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Why Teekay Offshore Partners Is Rallying Today

Matthew DiLallo, The Motley Fool

What happened

Teekay Offshore Partners (NYSE: TOO) surged more than 15% by 2:30 p.m. EST on Friday. Driving the offshore service provider's rally was its better-than-expected fourth-quarter results.

So what

Teekay Offshore Partners generated $130.5 million, or $0.30 per unit, in adjusted net income during the fourth quarter, which beat analysts' expectations by $0.07 per unit. Driving that stronger-than-expected result was higher rates and utilization in the company's shuttle segment and new cash flow from recent growth projects. The company also benefited from a settlement with Brazilian oil giant Petrobras (NYSE: PBR) during the quarter.

Oil tanker at offshore platform.

Image source: Getty Images.

In addition to settling its dispute with Petrobras, which had terminated the charter contracts on two vessels, Teekay signed an extension with Petrobas for a different vessel. That deal started up this month and should last the next three years. On top of that, the company secured new contracts with customers in the North Sea at attractive rates for its shuttle tanker fleet and a contract extension on another vessel.

Now what

Teekay Offshore Partners was able to produce solid results during the fourth quarter despite turbulent conditions in the oil market because long-term contracts support the bulk of its vessels. This helps insulate it during periods of volatility. Meanwhile, the company was also able to secure several new contracts for vessels, even though market conditions deteriorated. While those contracts should enable the company to continue generating cash, Teekay Offshore's weak balance sheet did force it to suspend shareholder distributions earlier this year.

That weaker financial profile is why investors are better off avoiding this oil stock. Instead, they should consider buying one of these top options.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.