# UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 20-F

| | (Mark One) |  | 
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| | [   ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
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OR

| | [ X ] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
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For the fiscal year ended December 31, 2004

OR

| | [   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | 
| | ----- | ---------------------------------------------------------------------------------------- | 

Commission file number 1- 12874

TEEKAY SHIPPING CORPORATION(Exact name of Registrant as specified in its charter)

Republic of The Marshall Islands(Jurisdiction of
 incorporation or organization)

TK House, Bayside Executive Park, West Bay Street &
 Blake Road, P.O. Box AP-59212, Nassau,Commonwealth of the Bahamas (Address of principal executive
 offices)

Securities registered or to be registered pursuant
 to Section 12(b) of the Act.

|Title of each classCommon Stock, par value of $0.001 per share8.32% First Preferred Ship Mortgage Notes due 20067.25% PEPS Unit | Name of each exchange on which registeredNew York Stock ExchangeNew York Stock ExchangeNew York Stock Exchange
|------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------

Securities registered or to be registered pursuant
 to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation
 pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of
 the issuers classes of capital or common stock as of the close of the period covered by the annual
 report.

82,951,275 shares of Common Stock, par value of $0.001 per share.

Indicate by check mark whether the registrant (1) has
 filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
 during the preceding 12 months (or for such shorter period that the registrant was required to file
 such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark which financial statement item
 the registrant has elected to follow:

TEEKAY SHIPPING CORPORATION INDEX TO REPORT
 ON FORM 20-F

`Page
 PART I. 

  Item 1.           Identity of Directors, Senior Management and Advisors.....................  Not applicable
  Item 2.           Offer Statistics and Expected Timetable...................................  Not applicable
  Item 3.           Key Information.................................................................   3
  Item 4.           Information on the Company......................................................   9
  Item 5.           Operating and Financial Review and Prospects....................................  19
  Item 6.           Directors, Senior Management and Employees......................................  29
  Item 7.           Major Shareholders and Related Party Transactions...............................  33
  Item 8.           Financial Information...........................................................  34
  Item 9.           The Offer and Listing...........................................................  34
  Item 10.          Additional Information..........................................................  35
  Item 11.          Quantitative and Qualitative Disclosures About Market Risk......................  37
  Item 12.          Description of Securities Other than Equity Securities....................  Not applicable

 PART II.

  Item 13.          Defaults, Dividend Arrearages and Delinquencies.................................  39
  Item 14.          Material Modifications to the Rights of Security Holders and Use of Proceeds....  39
  Item 15.          Controls and Procedures.........................................................  39
  Item 16A.         Audit Committee Financial Expert................................................  39
  Item 16B.         Code of Ethics..................................................................  39
  Item 16C.         Principal Accountant Fees and Services..........................................  39
  Item 16D.         Exemptions from the Listing Standards for Audit Committees......................  40
  Item 16E.         Purchases of Equity Securities by the Issuer and Affiliated Purchasers..........  40


 PART III.

  Item 17.          Financial Statements......................................................  Not applicable
  Item 18.          Financial Statements............................................................  40
  Item 19.          Exhibits........................................................................  40
  Signature         ................................................................................  44`

PART I

This Annual Report should be read
in conjunction with the consolidated financial statements and accompanying notes included
in this report.

In addition to historical
information, this Annual Report contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements relate to future events and our operations,
objectives, expectations, performance, financial condition and intentions. When used in
this Annual Report, the words expect, intend, plan,
believe, anticipate, estimate and variations of such
words and similar expressions are intended to identify forward-looking statements.
Forward-looking statements in this Annual Report include, in particular, statements
regarding: our future growth prospects; tanker market fundamentals, including the balance
of supply and demand in the tanker market, and spot tanker charter rates; future capital
expenditures; delivery dates of and financing for newbuildings, and the commencement of
service of newbuildings under long-term time charter contacts; the impact of the Teekay
Spain acquisition to our earnings, future cash flow from vessel operations and strategic
position; the growth prospects of the LNG shipping sector, including increased
competition, and the joint venture company with the former controlling shareholder of
Teekay Spain; the initial public offering of Teekay LNG Partners L.P.; the expected impact
of IMO regulations and regulations of the European Union Parliament; the expected lifespan
of a new LNG carrier; the expected impact of the heightened environmental and quality
concerns of insurance underwriters, regulators and charterers; the growth of the global
economy and global oil demand; and the proceeds and gains in the first and second quarters
of 2006 relating to the sale of certain of our vessels. Forward-looking statements
include, without limitation, any statement that may predict, forecast, indicate or imply
future results, performance or achievements, and may contain the words believe,
anticipate, expect, estimate, project, will be, will continue, will likely result, or
words or phrases of similar meanings. These statements involve known and unknown risks and
are based upon a number of assumptions and estimates that are inherently subject to
significant uncertainties and contingencies, many of which are beyond our control. Actual
results may differ materially from those expressed or implied by such forward-looking
statements. Important factors that could cause actual results to differ materially
include, but are not limited to: changes in production of or demand for oil, petroleum
products and LNG, either generally or in particular regions; the cyclical nature of the
tanker industry and our dependence on oil markets; greater or less than anticipated levels
of tanker newbuilding orders or greater or less than anticipated rates of tanker
scrapping; changes in trading patterns significantly impacting overall tanker tonnage
requirements; changes in applicable industry laws and regulations and the timing of
implementation of new laws and regulations; changes in typical seasonal variations in
tanker charter rates; changes in the offshore production of oil, competitive factors in
the markets in which we operate; our potential inability to integrate effectively the
operations of Teekay Spain or any other future acquisitions; the potential for early
termination of long-term contracts and inability of the Company to renew or replace
long-term contracts; shipyard production delays; conditions in the public equity markets;
the ultimate number of common units and price per unit, if any, issued by Teekay LNG
Partners L.P. in its proposed public offering; and other factors detailed from time to
time in our periodic reports.

Forward-looking statements in this
Annual Report are necessarily estimates reflecting the judgment of senior management and
involve known and unknown risks and uncertainties. These forward-looking statements are
based upon a number of assumptions and estimates that are inherently subject to
significant uncertainties and contingencies, many of which are beyond our control. Actual
results may differ materially from those expressed or implied by such forward-looking
statements. Accordingly, these forward-looking statements should, be considered in light
of various important factors, including those set forth in this Annual Report under the
heading Factors That May Affect Future Results.

We do not intend to revise any
forward-looking statements in order to reflect any change in our expectations or events or
circumstances that may subsequently arise. You should carefully review and consider the
various disclosures included in this Annual Report and in our other filings made with the
SEC that attempt to advise interested parties of the risks and factors that may affect our
business, prospects and results of operations.

Item 1.   Identity of Directors, Senior Management and AdvisorsNot applicable.

Item 2.  Offer Statistics and Expected TimetableNot applicable.

Item 3.   Key Information

# Selected Financial Data

Set forth below are selected
consolidated financial and other data of Teekay Shipping Corporation together with its
subsidiaries (sometimes referred to as Teekay, the Company,
we or us), for the years ended December 31, 2004, 2003, 2002, 2001
and 2000, which have been derived from our consolidated financial statements. The data
below should be read in conjunction with the consolidated financial statements and the
notes thereto and the Report of Independent Registered Public Accounting Firm therein,
with respect to the consolidated financial statements for the years ended December 31,
2004, 2003, and 2002, and Item 5. Operating and Financial Review and
Prospects, included herein.

Our consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United
States.

`Year Ended     Year Ended      Year Ended     Year Ended      Year Ended
                                    December 31,   December 31,    December 31,   December 31,    December 31,
                                        2004           2003            2002           2001            2000
                                            (in thousands, except share, per share data and ratios)
Income Statement Data:
Voyage revenues....................  $2,219,238     $1,576,095       $783,327      $1,039,056       $893,226
Total operating expenses (1).......  (1,398,052)    (1,283,131)      (663,981)       (655,593)      (565,551)
Income from vessel operations......     821,186        292,964        119,346         383,463        327,675
Interest expense...................    (121,518)       (80,999)       (57,974)        (66,249)       (74,540)
Interest income....................      18,528          3,921          3,494           9,196         13,021
Equity income from joint ventures..      13,730          6,970          4,523          17,324          9,546
Gain (loss) on sale of marketable
securities.........................      93,175            517         (1,130)            758              -
Other - net........................     (67,661)       (46,009)       (14,868)         (7,974)        (5,682)
Net income.........................     757,440        177,364         53,391         336,518        270,020

Per Share Data:
Net income - basic (2).............       $9.14          $2.22          $0.67           $4.24          $3.51
Net income - diluted (2)...........        8.63           2.18           0.66            4.16           3.43
Cash dividends declared (2)........        0.51           0.45           0.43            0.43           0.43

Balance Sheet Data (at end of year):
Cash and marketable securities.....   $ 427,037      $ 387,795      $ 298,255       $ 196,004      $ 223,123
Restricted cash....................     448,812          2,672          8,785           7,833              -
Vessels and equipment..............   3,531,287      2,574,860      2,066,657       2,043,098      1,607,716
Total assets.......................   5,503,740      3,588,044      2,723,506       2,467,781      1,974,099
Total debt (including capital lease
obligations).......................   2,744,545      1,636,758      1,130,822         935,702        797,484
Capital stock......................     534,938        492,653        470,988         467,341        452,808
Total stockholders' equity.........   2,237,358      1,651,827      1,421,898       1,398,200      1,098,512
Number of outstanding shares of
common stock (2)...................  82,951,275     81,222,350     79,384,120      79,100,652     78,290,438

Other Financial Data:
Net voyage revenues (3)............  $1,786,843     $1,181,439      $ 543,872       $ 789,494      $ 644,269
Net operating cash flow............     814,704        455,575        179,531         500,086        321,314
Total debt to total
capitalization (4) (5).............       54.9%          49.5%          43.9%           39.8%          42.1%
Net debt to total net
capitalization (5) (6).............       45.3%          44.5%          36.4%           34.3%          34.3%
Capital expenditures:
  Vessel and equipment
     purchases, gross (7)..........     548,587        372,433        135,650         184,983         43,512`

---

| | (1) | Total operating expenses includes vessel write-downs and (gain) loss on sale of
          vessels, and restructuring charges as follows:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

`Year Ended      Year Ended       Year Ended     Year Ended     Year Ended
                                    December 31,    December 31,     December 31,   December 31,   December 31,
                                        2004            2003            2002           2001           2000
                                                                    (in thousands)
       Vessel write-downs and
       (gain) loss on sale of
       vessels.....................   $(79,254)        $90,389             $-             $-          $1,004
       Restructuring charges.......      1,002           6,383              -              -               -
                                   --------------- ---------------- --------------- -------------- --------------
                                       (78,252)         96,772              -              -           1,004
                                   =============== ================ =============== ============== ==============`

| | (2) | On May 17, 2004, we effected a two-for-one stock split relating to our common
          stock. All per share data and number of outstanding shares of common stock give
          effect to this stock split retroactively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | 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
          our vessels and their performance. Under time charters the charterer pays the
          voyage expenses, whereas under voyage charter contracts the ship owner pays the
          voyage expenses. Some voyage expenses are fixed, and the remainder can be
          estimated. If we, as the ship owner, pay the voyage expenses, we typically pass
          the approximate amount of these expenses on to our 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 and to industry averages. The following table reconciles net
          voyage revenues with voyage revenues.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year Ended      Year Ended      Year Ended      Year Ended       Year Ended
                                   December 31,    December 31,    December 31,    December 31,     December 31,
                                       2004             2003           2002            2001             2000
                                                                 (in thousands)

       Voyage revenues.........     $2,219,238      $1,576,095       $783,327       $1,039,056        $893,226
       Voyage expenses.........       (432,395)       (394,656)      (239,455)        (249,562)       (248,957)
                                  ---------------- --------------- --------------- --------------- --------------
       Net voyage revenues.....      1,786,843       1,181,439        543,872          789,494         644,269
                                  ================ =============== =============== =============== ==============`

| | (4) | Total capitalization represents total debt, minority interest and total
          stockholders equity.
| | --- | -------------------------------------------------------------------------------------------------------

| | (5) | As at December 31, 2004, we had $143.7 million of Premium Equity Participating
          Security Units due May 18, 2006 (or Equity Units) outstanding. If these
          Equity Units, which were issued on February 16, 2003, were presented as equity,
          our total debt to total capitalization would have been 52.1% as of December 31,
          2004 (December 31, 2003  45.2%) and our net debt to total capitalization
          would have been 41.9% as of December 31, 2004 (December 31, 2003  39.8%).
          We believe that this presentation as equity for the purposes of these
          calculations is consistent with the requirement of each Equity Unit holder to
          purchase for $25 a specified fraction of a share of our common stock on February
          16, 2006.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Net debt represents total debt less cash, cash equivalents, restricted cash and
          short-term marketable securities. Total net capitalization represents net debt,
          minority interest and total stockholders equity.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Excludes vessels purchased in connection with our acquisitions of Ugland Nordic
          Shipping AS in 2001, Navion AS in 2003 and Teekay Shipping Spain S.L. (or
          Teekay Spain) in 2004. Please see Item 5  Operating and Financial
          Review and Prospects.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Factors That May Affect
Future Results

# The cyclical nature of
the tanker industry causes volatility in our profitability.

Historically, the tanker industry has
been cyclical, experiencing volatility in profitability due to changes in the supply of,
and demand for, tanker capacity. Increases or decreases in the supply of tankers could
have a material adverse effect on our business, financial condition and results of
operations. The supply of tanker capacity is influenced by the number and size of new
vessels built, older vessels scrapped, converted and lost, the number of vessels that are
out of service and regulations that may effectively cause early obsolescence of tonnage.
The demand for tanker capacity is influenced by, among other factors: global and regional
economic conditions; increases and decreases in production of and demand for crude oil and
petroleum products; increases and decreases in OPEC oil production quotas; the distance
crude oil and petroleum products need to be transported by sea; and developments in
international trade and changes in seaborne and other transportation patterns.

Because many of the factors
influencing the supply of and demand for tanker capacity are unpredictable, the nature,
timing and degree of changes in tanker industry conditions are also unpredictable.

# We depend upon oil
markets, changes in which could result in decreased demand for our vessels and services.

Demand for our vessels and services
in transporting crude oil and petroleum products depends upon world and regional oil
markets. Any decrease in shipments of crude oil in those markets could have a material
adverse effect on our business, financial condition and results of operations.Historically, those markets have been volatile as a result of the many conditions and
events that affect the price, production and transport of oil, as well as competition from
alternative energy sources. A slowdown of the United States and world economies may result
in reduced consumption of crude oil and petroleum products and a decreased demand for our
vessels and services.

# Terrorist attacks,
increased hostilities or war could lead to further economic instability, increased costs
and disruption of our business.

Terrorist attacks, such as the
attacks that occurred in the United States on September 11, 2001, the bombings in Spain on
March 11, 2004, the current conflict in Iraq and current and future conflicts, may
adversely affect our business, operating results, financial condition, ability to raise
capital or future growth. Continuing hostilities in the Middle East may lead to additional
armed conflicts or to further acts of terrorism and civil disturbance in the United
States, Spain or elsewhere, which may contribute further to economic instability and
disruption of oil and liquefied natural gas (or LNG) production and distribution,
which could result in reduced demand for our services. In addition, oil and LNG
facilities, shipyards, vessels, pipelines and oil and gas fields could be targets of
future terrorist attacks. Any such attacks could lead to, among other things, bodily
injury or loss of life, vessel or other property damage, increased vessel operational
costs, including insurance costs, and the inability to transport oil and LNG to or from
certain locations. Terrorist attacks, war or other events beyond our control that
adversely affect the distribution, production or transportation of oil or LNG to be
shipped by us could entitle our customers to terminate our charter contracts, which could
harm our cash flow and our business.

# Our substantial
operations outside the United States expose us to political, governmental and economic instability,
which could harm our operations.

Because our operations are primarily
conducted outside of the United States, they may be affected by economic, political and
governmental conditions in the countries where we are engaged in business or where our
vessels are registered. Any disruption caused by these factors could harm our business. In
particular, we derive a substantial portion of our revenues from shipping oil and LNG from
politically unstable regions. Past political conflicts in these regions, particularly in
the Arabian Gulf, have included attacks on ships, mining of waterways and other efforts to
disrupt shipping in the area. In addition to acts of terrorism, vessels trading in this
and other regions have also been subject, in limited circumstances, to piracy. Future
hostilities or other political instability in the Arabian Gulf or other regions where we
operate or may operate could have a material adverse effect on the growth of our business,
results of operations and financial condition. In addition, tariffs, trade embargoes and
other economic sanctions by Spain, the United States or other countries against countries
in the Middle East, Southeast Asia or elsewhere as a result of terrorist attacks,
hostilities or otherwise may limit trading activities with those countries, which could
also harm our business.

# Our dependence on spot
voyages may result in significant fluctuations in the utilization of our vessels and our profitability.

During 2004 and 2003, we derived
approximately 62% and 63%, respectively, of our net voyage revenues from the vessels in
our spot tanker segment. Our spot tanker segment consists of conventional crude oil
tankers, oil/bulk/ore carriers and product carriers operating on the spot market or
subject to time charters or contracts of affreightment priced on a spot-market basis or
short-term fixed-rate contracts. We consider contracts that have an original term of less
than three years in duration to be short-term. All of our very large crude carrier fleet,
and substantially all of our conventional Aframax tanker fleet, and large product and
small product tanker fleets, and approximately half of our Suezmax tanker fleet are among
the vessels included in our spot tanker segment. Due to our dependence on the spot charter
market, declining charter rates in a given period generally will result in corresponding
declines in operating results for that period. The spot charter market is highly
competitive and spot charter rates are subject to significant fluctuations based on tanker
and oil supply and demand. Charter rates have varied significantly in the last few years.
Future spot charters may not be available at rates that will be sufficient to enable our
vessels to be operated profitably or to provide sufficient cash flow to service our debt
obligations.

# Reduction in oil produced
from offshore oil fields could harm our shuttle tanker business.

Demand for our shuttle tankers in
transporting crude oil and petroleum products depends upon the amount of oil produced from
offshore oil fields, especially in the North Sea, where our shuttle tankers primarily
operate. As oil prices increase, the prospect of offshore oil exploration and development
of offshore oil fields, which cost more to develop than land oil fields, becomes more
attractive to oil companies. However, when oil prices decline, it becomes less attractive
for oil companies to explore for oil offshore and develop offshore oil fields. If the
amount of oil produced from offshore oil fields declines, especially in the North Sea, our
shuttle tanker business could be harmed. In addition, if for environmental or other
reasons, there is a change in policy towards using pipelines rather than oceangoing
vessels in transporting crude oil and petroleum products from offshore oil fields, our
shuttle tanker business could be adversely affected, which could have a material adverse
effect on our business, financial condition and results of operations. As at December 31,
2004, we had 41 vessels (including 12 chartered-in vessels and one tanker held for sale)
in our shuttle tanker fleet. Most of our shuttle tanker revenues are derived from
long-term contracts of affreightment. Revenue under most of these contracts depends upon
the amount of oil we transport, the production of which is beyond our control and which
can vary depending upon the nature of a given oil field and the field operators
production decisions.

# Our growth partially
depends on continued growth in demand for LNG and LNG shipping.

A portion of our growth strategy
focuses on expansion in the LNG shipping sector and, thus, depends on continued growth in
world and regional demand for LNG and LNG shipping and supply of LNG.

Demand for LNG and LNG shipping could
be negatively affected by a number of factors, such as increases in the costs of natural
gas derived from LNG relative to the cost of natural gas generally, increases in the
production of natural gas in areas linked by pipelines to consuming areas, increases in
the price of LNG relative to other energy sources, the availability of new energy sources,
and negative global or regional economic or political conditions. Reduced demand for LNG
and LNG shipping would have a material adverse effect on future growth of our LNG segment,
and could harm that segments results.

Growth of the LNG market may be
limited by infrastructure constraints and community and environmental group resistance to
new LNG infrastructure over concerns about the environment, safety and terrorism. If the
LNG supply chain is disrupted or does not continue to grow, or if a significant LNG
explosion, spill or similar incident occurs, it could have a material adverse effect on
our business, results of operations and financial condition.

# The intense competition in our
markets may lead to reduced profitability or expansion opportunities.

Our crude oil and product tankers
operate in highly competitive markets. Competition arises primarily from other
conventional Aframax and shuttle tanker owners, including major oil companies and
independent companies. We also compete with owners of other size tankers. Our market share
is insufficient to enforce any degree of pricing discipline in the markets in which we
operate and our competitive position may erode in the future. Any new markets that we
enter could include participants that have greater financial strength and capital
resources than we have. We may not be successful in entering new markets.

One of our objectives is to enter
into additional long-term, fixed-rate LNG time charters. The process of obtaining new
long-term time charters is highly competitive and generally involves an intensive
screening process and competitive bids, and often extends for several months. We expect
substantial competition for providing marine transportation services for potential LNG
projects from a number of experienced companies, including state-sponsored entities and
major energy companies affiliated with the LNG project requiring LNG shipping services.
Many of these competitors have greater experience in the LNG market and significantly
greater financial resources than do we. We anticipate that an increasing number of marine
transportation companies, including many with strong reputations and extensive resources
and experience will enter the LNG transportation sector. This increased competition may
cause greater price competition for time charters. As a result of these factors, we may be
unable to expand our relationships with existing customers or to obtain new customers on a
profitable basis, if at all, which would have a material adverse effect on our business,
results of operations and financial condition.

# The loss of any key
customer could result in a significant loss of revenue in a given period.

We have derived, and believe that we
will continue to derive, a significant portion of our voyage revenues from a limited
number of customers. One customer accounted for 17% ($373.7 million) of our consolidated
voyage revenues during 2004. The same customer accounted for 15% ($239.5 million) of our
consolidated voyage revenues during 2003. No customer accounted for more than 10% of our
consolidated voyage revenue during 2002. The loss of any significant customer or a
substantial decline in the amount of services requested by a significant customer could
have a material adverse effect on our business, financial condition and results of
operations.

# The tanker industry is
subject to substantial environmental and other regulations, which may significantly increase
our expenses.

Our operations are affected by
extensive and changing environmental protection laws and other regulations and
international conventions. We have incurred, and expect to continue to incur, substantial
expenses in complying with these laws and regulations, including expenses for ship
modifications and changes in operating procedures. Additional laws and regulations may be
adopted that could limit our ability to do business or further increase our costs, which
could harm our business. This could have a material adverse effect on our business,
financial condition and results of operations.

The United States Oil Pollution Act
of 1990 (or OPA 90) in particular has increased our expenses. OPA 90 provides for
the phase-in of the exclusive use of double-hull tankers at United States ports, as well
as potentially unlimited liability for owners, operators and demise or bareboat charterers
for oil pollution in U.S. waters. To comply with the OPA 90, tanker owners generally incur
increased costs in meeting additional maintenance and inspection requirements, in
developing contingency arrangements for potential spills and in obtaining required
insurance coverage. OPA 90 contains financial responsibility requirements for vessels
operating in U.S. waters and requires owners and operators of vessels to establish and
maintain with the United States Coast Guard evidence of insurance or of qualification as a
self-insurer or other evidence of financial responsibility sufficient to meet their
potential liabilities under the OPA 90.

Following the example of the OPA 90,
the International Maritime Organization (or IMO), the United Nations agency
for maritime safety, has adopted regulations for tanker design and inspection that are
designed to reduce oil pollution in international waters. Most recently, on December 9,
2003 the IMO announced regulations accelerating the phase out of single hull tankers. The
regulations also impose a more rigorous inspection regime for older tankers and ban the
carriage of heavy oils on single-hull tankers. As a result of changes to these
regulations, we recorded a non-cash write-down of the book value of certain vessels
totalling $56.9 million during the fourth quarter of 2003. The IMOs accelerated
phase out schedule will affect two of our existing vessels, effectively reducing the
economic life of each of these vessels. Please see Item 4. Information on the Company:
Regulations.

Our shuttle tankers primarily operate
in the North Sea. In addition to the regulations imposed by the IMO, countries having
jurisdiction over North Sea areas impose regulatory requirements in connection with
operations in those areas. These regulatory requirements, together with additional
requirements imposed by operators of North Sea oil fields, require that we make further
expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle
tankers and for the training of seagoing staff. Additional regulations and requirements
may be adopted or imposed that could limit our ability to do business or further increase
the cost of doing business in the North Sea.

# We may not be able to
successfully integrate future acquisitions.

A principal component of our strategy
is to continue to grow by expanding our business both in the geographic areas and markets
where we have historically focused as well as into new geographic areas, market segments
and services. We may not be successful in expanding our operations and any expansion may
not be profitable. Our strategy of growth through acquisitions, including our acquisition
in April 2004 of Teekay Spain, involves business risks commonly encountered in
acquisitions of companies, including: disruption of our ongoing business; difficulties in
integrating the operations, personnel and business culture of acquired companies;
difficulties of coordinating and managing geographically separate organizations; adverse
effects on relationships with our existing suppliers and customers, and those of the
companies acquired; difficulties entering geographic markets or new market segments in
which we have no or limited experience; and loss of key officers and employees of acquired
companies.

Our failure to effectively integrate
businesses we may acquire in the future may harm our business and results of operations.

The process of integrating operations
could also cause an interruption of, or loss of momentum in, the activities of one or more
of an acquired companys businesses and our businesses. Members of our senior
management may be required to devote considerable amounts of time to this integration
process, which will decrease the time they will have to manage our business, service
existing customers and attract new customers. If our senior management is not able to
effectively manage the integration process, or if any significant business activities are
interrupted as a result of the integration process, our business could suffer.

# We may not realize
expected benefits from acquisitions, and implementing our strategy of growth through acquisitions
may harm our financial condition and performance.

Present and future acquisitions may
not be profitable to us at the time of their completion and may not generate revenues
sufficient to justify our investment. In addition, our acquisition growth strategy exposes
us to risks that may harm our results of operations and financial condition, including
risks that we may: fail to realize anticipated benefits, such as cost-savings, revenue and
cash flow enhancements and earnings accretion; decrease our liquidity by using a
significant portion of our available cash or borrowing capacity to finance acquisitions;
incur additional indebtedness, which may result in significantly increased interest
expense or financial leverage, or issue additional equity securities to finance
acquisitions, which may result in significant shareholder dilution; incur or assume
unanticipated liabilities, losses or costs associated with the business acquired; or incur
other significant charges, such as impairment of goodwill or other intangible assets,
asset devaluation or restructuring charges.

# The strain that growth
places upon our systems and management resources may harm our business.

Our growth has placed and will
continue to place significant demands on our management, operational and financial
resources. As we expand our operations, we must effectively manage and monitor operations,
control costs and maintain effective quality and control in geographically dispersed
markets. Our future growth and financial performance will also depend on our ability to:
recruit, train, manage and motivate our employees to support our expanded operations; and
continue to improve our customer support, financial controls and information systems.

These efforts may not be successful
and may not occur in a timely or efficient manner. Failure to effectively manage our
growth and the system and procedural transitions required by expansion in a cost-effective
manner could have a material adverse affect on our business.

# Our insurance may not be
sufficient to cover losses that may occur to our property or as a result of our operations.

The operation of oil tankers and LNG
carriers is inherently risky. Although we carry protection and indemnity insurance, all
risks may not be adequately insured against, and any particular claim may not be paid. In
addition, we do not carry insurance on our oil tankers covering the loss of revenues
resulting from vessel off-hire time due to its cost compared to our off-hire experience.
In the future, we may not continue to maintain off-hire insurance for our LNG carriers.
Any claims covered by insurance would be subject to deductibles, and since it is possible
that a large number of claims may be brought, the aggregate amount of these deductibles
could be material. Certain of our insurance coverage is maintained through mutual
protection and indemnity associations, and as a member of such associations we may be
required to make additional payments over and above budgeted premiums if member claims
exceed association reserves.

We may be unable to procure adequate
insurance coverage at commercially reasonable rates in the future. For example, more
stringent environmental regulations have led in the past to increased costs for, and in
the future may result in the lack of availability of, insurance against risks of
environmental damage of pollution. A catastrophic oil spill or marine disaster could
exceed our insurance coverage, which could harm our business, financial condition and
operating results. Any uninsured or underinsured loss could harm our business and
financial condition. In addition, our insurance may be voidable by the insurers as a
result of certain of our actions, such as our ships failing to maintain certification with
applicable maritime self-regulatory organizations.

Changes in the insurance markets
attributable to terrorist attacks may also make certain types of insurance more difficult
for us to obtain. In addition, the insurance that may be available to us may be
significantly more expensive than our existing coverage.

# An incident involving
environmental damage or pollution and any of our vessels could harm our reputation and business.

Oil spills related to the sinkings of
the tanker Erika off the coast of France in 1999 and the tanker Prestigeoff
the coast of Spain in 2002, and other tanker-related environmental incidents have created
increased demand for modern vessels operated by ship management companies with a
reputation for safety and environmental compliance. Any event involving our tankers that
results in material environmental damage or pollution could harm our reputation for safety
and environmental compliance and decrease the demand for our services, which could harm
our business.

# Our operating results are
subject to seasonal fluctuations.

We operate our tankers in markets
that have historically exhibited seasonal variations in demand and, therefore, in charter
rates. This seasonality may result in quarter-to-quarter volatility in our results of
operations. Tanker markets are typically stronger in the winter months as a result of
increased oil consumption in the northern hemisphere. In addition, unpredictable weather
patterns in these months tend to disrupt vessel scheduling. The oil price volatility
resulting from these factors has historically led to increased oil trading activities in
the winter months. As a result, our revenues have historically been weaker during fiscal
quarters ended June 30 and September 30, and, conversely, revenues have been stronger in
fiscal quarters ended December 31 and March 31.

# We expend substantial
sums during construction of newbuildings without earning revenue and without assurance
that they will be completed.

We are typically required to expend
substantial sums as progress payments during construction of a newbuilding, but we do not
derive any revenue from the vessel until after its delivery. In addition, under some of
our time charters if our delivery of a vessel to a customer is delayed, we may be required
to pay liquidated damages in amounts equal to or, under some charters, almost double the
hire rate during the delay. For prolonged delays, the customer may terminate the time
charter and, in addition to the resulting loss of revenues, we may be responsible for
additional substantial liquidated charges.

If we were unable to obtain financing
required to complete payments on any of our newbuilding orders, we could effectively
forfeit all or a portion of the progress payments previously made. As of December 31,
2004, we had 15 newbuildings on order with deliveries scheduled between 2005 and 2008. We
may order additional newbuildings in the future.

# Exposure to currency
exchange rate and interest rate fluctuations could result in fluctuations in our cash
flows and operating results.

Substantially all of our revenues are
earned in U.S. Dollars, although we are paid in Euros and Australian Dollars under some of
our charters. A portion of our operating costs are incurred in currencies other than U.S.
Dollars. This partial mismatch in operating revenues and expenses could lead to
fluctuations in net income due to changes in the value of the U.S. dollar relative to
other currencies, in particular the Norwegian Kroner, the Australian Dollar, the Canadian
Dollar, the Singapore Dollar, the Japanese Yen, the British Pound and the Euro. We also
make payments under two Euro-denominated term loans. If the amount of our Euro-denominated
obligations exceeds our Euro denominated revenues, we must convert other currencies,
primarily the U.S. Dollar, into Euros. An increase in the strength of the Euro relative to
the U.S. Dollar would require us to convert more U.S. Dollars to Euros to satisfy those
obligations.

Because we report our operating
results in U.S. Dollars, changes in the value of the U.S. Dollar relative to other
currencies also result in fluctuations of our reported revenues and earnings. In addition,
under U.S. accounting guidelines, all foreign currency-denominated monetary assets and
liabilities, such as cash and cash equivalents, accounts receivable, restricted cash,
accounts payable, long-term debt and capital lease obligations, are revalued and reported
based on the prevailing exchange rate at the end of the period. This revaluation causes us
to report significant non-monetary foreign currency exchange gains and losses each period.
The primary source of these gains and losses is our Euro-denominated term loans.

At December 31, 2004, approximately
$1,561.8 million, or 74%, of our debt bore interest at floating interest rates. To
partially mitigate this interest rate exposure, we have entered into interest rate swaps
that effectively change our interest rate exposure from floating LIBOR and EURIBOR rates
to average fixed-rates. Please see Item 11  Quantitative and Qualitative Disclosures
About Market Risk.

# We may not be exempt from
United States tax on our United States source income, which would reduce our net income and
cash flow by the amount of the applicable tax.

If we are not exempt from tax under
Section 883 of the United States Internal Revenue Code, the shipping income derived from
the United States sources attributable to our subsidiaries transportation of cargoes
to or from the United States will be subject to U.S. federal income tax. If our
subsidiaries were subject to such tax, our net income and cash flow would be reduced by
the amount of such tax. Currently, we have claimed an exemption under Section 883. We
cannot give any assurance that future changes and shifts in ownership of our stock will
not preclude us from being able to satisfy the existing exemption.

In the years ended December 31, 2004
and 2003, approximately 15.2% and 12.3%, respectively, of our gross shipping revenues were
derived from U.S. sources attributable to the transportation of cargoes to or from the
United States. The average U.S. federal income tax on such U.S. source income, in the
absence of exemption under Section 883, would have been 4% thereof, or approximately $13.7
million and $7.8 million, respectively, for the years ended December 31, 2004 and 2003.

# Item 4. Information on
the Company

# A. Overview, History and
Development

# Overview

We are a leading provider of
international crude oil and petroleum product transportation services through our spot
tanker fleet, which includes the worlds largest fleet of Aframax-size oil tankers,
our fixed-rate fleet, which includes the worlds largest fleet of shuttle tankers,
and our LNG fleet. Our tankers and LNG carriers provide transportation services to major
oil companies, oil traders and government agencies worldwide.

Our spot tanker segment includes our
conventional crude oil tankers, and product carriers operating on the spot market or
subject to time charters or contracts of affreightment priced on a spot-market basis or
short-term fixed-rate contracts (contracts less than three years). As of December 31,
2004, our Aframax vessels, which had a total cargo capacity of approximately 7.1 million
tonnes, represented approximately 9% of the total tonnage of the world Aframax fleet.
Please see Item 4  Information on the Company: Our Fleet.

Our fixed-rate tanker segment
includes our shuttle tanker operations, floating storage and off-take vessels, a liquid
petroleum gas carrier and certain conventional crude oil, methanol and product tankers on
long-term fixed-rate time-charter contracts or contracts of affreightment, under which we
carry an agreed quantity of cargo for a customer over a specified trade route within a
given period of time. As of December 31, 2004, our shuttle tanker fleet, which had a total
cargo capacity of approximately 4.9 million tonnes, represented approximately 68% of the
total tonnage of the world shuttle tanker fleet. Please see Item 4  Information on
the Company: Our Fleet.

Our fixed-rate LNG segment includes
our seven LNG carriers, including three newbuildings, on long-term fixed-rate time charter
contracts. As of December 31, 2004, our LNG Fleet, including newbuildings, had a total
cargo carrying capacity of 1.0 million cubic meters.

The Teekay organization was founded
in 1973. We are incorporated under the laws of the Republic of The Marshall Islands as
Teekay Shipping Corporation and maintain our principal executive headquarters at TK House,
Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59212, Nassau, The
Bahamas. Our telephone number at such address is (242) 502-8820. Our principal operating
office is located at Suite 2000, Bentall 5, 550 Burrard Street, Vancouver, British
Columbia, Canada, V6C 2K2. Our telephone number at such address is (604) 683-3529.

# Business Acquisitions
and Combinations

Acquisition of Teekay Shipping
Spain S.L., formerly Naviera F. Tapias S.A.

On April 30, 2004, we acquired all of
the outstanding shares of Naviera F. Tapias S.A. and renamed it Teekay Shipping Spain S.L.
(or Teekay Spain). Teekay Spain is the leading independent owner and operator of
LNG carriers and crude oil tankers in Spain. We also entered into an agreement with an
entity controlled by the former controlling shareholder of Teekay Spain to establish a
50/50 joint venture that will pursue new business in the oil and gas shipping sectors that
relate only to the Spanish market or are led by Spanish entities or entities controlled by
a Spanish Company. The acquisition of Teekay Spain has provided us with a platform from
which to expand our presence in the high growth LNG shipping sector and positions us as a
key supplier of LNG shipping to Spain, the worlds third largest importer of LNG. We
funded this acquisition with a combination of cash, cash generated from operations and
borrowings under existing credit facilities.

As at December 31, 2004, Teekay
Spains LNG fleet consisted of four vessels, which are all contracted under long-term
fixed-rate charters to major Spanish energy companies. As at December 31, 2004, Teekay
Spains conventional crude oil tanker fleet consisted of five Suezmax tankers, and
two newbuildings scheduled for delivery in 2005. Four Suezmax tankers and one
newbuilding are contracted under long-term fixed-rate charters with a major Spanish oil
company. We sold the Suezmax tanker newbuilding not contracted under a long-term fixed-rate
charter upon its delivery in March 2005.

Acquisition of 50% of
PetroTrans Holdings Ltd.

On September 30, 2003, we acquired
50% of the issued and outstanding shares of PetroTrans Holdings Ltd., the parent company
of Skaugen PetroTrans Inc. (or SPT).

SPT is a lightering company operating
out of Houston, Texas. Lightering is the process of ship-to-ship transfer of oil cargo,
which is required when vessels transporting oil are too large to enter ports that are not
deep enough or have narrow entrances or small berths. The lightering process consists of
maneuvering a smaller tanker (service vessel) alongside the larger tanker, typically with
both vessels underway. The service vessel transports the oil cargo to the port. SPT
lighters approximately 14% of all seaborne crude oil delivered to U.S. ports.

Acquisition of Navion AS

In April 2003, we completed our
acquisition of 100% of the issued and outstanding shares of Navion AS. Navion, based in
Stavanger, Norway, operates primarily in the shuttle tanker and the conventional crude oil
and product tanker markets. Its modern shuttle tanker fleet, which as of December 31,
2004, consisted of eight owned and 12 chartered-in vessels (excluding six vessels
chartered-in from our shuttle tanker subsidiary, Ugland Nordic Shipping AS, and our other
subsidiaries), provides logistical services to the Norwegian state-owned oil company,
Statoil ASA, and other oil companies in the North Sea under fixed-rate, long-term
contracts of affreightment. Subsequent to the acquisition, the operations of UNS and the
shuttle tanker operations of Navion were combined into one business unit, Teekay Navion
Shuttle Tankers. Navions modern, chartered-in, conventional tanker fleet, which as
of December 31, 2004, consisted of 12 crude oil tankers and 16 product tankers, operates
primarily in the Atlantic region, providing services to Statoil and other oil companies.
In addition, Navion owns two floating storage and off-take vessels currently trading as
conventional crude oil tankers in the Atlantic region, one chartered-in methanol carrier
and one liquid petroleum gas carrier on long-term charter to Statoil. Through Navion
Chartering AS, an entity owned jointly with Statoil, Navion has a right of first refusal
on Statoils oil transportation requirements at the prevailing market rate until
December 31, 2007. In addition to tanker operations, Navion also assembles, installs,
operates and leases equipment that reduces volatile organic compound emissions during
loading, transportation and storage of oil and oil products.

Additional information about these
acquisitions, including our financing of them, is included in Item 5  Operating and
Financial Review and Prospects.

# B. Operations

# Spot Tanker Segment

The vessels in our spot tanker
segment compete primarily in the Aframax market. In the Aframax market, international
seaborne oil and other petroleum products transportation services are provided by two main
types of operators: captive fleets of major oil companies (both private and state-owned)
and independent ship owner fleets. Many major oil companies and other oil trading
companies, the primary charterers of the vessels owned or controlled by us, also operate
their own vessels and transport their own oil and oil for third party charterers in direct
competition with independent owners and operators. Competition for charters in the Aframax
spot charter market is intense and is based upon price, location, the size, age, condition
and acceptability of the vessel, and the reputation of the vessels manager.

We compete principally with other
Aframax owners in the spot charter market through the global tanker charter market. This
market is comprised of tanker broker companies that represent both charterers and ship
owners in chartering transactions. Within this market, some transactions, referred to as
market cargoes, are offered by charterers through two or more brokers
simultaneously and shown to the widest possible range of owners; other transactions,
referred to as private cargoes, are given by the charterer to only one broker
and shown selectively to a limited number of owners whose tankers are most likely to be
acceptable to the charterer and are in position to undertake the voyage.

As of December 31, 2004, other large
operators of Aframax tonnage (including newbuildings on order) included Malaysian
International Shipping Corporation (approximately 36 Aframax vessels), Novorossiisk Sea
Shipping Co. (approximately 27 Aframax vessels), General Maritime Corporation
(approximately 26 Aframax vessels), British Petroleum (approximately 20 Aframax vessels)
and Minerva (approximately 17 Aframax vessels).

Our competition in the Aframax
(75,000 to 119,999 dwt) market is also affected by the availability of other size vessels
that compete in our markets. Suezmax (120,000 to 199,999 dwt) size vessels and Panamax
(50,000 to 74,999 dwt) size vessels can compete for many of the same charters for which we
compete. Because of their large size, Very Large Crude Carriers (200,000 to 319,999 dwt)
(or VLCCs) and Ultra Large Crude Carriers (320,000+ dwt) (or ULCCs) rarely
compete directly with Aframax tankers for specific charters. However, because VLCCs and
ULCCs comprise a substantial portion of the total capacity of the market, movements by
such vessels into Suezmax trades and of Suezmax vessels into Aframax trades would heighten
the already intense competition.

We believe that we have competitive
advantages in the Aframax tanker market as a result of the quality, type and dimensions of
our vessels and our market share in the Indo-Pacific and Atlantic Basins. As of December
31, 2004, our Aframax tanker fleet (excluding Aframax-size shuttle tankers and newbuildings) had an average
age of approximately 7.7 years, compared to an average age for the world oil tanker
fleet, including Aframax tankers, of approximately 9.6 years and for the world Aframax
tanker fleet of approximately 9.7 years.

We have chartering staff located in
Vancouver, Canada; Stavanger, Norway; Tokyo, Japan; London, England; Houston, USA; and
Singapore. Each office serves our clients headquartered in that offices region.
Fleet operations, vessel positions and charter market rates are monitored around the
clock. We believe that monitoring such information is critical to making informed bids on
competitive brokered business.

During 2004, approximately 62% of our
net voyage revenues were earned by the vessels in the spot tanker segment, compared to
approximately 63% in 2003 and 73% in 2002. Please see Item 5  Operating and
Financial Review and Prospects: Results of Operations.

# Fixed-Rate Tanker Segment

The vessels in our fixed-rate tanker
segment compete primarily in the offshore loading business. These offshore loading vessels
called shuttle tankers, transport oil from offshore production platforms to onshore
storage and refinery facilities. Our shuttle tankers are primarily subject to long-term,
fixed-rate time-charter contracts for a specific offshore oil field or under contracts of
affreightment for various fields. The number of voyages performed under these contracts of
affreightment normally depends upon the oil production of each field. Competition for
charters is based primarily upon price, availability, the size, technical sophistication,
age and condition of the vessel and the reputation of the vessels manager. Technical
sophistication of the vessel is especially important in harsh operating environments such
as the North Sea. Although the size of the world shuttle tanker fleet has been relatively
unchanged in recent years, conventional tankers could be converted into less sophisticated
shuttle tankers by adding specialized equipment to meet the requirements of the oil
companies. Shuttle tanker demand may also be affected by the possible substitution of
sub-sea pipelines to transport oil from offshore production platforms.

As of December 31, 2004, there were
approximately 64 vessels in the world shuttle tanker fleet (including newbuildings), the
majority of which operate in the North Sea. We currently own 29 shuttle tankers, including
one classified as held for sale and charter in an additional 12 shuttle tankers. Other
shuttle tanker owners in the North Sea include Knutsen OAS Shipping AS and JJ Ugland
Group, which as of December 31, 2004 owned approximately 15 and five shuttle tankers,
respectively. The remaining owners in the North Sea each owned three or fewer vessels as
of that date.

We believe that we have significant
competitive advantages in the shuttle tanker market as a result of the quality, type and
dimensions of our vessels and our market share in the North Sea.

During 2004, approximately 36% of our
net voyage revenues wereearned by the vessels in the fixed-rate tanker segment,
compared to approximately 37% in 2003 and 27% in 2002. Please see Item 5  Operating
and Financial Review and Prospects: Results of Operations.

# Fixed-Rate LNG Segment

The vessels in our fixed-rate LNG
segment compete in the LNG market. LNG carriers are usually chartered to carry LNG
pursuant to time charter contracts, where a vessel is hired for a fixed period of time,
usually between 20 and 25 years, and the charter rate is payable to the owner on a monthly
basis. LNG shipping historically has been transacted with these long-term, fixed-rate time
charter contracts. LNG projects require significant capital expenditures and typically
involve an integrated chain of dedicated facilities and cooperative activities.
Accordingly, the overall success of an LNG project depends heavily on long-range planning
and coordination of project activities, including marine transportation. Although most
shipping requirements for new LNG projects continue to be provided on a long-term basis,
spot voyages (typically consisting of a single voyage) and short term time charters of
less than 12 months duration have grown from 1% of the market in 1992 to 8% in 2002.

We compete principally with other
private and state-controlled energy and utilities companies that generally operate captive
LNG fleets, and independent ship owners and operators. Many major energy companies compete
directly with independent owners by transporting LNG for third parties in addition to
their own LNG. Given the complex, long-term nature of LNG projects, major energy companies
historically have transported LNG through their captive fleets. However, independent fleet
operators recently have been obtaining an increasing percentage of charters for new or
expanded LNG projects as major energy companies continue to divest non-core businesses. As
of December 31, 2004, independent owners owned approximately 45% of the world LNG fleet,
including approximately 25% owned by independent Japanese and South Korean owners.
Approximately 60% of newbuilding orders are from independent owners.

LNG carriers transport LNG
internationally between liquefaction facilities and import terminals. After natural gas is
transported by pipeline from production fields to a liquefaction facility, it is
supercooled to a temperature of approximately negative 260 degrees Fahrenheit. This
process reduces its volume to approximately 1 / 600th of its volume in a
gaseous state. The reduced volume facilitates economical storage and transportation by
ship over long distances, enabling countries with limited natural gas reserves or limited
access to long-distance transmission pipelines to meet their demand for natural gas. LNG
carriers include a sophisticated containment system that holds and insulates the LNG so it
maintains its liquid form. LNG that evaporates during the voyage and converts to natural
gas (called boil-off) is used as fuel to help propel the vessel. The LNG is transported
overseas in specially built tanks on double-hulled ships to a receiving terminal, where it
is offloaded and stored in heavily insulated tanks. In regasification facilities at the
receiving terminal, the LNG is returned to its gaseous state (or regasified) and
then shipped by pipeline for distribution to natural gas customers.

Most new vessels, including all of
our vessels, are being built with a membrane containment system. These systems are built
inside the carrier and consist of insulation between thin primary and secondary barriers
and designed to accommodate thermal expansion and contraction without overstressing the
membrane. New LNG carriers are generally expected to have a lifespan of approximately 40
years. Unlike the oil tanker industry, there currently are no regulations that require the
phase-out from trading of LNG carriers after they reach a certain age. As at December 31,
2004, there were approximately 177 vessels in the world LNG fleet, with an average age of
approximately 13.6 years. In addition, there are approximately 104 additional LNG carriers
under construction or on order for delivery through 2009.

Our fixed-rate LNG segment consists
of LNG carriers subject to long-term, fixed-rate time-charter contracts. The acquisition
of Teekay Spain on April 30, 2004 established our entry into the LNG shipping sector. Our
fixed-rate LNG segment includes four LNG carriers. Two of the LNG carriers have been
included from the date of the Teekay Spain acquisition. We took delivery of one LNG
carrier in July 2004, which commenced service under a 25-year time-charter contract (with
a charterers option to extend an additional five years). We took delivery of another
LNG carrier in December 2004, which commenced service under a 20-year time-charter
contract (with a charterers option to extend an additional ten years). As at
December 31, 2004, we had three newbuilding LNG carriers on order, which will commence
service under long-term contracts with Ras Lafan Liquefied Natural Gas Co. Limited II (or
RasGas II), a joint venture company between a subsidiary of ExxonMobil Corporation
and Qatar Petroleum, upon delivery, scheduled for the fourth quarter of 2006 and the first
half of 2007. The vessels will be time-chartered to RasGas II for a period of 20 years
(with a charterers option to extend for periods up to an additional 15 years). These
LNG charter contracts are subject, in certain circumstances, to termination and vessel
purchase rights.

During 2004, approximately 2% of our
net voyage revenues wereearned by the vessels in the fixed-rate LNG segment. We
did not operate LNG carriers prior to 2004. Please see Item 5  Operating and
Financial Review and Prospects: Results of Operations.

# Ship Management

Safety is our top operational
priority. Our vessels are operated in a manner intended to protect the safety and health
of our employees, the general public and the environment. We actively manage the risks
inherent in our business and are committed to eliminating incidents that threaten safety,
such as groundings, fires, collisions and petroleum spills. We are also committed to
reducing emissions and waste generation.

Customers and tanker rating services
have recognized us for safety, quality and service. Given the emphasis by customers on
quality as a result of stringent environmental regulations, and heightened concerns about
liability for oil pollution, we believe that our emphasis on quality and safety provide us
with a favorable competitive profile. We are one of a few companies who have fully
integrated our health, safety, environment and quality management systems. This results in
increased efficiencies in operations and management as any redundancies in each of the
four standards is reduced. As well, one management system for operations ensures that
strategies and programs are aligned when in comes to business, customer, safety,
environment, or quality drivers.

We have achieved certification under
the standards reflected in International Standards Organizations (or ISO)
9001 for quality assurance, ISO 14001 for environment management systems, OHSAS 18001 for
Occupational Health and Safety, and the IMOs International Management Code for the
Safe Operation of Ships and Pollution Prevention on a fully integrated basis. As part of
ISM Code compliance, all of our vessels safety management certificates are being
maintained through ongoing internal audits performed by our certified internal auditors
and intermediate audits performed by Det Norske Veritas.

The critical ship management
functions of vessel maintenance, crewing, purchasing, shipyard supervision, insurance and
financial management services are carried out in-house in our various
facilities around the world for most of our fleet. These functions are supported by
onboard and onshore systems for maintenance, inventory, purchasing and budget management.
Since 1995, IUM Shipmanagement AS, a company in which we own a 51% interest through our
wholly owned subsidiary UNS, has provided ship management services for certain of our
shuttle tankers, including crewing and maintenance. OSM Ship Management AS (or
OSM), a company which is unrelated to us, provides ship management services for
most of the shuttle tankers acquired as part of our acquisition of Navion. OSM is under
contract to provide these services to Navion until September 30, 2006.

In 2003, we established a
purchasing alliance with two other shipping companies and named it Teekay Bergesen Worldwide.
This alliance leverages the purchasing power of the combined fleets, mainly in such commodity areas
 as lube oils, paints and other chemicals.

The generally uniform design of some
of our existing and newbuilding vessels and the adoption of common equipment standards
should also result in operational efficiencies, including with respect to crew training
and vessel management, equipment operation and repair, and spare parts ordering.

# Business Structure

Our organization is divided into four
key areas: Teekay Tanker Services; Teekay Navion Shuttle Tankers; Teekay Gas &
Offshore; and Teekay Marine Services. These centers of expertise work closely with
customers and internally to ensure a thorough understanding of our customers
requirements and to develop tailored solutions.



| |  | Teekay Tanker Services is
responsible for the commercial management of our conventional crude oil and product
tanker transportation services. We offer a full range of flexible, customer-focused
shipping solutions through our worldwide network of commercial offices.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Teekay Navion Shuttle Tankers offers a wide range of shuttle tanker and project services.
Our expertise and partnerships allow us to create solutions for customers producing crude
oil from offshore installations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Teekay Gas & Offshore offers a diverse range of mooring, floating storage and
offloading solutions. In addition, we now also offer gas shipping services, pursuing the
LNG and compressed natural gas markets.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Teekay Marine Services provides a vast range of marine services and products across all
our operations as well as to third-parties.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

# Business Strategy

We pursue an intensively customer-
and operations-oriented business strategy designed to achieve superior operating results.
We believe that we have four key competitive strengths:

| |  | a strong network of
customer relationships developed by providing consistent performance, innovative solutions,
and exceptional customer service to quality-sensitive customers,
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a disciplined acquisition strategy that has resulted in our achieving a market
concentration in the Aframax market and the shuttle tanker market, which is sufficient to
facilitate comprehensive coverage of charterer requirements and provides a base for
efficient operation and a high degree of capacity utilization in those markets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a highly-integrated global network of approximately 5,500 sea staff and shore employees,
with comprehensive market intelligence and operational and technical sophistication. This
includes full-service marine operations capabilities and experienced management in all
functions critical to our operations, which affords a focused marketing effort, high
quality and tight cost controls, improved capacity utilization and effective operations
and safety monitoring; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a strong balance sheet that we believe allows us to take advantage of appropriate
investment opportunities throughout the tanker cycle.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

As part of our growth strategy, we
will continue to consider strategic opportunities, including business acquisitions, such
as our acquisitions of Teekay Spain in 2004 and Navion and our joint venture, Skaugen
PetroTrans Inc. (or SPT), in 2003. To the extent we enter new geographic areas or
tanker market segments, there can be no assurance that we will be able to compete
successfully. New markets may involve competitive factors that differ from those of the
Aframax market segment in the Indo-Pacific and Atlantic Basins and the North Sea shuttle
tanker market and may include participants that have greater financial strength and
capital resources than we have.

Our growth strategy is to leverage
our existing competitive strengths to continue to expand our business. We anticipate that
the continued upgrade and expansion of our tanker business will continue to be a key
component of our strategy. In addition, we believe that our full-service marine operations
capabilities, reputation for safety and quality and strong customer orientation provide us
with the opportunity to expand our business by providing additional value-added and
innovative services, in many cases to existing customers. Finally, we intend to identify
expansion opportunities in new tanker market segments, geographic areas and services to
which our competitive strengths are well suited, such as our entry into the shuttle tanker
market through our acquisitions of UNS and Navion and our entry into the LNG market
through our acquisition of Teekay Spain, as described above. We may choose to pursue such
opportunities through internal growth, joint ventures or business acquisitions.

# Risk of Loss and
Insurance

The operation of any ocean-going
vessel carries an inherent risk of catastrophic marine disasters, death or injury of
persons and property losses caused by adverse weather conditions, mechanical failures,
human error, war, terrorism, piracy and other circumstances or events. In addition, the
transportation of crude oil and LNG is subject to the risk of spills and to business
interruptions due to political circumstances in foreign countries, hostilities, labor
strikes and boycotts. The occurrence of any of these events may result in loss of revenues
or increased costs.

We carry hull and
machinery and protection and indemnity insurance coverage to protect
against most of the accident-related risks involved in the conduct of our business. Hull
and machinery insurance covers loss of or damage to a vessel due to marine perils such as
collisions, grounding and weather. Protection and indemnity insurance indemnifies us
against other liabilities incurred while operating vessels, including injury to our crew,
third parties, cargo loss and pollution. The current available amount of our coverage for
pollution is $1 billion per vessel per incident. We also carry insurance policies covering
war risks (including piracy and terrorism) and, for our LNG carriers, loss of revenues
resulting from vessel off-hire time due to a marine casualty or an officer or crew strike.
However, we my not continue to carry this loss of hire insurance based on its
cost compared to our off-hire experience. We believe that our current insurance coverage
is adequate to protect against most of the accident-related risks involved in the conduct
of our business and that we maintain appropriate levels of environmental damage and
pollution insurance coverage. However, we cannot assure that all covered risks are adequately
insured against, that any particular claim will be paid or that we will be able to procure
adequate insurance coverage at commercially reasonable rates in the future. More stringent
environmental regulations have resulted in increased costs for, and
may result in the lack of availability of, insurance against the risks of environmental
damage or pollution.

We use in our operations a thorough
risk management program that includes, among other things, computer-aided risk analysis
tools, maintenance and assessment programs, a seafarers competence training program,
seafarers workshops and membership in emergency response organizations.

# Operations Outside the
United States

Because our operations are primarily
conducted outside of the United States, they may be affected by currency fluctuations and
by changing economic, political and governmental conditions in the countries where we
engage in business or where our vessels are registered.

During 2004, we derived approximately
23% of our total net voyage revenues from our operations in the Indo-Pacific Basin,
compared to approximately 27% during 2003. Past political conflicts in that region,
particularly in the Arabian Gulf, have included attacks on tankers, mining of waterways
and other efforts to disrupt shipping in the area. Vessels trading in the region have also
been subject to, in limited instances, acts of piracy. In addition to tankers, oil
pipelines, LNG facilities and offshore oil fields could also be targets of terrorist
attacks. The escalation of existing or the outbreak of future hostilities or other
political instability in this region or other regions where we operate could affect our
trade patterns, increase insurance costs, increase tanker operational costs and otherwise
adversely affect our operations and performance. In addition, tariffs, trade embargoes,
and other economic sanctions by the United States or other countries against countries in
the Indo-Pacific Basin or elsewhere as a result of terrorist attacks or other hostilities
may limit trading activities with those countries, which could also adversely affect our
operations and performance.

# Customers

We have derived, and believe that we
will continue to derive, a significant portion of our voyage revenues from a limited
number of customers. Our customers include major oil companies, major oil traders, large
oil consumers and petroleum product producers, government agencies, and various other
entities dependent upon the tanker transportation trade. One customer, an international
oil company, accounted for 17% ($373.7 million) of our consolidated voyage revenues during
2004. The same customer accounted for 15% ($239.5 million) of our consolidated voyage
revenues during 2003. No customer accounted for more than 10% of our consolidated voyage
revenues during 2002. No other customer accounted for more than 10% of our consolidated
voyage revenues during 2004 or 2003. The loss of any significant customer or a substantial
decline in the amount of services requested by a significant customer could have a
material adverse effect on our business, financial condition and results of operations.

# Our Fleet

The following list provides
additional information with respect to our vessels as at December 31, 2004.

`--------------------------------------------------------------------------------------------------------------------
                                                                      Number of Vessels(1)
                                             -----------------------------------------------------------------------
                                             Owned Vessels  Vessels Held  Chartered-in  Newbuildings on    Total
                                                              for Sale       Vessels         Order
--------------------------------------------------------------------------------------------------------------------
  Spot Tanker Segment:
      Very Large Crude Carriers                      -             -              1               -          1
      Suezmax Tankers (2)                            2             -              4               1          7
      Aframax Tankers                               28             8             18               5         59
      Large Product Tankers                          -             -              5               3          8
      Small Product Tankers                          -             -             10               -         10
--------------------------------------------------------------------------------------------------------------------
      Total Spot Tanker Segment                     30             8             38               9         85
====================================================================================================================

  Fixed-Rate Tanker Segment:
      Shuttle Tankers (3)                           28             1             12               -         41
      Conventional Tankers                          12             -              -               3         15
      Floating Storage & Offtake (or FSO)            4             -              -               -          4
        Units (4)
      LPG / Methanol Carriers                        1             -              1               -          2
--------------------------------------------------------------------------------------------------------------------
      Total Fixed-Rate Tanker Segment               45             1             13               3         62
====================================================================================================================

  Fixed-Rate LNG Segment                             4             -              -               3          7
--------------------------------------------------------------------------------------------------------------------
                                   Total            79             9             51              15        154
====================================================================================================================`

(1)    
          Excludes vessels managed for third parties. 
          (2)    
          We have sold the Suezmax tanker newbuilding in the Spot Tanker Segment
          in March 2005. 
          (3)    
          Includes seven shuttle tankers of which our
          ownership interests range from 50% to 70.25%.
          (4)    
          Includes one FSO unit of which our ownership interest is 89%.

Our vessels are of Australian,
Bahamian, Canadian, Cayman Islands, Liberian, Norwegian, Norwegian International Ship and
Spanish registry.

Many of our Aframax vessels and some
of our shuttle tankers have been designed and constructed as substantially identical
sister ships. These vessels can, in many situations, be interchanged, providing scheduling
flexibility and greater capacity utilization. In addition, spare parts and technical
knowledge can be applied to all the vessels in the particular series, thereby generating
operating efficiencies.

As of December 31, 2004, we had 15
newbuildings on order, which will require remaining payments of $363.7 million in 2005,
$255.9 million in 2006, $140.9 million in 2007, and $50.7 million due in 2008 under the
terms of the contracts. Please see Item 5. Operating and Financial Review and Prospects
 Managements Discussion and Analysis of Financial Condition and Results of
Operations.

Please see Note 9 of the consolidated
financial statements for information with respect to major encumbrances against our
vessels.

# Classification, Audits
and Inspections

The seafaring staff operating our
vessels regularly inspect them and perform much of the necessary routine maintenance.
Shore-based operational and technical specialists also inspect our vessels at least twice
a year for conformity with established criteria. Upon completion of each inspection,
recommendations are made for improving the overall condition of the vessel and its
maintenance, safety and crew welfare. All recommendations are monitored until they are
completed. Our objectives are to:

| |  | maintain the structural integrity of the vessel;
| | - | ------------------------------------------------

| |  | ensure reliability;
| | - | -------------------

| |  | optimize performance in terms of speed and fuel consumption; and
| | - | ----------------------------------------------------------------

| |  | ensure the vessel's appearance will support our brand and meet customer expectations.
| | - | -------------------------------------------------------------------------------------

To achieve our vessel structural
integrity objective, we use a comprehensive Structural Integrity Management
System developed by us. This system is designed to monitor the condition of our
vessels closely and to ensure that structural strength and integrity are maintained
throughout a vessels life.

All of our vessels have been
certified as being in-class by their respective classification societies:
Bureau Veritas, Det Norske Veritas, Lloyds Register of Shipping or American Bureau
of Shipping. Every vessels hull and machinery is classed by a
classification society. The classification society certifies that the vessel has been
built and maintained in accordance with the rules of that classification society and
complies with applicable rules and regulations of the country of registry of the vessel
and the international conventions of which that country is a signatory, although for some
of our vessels we obtain this latter certification directly from the relevant flag state
authorities. Each vessel is inspected by a classification society surveyor annually, with
either the second or third annual inspection being a more detailed survey (an
Intermediate Survey) and the fourth or fifth annual inspection being the most
comprehensive survey (a Special Survey). The inspection cycle resumes after each
Special Survey. Vessels also may be required to be drydocked at each Intermediate and
Special Survey for inspection of the underwater parts of the vessel and resulting repairs.
Intermediate Surveys of steam-propelled LNG vessels may be done while the vessel is in
service, but in all instances the inspection requires shutting down the vessels main
boiler, which slows travel if in service. In-water surveys generally take vessels out of
service for one day, but out-of-service surveys of steam-propelled LNG vessels can take up
to seven days. All of our LNG carriers, including our newbuildings, are steam-propelled.
Many of our vessels have qualified with their respective classification societies for
drydocking every four or five years in connection with the Special Survey and are no
longer subject to the Intermediate Survey drydocking process. To qualify, we were required
to enhance the resiliency of the underwater coatings of each vessel and mark the hull to
accommodate underwater inspections by divers.

In addition to the classification
inspections, many of our customers regularly inspect our vessels as a precondition to
chartering, and regular inspections are standard practice under long-term charters as
well. Port and flag state control authorities, such as the U.S. Coast Guard, the
Australian Maritime Safety Authority and Spains flag administration (or
classification societies acting on behalf of the flag state control authorities), also
inspect some of our vessels. We believe that our relatively new, well-maintained and
high-quality vessels should provide us with a competitive advantage in the current
environment of increasing regulation and customer emphasis on quality of service.

We have obtained approval for our
safety management system as being in compliance with the ISM Code. Our safety management
system has also been certified as being compliant with ISO 9001, 14001 and OSHAS 18001
standards. To maintain compliance, the system is audited regularly by either the
vessels flag state or, when nominated by them, of the classification societies.
Certification is valid for five years subject to satisfactorily completing internal and
external audits.

# Organizational
Structure

Please see Exhibit 8.1 for a list of
our significant subsidiaries as at December 31, 2004.

# C. Regulations

Our business and the operation of our
vessels are significantly affected by international conventions and national, state and
local laws and regulations in the jurisdictions in which our vessels operate, as well as
in the country of their registration. Because these conventions, laws, and regulations
change frequently, we cannot predict the ultimate cost of compliance or their impact on
the resale price or useful life of our vessels. Additional conventions, laws and
regulations may be adopted that could limit our ability to do business or increase the
cost of our doing business and that may materially adversely affect our operations. We are
required by various governmental and quasi-governmental agencies to obtain permits,
licenses and certificates with respect to our operations. Subject to the discussion below
and to the fact that the kinds of permits, licenses and certificates required for the
operations of the vessels we own will depend on a number of factors, we believe that we
will be able to continue to obtain all permits, licenses and certificates material to the
conduct of our operations.

We believe that the heightened
environmental and quality concerns of insurance underwriters, regulators and charterers
will generally lead to greater inspection and safety requirements on all vessels in the
oil tanker and LNG carrier markets and will accelerate the scrapping of older vessels
throughout these industries.

RegulationInternational
Maritime Organization (or IMO). IMO regulations relating to
pollution prevention for tankers apply to many jurisdictions in which our tanker fleet
operates. These regulations provide that:

| |  | tankers between 25 and 30 years old must be of
double-hull construction or of a mid-deck design with double-side
construction, unless they have wing tanks or double-bottom spaces, not used for the
carriage of oil, which cover at least 30% of the length of the cargo tank section of the
hull, or are capable of hydrostatically balanced loading which ensures at least the same
level of protection against oil spills in the event of collision or stranding;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | tankers 30 years old or older must be of  double-hull  construction  or mid-deck  design with  double-side
             construction; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | all tankers are subject to enhanced inspections.
| | - | ------------------------------------------------

Also, under IMO regulations, a tanker
must be of double-hull construction or a mid-deck design with double-side construction or
be of another approved design ensuring the same level of protection against oil pollution
in the event that such tanker (a) is the subject of a contract for a major conversion or
original construction on or after July 6, 1993, (b) commences a major conversion or has
its keel laid on or after January 6, 1994, or (c) completes a major conversion or is a
newbuilding delivered on or after July 6, 1996.

On December 9, 2003, the IMO revised
its regulations relating to the prevention of pollution from tankers. These regulations,
which came into effect on April 5, 2005, will accelerate the mandatory
phase-out of single-hull tankers and impose a more rigorous inspection regime for older
tankers. As of the date of this report, we estimate that upon their effectiveness, the regulations will ban from world-wide trading the
oldest single-hull tankers, representing approximately 3% to 5% of the current world tanker
fleet. It is expected that a further 22% to 24% of the existing world tanker fleet will be
excluded from the majority of the oil tanker trades by 2010. These regulations identify
three categories of single-hull tankers, which include double-bottom and double-side
tankers:

| |  | Category 1 oil tanker means any oil tanker of 20,000 dwt and above carrying
crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and
above carrying other oils, which does not have segregated ballast tanks;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Category 2 oil tanker means any oil tanker of 20,000 dwt and above carrying
crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and
above carrying other oils, which has segregated ballast tanks; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Category 3 oil tanker means an oil tanker of 5,000 dwt and above but less than
the tonnage specified for Category 1 and 2 oil tankers.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------

All of the single-hull tankers we
operate are Category 2 oil tankers. As illustrated in the following table, the most recent
IMO regulations provide for the phase-out on a rolling basis of Category 1 oil tankers
during 2005 and of Category 2 oil tankers by 2010.

`----------------------------------------- -----------------------------------------------------------------------
Category of Oil Tanker                    Year To Be Removed From Service
----------------------------------------- -----------------------------------------------------------------------

Category 1 ............................   April 5, 2005 for ships delivered on April 5, 1982 or earlier
                                          2005 for ships delivered after April 5, 1982

----------------------------------------- -----------------------------------------------------------------------
Category 2 and Category 3 .............   April 5, 2005 for ships delivered on April 5, 1977 or earlier
                                          2005 for ships delivered after April 5, 1977 but before 1978
                                          2006 for ships delivered in 1978 and 1979
                                          2007 for ships delivered in 1980 and 1981
                                          2008 for ships delivered in 1982
                                          2009 for ships delivered in 1983
                                          2010 for ships delivered in 1984 or later
----------------------------------------- -----------------------------------------------------------------------`

However, under certain conditions,
Category 2 and Category 3 oil tankers may continue in operation beyond the date set forth
in the table above. For Category 2 and Category 3 oil tankers fitted with (a) double
bottoms or double sides, not used for the carriage of oil, that extend to the entire cargo
tank length or (b) double hull spaces, not meeting minimum distance protection
requirements, which are not used for the carriage of oil and that extend to the entire
cargo tank length, the vessels flag state may allow continued operation beyond 2010,
provided that the ship was in service on July 1, 2001, the flag state is satisfied by
verification of the official records that the ship complied with the conditions specified,
and that those conditions remain unchanged. Such continued operation must not go beyond
the date on which the ship reaches 25 years of age measured from the date of delivery. In spite of
this flag-state exemption, a port state may declare that it does not accept entry of such
vessels after their phase-out date. The European Union, Cyprus and Malta have already
declared that they will not permit the entry of such vessels.

Vessels must pass a Condition
Assessment Scheme (or CAS) Survey after 2005 for Category 1 oil tankers, and after
2010 for Category 2 oil tankers. The CAS Survey includes surveys of the hull structure,
including cargo tanks, pump rooms, cofferdams, pipe tunnels, void spaces within the cargo
area and all ballast tanks.

The IMOs accelerated phase out
schedule will affect two of our existing vessels, effectively reducing the economic life
of each of these vessels. As a result of these regulations, we recorded non-cash
write-down of the book value of the affected vessels totaling $56.9 million during the
fourth quarter of 2003. The following table outlines the impact of these regulations on
the remaining two vessels:

`Number                                                            Year of IMO          Year of IMO
      of        Vessel              Hull                Year           Phase-Out          Phase-Out Date
   Vessels       Type               Type                Built      (No Exemption) (1)    (With Exemption) (1)
--------------- ----------- ----------------------- ------------- -------------------- ----------------------

      1         Aframax          Single-Hull            1989              2010                  2014
      1         Aframax          Single-Hull            1990              2010                  2015`

| | (1) | As described above, under certain conditions flag states may permit an exemption
               which allows continued operation of Category 2 or 3 tankers in the waters of the
               flag state beyond 2010 subject to satisfactory results from the CAS until the
               ship reaches 25 years of age or the anniversary date of the delivery in 2015,
               whichever is earlier.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

IMO regulations also include the
International Convention for Safety of Life at Sea (or SOLAS), including amendments
to SOLAS implementing the International Security Code for Ports and Ships (or
ISPS), the ISM Code and the International Code for Construction and Equipment of
Ships Carrying Liquefied Gases in Bulk (or the IGCCode). SOLAS provides rules for
the construction of and equipment required for commercial vessels and includes regulations
for safe operation. Flag states which have ratified the convention and the treaty
generally employ the classification societies, which have incorporated SOLAS requirements
into their class rules, to undertake surveys to confirm compliance.

SOLAS and other IMO regulations
concerning safety, including those relating to treaties on training of shipboard
personnel, lifesaving appliances, radio equipment and the global maritime distress and
safety system, are applicable to our operations. Non-compliance with IMO regulations,
including SOLAS, the ISM Code, ISPS and the IGC Code, may subject us to increased
liability or penalties, may lead to decreases in available insurance coverage for affected
vessels and may result in the denial of access to or detention in some ports.

The ISM Code requires vessel
operators to obtain a safety management certification for each vessel they manage,
evidencing the shipowners compliance with requirements of the ISM Code relating to
the development and maintenance of an extensive Safety Management System. Such
a system includes, among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for safe operation and
describing procedures for dealing with emergencies. Each of the existing vessels in our
fleet currently is ISM Code-certified, and we expect to obtain safety management for each
newbuilding vessel upon delivery. However, there can be no assurance that we will be able
to maintain such certification in the future.

ISPS was adopted in December 2002 in
the wake of heightened concern over worldwide terrorism and became effective on July 1,
2004. The objective of ISPS is to enhance maritime security by detecting security threats
to ships and ports and by requiring the development of security plans and other measures
designed to prevent such threats. The United States implemented ISPS with the adoption of
the Maritime Transportation Security Act of 2002 (or MTSA), which requires vessels
entering U.S. waters to obtain certification of plans to respond to emergency incidents
there, including identification of persons authorized to implement the plans. Each of the
existing vessels in our fleet currently complies with the requirements of ISPS and MTSA,
and we expect all newbuildings to comply upon delivery.

LNG carriers are also subject to
regulation under the IGC Code. Each LNG carrier must obtain a certificate of compliance
evidencing that it meets the requirements of the IGC code, including requirements relating
to its design and construction. Each of our LNG carriers currently is in compliance with
the IGC code, and each of our newbuilding shipbuilding contracts requires compliance prior
to delivery.

Environmental RegulationsThe
United States Oil Pollution Act of 1990 (or OPA 90). OPA 90
established an extensive regulatory and liability regime for the protection and cleanup of
the environment from oil spills, including discharges of oil cargoes, fuel (or
bunkers) or lubricants. OPA 90 affects all owners and operators whose vessels trade
to the United States or its territories or possessions or whose vessels operate in United
States waters, which include the 200-mile exclusive economic zone around the United
States.

Under OPA 90, vessel owners,
operators and demise or bareboat charterers are responsible parties and are
jointly, severally and strictly liable (unless the spill results solely from the act or
omission of a third party, an act of God or an act of war) for all containment and
clean-up costs and other damages arising from discharges or threatened discharges of oil
from their vessels. These other damages are defined broadly to include:

| |  | natural resources damages and the costs of assessment thereof,
| | - | --------------------------------------------------------------

| |  | 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.
| | - | ---------------------------------------------

OPA 90 limits the liability of
responsible parties to the greater of $1,200 per gross ton or $10 million per tanker that
is over 3,000 gross tons (subject to possible adjustment for inflation). These limits of
liability would not apply if the incident was proximately caused by violation of
applicable U.S. federal safety, construction or operating regulations, including IMO
conventions to which the United States is a signatory, or by the responsible partys
gross negligence or willful misconduct, or if the responsible party fails or refuses to
report the incident or to cooperate and assist in connection with the oil removal
activities. We currently plan to continue to maintain for each of our vessels pollution
liability coverage in the amount of $1 billion per incident. A catastrophic spill could
exceed the coverage available, which could harm our business, financial condition and
results of operations.

Under OPA 90, with limited
exceptions, all newly built or converted tankers delivered after January 1, 1994 and
operating in United States waters must be built with double-hulls, and existing vessels
that do not comply with the double-hull requirement must be phased out over a 20-year
period (1995 to 2015) based on size, age and hull construction. Vessels with double-sides
and double-bottoms are granted an additional five years of service life before being
phased out. Notwithstanding the phase-out period, OPA 90 currently permits existing
single-hull tankers to operate until the year 2015 if their operations within United
States waters are limited to discharging at the Louisiana Off-shore Oil Platform, or
off-loading by means of lightering activities within authorized lightering zones more than
60 miles offshore.

OPA 90 requires owners and operators
of vessels, including LNG carriers, to establish and maintain with the United States Coast
Guard (orCoast Guard) evidence of financial responsibility sufficient to meet
their potential liabilities under OPA 90. In December 1994, the Coast Guard implemented
regulations requiring evidence of financial responsibility in the amount of $1,500 per
gross ton for tankers, coupling the OPA limitation on liability of $1,200 per gross ton
with the Comprehensive Environmental Response, Compensation, and Liability Act (or CERCLA)
liability limit of $300 per gross ton. Under the regulations, such evidence of financial
responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty.
Under OPA 90, an owner or operator of a fleet of tankers is required only to demonstrate
evidence of financial responsibility in an amount sufficient to cover the tanker in the
fleet having the greatest maximum liability under OPA 90.

The Coast Guards regulations
concerning certificates of financial responsibility (or COFR) provide, in
accordance with OPA 90, that claimants may bring suit directly against an insurer or
guarantor that furnishes COFR; and, in the event that such insurer or guarantor is sued
directly, it is prohibited from asserting any contractual defense that it may have had
against the responsible party and is limited to asserting those defenses available to the
responsible party and the defense that the incident was caused by the willful misconduct
of the responsible party. Certain organizations, which had typically provided COFR under
pre-OPA 90 laws, including the major protection and indemnity organizations, have declined
to furnish evidence of insurance for vessel owners and operators if they are subject to
direct actions or required to waive insurance policy defenses.

The Coast Guards financial
responsibility regulations may also be satisfied by evidence of surety bond, guaranty or
by self-insurance. Under the self-insurance provisions, the shipowner or operator must
have a net worth and working capital, measured in assets located in the United States
against liabilities located anywhere in the world, that exceeds the applicable amount of
financial responsibility. We have complied with the Coast Guard regulations by providing a
financial guaranty from a related company evidencing sufficient self-insurance for all our
vessels trading into the United States or by providing third-party guarantees. If other
vessels in our fleet trade into the United States in the future, we expect to provide
guaranties through self-insurance, or to obtain such guaranties from third-party insurers.

OPA 90 and CERCLA permit individual
states to impose their own liability regimes with regard to oil or hazardous substance
pollution incidents occurring within their boundaries, and some states have enacted
legislation providing for unlimited liability for spills. We intend to comply with all
applicable state regulations in the ports where our vessels call.

Owners or operators of tankers
operating in United States waters are required to file vessel response plans with the
Coast Guard, and their tankers are required to operate in compliance with their Coast
Guard approved plans. Such response plans must, among other things:

| |  | 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.
| | - | ---------------------------------------------------------------------------------

We have filed vessel response plans
with the Coast Guard for the tankers we own and have received approval of such plans for
all vessels in our fleet to operate in United States waters.

OPA 90 allows U.S. State legislatures
to pre-empt associated regulation if the states regulations are equal or more
stringent. Several coastal states such as California, Washington and Alaska require state
specific COFR and vessel response plans.

CERCLA contains a similar liability
regime to OPA 90, but applies to the discharge of hazardous substances rather
than oil. Petroleum products and LNG should not be considered hazardous
substances under CERCLA, but additives to oil or lubricants used on LNG carriers might
fall within its scope. CERCLA imposes strict liability upon the owner, operator or
bareboat charterer of a vessel for cleanup costs and damages arising from a discharge of
hazardous substances.

OPA 90 and CERCLA do not preclude
claimants from seeking damages for the discharge of oil and hazardous substances under
other applicable law, including maritime tort law. Such claims could include attempts to
characterize the transportation of LNG aboard a vessel as an ultra-hazardous activity
under a doctrine that would impose strict liability for damages resulting from that
activity. The application of this doctrine varies by jurisdiction. There can be no
assurance that a court in a particular jurisdiction will not determine that the carriage
of oil or LNG aboard a vessel is an ultra-hazardous activity, which would expose us to
strict liability for damages we cause to injured parties even when we have not acted
negligently.

# Environmental
RegulationOther Environmental Initiatives.

On June 4, 2003, the European Union
Parliament passed legislation that will accelerate the phase-out of single-hull tankers
between now and 2010, ban the carriage of heavy crude oil and heavy fuel oils on
single-hull tankers in European waters and impose a Condition Assessment Scheme for
single-hull tankers older than 15 years. This new regulation effectively banned all
Category 1 single hull tankers over the age of 23 years immediately, with all remaining
Category 1 single hull tankers being phased out by 2005. The phase-out date for Category 2
single hull tankers is 2010, with double sided or double bottomed tankers being phased-out
by the earlier of 2015 or 25 years of age. The regulations became effective on October 21,
2003, and immediately banned approximately 11% of the existing world tanker fleet from
trading in European waters.

Although the United States is not a
party, many countries have ratified and follow the liability scheme adopted by the IMO and
set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969,
as amended (orCLC), and the Convention for the Establishment of an
International Fund for Oil Pollution of 1971, as amended. Under these conventions, which
are applicable to vessels that carry persistent oil (not LNG) as cargo, a
vessels registered owner is strictly liable for pollution damage caused on the
territorial waters of a contracting state by discharge of persistent oil, subject to
certain complete defenses. Many of the countries that have ratified the CLC have increased
the liability limits through a 1992 Protocol to the CLC. The liability limits in the
countries that have ratified this Protocol are currently approximately $6.7 million plus
approximately $938 per gross registered tonne above 5,000 gross tonnes with an approximate
maximum of $134 million per vessel, with the exact amount tied to a unit of account which
varies according to a basket of currencies. The right to limit liability is forfeited
under the CLC where the spill is caused by the owners actual fault or privity and,
under the 1992 Protocol, where the spill is caused by the owners intentional or
reckless conduct. Vessels trading to contracting states must provide evidence of insurance
covering the limited liability of the owner. In jurisdictions where the CLC has not been
adopted, various legislative schemes or common law govern, and liability is imposed either
on the basis of fault or in a manner similar to the CLC.

In addition, the IMO, various
countries and states, such as Australia, the United States and the State of California,
and various regulators, such as port authorities, the U.S. Coast Guard and the U.S.
Environmental Protection Agency, have either adopted legislation or regulations, or are
separately considering the adoption of legislation or regulations, aimed at regulating the
discharge of ballast water as a potential pollutant.

# Shuttle Tanker Regulation

Our shuttle tankers primarily operate
in the North Sea. In addition to the regulations imposed by the IMO, countries having
jurisdiction over North Sea areas impose regulatory requirements in connection with
operations in those areas. These regulatory requirements, together with additional
requirements imposed by operators in North Sea oil fields, require that we make further
expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle
tankers and for the training of seagoing staff. Additional regulations and requirements
may be adopted or imposed that could limit our ability to do business or further increase
the cost of doing business in the North Sea.

# D. Taxation of the
Company

The following discussion is a
summary of the principal United States, Bahamian, Bermudian, Marshall Islands, Norwegian
and Spanish tax laws applicable to us. The following discussion of tax matters, as well as
the conclusions regarding certain issues of tax law that are reflected in such discussion,
are based on current law. No assurance can be given that changes in or interpretation of
existing laws will not occur or will not be retroactive or that anticipated future factual
matters and circumstances will in fact occur. Our views have no binding effect or official
status of any kind, and no assurance can be given that the conclusions discussed below
would be sustained if challenged by taxing authorities.

# United States Taxation

The following discussion is based
upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (or the
Code), existing and proposed U.S. Treasury Department regulations, administrative
rulings, pronouncements and judicial decisions, all as of the date of this Annual Report.

We have made special U.S. tax
elections in respect of some of our vessel-owning or vessel-operating subsidiaries that
are potentially subject to U.S. tax as a result of deriving income attributable to the
transportation of cargoes to or from the United States. Our Norwegian, Canadian and
Spanish subsidiaries that occasionally transport cargoes to and from the United States are
eligible to claim exemption from United States tax under the United States-Norway, United
States-Canada or United States-Spain Income Tax Treaties. Other subsidiaries that are
considered to derive income from sources within the United States rely on our ability to
claim exemption under Section 883 of the Code.

For 2004 and 2003, approximately
15.2% and 12.3%, respectively, of our gross shipping revenues were derived from U.S.
sources attributable to the transportation of cargoes to or from the United States. The
average U.S. federal income tax on such U.S. source income, in the absence of exemption
under Section 883, would have been 4% thereof, or approximately $13.7 million and $7.8
million, respectively, for 2004 and 2003.

Under Section 883 of the Code, we
will be exempt from U.S. Taxation on our U.S. source shipping income if:

| | (a) | Teekay is organized in a qualified foreign country which is one that grants an
          equivalent exemption from tax to corporations organized in the United States in
          respect of the shipping income for which exemption is being claimed under
          Section 883 (referred to as the country of organization
          requirement); and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Teekay can satisfy any one of the following three stock ownership requirements:
| | --- | -------------------------------------------------------------------------------

| |  | more than 50% of  Teekay's  stock,  in terms of value,  is  beneficially  owned by  individuals  who are
               residents of a qualified foreign country;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Teekay is a controlled foreign corporation within the meaning of
Section 957 of the Code and more than 50% of our shipping income is includible in the
gross income of U.S. persons that own 10% or more of our stock; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | our stock is primarily and regularly traded on an established securities
market in the United States or any qualified foreign country (referred to as the publicly-traded requirement).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Final Treasury regulations
interpreting Section 883 were promulgated in August 2003 and became effective for tax
years beginning after September 24, 2004 (January 1, 2005 for calendar year taxpayers).
For purposes of this discussion, we have assumed these regulations apply for 2004. As of the date of this
report, we believe that we qualify for the Section 883 exemption from U.S. tax on U.S. source
shipping income under the final Treasury Regulations on the basis that we satisfy the
country of organization requirement because we are organized in the Marshall Islands and the publicly-traded requirement
because our stock is primarily and regularly traded on an established securities market in the United
States within the meaning of the Section 883 of the Code and the Treasury Regulations thereunder.
We can give no assurance that any changes in the ownership of our stock subsequent to the date of this
report will permit us to continue to qualify for the Section 883 exemption.

If we do not qualify for the Section 883 exemption,  we would be subject to U.S.  federal income taxation under
one of two  alternative  tax regimes  (the 4% gross basis tax or the net basis tax).  We may be subject to a 4%
U.S.  federal  income tax on the U.S.  source  portion of our gross income  (without the benefit of deductions)
attributable to shipping  transportation  that begins or ends in the United States. For this purpose,  the U.S.
source  portion of such gross  income is deemed to be 50% of the income  attributable  to  transportation  that
begins or ends in the United States.

If we have transportation  income that is deemed to be "effectively  connected" with a trade or business in the
U.S. and we do not qualify for the Section 883  exemption,  we may be subject to corporate  income tax on a net
basis  (currently the highest  statutory  rate is 35%);  however,  we do not expect to have any  transportation
income that is U.S. effectively connected income.

# Marshall Islands,
Bahamian and Bermudian Taxation

We believe that neither we nor our
subsidiaries will be subject to taxation under the laws of the Marshall Islands, the
Bahamas or Bermuda, and distributions by our subsidiaries to us also will not be subject
to any taxes under the laws of such countries.

# Norwegian Taxation

Our Norwegian subsidiaries are
subject to the ordinary Norwegian corporate tax legislation, which in general charges a
28% tax on taxable income. As of December 31, 2004, the operations of our Norwegian
subsidiaries consisted of:

| |  | ownership and operation of 11
shuttle tankers (including two 50%-owned vessels);
| | - | --------------------------------------------------------------------------------

| |  | 12 in-chartered shuttle tankers;
| | - | --------------------------------

| |  | ownership and operation of two FSO vessels currently trading as conventional crude oil
tankers;
| | - | -----------------------------------------------------------------------------------------------

| |  | commercial management services for certain of our crude oil and product
tankers;
| | - | --------------------------------------------------------------------------------

| |  | our 51% interest in IUM; and
| | - | ----------------------------

| |  | 11 plants installed on shuttle tankers that
reduce volatile organic compound emissions during loading, transportation
and storage of oil and oil products.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

We dont expect that payment of Norwegian income taxes will have a material effect on our results.

# Spanish Taxation

Spain imposes income taxes on income
generated by our Spanish subsidiarys shipping related activities at a rate of 35%.
Our Spanish subsidiarys vessels are registered in the Canary Islands Special Ship
Registry. Consequently, we are allowed a credit, equal to 90% of the tax payable on income
from the commercial operation of the Canary Islands registered ships, against the tax
otherwise payable. This effectively results in an income tax rate of approximately 3.5% on
income from the operation of these vessels. Vessel sales are subject to the full 35%
Spanish tax rate. A 20% reinvestment credit it available if the entire gross proceeds from
the vessel sale are reinvested in a qualifying asset and if the asset disposed of has been
held for a minimum period of one year.

We record deferred taxes on the
consolidated financial statements in accordance with accounting principles generally
accepted in the United States. Please see Note 1 to our December 31, 2004 audited
consolidated financial statements included elsewhere in this annual report on Form 20-F.
We dont expect Spanish income taxes will have a material effect on our results.

# Item 5. Operating and
Financial Review and Prospects

# Managements
Discussion and Analysis of Financial Condition and Results of Operations

# General

Teekay is one of the worlds
leading providers of international crude oil and petroleum product transportation
services. We estimate that we transported more than 10% of the worlds seaborne oil
in 2004. Through our acquisition of Teekay Shipping Spain S.L. (orTeekay Spain)
(formerly Naviera F. Tapias S.A.), we have also expanded into the liquefied natural gas
(or LNG) shipping sector. As at December 31, 2004, our fleet (excluding vessels
managed for third parties) consisted of 154 vessels (including 15 newbuildings on order,
51 vessels time-chartered-in, nine vessels held for sale and five vessels owned by joint
ventures). Our conventional tankers provide for a total cargo-carrying capacity of
approximately 19.1 million deadweight tonnes (or mdwt), and our LNG and LPG
carriers have total cargo-capacity of approximately 1.0 million cubic meters.

Our voyage revenues are derived from:

| |  | Voyage or spot charters, which are charters priced on a current, or spot, market rate;
| | - | ------------------------------------------------------------------------------------------

| |  | Time-charters, whereby vessels are chartered to customers for a fixed period of time at rates that are generally
fixed, but may contain a variable component, such as an inflation adjustment or a current
market rate component; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Contracts of affreightment, where we carry an agreed quantity of cargo for a customer over
a specified trade route within a given period of time.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

The table below illustrates the
primary distinctions among these types of charters and contracts:

`Contract of
                                 Voyage Charter(1)     Time-Charter        Bareboat-Charter    Affreightment
Typical contract length........  Single voyage         One year or more    One year or more    One year or more
Hire rate basis(2).............  Varies                Daily               Daily               Typically daily
Voyage expenses (3) ...........  We pay                Customer pays       Customer pays       We pay
Vessel operating expenses (3)..  We pay                We pay              Customer pays       We pay
Off-hire(4) ...................  Customer does         Varied              Customer            Customer typically
                                 not pay                                   typically pays      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.

# Segments

Our fleet is divided into three main
segments, the spot tanker segment, the fixed-rate tanker segment and the fixed-rate LNG
segment.

Spot Tanker Segment

Our spot tanker segment consists of
conventional crude oil tankers and product carriers operating on the spot market or
subject to time charters or contracts of affreightment priced on a spot-market basis or
short-term fixed-rate contracts. We consider contracts that have an original term of less
than three years in duration to be short-term. All of our very large crude carrier (or
VLCC) fleet and substantially all of our conventional Aframax, large product and
small product tanker fleets are among the vessels included in the spot tanker segment. Our
spot market operations contribute to the volatility of our revenues, cash flow from
operations and net income. Historically, the tanker industry has been cyclical,
experiencing volatility in profitability and asset values resulting from changes in the
supply of, and demand for, vessel capacity. In addition, tanker spot markets historically
have exhibited seasonal variations in charter rates. Tanker spot markets are typically
stronger in the winter months as a result of increased oil consumption in the northern
hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. As
at December 31, 2004, we had five Aframax tankers on order in our spot tanker segment
scheduled to be delivered between January 2005 and March 2007, three large product tankers
scheduled to be delivered between August 2005 and December 2006, and one Suezmax tanker
which delivered in March 2005 and was sold concurrently with its delivery.

Fixed-Rate Tanker Segment

Our fixed-rate tanker segment
includes our shuttle tanker operations, floating storage and offtake (or FSO)
vessels, liquid petroleum gas carriers, and conventional crude oil, methanol and product
tankers on long-term fixed-rate time-charter contracts or contracts of affreightment. Our
shuttle tanker business, which is operated through our subsidiaries Navion AS (or
Navion) and Ugland Nordic Shipping (or UNS), provides services to oil
companies, primarily in the North Sea, under long-term fixed-rate contracts of
affreightment or time-charter agreements. 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 the offshore oil
platforms, which generally reduces oil production. As at December 31, 2004, we had on
order two newbuilding conventional crude oil Aframax tankers and one newbuilding
conventional crude oil Suezmax tanker in our fixed-rate tanker segment. Upon delivery of
the Aframax tankers, which is scheduled for January and March 2008, the vessels will
commence 10-year long-term charters to our SPT joint venture. The Suezmax tanker will
commence a 20-year time charter contract with Compania Espanola de Petroleos, S.A. (or
CEPSA), a Spanish energy conglomerate, upon delivery scheduled for July 2005. In
April 2004, we commenced a charter contract to provide Unocal Thailand with an FSO vessel
(the Pattani Spirit) for a minimum of 10 years.

Fixed-Rate LNG Segment

Our fixed-rate LNG segment consists
of LNG carriers subject to long-term, fixed-rate time-charter contracts. The acquisition
of Teekay Spain on April 30, 2004 established our entry into the LNG shipping sector. Our
fixed-rate LNG segment includes four LNG carriers acquired as part of the Teekay Spain
acquisition, including the delivery of one LNG carrier in July 2004, which commenced
service under a 25-year time-charter contract (with a charterers option to extend an
additional five years), and the delivery of another LNG carrier in December 2004, which
commenced service under a 20-year time-charter contract (with a charterers option to
extend an additional ten years). As at December 31, 2004, we had three newbuilding LNG
carriers on order, which will commence service under long-term contracts with Ras Lafan
Liquefied Natural Gas Co. Limited II (or RasGas II), a joint venture company
between a subsidiary of ExxonMobil Corporation and Qatar Petroleum, upon their deliveries,
which are scheduled for the fourth quarter of 2006 and the first half of 2007. The vessels
will be time-chartered to RasGas II for a period of 20 years, with a charterers
option to extend for periods up to an additional 15 years. These LNG charter contracts are
subject, in certain circumstances, to termination and vessel purchase rights in favor of
RasGas II.

# Acquisition of Teekay
Shipping Spain, S.L.

On April 30, 2004 we acquired 100% of
the issued and outstanding shares of Teekay Shipping Spain S.L. for $298.2 million in cash
and the assumption of existing debt and remaining newbuilding commitments.We
believe the long-term, fixed-rate nature of Teekay Spains charter contracts will add
stability to our cash flow and earnings throughout the tanker market cycle. Please see
Item 4. Information on the Company: Acquisition of Teekay Shipping Spain S.L. and Item 18
 Financial Statements: Note 3  Acquisition of Teekay Shipping Spain S.L.

# Acquisition of 50% of
PetroTrans Holdings Ltd.

On September 30, 2003, we acquired
50% of the issued and outstanding shares of PetroTrans Holdings Ltd., the parent company
of Skaugen PetroTrans Inc. (or SPT). Please see Item 4. Information on the Company:
Acquisition of 50% of PetroTrans Holdings Ltd. and Item 18  Financial Statements:
Note 5  Acquisition of 50% of PetroTrans Holdings Ltd.

# Acquisition of Navion AS

In April 2003, we completed our
acquisition of 100% of the issued and outstanding shares of Navion AS for approximately
$774.2 million in cash, including transaction costs of approximately $7.0 million. Please
see Item 4. Information on the Company: Acquisition of Navion AS and Item
18Financial Statements: Note 4  Acquisition of Navion AS.

# Proposed Initial Public
Offering by Teekay LNG Partners L.P.

In November 2004, our wholly-owned
subsidiary, Teekay LNG Partners L.P. (or Teekay LNG Partners), filed a registration
statement with the U.S. Securities and Exchange Commission for an initial public offering
of its common units. Teekay LNG Partners is a Marshall Islands limited partnership
recently formed by us as part of our strategy to expand our operations in the LNG sector.
Upon the closing of the offering, Teekay LNG Partners will provide LNG and crude oil
marine transportation services through a fleet of LNG carriers and Suezmaz class crude oil
tankers, primarily consisting initially of vessels we obtained through our acquisition of
Teekay Spain. Teekay GP L.L.C. is a wholly owned subsidiary of Teekay Shipping Corporation and
the general partner of Teekay LNG Partners. Please see Item 18  Financial Statements: Note 17  Commitments and Contingencies.

# IMO and European Union
Regulatory Changes

As described above under Item
4. Information on the Company: Regulations, in 2003 both the International Maritime
Organization (orIMO), the United Nations global maritime regulatory body,
and the European Union Parliament adopted regulations that, among other things, accelerate
the phasing-out of single-hull tankers.

As a result of these regulations,
which became effective April 5, 2005, we recorded a $56.9 million non-cash
write-down in our spot tanker segment in 2003, and reduced the estimated useful lives from
25 years to approximately 21 years for the two remaining vessels affected by these
regulatory changes.

Management believes that these IMO
regulations may result in further discrimination against older single-hull vessels.

We are not aware of any other
regulatory changes or environment liabilities that we anticipate will have a material
impact on our current or future operations.

# Important Financial and
Operational Terms and Concepts

We use a variety of financial and
operational terms and concepts when analyzing our performance. These include the
following:

Voyage Revenues.
Voyage revenues primarily include revenues from voyage charters, time charters and
contracts of affreightment. Voyage revenues are affected by hire rates and the number of
calendar-ship-days a vessel operates. Voyage revenues are also affected by the mix of
business between time charters, voyage charters and contracts of affreightment. Hire rates
for voyage charters are more volatile, as they are typically tied to prevailing market
rates at the time of a voyage.

Forward Freight
Agreements. We are exposed to market risk for vessels in our spot tanker
segment from changes in spot market rates for vessels. In certain cases we use forward
freight agreements (or FFAs) to manage this risk. FFAs involve contracts to provide
a fixed number or theoretical voyages at fixed-rates, thus hedging a portion of our
exposure to the spot charter market. These agreements are recorded as assets or
liabilities and measured at fair value. Changes in the fair value of the FFAs are
recognized in other comprehensive income (loss) until the hedged item is recognized as
voyage revenue in income. The ineffective portion of a change in fair value is immediately
recognized into income through voyage revenues.

Voyage Expenses.
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. Voyage expenses are typically paid by the customer under time charters and by
us under voyage charters and contracts of affreightment. When we pay voyage expenses, we
typically add them to our hire rates at an approximate cost.

Net Voyage
Revenues. Net voyage revenues represent voyage revenues less voyage
expenses. Because the amount of voyage expenses we incur for a particular charter depends
upon the form of the charter, we use net voyage revenues to improve the comparability
between periods of reported revenues that are generated by the different forms of
charters. 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 financial measure under accounting principles generally accepted in the U.S.
(or GAAP).

Time Charter Equivalent (TCE)
Rates. Bulk shipping industry freight rates are commonly measured in the
shipping industry at the net voyage revenues level in terms of time charter equivalent (or
TCE) rates, which represent net voyage revenues divided by calendar-ship-days.

Vessel Operating
Expenses. Under all types of charters for our vessels, we are responsible
for vessel operating expenses, which include crewing, repairs and maintenance, insurance,
stores, lube oils and communication expenses.

Income from Vessel Operations.To assist us in evaluating our operations by segment, we analyze our income
from vessel operations for each segment, which represents the income we receive from the
segment after deducting operating expenses and depreciation and amortization, but prior to
the deduction of net interest expense, income taxes, foreign currency and interest rate
swap gains or losses and other income and losses.

Drydocking.
          We must periodically drydock each of our vessels for inspection, repairs and
          maintenance and any modifications to comply with industry certification or
          governmental requirements. Generally, we drydock each of our vessels every two
          and a half to five years, depending upon the type of vessel and its age. In
          addition, a shipping society classification intermediate survey is performed on
          our LNG carriers between the second and third year of the five-year drydocking
          period. We capitalize a substantial portion of the costs incurred during
          drydocking and for the survey and amortize those costs on a straight-line basis
          from the completion of a drydocking or intermediate survey to the estimated
          completion of the next drydocking. We expense costs related to routine repairs
          and maintenance incurred during drydocking that do not improve or extend the
          useful lives of the assets. The number of drydockings undertaken in a given
          period, the size of the vessels and the nature of the work performed determine
          the level of drydocking expenditures.

Depreciation and
Amortization. Our depreciation and amortization expense typically consists
of the following three components:

| |  | charges related to the depreciation of the historical cost of our fleet (less an estimated
residual value) over the estimated useful lives of our 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 the time charters, contracts of
affreightment and intellectual property where amounts have been attributed to those items
on acquisitions of subsidiary companies. These amounts are amortized over the period which
the asset is expected to contribute to the future cash flows of the Company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Calendar-ship-days.
          Calendar-ship-days are equal to the aggregate number of calendar days in a
          period that our vessels operate during that period.

Restricted Cash
Deposits. Under capital lease arrangements for two of our LNG carriers, we
(a) borrow under term loans and deposit the proceeds into restricted cash accounts and (b)
enter into capital leases, also referred to as bareboat charters, for the
vessels. The restricted cash deposits approximate the present value of the remaining
amounts we owe under the lease arrangements, including our obligation to purchase the
vessels at the end of the lease terms. The restricted cash deposits and interest earned
thereon will fully fund the payments under these bareboat charters, including our
obligation to purchase the vessels. During vessel construction, we borrow under the term
loans and make restricted cash deposits that approximate the construction installment
payments. We also maintain cash on deposit relating to certain other term loans and other
obligations. Please see Item 18  Financial Statements: Note 11  Capital Leases
and Restricted Cash.

# Tanker Market Overview

During 2004, tanker spot rates rose
to the highest level in three decades as strong global oil demand growth and a higher
level of oil supplies from long-haul sources increased the tanker demand. In early 2005,
reduced oil production by Middle East OPEC members, lower Iraqi oil exports, and
unforeseen production outages in the North Sea caused tanker rates to decline, although
they remained at high levels.

Global oil demand, an underlying
driver of tanker demand, rose to 82.5 million barrels per day (or mb/d) during
2004, an increase of 2.7 mb/d, or 3.4%, from 2003. Strong global economic growth led by
China, non-OECD Asian countries and North America helped push oil demand to record levels.

Global oil supply increased by 3.4
mb/d, or 4.3%, to 83.0 mb/d in 2004 from 79.6 mb/d in 2003 due in part to a 1.4 mb/d rise
in long-haul Middle East OPEC oil production. Non-OPEC production rose by 1.0 mb/d mainly
as a result of rising output in the former Soviet Union. At its January 30, 2005 meeting,
OPEC (excluding Iraq) voted to leave its existing quota limit unchanged at 27.0 mb/d,
citing a forecasted balance between oil supply and demand for the first quarter of 2005.

The size of the world tanker fleet
rose to 334.0 million deadweight tonnes (or mdwt) as of December 31, 2004, up 17
mdwt, or 5.4% from December 31, 2003. Deliveries of tanker newbuildings aggregated 27.8
mdwt in 2004, exceeding total deletions of 10.8 mdwt.

As at December 31, 2004, the world
tanker order book rose to 89.6 mdwt, representing 26.8% of the total world tanker fleet,
up from 77.6 mdwt, or 24.5%, as of December 31, 2003.

The outlook for the tanker  market for the  remainder of 2005 is  positive,  since the balance  between  tanker
demand and tanker supply is expected to continue to be relatively tight during this period.  The  International
Energy Agency is  forecasting  an increase in oil demand of 1.8 mb/d, or 2.2%, in 2005 over 2004,  which should
typically  lead to an  approximate  4.0%  increase  in tanker  demand.  The 31.0 mdwt in  scheduled  new tanker
deliveries  in 2005 are expected to be largely  offset by the  increase in tanker  demand and the impact of the
recent IMO  regulations,  which are expected to phase-out  approximately  3 to 5% of the existing  world tanker
fleet, or 10 to 15 mdwt, during 2005.

# Results of Operations

In accordance with GAAP, we report
gross voyage revenues in our income statements and include voyage expenses among our
operating expenses. However, shipowners base economic decisions regarding the deployment
of their vessels in the spot market segment upon anticipated TCE rates, and industry
analysts typically measure bulk shipping freight rates in terms of TCE rates. This is
because under time charter contracts the customer usually pays the voyage expenses whereas
under voyage charters and contracts of affreightment the shipowner usually pays the voyage
expenses, which typically are added to the hire rate at an approximate cost. Accordingly,
the discussion of revenue below focuses on net voyage revenues (i.e. voyage revenues less
voyage expenses) and TCE rates of our three reportable segments where applicable. Please
see Item 18  Financial Statements: Note 2  Segment Reporting.

The following tables compare our
operating results by reportable segment for 2004, 2003 and 2002, and compare our net
voyage revenues (which is a non-GAAP financial measure) by reportable segment for 2004,
2003, and 2002 to the most directly comparable GAAP financial measure:

`----------- ---------------------------------------- ------------------------------ -------------------------------
                 Year Ended December 31, 2004        Year Ended December 31, 2003    Year Ended December 31, 2002
                        Fixed                                   Fixed                          Fixed
               Spot     -Rate     Fixed                Spot     -Rate                Spot      -Rate
              Tanker    Tanker   -Rate LNG            Tanker    Tanker              Tanker     Tanker
              Segment   Segment  Segment    Total     Segment   Segment   Total     Segment    Segment    Total
             ($000's)  ($000's)  ($000's) ($000's)   ($000's)  ($000's)  ($000's)   ($000's)   ($000's)  ($000's)
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------

Voyage
Revenues    1,450,791   725,061   43,386  2,219,238  1,081,974  494,121  1,576,095   632,281    151,046   783,327
Voyage
Expenses     (355,116)   (7,058)    (221)  (432,395)  (342,928) (51,728) (394,656)  (234,376)    (5,079) (239,455)
----------- ---------- -------- --------- ---------- ---------- --------- --------- ---------- --------- ---------
Net Voyage
Revenues    1,095,675   648,003   43,165  1,786,843    739,046  442,393  1,181,439   397,905    145,967   543,872
----------- ---------- -------- --------- ---------- ---------- --------- --------- ---------- --------- ---------`

`----------- ---------------------------------------- ------------------------------ -------------------------------
                 Year Ended December 31, 2004        Year Ended December 31, 2003    Year Ended December 31, 2002
                        Fixed                                   Fixed                          Fixed
               Spot     -Rate     Fixed                Spot     -Rate                Spot      -Rate
              Tanker    Tanker   -Rate LNG            Tanker    Tanker              Tanker     Tanker
              Segment   Segment  Segment    Total     Segment   Segment   Total     Segment    Segment    Total
                 (%)      (%)     (%)        (%)        (%)       (%)       (%)        (%)        (%)       (%)
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------

Voyage
Revenues         65       33        2        100         69       31       100         81         19       100
Voyage
Expenses         82       18        -        100         87       13       100         98          2       100
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------
Net Voyage
Revenues         62       36        2        100         63       37       100         73         27       100
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------`

The following table outlines the TCE
rates earned by the vessels in our spot tanker segment for 2004, 2003 and 2002:

`--------------- -------------------------------- ------------------------------ -------------------------------
                 Year Ended December 31, 2004    Year Ended December 31, 2003     Year Ended December 31, 2002
                                      TCE per                          TCE per                         TCE per
                 Net Voyage           calendar-  Net Voyage           calendar-  Net Voyage           calendar-
Vessel Type       Revenues   Calendar ship-day    Revenues   Calendar  ship-day   Revenues  Calendar  ship-day
                  ($000's)     Days      ($)      ($000's)     Days     ($)      ($000's)     Days       ($)
--------------- ------------ -------- ---------- ----------- -------- --------- ----------- --------- ---------

VLCC                 67,129      887     75,681     36,891       819    45,044      6,257        365   17,141
Suezmax(1)          133,706    2,423     55,182     62,329     1,841    33,856          -          -        -
Aframax(1)          813,371   20,697     39,299    535,570    21,489    24,923    340,643     21,383   15,930
Oil/Bulk/Ore (2)      3,269      157     20,822     39,849     2,451    16,258     32,749      2,920   11,215
Large Product        50,221    1,962     25,597     17,331       560    30,948          -          -        -
Small Product        49,175    3,515     13,990     27,960     2,416    11,573          -          -        -
--------------- ------------ -------- ---------- ----------- -------- --------- ----------- --------- ---------
   Totals         1,116,871   29,641     37,680    719,930    29,576    24,342    379,649     24,668   15,390
=============== ============ ======== ========== =========== ======== ========= =========== ========= =========`

| | (1) | The Suezmax net voyage revenues exclude losses on FFAs of $11.3 million (2004)
               and gains on FFAs of $0.6 million (2003). The Aframax net voyage revenues
               exclude losses on FFAs of $10.5 million (2004) and losses on FFAs of $0.3
               million (2003). We were not a party to any FFAs during 2002.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The oil/bulk/ore fleets net voyage revenues exclude $0.5 million (2004),
               $18.8 million (2003), and $18.2 million (2002) of net voyage revenues earned by
               the minority pool participants in the Panamax oil/bulk/ore pool that we operated
               prior to our disposition of all of our oil/bulk/ore carriers and the termination
               of the pool in 2004.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Year Ended December 31,
2004 versus Year Ended December 31, 2003

We acquired Teekay Spain on April 30,
2004. Consequently, our 2004 financial results for our segments only reflect Teekay
Spains results of operations commencing May 1, 2004. We completed our acquisition of
Navion on April 1, 2003. Consequently, our 2003 financial results for our segments only
reflect Navions results of operations on that date.

Spot Tanker Segment

TCE rates for the vessels in our spot
tanker segment primarily depend on oil production and consumption levels, the number of
vessels scrapped, the number of newbuildings delivered and charterers
reference for modern tankers. As a result of our dependence on the spot tanker
market, any fluctuations in TCE rates will affect our revenues and earnings. As a result
of the previously mentioned strong tanker freight rates during 2004, our average TCE rate
for the vessels in our spot tanker segment increased 54.8% to $37,680 for 2004, from
$24,342 for 2003. During 2004, approximately 62% of our net voyage revenues were earned by
the vessels in the spot tanker segment, compared to approximately 63% in 2003. The
decrease from 2003 was due primarily to our acquisition of Teekay Spain and its fixed-rate
Suezmax tanker and LNG fleet and the sale of 11 older spot vessels as part of our fleet
renewal program, partially offset by the increase in spot tanker rates compared to 2003
and an increase in the chartered-in vessels in our spot tanker segment.

The following table provides a
summary of the change in fleet size, based on calendar-ship-days, of our spot tanker
segment by owned and chartered-in vessels:

`-------------------------------------- --------------------------------------------------- --------------------------
                                                     Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
                                                  2004                      2003                Percentage Change
                                            (Calendar Days)            (Calendar Days)                 (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels                                     16,181                    21,206                   (23.7)
Chartered-in Vessels                              13,460                     8,370                    60.8
-------------------------------------- ------------------------- ------------------------- --------------------------
Total                                             29,641                    29,576                     0.2
====================================== ========================= ========================= ==========================`

The average fleet size of our spot
tanker fleet (including vessels chartered-in) increased slightly in 2004, primarily due
the delivery of four Aframax newbuildings and an increase in the number of vessels
chartered-in due to the inclusion of Navion for a fully year in 2004, compared to nine
months in 2003, as well as the sale and leaseback of three Aframax tankers in December
2003. These increases were substantially offset by the sale of 11 older tankers in the
spot tanker segment during 2004.

Net voyage revenues for the spot
tanker segment increased 48.3% to $1,095.7 million for 2004, from $739.0 million for 2003.
This increase was primarily due to the increases in average TCE rates from 2003.

Vessel operating expenses, which
include crewing, repairs and maintenance, insurance, stores and lubes, and communication
expenses, decreased 26.0% to $93.4 million for 2004, from $126.3 million for 2003. The
decrease in vessel operating expenses was primarily due to the sale of 11 older vessels
during the year.

Time-charter hire expense increased
56.3% to $263.1 million for 2004, from $168.3 million for 2003. This increase was due
primarily to the previously mentioned increase of chartered-in vessels.

Depreciation and amortization expense
decreased 10.2% to $95.6 million for 2004, from $106.4 million for 2003. The decrease was
primarily attributable to the previously mentioned vessel dispositions, partially offset
by the deliveries of the four newbuilding Aframax tankers during 2004 and the increased
amortization of older vessels due to the accelerated depreciation of vessels affected by
the previously mentioned IMO regulations. Depreciation and amortization expense included
amortization of drydocking costs of $16.1 million for 2004, compared to $22.3 million for
2003. The decrease in drydock amortization was primarily due to the previously mentioned
sale of older vessels that require more frequent drydocks.

Gain on sale of vessels for 2004 of
$72.1 million included gains on the sale of the 11 older vessels, as well as amortization
of a deferred gain on the sale and leaseback of the three Aframax tankers in December
2003. The write-downs and loss on sale of vessels for 2003 of $90.3 million was primarily
comprised of the write-down of vessel values as a result of the previously mentioned IMO
regulations and vessels sold in 2003.

We incurred restructuring charges of
$1.0 million in 2004 relating to the closure of our Oslo, Norway office. Restructuring
charges of $4.4 million in 2003 relate to the closure of our Oslo, Norway and Melbourne,
Australia offices, and severance costs related to the termination of seafaring staff.

Fixed-Rate Tanker Segment

The following table provides a
summary of the change in fleet size, based on calendar ship days, of our fixed-rate tanker
segment by owned and chartered-in vessels:

`-------------------------------------- --------------------------------------------------- --------------------------
                                                     Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
                                                  2004                      2003                Percentage Change
                                            (Calendar Days)           (Calendar Days)                  (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels                                     14,808                    10,196                    45.2
Chartered-in Vessels                               5,905                     4,370                    35.1
-------------------------------------- ------------------------- ------------------------- --------------------------
Total                                             20,713                    14,566                    42.2
====================================== ========================= ========================= ==========================`

The average fleet size of our
fixed-rate tanker segment (including vessels chartered-in) increased significantly in 2004
compared to 2003, primarily due to our acquisition of Teekay Spain, which included four
Suezmax tankers in this segment, and the delivery of four newbuildings in 2004. In
addition, the results of Navion, including its fixed-rate shuttle tanker fleet, were only
included for nine months in 2003, compared to a full year in 2004.

Net voyage revenues increased 46.5%
to $648.0 million for 2004, from $442.4 million for 2003 primarily due to the increase in
fleet size. The shuttle tankers acquired as part of our acquisition of Navion generated,
on average, more revenue per ship than the remaining vessels in our fixed-rate tanker
segment. During 2004, approximately 36% of our net voyage revenues were earned by the
vessels in the fixed-rate tanker segment, compared to approximately 37% in 2003.

Vessel operating expenses increased
39.3% to $117.6 million for 2004, from $84.4 million for 2003. The increase in vessel
operating expenses was primarily due to the increase in fleet size and the appreciation of
other major currencies against the U.S. Dollar. The shuttle tankers acquired as part of
our acquisition of Navion incurred, on average, higher operating costs per ship than the
remaining vessels in our fixed-rate tanker segment.

Time-charter hire expense increased
42.4% to $194.1 million for 2004, from $136.3 million for 2003. The increase is due
primarily to Navions chartered-in shuttle tankers being included for the full year
in 2004, but only for nine months in 2003, the date of the Navion acquisition.

Depreciation and amortization expense
increased 52.1% to $129.1 million for 2004, from $84.9 million for 2003. The increase was
mainly due to increased vessel cost amortization during 2004 as a result of the increase
in fleet size of owned vessels in this segment, the amortization of the estimated fair
market value of the time charter contracts we acquired as part of the Teekay Spain
acquisition and a full year of amortization during 2004 of the contracts of affreightment
we acquired as part of the 2003 Navion acquisition. Depreciation and amortization expense
included amortization of drydocking costs of $7.3 million for 2004, compared to $4.2
million for 2003.

Gain on sale of vessels for 2004 of
$7.2 million represents gains on the sale of three older vessels. Loss on sale of vessels
for 2003 of $0.1 million relate to the sale of a shuttle tanker in our fixed-rate tanker
segment.

We incurred no restructuring charges
in 2004 in our fixed-rate tanker segment. Restructuring charges of $2.0 million in 2003
relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance
costs related to the termination of seafaring staff.

Fixed-Rate LNG Segment

The results of our fixed-rate LNG
segment reflect the operations of our four LNG carriers (including one newbuilding that
delivered in July 2004, and one newbuilding that delivered in December 2004) acquired as
part of our acquisition of Teekay Spain on April 30, 2004. The total number of calendar
ship days of our LNG carriers during 2004 was 660. We had no LNG shipping operations prior
to the Teekay Spain acquisition.

Net voyage revenues totaled $43.2
million for 2004, or $65,402 per calendar-ship-day. During 2004 approximately 2% of our
net voyage revenues were earned by the vessels in the fixed-rate LNG segment.

Vessel operating expenses totaled
$7.5 million for 2004, or $11,377 per calendar-ship-day.

Depreciation and amortization was $12.9
million in 2004, which includes $3.6 million of amortization of time-charter contracts
acquired as part of the Teekay Spain acquisition.

Other Operating Results

General and administrative expenses
increased 53.5% to $130.7 million for 2004, from $85.1 million for 2003, primarily as a
result of the Teekay Spain acquisition, the inclusion of Navion for 12 months in 2004
compared to only nine months in 2003, an increase in the accrual for performance-based
bonuses in 2004, including $12.5 million authorized by the Board of Directors in addition
to the regular bonus plan, and the appreciation of several major currencies against the
U.S. Dollar.

Interest expense increased 50.0% to
$121.5 million for 2004, from $81.0 million for 2003. This increase primarily reflects
interest on the additional debt we incurred in connection of our acquisitions of Navion
and Teekay Spain.

Interest income increased 372.5% to
$18.5 million for 2004, compared to $3.9 million for 2003. This increase was primarily due
to interest earned on higher average cash and restricted cash balances. Please see
Important Financial and Operational Terms and Concepts  Restricted Cash
Deposits above.

Equity income from 50%-owned joint
ventures increased 97.0% to $13.7 million for 2004, from $7.0 million for 2003, primarily
as a result of our acquisition of a 50% interest in SPT during September 2003.

Gain on sale of marketable securities
was $93.2 million in 2004, compared to $0.5 million in 2003. During 2004 we sold our
investments in marketable securities. Please see Item 18  Financial Statements: Note
6  Investments in Marketable Securities.

Other loss of $67.7 million for 2004
was primarily comprised of foreign exchange losses of $42.7 million, income taxes of $35.0
million and a $0.8 million loss on redemption of $13.4 million of our 8.32% First
Preferred Ship Mortgage Notes, partially offset by dividend income from our joint ventures
and leasing income from our volatile organic compound emissions equipment. Other loss of
$46.0 million for 2003 was primarily comprised of income taxes of $36.5 million, a $5.4
million loss on redemption of $57.9 million of our 8.32% First Preferred Ship Mortgage
Notes, a write-down of marketable securities, goodwill and other assets, minority interest
expense, and foreign exchange losses, partially offset by dividend income from Nordic
American Tanker Shipping Ltd. (or NATS), and leasing income from our volatile
organic compound emissions equipment.

As a result of the foregoing factors,
net income increased to $757.4 million for 2004, from $177.4 million for 2003.

# Year Ended December 31,
2003 versus Year Ended December 31, 2002

We completed our acquisition of on
April 1, 2003. Consequently, our 2003 financial results for our segments only reflect
Navions results of operations for nine months.

Spot Tanker Segment

As a result of strengthening in
tanker freight rates during 2003, our average TCE rate for the vessels in our spot tanker
segment increased 58.2% to $24,342 for 2003, from $15,390 for 2002. During 2003,
approximately 63% of our net voyage revenues were earned by the vessels in the spot tanker
segment, compared to approximately 73% in 2002. The decrease from 2002 was due primarily
to our acquisition of Navion and its shuttle tanker fleet that is part of our fixed-rate
tanker segment, partially offset by an increase in spot tanker rates compared to 2002.

The following table provides a
summary of the change in fleet size, based on calendar ship days, of our spot tanker
segment by owned and chartered-in vessels:

`-------------------------------------- --------------------------------------------------- --------------------------
                                                     Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
                                                  2003                      2002                Percentage Change
                                            (Calendar Days)           (Calendar Days)                  (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels                                     21,206                    22,824                    (7.1)
Chartered-in Vessels                               8,370                     1,844                   353.9
-------------------------------------- ------------------------- ------------------------- --------------------------
Total                                             29,576                    24,668                    19.9
====================================== ========================= ========================= ==========================`

The average fleet size of our spot
tanker fleet (including vessels chartered-in) increased in 2003, primarily due to our
acquisition of Navion, and the delivery of three chartered-in newbuildings (two Aframax
tankers delivered in April 2003 and August 2003, and a VLCC delivered in June 2003) and a
vessel under capital lease (an Aframax tanker delivered in September 2003). These
increases were partially offset by the sale of 16 older tankers in the spot tanker segment
during 2003 as part of our fleet renewal program. The average fleet size of our owned spot
tanker fleet decreased in 2003.

Net voyage revenues for the spot
tanker segment increased 85.7% to $739.0 million for 2003, from $397.9 million for 2002.
These increases were primarily due to the increases in average fleet size and average TCE
rates from 2002.

Vessel operating expenses, which
include crewing, repairs and maintenance, insurance, stores and lubes, and communication
expenses, decreased 1.3% to $126.3 million for 2003, from $128.0 million for 2002. The
decrease in vessel operating expenses was primarily due to the decreased size of our owned
spot tanker fleet, partially offset by higher repairs and maintenance costs on our
remaining vessels.

Time-charter hire expense increased
237.0% to $168.3 million for 2003, from $49.9 million for 2002. This increase was due
primarily to the addition of the chartered-in vessels included as part of the Navion
acquisition and the previously mentioned delivery of three additional chartered-in
vessels.

Depreciation and amortization expense
increased 0.9% to $106.4 million for 2003, from $105.4 million for 2002. The increase was
primarily attributable to the larger fleet size resulting from our acquisition of Navion
and increased drydock amortization, substantially offset by the effect of the previously
mentioned vessel dispositions. Depreciation and amortization expense included amortization
of drydocking costs of $22.3 million for 2003, compared to $18.1 million for 2002. The
increase in drydock amortization was primarily due to an increase in the amount of work
done in drydock on most vessels during 2003 and an increase in the frequency of required
drydockings for older vessels.

As previously mentioned, we wrote
down the book values of certain of our tankers by $56.9 million in the fourth quarter of
2003 due to changes in IMO regulations, and we sold 16 older vessels in our spot tanker
segment in 2003. These dispositions resulted in a $34.7 million write-down in the book
value of these vessels, partially offset by a $1.3 million gain on the sale of some of the
vessels. There were no vessel write-downs or vessel dispositions in our spot tanker
segment in 2002.

Restructuring charges of $4.4 million
in 2003 related to the closure of our Oslo, Norway and Melbourne, Australia offices, and
severance costs related to the termination of seafaring staff. There were no restructuring
changes in our spot tanker segment in 2002.

Fixed-Rate Tanker Segment

The following table provides a
summary of the change in fleet size, based on calendar-ship-days of our fixed-rate tanker
segment by owned and chartered-in vessels:

`-------------------------------------- --------------------------------------------------- --------------------------
                                                     Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
                                                  2003                      2002                Percentage Change
                                            (Calendar Days)           (Calendar Days)                  (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels                                     10,196                     6,249                    63.2
Chartered-in Vessels                               4,370                         -                      -
-------------------------------------- ------------------------- ------------------------- --------------------------
Total                                             14,566                     6,249                   133.1
====================================== ========================= ========================= ==========================`

The average fleet size of our
fixed-rate tanker segment (including vessels chartered-in) more than doubled in 2003
compared to 2002, primarily due to our acquisition of Navion and the addition of four
shuttle tankers (including deliveries of two newbuilding shuttle tankers) in 2003. In
addition, the first three of five newbuilding conventional tankers on 12-year charters to
ConocoPhillips were delivered in the second half of 2003.

Net voyage revenues increased 203.1%
to $442.4 million for 2003, from $146.0 million for 2002, primarily due to the increase in
fleet size. The shuttle tankers acquired as part of our acquisition of Navion generated,
on average, more revenue per ship than the remaining vessels in our fixed-rate tanker
segment. During 2003, approximately 37% of our net voyage revenues were earned by the
vessels in the fixed-rate tanker segment, compared to approximately 27% in 2002.

Vessel operating expenses increased
110.7% to $84.4 million for 2003, from $40.1 million for 2002. The increase in vessel
operating expenses was primarily due to the increase in fleet size. The shuttle tankers
acquired as part of our acquisition of Navion incurred, on average, higher operating costs
per ship than the remaining vessels in our fixed-rate tanker segment. Other less
significant reasons for the increase in vessel operating expenses were higher repair,
maintenance and crewing costs, and the appreciation of the Norwegian Kroner against the
U.S. Dollar.

Time-charter hire expense was $136.3
million for 2003. We incurred no time-charter hire expense in 2002, as we did not have any
chartered-in tankers in the fixed-rate tanker segment prior to our acquisition of Navion.
As at December 31, 2003, we had 13 chartered-in shuttle tankers and one chartered-in
methanol carrier.

Depreciation and amortization expense
increased 93.4% to $84.9 million for 2003, from $43.9 million for 2002. The increase was
mainly due to increased vessel cost amortization as a result of the increase in fleet size
of our owned vessels and the amortization of the estimated fair market value of the
contracts of affreightment we acquired as part of the Navion acquisition. Depreciation and
amortization expense included amortization of drydocking costs of $4.2 million for 2003,
compared to $3.7 million for 2002.

Loss on sale of vessels for 2003 of
$0.1 million related to the sale of a shuttle tanker in our fixed-rate tanker segment.
There were no vessel dispositions in our fixed-rate tanker segment in 2002.

Restructuring charges of $2.0 million
in 2003 relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and
severance costs related to the termination of seafaring staff. No restructuring charges
were incurred in 2002 in our fixed-rate tanker segment.

Other Operating Results

General and administrative expenses
increased 48.7% to $85.1 million for 2003, from $57.2 million for 2002, primarily as a
result of the Navion acquisition, a special compensation expense to an executive officer
and the appreciation of several major currencies against the U.S. Dollar.

Equity income from 50%-owned joint
ventures increased 54.1% to $7.0 million for 2003, from $4.5 million for 2002, primarily
as a result of our acquisition of a 50% interest in SPT during September 2003.

Interest expense increased 39.7% to
$81.0 million for 2003, from $58.0 million for 2002. This increase primarily reflects
interest on the additional debt we incurred to acquire Navion.

Interest income increased 12.2% to
$3.9 million for 2003, compared to $3.5 million for 2002. This increase was primarily due
to interest earned on higher average cash balances, partially offset by lower interest
rates.

Other loss of $46.0 million for 2003
was primarily comprised of income taxes of $36.5 million, a loss on redemption of $57.9
million of our 8.32% First Preferred Ship Mortgage Notes, a write-down of
available-for-sale securities, goodwill and other assets, minority interest expense, and
foreign exchange losses, partially offset by dividend income from Nordic American Tanker
Shipping Ltd., leasing income from our volatile organic compound emissions equipment and a
gain on the disposition of available-for-sale securities. Other loss of $14.9 million for
2002 was primarily comprised of income taxes of $11.4 million, the settlement of a
contingent payment relating to our purchase in 1993 of all the issued and outstanding
shares of Palm Shipping Inc. (now Teekay Chartering Limited), a loss on sale of
available-for-sale securities, and minority interest expense, partially offset by dividend
income from Nordic American Tanker Shipping Ltd., and foreign exchange gains.

As a result of the foregoing factors,
net income increased to $177.4 million for 2003, from $53.4 million for 2002.

# Liquidity and Capital
Resources

As at December 31, 2004, our total
cash and cash equivalents was $427.0 million, compared to $292.3 million at December 31,
2003. Our total liquidity, including cash, short-term marketable securities and undrawn
long-term borrowings, was $1,258.2 million as at December 31, 2004, up from $774.8 million
as at December 31, 2003. The increase in liquidity was mainly the result of cash generated
by our operating activities, proceeds from the sale of 14 older vessels during the year
and the sale of our marketable securities during the year, partially offset by our debt
repayments, cash used for capital expenditures and payment of dividends. In our opinion,
working capital is sufficient for our present requirements.

Net cash flow from operating
activities increased to $814.7 million in 2004 from $455.6 million in 2003, mainly
reflecting the significant increase in our average spot TCE rates.

Scheduled debt repayments were $150.3
million during 2004 compared to $62.2 million during 2003. Repayments of capital lease
obligations were $66.1 million in 2004 compared to $0.3 million in 2003. Debt prepayments
were $1,731.2 million during 2004 compared to $1,466.8 million during 2003. Of our 2004
debt prepayments, $1,326.0 million resulted from our drawing down and subsequently
prepaying under some of our eight long-term revolving credit facilities (the Revolvers) in
anticipation of the closing of the Teekay Spain acquisition and for internal restructuring
purposes. In addition, in 2004 a total of $391.0 million of cash generated from operations
and from proceeds of longer-term financings was used to prepay certain term loans, and
$14.2 million was used to repurchase a portion of the 8.32% First Preferred Ship Mortgage
Notes (the 8.32% Notes). Occasionally we use our Revolvers to temporarily finance
capital expenditures until longer-term financing is obtained, at which time we typically
use all or a portion of the proceeds from the longer-term financings to prepay outstanding
amounts under the Revolvers. Please see Item 18  Financial Statements: Note 9 
Long-Term Debt.

As at December 31, 2004, our total
debt was $2,108.0 million, compared to $1,600.1 million as at December 31, 2003. As at
December 31, 2004, our Revolvers provided for borrowings of up to $1,361.2 million, of
which $831.2 million was undrawn. The amount available under the Revolvers reduces by
$142.2 million (2005), $165.2 million (2006), $130.1 million (2007), $444.3 million
(2008), $39.4 million (2009) and $440.0 million (thereafter). All of the Revolvers are
collateralized by first priority mortgages granted on 52 of the Companys vessels,
together with other related collateral, and include a guarantee from Teekay for all
amounts outstanding under the Revolvers. Our 8.32% Notes are due February 1, 2006 and are
subject to a sinking fund which retires $45.0 million principal amount of the 8.32% Notes
on February 1 of each year, commencing 2004. Our 7.25% Premium Equity Participating
Security Units are due May 18, 2006 and our unsecured 8.875% Senior Notes are due July 15,
2011. Our outstanding term loans reduce in monthly, quarterly or semi-annual payments with
varying maturities through 2023. Please see Item 18  Financial Statements: Note 9
 Long-Term Debt.

Among other matters, our long-term
debt agreements generally provide for the maintenance of certain vessel market
value-to-loan ratios and minimum consolidated financial covenants, prepayment privileges
(in some cases with penalties), and restrictions against the incurrence of new investments
by the specified subsidiaries without prior lender consent. The amount of Restricted
Payments, as defined, that we can make, including dividends and purchases of our own
capital stock, was limited to $892.8 million as of December 31, 2004. Certain of the loan
agreements require that we maintain a minimum level of free cash. As at December 31, 2004,
this amount was $100 million. Certain of the loan agreements also require that a minimum
level of free liquidity and undrawn revolving credit lines (excluding undrawn revolving
credit lines with less than 6 months to maturity) be maintained. As at December 31, 2004,
this amount was $205.8 million.

We conduct our funding and treasury
activities within corporate policies to minimize borrowing costs and maximize investment
returns while maintaining the safety of the funds and appropriate levels of liquidity for
our purposes. We hold cash and cash equivalents primarily in U.S. dollars, with some
balances held in Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars,
British Pounds, Euros and Norwegian Kroner.

We are exposed to market risk from
foreign currency fluctuations, changes in interest rates, spot market rates for vessels,
and bunker fuel prices. We use forward foreign currency contracts, interest rate swaps,
forward freight agreements and bunker fuel swap contracts to manage currency, interest
rate, bunker fuel price risks and spot tanker rates, but we do not use these financial
instruments for trading or speculative purposes. Please see Item 11  Quantitative
and Qualitative Disclosures About Market Risk.

Dividends declared during 2004 were
$42.4 million, or $0.5125 per share. In October 2004, we increased our quarterly dividend
from $0.125 per share to $0.1375 per share.

In November 2004, we announced that
our Board of Directors authorized the repurchase of up to 3,000,000 shares of our common
stock. As at December 31, 2004, we had repurchased 1,400,200 shares of our common stock at
an average price of $43.73 per share. In January 2005, we repurchased an additional
1,599,800 shares at an average price of $42.27, for a total of 3,000,000 shares
repurchased.

In November 2004, our subsidiary
Teekay LNG Partners filed a registration statement with the Securities and Exchange
Commission for an initial public offering of its common units. Proceeds from the offering
will be used to repay debt the partnership will owe to us and to pay offering expenses.
Proceeds of any exercise of the over-allotment option will be used to repay debt under
ship financing arrangements of the partnership. Please see Item 18  Financial
Statements: Note 17  Commitments and Contingencies.

During 2004, we incurred capital
expenditures for vessels and equipment of $548.6 million. These capital expenditures
primarily represented installment payments on our newbuildings. Cash expenditures for
drydocking decreased to $32.9 million for 2004, compared to $42.7 million during 2003, due
primarily to the sale of 11 older vessels during 2004.

As at December 31, 2004, we were
committed to the construction of seven Aframax tankers, two Suezmax tankers, three product
tankers and three LNG carriers scheduled for delivery between January 2005 and March 2008.
Please see Item 18  Financial Statements: Note 17  Commitments and
Contingencies.

We are also committed to capital
leases on one Aframax tanker, four Suezmax tankers and two LNG carriers. The leases
require minimum scheduled payments of $780.4 million, including a purchase obligation
payment, over the remaining terms of the leases. Please see Item 18  Financial
Statements: Note 11  Capital Leases and Restricted Cash.

The following table summarizes our
long-term contractual obligations as at December 31, 2004 (in millions of U.S. dollars).

`--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
                                                 2005      2006      2007     2008      2009     There-     Total
                                                                                                 after
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
 Long-term debt                                  119.5     219.5      36.4    284.0     189.3   1,259.3    2,108.0
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
 Chartered-in vessels (operating leases)         365.5     289.3     197.3    120.9      83.5     192.8    1,249.3
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
 Commitment for chartered-in vessels
   (capital leases)                              130.1     317.7      39.7     41.3      42.8     208.8      780.4
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
 Newbuilding installments (1)                    363.7     255.9     141.0     50.7         -         -      811.3
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
 Volatile organic compound emissions
    equipment                                     31.5         -         -        -         -         -       31.5
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
      Total                                    1,010.3   1,082.4     414.4    496.9     315.6   1,660.9    4,980.5
============================================= ========= ========= ========= ========= ========= ========= ==========`

| | (1) | Includes $38.0 million of installments on a newbuilding that was sold upon
               delivery during the first quarter of 2005. Please see Item 18  Financial
               Statements: Note 21  Subsequent Events.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The sale of 14 older vessels during
2004 generated gross proceeds of $440.6 million.

In 2004 we sold our investments in
A/S Dampskibsselskabet Torm and Nordic American Tanker Shipping Ltd. for proceeds of
$135.4 million. Please see Item 18  Financial Statements: Note 6  Investments
in Marketable Securities.

As part of our growth strategy, we
will continue to consider strategic opportunities, including the acquisition of additional
vessels and expansion into new markets. We may choose to pursue such opportunities through
internal growth, joint ventures or business acquisitions. We intend to finance any future
acquisitions through various sources of capital, including internally-generated cash flow,
existing credit facilities, additional debt borrowings and the issuance of additional
shares of capital stock.

# Off Balance Sheet
Arrangements

We and certain of our subsidiaries
have guaranteed our share of the outstanding mortgage debt in four 50%-owned joint venture
companies. Please see Item 18  Financial Statements: Note 17  Commitments and
Contingencies. We do not believe theses off-balance sheet arrangements have and we have no
other off-balance sheet arrangements that have or are reasonably likely to have, a current
or future material effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.

# Critical Accounting
Policies

We prepare our consolidated financial
statements in accordance with GAAP, which require us to make estimates in the application
of our accounting policies based on our best assumptions, judgments, and opinions.
Following is a discussion of the accounting policies that involve a high degree of
judgment and the methods of their application. For a further description of our material
accounting policies, please see Item 18  Financial Statements: Note 1  Summary
of Significant Accounting Policies.

Revenue Recognition

We generate a majority of our
revenues from spot voyages and voyages servicing contracts of affreightment. Within the
shipping industry, the two methods used to account for voyage revenues and expenses are
the percentage of completion and the completed voyage methods. Most shipping companies,
including us, use the percentage of completion method. For each method, voyages may be
calculated on either a load-to-load or discharge-to-discharge basis. In other words,
revenues are recognized ratably either from the beginning of when product is loaded for
one voyage to when it is loaded for another voyage, or from when product is discharged
(unloaded) at the end of one voyage to when it is discharged after the next voyage.

In applying the percentage of
completion method, we believe that in most cases the discharge-to-discharge basis of
calculating voyages more accurately reflects voyage results than the load-to-load basis.
At the time of cargo discharge, we generally have information about the next load port and
expected discharge port, whereas at the time of loading we are normally less certain what
the next load port will be. We use this method of revenue recognition for all spot voyages
and voyages servicing contracts of affreightment, with an exception for our shuttle
tankers servicing contracts of affreightment with offshore oil fields. In this case a
voyage commences with tendering of notice of readiness at a field, within the agreed
lifting range, and ends with tendering of notice of readiness at a field for the next
lifting. However, we do not begin recognizing voyage revenue until a charter has been
agreed to by the customer and us, even if the vessel has discharged its cargo and is
sailing to the anticipated load port on its next voyage.

We recognize revenues from time
charters daily over the term of the charter as the applicable vessel operates under the
charter. We do not recognize revenues during days that the vessel is off-hire.

Vessel Lives and
Impairment

The carrying value of each of our
vessels represents its original cost at the time of delivery or purchase less depreciation
or impairment charges. We depreciate our vessels on a straight-line basis over a
vessels estimated useful life, less an estimated residual value. Depreciation is
calculated using an estimated useful life of 25 years for Aframax, Suezmax, VLCC and
product tankers, and 35 years for LNG carriers, from the date the vessel was originally
delivered from the shipyard, or a shorter period if regulations prevent us from operating
the vessels to 25 years or 35 years, respectively. In the shipping industry, the use of a
25-year vessel life for Aframax, Suezmax, VLCC and product tankers has become the
prevailing standard. In addition, the use of a 30 to 40 year vessel life for LNG carriers
is typical. However, the actual life of a vessel may be different, with a shorter life
potentially resulting in an impairment loss. We have reduced the estimated useful lives
from 25 years to approximately 21 years for our two remaining vessels affected by the
International Maritime Organizations regulatory changes announced in 2003. We are
not aware of any other regulatory changes or environmental liabilities that we anticipate
will have a material impact on our current or future operations.

The carrying values of our vessels
may not represent their fair market value at any point in time since the market prices of
secondhand vessels tend to fluctuate with changes in charter rates and the cost of
newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature. We
review vessels and equipment for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. We measure the
recoverability of an asset by comparing its carrying amount to future undiscounted cash
flows that the asset is expected to generate over its remaining useful life. If we
consider a vessel or equipment to be impaired, we recognize impairment in an amount equal
to the excess of the carrying value of the asset over its fair market value.

Drydocking

Generally, we drydock each vessel
every two and a half to five years. In addition, a shipping society classification
intermediate survey is performed on our LNG carriers between the second and third year of
the five-year drydocking period. We capitalize a substantial portion of the costs we incur
during drydocking and for the survey and amortize those costs on a straight-line basis
from the completion of a drydocking or intermediate survey to the estimated completion of
the next drydocking. We expense costs related to routine repairs and maintenance incurred
during drydocking that do not improve or extend the useful lives of the assets. When
significant drydocking expenditures occur prior to the expiration of the original
amortization period, the remaining unamortized balance of the original drydocking cost and
any unamortized intermediate survey costs are expensed in the month of the subsequent
drydocking.

Goodwill and Intangible
Assets

We allocate the cost of acquired
companies to the identifiable tangible and intangible assets and liabilities acquired,
with the remaining amount being classified as goodwill. Certain intangible assets, such as
time charter contracts, contracts of affreightment and intellectual property are amortized
over time. Our future operating performance will be affected by the future amortization of
intangible assets and potential impairment charges related to goodwill. Accordingly, the
allocation of the purchase price to intangible assets and goodwill has a significant
impact on our future operating results. The allocation of the purchase price of the
acquired companies to intangible assets and goodwill requires management to make
significant estimates and assumptions, including estimates of future cash flows expected
to be generated by the acquired assets and the appropriate discount rate to value these
cash flows.

Goodwill and indefinite lived
intangible assets are not amortized, but reviewed for impairment annually, or more
frequently if impairment indicators arise. The process of evaluating the potential
impairment of goodwill and intangible assets is highly subjective and requires significant
judgment at many points during the analysis. The fair value of our reporting units was
estimated based on discounted expected future cash flows using a weighted average cost of
capital rate. The estimates and assumptions regarding expected cash flows and the discount
rate require considerable judgment and are based upon existing contracts, historical
experience, financial forecasts, and industry trends and conditions.

# Recent Accounting
Pronouncements

On December 16, 2004, the Financial
Accounting Standards Board (or FASB) issued FASB Statement No. 123(R) (or SFAS
123(R)), Share-Based Payment, which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB 25. SFAS 123(R)
requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an acceptable alternative.

SFAS 123(R) must be adopted no later
than July 1, 2005. Early adoption will be permitted in periods in which financial
statements have not yet been issued. We expect to adopt SFAS 125(R) on July 1, 2005.

SFAS 123(R) permits public companies
to adopt its requirements using one of the following two methods:

| | 1. | A modified prospective method in which compensation cost is
               recognized beginning with the effective date based on (a) the requirements of
               SFAS 123(R) for all share-based payments granted after the effective date and
               (b) the requirements of SFAS 123 for all awards granted to employees prior to
               the effective date of SFAS 123(R) that remain unvested on the effective date.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | A modified retrospective method which includes the requirements of
               the modified prospective method described above, but also permits entities to
               restate based on the amounts previously recognized under SFAS 123 for purposes
               of pro forma disclosures, either (a) all prior periods presented or (b) prior
               interim periods of the year of adoption.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We plan to adopt SFAS 123(R) using
the modified-prospective method.

# Item 6. Directors,
Senior Management and Employees

# Directors and Senior
Management

Our directors and executive officers
as of the date of this annual report and their ages as of December 31, 2004 are listed
below:

`Name                     Age   Position

C. Sean Day              55    Director and Chair of the Board
Bjorn Moller             47    Director, President and Chief Executive Officer
Axel Karlshoej           64    Director and Chair Emeritus
Bruce C. Bell            57    Director
Dr. Ian D. Blackburne    58    Director
Leif O. Hoegh            41    Director
Thomas Kuo-Yuen Hsu      58    Director
Eileen A. Mercier        57    Director
Tore I. Sandvold         57    Director
Peter Antturi            46    President, Teekay Navion Shuttle Tankers, a division of Teekay Shipping Corporation
Arthur Bensler           47    SVP, Secretary and General Counsel
Peter Evensen            46    EVP and Chief Financial Officer
David Glendinning        50    President, Teekay Gas and Offshore, a division of Teekay Shipping Corporation
Jennifer Gordon          43    SVP, Corporate Resources
Vincent Lok              36    SVP and Treasurer
Graham Westgarth         50    President, Teekay Marine Services, a division of Teekay Shipping Corporation
Paul Wogan               42    President, Teekay Tanker Services, a division of Teekay Shipping Corporation`

Certain biographical information
about each of these individuals is set forth below:

C. Sean Day
has served as our Chair of the Board since September 1999. Mr. Day
          has served as Chair of Teekay GP L.L.C.s board of directors since it was
          formed in November 2004. From 1989 to 1999, he was President and Chief Executive
          Officer of Navios Corporation, a large bulk shipping company based in Stamford,
          Connecticut. Prior to this, Mr. Day held a number of senior management positions
          in the shipping and finance industry. He is currently serving as a director of
          Kirby Corporation. Mr. Day also serves as the Chair of the Board of Resolute Investments,
          Inc., our largest shareholder. Please see Item 7  Related Party
          Transactions.

Bjorn Mollerbecame our
President and Chief Executive Officer in April 1998. Mr. Moller has served as Vice Chair
and a Director of Teekay GP L.L.C. since it was formed in November 2004. Mr. Moller has
over 20 years experience in the shipping industry and has served in senior
management positions with Teekay for more than 15 years. He has headed our overall
operations since January 1997, following his promotion to the position of Chief Operating
Officer. Prior to this, Mr. Moller headed our global chartering operations and business
development activities.

Axel Karlshoejwas Chair of
the Board from June 1994 to September 1999, and has been Chair Emeritus since stepping
down as Chair. Mr. Karlshoej is President and serves on the compensation committee of
Nordic Industries, a California general construction firm with which he has served for the
past 30 years. He is the older brother of the late J. Torben Karlshoej, Teekays
founder.

Bruce C. Bellis the Managing
Director of Oceanic Bank and Trust Limited, a Bahamian bank and trust company,
a position he has held since March 1994. Mr. Bell has served as the
Secretary of Teekay GP L.L.C. since it was formed in November 2004. Prior to joining
Oceanic Bank and Trust, Mr. Bell was engaged in the private practice of law in Canada,
specializing in corporate/commercial, banking and international business transactions.
From May 2000 until May 2003, Mr. Bell served as our Corporate Secretary. Mr. Bell is a
director and the Vice President of Resolute Investments, Inc., our largest shareholder.
Please see Item 7  Related Party Transactions.

Dr. Ian D. Blackburnehas over 25 years experience in petroleum
          refining and marketing, and in March 2000 he retired as Managing Director and
          CEO of Caltex Australia Limited, a large petroleum refining and marketing
          conglomerate based in Australia. He is currently serving as Chairman of CSR
          Limited and is a director of Suncorp-Metway Ltd., Mayne Group Limited, Australian public companies in
          the diversified industrial and financial sectors. Dr. Blackburne is also the
          Chairman of the Australian Nuclear Science and Technology Organization.

Leif O. Höeghwas
appointed as a director in June 1999 in connection with our acquisition of Bona
Shipholding Ltd. He served as a director of Bona from November 1993 to June 1999 and as
its Chairman from June 1998 to June 1999. Mr. Höegh is the joint controlling
shareholder and Deputy Chairman of Leif Höegh and Co. Ltd., a shipping company. He
also serves as a director of NeoMed Management Ltd. and as the Chairman of Höegh
Capital Partners, Inc.

Thomas Kuo-Yuen Hsuhas served
30 years with, and is presently a director of CNC Industries, an affiliate of the Expedo Group
of Companies that manages a fleet of nine vessels
ranging in size from 30,000 dwt to 150,000 dwt. He has been a Committee Director of the
Britannia Steam Ship Insurance Association Limited since 1988.

Eileen A. Mercierhas over 30
years experience in a wide variety of financial and strategic planning positions,
including Senior Vice President and Chief Financial Officer for AbitibiPrice Inc. from
1990 to 1995. She also currently serves as a director for Hydro One
Inc., ING Bank of Canada, the Ontario Teachers' Pension Plan, Quebecor World Inc., York University,
the University Health Network and, and as a director and audit committee member for CGI Group Inc.,
ING Canada Inc., Shermag Inc. and Winpak Ltd.

Tore I. Sandvold has over 30
years experience in the oil and energy industry. From 1973 to 1987 he served in the
Norwegian Ministry of Industry, Oil & Energy in a variety of positions in the area of
domestic and international energy policy. From 1987 to 1990 he served as the Counselor for
Energy in the Norwegian Embassy in Washington, D.C. From 1990 to 2001 Mr. Sandvold served
as Director General of the Norwegian Ministry of Oil & Energy, with overall
responsibility for Norways national and international oil and gas policy. From 2001
to 2002 he served as Chairman of the Board of Petoro, the Norwegian state-owned oil
company that is the largest oil asset manager on the Norwegian continental shelf. From
2002 to the present, Mr. Sandvold, through his company, Sandvold Energy AS, has acted as
advisor to companies and advisory bodies in the energy industry. Mr. Sandvold serves on
other boards, including those of Schlumberger Limited., E. on Ruhrgas Norge AS, Lambert Energy Advisory
Ltd., University of Stavanger, Offshore Northern Seas, and the Energy Policy Foundation of Norway.

Peter Antturijoined Teekay in
September 1991. Since then, he has held a number of finance and accounting positions,
including Controller from March 1992 until his promotion to the position of Senior Vice
President, Treasurer and Chief Financial Officer in October 1997. In 2003 he became
President of Navion AS upon the closing of our acquisition of Navion. In November 2003 Mr.
Antturi was appointed President of our Teekay Navion Shuttle Tankers division, which is
responsible for the shuttle tanker activities and projects of our two wholly owned
subsidiaries, Navion AS and Ugland Nordic Shipping AS. Prior to joining Teekay,
Mr. Antturi held various accounting and finance roles in the shipping industry since
1985.

Arthur Benslerjoined Teekay
in September 1998 as General Counsel. He was promoted to the position of Vice President in
March 2002 and became our Corporate Secretary in May 2003. He was appointed Senior Vice
President in February 2004. Prior to joining Teekay, Mr. Bensler was a partner in a large
Vancouver, Canada law firm, where he practiced corporate, commercial and maritime law from
1986 until joining Teekay.

Peter Evensen joined Teekay in
May 2003 as Senior Vice President, Treasurer and Chief Financial Officer. He was appointed
Executive Vice President and Chief Financial Officer in February 2004. Mr. Evensen has
served as the Chief Executive Officer and Chief Financial Officer of Teekay GP L.L.C.
since it was formed in November 2004 and as Director of Teekay GP L.L.C. since January
2005. Mr. Evensen has over 20 years experience in banking and shipping finance.
Prior to joining Teekay, Mr. Evensen was Managing Director and Head of Global Shipping at
J.P. Morgan Securities Inc. and worked in other senior positions for its predecessor
firms. His international industry experience includes positions in New York, London and
Oslo.

David Glendinningjoined
Teekay in January 1987. Since then, he has held a number of senior positions, including service as Vice
President, Marine and Commercial Operations from January 1995 until his promotion to
Senior Vice President, Customer Relations and Marine Project Development in February 1999.
In November 2003 Mr. Glendinning was appointed President of our Teekay Gas and Offshore
division, which is responsible for our initiatives in the LNG business and other areas of
gas activity as well as building on our international presence in the floating storage and
offtake (or FSO) business and related offshore activities.
Prior to joining Teekay, Mr. Glendinning, who is a Master Mariner, had 18 years sea
service on oil tankers of various types and sizes.

Jennifer Gordon joined Teekay
in April 2004 as Senior Vice President, Corporate Resources. Prior to joining Teekay, Ms.
Gordon was Senior Vice President, Human Resources of Placer Dome Inc., an international
gold, silver and copper mining company. Her experience includes positions in human
resources management at Finning International Inc., Colgate-Palmolive Canada Inc. and
Suncor Energy Inc.

Vincent Lokjoined Teekay in
1993. Since that time, he has held a number of finance and accounting positions, including
Controller from 1997 until his promotion to the position of Vice President, Finance in
March 2002. He was appointed Senior Vice President and Treasurer in February 2004. Prior
to joining Teekay, Mr. Lok worked in the Vancouver, Canada audit practice of Deloitte
& Touche.

Graham Westgarthjoined Teekay
in February 1999 as Vice President, Marine Operations. He was promoted to the position of
Senior Vice President, Marine Operations in December 1999. In November 2003 Mr. Westgarth
was appointed President of our Teekay Marine Services division, which is responsible for
all of our marine and technical operations as well as marketing a range of services and
products to third-parties, such as marine consulting services and computer-based marine
training software. He has extensive shipping industry experience. Prior to joining Teekay
Mr. Westgarth was General Manager of Maersk Company (UK), where he joined as Master in
1987. His international industry experience includes 18 years sea service with five
years in a command position.

Paul Woganjoined Teekay in
November 2000 as the Managing Director of the London office. He was promoted to the
position of Vice President, Business Development in March 2002. In November 2003 Mr. Wogan
was appointed President of our Teekay Tanker Services division, which is responsible for
the commercial management of our conventional crude oil and product tanker transportation
services. Prior to joining Teekay, Mr. Wogan was with the chartering arm of a major crude
oil and product carrier fleet controlled by the Ceres Hellenic Group (Livanos), which
subsequently founded Seachem Tankers Ltd., a chemical tanker company, where he served as
the Chief Executive Officer from 1997 until joining Teekay.

# Compensation of
Directors and Senior Management

Director Compensation

During 2004, the eight non-employee
directors received, in the aggregate, approximately $484,000 in cash fees for their
services as directors, plus reimbursement of their out-of-pocket expenses. In addition,
each non-employee director received a $50,000 annual retainer to be paid by way of a grant
of restricted stock or stock options under our 2003 Equity Incentive Plan, at the
directors election. During 2004, certain of the directors elected to receive this
annual retainer in the form of stock options to purchase an aggregate of 14,400 shares of
our common stock at an exercise price of $33.63 per share. These options expire March 9,
2014, ten years after the date of the grant. Certain other directors elected to receive
this annual retainer in the form of 14,260 shares of restricted stock. In addition to the
$50,000 annual retainer, the Chair of the Board received a further $228,000 retainer in
the form of a grant of restricted stock under our 2003 Equity Incentive Plan.

Annual Executive
Compensation

The aggregate compensation earned by
Teekays nine executive officers listed above (or the Executive Officers)for
2004 was $14.3 million. This is comprised of base salary ($3.1 million), annual bonus
($4.3 million), special bonus ($6.0 million) and pension and other benefits ($0.9
million). These amounts were paid primarily in Canadian Dollars, but are reported here in
U.S. Dollars using an exchange rate of 1.20 Canadian Dollars for each U.S. Dollar, the exchange
rate on December 31, 2004. Teekays annual bonus plan considers both
company performance, through comparison to established targets and financial performance
of peer companies, and individual performance. Due to the extraordinary performance of
Teekay during the previous four years, the Compensation and Human Resource Committee
granted a special bonus to our senior management during 2004.

Long-Term Executive
Compensation

Teekays long-term incentive
programs are designed to encourage creation of long-term value for our shareholders,
employee retention and equity ownership. The programs consist of stock option grants,
stock appreciation rights and restricted stock awards. All grants in 2004 and 2005 have
been made under our 2003 Equity Incentive Plan.

During 2004, we granted stock options
to purchase an aggregate of 339,400 shares of our common stock, 15,494 restricted share
units and stock appreciation rights (or SARs) with respect to 33,200 shares of common
stock to the Executive Officers under our 2003 Equity Incentive Plan. The
weighted-average exercise price of these stock options and SARs is $33.72 per share.
These options and SARs, which vest equally over three years, expire March 9, 2014, ten
years after the date of the grant. The restricted share units vest on December 31, 2006.
Upon vesting, the restricted share units will be paid in the form of cash.

In March 2005, we awarded 303,291
restricted share units to our Executive Officers as incentive based compensation. Each
restricted share unit is equal in value to one share of our common stock and reinvested
dividends from the date of the grant to the vesting of the restricted share unit. Based on
the grant date share price of $46.80 per share, the restricted share units had a notional
value of $14.2 million on the date of the grant. The restricted share units vest in three
equal amounts on March 31, 2006, March 31, 2007 and November 30, 2007. Upon vesting, the
restricted share units will be paid to each grantee in the form of cash or shares of Teekay's
common stock, at the election of the grantee.

# Options to Purchase
Securities from Registrant or Subsidiaries

As at December 31, 2004 we had
reserved pursuant to our 1995 Stock Option Plan, which was terminated with respect to new
grants effective September 10, 2003, and our 2003 Equity Incentive Plan, which was adopted
effective on the same date (together, the Plans) 6,716,413 shares of common stock
for issuance upon exercise of options granted or to be granted. During 2004, 2003, and
2002 we granted options under the Plans to acquire up to 833,840, 2,119,160 and 2,052,050
shares of common stock, respectively, to eligible officers, employees, and directors. The
options under the Plans have a 10-year term and vest equally over three years from the
grant date, except for one grant of 50,000 options which will vest 100% on December 31,
2006. The outstanding options under the Plan are exercisable at prices ranging from $8.44
to $34.37 per share, with a weighted-average exercise price of $20.47 per share, and
expire between July 19, 2005 and April 5, 2014.

# Board Practices

The Board of Directors consists of
nine members. The Board of Directors is divided into three classes, with members of each
class elected to hold office for a term of three years in accordance with the
classification indicated below or until his or her successor is elected and qualifies.
Directors Thomas Kuo-Yuen Hsu, Axel Karlshoej, and Bjorn Moller have terms expiring in
2005 and have been nominated by the Board of Directors for re-election at the 2005 Annual
Meeting of Shareholders. Directors Bruce C. Bell, C. Sean Day, and Dr. Ian D. Blackburne
have terms expiring in 2006. Directors Leif O. Höegh, Eileen A. Mercier and Tore I.
Sandvold have terms expiring in 2007.

There are no service contracts
between us and any of our directors providing for benefits upon termination of their
employment or service.

The Board has determined that each of
the current members of the Board, other than C. Sean Day and Bjorn Moller, has no material
relationship with us, either directly or as a partner, shareholder or officer of an
organization that has a relationship with us, and is independent within the meaning of our
director independence standards, which reflect the NYSE director independence standards as
currently in effect and as they may be changed from time to time. In making this determination
the Board considered Bruce C. Bell's relationship with our largest shareholder and concluded this
relationship does not create a concern regarding his independence from our management.

The Board has the following three
committees: Audit Committee, Compensation and Human Resources Committee, and Nominating
and Governance Committee. The membership of these committees during 2004 and the function
of each of the committees are described below. Each of the committees is currently
comprised of independent members and operates under a written charter adopted by the
Board. All of the committee charters are available under Corporate Governance
in the Investor Centre of our Web site at www.teekay.com. During 2004, the Board held nine
meetings. Each director attended all Board meetings, except for two Board meetings at
which one director each was absent from each. Each director attended all applicable
committee meetings.

Our Audit Committee is composed
entirely of directors who satisfy applicable NYSE and SEC audit committee independence
standards. Our Audit Committee includes Eileen A. Mercier (Chair), Leif O. Höegh and
Tore I. Sandvold. All members of the committee are financially literate and the Board has
determined that Ms. Mercier qualifies as an audit committee financial expert and that her
membership on four other public company audit committees will not interfere with her
service on Teekays Audit Committee. The Audit Committee assists the Board in
fulfilling its responsibilities for general oversight of: the integrity of our financial
statements; our compliance with legal and regulatory requirements; the independent
auditors qualifications and independence; and the performance of our internal audit
function and independent auditors.

During 2004, our Compensation and
Human Resource Committee included Axel Karlshoej (Chair), C. Sean Day, Ian D. Blackburne
and Thomas Kuo-Yuen Hsu. Effective March 2005, C. Sean Day ceased to be a member of this
committee. The Compensation and Human Resource Committee: reviews and approves corporate
goals and objectives relevant to the Chief Executive Officers compensation,
evaluates the Chief Executive Officers performance in light of these goals and
objectives and, either as a Committee or with the Boards other independent
directors, determines the Chief Executive Officers compensation; reviews and approves the
evaluation process and compensation structure for executives, other than the Chief
Executive Officer, evaluates their performance and sets their compensation based on this
evaluation; reviews and makes recommendations to the Board regarding compensation for
directors; establishes and administers long-term incentive-compensation and equity-based
plans; and oversees our other compensation plans, policies and programs.

During 2004, our Nominating and
Governance Committee included C. Sean Day (Chair), Bruce C. Bell and Eileen A. Mercier.
Effective March 2005, C. Sean Day ceased to be a member of this committee and Ian D.
Blackburne and Thomas Kuo-Yuen Hsu became members of this committee. The Nominating and
Governance Committee: identifies individuals qualified to become Board members; selects
and recommends to the Board director and committee member candidates; develops and
recommends to the Board corporate governance principles and policies applicable to us,
monitors compliance with these principles and policies and recommends to the Board
appropriate changes; and oversees the evaluation of the Board and management.

# Crewing and Staff

As at December 31, 2004, we employed
approximately 4,800 seagoing and 700 shore-based personnel, compared to approximately
4,000 seagoing and 700 shore-based personnel in 2003, and 3,650 seagoing and 450
shore-based personnel as at December 31, 2002. The increase in personnel from December 31,
2003 to December 31, 2004 was primarily due to our acquisition of Teekay Spain. The
increase in personnel from December 31, 2002 to December 31, 2003 was primarily due to our
acquisition of Navion in April 2003.

We regard attracting and retaining
motivated seagoing personnel as a top priority. Through our global manning organization
comprised of offices in Glasgow, Scotland, Grimstad, Norway, Riga, Latvia, Manila,
Philippines, Mumbai, India, Sydney, Australia, and Madrid, Spain, we offer seafarers
highly competitive employment packages and comprehensive benefits. We also provide
excellent opportunities for personal and career development, which relate to our
philosophy of promoting internally.

During fiscal 1996, we entered into a
Collective Bargaining Agreement with the Philippine Seafarers Union, an
affiliate of the International Transport Workers Federation (or ITF), and a Special
Agreement with ITF London that covers substantially all of our junior officers and seamen.
We are also party to Enterprise Bargaining Agreements with various Australian maritime
unions that covers officers and seamen employed through our Australian operations. Our
officers and seamen for our Spanish-flagged vessels are covered by a collective bargaining
agreement with Spains Union General de Trabajdores and Comisiones Obreras. We
believe our relationships with these labor unions are good.

We see our commitment to training as
fundamental to the development of the highest caliber seafarers for our marine operations.
Our cadet training program is designed to balance academic learning with hands-on training
at sea. We have relationships with training institutions in Canada, Croatia, India,
Latvia, Norway, Philippines, Turkey, and the United Kingdom. After receiving formal
instruction at one of these institutions, the cadets training continues on board a
Teekay vessel. We also have a career development plan that is designed to ensure a
continuous flow of qualified officers who are trained on our vessels and are familiar with
our operational standards, systems and policies. We believe that high-quality manning and
training policies will play an increasingly important role in distinguishing larger
independent tanker companies that have in-house, or affiliate, capabilities from smaller
companies that must rely on outside ship managers and crewing agents.

# Share Ownership

The following table sets forth
certain information regarding beneficial ownership, as of March 15, 2005, of our common
stock by the directors and Executive Officers as a group. The information is not
necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a
person or entity beneficially owns any shares that the person or entity has the right to
acquire as of May 14, 2005 (60 days after March 15, 2005) through the exercise of any
stock option or other right. Unless otherwise indicated, each person or entity has sole
voting and investment power (or shares such powers with his or her spouse) with respect to
the shares set forth in the following table. Information for certain holders is based on
information delivered to us.

|Identity of Person or Group                                                                            | Shares Owned    | Percent of Class | 
|------------------------------------------------------------------------------------------------------ | --------------- | ---------------- | 
|                                                                                                       |                 |                  | 
|All directors and Executive Officers (17 persons)..................................................... | 644,441 (1) (3) | 0.8% (2)         | 

| | (1) | Includes 508,669 shares of common stock subject to stock options exercisable by
               May 14, 2005 under our 1995 and 2003 Stock Option Plans with a weighted-average
               exercise price of $20.14 that expire between May 13, 2008 and March 9, 2014.
               Excludes (a) 570,097 shares of common stock subject to stock options exercisable
               after May 14, 2005 under our 1995 and 2003 Stock Option Plans with a weighted
               average exercise price of $35.50, that expire between March 10, 2013 and March
               9, 2014 (b) shares owned by Resolute Investments, Inc. (Please see Item 7
                Major Shareholders and Related Party Transactions) and (c) 303,291 restricted
               share units which will be paid to each grantee in the form of cash or shares of Teekay's
               common stock, at the election of the grantee.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Each director and Executive Officer beneficially owns less than one percent of
               the outstanding shares of common stock.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Each director is expected to acquire at least 10,000 shares of Teekays
               common stock by no later than the later of May 14, 2008 or the fifth anniversary of the date
               on which the director joined the Board. In addition, each Executive Officer is
               expected to acquire shares of Teekay's common stock equivalent in value to one to three times
               their annual base salary by 2010.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 7. Major
Shareholders and Related Party Transactions

# Major Shareholders

(a)    
          The following table sets forth information regarding beneficial ownership, as of
          March 15, 2005, of Teekays common stock by each person we know to
          beneficially own more than 5% of the common stock. Information for certain
          holders is based on their latest filings with the SEC or information delivered
          to us. The number of shares beneficially owned by each person or entity is
          determined under SEC rules and the information is not necessarily indicative of
          beneficial ownership for any other purpose. Under SEC rules a person or entity
          beneficially owns any shares as to which the person or entity has or shares
          voting or investment power. In addition, a person or entity beneficially owns
          any shares that the person or entity has the right to acquire as of May 14, 2005
          (60 days after March 15, 2005) through the exercise of any stock option or other
          right. Unless otherwise indicated, each person or entity has sole voting and
          investment power (or shares such powers with his or her spouse) with respect to
          the shares set forth in the following table.

|Identity of Person or Group                                                                                                                                                                                                                                                                                                                                                               | Shares Owned                                                                 | Percent of Class                                            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                          |                                                                              |                                                             | 
|Resolute Investments, Inc. (1).....................................................................................................
                     FMR Corp., Edward C. Johnson 3rd and Abigail P. Johnson, as a group(2)..............................
                     Neuberger Berman, Inc. and Neuberger Berman, LLC, as a group(3) ...................................... | 32,631,380
                     11,554,017
                        8,338,419 | 39.3%
                     13.9%
                     10.1% | 

---

| | (1) | Two of our directors are officers and directors of Resolute Investments, Inc.
               Two additional Teekay directors are directors of the entity that ultimately
               controls Resolute. Please see -Related Party Transactions.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes sole voting power as to 330,922 shares and sole dispositive power as to
               11,554,017 shares. This information is based on the Schedule 13G/A filed by this
               group with the SEC on February 14, 2005. Based on prior information filed with
               the SEC, FMR Corp.s beneficial ownership in Teekay was 11.4% on March 15,
               2004 and 14.03% on March 15, 2003.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes sole voting power as to 5,532,750 shares, shared voting power as to
               1,274,100 shares and shared dispositive power as to 8,338,419 shares. Neuberger
               Berman, LLC and Neuberger Berman Management Inc. both have shared voting and
               dispositive power. Neuberger Berman, LLC and Neuberger Management Inc. serve as
               sub-adviser and investment manager, respectively, of Neuberger Berman
               Inc.s mutual funds. This information is based on the Schedule 13G/A filed
               by this group on February 15, 2005. Based on prior information filed with the
               SEC, Neuberger Berman Incs beneficial ownership in Teekay was 7.0% on
               March 15, 2004 and less than 5% on March 15, 2003.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our major shareholders have the same
voting rights as our other shareholders. No corporation or foreign government or other
natural or legal person owns more than 50% of our outstanding common stock. We are not
aware of any arrangements, the operation of which may at a subsequent date result in a
change in control of Teekay.

# Related Party
Transactions

As at December 31, 2004, Resolute
Investments, Inc. (or Resolute) owned 39.3% of our outstanding Common Stock. Two of
our directors, C. Sean Day, who is also Chair of our Board, and Bruce Bell, are directors
and the Chairman and Vice President, respectively, of Resolute. Two additional directors,
Thomas Kuo-Yuen Hsu and Axel Karlshoej, are among the Managing Directors of The Kattegat
Trust Company Limited, which is the trustee of the trust that owns all of Resolutes
outstanding equity.

Bruce Bell is also the Managing Director of
Oceanic Bank and Trust Limited.  Payments made by us to Oceanic Bank and Trust Limited
in respect of corporate administration fees and shared office costs for 2004,
totaled approximately $0.5 million.

In 1993 we purchased all of the
issued and outstanding shares of Palm Shipping Inc. (now Teekay Chartering Limited) from
an affiliate of Resolute. During 2002, we accrued and expensed in other (loss) income $
6.0 million as a settlement of a contingent payment, which was required under the terms of
the Palm Shipping acquisition agreement. We paid this amount in February 2003.

# Item 8. Financial
Information

# Consolidated Financial
Statements and Notes

Please see Item 18 below.

# Legal Proceedings

From time to time we have been, and
we expect to continue to be, subject to legal proceedings and claims in the ordinary
course of our business, principally personal injury and property casualty claims. Such
claims, even if lacking merit, could result in the expenditure of significant financial
and managerial resources. We are not aware of any legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse effect on our
financial condition or results of operations.

# Dividend Policy

Commencing with the fiscal quarter
ended September 30, 1995, we declared and paid quarterly cash dividends in the amount of
$0.1075 per share on our common stock. We increased our quarterly dividend from $0.1075
per share to $0.125 per share on our common stock in the fourth quarter of 2003 and from
$0.125 per share to $0.1375 per share on our common stock during the fourth quarter of
2004. On May 17, 2004, we effected a two-for-one stock split relating to our common stock.
All per share data give effect to this stock split retroactively. Subject to financial
results and declaration by the Board of Directors, we currently intend to continue to
declare and pay a regular quarterly dividend in such amount per share on our common stock.
Pursuant to our dividend reinvestment program, holders of common stock are permitted to
choose, in lieu of receiving cash dividends, to reinvest any dividends in additional
shares of common stock at then prevailing market prices, but without brokerage commissions
or service charges.

The timing and amount of dividends,
if any, will depend, among other things, on our results of operations, financial
condition, cash requirements, restrictions in financing agreements and other factors
deemed relevant by our Board of Directors. Because we are a holding company with no
material assets other than the stock of our subsidiaries, our ability to pay dividends on
the common stock is dependent on the earnings and cash flow of our subsidiaries. The
indenture relating to our 8.32% First Preferred Ship Mortgage Notes due 2006 and certain
of the agreements governing our (and our subsidiaries) credit facilities provide
that our ability to pay dividends is subject to limitations based upon our cumulative net
income plus certain additional amounts, including the proceeds we receive from any
issuance of our capital stock. We do not believe that the restrictions contained in that
indenture or in other financing agreements to which we and our subsidiaries are party to
will restrict payment of cash dividends on the common stock for the foreseeable future.

# Significant Changes

On November 24, 2004, we announced
that our wholly-owned subsidiary, Teekay LNG Partners L.P. (or Teekay LNG
Partners), had filed a registration statement with the SEC for an initial public
offering of its common units. Teekay LNG Partners is a Marshall Islands partnership
recently formed by us as part of our strategy to expand our operations in the LNG shipping
sector. This master limited partnership will provide LNG and crude oil marine
transportation services under long-term, fixed-rate contracts with major energy and
utility companies through its fleet of four LNG carriers and five Suezmax class crude oil
tankers, primarily consisting of vessels we obtained through our acquisition of Teekay
Spain in April 2004. After the offering, we will own approximately an 81 percent interest
in the partnership (including our 2% general partner interest). The offering will increase
if the underwriters exercise in full their over-allotment option, reducing our ownership
to approximately 79 percent.

# Item 9. The Offer and
Listing

Our common stock is traded on the New
York Stock Exchange (or NYSE) under the symbol TK. The following table
sets forth the high and low closing sales prices for our common stock on the NYSE for each
of the periods indicated. (1)

`Years Ended         Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                      2004        2003        2002        2001        2000
                  ----------- ----------- ----------- ----------- ------------ ---------- ----------- -----------
   High            $54.4500    $28.6750    $20.8500    $26.3050     $25.4375
   Low              27.9500     17.8550     13.1750     12.7450       7.6563

Quarters Ended      Dec. 31,    Sep. 30,    Jun. 30,    Mar. 31,    Dec. 31,    Sep. 30,    Jun. 30,    Mar. 31,
                      2004        2004        2004        2004        2003        2003        2003        2003
                  ----------- ----------- ----------- ----------- ------------ ---------- ----------- -----------
   High            $54.4500    $43.3800    $37.6500    $34.9350     $28.6750    $23.6250   $21.8350    $21.5800
   Low              41.1400     34.5600     29.4100     27.9500     20.9550      20.9750    18.1250     17.8550

Months Ended        Feb. 28,    Jan. 31,    Dec. 31,    Nov. 30,    Oct. 31,    Sep. 30,
                      2005        2005        2004        2004        2004        2004
                  ----------- ----------- ----------- ----------- ------------ ---------- ----------- -----------
   High            $50.0100    $44.3700    $50.3600    $54.4500     $48.9800    $43.3800
   Low              44.9600     40.1200     41.1400     44.7000     43.7100      35.6500`

| | (1) | The Companys Board of Directors authorized a two-for-one stock split
               relating to our common stock, which was effected in May 2004 in the form of a
               100% stock dividend. All stockholders of record on May 3, 2004 received one
               additional share of common stock for each share held. The above table gives
               effect to this stock split retroactively.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Premium Equity Participating
Security Units due May 18, 2006 (or Equity Units) are traded on the NYSE under the
symbol TK PR. The following table sets forth the high and low closing sales
prices for our Equity Units on the NYSE for each of the periods indicated.

`Years Ended          Dec. 31,    Dec. 31,
                       2004      2003 (1)
                   ----------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
   High             $63.3400    $36.1400
   Low               35.2400     24.8600

Quarters Ended       Dec. 31,    Sep. 30,   Jun. 30,    Mar. 31,    Dec. 31,   Sep. 30,    Jun. 30,    Mar. 31,
                       2004        2004       2004        2004        2003       2003        2003      2003 (1)
                   ----------- ----------- ---------- ----------- ----------- ---------- ----------- -----------

   High             $63.3400    $50.3800    $44.6900   $42.9300    $36.1400    $30.4500   $29.5000    $27.1000
   Low               48.1900     41.2500     36.3900    35.2400     28.0500     28.0100    25.4700     24.8600

Months Ended         Feb. 28,    Jan. 31,   Dec. 31,    Nov. 30,    Oct. 31,   Sep. 30,
                       2005        2005       2004        2004        2004       2004
                   ----------- ----------- ---------- ----------- ----------- ---------- ----------- -----------

   High             $57.3300    $51.4000    $58.5600   $63.3400    $57.1500    $50.3800
   Low               52.1900     46.5400     48.1900    51.9600     50.8900     42.3300`

(1) Period beginning February 11, 2003

Our 8.32% Notes are listed for
trading on the NYSE. The 8.32% Notes were first offered on the market January 19, 1996. As
no active trading market exists for these 8.32% Notes, no historical pricing information
is included here.

# Item 10. Additional
Information

# Memorandum and Articles
of Association

Our Articles of Incorporation and
Bylaws have previously been filed as exhibits 2.1, 2.2, and 2.3 to our Annual Report on
Form 20-F (File No. 1-12874), filed with the SEC on March 30, 2000, and are hereby
incorporated by reference into this Annual Report.

The rights, preferences and
restrictions attaching to each class of our capital stock are described in the section
entitled Description of Capital Stock of our Rule 424(b) prospectus (File No.
1-12874), filed with the SEC on June 10, 1998, and hereby incorporated by reference into
this Annual Report, provided that since the date of such prospectus (1) the par value
of our capital stock has been changed to $0.001 per share, (2) our authorized capital
stock has been increased to 725,000,000 shares of common stock and 25,000,000 shares of
Preferred Stock, (3) we have been domesticated in the Republic of the Marshall
Islands and (4) we have adopted a staggered Board of Directors, with directors
serving three-year terms.

The necessary actions required to
change the rights of holders of the stock and the conditions governing the manner in which
annual general meetings and special meetings of shareholders are convoked are described in
our Bylaws filed as exhibit 2.3 to our Annual Report on Form 20-F (File No. 1-12874),
filed with the SEC on March 30, 2000, and hereby incorporated by reference into this
Annual Report.

We have in place a rights agreement
that would have the effect of delaying, deferring or preventing a change in control of
Teekay. The rights agreement has been filed as part of our Form 8-A (File No. 1-12874),
filed with the SEC on September 11, 2000, and hereby incorporated by reference into this
Annual Report.

There are no limitations on the
rights to own securities, including the rights of non-resident or foreign shareholders to
hold or exercise voting rights on the securities imposed by the laws of the Republic of
the Marshall Islands or by our Articles of Incorporation or Bylaws.

# Material Contracts

The following is a summary of each
material contract, other than material contracts entered into in the ordinary course of
business, to which we or any of our subsidiaries is a party, for the two years immediately
preceding the date of this Annual Report:

(a) Indenture,dated January 29, 1996, for U.S. $225,000,000 8.32% First
          Preferred Ship Mortgage Notes due 2006, Teekay Shipping Corporation as Issuer;
          United States Trust Company of New York as Trustee; VSSI Oceans Inc., VSSI
          Atlantic Inc., VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau
          Spirit Inc., and Andros Spirit Inc. as Guarantors.

(b) Agreement, dated January 26, 1998, for a U.S. $200,000,000 Reducing Revolving
          Credit Facility to be made available to certain wholly-owned subsidiaries of
          Teekay Shipping Corporation by Den Norske Bank ASA, Christiania Bank og
          Kreditkasse ASA, New York Branch, and the Bank of Nova Scotia.

(c) Amended and Restated Reimbursement Agreement dated April 16, 1998 (amended May
          1999) relating to a U.S. $74,000,000 Credit facility made available by RABO
          Australia Limited to Barrington (Australia) Pty Limited, Palmerston (Australia)
          Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering
          Pty Limited and Nedship Bank (America) N.V. as Guarantor.

(d) Amended and Restated Guarantee dated April 16, 1998 made by Teekay Shipping
          Corporation in favor of Nedship Bank (America) N.V. relating to the U.S.
          $74,000,000 facility granted by RABO Australia Limited and guaranteed by Nedship
          Bank (America) N.V.

(e) Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime
          Inc., a 100% owned subsidiary of Teekay Shipping Corporation, and Bona
          Shipholding Ltd.

(f) Amendment and Restatement Agreement, dated June 11, 1999, relating to a US
          $500,000,000 Revolving Loan Agreement made available to Bona Shipholding Ltd. by
          Chase Manhattan plc, Citibank International plc and various other banks.

(g) Reimbursement Agreement, dated February 16, 2001, between Karratha Spirit Pty
          Ltd and Nedship Bank (America) N.V.

(h) Agreement, dated February 16, 2001, for a U.S. $34,000,000 Term Loan Facility to
          be made available to Karratha Spirit Pty Ltd by RABO Australia Limited.

(i) Indenture dated June 22, 2001 among Teekay Shipping Corporation and The Bank of
          New York Trust Company of Florida (formerly U.S. Trust Company of Texas, N.A.)
          for U.S. $250,000,000 8.875% Senior Notes due 2011.

(j) Amendment and Restatement Agreement, dated September 14, 2001, relating to a
          U.S. $500,000,000 Revolving Loan Agreement between Bona Shipholding Ltd., Teekay
          Shipping Corporation, J.P. Morgan Securities Inc., Citibank International plc
          and various other banks.

(k) First Supplemental Indenture dated as of December 6, 2001, among Teekay Shipping
          Corporation and The Bank of New York Trust Company of Florida, N.A. for U.S.
          $100,000,000 8.875% Senior Notes due 2011.

(l) Share Sale and Purchase Agreement by and among Statoil ASA and Statpet AS and
          Norsk Teekay AS dated December 15, 2002.

(m) Supplemental Indenture No. 1 between Teekay Shipping Corporation and The Bank of
          New York, as trustee dated as of February 18, 2003.

(n) Purchase Contract Agreement between Teekay Shipping Corporation and The Bank of
          New York, as purchase contract agent dated as of February 18, 2003.

(o) Pledge Agreement between Teekay Shipping Corporation and The Bank of New York,
          as collateral agent dated as of February 18, 2003.

(p) Remarketing Agreement between Teekay Shipping Corporation and Morgan Stanley
          & Co. Incorporated dated as of February 18, 2003.

(q) Underwriting Agreement between Teekay Shipping Corporation, Morgan Stanley &
          Co. Incorporated and Salmon Smith Barney dated as of February 11, 2003.

(r) Agreement, dated March 10, 2003, for a U.S. $180,000,000 Secured Credit Facility
          to be made available to Cork Spirit LLC, Donegal Spirit LLC, Limerick Spirit
          LLC, Shannon Spirit LLC and Galway Spirit LLC by Den Norske Bank ASA, Deutsche
          Bank AG, DVB Bank AG and Nordea Bank Finland Plc and various other banks.

(s) Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing
          Revolving Loan Facility between Norsk Teekay Holdings Ltd., Den Norske Bank ASA
          and various other banks.

(t) Share purchase agreement dated March 15, 2004 regarding the acquisition of
          Naviera F. Tapias S.A. (renamed Teekay Shipping Spain S.L.)

(u) Agreement, dated September 1, 2004 for a U.S. $550,000,000 Credit Facility
          Agreement to be made available to Teekay Nordic Holdings Incorporated by Nordea
          Bank Finland PLC, New York Branch.

(v) Amendment dated September 30, 2004 to Agreement,  dated June 26, 2003, for a U.S.  $550,000,000 Secured
Reducing  Revolving  Loan Facility  between Norsk Teekay  Holdings  Ltd., Den Norske Bank ASA and various other
banks.

(w) Annual Executive Bonus Plan

# Exchange Controls and
Other Limitations Affecting Security Holders

We are not aware of any governmental
laws, decrees or regulations in the Republic of The Marshall Islands that restrict the
export or import of capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to non-resident holders of our
securities.

We are not aware of any limitations
on the right of non-resident or foreign owners to hold or vote our securities imposed by
the laws of the Republic of the Marshall Islands or our Articles of Incorporation and
Bylaws.

# Taxation

Teekay Shipping Corporation was
incorporated in the Republic of Liberia on February 9, 1979 and was domesticated in the
Republic of The Marshall Islands on December 20, 1999.

Marshall Islands Tax
Consequences.Because Teekay and our subsidiaries do not, and do not expect
that we will, conduct business or operations in the Republic of The Marshall Islands, and
because all documentation related to the public offering of our common stock was executed
outside of the Republic of The Marshall Islands, under current Marshall Islands law, no
taxes or withholdings will be imposed by the Republic of The Marshall Islands on
distributions made to holders of shares of our common stock, so long as such persons do
not reside in, maintain offices in, nor engage in business in the Republic of The Marshall
Islands. Furthermore, no stamp, capital gains or other taxes will be imposed by the
Republic of The Marshall Islands on the purchase, ownership or disposition by such persons
of shares of our common stock.

Bahamian Tax Consequences.Under current Bahamian law, no taxes or withholdings will be imposed by the
Commonwealth of the Bahamas on distributions made in respect of the shares of our common
stock, and no stamp, capital gains or other taxes will be imposed by the Commonwealth of
the Bahamas on the ownership or disposition of the shares of our common stock, as there
are no personal income or corporation taxes, capital gains taxes or death duties in the
Commonwealth of the Bahamas.

# Documents on Display

Documents concerning us that are
referred to herein may be inspected at our principal executive headquarters at TK House,
Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59212, Nassau, The
Bahamas. Those documents electronically filed via the Electronic Data Gathering, Analysis,
and Retrieval (or EDGAR) system may also be obtained from the SECs website at
www.sec.gov or from the SEC public reference room at Judiciary Plaza,
450 Fifth Street, Washington, D.C. 20549. Further information on the operation of the
public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. Copies of
documents can be requested from the SEC public reference rooms for a copying fee.

# Item 11. Quantitative
and Qualitative Disclosures About Market Risk

We are exposed to market risk from
foreign currency fluctuations, changes in interest rates, bunker fuel prices and spot
market rates for vessels. We use foreign currency forward contracts, interest rate swaps,
bunker fuel swap contracts and forward freight agreements to manage currency, interest
rate, bunker fuel price risks and spot market rates but do not use these financial
instruments for trading or speculative purposes.

# Foreign Currency
Fluctuation Risk

Our primary economic environment is
the international shipping market. This market utilizes the U.S. Dollar as its functional
currency. Consequently, virtually all of our revenues and most of our operating costs are
in U.S. dollars. We incur certain voyage expenses, vessel operating expenses, drydocking,
and overhead costs in foreign currencies, the most significant of which are Japanese Yen,
Singapore Dollars, Canadian Dollars, Australian Dollars, British Pounds, Euro and
Norwegian Kroner. During 2004, approximately 33% of vessel and voyage costs, overhead and
drydock expenditures were denominated in these currencies. However, we have some ability
to shift the purchase of goods and services from one country to another and, thus, from
one currency to another, on relatively short notice.

We enter into forward contracts as a
hedge against changes in certain foreign exchange rates. As at December 31, 2004, we had
the following foreign currency forward contracts:

`Expected Maturity Date
(contract amounts in USD'000's)                                                       2005                2006
                                                                             ------------------- -------------------
Norwegian Kroner
   Contract amount                                                                $ 54,046               $5,000
   Average contractual exchange rate                                                  7.33                 7.82
Canadian Dollar
   Contract amount                                                                $ 45,151                    -
   Average contractual exchange rate                                                  1.29                    -`

To the extent the hedge is effective,
changes in the fair value of the forward contract are either offset against the fair value
of assets or liabilities through income, or recognized in other comprehensive income until
the hedged item is recognized in income. The ineffective portion of a forward
contracts change in fair value will be immediately recognized in income.

Although the majority of our
transactions, assets and liabilities are denominated in U.S. Dollars, certain of our
subsidiaries have foreign currency denominated liabilities. There is a risk that currency
fluctuations will have a negative effect on the value of our cash flows. We have not
entered into any forward contracts to protect against the translation risk of our foreign
currency denominated liabilities. As at December 31, 2004, we had Euro denominated term
loans of 325.8 million Euros ($443.7 million) included in long-term debt, and Norwegian
Kroner denominated deferred income taxes of approximately 666.1 million NOK ($110.3
million) included in other long-term liabilities. Our Euro denominated revenues
approximate our Euro denominated expenses and Euro denominated loan and interest payments.
For this reason we have not entered into any Euro forward contracts.

# Interest Rate Risk

We invest our cash and marketable
securities in financial instruments with maturities of less than six months within the
parameters of our investment policy and guidelines.

We use interest rate swaps to manage
the impact of interest rate changes on earnings and cash flows. Changes in the fair value
of our interest rate swaps are either offset against the fair value of assets or
liabilities through income, or recognized in other comprehensive income until the hedged
item is recognized in income. The ineffective portion of an interest rate swap change in
fair value is immediately recognized in income. Premiums and receipts, if any, are
recognized as adjustments to interest expense over the lives of the individual contracts.

The table below provides information
about our financial instruments at December 31, 2004, which are sensitive to changes in
interest rates, including our debt and capital lease obligations and interest rate swaps. For
long-term debt and capital lease obligations, the table presents principal cash flows and related weighted average interest
rates by expected maturity dates. For interest rate swaps, the table presents notional
amounts and weighted average interest rates by expected contractual maturity dates.

`Expected Maturity Date
(in USD'000's                                                                                 There-
except for percentages)            2005        2006        2007        2008        2009       after       Rate (9)
------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Long-Term Debt:
  Fixed-Rate Debt                 45,000     149,656          -            -           -     351,530       8.07%
  Average Interest Rate            8.32%       6.09%          -            -           -      8.875%

  Variable Rate Debt
    U.S. Dollar Denominated (1)   63,418      60,472     26,384      273,288     177,751     516,769       3.34%
    Euro Denominated (2)(3)       11,059       9,342     10,023       10,753      11,536     391,025       3.35%

Capital Lease Obligations: (4)
  Fixed-Rate Obligations           7,978     135,313      3,355        3,537       3,709      69,274       7.81%
  Average Interest Rate (5)        7.80%       8.86%      6.13%        6.20%       6.25%       6.01%

Interest Rate Swaps: (6)(4)
  Contract Amount (8)            100,000           -    500,000            -     200,000     734,000       4.21%
  Average Fixed Pay Rate (1)       2.25%           -      2.79%            -       4.24%       5.44%
  Contract Amount                  6,485       7,023      7,606        8,200     140,476     158,494       6.68%
  Average Fixed Pay Rate (1)       6.76%       6.76%      6.76%        6.76%       6.96%       6.41%
  Contract Amount (Euro
    Denominated)(3)                8,340       9,342     10,023       10,753      11,536     391,025       5.90%
  Average Fixed Pay Rate (2)       5.90%       5.90%      5.90%        5.90%       5.90%       5.89%`

| | (1) | Interest payments on U.S. Dollar denominated debt and interest rate swaps are based on LIBOR.
| | --- | ---------------------------------------------------------------------------------------------

| | (2) | Interest payments on Euro denominated debt and interest rate swaps are based on EURIBOR.
| | --- | ----------------------------------------------------------------------------------------

| | (3) | Euro denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of
               December 31, 2004.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Excludes capital lease obligations of $413.3 million on two of our LNG carriers.  Under the terms of these
               lease obligations, we are required to have on deposit with financial institutions an amount of cash that,
               together with the interest earned thereon, will fully fund the amount owing under the capital lease
               obligations.  Consequently, we are not subject to interest rate risk from these obligations.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | The average interest rate is the weighted-average interest rate implicit in the capital lease obligations
               at the inception of the leases.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | The average variable receive rate for our interest rates swaps is set monthly at
               1-month LIBOR or EURIBOR or semi-annually at the 6-month LIBOR or EURIBOR.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | In February 2005, we entered into an additional $200.0 million of interest rate
               swap agreements. Please see Item 18  Financial Statements: Note 21 
               Subsequent Events.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | The inception date of the interest rate swaps maturing in 2009 is 2006. The
               inception dates of the interest rate swaps maturing after 2009 are 2006 ($478.0
               million) and 2007 ($256.0 million).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Rate refers to the weighted-average effective interest rate for our debt, including the
               margin we pay on our floating-rate debt, as at December 31, 2004 and
               average fixed pay rate for our swap agreements. The average fixed pay rate on our interest rate
               swaps excludes the margin we pay on our floating-rate debt.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Commodity Price Risk

We use bunker fuel swap contracts as
a hedge to protect against the change in the cost of forecasted bunker fuel costs for
certain vessels being time-chartered-out and for vessels servicing certain contracts of
affreightment. To the extent the hedge is effective, changes in the fair value of the
forward contract are either offset against the fair value of assets or liabilities through
income, or recognized in other comprehensive income until the hedged item is recognized in
income. The ineffective portion of a forward contracts change in fair value is
immediately recognized in income. As at December 31, 2004, we were committed to bunker
fuel swap contracts totaling 22,650 metric tonnes with a weighted-average price of $158.14
per tonne, which expire between January and December 2005.

# Spot Market Rate Risk

We use written forward freight
agreements as a hedge to protect against the change in spot market rates earned by some of
our vessels. As at December 31, 2004, we were committed to forward freight agreements
totaling 4.8 million metric tonnes with a notional principal amount of $40.0 million,
which expire between January and December 2005.

The following table sets forth
further information on the magnitude of these foreign currency forward contracts, interest
rate swap agreements, bunker fuel swap contracts, and forward freight agreements:

`Contract               Carrying Amount                  Fair
(in USD'000's)                                   Amount            Asset           Liability            Value
------------------------------------------ ----------------- ---------------- ------------------ ------------------

December 31, 2004
Foreign Currency Forward Contracts             $  104,197       $  16,635       $                    $  16,635
Interest Rate Swap Agreements                   2,304,860                            158,482          (158,482)
Bunker Fuel Swap Contracts                          3,582              98                                   98
Forward Freight Agreements                         39,967                              3,276            (3,276)
Debt (including capital lease obligations)      2,744,545                          2,744,545        (2,801,553)

December 31, 2003
Foreign Currency Forward Contracts             $  146,912       $  20,944       $                    $  20,944
Interest Rate Swap Agreements                     710,000                              9,953            (9,953)
Bunker Fuel Swap Contracts                            696             183                                  183
Forward Freight Agreements                         13,385                              1,178            (1,178)
Debt (including capital lease obligations)      1,636,758                          1,636,758        (1,686,002)`

# Item 12. Description of
Securities Other than Equity Securities

Not applicable.

# PART II

# Item 13. Defaults,
Dividend Arrearages and Delinquencies

None.

# Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

# Item 15. Controls and
Procedures

We conducted an evaluation of our
disclosure under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer. Based on our evaluation, we concluded that disclosure
controls and procedures were effective as of December 31, 2004.

During 2004 there was no change in
our internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

Our Chief Executive Officer and Chief
Financial Officer do not expect that our disclosure controls or internal controls will
prevent all error and all fraud. Although our disclosure controls and procedures were
designed to provide reasonable assurance of achieving their objectives, a control system,
no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within Teekay have been detected. These
inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any system of
controls also is based partly on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.

# Item 16A. Audit
Committee Financial Expert

The Board has determined that
director and Chair of the Audit Committee, Eileen A. Mercier, qualifies as an audit
committee financial expert and is independent under applicable NYSE and SEC standards.

# Item 16B. Code of Ethics

We have adopted Standards for
Business Conduct that include a Code of Ethics for all employees and directors. This
document is available under Corporate Governance in the Investor Centre of our
Web site (www.teekay.com). We also intend to disclose any waivers to or amendments
of our Standards of Business Conduct or Code of Ethics for the benefit of our directors
and executive officers on our website.

# Item 16C. Principal
Accountant Fees and Services

Our principal accountant for 2004 and
2003 was Ernst & Young LLP, Chartered Accountants. The following table shows the fees
we paid or accrued for audit and other services provided by Ernst & Young LLP for 2004
and 2003.

`Fees                                                                         2004               2003
                                                                           -----------------  ----------------

      Audit Fees (1)                                                           $907,777           $454,780
      Audit-Related Fees (2)                                                    395,176             76,120
      Tax Fees (3)                                                              232,640            329,570
      All Other Fees (4)                                                          1,900              1,605
                                                                           -----------------  ----------------
         Total                                                               $1,537,493           $862,075
                                                                           =================  ================`

---

| | (1) | Audit fees represent fees for professional services provided in connection with
                    the audit of our consolidated financial statements and review of our quarterly
                    consolidated financial statements and audit services provided in connection with
                    other statutory or regulatory filings.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Audit-related fees consisted primarily of accounting consultations, employee
                    benefit plan audits, services related to business acquisitions and divestitures
                    and other attestation services.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | For 2004 and 2003, respectively, tax fees principally included international tax
                    planning fees of $62,455 and $175,290, corporate tax compliance fees of $38,849
                    and $67,070, and personal and expatriate tax services fees of $131,336 and
                    $87,210.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | All other fees principally include subscription fees to an internet database of
                    accounting information.
| | --- | ---------------------------------------------------------------------------------------------------------------------------

The Audit Committee has the authority
to pre-approve permissible audit-related and non-audit services not prohibited by law to
be performed by our independent auditors and associated fees. Engagements for proposed
services either may be separately pre-approved by the Audit Committee or entered into
pursuant to detailed pre-approval policies and procedures established by the Audit
Committee, as long as the Audit Committee is informed on a timely basis of any engagement
entered into on that basis. The Audit Committee separately pre-approved all engagements
and fees paid to our principal accountant in 2004.

# Item 16D. Exemptions
from the Listing Standards for Audit Committees

Not applicable.

# Item 16E. Purchases of
Equity Securities by the Issuer and Affiliated Purchasers

In November 2004, Teekay announced
that its Board of Directors had authorized the repurchase of up to 3,000,000 shares of its
Common Stock in the open market. By January 31, 2005, we had repurchased the maximum
number authorized. The following table shows the monthly stock repurchase activity:

`Total Number of       Maximum Number of
                                                                       Shares Purchased as      Shares that May
Month of Repurchase                Total Number                         Part of Publically     Yet Be Purchased
                                     of Shares        Average Price      Announced Plans or    Under the Plans or
                                     Purchased       Paid per Share          Program                Program
                                 ----------------- ----------------- ----------------------- --------------------
December 2004...................     1,400,200            $43.73             1,400,200            1,599,800
January 2005....................     1,599,800             42.27             1,599,800                    0
                                 ----------------- ----------------- ----------------------- --------------------
                                     3,000,000            $42.95             3,000,000                    0
                                 ================= ================= ======================= ====================`

# PART III

# Item 17. Financial
Statements

Not applicable.

# Item 18. Financial Statements

The following financial statements
and schedule, together with the report of Ernst & Young LLP, Chartered Accountants
thereon, are filed as part of this Annual Report:

`Page

Report of Independent Registered Public Accounting Firm...................................................  F-1

Consolidated Financial Statements

Consolidated Statements of Income.........................................................................  F-2
Consolidated Balance Sheets...............................................................................  F-3

Consolidated Statements of Cash Flows.....................................................................  F-4

Consolidated Statements of Changes in Stockholders' Equity................................................  F-5

Notes to the Consolidated Financial Statements............................................................  F-6

Schedule A to the Consolidated Financial Statements.......................................................  F-21`

All other schedules for which
provision is made in the applicable accounting regulations of the SEC are not required,
are inapplicable or have been disclosed in the Notes to the Consolidated Financial
Statements and therefore have been omitted.

# Item 19. Exhibits

The following exhibits are filed as
part of this Annual Report:

`1.1  Amended and Restated Articles of Incorporation of Teekay Shipping Corporation. (9)
   1.2  Articles of Amendment of Articles of Incorporation of Teekay Shipping Corporation. (9)
   1.3  Amended and Restated Bylaws of Teekay Shipping Corporation. (9)
   2.1  Registration Rights Agreement among Teekay Shipping Corporation, Tradewinds Trust Co. Ltd., as Trustee for
        the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (1)
   2.2  Specimen of Teekay Shipping Corporation Common Stock Certificate. (1)
   2.3  Indenture dated January 29, 1996 among Teekay Shipping Corporation, VSSI Oceans Inc., VSSI Atlantic Inc.,
        VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., Andros Spirit Inc. and United
        States Trust Company of New York, as Trustee. (5)
   2.4  Specimen of Teekay Shipping Corporation's 8.32% First Preferred Ship Mortgage Notes Due 2008. (5)
   2.5  Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau Spirit Inc. to United States Trust
        Company of New York. (3) (5)
   2.6  Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York.
        (3) (5)
   2.7  First Preferred Ship Mortgage dated January 29, 1996 by VSSI Oceans Inc. to United States Trust Company of
        New York, as Trustee. (4)
   2.8  Assignment of Time Charter dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of
        New York, as Trustee. (3) (5)
   2.9  Assignment of Insurance dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New
        York, as Trustee. (3) (5)
  2.10  Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by Teekay in favor of United States Trust
        Company of New York, as Trustee. (5)
  2.11  Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of United States Trust Company of New
        York, as Trustee. (3) (5)
  2.12  Assignment of Freights and Hires dated January 29, 1996 by Nassau Spirit Inc. to United States Trust
        Company of New York, as Trustee. (3) (5)
  2.13  Cash Collateral Account Agreement dated January 29, 1996 between Nassau Spirit Inc. and United States
        Trust Company of New York, as Trustee. (3) (5)
  2.14  Investment Account Agreement dated January 29, 1996 between Teekay Shipping Corporation and United States
        Trust Company of New York, as Trustee. (5)
  2.15  Indenture dated June 22, 2001 among Teekay Shipping Corporation and The Bank of New York Trust Company of
        Florida (formerly U.S. Trust Company of Texas, N.A.). for U.S. $250,000,000 8.875% Senior Notes due 2011.
        (14)
  2.16  First Supplemental Indenture dated as of December 6, 2001, among Teekay Shipping Corporation and The Bank
        of New York Trust Company of Florida, N.A. for U.S. $100,000,000 8.875% Senior Notes due 2011. (15)
  2.17  Exchange and Registration Rights Agreement dated June 22, 2001 among Teekay Shipping Corporation and
        Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Deutsche Banc Alex.
        Brown Inc. and Scotia Capital (USA) Inc. (14)
  2.18  Exchange and Registration Rights Agreement dated December 6, 2001 between Teekay Shipping Corporation and
        Goldman, Sachs & Co. (15)
  2.19  Specimen of Teekay Shipping Corporation's 8.875% Senior Notes due 2011. (14)
  2.20  Form of Supplemental Indenture No. 1 between Teekay Shipping Corporation and The Bank of New York, as
        trustee. (18)
  2.21  Form of Purchase Contract Agreement between Teekay Shipping Corporation and The Bank of New York, as
        purchase contract agent. (18)
  2.22  Form of Pledge Agreement between Teekay Shipping Corporation and The Bank of New York, as collateral
        agent. (18)
  2.23  Form of Remarketing Agreement between Teekay Shipping Corporation and Morgan Stanley & Co. Incorporated.
        (18)
  2.24  Form of Underwriting Agreement Between Teekay Shipping Corporation, Morgan Stanley & Co. Incorporated and
        Salomon Smith Barney. (18)
   4.1  1995 Stock Option Plan. (1)
   4.2  Amendment to 1995 Stock Option Plan. (10)
   4.3  Amended 1995 Stock Option Plan. (12)
   4.4  Form of Indemnification Agreement between Teekay and each of its officers and directors. (1)
   4.5  Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and Palm Shipping Inc. (4)
   4.6  Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and Palm Shipping Inc. (4)
   4.7  Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and Palm Shipping Inc. (4)
   4.8  Agreement, dated January 26, 1998, for a U.S. $200,000,000 Reducing Revolving Credit Facility to be made
        available to certain wholly-owned subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA,
        Christiania Bank og Kreditkasse ASA, New York Branch, and the Bank of Nova Scotia. (7)
   4.9  Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime Inc., a 100% owned subsidiary
        of Teekay Shipping Corporation, and Bona Shipholding Ltd. (8)
  4.10  Agreement, dated April 16, 1998, for a U.S. $30,000,000 Term Loan Facility to be made available to VSSI
        Australia Limited by RABO Australia Limited. (9)
  4.11  Agreement, dated December 18, 1997, for a U.S. $44,000,000 Term Loan Facility to be made available to
        Barrington (Australia) Pty Limited and Palmerston (Australia) Pty Limited by RABO Australia Limited. (9)
  4.12  Amended and Restated Reimbursement Agreement, dated April 16, 1998, Among Barrington (Australia) Pty
        Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance
        Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank
        Schleswig-Holstein. (9)
  4.13  Amendment No. 1, dated May 1999, to Amended and Restated Reimbursement Agreement dated April 16, 1998
        among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI
        Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V.,
        The Bank of New York and Landesbank Schleswig-Holstein. (9)
  4.14  Amended and Restated Agreement, date June 11, 1999, for a U.S. $500,000,000 Revolving Loan between Bona
        Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks. (9)
  4.15  Amendment and Restatement Agreement, dated June 11, 1999, relating to a U.S. $500,000,000 Revolving Loan
        Agreement between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other
        banks. (9)
  4.16  Rights agreement, dated as of September 8, 2000, between Teekay Shipping Corporation and The Bank of New
        York, as Rights Agent. (11)
  4.17  Reimbursement Agreement, dated January 1, 2000, between Fleet Management Inc. and Teekay Shipping
        Corporation. (12)
  4.18  Reimbursement Agreement, dated February 16, 2001, between Karratha Spirit Pty Ltd and Nedship Bank
        (America) N.V. (13)
  4.19  Agreement, dated February 16, 2001, for a U.S. $34,000,000 Term Loan Facility to be made available to
        Karratha Spirit Pty Ltd by RABO Australia Limited. (13)
  4.20  Amendment and Restatement Agreement, dated September 14, 2001, relating to a U.S. $500,000,000 Revolving
        Loan Agreement between Bona Shipholding Ltd., Teekay Shipping Corporation, J.P. Morgan Securities Inc.,
        Citibank International plc and various other banks. (17)
  4.21  Share Sale and Purchase Agreement by and among Statoil ASA and Statpet AS and Norsk Teekay AS dated
        December 15, 2002. (19)
  4.22  Agreement, dated March 10, 2003, for a U.S. $180,000,000 Secured Credit Facility to be made available to
        Cork Spirit LLC, Donegal Spirit LLC, Limerick Spirit LLC, Shannon Spirit LLC and Galway Spirit LLC by Den
        Norske Bank ASA, Deutsche Bank AG, DVB Bank AG and Nordea Bank Finland Plc and various other banks. (20)
  4.23  Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing Revolving Loan Facility between
        Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (21)
  4.24  Share purchase agreement dated March 15, 2004 regarding the acquisition of Naviera F. Tapias S.A. (renamed
        Teekay Shipping Spain S.L.) (22)
  4.25  2003 Equity Incentive Plan. (23)
  4.26  Agreement, dated September 1, 2004 for a U.S. $550,000,000 Credit Facility Agreement to be made available
        to Teekay Nordic Holdings Incorporated by Nordea Bank Finland PLC
  4.27  Amendment dated September 30, 2004 to Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured
        Reducing Revolving Loan Facility between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other
        banks.
  4.28  Annual Executive Bonus Plan
   8.1  List of Significant Subsidiaries
  12.1  Rule 13a-14(a)/15d-14(a) Certification of Teekay's Chief Executive Officer
  12.2  Rule 13a-14(a)/15d-14(a) Certification of Teekay's Chief Financial Officer
  13.1  Teekay Shipping Corporation Certification of Bjorn Moller, Chief Executive Officer, pursuant to 18 U.S.C.
        Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  13.2  Teekay Shipping Corporation Certification of Peter Evensen, 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  Letter from Ernst & Young LLP, as independent chartered accountants, dated April 7, 2005, regarding
        audited financial information.`

---

| | (1) | Previously filed as an exhibit to the Companys Registration Statement on
               Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and
               hereby incorporated by reference to such Registration Statement.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Previously filed as an exhibit to the Companys Registration Statement on
               Form F-1 (Registration No. 33-68680), as declared effective by the SEC on
               November 29, 1993, and hereby incorporated by reference to such Registration
               Statement.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | A schedule attached to this exhibit identifies all other documents not required
               to be filed as exhibits because such other documents are substantially identical
               to this exhibit. The schedule also sets forth material details by which the
               omitted documents differ from this exhibit.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Previously filed as an exhibit to the Companys Registration Statement on
               Form F-3 (Registration No. 33-65139), filed with the SEC on January 19, 1996,
               and hereby incorporated by reference to such Registration Statement.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No. 1-12874), filed with the SEC on June 4, 1996, and hereby incorporated
               by reference to such Annual Report.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No. 1-12874), filed with the SEC on June 11, 1997, and hereby incorporated
               by reference to such Annual Report.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No. 1-12874), filed with the SEC on May 20, 1998, and hereby incorporated
               by reference to such Annual Report.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No.1-12874), filed with the SEC on June 11, 1999, and hereby incorporated
               by reference to such Annual Report.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No.1-12874), filed with the SEC on March 30, 2000, and hereby incorporated
               by reference to such Annual Report.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Previously filed as an exhibit to the Companys Form 6-K (File No.1-12874),
               filed with the SEC on May 2, 2000, and hereby incorporated by reference to such
               Report.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (11) | Previously filed as an exhibit to the Companys Form 8-A (File No.1-12874),
               filed with the SEC on September 11, 2000, and hereby incorporated by reference
               to such Annual Report.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (12) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No.1-12874), filed with the SEC on April 2, 2001, and hereby incorporated
               by reference to such Annual Report.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (13) | Previously filed as an exhibit to the Companys Form 6-K (File No.1-12874),
               filed with the SEC on May 24, 2001, and hereby incorporated by reference to such
               Report.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (14) | Previously filed as an exhibit to the Companys Registration Statement on
               Form F-4 (Registration No. 333-64928), filed with the SEC on July 11, 2001, and
               hereby incorporated by reference to such Registration Statement.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (15) | Previously filed as an exhibit to the Companys Registration Statement on
               Form F-4 (Registration No. 333-76922), filed with the SEC on January 17, 2002,
               and hereby incorporated by reference to such Registration Statement.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (16) | Previously filed as an exhibit to the Companys Registration Statement on
               Form F-4, as Amended (Registration No. 333-76922), filed with the SEC on
               February 5, 2002, and hereby incorporated by reference to such Registration
               Statement.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (17) | Previously filed as an exhibit to the Companys Annual Report on Form 20-F
               (File No.1-12874), filed with the SEC on March 29, 2002, and hereby incorporated
               by reference to such Annual Report.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (18) | Previously filed as an exhibit to the Companys Report on Form 6-K
               (File No.1-12874), filed with the SEC on February 12, 2003, and hereby
               incorporated by reference to such Report.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (19) | Previously filed as an exhibit to the Companys Report on Form 6-K (File
               No.1-12874), filed with the SEC on April 1, 2003, and hereby incorporated by
               reference to such Report.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (20) | Previously filed as an exhibit to the Companys Report on Form 6-K (File
               No.1-12874), filed with the SEC on May 15, 2003, and hereby incorporated by
               reference to such Report.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (21) | Previously filed as an exhibit to the Companys Report on Form 6-K (File
               No. 1-12874), filed with the SEC on August 14, 2003, and hereby incorporated by
               reference to such Report.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (22) | Previously filed as an exhibit to the Companys Report on Form 6-K (File
               No. 1-12874), filed with the SEC on May 14, 2004, and hereby incorporated by
               reference to such Report.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (23) | Previously filed as an exhibit to the Companys Registration Statement on Form S-8 (File
               No. 333-11956), filed with the SEC on October 6, 2004, and hereby incorporated by
               reference to such Registration Statement.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SIGNATURE

The registrant hereby certifies that it meets all of
 the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned
 to sign this Annual Report on its behalf.

| | TEEKAY SHIPPING CORPORATION 
By:     /s/ Peter Evensen 
          Peter Evensen
          Executive Vice President and Chief Financial Officer
          (Principal Financial and Accounting Officer)
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: April 7, 2005

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of TEEKAY SHIPPING CORPORATION

We have audited the accompanying
consolidated balance sheets of Teekay Shipping Corporation and subsidiariesas of
December 31, 2004 and 2003, and the related consolidated statements of income, changes in
stockholders equity and cash flows for each of the three years in the period ended
December 31, 2004. Our audits also included the financial schedule listed in the Index:
Item 18. These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits,
the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Teekay Shipping Corporation and subsidiaries at
December 31, 2004 and 2003, and the consolidated results of their operations and their
cash flows for each of the three years ended December 31, 2004 in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth therein.

|Vancouver, Canada,February 18, 2005 | /s/ ERNST & YOUNG LLPChartered Accountants
|----------------------------------- | ------------------------------------------

# TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars, except share and per share amounts)

`Year Ended        Year Ended         Year Ended
                                                               December 31,      December 31,       December 31,
                                                                   2004              2003               2002
                                                                     $                 $                 $
                                                              ---------------- ------------------ -----------------

VOYAGE REVENUES                                                   2,219,238          1,576,095           783,327
------------------------------------------------------------- ---------------- ------------------ -----------------

OPERATING EXPENSES
Voyage expenses                                                     432,395            394,656          239,455
Vessel operating expenses                                           218,489            210,696          168,035
Time-charter hire expense                                           457,180            304,623           49,949
Depreciation and amortization                                       237,498            191,237          149,296
General and administrative                                          130,742             85,147           57,246
Vessel write-downs and (gain) loss on sale
    of vessels (note 19)                                            (79,254)            90,389                -
Restructuring charge (note 15 )                                       1,002              6,383                -
------------------------------------------------------------- ---------------- ------------------ -----------------
Total operating expenses                                          1,398,052          1,283,131          663,981
------------------------------------------------------------- ---------------- ------------------ -----------------
Income from vessel operations                                       821,186            292,964          119,346
------------------------------------------------------------- ---------------- ------------------ -----------------

OTHER ITEMS
Interest expense                                                   (121,518)           (80,999)         (57,974)
Interest income                                                      18,528              3,921            3,494
Equity income from joint ventures                                    13,730              6,970            4,523
Gain (loss) on sale of marketable securities (note 6)                93,175                517           (1,130)
Other - net (note 15)                                               (67,661)           (46,009)         (14,868)
------------------------------------------------------------- ---------------- ------------------ -----------------
Total other items                                                   (63,746)          (115,600)         (65,955)
------------------------------------------------------------- ---------------- ------------------ -----------------

Net income                                                          757,440            177,364           53,391
------------------------------------------------------------- ---------------- ------------------ -----------------

Earnings per common share (note 20)
o Basic                                                               9.14                2.22             0.67
o Diluted                                                             8.63                2.18             0.66

Weighted average number of common shares
o Basic                                                         82,829,336          79,986,746       79,261,994
o Diluted                                                       87,729,037          81,466,294       80,504,792
============================================================= ================ ================== =================`

The accompanying notes are an
integral part of the consolidated financial statements.

# TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)

`As at             As at
                                                                                  December 31,      December 31,
                                                                                     2004              2003
                                                                                       $                 $
                                                                               ----------------- ----------------
ASSETS
Current
Cash and cash equivalents (note 9)                                                    427,037           292,284
Restricted cash (note 11)                                                              96,087             2,672
Accounts receivable                                                                   210,089           146,523
Prepaid expenses and other assets                                                      54,717            39,054
Vessels held for sale (note 19)                                                       129,952                 -
------------------------------------------------------------------------------ ----------------- ----------------
Total current assets                                                                  917,882           480,533
------------------------------------------------------------------------------ ----------------- ----------------

Marketable securities (note 6)                                                              -            95,511
Restricted cash (note 11)                                                             352,725                 -

Vessels and equipment (note 9)
At cost, less accumulated depreciation of
     $960,597 (2003 -  $1,034,747)                                                  2,613,379         2,386,642
Vessels under capital leases, at cost, less accumulated
     depreciation of $11,047 (2003 - $438) (note 11)                                  665,331            37,562
Advances on newbuilding contracts (note 17)                                           252,577           150,656
------------------------------------------------------------------------------ ----------------- ----------------
Total vessels and equipment                                                         3,531,287         2,574,860
------------------------------------------------------------------------------ ----------------- ----------------
Net investment in direct financing leases (note 4)                                    109,215            73,073
Investment in joint ventures (note 5)                                                  59,637            54,392
Other assets                                                                           85,893            60,333
Intangible assets - net (note 7)                                                      277,511           118,588
Goodwill (note 7)                                                                     169,590           130,754
------------------------------------------------------------------------------ ----------------- ----------------
Total assets                                                                        5,503,740         3,588,044
============================================================================== ================= ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable                                                                       61,607            51,817
Accrued liabilities (note 8)                                                          144,415           119,594
Current portion of long-term debt (note 9)                                            119,453           102,062
Current obligation under capital leases (notes 11 and 17)                              88,934             1,159
------------------------------------------------------------------------------ ----------------- ----------------
Total current liabilities                                                             414,409           274,632
------------------------------------------------------------------------------ ----------------- ----------------
Long-term debt (note 9)                                                             1,988,551         1,498,044
Long-term obligation under capital leases (note 11)                                   547,607            35,493
Other long-term liabilities (notes 1 and 10)                                          301,091           112,726
------------------------------------------------------------------------------ ----------------- ----------------
Total liabilities                                                                   3,251,658         1,920,895
------------------------------------------------------------------------------ ----------------- ----------------
Commitments and contingencies (notes 10, 11, 16 and 17)

Minority interest                                                                      14,724            15,322

Stockholders' equity
Capital stock (note 13)                                                               534,938           492,653
Retained earnings                                                                   1,758,552         1,095,650
Accumulated other comprehensive (loss) income                                         (56,132)           63,524
------------------------------------------------------------------------------ ----------------- ----------------
Total stockholders' equity                                                          2,237,358         1,651,827
------------------------------------------------------------------------------ ----------------- ----------------
Total liabilities and stockholders' equity                                          5,503,740         3,588,044
============================================================================== ================= ================`

The accompanying notes are an
integral part of the consolidated financial statements.

# TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands of U.S. dollars)

`Year Ended       Year Ended       Year Ended
                                                                  December 31,     December 31,     December 31,
                                                                      2004             2003             2002
                                                                        $                $               $
                                                                ---------------- ---------------- ---------------
Cash and cash equivalents provided by (used for)

OPERATING ACTIVITIES                                                  757,440          177,364           53,391
Net income
Non-cash items:
    Depreciation and amortization                                     237,498          191,237          149,296
    (Gain) loss on sale of vessels                                    (79,254)          (1,188)               -
    Gain on sale of marketable securities                             (93,175)            (517)           1,130
    Loss on write-down of vessels                                           -           91,577                -
   Loss on write-down of marketable securities                              -            4,910                -
    Loss on repurchase of bonds (note 15)                                 769            5,385                -
    Equity income (net of dividends received:
      December 31, 2004 - $12,576;
      December 31, 2003 - $7,420;
      December 31, 2002 - $1,748)                                      (1,154)             450           (2,775)
    Income taxes (note 15)                                             35,048           36,501           11,413
    Other - net                                                        16,971           (3,191)          (5,049)
Change in non-cash working capital items related to
  operating activities (note 18)                                      (26,550)          (4,256)           7,038
Expenditures for drydocking                                           (32,889)         (42,697)         (34,913)
--------------------------------------------------------------- ---------------- ---------------- ---------------

Net operating cash flow                                               814,704          455,575          179,531
--------------------------------------------------------------- ---------------- ---------------- ---------------

FINANCING ACTIVITIES
Proceeds from long-term debt                                        1,631,181        1,993,270          255,185
Capitalized loan costs                                                 (9,960)         (12,442)               -
Scheduled repayments of long-term debt                               (150,314)         (62,240)         (51,830)
Prepayments of long-term debt                                      (1,731,223)      (1,466,815)          (8,000)
Repayments of capital lease obligations                               (66,109)            (345)               -
Decrease (increase) in restricted cash                                  8,342            6,113             (952)
Issuance of Common Stock upon exercise of stock options                51,279           25,015            4,221
Repurchase of Common Stock                                            (61,237)               -           (1,547)
Cash dividends paid                                                   (42,362)         (35,719)         (34,073)
--------------------------------------------------------------- ---------------- ---------------- ---------------

Net financing cash flow                                              (370,403)         446,837          163,004
--------------------------------------------------------------- ---------------- ---------------- ---------------

INVESTING ACTIVITIES
Expenditures for vessels and equipment                               (548,587)        (372,433)        (135,650)
Proceeds from sale of vessels and equipment                           440,556          242,111                -
Proceeds from sale of marketable securities                           135,357            9,642            6,675
Purchase of marketable securities                                           -          (37,291)               -
Purchase of Teekay Shipping Spain S.L.,
   net of cash acquired of $11,191 (note 3)                          (286,993)               -                -
Purchase of Navion AS (note 4)                                              -         (704,734)         (76,000)
Purchase of intangible assets                                               -           (7,250)               -
Decrease (increase) in investment in joint ventures                    (4,369)          25,500          (26,000)
Purchase of PetroTrans Holdings Ltd. (note 5)                            (357)         (25,050)               -
Net investment in direct financing leases (note 4)                    (43,892)         (20,322)               -
Other                                                                  (1,263)          (4,926)          (1,885)
--------------------------------------------------------------- ---------------- ---------------- ---------------

Net investing cash flow                                              (309,548)        (894,753)        (232,860)
--------------------------------------------------------------- ---------------- ---------------- ---------------

Increase in cash and cash equivalents                                 134,753            7,659          109,675
Cash and cash equivalents, beginning of the period                    292,284          284,625          174,950
--------------------------------------------------------------- ---------------- ---------------- ---------------

Cash and cash equivalents, end of the period                          427,037          292,284          284,625
=============================================================== ================ ================ ===============`

The accompanying notes are an
integral part of the consolidated financial statements.

# TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY 
(in thousands of U.S. dollars)

`Accumulated
                                                                              Other
                                     Thousands                               Compre-        Compre-        Total
                                     of Common     Common     Retained       hensive        hensive    Stockholders'
                                       Shares       Stock     Earnings    Income (Loss)     Income        Equity
                                          #            $           $              $            $              $
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Balance as at December 31, 2001         79,100     467,341      935,660       (4,801)                   1,398,200
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Net income                                                       53,391                      53,391        53,391
Other comprehensive income:
  Unrealized loss on marketable
    securities                                                                  (239)          (239)         (239)
  Reclassification adjustment for
    loss on marketable securities
    included in net income                                                       737            737           737
Unrealized gain on derivative instruments
    (note 16)                                                                  3,023          3,023         3,023
Reclassification adjustment for gain on
    derivative instruments (note 16)                                          (1,815)        (1,815)       (1,815)
                                                                                          -----------
Comprehensive income                                                                         55,097
                                                                                          -----------

Dividends declared                                              (34,079)                                  (34,079)
Reinvested dividends                         2           6                                                      6
Exercise of stock options                  380       4,221                                                  4,221
Repurchase of Common Stock                 (98)       (580)        (967)                                   (1,547)
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Balance as at December 31, 2002         79,384     470,988      954,005      (3,095)                    1,421,898
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Net income                                                      177,364                     177,364       177,364
Other comprehensive income:
  Unrealized gain on marketable
    securities                                                               53,540          53,540        53,540
  Reclassification adjustment for
    loss on marketable securities
    included in net income                                                    4,899           4,899         4,899
  Unrealized gain on derivative
    instruments (note 16)                                                     8,639           8,639         8,639
  Reclassification adjustment for
    gain on derivative instruments
    (note 16)                                                                  (459)           (459)         (459)
                                                                                          -----------
Comprehensive income                                                                        243,983
                                                                                          -----------
Dividends declared                                              (35,719)                                  (35,719)
Reinvested dividends                         2           3                                                      3
Exercise of stock options                1,764      25,015                                                 25,015
7.25% Premium Equity Participating Security
    Units contract adjustment fee                   (4,803)                                                (4,803)
Issuance of Common Stock (note 13)          72       1,450                                                  1,450
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Balance as at December 31, 2003         81,222     492,653    1,095,650      63,524                     1,651,827
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Net income                                                      757,440                     757,440       757,440
Other comprehensive income:
  Unrealized gain on marketable
    securities                                                               39,369          39,369        39,369
  Reclassification adjustment for
    gain on marketable securities
    included in net income                                                  (92,539)        (92,539)      (92,539)
  Unrealized loss on derivative instruments
   (note 16)                                                                (94,822)        (94,822)      (94,822)
  Reclassification adjustment for loss on
    derivative instruments (note 16)                                         28,336          28,336        28,336
                                                                                          -----------
Comprehensive income                                                                        637,784
                                                                                          -----------
Dividends declared                                             (42,366)                                  (42,366)
Reinvested dividends                        1            3                                                      3
100% Stock dividend                                     41          (41)                                        -
Exercise of stock options               3,125       51,280                                                 51,280
Issuance of Common Stock (note 13)          3           67                                                     67
Repurchase of Common Stock (note 13)   (1,400)      (9,106)     (52,131)                                  (61,237)
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------

Balance as at December 31, 2004        82,951      534,938     1,758,552    (56,132)                    2,237,358
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------`

The accompanying notes are an integral part of the consolidated financial statements.

# TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|1. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

| | Basis of presentation
| | ---------------------

| | The
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. They include the accounts of Teekay
Shipping Corporation (Teekay), which is incorporated under the laws of the
Republic of the Marshall Islands, and its wholly owned or controlled subsidiaries (the
Company). Significant intercompany balances and transactions have been
eliminated upon consolidation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certain
of the comparative figures have been reclassified to conform with the presentation adopted
in the current period.
| | -------------------------------------------------------------------------------------------------------------------------

| | Reporting currency
| | ------------------

| | The
consolidated financial statements are stated in U.S. Dollars because the Company operates
in international shipping markets, the Companys primary economic environment, which
typically utilize the U.S. Dollar as the functional currency. Transactions involving other
currencies during the year are converted into U.S. Dollars using the exchange rates in
effect at the time of the transactions. At the balance sheet date, monetary assets and
liabilities that are denominated in currencies other than the U.S. Dollar are translated
to reflect the year-end exchange rates. Resulting gains or losses are reflected separately
in the accompanying consolidated statements of income.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Operating revenues and expenses
| | -------------------------------

| | The
Company recognizes revenues from time charters and bareboat charters daily over the term
of the charter as the applicable vessel operates under the charter. The Company does not
recognize revenue during days that the vessel is off-hire. All voyage revenues from voyage
charters are recognized on a percentage of completion method. The Company uses a
discharge-to-discharge basis in determining percentage of completion for all spot voyages,
and voyages servicing contracts of affreightment (COAs) whereby it recognizes
revenue ratably from when product is discharged (unloaded) at the end of one voyage to
when it is discharged after the next voyage. The Company does not begin recognizing voyage
revenue until a charter has been agreed to by the customer and the Company, even if the
vessel has discharged its cargo and is sailing to the anticipated load port on its next
voyage. Shuttle tanker voyages servicing COAs with offshore oil fields commence with
tendering of notice of readiness at a field, within the agreed lifting range, and ends
with tendering of notice of readiness at a field for the next lifting. Estimated losses on
voyages are provided for in full at the time such losses become evident. The consolidated
balance sheets reflect the deferred portion of revenues and expenses, which will be earned
in subsequent periods.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Voyage
expenses are all expenses unique to a particular voyage, including bunker fuel expenses,
port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores,
lube oils and communication expenses. Voyage expenses are recognized ratably over the
duration of the voyage, and vessel operating expenses are recognized when incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and cash equivalents
| | -------------------------

| | The
Company classifies all highly-liquid investments with a maturity date of three months or
less when purchased as cash and cash equivalents.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
interest paid during the years ended December 31, 2004, 2003 and 2002 totaled $130.1
million, $81.9 million and $65.3 million, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------

| | Marketable securities
| | ---------------------

| | The
Companys investments in marketable securities are classified as available-for-sale
securities and are carried at fair value. Net unrealized gains and losses on
available-for-sale securities are reported as a component of other comprehensive income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd) 
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | Vessels and equipment
| | ---------------------

| | All
pre-delivery costs incurred during the construction of newbuildings, including interest,
supervision and technical costs, are capitalized. The acquisition cost and all costs
incurred to restore used vessel purchases to the standard required to properly service the
Companys customers are capitalized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Depreciation
is calculated on a straight-line basis over a vessels estimated useful life, less an
estimated residual value. Depreciation is calculated using an estimated useful life of 25
years for crude oil tankers and 35 years for liquefied natural gas (LNG)
carriers from the date the vessel is delivered from the shipyard, or a shorter period if
regulations prevent us from operating the vessels for 25 years or 35 years, respectively.
Depreciation of vessels and equipment for the years ended December 31, 2004, 2003 and 2002
aggregated $189.4 million, $152.4 million and $127.5 million, respectively. Depreciation
and amortization includes depreciation on all owned vessels and vessels accounted for as
capital leases. (see Note 19).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
costs capitalized to vessels and equipment for the years ended December 31, 2004, 2003 and
2002 aggregated $9.9 million, $8.5 million and $6.0 million, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Gains
on vessels sold and leased back under capital leases are deferred and amortized over the
remaining estimated useful life of the vessel. Losses on vessels sold and leased back
under capital leases are recognized immediately when the fair value of the vessel at the
time of sale-leaseback is less than its book value. In such case, the Company would
recognize a loss in the amount by which book value exceeds fair value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Generally,
the Company drydocks each vessel every two and a half to five years. In addition, a
shipping society classification intermediate survey is performed on the Companys LNG
carriers between the second and third year of the five-year drydocking period. The Company
capitalizes a substantial portion of the costs incurred during drydocking and for the
survey and amortizes those costs on a straight-line basis from the completion of a
drydocking or intermediate survey to the estimated completion of the next drydocking. The
Company expenses costs related to routine repairs and maintenance incurred during
drydocking that do not improve or extend the useful lives of the assets. When significant
drydocking expenditures occur prior to the expiration of the original amortization period,
the remaining unamortized balance of the original drydocking cost and any unamortized
intermediate survey costs are expensed in the month of the subsequent drydocking.
Amortization of drydocking expenditures for the years ended December 31, 2004, 2003 and
2002 aggregated $23.5 million, $26.4 million and $21.8 million, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company reviews vessels and equipment for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of their carrying amount to
future undiscounted cash flows the assets are expected to generate over their remaining
useful lives. If vessels and equipment are considered to be impaired, the impairment to be
recognized equals the amount by which the carrying value of the assets exceeds their fair
market value (see Note 19).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Direct financing leases
| | -----------------------

| | The
Company assembles, installs, operates and leases equipment that reduces volatile organic
compound emissions (VOC Equipment) during loading, transportation and storage
of oil and oil products. Leasing of the VOC Equipment is accounted for as a direct
financing lease, with lease payments received being allocated between the net investment
in the lease and other income using the effective interest method so as to produce a
constant periodic rate of return over the lease term.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Investment in joint ventures
| | ----------------------------

| | The
Company has a 50% participating interest in eight joint venture companies (2003 
five). Five of these joint ventures each own one shuttle tanker. One of the joint
ventures, which was formed on April 30, 2004, will pursue new business in the oil and gas
shipping sectors that relate only to the Spanish market or are led by Spanish entities or
entities controlled by a Spanish company (see Note 3). One joint venture has a first right
of refusal on Statoils oil transportation requirements at the prevailing market rate
until December 31, 2007 (see Note 4). One joint venture is a lightering company acquired
on September 30, 2003 (see Note 5). The joint ventures are accounted for using the equity
method, whereby the investment is carried at the Companys original cost plus its
proportionate share of undistributed earnings.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Investment in the Panamax OBO Pool
| | ----------------------------------

| | All
Panamax oil/bulk/ore carriers (OBOs) owned by the Company were operated
through a pool that was managed by the Company until its termination in 2003, when the
Company sold all of its OBO carriers. The participants in the pool were the companies
contributing vessel capacity to it. The voyage revenues and expenses of these vessels have
been included on a 100% basis in the consolidated financial statements. The minority pool
participants share of the results has been deducted as time charter hire expense
prior to termination of the pool.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | Loan costs
| | ----------

| | Loan
costs, including fees, commissions and legal expenses, which are presented as other assets
are capitalized and amortized on a straight-line basis over the term of the relevant loan.
Amortization of loan costs is included in interest expense.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative instruments
| | ----------------------

| | The
Company utilizes derivative financial instruments to reduce risk from foreign currency
fluctuations, changes in interest rates, changes in spot market rates for vessels and
changes in bunker fuel prices and does not use them for trading purposes. Statement of
Financial Accounting Standards No. 133 (SFAS 133) Accounting for
Derivative Instruments and Hedging Activities, which was amended in June 2000 by
SFAS No. 138 and in May 2003 by SFAS No. 149, establishes accounting and reporting
standards for derivatives instruments and hedging activities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Derivative
instruments are recorded as other assets or other long-term liabilities, measured at fair
value. Derivatives that are not hedges or are not designated as hedges are adjusted to
fair value through income. If the derivative is a hedge, depending upon the nature of the
hedge, changes in the fair value of the derivatives are either offset against the fair
value of assets, liabilities or firm commitments through income, or recognized in other
comprehensive income (loss) until the hedged item is recognized in income. The ineffective
portion of a derivatives change in fair value is immediately recognized in income
(see Note 16).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill and intangible assets
| | ------------------------------

| | Goodwill
and indefinite lived intangible assets are not amortized, but reviewed for impairment
annually, or more frequently if impairment indicators arise. Intangible assets with finite
lives are amortized over their useful lives.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys intangible assets consist primarily of time charter contracts acquired as
part of the purchase of Teekay Shipping Spain S.L (Teekay Spain) and COAs
acquired as part of the purchase of Navion AS (Navion). The time charter
contracts are being amortized on a straight line basis over the life of the contracts. The
COAs are being amortized over the life of the COAs, with the amount amortized each year
being weighted based on the projected revenue to be earned from the COAs.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income taxes
| | ------------

| | The
legal jurisdictions in which Teekay and the majority of its subsidiaries are incorporated
do not impose income taxes upon shipping-related activities. The Companys Australian
shipowning subsidiaries, its Canadian subsidiary Teekay Canadian Tankers Ltd., its
Norwegian subsidiaries UNS and Navion and its Spanish subsidiary Teekay Spain are subject
to income taxes (see Note 15). Included in other long-term liabilities are deferred income
taxes of $121.4 million at December 31, 2004, $78.2 million at December 31, 2002, and
$43.7 million at December 31, 2002. The Company accounts for such taxes using the
liability method pursuant to Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounting for Stock-Based Compensation
| | ---------------------------------------

| | Under
Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock-Based Compensation, disclosures of stock-based
compensation arrangements with employees are required and companies are encouraged (but
not required) to record compensation costs associated with employee stock option awards,
based on estimated fair values at the grant dates (see also Recent Accounting
Pronouncements below). The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees. As the exercise price of
the Companys employee stock options equals the market price of underlying stock on
the date of grant, no compensation expense is recognized under APB 25.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | The
following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS 123 to stock-based employee
compensation (see Note 13).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year Ended           Year Ended         Year Ended
                                                              December 31,         December 31,       December 31,
                                                                  2004                 2003               2002
                                                                    $                   $                   $
                                                        -------------------- ------------------- ------------------
     Net income - as reported...........................        757,440              177,364              53,391
     Less: Total stock-based compensation expense.......          8,996                8,243               7,538
                                                        -------------------- ------------------- ------------------
     Net income - pro forma.............................        748,444              169,121              45,853
                                                        ==================== =================== ==================

     Basic earnings per common share:
     As reported........................................           9.14                 2.22                0.67
     Pro forma..........................................           9.04                 2.11                0.58

     Diluted earnings per common share:
     As reported........................................           8.63                 2.18                0.66
     Pro forma..........................................           8.53                 2.08                0.57`

| | For
the purpose of the above pro forma calculations, the fair value of each option granted was
estimated on the date of the grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used in computing the fair value of the
options granted: risk-free average interest rates of 2.7% for the year ended December 31,
2004; 2.8% for the year ended December 31, 2003 and 4.7% for the year ended December 31,
2002, respectively; dividend yield of 3.0%; expected volatility of 30%; and expected lives
of five years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive income
| | --------------------

| | The
Company follows Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recent Accounting Pronouncements
| | --------------------------------

| | On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123(R) (SFAS 123(R)), Share-Based Payment, which is a
revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. SFAS 123(R) supersedes APB 25. SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer an
acceptable alternative.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in
periods in which financial statements have not yet been issued. The Company expects to
adopt SFAS 125(R) on July 1, 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS 123(R) permits public companies to adopt its requirements using one of the following two
methods:
| | ------------------------------------------------------------------------------------------------------

|1. | A modified prospective method in which compensation cost is
               recognized beginning with the effective date based on (a) the requirements of
               SFAS 123(R) for all share-based payments granted after the effective date and
               (b) the requirements of SFAS 123 for all awards granted to employees prior to
               the effective date of SFAS 123(R) that remain unvested on the effective date; or
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | A modified retrospective method which includes the requirements of
               the modified prospective method described above, but also permits entities to
               restate based on the amounts previously recognized under SFAS 123 for purposes
               of pro forma disclosures either (a) all prior periods presented or (b) prior
               interim periods of the year of adoption.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company plans to adopt SFAS 123(R) using the modified-prospective method.
| | -----------------------------------------------------------------------------

| | The
adoption of SFAS 123(R)s fair value method will have a significant impact on our
result of operations, although it will have not impact on our overall financial position.
The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will
depend on levels of share-based payments granted in the future. However, had we adopted
SFAS (R) in prior periods, the impact of that standard would have approximated the impact
of SFAS 123 as described in the disclosure of pro forma net income and earnings per share
in the above table.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|2. | Segment Reporting
|-- | -----------------

| | The
Company is engaged in the international marine transportation of crude oil, clean
petroleum products and LNG through the operation of its tankers and LNG carriers. All of
the Companys revenues are earned in international markets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | One
customer, an international oil company, accounted for 17% ($373.7 million) of the
Companys consolidated voyage revenues during the year ended December 31, 2004. One
customer, an international oil company, accounted for 15% ($239.5 million) of the
Companys consolidated voyage revenues during the year ended December 31, 2003. No
customer accounted for more than 10% of the Companys consolidated voyage revenues
during the year ended December 31, 2002. No other customer accounted for more than 10% of
the Companys consolidated voyage revenues during the fiscal periods presented
herein.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has three reportable segments: its spot tanker segment, its fixed-rate tanker
segment, and its fixed-rate LNG segment. The Companys spot tanker segment consists
of conventional crude oil tankers and product carriers operating in the spot market or
subject to time charters or contracts of affreightment priced on a spot-market basis or on
short-term fixed-rate contracts. The Company considers contracts that have an original
term of less than three years in duration to be short-term. The Companys fixed-rate
tanker segment consists of shuttle tankers, floating storage and offtake vessels, liquid
petroleum gas carriers and conventional crude oil and product tankers subject to
long-term, fixed-rate time-charter contracts or contracts of affreightment. The
Companys fixed-rate LNG segment consists of LNG carriers subject to long-term,
fixed-rate time-charter contracts. The Company had no LNG operations prior to the
acquisition of Teekay Spain on April 30, 2004 (see Note 3). Segment results are evaluated
based on income from vessel operations. The accounting policies applied to the reportable
segments are the same as those used in the preparation of the Companys consolidated
financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following tables present results for these segments for the years ended December 31, 2004,
2003 and 2002.
| | -------------------------------------------------------------------------------------------------------------

`---------------------------------------------------- ------------- -------------- --------------- -------------
                                                              Spot       Fixed-Rate      Fixed-Rate
                                                             Tanker        Tanker           LNG
     Year ended December 31, 2004                           Segment       Segment          Segment        Total
                                                               $              $              $              $
     ---------------------------------------------------- ------------- -------------- --------------- -------------

     Voyage revenues - external.......................... 1,450,791        725,061        43,386       2,219,238
     Voyage expenses....................................    355,116         77,058           221         432,395
     Vessel operating expenses..........................     93,394        117,586         7,509         218,489
     Time-charter hire expense..........................    263,122        194,058             -         457,180
     Depreciation and amortization......................     95,570        129,074        12,854         237,498
     General and administrative (1) ....................     70,371         56,431         3,940         130,742
     Vessel write-downs/(gain) loss on sale of vessels..    (72,101)        (7,153)            -         (79,254)
     Restructuring charge...............................      1,002              -             -           1,002
                                                          ------------- -------------- --------------- -------------
     Income from vessel operations......................    644,317        158,007        18,862         821,186
                                                          ============= ============== =============== =============

     Voyage revenues - intersegment.....................          -          4,607             -           4,607
     Equity income......................................      7,040          6,690             -          13,730
     Investments in joint ventures at December 31, 2004.     29,034         30,603             -          59,637
     Total assets at December 31, 2004..................  1,119,302      2,080,855     1,517,027       4,717,184
     Expenditures for vessels and equipment (2) ........    214,572        191,085       142,930         548,587`

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

`---------------------------------------------------- ------------- -------------- --------------- -------------
                                                              Spot       Fixed-Rate      Fixed-Rate
                                                             Tanker        Tanker           LNG
     Year ended December 31, 2003                           Segment        Segment        Segment         Total
                                                               $              $              $              $
     ---------------------------------------------------- ------------- -------------- --------------- -------------

     Voyage revenues - external.........................   1,081,974       494,121              -      1,576,095
     Voyage expenses....................................     342,928        51,728              -        394,656
     Vessel operating expenses..........................     126,261        84,435              -        210,696
     Time-charter hire expense..........................     168,344       136,279              -        304,623
     Depreciation and amortization......................     106,374        84,863              -        191,237
     General and administrative (1) ....................      53,338        31,809              -         85,147
     Vessel write-downs/(gain) loss on sale of vessels..      90,326            63              -         90,389
     Restructuring charge...............................       4,382         2,001              -          6,383
                                                          ------------- -------------- --------------- -------------
     Income from vessel operations......................     190,021       102,943              -        292,964
                                                          ============= ============== =============== =============

     Voyage revenues - intersegment.....................           -         8,499              -          8,499
     Equity income......................................       1,441         5,529              -          6,970
     Investments in joint ventures at December 31, 2003.      26,345        28,047              -         54,392
     Total assets at December 31, 2003..................   1,144,087     1,798,617              -      2,942,704
     Expenditures for vessels and equipment (2) ........      28,684       343,749              -        372,433

     ---------------------------------------------------- ------------- -------------- --------------- -------------
                                                              Spot       Fixed-Rate      Fixed-Rate
                                                             Tanker        Tanker           LNG
     Year ended December 31, 2002                           Segment        Segment        Segment         Total
                                                               $              $              $              $
     ---------------------------------------------------- ------------- -------------- --------------- -------------

     Voyage revenues - external.........................     632,281       151,046              -        783,327
     Voyage expenses....................................     234,376         5,079              -        239,455
     Vessel operating expenses..........................     127,953        40,082              -        168,035
     Time-charter hire expense..........................      49,949             -              -         49,949
     Depreciation and amortization......................     105,407        43,889              -        149,296
     General and administrative (1) ....................      47,188        10,058              -         57,246
                                                          ------------- -------------- --------------- -------------
     Income from vessel operations......................      67,408        51,938              -        119,346
                                                          ============= ============== =============== =============

     Voyage revenues - intersegment.....................           -             -              -              -
     Equity income (loss)...............................       (711)         5,234              -          4,523
     Investments in joint ventures at December 31, 2002.           -        56,354              -         56,354
     Total assets at December 31, 2002..................   1,424,863       785,227              -      2,210,090
     Expenditures for vessels and equipment.............      90,966        44,684              -        135,650`

| | (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 vessels purchased as part of the Companys acquisition of Teekay
               Spain in April 2004, and Navion AS in April 2003.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------

| | A
reconciliation of total segment assets to amounts presented in the consolidated balance
sheets is as follows:
| | ---------------------------------------------------------------------------------------------------------------

`December 31,       December 31,
                                                                                      2004               2003
                                                                                        $                  $
                                                                               ------------------ ------------------

      Total assets of all segments..........................................        4,717,184          2,942,704
      Cash, restricted cash and marketable securities........................         428,437            390,467
      Accounts receivable and other assets...................................         358,119            254,873
                                                                               ------------------ ------------------
         Consolidated total assets...........................................       5,503,740          3,588,044
                                                                               ================== ==================`

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|3. | Acquisition of Teekay
Shipping Spain S.L.
|-- | -----------------------------------------

| | On
April 30, 2004, the Company acquired all of the outstanding shares of Naviera F. Tapias
S.A. and its subsidiaries and renamed it Teekay Shipping Spain, S.L. Teekay Spain engages
in the marine transportation of crude oil and LNG. The Company acquired Teekay Spain for
$298.2 million in cash, plus the assumption of debt and remaining newbuilding commitments.
Management believes the acquisition of the Teekay Spain business has provided the Company
with a strategic platform from which to expand its presence in the liquefied natural gas
(LNG) shipping sector and immediate access to reputable LNG operations. The
Company anticipates this will benefit it when bidding on future LNG projects. These
benefits contributed to the recognition of goodwill. In the transaction, Teekay also
entered into an agreement with an entity controlled by the former controlling shareholder
of Teekay Spain to establish a 50/50 joint venture that will pursue new business in the
oil and gas shipping sectors that relate only to the Spanish market or are led by Spanish
entities or entities controlled by a Spanish company. Teekay Spains results of
operations have been consolidated with the Companys results commencing May 1, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at December 31, 2004, the Companys LNG fleet consisted of four LNG vessels. All four
vessels were contracted under long-term, fixed-rate time charters to major Spanish energy
companies. As at December 31, 2004, Teekay Spains conventional crude oil tanker
fleet consisted of five Suezmax tankers and two newbuildings scheduled for delivery in
2005. Four Suezmax tankers and one newbuilding are contracted under long-term,
fixed-rate time charters with a major Spanish oil company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes the fair value of the assets acquired and liabilities assumed
by the Company at April 30, 2004, the date of the Teekay Spain acquisition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`As at
                                                                                                    April 30, 2004
                                                                                                           $
                                                                                                   ------------------

     ASSETS
     Cash, cash equivalents and short-term restricted cash                                                 85,092
     Other current assets                                                                                   7,415
     Vessels and equipment                                                                                821,939
     Restricted cash  long term                                                                          311,664
     Other assets  long-term                                                                              15,355
     Intangible assets subject to amortization:
        Time-charter contracts (weighted average remaining useful life of
        19.2 years)                                                                                       183,052
     Goodwill ($3.6 million fixed-rate tanker segment and $35.7 million
        fixed-rate LNG segment)                                                                            39,279
     ----------------------------------------------------------------------------- --------------- ------------------
     Total assets acquired                                                                              1,463,796
     ============================================================================= =============== ==================
     LIABILITIES
     Current liabilities                                                                                   98,428
     Long-term debt                                                                                       668,733
     Obligations under capital leases                                                                     311,011
     Other long-term liabilities                                                                           87,439
     ----------------------------------------------------------------------------- --------------- ------------------
     Total liabilities assumed                                                                          1,165,611
     ============================================================================= =============== ==================
     Net assets acquired (cash consideration)                                                             298,185
     ============================================================================= =============== ==================`

| | (1) | The following table shows comparative summarized consolidated pro forma
               financial information for the Company for the years ended December 31, 2004 and
               2003, giving effect to the acquisition of 100% of the outstanding shares in
               Teekay Spain as if it had taken place on January 1 of each of the periods
               presented:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Pro Forma
                                                                                  Year Ended December 31,
                                                                               2004                    2003
                                                                            (unaudited)            (unaudited)
                                                                                 $                      $
                                                                       ---------------------- -----------------------

     Voyage revenues..................................................     2,259,956                1,662,804
     Net income (1)...................................................       769,240                  104,820
     Earnings per share
     - Basic..........................................................          9.29                     1.31
     - Diluted........................................................          8.77                     1.29`

| | (1) | The results of Teekay Spain for the four months ended April 30, 2004 and the
               year ended December 31, 2003 included foreign exchange gains of $18.0 million
               and foreign exchange losses of $71.5 million, respectively. Substantially all of
               these foreign exchange gains and losses were unrealized.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|4. | Acquisition of Navion AS
|-- | ------------------------

| | In
April 2003, Teekay completed its acquisition of 100% of the issued and outstanding shares
of Navion AS for approximately $774.2 million in cash, including transaction costs of
approximately $7.0 million. The Company made a deposit of $76.0 million towards the
purchase price on December 16, 2002. The remaining portion of the purchase price was paid
on closing. The Company funded its acquisition of Navion by borrowing under a $500 million
364-day credit facility (subsequently replaced by a $550 million revolving credit
facility), together with available cash and borrowings under other existing revolving
credit facilities. Navions results of operation have been consolidated with
Teekays results commencing April 1, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Navion,
based in Stavanger, Norway, operates primarily in the shuttle tanker and the conventional
crude oil and product tanker markets. Its modern shuttle tanker fleet, which as of
December 31, 2004, consisted of eight owned and 12 chartered-in vessels (excluding six
vessels chartered-in from the Companys shuttle tanker subsidiary Ugland Nordic
Shipping AS (UNS), and other subsidiaries of the Company), provides logistical
services to the Norwegian state-owned oil company, Statoil ASA, and other oil companies in
the North Sea under fixed-rate, long-term contracts of affreightment. Subsequent to the
acquisition, the operations of UNS and the shuttle tanker operations of Navion were
combined into one business unit, Teekay Navion Shuttle Tankers. The projected benefits
resulting from the combined operations as well as possible growth opportunities in the
North Sea and elsewhere in the world resulted in the recognition of goodwill.
Navions modern, chartered-in, conventional tanker fleet, which as of December 31,
2004, consisted of 12 crude oil tankers and 15 product tankers, operates primarily in the
Atlantic region, providing services to Statoil and other oil companies. In addition,
Navion owns two floating storage and offtake vessels currently trading as conventional
crude oil tankers in the Atlantic region, one chartered-in methanol carrier and one liquid
petroleum gas (LPG) carrier on long-term charter to Statoil. Through Navion
Chartering AS, an entity owned jointly with Statoil, Navion has a first right of refusal
on Statoils oil transportation requirements at the prevailing market rate until
December 31, 2007. In addition to tanker operations, Navion also constructs, installs,
operates and leases equipment that reduces volatile organic compound emissions during
loading, transportation and storage of oil and oil products.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes the fair value of the assets acquired and liabilities assumed
by the Company at April 1, 2003, the date of the Navion acquisition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

`ASSETS
          Current assets                                                                                  64,457
          Vessels and equipment                                                                          543,003
          Net investment in direct financing leases                                                       45,558
          Other assets  long-term                                                                         3,835
          Intangible assets subject to amortization:
             Contracts of affreightment (15-year sum-of-years declining balance)                         117,000
          Goodwill (fixed-rate tanker segment)                                                            40,033
     ---------------------------------------------------------------------------------------------- -----------------
          Total assets acquired                                                                          813,886
     ============================================================================================== =================
          LIABILITIES
          Current liabilities                                                                             36,270
          Other long-term liabilities                                                                      3,463
     ---------------------------------------------------------------------------------------------- -----------------
          Total liabilities assumed                                                                       39,733
     ============================================================================================== =================
          Net assets acquired (cash consideration)                                                       774,153
     ============================================================================================== =================`

| | The
following table shows comparative summarized consolidated pro forma financial information
for the Company for the year ended December 31, 2003, giving effect to the acquisition of
100% of the outstanding shares in Navion as if the acquisition had taken place on January
1 of each of the years presented:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Pro Forma
                                                                                         Year Ended December 31,
                                                                                         2003              2002
                                                                                      (unaudited)      (unaudited)
                                                                                           $                $
                                                                                 ---------------- -----------------
          Voyage revenues........................................................     1,804,528        1,453,650
          Net income.............................................................       223,403           69,401
          Net income per common share
            -   Basic ...........................................................          2.79             0.88
            -   Diluted..........................................................          2.74             0.86`

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|5. | Acquisition of 50% of PetroTrans Holdings Ltd.
|-- | ----------------------------------------------

| | On
September 30, 2003, Teekay acquired 50% of the issued and outstanding shares of PetroTrans
Holdings Ltd., the parent company of Skaugen PetroTrans Inc. (SPT). The
acquisition was completed for approximately $25 million in cash, and an earn-out
element to be calculated based on the financial performance of SPT over the five
year period following the transaction. During 2004, the Company paid $0.4 million in earn
out payments. The Company funded this acquisition with available cash.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SPT
is a lightering company operating out of Houston, Texas. Lightering is the process of
ship-to-ship transfer of oil cargo, which is required when vessels transporting oil are
too large to enter ports that are not deep enough, or have narrow entrances or small
berths. The lightering process consists of maneuvering a smaller tanker (the service
vessel) alongside the larger tanker, typically with both vessels underway. Once the
oil cargo is transferred to the service vessel, the service vessel transports the oil
cargo to the port.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
acquisition of the 50% interest in PetroTrans Holdings Ltd. is being accounted for using
the equity method, whereby the investment is carried at the Companys original cost
plus its proportionate share of undistributed earnings. The excess carrying value of the
Companys investment over its underlying equity in the net assets of PetroTrans
Holdings Ltd., which amounts to approximately $15.7 million, has been accounted for as
goodwill. This investment is included in investments in joint ventures.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Investments in Marketable Securities
|-- | ------------------------------------

`Gross           Approximate
                                                                                  Unrealized         Market and
                                                                   Cost              Gains         Carrying Values
                                                                    $                  $                  $
                                                             ----------------- ------------------ ------------------
     December 31, 2003
     Available-for-sale equity securities..................        42,180           53,331                95,511
                                                             ================= ================== ==================`

| | Marketable
securities at December 31, 2003 represent 5,812,000 shares in A/S Dampskibsselskabet Torm
(Torm) and 351,221 shares in Nordic American Tanker Shipping Ltd.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2004, the Company sold its investment in marketable securities
for proceeds of $135.4 million, which resulted in a gain on sale of marketable securities
of $93.2 million.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Goodwill and Intangible Assets
|-- | ------------------------------

| | The
changes in the carrying amount of goodwill for the year ended December 31, 2004 for the
Companys reporting segments, are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------

`Fixed-         Fixed-
                                             Spot          Rate           Rate
                                            Tanker        Tanker           LNG
                                            Segment       Segment        Segment         Other          Total
                                                $             $              $              $              $
                                        -------------- -------------- -------------- -------------- --------------
      Balance as of January 1, 2004....         -          128,575              -         2,179         130,754
      Goodwill acquired................         -            3,648         35,631           137          39,416
      Goodwill impairment .............         -                -              -          (580)           (580)
                                        -------------- -------------- -------------- -------------- --------------
      Balance as of December 31, 2004..         -          132,223         35,631         1,736         169,590
                                        ============== ============== ============== ============== ==============`

| | As at December 31, 2004 intangible assets consisted of:
| | -------------------------------------------------------

`Weighted-Average      Gross Carrying     Accumulated       Net Carrying
                                         Amortization Period         Amount        Amortization          Amount
                                               (years)                 $                 $                 $
                                        ---------------------- ------------------ ---------------- -------------------
      Contracts of affreightment.......         10.2                 124,250           (30,880)           93,370
      Time-charter contracts...........         19.2                 182,552            (4,095)          178,457
      Intellectual property............          7.0                   7,701            (2,017)            5,684
                                        ---------------------- ------------------ ---------------- -------------------
                                                15.4                 314,503           (36,992)          277,511
                                        ====================== ================== ================ ===================`

| | Aggregate
amortization expense of intangible assets for the year ended December 31, 2004 was
approximately $25.7 million ($13.4 million  2003). Amortization of intangible assets
for the five fiscal years subsequent to December 31, 2004 is expected to be $25.2 million
(2005), $22.3 million (2006), $21.3 million (2007), $20.3 million (2008), and $19.3
million (2009).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|8. | Accrued Liabilities
|-- | -------------------

`December 31,      December 31,
                                                                                       2004              2003
                                                                                         $                $
                                                                                  ---------------- -----------------

     Voyage and vessel........................................................          79,566           63,362
     Interest.................................................................          21,137           26,351
     Payroll and benefits.....................................................          43,712           29,881
                                                                                  ---------------- -----------------
                                                                                       144,415          119,594
                                                                                  ================ =================`

|9. | Long-Term Debt
|-- | --------------

`December 31,      December 31,
                                                                                       2004              2003
                                                                                         $                $
                                                                                  ---------------- -----------------

     Revolving Credit Facilities..............................................         530,000          430,000
     First Preferred Ship Mortgage Notes (8.32%) due through 2006.............          50,906          109,314
     Premium Equity Participating Security Units (7.25%) due May 18, 2006 ....         143,750          143,750
     Senior Notes (8.875%) due July 15, 2011 .................................         351,530          351,765
     USD denominated Term Loans due through 2022 .............................         588,080          565,277
     Euro denominated Term Loans due through 2023 ............................         443,738                -
                                                                                  ---------------- -----------------
                                                                                     2,108,004        1,600,106
     Less current portion.....................................................         119,453          102,062
                                                                                  ---------------- -----------------
                                                                                     1,988,551        1,498,044
                                                                                  ================ =================`

| | As
of December 31, 2004, the Company had eight long-term revolving credit facilities (the
Revolvers) available, which, as at such date, provided for borrowings of up to
$1,361.2 million, of which $831.2 million was undrawn. Interest payments are based on
LIBOR (December 31, 2004: 2.6%; December 31, 2003: 1.2%) plus a margin depending on the
financial leverage of the Company; at December 31, 2004, the margins ranged between 0.60%
and 0.93% (2003  0.50% and 1.25%). The total amount available under the Revolvers
reduces by $142.2 million (2005), $165.2 million (2006), $130.1 million (2007), $444.3
million (2008), $39.4 million (2009) and $440.0 million (thereafter). All of the Revolvers
are collateralized by first priority mortgages granted on 52 of the Companys
vessels, together with other related collateral, and include a guarantee from Teekay for
all amounts outstanding under the Revolvers.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
8.32% First Preferred Ship Mortgage Notes due February 1, 2006 (the 8.32%
Notes) are collateralized by first preferred mortgages on three of the
Companys Aframax tankers, together with certain other related collateral, and are
guaranteed by the three subsidiaries of Teekay that own the mortgaged vessels (the
8.32% Notes Guarantor Subsidiaries) to a maximum of 95% of the fair value of
their net assets. As at December 31, 2004, the fair value of these net assets approximated
$117.4 million. The 8.32% Notes are also subject to a sinking fund, which retires $45.0
million principal amount on each February 1, commencing 2004. During 2004, the Company
repurchased and cancelled a principal amount of $13.4 million of the 8.32% Notes.
Condensed financial information regarding Teekay, the 8.32% Notes Guarantor Subsidiaries,
and non-guarantor subsidiaries of Teekay is set out in Schedule A of these consolidated
financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
7.25% Premium Equity Participating Security Units due May 18, 2006 (the Equity
Units) are unsecured and subordinated to all of the Companys senior debt. The
Equity Units are not guaranteed by any of the Companys subsidiaries and effectively
rank behind all existing and future secured debt. Each Equity Unit includes (a) a forward
contract that requires the holder to purchase for $25 a specified fraction of a share of
the Companys Common Stock on February 16, 2006 and (b) a $25 principal amount,
subordinated note due May 18, 2006. The forward contracts provide for contract adjustment
payments of 1.25% annually and the notes bear interest at 6.0% annually. Upon settlement
on February 16, 2006 of the 5.75 million forward contracts included in the Equity Units,
the Company will issue between 6,534,300 and 7,982,150 shares of its Common Stock
(depending on the average closing price of the Common Stock for the 20-trading day period
ending on the third trading day prior to February 16, 2006).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
net proceeds of the offering of the Equity Units have been allocated between the notes and
the forward contracts in proportion to their respective fair market values at the time of
the issuance. The present value of the Equity Units contract adjustment payments have been
charged to stockholders equity, with an offsetting credit to liabilities. This
liability is accreted over three years by interest charges to the income statement based
on a constant rate calculation. Subsequent contract adjustment payments reduce this
liability. Upon settlement of each forward contract, the $25 received on each purchase
contract will be credited to stockholders equity in conjunction with the issuance of
the requisite number of shares of the Companys Common Stock.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | Before
the issuance of the Companys Common Stock upon settlement of the purchase contracts,
the purchase contracts will be reflected in the Companys diluted earnings per share
calculations using the treasury stock method. Under this method, the number of shares of
the Companys Common Stock used in calculating diluted earnings per share is deemed
to be increased by the excess, if any, of the number of shares that would be issued upon
settlement of the purchase contracts (based on the settlement formula applied at the end
of the reporting period) over the number of shares that could be purchased by the Company
in the market (at the average market price during the period) using the proceeds
receivable upon settlement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
8.875% Senior Notes due July 15, 2011 (the 8.875% Notes) rank equally in right
of payment with all of Teekays existing and future senior unsecured debt and senior
to Teekays existing and future subordinated debt. The 8.875% Notes are not
guaranteed by any of Teekays subsidiaries and effectively rank behind all existing
and future secured debt of Teekay and other liabilities, secured and unsecured, of its
subsidiaries.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has several term loans outstanding, which, as at December 31, 2004, totaled $588.1
million (USD denominated) and 325.8 million Euros ($443.7 million). As part of certain
capital leases, the Company has two long-term time-charter contracts that are denominated
in Euros, the funds from which will be used to repay the associated Euro denominated term
loans. Interest payments on the U.S. Dollar denominated term loans are based on LIBOR
(December 31, 2004: 2.6%; December 31, 2003: 1.2%) plus a margin. Interest payments on the
EURO denominated term loans are based on EURIBOR (December 31, 2004: 2.1%) plus a margin.
At December 31, 2004, the margins ranged between 0.50% and 1.3%. The term loans reduce in
monthly, quarterly or semi-annual payments with varying maturities through 2023. All term
loans of the Company are collateralized by first preferred mortgages on the vessels to
which the loans relate, together with certain other collateral and guarantees from Teekay.
Certain term loans of UNS totaling $16.8 million and certain term loans of Teekay Spain
totaling $787.1 million are not guaranteed by Teekay.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average effective interest rate on the Companys long term debt as at
December 31, 2004 was 4.6% (December 31, 2003  4.5%). These rates do not reflect the
effect of our interest rate swaps. (see Note 16)
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to long-term debt agreements, the amount of Restricted Payments, as defined, that the
Company can make, including dividends and purchases of its own capital stock, was limited
as of December 31, 2004, to $892.8 million. Certain loan agreements require that a minimum
level of free cash be maintained. As at December 31, 2004, this amount was $100.0 million.
Certain of the loan agreements also require that a minimum level of free liquidity and
undrawn revolving credit lines (excluding undrawn revolving credit lines with less than 6
months to maturity) be maintained. As at December 31, 2004, this amount was $205.8
million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
aggregate annual long-term debt principal repayments required to be made for the five
fiscal years subsequent to December 31, 2004 are $119.5 million (2005), $219.5 million
(2006), $36.4 million (2007), $284.0 million (2008), $189.3 million (2009) and $1,259.3
million (thereafter).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. | Operating Leases
|--- | ----------------

| | Charters-out
| | ------------

| | Time
charters and bareboat charters of the Companys vessels to third parties are
accounted for as operating leases. As at December 31, 2004, minimum scheduled future
revenues to be received on time charters and bareboat charters currently in place are
approximately $5,516.3 million, comprised of $395.8 million (2005), $337.3 million (2006),
$352.2 million (2007), $351.5 million (2008), $349.8 million (2009) and $3,729.7 million
(thereafter).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
minimum scheduled future revenues should not be construed to reflect total charter hire
revenues for any of the years.
| | --------------------------------------------------------------------------------------------------------------------------

| | Charters-in
| | -----------

| | As
at December 31, 2004, minimum commitments under vessel operating leases are approximately
$1,249.3 million, comprised of $365.5 million (2005), $289.3 million (2006), $197.3
million (2007) $120.9 million (2008), $83.5 million (2009) and $192.8 million
(thereafter).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
December 2003, the Company sold and leased back three Aframax tankers which are accounted
for as vessel operating leases. The sale generated a $16.8 million deferred gain, which
was included in other long-term liabilities and is being amortized over the 7-year term of
the leases.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|11. | Capital Leases and
Restricted Cash
|--- | ----------------------------------

| | Capital
Leases
| | --------------

| | Aframax
and Suezmax Tankers.As at December 31, 2004, the Company was a party to capital
leases on one Aframax tanker and four Suezmax tankers. Under the terms of the lease
arrangements  which include the Companys contractual right to full operation
of the vessels pursuant to bareboat charters  the Company is required to purchase
these vessels at the end of their respective lease terms for a fixed price. As at December
31, 2004, the remaining commitments under these capital leases, including the purchase
obligations, approximated $282.7 million (including imputed interest of $59.6 million),
repayable as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year                                                                                    Commitment
     ---------------------                                                                      ------------------
             2005          .................................................................     $ 25.1 million
             2006          .................................................................      149.9 million
             2007          .................................................................        8.0 million
             2008          .................................................................        8.0 million
             2009          .................................................................        7.9 million
          Thereafter       .................................................................       83.8 million`

| | LNG
Carriers. As at December 31, 2004, the Company was a party to capital leases on two
LNG carriers, which are structured as Spanish tax leases. Under the terms of
the Spanish tax leases, the Company will purchase these vessels at the end of their
respective lease terms in 2006 and 2011, both of which purchase obligations have been
fully funded with restricted cash deposits described below. As at December 31, 2004, the
weighted-average interest rate implicit in the Spanish tax leases was 5.7%. As at December
31, 2004, the commitments under these capital leases, including the purchase obligations,
approximated 365.3 million Euros ($497.7 million) (including imputed interest of 61.9
million Euros, ($84.4 million)), repayable as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year                                                                          Commitment
     ---------------------                                               -------------------------------------------
             2005          ............................................       77.1 million Euros ($105.0  million)
             2006          ............................................      123.2 million Euros ($167.8 million)
             2007          ............................................       23.3 million Euros  ($31.7 million)
             2008          ............................................       24.4 million Euros  ($33.3 million)
             2009          ............................................       25.6 million Euros  ($34.9 million)
          Thereafter       ............................................       91.7 million Euros ($125.0 million)`

| | Restricted Cash
| | ---------------

| | Under
the terms of the Spanish tax leases for our LNG carriers, the Company is required to have
on deposit with financial institutions an amount of cash that approximates the present
value of the remaining amounts owing under the leases (including the obligations to
purchase the LNG carriers at the end of the lease periods). This amount was 309.5 million
Euros ($421.6 million) as at December 31, 2004. These cash deposits are restricted to
being used for capital lease payments and have been fully funded with term loans (see Note
9) and a Spanish government grant. The interest rates earned on the deposits approximate
the interest rate implicit in the Spanish tax leases. As at December 31, 2004, the
weighted-average interest rate earned on the deposits was 5.3%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company also maintains restricted cash deposits relating to certain term loans and other
obligations. As at December 31, 2004, this amount was $27.2 million (2003  $2.7
million).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | Fair Value of Financial Instruments
|--- | -----------------------------------

| | Long-term
debt  The fair values of the Companys fixed-rate long-term debt are either
based on quoted market prices or estimated using discounted cash flow analyses, based on
rates currently available for debt with similar terms and remaining maturities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
rate swap agreements, foreign exchange contracts, bunker fuel swap contracts and freight
forward agreements  The fair value of these financial instruments, used
for hedging purposes, is the estimated amount that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current interest
rates, foreign exchange rates, bunker fuel prices, spot market rates for vessels, and the
current credit worthiness of the swap counter parties.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | The estimated fair value of the Companys financial instruments is as follows:
| | ------------------------------------------------------------------------------

`December 31, 2004                 December 31, 2003
                                                        Carrying          Fair           Carrying            Fair
                                                         Amount           Value           Amount            Value
                                                           $                $                $                $
                                                     --------------- ---------------- ---------------- -----------------
     Cash and cash equivalents, marketable
       securities, and restricted cash .............     875,849          875,849        390,467          390,467
     Long-term debt (including capital
       lease obligations)...........................  (2,744,545)      (2,801,553)    (1,636,758)      (1,686,002)
     Derivative instruments (note 16) ..............
       Interest rate swap agreements ...............    (158,482)        (158,482)        (9,953)          (9,953)
       Foreign currency contracts ..................      16,635           16,635         20,944           20,944
       Bunker fuel swap contracts...................          98               98            183              183
       Freight forward agreements ..................      (3,276)          (3,276)        (1,178)          (1,178)`

| | The
Company transacts all of its derivative instruments through investment grade rated
financial institutions and requires no collateral from these institutions.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | Capital Stock
|--- | -------------

| | The
authorized capital stock of Teekay at December 31, 2004 was 25,000,000 shares of Preferred
Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a
par value of $0.001 per share. As at December 31, 2004, Teekay had 82,951,275 shares of
Common Stock and no shares of Preferred Stock issued and outstanding. On May 17, 2004,
Teekay effected a two-for-one stock split relating to its common stock. All earnings per
share and share capital amounts disclosed in these financial statements give effect to
this stock split retroactively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2004, Teekay announced that its Board of Directors had authorized the repurchase
of up to 3,000,000 shares of its Common Stock in the open market. As at December 31, 2004,
Teekay had repurchased 1,400,200 shares of Common Stock since such authorization at an
average price of $43.73 per share. In January 2005, Teekay repurchased an additional
1,599,800 shares at an average price of $42.27, for a total of 3,000,000 shares
repurchased.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2003, the Companys 1995 Stock Option Plan was terminated with respect to
new grants and the Companys 2003 Equity Incentive Plan was adopted. As at December
31, 2004, the Company had reserved pursuant to its 1995 Stock Option Plan and 2003 Equity
Incentive Plan (collectively referred to as the Plans) 6,716,413 shares of
Common Stock for issuance upon exercise of options or equity awards granted or to be
granted. During the years ended December 31, 2004, 2003, and 2002, the Company granted
options under the Plans to acquire up to 833,840, 2,119,160, and 2,052,050 shares of
Common Stock, respectively, to certain eligible officers, employees, and directors of the
Company. The options under the Plans have a 10-year term and vest equally over three years
from the grant date, except for one grant of 50,000 options which will vest 100% on
December 31, 2006.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2004, the Company granted 14,260 shares of restricted stock awards (2003  10,000) to
certain of the Companys Directors. The stock will be released from a forfeiture
provision equally over three years from the date of the award.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2003, the Company granted 72,500 shares of restricted stock with a fair value of $1.4
million, based on the quoted market price, as compensation to one of the Companys
executive officers.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | A
summary of the Companys stock option activity and related information for the years
ended December 31, 2004, 2003 and 2002, is as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------

`December 31, 2004        December 31, 2003         December 31, 2002
                                  ------------------------ ------------------------- -------------------------
                                               Weighted-                 Weighted-                 Weighted-
                                                Average                   Average                   Average
                                   Options     Exercise     Options      Exercise     Options      Exercise
                                   (000's)      Price       (000's)       Price       (000's)       Price
                                      #           $            #            $            #            $
                                  ---------- ------------- ----------- ------------- ---------- --------------

 Outstanding-beginning of year..     7,254       17.18         7,014      15.73          5,480      14.02
 Granted........................       834       33.67         2,119      19.55          2,052      19.56
 Exercised......................    (3,125)      16.41        (1,764)     14.17           (380)     11.08
 Forfeited......................      (242)      19.39          (115)     19.64           (138)     16.93
                                  ----------               -----------               ----------
 Outstanding-end of year........     4,721       20.47         7,254      17.18          7,014      15.73
                                  ----------               -----------               ----------

 Exercisable - end of year .....     1,980       15.82         3,328      14.20          3,478      12.49
                                  ==========               ===========               ==========
 Weighted-average fair value
   of options granted during
   the year (per option) .......                  9.60                     4.23                      4.90`

| | Exercise
prices for the options outstanding as of December 31, 2004 ranged from $8.44 per share to
$34.37 per share. These options have a weighted-average remaining contractual life of 7.1
years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Further
details regarding the Companys outstanding and exercisable stock options at December
31, 2004 are as follows:
| | ----------------------------------------------------------------------------------------------------------------------

`Outstanding Options              Exercisable Options
                                     -------------------------------------------------------------------------
                                                    Weighted-       Weighted-                      Weighted-
                                                     Average         Average                      Average
                                      Options       Remaining       Exercise       Options        Exercise
                                      (000's)         Life            Price        (000's)         Price
  Range of Exercise Prices               #           (years)            $             #              $
  ---------------------------------- ----------- ---------------- -------------- ------------- ---------------
  $ 8.44 - $ 9.99                        339           4.6             8.46          339            8.46
  $10.00 - $14.99                        548           4.1            12.54          548           12.54
  $15.00 - $19.99                      2,534           7.6            19.45          638           19.14
  $20.00 - $24.99                        471           6.3            20.57          455           20.59
  $25.00 - $29.99                          -             -               -             -               -
  $30.00 - $34.37                        829           9.2            33.67            -               -
                                     -----------                                -------------
                                       4,721           7.1            20.47        1,980           15.82
                                     ===========                                =============`

|14. | Related Party Transactions
|--- | --------------------------

| | As
at December 31, 2004, Resolute Investments, Inc. (or Resolute) owned 39.3% of our
outstanding Common Stock. Two of our directors, C. Sean Day, who is also Chair of our
Board, and Bruce Bell, are directors and the Chairman and Vice President, respectively, of
Resolute. Two additional directors, Thomas Kuo-Yuen Hsu and Axel Karlshoej, are among the
Managing Directors of The Kattegat Trust Company Limited, which is the trustee of the
trust that owns all of Resolutes outstanding equity.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Payments
made by the Company to Resolute, Oceanic Bank and Trust Limited, a Bahamian bank and trust company,
or companies related through common ownership in respect of port agent services, legal and administration
fees, shared office costs, and consulting fees for the years ended December 31, 2004, 2003 and 2002 totaled
$0.5 million, $0.5 million, and $0.9 million respectively.  In addition to being a director of Resolute, Bruce
Bell is also the Managing Director of Ocanic Bank and Trust Limited.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
1993 the Company purchased all of the issued and outstanding shares of Palm Shipping Inc.
(now Teekay Chartering Limited) from an affiliate of Resolute Investments, Inc. During the
year ended December 31, 2002, the Company accrued and expensed in other (loss) income $
6.0 million as a settlement of a contingent payment, that was required under the terms of
the Palm Shipping acquisition agreement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

|15. | Other Loss
|--- | ----------

`Year Ended     Year Ended     Year Ended
                                                                     December 31,   December 31,   December 31,
                                                                         2004           2003           2002
                                                                          $               $             $
                                                                    --------------- -------------- -------------
     Income tax expense............................................     (35,048)        (36,501)       (11,413)
     Loss on bond repurchase.......................................        (769)         (5,385)             -
     Foreign exchange (loss) gain..................................     (42,704)         (3,855)         3,897
     Write-down in the carrying value of marketable securities.....           -          (4,910)             -
     Miscellaneous.................................................      10,860           4,642         (7,352)
                                                                    --------------- -------------- -------------
                                                                        (67,661)        (46,009)       (14,868)
                                                                    =============== ============== =============`

| | During
the year ended December 31, 2004, the Company incurred $1.0 million of restructuring and
severance costs associated with the closure of the Companys office in Oslo, Norway.
During the year ended December 31, 2003, the Company incurred $6.4 million of
restructuring costs associated with closure of the Companys offices in Oslo, Norway
and Melbourne, Australia, and severance costs related to the termination of seafaring
staff.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16. | Derivative Instruments and Hedging Activities
|--- | ---------------------------------------------

| | The
Company uses derivatives only for hedging purposes. The following summarizes the
Companys risk strategies with respect to market risk from foreign currency
fluctuations, changes in interest rates, spot market rates for vessels, bunker fuel
prices, and the effect of these strategies on the Companys financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company hedges portions of its forecasted expenditures denominated in foreign currencies
with foreign exchange forward contracts and a portion of its bunker fuel expenditures with
bunker fuel swap contracts. As at December 31, 2004, the Company was committed to foreign
exchange contracts for the forward purchase of approximately Norwegian Kroner 435.5
million and Canadian Dollars 58.3 million for U.S. Dollars at an average rate of Norwegian
Kroner 7.38 per U.S. Dollar and Canadian Dollar 1.29 per U.S. Dollar, respectively. The
foreign exchange forward contracts mature as follows: $99.2 million in 2005; and $5.0
million in 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company hedges a portion of its bunker fuel expenditures with bunker fuel swap contracts.
As at December 31, 2004, the Company was committed to bunker fuel swap contracts totalling
22,650 metric tonnes with a weighted-average price of $158.14 per tonne. The fuel swap
contracts expire between January and December 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at December 31, 2004, the Company was committed to the following interest rate swap
agreements related to its LIBOR and EURIBOR based debt, whereby certain of the
Companys floating rate debt was swapped with fixed-rate obligations:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Weighted-
                                                             Interest                      Average         Fixed
                                                               Rate         Principal     Remaining       Interest
                                                               Index         Amount         Term            Rate
                                                                                $          (years)         (%)(1)
                                                           -------------- -------------- ------------ --------------
     U.S. Dollar denominated interest rate swaps                LIBOR         600,000          0.8          2.8
     U.S. Dollar denominated interest rate swaps (2)            LIBOR         934,000          9.0          5.4
     U.S. Dollar denominated interest rate swaps (3)            LIBOR         328,459         21.4          6.7
     Euro denominated interest rate swaps (4) (5)              EURIBOR        442,401         19.4          5.9
         _____________________________________________________________________________`

| | (1) | Excludes the margin the Company pays on its variable-rate debt (see Note 9).
| | --- | ----------------------------------------------------------------------------

| | (2) | Inception dates of swaps are 2006 ($600.0 million) and 2007 ($334.0 million).
| | --- | -----------------------------------------------------------------------------

| | (3) | Principal amounts reduce monthly to zero by the maturity dates of the swap
               agreements.
| | --- | -----------------------------------------------------------------------------------------------------

| | (4) | Principal amount reduces monthly to 70.1 million Euros ($95.5 million) by the
               maturity dates of the swap agreements.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------

| | (5) | Principal amount is the U.S. Dollar equivalent of 324.8 million Euros.
| | --- | ----------------------------------------------------------------------

| | The
Company hedges certain of its voyage revenues through the use of forward freight
agreements. Forward freight agreements involve contracts to provide a fixed number of
theoretical voyages at fixed-rates, thus hedging a portion of the Companys exposure
to the spot charter market. As at December 31, 2004, the Company was committed to forward
freight agreements totaling 4.8 million metric tonnes with a notional principal amount of
$40.0 million. The forward freight agreements expire between January and December 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | The
Company is exposed to credit loss in the event of non-performance by the counter parties
to the interest rate swap agreements, foreign exchange forward contracts, bunker fuel swap
contracts, and forward freight agreements; however, the Company does not anticipate
non-performance by any of the counter parties.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2004, the Company recognized a net gain of $0.9 million (2003
 net gain of $0.5 million) relating to the ineffective portion of its interest rate
swap agreements and foreign currency forward contracts. The ineffective portion of these
derivative instruments is presented as interest expense and other (loss) income,
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at December 31, 2004, the Company estimates, based on current foreign exchange rates,
bunker fuel prices, interest rates and spot market rates for vessels, that it will
reclassify approximately $24.9 million of net loss on derivative instruments from
accumulated other comprehensive income to earnings during the next 12 months due to actual
voyage, vessel operating, drydocking and general and administrative expenditures and the
payment of interest expense associated with the floating-rate debt.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at December 31, 2004 and 2003, the Companys accumulated other comprehensive (loss)
income consisted of the following components:
| | ------------------------------------------------------------------------------------------------------------------------------------

`December 31, 2004        December 31, 2003
                                                                                $                        $
                                                                       ---------------------- ----------------------
     Unrealized (losses) gains on derivative instruments............           (56,132)                10,193
     Unrealized gain on marketable securities.......................                 -                 53,331
                                                                       ---------------------- ----------------------
                                                                               (56,132)                63,524
                                                                       ====================== ======================`

|17. | Commitments and Contingencies
|--- | -----------------------------

| | As
at December 31, 2004, the Company was committed to the construction of seven Aframax
tankers, two Suezmax tankers, three product tankers and three LNG carriers scheduled for
delivery between January 2005 and March 2008, at a total cost of approximately $1,050.6
million, excluding capitalized interest. As of December 31, 2004, payments made towards
these commitments totaled $239.4 million, excluding $13.2 million of capitalized interest
and other miscellaneous construction costs. Long-term financing arrangements existed for
$749.6 million of the unpaid cost of these vessels. It is the Companys intention to
finance the remaining unpaid amount of $61.6 million through incremental debt or surplus
cash balances, or a combination thereof. As of December 31, 2004, the remaining payments
required to be made under these newbuilding contracts were $363.7 million in 2005, $255.9
million in 2006, $140.9 million in 2007, and $50.7 million in 2008. Two of the Aframax
tankers will be subject to 10-year long-term charters to Skaugen PetroTrans Inc., a joint
venture of the Company, upon delivery in 2008.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the joint venture agreement with an entity controlled by the former
controlling shareholder of Teekay Spain, Teekay will make capital contributions to the
joint venture company of $50.0 million in share premium. In the event that Teekay has not
contributed the $50.0 million equity prior to April 30, 2007, it will be required to pay
the other partner an amount no more than $25.0 million calculated by a pre-determined
formula based on the occurrence of certain future events.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has been awarded a contract by a consortium of major oil companies to construct
and install on six of its shuttle tankers volatile compound emissions plants, which reduce
emissions during cargo operations. These plants are leased to the consortium of major oil
companies. The construction and installation of these plants are expected to be completed
by the end of 2005 at a total cost of approximately $91.3 million. As at December 31,
2004, the remaining payments required to be made towards these commitments totaled $31.5
million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Teekay
and certain subsidiaries of Teekay have guaranteed their share of the outstanding mortgage
debt in four 50%-owned joint venture companies. As of December 31, 2004, Teekay and these
subsidiaries had guaranteed $99.6 million of such debt, or 50% of the total $199.1 million
in outstanding mortgage debt of the joint venture companies. The outstanding mortgage debt
has maturity dates ranging from May 2008 to June 2014. These joint venture companies own
an aggregate of five shuttle tankers.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 24, 2004, the Company announced that its wholly-owned subsidiary, Teekay LNG
Partners L.P. (Teekay LNG Partners), had filed a registration statement with
the U.S. Securities and Exchange Commission for an initial public offering of its common
units. Teekay LNG Partners is a Marshall Islands limited partnership recently formed by
the Company as part of its strategy to expand its operations in the LNG shipping sector.
Teekay LNG Partners will provide LNG and crude oil marine transportation services under
long-term, fixed-rate contracts with major energy and utility companies through its fleet
of four LNG carriers and five Suezmax class crude oil tankers, primarily consisting of
vessels the Company obtained through its acquisition of Teekay Spain in April 2004. After
the offering, the Company currently anticipates that it will own approximately an 81
percent interest in the partnership (including its 2% general partner interest), which
would be reduced to approximately 79 percent if the underwriters exercise in full their
over-allotment option.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | The
Company enters into indemnification agreements with certain officers and directors. In
addition, the Company enters into other indemnification agreements in the ordinary course
of business. The maximum potential amount of future payments required under these
indemnification agreements is unlimited. However, the Company believes that it maintains
appropriate liability insurance that limits the exposure and enables the Company to
recover any future amounts paid, less any deductible amounts pursuant to the terms of the
respective policies, the amounts of which are not considered material.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18. | Change in Non-Cash Working Capital Items Related to Operating Activities
|--- | ------------------------------------------------------------------------

`Year Ended      Year Ended       Year Ended
                                                                December 31,    December 31,     December 31,
                                                                    2004            2003             2002
                                                                     $                $                $
                                                               --------------- ---------------- ----------------

     Accounts receivable....................................         (60,494)        (26,587)         (13,508)
     Prepaid expenses and other assets......................          (1,189)          9,474           (5,002)
     Accounts payable.......................................          11,484          14,627           27,375
     Accrued liabilities....................................          23,649          (1,770)          (1,827)
                                                               --------------- ---------------- ----------------
                                                                     (26,550)         (4,256)           7,038
                                                               =============== ================ ================`

|19. | Vessel Sales, Vessels Held for Sale and Vessel Write-downs
|--- | ----------------------------------------------------------

| | During
2004, the Company sold 10 Aframax tankers built between 1988 and 1993, two Suezmax tankers
built in 1989 and 1991, one 1993 built Very Large Crude Carrier, and one 1982 built
shuttle tanker. The results for the year ended December 31, 2004 include a gain on sale
from these vessels totaling $76.9 million.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
December 2004, the Company entered into agreements to sell eight Aframax tankers built
between 1989 and 1991, and one 1986 built shuttle tanker, all scheduled to be delivered in
the first quarter of 2005. The Company expects to record a gain of approximately $86.6
million relating to their sale. These vessels were reclassified on the December 31, 2004
balance sheet from vessels and equipment to vessels held for sale.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, the Company also sold and leased back three Aframax tankers which are
accounted for as vessel operating leases. The sale generated a $16.8 million deferred
gain, which has been included in other long-term liabilities and is being amortized over
the seven-year term of the leases. The amortization of this deferred gain was $2.4 million
in 2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2003, the Company sold eight 1980s-built Aframax tankers and eight 1980s-built
Panamax oil/bulk/ore carriers. The results for the year ended December 31, 2003 include a
$34.7 million write-down in the book value of these vessels, partially offset by a $1.2
million gain on sale from these vessels.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2003 the International Maritime Organization (IMO), the United Nations
global maritime regulatory body, announced stricter regulations governing the tanker
industry on a worldwide basis. The IMO regulations, which became effective April 5,
2005, will accelerate the mandatory phase-out of single-hull tankers as well as impose a
more rigorous inspection regime for older tankers. As a result of these regulations, the
Company recorded a $56.9 million non-cash write-down in the fourth quarter of 2003, and
reduced the estimated useful lives from 25 years to approximately 21 years for its two
remaining vessels affected by these regulatory changes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20. | Earnings Per Share
|--- | ------------------

`Year Ended       Year Ended       Year Ended
                                                      December 31,     December 31,     December 31,
                                                          2004             2003             2002
                                                           $                 $                $
                                                    ----------------- ---------------- ----------------

  Net income available for common stockholders....        757,440          177,364           53,391
                                                    ================= ================ ================

  Weighted average number of common shares........     82,829,336       79,986,746       79,261,994
  Dilutive effect of employee stock options and
  restricted stock awards.........................      2,189,053        1,479,548        1,242,798
  Dilutive effect of Equity Units.................      2,710,648                -                -
                                                    ----------------- ---------------- ----------------
  Common stock and common stock equivalents.......     87,729,037       81,466,294       80,504,792
                                                    ================= ================ ================

  Earnings per common share:
    - Basic.......................................           9.14             2.22             0.67
    - Diluted.....................................           8.63             2.18             0.66`

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)

| | For
the years ended December 31, 2003 and 2002, the anti-dilutive effect of 3.3 million and
1.8 million shares attributable to outstanding stock options and the Equity Units were
excluded from the calculation of diluted earnings per share. For the year ended December
31, 2004, no outstanding stock options or Equity Units were anti-dilutive.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21. | Subsequent Events
|--- | -----------------

| | a) | In February 2005 the Company entered into $200.0 million of interest rate swap
               agreements related to its LIBOR-based debt whereby certain of the Companys
               floating-rate debt will be swapped with fixed-rate obligations with a
               weighted-average interest rate of approximately 4.5% commencing in February,
               2005 and maturing in February 2015.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | During the first quarter of 2005, the Company entered into agreements to sell
               three Aframax tankers built in 1988 and 1989, two Suezmax tankers, one built in
               1990 and one under construction, and one Shuttle tanker built in 1991. The
               Company expects that the total proceeds from the sale of these vessels will be
               approximately $212.5 million. These vessels are scheduled to be delivered to the
               buyers between March 2005 and July 2005. The Company expects to record gains
               totaling approximately $43.5 million relating to the sale of these vessels.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SCHEDULE A

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)

`Year Ended December 31, 2004
                                  ----------------- -------------- ---------------- --------------- ----------------
                                                     8.32% Notes                                        Teekay
                                       Teekay         Guarantor     Non-Guarantor                   Shipping Corp.
                                   Shipping Corp.   Subsidiaries    Subsidiaries     Eliminations   & Subsidiaries
                                         $                $               $               $                $
                                  ----------------- -------------- ---------------- --------------- ----------------

Voyage revenues                                          64,765       2,199,627          (45,154)      2,219,238
Operating expenses                       15,140          25,841       1,402,225          (45,154)      1,398,052
                                  ----------------- -------------- ---------------- --------------- ----------------
     (Loss) income from vessel          (15,140)         38,924         797,402                -         821,186
operations
Net interest expense                    (48,963)              -         (54,027)               -        (102,990)
Equity in net income of
     subsidiaries                       811,509               -               -         (811,509)              -
Other income (loss)                      10,034             (32)         29,242                -          39,244
                                  ----------------- -------------- ---------------- --------------- ----------------
Net income                              757,440          38,892         772,617         (811,509)        757,440
Retained earnings, beginning
     of the year                      1,095,650           5,107       1,343,883       (1,348,990)      1,095,650
Retained earnings adjustment (1)              -          (9,544)          9,544                -               -
Dividends declared                      (42,407)              -               -                -         (42,407)
Repurchase of Common Stock              (52,131)              -               -                -         (52,131)
                                  ----------------- -------------- ---------------- --------------- ----------------
Retained earnings, end
     of the year                      1,758,552          34,455       2,126,044       (2,160,499)      1,758,552
                                  ================= ============== ================ =============== ================`

| | (1) | During 2003 and 2004, the Company repurchased $129.1 million of the 8.32% Notes.
               Consequently, four of the Companys guarantor subsidiaries were released
               from the guarantee of the 8.32% Notes during the second quarter of 2004.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year Ended December 31, 2003
                                  ----------------- -------------- ---------------- --------------- ----------------
                                                     8.32% Notes                                        Teekay
                                       Teekay         Guarantor     Non-Guarantor                   Shipping Corp.
                                   Shipping Corp.   Subsidiaries    Subsidiaries     Eliminations   & Subsidiaries
                                         $                $               $               $                $
                                  ----------------- -------------- ---------------- --------------- ----------------

Voyage revenues                               -          59,571       1,565,727          (49,203)      1,576,095
Operating expenses                       13,417          41,335       1,277,582          (49,203)      1,283,131
                                  ----------------- -------------- ---------------- --------------- ----------------
     (Loss) income from vessel
     operations                         (13,417)         18,236         288,145                -         292,964
Net interest expense                    (35,326)              -         (41,752)               -         (77,078)
Equity in net income of
     subsidiaries                       216,690               -               -         (216,690)              -
Other income (loss)                       9,417             (17)        (47,922)               -         (38,522)
                                  ----------------- -------------- ---------------- --------------- ----------------
Net income                              177,364          18,219         198,471         (216,690)        177,364
Retained earnings (deficit),
     beginning of the year              954,005         (13,112)      1,145,412       (1,132,300)        954,005
Dividends declared                      (35,719)              -               -                -         (35,719)
Repurchase of Common Stock                    -               -               -                -               -
                                  ----------------- -------------- ---------------- --------------- ----------------
Retained earnings,
     end of the year                  1,095,650           5,107       1,343,883       (1,348,990)      1,095,650
                                  ================= ============== ================ =============== ================`

---

(See Note 9)

SCHEDULE A

# TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES 
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS  (Contd)
(in thousands of U.S. dollars)

`Year Ended December 31, 2002
                                  ----------------- -------------- ---------------- --------------- ----------------
                                                     8.32% Notes                                        Teekay
                                       Teekay         Guarantor     Non-Guarantor                   Shipping Corp.
                                   Shipping Corp.   Subsidiaries    Subsidiaries     Eliminations   & Subsidiaries
                                         $                $               $               $                $
                                  ----------------- -------------- ---------------- --------------- ----------------

Voyage revenues                               -          36,480         889,079         (142,232)        783,327
Operating expenses                       17,191          34,314         754,708         (142,232)        663,981
                                  ----------------- -------------- ---------------- --------------- ----------------
     (Loss) income from vessel          (17,191)          2,166         134,371                -         119,346
operations
Net interest expense                    (41,575)              -         (12,905)               -         (54,480)
Equity in net income of
     subsidiaries                       111,177               -               -         (111,177)              -
Other income (loss)                         980               -         (12,455)               -         (11,475)
                                  ----------------- -------------- ---------------- --------------- ----------------
Net income                               53,391           2,166         109,011         (111,177)         53,391
Retained earnings (deficit),
     beginning of the year              935,660         (15,278)      1,036,401       (1,021,123)        935,660
Dividends declared                      (34,079)              -               -                -         (34,079)
Repurchase of Common Stock                 (967)              -               -                -            (967)
                                  ----------------- -------------- ---------------- --------------- ----------------
Retained earnings (deficit),
     end of the year                    954,005         (13,112)      1,145,412       (1,132,300)        954,005
                                  ================= ============== ================ =============== ================`

---

(See Note 9)

SCHEDULE A

# TEEKAY SHIPPING CORPORATION
AND SUBSIDIARIES 
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME 
(in thousands of U.S. dollars)

`Year Ended December 31, 2004
                                  ----------------- -------------- ---------------- --------------- ----------------
                                                     8.32% Notes                                        Teekay
                                       Teekay         Guarantor     Non-Guarantor                   Shipping Corp.
                                   Shipping Corp.   Subsidiaries    Subsidiaries     Eliminations   & Subsidiaries
                                         $                $               $               $                $
                                  ----------------- -------------- ---------------- --------------- ----------------

Net income                              757,440          38,892         772,617         (811,509)        757,440
Other comprehensive income
   Unrealized gain on
     available-for-sale securities            -               -          39,369                -          39,369
   Reclassification adjustment
     for gain on available-
     for-sale securities
     included in net income                   -               -         (92,539)               -         (92,539)
   Unrealized loss on derivative
     instruments                              -               -         (94,822)               -         (94,822)
   Reclassification adjustment for
     loss on derivative instruments           -               -          28,336                -          28,336
                                  ----------------- -------------- ---------------- --------------- ----------------
Comprehensive income                    757,440          38,892         652,961         (811,509)        637,784
                                  ================= ============== ================ =============== ================`

`Year Ended December 31, 2003
                                  ----------------- -------------- ---------------- --------------- ----------------
                                                     8.32% Notes                                        Teekay
                                       Teekay         Guarantor     Non-Guarantor                   Shipping Corp.
                                     Shipping Corp. Subsidiaries    Subsidiaries     Eliminations   & Subsidiaries
                                         $                $               $               $                $
                                  ----------------- -------------- ---------------- --------------- ----------------

Net income                              177,364          18,219         198,471         (216,690)        177,364
Other comprehensive income
   Unrealized gain on
     available-for-sale securities            -               -          53,540                -          53,540
   Reclassification adjustment
     for loss on available-
     for-sale securities
     included in net income                   -               -           4,899                -           4,899
   Unrealized gain on derivative
     instruments                              -               -           8,639                -           8,639
   Reclassification adjustment for
     gain on derivative instruments           -               -            (459)               -            (459)
                                  ----------------- -------------- ---------------- --------------- ----------------
Comprehensive income                    177,364          18,219         265,090         (216,690)        243,983
                                  ================= ============== ================ =============== ================`

`Year Ended December 31, 2002
                                  ----------------- -------------- ---------------- --------------- ----------------
                                                     8.32% Notes                                        Teekay
                                       Teekay         Guarantor     Non-Guarantor                   Shipping Corp.
                                   Shipping Corp.   Subsidiaries    Subsidiaries     Eliminations   & Subsidiaries
                                         $                $               $               $                $
                                  ----------------- -------------- ---------------- --------------- ----------------

Net income                               53,391           2,166         109,011         (111,177)         53,391
Other comprehensive income
   Unrealized loss on
     available-for-sale securities            -               -            (239)               -            (239)
   Reclassification adjustment
     for loss on available-
     for-sale securities
     included in net income                   -               -             737                -             737
   Unrealized gain on derivative
     instruments                              -               -           3,023                -           3,023
   Reclassification adjustment for
     gain on derivative instruments           -               -          (1,815)               -          (1,815)
                                  ----------------- -------------- ---------------- --------------- ----------------
Comprehensive income                     53,391           2,166         110,717         (111,177)         55,097
                                  ================= ============== ================ =============== ================`

---

(See Note 9)

SCHEDULE A

# TEEKAY SHIPPING CORPORATION
AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(in thousands of U.S. dollars)

`As at December 31, 2004
                                 ----------------------------------------------------------------------------------
                                                    8.32% Notes                                        Teekay
                                      Teekay         Guarantor    Non-Guarantor                    Shipping Corp.
                                  Shipping Corp.    Subsidiaries   Subsidiaries     Eliminations   & Subsidiaries
                                         $               $              $                $                $
                                 ------------------ ------------ ----------------- --------------- ----------------
     ASSETS
Cash and cash equivalents                      -            -           427,037              -           427,037
Other current assets                       5,292          326           630,227       (145,000)          490,845
                                 ------------------ ------------ ----------------- --------------- ----------------
     Total current assets                  5,292          326         1,057,264       (145,000)          917,882
Vessels and equipment (net)                    -       86,525         3,531,287        (86,525)        3,531,287
Advances due from subsidiaries           135,617            -                 -       (135,617)                -
Investment in direct financing
  leases                                       -            -           109,215              -           109,215
Other assets (principally
  restricted cash and
  investments in subsidiaries)         2,726,786            -           438,618     (2,726,786)          438,618
Investment in joint ventures                   -            -            59,637              -            59,637
Intangible assets - net                        -            -           277,511              -           277,511
Goodwill                                       -            -           169,590              -           169,590
                                 ------------------ ------------ ----------------- --------------- ----------------
                                       2,867,695       86,851         5,643,122     (3,093,928)        5,503,740
                                 ================== ============ ================= =============== ================
     LIABILITIES &  STOCKHOLDERS'
     EQUITY
Current liabilities                       26,120        1,062           532,227       (145,000)          414,409
Long-term debt and other long-term
  liabilities                            548,085            -         2,289,164              -         2,837,249
Due (from) to affiliates                       -      (94,594)          594,374       (499,780)                -
                                 ------------------ ------------ ----------------- --------------- ----------------
     Total liabilities                   574,205      (93,532)        3,415,765       (644,780)        3,251,658
                                 ------------------ ------------ ----------------- --------------- ----------------
Minority Interest                              -            -            14,724              -            14,724
Stockholders' Equity
Capital stock                            534,938           11             5,955         (5,966)          534,938
Contributed capital                            -      145,917           136,766       (282,683)                -
Retained earnings                      1,758,552       34,455         2,126,044     (2,160,499)        1,758,552
Accumulated other comprehensive
  loss                                         -            -           (56,132)             -           (56,132)
                                 ------------------ ------------ ----------------- --------------- ----------------
     Total stockholders' equity        2,293,490      180,383         2,212,633     (2,449,148)        2,237,358
                                 ------------------ ------------ ----------------- --------------- ----------------
                                       2,867,695       86,851         5,643,122     (3,093,928)        5,503,740
                                 ================== ============ ================= =============== ================`

`As at December 31, 2003
                                 ----------------------------------------------------------------------------------
                                                    8.32% Notes                                        Teekay
                                      Teekay         Guarantor    Non-Guarantor                    Shipping Corp.
                                  Shipping Corp.    Subsidiaries   Subsidiaries     Eliminations   & Subsidiaries
                                         $               $              $                $                $
                                 ------------------ ------------ ----------------- --------------- ----------------
     ASSETS
Cash and cash equivalents                      -            -           292,284              -           292,284
Other current assets                       1,429          344           282,476        (96,000)          188,249
                                 ------------------ ------------ ----------------- --------------- ----------------
     Total current assets                  1,429          344           574,760        (96,000)          480,533
Vessels and equipment (net)                    -      242,182         2,332,678              -         2,574,860
Advances due from subsidiaries           309,071            -                 -       (309,071)                -
Investment in direct financing
  leases                                       -            -            73,073              -            73,073
Other assets (principally
  marketable securities and
  investments in subsidiaries)         1,911,491            -           155,844     (1,911,491)          155,844
Investment in joint ventures                   -            -            54,392              -            54,392
Intangible assets - net                        -            -           118,588              -           118,588
Goodwill                                       -            -           130,754              -           130,754
                                 ------------------ ------------ ----------------- --------------- ----------------
                                       2,221,991      242,526         3,440,089     (2,316,562)        3,588,044
                                 ================== ============ ================= =============== ================`

`LIABILITIES &  STOCKHOLDERS'
     EQUITY
Current liabilities                       25,371        1,746           343,515        (96,000)          274,632
Long-term debt and other long-term
  liabilities                            608,317            -         1,037,946              -         1,646,263
Due (from) to affiliates                       -     (133,657)          493,190       (359,533)                -
                                 ------------------ ------------ ----------------- --------------- ----------------
     Total liabilities                   633,688     (131,911)        1,874,651       (455,533)        1,920,895
                                 ------------------ ------------ ----------------- --------------- ----------------
Minority Interest                              -            -            15,322              -            15,322
Stockholders' Equity
Capital stock                            492,653           23             5,943         (5,966)          492,653
Contributed capital                            -      369,307           136,766       (506,073)                -
Retained earnings                      1,095,650        5,107         1,343,883     (1,348,990)        1,095,650
Accumulated other comprehensive
  loss                                         -            -            63,524              -            63,524
                                 ------------------ ------------ ----------------- --------------- ----------------
     Total stockholders' equity        1,588,303      374,437         1,550,116     (1,861,029)        1,651,827
                                 ------------------ ------------ ----------------- --------------- ----------------
                                       2,221,991      242,526         3,440,089     (2,316,562)        3,588,044
                                 ================== ============ ================= =============== ================`

---

(See Note 9)

SCHEDULE A

# TEEKAY SHIPPING CORPORATION
AND SUBSIDIARIES 
CONDENSED STATEMENTS OF CASH FLOWS 
(in thousands of U.S. dollars)

`Year Ended December 31, 2004
                                  --------------------------------------------------------------------------------
                                                  8.32% Notes                                         Teekay
                                      Teekay       Guarantor     Non-Guarantor                    Shipping Corp.
                                  Shipping Corp.  Subsidiaries    Subsidiaries    Eliminations    & Subsidiaries
                                        $              $               $                $               $
                                  --------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents
  provided by (used for)
OPERATING ACTIVITIES
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     operating activities               (62,726)      48,384          829,046                          814,704
                                  --------------- ------------- ----------------- -------------- -----------------
FINANCING ACTIVITIES
Net proceeds from
  long-term debt                              -            -        1,621,221                 -      1,621,221
Scheduled repayments of
  long-term debt                        (58,408)           -         (158,015)                -       (216,423)
Prepayments of long-term
  debt                                        -            -       (1,731,223)                -     (1,731,223)
Other                                   121,134      (48,159)        (116,953)                -        (43,978)
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     financing activities                62,726      (48,159)        (384,970)                -       (370,403)
                                  --------------- ------------- ----------------- -------------- -----------------

INVESTING ACTIVITIES
Expenditures for vessels
  and equipment                               -         (225)        (548,362)                -       (548,587)
Purchase of Teekay Shipping
  Spain S.L.                                  -            -         (286,993)                -       (286,993)
Proceeds from dispositions
  of vessels and equipment                    -            -          440,556                 -        440,556
Other                                         -            -           85,476                 -         85,476
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     investing activities                     -         (225)        (309,323)                -       (309,548)
                                  --------------- ------------- ----------------- -------------- -----------------
Increase in cash and cash
  equivalents                                 -            -          134,753                 -        134,753
Cash and cash equivalents,
  beginning of the year                       -            -          292,284                 -        292,284
                                  --------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents,
  end of the year                             -            -          427,037                 -        427,037
                                  =============== ============= ================= ============== =================`

`Year Ended December 31, 2003
                                  --------------------------------------------------------------------------------
                                                  8.32% Notes                                         Teekay
                                      Teekay       Guarantor     Non-Guarantor                    Shipping Corp.
                                  Shipping Corp.  Subsidiaries    Subsidiaries    Eliminations    & Subsidiaries
                                        $              $               $                $               $
                                  --------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents
  provided by (used for)
OPERATING ACTIVITIES
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     operating activities               (25,377)      28,996          451,956                 -        455,575
                                  --------------- ------------- ----------------- -------------- -----------------
FINANCING ACTIVITIES
Net proceeds from
  long-term debt                         80,594            -        1,900,234                 -      1,980,828
Scheduled repayments of
  long-term debt                              -            -          (62,585)                -        (62,585)
Prepayments of long-term
  debt                                        -            -       (1,466,815)                -     (1,466,815)
Other                                   (55,217)     (28,572)          79,198                 -         (4,591)
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     financing activities                25,377      (28,572)         450,032                 -        446,837
                                  --------------- ------------- ----------------- -------------- -----------------

INVESTING ACTIVITIES
Expenditures for vessels
  and equipment                               -         (424)        (372,009)                -       (372,433)
Purchase of Navion AS                         -            -         (704,734)                -       (704,734)
Proceeds from dispositions of
  vessels and equipment                       -                       242,111                 -        242,111
Other                                         -            -          (59,697)                -        (59,697)
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     investing activities                     -         (424)        (894,329)                -       (894,753)
                                  --------------- ------------- ----------------- -------------- -----------------
Increase in cash and
  cash equivalents                            -            -            7,659                 -          7,659
Cash and cash equivalents,
  beginning of the year                       -            -          284,625                 -        284,625
                                  --------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents,
  end of the year                             -            -          292,284                 -        292,284
                                  =============== ============= ================= ============== =================`

`Year Ended December 31, 2002
                                  --------------------------------------------------------------------------------
                                                  8.32% Notes                                         Teekay
                                      Teekay       Guarantor     Non-Guarantor                    Shipping Corp.
                                  Shipping Corp.  Subsidiaries    Subsidiaries    Eliminations    & Subsidiaries
                                        $              $               $                $               $
                                  --------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents
  provided by (used for)
OPERATING ACTIVITIES
                                  --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     operating activities               (51,914)      16,531          214,914                 -        179,531
                                  --------------- ------------- ----------------- -------------- -----------------
FINANCING ACTIVITIES
Net proceeds from
  long-term debt                              -            -          255,185                 -        255,185
Scheduled repayments of
  long-term debt                              -            -          (51,830)                -        (51,830)
Prepayments of long-term
  debt                                        -            -           (8,000)                -         (8,000)
Other                                    51,914      (14,953)         (69,312)                -        (32,351)
                                   --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     financing activities                51,914      (14,953)         126,043                 -        163,004
                                   --------------- ------------- ----------------- -------------- -----------------

INVESTING ACTIVITIES
Expenditures for vessels
  and equipment                               -       (1,578)        (134,072)                -       (135,650)
Purchase of Navion AS                         -            -          (76,000)                -        (76,000)
Other                                         -            -          (21,210)                -        (21,210)
                                   --------------- ------------- ----------------- -------------- -----------------
     Net cash flow from
     investing activities                     -       (1,578)        (231,282)                -       (232,860)
                                   --------------- ------------- ----------------- -------------- -----------------
Increase in cash and
  cash equivalents                            -            -          109,675                 -        109,675
Cash and cash equivalents,
  beginning of the year                       -            -          174,950                 -        174,950
                                   --------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents,
  end of the year                             -            -          284,625                 -        284,625
                                   =============== ============= ================= ============== =================`

---

(See Note 9)

EXHIBIT 4.28

Teekay Shipping Corporation
Annual Executive Bonus Plan

Summary

The Annual Executive Bonus Plan (the
Plan) of Teekay Shipping Corporation (the Company) is a variable
cash incentive program designed to:

| |  | Attract, retain and motivate a high-caliber executive leadership team;
| | - | ----------------------------------------------------------------------

| |  | Pay competitively and consistently within an appropriately defined market;
| | - | --------------------------------------------------------------------------

| |  | Align executive compensation with shareholder interests; and
| | - | ------------------------------------------------------------

| |  | Focus on matching reward with the executives performance and the Companys
financial performance in the fiscal year through comparison to established targets and the
financial performance of peer companies.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Eligibility

Participants are approved solely at
the discretion of the Compensation and Human Resources Committee (the
Committee).

Administration

The Committee is responsible for
administering the Plan. The Committee has the authority to review and recommend for Board
approval the inception of the Plan and its operation, including but not limited to, the
authority to:

| |  | Review and approve any amendments to the Plan;
| | - | ----------------------------------------------

| |  | Adopt rules for the administration, interpretation and application of the Plan;
| | - | -------------------------------------------------------------------------------

| |  | Interpret, amend or revoke any such rules;
| | - | ------------------------------------------

| |  | Approve eligible participants; and
| | - | ----------------------------------

| |  | Review and approve annual bonus awards.
| | - | ---------------------------------------

The Chief Executive Officer ("CEO") will administer and interpret
this plan under the authority of the Committee as its delegate, and make recommendations
to the Committee in the exercise of its powers.

Award Determination

The Committee, in its sole
discretion, will approve target bonuses for each participant. These target
bonuses are a percentage of the participants base salary which ranges
between 35 to 60% of annual base salary.  The target bonuses are
adjusted upwards or downwards based upon a Performance Factor, which is
comprised of an Individual Performance Factor (IPF) (33% weighting) and a
Company Performance Factor (CPF) (67% weighting).

For each participant in the Plan, the
CEO approves an IPF that reflects the participants performance relative to the individual performance expectations for the
performance period. Individual performance expectations vary to reflect each
executives role in the Company. A participant's performance can result in an IPF between 0 and 2.0.

The Committee approves the CPF
by assessing the Company's financial performance against pre-established annual
goals for the following components:

| |  | Total shareholder return (TSR) relative to the TSR of Companys peer group (1);
| | - | ---------------------------------------------------------------------------------

| |  | Return on invested capital (ROIC) for the Companys spot tanker segment
relative to ROIC of the Companys spot tanker peer group (1); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | ROIC for each of the Companys segments relative to its weighted average cost of capital
(WACC) (2).
| | - | ------------------------------------------------------------------------------------------------------

The CPF is based on a weighted-average of the performance factors for these components.

Award Payouts

Unless otherwise determined by the
Committee, the bonus period will be for the most recently completed fiscal year and will be paid
on an annual basis, typically in March of the following year. Although there is no maximum bonus that
any participant may receive under the Plan, the Committee has the authority to recalibrate
the bonus formula to achieve compensation levels that are within intended ranges based
upon compensation benchmarking surveys.

---

| | (1) | This component of the CPF results in a performance factor between 0 and 2.0.
| | --- | ----------------------------------------------------------------------------

| | (2) | This component of the CPF results in a performance factor of 1.0 when the ROIC for each of the Companys segments
is equivalent to its WACC. The performance factor increases 0.5 for each percentage point that
ROIC is greater than WACC. There is no maximum performance factor; however, if ROIC is less than WACC
this performance factor is zero.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

EXHIBIT 8.1

# List of Significant Subsidiaries

The following is a list of the
Companys significant subsidiaries as at March 15, 2005.

`State or         Proportion of
                                                                              Jurisdiction of        Ownership
                                                                               Incorporation          Interest
Name of Significant Subsidiary

BONA SHIPHOLDING LTD...............................................          BERMUDA                    100%
IUM SHIPMANAGEMENT AS..............................................          NORWAY                      51%
NAVION OFFSHORE LOADING AS.........................................          NORWAY                     100%
NAVION SHIPPING LTD................................................          MARSHALL ISLANDS           100%
NORSK TEEKAY AS....................................................          NORWAY                     100%
NORSK TEEKAY HOLDINGS LTD..........................................          MARSHALL ISLANDS           100%
SINGLE SHIP COMPANIES (3)..........................................          AUSTRALIA                  100%
SINGLE SHIP COMPANIES (4)..........................................          SPAIN                      100%
SINGLE SHIP LIMITED LIABILITY COMPANIES (63).......................          MARSHALL ISLANDS           100%
TEEKAY CHARTERING LIMITED..........................................          MARSHALL ISLANDS           100%
TEEKAY LIGHTERING SERVICES LLC.....................................          MARSHALL ISLANDS           100%
TEEKAY NAVION OFFSHORE LOADING PTE LTD.............................          SINGAPORE                  100%
TEEKAY NORDIC HOLDINGS INC.........................................          MARSHALL ISLANDS           100%
TEEKAY NORGE AS....................................................          NORWAY                     100%
TEEKAY NORWAY AS...................................................          NORWAY                     100%
TEEKAY SHIPPING (CANADA) LTD.......................................          CANADA                     100%
TEEKAY SHIPPING LIMITED............................................          BAHAMAS                    100%
TEEKAY SHIPPING SPAIN SL...........................................          SPAIN                      100%
UGLAND NORDIC SHIPPING AS..........................................          NORWAY                     100%`

EXHIBIT 12.1

# CERTIFICATION

I, Bjorn Moller, President and Chief
Executive Officer of the company, certify that:

| | 1. | I have reviewed this report on Form 20-F of Teekay Shipping Corporation;
| | -- | ------------------------------------------------------------------------

| | 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. | The companys other certifying officer and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company 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 company, 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) | Evaluated the effectiveness of the company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
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Disclosed in this report any change in the companys internal control over
               financial reporting that occurred during the period covered by the report that
               has materially affected, or is reasonably likely to materially affect, the
               companys internal control over financial reporting; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The companys other certifying officer and I have disclosed, based on our
               most recent evaluation of internal control over financial reporting, to the
               companys auditors and the audit committee of the companys board of
               directors (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 company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 companys internal control over
          financial reporting.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:     April 7, 2005 | By:  /s/ Bjorn Moller
Bjorn Moller
President and Chief Executive Officer
|------------------------ | ------------------------------------------------------------------------

EXHIBIT 12.2

# CERTIFICATION

I, Peter Evensen, Executive Vice
President and Chief Financial Officer of the company, certify that:

| | 1. | I have reviewed this report on Form 20-F of Teekay Shipping Corporation;
| | -- | ------------------------------------------------------------------------

| | 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. | The companys other certifying officer and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company 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 company, 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) | Evaluated the effectiveness of the company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
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Disclosed in this report any change in the companys internal control over
               financial reporting that occurred during the period covered by the report that
               has materially affected, or is reasonably likely to materially affect, the
               companys internal control over financial reporting; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The companys other certifying officer and I have disclosed, based on our
               most recent evaluation of internal control over financial reporting, to the
               companys auditors and the audit committee of the companys board of
               directors (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 company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 companys internal control over
          financial reporting.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:     April 7, 2005 | By:  /s/ Peter Evensen
Peter Evensen
Executive Vice President and Chief Financial Officer
|------------------------ | -----------------------------------------------------------------------------------------

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

In connection with the annual report
of Teekay Shipping Corporation (the Company) on Form 20-F
for the year ended December 31, 2004 as filed with the Securities and Exchange
Commission on the date hereof (the Form 20-F), I Bjorn
Moller, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350,
as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)    
          The Form 20-F 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 fairly presents, in all material
          respects, the financial condition and results of operations of the Company.

Dated: April 7, 2005

By: /s/ Bjorn Moller
Bjorn Moller
President and Chief Executive Officer

EXHIBIT 13.2

# CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, 
AS ADOPTED PURSUANT TO SECTION 906 
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report
of Teekay Shipping Corporation (the Company) on Form 20-F
for the year ended December 31, 2004 as filed with the Securities and Exchange
Commission on the date hereof (the Form 20-F), I Peter
Evensen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)    
          The Form 20-F 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 fairly presents, in all material
          respects, the financial condition and results of operations of the Company.

Dated: April 7, 2005

By: /s/ Peter Evensen 
Peter Evensen
Executive Vice President and Chief Financial Officer

EXHIBIT 15.1

# ACKNOWLEDGEMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We are aware of the incorporation by
reference in the Registration Statement (Form S-8 No. 333-42434) pertaining to the Amended
1995 Stock Option Plan of Teekay Shipping Corporation (Teekay), in the
Registration Statement (Form S-8 No. 333-119564) pertaining to the 2003 Equity Incentive
Plan and the Amended 1995 Stock Option Plan of Teekay, in the Registration Statement (Form
F-3 No. 333-102594) and related Prospectus of Teekay for the registration of up to
$500,000,000 of its common stock, preferred stock, warrants, stock purchase contracts,
stock purchase units or debt securities and in the Registration Statement (Form F-3 No.
33-97746) and related Prospectus of Teekay for the registration of 2,000,000 shares of
Teekay common stock under its Dividend Reinvestment Plan of our report dated February 18,
2005, with respect to the consolidated financial statements and the financial schedule of
Teekay included in the Annual Report (Form 20-F) for the year ended December 31, 2004.

|Vancouver, Canada,
April 7, 2005 | /s/ ERNST & YOUNG LLP
Chartered Accountants
|-------------------------------- | -------------------------------------------