Teekay Offshore Partners Reports Fourth Quarter and Annual 2018 Results

Highlights

• GAAP net income of $67.8 million, or $0.14 per common unit, in the fourth quarter 2018
• Adjusted net income attributable to the partners and preferred unitholders⁽¹⁾ of $130.5 million, or $0.30 per common unit, (excluding items listed in Appendix B to this release) in the fourth quarter 2018
• Adjusted EBITDA⁽¹⁾ of $289.5 million in the fourth quarter 2018
• In October 2018, entered into settlement agreements with Petrobras, including a positive settlement relating to previously-terminated charter contracts for the HiLoad DP unit and Arendal Spirit UMS for a total of $96 million (refer to "Summary of Recent Events")
• In late-January 2019, entered into a contract extension for the Piranema Spirit FPSO unit with Petrobras commencing in February 2019 (refer to "Summary of Recent Events")

HAMILTON, Bermuda, Feb. 08, 2019 (GLOBE NEWSWIRE) -- Teekay Offshore GP LLC (TOO GP), the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) TOO, today reported the Partnership's results for the quarter and year ended December 31, 2018.

In the fourth quarter of 2018, the Partnership made certain changes to its non-GAAP financial measures to more closely align with internal management reporting, annual reporting with the U.S. Securities and Exchange Commission (SEC) under Form 20-F and metrics used by its controlling unitholder. Cash Flow from Vessel Operations (CFVO) from Consolidated Vessels and Total CFVO are replaced with Consolidated Adjusted EBITDA and Adjusted EBITDA, respectively, using modified definitions. Adjusted Net Income Attributable to the Partners and Preferred Unitholders (Adjusted Net Income) is now reported with a modified definition. Distributable Cash Flow is no longer reported. Please refer to (a) "Definitions and Non-GAAP Financial Measures" in this release for definitions of these non-GAAP financial measures and information about the changes made and (b) Appendix E for reconciliations of Total CFVO to Adjusted EBITDA and of Adjusted Net Income as previously reported to the new definition.

Fourth Quarter of 2018 Compared to Third Quarter of 2018

GAAP net income increased by $107 million, to net income of $68 million for the fourth quarter of 2018 compared to a net loss of $39 million for the third quarter of 2018, primarily as a result of: $91 million of revenue related to the positive settlement with Petróleo Brasileiro S.A. and certain of its subsidiaries (together Petrobras) recorded during the fourth quarter of 2018; $14 million due to the amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit which increased from $7 million to $21 million; an $8 million decrease in deferred income tax expense; $6 million of higher earnings in the Shuttle Tanker segment due to an increase in CoA days and higher rates during the fourth quarter of 2018; and $5 million of higher earnings in the FSO segment primarily due to amended contract terms, lower off-hire and timing of expenses relating to the Randgrid FSO unit in the fourth quarter of 2018; partially offset by a $19 million write-down of the HiLoad DP unit, to $nil, in the fourth quarter of 2018. Non-GAAP adjusted net income increased by $119 million for the fourth quarter of 2018 compared to the third quarter of 2018.

Fourth Quarter of 2018 Compared to Fourth Quarter of 2017

GAAP net income increased by $52 million, from $16 million to $68 million, for the fourth quarter of 2018 compared to the same quarter of the prior year, primarily as a result of: $91 million of revenue related to the above-mentioned settlement with Petrobras; $24 million of higher earnings in the FPSO segment (including equity-accounted vessels) primarily due to the start-up of the Petrojarl I and Libra FPSO units in May 2018 and November 2017, respectively; $18 million due to the amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit which increased from $3 million to $21 million, partially offset by lower charter rates from the Voyageur Spirit and Petrojarl Cidade de Rio das Ostras (or Rio das Ostras) FPSO unit contract extensions; and $21 million of higher earnings in the Shuttle Tanker segment primarily due to an increase in contract of affreightment (CoA) days and higher rates during the fourth quarter of 2018. This is partially offset by: a $60 million increase of unrealized non-cash losses on the Partnership's interest rate swaps (including interest rate swaps within the FPSO equity-accounted joint ventures); a $19 million write-down of the HiLoad DP unit, to $nil, in the fourth quarter of 2018; and $8 million of higher interest expense and realized losses on derivatives primarily due to vessel deliveries during 2018 and higher average interest rates. Non-GAAP adjusted net income increased by $119 million for the fourth quarter of 2018 compared to the fourth quarter of 2017.

Please refer to the section later in this earnings release titled "Operating Results" for additional information of variances by segment and Appendix B for a reconciliation between GAAP net income and non-GAAP adjusted net income.

Fiscal Year 2018 Compared to Fiscal Year 2017

GAAP net loss decreased by $175 million, to $124 million for fiscal year 2018 compared to $299 million for the prior year, primarily as a result of: $95 million of lower write-downs on vessels in 2018; $91 million of revenue related to the settlement with Petrobras; $31 million of higher earnings in the FPSO segment (including equity-accounted vessels) primarily due to the start-up of the Petrojarl I and Libra FPSO units; $30 million of improved earnings in the UMS segment due to the Arendal Spirit charter contract termination in April 2017 and the subsequent lay-up of the unit during the fourth quarter of 2017 as well as the recognition of the remaining deferred mobilization costs relating to the charter contract during 2017; and $27 million of higher earnings in the FSO segment primarily due to the start-up of the Randgrid FSO unit; partially offset by $55 million of losses on debt repurchases in 2018; $20 million due to a partial reversal of a previously accrued contingent liability associated with the estimated damages from the cancellation of the UMS construction contracts in 2017; a $20 million increase in deferred income tax expense; and $7 million of higher interest expense, net of lower realized loss on derivatives, due to vessel deliveries and higher average interest rates. Non-GAAP adjusted net income increased by $118 million in fiscal year 2018 compared to fiscal year 2017.

CEO Commentary

"Our non-GAAP Adjusted EBITDA was significantly higher for both the fourth quarter and full year 2018 compared to 2017. The recognition of $91 million of revenue related to the Petrobras settlement, higher rates and utilization in our shuttle segment, and new cash flow from our recent growth projects, including Libra FPSO unit, Petrojarl I FPSO unit, three shuttle tankers and the Randgrid FSO unit, were the most important drivers for the solid results. For the Voyageur and Ostras FPSOs we had lower revenues in 2018 compared to the previous year as a result of short term contract extensions," commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd.

"Since reporting third quarter earnings in November, we have continued to focus on securing charter contract extensions and new contracts on existing assets. We recently entered into a new contract extension with Petrobras for up to three years for the Piranema Spirit FPSO, which extends the production on the existing Brazilian field. During the fourth quarter, we also secured several new contracts of affreightment in our North Sea shuttle tanker fleet at attractive rates and a further contract extension on the Ostras FPSO to mid-March 2019. In addition, we continue to monitor and work with Alpha Petroleum in their efforts to lift the remaining conditions precedent to effect the new charter contract for the redeployment of the Petrojarl Varg FPSO, including their project financing initiatives, which have not yet been finalized."

Ms. Sæther added, "Looking ahead, the construction of our six shuttle tanker newbuildings by Samsung Heavy Industries Co. Ltd., delivering in late-2019 through early-2021, is proceeding on schedule and on budget, and we are also making good progress on securing long-term financing for these vessels, which we expect to conclude by early second quarter of 2019."

Summary of Recent Events

FPSO Unit Contract Extension and Redeployment

In January 2019, the Partnership secured a contract extension with Petrobras to extend the employment of the Piranema Spirit FPSO unit on the Brazilian field. The contract extension commenced in February 2019 for a period of three years but includes customer termination rights with 10 months' advance notice.

In October 2018, the Partnership entered into a conditional agreement with Alpha Petroleum Resources Limited (Alpha) for the Petrojarl Varg FPSO unit for Alpha's development of the Cheviot field on the UK continental shelf. The FPSO contract is for a seven-year fixed term from first oil, which was originally targeted for the second quarter of 2021 and is now delayed, after completion of a life extension and upgrade phase for the FPSO unit taking place at Sembcorp Marine's shipyard in Singapore. It is intended that the Petrojarl Varg FPSO unit would be used for the entire expected life of the Cheviot field.

The effectiveness of the agreement with Alpha remains subject to satisfaction of a number of conditions precedent, including (i) initial funding from Alpha to cover the life extension and upgrade costs for the Petrojarl Varg FPSO unit, which is conditional on Alpha finalizing its project financing, and (ii) approval by relevant governmental authorities of Alpha's final field development plan for the Cheviot field. We understand that Alpha continues to seek required funding for the project, the commencement of which will be delayed pending satisfaction of the conditions precedent. There is no assurance that the conditions will be satisfied.

Settlement Agreements with Petrobras

In October 2018, the Partnership entered into a settlement agreement with Petrobras with respect to various disputes relating to the previously-terminated charter contracts of the HiLoad DP unit and Arendal Spirit unit for maintenance and safety (UMS). As part of the settlement agreement, Petrobras agreed to pay a total amount of $96 million to Teekay Offshore, $55 million of which was received in the fourth quarter of 2018. The remaining $41 million is to be paid in two separate instalments of $22 million and $19 million by the end of 2020 and 2021, respectively, subject to certain potential offsets described below.

If in the ordinary course of business and prior to the end of 2021, new charter contracts are entered into with Petrobras in respect of the Arendal Spirit UMS, Rio das Ostras FPSO unit and Piranema Spirit FPSO unit, the deferred $41 million will partly be reduced by revenue actually received from such new contracts in this period (Offset Amounts). The recent three-year contract extension with Petrobras for the Piranema Spirit FPSO unit mentioned above is not expected to result in Offset Amounts being generated.

Teekay Offshore recognized the above-mentioned settlement in the fourth quarter of 2018, which increased Teekay Offshore's revenues by approximately $91 million, which represents the present value of the future expected settlement amounts.

In addition, in October 2018, Teekay Offshore, through separate subsidiaries, entered into a further settlement agreement with Petrobras with regards to a dispute relating to the charter of the Piranema Spirit FPSO unit. Pursuant to the settlement agreement, Teekay Offshore has agreed to a reduction in the charter rate for the FPSO unit totaling approximately $11 million, which was credited to Petrobras in the fourth quarter of 2018. This amount was accrued in Teekay Offshore's financial statements in prior periods, primarily in 2016 and 2017.

Operating Results

The following table highlights certain financial information for Teekay Offshore's six segments (please refer to the "Teekay Offshore's Fleet" section of this release below and Appendix C for further details).

FPSO Segment

Income from vessel operations increased by $7 million for the fourth quarter of 2018, compared to the same quarter of the prior year, primarily due to $18 million from the accelerated amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit and $8 million from the commencement of operations of the Petrojarl I in May 2018, partially offset by a decrease of $20 million due to lower charter rates from the Voyageur Spirit and Rio das Ostras FPSO unit contract extensions.

Adjusted EBITDA (including equity-accounted vessels) increased by $25 million for the three months ended December 31, 2018 compared to the same quarter of the prior year, primarily due to variances noted above plus the commencement of operations of the Pioneiro de Libra FPSO unit in November 2017.

Shuttle Tanker Segment

Income from vessel operations increased by $61 million for the fourth quarter of 2018, compared to the same quarter of the prior year, primarily due to $55 million of revenue related to the positive settlement with Petrobras, $10 million from the Nordic Brasilia and Nordic Rio operating in the conventional tanker market after redelivery and repairs and maintenance in the fourth quarter of 2017, $8 million due to more CoA days and higher rates during the fourth quarter of 2018 and $5 million from the redelivery of an in-chartered vessel in January 2018. This is partially offset by a $19 million write-down of the HiLoad DP unit, to $nil, in the fourth quarter of 2018 and a $4 million increase in depreciation expense resulting from a change in the estimated useful life of shuttle tankers from 25 years to 20 years, effective January 1, 2018.

Adjusted EBITDA increased by $81 million for the fourth quarter of 2018, compared to the same quarter of the prior year, primarily due to variances noted above, excluding the impact of the write-down of the HiLoad DP unit and the increase in depreciation expense.

FSO Segment

Income from vessel operations and Adjusted EBITDA increased by $3 million and $2 million, respectively, for the fourth quarter of 2018, compared to the same quarter of the prior year, primarily due to amended contract terms, including a retrospective adjustment, lower off-hire and the timing of expenses related to the Randgrid FSO unit in the fourth quarter of 2018.

UMS Segment

Income from vessel operations and Adjusted EBITDA both increased by $41 million for the fourth quarter of 2018, compared to the same quarter of the prior year, mainly due to $37 million of revenue related to the positive settlement with Petrobras and $4 million of lower operating expenses due to costs incurred related to the transit of the Arendal Spirit UMS to its lay-up location during the fourth quarter of 2017.

Towage Segment

Loss from vessel operations and Adjusted EBITDA, both of $(1) million, are consistent for the fourth quarter of 2018 compared to the same quarter of the prior year.

Conventional Tanker Segment

Loss from vessel operations and Adjusted EBITDA, both of $(1) million, are consistent for the fourth quarter of 2018 compared to the same quarter of the prior year. The time-charter-in contracts for these two remaining conventional tankers are scheduled to expire in March 2019, at which point they will be returned to their owners and the Partnership will no longer have activity in the conventional tanker segment.

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of February 8, 2019. In comparison to the previously-reported fleet table in the release for the third quarter of 2018, Teekay Offshore's owned Shuttle Tanker fleet decreased by one vessel due to the sale of the Navion Scandia in November 2018.

Liquidity Update

As of December 31, 2018, the Partnership had total liquidity of $225.0 million, an increase of $25.2 million compared to September 30, 2018.

Conference Call

The Partnership plans to host a conference call on Friday, February 8, 2019 at 12:00 p.m. (ET) to discuss the results for the fourth quarter and fiscal year of 2018. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

• By dialing 1-800-458-4148 or +1 (647) 484-0477, if outside North America, and quoting conference ID code 3648822
• By accessing the webcast, which will be available on Teekay Offshore's website at www.teekay.com (the archive will remain on the website for a period of one year).

An accompanying Fourth Quarter 2018 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is a leading international midstream services provider to the offshore oil production industry, primarily focused on the ownership and operation of critical infrastructure assets in offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Teekay Offshore has consolidated assets of approximately $5.3 billion, comprised of 62 offshore assets, including floating production, storage and offloading (FPSO) units, shuttle tankers (including six newbuildings), floating storage and offtake (FSO) units, long-distance towing and offshore installation vessels, a unit for maintenance and safety (UMS) and conventional tankers. The majority of Teekay Offshore's fleet is employed on medium-term, stable contracts. Brookfield Business Partners L.P. BBUBBU, together with its institutional partners (collectively Brookfield), and Teekay Corporation TK own 51 percent and 49 percent, respectively, of Teekay Offshore's general partner.

Teekay Offshore's common units and preferred units trade on the New York Stock Exchange under the symbols "TOO", "TOO PR A", "TOO PR B" and "TOO PR E", respectively.

For Investor Relations enquiries contact:

Ryan Hamilton
Tel: +1 (604) 609-2963
Website: www.teekay.com

Definitions and Non-GAAP Financial Measures

This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the U.S. Securities and Exchange Commission (SEC). These non-GAAP financial measures, which commencing in the fourth quarter of 2018, include Consolidated Adjusted EBITDA, Adjusted EBITDA and Adjusted Net Income, are intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized meanings, and may not be comparable to similar measures presented by other companies. These non-GAAP measures are used by management, and the Partnership believes that these supplementary metrics assist investors and other users of its financial reports in comparing financial and operating performance of the Partnership across reporting periods and with other companies.

In prior periods, the Partnership reported Cash Flow from Vessel Operations (CFVO), Adjusted Net Income and Distributable Cash Flow as non-GAAP measures. In the fourth quarter of 2018, the Partnership made certain changes to these measures and their definitions to more closely align with internal management reporting, annual reporting with the SEC under Form 20-F and metrics used by its controlling unitholder. CFVO from Consolidated Vessels and Total CFVO are replaced with Consolidated Adjusted EBITDA and Adjusted EBITDA, respectively, using modified definitions. Adjusted Net Income is now reported with a modified definition. Distributable Cash Flow is no longer reported.

Non-GAAP Financial Measures

Consolidated Adjusted EBITDA represents net income (loss) before interest, taxes, and depreciation and amortization and is adjusted to exclude certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance. Such adjustments include vessel write-downs, gains or losses on the sale of vessels, unrealized gains or losses on derivative instruments, foreign exchange gains or losses, losses on debt repurchases, and certain other income or expenses. Consolidated Adjusted EBITDA also excludes realized gains or losses on interest rate swaps as management, in assessing the Partnership's performance, views these gains or losses as an element of interest expense and realized gains or losses on derivative instruments resulting from amendments or terminations of the underlying instruments. Consolidated Adjusted EBITDA also excludes equity income as the Partnership does not control its equity-accounted investments, and as a result, the Partnership does not have the unilateral ability to determine whether the cash generated by its equity-accounted investments is retained within the entity in which the Partnership holds the equity-accounted investment or distributed to the Partnership and other owners. In addition, the Partnership does not control the timing of any such distributions to the Partnership and other owners.

Adjusted EBITDA represents Consolidated Adjusted EBITDA further adjusted to include the Partnership's proportionate share of consolidated adjusted EBITDA from its equity-accounted joint ventures and to exclude the non-controlling interests' proportionate share of the consolidated adjusted EBITDA from the Partnership's consolidated joint ventures. Readers are cautioned when using Adjusted EBITDA as a liquidity measure as the amount contributed from Adjusted EBITDA from the equity-accounted investments may not be available or distributed to the Partnership in the periods such Adjusted EBITDA is generated by the equity-accounted investments. Please refer to Appendices A and D of this release for reconciliations of Adjusted EBITDA to net income (loss) and equity income, respectively, the most directly comparable GAAP measures reflected in the Partnership's consolidated financial statements. Appendix E also includes supplementary information to reconcile total CFVO, the non-GAAP financial measure used in prior periods, to Adjusted EBITDA.

Adjusted Net Income represents net income (loss) adjusted to exclude the impact of certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance consistent with the calculation of Adjusted EBITDA. Adjusted Net Income includes realized gains or losses on derivative instruments as an element of interest expense and excludes income tax expenses or recoveries from changes in valuation allowance or uncertain tax provisions. Please refer to Appendix B of this release for a reconciliation of this non-GAAP financial measure to net income (loss), the most directly comparable GAAP measure reflected in the Partnership's consolidated financial statements. Appendix E also includes supplementary information to reconcile Adjusted Net Income to amounts reported previously.

Forward Looking Statements

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, among others: the timing and amount of future settlement payments from Petrobras, including the impact on revenue and of any Offset Amounts; the timing and certainty of the effectiveness of the agreement with Alpha to develop the Cheviot field, including satisfaction by Alpha of the financing and other conditions precedent to its effectiveness, which conditions remain out of our control; the timing and certainty of first oil on the Cheviot field; the expected funding from Alpha for the life extension and upgrade costs relating to the Petrojarl Varg FPSO; the contract extension for the Piranema Spirit FPSO and the related impact on EBITDA; and the timing of shuttle tanker newbuildings and the commencement of related contracts.  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: changes in exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth, particularly in or related to North Sea, Brazil and East Coast of Canada offshore fields; significant changes in oil prices; variations in expected levels of field maintenance; increased operating expenses; potential early termination of contracts; shipyard delivery delays and cost overruns; delays in the commencement of charter contracts; the inability of charterers to make future charter payments; the inability of the Partnership to renew or replace long-term contracts on existing vessels; the ability to fund the Partnership's remaining capital commitments and debt maturities; the Partnership's ability to collect the amounts due under the settlement agreement with Petrobras; the ability of Alpha to satisfy all of the conditions precedent relating to the contract with Alpha, including obtaining required funding for the project and the timing of any such satisfaction; less than expected revenue generated by, or higher than expected expenses and costs incurred relating to, the Piranema Spirit FPSO; 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, 2017. 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.