Form 6-K Teekay Offshore Partners For: Feb 18

TEEKAY OFFSHORE PARTNERS L.P.

Teekay Offshore GP L.L.C., its general partner

/s/ Peter Evensen

Generated distributable cash flow of $67.0 million, or $0.62 per common unit, in the fourth quarter of 2015 and $244.7 million, or $2.29 per common unit, during 2015.

Generated cash flow from vessel operations of $172.9 million and $588.4 million in the fourth quarter and fiscal year of 2015, respectively, increases of 38 percent and 25 percent from the same periods of the prior year.

Declared fourth quarter 2015 cash distribution of $0.11 per common unit.

Completed the sale of two conventional tankers and agreed to sell the remaining two conventional tankers for total gross proceeds of approximately $130 million.

Total liquidity of approximately $283 million as at December 31, 2015.

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).

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 (loss) that are typically excluded by securities analysts in their published estimates of the Partnership’s financial results.

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.

FPSO

Segment

FSO

Segment

Net revenues⁽²⁾

Vessel operating expenses

Time-charter hire expense

Depreciation and amortization

CFVO from consolidated vessels⁽³⁾

CFVO from equity accounted vessels⁽⁴⁾

Total CFVO⁽³⁾⁽⁴⁾

FPSO

Segment

FSO

Segment

Net revenues⁽²⁾

Vessel operating expenses

Time-charter hire expense

Depreciation and amortization

CFVO from consolidated vessels⁽³⁾

CFVO from equity accounted vessel⁽⁴⁾

Total CFVO⁽³⁾⁽⁴⁾

The Partnership acquired 100 percent of the outstanding shares of Logitel Offshore Holding AS (Logitel) during the third quarter of 2014 and operations began in the second quarter of 2015.

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 GAAP financial measure.

Cash flow from vessel operations (CFVO) from consolidated vessels represents income (loss) from vessel operations before depreciation and amortization expense, write-down and gain on sale of vessels, and amortization of the non-cash portion of revenue contracts, and includes the realized gains and losses on the settlement of foreign exchange forward contracts and adjusts for direct financing leases to a cash basis. CFVO is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. CFVO should not be considered as an alternative to net income, equity income or any other indicator of the Partnership’s performance required by GAAP. Please refer to Appendix E included in this release for a description and reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure.

CFVO from equity accounted vessels represents the Partnership’s proportionate share of CFVO from its equity-accounted vessels, the Cidade de Itajai FPSO unit and the Libra FPSO conversion project. Please see Appendix F for a description and reconciliation of CFVO from equity accounted vessels (a non-GAAP measure) as used in this release to the most directly comparable GAAP financial measure.

Shuttle Tanker Segment

FPSO Segment

FSO Segment

Towage Segment

Conventional Segment

UMS Segment

Total

Includes six shuttle tankers in which Teekay Offshore’s ownership interest is 50 percent, one shuttle tanker in which Teekay Offshore’s ownership interest is 67 percent and one Hiload DP unit.

Includes three Suezmax-size, DP2 shuttle tanker newbuildings scheduled to be delivered in the fourth quarter of 2017 through the first half of 2018 for employment under the East Coast of Canada contract.

Includes one FPSO unit, the Cidade de Itajai, in which Teekay Offshore’s ownership interest is 50 percent.

Consists of the Petrojarl I FPSO upgrade project and Teekay Offshore’s 50 percent ownership interest in the Libra FPSO conversion project.

Consists of the Randgrid shuttle tanker, which is being converted into an FSO unit for use with the Gina Krog FSO project.

Consists of four long-distance towing and offshore installation vessel newbuildings scheduled to deliver in 2016.

Consists of two UMS newbuildings currently scheduled to deliver in the fourth quarter of 2016 and the second quarter of 2019.

By dialing 1-866-738-4015 or 416-204-9524, if outside North America, and quoting conference ID code 4410522.

By accessing the webcast, which will be available on Teekay Offshore’s website at www.teekayoffshore.com (the archive will remain on the website for a period of 30 days).

Revenues

Voyage expenses

Vessel operating expenses

Time-charter hire expense

Depreciation and amortization

General and administrative ⁽²⁾

(Write-down) and gain on sale of vessels⁽³⁾

Restructuring (charge) recovery

Income from vessel operations

Interest expense

Interest income

Realized and unrealized gains (losses) derivative instruments ⁽⁴⁾

Equity income (loss)

Foreign currency exchange loss⁽⁵⁾

Other income (loss) – net

Income (loss) before income tax expense

Income tax recovery (expense)

Net income (loss)

Non-controlling interests in net income

Dropdown Predecessor’s interest in net income⁽¹⁾

Preferred unitholders’ interest in net income

General Partner’s interest in net income

Limited partners’ interest in net income (loss)

Weighted-average number of common units:

- basic

- diluted

Total number of common units outstanding at end of period

The Partnership has recast its financial results to include the financial results of the Knarr FPSO unit relating to the period prior to its acquisition by the Partnership from Teekay Corporation when it was under common control, which pre-acquisition results are referred to in this release as the Dropdown Predecessor. In accordance with GAAP, business acquisitions of entities under common control that have begun operations are required to be accounted for in a manner whereby the Partnership’s financial statements are retroactively adjusted to include the historical results of the acquired vessels from the date the vessels were originally under the control of Teekay Corporation. For these purposes, the Knarr FPSO unit was under common control by Teekay Corporation from March 9, 2015 to July 1, 2015, when it was sold to the Partnership.

General and administrative expenses for the three months ended September 30, 2015 and the year ended December 31, 2015 include one-time business development fees of $13.9 million paid to Teekay Corporation relating to the purchases of the Knarr FPSO unit, six towage vessels and the Arendal Spirit UMS.

The write-down for the three months ended December 31, 2015 includes the impairment of two of the Partnership’s 2000s-built conventional tankers and five of the Partnership’s 1990s-built shuttle tankers to their estimated fair value, using appraised values. The write-down of the two conventional tankers was the result of the expected sale of the vessels and the vessels were classified as held for sale on the Partnership’s consolidated balance sheet as at December 31, 2015. The write-down of the five shuttle tankers, which have an average age of 17.5 years, was the result of changes in our expectations of their future opportunities, primarily due to their advanced age. While we expect four of the five vessels to continue to actively trade as shuttle tankers over the near-term and the fifth vessel to actively trade in the conventional tanker market, we anticipate fewer opportunities for alternative usage and increased age discrimination over time.

Realized losses on derivative instruments relate to amounts the Partnership actually paid to settle derivative instruments, and the unrealized gains (losses) on derivative instruments relate to the change in fair value of such derivative instruments, as detailed in the table below:

Realized losses relating to:

Interest rate swaps

Interest rate swap termination

Foreign currency forward contracts

Unrealized gains (losses) relating to:

Interest rate swaps

Foreign currency forward contracts

Total realized and unrealized gains (losses) on derivative instruments

Foreign currency exchange loss includes realized losses relating to the amounts the Partnership paid to settle its non-designated cross currency swaps that were entered into as an economic hedge relating to the Partnership’s Norwegian Kroner (NOK)-denominated unsecured bonds as detailed in the table below. The Partnership issued NOK 600 million of unsecured bonds in 2012 maturing in 2017, NOK 1,300 million of unsecured bonds in 2013 maturing in 2016 and 2018, and NOK 1,000 million of unsecured bonds in 2014 maturing in 2019. Foreign currency exchange loss also includes unrealized losses relating to the change in fair value of such derivative instruments, partially offset by unrealized gains on the revaluation of the NOK bonds, as detailed in the table below:

Realized losses on cross currency swaps

Unrealized losses on cross currency swaps

Unrealized gains on revaluation of NOK bonds

ASSETS

Current

Cash and cash equivalents

Restricted cash - current

Accounts receivable

Vessels held for sale

Net investments in direct financing leases - current

Prepaid expenses

Due from affiliates

Advances to joint venture

Other current assets

Total current assets

Restricted cash - long-term

Vessels and equipment

At cost, less accumulated depreciation

Advances on newbuilding contracts and conversion costs

Net investments in direct financing leases

Investment in equity accounted joint ventures

Deferred tax assets

Other assets

Goodwill

Total assets

LIABILITIES AND EQUITY

Current

Accounts payable

Accrued liabilities

Deferred revenues

Due to affiliates

Current portion of derivative instruments

Current portion of long-term debt

Current portion of in-process revenue contracts

Total current liabilities

Long-term debt

Derivative instruments

In-process revenue contracts

Other long-term liabilities

Total liabilities

Redeemable non-controlling interest

Convertible Preferred Units (10.4 million and nil units issued and outstanding at December 31, 2015 and December 31, 2014, respectively)

Equity

Limited partners - common units (107.0 million and 92.4 million units issued and outstanding at December 31, 2015 and December 31, 2014, respectively)

Limited partners - preferred units (11.0 million and 6.0 million units issued and outstanding at December 31, 2015 and December 31, 2014, respectively)

General Partner

Non-controlling interests

Accumulated other comprehensive income (loss)

Total equity

Total liabilities and total equity

Cash and cash equivalents provided by (used for)

OPERATING ACTIVITIES

Net income

Non-cash items:

Unrealized loss on derivative instruments

Equity income, net of dividends received of $7,843 (2014 - $16,803)

Depreciation and amortization

Write-down and (gain) on sale of vessels

Deferred income tax (recovery) expense

Amortization of in-process revenue contracts

Foreign currency exchange gain and other

Change in non-cash working capital items related to operating activities

Expenditures for dry docking

Net operating cash flow

FINANCING ACTIVITIES

Proceeds from long-term debt

Scheduled repayments of long-term debt

Prepayments of long-term debt

Debt issuance costs

Purchase of Teekay Knarr AS and Knarr L.L.C from Teekay Corporation (net of cash acquired of $14.2 million)

Increase in restricted cash

Proceeds from issuance of common units

Proceeds from issuance of preferred units

Expenses relating to equity offerings

Cash distributions paid by the Partnership

Settlement of contingent consideration liability

Cash distributions paid by subsidiaries to non-controlling interests

Equity contribution from joint venture partners

Purchase of Voyageur LLC from Teekay Corporation

Other

Net financing cash flow

INVESTING ACTIVITIES

Expenditures for vessels and equipment, including advances on newbuilding contracts and conversion costs

Proceeds from sale of vessels and equipment

Repayment (advances) from (to) joint venture partners and equity accounted joint ventures

Direct financing lease payments received

Investment in equity accounted joint ventures

Acquisition of ALP Maritime Services B.V. (net of cash acquired of $0.3 million)

Acquisition of Logitel Offshore Holding AS (net of cash acquired of $8.1 million)

Proceeds from sale of SPT Explorer L.L.C. and Navigator Spirit L.L.C.

Net investing cash flow

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the year

In accordance with GAAP, the Consolidated Statement of Cash Flows for the year ended December 31, 2015 includes the cash flows relating to the Knarr FPSO unit Dropdown Predecessor for the period from March 9, 2015 to July 1, 2015, when the vessel was under the common control of Teekay Corporation, but prior to its acquisition by the Partnership.

Net income (loss) – GAAP basis

Adjustments:

Net income attributable to non-controlling interests

Net income attributable to Dropdown Predecessor

Net income (loss) attributable to the partners

Add (subtract) specific items affecting net income (loss):

Foreign currency exchange (gains) losses⁽¹⁾

Unrealized (gains) losses on derivative instruments⁽²⁾

Realized loss on swap termination

Write-down and (gain) on sale of vessels⁽³⁾

Deferred income tax recovery relating to Norwegian tax structure⁽⁴⁾

Pre-operational costs⁽⁵⁾

Business development fees and other⁽⁶⁾

Non-controlling interests’ share of items above⁽⁷⁾

Total adjustments

Adjusted net income attributable to the partners⁽⁸⁾

Foreign currency exchange (gains) losses primarily relate to the Partnership’s revaluation of all foreign currency-denominated monetary assets and liabilities based on the prevailing exchange rate at the end of each reporting period and unrealized gains or losses related to the Partnership’s cross currency swaps for outstanding Norwegian bonds of the Partnership and excludes the realized gains and losses relating to the cross currency swaps.

Reflects the unrealized (gains) losses due to changes in the mark-to-market value of interest rate swaps and foreign exchange forward contracts that are not designated as hedges for accounting purposes, including the unrealized mark-to-market value of the interest rate swaps within the Cidade de Itajai FPSO and Libra FPSO equity accounted joint ventures.

Please refer to footnote (3) of the summary consolidated statements of income (loss) about the write-down of vessels for the three months ended December 31, 2015. Results for the year ended December 31, 2015 also include the write-down of two of the Partnership’s 1990s-built shuttle tankers and a gain on the sale of a 1997-built shuttle tanker, the Navion Svenita. The write-down of one of these shuttle tankers was a result of the expected sale of the vessel and the vessel was classified as held for sale as at December 31, 2015. This vessel was subsequently sold in January 2016 for gross proceeds of $5.1 million. The write-down of the second shuttle tanker was a result of a change in the operating plan of the vessel.

Reflects the increase in the deferred income tax assets within the Partnership’s Norwegian tax group.

Reflects the realized losses on foreign currency forward contracts relating to upgrade costs on the Petrojarl I FPSO unit, depreciation and amortization expense relating to the Petrojarl I FPSO unit while undergoing conversion, and costs associated to the delivery deferral of the Stavanger Spirit UMS.

Other items for the three months ended December 31, 2015 include net early termination fees paid to Teekay Corporation of $1.8 million, a restructuring charge of $0.3 million relating to a seafarer redundancy accrual in the Partnership’s shuttle tanker fleet and a $0.3 million write-down of inventory assets. Other items for the year ended December 31, 2015 include one-time business development fees of $13.9 million paid to Teekay Corporation relating to the purchases of the Knarr FPSO unit, six towage vessels, and the Arendal Spirit UMS, the ineffective portion of losses on interest rate swaps designated and qualifying as cash flow hedges of $1.1 million, a $0.7 million write-down of inventory assets, and a restructuring charge of $0.6 million relating to seafarer redundancy in the Partnership’s shuttle tanker fleet. Other items for the three months and year ended December 31, 2014 include $4.7 million of mobilization costs related to the HiLoad DP unit, fees of $2.1 million paid to Teekay Corporation associated with the Partnership’s acquisition of the Petrojarl I FPSO unit, and a $2.0 million and $1.4 million charge, respectively, related to pension adjustments. Other items for the year ended December 31, 2014 also include fees of $2.6 million associated with the Partnership’s acquisition of ALP.

Items affecting net income (loss) include items from the Partnership’s consolidated non-wholly-owned subsidiaries. The specific items affecting net income (loss) are 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 amount identified as “non-controlling interests’ share of items above” in the table above is the cumulative amount of the non-controlling interests’ proportionate share of items listed in the table.

For the year ended December 31, 2014, adjusted net income attributable to the partners excludes $3.5 million of indemnification payments from Teekay Corporation relating to the loss of revenues and certain unrecovered vessel operating expenses for the Voyageur Spirit FPSO.

Net income (loss)

Net income attributable to Dropdown Predecessor

Net income attributable to the partners and non-controlling interests’

Depreciation and amortization

Vessel and business acquisition costs⁽¹⁾

Realized loss on termination of interest rate swap

Equity income from joint ventures

Distributions relating to equity financing of newbuildings and conversion costs

Partnership’s share of equity accounted joint venture’s distributable cash flow net of estimated maintenance capital expenditures

Write-down and (gain on sale) of vessels

Distributions relating to preferred units

Estimated maintenance capital expenditures⁽²⁾

Unrealized (gains) losses on derivative instruments⁽³⁾

Foreign currency exchange and other, net

Distributable cash flow before non-controlling interests

Non-controlling interests’ share of DCF

Distributable Cash Flow

Amount attributable to the General Partner

Limited partners’ Distributable Cash Flow

Weighted-average number of common units outstanding

Distributable Cash Flow per limited partner unit

Vessel and business acquisition costs relate to business development fees of $13.9 million paid to Teekay Corporation relating to the purchases of the Knarr FPSO unit, the six towage vessels and the Arendal Spirit UMS.

Estimated maintenance capital expenditures relating to the Partnership’s equity accounted joint venture for the three months ended December 31, 2015 and 2014 were $1.0 million and $1.0 million, respectively, and for the years ended December 31, 2015 and 2014 were $4.2 million and $4.2 million, respectively.

Derivative instruments include interest rate swaps and foreign exchange forward contracts.

FPSO

Segment

FSO

Segment

Revenues

Voyage expenses

Net revenues

FPSO

Segment

FSO

Segment

Revenues

Voyage expenses

Net revenues

FPSO

Segment

FSO

Segment

Revenues

Voyage expenses