##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F/A
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from  to
 Commission file number 1-33198
 TEEKAY OFFSHORE PARTNERS L.P.
  
 
 th
 th
  Title of each class
    
    Name of each exchange on which registeredCommon Units
    
    New York Stock Exchange
      
  o þ
  o þ
  þ o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
  U.S. GAAP þ
    
    International Financial Reporting Standards
as issued by the International
Accounting Standards Board o
    
    Other o
  o o
  o þ




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##### Table of Contents



EXPLANATORY NOTE
 the Partnership Teekay Offshore
Partners Predecessor the Predecessor we our us Amendment 2007 Form 20-F/A Report Original Filing SEC
 (a)
    
    Derivative Instruments and Hedging Activities and Other
 SFAS Accounting for Derivative Instruments and Hedging Activities
     (b)
    
    Vessels Acquired from Teekay Corporation
 Business Combinations Teekay Dropdown Predecessor) GAAP
  (c) Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  (d)
    
    Vision Incentive Plan
 Vision Incentive Plan or VIP
  2




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##### Table of Contents



TotalOwnersEquity(Predecessorand DropdownNet Income (Loss)
    
    
    Predecessor)December 19
    
    
    January 1 to
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Atto December
    
    
    December 18,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 31,2007
    
    
    31, 2006
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $As previously reported
    
    
    19,672
    
    
    
    848
    
    
    
    (33,563
    )
    
    
    84,747
    
    
    
    213,772
    
    
    
    63,513
    
    
    
    262,835Adjustments:Derivative instruments, net of
non-controlling interest and other
(1)
    
    
    (17,014
    )
    
    
    500
    
    
    
    2,806
    
    
    
    756
    
    
    
    (648
    )
    
    
    (1,178
    )
    
    
    Dropdown Predecessor (2)
    
    
    1,300
    
    
    
    114
    
    
    
    3,097
    
    
    
    2,910
    
    
    
    4,076
    
    
    
    6,768
    
    
    
    32,558Vision Incentive Plan
    
    
    
    
    
    
    
    
    
    
    (2,632
    )
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    As restated
    
    
    3,958
    
    
    
    1,462
    
    
    
    (30,292
    )
    
    
    95,913
    
    
    
    217,200
    
    
    
    69,103
    
    
    
    295,393
 (1)
    
    Includes an adjustment totaling ($3.6) million for the year ended December 31, 2007
relating to the accounting for the non-controlling interest in one of our 50% owned
subsidiaries and adjusting amounts relating to deferred income taxes and the fair value of
derivative instruments at December 31, 2007.(2)
    
    Relates to the results for the pre-acquisition periods in which we and the acquired
interests in vessels, as listed below, were both in operation and under the common control of
Teekay Corporation, as follows: 
    
    Dampier Spirit(FSO unit) for March 15, 1998 to September 30, 2007;
 
    
    Navion Bergen(shuttle tanker) for April 16, 2007 to June 30, 2007; and
 
    
    Navion Gothenburg(shuttle tanker) began operations concurrently with our acquisition of
it on July 24, 2007.
        3




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##### 



TEEKAY OFFSHORE PARTNERS L.P.
INDEX TO REPORT ON FORM 20-F/A
 PagePART I.Item 1. Identity of Directors, Senior Management and Advisors
    
    
    Not applicableItem 2. Offer Statistics and Expected Timetable
    
    
    Not applicableItem 3. Key Information (restated)
    
    
    6Item 4. Information on the Partnership (restated)
    
    
    23Item 4A. Unresolved Staff Comments
    
    
    Not applicableItem 5. Operating and Financial Review and Prospects (restated)
    
    
    39Item 6. Directors, Senior Management and Employees
    
    
    56Item 7. Major Unitholders and Related Party Transactions (restated)
    
    
    60Item 8. Financial Information
    
    
    63Item 9. The Offer and Listing
    
    
    64Item 10. Additional Information
    
    
    65Item 11. Quantitative and Qualitative Disclosures About Market Risk (restated)
    
    
    67Item 12. Description of Securities Other than Equity Securities
    
    
    Not applicablePART II.Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    68Item 14. Material Modifications to the Rights of Unitholders and Use of Proceeds
    
    
    68Item 15. Controls and Procedures (restated)
    
    
    69Item 16A. Audit Committee Financial Expert
    
    
    70Item 16B. Code of Ethics
    
    
    71Item 16C. Principal Accountant Fees and Services
    
    
    71Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    Not applicableItem 16E. Purchases of Units by the Issuer and Affiliated Purchasers
    
    
    Not applicablePART III.Item 17. Financial Statements
    
    
    Not applicableItem 18. Financial Statements (restated)
    
    
    72Item 19. Exhibits
    
    
    73Signatures
    
    
    74
   4




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##### Table of Contents



PART I
 This Annual Report should be read in conjunction with the consolidated financial statements and
accompanying notes included in this report.
  
    
    our ability to make cash distributions on our units or any increases in quarterly
distributions;
 
    
    our future financial condition or results of operations and future revenues and
expenses;
 
    
    growth prospects of the offshore and tanker markets;
 
    
    offshore and tanker market fundamentals, including the balance of supply and demand in
the offshore and tanker markets;
 
    
    the expected lifespan of a new shuttle tanker, floating storage and off-take (or FSO)
unit and conventional tanker;
 
    
    estimated capital expenditures and the availability of capital resources to fund capital
expenditures;
 
    
    our ability to maintain long-term relationships with major crude oil companies;
 
    
    our ability to leverage to our advantage Teekay Corporations relationships and
reputation in the shipping industry;
 
    
    our continued ability to enter into fixed-rate time charters with customers;
 
    
    obtaining offshore projects that we or Teekay Corporation bid on or that Teekay
Corporation is awarded;
 
    
    our ability to maximize the use of our vessels, including the re-deployment or
disposition of vessels no longer under long-term time charter;
 
    
    the ability of the counterparties to our derivative contracts to fulfill their
contractual obligations;
 
    
    our pursuit of strategic opportunities, including the acquisition of vessels and
expansion into new markets vessels;
 
    
    our expected financial flexibility to pursue acquisitions and other expansion
opportunities;
 
    
    anticipated funds for liquidity needs and the sufficiency of cash flows;
 
    
    the expected cost of, and our ability to comply with, governmental regulations and
maritime self regulatory organization standards applicable to our business;
 
    
    the expected impact of heightened environmental and quality concerns of insurance
underwriters, regulators and charterers;
 
    
    anticipated taxation of our partnership and its subsidiaries;
 
    
    Teekay Corporation increasing its ownership interest in Teekay Petrojarl ASA (formally
Petrojarl ASA) or offering to us additional interest in Teekay Offshore Operating L.P;
 
    
    our general and administrative expenses as a public company and expenses under service
agreements with other affiliates of Teekay Corporation and for reimbursements of fees and
costs of our general partner; and
 
    
    our business strategy and other plans and objectives for future operations.
   5




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##### Table of Contents



Item 1. Identity of Directors, Senior Management and Advisors
 The information included in Item 1 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 Item 2. Offer Statistics and Expected Timetable
 The information included in Item 2 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 Item 3. Key Information
 Selected Financial Data (Restated)
  
    
    historical financial and operating data of Teekay Offshore Partners Predecessor (as
defined below); and
 
    
    financial and operating data of Teekay Offshore Partners L.P. and its subsidiaries since
its initial public offering on December 19, 2006.
 Norsk Teekay OPCO Teekay Offshore Partners Predecessor Predecessor.
  
    
    the historical financial and operating data of Teekay Offshore Partners Predecessor as
at and for the years ended December 31, 2003, 2004 and 2005 is derived from the combined
consolidated financial statements of Teekay Offshore Partners Predecessor;
 
    
    the historical financial and operating data of Teekay Offshore Partners Predecessor for
the period from January 1, 2006 to December 18, 2006 are derived from the audited combined
consolidated financial statements of Teekay Offshore Partners Predecessor; and
 
    
    the historical financial and operating data of Teekay Offshore Partners L.P. as at
December 31, 2006 and 2007, for the period from December 19, 2006 to December 31, 2006, and
for the year ended December 31, 2007, reflect our initial public offering and are derived
from our audited consolidated financial statements.
  Year ended December 31, 2007
 
    
    January 1 to December 31, 2007
 Year ended December 31, 2006
 
    
    January 1 to December 18, 2006
 
    
    December 19 to December 31, 2006
 Year ended December 31, 2005
 
    
    January 1 to December 31, 2005
  GAAP
  6




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##### Table of Contents



Year Ended December 31,2006January 1 to
    
    
    December 19 to
    
    
    Year EndedYear Ended December 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)(in thousands, except unit, per unit and fleet data)Income Statement Data:Voyage revenues
    
    $
    507,236
    
    
    $
    723,217
    
    
    $
    613,246
    
    
    $
    617,514
    
    
    $
    24,397
    
    
    $
    785,203Operating expenses:Voyage expenses (1)
    
    
    69,652
    
    
    
    90,414
    
    
    
    74,543
    
    
    
    91,321
    
    
    
    3,102
    
    
    
    151,637Vessel operating expenses
(2)
    
    
    89,415
    
    
    
    109,278
    
    
    
    109,480
    
    
    
    107,991
    
    
    
    4,297
    
    
    
    149,660Time-charter hire expense
    
    
    107,792
    
    
    
    177,050
    
    
    
    169,687
    
    
    
    159,973
    
    
    
    5,641
    
    
    
    150,463Depreciation and amortization
    
    
    93,946
    
    
    
    120,197
    
    
    
    109,824
    
    
    
    100,823
    
    
    
    3,726
    
    
    
    124,370General and administrative
    
    
    18,049
    
    
    
    45,941
    
    
    
    56,726
    
    
    
    63,014
    
    
    
    2,177
    
    
    
    62,404Loss (gain) on sale of vessels and equipment 
net of writedowns
    
    
    63
    
    
    
    (3,725
    )
    
    
    2,820
    
    
    
    (4,778
    )
    
    
    
    
    
    
    Restructuring charge
    
    
    
    
    
    
    
    
    
    
    955
    
    
    
    832
    
    
    
    
    
    
    
    Total operating expenses
    
    
    378,917
    
    
    
    539,155
    
    
    
    524,035
    
    
    
    519,176
    
    
    
    18,943
    
    
    
    638,534Income from vessel operations
    
    
    128,319
    
    
    
    184,062
    
    
    
    89,211
    
    
    
    98,338
    
    
    
    5,454
    
    
    
    146,669Interest expense
    
    
    (47,223
    )
    
    
    (44,268
    )
    
    
    (39,983
    )
    
    
    (64,462
    )
    
    
    (1,617
    )
    
    
    (126,304
    )Interest income
    
    
    1,278
    
    
    
    2,459
    
    
    
    4,612
    
    
    
    5,167
    
    
    
    191
    
    
    
    5,871Equity income from joint ventures
    
    
    5,047
    
    
    
    5,514
    
    
    
    5,955
    
    
    
    6,321
    
    
    
    
    
    
    
    Gain on sales of marketable securities
    
    
    517
    
    
    
    94,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency exchange (loss) gain (3)
    
    
    (18,691
    )
    
    
    (37,840
    )
    
    
    34,228
    
    
    
    (66,214
    )
    
    
    (118
    )
    
    
    (11,678
    )Income tax (expense) recovery
    
    
    (22,064
    )
    
    
    (29,465
    )
    
    
    12,375
    
    
    
    (3,260
    )
    
    
    (121
    )
    
    
    10,516Other  net
    
    
    4,455
    
    
    
    14,064
    
    
    
    9,091
    
    
    
    8,367
    
    
    
    309
    
    
    
    10,403Income (loss) from continuing operations before
non-controlling interest
    
    
    51,638
    
    
    
    188,748
    
    
    
    115,489
    
    
    
    (15,743
    )
    
    
    4,098
    
    
    
    35,477Non-controlling interest
    
    
    (2,763
    )
    
    
    (2,167
    )
    
    
    (229
    )
    
    
    (3,893
    )
    
    
    (2,636
    )
    
    
    (31,519
    )Income (loss) from continuing operations
    
    
    48,875
    
    
    
    186,581
    
    
    
    115,260
    
    
    
    (19,636
    )
    
    
    1,462
    
    
    
    3,958Net income (loss) from
discontinued operations
(11)
    
    
    20,228
    
    
    
    30,619
    
    
    
    (19,347
    )
    
    
    (10,656
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    69,103
    
    
    $
    217,200
    
    
    $
    95,913
    
    
    $
    (30,292
    )
    
    $
    1,462
    
    
    $
    3,958Dropdown Predecessors interest in net income
    
    $
    6,768
    
    
    $
    4,076
    
    
    $
    2,910
    
    
    $
    3,097
    
    
    $
    114
    
    
    $
    1,300General partners interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    733Limited partners interest:Net income (loss) from continuing operations
    
    
    42,107
    
    
    
    182,505
    
    
    
    112,350
    
    
    
    (22,733
    )
    
    
    1,284
    
    
    
    1,925Net income (loss) from continuing operations per:Common unit
(basic and diluted)
(4)
    
    
    3.34
    
    
    
    14.48
    
    
    
    8.92
    
    
    
    (1.80
    )
    
    
    0.07
    
    
    
    0.12Subordinated unit (basic and diluted)
(4)
    
    
    3.34
    
    
    
    14.48
    
    
    
    8.92
    
    
    
    (1.80
    )
    
    
    0.06
    
    
    
    0.07Total unit (basic and diluted)
(4)
    
    
    3.34
    
    
    
    14.48
    
    
    
    8.92
    
    
    
    (1.80
    )
    
    
    0.07
    
    
    
    0.10Limited partners interest:Net income (loss)
    
    
    62,335
    
    
    
    213,124
    
    
    
    93,003
    
    
    
    (33,389
    )
    
    
    1,284
    
    
    
    1,925Net income (loss) per:Common unit (basic and diluted)
(4)
    
    
    4.95
    
    
    
    16.91
    
    
    
    7.38
    
    
    
    (2.65
    )
    
    
    0.07
    
    
    
    0.12Subordinated unit (basic and diluted)
(4)
    
    
    4.95
    
    
    
    16.91
    
    
    
    7.38
    
    
    
    (2.65
    )
    
    
    0.06
    
    
    
    0.07Total unit (basic and diluted)
(4)
    
    
    4.95
    
    
    
    16.91
    
    
    
    7.38
    
    
    
    (2.65
    )
    
    
    0.07
    
    
    
    0.10Cash distributions declared per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.14Balance Sheet Data(at end of year):Cash and marketable securities
(12)
    
    $
    160,957
    
    
    $
    143,729
    
    
    $
    128,986
    
    
    
    
    
    
    $
    113,986
    
    
    $
    121,224Vessels and equipment
(5) (13)
    
    
    1,446,978
    
    
    
    1,440,167
    
    
    
    1,310,135
    
    
    
    
    
    
    
    1,532,743
    
    
    
    1,662,865Total assets
    
    
    2,054,448
    
    
    
    2,054,760
    
    
    
    1,895,601
    
    
    
    
    
    
    
    2,081,224
    
    
    
    2,166,351Total debt (6)
    
    
    1,328,985
    
    
    
    1,178,132
    
    
    
    943,319
    
    
    
    
    
    
    
    1,303,352
    
    
    
    1,517,467Non-controlling interest
    
    
    15,525
    
    
    
    14,276
    
    
    
    11,859
    
    
    
    
    
    
    
    427,977
    
    
    
    392,613Dropdown Predecessors equity
    
    
    39,420
    
    
    
    44,016
    
    
    
    47,784
    
    
    
    
    
    
    
    51,792
    
    
    
    Total partners/owners equity
    
    
    529,794
    
    
    
    659,212
    
    
    
    747,879
    
    
    
    
    
    
    
    138,942
    
    
    
    77,401Common units outstanding
(4)
    
    
    2,800,000
    
    
    
    2,800,000
    
    
    
    2,800,000
    
    
    
    2,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000Subordinated units outstanding
(4)
    
    
    9,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000Cash Flow Data:Net cash provided by (used in):Operating activities (7)
    
    $
    231,757
    
    
    $
    247,184
    
    
    $
    157,881
    
    
    
    
    
    
    
    
    
    
    $
    45,847Financing activities (7)
    
    
    728,594
    
    
    
    (74,302
    )
    
    
    (206,748
    )
    
    
    
    
    
    
    
    
    
    
    (23,905
    )Investing activities (7)
    
    
    (839,148
    )
    
    
    (190,110
    )
    
    
    34,124
    
    
    
    
    
    
    
    
    
    
    
    (14,704
    )Other Financial Data:Net voyage revenues (8)
    
    $
    437,584
    
    
    $
    632,803
    
    
    $
    538,703
    
    
    $
    526,193
    
    
    $
    21,295
    
    
    $
    633,566EBITDA (9)
    
    
    239,738
    
    
    
    409,638
    
    
    
    229,199
    
    
    
    133,086
    
    
    
    6,735
    
    
    
    238,245Capital expenditures:Expenditures for vessels and equipment
    
    
    148,004
    
    
    
    170,630
    
    
    
    24,760
    
    
    
    31,079
    
    
    
    
    
    
    
    31,228Expenditures for drydocking
    
    
    11,980
    
    
    
    9,174
    
    
    
    8,906
    
    
    
    31,255
    
    
    
    
    
    
    
    49,053Fleet data:Average number of shuttle tankers (10)
    
    
    30.5
    
    
    
    37.9
    
    
    
    35.8
    
    
    
    33.9
    
    
    
    36.0
    
    
    
    36.9Average number of
conventional tankers (10)
    
    
    27.4
    
    
    
    40.7
    
    
    
    41.2
    
    
    
    22.0
    
    
    
    10.0
    
    
    
    9.3Average number of FSO units (10)
    
    
    3.2
    
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.6
  7




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##### Table of Contents



(1)
    
    Voyage expenses are all expenses unique to a particular voyage, including any bunker
fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and
commissions.(2)
    
    Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube
oils and communication expenses.(3)
    
    Substantially all of these foreign currency exchange gains and losses were unrealized and not
settled in cash. Under U.S. accounting guidelines, all foreign currency-denominated monetary
assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts
payable, advances from affiliates and deferred income taxes, are revalued and reported based
on the prevailing exchange rate at the end of the period. For the periods prior to our initial
public offering, our primary source of foreign currency gains and losses were our Norwegian
Kroner-denominated advances from affiliates, which were settled by the Predecessor prior to
December 19, 2006.(4)
    
    Net income (loss) per unit is determined by dividing net income (loss), after deducting the
amount of net income (loss) attributable to the Dropdown Predecessor and the amount of net
income (loss) allocated to our general partners interest for periods subsequent to our
initial public offering on December 19, 2006, by the weighted-average number of units
outstanding during the period. For periods prior to December 19, 2006, such units are deemed
equal to the common and subordinated units received by Teekay Corporation in exchange for a
26.0% interest in OPCO in connection with our initial public offering.(5)
    
    Vessels and equipment consists of (a) vessels, at cost less accumulated depreciation,
(b) vessels under capital leases, at cost less accumulated depreciation, and (c) advances on
newbuildings.(6)
    
    Total debt includes long-term debt, capital lease obligations and advances from affiliates.(7)
    
    For the year ended December 31, 2006, cash flow data provided by (used in) operating
activities, financing activities and investing activities was $162,228, ($230,238) and
$53,010, respectively.(8)
    
    Consistent with general practice in the shipping industry, we use net voyage revenues
(defined as voyage revenues less voyage expenses) as a measure of equating revenues generated
from voyage charters to revenues generated from time charters, which assists us in making
operating decisions about the deployment of vessels and their performance. Under time charters
and bareboat charters, the charterer typically pays the voyage expenses, which are all
expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo
loading and unloading expenses, canal tolls, agency fees and commissions, whereas under voyage
charter contracts and contracts of affreightment the shipowner typically pays the voyage
expenses. Some voyage expenses are fixed, and the remainder can be estimated. If we or OPCO,
as the shipowner, pay the voyage expenses, we or OPCO typically pass the approximate amount of
these expenses on to the customers by charging higher rates under the contract or billing the
expenses to them. As a result, although voyage revenues from different types of contracts may
vary, the net revenues after subtracting voyage expenses, which we call net voyage revenues,
are comparable across the different types of contracts. We principally use net voyage
revenues, a non-GAAP financial measure, because it provides more meaningful information to us
than voyage revenues, the most directly comparable GAAP financial measure. Net voyage revenues
are also widely used by investors and analysts in the shipping industry for comparing
financial performance between companies in the shipping industry to industry averages. The
following table reconciles net voyage revenues with voyage revenues. Year Ended December 31, 2006January 1
    
    
    December 19to
    
    
    to
    
    
    Year EndedYear Ended December 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    $
    507,236
    
    
    $
    723,217
    
    
    $
    613,246
    
    
    $
    617,514
    
    
    $
    24,397
    
    
    $
    785,203Voyage expenses
    
    
    69,652
    
    
    
    90,414
    
    
    
    74,543
    
    
    
    91,321
    
    
    
    3,102
    
    
    
    151,637Net voyage revenues
    
    $
    437,584
    
    
    $
    632,803
    
    
    $
    538,703
    
    
    $
    526,193
    
    
    $
    21,295
    
    
    $
    633,566
 (9)
    
    EBITDA. Earnings before interest, taxes, depreciation and amortization is used as a
supplemental financial measure by management and by external users of our financial
statements, such as investors, as discussed below: 
    
    Financial and operating performance.EBITDA assists our management and investors
by increasing the comparability of the fundamental performance of us from period to
period and against the fundamental performance of other companies in our industry that
provide EBITDA information. This increased comparability is achieved by excluding the
potentially disparate effects between periods or companies of interest expense, taxes,
depreciation or amortization, which items are affected by various and possibly changing
financing methods, capital structure and historical cost basis and which items may
significantly affect net income between periods. We believe that including EBITDA as a
financial and operating measure benefits investors in (a) selecting between investing in
us and other investment alternatives and (b) monitoring the ongoing financial and
operational strength and health of us in assessing whether to continue to hold our
common units.
 
    
    Liquidity.EBITDA allows us to assess the ability of assets to generate cash
sufficient to service debt, make distributions and undertake capital expenditures. By
eliminating the cash flow effect resulting from the existing capitalization of us and
OPCO and other items such as drydocking expenditures, working capital changes and
foreign currency exchange gains and losses (which may vary significantly from period to
period), EBITDA provides a consistent measure of our ability to generate cash over the
long term. Management uses this information as a significant factor in determining
(a) our and OPCOs proper capitalization (including assessing how much debt to incur and
whether changes to the capitalization should be made) and (b) whether to undertake
material capital expenditures and how to finance them, all in light of existing cash
distribution commitments to unitholders. Use of EBITDA as a liquidity measure also
permits investors to assess the fundamental ability of OPCO and us to generate cash
sufficient to meet cash needs, including distributions on our common units.
  8




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##### Table of Contents



Year Ended December 31, 2006January 1
    
    
    December 19to
    
    
    to
    
    
    Year EndedYear Ended December 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Reconciliation of EBITDA to Net
income (loss):Net income (loss)
    
    $
    69,103
    
    
    $
    217,200
    
    
    $
    95,913
    
    
    $
    (30,292
    )
    
    $
    1,462
    
    
    $
    3,958Depreciation and amortization
    
    
    93,946
    
    
    
    120,197
    
    
    
    109,824
    
    
    
    100,823
    
    
    
    3,726
    
    
    
    124,370Interest expense, net
    
    
    45,945
    
    
    
    41,809
    
    
    
    35,371
    
    
    
    59,295
    
    
    
    1,426
    
    
    
    120,433Income taxes expense (recovery)
    
    
    22,064
    
    
    
    29,465
    
    
    
    (12,375
    )
    
    
    3,260
    
    
    
    121
    
    
    
    (10,516
    )Depreciation and amortization and income tax
expense related to discontinued operations
    
    
    8,680
    
    
    
    967
    
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    EBITDA (1)
    
    $
    239,738
    
    
    $
    409,638
    
    
    $
    229,199
    
    
    $
    133,086
    
    
    $
    6,735
    
    
    $
    238,245Reconciliation of EBITDA to Net
operating cash flow:Net operating cash flow
    
    $
    231,757
    
    
    $
    247,184
    
    
    $
    157,881
    
    
    $
    162,112
    
    
    $
    116
    
    
    $
    45,847Non-controlling interest
    
    
    (2,763
    )
    
    
    (2,167
    )
    
    
    (229
    )
    
    
    (3,893
    )
    
    
    (2,636
    )
    
    
    (31,519
    )Expenditures for drydocking
    
    
    11,980
    
    
    
    9,174
    
    
    
    8,906
    
    
    
    31,255
    
    
    
    
    
    
    
    49,053Interest expense, net
    
    
    45,945
    
    
    
    41,809
    
    
    
    35,371
    
    
    
    59,295
    
    
    
    1,426
    
    
    
    120,433(Loss) gain on sale of vessels
    
    
    (63
    )
    
    
    3,725
    
    
    
    9,423
    
    
    
    6,928
    
    
    
    
    
    
    
    Gain on sale of marketable securities, net of
writedowns
    
    
    (4,393
    )
    
    
    94,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on writedown
of vessels and equipment
    
    
    
    
    
    
    
    
    
    
    (12,243
    )
    
    
    (2,150
    )
    
    
    
    
    
    
    Write-off of debt issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,790
    )
    
    
    
    
    
    
    Equity income (net of dividends received)
    
    
    (1,234
    )
    
    
    (1,986
    )
    
    
    3,205
    
    
    
    319
    
    
    
    
    
    
    
    Change in working capital
    
    
    (10,586
    )
    
    
    36,757
    
    
    
    (26,539
    )
    
    
    (50,673
    )
    
    
    7,134
    
    
    
    33,706Distribution from
subsidiaries to minority owners
    
    
    3,060
    
    
    
    2,347
    
    
    
    9,618
    
    
    
    4,224
    
    
    
    
    
    
    
    78,107Change in fair value of interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,647
    
    
    
    699
    
    
    
    (45,491
    )Foreign currency exchange
(loss) gain and other, net
    
    
    (33,965
    )
    
    
    (21,427
    )
    
    
    43,806
    
    
    
    (74,188
    )
    
    
    (4
    )
    
    
    (11,891
    )EBITDA (1)
    
    $
    239,738
    
    
    $
    409,638
    
    
    $
    229,199
    
    
    $
    133,086
    
    
    $
    6,735
    
    
    $
    238,245
 
 (1)
    
    EBITDA is net of non-controlling interest expense of $2.8 million, $2.2 million, $0.2
million, $3.9 million, $2.6 million and $31.5 million for the years ended December 31,
2003, 2004 and 2005, and for the periods January 1 to December 18, 2006 and December 19 to
December 31, 2006, and for the year ended December 31, 2007, respectively.  Year Ended December 31, 2006January 1
    
    
    December 19to
    
    
    to
    
    
    Year EndedYear Ended December 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006
    
    
    2007$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)(Loss) gain on sale of vessels and
equipment, net of writedowns
    
    $
    (63
    )
    
    $
    3,725
    
    
    $
    (2,820
    )
    
    $
    4,778
    
    
    $
    
    
    
    $
    Gain on sale of marketable securities, net of
writedowns
    
    
    (4,393
    )
    
    
    94,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gains (losses) on foreign
exchange forward contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (466
    )Foreign currency exchange (loss) gain
    
    
    (18,691
    )
    
    
    (37,840
    )
    
    
    34,228
    
    
    
    (66,214
    )
    
    
    (118
    )
    
    
    (11,678
    )$
    (23,147
    )
    
    $
    60,107
    
    
    $
    31,408
    
    
    $
    (61,436
    )
    
    $
    (118
    )
    
    $
    (12,144
    )
 (10)
    
    Average number of ships consists of the average number of owned and chartered-in vessels
(including those in discontinued operations) that were in our possession during the period
(excluding the five vessels owned by OPCOs 50% joint ventures for periods prior to December
1, 2006, but including two vessels deemed to be in our possession for accounting purposes as a
result of the inclusion of the Dropdown Predecessor prior to our actual acquisition of such
vessels). On December 1, 2006, the operating agreements for these five joint ventures were
amended, resulting OPCO controlling these entities and in their consolidation with OPCO in
accordance with GAAP.(11)
    
    On July 1, 2006, the Predecessor sold Navion Shipping Ltd. to a subsidiary of Teekay
Corporation for $53.7 million. At the time of the sale, all of the Predecessors chartered-in
conventional tankers were chartered-in by Navion Shipping Ltd. and subsequently time chartered
to a subsidiary of Teekay Corporation at charter rates that provided a fixed 1.25% profit margin.
These chartered-in conventional tankers were operated in the spot market by the subsidiary of
Teekay Corporation.  9




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##### Table of Contents



(12)
    
    Cash and marketable securities includes cash from discontinued operations of $15.2
million, $13.4 million and $2.5 million as at December 31, 2003, 2004, and 2005, respectively.(13)
    
    Vessels and equipment includes a vessel held for sale of $20.6 million and $19.6 million
as at December 31, 2003 and 2004, respectively.(14)
    
    Expenditures for vessels and equipment excludes non-cash investing activities. Please read
Item 18  Financial Statements: Note 14  Supplemental Cash Flow Information.(15)
    
    A reconciliation of our previously reported consolidated financial information to our
restated consolidated financial information as at December 31, 2005, 2004 and 2003 and for the
years ended December 31, 2004 and 2003 is contained in the following table. Only those line
items in the selected financial data table that are both from our consolidated financial
information and were affected by the restatement are contained below. AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $(in thousands, except unit and per unit data)Income Statement Data:Year ended December 31, 2004Voyage revenues
    
    $
    986,504
    
    
    
    
    
    
    
    14,790
    
    
    
    (278,077
    )
    
    
    
    
    
    $
    723,217Operating expenses:Voyage expenses
    
    
    118,819
    
    
    
    
    
    
    
    
    
    
    
    (28,405
    )
    
    
    
    
    
    
    90,414Vessel operating expenses
    
    
    105,595
    
    
    
    
    
    
    
    5,749
    
    
    
    (2,066
    )
    
    
    
    
    
    
    109,278Time-charter hire expense
    
    
    372,449
    
    
    
    
    
    
    
    
    
    
    
    (195,399
    )
    
    
    
    
    
    
    177,050Depreciation and amortization
    
    
    118,460
    
    
    
    
    
    
    
    2,704
    
    
    
    (967
    )
    
    
    
    
    
    
    120,197General and administrative
    
    
    65,819
    
    
    
    
    
    
    
    743
    
    
    
    (20,621
    )
    
    
    
    
    
    
    45,941Loss (gain) on sale of vessels
and equipment  net of writedowns
    
    
    (3,725
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,725
    )Total operating expenses
    
    
    777,417
    
    
    
    
    
    
    
    9,196
    
    
    
    (247,458
    )
    
    
    
    
    
    
    539,155Income from vessel operations
    
    
    209,087
    
    
    
    
    
    
    
    5,594
    
    
    
    (30,619
    )
    
    
    
    
    
    
    184,062Interest expense
    
    
    (43,957
    )
    
    
    
    
    
    
    (311
    )
    
    
    
    
    
    
    
    
    
    
    (44,268
    )Interest income
    
    
    2,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,459Equity income from joint ventures
    
    
    6,162
    
    
    
    (648
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,514Gain on sales of marketable securities
    
    
    94,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,222Foreign currency exchange (loss) gain
    
    
    (37,910
    )
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    (37,840
    )Income tax expense
    
    
    (28,188
    )
    
    
    
    
    
    
    (1,277
    )
    
    
    
    
    
    
    
    
    
    
    (29,465
    )Other  net
    
    
    14,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,064Income (loss) from continuing operations before
non-controlling interest
    
    
    215,939
    
    
    
    (648
    )
    
    
    4,076
    
    
    
    (30,619
    )
    
    
    
    
    
    
    188,748Non-controlling interest
    
    
    (2,167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,167
    )Income (loss) from continuing operations
    
    
    213,772
    
    
    
    (648
    )
    
    
    4,076
    
    
    
    (30,619
    )
    
    
    
    
    
    
    186,581Net income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,619
    
    
    
    
    
    
    
    30,619Net income (loss)
    
    $
    213,772
    
    
    $
    (648
    )
    
    $
    4,076
    
    
    $
    
    
    
    
    
    
    
    $
    217,200Dropdown Predecessors interest in net income
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,076General partners interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Limited partners interest:Net income from continuing operations
    
    
    213,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,505Net income from continuing operations per:Common unit (basic and diluted)
    
    
    16,97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.48Subordinated unit (basic and diluted)
    
    
    16.97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.48Total unit (basic and diluted)
    
    
    16.97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.48Limited partners interest:Net income
    
    
    213,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213,124Net income per:Common unit (basic and diluted)
    
    
    16,97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.91Subordinated unit (basic and diluted)
    
    
    16.97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.91Total unit (basic and diluted)
    
    
    16.97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.91Cash distributions declared per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  10




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##### Table of Contents



AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $(in thousands, except unit and per unit data)Income Statement Data:Year ended December 31, 2003Voyage revenues
    
    $
    747,383
    
    
    
    (1,178
    )
    
    
    14,580
    
    
    
    (253,549
    )
    
    
    
    
    
    $
    507,236Operating expenses:Voyage expenses
    
    
    146,893
    
    
    
    
    
    
    
    
    
    
    
    (77,241
    )
    
    
    
    
    
    
    69,652Vessel operating expenses
    
    
    87,507
    
    
    
    
    
    
    
    4,914
    
    
    
    (3,006
    )
    
    
    
    
    
    
    89,415Time-charter hire expense
    
    
    235,976
    
    
    
    
    
    
    
    
    
    
    
    (128,184
    )
    
    
    
    
    
    
    107,792Depreciation and amortization
    
    
    93,269
    
    
    
    
    
    
    
    2,568
    
    
    
    (1,891
    )
    
    
    
    
    
    
    93,946General and administrative
    
    
    33,968
    
    
    
    
    
    
    
    291
    
    
    
    (16,210
    )
    
    
    
    
    
    
    18,049Loss (gain) on sale of vessels and
equipment  net of writedowns
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Total operating expenses
    
    
    597,676
    
    
    
    
    
    
    
    7,773
    
    
    
    (226,532
    )
    
    
    
    
    
    
    378,917Income from vessel operations
    
    
    149,707
    
    
    
    (1,178
    )
    
    
    6,807
    
    
    
    (27,017
    )
    
    
    
    
    
    
    128,319Interest expense
    
    
    (46,872
    )
    
    
    
    
    
    
    (351
    )
    
    
    
    
    
    
    
    
    
    
    (47,223
    )Interest income
    
    
    1,278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,278Equity income from joint ventures
    
    
    5,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,047Gain on sales of marketable securities
    
    
    517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517Foreign currency exchange loss
    
    
    (17,821
    )
    
    
    
    
    
    
    (870
    )
    
    
    
    
    
    
    
    
    
    
    (18,691
    )Income tax (expense) recovery
    
    
    (30,035
    )
    
    
    
    
    
    
    1,182
    
    
    
    6,789
    
    
    
    
    
    
    
    (22,064
    )Other  net
    
    
    4,455
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,455Income (loss) from continuing operations
before non-controlling interest
    
    
    66,276
    
    
    
    (1,178
    )
    
    
    6,768
    
    
    
    (20,228
    )
    
    
    
    
    
    
    51,638Non-controlling interest
    
    
    (2,763
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,763
    )Income (loss) from continuing operations
    
    
    63,513
    
    
    
    (1,178
    )
    
    
    6,768
    
    
    
    (20,228
    )
    
    
    
    
    
    
    48,875Net income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,228
    
    
    
    
    
    
    
    20,228Net income (loss)
    
    $
    63,513
    
    
    $
    (1,178
    )
    
    $
    6,768
    
    
    $
    
    
    
    
    
    
    
    $
    69,103Dropdown Predecessors interest in net income
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,768General partners interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Limited partners interest:Net income from continuing operations
    
    
    63,513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,107Net income from continuing operations per:Common unit (basic and diluted)
    
    
    5.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.34Subordinated unit (basic and diluted)
    
    
    5.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.34Total unit (basic and diluted)
    
    
    5.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.34Limited partners interest:Net income
    
    
    63,513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,335Net income per:Common unit (basic and diluted)
    
    
    5.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.95Subordinated unit (basic and diluted)
    
    
    5.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.95Total unit (basic and diluted)
    
    
    5.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.95Cash distributions declared per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance Sheet Data (at end of year):As at December 31, 2005Cash and marketable securities
    
    $
    128,986
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    128,986Vessels and equipment
    
    
    1,300,064
    
    
    
    
    
    
    
    10,071
    
    
    
    
    
    
    
    
    
    
    
    1,310,135Total assets
    
    
    1,884,017
    
    
    
    
    
    
    
    11,584
    
    
    
    
    
    
    
    
    
    
    
    1,895,601Total debt
    
    
    991,855
    
    
    
    
    
    
    
    (41,036
    )
    
    
    
    
    
    
    (7,500
    )
    
    
    943,319Non-controlling interest
    
    
    11,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,859Dropdown Predecessors equity
    
    
    
    
    
    
    
    
    
    
    47,784
    
    
    
    
    
    
    
    
    
    
    
    47,784Total partners/owners equity
    
    
    740,379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    747,879As at December 31, 2004Cash and marketable securities
    
    $
    143,729
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    143,729Vessels and equipment
    
    
    1,427,481
    
    
    
    
    
    
    
    12,686
    
    
    
    
    
    
    
    
    
    
    
    1,440,167Total assets
    
    
    2,040,642
    
    
    
    
    
    
    
    14,118
    
    
    
    
    
    
    
    
    
    
    
    2,054,760Total debt
    
    
    1,210,998
    
    
    
    
    
    
    
    (32,866
    )
    
    
    
    
    
    
    
    
    
    
    1,178,132Non-controlling interest
    
    
    14,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,276Dropdown Predecessors equity
    
    
    
    
    
    
    
    
    
    
    44,016
    
    
    
    
    
    
    
    
    
    
    
    44,016Total partners/owners equity
    
    
    659,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    659,212
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AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $(in thousands, except unit and per unit data)Balance Sheet Data (at end of year):As at December 31, 2003Cash and marketable securities
    
    $
    160,957
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    160,957Vessels and equipment
    
    
    1,431,947
    
    
    
    
    
    
    
    15,031
    
    
    
    
    
    
    
    
    
    
    
    1,446,978Total assets
    
    
    2,037,855
    
    
    
    
    
    
    
    16,593
    
    
    
    
    
    
    
    
    
    
    
    2,054,448Total debt
    
    
    1,354,392
    
    
    
    
    
    
    
    (25,407
    )
    
    
    
    
    
    
    
    
    
    
    1,328,985Non-controlling interest
    
    
    15,525
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,525Dropdown Predecessors equity
    
    
    
    
    
    
    
    
    
    
    39,420
    
    
    
    
    
    
    
    
    
    
    
    39,420Total partners/owners equity
    
    
    529,794
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    529,794Cash Flow Data:As at December 31, 2004Net cash provided by (used in):Operating activities
    
    $
    240,245
    
    
    $
    
    
    
    $
    6,939
    
    
    $
    
    
    
    $
    
    
    
    $
    247,184Financing activities
    
    
    (67,363
    )
    
    
    
    
    
    
    (6,939
    )
    
    
    
    
    
    
    
    
    
    
    (74,302
    )Investing activities
    
    
    (190,110
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,110
    )As at December 31, 2003Net cash provided by (used in):Operating activities
    
    $
    224,237
    
    
    $
    
    
    
    $
    7,520
    
    
    $
    
    
    
    $
    
    
    
    $
    231,757Financing activities
    
    
    734,389
    
    
    
    
    
    
    
    (5,795
    )
    
    
    
    
    
    
    
    
    
    
    728,594Investing activities
    
    
    (837,423
    )
    
    
    
    
    
    
    (1,725
    )
    
    
    
    
    
    
    
    
    
    
    (839,148
    )Other Financial Data:As at December 31, 2004Capital expenditures:Expenditures for vessels and equipment
    
    $
    170,630
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    170,630Expenditures for drydocking
    
    
    9,174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,174As at December 31, 2003Capital expenditures:Expenditures for vessels and equipment
    
    $
    146,279
    
    
    $
    
    
    
    $
    1,725
    
    
    $
    
    
    
    $
    
    
    
    $
    148,004Expenditures for drydocking
    
    
    11,980
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,980
 RISK FACTORS
 Except for the changes in percentages of our consolidated voyage revenues from continuing
operations generated from Teekay Corporation, Petrobras Transporte S.A. and StatoilHydro ASA, the
information included in Item 3  Risk Factors in the Original Filing has not been updated for
information or events occurring after the date of the Original Filing and has not been updated to
reflect the passage of time since the date of the Original Filing.
 Our cash flow depends substantially on OPCOs ability to make distributions to its partners,
including us.
  
    
    the rates it obtains from its charters and contracts of affreightment (whereby OPCO
carries an agreed quantity of cargo for a customer over a specified trade route within a
given period of time);
    
    the price and level of production of, and demand for, crude oil, particularly the level
of production at the offshore oil fields OPCO services under contracts of affreightment;
    
    the level of its operating costs, such as the cost of crews and insurance;
    
    the number of off-hire days for its fleet and the timing of, and number of days required
for, drydocking of its vessels;
    
    the rates, if any, at which OPCO may be able to redeploy shuttle tankers in the spot
market as conventional oil tankers during any periods of reduced or terminated oil
production at fields serviced by contracts of affreightment;
    
    delays in the delivery of any newbuildings or vessels undergoing conversion and the
beginning of payments under charters relating to those vessels;
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
    
    prevailing global and regional economic and political conditions;
    
    currency exchange rate fluctuations; and
    
    the effect of governmental regulations and maritime self-regulatory organization
standards on the conduct of its business.
  
    
    the level of capital expenditures it makes, including for maintaining vessels or
converting existing vessels for other uses and complying with regulations;
    
    its debt service requirements and restrictions on distributions contained in its debt
instruments;
    
    fluctuations in its working capital needs;
    
    its ability to make working capital borrowings; and
    
    the amount of any cash reserves, including reserves for future maintenance capital
expenditures, working capital and other matters, established by the Board of Directors of
our general partner.
   We may not have sufficient cash from operations to enable us to pay the minimum quarterly
distribution on our common units or to maintain or increase distributions.
   
    
    interest expense and principal payments on any indebtedness we incur;
    
    restrictions on distributions contained in any of our current or future debt agreements;
    
    fees and expenses of us, our general partner, its affiliates or third parties we are
required to reimburse or pay, including expenses we incur as a result of being a public
company; and
    
    reserves our general partner believes are prudent for us to maintain for the proper
conduct of our business or to provide for future distributions.
  Our ability to grow may be adversely affected by our cash distribution policy. OPCOs ability to
meet its financial needs and grow may be adversely affected by its cash distribution policy.
    13




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We must make substantial capital expenditures to maintain the operating capacity of our fleet,
which will reduce cash available for distribution. In addition, each quarter our general partner is
required to deduct estimated maintenance capital expenditures from operating surplus, which may
result in less cash available to unitholders than if actual maintenance capital expenditures were
deducted.
  
    
    the cost of labor and materials;
    
    customer requirements;
    
    increases in fleet size or the cost of replacement vessels;
    
    governmental regulations and maritime self-regulatory organization standards relating to
safety, security or the environment; and
    
    competitive standards.
   We require substantial capital expenditures to expand the size of our fleet. We generally are
required to make significant installment payments for acquisitions of newbuilding vessels or for
the conversion of existing vessels prior to their delivery and generation of revenue. Depending on
whether we finance our expenditures through cash from operations or by issuing debt or equity
securities, our ability to make cash distributions may be diminished or our financial leverage may
increase or our unitholders may be diluted.
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Our substantial debt levels may limit our flexibility in obtaining additional financing, pursuing
other business opportunities and paying distributions to you.
  
    
    our ability to obtain additional financing, if necessary, for working capital, capital
expenditures, acquisitions or other purposes may be impaired or such financing may not be
available on favorable terms;
    
    we will need a substantial portion of our cash flow to make principal and interest
payments on our debt, reducing the funds that would otherwise be available for operations,
future business opportunities and distributions to unitholders;
    
    our debt level may make us more vulnerable than our competitors with less debt to
competitive pressures or a downturn in our industry or the economy generally; and
    
    our debt level may limit our flexibility in responding to changing business and economic
conditions.
  Financing agreements containing operating and financial restrictions may restrict our business and
financing activities.
  
    
    incur or guarantee indebtedness;
    
    change ownership or structure, including mergers, consolidations, liquidations and
dissolutions;
    
    make dividends or distributions;
    
    make certain negative pledges and grant certain liens;
    
    sell, transfer, assign or convey assets;
    
    make certain investments; and
    
    enter into a new line of business.
  Restrictions in our debt agreements may prevent OPCO or us from paying distributions.
  
    
    failure to pay any principal, interest, fees, expenses or other amounts when due;
    
    failure to notify the lenders of any material oil spill or discharge of hazardous
material, or of any action or claim related thereto;
    
    breach or lapse of any insurance with respect to vessels securing the facilities;
    
    breach of certain financial covenants;
    
    failure to observe any other agreement, security instrument, obligation or covenant
beyond specified cure periods in certain cases;
    
    default under other indebtedness;
    
    bankruptcy or insolvency events;
    
    failure of any representation or warranty to be materially correct;
    
    a change of control, as defined in the applicable agreement; and
    
    a material adverse effect, as defined in the applicable agreement.
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We derive a substantial majority of our revenues from a limited number of customers, and the loss
of any such customers could result in a significant loss of revenues and cash flow.
    We depend on Teekay Corporation to assist us in operating our businesses and competing in our
markets.
   
    
    renew existing charters and contracts of affreightment upon their expiration;
    
    obtain new charters and contracts of affreightment;
    
    successfully interact with shipyards during periods of shipyard construction constraints;
    
    obtain financing on commercially acceptable terms; or
    
    maintain satisfactory relationships with suppliers and other third parties.
   Our growth depends on continued growth in demand for offshore oil transportation, processing and
storage services.
  
    
    decreases in the actual or projected price of oil, which could lead to a reduction in or
termination of production of oil at certain fields we service or a reduction in exploration
for or development of new offshore oil fields;
 
    
    increases in the production of oil in areas linked by pipelines to consuming areas, the
extension of existing, or the development of new, pipeline systems in markets we may serve,
or the conversion of existing non-oil pipelines to oil pipelines in those markets;
 
    
    decreases in the consumption of oil due to increases in its price relative to other
energy sources, other factors making consumption of oil less attractive or energy
conservation measures;
 
    
    availability of new, alternative energy sources; and
 
    
    negative global or regional economic or political conditions, particularly in oil
consuming regions, which could reduce energy consumption or its growth.
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Because payments under our contracts of affreightment are based on the volume of oil transported,
utilization of our shuttle tanker fleet and the success of our shuttle tanker business depends upon
continued production from existing or new oil fields it services, which is beyond our control and
generally declines naturally over time. Any decrease in the volume of oil transported under
contracts of affreightment could adversely affect our business and operating results.
   The duration of many of our shuttle tanker and FSO contracts is the life of the relevant oil field
or is subject to extension by the field operator or vessel charterer. If the oil field no longer
produces oil or is abandoned or the contract term is not extended, we will no longer generate
revenue under the related contract and will need to seek to redeploy affected vessels.
  The results of our shuttle tanker operations in the North Sea are subject to seasonal fluctuations.
  Our growth depends on our ability to expand relationships with existing customers and obtain new
customers, for which we will face substantial competition.
  
    
    industry relationships and reputation for customer service and safety;
    
    experience and quality of ship operations;
    
    quality, experience and technical capability of the crew;
    
    relationships with shipyards and the ability to get suitable berths;
    
    construction management experience, including the ability to obtain on-time delivery of new
vessels according to customer specifications;
    
    willingness to accept operational risks pursuant to the charter, such as allowing
termination of the charter for force majeure events; and
    
    competitiveness of the bid in terms of overall price.
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Delays in deliveries of newbuilding vessels or of conversions of existing vessels could harm our
operating results.
   
    
    quality or engineering problems, the risk of which may be increased with FPSO units due to
their technical complexity;
    
    changes in governmental regulations or maritime self-regulatory organization standards;
    
    work stoppages or other labor disturbances at the shipyard;
    
    bankruptcy or other financial crisis of the shipbuilder;
    
    a backlog of orders at the shipyard;
    
    political or economic disturbances;
    
    weather interference or catastrophic event, such as a major earthquake or fire;
    
    requests for changes to the original vessel specifications;
    
    shortages of or delays in the receipt of necessary construction materials, such as steel;
    
    inability to finance the construction or conversion of the vessels; or
    
    inability to obtain requisite permits or approvals.
  Charter rates for conventional oil tankers may fluctuate substantially over time and may be lower
when we are or OPCO is attempting to recharter conventional oil tankers, which could adversely
affect operating results. Any changes in charter rates for shuttle tankers or FSO or FPSO units
could also adversely affect redeployment opportunities for those vessels.
   Over time, the value of our vessels may decline, which could adversely affect our operating
results.
  
    
    prevailing economic conditions in oil and energy markets;
 
    
    a substantial or extended decline in demand for oil;
 
    
    increases in the supply of vessel capacity; and
 
    
    the cost of retrofitting or modifying existing vessels, as a result of technological
advances in vessel design or equipment, changes in applicable environmental or other
regulations or standards, or otherwise.
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We may be unable to make or realize expected benefits from acquisitions, and implementing our
growth strategy through acquisitions may harm our business, financial condition and operating
results.
   
    
    fail to realize anticipated benefits, such as new customer relationships, cost-savings or
cash flow enhancements;
 
    
    be unable to hire, train or retain qualified shore and seafaring personnel to manage and
operate our growing business and fleet;
 
    
    decrease our liquidity by using a significant portion of available cash or borrowing
capacity to finance acquisitions;
 
    
    significantly increase our interest expense or financial leverage if we incur additional
debt to finance acquisitions;
 
    
    incur or assume unanticipated liabilities, losses or costs associated with the business
or vessels acquired; or
 
    
    incur other significant charges, such as impairment of goodwill or other intangible
assets, asset devaluation or restructuring charges.
  Terrorist attacks, increased hostilities or war could lead to further economic instability,
increased costs and disruption of business.
   Our substantial operations outside the United States expose us to political, governmental and
economic instability, which could harm our operations.
  Marine transportation is inherently risky, particularly in the extreme conditions in which many of
our vessels operate. An incident involving significant loss of product or environmental
contamination by any of our vessels could harm our reputation and business.
  
    
    marine disasters;
 
    
    bad weather;
 
    
    mechanical failures;
 
    
    grounding, capsizing, fire, explosions and collisions;
 
    
    piracy;
 
    
    human error; and
 
    
    war and terrorism.
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
    
    death or injury to persons, loss of property or damage to the environment and natural
resources;
 
    
    delays in the delivery of cargo;
 
    
    loss of revenues from charters or contracts of affreightment;
 
    
    liabilities or costs to recover any spilled oil or other petroleum products and to
restore the eco-system where the spill occurred;
 
    
    governmental fines, penalties or restrictions on conducting business;
 
    
    higher insurance rates; and
 
    
    damage to our reputation and customer relationships generally.
  Insurance may be insufficient to cover losses that may occur to our property or result from our
operations.
    We may experience operational problems with vessels that reduce revenue and increase costs.
  The offshore shipping and storage industry is subject to substantial environmental and other
regulations, which may significantly limit operations or increase expenses.
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OPA 90 IMO
 EPA
  Exposure to currency exchange rate fluctuations results in fluctuations in cash flows and operating
results.
  The redeployment risk of FPSO units is high given their lack of alternative uses and significant
costs.
  Many seafaring employees are covered by collective bargaining agreements and the failure to renew
those agreements or any future labor agreements may disrupt operations and adversely affect our
cash flows.
  Teekay Corporation may be unable to attract and retain qualified, skilled employees or crew
necessary to operate our business.
  Teekay Corporation and its affiliates may engage in competition with us.
 offshore vessels
 
    
    own, operate and charter offshore vessels if the remaining duration of the time charter
or contract of affreightment for the vessel, excluding any extension options, is less than
three years;
 
    
    own, operate and charter offshore vessels and related time charters or contracts of
affreightment acquired as part of a business or package of assets and operating or
chartering those vessels if a majority of the value of the total assets or business acquired
is not attributable to the offshore vessels and related contracts, as determined in good
faith by Teekay Corporations Board of Directors or the conflicts committee of the Board of
Directors of Teekay LNG Partners L.P.s general partner, as applicable; however, if at any
time Teekay Corporation or Teekay LNG Partners L.P. completes such an acquisition, it must,
within 365 days of the closing of the transaction, offer to sell the offshore vessels and
related contracts to us for their fair market value plus any additional tax or other similar
costs to Teekay Corporation or Teekay LNG Partners L.P. that would be required to transfer
the vessels and contracts to us separately from the acquired business or package of
assets; or
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
    
    own, operate and charter offshore vessels and related time charters and contracts of
affreightment that relate to tender, bid or award for a proposed offshore project that
Teekay Corporation or any of its subsidiaries has submitted or received hereafter submits or
receives; however,
at least 365 days after the delivery date of any such offshore vessel, Teekay Corporation must
offer to sell the vessel and related time charter or contract of affreightment to us, with the
vessel valued (a) for newbuildings originally contracted by Teekay Corporation, at its
fully-built-up cost (which represents the aggregate expenditures incurred (or to be incurred
prior to delivery to us) by Teekay Corporation to acquire, construct and/or convert and bring
such offshore vessel to the condition and location necessary for our intended use, plus project
development costs for completed projects and projects that were not completed but, if
completed, would have been subject to an offer to us) and (b) for any other vessels, Teekay
Corporations cost to acquire a newbuilding from a third party or the fair market value of an
existing vessel, as applicable, plus in each case any subsequent expenditures that would be
included in the fully-built-up cost of converting the vessel prior to delivery to us.
   
    
    acquire, operate and charter offshore vessels and related time charters and contracts of
affreightment if our general partner has previously advised Teekay Corporation or Teekay LNG
Partners L.P. that our general partners Board of Directors has elected, with the approval
of its conflicts committee, not to cause us or our controlled affiliates to acquire or
operate the vessels and related time charters and contracts of affreightment;
 
    
    acquire up to a 9.9% equity ownership, voting or profit participation interest in any
publicly-traded company that engages in, acquires or invests in any business that owns or
operates or charters offshore vessels and related time charters and contracts of
affreightment;
 
    
    provide ship management services relating to owning, operating or chartering offshore
vessels and related time charters and contracts of affreightment; or
 
    
    own a limited partner interest in OPCO or own shares of Teekay Petrojarl ASA (formally
Petrojarl ASA. And referred to herein as Petrojarl).
   Our general partner and its other affiliates own a controlling interest in us and have conflicts of
interest and limited fiduciary duties, which may permit them to favor their own interests to those
of unitholders.
  
    
    neither our partnership agreement nor any other agreement requires Teekay Corporation or
its affiliates (other than our general partner) to pursue a business strategy that favors us
or utilizes our assets, and Teekay Corporations officers and directors have a fiduciary
duty to make decisions in the best interests of the stockholders of Teekay Corporation,
which may be contrary to our interests;
 
    
    the Chief Executive Officer and Chief Financial Officer and three of the directors of our
general partner also serve as executive officers or directors of Teekay Corporation and the
general partner of Teekay LNG Partners L.P.;
 
    
    our general partner is allowed to take into account the interests of parties other than
us, such as Teekay Corporation, in resolving conflicts of interest, which has the effect of
limiting its fiduciary duty to our unitholders;
 
    
    our general partner has limited its liability and reduced its fiduciary duties under the
laws of the Marshall Islands, while also restricting the remedies available to our
unitholders and unitholders are treated as having agreed to the modified standard of
fiduciary duties and to certain actions that may be taken by our general partner, all as set
forth in our partnership agreement;
 
    
    our general partner determines the amount and timing of our asset purchases and sales,
capital expenditures, borrowings, issuances of additional partnership securities and
reserves, each of which can affect the amount of cash that is available for distribution to
our unitholders;
 
    
    in some instances, our general partner may cause us to borrow funds in order to permit
the payment of cash distributions, even if the purpose or effect of the borrowing is to make
a distribution on the subordinated units or to make incentive distributions (in each case to
affiliates of Teekay Corporation) or to accelerate the expiration of the subordination
period relating to our subordinated units held by Teekay Corporation;
  22




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##### Table of Contents




    
    our general partner determines which costs incurred by it and its affiliates are
reimbursable by us;
 
    
    our partnership agreement does not restrict our general partner from causing us to pay it
or its affiliates for any services rendered to us on terms that are fair and reasonable or
entering into additional contractual arrangements with any of these entities on our behalf;
 
    
    our general partner intends to limit its liability regarding our contractual and other
obligations;
 
    
    our general partner may exercise its right to call and purchase common units if it and
its affiliates own more than 80.0% of our common units;
 
    
    our general partner controls the enforcement of obligations owed to us by it and its
affiliates; and
 
    
    our general partner decides whether to retain separate counsel, accountants or others to
perform services for us.
 Although we control OPCO through our ownership of its general partner, OPCOs general partner owes
fiduciary duties to OPCO and OPCOs other partner, Teekay Corporation, which may conflict with the
interests of us and our unitholders.
   
    
    the allocation of shared overhead expenses to OPCO and us;
 
    
    the interpretation and enforcement of contractual obligations between us and our
affiliates, on the one hand, and OPCO or its subsidiaries, on the other hand;
 
    
    the determination and timing of the amount of cash to be distributed to OPCOs partners
and the amount of cash to be reserved for the future conduct of OPCOs business;
 
    
    the decision as to whether OPCO should make asset or business acquisitions or
dispositions, and on what terms;
 
    
    the determination or the amount and timing of OPCOs capital expenditures;
 
    
    the determination of whether OPCO should use cash on hand, borrow funds or issue equity
to raise cash to finance maintenance or expansion capital projects, repay indebtedness, meet
working capital needs or otherwise; and
 
    
    any decision we make to engage in business activities independent of, or in competition
with, OPCO.
 The fiduciary duties of the officers and directors of our general partner may conflict with those
of the officers and directors of OPCOs general partner.
  
 Item 4. Information on the Partnership
 Except for the changes in percentages of our consolidated voyage revenues from continuing
operations generated from Teekay Corporation, Petrobras Transporte S.A. and StatoilHydro ASA and
the percentages of our net voyage revenues from continuing operations earned by each of our
segments, the information included in Item 4 in the Original Filing has not been updated for
information or events occurring after the date of the Original Filing and has not been updated to
reflect the passage of time since the date of the Original Filing.
 A. Overview, History and Development
 Overview and History
  OPCO FSO
  23




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##### Table of Contents



Navion Bergen Navion Gothenburg
 Dampier
Spirit
  
    
    Shuttle Tankers.Our shuttle tanker fleet consists of 38 vessels that operate under
fixed-rate contracts of affreightment, time charters and bareboat charters. Of the 38
shuttle tankers, 24 are owned by OPCO (including 5 through 50% owned subsidiaries), 12 are
chartered-in by OPCO and 2 are owned by us (including one through a 50% owned subsidiary).
All of the shuttle tankers operate under contracts of affreightment for various offshore oil
fields or under fixed-rate time charter or bareboat charter contracts for specific oil field
installations. The majority of the contracts of affreightment volumes are life-of-field,
which have an estimated weighted-average remaining life of approximately 16 years. The time
charters and bareboat charters have an average remaining contract term of approximately 5
years. As of December 31, 2007, our shuttle tankers, which had a total cargo capacity of
approximately 4.6 million deadweight tonnes (or dwt), represented approximately 65% of the
total tonnage of the world shuttle tanker fleet.
 
    
    Conventional Tankers.OPCO has a fleet of nine Aframax conventional crude oil tankers.
The conventional tankers all have fixed-rate time charters with Teekay Corporation, with an
average remaining term of approximately 7 years. As of December 31, 2007, our conventional
tankers had a total cargo capacity of approximately 0.9 million dwt.
 
    
    FSO Units.We have a fleet of five FSO units. All of the FSO units operate under
fixed-rate contracts, with an average remaining term of approximately 4 years. As of
December 31, 2007, our FSO units had a total cargo capacity of approximately 0.6 million
dwt.
  Potential Additional Shuttle Tanker, FSO and FPSO Projects
    B. Business Overview
 Shuttle Tanker Segment
     24




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##### Table of Contents



Capacity
    
    
    
    
    
    
    
    
    
    
    Position-
    
    
    Operating
    
    
    
    
    
    
    
    
    RemainingVessel
    
    (dwt)
    
    
    Built
    
    
    Ownership
    
    
    ing system
    
    
    Region
    
    
    Contract Type (1)
    
    
    Charterer
    
    TermNavion Hispania
    
    
    126,700
    
    
    
    1999
    
    
    100%
    
    DP2
    
    
    North Sea
    
    CoANavion Oceania
    
    
    126,300
    
    
    
    1999
    
    
    100%
    
    DP2
    
    
    North Sea
    
    CoANavion Anglia
    
    
    126,300
    
    
    
    1999
    
    
    100%
    
    DP2
    
    
    North Sea
    
    CoANavion Scandia
    
    
    126,700
    
    
    
    1998
    
    
    100%
    
    DP2
    
    
    North Sea
    
    CoANavion Britannia (2)
    
    
    124,200
    
    
    
    1998
    
    
    100%
    
    DP2
    
    
    North Sea
    
    CoA
    StatoilHydroChevronNavion Norvegia (2)
    
    
    130,600
    
    
    
    1995
    
    
    100%
    
    DP
    
    
    North Sea
    
    CoA
    Marathon OilHessNavion Europa (2)
    
    
    130,300
    
    
    
    1995
    
    
    100%
    
    DP
    
    
    North Sea
    
    CoA
    ExxonMobilEni Mongstad
    
    Majority of volumes areNavion Fennia (2)
    
    
    95,200
    
    
    
    1992
    
    
    100%
    
    DP
    
    
    North Sea
    
    CoA
    Terminal Draugen
    
    life-of-fieldGrena
    
    
    148,000
    
    
    
    2003
    
    
    In-chartered(until 2013) (3)
    
    DP2
    
    
    North Sea
    
    CoA
    Transport BPBertora
    
    
    100,300
    
    
    
    2001
    
    
    In-chartered(until 2008) (10)
    
    DP2
    
    
    North Sea
    
    CoA
    ConocoPhillips 
ShellSallie Knutsen
    
    
    153,600
    
    
    
    1999
    
    
    In-chartered(until 2015)
    
    DP2
    
    
    North Sea
    
    CoA
    TotalTalismanKaren Knutsen
    
    
    153,600
    
    
    
    1999
    
    
    In-chartered(until 2013)
    
    DP2
    
    
    North Sea
    CoA
    
    NexenDONGElisabeth Knutsen
    
    
    124,700
    
    
    
    1997
    
    
    In-chartered(until 2008)
    
    DP2
    
    
    North Sea
    
    CoA
    DanoilDenercoGerd Knutsen
    
    
    146,200
    
    
    
    1996
    
    
    In-chartered(until 2008)
    
    DP
    
    
    North Sea
    
    CoA
    IdemitsuLundinAberdeen
    
    
    87,000
    
    
    
    1996
    
    
    In-chartered(until 2009)
    
    DP
    
    
    North Sea
    
    CoA
    DNO (6)Randgrid (2)
    
    
    124,500
    
    
    
    1995
    
    
    In-chartered(until 2014) (4)
    
    DP
    
    
    North Sea
    
    CoATordis Knutsen
    
    
    123,800
    
    
    
    1993
    
    
    In-chartered(unit 2010)
    
    DP
    
    
    North Sea
    
    CoAVigdis Knutsen
    
    
    123,400
    
    
    
    1993
    
    
    In-chartered(until 2008)
    
    DP
    
    
    North Sea
    
    CoANavion Akarita
    
    
    107,200
    
    
    
    1991
    
    
    Lease(until 2012) (5)
    
    DP
    
    
    North Sea
    
    CoATove Knutsen (2)
    
    
    106,300
    
    
    
    1989
    
    
    In-chartered(until 2009)
    
    DP2
    
    
    North Sea
    
    CoAStena Sirita
    
    
    127,400
    
    
    
    1999
    
    
    50%(7)
        
    DP2
    
    
    North Sea
    
    Time charter
    
    ExxonMobil (8)
    
    2 yearsNavion Clipper
    
    
    78,200
    
    
    
    1993
    
    
    100%
    
    DP
    
    
    Brazil
    
    Time charter
    
    Petrobras
    
    2 yearsNordic Marita
    
    
    103,900
    
    
    
    1999
    
    
    100%
    
    DP
    
    
    Brazil
    
    Time charter
    
    Petrobras
    
    1.5 yearsStena Natalita
    
    
    108,000
    
    
    
    2001
    
    
    50%(7)
        
    DP2
    
    
    North Sea
    
    Time charter
    
    ExxonMobil (8)
    
    1.5 yearsStena Alexita
    
    
    127,400
    
    
    
    1998
    
    
    50%(7)
        
    DP2
    
    
    North Sea
    
    Time charter
    
    ExxonMobil (8)
    
    1 yearNordic Svenita
    
    
    106,500
    
    
    
    1997
    
    
    100%
    
    DP
    
    
    Brazil
    
    Time charter
    
    Petrobas
    
    1 yearNordic Savonita
    
    
    108,100
    
    
    
    1992
    
    
    100%
    
    DP
    
    
    Brazil
    
    Time charter
    
    Petrobras
    
    2 yearsNordic Torinita
    
    
    106,800
    
    
    
    1992
    
    
    100%
    
    DP2
    
    
    North Sea
    
    Time charter
    
    Knutsen (8)
    
    1 yearBasker Spirit
    
    
    97,000
    
    
    
    1992
    
    
    100%
    
    DP
    
    
    Australia
    
    Time charter
    
    Anzon (8)
    
    1 yearNavion Stavanger
    
    
    147,500
    
    
    
    2003
    
    
    100%
    
    DP2
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    12 yearsNordic Spirit
    
    
    151,300
    
    
    
    2001
    
    
    100%
    
    DP
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    11 yearsStena Spirit
    
    
    151,300
    
    
    
    2001
    
    
    50%(7)
        
    DP
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    10 yearsNordic Brasilia
    
    
    151,300
    
    
    
    2004
    
    
    100%
    
    DP
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    10 yearsNordic Rio
    
    
    151,300
    
    
    
    2004
    
    
    50%(7)
        
    DP
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    10 yearsNavion Bergen
    
    
    105,600
    
    
    
    2000
    
    
    100%
    
    DP2
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    13 yearsNavion Gothenburg
    
    
    152,200
    
    
    
    2006
    
    
    50%(7)
        
    DP2
    
    
    Brazil
    
    Bareboat
    
    Petrobras (9)
    
    13 yearsPetroatlantic
    
    
    92,900
    
    
    
    2003
    
    
    100%
    
    DP2
    
    
    North Sea
    
    Bareboat
    
    Petrojarl (9)
    
    2 yearsPetronordic
    
    
    92,900
    
    
    
    2002
    
    
    100%
    
    DP2
    
    
    North Sea
    
    Bareboat
    
    Petrojarl (9)
    
    2 yearsTotal capacity
    
    
    4,644,500
 
 (1)
    
    CoA refers to contracts of affreightment.(2)
    
    The vessel is capable of loading from a submerged turret loading buoy.(3)
    
    OPCO has options to extend the time charter or purchase the vessel.(4)
    
    The time charter period is linked to the term of the transportation service agreement for the
Heidrun field on the Norwegian continental shelf, which term is in turn linked to the
production level at the field.  25




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##### Table of Contents



(5)
    
    OPCO has options to extend the bareboat lease.(6)
    
    Not all of the contracts of affreightment customers utilize every ship in the contract of
affreightment fleet.(7)
    
    Owned through a 50% owned subsidiary. The parties share in the profits and losses of the
subsidiary in proportion to each partys relative capital contributions. Teekay Corporation
subsidiaries provide operational services for these vessels.(8)
    
    Charterer has an option to extend the time charter.(9)
    
    Charterer has the right to purchase the vessel at end of the bareboat charter.(10)
    
    In June 2007, OPCO exercised its option to purchase this vessel. The vessel delivered in
March 2008.    Conventional Tanker Segment
       26




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##### Table of Contents



ContractVessel
    
    Capacity (dwt)
    
    
    Built
    
    
    Ownership
    
    
    Type
    
    
    Charterer
    
    
    Remaining Term (1)Kilimanjaro Spirit
    
    
    115,000
    
    
    
    2004
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    11 yearsFuji Spirit
    
    
    106,300
    
    
    
    2003
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    11 yearsHamane Spirit
    
    
    105,200
    
    
    
    1997
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    8 yearsPoul Spirit
    
    
    105,300
    
    
    
    1995
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    7 yearsGotland Spirit
    
    
    95,300
    
    
    
    1995
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    7 yearsTorben Spirit
    
    
    98,600
    
    
    
    1994
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    5 yearsScotia Spirit (2)
    
    
    95,000
    
    
    
    1992
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    4 yearsLeyte Spirit
    
    
    98,700
    
    
    
    1992
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    4 yearsLuzon Spirit
    
    
    98,600
    
    
    
    1992
    
    
    
    100
    %
    
    Time charter
    
    Teekay
    
    4 yearsTotal capacity
    
    
    918,000
 
 (1)
    
    Charterer has options to extend each time charter on an annual basis for a total of five
years after the initial term. Charterer also has the right to purchase the vessel beginning on
the third anniversary of the contract at a specified price.(2)
    
    This vessel has been equipped with FSO equipment and OPCO can terminate the charter upon
30-days notice if it has arranged an FSO project for the vessel.  FSO Segment
     Capacity
    
    
    
    
    
    
    
    
    
    
    Field name and
    
    
    
    
    
    
    
    
    
    
    RemainingVessel
    
    (dwt)
    
    
    Built
    
    
    Ownership
    
    
    location
    
    
    Contract Type
    
    
    Charterer
    
    
    TermPattani Spirit
    
    
    113,800
    
    
    
    1988
    
    
    
    100
    %
    
    Platong, Thailand
    
    Bareboat
    
    Teekay
    
    6 years (1)Nordic Apollo
    
    
    126,900
    
    
    
    1978
    
    
    
    89
    %
    
    Banff, U.K.
    
    Bareboat
    
    Teekay
    
    7 years (2)Navion Saga
    
    
    149,000
    
    
    
    1991
    
    
    
    100
    %
    
    Volve, Norway
    
    Time charter
    
    StatoilHydro
    
    2 years (3)Karratha Spirit
    
    
    106,600
    
    
    
    1988
    
    
    
    100
    %
    
    Legendre, Australia
    
    Time charter
    
    Woodside
    
    1 year (3)Dampier Spirit
    
    
    106,700
    
    
    
    1987
    
    
    
    100
    %
    
    Stag, Australia
    
    Time charter
    
    Apache
    
    6 year (3)Total capacity
    
    
    603,0000
 
 (1)
    
    This vessel is on a back-to-back charter between Teekay and Unocol for a remaining term of
six years.(2)
    
    Charterer is required to charter the vessel for as long as a specified FPSO unit, the
Petrojarl Banff, produces the Banff field in the North Sea, which could extend to 2014
depending on the field operator.(3)
    
    Charterer has option to extend the time charter after the initial fixed period.  27




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##### Table of Contents



Business Strategies
  
    
    Expand global operations in high growth regions.We seek to expand our shuttle tanker and
FSO unit operations into growing offshore markets such as Brazil and Australia. In addition,
we intend to pursue opportunities in new markets such as Arctic Russia, Eastern Canada, the
Gulf of Mexico, Asia and Africa.
 
    
    Pursue opportunities in the FPSO sector.We believe that Teekay Corporations control of
Petrojarl will enable us to competitively pursue FPSO projects anywhere in the world by
combining Petrojarls engineering and operational expertise with Teekay Corporations global
marketing organization and extensive customer and shipyard relationships.
 
    
    Acquire additional vessels on long-term, fixed-rate contracts.We intend to continue
acquiring shuttle tankers and FSO units with long-term contracts, rather than ordering
vessels on a speculative basis, and we intend to follow this same practice in acquiring FPSO
units. We believe this approach facilitates the financing of new vessels based on their
anticipated future revenues and ensures that new vessels will be employed upon acquisition,
which should stabilize cash flows. Additionally, we anticipate growing by acquiring
additional limited partner interests in OPCO that Teekay Corporation may offer us in the
future.
 
    
    Provide superior customer service by maintaining high reliability, safety, environmental
and quality standards.Energy companies seek transportation partners that have a reputation
for high reliability, safety, environmental and quality standards. We intend to leverage
OPCOs and Teekay Corporations operational expertise and customer relationships to further
expand a sustainable competitive advantage with consistent delivery of superior customer
service.
 
    
    Manage our conventional tanker fleet to provide stable cash flows.We believe the
fixed-rate time charters for these tankers will provide stable cash flows during their terms
and a source of funding for expanding offshore operations. Depending on prevailing market
conditions during and at the end of each existing charter, we may seek to extend the
charter, enter into a new charter, operate the vessel on the spot market or sell the vessel,
in an effort to maximize returns on the conventional fleet while managing residual risk.
 Competitive Strengths
  
    
    Leading position in the shuttle tanker sector.We are the worlds largest owner and
operator of shuttle tankers, as we owned or operated 38 of the 74 vessels in the world
shuttle tanker fleet as at December 31, 2007. Our large fleet size enables us to provide
comprehensive coverage of charterers requirements and provides opportunities to enhance the
efficiency of operations and increase fleet utilization.
 
    
    Offshore operational expertise and enhanced growth opportunities through our relationship
with Teekay Corporation.Teekay Corporation has achieved a global brand name in the shipping
industry and the offshore market, developed an extensive network of long-standing
relationships with major energy companies and earned a reputation for reliability, safety
and excellence. Some benefits we believe we receive due to our relationship with Teekay
Corporation include:
 
    
    access through services agreements to its comprehensive market intelligence and
operational and technical sophistication gained from over 25 years of providing shuttle
tanker services and FSO services to offshore energy customers. We believe this expertise
will also assist us in successfully expanding into the FPSO sector through Teekay
Corporations control of Petrojarl and our rights to participate in certain FPSO
projects under the omnibus agreement;
 
    
    access to Teekay Corporations general commercial and financial core
competencies, practices and systems, which we believe enhances the efficiency and
quality of operations;
 
    
    enhanced growth opportunities and added competitiveness in bidding for
transportation requirements for offshore projects and in attracting and retaining
long-term contracts throughout the world; and
 
    
    improved leverage with leading shipyards during periods of vessel production
constraints, which are anticipated over the next few years, due to Teekay Corporations
established relationships with these shipyards and the high number of newbuilding orders
it places.
 
    
    Cash flow stability from contracts with leading energy companies.We benefit from
stability in cash flows due to the long-term, fixed-rate contracts underlying most of our
business. We have been able to secure long-term contracts because our services are an
integrated part of offshore oil field projects and a critical part of the logistics chain of
the fields. Due to the integrated nature of our services, the high cost of field development
and the need for uninterrupted oil production, contractual relationships with customers with
respect to any given field typically last until the field is no longer producing.
 
    
    Disciplined vessel acquisition strategy and successful project execution.Our fleet has
been built through successful new project tenders and acquisitions, and this strategy has
contributed significantly to our leading position in the shuttle tanker market. A
significant portion of OPCOs shuttle tanker fleet was established through the acquisition
of Ugland Nordic Shipping AS in 2001 and Navion AS, StatoilHydro ASAs shipping subsidiary,
in 2003. In addition, we have increased the size of our fleet through customized shuttle
tanker and FSO projects for major energy companies around the world.
  28




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##### Table of Contents




    
    We have financial flexibility to pursue acquisitions and other expansion opportunities
through additional debt borrowings and the issuance of additional partnership units.As of
March 31, 2008, our existing revolving credit facilities provided us access to $115.5
million of undrawn financing for working capital and acquisition purposes. We believe that
borrowings available under our revolving credit facilities, access to other bank financing
facilities and the debt capital markets, and our ability to issue additional partnership
units will provide us with financial flexibility to pursue acquisition and expansion
opportunities.
 Customers
   Safety, Management of Ship Operations and Administration
   ISM Code ISO OHSAS
   
    
    vessel maintenance;
 
    
    crewing;
 
    
    purchasing;
 
    
    shipyard supervision;
 
    
    insurance; and
 
    
    financial management services.
     29




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##### Table of Contents



Risk of Loss, Insurance and Risk Management
     Classification, Audits and Inspections
 Intermediate Survey Special Survey
  
    
    the vessels flag state, or the vessels classification society if nominated by the flag
state, inspect the vessels to ensure they comply with applicable rules and regulations of
the country of registry of the vessel and the international conventions of which that
country is a signatory;
 
    
    port state control authorities, such as the U.S. Coast Guard and Australian Maritime
Safety Authority, inspect vessels at regular intervals; and
 
    
    customers regularly inspect our vessels as a condition to chartering, and regular
inspections are standard practice under long-term charters.
  
    
    ensure adherence to our operating standards;
 
    
    maintain the structural integrity of the vessel is being maintained;
 
    
    maintain machinery and equipment to give full reliability in service;
 
    
    optimize performance in terms of speed and fuel consumption; and
 
    
    ensure the vessels appearance will support our brand and meet customer expectations.
    30




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##### Table of Contents



Regulations
 General
   Regulation  International Maritime Organization (or IMO)
 SOLAS ISPS MARPOL Convention DP
    
    
    is the subject of a contract for a major conversion or original construction on or after
July 6, 1993;
 
    
    commences a major conversion or has its keel laid on or after January 6, 1994; or
 
    
    completes a major conversion or is a newbuilding delivered on or after July 6, 1996.
  Shuttle Tanker, FSO Unit and FPSO Unit Regulation
  Environmental Regulations  The United States Regulations
 OPA 90 CERCLA
  31




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##### Table of Contents




    
    natural resources damages and the related assessment costs;
 
    
    real and personal property damages;
 
    
    net loss of taxes, royalties, rents, fees and other lost revenues;
 
    
    lost profits or impairment of earning capacity due to property or natural resources
damage;
 
    
    net cost of public services necessitated by a spill response, such as protection from
fire, safety or health hazards; and
 
    
    loss of subsistence use of natural resources.
   Coast Guard
 COFR
    
    
    address a worst case scenario and identify and ensure, through contract or other
approved means, the availability of necessary private response resources to respond to a
worst case discharge;
 
    
    describe crew training and drills; and
 
    
    identify a qualified individual with full authority to implement removal actions.
  32




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##### Table of Contents



Environmental Regulation  Other Environmental Initiatives
 CLC ,
 Annex VI
    VOC equipment)
 Vessel Security Regulation
 MTSA
 C. Organizational Structure
    33




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##### Table of Contents



D. Properties
  E. Taxation of the Partnership
 United States Taxation
 Code Treasury Regulations
 Election to be Taxed as a Corporation.
 Taxation of Operating Income. Transportation Income
 U.S. Source International Transportation Income U.S. Source
Domestic Transportation Income
 Section 883 Exemption
 The Section 883 Exemption. Section 883 Regulations
 Equivalent Exemption Ownership Test
  The Net Basis Tax and Branch Profits Tax. Effectively Connected
Income
  34




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##### Table of Contents



The 4.0% Gross Basis Tax.
 Marshall Islands Taxation
  Norway Taxation
   Taxation of Norwegian Subsidiaries Engaged in Business Activities.
    Taxation of Dividends. i.e.
 Correction Income Tax. correction income
tax,
 i.e.
 Taxation of Interest Paid by Norwegian Entities.
  35




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##### Table of Contents



Taxation on Distributions by Norwegian Entities.
 Luxembourg Taxation
  Norsk Teekay TEHS Teekay Netherlands
 NOL
  Taxation of Interest Income.
 Taxation of Potential Foreign Currency Exchange Net Gain.
 Taxation of Interest Payments.
 Taxation of Dividends and Capital Gains.
 
    
    TEHS is a capital company resident in Luxembourg and fully subject to tax in this
country;
 
    
    TEHS owns more than 10% of Teekay Netherlands, or alternatively, TEHS acquisition price
for the shares of Teekay Netherlands equals or exceeds Euro 1.2 million for purposes of the
dividend exemption or Euro 6.0 million for purposes of the capital gains exemption;
 
    
    At the time of the dividend or disposal of shares, TEHS has owned the shares for at least
12 months (or, alternatively in the case of dividends, TEHS commits to hold the shares for
at least 12 months and in the case of capital gains, TEHS commits to continue to hold at
least 10% of the shares of Teekay Netherlands for at least 12 months); and
 
    
    Teekay Netherlands is a resident of the Netherlands for Dutch tax purposes and is covered
by the European Union Parent-Subsidiary Directive.
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##### Table of Contents



Taxation of TEHS Dividends.
 Net Wealth Tax.
 Netherlands Taxation
   Taxation of Dividends and Capital Gains. participation exemption
 
    
    Teekay Netherlands is a shareholder of at least 5.0% of the par value of the paid up
share capital of Norsk Teekay AS;
 
    
    Norsk Teekay AS is subject to Norwegian profits tax;
 
    
    the shares are not held as stock in trade; and
 
    
    the shares of Norsk Teekay AS are not held as a portfolio investment.
    Taxation of Teekay Netherlands Dividends.
  37




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##### Table of Contents



2007 Tax Reform in the Netherlands.
 
    
    Teekay Netherlands must be a shareholder of at least 5.0% of the par value of the paid up
share capital of Norsk Teekay AS; and
 
    
    the shares in Norsk Teekay AS must not be considered a portfolio investment in a company
that is not subject to an adequate profit tax.
  Singapore Taxation
 Taxation of Singapore Companies Operating Ships in International Traffic. TNOL .
 Taxation of Charter Income from Non-Singapore-Registered Ships. AIS
 MPA
 
    
    charter hire/freight income from the operation of non-Singapore-registered vessels outside
the limits of the port of Singapore;
 
    
    dividends from approved shipping subsidiaries;
 
    
    gains from the disposition of non-Singapore-registered ships for a period of 5 years from
January 1, 2004 to December 13, 2008; and
 
    
    foreign exchange, interest rate swaps and other derivative gains would be
automatically regarded as tax exempt hedging gains for a period of 5 years from January
1 2004 to December 31, 2008.
  
    
    be a tax resident in Singapore;
 
    
    own and operate a significant fleet of ships;
 
    
    implement the business plan agreed with the MPA at the time of application of the
incentive or such other modified plans as approved by the MPA;
 
    
    the companys shipping operations should be controlled and managed in Singapore;
 
    
    incur directly attributable business spending in Singapore an average of S$4 million a year
or S$20 million over a 5 year period;
 
    
    support and make significant use of Singapores trade infrastructure, such as
banking, financial, business training, arbitration, and other ancillary services;
 
    
    all ships chartered-in must be conducted on an arms-length basis;
 
    
    inform the MPA of any changes to its Group shareholdings and operations;
 
    
    keep proper books and records and submit annual audited accounts to the MPA,
together with an annual audited statement comparing the actual total business spending in
Singapore against the projected amount within 3 months of their completion; and
 
    
    disclose such information to and permit such inspection of its premises by the Singapore
Government, as required.
  Taxation of Investment Income.
  38




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##### Table of Contents



Taxation of Ship Management Income.
 Australian Taxation
  Trust" Karratha Spirit
 Karratha Spirit
    TAOH Dampier Spirit
  Taxation of Interest Paid in Respect of the Australian Operations.
 
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
 The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this report. The information below has been adjusted solely to
reflect the impact of the restatement on our financial results which is more fully described in
Note 18 of the notes to the consolidated financial statements contained in this report and to
include the section entitled Restatement of Previously Issued Financial Statements below and does
not reflect any subsequent information or events occurring after the date of the Original Filing or
update any disclosure herein to reflect the passage of time since the date of the Original Filing.
  39




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##### Table of Contents



Restatement of Previously Issued Financial Statements
  Net Income (Loss)January 1 to
    
    
    December 19 toDecember 18,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $
    
    
    $As previously reported
    
    
    19,672
    
    
    
    (33,563
    )
    
    
    848
    
    
    
    84,747Adjustments:Derivative instruments, net of
non-controlling interest and other
(1)
    
    
    (17,014
    )
    
    
    2,806
    
    
    
    500
    
    
    
    756Dropdown Predecessor (2)
    
    
    1,300
    
    
    
    3,097
    
    
    
    114
    
    
    
    2,910Vision Incentive Plan
    
    
    
    
    
    
    (2,632
    )
    
    
    
    
    
    
    7,500As restated
    
    
    3,958
    
    
    
    (30,292
    )
    
    
    1,462
    
    
    
    95,913
 (1)
    
    Includes an adjustment totaling ($3.6) million for the year ended
December 31, 2007 relating to the accounting for the non-controlling interest in
one of our 50% owned subsidiaries and adjusting amounts related to deferred
income taxes and the fair value of derivative instruments at December 31, 2007.(2)
    
    Relates to the results for the pre-acquisition periods in which we
and the acquired interests in vessels, as listed below, were both in operation and
under the common control of Teekay Corporation, as follows: 
    
    Dampier Spirit(FSO unit) for March 15, 1998 to September 30, 2007;
    
    Navion Bergen(shuttle tanker) for April 16, 2007 to June 30, 2007; and
    
    Navion Gothenburg(shuttle tanker) began operations concurrently with the
Partnerships acquisition of it on July 24, 2007.
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 OVERVIEW
  SIGNIFICANT DEVELOPMENTS
 Our Initial Public Offering
  OPCO
 Acquisition of Vessels in 2007
 Navion Bergen Navion Gothenburg
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##### Table of Contents



Dampier Spirit Dampier Spirit
  Potential Additional Shuttle Tanker, FSO and FPSO Projects
    Our Contracts of Affreightment and Charters
  
    
    Contracts of affreightment, whereby we carry an agreed quantity of cargo for a customer
over a specified trade route within a given period of time;
 
    
    Time charters, whereby vessels we operate and are responsible for crewing are chartered
to customers for a fixed period of time at rates that are generally fixed, but may contain a
variable component based on inflation, interest rates or current market rates;
 
    
    Bareboat charters, whereby customers charter vessels for a fixed period of time at rates
that are generally fixed, but the customers operate the vessels with their own crews; and
 
    
    Voyage charters, which are charters for shorter intervals that are priced on a current,
or spot, market rate.
  Contract of Affreightment
    
    Time Charter
    
    Bareboat Charter
    
    Voyage Charter(1)Typical contract length
    
    One year or more
    
    One year or more
    
    One year or more
    
    Single voyageHire rate basis(2)
    
    Typically daily
    
    Daily
    
    Daily
    
    VariesVoyage expenses(3)
    
    We pay
    
    Customer pays
    
    Customer pays
    
    We payVessel operating expenses(3)
    
    We pay
    
    We pay
    
    Customer pays
    
    We payOff-hire (4)
    
    Customer typically does not pay
    
    Varies
    
    Customer typically pays
    
    Customer does not pay
 
 (1)
    
    Under a consecutive voyage charter, the customer pays for idle time.(2)
    
    Hirerate refers to the basic payment from the charterer for the use of the vessel.(3)
    
    Defined below under Important Financial and Operational Terms and Concepts.(4)
    
    Off-hirerefers to the time a vessel is not available for service. Important Financial and Operational Terms and Concepts
  Voyage Revenues.
 Voyage Expenses.
 Net Voyage Revenues. GAAP
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##### Table of Contents



Vessel Operating Expenses.
  Time Charter Hire Expenses.
 Income from Vessel Operations.
 Drydocking.
 Depreciation and Amortization.
 
    
    charges related to the depreciation of the historical cost of our fleet (less an
estimated residual value) over the estimated useful lives of the vessels;
 
    
    charges related to the amortization of drydocking expenditures over the estimated number
of years to the next scheduled drydocking; and
 
    
    charges related to the amortization of the fair value of contracts of affreightment where
amounts have been attributed to those items in acquisitions; these amounts are amortized
over the period in which the asset is expected to contribute to future cash flows.
 Revenue Days.
 Calendar-Ship-Days.
 VOC Equipment. VOC equipment
 Items You Should Consider When Evaluating Our Results
  
    
    Our financial results reflect the results of the interests in vessels acquired from
Teekay Corporation for all periods the vessels were under common control.In July 2007, we
acquired from Teekay Corporation ownership of its 100% interest in the 2000-built shuttle
tanker Navion Bergenand its 50% interest in the 2006-built shuttle tanker Navion
Gothenburg, respectively. The acquisitions included the assumption of debt, related
interest rate swap agreements and Teekay Corporations rights and obligations under
13-year, fixed-rate bareboat charters. In October 2007, we acquired from Teekay Corporation
its interest in the FSO unit Dampier Spirit, along with its 7-year fixed-rate time-charter.These transactions were deemed to be business acquisitions between entities under common
control. Accordingly, we have accounted for these transactions in a manner similar to the
pooling of interest method. Under this method of accounting, our financial statements prior
to the date the interests in these vessels were actually acquired by us are retroactively
adjusted to include the results of these acquired vessels. The periods retroactively adjusted
include all periods that we and the acquired vessels were both under common control of Teekay
Corporation and had begun operations. As a result, our statements of income (loss) for the
years ended December 31, 2007, 2006 and 2005 reflect these vessels, referred to herein as the
Dropdown Predecessor, as if we had acquired them when each respective vessel began operations
under the ownership of Teekay Corporation. These vessels began operations on April 16, 2007
(Navion Bergen), July 24, 2007 (Navion Gothenburg) and March 15, 1998 (Dampier Spirit).
 
    
    Our cash flow will be reduced by distributions on Teekay Corporations interest in OPCO.
Following the closing of our initial public offering, Teekay Corporation has held a 74%
limited partner interest in OPCO. OPCOs partnership agreement requires it to distribute
all of its available cash each quarter. In determining the amount of cash available for
distribution, the Board of Directors of our general partner must approve the amount of cash
reserves to be set aside, including reserves for future maintenance capital expenditures,
working capital and other matters. Distributions to Teekay Corporation for periods
following our initial public offering reduce our cash flow compared to historical results.
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##### Table of Contents




    
    On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are included
in results of operation prior to that date.On July 1, 2006, and in anticipation of our
December 2006 initial public offering, OPCO transferred to Teekay Corporation a subsidiary
of Norsk Teekay Holdings Ltd. (Navion Shipping Ltd.) that chartered-in approximately 25
conventional tankers since 2004 and subsequently time-chartered the vessels back to a
subsidiary of Teekay Corporation at charter rates that provided for a 1.25% fixed profit
margin. We have disclosed the results of Navion Shipping Ltd. for periods prior to its sale
on July 1, 2006 as discontinued operations. In addition, OPCO transferred to Teekay
Corporation a 1987-built shuttle tanker (the Nordic Trym), a 1992-built in-chartered
shuttle tanker (the Borga) and certain other assets (collectively with Navion Shipping
Ltd., the Non-OPCO Assets).
 
    
    Amendments to certain operating agreements in December 2006 have resulted in five 50%
owned subsidiaries being consolidated with us under GAAP.Our results of operations prior
to December 1, 2006 reflect OPCOs investment in five 50% joint venture companies,
accounted for using the equity method, whereby the investment is carried at the original
cost plus OPCOs proportionate share of undistributed earnings. On December 1, 2006, the
operating agreements for these subsidiaries were amended such that OPCO obtained control of
these subsidiaries, resulting in the consolidation of these five subsidiaries in accordance
with GAAP. Although our net income did not change due to this change in accounting, the
results of the subsidiaries have been reflected in our income from operations since
December 1, 2006. As noted above, this change also resulted in the five shuttle tankers
owned by these subsidiaries being included in the vessels used to calculate
calendar-ship-days.
 
    
    The size of our fleet continues to change.Our results of operations reflect changes in
the size and composition of our fleet due to certain vessel deliveries and vessel
dispositions. For instance, in addition to the decrease in chartered-in vessels associated
with the transfer of Navion Shipping Ltd. described above, the average number of owned
vessels in our shuttle tanker fleet increased from 21 in 2006 to 25 in 2007, and our FSO
segment increased from 4 in 2006 to 5 in 2007. Please read  Results of Operations below
for further details about vessel dispositions and deliveries. Due to the nature of our
business, we expect our fleet to continue to fluctuate in size and composition.
 
    
    Our financial results of operations reflect different time charter terms for OPCOs nine
conventional tankers.On October 1, 2006, OPCO entered into new fixed-rate time charters
with a subsidiary of Teekay Corporation for OPCOs nine conventional tankers at rates we
believed reflected then-prevailing market rates. Please read item 18  Financial
Statements: Note 10 Related Party Transactions. At various times prior to October 2006,
eight of these nine conventional tankers were employed on time charters with the same
subsidiary of Teekay Corporation. However, the charter rates were generally lower than
market-based charter rates, as they were based on the cash flow requirements of each
vessel, which included operating expenses, loan principal and interest payments and drydock
expenditures. The ninth conventional tanker was employed on voyage and bareboat charters.
Under the terms of eight of the nine new time-charter contracts, OPCO is responsible for
the bunker fuel expenses and the approximate amounts of these expenses are added to the
daily hire rate.
 
    
    Our vessel operating costs are facing industry-wide cost pressures.The shipping
industry is experiencing a global manpower shortage due to significant growth in the world
fleet. This shortage has resulted in crewing wage increases during 2007, the effect of
which is explained in our comparison of vessel operating expenses incurred in the year
ended December 31, 2007 versus the year ended December 31, 2006. We expect a trend of
increasing crew compensation to continue into 2008.
 
    
    Our financial results of operations are affected by fluctuations in currency exchange
rates. Under US GAAP, all foreign currency-denominated monetary assets and liabilities,
such as cash and cash equivalents, accounts receivable, accounts payable, advances from
affiliates and deferred income taxes are revalued and reported based on the prevailing
exchange rate at the end of the period. Most of our historical foreign currency gains and
losses prior to our initial public offering are attributable to this revaluation in respect
of our foreign currency denominated advances from affiliates. In addition, a substantial
majority of OPCOs crewing expenses historically have been denominated in Norwegian Kroner,
which is primarily a function of the nationality of the crew. Fluctuations in the Norwegian
Kroner relative to the U.S. Dollar have caused fluctuations in operating results. Prior to
our initial public offering, OPCO settled its then-outstanding foreign currency denominated
advances from affiliates and also entered into services agreements with subsidiaries of
Teekay Corporation whereby the subsidiaries operate and crew the vessels. Under these
service agreements, OPCO pays all vessel operating expenses in U.S. Dollars, and will not
be subject to currency exchange fluctuations until 2009. Beginning in 2009, payments under
the service agreements will adjust to reflect any change in Teekay Corporations cost of
providing services based on fluctuations in the value of the Norwegian Kroner relative to
the U.S. Dollar, which may result in increased payments under the services agreements if
the strength of the U.S. Dollar declines relative to the Norwegian Kroner. At December 31,
2007, we were committed to foreign exchange contracts for the forward purchase of
approximately Norwegian Kroner 255.7 million for U.S. Dollars at an average rate of
Norwegian Kroner 5.64 per U.S. Dollar, maturing in 2009.
 
    
    We are incurring additional general and administrative expenses.Prior to our initial
public offering, general and administrative expenses were allocated based on OPCOs
proportionate share of Teekay Corporations total ship-operating (calendar) days for
applicable periods presented. In connection with our initial public offering, we, OPCO and
certain of its subsidiaries entered into services agreements with subsidiaries of Teekay
Corporation, pursuant to which those subsidiaries provide certain services, including
administrative, advisory and technical services and ship management. Our cost for these
services depends on the amount and types of services provided during each period. The
services are valued at an arms-length rate that include reimbursement of reasonable direct
and indirect expenses incurred to provide the services. We also reimburse our general
partner for all expenses it incurs on our behalf, including compensation and expenses of
its executive officers and directors and we may grant equity compensation that would result
in an expense to us. Since becoming a publicly traded limited partnership, we have also
incurred costs associated with annual reports to unitholders and SEC filings, investor
relations, NYSE annual listing fees and additional tax compliance expenses
 
    
    Our operations are seasonal.Historically, the utilization of shuttle tankers in the
North Sea is higher in the winter months, as favorable weather conditions in the summer
months provide opportunities for repairs and maintenance to our vessels and to the offshore
oil platforms. Downtime for repairs and maintenance generally reduces oil production and,
thus, transportation requirements.
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##### Table of Contents



Year Ended December 31, 2007 versus Year Ended December 31, 2006
 Shuttle Tanker Segment
   Year Ended December 31,(in thousands of U.S. dollars, except calendar-ship-days and percentages)
    
    2007
    
    
    2006
    
    
    % Change(restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    590,611
    
    
    
    535,972
    
    
    
    10.2Voyage expenses
    
    
    114,157
    
    
    
    88,446
    
    
    
    29.1Net voyage revenues
    
    
    476,454
    
    
    
    447,526
    
    
    
    6.5Vessel operating expenses
    
    
    103,809
    
    
    
    80,307
    
    
    
    29.3Time-charter hire expense
    
    
    150,463
    
    
    
    165,614
    
    
    
    (9.1
    )Depreciation and amortization
    
    
    86,502
    
    
    
    71,367
    
    
    
    21.2General and administrative (1)
    
    
    50,776
    
    
    
    50,353
    
    
    
    0.8Gain on sale of vessels and equipment  net of writedowns
    
    
    
    
    
    
    (4,778
    )
    
    
    (100.0
    )Income from vessel operations
    
    
    84,904
    
    
    
    84,663
    
    
    
    0.3Calendar-Ship-DaysOwned Vessels
    
    
    9,180
    
    
    
    7,559
    
    
    
    21.4Chartered-in Vessels
    
    
    4,297
    
    
    
    4,824
    
    
    
    (10.9
    )Total
    
    
    13,477
    
    
    
    12,383
    
    
    
    8.8
 
 (1)
    
    Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the shuttle tanker segment based on estimated use of corporate
resources).  
    
    the consolidation into our results of the five vessels owned by OPCOs 50% owned
subsidiaries, effective December 1, 2006 upon amendments to the applicable operating
agreements that granted OPCO control of the subsidiaries (the Consolidation of 50%-Owned
Subsidiaries). Prior to December 1, 2006, these entities were equity accounted for as
joint ventures. Please read Items You Should Consider When Evaluating Our Results of
Operations Amendments to certain operating agreements in December 2006 have resulted in
five 50% owned subsidiaries being consolidated with us under GAAP above; and
 
    
    the acquisition in July 2007 of the 2000-built shuttle tanker (the Navion Bergen) and
a 50% interest in the 2006-built shuttle-tanker (the Navion Gothenburg) (the 2007
Shuttle Tanker Acquisitions). However, as a result of the inclusion of the Dropdown
Predecessor, the Navion Bergenhad been included for accounting purposes in our results
as if it had been acquired on April 16, 2007, when it completed its conversion and began
operations as a shuttle tanker for Teekay Corporation. The Navion Gothenburgcompleted
its conversion and began operations as a shuttle tanker concurrently with its
acquisition in July 2007. Please read Items You Should Consider When Evaluating Our
Results of Operations Our financial results reflect the results of the interests in
vessels acquired from Teekay Corporation for all periods the vessels were under common
control above;
  
    
    the sale of a 1981-built shuttle tanker (the Nordic Laurita) in July 2006 to a third
party and the sale of a 1987-built shuttle tanker (the Nordic Trym) to Teekay
Corporation in November 2006 (collectively, the 2006 Shuttle Tanker Dispositions).
  
    
    the redelivery of one chartered-in vessel back to its owner in April 2006; and
 
    
    the sale in July 2006 to Teekay Corporation of a time charter-in contract for a
1992-built shuttle tanker (the Borga).
 Net Voyage Revenues.
 
    
    an increase of $40.8 million due to the Consolidation of 50%-Owned Subsidiaries;
 
    
    an increase of $12.2 million due to the 2007 Shuttle Tanker Acquisitions (including
the impact of the Dropdown Predecessor); and
 
    
    an increase of $3.6 million due to the renewal of certain vessels on time charter
contracts at higher daily rates during 2006;
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##### Table of Contents




    
    a decrease of $13.6 million in revenues due to (a) fewer revenue days for shuttle
tankers servicing contracts of affreightment during 2007 due to a decline in oil
production from mature oil fields in the North Sea and (b) the redeployment of idle
shuttle tankers
servicing contracts of affreightment in the conventional spot market at a lower average
charter rate during the fourth quarter of 2007 due to a weaker spot tanker market;
 
    
    a decrease of $7.6 million due to the 2006 Shuttle Tanker Dispositions;
 
    
    a decrease of $4.4 million due to the sale of the time charter-in contract for the
Borga;and
 
    
    a decrease of $2.9 million from the redelivery of one chartered-in vessel to its
owner in April 2006.
 Vessel Operating Expenses.
 
    
    an increase of $17.3 million due to the Consolidation of 50%-Owned Subsidiaries;
 
    
    an increase of $7.0 million in salaries for crew and officers primarily due to
general wage escalations from the renegotiation of seafarer contracts, changes in crew
composition and a change in the crew rotation system; and
 
    
    an increase of $1.9 million relating to an increase in services due to the rising
cost of consumables, lubes, and freight during 2007;
  
    
    a decrease of $3.2 million due to the 2006 Shuttle Tanker Dispositions.
 Time-Charter Hire Expense.
 Depreciation and Amortization.
 
    
    an increase of $13.7 million due to the Consolidation of 50%-Owned Subsidiaries;
 
    
    an increase of $4.1 million due to the 2007 Shuttle Tanker Acquisitions (including
the impact of the Dropdown Predecessor); and
 
    
    an increase of $3.9 million from the amortization of vessel upgrades and drydock
costs incurred during 2006 and 2007;
  
    
    a decrease of $5.7 million relating to the 2006 Shuttle Tanker Dispositions.
 Gain on sale of vessels equipment  net of writedowns.
 
    
    a $6.4 million gain relating to the sale of a 1981-built shuttle tanker (the Nordic
Laurita) in July 2006;
  
    
    a $2.2 million writedown in 2006 of certain offshore equipment servicing a marginal
oil field that was prematurely shut down in June 2005 due to lower than expected oil
production. This writedown occurred due to a reassessment of the estimated net
realizable value of the equipment and follows a $12.2 million writedown in 2005 arising
from the early termination of a contract for the equipment (some of this equipment was
re-deployed on another field in October 2005).
  45




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##### Table of Contents



Conventional Tanker Segment
   Year Ended December 31,(in thousands of U.S. dollars, except calendar-ship-days and percentages)
    
    
    2007
    
    2006
    
    
    % Change(restated)
    
    
    (restated)Voyage revenues
    
    
    135,922
    
    
    
    70,056
    
    
    
    94.0Voyage expenses
    
    
    36,594
    
    
    
    4,892
    
    
    
    648.0Net voyage revenues
    
    
    99,328
    
    
    
    65,164
    
    
    
    52.4Vessel operating expenses
    
    
    24,175
    
    
    
    19,378
    
    
    
    24.8Depreciation and amortization
    
    
    21,324
    
    
    
    21,212
    
    
    
    0.5General and administrative (1)
    
    
    7,828
    
    
    
    11,789
    
    
    
    (33.6
    )Restructuring charge
    
    
    
    
    
    
    832
    
    
    
    (100.0
    )Income from vessel operations
    
    
    46,001
    
    
    
    11,953
    
    
    
    284.8Calendar-Ship-DaysOwned Vessels
    
    
    3,405
    
    
    
    3,650
    
    
    
    (6.7
    )
 
 (1)
    
    Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the conventional tanker segment based on estimated use of corporate
resources). Navion Saga
 Net Voyage Revenues.  Items You Should Consider When Evaluating Our Results  Our
financial results of operations reflect different time charter terms for OPCOs nine conventional
tankers
 Vessel Operating Expenses.
 Depreciation and Amortization. Navion Saga
  46




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##### Table of Contents



FSO Segment
   Year Ended December 31,(in thousands of U.S. dollars, except calendar-ship-days and percentages)
    
    2007
    
    
    2006
    
    
    % Change(restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    58,670
    
    
    
    35,883
    
    
    
    63.5Voyage expenses
    
    
    886
    
    
    
    1,085
    
    
    
    (18.3
    )Net voyage revenues
    
    
    57,784
    
    
    
    34,798
    
    
    
    66.1Vessel operating expenses
    
    
    21,676
    
    
    
    12,603
    
    
    
    72.0Depreciation and amortization
    
    
    16,544
    
    
    
    11,970
    
    
    
    38.2General and administrative (1)
    
    
    3,800
    
    
    
    3,049
    
    
    
    24.6Income from vessel operations
    
    
    15,764
    
    
    
    7,176
    
    
    
    119.7Calendar-Ship-DaysOwned Vessels
    
    
    1,705
    
    
    
    1,460
    
    
    
    16.8
 
 (1)
    
    Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the FSO segment based on estimated use of corporate resources). Dampier Spirit Dampier Spirit
 Navion Saga Navion Saga.
 Other Operating Results
 General and Administrative Expenses.
 
    
    a decrease in management fees owing to subsidiaries of Teekay Corporation (prior to
our initial public offering, general and administrative expenses were allocated based on
OPCOs proportionate share of Teekay Corporations total ship-operating (calendar) days
for each of the periods presented; since the initial public offering, we have incurred
general and administrative expenses primarily through services agreements between us,
OPCO and certain of its subsidiaries and subsidiaries of Teekay Corporation);
  
    
    an increase of $2.4 million relating to additional expenses as a result of our being
a publicly-traded limited partnership since our initial public offering in December
2006.
 Interest Expense.
 
    
    an increase of $48.9 million relating to the unrealized change in fair value of our
interest rate swaps;
 
    
    an increase of $35.9 million relating to a full year of interest incurred on debt
under a revolving credit facility OPCO entered into during the fourth quarter of 2006;
 
    
    an increase of $11.3 million due to the Consolidation of 50%-Owned Subsidiaries; and
 
    
    increase of $4.7 million due to the assumption of debt relating to the 2007 Shuttle
Tanker Acquisitions (including the Navion Bergens interest expense from April 16, 2007
until we acquired it on July 1, 2007);
  
    
    a decrease of $14.2 million in interest incurred on a Norwegian Kroner-denominated
loan owing by a subsidiary of OPCO to Teekay Corporation from October 2006 until our
initial public offering in December 2006 (Teekay Corporation sold this loan receivable
to OPCO immediately before our initial public offering);
 
    
    a decrease of $12.9 million relating to the settlement of interest-bearing advances
from affiliates during the fourth quarter of 2006;
  47




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##### Table of Contents




    
    a decrease of $7.5 million relating to interest incurred under a revolving credit
facility that was prepaid and cancelled prior to our initial public offering; and
 
    
    a decrease of $6.3 million relating to interest incurred by Teekay Offshore Partners
Predecessor on one of its revolving credit facilities, which was not transferred to OPCO
prior to our initial public offering.
  Equity Income From Joint Ventures.
 Foreign Currency Exchange Losses.
 Income Tax Recovery (Expense).
 Other Income.
 Net Loss from Discontinued Operations.  Items You Should Consider When Evaluating
Our Results  On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are
included in results of operations prior to that date
 Year Ended December 31, 2006 versus Year Ended December 31, 2005
 Shuttle Tanker Segment
  Year Ended December 31,(in thousands of U.S. dollars, except calendar-ship-days and percentages)
    
    2006
    
    
    2005
    
    
    % Change(restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    535,972
    
    
    
    516,758
    
    
    
    3.7Voyage expenses
    
    
    88,446
    
    
    
    68,308
    
    
    
    29.5Net voyage revenues
    
    
    447,526
    
    
    
    448,450
    
    
    
    (0.2
    )Vessel operating expenses
    
    
    80,307
    
    
    
    75,196
    
    
    
    6.8Time-charter hire expense
    
    
    165,614
    
    
    
    169,687
    
    
    
    (2.4
    )Depreciation and amortization
    
    
    71,367
    
    
    
    77,083
    
    
    
    (7.4
    )General and administrative (1)
    
    
    50,353
    
    
    
    44,063
    
    
    
    14.3Gain on sale of vessels and equipment  net of writedowns
    
    
    (4,778
    )
    
    
    2,820
    
    
    
    269.4Restructuring charge
    
    
    
    
    
    
    955
    
    
    
    (100.0
    )Income from vessel operations
    
    
    84,663
    
    
    
    78,646
    
    
    
    7.7Calendar-Ship-DaysOwned Vessels
    
    
    7,559
    
    
    
    8,120
    
    
    
    (6.9
    )Chartered-in Vessels
    
    
    4,824
    
    
    
    4,963
    
    
    
    (2.8
    )Total
    
    
    12,383
    
    
    
    13,083
    
    
    
    (5.4
    )
 
 (1)
    
    Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the shuttle tanker segment based on estimated use of corporate
resources).  
    
    the sale of two older shuttle tankers in March and October 2005, respectively (or the
2005 Shuttle Tanker Dispositions); and
 
    
    the 2006 Shuttle Tanker Dispositions.
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##### Table of Contents




    
    the redelivery of one chartered-in vessel back to its owner in April 2006; and
 
    
    the sale in July 2006 of the Borgato Teekay Corporation;
  
    
    the inclusion of two additional chartered-in vessels commencing May and June 2005.
  Net Voyage Revenues.
 
    
    a decrease of $5.9 million from the 2005 Shuttle Tanker Dispositions;
 
    
    a decrease of $4.5 million due to an extended drydocking of the Nordic Trymduring
the second half of 2006;
 
    
    a decrease of $2.9 million from the redelivery of one chartered-in vessel to its
owner in April 2006; and
 
    
    a decrease of $2.2 million from the 2006 Shuttle Tanker Dispositions;
  
    
    an increase of $5.4 million from the 2006 transfer of certain of our shuttle tankers
servicing contracts of affreightment to short-term time-charter contracts, which had
higher average rates;
 
    
    an increase of $4.9 million due to the renewal of three vessels on time charter at
higher daily rates during 2006; and
 
    
    an increase of $3.8 million due to the change in accounting treatment resulting from
the Consolidation of 50%-Owned Subsidiaries.
 Vessel Operating Expenses.
 
    
    an increase of $5.8 million in salaries for crew and officers primarily due to a
change in crew composition on one vessel upon the commencement of a new short-term time
charter contract in 2005, a one-time bonus payment and general wage escalations;
 
    
    a total increase of $1.5 million relating to repairs and maintenance for certain
vessels during 2006 and an increase in the cost of lubricants as a result of higher
crude oil costs; and
 
    
    an increase of $1.2 million from the Consolidation of 50%-Owned Subsidiaries;
  
    
    a decrease of $2.8 million from the 2005 Shuttle Tanker Dispositions.
 Time-Charter Hire Expense.
 Depreciation and Amortization.
 
    
    a decrease of $4.3 million relating to the 2006 Shuttle Tanker Dispositions and the
2005 Shuttle Tanker Dispositions, the sale of the Nordic Trymin November 2006 and the
sale and leaseback of one shuttle tanker in March 2005; and
 
    
    a decrease of $2.8 million relating to a reduction in amortization from the
expiration during 2005 of two contracts of affreightment and from the contracts of
affreightment acquired as part of the purchase of Navion AS in 2003, which are being
amortized over their respective lives, with the amount amortized each year being
weighted based on the projected revenue to be earned under the contracts;
  
    
    an increase of $1.2 million due to the Consolidation of 50%-Owned Subsidiaries.
 Gain on sale of vessels and equipment  net of writedowns.
 
    
    a $6.4 million gain relating to the sale of the Nordic Lauritain July 2006;
  
    
    a $2.2 million writedown of certain offshore equipment servicing a marginal oil field
that was prematurely shut down in June 2005 due to lower than expected oil production.
This writedown occurred due to a reassessment of the estimated net realizable value of
the equipment and follows a $12.2 million writedown in 2005 arising from the early
termination of a contract for the equipment (some of this equipment was re-deployed on
another field in October 2005).
  49




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##### Table of Contents




    
    a $12.2 million write-down from the previously mentioned offshore equipment;
  
    
    a $9.1 million gain on the 2005 Shuttle Tanker Dispositions.
 Restructuring Charges.
 Conventional Tanker Segment
  Year Ended December 31,(in thousands of U.S. dollars, except calendar-ship-days and percentages)
    
    2006
    
    
    2005
    
    
    % Change(restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    70,056
    
    
    
    57,454
    
    
    
    21.9Voyage expenses
    
    
    4,892
    
    
    
    5,419
    
    
    
    (9.7
    )Net voyage revenues
    
    
    65,164
    
    
    
    52,035
    
    
    
    25.2Vessel operating expenses
    
    
    19,378
    
    
    
    21,574
    
    
    
    (10.2
    )Depreciation and amortization
    
    
    21,212
    
    
    
    20,646
    
    
    
    2.7General and administrative (1)
    
    
    11,789
    
    
    
    9,634
    
    
    
    22.4Restructuring charge
    
    
    832
    
    
    
    
    
    
    
    100.0Income from vessel operations
    
    
    11,953
    
    
    
    181
    
    
    
    6,503.9Calendar-Ship-DaysOwned Vessels
    
    
    3,650
    
    
    
    3,650
    
    
    
    
 
 (1)
    
    Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the conventional tanker segment based on estimated use of corporate
resources). Net Voyage Revenues.  Items You Should Consider When Evaluating Our
Results  Our financial results of operations reflect different time charter terms for OPCOs nine
conventional tankers
 Vessel Operating Expenses.
 Depreciation and Amortization.
 Restructuring Charges.
  50




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FSO Segment
  Year Ended December 31,(in thousands of U.S. dollars, except calendar-ship-days and percentages)
    
    2006
    
    
    2005
    
    
    % Change(restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    35,883
    
    
    
    39,034
    
    
    
    (8.1
    )Voyage expenses
    
    
    1,085
    
    
    
    816
    
    
    
    33.0Net voyage revenues
    
    
    34,798
    
    
    
    38,218
    
    
    
    (8.9
    )Vessel operating expenses
    
    
    12,603
    
    
    
    12,710
    
    
    
    (0.8
    )Depreciation and amortization
    
    
    11,970
    
    
    
    12,095
    
    
    
    (1.0
    )General and administrative (1)
    
    
    3,049
    
    
    
    3,029
    
    
    
    0.7Income from vessel operations
    
    
    7,176
    
    
    
    10,384
    
    
    
    (30.9
    )Calendar-Ship-DaysOwned Vessels
    
    
    1,460
    
    
    
    1,460
    
    
    
    
 
 (1)
    
    Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the FSO segment based on estimated use of corporate resources).
 Dampier Spirit Dampier Spirit
 Other Operating Results
 General and Administrative Expenses.
 Interest Expense.
 
    
    an increase of $14.2 million in interest incurred on a Norwegian Kroner-denominated
loan owing by a subsidiary of OPCO to Teekay Corporation from October 2006 until our
initial public offering in December 2006 (Teekay Corporation sold this loan receivable
to OPCO immediately before our initial public offering);
 
    
    an increase of $7.1 million relating to additional debt of $745 million from a
revolving credit facility entered into during the fourth quarter of 2006;
 
    
    an increase of $4.6 million due to a higher average balance for one of OPCOs
existing revolving credit facilities in 2006 compared to 2005;
 
    
    an increase of $4.0 million relating to an increase in the weighted-average interest
rate on OPCOs floating-rate debt in 2006 compared to 2005; and
 
    
    an increase of $1.4 million due to the Consolidation of 50%-Owned Subsidiaries;
  
    
    a decrease of $3.3 million relating to the unrealized change in fair value of our
interest rate swaps; and
 
    
    a decrease of $1.9 million relating to the settlement of interest-bearing advances
from affiliates during 2005.
  Interest Income.
 Equity Income From Joint Ventures.
 Foreign Currency Exchange Gains (Losses).  Items You Should Consider When Evaluating Our Results  Our financial results of operations
are affected by fluctuations in currency exchange rates
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##### Table of Contents



Income Tax Recovery (Expense).
 Other Income.
  Net Loss from Discontinued Operations.  Items You Should Consider When Evaluating
Our Results  On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are
included in results of operations prior to that date
 Liquidity and Capital Resources
 Liquidity and Cash Needs
 Navion Bergen LLC Navion Gothenburg LLC Dampier Spirit LLC
   Cash Flows.
 Years Ended December 31,2007
    
    
    2006($000s)
    
    
    ($000s)(restated)
    
    
    (restated)Net cash flow from operating activities
    
    
    45,847
    
    
    
    162,228Net cash flow from financing activities
    
    
    (23,905
    )
    
    
    (230,238
    )Net cash flow from investing activities
    
    
    (14,704
    )
    
    
    53,010
 Operating Cash Flows.
  52




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Income Tax Recovery (Expense).
 Other Income.
  Net Loss from Discontinued Operations.  Items You Should Consider When Evaluating
Our Results  On July 1, 2006, OPCO transferred certain assets to Teekay Corporation that are
included in results of operations prior to that date
 Liquidity and Capital Resources
 Liquidity and Cash Needs
 Navion Bergen LLC Navion Gothenburg LLC Dampier Spirit LLC
   Cash Flows.
 Years Ended December 31,2007
    
    
    2006($000's)
    
    
    ($000's)(restated)
    
    
    (restated)Net cash flow from operating activities
    
    
    45,847
    
    
    
    162,228Net cash flow from financing activities
    
    
    (23,905
    )
    
    
    (230,238
    )Net cash flow from investing activities
    
    
    (14,704
    )
    
    
    53,010
 Operating Cash Flows.
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##### Table of Contents



Financing Cash Flows.
 Navion Bergen Dampier
Spirit Navion Gothenburg
  Investing Cash Flows.
 Credit Facilities
   
    
    $455 Million Revolving Credit Facility. This 8-year reducing revolving credit facility
allows OPCO and it subsidiaries to borrow up to $455 million (subject to scheduled reductions
through 2014) and may be used for acquisitions and for general partnership purposes.
Obligations under this credit facility are collateralized by first-priority mortgages on
eight of OPCOs vessels. Borrowings under the facility may be prepaid at any time in amounts
of not less than $5.0 million.
 
    
    $940 Million Revolving Credit Facility. This 8-year reducing revolving credit facility
allows for borrowing of up to $940 million (subject to scheduled reductions through 2014) and
may be used for acquisitions and for general partnership purposes. Obligations under this
credit facility are collateralized by first-priority mortgages on 19 of OPCOs vessels.
Borrowings under the facility may be prepaid at any time in amounts of not less than
$5.0 million. This credit facility allows OPCO to incur working capital borrowings and loan
the proceeds to us (which we could use to make distributions, provided that such amounts are
paid down annually).
 
    
    $70 Million Revolving Credit Facility. This 10-year reducing revolving credit facility
allows for borrowing of up to $70 million (subject to scheduled reductions through 2017) and
may be used for general partnership purposes. Obligations under this credit facility are
collateralized by a first-priority mortgage on one of our vessels. Borrowings under the
facility may be prepaid at any time in amounts of not less than $5.0 million.
     
    
    incurring or guaranteeing indebtedness (applicable to our term loans and the $70 million
revolving credit facility only);
 
    
    changing ownership or structure, including by mergers, consolidations, liquidations and
dissolutions;
 
    
    making dividends or distributions when in default of the relevant loans;
 
    
    making capital expenditures in excess of specified levels;
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##### Table of Contents




    
    making certain negative pledges or granting certain liens;
 
    
    selling, transferring, assigning or conveying assets; or
 
    
    entering into a new line of business.
  Contractual Obligations and Contingencies
  2009
    
    
    2011and
    
    
    andTotal
    
    
    2008
    
    
    2010
    
    
    2012
    
    
    Beyond 2012(in millions of U.S. dollars)Long-term debt (1)
    
    
    1,517.5
    
    
    
    64.1
    
    
    
    222.6
    
    
    
    305.8
    
    
    
    925.0Chartered-in vessels (operating leases)
    
    
    480.4
    
    
    
    117.8
    
    
    
    168.3
    
    
    
    118.6
    
    
    
    75.7Purchase obligation(2)
    
    
    41.7
    
    
    
    41.7
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    2,039.6
    
    
    
    223.6
    
    
    
    390.9
    
    
    
    424.4
    
    
    
    1,000.7
 
 (1)
    
    Excludes expected interest payments of $84.9 million (2008), $153.1 million (2009 and 2010),
$122.6 million (2011 and 2012) and $87.2 million (beyond 2012). Expected interest payments are
based on LIBOR, plus margins which ranged between 0.45% and 0.80% as at December 31, 2007.(2)
    
    In June 2007, we exercised our option to purchase a 2001-built shuttle tanker, which is
currently part of our in-chartered shuttle tanker fleet. The vessel will be delivered to us in
March 2008. Off-Balance Sheet Arrangements
  Critical Accounting Estimates
  Revenue Recognition
 Description.
 Judgments and Uncertainties.
 Effect if Actual Results Differ from Assumptions.
 Vessel Lives and Impairment
 Description.
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##### Table of Contents



Judgments and Uncertainties.
 Effect if Actual Results Differ from Assumptions.
 Drydocking
 Description.
 Judgments and Uncertainties.
 Effect if Actual Results Differ from Assumptions.
 Goodwill and Intangible Assets
 Description.
 Judgments and Uncertainties .
 Effect if Actual Results Differ from Assumptions.
  Valuation of Derivative Financial Instruments
 Description.
 Judgments and Uncertainties.
 Effect if Actual Results Differ from Assumptions.
  56




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##### Table of Contents



Recent Accounting Pronouncements
 FASB) EITF Application of the
Two-Class Method under FASB Statement No. 128, Earnings per Share to Master Limited Partnerships EITF Issue No. 07-4
 Business Combinations SFAS 141(R , Business Combinations
 Non-controlling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin No. 51 SFAS 160
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115 SFAS 159
 Fair Value Measurements SFAS 157
 
 Item 6. Directors, Senior Management and Employees
 The information included in Item 6 in the Original Filing has not been updated
for information or
events occurring after the date of the Original Filing and has not
been updated to reflect the passage of time since the date of the Original Filing.
 A. Directors and Senior Management
 Management of Teekay Offshore Partners L.P.
    Teekay LNG Teekay Tankers
    57




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##### Table of Contents



Directors and Executive Officers of Teekay Offshore GP L.L.C.
  Name
    
    Age
    
    
    PositionC. Sean Day
    
    
    58
    
    
    Chairman (1)Bjorn Moller
    
    
    50
    
    
    Vice Chairman (1)Peter Evensen
    
    
    49
    
    
    Chief Executive Officer, Chief Financial Officer and DirectorDavid L. Lemmon
    
    
    65
    
    
    Director (2)Carl Mikael L.L. von Mentzer
    
    
    63
    
    
    Director (2)John J. Peacock
    
    
    64
    
    
    Director (2)
 
 (1)
    
    Member of Corporate Governance Committee(2)
    
    Member of Audit Committee and Conflicts Committee  C. Sean Day
 Bjorn Moller
 Peter Evensen
 David L. Lemmon
 Carl Mikael L.L. von Mentzer
 John J. Peacock
  58




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##### Table of Contents



Directors and Executive Officers of Teekay Offshore Operating GP L.L.C.
  Name
    
    Age
    
    
    PositionC. Sean Day
    
    
    58
    
    
    ChairmanBjorn Moller
    
    
    50
    
    
    Vice ChairmanPeter Evensen
    
    
    49
    
    
    Chief Executive Officer, Chief Financial Officer and Director
  B. Compensation
 Reimbursement of Expenses of Our General Partner
  Executive Compensation
  Compensation of Directors
   2006 Long-Term Incentive Plan
  C. Board Practices
  the Board
   59




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##### Table of Contents



Audit Committee
  
    
    the integrity of our financial statements;
 
    
    our compliance with legal and regulatory requirements;
 
    
    the qualifications and independence of our independent auditor; and
 
    
    the performance of our internal audit function and our independent auditor.
 Conflicts Committee.
  
    
    reviews specific matters that the Board believes may involve conflicts of interest; and
 
    
    determines if the resolution of the conflict of interest is fair and reasonable to us.
  Corporate Governance Committee.
  
    
    oversees the operation and effectiveness of the Board and its corporate governance.
 
    
    develops, updates and recommends to the Board corporate governance principles and
policies applicable to us and our general partner and monitors compliance with these
principles and policies; and
 
    
    oversees director compensation and the long-term incentive plan described above.
 D. Employees
 Crewing and Staff
   ITF
   60




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##### Table of Contents



E. Unit Ownership
  Percentage ofPercentage of
    
    
    
    
    
    
    Percentage of
    
    
    Total CommonCommon Units
    
    
    Common Units
    
    
    Subordinated
    
    
    Subordinated
    
    
    and SubordinatedIdentity of Person or Group
    
    Owned
    
    
    Owned
    
    
    Units Owned
    
    
    Units Owned
    
    
    Units Owned(3)All directors and officers
as a group
(6 persons) (1) (2)
    
    
    292,725
    
    
    
    2.99
    %
    
    
    
    
    
    
    
    
    
    
    1.49
    %
 
 (1)
    
    Excludes units owned by Teekay Corporation, which controls us and on the board of which
serve the directors of our general partner, C. Sean Day and Bjorn Moller. In addition, Mr.
Moller is Teekay Corporations President and Chief Executive Officer, and Peter Evensen,
our general partners Chief Executive Officer and Chief Financial Officer and a Director,
is Teekay Corporations Executive Vice President and Chief Strategy Officer. Please read
Item 7: Major Shareholders and Related Party Transactions for more detail.(2)
    
    Each director, executive officer and key employee beneficially owns less than one
percent of the outstanding common and subordinated units.(3)
    
    Excludes the 2% general partner interest held by our general partner, a wholly owned
subsidiary of Teekay Corporation. 
 Item 7. Major Unitholders and Related Party Transactions
 Except for certain information below in paragraphs (e), (h), (n) and (o) of B. Related Party
Transactions, the information included in Item 7 in the Original Filing has not been updated for
information or events occurring after the date of the Original Filing and has not been updated to
reflect the passage of time since the date of the Original Filing.
 A. Major Unitholders
  Percentage of TotalPercentage of
    
    
    
    
    
    
    Percentage of
    
    
    Common andCommon Units
    
    
    Common Units
    
    
    Subordinated
    
    
    Subordinated
    
    
    Subordinated UnitsIdentity of Person or Group
    
    Owned
    
    
    Owned
    
    
    Units Owned
    
    
    Units Owned
    
    
    OwnedTeekay Corporation(1)
    
    
    1,750,000
    
    
    
    17.9
    %
    
    
    9,800,000
    
    
    
    100.0
    %
    
    
    58.9
    %Luxor Capital Group, LP, Luxor
Management, LLC, and Mr. Christian
Leone, as a group (2)
    
    
    1,269,799
    
    
    
    13.0
    %
    
    
    
    
    
    
    
    
    
    
    6.5
    %Neuberger Berman, Inc. and Neuberger
Berman, LLC, as a group (3)
    
    
    820,974
    
    
    
    8.4
    %
    
    
    
    
    
    
    
    
    
    
    4.2
    %
 
 (1)
    
    Excludes the 2% general partner interest held by our general partner, a wholly owned
subsidiary of Teekay Corporation.(2)
    
    Includes shared voting power and shared dispositive power as to 1,269,799 units. Luxor
Capital Group, LP, Luxor Management, LLC, and Mr. Christian Leone all have shared voting and
dispositive power. Luxor Capital Group, LP serves as an investment manager of Luxor Capital
Group, LPs mutual funds. This information is based on the Schedule 13G/A filed by this
group with the SEC on February 14, 2008.(3)
    
    Includes sole voting power as to 745,924 units and shared dispositive power as to 820,974
units. Both Neuberger Berman, LLC and Neuberger Berman Inc. have shared dispositive power.
Neuberger Berman, LLC and Neuberger Berman Management Inc. serve as sub-advisor and
investment manager, respectively, of Neuberger Berman Inc.s mutual funds. This information
is based on the Schedule 13G filed by this group with the SEC on February 12, 2008.   61




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##### Table of Contents



B. Related Party Transactions
 a)
    
    On October 1, 2006, OPCO entered into time-charter contracts for its nine Aframax
conventional tankers with a subsidiary of Teekay Corporation at then-prevailing
market-based daily rates for terms of five to twelve years. Under the terms of eight of
these nine time-charter contracts, OPCO is responsible for the bunker fuel expenses;
however, OPCO adds the approximate amounts of these expenses to the daily hire rate.
Pursuant to these time-charter contracts, OPCO earned voyage revenues of $128.4 million
during 2007.
 b)
    
    Effective October 1, 2006, two of OPCOs shuttle tankers commenced employment on
long-term bareboat charters with a subsidiary of Teekay Corporation. Pursuant to these
charter contracts, OPCO earned voyage revenues of $14.2 million during 2007.
 c)
    
    Two of OPCOs FSO units were employed on long-term bareboat charters with a subsidiary
of Teekay Corporation. Pursuant to these charter contracts, OPCO earned voyage revenues of
$12.0 million during 2007.
 d)
    
    On October 1, 2006, a subsidiary of Teekay Corporation entered into a services
agreement with a subsidiary of OPCO, pursuant to which the subsidiary of OPCO provides the
Teekay Corporation subsidiary with ship management services. During 2007, OPCO earned
management fees of $3.3 million under the agreement.
 e)
    
    Eight of OPCOS Aframax conventional oil tankers and two FSO units (including the
Dampier Spirit) are managed by subsidiaries of Teekay Corporation. Pursuant to the
associated management services agreements, OPCO incurred general and administrative
expenses of $4.5 million during 2007. During the year ended December 31, 2007, $0.1 million
of general and administrative expenses attributable to the operations of the Dampier Spirit
were incurred by Teekay Corporation and have been allocated to us as part of the results of
the Dropdown Predecessor. Please read Note 18, Restatement of Previously Issued Financial
Statements, to the consolidated financial statements included in this Report.
 f)
    
    In December 2006, we, OPCO, and certain of our and its subsidiaries have entered into
services agreements with certain subsidiaries of Teekay Corporation, pursuant to which the
Teekay Corporation subsidiaries provide to us, OPCO, and our and its subsidiaries
administrative, advisory and technical services and ship management. These services are
provided in a commercially reasonably manner and upon the reasonable request of our general
partner or our or OPCOs operating subsidiaries, as applicable. The Teekay Corporation
subsidiaries that are parties to the services agreements provide these services directly or
subcontract for certain of these services with other entities, including other Teekay
Corporation subsidiaries. We pay arms-length fees for the services that include
reimbursement of the reasonable cost of any direct and indirect expenses the Teekay
Corporation subsidiaries incur in providing these services. During 2007, we incurred $52.7
million of costs under these agreements.
 g)
    
    Pursuant to our partnership agreement, we reimburse our general partner for all
expenses necessary or appropriate for the conduct of our business. During 2007, we incurred
$0.8 million of these costs.
 h)
    
    In July 2007, we acquired interests in two double-hull shuttle tankers from Teekay
Corporation for a total cost of $159.1 million, including assumption of debt of $93.7
million and the related interest rate swap agreement. We acquired Teekay Corporations 100%
interest in the 2000-built Navion Bergenand its 50% interest in the 2006-built Navion
Gothenburg, together with their respective 13-year, fixed-rate bareboat charters to
Petroleo Brasileiro S.A. We financed the purchases with one of our existing revolving
credit facilities and the assumption of debt. The excess of the proceeds we paid over
Teekay Corporations historical cost were accounted for as an equity distribution to Teekay
Corporation of $25.4 million.
 i)
    
    In October 2007, we acquired from Teekay Corporation an FSO unit, the Dampier Spirit,
along with its 7-year fixed-rate time-charter to Apache Corporation for a total cost of
$30.3 million. We financed the purchase with one of our existing revolving credit
facilities. The excess of the proceeds we paid over Teekay Corporations historical cost
was accounted for as an equity distribution to Teekay Corporation of $13.9 million.
 j)
    
    In December 2007, Teekay Corporation contributed a $65.6 million, nine-year, 4.98%
interest rate swap agreement (used to hedge the debt assumed in the purchase of the Navion
Bergen) having a fair value liability of $2.6 million, to us for no consideration and was
accounted for as an equity distribution to Teekay Corporation.
 k)
    
    In December 2007, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to events which occurred prior to our initial public offering, totaling $4.8
million, including the settlement of a customer dispute in respect of vessels delivered
prior to our initial public offering and other costs.
 l)
    
    C. Sean Day is the Chairman of our general partner, Teekay Offshore GP L.L.C., and of
Teekay Offshore Operating GP L.L.C., the general partner of OPCO. He also is the Chairman
of Teekay Corporation, Teekay Tankers and Teekay GP L.L.C., the general partner of Teekay
LNG.
    m)
    
    We have entered into an amended and restated omnibus agreement with our general
partner, Teekay Corporation, Teekay LNG and
related parties. The following discussion describes certain provisions of the omnibus
agreement.
  62




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##### Table of Contents



Noncompetition
 
    
    owning, operating or chartering offshore vessels if the remaining duration of the
time charter or contract of affreightment for the vessel, excluding any extension
options, is less than three years;
 
    
    acquiring offshore vessels and related time charters or contracts of affreightment as
part of a business or package of assets and operating or chartering those vessels if a
majority of the value of the total assets or business acquired is not attributable to
the offshore vessels and related contracts, as determined in good faith by the board of
directors of Teekay Corporation or the conflicts committee of the board of directors of
Teekay LNGs general partner; however, if Teekay Corporation or Teekay LNG completes
such an acquisition, it must, within one year after completing the acquisition, offer to
sell the offshore vessels and related contracts to us for their fair market value plus
any additional tax or other similar costs to Teekay Corporation or Teekay LNG that would
be required to transfer the offshore vessels and contracts to us separately from the
acquired business or package of assets;
 
    
    owning, operating or chartering offshore vessels and related time charters and
contracts of affreightment that relate to a tender, bid or award for a proposed offshore
project that Teekay Corporation or any of its subsidiaries has submitted or hereafter
submits or receives; however, at least one year after the delivery date of any such
offshore vessel, Teekay Corporation must offer to sell the offshore vessel and related
contract to us, with the vessel valued (i) for newbuildings originally contracted by
Teekay Corporation, at its fully-built-up cost (which represents the aggregate
expenditures incurred (or to be incurred prior to delivery to us) by Teekay Corporation
to acquire, construct, and/or convert and bring such offshore vessel to the condition
and location necessary for our intended use, plus project development costs for
completed projects and projects that were not completed but, if completed, would have
been subject to an offer to us pursuant to the omnibus agreement) and (ii) for any other
vessels, Teekay Corporations cost to acquire a newbuilding from a third party or the
fair market value of any existing vessel, as applicable, plus in each case any
subsequent expenditures that would be included in the fully-built-up cost of
converting the vessel prior to delivery to us;
 
    
    acquiring, operating or chartering offshore vessels if our general partner has
previously advised Teekay Corporation or Teekay LNG that the board of directors of our
general partner has elected, with the approval of its conflicts committee, not to cause
us or our subsidiaries to acquire or operate the vessels; or
 
    
    owing a limited partner interest in OPCO or owning shares of Teekay Petrojarl ASA
(Petrojarl).
   
    
    acquiring oil tankers or LNG carriers and any related time charters as part of a
business or package of assets and operating or chartering those vessels, if a majority
of the value of the total assets or business acquired is not attributable to the oil
tankers and LNG carriers and any related charters, as determined by the conflicts
committee of our general partners board of directors; however, if at any time we
complete such an acquisition, we are required to promptly offer to sell to Teekay
Corporation the oil tankers and time charters or to Teekay LNG the LNG carriers and time
charters for fair market value plus any additional tax or other similar costs to us that
would be required to transfer the vessels and contracts to Teekay Corporation or Teekay
LNG separately from the acquired business or package of assets; or
 
    
    acquiring, operating or chartering oil tankers or LNG carriers if Teekay Corporation
or Teekay LNG, respectively, has previously advised our general partner that it has
elected not to acquire or operate those vessels.
 Rights of First Offer on Conventional Tankers, LNG Carriers and Offshore Vessels.
   63




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##### Table of Contents



n)
    
    In January 2007, Teekay Corporation contributed foreign exchange contracts for the
forward purchase of a total of Australian Dollars 4.5 million having a fair value asset of
$0.1 million, net of non-controlling interest, to OPCO for no consideration and was
accounted for as an equity contribution from Teekay Corporation. The foreign exchange
forward contracts matured by December 2007.
 o)
    
    During the year ended December 31, 2007, $1.2 million of interest expense attributable
to the operations of the Navion Bergenwas incurred by Teekay Corporation and has been
allocated to us as part of the results of the Dropdown Predecessor.
 
 Item 8. Financial Information
 The information included in Item 8 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
 A. Consolidated Financial Statements and Other Financial Information
 Consolidated Financial Statements and Notes
  Legal Proceedings
  Cash Distribution Policy
 Rationale for Our Cash Distribution Policy
  Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
  
    
    Our unitholders have no contractual or other legal right to receive distributions other
than the obligation under our partnership agreement to distribute available cash on a
quarterly basis, which is subject to our general partners broad discretion to establish
reserves and other limitations.
 
    
    The Board of Directors of OPCOs general partner, Teekay Offshore Operating GP L.L.C.
(subject to approval by the Board of Directors of our general partner), has authority to
establish reserves for the prudent conduct of OPCOs business. The establishment of these
reserves could result in a reduction in cash distributions.
 
    
    While our partnership agreement requires us to distribute all of our available cash,
our partnership agreement, including provisions requiring us to make cash distributions
contained therein, may be amended. Although during the subordination period (defined in our
partnership agreement), with certain exceptions, our partnership agreement may not be
amended without the approval of non-affiliated common unitholders, our partnership
agreement can be amended with the approval of a majority of the outstanding common units
after the subordination period has ended.
 
    
    Even if our cash distribution policy is not modified or revoked, the amount of
distributions we pay under our cash distribution policy and the decision to make any
distribution is determined by the Board of Directors of our general partner, taking into
consideration the terms of our partnership agreement.
 
    
    Under Section 51 of the Marshall Islands Limited Partnership Act, we may not make a
distribution to unitholders if the distribution would cause our liabilities to exceed the
fair value of our assets.
 
    
    We may lack sufficient cash to pay distributions to our unitholders due to decreases in
net voyage revenues or increases in operating expenses, principal and interest payments on
outstanding debt, tax expenses, working capital requirements, maintenance capital
expenditures or anticipated cash needs.
 
    
    Our distribution policy may be affected by restrictions on distributions under our and
OPCOs credit facility agreements, which contain material financial tests and covenants
that must be satisfied. Should we or OPCO be unable to satisfy these restrictions included
in the credit agreements or if we or OPCO is otherwise in default under the credit
agreements, we or it would be prohibited from making cash distributions, which would
materially hinder our ability to make cash distributions to unitholders, notwithstanding
our stated cash distribution policy.
 
    
    If we make distributions out of capital surplus, as opposed to operating surplus (as
such terms are defined in our partnership agreement), such distributions will constitute a
return of capital and will result in a reduction in the minimum quarterly distribution and
the target distribution levels under our partnership agreement. We do not anticipate that
we will make any distributions from capital surplus.
  64




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##### Table of Contents



Minimum Quarterly Distribution
   Subordination Period
  Incentive Distribution Rights
   Marginal Percentage InterestTotal Quarterly
    
    in DistributionsDistribution Target Amount
    
    Unitholders
    
    
    General PartnerMinimum Quarterly Distribution
    
    $0.35
    
    
    98.0
    %
    
    
    2.0
    %First Target Distribution
    
    Up to $0.4025
    
    
    98.0
    %
    
    
    2.0
    %Second Target Distribution
    
    Above $0.4025 up to $0.4375
    
    
    85.0
    %
    
    
    15.0
    %Third Target Distribution
    
    Above $0.4375 up to $0.525
    
    
    75.0
    %
    
    
    25.0
    %Thereafter
    
    Above $0.525
    
    
    50.0
    %
    
    
    50.0
    %
 B. Significant Changes
  
 Item 9. The Offer and Listing
 The information included in Item 9 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  Dec. 31,
    
    
    Dec. 31,Year Ended
    
    2007
    
    
    2006 (1)High
    
    $
    37.45
    
    
    $
    26.77Low
    
    
    24.04
    
    
    
    21.00
  65




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##### Table of Contents



Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,Quarter Ended
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2006 (1)High
    
    $
    29.38
    
    
    $
    37.45
    
    
    $
    35.40
    
    
    $
    31.66
    
    
    $
    26.77Low
    
    
    24.04
    
    
    
    28.00
    
    
    
    29.79
    
    
    
    26.00
    
    
    
    21.00
 Mar. 31,
    
    
    Feb. 29,
    
    
    Jan. 31,
    
    
    Dec. 31,
    
    
    Nov. 30,
    
    
    Oct.  31,Months Ended
    
    2008
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007High
    
    $
    25.32
    
    
    $
    26.46
    
    
    $
    25.86
    
    
    $
    26.37
    
    
    $
    29.20
    
    
    $
    29.38Low
    
    
    20.71
    
    
    
    22.07
    
    
    
    22.75
    
    
    
    24.41
    
    
    
    24.04
    
    
    
    27.25
 
  
 Item 10. Additional Information
 The information included in Item 10 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
 Memorandum and Articles of Association
  Material Contracts
  a)
    
    Agreement, dated June 26, 2003, for a U.S. $455,000,000 Revolving Credit Facility
between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. This
facility bears interest at LIBOR plus a margin of 0.625%. The amount available under the
facility reduces semi-annually, with a bullet reduction of $131.0 million on maturity in
October 2014. The credit facility may be used for acquisitions and for general partnership
purposes. Our obligations under the facility are secured by first-priority mortgages on
seven shuttle tankers and one FSO unit.
 b)
    
    Agreement, dated October 2, 2006, for a U.S. $940,000,000 Revolving Credit Facility
between Teekay Offshore Operating L.P., Den Norske Bank ASA and various other banks. This
facility bears interest at LIBOR plus a margin of 0.625%. The amount available under the
facility reduces semi-annually, with a bullet reduction of $350.0 million on maturity in
October 2014. The credit facility may be used for acquisitions and for general partnership
purposes. In addition, this facility allows OPCO to make working capital borrowings and
loan the proceeds to us, which we could use to make distributions, provided that such
amounts are paid down annually. Our obligations under the facility are secured by
first-priority mortgages on 11 shuttle tankers and eight conventional tankers.
 c)
    
    Amended and Restated Omnibus Agreement, dated December 19, 2006, among us, our general
partner, Teekay Corporation, Teekay LNG and related parties. Please read Item 7  Major
Unitholders and Related Party Transactions for a summary of certain contract terms.
 d)
    
    We, OPCO and certain of our and its operating subsidiaries have entered into services
agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay
Corporation subsidiaries provide us, OPCO, and our and its operating subsidiaries with
administrative, advisory, technical, strategic consulting services and ship management
services for a reasonable fee that includes reimbursement of their direct and indirect
expenses incurred in providing these services. Please read Item 7  Major Unitholders and
Related Party Transactions for a summary of certain contract terms.
 e)
    
    Contribution, Conveyance and Assumption Agreement. Pursuant to this agreement, prior
to the closing of our initial public offering on December 19, 2006, Teekay Corporation sold
to us a 25.99% limited partner interest in OPCO and its subsidiaries and a 100% interest in
Teekay Offshore Operating GP L.L.C., which owns the 0.01% general partner interest in OPCO,
in exchange for (a) the issuance to Teekay Corporation of 2,800,000 common units and
9,800,000 subordinated units in us and a $134.6 million non-interest bearing promissory
note and (b) the issuance of the 2.0% general partner interest in us and all of our
incentive distribution rights to Teekay Offshore GP L.L.C., a wholly owned subsidiary of
Teekay Corporation.
 f)
    
    Teekay Offshore Partners L.P. 2006 Long-Term Incentive
Plan. Please read Item 6 
Directors, Senior Management and Employees for a summary of certain plan terms.
 Exchange Controls and Other Limitations Affecting Unitholders
    66




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##### Table of Contents



Taxation
  United States Tax Consequences. PFICs
 U.S. Individual Holder
     
    
    the excess distribution or gain will be allocated ratably over the unitholders
holding period;
    
    the amount allocated to the current taxable year and any year prior to the first
year in which we were a PFIC will be taxed as ordinary income in the current year;
    
    the amount allocated to each of the other taxable years in the unitholders
holding period will be subject to U.S. federal income tax at the highest rate in effect
for the applicable class of taxpayer for that year; and
    
    an interest charge for the deemed deferral benefit will be imposed with respect
to the resulting tax attributable to each such other taxable year.
    67




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##### Table of Contents



United States Stockholder CFC
  Marshall Islands
Tax Consequences.
 Canadian Federal
Income Tax Consequences. Canada Tax Act Canada-U.S.
Treaty U.S. Resident Holders
   Documents on Display
 EDGAR www.sec.gov
 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
 With the exception of the description of the accounting treatment of our derivative instruments,
the information included in Item 11 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
 Interest Rate Risk
    68




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##### Table of Contents



Fair ValueExpected Maturity Date
    
    
    
    
    
    
    Asset/(Liability)2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    Total
    
    
    (restated)
    
    
    Rate(1)(in millions of U.S. dollars, except percentages)Long-Term Debt:U.S Dollar- 
denominated (2)
    
    
    64.1
    
    
    
    115.6
    
    
    
    107.0
    
    
    
    164.0
    
    
    
    141.8
    
    
    
    925.0
    
    
    
    1,517.5
    
    
    
    (1,517.5
    )
    
    
    5.7
    %Interest Rate Swaps:Contract Amount (3)
    
    
    17.1
    
    
    
    552.6
    
    
    
    18.1
    
    
    
    18.7
    
    
    
    19.2
    
    
    
    723.7
    
    
    
    1,349.4
    
    
    
    (21.0
    )
    
    
    4.8
    %Average Fixed Pay Rate (2)
    
    
    4.9
    %
    
    
    4.7
    %
    
    
    4.9
    %
    
    
    4.9
    %
    
    
    4.9
    %
    
    
    4.8
    %
    
    
    4.8
    %
 
 (1)
    
    Rate refers to the weighted-average effective interest rate for OPCOs debt, including the
margin paid on our floating-rate debt and the average fixed pay rate for interest rate swaps.
The average fixed pay rate for interest rate swaps excludes the margin paid on the
floating-rate debt, which as of December 31, 2007 ranged from 0.50% to 0.80%.(2)
    
    Interest payments on floating-rate debt and interest rate swaps are based on LIBOR.(3)
    
    The average variable receive rate for interest rate swaps is set quarterly at the 3-month
LIBOR or semi-annually at 6-month LIBOR. Foreign Currency Fluctuation Risk
     
 Item 12. Description of Securities Other than Equity Securities
 The information included in Item 12 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
 The information included in Item 13 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 Item 14. Material Modifications to the Rights of Unitholders and Use of Proceeds
 The information included in Item 14 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
   69




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Item 15. Controls and Procedures
 Restatement of Financial Statements
 a. Derivative Instruments and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities
 
    
    One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based
on our review, we concluded that the prospective hedge effectiveness assessment that was
conducted for certain of our interest rate swap agreements on the date of designation was
not sufficient to conclude that the interest rate swaps would be highly effective, in
accordance with the technical requirements of SFAS No. 133, in achieving offsetting changes
in cash flows attributable to the risk being hedged.
 
    
    To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of our
interest rate swap agreements did not clearly specify the method to be used to measure
hedge ineffectiveness.
 
    
    Certain of our derivative instruments were designated as hedges when the derivative
instruments had a non-zero fair value. However, this designation was not appropriate as we
used certain methods of measuring ineffectiveness that are not allowed in the case of
non-zero fair value derivatives.
  b. Vision Incentive Plan
 Teekay Vision Incentive
Plan or VIP
   
    
    Restated our results for the affected periods to reflect the changes in fair value of
certain derivative transactions as unrealized gains and losses through earnings
 
    
    Discontinued hedge accounting for all derivative transactions to which the restatement
applied; and
 
    
    Restated our accounting for the Vision Incentive Plan as described above.
 Evaluation of Disclosure Controls and Procedures
    70




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Remediation of Material Weaknesses in Internal Controls Over Financial Reporting
  
    
    Not applying hedge accounting to our derivative instruments, other than certain foreign
currency forward contracts; and
 
    
    Implementing a more rigorous process to determine the appropriate accounting treatment
for complex accounting issues such as hedge accounting and non-routine, complex financial
arrangements, including the engagement of appropriately qualified external expertise.
 Managements Annual Report on Internal Control over Financial Reporting (restated)
 1.
    
    Management of our general partner is responsible for establishing and maintaining for
us adequate internal controls over financial reporting.
 2.
    
    Our internal controls were designed to provide reasonable assurance as to the
reliability of our financial reporting and the preparation and presentation of the
consolidated financial statements for external purposes in accordance with accounting
principles generally accepted in the United States. Our internal controls over financial
reporting includes those policies and procedures that 1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; 2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of the financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made in
accordance with authorizations of management and the directors of our general partnership;
and 3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
 3.
    
    We conducted an evaluation of the effectiveness of our internal control over financial
reporting based upon the framework in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included
review of the documentation of controls, evaluation of the design effectiveness of
controls, testing of the operating effectiveness of controls and a conclusion on this
evaluation.
 4.
    
    Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements even when determined to be effective and can only provide
reasonable assurance with respect to financial statement preparation and presentation.
Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.
 5.
    
    Based on the evaluation, management of our general partner believes that the
documentation of controls and the design effectiveness of controls were appropriate.
However, management of our general partner believes that, as of December 31, 2007, the
controls were not operating effectively to ensure that the accounting was appropriate for
non-routine, complex financial arrangements such as the Vision Incentive Plan, and that
hedge documentation requirements were met for certain derivative instruments, in accordance
with generally accepted accounting principles. These control deficiencies resulted in an
amendment of our Annual Report on Form 20-F for the year ended December 31, 2007, in order
to restate the consolidated financial statements for 2005 and 2006. The financial
statements for 2007 were also restated as it relates to hedge documentation requirements
for certain derivative instruments. Accordingly, management of our general partner has
concluded that these control deficiencies constitute material weaknesses.
 6.
    
    In Managements Report on Internal Control Over Financial Reporting included in our
original Annual Report on Form 20-F for the year ended December 31, 2007, management of our
general partner concluded that we maintained effective internal control over financial
reporting as of December 31, 2007. Solely as a result of the material weaknesses described
above, management of our general partner has revised its earlier assessment and has now
concluded that our internal control over financial reporting relating to accounting for
non-routine, complex financial arrangements, and the preparation of hedge documentation was
not effective as of December 31, 2007, based on the criteria in Internal Control -
Integrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Accordingly, management of our general partner has restated its report on
internal control over financial reporting.
 7.
    
    Our independent auditors, Ernst & Young LLP, a registered public accounting firm has
audited the accompanying consolidated financial statements and our internal control over
financial reporting. Their attestation report on the effectiveness of our internal control
over financial reporting can be found on page F-2 of this Form 20-F/A.
 
 Item 16A. Audit Committee Financial Expert
 The information included in Item 16A in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
   71




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Item 16B. Code of Ethics
 The information included in Item 16B in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 Item 16C. Principal Accountant Fees and Services
 The information included in Item 16C in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  Fees
    
    2007
    
    
    2006Audit Fees (1)
    
    $
    429,300
    
    
    $
    575,400Audit-Related Fees (2)
    
    
    8,500
    
    
    
    40,000Tax Fees (3)
    
    
    15,800
    
    
    
    144,300Total
    
    $
    453,600
    
    
    $
    759,700
 
 (1)
    
    Audit fees represent fees for professional services provided in connection with the audit of
our consolidated financial statements, review of our quarterly consolidated financial
statements and audit services provided in connection with other statutory or regulatory
filings, including professional services in connection with the review of our regulatory
filings for our initial public offering of common units in December 2006.(2)
    
    Audit-related fees consisted primarily of accounting consultations.(3)
    
    For 2007 and 2006, respectively, tax fees principally included corporate tax compliance fees
of $15,800 and $39,500. Tax fees in 2006 also included personal and expatriate tax services
fees of $94,800 and international tax planning fees of $10,000.  
 Item 16D. Exemptions from the Listing Standards for Audit Committees
 The information included in Item 16D in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 Item 16E. Purchases of Units by the Issuer and Affiliated Purchasers
 The information included in Item 16E in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
   72




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PART III
 
 Item 17. Financial Statements
 The information included in Item 17 in the Original Filing has not been updated for information or
events occurring after the date of the Original Filing and has not been updated to reflect the
passage of time since the date of the Original Filing.
  
 Item 18. Financial Statements
  PageReport of Independent Registered Public Accounting Firm
    
    
    F-1, F-2Consolidated Financial StatementsConsolidated Statements of Income (Loss) (restated)
    
    
    F-3Consolidated Balance Sheets (restated)
    
    
    F-4Consolidated Statements of Cash Flows (restated)
    
    
    F-5Consolidated Statements of Changes in Partners Equity/Owners Equity (restated)
    
    
    F-6Notes to the Consolidated Financial Statements (restated)
    
    
    F-8
   73




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Item 19. Exhibits
  1.1
    
    
    Certificate of Limited Partnership of Teekay Offshore Partners L.P. (1)1.2
    
    
    First Amended and Restated Agreement of Limited Partnership of Teekay Offshore Partners L.P. (2)1.3
    
    
    Certificate of Formation of Teekay Offshore GP L.L.C. (1)1.4
    
    
    Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C. (1)1.5
    
    
    Certificate of Limited Partnership of Teekay Offshore Operating L.P. (1)1.6
    
    
    Amended and
Restated Agreement of Limited Partnership of Teekay Offshore Operating
Partners L.P. (1)1.7
    
    
    Certificate of Formation of Teekay Offshore Operating GP L.L.C. (1)1.8
    
    
    Amended
and Restated Limited Liability Company Agreement of Teekay Offshore Operating
GP L.L.C. (1)4.1
    
    
    Agreement, dated June 26, 2003, for a U.S $455,000,000 Revolving Credit Facility between Norsk Teekay
Holdings Ltd., Den Norske Bank ASA and various other banks (1)4.2
    
    
    Agreement, dated October 2, 2006, for a U.S $940,000,000 Revolving Credit Facility between Teekay
Offshore Operating L.P., Den Norske Bank ASA and various other banks (1)4.3
    
    
    Contribution, Conveyance and Assumption Agreement (1)4.4
    
    
    Teekay Offshore Partners L.P. 2006 Long-Term Incentive Plan (1)4.5
    
    
    Amended and Restated Omnibus Agreement (1)4.6
    
    
    Administrative
Services Agreement between Teekay Offshore Operating Partners L.P.
and Teekay Limited (3)4.7
    
    
    Advisory, Technical and Administrative Services Agreement (3)4.8
    
    
    Administrative Services Agreement between Teekay Offshore Partners L.P. and Teekay Limited (3)8.1
    
    
    List of Subsidiaries of Teekay Offshore Partners L.P.12.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Teekay Offshore Partners L.P.s Chief Executive Officer12.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Teekay Offshore Partners L.P.s Chief Financial Officer13.1
    
    
    Teekay Offshore Partners L.P. Certification of Peter Evensen, Chief Executive Officer and Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.15.1
    
    
    Consent of Ernst & Young LLP, as independent registered public accounting firm.15.2
    
    
    Consolidated Balance Sheet of Teekay Offshore GP L.L.C. (restated)
 (1)
    
    Previously filed as an exhibit to the Partnerships Registration Statement on Form F-1 (File
No. 333-139116), filed with the SEC on December 4, 2006, and hereby incorporated by reference
to such Registration Statement.(2)
    
    Previously filed as Appendix A to the Partnerships Rule 424(b)(4) Prospectus filed with the
SEC on December 14, 2006, and hereby incorporated by reference to such Prospectus.(3)
    
    Previously filed as an exhibit to the Partnerships Amendment No. 1 to Registration Statement
on Form F-1 (File No. 333-139116), filed with the SEC on December 8, 2006, and hereby
incorporated by reference to such Registration Statement.  74




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SIGNATURE
  TEEKAY OFFSHORE PARTNERS L.P.By:
    Teekay Offshore GP L.L.C., its general partnerDated: April 2, 2009
    By:
    /s/ Peter EvensenPeter EvensenChief Executive Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)  75




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Teekay Offshore Partners L.P. and subsidiaries Partnership
 Year Ended December 31, 2007
 o January 1 to December 31, 2007
 Year Ended December 31, 2006
 o January 1 to December 18, 2006o December 19 to December 31, 2006
 Year Ended December 31, 2005
 o January 1 to December 31, 2005
     Share-Based Payment.
 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109
  Vancouver, Canada
    
    /s/ Ernst & Young LLPMarch 12,
2008,
    
    Chartered
Accountantsexcept for Notes 18 and 19, as to which thedate is April 2, 2009.
  F - 1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Partnerships COSO criteria
       Vancouver, Canada
    
    /s/ Ernst & Young LLPMarch 12, 2008,
    
    Chartered Accountantsexcept for paragraphs 5 through 7 of Managements
Annual Report on
Internal Control over Financial
Reporting (as restated), as to which the date is
April 2, 2009.
  F - 2




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TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
 
 CONSOLIDATED STATEMENTS OF INCOME (LOSS)
 (in thousands of U.S. dollars, except unit and per unit data)
 Restated 
Note 18January 1
    
    
    December 19Year Ended
    
    
    to
    
    
    to
    
    
    Year EndedDecember 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $
    
    
    $VOYAGE REVENUES($154,605, $74,651 and $60,109 for 2007, 2006 and 2005,
respectively, from related parties  notes 10c, 10h, 10i, 10j, 10k, and
10l)
    
    
    785,203
    
    
    
    617,514
    
    
    
    24,397
    
    
    
    613,246OPERATING EXPENSESVoyage expenses
    
    
    151,637
    
    
    
    91,321
    
    
    
    3,102
    
    
    
    74,543Vessel operating expenses (note 11)
    
    
    149,660
    
    
    
    107,991
    
    
    
    4,297
    
    
    
    109,480Time-charter hire expense
    
    
    150,463
    
    
    
    159,973
    
    
    
    5,641
    
    
    
    169,687Depreciation and amortization
    
    
    124,370
    
    
    
    100,823
    
    
    
    3,726
    
    
    
    109,824General and administrative (note 11, and $55,543, $28,102 and $21,720
for 2007, 2006 and 2005, respectively, from related parties  notes
10m, 10n, 10o, and 10p)
    
    
    62,404
    
    
    
    63,014
    
    
    
    2,177
    
    
    
    56,726Gain on sale of vessels and equipment  net of writedowns (note 15)
    
    
    
    
    
    
    (4,778
    )
    
    
    
    
    
    
    2,820Restructuring charge (note 9)
    
    
    
    
    
    
    832
    
    
    
    
    
    
    
    955Total operating expenses
    
    
    638,534
    
    
    
    519,176
    
    
    
    18,943
    
    
    
    524,035Income from vessel operations
    
    
    146,669
    
    
    
    98,338
    
    
    
    5,454
    
    
    
    89,211OTHER ITEMSInterest expense (note 6, note 11, and $1,236, $27,056 and $14,772 for
2007, 2006 and 2005, respectively, from related parties  notes 10f,
10g and 10x)
    
    
    (126,304
    )
    
    
    (64,462
    )
    
    
    (1,617
    )
    
    
    (39,983
    )Interest income
    
    
    5,871
    
    
    
    5,167
    
    
    
    191
    
    
    
    4,612Equity income from joint ventures (note 11)
    
    
    
    
    
    
    6,321
    
    
    
    
    
    
    
    5,955Foreign currency exchange (loss) gain (note 11)
    
    
    (11,678
    )
    
    
    (66,214
    )
    
    
    (118
    )
    
    
    34,228Income tax recovery (expense) (note 12)
    
    
    10,516
    
    
    
    (3,260
    )
    
    
    (121
    )
    
    
    12,375Other income  net (note 9)
    
    
    10,403
    
    
    
    8,367
    
    
    
    309
    
    
    
    9,091Total other items
    
    
    (111,192
    )
    
    
    (114,081
    )
    
    
    (1,356
    )
    
    
    26,278Income (loss) from continuing operations before non-controlling interest
    
    
    35,477
    
    
    
    (15,743
    )
    
    
    4,098
    
    
    
    115,489Non-controlling interest
    
    
    (31,519
    )
    
    
    (3,893
    )
    
    
    (2,636
    )
    
    
    (229
    )Net income (loss) from continuing operations
    
    
    3,958
    
    
    
    (19,636
    )
    
    
    1,462
    
    
    
    115,260Net loss from discontinued operations (note 19)
    
    
    
    
    
    
    (10,656
    )
    
    
    
    
    
    
    (19,347
    )Net Income (loss)
    
    
    3,958
    
    
    
    (30,292
    )
    
    
    1,462
    
    
    
    95,913Dropdown predecessors interest in net income (note 1)
    
    
    1,300
    
    
    
    3,097
    
    
    
    114
    
    
    
    2,910General partners interest in net income
    
    
    733
    
    
    
    
    
    
    
    64
    
    
    
    Limited partners interest: (note 16)Net income (loss) from continuing operations
    
    
    1,925
    
    
    
    (22,733
    )
    
    
    1,284
    
    
    
    112,350Net income (loss) from continuing operations per:- Common unit (basic and diluted)
    
    
    0.12
    
    
    
    (1.80
    )
    
    
    0.07
    
    
    
    8.92- Subordinated unit (basic and diluted)
    
    
    0.07
    
    
    
    (1.80
    )
    
    
    0.06
    
    
    
    8.92- Total unit (basic and diluted)
    
    
    0.10
    
    
    
    (1.80
    )
    
    
    0.07
    
    
    
    8.92Net loss from discontinued operations
    
    
    
    
    
    
    (10,656
    )
    
    
    
    
    
    
    (19,347
    )Net income (loss) from discontinued operations per:- Common unit (basic and diluted)
    
    
    
    
    
    
    (0.85
    )
    
    
    
    
    
    
    (1.54
    )- Subordinated unit (basic and diluted)
    
    
    
    
    
    
    (0.85
    )
    
    
    
    
    
    
    (1.54
    )- Total unit (basic and diluted)
    
    
    
    
    
    
    (0.85
    )
    
    
    
    
    
    
    (1.54
    )Net income (loss)
    
    
    1,925
    
    
    
    (33,389
    )
    
    
    1,284
    
    
    
    93,003Net income (loss) per:- Common unit (basic and diluted)
    
    
    0.12
    
    
    
    (2.65
    )
    
    
    0.07
    
    
    
    7.38- Subordinated unit (basic and diluted)
    
    
    0.07
    
    
    
    (2.65
    )
    
    
    0.06
    
    
    
    7.38- Total unit (basic and diluted)
    
    
    0.10
    
    
    
    (2.65
    )
    
    
    0.07
    
    
    
    7.38Weighted average number of units outstanding:- Common units (basic and diluted)
    
    
    9,800,000
    
    
    
    2,800,000
    
    
    
    9,800,000
    
    
    
    2,800,000- Subordinated units (basic and diluted)
    
    
    9,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000
    
    
    
    9,800,000- Total units (basic and diluted)
    
    
    19,600,000
    
    
    
    12,600,000
    
    
    
    19,600,000
    
    
    
    12,600,000Cash distributions declared per unit
    
    
    1.14
    
    
    
    
    
    
    
    
    
    
    
    
 The accompanying notes are an integral part of the consolidated financial statements.
  F - 3




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TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands of U.S. dollars)
 Restated  Note 18As at
    
    
    As atDecember 31,
    
    
    December 31,2007
    
    
    2006$
    
    
    $ASSETSCurrentCash and cash equivalents (note 6)
    
    
    121,224
    
    
    
    113,986Accounts receivable, net of allowance for doubtful accounts of $nil (December 31, 2006
 $401)
    
    
    42,245
    
    
    
    25,826Due from affiliate (notes 10u and 10v)
    
    
    796
    
    
    
    30,757Net investment in direct financing leases  current
    
    
    22,268
    
    
    
    21,764Prepaid expenses
    
    
    34,219
    
    
    
    24,608Other current assets
    
    
    7,644
    
    
    
    7,786Total current assets
    
    
    228,396
    
    
    
    224,727Vessels and equipment(note 6)At cost, less accumulated depreciation of $694,258 (December 31, 2006
 $585,146)
    
    
    1,662,865
    
    
    
    1,532,743Net investment in direct financing leases
    
    
    78,199
    
    
    
    92,018Other assets
    
    
    14,423
    
    
    
    38,198Intangible assets  net (note 4)
    
    
    55,355
    
    
    
    66,425Goodwill  shuttle tanker segment
    
    
    127,113
    
    
    
    127,113Total assets
    
    
    2,166,351
    
    
    
    2,081,224LIABILITIES AND PARTNERS EQUITYCurrentAccounts payable
    
    
    12,076
    
    
    
    7,459Accrued liabilities (note 5)
    
    
    38,464
    
    
    
    45,633Current portion of long-term debt (note 6)
    
    
    64,060
    
    
    
    17,656Total current liabilities
    
    
    114,600
    
    
    
    70,748Long-term debt (note 6)
    
    
    1,453,407
    
    
    
    1,285,696Deferred income taxes (note 12)
    
    
    77,306
    
    
    
    73,906Other long-term liabilities (note 11)
    
    
    51,024
    
    
    
    32,163Total liabilities
    
    
    1,696,337
    
    
    
    1,462,513Commitments and contingencies (notes 7, 10 and 13)Non-controlling interest
    
    
    392,613
    
    
    
    427,977Dropdown Predecessors equity(note 1)
    
    
    
    
    
    
    51,792Partners equityPartners equity
    
    
    77,108
    
    
    
    138,942Accumulated other comprehensive income
    
    
    293
    
    
    
    Total partners equity
    
    
    77,401
    
    
    
    190,734Total liabilities and partners equity
    
    
    2,166,351
    
    
    
    2,081,224
 The accompanying notes are an integral part of the consolidated financial statements.
  F - 4




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TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands of U.S. dollars)
 Restated
 Note 18Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $Cash and cash equivalents provided by (used for)OPERATING ACTIVITIESNet income (loss)
    
    
    3,958
    
    
    
    (28,830
    )
    
    
    95,913Non-cash items:Unrealized loss (gain) on derivative instruments (note 11)
    
    
    45,957
    
    
    
    (3,346
    )
    
    
    Depreciation and amortization
    
    
    124,370
    
    
    
    104,549
    
    
    
    110,290Non-controlling interest
    
    
    31,519
    
    
    
    6,529
    
    
    
    229Gain on sale of vessels
    
    
    
    
    
    
    (6,928
    )
    
    
    (9,423
    )Loss on writedown of vessels and equipment
    
    
    
    
    
    
    2,150
    
    
    
    12,243Equity income (net of dividends received: December 31, 2006  $6,002; December
31, 2005  $2,750)
    
    
    
    
    
    
    (319
    )
    
    
    (3,205
    )Deferred income tax (recovery) expense
    
    
    (10,516
    )
    
    
    425
    
    
    
    (16,214
    )Foreign currency exchange loss (gain) and other
    
    
    11,425
    
    
    
    72,438
    
    
    
    (39,967
    )Change in non-cash working capital items related to operating activities (note 14)
    
    
    (33,706
    )
    
    
    51,039
    
    
    
    19,039Distribution from subsidiaries to minority owners
    
    
    (78,107
    )
    
    
    (4,224
    )
    
    
    (9,618
    )Expenditures for drydocking
    
    
    (49,053
    )
    
    
    (31,255
    )
    
    
    (8,906
    )Net operating cash flow
    
    
    45,847
    
    
    
    162,228
    
    
    
    150,381FINANCING ACTIVITIESProceeds from issuance of long-term debt
    
    
    298,443
    
    
    
    1,290,750
    
    
    
    1,226,804Capitalized loan costs
    
    
    
    
    
    
    (6,178
    )
    
    
    (639
    )Scheduled repayments of long-term debt
    
    
    (17,328
    )
    
    
    (119,900
    )
    
    
    (39,884
    )Prepayments of long-term debt
    
    
    (152,000
    )
    
    
    (493,527
    )
    
    
    (1,382,140
    )Repayments of capital lease obligations
    
    
    
    
    
    
    (34,245
    )
    
    
    (1,248
    )Proceeds from issuance of common units
    
    
    
    
    
    
    157,963
    
    
    
    Expenses from issuance of common units
    
    
    (2,793
    )
    
    
    
    
    
    
    Net advances to affiliates
    
    
    (42,935
    )
    
    
    (793,488
    )
    
    
    (10,999
    )Equity distribution from (to) Teekay Corporation
    
    
    1,819
    
    
    
    (230,886
    )
    
    
    858Investment in subsidiaries from non-controlling interest owners
    
    
    
    
    
    
    
    
    
    
    8,000Excess of purchase price over the contributed basis of a 50% interest in Navion
Gothenburg LLC (note 10r)
    
    
    (6,358
    )Distribution to Teekay Corporation relating to purchase of Navion Bergen LLC
(note 10r)
    
    
    (48,800
    )
    
    
    
    
    
    
    Distribution to Teekay Corporation relating to purchase of Dampier LLC
(note 10s)
    
    
    (30,253
    )
    
    
    
    
    
    
    Cash distributions paid
    
    
    (22,700
    )
    
    
    
    
    
    
    Other
    
    
    (1,000
    )
    
    
    (727
    )
    
    
    Net financing cash flow
    
    
    (23,905
    )
    
    
    (230,238
    )
    
    
    (199,248
    )INVESTING ACTIVITIESExpenditures for vessels and equipment
    
    
    (20,997
    )
    
    
    (31,079
    )
    
    
    (24,760
    )Proceeds from sale of vessels and equipment
    
    
    3,225
    
    
    
    61,713
    
    
    
    73,220Purchase of a 50% interest in Navion Gothenburg LLC (note 10r)
    
    
    (10,231
    )
    
    
    
    
    
    
    Investment in direct financing lease assets
    
    
    (8,378
    )
    
    
    (13,256
    )
    
    
    (23,708
    )Direct financing lease payments received
    
    
    21,677
    
    
    
    19,323
    
    
    
    12,440Cash assumed upon consolidation of 50%-owned subsidiaries
    
    
    
    
    
    
    17,055
    
    
    
    Other
    
    
    
    
    
    
    (746
    )
    
    
    (3,068
    )Net investing cash flow
    
    
    (14,704
    )
    
    
    53,010
    
    
    
    34,124Increase (decrease) in cash and cash equivalents
    
    
    7,238
    
    
    
    (15,000
    )
    
    
    (14,743
    )Adjustment for net change in cash and cash equivalents in discontinued operations
    
    
    
    
    
    
    2,456
    
    
    
    10,970Cash and cash equivalents, beginning of the year
    
    
    113,986
    
    
    
    126,530
    
    
    
    130,303Cash and cash equivalents, end of the year
    
    
    121,224
    
    
    
    113,986
    
    
    
    126,530
 (note 14)
The accompanying notes are an integral part of the consolidated financial statements.
  F - 5




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
 
 CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS EQUITY/OWNERS EQUITY
 (in thousands of U.S. dollars and units)
 Restated 
Note 18OWNERS EQUITY (PREDECESSORAND DROPDOWN PREDECESSOR)AccumulatedOtherComprehensive
    
    
    Total OwnersOwners Equity
    
    
    Income (Loss)
    
    
    Equity$
    
    
    $
    
    
    $Balance as at December 31, 2004
    
    
    703,170
    
    
    
    58
    
    
    
    703,228Net income
    
    
    95,913
    
    
    
    
    
    
    
    95,913Other comprehensive income:Realized gain on marketable securities
    
    
    
    
    
    
    (58
    )
    
    
    (58
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    95,855Net change in parents equity in Dropdown Predecessor
    
    
    858
    
    
    
    
    
    
    
    858Norwegian group tax contributions (note 10a)
    
    
    (1,185
    )
    
    
    
    
    
    
    (1,185
    )Loss on sale of Dania Spirit(note 10b)
    
    
    (3,093
    )
    
    
    
    
    
    
    (3,093
    )Balance as at December 31, 2005
    
    
    795,663
    
    
    
    
    
    
    
    795,663Net loss and comprehensive loss (January 1 to December 18, 2006)
    
    
    (30,292
    )
    
    
    
    
    
    
    (30,292
    )Net change in parents equity in Dropdown Predecessor
    
    
    798
    
    
    
    
    
    
    
    798Gain on sale of Navion Shipping Ltd. to Teekay Corporation (notes 10c and 19)
    
    
    18,468
    
    
    
    
    
    
    
    18,468Gain on sale of Norwegian subsidiaries to Teekay Corporation (note 10e)
    
    
    23,260
    
    
    
    
    
    
    
    23,260Loss on sale of the Borgato Teekay Corporation (note 10d)
    
    
    (11,900
    )
    
    
    
    
    
    
    (11,900
    )Stock compensation expense (note 1)
    
    
    1,048
    
    
    
    
    
    
    
    1,048Excess purchase price over the contributed basis of Teekay Offshore Partners
Predecessor (note 1)
    
    
    (231,684
    )
    
    
    
    
    
    
    (231,684
    )Purchase of a 26% interest in Teekay Offshore Operating L.P. from Teekay
Corporation (note 1)
    
    
    (134,629
    )
    
    
    
    
    
    
    (134,629
    )Reclassification adjustment for Teekay Corporations 74% non-controlling
interest in Teekay Offshore Operating L.P. (note 1)
    
    
    (376,089
    )
    
    
    
    
    
    
    (376,089
    )Balance as at December 18, 2006
    
    
    54,643
    
    
    
    
    
    
    
    54,643
 The accompanying notes are an integral part of the consolidated financial statements.
  F - 6




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)
(Successor to Teekay Offshore Partners Predecessor)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS EQUITY/OWNERS EQUITY
(in thousands of U.S. dollars and units)
 Restated  Note 18OwnersEquity(Predecessor
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulatedand
    
    
    PARTNERS EQUITY
    
    
    OtherDropdown
    
    
    Limited Partners
    
    
    General
    
    
    ComprehensivePredecessor)
    
    
    Common
    
    
    Subordinated
    
    
    Partner
    
    
    Income
    
    
    Total$
    
    
    Units
    
    
    $
    
    
    Units
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance as at December 18, 2006
    
    
    54,643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,643Allocation of Predecessor and
Dropdown Predecessors equity to
unitholders (note 1)
    
    
    (2,965
    )
    
    
    2,800
    
    
    
    634
    
    
    
    9,800
    
    
    
    2,220
    
    
    
    111
    
    
    
    
    
    
    
    Proceeds from initial public
offering of
limited partnership interests,
net of offering costs of
$13,788 (note 2)
    
    
    
    
    
    
    8,050
    
    
    
    155,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155,262Redemption of common units from
Teekay Corporation (note 2)
    
    
    
    
    
    
    (1,050
    )
    
    
    (20,633
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,633
    )Net income (December 19  31, 2006)
    
    
    114
    
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    606
    
    
    
    64
    
    
    
    
    
    
    
    1,462Balance as at December 31, 2006
    
    
    51,792
    
    
    
    9,800
    
    
    
    135,941
    
    
    
    9,800
    
    
    
    2,826
    
    
    
    175
    
    
    
    
    
    
    
    190,734Net income (January 1  December 31,
2007)
    
    
    1,300
    
    
    
    
    
    
    
    1,225
    
    
    
    
    
    
    
    700
    
    
    
    733
    
    
    
    
    
    
    
    3,958Other comprehensive income:Unrealized net gain on qualifying
cash flow hedging instruments
(note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    281Realized net loss on qualifying
cash flow hedging instruments
(note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,251Contribution of foreign exchange
forward contracts from Teekay
Corporation (note 10w)
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    89
    
    
    
    4
    
    
    
    
    
    
    
    109Offering costs from public offering
of limited partnership interests
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )Net change in parents equity in
Dropdown Predecessor (note 14e)
    
    
    (6,939
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,939
    )Purchase of Navion Bergen LLC and
Navion Gothenburg LLC from Teekay
Corporation (note 10r)
    
    
    (29,756
    )
    
    
    
    
    
    
    (3,720
    )
    
    
    
    
    
    
    (20,832
    )
    
    
    (850
    )
    
    
    
    
    
    
    (55,158
    )Purchase of Dampier Spirit LLC from
Teekay Corporation (note 10s)
    
    
    (16,397
    )
    
    
    
    
    
    
    (2,029
    )
    
    
    
    
    
    
    (11,363
    )
    
    
    (464
    )
    
    
    
    
    
    
    (30,253
    )Contribution of interest rate swap
agreement from Teekay Corporation
(note 10t)
    
    
    
    
    
    
    
    
    
    
    (373
    )
    
    
    
    
    
    
    (2,092
    )
    
    
    (85
    )
    
    
    
    
    
    
    (2,550
    )Cash distributions
    
    
    
    
    
    
    
    
    
    
    (11,123
    )
    
    
    
    
    
    
    (11,123
    )
    
    
    (454
    )
    
    
    
    
    
    
    (22,700
    )Balance as at December 31, 2007
    
    
    
    
    
    
    9,800
    
    
    
    119,844
    
    
    
    9,800
    
    
    
    (41,795
    )
    
    
    (941
    )
    
    
    293
    
    
    
    77,401
 The accompanying notes
are an integral part of the consolidated financial statements.
  F - 7




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 1.
    
    Summary of Significant Accounting Policies
 Basis of presentation
 Partnership OPCO
 Norsk Teekay FSO Teekay Offshore Partners Predecessor Predecessor the General Partner
  Navion Bergen Navion Gothenburg Dampier Spirit Dropdown Predecessor Navion Bergen Navion Gothenburg Dampier Spirit
   F - 8




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)  (Contd)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 GAAP
   Reporting currency
  Operating revenues and expenses
   Cash and cash equivalents
  Accounts receivable and allowance for doubtful accounts
  Vessels and equipment
   F - 9




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##### Table of Contents



TEEKAY
OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
    Direct financing leases
 VOC equipment
 Investment in joint ventures
  Debt issuance costs
  Goodwill and intangible assets
   Derivative instruments
    F - 10




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  SFAS Accounting for Derivative
Instruments and Hedging Activities
  Income taxes
 Accounting for Income Taxes SFAS 109
 FASB Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 FIN 48
   Accounting for stock-based compensation
 Share-Based Payment SFAS 123(R)
 Accounting for Stock-Based
Compensation.
    F - 11




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 Recent Accounting Pronouncements
 EITF Application of the Two-Class Method under FASB Statement No.
128, Earnings per Share to Master Limited Partnerships EITF Issue No. 07-4
 Business Combinations SFAS 141(R , Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements, an Amendment of Accounting Research Bulletin No. 51 SFAS 160
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115 SFAS 159
 Fair Value Measurements SFAS 157
 2.
    
    Initial Public Offering
 Offering
 Proceeds received:Sale of 8,050,000 common units at $21.00 per unit
    
    $
    169,050Use of proceeds from sale of common units:Underwriting and structuring fees
    
    $
    11,088Professional fees and other offering expenses to third parties
    
    
    2,793Repayment of promissory notes and redemption of 1.05 million
common units from Teekay Corporation
    
    
    155,169$
    169,050
  F - 12




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 3.
    
    Segment Reporting
    Year Ended December 31, 2006January 1
    
    
    December 19Year Ended
    
    
    to
    
    
    to
    
    
    Year EndedDecember 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005(U.S. dollars in millions)
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)StatoilHydro ASA (1) (2)
    
    $309.6 or 39
    %
    
    $187.6 or 30
    %
    
    $6.9 or 28
    %
    
    $184.7 or 30
    %Teekay Corporation (3)
    
    $154.6 or 20
    %
    
    $68.9 or 11
    %
    
    $5.3 or 22
    %
    
    
    Petrobras Transporte S.A (1) (2)
    
    $100.8 or 13
    %
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Shuttle tanker segment.(2)
    
    Statoil ASA and Petrobras Transporte S.A. are international oil companies.(3)
    
    Shuttle tanker, conventional tanker and FSO segments.  Year Ended December 31, 2007Shuttle
    
    
    ConventionalTanker
    
    
    Tanker
    
    
    FSOSegment
    
    
    Segment
    
    
    Segment
    
    
    Total$
    
    
    $
    
    
    $
    
    
    $(restated)
    
    
    
    
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    590,611
    
    
    
    135,922
    
    
    
    58,670
    
    
    
    785,203Voyage expenses
    
    
    114,157
    
    
    
    36,594
    
    
    
    886
    
    
    
    151,637Vessel operating expenses
    
    
    103,809
    
    
    
    24,175
    
    
    
    21,676
    
    
    
    149,660Time charter hire expense
    
    
    150,463
    
    
    
    
    
    
    
    
    
    
    
    150,463Depreciation and amortization
    
    
    86,502
    
    
    
    21,324
    
    
    
    16,544
    
    
    
    124,370General and administrative(1)
    
    
    50,776
    
    
    
    7,828
    
    
    
    3,800
    
    
    
    62,404Income from vessel operations
    
    
    84,904
    
    
    
    46,001
    
    
    
    15,764
    
    
    
    146,669Expenditures for vessels and equipment(2)
    
    
    18,189
    
    
    
    1,998
    
    
    
    11,041
    
    
    
    31,228
  F - 13




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 Year Ended December 31, 2006January 1 to December 18, 2006
    
    
    December 19 to December 31, 2006Shuttle
    
    
    Conventional
    
    
    
    
    
    
    
    
    
    
    Shuttle
    
    
    ConventionalTanker
    
    
    Tanker
    
    
    FSO
    
    
    
    
    
    
    Tanker
    
    
    Tanker
    
    
    FSOSegment
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    Total$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    
    
    
    
    
    
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    516,187
    
    
    
    66,673
    
    
    
    34,654
    
    
    
    617,514
    
    
    
    19,785
    
    
    
    3,383
    
    
    
    1,229
    
    
    
    24,397Voyage expenses
    
    
    85,451
    
    
    
    4,841
    
    
    
    1,029
    
    
    
    91,321
    
    
    
    2,995
    
    
    
    51
    
    
    
    56
    
    
    
    3,102Vessel operating expenses
    
    
    77,085
    
    
    
    18,754
    
    
    
    12,152
    
    
    
    107,991
    
    
    
    3,222
    
    
    
    624
    
    
    
    451
    
    
    
    4,297Time charter hire expense
    
    
    159,973
    
    
    
    
    
    
    
    
    
    
    
    159,973
    
    
    
    5,641
    
    
    
    
    
    
    
    
    
    
    
    5,641Depreciation and amortization
    
    
    68,784
    
    
    
    20,507
    
    
    
    11,532
    
    
    
    100,823
    
    
    
    2,583
    
    
    
    705
    
    
    
    438
    
    
    
    3,726General and
administrative(1)
    
    
    48,490
    
    
    
    11,571
    
    
    
    2,953
    
    
    
    63,014
    
    
    
    1,863
    
    
    
    218
    
    
    
    96
    
    
    
    2,177Gain on sale of vessels and equipment
 net of writedowns
    
    
    (4,778
    )
    
    
    
    
    
    
    
    
    
    
    (4,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring charge
    
    
    
    
    
    
    832
    
    
    
    
    
    
    
    832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from vessel operations
    
    
    81,182
    
    
    
    10,168
    
    
    
    6,988
    
    
    
    98,338
    
    
    
    3,481
    
    
    
    1,785
    
    
    
    188
    
    
    
    5,454Equity income from joint ventures
    
    
    6,321
    
    
    
    
    
    
    
    
    
    
    
    6,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expenditures for vessels and
equipment(2)
    
    
    25,055
    
    
    
    6,024
    
    
    
    
    
    
    
    31,079
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Year Ended December 31, 2005ConventionalShuttle Tanker
    
    
    Tanker
    
    
    FSOSegment
    
    
    Segment
    
    
    Segment
    
    
    Total$
    
    
    $
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Voyage revenues
    
    
    516,758
    
    
    
    57,454
    
    
    
    39,034
    
    
    
    613,246Voyage expenses
    
    
    68,308
    
    
    
    5,419
    
    
    
    816
    
    
    
    74,543Vessel operating expenses
    
    
    75,196
    
    
    
    21,574
    
    
    
    12,710
    
    
    
    109,480Time charter hire expense
    
    
    169,687
    
    
    
    
    
    
    
    
    
    
    
    169,687Depreciation and amortization
    
    
    77,083
    
    
    
    20,646
    
    
    
    12,095
    
    
    
    109,824General and administrative(1)
    
    
    44,063
    
    
    
    9,634
    
    
    
    3,029
    
    
    
    56,726Gain on sale of
vessels and equipment  net of writedowns
    
    
    2,820
    
    
    
    
    
    
    
    
    
    
    
    2,820Restructuring charge
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    955Income (loss) from vessel operations
    
    
    78,646
    
    
    
    181
    
    
    
    10,384
    
    
    
    89,211Equity income (loss) from joint ventures
    
    
    5,991
    
    
    
    (36
    )
    
    
    
    
    
    
    5,955Investments in joint ventures
    
    
    34,663
    
    
    
    495
    
    
    
    
    
    
    
    35,158Expenditures for vessels and equipment(2)
    
    
    22,760
    
    
    
    2,000
    
    
    
    
    
    
    
    24,760
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated use of corporate
resources).(2)
    
    Excludes non-cash investing activities (see Note 14).  F - 14




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  2007
    
    
    2006$
    
    
    $(restated)Shuttle tanker segment
    
    
    1,559,261
    
    
    
    1,445,830Conventional tanker segment
    
    
    255,460
    
    
    
    310,699FSO segment
    
    
    131,080
    
    
    
    83,534Cash and cash equivalents
    
    
    121,224
    
    
    
    113,986Accounts receivable and other assets
    
    
    99,326
    
    
    
    127,175Consolidated total assets
    
    
    2,166,351
    
    
    
    2,081,224
 4.
    
    Intangible Assets
  Weighted-
    
    
    December 31, 2007
    
    
    December 31, 2006Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    GrossAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(years)
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Contracts of affreightment
    
    
    10.2
    
    
    
    124,250
    
    
    
    (68,895
    )
    
    
    55,355
    
    
    
    124,250
    
    
    
    (57,825
    )
    
    
    66,425
  5.
    
    Accrued Liabilities
 December 31,
    
    
    December 31,2007
    
    
    2006$
    
    
    $(restated)Voyage and vessel
    
    
    26,015
    
    
    
    32,471Interest
    
    
    10,932
    
    
    
    6,717Payroll and benefits
    
    
    1,517
    
    
    
    6,44538,464
    
    
    
    45,633
 6.
    
    Long-Term Debt
 December 31, 2007
    
    
    December 31, 2006$
    
    
    $U.S. Dollar-denominated Revolving Credit Facilities due through 2017
    
    
    1,205,808
    
    
    
    1,080,000U.S. Dollar-denominated Term Loans due through 2017
    
    
    311,659
    
    
    
    223,3521,517,467
    
    
    
    1,303,352Less current portion
    
    
    64,060
    
    
    
    17,656Total
    
    
    1,453,407
    
    
    
    1,285,696
 Revolvers
  F - 15




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
    7.
    
    Leases
 Charters-out and Direct Financing Lease
    Charters-in
  8.
    
    Fair Value of Financial Instruments
  Cash and cash equivalents
 Derivative instruments
  December 31, 2007
    
    
    December 31, 2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value$
    
    
    $
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Cash and cash equivalents
    
    
    121,224
    
    
    
    121,224
    
    
    
    113,986
    
    
    
    113,986Advances to affiliate (note 10v)
    
    
    796
    
    
    
    796
    
    
    
    30,757
    
    
    
    30,757Long-term debt
    
    
    (1,517,467
    )
    
    
    (1,517,467
    )
    
    
    (1,303,352
    )
    
    
    (1,303,352
    )Derivative instruments(1)(note 11)Interest rate swap agreements
    
    
    (21,050
    )
    
    
    (21,050
    )
    
    
    22,440
    
    
    
    22,440Foreign currency forward contracts
    
    
    1,122
    
    
    
    1,122
    
    
    
    
    
    
    
    
 
 (1)
    
    The Partnership transacts all of its derivative instruments through investment-grade
rated financial institutions at the time of the transaction and requires no collateral from
these institutions.
  F - 16




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 9.
    
    Restructuring Charge and Other Income  Net
 Year Ended December 31, 2006January 1
    
    
    December 19Year Ended
    
    
    to
    
    
    to
    
    
    Year EndedDecember 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $
    
    
    $(restated)Volatile organic
compound emissions
plant lease income
    
    
    10,960
    
    
    
    11,037
    
    
    
    408
    
    
    
    11,001Miscellaneous
    
    
    (557
    )
    
    
    (2,670
    )
    
    
    (99
    )
    
    
    (1,910
    )Other income  net
    
    
    10,403
    
    
    
    8,367
    
    
    
    309
    
    
    
    9,091
  10.
    
    Related Party Transactions
 a.
    
    During 2005, rate-effected income tax losses of $1.2 million that were generated by the
Predecessors Norwegian subsidiaries were transferred to the Norwegian subsidiaries of
Teekay Corporation. The transfer of these income tax losses was accounted for as an equity
distribution.
 b.
    
    During 2005, the Predecessor sold the Dania Spirit,a 2000-built liquid petroleum gas
carrier, to a subsidiary of Teekay Corporation for $18.0 million. The resulting
$3.1 million loss on sale has been accounted for as an equity distribution to Teekay
Corporation.
 c.
    
    On July 1, 2006, the Predecessor sold Navion Shipping Ltd. to a subsidiary of Teekay
Corporation for $53.7 million. The resulting gain on sale of $18.5 million was accounted
for as an equity contribution by Teekay Corporation. Please read Note 19.
   d.
    
    During 2006, the Predecessor paid $11.9 million to Teekay Corporation for it to assume
the time-charter contract for one of the Predecessors in-chartered shuttle tankers, the
Borga. The resulting $11.9 million loss on sale was accounted for as an equity distribution
to Teekay Corporation.
 e.
    
    In 2006, prior to the Offering, the Predecessor sold to Teekay Corporation certain
subsidiaries and fixed assets for $64.7 million. The resulting $23.3 million gain on sale
was accounted for as an equity contribution by Teekay Corporation.
 f.
    
    Prior to the Offering, the Predecessor settled its Norwegian Kroner-denominated demand
promissory note of 1.1 billion Norwegian Kroner ($166.3 million) and its Australian
Dollar-denominated demand promissory note of 25.5 million Australian Dollars ($19.2
million) owing to Teekay Corporation. Interest expense incurred on these demand promissory
notes for the period prior to the Offering (January 1 to December 18, 2006) and for the
year ended December 31, 2005 were $12.9 million and $14.8 million, respectively.
 g.
    
    In October 2006, Teekay Corporation loaned 5.6 billion Norwegian Kroner ($863.0
million) to a subsidiary of OPCO primarily for the purchase of eight Aframax conventional
crude oil tankers from Teekay Corporation. Immediately preceding the Offering, this
interest-bearing loan was sold to OPCO. The interest expense incurred on this loan prior to
its sale to OPCO was $14.2 million.
 h.
    
    OPCOs shuttle tankers, which are typically employed on long-term time-charters,
previously were employed on short-term time charters with a subsidiary of Teekay
Corporation when there were periods between the ending of one long-term time-charter and
the beginning of another long-term time-charter. Pursuant to these short-term
time-charters, OPCO earned voyage revenues of $1.2 million during the year ended December
31, 2005.
  F - 17




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 i.
    
    On October 1, 2006, OPCO entered into time-charter contracts for its nine Aframax
conventional tankers with a subsidiary of Teekay Corporation at then-prevailing
market-based daily rates for terms of five to twelve years. Under the terms of eight of
these nine time-charter contracts, OPCO is responsible for the bunker fuel expenses;
however, OPCO adds the approximate amounts of these expenses to the daily hire rate.
Pursuant to these time-charter contracts, OPCO earned voyage revenues of $128.4 million and
$22.3 million for the year ended December 31, 2007 and the three months ended December 31,
2006, respectively.
  j.
    
    One of OPCOs FSO units and one of OPCOs conventional tankers were employed on
short-term bareboat charters with a subsidiary of Teekay Corporation during the last half
of 2006. Pursuant to these charter contracts, OPCO earned voyage revenues of $3.4 million
revenues during the last half of 2006.
 k.
    
    Effective October 1, 2006, two of OPCOs shuttle tankers have been employed on
long-term bareboat charters with a subsidiary of Teekay Corporation. Pursuant to these
charter contracts, OPCO earned voyage revenues of $14.2 million and $3.6 million during the
year ended December 31, 2007 and the three months ended December 31, 2006, respectively.
 l.
    
    Two of OPCOs FSO units were employed on long-term bareboat charters with a subsidiary
of Teekay Corporation. Pursuant to these charter contracts, OPCO earned voyage revenues of
$12.0 million, $10.2 million and $10.8 million during the years ended December 31, 2007,
2006 and 2005, respectively.
 m.
    
    On October 1, 2006, a subsidiary of Teekay Corporation entered into a services
agreement with a subsidiary of OPCO, pursuant to which the subsidiary of OPCO provides the
Teekay Corporation subsidiary with ship management services. During the year ended
December 31, 2007 and the three months ended December 31, 2006, OPCO earned management fees
of $3.3 million and $0.5 million, respectively, under the agreement.
 n.
    
    Eight of OPCOS Aframax conventional oil tankers and two FSO units (including the
Dampier Spirit) were managed by subsidiaries of Teekay Corporation. Pursuant to the
associated management services agreements, OPCO incurred general and administrative
expenses of $4.5 million, $6.1 million and $6.1 million during the years ended December 31,
2007, 2006, and 2005, respectively. During the years ended December 31, 2007, 2006, and
2005, $0.1 million, $0.8 million, and $0.9 million, respectively, of general and
administrative expenses attributable to the operations of the Dampier Spiritwere incurred
by Teekay Corporation and have been allocated to the Partnership as part of the results of
the Dropdown Predecessor.
 o.
    
    The Partnership, OPCO and certain of OPCOs operating subsidiaries have entered into
services agreements with certain subsidiaries of Teekay Corporation in connection with the
initial public offering, pursuant to which Teekay Corporation subsidiaries provide the
Partnership, OPCO and its operating subsidiaries with administrative, advisory and
technical services and ship management services. During the year ended December 31, 2007
and the period from December 19, 2006 to December 31, 2006, the Partnership incurred $52.7
million and $0.3 million, respectively, of these costs. Prior to the Offering, the
shore-based staff who provided these services to the Predecessor were transferred to a
subsidiary of Teekay Corporation. During the years ended December 31, 2006, and 2005, $21.6
million and $14.8 million, respectively, of general and administrative expenses
attributable to the operations of the Predecessor prior to the Offering were incurred by
Teekay Corporation and have been allocated to the Predecessor.
 p.
    
    Pursuant to the Partnerships partnership agreement, the Partnership reimburses the
General Partner for all expenses incurred by the Partnership that are necessary or
appropriate for the conduct of the Partnerships business. During the year ended December
31, 2007, the Partnership incurred $0.8 million of these costs.
 q.
    
    The Partnership has entered into an omnibus agreement with Teekay Corporation, Teekay
LNG Partners L.P., the General Partner and others governing, among other things, when the
Partnership, Teekay Corporation and Teekay LNG Partners L.P. may compete with each other
and certain rights of first offering on liquefied natural gas carriers, oil tankers,
shuttle tankers, FSO units and floating production, storage and offloading units.
 r.
    
    In July 2007, the Partnership acquired interests in two double-hull shuttle tankers
from Teekay Corporation for a total cost of $159.1 million, including assumption of debt of
$93.7 million and the related interest rate swap agreement. The Partnership acquired Teekay
Corporations 100% interest in the 2000-built Navion Bergenand its 50% interest in the
2006-built Navion Gothenburg, together with their respective 13-year, fixed-rate bareboat
charters to Petroleo Brasileiro S.A. The purchases were financed with one of the
Partnerships existing Revolvers and the assumption of debt. The excess of the proceeds
paid by the Partnership over Teekay Corporations historical cost was accounted for as an
equity distribution to Teekay Corporation of $25.4 million.
  F - 18




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 s.
    
    In October 2007, the Partnership acquired from Teekay Corporation an FSO unit, the
Dampier Spirit, along with its 7-year fixed-rate time-charter to Apache Corporation for a
total cost of $30.3 million. The purchase was financed with one of the Partnerships
existing Revolvers. The excess of the proceeds paid by the Partnership over Teekay
Corporations historical cost was accounted for as an equity distribution to Teekay
Corporation of $13.9 million.
 t.
    
    In December 2007, Teekay Corporation contributed a $65.6 million, nine-year, 4.98%
interest rate swap agreement (used to hedge the debt assumed in the purchase of the Navion
Bergen) having a fair value liability of $2.6 million (Note 11), to the Partnership for no
consideration and was accounted for as an equity distribution to Teekay Corporation.
 u.
    
    In December 2007, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to events which occurred prior to the Offering, totalling $4.8 million, including
the settlement of a customer dispute in respect of vessels delivered prior to the Offering
and other costs.
 v.
    
    At December 31, 2007 and 2006, advances to affiliates totaled $0.8 million and $30.8
million, respectively. Advances to and from affiliates are non-interest bearing and
unsecured.
 w.
    
    In January 2007, Teekay Corporation contributed foreign exchange contracts for the
forward purchase of a total of Australian Dollars 4.5 million having a fair value asset of
$0.1 million, net of non-controlling interest, to OPCO for no consideration and was
accounted for as an equity contribution from Teekay Corporation. The foreign exchange
forward contracts matured by December 2007.
 x.
    
    During the year ended December 31, 2007, $1.2 million of interest expense attributable
to the operations of the Navion Bergenwas incurred by Teekay Corporation and has been
allocated to the Partnership as part of the results of the Dropdown Predecessor.
 11.
    
    Derivative Instruments and Hedging Activities
     Contract amount in
    
    
    Average
    
    
    Expected maturityforeign currency
    
    
    forward rate
    
    
    2008
    
    
    2009(millions)
    
    
    
    
    
    (in millions of U.S. Dollars)Norwegian Kroner
    
    
    255.7
    
    
    
    5.64
    
    
    
    
    
    
    $
    45.4Australian Dollar
    
    
    5.0
    
    
    
    1.25
    
    
    $
    4.0
    
    
    
    Singapore Dollar
    
    
    4.1
    
    
    
    1.44
    
    
    $
    2.9
    
    
    
    Euro
    
    
    4.0
    
    
    
    0.68
    
    
    $
    5.8
    
    
    
    
    F - 19




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  Fair Value /
    
    
    Weighted-Carrying
    
    
    AverageInterest
    
    Principal
    
    
    Amount of
    
    
    Remaining
    
    
    FixedRate
    
    Amount
    
    
    Liability
    
    
    Term
    
    
    Interest RateIndex
    
    $
    
    
    $
    
    
    (years)
    
    
    (%)(1)U.S. Dollar-denominated interest rate swaps (restated)
    
    LIBOR
    
    
    935,000
    
    
    
    (9,374
    )
    
    
    6.5
    
    
    
    4.7U.S. Dollar-denominated interest rate swaps(2)
    
    LIBOR
    
    
    414,373
    
    
    
    (11,676
    )
    
    
    13.3
    
    
    
    5.0
 (1)
    
    Excludes the margin the Partnership pays on its variable-rate debt, which as at December 31,
2007, ranged from 0.50% and 0.80%.(2)
    
    Principal amount reduces quarterly or semiannually.  12.
    
    Income Taxes
  December 31,
    
    
    December 31,2007
    
    
    2006$
    
    
    $(restated)
    
    
    (restated)Deferred tax liabilities:Vessels and equipment
    
    
    84,077
    
    
    
    62,497Goodwill and intangible assets
    
    
    266
    
    
    
    Long-term debt
    
    
    94,071
    
    
    
    34,504Total deferred tax liabilities
    
    
    178,414
    
    
    
    97,001Deferred tax assets:Goodwill and intangible assets
    
    
    
    
    
    
    368Provisions
    
    
    1,012
    
    
    
    1,012Tax losses carried forward (1)
    
    
    100,096
    
    
    
    21,715Total deferred tax assets
    
    
    101,108
    
    
    
    23,095Net deferred tax liabilities
    
    
    77,306
    
    
    
    73,906Current portion
    
    
    
    
    
    
    Long-term portion of net deferred
tax liabilities
    
    
    77,306
    
    
    
    73,906
 (1)
    
    The net operating loss carryfowards are available to offset future taxable income in the
respective jurisdictions, and can be carried forward indefinitely.   Year Ended December 31, 2006January 1
    
    
    December 19Year Ended
    
    
    to
    
    
    to
    
    
    Year EndedDecember 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Current
    
    
    
    
    
    
    (2,850
    )
    
    
    (106
    )
    
    
    (3,839
    )Deferred
    
    
    10,516
    
    
    
    (410
    )
    
    
    (15
    )
    
    
    16,214Income tax recovery (expense)
    
    
    10,516
    
    
    
    (3,260
    )
    
    
    (121
    )
    
    
    12,375
  F - 20




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  Year Ended December 31, 2006January 1
    
    
    December 19Year Ended
    
    
    to
    
    
    to
    
    
    Year EndedDecember 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005%
    
    
    %
    
    
    %
    
    
    %(restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Actual income tax provision (credit) rate
    
    
    (49.5
    )
    
    
    (12.1
    )
    
    
    3.0
    
    
    
    (14.8
    )Income not subject to income taxes
    
    
    77.5
    
    
    
    40.1
    
    
    
    25.0
    
    
    
    42.8Applicable statutory income tax provision rate
    
    
    28.0
    
    
    
    28.0
    
    
    
    28.0
    
    
    
    28.0
 13.
    
    Commitments and Contingencies
  14.
    
    Supplemental Cash Flow Information
 a)
    
    The changes in non-cash working capital items related to operating activities for the
years ended December 31, 2007, 2006 and 2005 are as follows:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)Accounts receivable
    
    
    (16,206
    )
    
    
    3,452
    
    
    
    13,031Prepaid expenses and other assets
    
    
    (1,957
    )
    
    
    4,164
    
    
    
    (17,487
    )Accounts payable and accrued liabilities
    
    
    (6,126
    )
    
    
    4,643
    
    
    
    9,132Advances (to) from affiliate
    
    
    (9,417
    )
    
    
    38,780
    
    
    
    14,363(33,706
    )
    
    
    51,039
    
    
    
    19,039
 b)
    
    Cash interest paid (including interest paid by the Dropdown Predecessor) during the
years ended December 31, 2007, 2006 and 2005 totaled $73.9 million, $44.0 million and $38.3
million, respectively.
 c)
    
    Taxes paid (including taxes paid by the Dropdown Predecessor) during the years ended
December 31, 2007, December 31, 2006 and December 31, 2005 totaled $1.8 million, $0.2
million and $6.5 million, respectively.
 d)
    
    The Partnerships consolidated statement of cash flows for the years ended December 31,
2007, 2006 and 2005 reflect the Dropdown Predecessor as if the Partnership had acquired the
Dropdown Predecessor when each respective vessel began operations under the ownership of
Teekay Corporation. If Teekay Corporation financed the construction or purchase of the
vessel prior to the Dropdown Predecessor being included in the results of the Partnership,
the expenditures for the vessel by Teekay Corporation have been treated as a non-cash
transaction in the Partnerships consolidated statement of cash flows. The non-cash
investing activities related to the Dropdown Predecessor are as follows:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $(restated)
    
    
    (restated)
    
    
    (restated)Non-cash investing activities:Expenditures for vessels and equipment
    
    
    71,646
    
    
    
    
    
    
    
    
 e)
    
    Net change in parents equity in the Dropdown Predecessor includes the equity of the
Dropdown Predecessor when initially pooled for accounting purposes and any subsequent
non-cash equity transactions of the Dropdown Predecessor.
  F - 21




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 15.
    
    Vessel Sales and Write-downs on Vessels and Equipment
 a) Vessel Sales
   b) Equipment Writedowns
  16.
    
    Partners Capital and Net Income (Loss) Per Unit
  Limited Partners Rights
  
    
    Right to receive distribution of available cash within approximately 45 days after the
end of each quarter.
 
    
    No limited partner shall have any management power over the Partnerships business and
affairs; the general partner shall conduct, direct and manage our activities.
 
    
    The General Partner may be removed if such removal is approved by unitholders holding at
least 66 2/3% of the outstanding units voting as a single class, including units held by
the General Partner and its affiliates.
 Subordinated Units
   Incentive Distribution Rights
  Quarterly Distribution Target Amount (per unit)
    
    Unitholders
    
    
    General PartnerMinimum quarterly distribution of $0.35
    
    
    98
    %
    
    
    2
    %Up to $0.4025
    
    
    98
    %
    
    
    2
    %Above $0.4025 up to $0.4375
    
    
    85
    %
    
    
    15
    %Above $0.4375 up to $0.525
    
    
    75
    %
    
    
    25
    %Above $0.525
    
    
    50
    %
    
    
    50
    %
  F - 22




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  Net Income (Loss) Per Unit
  Participating Securities and Two-Class
Method under FASB Statement No. 128, Earnings Per Share
  17.
    
    Valuation and Qualifying Accounts
 Balance at beginning
    
    
    Balance at endof year
    
    
    of year$
    
    
    $Allowance for bad debts:Year ended December 31, 2006
    
    
    987
    
    
    
    401Year ended December 31, 2007
    
    
    401
    
    
    
    Restructuring cost accrual:Year ended December 31, 2006
    
    
    955
    
    
    
    71Year ended December 31, 2007
    
    
    71
    
    
    
    
 18.
    
    Restatement of Previously Issued Financial Statements
 (a) Derivative Instruments and Hedging Activities and Other
 SFAS Accounting for Derivative Instruments and Hedging
Activities
 
    
    One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based
on the Partnerships review, the Partnership concluded that the prospective hedge
effectiveness assessment that was conducted for certain of the Partnership interest rate
swap agreements on the date of designation was not sufficient to conclude that the interest
rate swaps would be highly effective in accordance with the technical requirements of SFAS
No. 133, in achieving offsetting changes in cash flows attributable to the risk being
hedged.
 
    
    To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of the
Partnerships interest rate swap agreements did not clearly specify the method to be used
to measure hedge ineffectiveness.
 
    
    Certain of the Partnerships derivative instruments were designated as hedges when the
derivative instruments had a non-zero fair value. However, this designation was not
appropriate as the Partnership used certain methods of measuring ineffectiveness that are
not allowed in the case of non-zero fair value derivatives.
  F - 23




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
    (b) Vessels Acquired from Teekay Corporation
 Business Combinations Teekay Dropdown Predecessor)
  Navion Bergen Navion Gothenburg Dampier Spirit Navion Bergen Navion Gothenburg Dampier
Spirit
 (c) Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  (d) Vision Incentive Plan
 Vision Incentive Plan or VIP
  F - 24




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
    TotalOwners EquityNet Income (Loss)
    
    
    (PredecessorYear Ended December 31, 2006
    
    
    
    
    
    
    and DropdownJanuary 1
    
    
    December 19
    
    
    
    
    
    
    Predecessor)Year Ended
    
    
    to
    
    
    to
    
    
    Year Ended
    
    
    AtDecember 31,
    
    
    December 18,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2004$
    
    
    $
    
    
    $
    
    
    $
    
    
    $As previously reported
    
    
    19,672
    
    
    
    (33,563
    )
    
    
    848
    
    
    
    84,747
    
    
    
    659,212Adjustments:Derivative instruments, net of
non-controlling interest and other
(1)
    
    
    (17,014
    )
    
    
    2,806
    
    
    
    500
    
    
    
    756
    
    
    
    Dropdown Predecessor (2)
    
    
    1,300
    
    
    
    3,097
    
    
    
    114
    
    
    
    2,910
    
    
    
    44,016Vision Incentive Plan
    
    
    
    
    
    
    (2,632
    )
    
    
    
    
    
    
    7,500
    
    
    
    As restated
    
    
    3,958
    
    
    
    (30,292
    )
    
    
    1,462
    
    
    
    95,913
    
    
    
    703,228
 (1)
    
    Includes an adjustment totaling ($3.6) million for the year ended December 31, 2007
relating to the accounting for the non-controlling interest in one of our 50% owned
subsidiaries and adjusting amounts related to deferred income taxes and the fair value of
derivative instruments at December 31, 2007.(2)
    
    Relates to the results for the pre-acquisition periods in which the Partnership and the
acquired interests in vessels, as listed below, were both in operation and under the common
control of Teekay Corporation, as follows: 
    
    Dampier Spirit(FSO unit) for March 15, 1998 to September 30, 2007;
    
    Navion Bergen(shuttle tanker) for April 16, 2007 to June 30, 2007; and
    
    Navion Gothenburg(shuttle tanker) began operations concurrently with the Partnerships
acquisition of it on July 24, 2007.
 
  F - 25




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  Year Ended December 31, 2007AdjustmentsDerivativeAs
    
    
    Instruments
    
    
    Dropdown
    
    
    AsReported
    
    
    and Other
    
    
    Predecessor
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $VOYAGE REVENUES
    
    
    775,969
    
    
    
    
    
    
    
    9,234
    
    
    
    785,203OPERATING EXPENSESVoyage expenses
    
    
    151,583
    
    
    
    
    
    
    
    54
    
    
    
    151,637Vessel operating expenses
    
    
    143,247
    
    
    
    365
    
    
    
    6,048
    
    
    
    149,660Time-charter hire expense
    
    
    150,463
    
    
    
    
    
    
    
    
    
    
    
    150,463Depreciation and amortization
    
    
    122,415
    
    
    
    
    
    
    
    1,955
    
    
    
    124,370General and administrative
    
    
    61,530
    
    
    
    (40
    )
    
    
    914
    
    
    
    62,404Total operating expenses
    
    
    629,238
    
    
    
    325
    
    
    
    8,971
    
    
    
    638,534Income (loss) from vessel operations
    
    
    146,731
    
    
    
    (325
    )
    
    
    263
    
    
    
    146,669OTHER ITEMSInterest expense
    
    
    (79,768
    )
    
    
    (45,192
    )
    
    
    (1,344
    )
    
    
    (126,304
    )Interest income
    
    
    5,774
    
    
    
    
    
    
    
    97
    
    
    
    5,871Foreign currency exchange (loss) gain
    
    
    (12,144
    )
    
    
    (626
    )
    
    
    1,092
    
    
    
    (11,678
    )Income tax recovery (expense)
    
    
    10,924
    
    
    
    (1,600
    )
    
    
    1,192
    
    
    
    10,516Other income  net
    
    
    10,403
    
    
    
    
    
    
    
    
    
    
    
    10,403Total other items
    
    
    (64,811
    )
    
    
    (47,418
    )
    
    
    1,037
    
    
    
    (111,192
    )Income (loss) before non-controlling interest
    
    
    81,920
    
    
    
    (47,743
    )
    
    
    1,300
    
    
    
    35,477Non-controlling interest
    
    
    (62,248
    )
    
    
    30,729
    
    
    
    
    
    
    
    (31,519
    )Net income (loss)
    
    
    19,672
    
    
    
    (17,014
    )
    
    
    1,300
    
    
    
    3,958Dropdown Predecessors interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,300General partners interest in net income
    
    
    393
    
    
    
    
    
    
    
    
    
    
    
    733Limited partners interest:Net income
    
    
    19,279
    
    
    
    
    
    
    
    
    
    
    
    1,925Net income per:- Common unit (basic and diluted)
    
    
    1.26
    
    
    
    
    
    
    
    
    
    
    
    0.12- Subordinated unit (basic and diluted)
    
    
    0.70
    
    
    
    
    
    
    
    
    
    
    
    0.07- Total unit (basic and diluted)
    
    
    0.99
    
    
    
    
    
    
    
    
    
    
    
    0.10Weighted average number of units outstanding:- Common units (basic and diluted)
    
    
    9,800,000
    
    
    
    
    
    
    
    
    
    
    
    9,800,000- Subordinated units (basic and diluted)
    
    
    9,800,000
    
    
    
    
    
    
    
    
    
    
    
    9,800,000- Total units (basic and diluted)
    
    
    19,600,000
    
    
    
    
    
    
    
    
    
    
    
    19,600,000Cash distributions declared per unit
    
    
    1.14
    
    
    
    
    
    
    
    
    
    
    
    1.14
  F - 26




---



##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  January 1 to December 18, 2006AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $VOYAGE REVENUES
    
    
    684,766
    
    
    
    
    
    
    
    12,762
    
    
    
    (80,014
    )
    
    
    
    
    
    
    617,514OPERATING EXPENSESVoyage expenses
    
    
    91,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,321Vessel operating expenses
    
    
    102,311
    
    
    
    
    
    
    
    5,680
    
    
    
    
    
    
    
    
    
    
    
    107,991Time-charter hire expense
    
    
    239,311
    
    
    
    
    
    
    
    
    
    
    
    (79,338
    )
    
    
    
    
    
    
    159,973Depreciation and amortization
    
    
    98,386
    
    
    
    
    
    
    
    2,437
    
    
    
    
    
    
    
    
    
    
    
    100,823General and administrative
    
    
    70,387
    
    
    
    
    
    
    
    1,327
    
    
    
    (11,332
    )
    
    
    2,632
    
    
    
    63,014Gain on sale of vessels and equipment, net
of writedowns
    
    
    (4,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,778
    )Restructuring charge
    
    
    832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    832Total operating expenses
    
    
    597,770
    
    
    
    
    
    
    
    9,444
    
    
    
    (90,670
    )
    
    
    2,632
    
    
    
    519,176Income from vessel operations
    
    
    86,996
    
    
    
    
    
    
    
    3,318
    
    
    
    10,656
    
    
    
    (2,632
    )
    
    
    98,338OTHER ITEMSInterest expense
    
    
    (67,225
    )
    
    
    2,763
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,462
    )Interest income
    
    
    5,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,167Equity income from joint ventures
    
    
    6,162
    
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,321Foreign currency exchange (loss) gain
    
    
    (66,574
    )
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    (66,214
    )Income tax expense
    
    
    (2,672
    )
    
    
    
    
    
    
    (588
    )
    
    
    
    
    
    
    
    
    
    
    (3,260
    )Other income  net
    
    
    8,360
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    8,367Total other items
    
    
    (116,782
    )
    
    
    2,922
    
    
    
    (221
    )
    
    
    
    
    
    
    
    
    
    
    (114,081
    )(Loss) income before non-controlling interest
    
    
    (29,786
    )
    
    
    2,922
    
    
    
    3,097
    
    
    
    10,656
    
    
    
    (2,632
    )
    
    
    (15,743
    )Non-controlling interest
    
    
    (3,777
    )
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,893
    )Net (loss) income from continuing operations
    
    
    (33,563
    )
    
    
    2,806
    
    
    
    3,097
    
    
    
    10,656
    
    
    
    (2,632
    )
    
    
    (19,636
    )Net loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,656
    )
    
    
    
    
    
    
    (10,656
    )Net (loss) income
    
    
    (33,563
    )
    
    
    2,806
    
    
    
    3,097
    
    
    
    
    
    
    
    (2,632
    )
    
    
    (30,292
    )Dropdown predecessors interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,097General partners interest in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Limited partners interest:Net loss from continuing operations
    
    
    (33,563
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,733
    )Net loss from continuing operations per:- Common unit (basic and diluted)
    
    
    (2.66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.80
    )- Subordinated unit (basic and diluted)
    
    
    (2.66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.80
    )- Total unit (basic and diluted)
    
    
    (2.66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.80
    )Net loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,656
    )Net loss from discontinued operations per:- Common unit (basic and diluted)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.85
    )- Subordinated unit (basic and diluted)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.85
    )- Total unit (basic and diluted)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.85
    )Net loss
    
    
    (33,563
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,389
    )Net loss per:- Common unit (basic and diluted)
    
    
    (2.66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.65
    )- Subordinated unit (basic and diluted)
    
    
    (2.66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.65
    )- Total unit (basic and diluted)
    
    
    (2.66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.65
    )Weighted average number of units outstanding:- Common units (basic and diluted)
    
    
    2,800,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,800,000- Subordinated units (basic and diluted)
    
    
    9,800,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,800,000- Total units (basic and diluted)
    
    
    12,600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,600,000Cash distributions declared per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  F - 27




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  December 19 to December 31, 2006AdjustmentsAs
    
    
    Derivative
    
    
    Dropdown
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $VOYAGE REVENUES
    
    
    23,926
    
    
    
    
    
    
    
    471
    
    
    
    24,397OPERATING EXPENSESVoyage expenses
    
    
    3,102
    
    
    
    
    
    
    
    
    
    
    
    3,102Vessel operating expenses
    
    
    4,087
    
    
    
    
    
    
    
    210
    
    
    
    4,297Time-charter hire expense
    
    
    5,641
    
    
    
    
    
    
    
    
    
    
    
    5,641Depreciation and amortization
    
    
    3,636
    
    
    
    
    
    
    
    90
    
    
    
    3,726General and administrative
    
    
    2,129
    
    
    
    
    
    
    
    48
    
    
    
    2,177Total operating expenses
    
    
    18,595
    
    
    
    
    
    
    
    348
    
    
    
    18,943Income from vessel operations
    
    
    5,331
    
    
    
    
    
    
    
    123
    
    
    
    5,454OTHER ITEMSInterest expense
    
    
    (2,200
    )
    
    
    583
    
    
    
    
    
    
    
    (1,617
    )Interest income
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    191Foreign currency exchange (loss) gain
    
    
    (131
    )
    
    
    
    
    
    
    13
    
    
    
    (118
    )Income tax expense
    
    
    (99
    )
    
    
    
    
    
    
    (22
    )
    
    
    (121
    )Other income  net
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    309Total other items
    
    
    (1,930
    )
    
    
    583
    
    
    
    (9
    )
    
    
    (1,356
    )Income before non-controlling interest
    
    
    3,401
    
    
    
    583
    
    
    
    114
    
    
    
    4,098Non-controlling interest
    
    
    (2,553
    )
    
    
    (83
    )
    
    
    
    
    
    
    (2,636
    )Net income
    
    
    848
    
    
    
    500
    
    
    
    114
    
    
    
    1,462Dropdown Predecessors interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114General partners interest in net income
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    64Limited partners interest:Net income
    
    
    831
    
    
    
    
    
    
    
    
    
    
    
    1,284Net income per:- Common unit (basic and diluted)
    
    
    0.05
    
    
    
    
    
    
    
    
    
    
    
    0.07- Subordinated unit (basic and diluted)
    
    
    0.04
    
    
    
    
    
    
    
    
    
    
    
    0.06- Total unit (basic and diluted)
    
    
    0.04
    
    
    
    
    
    
    
    
    
    
    
    0.07Weighted average number of units outstanding:- Common units (basic and diluted)
    
    
    9,800,000
    
    
    
    
    
    
    
    
    
    
    
    9,800,000- Subordinated units (basic and diluted)
    
    
    9,800,000
    
    
    
    
    
    
    
    
    
    
    
    9,800,000- Total units (basic and diluted)
    
    
    19,600,000
    
    
    
    
    
    
    
    
    
    
    
    19,600,000Cash distributions declared per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  F - 28




---



##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  Year Ended December 31, 2005AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $VOYAGE REVENUES
    
    
    807,548
    
    
    
    
    
    
    
    14,837
    
    
    
    (209,139
    )
    
    
    
    
    
    
    613,246OPERATING EXPENSESVoyage expenses
    
    
    74,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,543Vessel operating expenses
    
    
    104,475
    
    
    
    
    
    
    
    6,110
    
    
    
    (1,105
    )
    
    
    
    
    
    
    109,480Time-charter hire expense
    
    
    373,536
    
    
    
    
    
    
    
    
    
    
    
    (203,849
    )
    
    
    
    
    
    
    169,687Depreciation and amortization
    
    
    107,542
    
    
    
    
    
    
    
    2,748
    
    
    
    (466
    )
    
    
    
    
    
    
    109,824General and administrative
    
    
    85,856
    
    
    
    
    
    
    
    1,436
    
    
    
    (23,066
    )
    
    
    (7,500
    )
    
    
    56,726Gain on sale of vessels and equipment
    
    
    2,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,820Restructuring charge
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    955Total operating expenses
    
    
    749,727
    
    
    
    
    
    
    
    10,294
    
    
    
    (228,486
    )
    
    
    (7,500
    )
    
    
    524,035Income from vessel operations
    
    
    57,821
    
    
    
    
    
    
    
    4,543
    
    
    
    19,347
    
    
    
    7,500
    
    
    
    89,211OTHER ITEMSInterest expense
    
    
    (39,791
    )
    
    
    
    
    
    
    (192
    )
    
    
    
    
    
    
    
    
    
    
    (39,983
    )Interest income
    
    
    4,605
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    4,612Equity income from joint ventures
    
    
    5,199
    
    
    
    756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,955Foreign currency exchange gain
    
    
    34,178
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    34,228Income tax recovery (expense)
    
    
    13,873
    
    
    
    
    
    
    
    (1,498
    )
    
    
    
    
    
    
    
    
    
    
    12,375Other income  net
    
    
    9,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,091Total other items
    
    
    27,155
    
    
    
    756
    
    
    
    (1,633
    )
    
    
    
    
    
    
    
    
    
    
    26,278Income before non-controlling interest
    
    
    84,976
    
    
    
    756
    
    
    
    2,910
    
    
    
    19,347
    
    
    
    7,500
    
    
    
    115,489Non-controlling interest
    
    
    (229
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (229
    )Net income from continuing operations
    
    
    84,747
    
    
    
    756
    
    
    
    2,910
    
    
    
    19,347
    
    
    
    7,500
    
    
    
    115,260Net loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,347
    )
    
    
    
    
    
    
    (19,347
    )Net income
    
    
    84,747
    
    
    
    756
    
    
    
    2,910
    
    
    
    
    
    
    
    7,500
    
    
    
    95,913Dropdown predecessors interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,910General partners interest in net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Limited partners interest:Net income from continuing operations
    
    
    84,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,350Net income from continuing operations per:- Common unit (basic and diluted)
    
    
    6.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.92- Subordinated unit (basic and diluted)
    
    
    6.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.92- Total unit (basic and diluted)
    
    
    6.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.92Net loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,347
    )Net loss from discontinued operations per:- Common unit (basic and diluted)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.54
    )- Subordinated unit (basic and diluted)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.54
    )- Total unit (basic and diluted)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.54
    )Net income
    
    
    84,747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,003Net income per:- Common unit (basic and diluted)
    
    
    6.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.38- Subordinated unit (basic and diluted)
    
    
    6.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.38- Total unit (basic and diluted)
    
    
    6.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.38Weighted average number of units outstanding:- Common units (basic and diluted)
    
    
    2,800,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,800,000- Subordinated units (basic and diluted)
    
    
    9,800,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,800,000- Total units (basic and diluted)
    
    
    12,600,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,600,000Cash distributions declared per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  F - 29




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  December 31, 2007AdjustmentDerivativeAs
    
    
    Instruments and
    
    
    AsReported
    
    
    Other
    
    
    Restated$
    
    
    $
    
    
    $ASSETSCurrentCash and cash equivalents
    
    
    121,224
    
    
    
    
    
    
    
    121,224Accounts receivable, net
    
    
    42,245
    
    
    
    
    
    
    
    42,245Due from affiliate
    
    
    796
    
    
    
    
    
    
    
    796Net investment in direct financing leases  current
    
    
    22,268
    
    
    
    
    
    
    
    22,268Prepaid expenses
    
    
    34,219
    
    
    
    
    
    
    
    34,219Other current assets
    
    
    7,644
    
    
    
    
    
    
    
    7,644Total current assets
    
    
    228,396
    
    
    
    
    
    
    
    228,396Vessels and equipmentAt cost, less accumulated depreciation
    
    
    1,662,865
    
    
    
    
    
    
    
    1,662,865Net investment in direct financing leases
    
    
    78,199
    
    
    
    
    
    
    
    78,199Other assets
    
    
    14,423
    
    
    
    
    
    
    
    14,423Intangible assets  net
    
    
    55,355
    
    
    
    
    
    
    
    55,355Goodwill  shuttle tanker segment
    
    
    127,113
    
    
    
    
    
    
    
    127,113Total assets
    
    
    2,166,351
    
    
    
    
    
    
    
    2,166,351LIABILITIES AND PARTNERS EQUITYCurrentAccounts payable
    
    
    12,076
    
    
    
    
    
    
    
    12,076Accrued liabilities
    
    
    38,464
    
    
    
    
    
    
    
    38,464Current portion of long-term debt
    
    
    64,060
    
    
    
    
    
    
    
    64,060Total current liabilities
    
    
    114,600
    
    
    
    
    
    
    
    114,600Long-term debt
    
    
    1,453,407
    
    
    
    
    
    
    
    1,453,407Deferred income taxes
    
    
    75,706
    
    
    
    1,600
    
    
    
    77,306Other long-term liabilities
    
    
    50,024
    
    
    
    1,000
    
    
    
    51,024Total liabilities
    
    
    1,693,737
    
    
    
    2,600
    
    
    
    1,696,337Non-controlling interest
    
    
    391,645
    
    
    
    968
    
    
    
    392,613Partners equityPartners equity
    
    
    86,282
    
    
    
    (9,174
    )
    
    
    77,108Accumulated other comprehensive (loss) income
    
    
    (5,313
    )
    
    
    5,606
    
    
    
    293Total partners equity
    
    
    80,969
    
    
    
    (3,568
    )
    
    
    77,401Total liabilities and partners equity
    
    
    2,166,351
    
    
    
    
    
    
    
    2,166,351
  F - 30




---



##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  December 31, 2006AdjustmentsAs
    
    
    Derivative
    
    
    Dropdown
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $ASSETSCurrentCash and cash equivalents
    
    
    113,986
    
    
    
    
    
    
    
    
    
    
    
    113,986Accounts receivable, net
    
    
    24,635
    
    
    
    
    
    
    
    1,191
    
    
    
    25,826Due from affiliate
    
    
    
    
    
    
    
    
    
    
    30,757
    
    
    
    30,757Net investment in direct financing leases  current
    
    
    21,764
    
    
    
    
    
    
    
    
    
    
    
    21,764Prepaid expenses
    
    
    24,608
    
    
    
    
    
    
    
    
    
    
    
    24,608Other current assets
    
    
    7,732
    
    
    
    
    
    
    
    54
    
    
    
    7,786Total current assets
    
    
    192,725
    
    
    
    
    
    
    
    32,002
    
    
    
    224,727Vessels and equipmentAt cost, less accumulated depreciation
    
    
    1,524,842
    
    
    
    
    
    
    
    7,901
    
    
    
    1,532,743Net investment in direct financing leases
    
    
    92,018
    
    
    
    
    
    
    
    
    
    
    
    92,018Other assets
    
    
    38,198
    
    
    
    
    
    
    
    
    
    
    
    38,198Intangible assets  net
    
    
    66,425
    
    
    
    
    
    
    
    
    
    
    
    66,425Goodwill  shuttle tanker segment
    
    
    127,113
    
    
    
    
    
    
    
    
    
    
    
    127,113Total assets
    
    
    2,041,321
    
    
    
    
    
    
    
    39,903
    
    
    
    2,081,224LIABILITIES AND PARTNERS EQUITYCurrentAccounts payable
    
    
    7,366
    
    
    
    
    
    
    
    93
    
    
    
    7,459Accrued liabilities
    
    
    42,987
    
    
    
    
    
    
    
    2,646
    
    
    
    45,633Current portion of long-term debt
    
    
    17,656
    
    
    
    
    
    
    
    
    
    
    
    17,656Due to affiliate
    
    
    16,951
    
    
    
    
    
    
    
    (16,951
    )
    
    
    Total current liabilities
    
    
    84,960
    
    
    
    
    
    
    
    (14,212
    )
    
    
    70,748Long-term debt
    
    
    1,285,696
    
    
    
    
    
    
    
    
    
    
    
    1,285,696Deferred income taxes
    
    
    71,583
    
    
    
    
    
    
    
    2,323
    
    
    
    73,906Other long-term liabilities
    
    
    32,163
    
    
    
    
    
    
    
    
    
    
    
    32,163Total liabilities
    
    
    1,474,402
    
    
    
    
    
    
    
    (11,889
    )
    
    
    1,462,513Non-controlling interest
    
    
    427,977
    
    
    
    
    
    
    
    
    
    
    
    427,977Dropdown Predecessors equity
    
    
    
    
    
    
    
    
    
    
    51,792
    
    
    
    51,792Partners equityPartners equity
    
    
    133,642
    
    
    
    5,300
    
    
    
    
    
    
    
    138,942Accumulated other comprehensive income (loss)
    
    
    5,300
    
    
    
    (5,300
    )
    
    
    
    
    
    
    Total partners equity and dropdown predecessors
equity
    
    
    138,942
    
    
    
    
    
    
    
    51,792
    
    
    
    190,734Total liabilities, partners equity and dropdown
predecessors equity
    
    
    2,041,321
    
    
    
    
    
    
    
    39,903
    
    
    
    2,081,224
  F - 31




---



##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  December 31, 2007AdjustmentsDerivativeAs
    
    
    Instruments and
    
    
    Dropdown
    
    
    AsReported
    
    
    Other
    
    
    Predecessor
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $Cash and cash equivalents provided by (used for)OPERATING ACTIVITIESNet income (loss)
    
    
    19,672
    
    
    
    (17,014
    )
    
    
    1,300
    
    
    
    3,958Non-cash items:Unrealized loss on derivative instruments
    
    
    
    
    
    
    45,957
    
    
    
    
    
    
    
    45,957Depreciation and amortization
    
    
    122,415
    
    
    
    
    
    
    
    1,955
    
    
    
    124,370Non-controlling interest
    
    
    62,248
    
    
    
    (30,729
    )
    
    
    
    
    
    
    31,519Deferred income tax recovery
    
    
    (10,924
    )
    
    
    1,600
    
    
    
    (1,192
    )
    
    
    (10,516
    )Foreign currency exchange loss (gain) and other
    
    
    11,841
    
    
    
    186
    
    
    
    (602
    )
    
    
    11,425Change in non-cash working capital items related
to operating activities
    
    
    (31,588
    )
    
    
    
    
    
    
    (2,118
    )
    
    
    (33,706
    )Distribution from subsidiaries to minority owners
    
    
    (78,107
    )
    
    
    
    
    
    
    
    
    
    
    (78,107
    )Expenditures for drydocking
    
    
    (39,626
    )
    
    
    
    
    
    
    (9,427
    )
    
    
    (49,053
    )Net operating cash flow
    
    
    55,931
    
    
    
    
    
    
    
    (10,084
    )
    
    
    45,847FINANCING ACTIVITIESProceeds from issuance of long-term debt
    
    
    247,243
    
    
    
    
    
    
    
    51,200
    
    
    
    298,443Scheduled repayments of long-term debt
    
    
    (17,328
    )
    
    
    
    
    
    
    
    
    
    
    (17,328
    )Prepayments of long-term debt
    
    
    (152,000
    )
    
    
    
    
    
    
    
    
    
    
    (152,000
    )Expenses from issuance of common units
    
    
    (2,793
    )
    
    
    
    
    
    
    
    
    
    
    (2,793
    )Net advances from affiliates
    
    
    
    
    
    
    
    
    
    
    (42,935
    )
    
    
    (42,935
    )Equity distribution to Teekay Corporation
    
    
    
    
    
    
    
    
    
    
    1,819
    
    
    
    1,819Distribution to Teekay Corporation relating to
purchase of Navion Bergen LLC and purchase of a
50% interest in Navion Gothenburg LLC
    
    
    
    
    
    
    
    
    
    
    (55,158
    )
    
    
    (55,158
    )Distribution to Teekay Corporation relating to
purchase of Dampier LLC
    
    
    
    
    
    
    
    
    
    
    (30,253
    )
    
    
    (30,253
    )Cash distributions paid
    
    
    (22,700
    )
    
    
    
    
    
    
    
    
    
    
    (22,700
    )Other
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Net financing cash flow
    
    
    51,422
    
    
    
    
    
    
    
    (75,327
    )
    
    
    (23,905
    )INVESTING ACTIVITIESExpenditures for vessels and equipment
    
    
    (20,997
    )
    
    
    
    
    
    
    
    
    
    
    (20,997
    )Proceeds from sale of vessels and equipment
    
    
    3,225
    
    
    
    
    
    
    
    
    
    
    
    3,225Investment in direct financing lease assets
    
    
    (8,378
    )
    
    
    
    
    
    
    
    
    
    
    (8,378
    )Direct financing lease payments received
    
    
    21,677
    
    
    
    
    
    
    
    
    
    
    
    21,677Purchase of Navion Bergen LLC and a 50% interest
in Navion Gothenburg LLC
    
    
    (65,389
    )
    
    
    
    
    
    
    65,389
    
    
    
    Purchase of a 50% interest in Navion Gothenburg LLC
    
    
    
    
    
    
    
    
    
    
    (10,231
    )
    
    
    (10,231
    )Purchase of Dampier LLC
    
    
    (30,253
    )
    
    
    
    
    
    
    30,253
    
    
    
    Net investing cash flow
    
    
    (100,115
    )
    
    
    
    
    
    
    85,411
    
    
    
    (14,704
    )Increase in cash and cash equivalents
    
    
    7,238
    
    
    
    
    
    
    
    
    
    
    
    7,238Cash and cash equivalents, beginning of the year
    
    
    113,986
    
    
    
    
    
    
    
    
    
    
    
    113,986Cash and cash equivalents, end of the year
    
    
    121,224
    
    
    
    
    
    
    
    
    
    
    
    121,224
  F - 32




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  December 31, 2006AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Cash and cash equivalents provided by (used for)OPERATING ACTIVITIESNet income (loss)
    
    
    (32,715
    )
    
    
    3,306
    
    
    
    3,211
    
    
    
    
    
    
    
    (2,632
    )
    
    
    (28,830
    )Non-cash items:Unrealized gain on derivative instruments
    
    
    
    
    
    
    (3,346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,346
    )Depreciation and amortization
    
    
    102,022
    
    
    
    
    
    
    
    2,527
    
    
    
    
    
    
    
    
    
    
    
    104,549Non-controlling interest
    
    
    6,330
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,529Gain on sale of vessels
    
    
    (6,928
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,928
    )Loss on writedown of vessels and equipment
    
    
    2,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,150Equity income, net of dividends received
    
    
    (160
    )
    
    
    (159
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319
    )Deferred income tax expense (recovery)
    
    
    2,771
    
    
    
    
    
    
    
    (2,346
    )
    
    
    
    
    
    
    
    
    
    
    425Foreign currency exchange loss (gain) and
other
    
    
    72,768
    
    
    
    
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    72,438Change in non-cash working capital items
related to operating activities
    
    
    40,727
    
    
    
    
    
    
    
    2,812
    
    
    
    
    
    
    
    7,500
    
    
    
    51,039Distribution from subsidiaries to minority
owners
    
    
    (4,224
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,224
    )Expenditures for drydocking
    
    
    (31,255
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,255
    )Net operating cash flow
    
    
    151,486
    
    
    
    
    
    
    
    5,874
    
    
    
    
    
    
    
    4,868
    
    
    
    162,228FINANCING ACTIVITIESProceeds from issuance of long-term debt
    
    
    1,290,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,290,750Capitalized loan costs
    
    
    (6,178
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,178
    )Scheduled repayments of long-term debt
    
    
    (119,900
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119,900
    )Prepayments of long-term debt
    
    
    (493,527
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (493,527
    )Repayments of capital lease obligations
    
    
    (34,245
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,245
    )Proceeds from issuance of common units
    
    
    157,963
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,963Net advances to affiliates
    
    
    (786,816
    )
    
    
    
    
    
    
    (6,672
    )
    
    
    
    
    
    
    
    
    
    
    (793,488
    )Equity distribution (to) from Teekay Corporation
    
    
    (226,816
    )
    
    
    
    
    
    
    798
    
    
    
    
    
    
    
    (4,868
    )
    
    
    (230,886
    )Other
    
    
    (727
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (727
    )Net financing cash flow
    
    
    (219,496
    )
    
    
    
    
    
    
    (5,874
    )
    
    
    
    
    
    
    (4,868
    )
    
    
    (230,238
    )INVESTING ACTIVITIESExpenditures for vessels and equipment
    
    
    (31,079
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,079
    )Proceeds from sale of vessels and equipment
    
    
    61,713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,713Investment in direct financing lease assets
    
    
    (13,256
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,256
    )Direct financing lease payments received
    
    
    19,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,323Cash assumed upon consolidation of 50%-owned
subsidiaries
    
    
    17,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,055Other
    
    
    (746
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (746
    )Net investing cash flow
    
    
    53,010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,010Decrease in cash and cash equivalents
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Adjustment for net change in cash and cash
equivalents in discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,456
    
    
    
    
    
    
    
    2,456Cash and cash equivalents, beginning of the year
    
    
    128,986
    
    
    
    
    
    
    
    
    
    
    
    (2,456
    )
    
    
    
    
    
    
    126,530Cash and cash equivalents, end of the year
    
    
    113,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,986
  F - 33




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
  December 31, 2005AdjustmentsVisionAs
    
    
    Derivative
    
    
    Dropdown
    
    
    Discontinued
    
    
    Incentive
    
    
    AsReported
    
    
    Instruments
    
    
    Predecessor
    
    
    Operations
    
    
    Plan
    
    
    Restated$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Cash and cash equivalents provided by
(used for)OPERATING ACTIVITIESNet income
    
    
    84,747
    
    
    
    756
    
    
    
    2,910
    
    
    
    
    
    
    
    7,500
    
    
    
    95,913Non-cash items:Depreciation and amortization
    
    
    107,542
    
    
    
    
    
    
    
    2,748
    
    
    
    
    
    
    
    
    
    
    
    110,290Non-controlling interest
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229Gain on sale of vessels
    
    
    (9,423
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,423
    )Loss on writedown of vessels and
equipment
    
    
    12,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,243Equity income, net of dividends
received
    
    
    (2,449
    )
    
    
    (756
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,205
    )Deferred income tax (recovery) expense
    
    
    (14,202
    )
    
    
    
    
    
    
    (2,012
    )
    
    
    
    
    
    
    
    
    
    
    (16,214
    )Foreign currency exchange (gain) loss
and other
    
    
    (40,045
    )
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    (39,967
    )Change in non-cash working capital items
related to operating activities
    
    
    22,951
    
    
    
    
    
    
    
    3,588
    
    
    
    
    
    
    
    (7,500
    )
    
    
    19,039Distribution from subsidiaries to minority
owners
    
    
    (9,618
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,618
    )Expenditures for drydocking
    
    
    (8,906
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,906
    )Net operating cash flow
    
    
    143,069
    
    
    
    
    
    
    
    7,312
    
    
    
    
    
    
    
    
    
    
    
    150,381FINANCING ACTIVITIESProceeds from issuance of long-term debt
    
    
    1,226,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,226,804Capitalized loan costs
    
    
    (639
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (639
    )Scheduled repayments of long-term debt
    
    
    (29,884
    )
    
    
    
    
    
    
    (10,000
    )
    
    
    
    
    
    
    
    
    
    
    (39,884
    )Prepayments of long-term debt
    
    
    (1,382,140
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,382,140
    )Repayments of capital lease obligations
    
    
    (1,248
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,248
    )Net advances to affiliates
    
    
    (12,829
    )
    
    
    
    
    
    
    1,830
    
    
    
    
    
    
    
    
    
    
    
    (10,999
    )Equity distribution from Teekay Corporation
    
    
    
    
    
    
    
    
    
    
    858
    
    
    
    
    
    
    
    
    
    
    
    858Investment in subsidiaries from
non-controlling interest owners
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Net financing cash flow
    
    
    (191,936
    )
    
    
    
    
    
    
    (7,312
    )
    
    
    
    
    
    
    
    
    
    
    (199,248
    )INVESTING ACTIVITIESExpenditures for vessels and equipment
    
    
    (24,760
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,760
    )Proceeds from sale of vessels and
equipment
    
    
    73,220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,220Investment in direct financing lease assets
    
    
    (23,708
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,708
    )Direct financing lease payments received
    
    
    12,440
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,440Other
    
    
    (3,068
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,068
    )Net investing cash flow
    
    
    34,124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,124Decrease in cash and cash equivalents
    
    
    (14,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,743
    )Adjustment for change in cash and cash
equivalents in discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,970
    
    
    
    
    
    
    
    10,970Cash and cash equivalents, beginning of
the year
    
    
    143,729
    
    
    
    
    
    
    
    
    
    
    
    (13,426
    )
    
    
    
    
    
    
    130,303Cash and cash equivalents, end of the year
    
    
    128,986
    
    
    
    
    
    
    
    
    
    
    
    (2,456
    )
    
    
    
    
    
    
    126,530
  F - 34




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##### Table of Contents



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Offshore Partners Predecessor)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
 19.
    
    Discontinued Operations
   January 1
    
    
    January 1to
    
    
    toJune 30,
    
    
    December 31,2006
    
    
    2005Voyage revenues(1)
    
    $
    80,014
    
    
    $
    209,139Loss from discontinued operations before income tax expense
    
    $
    (10,656
    )
    
    $
    (19,347
    )Income tax expense
    
    
    
    
    
    
    Loss from discontinued operations
    
    $
    (10,656
    )
    
    $
    (19,347
    )
 
 (1)
    
    During the six months ended June 30, 2006 and the year ended December 31, 2005, the
Predecessor earned $79.5 million and $194.0 million, respectively, of time charter
revenue from a subsidiary of Teekay Corporation pursuant to the agreement with Navion
Shipping Ltd.During the six months ended June 30, 2006 and the year ended December 31, 2005, $10.7
million and $21.9 million, respectively, of general and administrative expenses
attributable to the operations of Navion Shipping Ltd. were incurred by Teekay
Corporation and have been allocated to Navion Shipping Ltd.   F - 35




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##### Table of Contents



EXHIBIT 8.1
 LIST OF SIGNIFICANT SUBSIDIARIES
 The following is a list of Teekay Offshore Partners L.P.s significant subsidiaries as at
December 31, 2007:
 Proportion ofState or
    
    OwnershipName of Significant Subsidiary
    
    Jurisdiction of Incorporation
    
    InterestTEEKAY AUSTRALIA OFFSHORE HOLDINGS PTY LTD.
    
    AUSTRALIA
    
    
    100
    %NAVION
BERGEN L.L.C.
    
    MARSHALL ISLANDS
    
    
    100
    %NAVION
GOTHENBURG L.L.C.
    
    MARSHALL ISLANDS
    
    
    50
    %NAVION OFFSHORE LOADING AS
    
    NORWAY
    
    
    26
    %NORSK TEEKAY AS
    
    NORWAY
    
    
    26
    %NORSK TEEKAY HOLDINGS LTD.
    
    MARSHALL ISLANDS
    
    
    26
    %TEEKAY
EUROPEAN HOLDINGS S.A.R.L.
    
    LUXEMBOURG
    
    
    26
    %TEEKAY NAVION OFFSHORE LOADING PTE. LTD.
    
    SINGAPORE
    
    
    26
    %TEEKAY
NETHERLANDS EUROPEAN HOLDINGS BV.
    
    NETHERLANDS
    
    
    26
    %TEEKAY
NORDIC HOLDINGS INC.
    
    MARSHALL ISLANDS
    
    
    26
    %TEEKAY NORWAY AS
    
    NORWAY
    
    
    26
    %TEEKAY OFFSHORE OPERATING L.P.
    
    MARSHALL ISLANDS
    
    
    26
    %UGLAND NORDIC SHIPPING AS
    
    NORWAY
    
    
    26
    %
  F - 36




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##### Table of Contents



EXHIBIT 12.1
 CERTIFICATION
  1.
    
    I have reviewed this Annual Report on Form 20-F/A of Teekay Offshore Partners, L.P. (the
Registrant);
 2.
    
    Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
 3.
    
    Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;
 4.
    
    I and the Registrants other certifying officer (which is also myself) are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
 a)
    
    Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared;
 b)
    
    Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
 c)
    
    Evaluated the effectiveness of the Registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
 d)
    
    Disclosed in this report any change in the Registrants internal control over
financial reporting that occurred during the Registrants most recent fiscal quarter
(the fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrants internal
control over financial reporting; and
 5.
    
    I and the Registrants other certifying officer (which is also myself) have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the
Registrants auditors and the audit committee of the board of directors of the Registrants
general partner (or persons performing the equivalent functions):
 a)
    
    All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the Registrants ability to record, process, summarize and report financial
information; and
 b)
    
    Any fraud, whether or not material, that involves management or other employees
who have a significant role in the Registrants internal control over financial
reporting.
 Dated:  April 2, 2009
    By:
    /s/ Peter EvensenPeter EvensenChief Executive Officer  F - 37




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##### Table of Contents



EXHIBIT 12.2
 CERTIFICATION
  1.
    
    I have reviewed this Annual Report on Form 20-F/A of Teekay Offshore Partners, L.P. (the
Registrant);
 2.
    
    Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
 3.
    
    Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods
presented in this report;
 4.
    
    I and the Registrants other certifying officer (which is also myself) are responsible
for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13(a)-15(e) and 15(d)-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the Registrant and have:
 a)
    
    Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared;
 b)
    
    Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
 c)
    
    Evaluated the effectiveness of the Registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
 d)
    
    Disclosed in this report any change in the Registrants internal control over
financial reporting that occurred during the Registrants most recent fiscal quarter
(the fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrants internal
control over financial reporting; and
 5.
    
    I and the Registrants other certifying officer (which is also myself) have disclosed,
based on our most recent evaluation of internal control over financial reporting, to the
Registrants auditors and the audit committee of the board of directors of the Registrants
general partner (or persons performing the equivalent functions):
 a)
    
    All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the Registrants ability to record, process, summarize and report financial
information; and
 b)
    
    Any fraud, whether or not material, that involves management or other employees
who have a significant role in the Registrants internal control over financial
reporting.
 Dated:  April 2, 2009
    By:
    /s/ Peter EvensenPeter EvensenChief Financial Officer  F - 38




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EXHIBIT 13.1
 CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 Partnership Form 20-F/A
 (1)
    
    The Form 20-F/A fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
 (2)
    
    The information contained in the Form 20-F/A fairly presents, in all material respects, the
financial condition and results of operations of the Partnership.
  By:
    /s/ Peter EvensenPeter EvensenChief Executive Officer and Chief Financial Officer  F - 39




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EXHIBIT 15.1
 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Vancouver, Canada
    
    /s/ ERNST & YOUNG LLPApril 2, 2009
    
    Chartered Accountants
  F - 40




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Exhibit 15.2
 CONSOLIDATED BALANCE SHEET
OF
TEEKAY OFFSHORE GP L.L.C.
  F - 42




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TEEKAY OFFSHORE GP L.L.C.
     Vancouver, Canada
    
    /s/ Ernst & Young LLPMarch 12, 2008,
    
    Chartered Accountantsexcept for Notes 15 and 16, as toas to which the date is April 2, 2009
  F - 36




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TEEKAY OFFSHORE GP L.L.C. (Note 1)
CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)
 As atDecember 31,2007(restated)$ASSETSCurrentCash and cash equivalents (note 6)
    
    
    121,506Accounts receivable, net of allowance for doubtful accounts of $nil
    
    
    42,245Net investment in direct financing leases  current
    
    
    22,268Prepaid expenses
    
    
    34,219Other current assets (notes 9f)
    
    
    8,613Total current assets
    
    
    228,851Vessels and equipment(note 6)At cost, less accumulated depreciation of $674,722
    
    
    1,662,865Net investment in direct financing leases
    
    
    78,199Other assets
    
    
    14,423Intangible assets  net (note 4)
    
    
    55,355Goodwill  shuttle tanker segment
    
    
    127,113Total assets
    
    
    2,166,806LIABILITIES AND MEMBERS EQUITYCurrentAccounts payable
    
    
    12,076Accrued liabilities (note 5)
    
    
    38,464Current portion of long-term debt (note 6)
    
    
    64,060Total current liabilities
    
    
    114,600Long-term debt (note 6)
    
    
    1,453,407Deferred income taxes (note 11)
    
    
    77,306Other long-term liabilities (note 10)
    
    
    51,024Total liabilities
    
    
    1,696,337Commitments and contingencies (notes 7, 9 and 12)Non-controlling interest
    
    
    468,466Members equityMembers equity
    
    
    1,997Accumulated other comprehensive income
    
    
    6Total members equity
    
    
    2,003Total liabilities and members equity
    
    
    2,166,806
 The accompanying notes are an integral part of the Consolidated Balance Sheet.
  F - 43




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 1.
    
    Summary of Significant Accounting Policies
 Basis of presentation
 Company General Partner Partnership
 OPCO
 Norsk Teekay FSO Teekay Offshore Partners Predecessor Predecessor
  GAAP
 Reporting currency
  Operating revenues and expenses
    F - 44




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 Cash and cash equivalents
  Accounts receivable and allowance for doubtful accounts
  Vessels and equipment
     Direct financing leases
 VOC equipment
 Investment in joint ventures
  Debt issuance costs
  Goodwill and intangible assets
   F - 45




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
  Derivative instruments
    SFAS Accounting for Derivative
Instruments and Hedging Activities
  Income taxes
 Accounting for Income Taxes SFAS 109
 FASB Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 FIN 48
   Recent Accounting Pronouncements
 EITF Application of the Two-Class Method under FASB Statement No.
128, Earnings per Share to Master Limited Partnerships EITF Issue No. 07-4
  F - 46




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 Business Combinations SFAS 141(R , Business Combinations
 Non-controlling Interests in Consolidated
Financial Statements, an Amendment of Accounting Research Bulletin No. 51 SFAS 160
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No. 115 SFAS 159
 Fair Value Measurements SFAS 157
 2.
    
    Initial Public Offering
 Offering
 Proceeds received:Sale of 8,050,000 common units at $21.00 per unit
    
    $
    169,050Use of proceeds from sale of common units:Underwriting and structuring fees
    
    $
    11,088Professional fees and other offering expenses to third parties
    
    
    2,793Repayment of promissory notes and redemption of 1.05 million
common units from Teekay Corporation
    
    
    155,169$
    169,050
 3.
    
    Segment Reporting
   F - 47




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
  December 31, 2007$Shuttle tanker segment
    
    
    1,559,261Conventional tanker segment
    
    
    255,460FSO segment
    
    
    131,080Cash and cash equivalents
    
    
    121,506Accounts receivable and other assets
    
    
    99,499Consolidated total assets
    
    
    2,166,806
 4.
    
    Intangible Assets
  December 31, 2007Weighted-Average
    
    
    GrossAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingPeriod
    
    
    Amount
    
    
    Amortization
    
    
    Amount(years)
    
    
    $
    
    
    $
    
    
    $Contracts of affreightment
    
    
    10.2
    
    
    
    124,250
    
    
    
    (68,895
    )
    
    
    55,355
  5.
    
    Accrued Liabilities
 December 31, 2007$Voyage and vessel
    
    
    26,015Interest
    
    
    10,932Payroll and benefits
    
    
    1,51738,464
 6.
    
    Long-Term Debt
 December 31, 2007$U.S. Dollar-denominated Revolving Credit Facilities due through 2017
    
    
    1,205,808U.S. Dollar-denominated Term Loans due through 2017
    
    
    311,6591,517,467Less current portion
    
    
    64,060Total
    
    
    1,453,407
 Revolvers
   F - 48




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
   7.
    
    Leases
 Charters-out and Direct Financing Lease
    Charters-in
  8.
    
    Fair Value of Financial Instruments
  Cash
and cash equivalents
 Derivative
instruments
  December 31, 2007Carrying
    
    
    FairAmount
    
    
    Value$
    
    
    $(restated)
    
    
    (restated)Cash and cash equivalents
    
    
    121,506
    
    
    
    121,506Advances to (from) affiliate (note 9f)
    
    
    969
    
    
    
    969Long-term debt
    
    
    (1,517,467
    )
    
    
    (1,517,467
    )Derivative instruments(1) (note 10)Interest rate swap agreements
    
    
    (21,050
    )
    
    
    (21,050
    )Foreign currency forward contracts
    
    
    1,122
    
    
    
    1,122
 
 (1)
    
    The Partnership transacts all of its derivative instruments through investment-grade rated
financial institutions at the time of the transaction and requires no collateral from these
institutions.  F - 49




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 9.
    
    Related Party Transactions
 a.
    
    The Partnership has entered into an omnibus agreement with Teekay Corporation, Teekay
LNG Partners L.P. and others governing, among other things, when the Partnership, Teekay
Corporation and Teekay LNG Partners L.P. may compete with each other and certain rights of
first offering on liquefied natural gas carriers, oil tankers, shuttle tankers, FSO units
and floating production, storage and offloading units.
 b.
    
    In July 2007, the Partnership acquired interests in two double-hull shuttle tankers
from Teekay Corporation for a total cost of $159.1 million, including assumption of debt of
$93.7 million and the related interest rate swap agreement. The Partnership acquired Teekay
Corporations 100% interest in the 2000-built Navion Bergenand its 50% interest in the
2006-built Navion Gothenburg, together with their respective 13-year, fixed-rate bareboat
charters to Petroleo Brasileiro S.A. The purchases were financed with one of the
Partnerships existing Revolvers and the assumption of debt.
 c.
    
    In October 2007, the Partnership acquired from Teekay Corporation an FSO unit, the
Dampier Spirit, along with its 7-year fixed-rate time-charter to Apache Corporation for a
total cost of $30.3 million. The purchase was financed with one of the Partnerships
existing Revolvers.
 d.
    
    In December 2007, Teekay Corporation contributed a $65.6 million, nine-year, 4.98%
interest rate swap agreement (used to hedge the debt assumed in the purchase of the Navion
Bergen) having a fair value liability of $2.6 million (Note 10), to the Partnership for no
consideration.
 e.
    
    In December 2007, Teekay Corporation agreed to reimburse OPCO for certain costs
relating to events which occurred prior to the Offering, totalling $4.8 million, including
the settlement of a customer dispute in respect of vessels delivered prior to the Offering
and other costs. This amount is included in other current assets.
 f.
    
    At December 31, 2007, advances to affiliates totaled $1.0 million. Advances to
affiliates are non-interest bearing and unsecured. This amount is included in other
current assets.
 10.
    
    Derivative Instruments and Hedging Activities
     Contract amount in
    
    
    Average
    
    
    Expected maturityforeign currency
    
    
    forward rate
    
    
    2008
    
    
    2009(millions)
    
    
    
    
    
    (in millions of U.S. Dollars)Norwegian Kroner
    
    
    255.7
    
    
    
    5.64
    
    
    
    
    
    
    $
    45.4Australian Dollar
    
    
    5.0
    
    
    
    1.25
    
    
    $
    4.0
    
    
    
    Singapore Dollar
    
    
    4.1
    
    
    
    1.44
    
    
    $
    2.9
    
    
    
    Euro
    
    
    4.0
    
    
    
    0.68
    
    
    $
    5.8
    
    
    
    
    F - 50




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
  Fair Value /
    
    
    Weighted-Carrying
    
    
    AverageInterest
    
    
    Principal
    
    
    Amount of
    
    
    Remaining
    
    
    Fixed InterestRate
    
    
    Amount
    
    
    Liability
    
    
    Term
    
    
    RateIndex
    
    
    $
    
    
    $
    
    
    (years)
    
    
    (%)(1)U.S. Dollar-denominated
interest rate swaps (restated)
    
    LIBOR
    
    
    935,000
    
    
    
    (9,374
    )
    
    
    6.5
    
    
    
    4.7U.S. Dollar-denominated interest rate swaps(2)
    
    LIBOR
    
    
    414,373
    
    
    
    (11,676
    )
    
    
    13.3
    
    
    
    5.0
 (1)
    
    Excludes the margin the Partnership pays on its variable-rate debt, which as at December 31, 2007, ranged from 0.50% and 0.80%.(2)
    
    Principal amount reduces quarterly or semiannually.  11.
    
    Income Taxes
  December 31,2007$(restated)Deferred tax liabilities:Vessels and equipment
    
    
    84,077Goodwill and intangible assets
    
    
    266Long-term debt
    
    
    94,071Total deferred tax liabilities
    
    
    178,414Deferred tax assets:Provisions
    
    
    1,012Tax losses carried forward (1)
    
    
    100,096Total deferred tax assets
    
    
    101,108Net deferred tax liabilities
    
    
    77,306Current portion
    
    
    Long-term portion of net deferred tax liabilities
    
    
    77,306
 (1)
    
    The net operating loss carryfowards are available to offset future taxable income in the
respective jurisdictions, and can be carried forward indefinitely. 12.
    
    Commitments and Contingencies
  13.
    
    Valuation and Qualifying Accounts
 Balance at beginning
    
    
    Balance at end ofof year
    
    
    year$
    
    
    $Allowance for bad debts:Year ended December 31, 2007
    
    
    401
    
    
    
    Restructuring cost accrual:Year ended December 31, 2007
    
    
    71
    
    
    
    
  F - 51




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 14.
    
    Supplemental information
  Teekay Offshore
    
    
    Consolidation of
    
    
    Teekay OffshoreG.P. L.L.C.
    
    
    Teekay Offshore
    
    
    G.P. L.L.C.Stand-alone
    
    
    Partners L.P.
    
    
    Consolidated(restated)
    
    
    (restated)ASSETSCurrentCash and cash equivalents
    
    
    282
    
    
    
    121,224
    
    
    
    121,506Accounts receivable, net of allowance for doubtful accounts of $nil
    
    
    
    
    
    
    42,245
    
    
    
    42,245Net investment in direct financing leases  current
    
    
    
    
    
    
    22,268
    
    
    
    22,268Prepaid expenses
    
    
    
    
    
    
    34,219
    
    
    
    34,219Other current assets
    
    
    173
    
    
    
    8,440
    
    
    
    8,613Total current assets
    
    
    455
    
    
    
    228,396
    
    
    
    228,851Vessels and equipmentAt cost, less accumulated depreciation of $693,338
    
    
    
    
    
    
    1,662,865
    
    
    
    1,662,865Net investment in direct financing leases
    
    
    
    
    
    
    78,199
    
    
    
    78,199Other assets
    
    
    3,046
    
    
    
    11,377
    
    
    
    14,423Intangible assets  net
    
    
    
    
    
    
    55,355
    
    
    
    55,355Goodwill  shuttle tanker segment
    
    
    
    
    
    
    127,113
    
    
    
    127,113Total assets
    
    
    3,501
    
    
    
    2,163,305
    
    
    
    2,166,806LIABILITIES AND MEMBERS/PARTNERS EQUITYCurrentAccounts payable
    
    
    
    
    
    
    12,076
    
    
    
    12,076Accrued liabilities
    
    
    
    
    
    
    38,464
    
    
    
    38,464Current portion of long-term debt
    
    
    
    
    
    
    64,060
    
    
    
    64,060Total current liabilities
    
    
    
    
    
    
    114,600
    
    
    
    114,600Long-term debt
    
    
    
    
    
    
    1,453,407
    
    
    
    1,453,407Deferred income taxes
    
    
    
    
    
    
    77,306
    
    
    
    77,306Other long-term liabilities
    
    
    
    
    
    
    51,024
    
    
    
    51,024Total liabilities
    
    
    
    
    
    
    1,696,337
    
    
    
    1,696,337Non-controlling interest
    
    
    
    
    
    
    468,466
    
    
    
    468,466Members/Partners equityMembers/Partners equity
    
    
    3,501
    
    
    
    (1,504
    )
    
    
    1,997Accumulated other comprehensive income
    
    
    
    
    
    
    6
    
    
    
    6Total members/partners equity
    
    
    3,501
    
    
    
    (1,498
    )
    
    
    2,003Total liabilities and members/partners equity
    
    
    3,501
    
    
    
    2,163,305
    
    
    
    2,166,806
 15.
    
    Restatement of Previously Issued Financial Statements
 SFAS Accounting for Derivative Instruments and Hedging
Activities
 
    
    One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based
on the Partnerships review, the Partnership concluded that the prospective hedge
effectiveness assessment that was conducted for certain of the Partnership interest rate
swaps on the date of designation was not sufficient to conclude that the interest rate
swaps would be highly effective in accordance with the technical requirements of SFAS No.
133, in achieving offsetting changes in cash flows attributable to the risk being hedged.
  F - 52




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 
    
    To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of the
Partnerships interest rate swap agreements did not clearly specify the method to be used
to measure hedge ineffectiveness.
 
    
    Certain of the Partnerships derivative instruments were designated as hedges when the
derivative instruments had a non-zero fair value. However, this designation was not
appropriate as the Partnership used certain methods of measuring ineffectiveness that are
prohibited in the case of non-zero fair value derivatives.
    DerivativeAs
    
    
    Instruments
    
    
    AsReported
    
    
    and Other
    
    
    Restated$
    
    
    $
    
    
    $ASSETSCurrentCash and cash equivalents
    
    
    121,506
    
    
    
    
    
    
    
    121,506Accounts receivable, net of allowance for doubtful accounts of $nil
    
    
    42,245
    
    
    
    
    
    
    
    42,245Net investment in direct financing leases  current
    
    
    22,268
    
    
    
    
    
    
    
    22,268Prepaid expenses
    
    
    34,219
    
    
    
    
    
    
    
    34,219Other current assets
    
    
    8,613
    
    
    
    
    
    
    
    8,613Total current assets
    
    
    228,851
    
    
    
    
    
    
    
    228,851Vessels and equipmentAt cost, less accumulated depreciation
    
    
    1,662,865
    
    
    
    
    
    
    
    1,662,865Net investment in direct financing leases
    
    
    78,199
    
    
    
    
    
    
    
    78,199Other assets
    
    
    14,423
    
    
    
    
    
    
    
    14,423Intangible assets  net
    
    
    55,355
    
    
    
    
    
    
    
    55,355Goodwill  shuttle tanker segment
    
    
    127,113
    
    
    
    
    
    
    
    127,113Total assets
    
    
    2,166,806
    
    
    
    
    
    
    
    2,166,806LIABILITIES AND MEMBERS/PARTNERS EQUITYCurrentAccounts payable
    
    
    12,076
    
    
    
    
    
    
    
    12,076Accrued liabilities
    
    
    38,464
    
    
    
    
    
    
    
    38,464Current portion of long-term debt
    
    
    64,060
    
    
    
    
    
    
    
    64,060Total current liabilities
    
    
    114,600
    
    
    
    
    
    
    
    114,600Long-term debt
    
    
    1,453,407
    
    
    
    
    
    
    
    1,453,407Deferred income taxes
    
    
    75,706
    
    
    
    1,600
    
    
    
    77,306Other long-term liabilities
    
    
    50,024
    
    
    
    1,000
    
    
    
    51,024Total liabilities
    
    
    1,693,737
    
    
    
    2,600
    
    
    
    1,696,337Non-controlling interest
    
    
    470,995
    
    
    
    (2,529
    )
    
    
    468,466Members/Partners equityMembers/Partners equity
    
    
    2,181
    
    
    
    (184
    )
    
    
    1,997Accumulated other comprehensive (loss) income
    
    
    (107
    )
    
    
    113
    
    
    
    6Total members/partners equity
    
    
    2,074
    
    
    
    (71
    )
    
    
    2,003Total liabilities and members/partners equity
    
    
    2,166,806
    
    
    
    
    
    
    
    2,166,806
  F - 53




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TEEKAY OFFSHORE GP L.L.C.
NOTES TO THE CONSOLIDATED BALANCE SHEET  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, unless otherwise indicated)
 16.
    
    Subsequent Events
 (a)
    
    In March 2008, a subsidiary of OPCO sold certain vessel equipment to a subsidiary of Teekay
Corporation for proceeds equal to its net book value of $1.4 million.
 (b)
    
    On June 18, 2008, the Partnership completed a follow-on public offering of 7.0 million
common units at a price of $20.00 per unit, for gross proceeds of $140.0 million.
Concurrently with the public offering, Teekay Corporation acquired 3.25 million common units
of the Partnership at the same public offering price for a total cost of $65.0 million. On
July 16, 2008, the underwriters for the public offering partially exercised their
over-allotment option and purchased an additional 375,000 common units for an additional $7.5
million in gross proceeds to the Partnership.
  (c)
    
    On June 18, 2008, OPCO acquired from Teekay Corporation two ship owning subsidiaries (SPT
Explorer L.L.C. and the SPT Navigator L.L.C.) for a total cost of approximately $106.0
million, including the assumption of debt of $90.0 million. The acquired subsidiaries own two
2008-built Aframax lightering tankers and their related 10-year, fixed-rate bareboat charters
(with options exercisable by the charterer to extend up to an additional five years) entered
into with Skaugen PetroTrans Inc., a company in which Teekay Corporation owns a 50%
beneficial interest. These two lightering tankers are specially designed to be used in
ship-to-ship oil transfer operations. This purchase was financed with the assumption of debt,
together with cash balances.
  F - 54