Teekay Offshore Completes Financial Restatement

Teekay Offshore has restated its previously reported financial results, including results for fiscal years 2003 through 2007 and the first and second quarters of 2008, to adjust its accounting treatment for:

  • certain derivative transactions under the Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging (SFAS 133), as more fully discussed below under "Restatement for Accounting under SFAS 133 and Other";
  • certain vessels it acquired from Teekay Corporation (Teekay) subsequent to the Partnership's December 2006 initial public offering, whereby the Partnership's financial statements have been retroactively adjusted to include the historical results of the vessels from the date they were originally acquired by Teekay and began operating, as more fully discussed below under "Restatement for Changes to Accounting for Dropdown Transactions"; and
  • a subsidiary, Navion Shipping Ltd., which was disposed of on July 1, 2006 prior to the Partnership's initial public offering and which has been reflected as a discontinued operation for all periods prior to its disposition. The reclassification of the operations of this subsidiary as discontinued operations for 2006 and prior periods does not affect total assets, total partners' equity, net income, earnings per unit or cash flows for any period.

"It is important to emphasize that all of the restatement adjustments have no impact on the Partnership's distributable cash flow(1), liquidity or cash distributions in any period," stated Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC, the Partnership's general partner. "Any adjustments to the Partnership's financial statements are due to changes in accounting treatment only and have no impact on the economics of the Partnership or its actual cash flows."

Evensen continued, "Any adjustments to net income resulting from the change in the Partnership's accounting treatment for hedge transactions are exclusively due to unrealized gains or losses as a result of the change in the mark-to-market value of our hedging instruments at the end of each reporting period, which have no cash impact. Additional adjustments, which came into scope as a result of the Partnership's detailed and thorough restatement audit, also have no cash impact. The change to our accounting treatment for vessel dropdowns simply means that vessels acquired from Teekay are now reflected in the Partnership's comparative historical financial statements for periods prior to the Partnership's actual acquisition of the vessels as if they had been acquired by the Partnership at the time of their original purchase by Teekay. This adjustment has no impact on the Partnership's financial results subsequent to the date the vessels were acquired by the Partnership."

(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 refer to Appendix A to this release for a reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure.
Summary of Restated Second Quarter 2008 Results

Since the restatement adjustments are all non-cash in nature, they have not impacted the Partnership's distributable cash flow(1) or cash distributions. During the three months ended June 30, 2008, the Partnership generated $10.5 million of distributable cash flow, an increase from $6.8 million for the quarter ended March 31, 2008, primarily as a result of higher shuttle tanker utilization, fewer drydockings performed during the second quarter and increased cash flow as a result of the acquisition of an additional 25 percent interest in Teekay Offshore Operating L.P. (OPCO) and OPCO's acquisition of two Aframax lightering vessels on June 18, 2008. On August 1, 2008, the Partnership declared a cash distribution of $0.40 per unit for the quarter ended June 30, 2008. The cash distribution was paid on August 14, 2008 to all unitholders of record on August 7, 2008.

On November 3, 2008, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended September 30, 2008, an increase of $0.05 per unit, or 12.5 percent, from the previous quarter. This distribution increase reflects the acquisitions completed on June 18, 2008. This cash distribution was paid on November 14, 2008 to all unitholders of record on November 7, 2008.

For the three months ended June 30, 2008, the Partnership now reports net income of $25.2 million, compared to net income of $11.8 million for the same period last year. In the second quarter of 2008, net income before non-controlling interest includes a non-cash net gain of $48.9 million relating primarily to unrealized gains on derivative instruments not qualifying for hedge accounting and deferred income tax recoveries, net of foreign currency translation losses. In the second quarter of 2007, net income before non-controlling interest includes a non-cash net gain totaling $23.0 million relating primarily to unrealized gains on derivative instruments not qualifying for hedge accounting, net of foreign currency translation losses and deferred income tax expenses. Net voyage revenues(4) for the three months ended June 30, 2008 increased to $164.7 million from $156.4 million in the same period last year.

Net income for the six months ended June 30, 2008 is now $12.5 million, compared to net income of $19.0 million for the same period last year. For the six months ended June 30, 2008, net income before non-controlling interest includes a non-cash net gain of $0.6 million relating primarily to deferred income tax recoveries, net of unrealized losses on derivative instruments not qualifying for hedge accounting and foreign currency translation losses. In the six months ended June 30, 2007, net income before non-controlling interest includes a non-cash net gain totaling $21.1 million relating primarily to unrealized gains on derivative instruments not qualifying for hedge accounting and deferred income tax recoveries, net of foreign currency translation losses. Net voyage revenues(1) for the six months ended June 30, 2008 increased to $318.2 million from $314.1 million for the same period last year.
 

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