Teekay Offshore Partners Reports Second Quarter Results

Marketwired

HAMILTON, BERMUDA--(Marketwire -08/09/12)- Teekay Offshore Partners L.P. (TOO) -

Highlights

 --  Generated distributable cash flow(1) of $54.2 million in the second    quarter of 2012, up approximately 27 percent from the same period of the    prior year.--  Received offer from Teekay Corporation to acquire the Voyageur Spirit    FPSO unit.--  Three-year extension option on the Petrojarl Varg FPSO unit exercised by    Talisman Energy, extending firm contract period to June 30, 2016.--  Total liquidity of $373 million as at June 30, 2012, including the    Partnership's $46 million equity private placement completed in July    2012.

Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (TOO), today reported the Partnership's results for the quarter ended June 30, 2012. During the second quarter of 2012, the Partnership generated distributable cash flow(1) of $54.2 million, compared to $42.6 million in the same period of the prior year.

On July 13, 2012, a cash distribution of $0.5125 per common unit was declared for the quarter ended June 30, 2012. The cash distribution is payable on August 10, 2012 to all unit holders of record on July 25, 2012.

"The Partnership's second quarter distributable cash flow was up 27 percent from the same quarter last year due primarily to higher revenues, including a $14.7 million charter termination fee received from Teekay Corporation, and lower operating and time-charter-in costs, as well as accretive acquisitions completed over the past year," commented Peter Evensen, Teekay Offshore GP LLC's Chief Executive Officer. "The extension of the Petrojarl Varg FPSO unit time-charter for an additional three years further enhances the Partnership's cash flow stability and with several FPSO assets soon to be available for purchase from Teekay Corporation, the Partnership is also well-positioned for visible cash flow growth over the next several years. This includes an offer from Teekay Corporation to the Partnership to purchase the Voyageur Spirit FPSO unit, which offer was received in June and is currently being reviewed by the Conflicts Committee of the Partnership's Board of Directors."

"Furthermore, construction of the Partnership's four newbuilding shuttle tankers is on schedule," Mr. Evensen added. "Proceeds from the Partnership's recently completed $46 million equity private placement will be used to partially finance upcoming shipyard installment payments on these vessels, which are expected to deliver from the shipyard between April and October 2013."

 1.  Distributable cash flow is a non-GAAP financial measure used by certain    investors to measure the financial performance of the Partnership and    other master limited partnerships. Please see Appendix B for a    reconciliation of distributable cash flow to the most directly    comparable financial measure under United States generally accepted    accounting principles (GAAP).

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet as of August 1, 2012.

 ----------------------------------------------------------------------------                                          Number of Vessels                         ---------------------------------------------------                                                           Conversion                           Owned Chartered-in    Committed Candidates                         Vessels      Vessels Newbuildings      (iii)  Total                         ---------------------------------------------------Shuttle Tanker Segment     30(i)            4        4(ii)          2     40Conventional Tanker Segment                       7            -            -          2      9FSO Segment                    5            -            -          -      5FPSO Segment                   3            -            -          -      3----------------------------------------------------------------------------Total                         45            4            4          4     57----------------------------------------------------------------------------i.  Includes six shuttle tankers in which Teekay Offshore's ownership    interest is 50 percent and three shuttle tankers in which Teekay    Offshore's ownership interest is 67 percent.ii. Includes four shuttle tanker newbuildings expected to deliver in mid- to    late-2013 and commence operations under contracts with a subsidiary of    BG Group plc in Brazil.iii.Includes two shuttle tankers and two conventional tankers which are    currently in lay-up and are candidates for conversion to offshore    assets.

Future Growth Opportunities

Pursuant to an omnibus agreement that Teekay Offshore entered into in connection with its initial public offering in December 2006, Teekay Corporation (Teekay) is obligated to offer to the Partnership its interest in certain shuttle tankers, floating storage and offtake (FSO) units and floating, production, storage and offloading (FPSO) units Teekay owns or may acquire in the future, provided the vessels are servicing contracts with remaining durations of greater than three years. The Partnership may also acquire other vessels that Teekay may offer it from time to time and intends to pursue direct acquisitions from third parties and new organic offshore projects.

Shuttle Tankers

In June 2011, the Partnership entered into a long-term contract with a subsidiary of BG Group plc (BG) to provide shuttle tanker services in Brazil. The contract with BG will be serviced by four Suezmax newbuilding shuttle tankers under construction by Samsung Heavy Industries for an estimated total delivered cost of approximately $470 million. Upon their scheduled deliveries in mid- to late-2013, the vessels will commence operations under 10-year, fixed-rate time-charter contracts. The contract with BG also includes certain extension options and vessel purchase options.

FPSO Units

As previously announced, on November 30, 2011, Teekay acquired from Sevan Marine ASA (Sevan) the Hummingbird Spirit FPSO unit (which is currently operating under a short-term charter contract), and has agreed to acquire the Voyageur Spirit FPSO unit upon the completion of certain upgrades that are expected to be completed in the fourth quarter of 2012 (upon which time the unit is expected to commence operations under a 5-year charter contract, plus extension options). In June 2012, Teekay formally offered to sell the Voyageur Spirit FPSO unit to Teekay Offshore at fair market value and the offer is currently being reviewed by the Conflicts Committee of the Partnership's Board of Directors. Pursuant to the omnibus agreement, Teekay is obligated to offer the Hummingbird Spirit FPSO unit to Teekay Offshore within approximately one year following commencement of a charter contract with a firm period of greater than three years in duration.

Pursuant to the omnibus agreement and a subsequent agreement, Teekay is obligated to offer to sell the Petrojarl Foinaven FPSO unit, an existing unit owned by Teekay and operating under a long-term contract in the North Sea, to Teekay Offshore prior to July 9, 2013. The purchase price for the Petrojarl Foinaven FPSO unit would be its fair market value plus any additional tax or other costs to Teekay that would be required to transfer the FPSO unit to the Partnership.

In October 2010, Teekay signed a long-term contract with Petroleo Brasileiro S.A. (or Petrobras) to provide an FPSO unit for the Tiro and Sidon fields located in the Santos Basin offshore Brazil. The contract with Petrobras will be serviced by a newly-converted FPSO unit named Cidade de Itajai. This FPSO unit is scheduled to deliver from the shipyard in the third quarter of 2012 and arrive in Brazilian waters in the fourth quarter of 2012, at which time the unit is expected to commence operations under a nine-year, fixed-rate time-charter contract with Petrobras with six additional one-year extension options. Pursuant to the omnibus agreement, Teekay is obligated to offer to the Partnership its 50 percent interest in this FPSO project at Teekay's fully built-up cost, within approximately one year after the commencement of its charter with Petrobras.

In May 2011, Teekay entered into a joint venture agreement with Odebrecht Oil & Gas S.A. (a member of the Odebrecht group) to jointly pursue FPSO projects in Brazil. Odebrecht is a well-established Brazil-based company that operates in the engineering and construction, petrochemical, bioenergy, energy, oil and gas, real estate and environmental engineering sectors, with over 120,000 employees and a presence in over 20 countries. As part of the joint venture agreement, Odebrecht is a 50 percent partner in the Tiro Sidon FPSO project and Teekay is currently working with Odebrecht on other FPSO project opportunities that, if awarded, may result in the Partnership being able to acquire Teekay's interests in such projects pursuant to the omnibus agreement.

In June 2011, Teekay entered into a new contract with BG Norge Limited to provide a high-specification FPSO unit for the Knarr oil and gas field located in the North Sea. The contract will be serviced by a new FPSO unit to be constructed by Samsung Heavy Industries for a fully built-up cost of approximately $1 billion. Pursuant to the omnibus agreement, Teekay is obligated to offer to the Partnership its interest in this FPSO project at Teekay's fully built-up cost, within approximately one year after the commencement of the charter, which is expected to commence in the first quarter of 2014.

Financial Summary

The Partnership reported adjusted net income attributable to the partners(1) (as detailed in Appendix A to this release) of $20.6 million for the quarter ended June 30, 2012, compared to $26.2 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $32.8 million and $37.5 million for the quarters ended June 30, 2012 and June 30, 2011, respectively, as detailed in Appendix A. Including these items, the Partnership reported, on a GAAP basis, net loss attributable to the partners of $12.1 million for the second quarter of 2012, compared to $11.4 million in the same period of the prior year. Net revenues(2) for the second quarter of 2012 increased to $213.4 million, compared to $201.6 million in the same period of the prior year.

The Partnership reported adjusted net income attributable to the partners(1) (as detailed in Appendix A to this release) of $46.7 million for the six months ended June 30, 2012, compared to $48.3 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of decreasing net income by $6.2 million and $36.2 million for the six months ended June 30, 2012 and June 30, 2011, respectively, as detailed in Appendix A. Including these items, the Partnership reported, on a GAAP basis, net income attributable to the partners of $40.5 million for the six months ended June 30, 2012, compared to $12.0 million in the same period of the prior year. Net revenues(2) for the six months ended June 30, 2012 increased to $421.5 million, compared to $409.9 million in the same period of the prior year.

For accounting purposes, the Partnership is required to recognize, through the consolidated statements of (loss) income, changes in the fair value of certain derivative instruments as unrealized gains or losses. This revaluation does not affect the economics of any hedging transactions or have any impact on the Partnership's actual cash flows or the calculation of its distributable cash flow.

 1.  Adjusted net income attributable to the partners is a non-GAAP financial    measure. Please refer to Appendix A included in this release for a    reconciliation of this non-GAAP measure to the most directly comparable    financial measure under GAAP and information about specific items    affecting net income that are typically excluded by securities analysts    in their published estimates of the Partnership's financial results.2.  Net revenues represents revenues less voyage expenses, which comprise    all expenses relating to certain voyages, including bunker fuel    expenses, port fees, canal tolls and brokerage commissions. Net revenues    is a non-GAAP financial measure used by certain investors to measure the    financial performance of shipping companies. Please see the    Partnership's web site at www.teekayoffshore.com for a reconciliation of    this non-GAAP measure as used in this release to the most directly    comparable GAAP financial measure.

Operating Results

The following table highlights certain financial information for Teekay Offshore's four segments: the Shuttle Tanker segment, the Conventional Tanker segment, the FSO segment, and the FPSO segment (please refer to the "Teekay Offshore's Fleet" section of this release above and Appendix C for further details).

 ----------------------------------------------------------------------------                                            Three Months Ended                                              June 30, 2012                                               (unaudited)                             -----------------------------------------------                                Shuttle Conventional(in thousands of U.S.            Tanker       Tanker     FSO    FPSO dollars)                       Segment      Segment Segment Segment   Total----------------------------------------------------------------------------Net revenues(1)                 111,597       30,656  14,781  56,317 213,351Vessel operating expenses        33,341        4,366   6,519  25,854  70,080Time-charter hire expense        12,969            -       -       -  12,969Depreciation and amortization    31,944        3,331   2,001  12,727  50,003Cash flow from vessel operations(2)                   54,282       25,192   8,010  22,329 109,813--------------------------------------------------------------------------------------------------------------------------------------------------------                                            Three Months Ended                                              June 30, 2011                                               (unaudited)                             -----------------------------------------------                                Shuttle Conventional(in thousands of U.S.            Tanker       Tanker     FSO    FPSO dollars)                       Segment      Segment Segment Segment   Total----------------------------------------------------------------------------Net revenues(1)                 113,471       30,915  14,626  42,561 201,573Vessel operating expenses        42,109        6,012   7,411  19,665  75,197Time-charter hire expense        18,182            -       -       -  18,182Depreciation and amortization    28,704        5,557   2,991   8,911  46,163Cash flow from vessel operations(2)                   44,551       24,145   6,520  19,955  95,171----------------------------------------------------------------------------1.  Net revenues represents revenues less voyage expenses, which comprise    all expenses relating to certain voyages, including bunker fuel    expenses, port fees, canal tolls and brokerage commissions. Net revenues    is a non-GAAP financial measure used by certain investors to measure the    financial performance of shipping companies. Please see the    Partnership's web site at www.teekayoffshore.com for a reconciliation of    this non-GAAP measure as used in this release to the most directly    comparable GAAP financial measure.2.  Cash flow from vessel operations represents income from vessel    operations before depreciation and amortization expense and amortization    of deferred gains and in-process revenue contract, loss on sale of    vessel and write-down of vessels, includes the realized gains (losses)    on the settlement of foreign exchange forward contracts, excludes the    cash flow from vessel operations relating to the Partnership's Variable    Interest Entities and adjusting for direct financing leases to a cash    basis. Cash flow from vessel operations is a non-GAAP financial measure    used by certain investors to measure the financial performance of    shipping companies. Please see the Partnership's web site at    www.teekayoffshore.com for a reconciliation of this non-GAAP measure as    used in this release to the most directly comparable GAAP financial    measure.

Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's Shuttle Tanker segment increased to $54.3 million for the second quarter of 2012 compared to $44.6 million for the same period of the prior year, primarily due to decreases in vessel operating expenses and time-charter hire expense. Vessel operating expenses decreased due to lower repairs and maintenance and crewing costs, and due to the lay-ups of the shuttle tankers Navion Torinita and Basker Spirit commencing in the second quarter of 2012 and the third quarter of 2011, respectively. Time-charter hire expense decreased due to the redelivery of one in-chartered vessel in the fourth quarter of 2011 and fewer short-term chartered-in days.

Conventional Tanker Segment

Cash flow from vessel operations from the Partnership's Conventional Tanker segment increased to $25.2 million in the second quarter of 2012 compared to $24.1 million for the same period of the prior year. In June 2012, the Partnership sold a 1997-built conventional Aframax tanker to a third party buyer for net proceeds of $8.7 million. As a result of the early termination of the time-charter for this vessel, the Partnership received a termination fee of $14.7 million from Teekay the charterer of the vessel. This is partially offset by the expiry of time-charter contracts on two conventional tankers during the fourth quarter of 2011, which are currently laid up, and the sale of a conventional Aframax tanker, the Scotia Spirit in the third quarter of 2011.

FSO Segment

Cash flow from vessel operations from the Partnership's FSO segment increased to $8.0 million in the second quarter of 2012 compared to $6.5 million for the same period of the prior year, primarily due to a decrease in vessel operating expenses as a result of a decrease in the consumption and use of consumables.

FPSO Segment

Cash flow from vessel operations from the Partnership's FPSO segment increased to $22.3 million for the second quarter of 2012 compared to $20.0 million for the same period of the prior year, primarily due to the acquisition of the Piranema Spirit FPSO unit on November 30, 2011. Vessel operating expenses for the Piranema Spirit FPSO unit in the second quarter of 2012 includes additional maintenance costs from a scheduled shutdown.

Liquidity

As of June 30, 2012, the Partnership had total liquidity of $327.5 million, which consisted of $179.5 million in cash and cash equivalents and $148.0 million in undrawn revolving credit facilities. Following the $45.9 million private placement completed in July 2012, the Partnership had total liquidity of $373.4 million.

Conference Call

The Partnership plans to host a conference call on Friday, August 10, 2012 at noon (ET) to discuss its results for the second quarter of 2012. An accompanying investor presentation will be available on Teekay Offshore's website at www.teekayoffshore.com prior to the start of the call. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

- By dialing (866) 322-8032 or (416) 640-3406, if outside North America, and quoting conference ID code 4125062.

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

The conference call will be recorded and made available until Friday August 17, 2012. This recording can be accessed following the live call by dialing (888) 203-1112 or (647) 436-0148, if outside North America, and entering access code 4125062.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is an international provider of marine transportation, oil production and storage services to the offshore oil industry focusing on the fast-growing, deepwater offshore oil regions of the North Sea and Brazil. Teekay Offshore owns interests in 40 shuttle tankers (including four chartered-in vessels and four committed newbuildings), three floating production, storage and offloading (FPSO) units, five floating storage and offtake (FSO) units and nine conventional oil tankers. Teekay Offshore has rights to participate in certain other FPSO and shuttle tanker opportunities provided by Teekay Corporation (TK) and Sevan Marine ASA (Oslo Bors: SEVAN). The Partnership has recently received an offer from Teekay Corporation to acquire the Voyageur Spirit FPSO unit which offer is currently being reviewed by the Conflicts Committee of the Partnership's Board of Directors. A majority of Teekay Offshore's fleet trades on long-term, stable contracts and it is structured as a publicly-traded master limited partnership.

Teekay Offshore Partners' common units trade on the New York Stock Exchange under the symbol "TOO".

 --------------------------------------------------------------------------------------------------------------------------------------------------------TEEKAY OFFSHORE PARTNERS L.P.SUMMARY CONSOLIDATED STATEMENTS OF (LOSS) INCOME(in thousands of U.S. dollars, except unit data)------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------                         Three Months Ended             Six Months Ended                   June 30,   March 31,    June 30,    June 30,    June 30,                       2012        2012        2011        2012        2011                (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)                ------------------------------------------------------------REVENUES            251,151     244,598     234,145     495,749     467,916----------------------------------------------------------------------------OPERATING EXPENSESVoyage expenses      37,800      36,481      32,572      74,281      58,037Vessel operating expenses(1)         70,080      71,007      75,197     141,087     150,327Time-charter hire expense        12,969      13,617      18,182      26,586      38,452Depreciation and amortization        50,003      49,611      46,163      99,614      91,733General and administrative (1)                 18,689      20,136      18,157      38,825      36,887Loss on sale of vessels and write-down of vessels              3,269           -       8,194       3,269       9,265Restructuring charge(2)                -           -           -           -       3,924----------------------------------------------------------------------------                    192,810     190,852     198,465     383,662     388,625----------------------------------------------------------------------------Income from vessel operations          58,341      53,746      35,680     112,087      79,291----------------------------------------------------------------------------OTHER ITEMSInterest expense    (12,506)    (12,776)     (8,890)    (25,282)    (17,359)Interest income         138         212         150         350         279Realized and unrealized (loss) gain on derivative instruments(3)     (60,317)     16,239     (38,720)    (44,078)    (27,880)Foreign exchange gain (loss)(4)         888      (2,758)        367      (1,870)       (432)Income tax recovery (expense)            1,946      (1,485)     (3,037)        461      (5,690)Other (loss) income - net         (119)       1,425       1,159       1,306       2,469----------------------------------------------------------------------------Net (loss) income             (11,629)     54,603     (13,291)     42,974      30,678----------------------------------------------------------------------------Net (loss) income attributable to:  Non-   controlling   interests            499       1,969      (1,937)      2,468      18,656  Partners          (12,128)     52,634     (11,354)     40,506      12,022Limited partners' units outstanding:Weighted-average number of common units outstanding  - Basic and   diluted       70,626,554  70,626,554  62,800,314  70,626,554  60,000,819Total units outstanding at end of period   70,626,554  70,626,554  62,800,314  70,626,554  62,800,314----------------------------------------------------------------------------1.  The Partnership has entered into foreign exchange forward contracts,    which are economic hedges for certain vessel operating expenses and    general and administrative expenses. Certain of these forward contracts    have been designated as cash flow hedges pursuant to GAAP. Unrealized    (losses) gains arising from hedge ineffectiveness from such forward    contracts are reflected in vessel operating expenses, and general and    administrative expenses in the above Summary Consolidated Statements of    (Loss) Income as detailed in the table below:                                Three Months Ended        Six Months Ended                            June 30, March 31, June 30,  June 30,  June 30,                                2012      2012     2011      2012      2011                           -------------------------------------------------Vessel operating expenses          -         -      (83)        -      (267)General and administrative      (254)       20       69      (234)      1992.  Restructuring charges for the six months ended June 30, 2011 were    incurred in connection with the sale of an FSO unit and the termination    of the charter contract of one of the Partnership's shuttle tankers.3.  The realized (losses) gains on derivative instruments relate to the    amounts the Partnership actually paid or received to settle such    derivative instruments, and the unrealized (losses) gains on derivative    instruments relate to the change in fair value of such derivative    instruments as detailed in the table below:                                Three Months Ended        Six Months Ended                           June 30, March 31,  June 30,  June 30,  June 30,                               2012      2012      2011      2012      2011                          --------------------------------------------------Realized (losses) gains relating to:  Interest rate swaps       (14,338)  (15,007)  (13,769)  (29,345)  (27,471)  Foreign currency forward   contract                     437     1,198     1,204     1,635     1,622                          --------------------------------------------------                            (13,901)  (13,809)  (12,565)  (27,710)  (25,849)                          --------------------------------------------------Unrealized (losses) gains relating to:  Interest rate swaps       (41,842)   24,763   (26,969)  (17,079)   (6,204)  Foreign currency forward   contracts                 (4,574)    5,285       814       711     4,173                          --------------------------------------------------                            (46,416)   30,048   (26,155)  (16,368)   (2,031)                          --------------------------------------------------                          --------------------------------------------------Total realized and unrealized (losses) gains on non-designated derivative instruments     (60,317)   16,239   (38,720)  (44,078)  (27,880)                          --------------------------------------------------4.  Foreign exchange gain (loss) includes realized gains relating to the    amounts the Partnership received to settle the Partnership's non-    designated cross currency swaps that were entered into as an economic    hedge in relation to the Partnership's Norwegian Kroner (NOK)-    denominated unsecured bonds as detailed in the table below. The    Partnership issued NOK 600 million unsecured bonds in 2010 maturing in    2013 and issued NOK 600 million unsecured bonds in 2012 maturing in    2017. Foreign exchange gain (loss) also includes unrealized (losses)    gains relating to the change in fair value of such derivative    instruments, partially offset by unrealized gains (losses) on the    revaluation of the NOK bonds as detailed in the table below:                                Three Months Ended        Six Months Ended                           June 30, March 31,  June 30,  June 30,  June 30,                               2012      2012      2011      2012      2011                          --------------------------------------------------Realized gains on cross- currency swaps                 696       994       777     1,690     1,444Unrealized (losses) gains on cross-currency swaps    (10,776)    7,879     3,135    (2,897)    9,363Unrealized gains (losses) on revaluation of NOK bonds                        9,414    (9,031)   (3,058)      383    (8,312)--------------------------------------------------------------------------------------------------------------------------------------------------------TEEKAY OFFSHORE PARTNERS L.P.SUMMARY CONSOLIDATED BALANCE SHEETS(in thousands of U.S. dollars)--------------------------------------------------------------------------------------------------------------------------------------------------------                                      As at          As at             As at                              June 30, 2012 March 31, 2012 December 31, 2011                                (unaudited)    (unaudited)       (unaudited)                            ------------------------------------------------ASSETSCash and cash equivalents           179,462        234,742           179,934Vessels held for sale                14,930         19,000            19,000Other current assets                157,242        162,295           148,825Vessels and equipment             2,446,287      2,493,934         2,539,949Advances on newbuilding contracts                           69,163         46,333            45,637Other assets                         61,875         71,768            62,627Intangible assets                    18,585         20,114            21,644Goodwill                            127,113        127,113           127,113----------------------------------------------------------------------------Total Assets                      3,074,657      3,175,299         3,144,729----------------------------------------------------------------------------LIABILITIES AND EQUITYAccounts payable and accrued liabilities                         91,606         98,963            99,220Other current liabilities           102,445        112,848            99,624Current portion of long-term debt                               261,272        214,274           229,365Long-term debt                    1,734,169      1,847,607         1,799,711Other long-term liabilities         400,634        362,118           393,769Redeemable non-controlling interest                            36,356         37,805            38,307Equity:  Non-controlling interest           40,384         42,046            40,622  Partners' equity                  407,791        459,638           444,111----------------------------------------------------------------------------Total Liabilities and Equity      3,074,657      3,175,299         3,144,729------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------TEEKAY OFFSHORE PARTNERS L.P.SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of U.S. dollars)--------------------------------------------------------------------------------------------------------------------------------------------------------                                                  Six Months Ended June 30,                                                          2012         2011                                                   (unaudited)  (unaudited)                                                  --------------------------Cash and cash equivalents provided by (used for)OPERATING ACTIVITIES----------------------------------------------------------------------------Net operating cash flow                                126,229      152,506----------------------------------------------------------------------------FINANCING ACTIVITIESProceeds from drawdown of long-term debt               265,053      311,472Scheduled repayments of long-term debt                 (95,032)     (69,429)Prepayments of long-term debt                         (203,273)     (50,360)Advance from joint venture partner                           -       14,500Contribution by Teekay Corporation relating to acquisition of Rio das Ostras                               -        2,000Purchase of 49% interest in Teekay Offshore Operating L.P.                                              -     (160,000)Equity contribution from joint venture partner           1,000        2,250Cash distributions paid by the Partnership             (76,779)     (61,335)Cash distributions paid by subsidiaries to non- controlling interests                                  (5,657)     (19,642)Other                                                   (4,479)         (91)----------------------------------------------------------------------------Net financing cash flow                               (119,167)     (30,635)----------------------------------------------------------------------------INVESTING ACTIVITIESExpenditures for vessels and equipment                 (26,148)    (145,611)Direct financing lease payments received                 9,129       10,477Proceeds from sale of vessels and equipment              9,485        5,054Investment in direct financing lease assets                  -          370----------------------------------------------------------------------------Net investing cash flow                                 (7,534)    (129,710)----------------------------------------------------------------------------Decrease in cash and cash equivalents                     (472)      (7,839)Cash and cash equivalents, beginning of the period     179,934      166,483----------------------------------------------------------------------------Cash and cash equivalents, end of the period           179,462      158,644----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------TEEKAY OFFSHORE PARTNERS L.P.APPENDIX A - SPECIFIC ITEMS AFFECTING NET (LOSS) INCOME(in thousands of U.S. dollars)--------------------------------------------------------------------------------------------------------------------------------------------------------

Set forth below is a reconciliation of the Partnership's unaudited adjusted net income attributable to the partners, a non-GAAP financial measure, to net (loss) income attributable to the partners as determined in accordance with GAAP. The Partnership believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Partnership's financial performance. The items below are also typically excluded by securities analysts in their published estimates of the Partnership's financial results. Adjusted net income attributable to the partners is intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP.

 ----------------------------------------------------------------------------                                 Three Months Ended        Six Months Ended                               June 30,    June 30,    June 30,    June 30,                                   2012        2011        2012        2011                            (unaudited) (unaudited) (unaudited) (unaudited)                            ------------------------------------------------Net (loss) income - GAAP basis                          (11,629)    (13,291)     42,974      30,678Adjustments:Net (income) loss attributable to non- controlling interests             (499)      1,937      (2,468)    (18,656)----------------------------------------------------------------------------Net (loss) income attributable to the partners                       (12,128)    (11,354)     40,506      12,022Add (subtract) specific items affecting net (loss) income:  Foreign exchange (gains)   losses(1)                       (192)        411       3,560       1,875  Foreign currency exchange   losses resulting from   hedging   ineffectiveness(2)               254          14         234          68  Deferred income tax   expense relating to   unrealized foreign   exchange gains(3)                  -       3,577           -      10,096  Unrealized losses on   derivative instruments(4)     46,416      26,155      16,368       2,031  Loss on sale of vessels(5)      2,221           -       2,221         171  Write-down of vessels(6)        1,048       8,194       1,048       9,094  Termination fee(7)            (14,670)          -     (14,670)          -  Restructuring charges and   other(8)                      (2,410)          -      (2,956)      4,873  Non-controlling interests'   share of items above              94        (810)        407       8,039----------------------------------------------------------------------------Total adjustments                32,761      37,541       6,212      36,247--------------------------------------------------------------------------------------------------------------------------------------------------------Adjusted net income attributable to the partners                        20,633      26,187      46,718      48,269----------------------------------------------------------------------------1.  Foreign exchange (gains) losses primarily relate to the Partnership's    revaluation of all foreign currency-denominated monetary assets and    liabilities based on the prevailing exchange rate at the end of each    reporting period and unrealized gains or losses related to the    Partnership's cross currency swaps and exclude the realized gains    relating to the cross currency swaps for outstanding Norwegian bonds of    the Partnership.2.  Foreign currency exchange losses resulting from hedging ineffectiveness    include the unrealized losses arising from hedge ineffectiveness from    foreign exchange forward contracts that are or have been designated as    hedges for accounting purposes.3.  Portion of deferred income tax (recovery) expense related to unrealized    foreign exchange gains and losses. There is no adjustment for this item    for the three and six months ended June 30, 2012, as a full valuation    allowance was taken starting in the third quarter of 2011 against the    deferred tax asset.4.  Reflects the unrealized gains due to changes in the mark-to-market value    of interest rate swaps and foreign exchange forward contracts that are    not designated as hedges for accounting purposes.5.  Loss on sale of vessels relates to the sale of a 1997-built conventional    tanker in 2012 and the Karratha Spirit FSO unit in 2011.6.  The write-down of vessels for the three and six months ended June 30,    2012 and 2011 relates to the valuation impairment of one shuttle tanker    in 2012 and one conventional tanker in 2011, respectively, based on    their estimated fair value.7.  A termination fee was received upon cancellation of the Hamane Spirit    conventional tanker's time-charter contract with Teekay Corporation.8.  Other items include a loss of $0.4 million and a gain of $0.2 million    for the three months and six months ended June 30, 2012, respectively,    related to the revaluation of a fair value adjustment of contingent    consideration liability associated with the purchase of the Scott Spirit    shuttle tanker. Other items include a one-time reversal of an income tax    accrual of $2.8 million for the three and six months ended June 30,    2012. Restructuring charges of $3.9 million for the six months ended    June 30, 2011 were incurred in connection with the sale of an FSO unit    and the termination of the charter contract of one of the Partnership's    shuttle tankers. Other items for the six months ended June 30, 2011    include $0.9 million related to a one-time management fee associated    with the portion of stock-based compensation grants for Teekay's former    Chief Executive Officer that had not yet vested prior to the date of his    retirement on March 31, 2011.--------------------------------------------------------------------------------------------------------------------------------------------------------TEEKAY OFFSHORE PARTNERS L.P.APPENDIX B - RECONCILIATION OF NON-GAAP FINANCIAL MEASURE(in thousands of U.S. dollars)--------------------------------------------------------------------------------------------------------------------------------------------------------

Description of Non-GAAP Financial Measure - Distributable Cash Flow (DCF)

Distributable cash flow represents net loss adjusted for depreciation and amortization expense, non-controlling interest, non-cash items, distributions relating to equity financing of newbuilding instalments, vessel acquisition costs, estimated maintenance capital expenditures, unrealized gains and losses from derivatives, non-cash income taxes and unrealized foreign exchange related items. Maintenance capital expenditures represent those capital expenditures required to maintain over the long-term the operating capacity of, or the revenue generated by, the Partnership's capital assets. Distributable cash flow is a quantitative standard used in the publicly-traded partnership investment community to assist in evaluating a partnership's ability to make quarterly cash distributions. Distributable cash flow is not defined by GAAP and should not be considered as an alternative to net loss or any other indicator of the Partnership's performance required by GAAP. The table below reconciles distributable cash flow to net loss for the quarters ended June 30, 2012 and June 30, 2011, respectively.

 ----------------------------------------------------------------------------                                                   Three Months Ended                                              June 30, 2012   June 30, 2011                                                (unaudited)     (unaudited)----------------------------------------------------------------------------Net loss                                            (11,629)        (13,291)Add (subtract):  Loss on sale of vessel and write-down of   vessels                                            3,269           8,194  Depreciation and amortization                      50,003          46,163  Distributions relating to equity financing   of newbuilding instalments                         1,447               -  Foreign exchange and other, net                    (2,682)          4,259  Estimated maintenance capital expenditures        (27,652)        (25,793)  Unrealized gains on non-designated   derivative instruments                            46,416          26,155----------------------------------------------------------------------------Distributable Cash Flow before Non- Controlling Interest                                59,172          45,687  Non-controlling interests' share of DCF            (4,991)         (3,097)----------------------------------------------------------------------------Distributable Cash Flow                              54,181          42,590------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------TEEKAY OFFSHORE PARTNERS L.P.APPENDIX C - SUPPLEMENTAL SEGMENT INFORMATION(in thousands of U.S. dollars)--------------------------------------------------------------------------------------------------------------------------------------------------------                                 Three Months Ended June 30, 2012                                            (unaudited)                           Shuttle Conventional                            Tanker       Tanker       FSO      FPSO                           Segment      Segment   Segment   Segment    Total----------------------------------------------------------------------------Net revenues(1)            111,597       30,656    14,781    56,317  213,351Vessel operating expenses                   33,341        4,366     6,519    25,854   70,080Time-charter hire expense                    12,969            -         -         -   12,969Depreciation and amortization               31,944        3,331     2,001    12,727   50,003General and administrative             11,709        1,098       919     4,963   18,689Loss on sale of vessel and write-down of vessel                      1,048        2,221         -         -    3,269----------------------------------------------------------------------------Income from vessel operations                 20,586       19,640     5,342    12,773   58,341----------------------------------------------------------------------------                                 Three Months Ended June 30, 2011                                            (unaudited)                           Shuttle Conventional                            Tanker       Tanker       FSO      FPSO                           Segment      Segment   Segment   Segment    Total----------------------------------------------------------------------------Net revenues(1)            113,471       30,915    14,626    42,561  201,573Vessel operating expenses                   42,109        6,012     7,411    19,665   75,197Time-charter hire expense                    18,182            -         -         -   18,182Depreciation and amortization               28,704        5,557     2,991     8,911   46,163General and administrative             13,197          758     1,242     2,960   18,157Write-down of vessel             -        8,194         -         -    8,194----------------------------------------------------------------------------Income from vessel operations                 11,279       10,394     2,982  11,025 -   35,680----------------------------------------------------------------------------1.  Net revenues represents revenues less voyage expenses, which comprise    all expenses relating to certain voyages, including bunker fuel    expenses, port fees, canal tolls and brokerage commissions. Net revenues    is a non-GAAP financial measure used by certain investors to measure the    financial performance of shipping companies. Please see the    Partnership's web site at www.teekayoffshore.com for a reconciliation of    this non-GAAP measure as used in this release to the most directly    comparable GAAP financial measure.

FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management's current views with respect to certain future events and performance, including statements regarding: the Partnership's future growth and stability of the Partnership's distributable cash flow; the potential for Teekay to offer additional vessels to the Partnership and the Partnership's acquisition of any such vessels, including the Petrojarl Foinaven, the Petrojarl Cidade de Itajai, the Hummingbird Spirit and the newbuilding FPSO unit that will service the Knarr field under contract with BG Norge Limited; the potential for the Partnership to accept Teekay's offer of the Voyageur Spirit FPSO unit; the timing of delivery of vessels under construction or conversion; and the potential for the Partnership to acquire other vessels or offshore projects from Teekay or directly from third parties. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: vessel operations and oil production volumes; significant changes in oil prices; variations in expected levels of field maintenance; increased operating expenses; different-than-expected levels of oil production in the North Sea and Brazil offshore fields; potential early termination of contracts; failure of Teekay to offer to the Partnership additional vessels; the inability of the joint venture between Teekay and Odebrecht to secure new Brazil FPSO projects that may be offered for sale to the Partnership; failure to obtain required approvals by the Conflicts Committee of Teekay Offshore's general partner to acquire other vessels or offshore projects from Teekay or third parties, including the Voyageur Spirit FPSO unit; the Partnership's ability to raise adequate financing to purchase additional assets; and other factors discussed in Teekay Offshore's filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2011. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

Contact:

Teekay Offshore Partners L.P.
Kent Alekson
Investor Relations Enquiries
+1 (604) 609-6442
www.teekayoffshore.com

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