HAMILTON, BERMUDA — (Marketwired) — 11/07/13 — Teekay Offshore Partners L.P. (NYSE: TOO) –
Highlights
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 September 30, 2013. During the third quarter of 2013, the Partnership generated distributable cash flow(1) of $43.0 million, compared to $38.6 million in the same period of the prior year.
On October 11, 2013, a cash distribution of $0.5253 per common unit was declared for the quarter ended September 30, 2013. The cash distribution is payable on November 8, 2013 to all unitholders of record on October 23, 2013.
“During the third quarter and fourth quarter to-date, Teekay Offshore remained focused on project execution, taking delivery of our third newbuilding shuttle tanker, the Bossa Nova Spirit, and completing the acquisition of the HiLoad DP unit from Remora AS,” commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. “Both of these vessels are currently in transit to Brazil to commence their respective 10-year, fixed-rate contracts. In addition, repairs to the Voyageur Spirit FPSO–s compressor were completed on August 27th and the FPSO unit has since been earning its full rate with the charterer. It is important to note that the Partnership has been fully indemnified by Teekay Corporation for any loss of revenues prior to August 27th. Based on the additional distributable cash flow contribution from our acquisitions and newbuilding deliveries during the year to date, management intends to recommend to the Partnership–s Board of Directors a quarterly distribution increase of 2.5 percent, commencing with the fourth quarter distribution payable in February 2014. If approved, Teekay Offshore–s distributions will have increased by a total of 5 percent in 2013.”
Mr. Evensen continued, “The deepwater offshore fundamentals remain strong and we believe the Partnership is well-positioned to continue growing its distributable cash flow. In addition to several FSO projects and FPSO acquisition opportunities available from our sponsor, Teekay Corporation, the Partnership is currently bidding on several offshore projects which, if we are successful, will add to the Partnership–s future distributable cash flows.”
(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).
Summary of Recent Events
Voyageur Spirit FPSO
On August 27, 2013, repairs to the defective gas compressor on the Voyageur Spirit FPSO were completed and the unit achieved full production capacity. Since that time, the unit has been receiving full rate from the charterer. The Partnership expects to receive a certificate of final acceptance from the charterer after completing certain operational tests, which have been temporarily delayed by the charterer due to an unrelated issue which is the responsibility of the charterer. In the meantime, the Partnership will continue to earn the full rate as though the unit was producing at full capacity under the charter contract.
Teekay Corporation has agreed to indemnify Teekay Offshore for certain lost revenue relating to the full operation of the Voyageur Spirit FPSO unit. Any indemnification amounts from Teekay Corporation to the Partnership are effectively treated as a reduction in the purchase price paid to Teekay Corporation for the Voyageur Spirit FPSO by Teekay Offshore. During the third quarter of 2013, the Partnership–s indemnification effectively resulted in a $13 million reduction in the purchase price. Any future compensation received by the Partnership from the charterer related to the indemnification period will reduce the amount of Teekay Corporation–s indemnification to Teekay Offshore. Although the Partnership–s reported revenues is lower as a result of any off-hire relating to the Voyageur Spirit FPSO, there is no net impact on the Partnership–s cash flows as a result of the Teekay Corporation–s indemnification. For the period up to September 30, 2013, Teekay Corporation indemnified the Partnership approximately $30.0 million relating to the Voyageur Spirit FPSO. The Partnership has been and will continue to be indemnified by Teekay Corporation for lost revenues up until receipt of the certificate of final acceptance from the charterer, subject to a maximum of $54 million.
Teekay Offshore–s Fleet
The following table summarizes Teekay Offshore–s fleet as of November 1, 2013.
In September 2013, Teekay Offshore sold a 1995-built conventional tanker, the Gotland Spirit, to a third party buyer for total net proceeds of $7.9 million.
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
In June 2011, the Partnership entered into a new long-term contract with a subsidiary of BG Group plc (BG) to provide shuttle tanker services in Brazil. The contract with BG will be serviced by four Suezmax newbuilding shuttle tankers (the BG Shuttle Tankers), constructed by Samsung Heavy Industries for an estimated total cost of approximately $446 million (excluding capitalized interest and miscellaneous construction costs). The BG Shuttle Tankers will operate under ten-year, fixed-rate time-charter-out contracts, which include certain extension options and vessel purchase options exercisable by the charterer. In May and June 2013, the Partnership took delivery of the Samba Spirit and Lambada Spirit, the first two of the four shuttle tanker newbuildings, which commenced their respective time-charter contracts with BG in late June and August 2013, respectively. In September 2013, the Partnership took delivery of the Bossa Nova Spirit, the third of the four shuttle tanker newbuildings, which will commence its time-charter contract with BG in November 2013. The remaining shuttle tanker newbuilding, the Sertanejo Spirit, is scheduled to be delivered in late-November 2013.
In November 2012, the Partnership agreed to acquire 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 $55 million, including modification costs. The acquisition of the HiLoad DP unit, which will operate under a ten-year time-charter contract with Petroleo Brasileiro SA (Petrobras) in Brazil, was completed in September 2013 for $35.5 million (excluding modification costs) and the unit is expected to commence operations at its full time-charter rate in the second quarter of 2014 once delivery of the DP unit to Brazil and operational testing have been completed. 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 Brasil to perform a 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, will include new features, such as increased engine power and the capability to maneuver vessels larger than Suezmax conventional tankers.
FPSO Units
In May 2011, Teekay Corporation entered into a joint venture agreement with Odebrecht Oil & Gas S.A. (a member of the Odebrecht group) (Odebrecht) 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 has become a 50 percent partner in the Cidade de Itajai FPSO project and Teekay Corporation is currently working with Odebrecht on other FPSO project opportunities that, if awarded, may result in the Partnership being able to acquire Teekay Corporation–s interests in such projects pursuant to the omnibus agreement.
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, prior to July 9, 2014. The purchase price for the Petrojarl Foinaven would be its fair market value plus any additional tax or other costs incurred by Teekay Corporation to transfer ownership of this FPSO unit to the Partnership.
In June 2011, Teekay Corporation entered into a contract with BG Norge Limited to provide a harsh weather FPSO unit to operate in the North Sea. The contract will be serviced by an FPSO unit being constructed by Samsung Heavy Industries for a fully built-up cost of approximately $1 billion. Pursuant to the omnibus agreement, Teekay Corporation is obligated to offer to the Partnership its interest in this 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.
In November 2011, Teekay Corporation acquired the Hummingbird Spirit FPSO unit from Sevan Marine ASA, a Norway-based developer of cylindrical-shaped FPSO units. In September 2013, the charterer of the unit, Centrica Energy, exercised its option to extend the existing Hummingbird Spirit FPSO contract out to March 31, 2016. Pursuant to the omnibus agreement, Teekay Corporation is only obligated to offer the Partnership the Hummingbird Spirit FPSO unit following the commencement of a charter contract with a firm period of greater than three years in duration.
Teekay Corporation owns two additional FPSO units, 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.
FSO Units
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, Randgrid, which the Partnership currently owns through a 67 percent-owned subsidiary. The FSO conversion project is expected to be completed for a net capital cost of approximately $220 million, including 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 firm period time-charter contract to Statoil, which also includes 12 additional one-year extension options.
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. The Partnership is converting its 1993-built shuttle tanker, the Navion Clipper, into an FSO unit for an estimated fully built-up cost of approximately $50 million. The unit is expected to commence its contract with Salamander in the third quarter of 2014.
Financial Summary
The Partnership reported adjusted net income attributable to the partners(1) of $10.5 million for the quarter ended September 30, 2013, compared to $24.3 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 $36.3 million and $10.6 million for the quarters ended September 30, 2013 and September 30, 2012, 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 $25.8 million for the third quarter of 2013, compared to a net income of $13.8 million in the same period of the prior year. Net revenues(2) increased to $207.3 million for the third quarter of 2013, compared to $196.1 million in the same period of the prior year.
The Partnership reported adjusted net income attributable to the partners(1) of $39.1 million for the nine months ended September 30, 2013, compared to $71.0 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 increasing net income by $12.9 million and decreasing net income by $16.8 million for the nine months ended September 30, 2013 and September 30, 2012, 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 $52.0 million for the nine months ended September 30, 2013, compared to $54.3 million in the same period of the prior year. Net revenues(2) for the nine months ended September 30, 2013 was $595.6 million, compared to $584.3 million in the same period of the prior year.
Adjusted net income attributable to the partners for the three and nine months ended September 30, 2013 declined from the same periods in the prior year, mainly due to the sale and lay-up of older shuttle and conventional tankers during 2012 and 2013 as their related charter contracts expired or terminated, and lower shuttle tanker project revenues due to fewer opportunities for short-term trading of excess shuttle tanker fleet capacity. In addition, there was a higher level of maintenance activity in the FPSO fleet during the first nine months of 2013, compared to the same period of the prior year. As a result of the delay in receiving the certificate of final acceptance from the charterer for the Voyageur Spirit FPSO, the Partnership has not recorded the revenues associated with its operations since its acquisition on May 2, 2013 through August 26, 2013; however, $13.0 million and $30.0 million in indemnification payments have been made by Teekay Corporation for the three and nine months ended September 30, 2013, respectively, which are recorded in equity as an adjustment to the purchase price of the FPSO unit. As a result of the indemnification from Teekay Corporation, there is no net impact on the Partnership–s cash flows relating to the Voyageur Spirit FPSO off-hire.
Adjusted net income is expected to increase in the fourth quarter of 2013 and into the first quarter of 2014 when the remaining two shuttle tanker newbuildings begin their time-charter contracts in Brazil and the Voyageur Spirit is on-hire for the full quarter.
For accounting purposes, the Partnership is required to recognize, through the consolidated statements of (loss) income, changes in the fair value of certain 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.
(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 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.
Operating Results
The following table highlights certain financial information for Teekay Offshore–s four segments: the Shuttle Tanker segment, the FPSO segment, the Conventional Tanker segment and the FSO segment (please refer to the “Teekay Offshore–s Fleet” section of this release above and Appendix D for further details).
Shuttle Tanker Segment
Cash flow from vessel operations from the Partnership–s Shuttle Tanker segment decreased to $54.1 million in the third quarter of 2013 compared to $60.0 million for the same period of the prior year. Lower shuttle tanker project revenues, the lay-up of the Navion Clipper upon expiration of its time-charter contract during the fourth quarter of 2012, and the sale of the Navion Savonita in the fourth quarter of 2012 were partially offset by increased revenues as a result of the commencement of the time-charters for the first two BG Shuttle Tankers in June and August 2013.
FPSO Segment
Cash flow from vessel operations from the Partnership–s FPSO segment, including the equity-accounted vessel, increased to $27.5 million for the third quarter of 2013 compared to $21.8 million for the same period of the prior year, primarily due to cash flow from the acquisition of the Voyageur Spirit and Cidade de Itajai FPSO units in the second quarter of 2013, partially offset by higher maintenance costs due to class work on the FPSO units. Cash flow from vessel operations for the third quarter of 2013 excludes the $13.0 million Voyageur Spirit FPSO indemnification payment from Teekay Corporation.
Conventional Tanker Segment
Cash flow from vessel operations from the Partnership–s Conventional Tanker segment decreased to $3.3 million in the third quarter of 2013 compared to $9.7 million for the same period of the prior year primarily due to the sale of five conventional tankers during the past twelve months.
FSO Segment
Cash flow from vessel operations from the Partnership–s FSO segment increased in the third quarter of 2013 to $7.4 million compared from $4.1 million generated in the same period of the prior year, primarily as a result of the Navion Saga dry-docking during the third quarter of 2012.
Liquidity and Continuous Offering Program Update
In May 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. Through September 30, 2013, the Partnership sold an aggregate of 85,508 common units under the COP, generating proceeds of approximately $2.4 million (including the Partnership–s general partner–s 2 percent proportionate capital contribution and net of offering costs). The Partnership did not sell any units under the COP during the third quarter of 2013.
As of September 30, 2013, the Partnership had total liquidity of $423.7 million, which consisted of $258.9 million in cash and cash equivalents and $164.8 million in undrawn revolving credit facilities.
Conference Call
The Partnership also plans to host a conference call on Friday, November 8, 2013 at noon (ET) to discuss the results for the third quarter of 2013. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:
A supporting Third Quarter 2013 Earnings Presentation will also be available at in advance of the conference call start time.
The conference call will be recorded and available until Friday, November 15, 2013. 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 3977960.
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 37 shuttle tankers (including four chartered-in vessels, one committed newbuilding and one HiLoad Dynamic Positioning (DP) unit), five floating production, storage and offloading (FPSO) units, four conventional oil tankers and six floating storage and offtake (FSO) units (including one committed FSO conversion unit). 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.”
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.
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 interest, non-cash items, distributions relating to equity financing of newbuilding installments and on our preferred units, certain realized gains on forward contracts, vessel 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 September 30, 2013 and September 30, 2012, respectively.
Description of Non-GAAP Financial Measure – Net Revenues
Net revenues represents revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, canal tolls and brokerage 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.
Description of Non-GAAP Financial Measure – Cash Flow from Vessel Operations from Consolidated Vessels
Cash flow from vessel operations from consolidated vessels represents (loss) income from vessel operations before depreciation and amortization expense, write-down and loss on sale of vessels and amortization of deferred gains, 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 adjusting 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.
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.
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; the amount, timing and certainty of future increases to the Partnership–s common unit distributions, including the 2.5 percent distribution increase intended to be recommended by management for the fourth quarter 2013 distribution payable in February 2014; the change in distributable cash flow as a result of recent acquisitions and commencement of newbuilding time-charter contracts; future growth opportunities, including the Partnership–s ability to successfully bid for new offshore projects; the timing of the Voyageur Spirit receiving its certificate of final acceptance from E.ON; the timing of the new and converted vessels commencing their time charter contracts; the potential for the Partnership to acquire future HiLoad projects developed by Remora; the cost of converting vessels into FSO units; the potential for Teekay Corporation to offer additional vessels to the Partnership and the certainty of the Partnership agreeing to acquire such vessels; the timing of delivery of vessels under construction or conversion; the potential for the Partnership to acquire other vessels or offshore projects from Teekay Corporation or directly from third parties; and increases to the Partnership–s future adjusted net income as a result of the commencement of newbuilding time-charter contracts in the fourth quarter of 2013 and first quarter of 2014.
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; the potential inability of the Voyageur Spirit FPSO to complete operational testing and receive its certificate of final acceptance from E.ON; Teekay Corporation–s indemnification of the Partnership for the Voyageur Spirit FPSO exceeding the maximum indemnification amount; 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; delays in the commencement of time-charters; the inability to successfully complete the operational testing of the HiLoad DP unit; failure of Teekay Corporation to offer to the Partnership additional vessels or of Remora or Odebrecht to develop new vessels or projects; 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; failure of the Board of Directors of the Partnership–s general partner to approve distribution increases recommended by management; 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, 2012. 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:
Teekay Offshore Partners L.P.
Kent Alekson
Investor Relations Enquiries
+1 (604) 609-6442