Teekay Offshore Partners Reports Third Quarter 2019 Results

November 7, 2019

HAMILTON, Bermuda, Nov. 07, 2019 (GLOBE NEWSWIRE) — Teekay Offshore GP LLC (TOO GP), 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 September 30, 2019.

Consolidated Financial Summary

  Three Months Ended
  September 30,June 30,September 30,
(in thousands of U.S. Dollars, except per unit data)20192019 (2)2018
(unaudited)(unaudited)(unaudited)
GAAP FINANCIAL RESULTS   
Revenues299,447 319,774 327,658 
Net loss(34,769)(27,979)(39,355)
Limited partners’ interest in net loss per common unit – basic(0.10)(0.09)(0.11)
    
NON-GAAP FINANCIAL RESULTS:   
Adjusted EBITDA (1)157,660 158,941 172,328 
Adjusted net income attributable to the partners and preferred unitholders (1)4,659 4,735 11,560 
Limited partners’ interest in adjusted net income per common unit (1)(0.01)(0.01)0.01 
  1. These are non-GAAP financial measures. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).
  2. Please refer to Appendices to the release announcing the results for the second quarter of 2019 attached as Exhibit 1 to the Form 6-K filed with the Securities and Exchange Commission on July 31, 2019 for a reconciliation of these non-GAAP measures to the most directly comparable financial measures under GAAP.

Third Quarter of 2019 Compared to Third Quarter of 2018

Revenues were $299 million in the third quarter of 2019, a decrease of $28 million compared to $328 million in the same quarter of the prior year, primarily due to reduced charter rates under the Piranema FPSO contract extension, the completion of the Ostras FPSO charter contract in March 2019 and the redelivery of an older shuttle tanker in August 2019.

Net loss decreased to $35 million in the third quarter of 2019 compared to $39 million in the same quarter of the prior year. The decrease in revenues described above was offset by the absence of a $55 million loss on debt repurchases related to the repayment of a promissory note and certain senior unsecured bonds during the third quarter of 2018. Additionally, in the third quarter of 2019, net loss included a realized and unrealized loss on derivative instruments of $28 million, reflecting decreased interest rate levels, compared to a realized and unrealized gain on derivative instruments of $9 million during the third quarter of 2018. Additionally, aggregate voyage and vessel operating expenses decreased by $14 million primarily due to lower shuttle tanker operating expenses and the sale of certain shuttle tankers.

Non-GAAP Adjusted EBITDA was $158 million in the third quarter of 2019, representing a decrease of $15 million compared to $172 million in the third quarter of 2018, primarily due to a $19 million decrease in earnings from the FPSO segment, mainly due to the decrease in revenues as explained above.

Non-GAAP Adjusted Net Income was $5 million in the third quarter of 2019, a decrease of $7 million compared to $12 million in the third quarter of 2018, primarily due to the $15 million decrease in adjusted EBITDA, partially offset by a $5 million decrease in depreciation and amortization expense due to the sale of certain shuttle tankers.

Third Quarter of 2019 Compared to Second Quarter of 2019

Revenues decreased by $20 million and net loss increased by $7 million in the third quarter of 2019, compared to the prior quarter. Revenues and vessel operating expenses in the third quarter of 2019 decreased by $13 million and $15 million, respectively, from the termination of the Cheviot Field agreement relating to the Petrojarl Varg FPSO unit in the second quarter of 2019. Other items impacting the increase in net loss included a $13 million decrease in the gain on sale of three vessels recognized during the second quarter of 2019 and a $7 million increase in foreign currency exchange losses, partially offset by a $13 million decrease in realized losses and unrealized fair value losses on derivative instruments.

Non-GAAP Adjusted EBITDA and Adjusted Net Income were $158 million and $5 million, respectively, in the third quarter of 2019, which were both consistent with the second quarter 2019.

Please refer to “Operating Results” for additional information on variances by segment and Appendices A and B for  reconciliations between GAAP net loss and non-GAAP Adjusted EBITDA and Adjusted Net Income, respectively.

CEO Commentary

“We have delivered another solid operational quarter, with high uptimes and disciplined cost performance, reporting an Adjusted EBITDA of $158 million. Financial performance was consistent with the second quarter of this year both on a consolidated basis and across all segments,” commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd.

“During the quarter we ordered a newbuilding shuttle tanker for our East Coast Canada operations, which increases the shuttle tanker capacity from three to four vessels in this region, reflecting the production forecasts of our clients. This brings our overall shuttle tanker fleet to 31 vessels, including seven newbuildings. We now have a total of over $1 billion of investments in our shuttle tanker newbuilding program which all are covered by contracts and will serve as offshore infrastructure for our customers in the North Sea and East Coast Canada for many years to come.”

Ms. Sæther added, “On the financing side, it has been another busy period with the closing of several financings and refinancings that have improved the maturity schedules and strengthened the balance sheets of both Teekay Offshore and Teekay Shuttle Tankers, our 100% owned and ringfenced subsidiary. Specifically, I would like to mention that in September, we completed a $120 million U.S. private placement in relation to our holding of 50% of the Libra FPSO and in October, Teekay Shuttle Tankers placed a $125 million green bond, which was the first ever green bond in the maritime sector in the Western Hemisphere. The green bond will partly finance four of our LNG-fueled shuttle tanker newbuildings where CO2 emissions are reduced by almost 50%.”

Summary of Recent Events

Brookfield Investment

On October 1, 2019, the Partnership announced that it entered into an agreement and plan of merger (the Merger Agreement) with Brookfield Business Partners L.P., and certain of its affiliates and institutional partners (collectively, Brookfield). Pursuant to the Merger Agreement, Brookfield has agreed to acquire all of the approximately 27% outstanding publicly held common units representing limited partner interests of the Partnership (common units) not already held by Brookfield. Under the terms and subject to the conditions of the Merger Agreement, a newly formed subsidiary of Brookfield will merge with and into the Partnership, with the Partnership surviving as a wholly owned subsidiary of Brookfield and Teekay Offshore GP L.L.C. (the Merger). The Merger will become effective upon the filing of a properly executed certificate of merger with the Registrar of Corporations of the Republic of the Marshall Islands or at such later date and time as may be agreed by the parties and set forth in the certificate of merger (the Effective Time).

The Merger Agreement provides that, at the Effective Time, each Common Unit issued and outstanding as of immediately prior to the Effective Time (other than the Brookfield Units) will be converted into the right to receive $1.55 in cash, to be paid without any interest thereon and reduced by any applicable tax withholding. As an alternative to receiving the cash consideration, each unaffiliated unitholder will have the option to elect to receive one newly designated unlisted Class A Common Unit of the Partnership per common unit. Further details on the terms of the merger, including risk factors associated with the newly designated unlisted Class A Common Units, is provided in the Schedule 13e-3 Transaction Statement filed by the Partnership on October 28, 2019.

Financing

In October 2019, a subsidiary of the Partnership, Teekay Shuttle Tankers L.L.C., successfully placed $125 million of senior unsecured green bonds due in October 2024. The Green Bonds carry a coupon of three months LIBOR plus 6.50%. The proceeds from the bonds will be used in accordance with the Partnership’s Green Bond Framework to partially fund four LNG-fueled shuttle tankers currently under construction with expected deliveries in late-2019 through 2020.

In October 2019, the Partnership secured a $100 million bridge term loan to provide pre- and post-delivery financing for a shuttle tanker newbuilding to operate on the East Coast of Canada (see Shuttle Tanker Newbuilding below), which matures in August 2022. The debt facility bears interest at a rate of LIBOR plus 250 basis points until March 2020 and increases by 25 basis points per quarter thereafter. The Partnership intends to refinance the bridge loan into the existing East Coast Canada shuttle financing secured by the three vessels in operations.

In September 2019, the Partnership entered into a sale and leaseback transaction with a third-party that will: provide pre-delivery financing for two shuttle tankers currently under construction; purchase the vessels for an adjustable purchase price of $107.1 million per vessel from the Partnership upon their expected deliveries in late-2020 and early-2021, respectively; and charter the vessels back to the Partnership for ten years, at which point the vessels will be sold back to the Partnership. The pre-delivery financing bears interest at a fixed rate of 5.5%, while the post-delivery sale and leaseback transaction is based on an interest rate of LIBOR plus 2.85%.

In September 2019, the Partnership completed a $120 million U.S. private placement of 7.11% Notes, due in September 2027, to be used for general corporate purposes.

In September 2019, the Partnership amended an existing loan agreement secured by the Arendal Spirit UMS to remove a mandatory prepayment clause under which the outstanding balance was due on September 30, 2019. The modified debt facility now matures in February 2023.

In September 2019, the Partnership extended the maturity date of an existing unsecured revolving credit facility provided by Brookfield, which provides for borrowings of up to $125 million. The amended revolving credit facility matures on October 1, 2020 and bears interest at a rate of LIBOR plus a margin of 7.0% on any drawn amount during the extended term.

In September 2019, a subsidiary of the Partnership, Teekay Shuttle Tankers L.L.C., amended its $250 million fixed rate notes loan agreement to remove a change of control clause in the event of a delisting of the Partnership’s common units. The bonds will be repaid at 101% of par value, rather than 100%, when maturing in August 2022.

In August 2019, the Partnership completed a $26 million refinancing of an existing term loan secured by the Suksan Salamander FSO unit, which extended the maturity from August 2019 to August 2022. The new credit facility bears interest at LIBOR plus a margin of 290 basis points.

In July 2019, the remaining $75 million principal of the Partnership’s outstanding five-year 6.0% senior unsecured bonds matured and was repaid by drawing $75 million from the Partnership’s capacity under an existing unsecured revolving credit facility provided by Brookfield. At September 30, 2019, the facility provided by Brookfield was fully drawn.

Shuttle Tanker Newbuilding

In August 2019, the Partnership entered into a shipbuilding contract with Samsung Heavy Industries Co. Ltd. to construct a shuttle tanker for an estimated aggregate fully built-up cost of approximately $130 million. The shuttle tanker newbuilding will, together with three existing vessels, operate under the existing contracts with a group of oil companies to provide shuttle tanker services for oil production on the East Coast of Canada. The vessel is expected to be delivered to the Partnership in early-2022.

Dispute Resolutions

In September 2019, the arbitration hearing relating to claims brought by the charterer of the Petrojarl Knarr FPSO unit, against the Partnership, for a reduced purchase price option and certain liquidated damages, concluded. The claim relating to the charterers right to purchase the FPSO at a 20% purchase price discount was denied, however, liquidated damages were awarded to the charterer of the unit, offset to an extent by certain damages awarded to the Partnership in respect of counterclaims brought against the charterer for their actions. Interest was applied to the awarded amounts leaving a balancing payment of approximately $25 million, which was settled by the Partnership in October 2019.

In September 2019, the Partnership resolved an existing dispute with a shipyard relating to the completion of the conversion of the Randgrid FSO unit and in respect of amounts the shipyard claimed to be owed under disputed variation orders in the amount of approximately $100 million. The Partnership made a payment of approximately $22 million in October 2019 in full and final settlement of these claims.

Liquidity Update

As of September 30, 2019, the Partnership had total liquidity of $271 million, an increase of $69 million compared to June 30, 2019. The increase in liquidity was primarily due to the Partnership’s issuance of $120 million of Notes during the third quarter of 2019.

Operating Results

The commentary below compares certain results of our operating segments for the three months ended September 30, 2019 to the same period of the prior year, unless otherwise noted.

FPSO Segment

 Three Months Ended
 September 30,June 30,September 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues113,362127,478131,244
Adjusted EBITDA73,55072,16992,359

Adjusted EBITDA (including Adjusted EBITDA from equity-accounted vessels) decreased by $19 million primarily due to: a decrease of $12 million due to a contract extension for the Piranema Spirit FPSO unit operating at lower charter rates than the original contract and a decrease in the amortization of non-cash deferred revenue; and a decrease of $9 million due to the completion of the charter contract of the Petrojarl Cidade de Rio das Ostras FPSO unit in March 2019.

Adjusted EBITDA was in line with the second quarter of 2019.

Shuttle Tanker Segment

 Three Months Ended
 September 30,June 30,September 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues133,659137,050144,298
Adjusted EBITDA64,42167,68865,073

Adjusted EBITDA was in line with the same quarter in the prior year.

Adjusted EBITDA decreased by $3 million, compared to the second quarter of 2019, primarily due to the re-delivery of the Stena Sirita in August 2019, which had reached the end of its estimated useful life.

FSO Segment

 Three Months Ended
 September 30,June 30,September 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues35,16834,60532,586
Adjusted EBITDA23,70322,76120,334

Adjusted EBITDA increased by $3 million mainly due to higher uptime related to the Randgrid FSO unit and lower repairs and maintenance expenditure on the FSO units.

Adjusted EBITDA was in line with the second quarter of 2019.

UMS Segment

 Three Months Ended
 September 30,June 30,September 30,
 2019 2019 2018 
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues441 431  
Adjusted EBITDA(1,574)(1,884)(879)

Adjusted EBITDA was consistent with prior periods.

Towage Segment

 Three Months Ended
 September 30,June 30,September 30,
 2019 2019 2018 
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues16,817 16,716 14,954 
Adjusted EBITDA(1,198)(426)(1,930)

Adjusted EBITDA was relatively consistent with prior periods.

Conventional Tanker Segment

 Three Months Ended
 September 30,June 30,September 30,
 201920192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
Revenues3,494 4,576 
Adjusted EBITDA(225)(1,882)

Adjusted EBITDA increased by $2 million. The Partnership redelivered the two in-chartered vessels to their owners in March and April 2019, respectively, and no longer has activity in the conventional tanker segment.

Teekay Offshore’s Fleet

The following table summarizes Teekay Offshore’s fleet as of November 7, 2019. In comparison to the previously-reported fleet table in the release for the second quarter of 2019, Teekay Offshore’s owned Shuttle Tanker fleet increased by one vessel due to an additional committed shuttle tanker newbuilding described above.

 Number of Vessels
 Owned VesselsChartered-in VesselsCommitted NewbuildingsTotal
FPSO Segment8(i)  8 
Shuttle Tanker Segment25(ii)2 7(iii)34 
FSO Segment5   5 
UMS Segment1   1 
Towage Segment10   10 
Total49 2 7 58 
  1. Includes two FPSO units, the Cidade de Itajai and Pioneiro de Libra, in which Teekay Offshore’s ownership interest is 50 percent.
  2. Includes four shuttle tankers in which Teekay Offshore’s ownership interest is 50 percent and one HiLoad DP unit.
  3. Includes seven DP2 shuttle tanker newbuildings scheduled for delivery in late-2019 through early-2022, two of which will operate under Teekay Offshore’s master agreement with Equinor in the North Sea, four of which will join Teekay Offshore’s CoA portfolio in the North Sea and one which will operate under Teekay Offshore’s existing contracts on the East Coast of Canada.

Conference Call

The Partnership plans to host a conference call on Thursday, November 7, 2019 at 12:00 p.m. (ET) to discuss the results for the third quarter of 2019. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

An accompanying Third Quarter 2019 Earnings Presentation will also be available at www.teekayoffshore.com in advance of the conference call start time.

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, among others: the timing and certainty of closing Brookfield’s anticipated acquisition of all issued and outstanding publicly held common units of the Partnership; the expected use of proceeds from the Partnership’s issuance of green bonds and private placement; the intended refinancing of our bridge loan; and the timing of shuttle tanker newbuilding deliveries and the commencement of related contracts. 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: changes in exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth, particularly in or related to North Sea, Brazil and East Coast of Canada offshore fields; the failure of Brookfield or the Partnership to satisfy certain closing conditions in the agreement and plan of merger; shipyard delivery delays and cost overruns; delays in the commencement of charter contracts; 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, 2018. 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.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is a leading international midstream services provider to the offshore oil production industry, primarily focused on the ownership and operation of critical infrastructure assets in offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Teekay Offshore has consolidated assets of approximately $5.2 billion, comprised of 58 offshore assets, including floating production, storage and offloading (FPSO) units, shuttle tankers (including seven newbuildings), floating storage and offtake (FSO) units, long-distance towing and offshore installation vessels and a unit for maintenance and safety (UMS). The majority of Teekay Offshore’s fleet is employed on medium-term, stable contracts. Brookfield owns 100 percent of Teekay Offshore’s general partner.

Teekay Offshore’s common units and preferred units trade on the New York Stock Exchange under the symbols “TOO”, “TOO PR A”, “TOO PR B” and “TOO PR E”, respectively.

For Investor Relations enquiries contact:

Jan Rune Steinsland, Chief Financial Officer
Tel:  +47 9705 2533
Website: www.teekayoffshore.com


Teekay Offshore Partners L.P.
Summary Consolidated Statements of Loss

 Three Months EndedNine Months Ended
 September 30,June 30,September 30,September 30,September 30,
 20192019201820192018
(in thousands of U.S. Dollars, except per unit data)(unaudited)(unaudited)(unaudited)(unaudited)(unaudited)
      
Revenues299,447 319,774 327,658 955,858 971,211 
Voyage expenses(30,906)(32,624)(40,914)(97,596)(112,406)
Vessel operating expenses(99,400)(118,718)(103,399)(319,337)(329,079)
Time-charter hire expenses(11,119)(10,619)(13,144)(34,191)(39,335)
Depreciation and amortization(86,336)(88,666)(91,523)(264,468)(281,267)
General and administrative(16,947)(17,212)(15,416)(51,151)(51,092)
(Write-down) and gain on sale of vessels(1,498)11,756 350 10,258 (206,941)
Restructuring charge  (1,899) (1,899)
Operating income (loss)53,241 63,691 61,713 199,373 (50,808)
      
Interest expense(53,767)(51,443)(54,736)(157,624)(145,971)
Interest income1,776 1,253 991 4,099 2,383 
Realized and unrealized (loss) gain     
 on derivative instruments(27,600)(40,839)9,381 (99,829)53,273 
Equity income3,385 2,388 11,877 6,659 34,221 
Foreign currency exchange (loss) gain(5,387)1,789 (266)(4,166)(6,069)
Losses on debt repurchases  (55,479) (55,479)
Other expense – net(101)(1,640)(699)(2,095)(4,562)
Loss before income tax expense(28,453)(24,801)(27,218)(53,583)(173,012)
Income tax expense(6,316)(3,178)(12,137)(11,763)(18,775)
Net loss(34,769)(27,979)(39,355)(65,346)(191,787)
      
Non-controlling interests in net loss(1,817)1 (785)(1,531)(8,637)
Preferred unitholders’ interest in net loss8,038 8,038 8,038 24,114 23,447 
General partner’s interest in net loss(311)(274)(354)(668)(1,571)
Limited partners’ interest in net loss(40,679)(35,744)(46,254)(87,261)(205,026)
Limited partner’s interest in net loss per     
 common unit     
 – basic(0.10)(0.09)(0.11)(0.21)(0.50)
 – diluted(0.10)(0.09)(0.11)(0.21)(0.50)
Weighted-average number of common units:     
 – basic410,801,717 410,595,551 410,314,977 410,717,223 410,243,129 
 – diluted410,801,717 410,595,551 410,314,977 410,717,223 410,243,129 
Total number of common units outstanding     
 at end of period411,188,338 410,707,764 410,314,977 411,188,338 410,314,977 


Teekay Offshore Partners L.P.
Consolidated Balance Sheets

 As atAs atAs at
 September 30, 2019June 30, 2019December 31, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)
ASSETS   
Current   
Cash and cash equivalents270,827201,567225,040
Restricted cash17,9618,9638,540
Accounts receivable168,593169,137141,903
Vessels held for sale19,75613,75612,528
Prepaid expenses28,13629,27732,199
Due from related parties58,885
Other current assets5,8306,27211,879
Total current assets511,103428,972490,974
    
Vessels and equipment   
At cost, less accumulated depreciation3,929,5214,010,8624,196,909
Advances on newbuilding contracts220,186184,98773,713
Investment in equity accounted joint ventures212,589215,304212,202
Deferred tax asset2,1467,2959,168
Due from related parties949
Other assets205,775207,796198,992
Goodwill129,145129,145129,145
Total assets5,210,4655,184,3615,312,052
    
LIABILITIES AND EQUITY   
Current   
Accounts payable105,37755,54416,423
Accrued liabilities111,861138,204129,896
Deferred revenues57,73561,72155,750
Due to related parties50,000183,795
Current portion of derivative instruments18,06121,69323,290
Current portion of long-term debt358,781487,018554,336
Other current liabilities4,1985,34415,062
Total current liabilities656,013819,524978,552
    
Long-term debt2,704,6852,589,4312,543,406
Derivative instruments168,965152,14394,354
Due to related parties125,000
Other long-term liabilities188,147211,449236,616
Total liabilities3,842,8103,772,5473,852,928
    
Equity   
Limited partners – common units796,815837,405883,090
Limited partners – preferred units384,274384,274384,274
General Partner14,38514,69615,055
Warrants132,225132,225132,225
Accumulated other comprehensive income6,5046,8927,361
Non-controlling interests33,45236,32237,119
Total equity1,367,6551,411,8141,459,124
Total liabilities and total equity5,210,4655,184,3615,312,052


Teekay Offshore Partners L.P.
Consolidated Statements of Cash Flows

 Nine Months Ended
 September 30, 2019September 30, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)
Cash, cash equivalents and restricted cash provided by (used for)  
OPERATING ACTIVITIES  
Net loss(65,346)(191,787)
Adjustments to reconcile net loss to net operating cash flow:  
Unrealized loss (gain) on derivative instruments76,926 (88,761)
Equity income, net of dividends received of $13,328 (2018 – $4,700)6,669 (29,521)
Depreciation and amortization264,468 281,267 
(Gain) on sale and write-down of vessels(10,258)206,941 
Deferred income tax expense7,524 15,888 
Amortization of in-process revenue contract(15,062)(13,900)
Expenditures for dry docking(15,080)(18,290)
Other(49,775)54,993 
Change in non-cash working capital items related to operating activities46,175 (85,168)
Net operating cash flow 246,241 131,662 
FINANCING ACTIVITIES  
Proceeds from long-term debt286,495 714,520 
Scheduled repayments of long-term debt and settlement of related swaps(321,381)(452,070)
Prepayments of long-term debt and settlement of related swaps (457,426)
Financing issuance costs(16,882)(13,488)
Proceeds from financing related to sales and leaseback of vessels11,900  
Proceeds from issuance of preferred units 120,000 
Expenses relating to equity offerings (3,997)
Proceeds from credit facility due to related parties75,000 125,000 
Prepayments of credit facility due to related parties(75,000) 
Cash distributions paid by the Partnership(24,113)(34,502)
Cash distributions paid by subsidiaries to non-controlling interests(3,635)(5,437)
Cash contributions paid from non-controlling interests to subsidiaries1,500 1,498 
Other(615)(963)
Net financing cash flow(66,731)(6,865)
INVESTING ACTIVITIES  
Net payments for vessels and equipment, including advances on newbuilding  
contracts and conversion costs(150,219)(212,683)
Proceeds from sale of vessels and equipment33,341 19,210 
Investment in equity accounted joint ventures(7,424)(1,700)
Direct financing lease payments received 4,589 
Acquisition of companies from Teekay Corporation (net of cash acquired of $26.6 25,254 
million)
Net investing cash flow (124,302)(165,330)
Increase (decrease) in cash, cash equivalents and restricted cash55,208 (40,533)
Cash, cash equivalents and restricted cash, beginning of the period233,580 250,294 
Cash, cash equivalents and restricted cash, end of the period288,788 209,761 


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 (SEC). These non-GAAP financial measures, including Consolidated Adjusted EBITDA, Adjusted EBITDA and Adjusted Net Income, are intended to provide additional information and should not be considered substitutes 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. These non-GAAP measures are used by management, and the Partnership believes that these supplementary metrics assist investors and other users of its financial reports in comparing financial and operating performance of the Partnership across reporting periods and with other companies.

Non-GAAP Financial Measures

Consolidated Adjusted EBITDA represents net loss before interest, taxes, and depreciation and amortization and is adjusted to exclude certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance. Such adjustments include vessel write-downs, gains or losses on the sale of vessels, unrealized gains or losses on derivative instruments, foreign exchange gains or losses, losses on debt repurchases, and certain other income or expenses. Consolidated Adjusted EBITDA also excludes realized gains or losses on interest rate swaps as management, in assessing the Partnership’s performance, views these gains or losses as an element of interest expense, and realized gains or losses on derivative instruments resulting from amendments or terminations of the underlying instruments.  Consolidated Adjusted EBITDA also excludes equity income as the Partnership does not control its equity-accounted investments, and as a result, the Partnership does not have the unilateral ability to determine whether the cash generated by its equity-accounted investments is retained within the entity in which the Partnership holds the equity-accounted investment or distributed to the Partnership and other owners. In addition, the Partnership does not control the timing of any such distributions to the Partnership and other owners.

Adjusted EBITDA represents Consolidated Adjusted EBITDA further adjusted to include the Partnership’s proportionate share of consolidated adjusted EBITDA from its equity-accounted joint ventures and to exclude the non-controlling interests’ proportionate share of the consolidated adjusted EBITDA from the Partnership’s consolidated joint ventures. Readers are cautioned when using Adjusted EBITDA as a liquidity measure as the amount contributed from Adjusted EBITDA from the equity-accounted investments may not be available or distributed to the Partnership in the periods such Adjusted EBITDA is generated by the equity-accounted investments. Please refer to Appendices A and C of this release for reconciliations of Adjusted EBITDA to net loss and equity income, respectively, the most directly comparable GAAP measures reflected in the Partnership’s consolidated financial statements.

Adjusted Net Income represents net loss adjusted to exclude the impact of certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance consistent with the calculation of Adjusted EBITDA. Adjusted Net Income includes realized gains or losses on interest rate swaps as an element of interest expense and excludes income tax expenses or recoveries from changes in valuation allowance or uncertain tax provisions. Please refer to Appendix B of this release for a reconciliation of this non-GAAP financial measure to net loss, the most directly comparable GAAP measure reflected in the Partnership’s consolidated financial statements.


Teekay Offshore Partners L.P.
Appendix A – Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA

   Three Months EndedNine Months Ended
   September 30,September 30,
   2019201820192018
(in thousands of U.S. Dollars)  (unaudited) (unaudited) (unaudited) (unaudited)
Net loss(34,769)(39,355)(65,346)(191,787)
 Depreciation and amortization86,336 91,523 264,468 281,267 
 Interest expense, net of interest income51,991 53,745 153,525 143,588 
 Income tax expense6,316 12,137 11,763 18,775 
EBITDA109,874 118,050 364,410 251,843 
Add (subtract) specific income statement items affecting EBITDA:    
 Write-down and (gain) on sale of vessels1,498 (350)(10,258)206,941 
 Realized and unrealized loss (gain) on derivative instruments27,600 (9,381)99,829 (53,273)
 Equity income(3,385)(11,877)(6,659)(34,221)
 Foreign currency exchange loss5,387 266 4,166 6,069 
 Losses on debt repurchases 55,479  55,479 
 Other expense – net101 699 2,095 4,562 
 Realized (loss) gain on foreign currency forward contracts(1,242)(747)(3,559)243 
Total adjustments29,959 34,089 85,614 185,800 
Consolidated Adjusted EBITDA139,833 152,139 450,024 437,643 
 Add: Adjusted EBITDA from equity-accounted vessels (See Appendix C)20,236 22,882 63,651 67,367 
 Less: Adjusted EBITDA attributable to non-controlling interests (1)(2,409)(2,693)(8,924)(12,037)
Adjusted EBITDA157,660 172,328 504,751 492,973 
  1. Adjusted EBITDA attributable to non-controlling interests is summarized in the table below.  
 Three Months EndedNine Months Ended
 September 30,September 30,
 2019201820192018
(in thousands of U.S. Dollars)(unaudited)(unaudited)(unaudited)(unaudited)
Net loss attributable to non-controlling interests(1,817)(785)(1,531)(8,637)
 Depreciation and amortization3,086 3,141 8,519 11,809 
 Interest expense, net of interest income369 520 1,162 1,625 
EBITDA attributable to non-controlling interests1,638 2,876 8,150 4,797 
Add (subtract) specific income statement items affecting EBITDA:    
 Write-down and (gain) on sale of vessels746 (175)746 7,211 
 Foreign currency exchange loss (gain)25 (8)28 29 
Total adjustments771 (183)774 7,240 
Adjusted EBITDA attributable to non-controlling interests2,409 2,693 8,924 12,037 


Teekay Offshore Partners L.P.
Appendix B – Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income

   Three Months EndedNine Months Ended
   September 30,September 30,
   2019 2018 2019 2018 
(in thousands of U.S. Dollars, except per unit data)(unaudited)(unaudited)(unaudited)(unaudited)
Net loss(34,769)(39,355)(65,346)(191,787)
Adjustments:    
 Net loss attributable to non-controlling interests(1,817)(785)(1,531)(8,637)
Net loss attributable to the partners and preferred unitholders(32,952)(38,570)(63,815)(183,150)
Add (subtract) specific items affecting net loss:    
 Write-down and (gain) on sale of vessels1,498 (350)(10,258)206,941 
 Unrealized loss (gain) on derivative instruments13,458 (20,877)76,926 (86,766)
 Realized loss on interest rate swap amendments9,000 6,250 9,000 16,250 
 Foreign currency exchange loss (1)5,387 266 3,730 3,331 
 Losses on debt repurchases 55,479  55,479 
 Other expense – net101 699 2,095 4,562 
 Deferred income tax expense relating to Norwegian tax structure5,069 10,694 7,026 16,103 
 Other adjustments (2) 1,191  2,164 
 Adjustments related to equity-accounted vessels (3)3,869 (3,405)14,970 (8,550)
 Adjustments related to non-controlling interests (4)(771)183 (774)(7,240)
Total adjustments37,611 50,130 102,715 202,274 
Adjusted net income attributable to the partners and preferred4,659 11,560 38,900 19,124 
 unitholders 
     
Preferred unitholders’ interest in adjusted net income8,038 8,038 24,114 23,447 
General Partner’s interest in adjusted net income(26)27 112 (33)
Limited partners’ interest in adjusted net income(3,353)3,495 14,674 (4,290)
Limited partners’ interest in adjusted net income per common unit, basic(0.01)0.01 0.04 (0.01)
Weighted-average number of common units outstanding, basic410,801,717 410,314,977 410,717,223 410,243,129 
  1. Foreign currency exchange loss primarily relates to the Partnership’s revaluation of all foreign currency-denominated assets and liabilities based on the prevailing exchange rate at the end of each reporting period and unrealized gain or loss related to the Partnership’s cross-currency swaps related to the Partnership’s Norwegian Krone (NOK) bonds, and excludes the realized gain or loss relating to the Partnership’s cross-currency swaps and NOK bonds.
  2. Other adjustments primarily reflects voyage expenses, vessel operating expense, depreciation and amortization expense and general and administrative expenses relating to vessels undergoing upgrades or newbuilding vessels prior to the commencement of their respective charter contracts.
  3. Reflects the Partnership’s proportionate share of specific items affecting the net income of the Cidade de Itajai FPSO unit and Pioneiro de Libra FPSO unit equity-accounted joint ventures, including the unrealized gain or loss on derivative instruments and the foreign exchange gain or loss.
  4. Items affecting net loss include amounts attributable to the Partnership’s consolidated non-wholly-owned subsidiaries. Each item affecting net loss is 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 adjustments relate to the gain on sale or write-down of vessels and foreign currency exchange gain or loss within the Partnership’s consolidated non-wholly-owned subsidiaries.


Teekay Offshore Partners L.P.
Appendix C – Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA From Equity-Accounted Vessels

  Three Months EndedThree Months Ended
  September 30, 2019September 30, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)
  At 100%Partnership’s 50%At 100%Partnership’s 50%
Revenues59,587 29,794 63,188 31,594 
Vessel and other operating expenses(19,115)(9,558)(17,423)(8,712)
Depreciation and amortization(15,938)(7,968)(15,807)(7,904)
Operating income of equity-accounted vessels24,534 12,268 29,958 14,978 
Net interest expense(9,945)(4,973)(12,357)(6,179)
Realized and unrealized (loss) gain on derivative instruments(1)(7,138)(3,569)4,553 2,277 
Foreign currency exchange (loss) gain(720)(360)1,965 983 
Total other items(17,803)(8,902)(5,839)(2,919)
Net income / equity income of equity-accounted vessels6,731 3,366 24,119 12,059 
 before income tax recovery (expense)
Income tax recovery (expense)37 19 (363)(182)
Net income / equity income of equity-accounted vessels6,768 3,385 23,756 11,877 
 Depreciation and amortization15,938 7,968 15,807 7,904 
 Net interest expense9,945 4,973 12,357 6,179 
 Income tax (recovery) expense(37)(19)363 182 
EBITDA32,614 16,307 52,283 26,142 
Add (subtract) specific items affecting EBITDA:    
 Realized and unrealized loss (gain) on derivative instruments(1)7,138 3,569 (4,553)(2,277)
 Foreign currency exchange loss (gain)720 360 (1,965)(983)
Adjusted EBITDA from equity-accounted vessels40,472 20,236 45,765 22,882 
  1. Realized and unrealized (loss) gain on derivative instruments includes an unrealized loss of $7.0 million ($3.5 million at the Partnership’s 50% share) for the three months ended September 30, 2019 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units and an unrealized gain of $4.8 million ($2.4 million at the Partnership’s 50% share) for the three months ended September 30, 2018 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units.
  Nine Months EndedNine Months Ended
  September 30, 2019September 30, 2018
(in thousands of U.S. Dollars)(unaudited)(unaudited)
  At 100%Partnership’s 50%At 100%Partnership’s 50%
Revenues177,031 88,516 184,639 92,320 
Vessel and other operating expenses(49,729)(24,865)(49,905)(24,953)
Depreciation and amortization(49,396)(24,698)(45,992)(22,996)
Operating income of equity-accounted vessels77,906 38,953 88,742 44,371 
Net interest expense (1)(32,629)(16,315)(25,725)(12,863)
Realized and unrealized (loss) gain on derivative instruments(2)(31,360)(15,680)6,278 3,139 
Foreign currency exchange (loss) gain(396)(198)322 161 
Total other items(64,385)(32,193)(19,125)(9,563)
Net income / equity income of equity-accounted vessels13,521 6,760 69,617 34,808 
 before income tax expense
Income tax expense(201)(101)(1,174)(587)
Net income / equity income of equity-accounted vessels13,320 6,659 68,443 34,221 
 Depreciation and amortization49,396 24,698 45,992 22,996 
 Net interest expense(1)32,629 16,315 25,725 12,863 
 Income tax expense201 101 1,174 587 
EBITDA95,546 47,773 141,334 70,667 
Add (subtract) specific items affecting EBITDA:    
 Realized and unrealized loss (gain) on derivative instruments(2)31,360 15,680 (6,278)(3,139)
 Foreign currency exchange loss (gain)396 198 (322)(161)
Adjusted EBITDA from equity-accounted vessels127,302 63,651 134,734 67,367 
  1. Net interest expense for the nine months ended September 30, 2018 includes an unrealized gain of $9.7 million ($4.9 million at the Partnership’s 50% share) related to interest rate swaps designated and qualifying as cash flow hedges for the Pioneiro de Libra FPSO unit.
  2. Realized and unrealized (loss) gain on derivative instruments includes an unrealized loss of $29.6 million ($14.8 million at the Partnership’s 50% share) for the nine months ended September 30, 2019 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units and an unrealized gain of $7.0 million ($3.5 million at the Partnership’s 50% share) for the nine months ended September 30, 2018 related to interest rate swaps for the Cidade de Itajai FPSO unit.