Teekay Offshore has agreed to acquire the Petrojarl Varg Floating Production Storage and Offloading unit (Petrojarl Varg FPSO) from Teekay Corporation for a purchase price of $320 million. The Partnership also announced today that Teekay has agreed to provide vendor financing in the amount of $220 million which, together with the $104 million of equity raised by the Partnership in August 2009, will enable Teekay Offshore to complete the acquisition by mid-September 2009.
The Petrojarl Varg FPSO recently commenced a new a four-year fixed-rate contract extension with Talisman Energy (Talisman) on the Varg oil field in the North Sea, where the FPSO has been operating for over ten years. Talisman also has options to extend the new contract for up to an additional nine years. The contract is comprised of a daily base rate plus an incentive component based on the operational performance of the FPSO, a tariff component based on the volume of oil produced and an annual adjustment for cost escalations. There is potential for additional upside from the tariff component if, as expected, nearby oil fields become operational and are tied into the Petrojarl Varg FPSO.
During the four-year firm contract period, the Petrojarl Varg FPSO is expected to generate average annual cash flow from vessel operations of approximately $55 million and distributable cash flow (DCF) of approximately $30 million, which represents a significant increase to Teekay Offshore's DCF generated over the last twelve months of $48.2 million(1).
The $220 million vendor financing is comprised of two tranches. The first tranche is a $160 million short-term debt facility, which will be repaid upon the completion of a new $260 million revolving credit facility that is currently in syndication. The $260 million revolving credit facility, which will be secured by the Petrojarl Varg FPSO and its contract with Talisman, is expected to be completed by the end of October 2009. The second tranche of the vendor financing is a $60 million unsecured subordinated debt facility with a maximum term of five years and bears an interest rate of 10 percent per annum. Upon the completion of the acquisition and the $260 million revolving credit facility, together with the equity proceeds raised in August 2009, the Partnership's liquidity will increase by approximately $100 million.
The Board of Directors of the Partnership's General Partner and its Conflicts Committee have both approved the transaction. The Conflicts Committee retained independent legal and financial advisors to assist it in evaluating the transaction. In approving the transaction, the Committee obtained the views of its financial advisor as to the fairness of the purchase price.
"We are excited about this strategic acquisition which moves us further upstream in our customers' oil production chain, making us a complete 'wellhead to refinery' provider," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC, the Partnership's General Partner. "This accretive acquisition will further enhance our financial strength and flexibility by adding significant stable cash flow, with upside potential, from a strong counterparty and upon completion of the external financing, increase the Partnership's liquidity by $100 million. We are also pleased to complete the first FPSO acquisition from our sponsor, Teekay Corporation, from whom we have the right to acquire up to four additional FPSO units in the future."
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