Highlights

- Generated distributable cash flow of $9.0 million in the second quarter of 2009, down from $10.0 million in the previous quarter.

- Declared and paid cash distribution of $0.45 per unit for the second quarter of 2009.

- Completed follow-on public equity offering in August 2009, raising $104.3 million in net proceeds used to repay drawn revolver debt and for general corporate purposes.

- Received a formal offer from Teekay Corporation to acquire the Petrojarl Varg FPSO unit and associated fixed-rate contract.

Teekay Offshore GP LLC, the general partner of Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE: TOO) today reported its results for the quarter ended June 30, 2009. During the second quarter, the Partnership generated distributable cash flow(1) of $9.0 million, a decrease from $10.0 million in the quarter ended March 31, 2009, primarily as a result of lower shuttle tanker utilization, partially offset by decreases in operating expenses and time-charter hire expense in the second quarter of 2009 as compared to the previous 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.

On July 23, 2009, the Partnership declared a cash distribution of $0.45 per unit for quarter ended June 30, 2009. The cash distribution was paid on August 14, 2009, to all unitholders of record on July 29, 2009.

"Consistent with our previous guidance, the Partnership's second 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, restructuring costs associated with the re-flagging of certain of our shuttle tankers, lower shuttle tanker utilization as a result of reduced oil production and seasonal field maintenance, and reduced revenues due to start-up delays at some of the new North Sea fields." Mr. Evensen added, "We continue to make progress on re-flagging and other initiatives as demonstrated by our lower operating expenses in the second quarter, compared to the previous quarter, and we are still targeting further reductions. In addition, proceeds from our recently completed follow-on equity offering have resulted in a stronger balance sheet and increased liquidity which could be utilized by the Partnership to make future accretive acquisitions. We are excited about the recent offer from our sponsor, Teekay Corporation, for us to acquire the Petrojarl Varg FPSO. The offer is currently under review by our Conflicts Committee and we expect to be in a position to respond within the coming weeks."

Teekay Offshore's Fleet

The following table summarizes Teekay Offshore's fleet, including vessels owned by OPCO, as of August 31, 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.

FSO Unit

Teekay has recently entered into a fixed-rate FSO contract with a major oil company, which will involve converting one of its existing shuttle tankers to an FSO unit. The conversion is expected to be completed in December 2009 at which time it will commence its charter based in the Qatar offshore region for an initial contracted duration of 7.5 years (plus extension options). Under the Omnibus Agreement, Teekay is obligated to offer its interest in this FSO project to the Partnership within one year after the commencement of the charter.

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.

In late-August 2009, Teekay made a formal offer to sell one of these FPSO units, the Petrojarl Varg, to Teekay Offshore, which is currently being reviewed by the Board of Directors of Teekay Offshore's General Partner and its Conflicts Committee.

In addition, prior to July 9, 2010, Teekay Offshore has the right to acquire Teekay's existing FPSO units 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.

Financial Summary

The Partnership reported adjusted net income attributable to the partners(1) (as detailed in Appendix A to this release) of $7.0 million for the quarter ended June 30, 2009, compared to $7.5 million for the previous quarter. Adjusted net income attributable to the partners excludes a number of specific items which had the net effect of increasing net income by $26.5 million and $9.5 million for the quarters ended June 30, 2009 and March 31, 2009, respectively, as detailed in Appendix A. Including these items, the Partnership reported net income attributable to the partners of $33.5 million(3), on a GAAP basis, for the second quarter of 2009, compared to $16.9 million(3), for the previous quarter. Net voyage revenues(2) for the second quarter of 2009 decreased to $150.8 million from $158.6 million for the previous quarter.

(1) Adjusted net income attributable to the partners is a non-GAAP financial measure. Please refer to Appendix A to the Consolidated Statements of Income 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 is presented before non-controlling interest on the Statements of Income. Net income attributable to Partners represents the net income attributable to the limited partners and general partner of Teekay Offshore.

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. 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                                            June 30, 2009                                              (unaudited)                               Shuttle  Conventional (in thousands of               Tanker        Tanker         FSO U.S. dollars)                 Segment       Segment     Segment       Total --------------------------------------------------------------------------- Net voyage revenues           109,860        25,043      15,888     150,791 Vessel operating  expenses(i)                   34,737         5,942       6,257      46,936 Time-charter hire  expense                       29,144             -           -      29,144 Depreciation and  amortization                  23,185         5,984       5,419      34,588 Cash flow from  vessel operations(ii)         31,833        17,818       8,611      58,262 --------------------------------------------------------------------------- ---------------------------------------------------------------------------                                          Three Months Ended                                            March 31, 2009                                              (unaudited)                               Shuttle  Conventional (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 --------------------------------------------------------------------------- (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 Consolidated Statements of Income 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. 

Shuttle Tanker Segment

Cash flow from vessel operations from the Partnership's shuttle tanker segment was consistent with the previous quarter, increasing slightly to $31.8 million for the second quarter of 2009, compared to $31.4 million for the previous quarter, primarily due to decreases in vessel operating expenses and time charter hire expense.