(Source: MARKETWIRE)
Teekay Offshore Partners L.P. (Teekay Offshore or the Partnership) (NYSE: TOO) announced today that it has agreed to acquire the Petrojarl Varg Floating Production Storage and Offloading unit (Petrojarl Varg FPSO) from Teekay Corporation (Teekay) (NYSE: TK) for a purchase price of $320 million. The Partnership also announced today that Teekay has agreed to provide vendor financing in the amount of $220 million which, together with the $104 million of equity raised by the Partnership in August 2009, will enable Teekay Offshore to complete the acquisition by mid-September 2009.
The Petrojarl Varg FPSO recently commenced a new a four-year fixed-rate contract extension with Talisman Energy (Talisman) on the Varg oil field in the North Sea, where the FPSO has been operating for over ten years. Talisman also has options to extend the new contract for up to an additional nine years. The contract is comprised of a daily base rate plus an incentive component based on the operational performance of the FPSO, a tariff component based on the volume of oil produced and an annual adjustment for cost escalations. There is potential for additional upside from the tariff component if, as expected, nearby oil fields become operational and are tied into the Petrojarl Varg FPSO.
During the four-year firm contract period, the Petrojarl Varg FPSO is expected to generate average annual cash flow from vessel operations of approximately $55 million and distributable cash flow (DCF) of approximately $30 million, which represents a significant increase to Teekay Offshore's DCF generated over the last twelve months of $48.2 million(1).
The $220 million vendor financing is comprised of two tranches. The first tranche is a $160 million short-term debt facility, which will be repaid upon the completion of a new $260 million revolving credit facility that is currently in syndication. The $260 million revolving credit facility, which will be secured by the Petrojarl Varg FPSO and its contract with Talisman, is expected to be completed by the end of October 2009. The second tranche of the vendor financing is a $60 million unsecured subordinated debt facility with a maximum term of five years and bears an interest rate of 10 percent per annum. Upon the completion of the acquisition and the $260 million revolving credit facility, together with the equity proceeds raised in August 2009, the Partnership's liquidity will increase by approximately $100 million.
The Board of Directors of the Partnership's General Partner and its Conflicts Committee have both approved the transaction. The Conflicts Committee retained independent legal and financial advisors to assist it in evaluating the transaction.
