The Partnership also reported today its results for the quarter ended March 31, 2009. During the first quarter, the Partnership generated distributable cash flow(1) of $10.0 million, an increase from $6.8 million for the first quarter of 2008, primarily as a result of the Partnership's acquisition of an additional 25 percent interest in Teekay Offshore Operating Partners (OPCO) in June 2008. However, the Partnership's distributable cash flow in the first quarter decreased from $11.7 million in the fourth quarter of 2008. On May 4, 2009, the Partnership declared a cash distribution of $0.45 per unit for quarter ended March 31, 2009. The cash distribution was paid on May 15, 2009, to all unitholders of record on May 8, 2009.

"The Partnership's first quarter 2009 results were affected by several factors which reduced income from vessel operations and distributable cash flow for the quarter," commented Peter Evensen, Chief Executive Officer of Teekay Offshore GP LLC. "These include costs related to higher than anticipated operating expenses primarily related to our North Sea shuttle tanker operations, the re-flagging of certain of our shuttle tankers in order to lower our future crewing costs, lower fleet utilization as a result of reduced oil production in the first quarter and reduced revenues due to start-up delays at some of the new North Sea fields. Factors impacting our first quarter results have generally persisted through the second quarter, which in addition experienced a seasonal decline in shuttle tanker utilization due to field maintenance."

Mr. Evensen continued, "As a result of the progress made on our re-flagging and other cost management initiatives, we expect lower run-rate operating expenses, which combined with higher fleet utilization following the completion of seasonal maintenance and the start-up of new North Sea fields, should result in an improvement in the Partnership's distributable cash flow in the second half of the year and support our current quarterly cash distribution level. Importantly, today we declared a $0.45 per unit distribution for the second quarter."

(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 this non-GAAP measure to the most directly comparable GAAP financial measure.

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet, including vessels owned by OPCO, as of July 1, 2009:

 ----------------------------------------------------------------------- -----                                                   Number of Vessels                                        -------------------------------------                                              Owned   Chartered-in                                            Vessels        Vessels      Total                                        ------------------------------------- Shuttle Tanker Segment                        27(i)             8         35 Conventional Tanker Segment                     11              -         11 FSO Segment                                      5              -          5 ---------------------------------------------------------------------------- Total                                           43              8         51 ---------------------------------------------------------------------------- (i) Includes five shuttle tankers in which OPCO's ownership interest is 50%     and two shuttle tankers directly owned by Teekay Offshore, of which one     is 50% owned. 

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 Offloading units (FSO) and Floating Production Storage and Offloading (FPSO) units and joint ventures it may acquire in the future, provided the vessels are servicing contracts in excess of three years in length. Teekay Offshore also may acquire additional limited partner interests in OPCO or vessels that Teekay may offer the Partnership from time to time in the future.

Shuttle Tankers

Teekay has ordered four Aframax shuttle tanker newbuildings that are scheduled to deliver in 2010 and 2011, for a total delivered cost of approximately $460 million. Teekay Offshore anticipates that these vessels will be offered to the Partnership pursuant to the omnibus agreement and will be used to service either new long-term, fixed-rate contracts Teekay may be awarded prior to the vessel deliveries or OPCO's contracts-of-affreightment in the North Sea.

FPSO Units

On July 9, 2008, Teekay completed the acquisition of the remaining 35.3 percent of Teekay Petrojarl ASA (Teekay Petrojarl) it did not previously own. Teekay Petrojarl is a leading operator of FPSO units, with four units operating in the North Sea and one unit operating in Brazil.

Pursuant to the omnibus agreement, Teekay was obligated to offer to Teekay Offshore the 1998-built FPSO unit, the Varg, within 30 days of the unit being re-chartered by Teekay Petrojarl on December 4, 2008. Teekay Offshore has agreed to waive Teekay's obligation to offer the unit to the Partnership for charter or purchase within 30 days of the re-chartering in exchange for the right to acquire the unit for its fair market value, at any time until December 4, 2009.

Teekay is also obligated to offer to the Partnership, prior to July 9, 2010 and for fair market value, two additional existing FPSO units of Teekay Petrojarl, in addition to the Varg, that are servicing contracts in excess of three years in length.

Teekay's Remaining Interest in OPCO

Teekay may offer to Teekay Offshore additional limited partner interests in OPCO that Teekay owns. Teekay currently owns 49 percent of OPCO and Teekay Offshore owns the remaining 51 percent. OPCO is a Marshall Islands limited partnership with a fleet of 33 shuttle tankers (including eight chartered-in vessels), four FSO units, nine double-hull conventional oil tankers and two lightering vessels.

Financial Summary

The Partnership reported adjusted net income(1) (as detailed in Appendix A to this release) of $7.5 million for the quarter ended March 31, 2009, compared to $4.2 million for the same period of the prior year. Adjusted net income excludes a number of specific items which had the net effect of increasing net income by $9.5 million and decreasing net income by $17.4 million for the quarters ended March 31, 2009 and 2008, respectively, as detailed in Appendix A. Including these items, the Partnership reported net income attributable to the partners of $16.9 million(3), on a GAAP basis, for the first quarter of 2009, compared to a net loss attributable to the Partners, on a GAAP basis, of $13.2 million(3), for the same period last year. Net voyage revenues(2) for the first quarter of 2009 increased to $158.6 million from $153.6 million for the same period of the prior year.

For accounting purposes, the Partnership is required to recognize the changes in the fair value of certain derivative instruments, as unrealized gains or losses, through the statements of income (loss). 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.

Operating Results

The following table highlights certain financial information for Teekay Offshore's three main segments: the shuttle tanker segment, the conventional tanker segment, and the FSO segment (please refer to the "Teekay Offshore's Fleet" section of this release above and Appendix C for further details).

 ----------------------------------------------------------------------- -----                                               Three Months Ended                                                 March 31, 2009                                                   (unaudited)                                                Conven-                                     Shuttle    tional (in thousands of                     Tanker    Tanker         FSO  U.S. dollars)                      Segment   Segment     Segment      Total ---------------------------------------------------------------------------- Net voyage revenues                 119,897    23,862      14,853    158,612 Vessel operating expenses(i)         39,522     5,390       5,822     50,734 Time-charter hire expense            32,145         -           -     32,145 Depreciation and amortization        23,155     5,974       5,402     34,531 Cash flow from vessel  operations(ii)                      31,404    17,038       8,591     57,033 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------                                               Three Months Ended                                                 March 31, 2008                                                   (unaudited)                                                Conven-                                     Shuttle    tional (in thousands of                     Tanker    Tanker         FSO  U.S. dollars)                      Segment   Segment     Segment      Total ----------------------------------------------------------------------------Net voyage revenues                 114,506    22,351      16,698    153,555 Vessel operating expenses(i)         29,660     5,959       6,312     41,931 Time-charter hire expense            33,646         -           -     33,646 Depreciation and amortization        22,551     5,257       5,104     32,912 Cash flow from vessel  operations(ii)                      39,265    13,042       9,557     61,864 ---------------------------------------------------------------------------- (i)  Commencing in the quarter ended March 31, 2009, and applied      retroactively, the gains and losses related to non-designated      derivative instruments have been reclassified to a separate line      item in the Statements of Income (Loss) and are no longer included      in the amounts above. (ii) Cash flow from vessel operations represents income from vessel      operations before depreciation and amortization expense and      amortization of deferred gains, and includes the realized gains      (losses) on the settlements of foreign currency exchange forward      contracts. 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. 

(1) Adjusted net income is a non-GAAP financial measure. Please refer to Appendix A to the Consolidated Statements of Income (Loss) included in this release for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under United States generally accepted accounting principles (GAAP) and information about specific items affecting net income which are typically excluded by securities analysts in their published estimates of the Partnership's financial results.

(2) Net voyage revenues represents voyage revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, canal tolls and brokerage commissions. Net voyage 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.

(3) Commencing in 2009, and applied retroactively, in accordance with SFAS 160, the Partnership's GAAP net income (loss) is presented before non-controlling interest on the Statements of Income (Loss). Net income (loss) attributable to Partners represents the net income (loss) attributable to the limited partners and general partner of Teekay Offshore.

Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's shuttle tanker segment decreased to $31.4 million for the first quarter of 2009, compared to $39.3 million for the same quarter of the prior year primarily due to an increase in vessel operating costs, and restructuring charges of $2.2 million related to the re-flagging of certain of the Partnership's Norwegian-flagged vessels, partially offset by an increase to our shuttle tanker revenues. Vessel operating expenses increased from the same quarter of the prior year primarily due to the rising costs of supplies, an increase in crew manning costs and the impact of changes in foreign currency exchange rates.