Teekay Offshore Partners L.P. (TOO)

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Teekay Offshore Partners LP (TOO)

Q4 2012 Earnings Call

February 22, 2013 12:00 pm ET

Executives

Scott Gayton

Peter Evensen - Chief Executive Officer of Teekay Offshore GP L L C, Chief Financial Officer of Teekay Offshore GP L L C, Principal Accounting Officer of Teekay Offshore GP L L C and Director of Teekay Offshore GP L L C

Kenneth Hvid - Director of Teekay Offshore GP L L C

David Wong

Vincent Lok - Chief Financial officer, Principal Accounting Officer and Executive Vice President

Analysts

Michael Webber - Wells Fargo Securities, LLC, Research Division

Martin Roher

Presentation

Operator

Welcome to Teekay Offshore Partners Fourth Quarter and Fiscal 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Peter Evensen, Teekay Offshore Partners' Chief Executive Officer. Please go ahead, sir.

Scott Gayton

Before Mr. Evensen begins, I would like to direct all participants to our website at www.teekayoffshore.com, where you will find a copy of the fourth quarter of 2012 earnings presentation. Mr. Evensen will review this presentation during today's conference call.

Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter of 2012 earnings release and earnings presentation available on our website.

I will now turn the call over to Mr. Evensen to begin.

Peter Evensen

Thank you, Scott. Good morning, everyone, and thank you for joining us on our fourth quarter of 2012 investor conference call. I'm joined today by Teekay Corporation's CFO, Vince Lok; its Chief Strategy Officer, Kenneth Hvid; and its MLP controller, David Wong. During our call today, I'll be walking through the fourth quarter of 2012 earnings presentation, which can be found on our website.

Starting on Slide #3 of the presentation, I will briefly review some of the Teekay Offshore's recent highlights. We generated distributable cash flow of $45.9 million in the fourth quarter, up 11% from the same quarter of the prior year. For the fourth quarter, we declared a cash distribution of $0.5125 cents per unit which was paid on February 14 and was consistent with the previous quarter. We now expect the previously announced acquisition of the Voyageur Spirit FPSO to be completed in March 2013 upon final installation of the FPSO on the Huntington field and commencement of its 5-year charter to E.ON.

In connection with this pending acquisition, the partnership expects to increase its cash distribution for the first quarter of 2013 to be paid in May 2013. I will discuss the partnership's ability to increase distributions in 2013 and into the future during this presentation.

I'm pleased to announce that Teekay Offshore signed a letter of intent to provide a floating storage unit in Asia to London Stock Exchange-listed Salamander Energy. This project represents a broader trend we're seeing in the market of increased demand for FPSO and floating storage unit solutions that I'll discuss later in this presentation.

Our sponsor, Teekay Corporation, reported a major milestone was reached on the Cidade de Itajai FPSO this past weekend. On February 16, the FPSO achieved first oil and began its 9-year contract, plus extension options, with Petrobras. As a reminder, this FPSO is jointly owned by Teekay Corporation and Odebrecht in Brazil. Under the terms of an Omnibus Agreement, Teekay Corporation is obligated to offer the partnership their 50% ownership interest in this unit within 1 year of commencement, and announced that they intend to offer it to us in the next 30 days.

Finally, as I highlighted last quarter, Teekay Offshore remains in a strong financial position with $587 million of liquidity in the form of cash and undrawn revolving credit facilities, pro forma for the net proceeds of approximately $167 million received from our recent Norwegian bond offering, net of the repurchase of $66 million of our existing Norwegian kroner bond. Of this $587 million in liquidity, only $170 million will be needed for completion of the Voyageur Spirit FPSO acquisition.

On Slide #4 I will discuss our recently signed letter of intent with Salamander Energy to provide an FSO on the Bualuang Field in the Gulf of Thailand. The proposed terms of the contract are for a 10-year charter, plus extension options for an additional 5 years, and the expected start-up date is in mid-2014. We plan to use one of our older remaining shuttle tankers, the 1993-built Navion Clipper, to be the conversion vessel for this project, with the total project estimated to be approximately $50 million. This FSO will service the Bualuang Field, which was originally brought on stream back in 2008.

In order for Salamander to lower the cost of oil production, the field is undergoing a redevelopment which includes a production platform and an FSO. The FSO solution will be similar to another Teekay Offshore-owned FSO, the Pattani Spirit, which also operates in the region. If finalized, this new FSO project will enable us to successfully extend the life of one of our remaining older shuttle tankers under a long-term fixed-rate contract which will continue to support the cash flow stability of the partnership.

Moving on to Slide #5, I want to discuss how Teekay Offshore is at the leading edge in terms of innovation in 2 growing offshore markets. With our pending acquisition of the HiLoad Dynamic Positioning unit and Teekay's investment in Remora as well as Sevan's cylindrical FPSO, we have one of the broadest service offerings in the offshore sector in terms of handling all of our customers' transportation, storage and production needs through multiple service offerings.

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