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Teekay Offshore Partners Reports Second Quarter 2019 Results

  • Revenues of $319.8 million and net loss of $28.0 million, or ($0.09) per common unit
  • Adjusted net income attributable to the partners and preferred unitholders(1) of $4.7 million and an adjusted net loss attributable to the limited partners' interest of ($0.01) per common unit (excluding items listed in Appendix B to this release)
  • Adjusted EBITDA(1) of $158.9 million
  • In May 2019, completed a $450 million refinancing of a long-term debt facility secured by 16 shuttle tankers
  • In May 2019, received an unsolicited non-binding proposal from Brookfield to acquire all issued and outstanding publicly held common units that Brookfield does not already own in exchange for $1.05 in cash per common unit

HAMILTON, Bermuda, July 31, 2019 (GLOBE NEWSWIRE) -- Teekay Offshore GP LLC (TOO GP), the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (TOO), today reported the Partnership’s results for the quarter ended June 30, 2019.

Consolidated Financial Summary

    Three Months Ended
    June 30, March 31, June 30,
(in thousands of U.S. Dollars, except per unit data) 2019 2019 (2) 2018
(unaudited) (unaudited) (unaudited)
GAAP FINANCIAL RESULTS      
Revenues 319,774   336,637   320,354  
Net loss (27,979 ) (2,598 ) (168,492 )
Limited partners' interest in net loss per common unit - basic (0.09 ) (0.03 ) (0.43 )
       
NON-GAAP FINANCIAL RESULTS:      
Adjusted EBITDA (1) 158,941   188,150   160,198  
Adjusted net income (loss) attributable to the partners and preferred unitholders (1) 4,735   29,510   (732 )
Limited partners' interest in adjusted net income (loss) per common unit (1) (0.01 ) 0.05   (0.02 )
  1. These are non-GAAP financial measures. Please refer to "Definitions and Non-GAAP Financial Measures" and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).
  2. Please refer to Appendices to the release announcing the results for the first quarter of 2019 attached as Exhibit 1 to the Form 6-K filed with the Securities and Exchange Commission on April 30, 2019, for a reconciliation of these non-GAAP measures to the most directly comparable financial measures under GAAP.

Second Quarter of 2019 Compared to Second Quarter of 2018

Revenues were $320 million in the second quarter of 2019, which was consistent with the same quarter of the prior year.

Net loss decreased to $28 million in the second quarter of 2019 compared to $168 million in the same quarter of the prior year primarily due to the timing of recognition of write-downs and gains on sales of vessels and a decrease in unrealized fair value losses on derivative instruments resulting from movement in interest rates. In the second quarter of 2019, net loss included a gain on the sale of three vessels of $13 million whereas in the second quarter of 2018, net loss included write-downs of $180 million relating to two FPSO units.

Non-GAAP Adjusted EBITDA was $159 million in the second quarter of 2019, which was consistent with the same quarter of 2018. An increase in Adjusted EBITDA of $11 million from the shuttle tanker segment was offset by a  decrease of $11 million from the FPSO segment.

Non-GAAP Adjusted Net Income was $5 million in the second quarter of 2019, an increase of $5 million compared to the same quarter of the prior year, primarily due to a decrease in depreciation and amortization of $7 million.

Second Quarter of 2019 Compared to First Quarter of 2019

Revenues decreased by $17 million and net loss increased by $25 million in the second quarter of 2019, compared to the prior quarter, primarily due to the absence of a $15 million amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit, which was fully amortized during the first quarter of 2019; a $7 million decrease in contributions from the completion of the Rio das Ostras FPSO unit charter contract in March 2019 and a $5 million decrease from lower utilization in the towage fleet. Revenues and vessel operating expenses in the second quarter of 2019 also included the recognition of deferred revenues and deferred costs of $13 million and $15 million, respectively, upon termination of the Cheviot Field agreement relating to the Petrojarl Varg FPSO unit. Other items impacting the change in net loss included a $13 million gain on the sale of three vessels recognized in the second quarter of 2019 and a $9 million increase in unrealized fair value losses on derivative instruments.

Non-GAAP Adjusted EBITDA and Adjusted Net Income decreased by $29 million and $25 million, respectively, in the second quarter of 2019, compared to the prior quarter, primarily due to the changes in revenue and vessel operating expenses as described above.

Please refer to “Operating Results” for additional information on variances by segment and Appendices A and B for  reconciliations between GAAP net (loss) income and non-GAAP Adjusted EBITDA and Adjusted Net Income (Loss), respectively.

CEO Commentary

“We are pleased to announce another good operational quarter with Adjusted EBITDA of $159 million. The Shuttle Tanker and the FSO segment results were in line with first quarter, while the FPSO segment result decreased by $22 million, primarily on non-cash items. The Towage segment was basically EBITDA neutral,” commented Ingvild Sæther, President and CEO of Teekay Offshore Group Ltd.

“During the quarter we decided to terminate the agreement with Alpha Petroleum for the redeployment of the Petrojarl Varg FPSO on the U.K. Cheviot field. Given the increased activity on a number of field developments in the North Sea, it was important for us to either reach a final contract award with Alpha Petroleum on the Cheviot field, or make the unit available for other field developments where it can offer an attractive field development solution.”

Ms. Sæther added, "On the financing side, we were pleased to announce during the quarter the closing of the refinancing of the $450 million revolving credit facility backed by 16 of our shuttle tankers on attractive terms, in addition to the long-term financing of the first four shuttle tanker newbuildings and the refinancing of three FPSOs with $100 million, both as announced in the last quarterly release."

Summary of Recent Events

Brookfield Investment

In late-May 2019, the Partnership received an unsolicited non-binding proposal from Brookfield Business Partners L.P. (BBU)(BBU-UN.TO), together with its institutional partners (collectively Brookfield), to acquire all issued and outstanding publicly held common units representing limited partnership interests of the Partnership that Brookfield does not already own in exchange for $1.05 in cash per common unit. The Partnership's Conflicts Committee, consisting only of non-Brookfield affiliated Teekay Offshore Directors, is evaluating the proposed offer on behalf of the owners of the non-Brookfield owned limited partnership interests. The proposed transaction is subject to a number of contingencies, including the approval of the Conflicts Committee, and the satisfaction of any conditions to the consummation of a transaction that may be set forth in any definitive agreement concerning the transaction. There can be no assurance that definitive documentation will be executed or that any transaction will materialize on the terms described above or at all.

In May 2019, Brookfield purchased all of Teekay Corporation's remaining interests in the Partnership, including its 49% general partner interest, 13.8% interest in common units, 17.3 million common unit equivalent warrants and a $25 million loan receivable outstanding under an unsecured revolving credit facility, for total proceeds of $100 million.

Financings

On July 30, 2019, the remaining $75 million principal of our outstanding five-year 6.0% senior unsecured bonds matured and was repaid by drawing $75 million from the Partnership's capacity under an existing revolving credit facility.

In May 2019, the Partnership secured a $450 million refinancing of 16 shuttle tankers. The facility was used to refinance an existing revolving credit facility dated September 2017, which bore interest at LIBOR plus a margin of 300 basis points and had a remaining tenor of 3.4 years. The new revolving credit facility bears interest at LIBOR plus a margin of 250 basis points and has a tenor of five years with a profile of 8.4 years.

In late-April 2019, the Partnership closed a $100 million refinancing of the Piranema Spirit, Voyageur Spirit, and Petrojarl Varg FPSO units. The previous credit facility matured at the same time with a balloon payment of $35 million. The new revolving credit facility bears interest at LIBOR plus a margin of 300 basis points and reduces to $45 million over three years, reflecting the relative short current contract backlog for these FPSO units.

In April 2019, the Partnership secured a new $414 million long-term debt facility to be used to finance four LNG-fueled Suezmax DP2 shuttle tanker newbuildings. Upon anticipated delivery in 2019 and 2020, two of the vessels will commence operations under the Partnership’s master agreement with Equinor, while the remaining two vessels will join the Partnership’s contract of affreightment (CoA) shuttle tanker portfolio in the North Sea. The new facility is funded and guaranteed by both Canadian and Norwegian export credit agencies and commercial banks, bears interest at LIBOR plus a margin of 225 basis points, and has a tenor for up to 12 years from the delivery date of each vessel and a blended repayment profile of 18 years.

Termination of Cheviot Field Agreement

In June 2019, the Partnership announced that an agreement with Alpha Petroleum Resources Limited (or Alpha) relating to the use of the Petrojarl Varg FPSO unit was terminated as a result of Alpha being unable to satisfy certain conditions precedent, including Alpha providing initial funding to cover life extension and upgrade costs, by the contractual deadline. The Partnership is currently pursing alternative deployment opportunities for the Petrojarl Varg FPSO unit.

Change to Board of Directors

In July 2019, Brookfield appointed Gregory Morrison as a member of the Board of Directors of the general partner of Teekay Offshore, replacing Walter Weathers, who was appointed by Brookfield in September 2017.

Liquidity Update

As of June 30, 2019, the Partnership had total liquidity of $202 million, an increase of $19 million compared to March 31, 2019. The increase in liquidity was primarily due to the refinancing of the Partnership's FPSO revolving credit facility and proceeds received from the sale of the Pattani Spirit FSO and the Nordic Spirit and Alexita Spirit shuttle tankers during the second quarter of 2019.

Operating Results

The commentary below compares certain results of our operating segments for the three months ended June 30, 2019 to the same period of the prior year, unless otherwise noted.

FPSO Segment

  Three Months Ended
  June 30, March 31, June 30,
  2019 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
Revenues 127,478   136,560   124,053  
Adjusted EBITDA 72,169   94,420   83,429  

Adjusted EBITDA (including Adjusted EBITDA of equity-accounted vessels) decreased by $11 million primarily due to:  a decrease of $8 million due to the completion of the charter contract for the Rio das Ostras FPSO unit in March 2019; and a decrease of $6 million resulting from a contract extension for the Piranema Spirit FPSO unit at lower charter rates than the original contract and a decrease in the amortization of non-cash deferred revenue; partially offset by an increase of $6 million from the commencement of operations of the Petrojarl I FPSO unit in May 2018.

Adjusted EBITDA decreased by $22 million compared to the three months ended March 31, 2019 primarily due to: the absence of a $15 million amortization of non-cash deferred revenue relating to the Piranema Spirit FPSO unit; and a $5 million decrease from the completion of the Rio das Ostras FPSO unit charter contract in March 2019.

Shuttle Tanker Segment

  Three Months Ended
  June 30, March 31, June 30,
  2019 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
Revenues 137,050   137,337   142,047  
Adjusted EBITDA 67,688   67,337   56,254  

Adjusted EBITDA increased by $11 million primarily due to: $4 million from higher CoA utilization and rates during the second quarter of 2019; $4 million from a decrease in vessel operating expenses and general and administrative expenses; and $3 million due to the timing of dry-docking of vessels.

Adjusted EBITDA was in line with first quarter 2019.

FSO Segment

  Three Months Ended
  June 30, March 31, June 30,
  2019 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
Revenues 34,605   34,654   33,840  
Adjusted EBITDA 22,761   23,335   22,717  

Adjusted EBITDA was consistent with prior periods.

UMS Segment

  Three Months Ended
  June 30, March 31, June 30,
  2019 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
Revenues 431   1,622    
Adjusted EBITDA (1,884 ) 1,316   (2,208 )

Adjusted EBITDA was consistent with the same quarter of the prior year.

Adjusted EBITDA decreased by $3 million compared to the three months ended March 31, 2019, primarily due to an insurance settlement received in the first quarter of 2019.

Towage Segment

  Three Months Ended
  June 30, March 31, June 30,
  2019 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
Revenues 16,716   21,986   15,510  
Adjusted EBITDA (426 ) 4,120   2,048  

Adjusted EBITDA decreased by $2 million due to an increase in vessel operating expenses relating to the reactivation of the ALP Forward in June 2019, which was previously in lay-up.

Adjusted EBITDA decreased by $5 million compared to the three months ended March 31, 2019, due to a decrease in the utilization of the towage fleet from 96% to 67% and an increase in vessel operating expenses relating to the reactivation of the ALP Forward in June 2019.

Conventional Tanker Segment

  Three Months Ended
  June 30, March 31, June 30,
  2019 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
Revenues 3,494   4,478   4,904  
Adjusted EBITDA (225 ) (1,203 ) (2,412 )

Adjusted EBITDA increased by $2 million. The Partnership redelivered the two in-chartered vessels to their owners in March and April 2019, respectively, and no longer has activity in the conventional tanker segment.

Teekay Offshore’s Fleet

The following table summarizes Teekay Offshore’s fleet as of July 31, 2019. Teekay Offshore's fleet is consistent in comparison to the previously-reported fleet table in the release for the first quarter of 2019.

  Number of Vessels
  Owned
Vessels
Chartered-in
Vessels
Committed
Newbuildings
Total
FPSO Segment (i) —  — 
Shuttle Tanker Segment 25 (ii) (iii) 33 
FSO Segment —  — 
UMS Segment —  — 
Towage Segment 10  —  —  10 
Conventional Segment —  —  —  — 
Total 49  57 
  1. Includes two FPSO units, the Cidade de Itajai and Pioneiro de Libra, in which Teekay Offshore’s ownership interest is 50 percent.
  2. Includes four shuttle tankers in which Teekay Offshore’s ownership interest is 50 percent and one HiLoad DP unit.
  3. Includes six DP2 shuttle tanker newbuildings scheduled for delivery in late-2019 through early-2021, two of which will operate under Teekay Offshore's master agreement with Equinor and four of which will join Teekay Offshore's CoA portfolio in the North Sea.

Conference Call

The Partnership plans to host a conference call on Wednesday, July 31, 2019 at 12:00 p.m. (ET) to discuss the results for the second quarter of 2019. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

  • By dialing 1-800-367-2403 or +1 (647) 490-5367, if outside North America, and quoting conference ID code 9980688
  • By accessing the webcast, which will be available on Teekay Offshore's website at www.teekay.com (the archive will remain on the website for a period of one year).

An accompanying Second Quarter 2019 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

Forward Looking Statements

This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management’s current views with respect to certain future events and performance, including, among others: opportunities for the Petrojarl Varg FPSO unit; Brookfield's proposal to acquire all issued and outstanding publicly held common units of the Partnership, and any potential resulting transactions; the anticipated financing for two newbuilds; the timing of shuttle tanker newbuilding deliveries and the commencement of related contracts. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: changes in exploration, production and storage of offshore oil and gas, either generally or in particular regions that would impact expected future growth, particularly in or related to North Sea, Brazil and East Coast of Canada offshore fields; shipyard delivery delays and cost overruns; delays in the commencement of charter contracts; the Partnership’s ability to collect the amounts due under the settlement agreement with Petrobras; new opportunities for the Petrojarl Varg FPSO unit; 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, 2018. 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.

About Teekay Offshore Partners L.P.

Teekay Offshore Partners L.P. is a leading international midstream services provider to the offshore oil production industry, primarily focused on the ownership and operation of critical infrastructure assets in offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Teekay Offshore has consolidated assets of approximately $5.2 billion, comprised of 57 offshore assets, including floating production, storage and offloading (FPSO) units, shuttle tankers (including six newbuildings), floating storage and offtake (FSO) units, long-distance towing and offshore installation vessels and a unit for maintenance and safety (UMS). The majority of Teekay Offshore’s fleet is employed on medium-term, stable contracts. Brookfield owns 100 percent of Teekay Offshore’s general partner.

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

For Investor Relations enquiries contact:

Jan Rune Steinsland
Tel:  +47 9705 2533
Website: www.teekayoffshore.com


Teekay Offshore Partners L.P.
Summary Consolidated Statements of Loss

    Three Months Ended Six Months Ended
    June 30, March 31, June 30, June 30, June 30,
(in thousands of U.S. Dollars, except per unit data) 2019 2019 2018 2019 2018
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
             
Revenues 319,774   336,637   320,354   656,411   643,553  
             
Voyage expenses (32,624 ) (34,066 ) (36,486 ) (66,690 ) (71,492 )
Vessel operating expenses (118,718 ) (101,219 ) (110,298 ) (219,937 ) (225,680 )
Time-charter hire expenses (10,619 ) (12,453 ) (13,464 ) (23,072 ) (26,191 )
Depreciation and amortization (88,666 ) (89,466 ) (95,440 ) (178,132 ) (189,744 )
General and administrative (17,212 ) (16,992 ) (17,890 ) (34,204 ) (35,676 )
Gain on sale and (write-down) of vessels 11,756     (178,795 ) 11,756   (207,291 )
Operating income (loss) 63,691   82,441   (132,019 ) 146,132   (112,521 )
           
Interest expense (51,443 ) (52,414 ) (49,662 ) (103,857 ) (91,235 )
Interest income 1,253   1,070   734   2,323   1,392  
Realized and unrealized (loss) gain          
  on derivative instruments (40,839 ) (31,390 ) 9,441   (72,229 ) 43,892  
Equity income 2,388   886   8,346   3,274   22,344  
Foreign currency exchange gain (loss) 1,789   (568 ) (3,860 ) 1,221   (5,803 )
Other expense - net (1,640 ) (354 ) (592 ) (1,994 ) (3,863 )
Loss before income tax expense (24,801 ) (329 ) (167,612 ) (25,130 ) (145,794 )
Income tax expense (3,178 ) (2,269 ) (880 ) (5,447 ) (6,638 )
Net loss (27,979 ) (2,598 ) (168,492 ) (30,577 ) (152,432 )
           
Non-controlling interests in net loss 1   285   8   286   (7,852 )
Preferred unitholders' interest in net loss 8,038   8,038   8,038   16,076   15,409  
General partner’s interest in net loss (274 ) (83 ) (1,342 ) (357 ) (1,217 )
Limited partners’ interest in net loss (35,744 ) (10,838 ) (175,196 ) (46,582 ) (158,772 )
Limited partner's interest in net (loss) income          
  per common unit          
   - basic (0.09 ) (0.03 ) (0.43 ) (0.11 ) (0.39 )
   - diluted (0.09 ) (0.03 ) (0.43 ) (0.11 ) (0.39 )
Weighted-average number of common units:          
   - basic 410,595,551   410,342,692   410,310,586   410,469,820   410,206,610  
   - diluted 410,595,551   410,342,692   410,310,586   410,469,820   410,206,610  
Total number of common units outstanding          
  at end of period 410,707,764   410,400,988   410,314,977   410,707,764   410,314,977  


Teekay Offshore Partners L.P.
Consolidated Balance Sheets

    As at As at As at
    June 30, 2019 March 31, 2019 December 31, 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited)
ASSETS      
Current      
Cash and cash equivalents 201,567   182,791   225,040  
Restricted cash 8,963   6,349   8,540  
Accounts receivable 169,137   122,083   141,903  
Vessels held for sale 13,756   20,027   12,528  
Prepaid expenses 29,277   30,062   32,199  
Due from related parties   39,118   58,885  
Other current assets 6,272   9,506   11,879  
Total current assets 428,972   409,936   490,974  
         
         
Vessels and equipment      
At cost, less accumulated depreciation 4,010,862   4,103,831   4,196,909  
Advances on newbuilding contracts 184,987   140,553   73,713  
Investment in equity accounted joint ventures 215,304   213,047   212,202  
Deferred tax asset 7,295   8,746   9,168  
Due from related parties   954   949  
Other assets 207,796   214,943   198,992  
Goodwill 129,145   129,145   129,145  
Total assets 5,184,361   5,221,155   5,312,052  
         
LIABILITIES AND EQUITY      
Current      
Accounts payable 55,544   10,990   16,423  
Accrued liabilities 138,204   108,577   129,896  
Deferred revenues 61,721   59,325   55,750  
Due to related parties 50,000   167,292   183,795  
Current portion of derivative instruments 21,693   18,245   23,290  
Current portion of long-term debt 487,018   480,484   554,336  
Other current liabilities 5,344   10,002   15,062  
Total current liabilities 819,524   854,915   978,552  
         
Long-term debt 2,589,431   2,561,154   2,543,406  
Derivative instruments 152,143   120,103   94,354  
Other long-term liabilities 211,449   238,049   236,616  
Total liabilities 3,772,547   3,774,221   3,852,928  
         
Equity      
Limited partners - common units 837,405   873,126   883,090  
Limited partners - preferred units   384,274   384,274   384,274  
General Partner   14,696   14,969   15,055  
Warrants 132,225   132,225   132,225  
Accumulated other comprehensive income 6,892   7,187   7,361  
Non-controlling interests   36,322   35,153   37,119  
Total equity 1,411,814   1,446,934   1,459,124  
Total liabilities and total equity 5,184,361   5,221,155   5,312,052  


Teekay Offshore Partners L.P.
Consolidated Statements of Cash Flows

  Six Months Ended
  June 30, 2019 June 30, 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited)
Cash, cash equivalents and restricted cash provided by (used for)    
OPERATING ACTIVITIES    
Net loss (30,577 ) (152,432 )
Adjustments to reconcile net loss to net operating cash flow:    
Unrealized loss (gain) on derivative instruments 63,468   (67,795 )
Equity income 550   (17,644 )
Depreciation and amortization 178,132   189,744  
(Gain) on sale and write-down of vessels (11,756 ) 207,291  
Deferred income tax expense 2,351   5,435  
Amortization of in-process revenue contracts (15,062 ) (6,101 )
Expenditures for dry docking (10,593 ) (9,995 )
Other (19,415 ) (992 )
Change in non-cash working capital items related to operating activities 30,148   (70,456 )
Net operating cash flow 187,246   77,055  
FINANCING ACTIVITIES    
Proceeds from long-term debt 148,480   226,520  
Scheduled repayments of long-term debt and settlement of related swaps (169,214 ) (345,970 )
Prepayments of long-term debt   (40,000 )
Debt issuance costs (13,208 ) (8,346 )
Proceeds from issuance of preferred units   120,000  
Expenses relating to equity offerings   (3,997 )
Proceeds from credit facility due to related parties   125,000  
Prepayments of credit facility due to related parties (75,000 )  
Cash distributions paid by the Partnership (16,075 ) (22,330 )
Cash distributions paid by subsidiaries to non-controlling interests (2,583 ) (664 )
Cash contributions paid from non-controlling interests to subsidiaries 1,500    
Other (864 ) (715 )
Net financing cash flow (126,964 ) 49,498  
INVESTING ACTIVITIES    
Net payments for vessels and equipment, including advances on newbuilding contracts and conversion costs (112,849 ) (160,175 )
Proceeds from sale of vessels and equipment 33,341   10,410  
Investment in equity accounted joint ventures (3,824 ) (1,700 )
Direct financing lease payments received   2,991  
Acquisition of companies from Teekay Corporation (net of cash acquired of $26.6 million)   25,254  
Net investing cash flow (83,332 ) (123,220 )
Decrease in cash, cash equivalents and restricted cash (23,050 ) 3,333  
Cash, cash equivalents and restricted cash, beginning of the period 233,580   250,294  
Cash, cash equivalents and restricted cash, end of the period 210,530   253,627  

Definitions and Non-GAAP Financial Measures

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

Non-GAAP Financial Measures

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

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

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

Teekay Offshore Partners L.P.
Appendix A - Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA

      Three Months Ended Six Months Ended
    June 30, June 30,
      2019 2018 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited) (unaudited)
             
Net loss (27,979 ) (168,492 ) (30,577 ) (152,432 )
  Depreciation and amortization 88,666   95,440   178,132   189,744  
  Interest expense, net of interest income 50,190   48,928   101,534   89,843  
  Income tax expense 3,178   880   5,447   6,638  
EBITDA 114,055   (23,244 ) 254,536   133,793  
Add (subtract) specific income statement items affecting EBITDA:        
  (Gain) on sale and write-down of vessels (11,756 ) 178,795   (11,756 ) 207,291  
  Realized and unrealized loss (gain) on derivative instruments 40,839   (9,441 ) 72,229   (43,892 )
  Equity income (2,388 ) (8,346 ) (3,274 ) (22,344 )
  Foreign currency exchange (gain) loss (1,789 ) 3,860   (1,221 ) 5,803  
  Other expense - net 1,640   592   1,994   3,863  
  Realized (loss) gain on foreign currency forward contracts (1,142 ) 370   (2,317 ) 990  
Total adjustments 25,404   165,830   55,655   151,711  
Consolidated Adjusted EBITDA 139,459   142,586   310,191   285,504  
  Add: Adjusted EBITDA from equity-accounted vessels (See Appendix C) 22,619   22,556   43,415   44,485  
  Less: Adjusted EBITDA attributable to non-controlling interests (1) (3,137 ) (4,944 ) (6,515 ) (9,344 )
Adjusted EBITDA 158,941   160,198   347,091   320,645  
  1. Adjusted EBITDA attributable to non-controlling interests is summarized in the table below.
      Three Months Ended Six Months Ended
    June 30, June 30,
      2019 2018 2019 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited) (unaudited)
Net loss attributable to non-controlling interests 1   8   286   (7,852 )
  Depreciation and amortization 2,749   4,104   5,433   8,668  
  Interest expense, net of interest income 381   528   793   1,105  
EBITDA attributable to non-controlling interests 3,131   4,640   6,512   1,921  
Add (subtract) specific income statement items affecting EBITDA:        
  Write-down of vessels   290     7,386  
  Foreign currency exchange loss 6   14   3   37  
Total adjustments 6   304   3   7,423  
Adjusted EBITDA attributable to non-controlling interests 3,137   4,944   6,515   9,344  


Teekay Offshore Partners L.P.
Appendix B - Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income (Loss)

      Three Months Ended Six Months Ended
      June 30, June 30,
      2019 2018 2019 2018
(in thousands of U.S. Dollars, except per unit data) (unaudited) (unaudited) (unaudited) (unaudited)
Net loss (27,979 ) (168,492 ) (30,577 ) (152,432 )
Adjustments:        
  Net loss attributable to non-controlling interests 1   8   286   (7,851 )
Net loss attributable to the partners and preferred unitholders (27,980 ) (168,500 ) (30,863 ) (144,581 )
Add (subtract) specific items affecting net loss:        
  (Gain) on sale and write-down of vessels (11,757 ) 178,795   (11,757 ) 207,291  
  Unrealized loss (gain) on derivative instruments 36,225   (14,914 ) 63,468   (65,890 )
  Realized loss on interest rate swap amendments       10,000  
  Foreign currency exchange (gain) loss (1) (1,789 ) 2,416   (1,657 ) 3,066  
  Other expense - net   1,639   592   1,993   3,863  
  Deferred income tax expense relating to Norwegian tax structure 1,523   735   1,957   5,409  
  Other adjustments (2)     161     973  
  Adjustments related to equity-accounted vessels (3) 6,868   287   11,101   (5,145 )
  Adjustments related to non-controlling interests (4) 6   (304 ) 3   (7,422 )
Total adjustments 32,715   167,768   65,108   152,145  
Adjusted net income (loss) attributable to the partners and preferred unitholders 4,735   (732 ) 34,245   7,564  
         
Preferred unitholders' interest in adjusted net income (loss) 8,038   8,038   16,076   15,409  
General Partner's interest in adjusted net income (loss) (25 ) (67 ) 138   (60 )
Limited partners' interest in adjusted net income (loss) (3,278 ) (8,703 ) 18,031   (7,785 )
Limited partners' interest in adjusted net income (loss) per common unit, basic (0.01 ) (0.02 ) 0.04   (0.02 )
Weighted-average number of common units outstanding, basic 410,595,551   410,310,586   410,469,820   410,206,610  
  1. Foreign currency exchange (gain) loss primarily relates to the Partnership's revaluation of all foreign currency-denominated assets and liabilities based on the prevailing exchange rate at the end of each reporting period and unrealized gain or loss related to the Partnership's cross-currency swaps related to the Partnership's Norwegian Krone (NOK) bonds, and excludes the realized gain or loss relating to the Partnership's cross-currency swaps and NOK bonds.
  2. Other adjustments primarily reflects voyage expenses, vessel operating expense, depreciation and amortization expense, general and administrative expenses relating to the Petrojarl I FPSO unit while undergoing upgrades.
  3. Reflects the Partnership's proportionate share of specific items affecting the net income of the Cidade de Itajai FPSO unit and Pioneiro de Libra FPSO unit equity-accounted joint ventures, including the unrealized gain or loss on derivative instruments and the foreign exchange gain or loss.
  4. Items affecting net loss include amounts attributable to the Partnership’s consolidated non-wholly-owned subsidiaries. Each item affecting net loss is analyzed to determine whether any of the amounts originated from a consolidated non-wholly-owned subsidiary. Each amount that originates from a consolidated non-wholly-owned subsidiary is multiplied by the non-controlling interests’ percentage share in this subsidiary to arrive at the non-controlling interests’ share of the amount. The adjustments relate to the gain on sale or write-down of vessels and foreign currency exchange gain or loss within the Partnership's consolidated non-wholly-owned subsidiaries.


Teekay Offshore Partners L.P.
Appendix C - Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA From Equity-Accounted Vessels

    Three Months Ended Three Months Ended
    June 30, 2019 June 30, 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited)
    At 100% Partnership's 50% At 100% Partnership's 50%
Revenues 57,719   28,860   61,794   30,897  
Vessel and other operating expenses (12,481 ) (6,241 ) (16,682 ) (8,341 )
Depreciation and amortization (16,294 ) (8,146 ) (15,455 ) (7,728 )
Operating income of equity-accounted vessels 28,944   14,473   29,657   14,828  
Net interest expense (10,604 ) (5,302 ) (11,849 ) (5,925 )
Realized and unrealized (loss) gain on derivative instruments (1) (13,957 ) (6,979 ) 357   179  
Foreign currency exchange gain (loss) 326   163   (987 ) (494 )
Total other items (24,235 ) (12,118 ) (12,479 ) (6,240 )
Net income / equity income of equity-accounted vessels before income tax expense 4,709   2,355   17,178   8,588  
Income tax recovery (expense) 66   33   (484 ) (242 )
Net income / equity income of equity-accounted vessels 4,775   2,388   16,694   8,346  
  Depreciation and amortization 16,294   8,146   15,455   7,728  
  Net interest expense 10,604   5,302   11,849   5,925  
  Income tax (recovery) expense (66 ) (33 ) 484   242  
EBITDA 31,607   15,803   44,482   22,241  
Add (subtract) specific items affecting EBITDA:        
  Realized and unrealized loss (gain) on derivative instruments (1) 13,957   6,979   (357 ) (179 )
  Foreign currency exchange (gain) loss (326 ) (163 ) 987   494  
Adjusted EBITDA from equity-accounted vessels 45,238   22,619   45,112   22,556  
  1. Realized and unrealized (loss) gain on derivative instruments includes an unrealized loss of $14.1 million ($7.0 million at the Partnership’s 50% share) for the three months ended June 30, 2019 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units and an unrealized gain of $0.4 million ($0.2 million at the Partnership’s 50% share) for the three months ended June 30, 2018 related to interest rate swaps for the Cidade de Itajai FPSO unit.
    Six Months Ended Six Months Ended
    June 30, 2019 June 30, 2018
(in thousands of U.S. Dollars) (unaudited) (unaudited)
    At 100% Partnership's 50% At 100% Partnership's 50%
Revenues 117,444   58,722   121,451   60,726  
Vessel and other operating expenses (30,614 ) (15,307 ) (32,482 ) (16,241 )
Depreciation and amortization (33,464 ) (16,732 ) (30,181 ) (15,090 )
Operating income of equity-accounted vessels 53,366   26,683   58,788   29,395  
Net interest expense (1) (22,684 ) (11,342 ) (13,368 ) (6,684 )
Realized and unrealized (loss) gain on derivative instruments (2) (24,222 ) (12,111 ) 1,725   863  
Foreign currency exchange gain (loss) 324   162   (1,643 ) (822 )
Total other items (46,582 ) (23,291 ) (13,286 ) (6,643 )
Net income / equity income of equity-accounted vessels before income tax expense 6,784   3,392   45,502   22,752  
Income tax expense (238 ) (118 ) (815 ) (408 )
Net income / equity income of equity-accounted vessels 6,546   3,274   44,687   22,344  
  Depreciation and amortization 33,464   16,732   30,181   15,090  
  Net interest expense (1) 22,684   11,342   13,368   6,684  
  Income tax expense 238   118   815   408  
EBITDA 62,932   31,466   89,051   44,526  
Add (subtract) specific items affecting EBITDA:        
  Realized and unrealized loss on derivative instruments (2) 24,222   12,111   (1,725 ) (863 )
  Foreign currency exchange (gain) loss (324 ) (162 ) 1,643   822  
Adjusted EBITDA from equity-accounted vessels 86,830   43,415   88,969   44,485  
  1. Net interest expense for the six months ended June 30, 2018 includes an unrealized gain of $9.7 million ($4.9 million at the Partnership's 50% share) related to interest rate swaps designated and qualifying as cash flow hedges for the Pioneiro de Libra FPSO unit.
  2. Realized and unrealized (loss) gain on derivative instruments includes an unrealized loss of $22.6 million ($11.3 million at the Partnership’s 50% share) for the six months ended June 30, 2019 related to interest rate swaps for the Cidade de Itajai and Pioneiro de Libra FPSO units and an unrealized gain of $2.2 million ($1.1 million at the Partnership’s 50% share) for the six months ended June 30, 2018 related to interest rate swaps for the Cidade de Itajai FPSO unit.