Teekay Offshore Partners L.P. (TOO)

TOO 
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Teekay Offshore Partners LP (TOO)

Q3 2012 Results Earnings Call

November 9, 2012 12:00 PM ET

Executives

Peter Evensen - Chief Executive Officer

Vince Lok - Chief Financial Officer

Kenneth Hvid - Chief Strategy Officer

David Wong - MLP Controller

Analysts

Michael Webber - Wells Fargo

Richard Diamond - Strait Lane Capital Partners

Christopher Combe - J.P. Morgan

Edward Rowe - Raymond James

Martin Roher - MSR Capital Management

Presentation

Operator

Welcome to the Teekay Offshore Partners’ Third Quarter 2012 Earnings Result Conference Call. During the call, all participants will be in listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. (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.

Company Participant

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 third 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 third 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, [Ryan]. Good afternoon, everyone. And thank you for joining us on our third quarter of 2012 investor conference call. I’m joined today by Teekay Corporation’s Chief Financial Officer, Vince Lok; Teekay’s Chief Strategy Officer, Kenneth Hvid; and MLP Controller, David Wong.

During our call today, I’ll be walking through the third quarter of 2012 earnings presentation, which can be found on our website.

Starting on slide number three of the presentation, I’ll briefly review some of Teekay Offshore’s recent highlight. We generated distributable cash flow of $38.6 million in the third quarter, which is in line with last quarter, if we exclude the one-time charter termination fee, which we received in June.

For the third quarter, we declared and today paid cash distribution of $0.5125 per unit, which is consistent with the last quarter. During the quarter Teekay Offshore agreed to acquire the Voyageur Spirit FPSO from Teekay Corporation for $540 million.

The unit is expected to generate approximately $70 million in annual cash flow from vessel operations and is expected to close upon first oil on the Huntington field, which is targeted for mid-December. We will provide specific guidance next quarter with respect to the Voyageur Spirit acquisition, which is expected to be accretive to distributable cash flow per unit.

However, I want to note that we will likely not be able to pass-through the entire amount of accretion from the Voyageur, as some of it will be needed to absorb lower cash flow, which we expect from some of our older shuttle and conventional tankers whose charters are rolling off over the near-term.

And as you will the just note from some press releases crossing the wire. I'm also pleased to announce that today Teekay Offshore has agreed to acquire a Hiload DP offshore loading unit from Norwegian company Remora AS for approximately $55 million and this acquisition is subject to securing a 10-year charter contract with Petrobras in Brazil. I'll discuss this exciting acquisition in more detail later on today's call.

Finally, as I highlighted last quarter, Teekay Offshore remains in a strong financial position with $569 million of liquidity in the form of cash and undrawn revolving credit facility, which only $170 million will be used for the completion of the Voyageur, FPSO acquisition.

Turning to the slide number four, I wanted to update you on the Voyageur Spirit FPSO acquisition. Last November, Teekay and Sevan begin jointly working toward the completion of the necessary upgrades on this FPSO, to service a new contract with the German Power and Gas Company E.ON.

Those upgrades are now complete and the unit is in the final process of cooking up on the Huntington field in the U.K sector of the North Sea. Once first oil is achieved which is targeted for mid December, the FPSO will commence a five-year firm period chart of contract. With extension option, the total contract length would be 15 years.

Teekay Offshore has agreed to buy the FPSO unit once it commences its charter. The acquisition will be financed through a portion of the net proceeds from the partnership $211.5 million public equity offering which we completed in September, of $40 million equity private placement to our sponsor, Teekay Corporation, upon completion of the transaction and the new $330 million debt facility.

On slide number five, I will discuss the acquisition we announced today of a 2010-built HiLoad Dynamic Positioning unit from Remora AS for a total purchase price of approximately $55 million, including approximately $17 million of required upgrades necessary for the contract.

The HiLoad DP unit is an innovative, dynamic positioning technology that temporarily attaches to conventional tankers to enable the direct offloading from offshore oil field units. This process allows conventional tankers to load offshore and transport the oil long-haul directly to the refinery without the need for a shuttle tanker or an onshore storage terminal or even an offshore storage terminal.

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