated
 vessels(2)           61,167       33,606       3,966       5,635    102,774
CFVO from equity
 accounted
 vessel(3)                 -        7,135           -           -      7,135
Total CFVO(2)(3)      61,167       40,741       3,966       5,635    109,909
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----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                      Three Months Ended
                 -----------------------------------------------------------
                                        June 30, 2013
                 -----------------------------------------------------------
                                         (unaudited)
                 -----------------------------------------------------------
                 -----------------------------------------------------------
                     Shuttle                         Conventional
(in thousands of      Tanker                               Tanker
 U.S. dollars)       Segment FPSO Segment FSO Segment     Segment      Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net revenues(1)      110,947       65,260      15,053       7,879    199,139
Vessel operating
 expenses             36,511       40,074       8,315       1,619     86,519
Time-charter hire
 expense              14,093            -           -           -     14,093
Depreciation and
 amortization         28,165       17,789       2,743       1,568     50,265
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CFVO from
 consolidated
 vessels(2)           54,422       17,234       6,749      11,810     90,215
CFVO from equity
 accounted
 vessel(3)                 -        1,311           -           -      1,311
Total CFVO(2)(3)      54,422       18,545       6,749      11,810     91,526
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net revenues is a non-GAAP financial measure used by certain investors
    to measure the financial performance of shipping companies. Please refer
    to Appendix C, included in this release for a reconciliation of this
    non-GAAP measure to the most directly comparable GAAP financial measure.
(2) Cash flow from vessel operations (CFVO) from consolidated vessels
    represents income from vessel operations before depreciation and
    amortization expense and amortization of in-process revenue contracts
    and deferred gains, and includes the realized gains (losses) on the
    settlement of foreign exchange forward contracts, and cash flow from
    vessel operations relating to its discontinued operations and
    adjustments for direct financing leases to a cash basis. CFVO is a non-
    GAAP financial measure used by certain investors to measure the
    financial performance of shipping companies. Please refer to Appendix E
    included in this release for a description and reconciliation of this
    non-GAAP measure to the most directly comparable GAAP financial measure.
(3) CFVO from equity accounted vessel represents the Partnership's 50
    percent share of CFVO from the Cidade deItajai FPSO unit. Please see
    Appendix F for a description and reconciliation of CFVO from equity
    accounted vessel (a non-GAAP measure) as used in this release to the
    most directly comparable GAAP financial measure.
(4) The total column includes a $1.6 million fee paid to Teekay Corporation
    associated with the Partnership's acquisition of ALP Maritime Services
    B.V. (ALP) in CFVO from consolidated vessels and Total CFVO. This fee
    was recognized in general and administrative expenses in the
    consolidated statement of (loss) income for the three months ended June
    30, 2014. The towage segment has not been disaggregated as its results
    are not material.

Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's Shuttle Tanker segment increased to $61.2 million in the second quarter of 2014 compared to $54.4 million for the same period of the prior year, primarily due to the delivery of the four BG Shuttle Tanker newbuildings in June, August and November 2013 and January 2014, partially offset by the expiration of time-charter out contracts relating to four existing shuttle tankers since the first quarter of 2013 and operating expenses relating to the HiLoad DP unit, which commenced operations during the second quarter of 2014. Revenue on the HiLoad DP unit, retroactive to April 11, 2014, will be recorded following completion of tests for Petrobras, which is expected in late August 2014.

FPSO Segment

Cash flow from vessel operations from the Partnership's FPSO segment, including one equity-accounted FPSO unit, increased to $40.7 million for the second quarter of 2014 compared to $18.5 million for the same period of the prior year, primarily due to additional cash flows related to the acquisition of the Voyageur Spirit FPSO unit and a 50 percent interest in the Cidade de Itajai FPSO unit in May 2013 and June 2013, respectively. Cash received related to the Voyageur Spirit indemnification of $12.5 million during the three months ended June 30, 2013 was not included as part of cash flow from vessel operations.

FSO Segment

Cash flow from vessel operations from the Partnership's FSO segment decreased to $4.0 million in the second quarter of 2014 compared to $6.7 million for the same period of the prior year, primarily due the drydocking of the Dampier Spirit FSO in the second quarter of 2014 for upgrades required for its 10-year contract extension with Apache Energy. The unit returned on-hire in late-June 2014.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership's Conventional Tanker segment decreased to $5.6 million in the second quarter of 2014 compared to $11.8 million for the same period of the prior year, primarily due to the sale of three conventional tankers since the first quarter of 2013.

Liquidity and Continuous Offering Program Update

In 2013, the Partnership implemented a continuous offering program (COP) under which the Partnership may issue new common units, representing limited partner interests, at market prices up to a maximum aggregate amount of $100 million. During the second quarter of 2014, the Partnership sold 211,350 common units under the COP, generating proceeds of approximately $7.6 million (including the general partner's 2 percent proportionate capital contribution). The net proceeds from the issuance of these common units were used for general partnership purposes.

In May 2014, the partnership issued $300.0 million in new senior unsecured, non-rated bonds in the United States bond market, which mature in January 2019. The bonds are listed on the New York Stock Exchange and pay a fixed coupon of 6.0 percent per annum. Net proceeds from the bond offering were used for general partnership purposes.

As of June 30, 2014, the Partnership had total liquidity of $530.7 million, which consisted of $251.6 million in cash and cash equivalents and $279.1 million in undrawn revolving credit facilities.

Conference Call

The Partnership plans to host a conference call on Friday, August 8, 2014 at noon (ET) to discuss the results for the second quarter of 2014. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:


--  By dialing 1-800-524-8850 or 416-204-9702, if outside North America, and
    quoting conference ID code 9278679.
--  By accessing the webcast, which will be available on Teekay Offshore's
    website at www.teekayoffshore.com (the archive will remain on the
    website for a period of 30 days).

A supporting Second Quarter 2014 Earnings Presentation will also be available at www.teekayoffshore.com in advance of the conference call start time.

The conference call will be recorded and available until Friday, August 15, 2014. 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 9278679.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is an international provider of marine transportation, oil production and storage services to the offshore oil industry focusing on the fast-growing, deepwater offshore oil regions of the North Sea and Brazil. Teekay Offshore is structured as a publicly-traded master limited partnership (MLP) and owns interests in 34 shuttle tankers (including two chartered-in vessels), five floating production, storage and offloading (FPSO) units, six floating storage and offtake (FSO) units (excluding one committed FSO conversion unit), one HiLoad Dynamic Positioning (DP) unit, four long-haul towing and anchor handling vessel newbuildings, three floating accommodation unit newbuildings and four conventional oil tankers. The majority of Teekay Offshore's fleet is employed on long-term, stable contracts. In addition, Teekay Offshore also has rights to participate in certain other FPSO, shuttle tanker and HiLoad DP opportunities provided by Teekay Corporation (NYSE: TK), Sevan Marine ASA (Oslo Bors: SEVAN) and Remora AS.

Teekay Offshore's common units trade on the New York Stock Exchange under the symbol "TOO".


----------------------------------------------------------------------------
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                        TEEKAY OFFSHORE PARTNERS L.P.
              SUMMARY CONSOLIDATED STATEMENTS OF (LOSS) INCOME
              (in thousands of U.S. dollars, except unit data)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                        Three Months Ended             Six Months Ended
               -------------------------------------------------------------
                  June 30,   March 31,    June 30,    June 30,     June 30,
                      2014        2014     2013(1)        2014      2013(1)
               -------------------------------------------------------------
               (unaudited) (unaudited) (unaudited) (unaudited)  (unaudited)
               -------------------------------------------------------------
REVENUES           241,402     259,234     222,412     500,636      434,524
----------------------------------------------------------------------------

OPERATING
 EXPENSES
Voyage expenses     26,256      33,454      23,273      59,710       46,221
Vessel
 operating
 expenses           88,184      88,130      86,519     176,314      163,843
Time-charter
 hire expense        4,975      11,412      14,093      16,387       28,870
Depreciation
 and
 amortization       48,474      48,488      50,265      96,962       94,775
General and
 administrative     18,054      14,849      10,417      32,903       20,807
Restructuring
 charge (2)           (821)        559       1,395        (262)       2,054
----------------------------------------------------------------------------
Total operating
 expenses          185,122     196,892     185,962     382,014      356,570
----------------------------------------------------------------------------
Income from
 vessel
 operations         56,280      62,342      36,450     118,622       77,954
----------------------------------------------------------------------------
OTHER ITEMS
Interest
 expense           (21,568)    (18,920)    (16,035)    (40,488)     (27,663)
Interest income        190         177       1,465         367        1,660
Realized and
 unrealized
 (losses) gains
 on derivative
 instruments
 (3)               (38,144)    (36,632)     33,901     (74,776)      32,824
Equity income        2,388       3,703       1,598       6,091        1,598
Foreign
 currency
 exchange
 (loss) gain(4)     (2,836)       (775)      3,555      (3,611)         (83)
Loss on bond
 repurchase(5)           -           -           -           -       (1,759)
Other income -
 net                    72         390         260         462          574
----------------------------------------------------------------------------
Total other
 items             (59,898)    (52,057)     24,744    (111,955)       7,151
----------------------------------------------------------------------------
(Loss) income
 from
 continuing
 operations
 before income
 tax expense        (3,618)     10,285      61,194       6,667       85,105
Income tax
 expense              (182)     (1,263)       (456)     (1,445)        (222)
----------------------------------------------------------------------------
Net (loss)
 income from
 continuing
 operations         (3,800)      9,022      60,738       5,222       84,883
Net loss from
 discontinued
 operations(6)           -           -      (2,134)          -       (4,309)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net (loss)
 income             (3,800)      9,022      58,604       5,222       80,574
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Non-controlling
 interests in
 net (loss)
 income              1,654       1,679       3,274       3,333        5,051
Dropdown
 Predecessor's
 interest in
 net income(1)           -           -      (2,225)          -       (2,225)
Preferred
 unitholders'
 interest in
 net (loss)
 income              2,719       2,719       1,813       5,438        1,813
General
 Partner's
 interest in
 net (loss)
 income              3,696       3,943       3,833       7,639        6,906
Limited
 partners'
 interest in
 net (loss)
 income            (11,869)        681      51,909     (11,188)      69,029
----------------------------------------------------------------------------
Weighted-
 average number
 of common
 units - basic  85,529,102  85,455,292  82,726,359  85,492,401   81,423,123
Weighted-
 average number
 of common
 units -
 diluted        85,529,102  85,480,352  82,742,751  85,492,401   81,432,027
Total number of
 common units
 outstanding at
 end of period  85,681,495  85,468,145  83,700,308  85,681,495   83,700,308
----------------------------------------------------------------------------
(1) Results for the Voyageur Spirit FPSO unit for the period beginning April
    13, 2013 prior to its acquisition by the Partnership on May 2, 2013 when
    it was owned and operated by Teekay Corporation, are included in
    Dropdown Predecessor.
(2) Restructuring charges for the three and six months ended June 30, 2014
    include a $0.8 million reimbursement relating to the reorganization of
    the Partnership's shuttle tanker marine operations, which were completed
    during 2013. Restructuring charges for the three months ended March 31,
    2014 relates to the reflagging of a shuttle tanker. Restructuring
    charges for the three and six months ended June 30, 2013 relate to the
    reorganization of the Partnership's marine operations to create better
    alignment with its shuttle tanker and conventional tanker business units
    and a lower-cost organization.
(3) Realized (losses) gains on derivative instruments relate to amounts the
    Partnership actually paid or received to settle derivative instruments,
    and the unrealized (losses) gains on derivative instruments relate to
    the change in fair value of such derivative instruments, as detailed in
    the table below:


                               Three Months Ended          Six Months Ended
                         ---------------------------------------------------
                          June 30, March 31,  June 30,    June 30, June 30,
                              2014      2014      2013        2014     2013
                         ---------------------------------------------------
Realized (losses) gains
relating to:
  Interest rate swaps      (13,997)  (14,063)  (14,956)    (28,060) (29,579)
  Foreign currency
  forward contracts            196      (497)   (1,646)       (302)  (1,293)
  Termination of interest
  rate swap in Dropdown
  Predecessor                    -         -    (4,099)          -   (4,099)
                         ---------------------------------------------------
                           (13,801)  (14,560)  (20,701)    (28,362) (34,971)
                         ---------------------------------------------------

Unrealized (losses) gains
relating to:
  Interest rate swaps      (22,985)  (24,108)   52,947     (47,093)  67,918
  Foreign currency
  forward contracts         (1,358)    2,036    (2,329)        679   (4,107)
  Termination of interest
  rate swap in Dropdown
  Predecessor                    -         -     3,984           -    3,984
                         ---------------------------------------------------
                           (24,343)  (22,072)   54,602     (46,414)  67,795
                         ---------------------------------------------------

                         ---------------------------------------------------
Total realized and
unrealized (losses)
gainson derivative
instruments                (38,144)  (36,632)   33,901     (74,776)  32,824
                         ---------------------------------------------------
(4) Foreign exchange losses include realized gains relating to the amounts
    the Partnership received to settle the Partnership's non-designated
    cross currency swaps that were entered into as an economic hedge
    relating to the Partnership's Norwegian Kroner (NOK)-denominated
    unsecured bonds as detailed in the table below. The Partnership issued
    NOK 600 million unsecured bonds in 2010 that matured in the fourth
    quarter of 2013, of which it repurchased NOK 388.5 million in the first
    quarter of 2013 and recognized a realized gain of $6.8 million on the
    partial early termination of a cross currency swap and a realized
    foreign exchange loss of $6.6 million on the repurchase of the bonds.
    The Partnership also issued NOK 600 million unsecured bonds in 2012
    maturing in 2017, NOK 1,300 million of unsecured bonds in 2013 maturing
    in 2016 and 2018, and NOK 1,000 million unsecured bonds in 2014 maturing
    in 2019. Foreign exchange losses also include unrealized (losses) gains
    relating to the change in fair value of such derivative instruments,
    partially offset by unrealized gains (losses) on the revaluation of the
    NOK bonds, as detailed in the table below:


                                Three Months Ended         Six Months Ended
                          --------------------------------------------------
                           June 30, March 31,  June 30,  June 30,  June 30,
                               2014      2014      2013      2014      2013
                          --------------------------------------------------
Realized gain on partial
 termination of cross-
 currency swap                    -         -         -         -     6,800
Realized foreign exchange
 loss on partial
 repurchase of NOK bonds          -         -         -         -    (6,573)
Realized (losses) gains on
 cross-currency swaps           (38)       16       297       (22)    1,022
Unrealized (losses) gains
 on cross-currency swaps    (14,267)    7,575    (9,307)   (6,692)  (34,809)
Unrealized gains (losses)
 on revaluation of NOK
 bonds                       11,431    (9,130)   13,250     2,301    38,261

(5) Loss on bond repurchase for the six months ended June 30, 2013 relates
    to the repurchase in the first quarter of 2013 of NOK 388.5 million of
    the Partnership's NOK 600 million bond issue at a premium.
(6) Results for three conventional tankers (Leyte Spirit, Poul Spirit and
    Gotland Spirit), which the Partnership sold during 2013, have been
    included in Net loss from discontinued operations for the periods
    presented.


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                        TEEKAY OFFSHORE PARTNERS L.P.
                         CONSOLIDATED BALANCE SHEETS
                       (in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                         As at          As at          As at
                               ---------------------------------------------
                                                                December 31,
                                 June 30, 2014 March 31, 2014           2013
                               ---------------------------------------------
                                   (unaudited)    (unaudited)    (unaudited)
                               ---------------------------------------------
ASSETS
Current
Cash and cash equivalents              251,561        222,990        219,126
Accounts receivable                    153,226        169,021        176,265
Net investments in direct
 financing leases - current              5,537          4,830          5,104
Prepaid expenses                        34,073         36,525         31,675
Due from affiliates                     55,843         19,675         15,202
Current portion of derivative
 instruments                               712          1,546            500
Other current assets                     3,987          3,384          3,051
----------------------------------------------------------------------------
Total current assets                   504,939        457,971        450,923
----------------------------------------------------------------------------

Vessels and equipment
At cost, less accumulated
 depreciation                        2,931,060      3,021,864      3,059,770
Advances on newbuilding
 contracts and conversion costs        114,087         92,385         29,812
Investment in equity accounted
 joint venture                          58,338         55,824         52,120
Net investments in direct
 financing leases                       73,909         21,305         22,463
Derivative instruments                   5,743         12,168         10,323
Deferred tax asset                       8,106          7,981          7,854
Other assets                            45,723         37,307         35,272
Intangible assets - net                  8,423          9,429         10,436
Goodwill                               129,145        129,145        127,113
----------------------------------------------------------------------------
Total assets                         3,879,473      3,845,379      3,806,086
----------------------------------------------------------------------------

LIABILITIES AND EQUITY
Current
Accounts payable                        16,754         18,518         15,753
Accrued liabilities                    121,243        134,756        138,156
Deferred revenues                       24,004         24,437         29,075
Due to affiliates                       75,577         80,183        121,864
Current portion of long-term
 debt                                  339,087        748,055        806,009
Current portion of derivative
 instruments                            63,136         55,165         47,944
Current portion of in-process
 revenue contracts                      12,744         12,744         12,744
----------------------------------------------------------------------------
Total current liabilities              652,545      1,073,858      1,171,545
----------------------------------------------------------------------------

Long-term debt                       2,204,394      1,730,873      1,562,967
Derivative instruments                 154,681        131,302        121,135
In-process revenue contracts            82,230         85,407         88,550
Other long-term liabilities             27,441         23,480         23,984
----------------------------------------------------------------------------
Total liabilities                    3,121,291      3,044,920      2,968,181
----------------------------------------------------------------------------

Redeemable non-controlling
 interest                               15,149         15,911         16,564
Equity
Limited partners - common units
 (85.7 million and 85.5 million
 units issued and outstanding
 at June 30, 2014 and December
 31, 2013, respectively)               523,500        579,830        621,002
Limited partners - preferred
 units (6.0 million and 6.0
 million units issued and
 outstanding at June 30, 2014
 and December 31, 2013,
 respectively)                         144,800        144,800        144,800
General Partner                         19,389         20,399         21,242
----------------------------------------------------------------------------
Partners' equity                       687,689        745,029        787,044
----------------------------------------------------------------------------
Non-controlling interests               55,344         39,519         34,297
----------------------------------------------------------------------------
Total equity                           743,033        784,548        821,341
----------------------------------------------------------------------------
Total liabilities and total
 equity                              3,879,473      3,845,379      3,806,086
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                        TEEKAY OFFSHORE PARTNERS L.P.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                   Six Months Ended
                                           ---------------------------------
                                             June 30, 2014 June 30, 2013(1)
                                           ---------------------------------
                                               (unaudited)      (unaudited)
Cash and cash equivalents provided by (used
 for)

OPERATING ACTIVITIES
Net income                                           5,222           80,574
Non-cash items:
  Unrealized loss (gain) on derivative
   instruments                                      53,106          (32,927)
  Equity income                                     (6,091)          (1,598)
  Depreciation and amortization                     96,962           96,011
  Write-down and loss on sale of vessels                 -           19,029
  Deferred income tax recovery                        (223)             (62)
  Amortization of in-process revenue
   contracts                                        (6,320)          (6,285)
  Foreign currency exchange gain and other             371          (29,813)
Change in non-cash working capital items
 related to operating activities                   (96,617)           6,919
Expenditures for dry docking                        (9,468)          (7,656)
----------------------------------------------------------------------------
Net operating cash flow                             36,942          124,192
----------------------------------------------------------------------------

FINANCING ACTIVITIES
Proceeds from long-term debt                       720,443          736,725
Scheduled repayments of long-term debt            (241,223)         (97,215)
Prepayments of long-term debt                     (302,413)        (424,152)
Debt issuance costs                                (10,094)         (10,126)
Equity contribution from Teekay Corporation
 to Dropdown Predecessor                                 -            5,596
Purchase of Voyageur LLC from Teekay
 Corporation (net of cash acquired of $0.9
 million)                                            3,474         (252,086)
Equity contribution from joint venture
 partner                                            22,017            1,500
Proceeds from issuance of common units               7,784           65,067
Proceeds from issuance of preferred units                -          150,000
Expenses relating to equity offerings                 (153)          (5,385)
Cash distributions paid by the Partnership        (107,197)         (90,972)
Cash distributions paid by subsidiaries to
 non-controlling interests                          (5,718)            (280)
Other                                                  397                -
----------------------------------------------------------------------------
Net financing cash flow                             87,317           78,672
----------------------------------------------------------------------------

INVESTING ACTIVITIES
Expenditures for vessels and equipment             (92,084)        (216,242)
Purchase of equity investment in Itajai
 joint venture (net of cash acquired of
 $1.3 million)                                           -          (52,520)
Proceeds from sale of vessels and equipment              -           20,350
Investment in direct financing lease net of
 payments received                                   2,582            2,953
Acquisition of ALP Maritime Services B.V.
 (net of cash acquired of $0.3 million)             (2,322)               -
----------------------------------------------------------------------------
Net investing cash flow                            (91,824)        (245,459)
----------------------------------------------------------------------------

Increase (decrease) in cash and cash
 equivalents                                        32,435          (42,595)
Cash and cash equivalents, beginning of the
 period                                            219,126          206,339
----------------------------------------------------------------------------
Cash and cash equivalents, end of the
 period                                            251,561          163,744
----------------------------------------------------------------------------
(1) In accordance with GAAP, the Consolidated Statement of Cash Flows for
    the six months ended June 30, 2013 includes the cash flows relating to
    the Voyageur Spirit FPSO unit for the period from April 13, 2013 to May
    2, 2013 (or the Dropdown Predecessor), when the vessel was under the
    common control of Teekay Corporation, but prior to its acquisition by
    the Partnership.


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                        TEEKAY OFFSHORE PARTNERS L.P.
           APPENDIX A - SPECIFIC ITEMS AFFECTING NET (LOSS) INCOME
                       (in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Set forth below is a reconciliation of the Partnership's unaudited adjusted net income attributable to the partners, a non-GAAP financial measure, to net (loss) income attributable to the partners as determined in accordance with GAAP. The Partnership believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Partnership's financial performance. The items below are also typically excluded by securities analysts in their published estimates of the Partnership's financial results. Adjusted net income attributable to the partners is intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP.


----------------------------------------------------------------------------
                              Three Months Ended       Six Months Ended
                           -------------------------------------------------
                              June 30,    June 30,    June 30,     June 30,
                                  2014        2013        2014         2013
                           -------------------------------------------------
                           (unaudited) (unaudited) (unaudited)  (unaudited)
Net (loss) income - GAAP
 basis                          (3,800)     58,604       5,222       80,574
Adjustments:
  Net income attributable
   to non-controlling
   interests                    (1,654)     (3,274)     (3,333)      (5,051)
  Net loss attributable to
   Dropdown Predecessor              -       2,225           -        2,225
----------------------------------------------------------------------------
Net (loss) income
 attributable to the
 partners                       (5,454)     57,555       1,889       77,748
Add (subtract) specific
 items affecting net (loss)
 income :
  Foreign currency exchange
   losses (gains)(1)             2,798      (3,529)      3,589          836
  Unrealized losses (gains)
   on derivative
   instruments(2)               25,237     (51,803)     47,158      (64,996)
  Components of
   discontinued operations
   (3)                               -       3,302           -        7,749
  Realized losses on
   foreign currency forward
   contracts(4)                      -       1,863           -        1,863
  Acquisition,
   restructuring charges
   and other (5)                   779       1,501       1,701        2,322
  Loss on bond repurchase
   (6)                               -           -           -        1,759
  Non-controlling
   interests' share of
   items above (7)                 401         808         600        1,278
                           -------------------------------------------------
Total adjustments               29,215     (47,858)     53,048      (49,189)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Adjusted net income
 attributable to the
 partners(8)                    23,761       9,697      54,937       28,559
----------------------------------------------------------------------------
(1) Foreign exchange losses (gains) primarily relate to the Partnership's
    revaluation of all foreign currency-denominated monetary assets and
    liabilities based on the prevailing exchange rate at the end of each
    reporting period and unrealized gains or losses related to the
    Partnership's cross currency swaps and repurchase of Norwegian Kroner
    bonds and excludes the realized gains and losses relating to the cross
    currency swaps for outstanding Norwegian bonds of the Partnership.
(2) Reflects the unrealized losses (gains) due to changes in the mark-to-
    market value of interest rate swaps and foreign exchange forward
    contracts that are not designated as hedges for accounting purposes,
    including the unrealized mark-to-market value of the interest rate swap
    within the Cidade de Itajai FPSO equity accounted joint venture and
    excluding amounts relating to the Dropdown Predecessor.
(3) Related to components of net loss from discontinued operations. The
    results for the three months ended June 30, 2013 include the termination
    fee received from Teekay Corporation upon cancellation of the Gotland
    Spirit time-charter contract, partially offset by the write down of the
    Gotland Spirit to its estimated fair value in conjunction with the
    termination of its charter contract and the loss on sale of the Poul
    Spirit. In addition, the results for the six months ended June 30, 2013
    include the termination fee received from Teekay Corporation upon
    cancellation of the Poul Spirit time-charter contract, partially offset
    by the write down of the Poul Spirit to its estimated fair value in
    conjunction with the termination of its charter contract.
(4) Reflects the realized losses on foreign currency forward contracts
    entered into for the purchase of the HiLoad DP unit from Remora AS that
    is not designated as hedges for accounting purposes.
(5) Other items primarily include fees of $1.6 million paid to Teekay
    Corporation and $2.6 million for the three and six months ended June 30,
    2014, respectively, associated with the Partnership's acquisition of
    ALP. Other items for the three and six months ended June 30, 2014
    include a restructuring charge reimbursement of $0.8 million for the
    reorganization of the Partnership's shuttle tanker marine operations,
    which were completed by June 2013. Other items for the three and six
    months ended June 30, 2013 primarily includes restructuring charges of
    $1.4 million and $2.1 million, respectively, relating to the
    reorganization of the Partnership's marine operations to create better
    alignment with its shuttle tanker and conventional tanker business units
    and a lower-cost organization.
(6) Loss on bond repurchase for the six months ended June 30, 2013 relates
    to the repurchase of NOK 388.5 million of the Partnership's then
    existing NOK 600 million bond issue at a premium in January 2013.
(7) Items affecting net (loss) income include items from the Partnership's
    consolidated non-wholly-owned subsidiaries. The specific items affecting
    net (loss) income are analyzed to determine whether any of the amounts
    originated from a consolidated non-wholly-owned subsidiary. Each amount
    that originates from a consolidated non-wholly-owned subsidiary is
    multiplied by the non-controlling interests' percentage share in this
    subsidiary to arrive at the non-controlling interests' share of the
    amount. The amount identified as "non-controlling interests' share of
    items above" in the table above is the cumulative amount of the non-
    controlling interests' proportionate share of items listed in the table.
(8) Adjusted net income attributable to the partners excludes
    indemnification payments from Teekay Corporation relating to the loss of
    revenues and certain unrecovered vessel operating expenses for the
    Voyageur Spirit FPSO, which for the six months ended June 30, 2014 was
    $3.5 million and for the three and six months ended June 30, 2013 was
    $17.0 million.


                       TEEKAY OFFSHORE PARTNERS L.P.
         APPENDIX B - RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
                          DISTRIBUTABLE CASH FLOW
                       (in thousands of U.S. dollars)

Description of Non-GAAP Financial Measure - Distributable Cash Flow (DCF)

Distributable cash flow represents net (loss) income adjusted for depreciation and amortization expense, non-controlling interests, non-cash items, distributions relating to equity financing of newbuilding installments and on our preferred units, vessel and business acquisition costs, estimated maintenance capital expenditures, unrealized gains and losses from derivatives, non-cash income taxes, foreign currency and unrealized foreign exchange related items. 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. Distributable cash flow is a quantitative standard used in the publicly-traded partnership investment community to assist in evaluating a partnership's ability to make quarterly cash distributions. Distributable cash flow is not defined by GAAP and should not be considered as an alternative to net (loss) income or any other indicator of the Partnership's performance required by GAAP. The table below reconciles distributable cash flow to net (loss) income for the quarters ended June 30, 2014 and June 30, 2013, respectively.


----------------------------------------------------------------------------
                                                     Three Months Ended
                                                ----------------------------
                                                June 30, 2014 June 30, 2013
                                                ----------------------------
                                                  (unaudited)   (unaudited)
----------------------------------------------------------------------------

Net (loss) income                                      (3,800)       58,604
Net loss attributable to Dropdown Predecessor               -         2,225
                                                ----------------------------
                                                       (3,800)       60,829
Add (subtract):
  Depreciation and amortization                        48,474        49,169
  Unrealized losses (gains) on derivative
   instruments (1)                                     24,343       (50,618)
  Partnership's share of equity accounted joint
   venture's distributable cash flow net of
   estimated maintenance capital expenditures
   (2)                                                  4,292           605
  Distributions relating to equity financing of
   newbuildings and conversion costs                    2,184         2,813
  Indemnification from Teekay Corporation
   relating to the Voyageur Spirit FPSO (3)                 -        12,505
  Non-cash items in discontinued operations (4)             -         8,179
  Equity income from joint venture                     (2,388)       (1,598)
  Distributions relating to preferred units            (2,719)       (1,817)
  Estimated maintenance capital expenditures (3)      (28,354)      (26,599)
  Foreign currency exchange and other, net              2,517        (3,382)
                                                ----------------------------
Distributable Cash Flow before Non-Controlling
 Interests                                             44,549        50,086
  Non-controlling interests' share of DCF              (4,412)       (7,046)
----------------------------------------------------------------------------
Distributable Cash Flow                                40,137        43,040
----------------------------------------------------------------------------
(1) Derivative instruments include interest rate swaps and foreign exchange
    forward contracts.
(2) The estimated maintenance capital expenditures relating to the
    Partnership's equity accounted joint venture for the three months ended
    June 30, 2014 and 2013 were $1.0 million and $0.2 million, respectively.
(3) Indemnification payments from Teekay Corporation for the loss of
    revenues and certain unrecovered vessel operating expenses for the
    Voyageur Spirit FPSO are effectively treated as a reduction to estimated
    maintenance capital expenditures in the second quarter of 2013, since
    the indemnification payments are effectively treated as a reduction to
    the purchase price of the Voyageur Spirit FPSO. Estimated maintenance
    capital expenditures excludes the estimated maintenance capital
    expenditures of equity accounted joint venture's, which are deducted
    from the equity accounted joint venture's distributable cash flow.
(4) Includes depreciation and loss on write-down of two vessels included in
    discontinued operations.



                       TEEKAY OFFSHORE PARTNERS L.P.
          APPENDIX C - RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
                                NET REVENUES
                       (in thousands of U.S. dollars)

Description of Non-GAAP Financial Measure - Net Revenues

Net revenues represents revenues less voyage expenses (recoveries), which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Net revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies, however, it is not required by GAAP and should not be considered as an alternative to revenues or any other indicator of the Partnership's performance required by GAAP.


                                  Three Months Ended June 30, 2014
                        ----------------------------------------------------
                                             (unaudited)
                        ----------------------------------------------------
                           Shuttle                    Conventional
                            Tanker      FPSO      FSO       Tanker
                           Segment   Segment  Segment      Segment     Total
----------------------------------------------------------------------------
Revenues                   137,145    83,984   11,673        8,600   241,402
Voyage expenses             24,919         -      149        1,188    26,256
----------------------------------------------------------------------------
Net revenues               112,226    83,984   11,524        7,412   215,146
----------------------------------------------------------------------------


                                  Three Months Ended June 30, 2013
                        ----------------------------------------------------
                                             (unaudited)
                        ----------------------------------------------------
                           Shuttle                    Conventional
                            Tanker      FPSO      FSO       Tanker
                           Segment   Segment  Segment      Segment     Total
----------------------------------------------------------------------------
Revenues                   133,222    65,260   15,053        8,877   222,412
Voyage expenses             22,275         -        -          998    23,273
----------------------------------------------------------------------------
Net revenues               110,947    65,260   15,053        7,879   199,139
----------------------------------------------------------------------------


                                   Six Months Ended June 30, 2014
                        ----------------------------------------------------
                                             (unaudited)
                        ----------------------------------------------------
                           Shuttle                    Conventional
                            Tanker      FPSO      FSO       Tanker
                           Segment   Segment  Segment      Segment     Total
----------------------------------------------------------------------------
Revenues                   290,325   167,121   25,962       17,228   500,636
Voyage expenses             56,625         -      172        2,913    59,710
----------------------------------------------------------------------------
Net revenues               233,700   167,121   25,790       14,315   440,926
----------------------------------------------------------------------------


                                   Six Months Ended June 30, 2013
                        ----------------------------------------------------
                                             (unaudited)
                        ----------------------------------------------------
                           Shuttle                    Conventional
                            Tanker      FPSO      FSO       Tanker
                           Segment   Segment  Segment      Segment     Total
----------------------------------------------------------------------------
Revenues                   263,572   122,945   30,193       17,814   434,524
Voyage expenses
 (recoveries)               44,569         -     (485)       2,137    46,221
----------------------------------------------------------------------------
Net revenues               219,003   122,945   30,678       15,677   388,303
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                       TEEKAY OFFSHORE PARTNERS L.P.
               APPENDIX D - SUPPLEMENTAL SEGMENT INFORMATION
                       (in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                  Three Months Ended June 30, 2014
                        ----------------------------------------------------
                                            (unaudited)
                          Shuttle                     Conventional
                           Tanker       FPSO       FSO      Tanker
                          Segment    Segment   Segment     Segment    Total
----------------------------------------------------------------------------
Net revenues (See
 Appendix C)              112,226     83,984    11,524       7,412  215,146
Vessel operating
 expenses                  39,715     39,472     7,532       1,465   88,184
Time-charter hire
 expense                    4,975          -         -           -    4,975
Depreciation and
 amortization              27,378     18,186     1,298       1,612   48,474
General and
 administrative             7,126      7,989     1,027         312   16,454
Acquisition fee (1)             -          -         -           -    1,600
Restructuring charge         (821)         -         -           -     (821)
----------------------------------------------------------------------------
Income from vessel
 operations                33,853     18,337     1,667       4,023   56,280
----------------------------------------------------------------------------
(1) The towage segment has not been disaggregated as its results are not
    material. A $1.6 million fee paid to Teekay Corporation associated with
    the Partnership's acquisition of ALP was recognized in general and
    administrative expenses in the consolidated statement of (loss) income
    for the three months ended June 30, 2014.


                                  Three Months Ended June 30, 2013
                        ----------------------------------------------------
                                             (unaudited)
                           Shuttle                    Conventional
                            Tanker      FPSO       FSO      Tanker
                           Segment   Segment   Segment     Segment     Total
----------------------------------------------------------------------------
Net revenues (See
 Appendix C)               110,947    65,260    15,053       7,879   199,139
Vessel operating
 expenses                   36,511    40,074     8,315       1,619    86,519
Time-charter hire
 expense                    14,093         -         -           -    14,093
Depreciation and
 amortization               28,165    17,789     2,743       1,568    50,265
General and
 administrative              4,911     4,600       809          97    10,417
Restructuring charge           957         -         -         438     1,395
----------------------------------------------------------------------------
Income from vessel
 operations                 26,310     2,797     3,186       4,157    36,450
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                       TEEKAY OFFSHORE PARTNERS L.P.
          APPENDIX E - RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
         CASH FLOW FROM VESSEL OPERATIONS FROM CONSOLIDATED VESSELS
                       (in thousands of U.S. dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Description of Non-GAAP Financial Measure - Cash Flow from Vessel Operations from Consolidated Vessels

Cash flow from vessel operations from consolidated vessels represents income from vessel operations before depreciation and amortization expense, write-down of vessels and amortization of deferred gains, and includes the realized (losses) gains on the settlement of foreign exchange forward contracts, and cash flow from vessel operations relating to its discontinued operations and adjustments for direct financing leases to a cash basis. Cash flow from vessel operations is included because certain investors use this data to measure a company's financial performance. Cash flow from vessel operations is not required by GAAP and should not be considered as an alternative to net (loss) income or any other indicator of the Partnership's performance required by GAAP.


                                  Three Months Ended June 30, 2014
                        ----------------------------------------------------
                                            (unaudited)
                        ----------------------------------------------------
                          Shuttle                     Conventional
                           Tanker      FPSO       FSO       Tanker
                          Segment   Segment   Segment      Segment    Total
----------------------------------------------------------------------------
Income from vessel
 operations (See
 Appendix D) (1)           33,853    18,337     1,667        4,023   56,280
Depreciation and
 amortization              27,378    18,186     1,298        1,612   48,474
Realized (losses) gains
 from the settlements of
 non- designated foreign
 exchange forward
 contracts                    (64)      260         -            -      196
Amortization of non-cash
 portion of revenue
 contracts                      -    (3,177)        -            -   (3,177)
Falcon Spirit revenue
 accounted for as direct
 financing lease                -         -    (1,141)           -   (1,141)
Falcon Spirit cash flow
 from time-charter
 contracts                      -         -     2,142            -    2,142
----------------------------------------------------------------------------
Cash flow from vessel
 operations from
 consolidated vessels      61,167    33,606     3,966        5,635  102,774
----------------------------------------------------------------------------
(1) The total column includes a $1.6 million fee paid to Teekay Corporation
    associated with the Partnership's acquisition of ALP in income from
    vessel operations. This fee was recognized in general and administrative
    expenses in the consolidated statement of (loss) income for the three
    months ended June 30, 2014. The towage segment has not been
    disaggregated as its results are not material other than this fee.


                                  Three Months Ended June 30, 2013
                        ----------------------------------------------------
                                            (unaudited)
                        ----------------------------------------------------
                          Shuttle                     Conventional
                           Tanker      FPSO       FSO       Tanker
                          Segment   Segment   Segment      Segment    Total
----------------------------------------------------------------------------
Income from vessel
 operations (See
 Appendix D)               26,310     2,797     3,186        4,157   36,450
Depreciation and
 amortization              28,165    17,789     2,743        1,568   50,265
Realized (losses) gains
 from the settlements of
 non- designated foreign
 exchange forward
 contracts                    (53)      271         -            -      218
Amortization of
 intangible and non-cash
 portion of revenue
 contracts                      -    (3,122)        -            -   (3,122)
Falcon Spirit revenue
 accounted for as direct
 financing lease                -         -    (1,304)           -   (1,304)
Falcon Spirit cash flow
 from time-charter
 contracts                      -         -     2,124            -    2,124
Cash flow from
 discontinued operations        -         -         -        6,085    6,085
Dropdown Predecessor
 cash flow from vessel
 operations(1)                  -      (501)        -            -     (501)
----------------------------------------------------------------------------
Cash flow from vessel
 operations from
 consolidated vessels      54,422    17,234     6,749       11,810   90,215
----------------------------------------------------------------------------
(1) Cash flow for the Voyageur Spirit FPSO unit for the period April 13,
    2013 through May 2, 2013 prior to its acquisition by the Partnership
    when it was under common control by Teekay Corporation, referred to as
    the Dropdown Predecessor, has been excluded from cash flow from vessel
    operations.


                       TEEKAY OFFSHORE PARTNERS L.P.
          APPENDIX F - RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
        CASH FLOW FROM VESSEL OPERATIONS FROM EQUITY ACCOUNTED VESSEL
                       (in thousands of U.S. dollars)

Description of Non-GAAP Financial Measure - Cash Flow from Vessel Operations from Equity Accounted Vessel

Cash flow from vessel operations from equity accounted vessel represents income from vessel operations before depreciation and amortization expense. Cash flow from equity accounted vessel represents the Partnership's proportionate share of cash flow from vessel operations from its equity-accounted vessel, the Cidade de Itajai FPSO unit. Cash flow from vessel operations from equity accounted vessel is included because certain investors use cash flow from vessel operations to measure a company's financial performance, and to highlight this measure for the Partnership's equity accounted joint venture. Cash flow from vessel operations from equity accounted vessel is not required by GAAP and should not be considered as an alternative to equity income or any other indicator of the Partnership's performance required by GAAP.


                         Three Months Ended          Three Months Ended
                    --------------------------------------------------------
                           June 30, 2014               June 30, 2013
                    --------------------------------------------------------
                            (unaudited)                 (unaudited)
                    --------------------------------------------------------
                               At Partnership's            At Partnership's
                             100%           50%          100%           50%
----------------------------------------------------------------------------
Voyage revenues            20,838        10,419         4,375         2,188
Vessel and other
 operating expenses         6,568         3,284         1,736           868
Depreciation and
 amortization               4,717         2,359           802           401
General and
 administrative                 -             -            18             9
----------------------------------------------------------------------------
Income from vessel
 operations of
 equity accounted
 vessel                     9,553         4,776         1,819           910
----------------------------------------------------------------------------
Net interest expense       (2,044)       (1,022)         (887)         (443)
Realized and
 unrealized (losses)
 gains on derivative
 instruments               (2,646)       (1,323)        2,371         1,185
Foreign currency
 exchange gain
 (loss)                       150            75           (38)          (19)
----------------------------------------------------------------------------
Total other items          (4,540)       (2,270)        1,446           723
----------------------------------------------------------------------------
Net income / equity
 income of equity
 accounted vessel
 before income tax
 expense                    5,013         2,506         3,265         1,633
Income tax expense            237           118            69            35
----------------------------------------------------------------------------
Net income / equity
 income of equity
 accounted vessel           4,776         2,388         3,196         1,598
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Income from vessel
 operations                 9,553         4,776         1,819           910
Depreciation and
 amortization               4,717         2,359           802           401
----------------------------------------------------------------------------
Cash flow from
 vessel operations
 from equity
 accounted vessel          14,270         7,135         2,621         1,311
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                         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 statements regarding: the fundamentals in the offshore industry; future growth opportunities, including the Partnership's ability to participate in new offshore projects or to grow organically; the accretive nature of any acquisitions and any future increases in the Partnership's distributable cash flows; the timing of new and converted vessel deliveries and commencement of their time-charter contracts; the potential for the Partnership to acquire future HiLoad projects and improved features of new HiLoad DP vessel designs; the effect of the Logitel acquisition on the Partnership's future cash flows and growth opportunities; the Partnership's intention to exercise its option on the third FAU unit; the timing and certainty of entering into long-term financing and charter contracts for the FAU newbuildings prior to their deliveries; the estimated cost of building or converting vessels or offshore units; the timing and certainty of the Partnership's joint venture with Odebrecht completing final contract negotiations for the Libra FPSO project with Petrobras; and the potential for Teekay Corporation or third parties to offer additional vessels or projects to the Partnership and the Partnership agreeing to acquire such vessels or projects, including the timing and certainty of the acquisition of the Petrojarl Knarr FPSO.

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 and Brazil offshore fields; potential early termination of contracts; shipyard delivery or vessel conversion delays and cost overruns; failure by the Partnership to secure financing or charter contracts for FAU newbuildings; failure to complete documentation related to the third FAU unit; changes in exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth; delays in the commencement of time-charters; the inability to successfully complete the operational testing of the HiLoad DP unit; actual results of the new HiLoad DP unit designs; failure of Teekay Corporation to offer to the Partnership additional vessels or of Sevan, Remora or Odebrecht to develop new vessels or projects; failure by the Partnership's joint venture with Odebrecht to complete final contract negotiations with Petrobras for the Libra FPSO project; potential delays in the commencement of operations of the Petrojarl Knarr FPSO unit; failure to obtain required approvals by the Conflicts Committee of Teekay Offshore's general partner to approve the acquisition of vessels offered from Teekay Corporation, or third parties; the Partnership's ability to raise adequate financing to purchase additional assets; and 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, 2013. 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.

Contacts:
Investor Relations
Ryan Hamilton
+1 (604) 609-6442
www.teekayoffshore.com

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