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Teekay Offshore Partners Reports Second Quarter 2019 Results

Wednesday, 31 July 2019 | 20:00

Teekay Offshore GP LLC (TOO GP), the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE:TOO), reported the Partnership's results for the quarter ended June 30, 2019.

Second Quarter of 2019 Compared to Second Quarter of 2018

Revenues were $320 million in the second quarter of 2019, which was consistent with the same quarter of the prior year.

Net loss decreased to $28 million in the second quarter of 2019 compared to $168 million in the same quarter of the prior year primarily due to the timing of recognition of write-downs and gains on sales of vessels and a decrease in unrealized fair value losses on derivative instruments resulting from movement in interest rates. In the second quarter of 2019, net loss included a gain on the sale of three vessels of $13 million whereas in the second quarter of 2018, net loss included write-downs of $180 million relating to two FPSO units.

Non-GAAP Adjusted EBITDA was $159 million in the second quarter of 2019, which was consistent with the same quarter of 2018. An increase in Adjusted EBITDA of $11 million from the shuttle tanker segment was offset by a decrease of $11 million from the FPSO segment.

Non-GAAP Adjusted Net Income was $5 million in the second quarter of 2019, an increase of $5 million compared to the same quarter of the prior year, primarily due to a decrease in depreciation and amortization of $7 million.

Image: Teekay Corporation

Second Quarter of 2019 Compared to First Quarter of 2019

Revenues decreased by $17 million and net loss increased by $25 million in the second quarter of 2019, compared to the prior quarter, primarily due to the absence of a $15 million amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit, which was fully amortized during the first quarter of 2019; a $7 million decrease in contributions from the completion of the Rio das Ostras FPSO unit charter contract in March 2019 and a $5 million decrease from lower utilization in the towage fleet. Revenues and vessel operating expenses in the second quarter of 2019 also included the recognition of deferred revenues and deferred costs of $13 million and $15 million, respectively, upon termination of the Cheviot Field agreement relating to the Petrojarl Varg FPSO unit. Other items impacting the change in net loss included a $13 million gain on the sale of three vessels recognized in the second quarter of 2019 and a $9 million increase in unrealized fair value losses on derivative instruments.

Non-GAAP Adjusted EBITDA and Adjusted Net Income decreased by $29 million and $25 million, respectively, in the second quarter of 2019, compared to the prior quarter, primarily due to the changes in revenue and vessel operating expenses as described above.

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

CEO Commentary

“We are pleased to announce another good operational quarter with Adjusted EBITDA of $159 million. The Shuttle Tanker and the FSO segment results were in line with first quarter, while the FPSO segment result decreased by $22 million, primarily on non-cash items. The Towage segment was basically EBITDA neutral,” commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd.

“During the quarter we decided to terminate the agreement with Alpha Petroleum for the redeployment of the Petrojarl Varg FPSO on the U.K. Cheviot field. Given the increased activity on a number of field developments in the North Sea, it was important for us to either reach a final contract award with Alpha Petroleum on the Cheviot field, or make the unit available for other field developments where it can offer an attractive field development solution.”

Ms. Sæther added, “On the financing side, we were pleased to announce during the quarter the closing of the refinancing of the $450 million revolving credit facility backed by 16 of our shuttle tankers on attractive terms, in addition to the long-term financing of the first four shuttle tanker newbuildings and the refinancing of three FPSOs with $100 million, both as announced in the last quarterly release.”

Summary of Recent Events

Brookfield Investment

In late-May 2019, the Partnership received an unsolicited non-binding proposal from Brookfield Business Partners L.P. (NYSE:BBU)(TSX:BBU.UN), together with its institutional partners (collectively Brookfield), to acquire all issued and outstanding publicly held common units representing limited partnership interests of the Partnership that Brookfield does not already own in exchange for $1.05 in cash per common unit. The Partnership’s Conflicts Committee, consisting only of non-Brookfield affiliated Teekay Offshore Directors, is evaluating the proposed offer on behalf of the owners of the non-Brookfield owned limited partnership interests. The proposed transaction is subject to a number of contingencies, including the approval of the Conflicts Committee, and the satisfaction of any conditions to the consummation of a transaction that may be set forth in any definitive agreement concerning the transaction. There can be no assurance that definitive documentation will be executed or that any transaction will materialize on the terms described above or at all.

In May 2019, Brookfield purchased all of Teekay Corporation’s remaining interests in the Partnership, including its 49% general partner interest, 13.8% interest in common units, 17.3 million common unit equivalent warrants and a $25 million loan receivable outstanding under an unsecured revolving credit facility, for total proceeds of $100 million.

Financings

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

In May 2019, the Partnership secured a $450 million refinancing of 16 shuttle tankers. The facility was used to refinance an existing revolving credit facility dated September 2017, which bore interest at LIBOR plus a margin of 300 basis points and had a remaining tenor of 3.4 years. The new revolving credit facility bears interest at LIBOR plus a margin of 250 basis points and has a tenor of five years with a profile of 8.4 years.

In late-April 2019, the Partnership closed a $100 million refinancing of the Piranema Spirit, Voyageur Spirit, and Petrojarl Varg FPSO units. The previous credit facility matured at the same time with a balloon payment of $35 million. The new revolving credit facility bears interest at LIBOR plus a margin of 300 basis points and reduces to $45 million over three years, reflecting the relative short current contract backlog for these FPSO units.

In April 2019, the Partnership secured a new $414 million long-term debt facility to be used to finance four LNG-fueled Suezmax DP2 shuttle tanker newbuildings. Upon anticipated delivery in 2019 and 2020, two of the vessels will commence operations under the Partnership's master agreement with Equinor, while the remaining two vessels will join the Partnership's contract of affreightment (CoA) shuttle tanker portfolio in the North Sea. The new facility is funded and guaranteed by both Canadian and Norwegian export credit agencies and commercial banks, bears interest at LIBOR plus a margin of 225 basis points, and has a tenor for up to 12 years from the delivery date of each vessel and a blended repayment profile of 18 years.

Termination of Cheviot Field Agreement

In June 2019, the Partnership announced that an agreement with Alpha Petroleum Resources Limited (or Alpha) relating to the use of the Petrojarl Varg FPSO unit was terminated as a result of Alpha being unable to satisfy certain conditions precedent, including Alpha providing initial funding to cover life extension and upgrade costs, by the contractual deadline. The Partnership is currently pursing alternative deployment opportunities for the Petrojarl Varg FPSO unit.

Change to Board of Directors

In July 2019, Brookfield appointed Gregory Morrison as a member of the Board of Directors of the general partner of Teekay Offshore, replacing Walter Weathers, who was appointed by Brookfield in September 2017.

Liquidity Update

As of June 30, 2019, the Partnership had total liquidity of $202 million, an increase of $19 million compared to March 31, 2019. The increase in liquidity was primarily due to the refinancing of the Partnership’s FPSO revolving credit facility and proceeds received from the sale of the Pattani Spirit FSO and the Nordic Spirit and Alexita Spirit shuttle tankers during the second quarter of 2019.

Operating Results

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

Adjusted EBITDA (including Adjusted EBITDA of equity-accounted vessels) decreased by $11 million primarily due to: a decrease of $8 million due to the completion of the charter contract for the Rio das Ostras FPSO unit in March 2019; and a decrease of $6 million resulting from a contract extension for the Piranema Spirit FPSO unit at lower charter rates than the original contract and a decrease in the amortization of non-cash deferred revenue; partially offset by an increase of $6 million from the commencement of operations of the Petrojarl I FPSO unit in May 2018.

Adjusted EBITDA decreased by $22 million compared to the three months ended March 31, 2019 primarily due to: the absence of a $15 million amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit; and a $5 million decrease from the completion of the Rio das Ostras FPSO unit charter contract in March 2019.

Adjusted EBITDA increased by $11 million primarily due to: $4 million from higher CoA utilization and rates during the second quarter of 2019; $4 million from a decrease in vessel operating expenses and general and administrative expenses; and $3 million due to the timing of dry-docking of vessels.

Adjusted EBITDA was in line with first quarter 2019.

Adjusted EBITDA was consistent with prior periods.

Adjusted EBITDA was consistent with the same quarter of the prior year.

Adjusted EBITDA decreased by $3 million compared to the three months ended March 31, 2019, primarily due to an insurance settlement received in the first quarter of 2019.

Adjusted EBITDA decreased by $2 million due to an increase in vessel operating expenses relating to the reactivation of the ALP Forward in June 2019, which was previously in lay-up.

Adjusted EBITDA decreased by $5 million compared to the three months ended March 31, 2019, due to a decrease in the utilization of the towage fleet from 96% to 67% and an increase in vessel operating expenses relating to the reactivation of the ALP Forward in June 2019.

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 July 31, 2019. Teekay Offshore’s fleet is consistent in comparison to the previously-reported fleet table in the release for the first quarter of 2019.

Full Report

Source: Teekay Offshore Partners L.P.

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