Altera Infrastructure 6K Current report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the quarterly period endedSeptember 30, 2008

Commission file number 1-33198

TEEKAY OFFSHORE PARTNERS L.P.

(Exact name of Registrant as specified in its charter)

4^th floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F orForm 40-F.

Form 20-Fþ Form 40-Fo

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

Yeso Noþ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

Yeso Noþ

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yeso Noþ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

INDEX


	PAGE
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Unaudited Consolidated Statements of Income (Loss) for the three and nine months ended September, 2008 and 2007		3

Unaudited Consolidated Balance Sheets as at September 30, 2008 and December 31, 2007		4

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007		5

Unaudited Consolidated Statements of Changes In Partners’ Equity for the nine months ended September 30, 2008		6

Notes to the Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures about Market Risk		33

PART II: OTHER INFORMATION		34

SIGNATURES		36

Page 2 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands of U.S. dollars, except unit and per unit data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	$			$			$			$
				(Restated -						(Restated -
				Note 14)						Note 14)
VOYAGE REVENUES(including $54,794 and $145,505 from related parties for the three and nine months ended September 30, 2008, respectively, and $36,502 and $114,154 for the three and nine months ended September 30, 2007, respectively —notes 9a, 9b, 9c, 9kand 9p)		226,947			195,711			656,363			581,225


OPERATING EXPENSES
Voyage expenses		62,548			36,458			173,736			107,852
Vessel operating expenses (including ($200) and ($1,345) from related parties for the three and nine months ended September 30, 2008, respectively —notes 9h and 9l,note 10)		47,448			37,745			134,886			105,239
Time-charter hire expense		31,474			37,161			97,382			111,749
Depreciation and amortization		34,042			31,945			103,401			90,897
General and administrative (including $10,993 and $37,713 to related parties for the three and nine months ended September 30, 2008, respectively, and $14,846 and $42,424 for the three and nine months ended September 30, 2007, respectively —notes 9d, 9e and 9f, note 10)		14,087			16,008			45,089			48,067

Total operating expenses		189,599			159,317			554,494			463,804


Income from vessel operations		37,348			36,394			101,869			117,421


OTHER ITEMS
Interest expense (notes 6 and 10,including $1,338 from related parties for the nine months ended September 30, 2007 —note 9o)		(32,592	)		(60,418	)		(76,628	)		(69,839	)
Interest income		901			1,784			3,201			4,365
Foreign currency exchange gain (loss)(note 10)		2,179			(4,715	)		(1,394	)		(13,265	)
Other income — net(note 8)		2,352			2,965			7,292			8,266

Total other items		(27,160	)		(60,384	)		(67,529	)		(70,473	)


Income (loss) before non-controlling interest and income tax recovery (expense)		10,188			(23,990	)		34,340			46,948
Income tax recovery (expense)(note 11)		29,485			(6,119	)		36,830			(1,491	)


Income (loss) before non-controlling interest		39,673			(30,109	)		71,170			45,457
Non-controlling interest		(19,048	)		21,103			(38,069	)		(35,475	)

Net income (loss)		20,625			(9,006	)		33,101			9,982

Dropdown Predecessor’s interest in net income(note 1)		—			22			1,333			1,300
General partner’s interest in net income (loss)		3,052			(181	)		9,933			531
Limited partners’ interest:(note 12)
Net income (loss)		17,573			(8,847	)		21,835			8,151
Net income (loss) per:
- Common unit (basic and diluted)		0.58			(0.45	)		0.74			0.43
- Subordinated unit (basic and diluted)		0.58			(0.45	)		0.74			0.37
- Total unit (basic and diluted)		0.58			(0.45	)		0.74			0.40


Weighted average number of units outstanding:
- Common units (basic and diluted)		20,359,783			9,800,000			13,794,526			9,800,000
- Subordinated units (basic and diluted)		9,800,000			9,800,000			9,800,000			9,800,000
- Total units (basic and diluted)		30,159,783			19,600,000			23,594,526			19,600,000

Cash distributions declared per unit		0.40			0.35			1.20			0.75

The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 3 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)


	As at			As at
	September 30, 2008			December 31, 2007
	$			$
ASSETS
Current
Cash and cash equivalents(note 6)		159,204			121,224
Accounts receivable, net		42,196			42,245
Net investment in direct financing leases — current		22,393			22,268
Prepaid expenses		38,533			34,219
Due from affiliate(note 9m)		11,580			18,350
Other current assets		3,784			7,644


Total current assets		277,690			245,950


Vessels and equipment(note 6)
At cost, less accumulated depreciation of $761,481 (December 31, 2007 — $692,754)		1,731,709			1,662,865

Net investment in direct financing leases		61,655			78,199
Other assets		12,005			14,423
Intangible assets — net(note 5)		47,806			55,355
Goodwill — shuttle tanker segment		127,113			127,113


Total assets		2,257,978			2,183,905


LIABILITIES AND PARTNERS’ EQUITY
Current
Accounts payable		13,514			12,076
Accrued liabilities		41,887			38,464
Due to affiliate(note 9m)		49,505			17,554
Current portion of long-term debt(note 6)		74,766			64,060
Current portion of derivative instruments (note 10)		18,616			5,277

Total current liabilities		198,288			137,431

Long-term debt(note 6)		1,535,308			1,453,407
Deferred income tax		40,677			77,306
Derivative instruments(note 10)		32,466			17,770
Other long-term liabilities		24,605			27,977

Total liabilities		1,831,344			1,713,891

Commitments and contingencies(notes 6, 9, 10 and 13)

Non-controlling interest		253,907			392,613

Partners’ equity
Partners’ equity		179,235			77,108
Accumulated other comprehensive (loss) income(note 7)		(6,508	)		293


Total partners’ equity		172,727			77,401


Total liabilities and partners’ equity		2,257,978			2,183,905

The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 4 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)


	Nine Months Ended September 30,
	2008			2007
	$			$
				(Restated - Note 14)
Cash and cash equivalents provided by (used for)

OPERATING ACTIVITIES
Net income		33,101			9,982
Non-cash items:
Unrealized loss on derivative instruments(note 10)		15,378			10,378
Depreciation and amortization		103,401			90,897
Non-controlling interest		38,069			35,475
Income tax (recovery) expense		(36,830	)		1,491
Foreign currency exchange (gain) loss and other — net		(291	)		13,293
Change in non-cash working capital items related to operating activities		47,882			(27,567	)
Distribution from subsidiaries to minority owners		(58,641	)		(44,192	)
Expenditures for drydocking		(26,083	)		(41,100	)


Net operating cash flow		115,986			48,657


FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		191,000			188,200
Scheduled repayments of long-term debt		(24,393	)		(12,151	)
Prepayments of long-term debt		(119,000	)		(115,000	)
Net advances to affiliate		(46,544	)		(42,935	)
Equity distribution from Teekay Corporation		—			1,819
Proceeds from issuance of common units		216,837			—
Expenses from issuance of common units		(6,171	)		(2,793	)
Distribution to Teekay Corporation relating to purchase of SPT Explorer L.L.C. and SPT Navigator L.L.C.(note 9k)		(16,661	)		—
Excess of purchase price over the contributed basis of a 25% interest in Teekay Offshore Operating L.P.(note 9j)		(94,882	)		—
Distribution to Teekay Corporation relating to purchase of Navion Bergen L.L.C.(note 9n)		—			(48,800	)
Excess of purchase price over the contributed basis of a 50% interest in Navion Gothenburg L.L.C.(note 9n)		—			(6,358	)
Cash distributions paid		(28,337	)		(15,000	)
Other		(1,538	)		—


Net financing cash flow		70,311			(53,018	)


INVESTING ACTIVITIES
Expenditures for vessels and equipment		(52,990	)		(13,341	)
Proceeds from sale of vessels and equipment		—			3,225
Purchase of a 25% interest in Teekay Offshore Operating L.P.(note 9j)		(111,746	)		—
Purchase of a 50% interest in Navion Gothenburg L.L.C.(note 9n)		—			(10,231	)
Investment in direct financing lease assets		(537	)		(8,332	)
Direct financing lease payments received		16,956			15,882


Net investing cash flow		(148,317	)		(12,797	)


Increase (decrease) in cash and cash equivalents		37,980			(17,158	)
Cash and cash equivalents, beginning of the period		121,224			113,986


Cash and cash equivalents, end of the period		159,204			96,828

The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 5 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES (Note 1)

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ EQUITY

(in thousands of U.S. dollars and units)


	Owner’s																Accumulated
	Equity			PARTNERS’ EQUITY													Other
	(Dropdown			Limited Partners										General			Comprehensive
	Predecessor)			Common					Subordinated					Partner			Income (Loss)			Total
	$			Units		$			Units		$			$			$			$
Balance as at December 31, 2007		—			9,800		119,844			9,800		(41,795	)		(941	)		293			77,401
Net income		1,333					14,550					7,285			9,933						33,101
Unrealized net loss on qualifying cash flow hedging instruments(notes 7 and 10)																		(8,470	)		(8,470	)
Realized net loss on qualifying cash flow hedging instruments(notes 7 and 10)																		703			703
Proceeds from follow-on public offering of limited partnership interests, net of offering costs of $6,171(note 3)					10,625		206,329								4,337						210,666
Purchase of a 25% interest in Teekay Offshore Operating L.P. from Teekay Corporation(note 9j)							(31,101	)				(60,957	)		(3,790	)		966			(94,882	)
Purchase of SPT Explorer L.L.C. and SPT Navigator L.L.C. from Teekay Corporation(note 9k)		(1,333	)				(5,231	)				(10,253	)		(638	)					(17,455	)
Cash distributions							(16,010	)				(11,760	)		(567	)					(28,337	)

Balance as at September 30, 2008		—			20,425		288,381			9,800		(117,480	)		8,334			(6,508	)		172,727

The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 6 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)

Basis of Presentation

The unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (orGAAP). These financial statements include the accounts of Teekay Offshore Partners L.P., which is a limited partnership organized under the laws of the Republic of The Marshall Islands, its wholly owned or controlled subsidiaries and the Dropdown Predecessor, as described below (collectively, thePartnership). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with the Partnership’s restated audited consolidated financial statements for the year ended December 31, 2007, which are included on Form 20-F/A filed on April 2, 2009. In the opinion of management of our general partner, Teekay Offshore GP L.L.C. (or theGeneral Partner), these interim unaudited consolidated financial statements reflect all adjustments, of a normal recurring nature, necessary to present fairly, in all material respects, the Partnership’s consolidated financial position, results of operations, changes in partners’ equity and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation.

As required by Statement of Financial Accounting Standards (orSFAS) No. 141, Business Combinations, the Partnership accounts for the acquisition of interests in vessels from Teekay Corporation as a transfer of a business between entities under common control. The method of accounting prescribed by SFAS No. 141 for such transfers is similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity is carried forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combination. The excess of the proceeds paid, if any, by the Partnership over Teekay Corporation’s historical cost is accounted for as an equity distribution to Teekay Corporation. In addition, transfers of net assets between entities under common control are accounted for as if the transfer occurred from the date that the Partnership and the acquired vessels were under the common control of Teekay Corporation and had begun operations. As a result, the Partnership’s financial statements prior to the date the interests in these vessels were actually acquired are retroactively adjusted to include the results of these vessels during the periods they operated under the common control of Teekay Corporation.

In July 2007, the Partnership acquired from Teekay Corporation ownership of its 100% interest in the 2000-built shuttle tankerNavion Bergenand its 50% interest in the 2006-built shuttle tankerNavion Gothenburg, respectively. The acquisitions included the assumption of debt, related interest rate swap agreements and Teekay Corporation’s rights and obligations under 13-year, fixed-rate bareboat charters. In October 2007, the Partnership acquired from Teekay Corporation its interest in the FSO unitDampier Spirit, along with its 7-year fixed-rate time-charter. In June 2008, the Partnership acquired from Teekay Corporation its interest in two 2008-built Aframax lightering tankers, theSPT Explorerand theSPT Navigator. The acquisition included the assumption of debt and Teekay Corporation’s rights and obligations under 10-year, fixed-rate bareboat charters (with options exercisable by the charterer to extend up to an additional five years). All of these transactions were deemed to be business acquisitions between entities under common control. As a result, the Partnership’s statement of income (loss) for the three and nine months ended September 30, 2008 and 2007, the Partnership’s statement of cash flows for the nine months ended September 30, 2008 and 2007, and the Partnership’s statement of changes in partners’ equity for the nine months ended September 30, 2008 have been retroactively adjusted to include the results of these acquired vessels (referred to herein as theDropdown Predecessor), from the date that the Partnership and acquired vessels were both under common control of Teekay Corporation and had begun operations. These vessels began operations on April 16, 2007 (Navion Bergen), July 24, 2007 (Navion Gothenburg), March 15, 1998 (Dampier Spirit), January 7, 2008 (SPT Explorer)and March 28, 2008 (SPT Navigator). The effect of adjusting the Partnership’s financial statements to account for these common control transfers increased the Partnership’s net income by $1.3 million for both the nine months ended September 30, 2008 and 2007.

The consolidated financial statements include the financial position, results of operations and cash flows of the Dropdown Predecessor. In the preparation of these consolidated financial statements, general and administrative expenses and interest expense were not identifiable as relating solely to each specific vessel with respect to the Dropdown Predecessor. General and administrative expenses (consisting primarily of salaries and other employee-related costs, office rent, legal and professional fees, and travel and entertainment) were allocated based on the Dropdown Predecessor’s proportionate share of Teekay Corporation’s total ship-operating (calendar) days for the period presented. In addition, to the extent the Dropdown Predecessor was capitalized with non-interest bearing loans from Teekay Corporation and its subsidiaries, these intercompany loans were generally used to finance the acquisition of the vessels. Interest expense includes the allocation of interest to the Dropdown Predecessor from Teekay Corporation and its subsidiaries based upon the weighted-average outstanding balance of these intercompany loans and the weighted-average interest rate outstanding on Teekay Corporation’s loan facilities that were used to finance these intercompany loans. Management believes these allocations reasonably present the general and administrative expenses and interest expense of the Dropdown Predecessor.

Certain of the accompanying consolidated financial statements have been restated. The nature of the restatements and the effect on the consolidated financial statement line items are discussed in Note 14 of the Notes to Unaudited Interim Consolidated Financial Statements.

Page 7 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data)

Fair Value Measurements

Effective January 1, 2008, the Partnership adopted SFAS No. 157,Fair Value Measurements. In accordance with Financial Accounting Standards Board Staff Position No. FAS 157-2,Effective Date of FASB Statement No. 157, the Partnership will defer the adoption of SFAS No. 157 for its nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on the Partnership’s fair value measurements.

SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosure about the use of fair value measurements. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:


		Level 1.		Observable inputs such as quoted prices in active markets;
		Level 2.		Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
		Level 3.		Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table presents the Partnership’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.


	Fair Value at
	September 30,
	2008
	Liability			Level 1		Level 2			Level 3
	$			$		$			$

Interest rate swap agreements^{(1), (2)}		(44,003	)		—		(44,003	)		—
Foreign currency forward contracts⁽¹⁾		(12,820	)		—		(12,820	)		—

		(56,823	)		—		(56,823	)		—


(1)		The fair value of the Partnership’s derivative agreements is the estimated amount that the Partnership would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates, foreign exchange rates and the current credit worthiness of both the Partnership and the swap counterparties. The estimated amount is the present value of future cash flows. Given the current volatility in the credit markets, it is reasonably possible that the amount recorded as a derivative liability could vary by a material amount in the near term.

(2)		The fair value of the Partnership’s interest rate swap agreements includes $5.7 million of accrued interest which is recorded in accrued liabilities on the balance sheet.

Public Offering

On June 18, 2008, the Partnership completed a follow-on public offering (or theFollow-on Offering) of 7.0 million common units at a price of $20.00 per unit, for gross proceeds of $140.0 million. Concurrently with the public offering, Teekay Corporation, which controls the Partnership, acquired 3.25 million common units of the Partnership in a private placement at the same public offering price for a total cost of $65.0 million. On July 16, 2008, the underwriters for the public offering partially exercised their over-allotment option and purchased an additional 375,000 common units for an additional $7.5 million in gross proceeds to the Partnership.

As a result of these equity transactions, the Partnership raised gross proceeds of $216.8 million (including the General Partner’s proportionate 2% capital contribution), and Teekay Corporation’s ownership of the Partnership was reduced from 59.8% to 50.0% (including its indirect 2% general partner interest). The Partnership used the net proceeds from the equity offerings of approximately $210.7 million to fund the acquisition of an additional 25% interest in Teekay Offshore Operating L.P. (orOPCO) from Teekay Corporation and to repay a portion of advances to the Partnership from OPCO.

Segment Reporting

The Partnership has three reportable segments: its shuttle tanker segment; its conventional tanker segment; and its floating storage and offtake (orFSO) segment. The Partnership’s shuttle tanker segment consists of shuttle tankers operating primarily on fixed-rate contracts of affreightment, time-charter contracts or bareboat charter contracts. The Partnership’s conventional tanker segment consists of conventional tankers operating on fixed-rate, time-charter contracts or bareboat charter contracts. The Partnership’s FSO segment consists of its FSO units subject to fixed-rate, time-charter contracts or bareboat charter contracts. Segment results are evaluated based on income from vessel operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Partnership’s consolidated financial statements for the year ended December 31, 2007.

Page 8 of 36

The following tables present results for these segments for the three and nine months ended September 30, 2008 and 2007:


	Three Months Ended September 30,
	2008								2007
	Shuttle		Conventional						Shuttle		Conventional
	Tanker		Tanker		FSO				Tanker		Tanker		FSO
	Segment		Segment		Segment		Total		Segment		Segment		Segment		Total
	$		$		$		$		$		$		$		$
									(restated)				(restated)		(restated)

Voyage revenues		168,390		40,652		17,905		226,947		145,166		30,100		20,445		195,711
Voyage expenses		47,338		14,713		497		62,548		29,404		6,816		238		36,458
Vessel operating expenses		33,970		6,433		7,045		47,448		25,676		6,125		5,944		37,745
Time-charter hire expense		31,474		—		—		31,474		37,161		—		—		37,161
Depreciation and amortization		22,880		5,636		5,526		34,042		22,453		5,053		4,439		31,945
General andadministrative⁽¹⁾		10,825		2,458		804		14,087		12,908		2,070		1,030		16,008

Income from vessel operations		21,903		11,412		4,033		37,348		17,564		10,036		8,794		36,394


	Nine Months Ended September 30,
	2008								2007
	Shuttle		Conventional						Shuttle		Conventional
	Tanker		Tanker		FSO				Tanker		Tanker		FSO
	Segment		Segment		Segment		Total		Segment		Segment		Segment		Total
	$		$		$		$		$		$		$		$
									(restated)				(restated)		(restated)

Voyage revenues		488,715		114,248		53,400		656,363		437,794		102,748		40,683		581,225
Voyage expenses		131,533		40,976		1,227		173,736		81,299		25,969		584		107,852
Vessel operating expenses		95,605		18,544		20,737		134,886		73,326		17,187		14,726		105,239
Time-charter hire expense		97,382		—		—		97,382		111,749		—		—		111,749
Depreciation and amortization		68,599		16,612		18,190		103,401		63,590		15,748		11,559		90,897
General andadministrative⁽¹⁾		35,712		6,531		2,846		45,089		39,385		5,928		2,754		48,067

Income from vessel operations		59,884		31,585		10,400		101,869		68,445		37,916		11,060		117,421


(1)		Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

A reconciliation of total segment assets to total assets presented in the consolidated balance sheets is as follows:


	September 30,		December 31,
	2008		2007
	$		$

Shuttle tanker segment		1,539,085		1,559,261
Conventional tanker segment		337,527		255,460
FSO segment		114,064		131,080
Unallocated:
Cash and cash equivalents		159,204		121,224
Accounts receivable, prepaid expenses and other assets		108,098		116,880

Consolidated total assets		2,257,978		2,183,905

Page 9 of 36

Intangible Assets

As of September 30, 2008 and December 31, 2007, intangible assets consisted of contracts of affreightment with a weighted-average amortization period of 10.2 years.

The carrying amount of intangible assets as at September 30, 2008 and December 31, 2007 is as follows:


	September 30,			December 31,
	2008			2007
	$			$

Gross carrying amount		124,250			124,250
Accumulated amortization		(76,444	)		(68,895	)

Net carrying amount		47,806			55,355

Aggregate amortization expense of intangible assets for the three and nine months ended September 30, 2008 was $2.5 million ($2.8 million — 2007) and $7.5 million ($8.3 million — 2007), respectively. Amortization of intangible assets for the five years subsequent to September 30, 2008 is expected to be $2.5 million (remainder of 2008), $9.1 million (2009), $8.1 million (2010), $7.0 million (2011) and $6.0 million (2012).

Long-Term Debt


	September 30,		December 31,
	2008		2007
	$		$

U.S. Dollar-denominated Revolving Credit Facilities due through 2018		1,315,587		1,205,808
U.S. Dollar-denominated Term Loans due through 2015		294,487		311,659

		1,610,074		1,517,467
Less current portion		74,766		64,060

Total		1,535,308		1,453,407

As at September 30, 2008, the Partnership had five long-term revolving credit facilities, which, as at such date, provided for borrowings of up to $1.46 billion, of which $144.8 million was undrawn. The total amount available under the revolving credit facilities reduces by $53.4 million (remainder of 2008), $118.9 million (2009), $125.6 million (2010), $132.8 million (2011), $140.4 million (2012) and $889.3 million (thereafter). Three of the revolving credit facilities are guaranteed by certain subsidiaries of the Partnership for all outstanding amounts and contain covenants that requireOPCOto maintain the greater of a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of at least $75.0 million and 5.0% of OPCO’s total consolidated debt. The remaining revolving credit facilities are guaranteed by Teekay Corporation and contain covenants that require Teekay Corporation to maintain the greater of a minimum liquidity of $50.0 million and 5.0% of Teekay Corporation’s total consolidated debt, which has recourse to Teekay Corporation. The revolving credit facilities are collateralized by first-priority mortgages granted on 31 of the Partnership’s vessels, together with other related security.

As at September 30, 2008, each of the Partnership’s six 50% owned subsidiaries had an outstanding term loan, which in aggregate totaled $294.5 million. The term loans have varying maturities through 2017 and semi-annual payments that reduce over time. All term loans are collateralized by first-priority mortgages on the vessels to which the loans relate, together with other related security. As at September 30, 2008, the Partnership had guaranteed $96.1 million of these term loans, which represents its 50% share of the outstanding vessel mortgage debt of five of these 50% owned subsidiaries. The other owner and Teekay Corporation have guaranteed the remaining $198.4 million.

Interest payments on the revolving credit facilities and term loans are based on LIBOR plus a margin. At September 30, 2008 and December 31, 2007, the margins ranged between 0.45% and 0.80%. The weighted-average effective interest rate on the Partnership’s long-term debt as at September 30, 2008 was 3.7% (December 31, 2007 — 5.7%). This rate does not reflect the effect of the interest rate swaps (Note 10).

The aggregate annual long-term debt principal repayments required to be made subsequent to September 30, 2008 are $43.6 million (remainder of 2008), $125.5 million (2009), $134.7 million (2010), $169.3 million (2011), $147.1 million (2012) and $989.8 million (thereafter).

Page 10 of 36

Comprehensive Income (Loss)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	$			$			$			$
				(restated)						(restated)
Net income (loss)		20,625			(9,006	)		33,101			9,982
Other comprehensive income (loss):
Unrealized net (loss) gain on qualifying cash flow hedging instruments		(9,458	)		205			(8,470	)		205
Realized net loss (gain) on qualifying cash flow hedging instruments		989			(49	)		703			(49	)

Comprehensive income (loss)		12,156			(8,850	)		25,334			10,138

As at September 30, 2008 and December 31, 2007, the Partnership’s accumulated other comprehensive (loss) and income of ($6.5) million and $0.3 million, respectively, consisted of net unrealized losses and gains, respectively, on derivative instruments.

Other Income — Net


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008			2007		2008			2007
	$			$		$			$

Volatile organic compound emissions plant lease income		2,677			2,792		7,642			8,280
Miscellaneous		(325	)		173		(350	)		(14	)

Other income — net		2,352			2,965		7,292			8,266

Related Party Transactions

Nine of OPCO’s conventional tankers are employed on long-term time-charter contracts with a subsidiary of Teekay Corporation. Under the terms of eight of these nine time-charter contracts, OPCO is responsible for the bunker fuel expenses; however, OPCO adds the approximate amounts of these expenses to the daily hire rate plus a 4.5% margin. Pursuant to these charter contracts, OPCO earned voyage revenues of $38.3 million and $108.0 million, respectively, during the three and nine months ended September 30, 2008, compared to $30.1 million and $95.2 million, respectively, for the same periods last year.

Two of OPCO’s shuttle tankers are employed on long-term bareboat charters with a subsidiary of Teekay Corporation. Pursuant to these charter contracts, OPCO earned voyage revenues of $4.8 million and $11.5 million, respectively, during the three and nine months ended September 30, 2008, compared to $3.6 million and $10.6 million for the same periods last year.

Two of OPCO’s FSO units are employed on long-term bareboat charters with a subsidiary of Teekay Corporation. Pursuant to these charter contracts, OPCO earned voyage revenues of $2.8 million and $8.4 million, respectively, during the three and nine months ended September 30, 2008, compared to $2.8 million and $8.4 million, respectively, for the same periods last year.

A subsidiary of Teekay Corporation has entered into a services agreement with a subsidiary of OPCO, pursuant to which the subsidiary of OPCO provides the Teekay Corporation subsidiary with ship management services. Pursuant to this agreement, OPCO earned management fees of $0.8 million and $2.4 million, respectively, during the three and nine months ended September 30, 2008, compared to $0.7 million and $1.9 million, respectively, for the same periods last year.

The Partnership, OPCO and certain of the Partnership’s and OPCO’s operating subsidiaries have entered into services agreements with certain subsidiaries of Teekay Corporation, pursuant to which Teekay Corporation subsidiaries provide the Partnership, OPCO and their respective operating subsidiaries with administrative, advisory, technical and ship management services. Pursuant to these services agreements, the Partnership incurred $11.6 million and $39.6 million, respectively, of these costs during the three and nine months ended September 30, 2008, compared to $15.2 million and $43.2 million, respectively, for the same periods last year. During the three and nine months ended September 30, 2007, $0.1 million and $0.4 million, respectively, of general and administrative expenses attributable to the operations of vessels the Partnership acquired from Teekay Corporation were incurred by Teekay Corporation, but also allocated to the Partnership as part of the results of the Dropdown Predecessor. See note 1.

Pursuant to the Partnership’s partnership agreement, the Partnership reimburses the General Partner for all expenses incurred by the General Partner or its affiliates that are necessary or appropriate for the conduct of the Partnership’s business. Pursuant to this agreement, the Partnership reimbursed $0.1 million and $0.4 million, respectively, of these costs during the three and nine months ended September 30, 2008, compared to $0.2 million and $0.7 million, respectively, for the same periods last year.

Page 11 of 36

The Partnership has entered into an omnibus agreement with Teekay Corporation, Teekay LNG Partners L.P., the General Partner and others governing, among other things, when the Partnership, Teekay Corporation and Teekay LNG Partners L.P. may compete with each other and certain rights of first offer on certain liquefied natural gas carriers, oil tankers, shuttle tankers, FSO units and floating production, storage and offloading units.

In March 2008, Teekay Corporation agreed to reimburse the Partnership for repair costs relating to one of the Partnership’s shuttle tankers. The vessel was purchased from Teekay Corporation in July 2007 and had, as of the date of acquisition, an inherent minor defect that required repairs. Pursuant to this agreement, Teekay Corporation reimbursed $0.2 million and $0.6 million, respectively, of these costs during the three and nine months ended September 30, 2008.

In March 2008, a subsidiary of OPCO sold certain vessel equipment to a subsidiary of Teekay Corporation for proceeds equal to its net book value of $1.4 million.

Concurrently with the closing of the Partnership’s Follow-on Offering, the Partnership acquired from Teekay Corporation an additional 25% interest in OPCO for $205.0 million, thereby increasing the Partnership’s ownership interest in OPCO to 51%. The Partnership financed the acquisition with the net proceeds from the Follow-on Offering and a concurrent private placement of common units to Teekay Corporation. See Note 3. The excess of the proceeds paid by the Partnership over Teekay Corporation’s historical book value for the 25% interest in OPCO was accounted for as an equity distribution to Teekay Corporation of $94.9 million.

On June 18, 2008, OPCO acquired from Teekay Corporation two ship owning subsidiaries (SPT Explorer L.L.C. and the SPT Navigator L.L.C.) for a total cost of approximately $106.0 million, including the assumption of third-party debt of approximately $90.0 million and the non-cash settlement of related party working capital of $1.2 million. The acquired subsidiaries own two 2008-built Aframax lightering tankers (theSPT Explorerand theSPT Navigator) and their related 10-year, fixed-rate bareboat charters (with options exercisable by the charterer to extend up to an additional five years) entered into with Skaugen PetroTrans, a joint venture in which Teekay Corporation owns a 50% interest. These two lightering tankers are specially designed to be used in ship-to-ship oil transfer operations. This purchase was financed with the assumption of debt, together with cash balances. The excess of the proceeds paid by the Partnership over Teekay Corporation’s historical book value was accounted for as an equity distribution to Teekay Corporation of $16.2 million. Pursuant to the bareboat charters for the vessels, OPCO earned voyage revenues of $2.5 million and $6.2 million, respectively, for the three and nine months ended September 30, 2008 (including voyage revenues earned as part of the Dropdown Predecessor prior to OPCO’s acquisition of the vessels — see Note 1).

In June 2008, Teekay Corporation agreed to reimburse OPCO for certain costs relating to events which occurred prior to the Partnership’s initial public offering in December 2006, totalling $0.7 million, primarily relating to the settlement of repair costs not covered by insurance providers for work performed in early 2006 on two of OPCO’s shuttle tankers.

At September 30, 2008, due from affiliates totaled $11.6 million (December 31, 2007 — $18.4 million) and due to affiliates totaled $49.5 million (December 31, 2007 — $17.6 million). Due to and from affiliate are non-interest bearing and unsecured.

In July 2007, the Partnership acquired interests in two double-hull shuttle tankers from Teekay Corporation for a total cost of $159.1 million, including assumption of debt. The Partnership acquired Teekay Corporation’s 100% interest in the 2000-builtNavion Bergen and Teekay Corporation’s 50% interest in the 2006-builtNavion Gothenburg, together with their respective 13-year, fixed-rate bareboat charters to Petroleo Brasileiro S.A. The purchases were financed with one of the Partnership’s existing revolving credit facilities and the assumption of debt. The excess of the proceeds paid by the Partnership over Teekay Corporation’s historical cost was accounted for as an equity distribution to Teekay Corporation of $25.4 million.

During the nine months ended September 30, 2007, $1.3 million of interest expense attributable to the operations of theNavion Bergenwas incurred by Teekay Corporation and has been allocated to the Partnership as part of the results of the Dropdown Predecessor.

Two of OPCO’s in-chartered shuttle tankers were employed on single-voyage charters with a subsidiary of Teekay Corporation. Pursuant to these charter contracts, OPCO earned voyage revenues of $6.4 million and $11.3 million for the three and nine months ended September 30, 2008.

10.

Derivative Instruments and Hedging Activities

The Partnership uses derivatives in accordance with its overall risk management policies. The following summarizes the Partnership’s risk strategies with respect to market risk from foreign currency fluctuations and changes in interest rates.

Page 12 of 36

The Partnership hedges portions of its forecasted expenditures denominated in foreign currencies with foreign exchange forward contracts. These foreign exchange forward contracts are generally designated, for accounting purposes, as cash flow hedges of forecasted foreign currency expenditures. Where such instruments are designated and qualify as cash flow hedges, the effective portion of the changes in their fair value is recorded in accumulated other comprehensive income (loss), until the hedged item is recognized in earnings. At such time, the respective amount in accumulated other comprehensive income (loss) is released to earnings and is recorded within operating expenses, based on the nature of the related expense. The ineffective portion of these foreign exchange forward contracts has also been reported in operating expenses, based on the nature of the expense being economically hedged. During the three and nine months ended September 30, 2008 and 2007, the Partnership recognized the following unrealized gains (losses) in vessel operating expenses, general and administrative and foreign currency exchange gain (loss) relating to the ineffective portion of its foreign currency forward contracts:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008		2007			2008			2007
	$		$			$			$
Vessel operating expenses		1,386		—			1,187			—
General and administrative		743		—			603			—
Foreign currency exchange loss		—		(8	)		(17	)		(8	)

Total		2,129		(8	)		1,773			(8	)

Changes in fair value of foreign exchange forward contracts that are not designated for accounting purposes as cash flow hedges are recognized in earnings and are reported in operating expenses, based on the nature of the expense being hedged. During the three and nine months ended September 30, 2008 and 2007, the Partnership recognized the following unrealized gains (losses) in vessel operating expenses, general and administrative and foreign currency exchange gain (loss) relating to foreign exchange forward contracts that are not designated as cash flow hedges:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	$			$			$			$
Vessel operating expenses		(1,504	)		(144	)		(1,287	)		(166	)
General and administrative		(1,208	)		—			(607	)		—
Foreign currency exchange gain		—			—			22			—

Total		(2,712	)		(144	)		(1,872	)		(166	)

As at September 30, 2008, the Partnership was committed to the following foreign exchange contracts for the forward purchase of foreign currency:


	Contract		Fair Value
	Amount in		/ Carrying
	Foreign		Amount of			Average		Expected Maturity
	Currency		Liability			Forward Rate⁽¹⁾		2008		2009		2010
	(millions)		(millions)					(in millions of U.S. Dollars)
Norwegian Kroner		810.8		($10.2	)		5.57		—	$	114.7	$	30.9
Australian Dollar		3.3		($0.4	)		1.12		—	$	3.0		—
British Pound		0.7		($0.1	)		0.52	$	0.4	$	0.8	$	0.1
Euro		20.6		($2.1	)		0.66	$	7.5	$	23.7		—

				($12.8	)


(1)		Foreign currency per U.S. Dollar.

The Partnership enters into interest rate swaps, which exchange a receipt of floating interest for a payment of fixed interest to reduce the Partnership’s exposure to interest rate variability on its outstanding floating-rate debt. The Partnership has not designated, for accounting purposes, its interest rate swaps as cash flow hedges of its USD LIBOR denominated borrowings. Unrealized gains or losses relating to the change in fair value of the Partnership’s interest rate swaps have been reported in interest expense in the consolidated statements of income (loss). During the three and nine months ended September 30, 2008, the Partnership recognized unrealized losses of $11.8 million and $15.3 million, respectively, compared to unrealized losses of $39.0 million and $10.4 million, respectively, for the same periods in the previous year, relating to the changes in fair value of its interest rate swaps. The Partnership recorded a material unrealized loss during the fourth quarter of 2008 as a result of decreases in the fair value of its interest rate swap agreements.

Page 13 of 36

As at September 30, 2008, the Partnership was committed to the following interest rate swap agreements:


				Fair Value /
				Carrying					Fixed
	Interest	Principal		Amount of			Weighted-Average		Interest
	Rate	Amount		Liability			Remaining Term		Rate
	Index	$		$			(Years)		(%)⁽¹⁾
U.S. Dollar-denominated interest rate swaps	LIBOR		935,000		(23,599	)		5.7		4.7
U.S. Dollar-denominated interest rate swaps⁽²⁾	LIBOR		404,873		(20,404	)		12.6		5.0

			1,339,873		(44,003	)


(1)		Excludes the margin the Partnership pays on its variable-rate debt, which as at September 30, 2008, ranged from 0.45% and 0.80%.

(2)		Principal amount reduces quarterly or semiannually.

The Partnership is exposed to credit loss in the event of non-performance by the counter-parties to the foreign exchange forward contracts and the interest rate swap agreements. In order to minimize counterparty risk, the Partnership only enters into derivative transactions with counterparties that are rated A or better by Standard & Poor’s or Aa3 or better by Moody’s at the time of the transactions. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.

11.

Income Taxes

The components of the provision for (recovery of) income taxes is as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2008		2007			2008		2007
	$		$			$		$
			(restated)					(restated)
Current		—		(157	)		—		(522	)
Deferred		29,485		(5,962	)		36,830		(969	)

Income tax recovery		29,485		(6,119	)		36,830		(1,491	)

12.

Partners’ Capital and Net Income Per Unit

Partners’ Capital

At September 30, 2008, of our total units outstanding, 50.01% were held by the public and the remaining units were held by a subsidiary of Teekay Corporation.

Limited Partners’ Rights

Significant rights of the limited partners include the following:

•

Right to receive distribution of available cash within approximately 45 days after the end of each quarter.

•

No limited partner shall have any management power over the Partnership’s business and affairs; the general partner shall conduct, direct and manage our activities.

•

The General Partner may be removed if such removal is approved by unitholders holding at least 66 2/3% of the outstanding units voting as a single class, including units held by the General Partner and its affiliates.

Subordinated Units

All of the Partnership’s subordinated units are held by a subsidiary of Teekay Corporation. Under the partnership agreement, during the subordination period applicable to the Partnership’s subordinated units, the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $0.35 per quarter, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. Distribution arrearages do not accrue on the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed on the common units.

Page 14 of 36

For the purpose of the net income per unit calculation (as defined below), during the quarter ended September 30, 2008, net income exceeded the minimum quarterly distribution of $0.35 per unit and, consequently, the assumed distribution of net income resulted in an equal distribution of net income between the subordinated unit holders and common unit holders. During the quarter ended September 30, 2007, the Partnership incurred net losses and, consequently, the assumed distributions of net losses resulted in equal distributions of net losses between the subordinated unit holders and common unit holders.

Incentive Distribution Rights

The General Partner is entitled to incentive distributions if the amount the Partnership distributes to unitholders with respect to any quarter exceeds specified target levels shown below:


Quarterly Distribution Target Amount (per unit)	Unitholders			General Partner
Minimum quarterly distribution of $0.35		98	%		2	%
Up to $0.4025		98	%		2	%
Above $0.4025 up to $0.4375		85	%		15	%
Above $0.4375 up to $0.525		75	%		25	%
Above $0.525		50	%		50	%

For the purpose of the net income per unit calculation, during the quarter ended September 30, 2008, net income exceeded $0.4025 per unit and, consequently, the assumed distribution of net income resulted in the use of the increasing percentages to calculate the General Partner’s interest in net income. During the quarter ended September 30, 2007, the Partnership incurred net losses and, consequently, the assumed distributions of net losses did not result in the use of the increasing percentages to calculate the General Partner’s interest in net losses.

Net Income Per Unit

Net income per unit is determined by dividing net income, after deducting the amount of net income attributable to the Dropdown Predecessor and the amount of net income allocated to the General Partner’s interest, by the weighted-average number of units outstanding during the applicable period.

As required by Emerging Issues Task Force Issue No. 03-6,Participating Securities and Two-Class Method under FASB Statement No. 128, Earnings Per Share, the General Partner’s, common unit holders’ and subordinated unitholder’s interests in net income are calculated as if all net income was distributed according to the terms of the Partnership’s partnership agreement, regardless of whether those earnings would or could be distributed. The partnership agreement does not provide for the distribution of net income; rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after establishment of cash reserves. Unlike available cash, net income is affected by non-cash items such as depreciation and amortization, unrealized gains and losses on derivative instruments and foreign currency translation gains (losses).

Pursuant to the partnership agreement, income allocations are made on a quarterly basis; therefore, earnings per limited partner unit for the nine months ended September 30, 2008 and 2007 is calculated as the sum of the quarterly earnings per limited partner unit for each of the first three quarters of the year.

13.

Commitments and Contingencies

The Partnership may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. The Partnership believes that any adverse outcome, individually or in the aggregate, of any existing claims would not have a material affect on its financial position, results of operations or cash flows, when taking into account its insurance coverage and indemnifications from charterers or Teekay Corporation.

14.

Restatement of Previously Issued Financial Statements

(a) Derivative Instruments and Hedging Activities

In August 2008, the Partnership commenced a review of its application of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended. Based on its review the Partnership concluded that certain of its interest rate swap agreements and foreign currency forward contracts did not qualify for hedge accounting treatment under SFAS No. 133 for the three and nine months ended September 30, 2007. The Partnership’s findings were as follows:

•

One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for those hedging relationships that a company expects will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged. To determine whether transactions satisfy this requirement, entities must periodically assess the effectiveness of hedging relationships both prospectively and retrospectively. Based on the Partnership’s review, the Partnership concluded that the prospective hedge effectiveness assessment that was conducted for certain of the Partnership interest rate swap agreements on the date of designation was not sufficient to conclude that the interest rate swaps would be highly effective in accordance with the strict technical requirements of SFAS No. 133, in achieving offsetting changes in cash flows attributable to the risk being hedged.

Page 15 of 36

•

To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is that the applicable hedge documentation specifies the method that will be used to assess, retrospectively and prospectively, the hedging instrument’s effectiveness, and the method that will be used to measure hedge ineffectiveness. Certain of the Partnership’s interest rate swap agreements did not clearly specify the method to be used to measure hedge ineffectiveness.

•

Certain of the Partnership’s derivative instruments were designated as hedges when the derivative instruments had a non-zero fair value. However, this designation was not appropriate as the Partnership used certain methods of measuring ineffectiveness that are prohibited in the case of non-zero fair value derivatives.

For accounting purposes the Partnership should have reflected changes in fair value of these derivative instruments as increases or decreases to the Partnership’s net income (loss) on its consolidated statements of income (loss), instead of being reflected as increases or decreases to accumulated other comprehensive income (loss), a component of partners’ equity on the consolidated balance sheets and statements of changes in partners’ equity.

The change in accounting for these transactions does not affect the Partnership’s cash flows, liquidity or cash distributions to partners.

(b) Vessels Acquired from Teekay Corporation

In connection with the Partnership assessing the potential impact of SFAS No. 141(R), which replaces SFAS No. 141,Business Combinations, and is effective for fiscal years beginning after December 15, 2008, the Partnership re-assessed its accounting treatment of interests in vessels it purchased from Teekay Corporation subsequent to the Partnership’s initial public offering in December 2006. The Partnership has historically treated the acquisition of interests in these vessels as asset acquisitions, not business acquisitions. If the acquisitions were deemed to be business acquisitions, the acquisitions would have been accounted for in a manner similar to the pooling of interest method whereby the Partnership’s consolidated financial statements prior to the date the interests in these vessels were acquired by it would be retroactively adjusted to include the results of these acquired vessels, or the Dropdown Predecessor from the date that the Partnership and the acquired vessels were both under common control of Teekay Corporation and had begun operations. The Partnership now has determined that the acquisitions should have been accounted for as business acquisitions under GAAP.

The impact of the retroactive Dropdown Predecessor adjustments does not affect the limited partners’ interest in net income, earnings per unit, or cash distributions to partners. However, the impact of the retroactive Dropdown Predecessor adjustments has resulted in a decrease in previously reported net income for the three and nine months ended September 30, 2007.

As a result of the conclusions described above in this Note 14, the Partnership is restating herein its statements of income (loss) for the three and nine months ended September 30, 2007 and its statement of cash flows for the nine months ended September 30, 2007.

The following table sets forth a reconciliation of the Partnership’s previously reported and its restated net income (loss) for the periods shown (in thousands of U.S. dollars):


	Net Income (Loss)
	Three Months Ended			Nine Months Ended			Partner’s Equity
	September 30,			September 30,			At December 31,
	2007			2007			2006
	$			$			$

As previously reported		2,114			12,660			138,942
Adjustments:
Derivative instruments, net of non-controlling interest		(11,142	)		(3,978	)		—
Dropdown Predecessor⁽¹⁾		22			1,300			51,792

As restated		(9,006	)		9,982			190,734


(1)		Relates to the results for the pre-acquisition periods in which the Partnership and the acquired interest in vessels, as listed below, were both in operation and under the common control of Teekay Corporation, as follows:

	•		Dampier Spirit(FSO unit) for March 15, 1998 to September 30, 2007;

	•		Navion Bergen(shuttle tanker) for April 16, 2007 to June 30, 2007; and

	•		Navion Gothenburg(shuttle tanker) began operations concurrently with the Partnership’s acquisition of it on July 24, 2007.

Page 16 of 36

The following table presents the effect of the restatement on the Partnership’s unaudited consolidated statement of loss for the three months ended September 30, 2007 (in thousands of U.S. dollars, except unit and per unit amounts):


	Three Months Ended September 30, 2007
				Adjustments
	As			Derivative			Dropdown			As
	Reported			Instruments			Predecessor			Restated
	$			$			$			$

VOYAGE REVENUES		192,050			—			3,661			195,711


OPERATING EXPENSES
Voyage expenses		36,458			—			—			36,458
Vessel operating expenses		35,247			144			2,354			37,745
Time-charter hire expense		37,161			—			—			37,161
Depreciation and amortization		31,318			—			627			31,945
General and administrative		15,731			—			277			16,008

Total operating expenses		155,915			144			3,258			159,317


Income from vessel operations		36,135			(144	)		403			36,394


OTHER ITEMS
Interest expense		(21,578	)		(38,840	)		—			(60,418	)
Interest income		1,784			—			—			1,784
Foreign currency exchange loss		(4,372	)		(24	)		(319	)		(4,715	)
Income tax expense		(6,057	)		—			(62	)		(6,119	)
Other income — net		2,965			—			—			2,965

Total other items		(27,258	)		(38,864	)		(381	)		(66,503	)


Income (loss) before non-controlling interest		8,877			(39,008	)		22			(30,109	)
Non-controlling interest		(6,763	)		27,866			—			21,103

Net income (loss)		2,114			(11,142	)		22			(9,006	)

Dropdown predecessor’s interest in net income		—									22
General partner’s interest in net income (loss)		42									(181	)
Limited partners’ interest:
Net income (loss)		2,072									(8,847	)
Net income (loss) per:
- Common unit (basic and diluted)		0.21									(0.45	)
- Subordinated unit (basic and diluted)		0.00									(0.45	)
- Total unit (basic and diluted)		0.11									(0.45	)


Weighted average number of units outstanding:
- Common units (basic and diluted)		9,800,000									9,800,000
- Subordinated units (basic and diluted)		9,800,000									9,800,000
- Total units (basic and diluted)		19,600,000									19,600,000

Cash distributions declared per unit		0.35									0.35

Page 17 of 36

The following table presents the effect of the restatement on the Partnership’s unaudited consolidated statement of income for the nine months ended September 30, 2007 (in thousands of U.S. dollars, except unit and per unit amounts):


	Nine Months Ended September 30, 2007
				Adjustments
	As			Derivative			Dropdown			As
	Reported			Instruments			Predecessor			Restated
	$			$			$			$

VOYAGE REVENUES		571,991			—			9,234			581,225


OPERATING EXPENSES
Voyage expenses		107,798			—			54			107,852
Vessel operating expenses		99,025			166			6,048			105,239
Time-charter hire expense		111,749			—			—			111,749
Depreciation and amortization		88,942			—			1,955			90,897
General and administrative		47,153			—			914			48,067

Total operating expenses		454,667			166			8,971			463,804


Income from vessel operations		117,324			(166	)		263			117,421


OTHER ITEMS
Interest expense		(57,640	)		(10,855	)		(1,344	)		(69,839	)
Interest income		4,268			—			97			4,365
Foreign currency exchange (loss) gain		(14,329	)		(28	)		1,092			(13,265	)
Income tax (expense) recovery		(2,683	)		—			1,192			(1,491	)
Other income — net		8,266			—			—			8,266

Total other items		(62,118	)		(10,883	)		1,037			(71,964	)


Income (loss) before non-controlling interest		55,206			(11,049	)		1,300			45,457
Non-controlling interest		(42,546	)		7,071			—			(35,475	)

Net income (loss)		12,660			(3,978	)		1,300			9,982

Dropdown predecessor’s interest in net income		—									1,300
General partner’s interest in net income		253									531
Limited partners’ interest:
Net income		12,407									8,151
Net income per:
- Common unit (basic and diluted)		0.91									0.43
- Subordinated unit (basic and diluted)		0.35									0.37
- Total unit (basic and diluted)		0.64									0.40


Weighted average number of units outstanding:
- Common units (basic and diluted)		9,800,000									9,800,000
- Subordinated units (basic and diluted)		9,800,000									9,800,000
- Total units (basic and diluted)		19,600,000									19,600,000

Cash distributions declared per unit		0.75									0.75

Page 18 of 36

The following table presents the effect of the restatement on the Partnership’s unaudited statement of cash flows for the nine months ended September 30, 2007 (in thousands of U.S. dollars):


	September 30, 2007
				Adjustments
	As			Derivative			Dropdown			As
	Reported			Instruments			Predecessor			Restated
	$			$			$			$

Cash and cash equivalents provided by (used for)

OPERATING ACTIVITIES
Net income (loss)		12,660			(3,978	)		1,300			9,982
Non-cash items:
Unrealized loss on derivative instruments		—			10,378			—			10,378
Depreciation and amortization		88,942			—			1,955			90,897
Non-controlling interest		42,546			(7,071	)		—			35,475
Deferred income tax expense (recovery)		2,683			—			(1,192	)		1,491
Foreign currency exchange loss (gain) and other — net		13,222			671			(600	)		13,293
Change in non-cash working capital items related to operating activities		(25,686	)		—			(1,881	)		(27,567	)
Distribution from subsidiaries to minority owners		(44,192	)		—			—			(44,192	)
Expenditures for drydocking		(31,673	)		—			(9,427	)		(41,100	)


Net operating cash flow		58,502			—			(9,845	)		48,657


FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		137,000			—			51,200			188,200
Scheduled repayments of long-term debt		(12,151	)		—			—			(12,151	)
Prepayments of long-term debt		(115,000	)		—			—			(115,000	)
Net advances to affiliate		—			—			(42,935	)		(42,935	)
Equity distribution from Teekay Corporation		—			—			1,819			1,819
Expenses from issuance of common units		(2,793	)		—			—			(2,793	)
Distribution to Teekay Corporation relating to purchase of Navion Bergen LLC		—			—			(48,800	)		(48,800	)
Excess of purchase price over the contributed basis of a 50% interest in Navion Gothenburg LLC		—			—			(6,358	)		(6,358	)
Cash distributions paid		(15,000	)		—			—			(15,000	)


Net financing cash flow		(7,944	)		—			(45,074	)		(53,018	)


INVESTING ACTIVITIES
Expenditures for vessels and equipment		(13,341	)		—			—			(13,341	)
Proceeds from sale of vessels and equipment		3,225			—			—			3,225
Purchase of Navion Bergen LLC and a 50% interest in Navion Gothenburg LLC		(65,389	)		—			65,389			—
Purchase of a 50% interest in Navion Gothenburg LLC		—			—			(10,231	)		(10,231	)
Investment in direct financing lease assets		(8,332	)		—			—			(8,332	)
Direct financing lease payments received		15,882			—			—			15,882


Net investing cash flow		(67,955	)		—			55,158			(12,797	)


(Decrease) increase in cash and cash equivalents		(17,397	)		—			239			(17,158	)
Cash and cash equivalents, beginning of the period		113,986			—			—			113,986


Cash and cash equivalents, end of the period		96,589			—			239			96,828

Page 19 of 36

15.

Supplemental Cash Flow Information

The Partnership’s consolidated statement of cash flows for the nine months ended September 30, 2008 and 2007 reflect the Dropdown Predecessor as if the Partnership had acquired the Dropdown Predecessor when each respective vessel began operations under the ownership of Teekay Corporation. If Teekay Corporation financed the construction or purchase of the vessel prior to the Dropdown Predecessor being included in the results of the Partnership, the expenditures for the vessel by Teekay Corporation have been treated as a non-cash transaction in the Partnership’s consolidated statement of cash flows. The non-cash investing activities related to the Dropdown Predecessor are as follows:


	Nine Months Ended September 30,
	2008		2007
	$		$

Expenditures for vessels and equipment		89,419		71,646

16.

Recent Accounting Pronouncement

In October 2008, the Financial Accounting Standards Board (orFASB) issued SFAS No. 157-3,Determining the Fair Value of a Financial Asset in a Market That Is Not Active, which clarifies the application of SFAS 157 when the market for a financial asset is inactive. Specifically, SFAS No. 157-3 clarifies how (1) management’s internal assumptions should be considered in measuring fair value when observable data are not present, (2) observable market information from an inactive market should be taken into account, and (3) the use of broker quotes or pricing services should be considered in assessing the relevance of observable and unobservable data to measure fair value. The guidance in SFAS No. 157-3 is effective immediately but does not have any impact on the Partnership’s consolidated financial statements.

17.

Subsequent events

In November 2008, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended September 30, 2008, an increase of $0.05 per unit, or 12.5 percent, from the previous quarter. The cash distribution was paid on November 14, 2008 to all unitholders of record on November 7, 2008.

In February 2009, the Partnership declared a cash distribution of $0.45 per unit for the quarter ended December 31, 2008. The cash distribution was paid on February 13, 2009 to all unitholders of record on February 6, 2009.

Page 20 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2008

PART I – FINANCIAL INFORMATION

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Restatement of Previously Issued Financial Statements

The discussion and analysis below reflects the impact of our restatement. Please read Note 14 of the notes to the consolidated financial statements for a more detailed discussion of our restated results and the basis for them. The following table sets forth a reconciliation of previously reported and restated net income (loss) for the periods shown (in thousands of US dollars):


	Three Months Ended			Nine Months Ended
	September 30, 2007			September 30, 2007
	$			$
Net income, as previously reported		2,114			12,660
Adjustments:
Derivative instruments, net of non-controlling interest		(11,142	)		(3,978	)
Dropdown Predecessor⁽¹⁾		22			1,300

Net (loss) income, as restated		(9,006	)		9,982


(1)		Relates to the results for the pre-acquisition periods in which we and vessels we acquired from Teekay Corporation, as listed below, were under the common control of Teekay Corporation, as follows:

	•		Dampier Spirit(FSO unit) for March 15, 1998 to September 30, 2007;

	•		Navion Bergen(shuttle tanker) for April 16, 2007 to September 30, 2007; and

	•		Navion Gothenburg(shuttle tanker) began operations concurrently with our acquisition of this vessel on July 24, 2007.

OVERVIEW

We are an international provider of marine transportation and storage services to the offshore oil industry. We were formed in August 2006 by Teekay Corporation, a leading provider of marine services to the global oil and natural gas industries, to further develop its operations in the offshore market. Our principal asset is a 51% controlling interest in Teekay Offshore Operating L.P. (orOPCO), which operates a substantial majority of our shuttle tankers and floating storage and offtake (orFSO) units and all of our conventional crude oil tankers. Our growth strategy focuses on expanding our fleet of shuttle tankers and FSO units under long-term, fixed-rate time charters. We intend to continue our practice of acquiring shuttle tankers and FSO units as needed for approved projects only after the long-term charters for the projects have been awarded to us, rather than ordering vessels on a speculative basis. We intend to follow this same practice in acquiring floating production, storage and offloading (orFPSO) units, which produce and process oil offshore in addition to providing storage and offloading capabilities. We seek to capitalize on opportunities emerging from the global expansion of the offshore transportation, storage and production sectors by selectively targeting long-term, fixed-rate time charters. We may enter into joint ventures and partnerships with companies that may provide increased access to these opportunities or may engage in vessel or business acquisitions. We seek to leverage the expertise, relationships and reputation of Teekay Corporation and its affiliates to pursue these growth opportunities in the offshore sectors and may consider other opportunities to which our competitive strengths are well suited. We view our conventional tanker fleet primarily as a source of stable cash flow as we seek to expand our offshore operations.

SIGNIFICANT DEVELOPMENTS

Equity Offerings; Acquisition of Additional 25% Interest in OPCO

As a result of these equity transactions, we raised gross proceeds of $216.8 million (including our general partner’s proportionate 2% capital contribution), and Teekay Corporation’s ownership of us was reduced from 59.8% to 50.0% (including its indirect 2% general partner interest). We used the net proceeds from the equity offerings of approximately $210.7 million to fund the acquisition for $205.0 million of an additional 25% interest in OPCO from Teekay Corporation and to repay a portion of advances from OPCO to us.

Acquisition of Vessels in 2008

In June 2008, OPCO acquired from Teekay Corporation two 2008-built Aframax lightering tankers, theSPT Explorerand theSPT Navigator, for a total cost of approximately $106.0 million, including assumption of debt of $90.0 million. These two lightering tankers are specially designed to be used in ship-to-ship oil transfer operations. They operate under 10-year, fixed-rate bareboat charters to Teekay Corporation’s 50% owned joint venture company, Skaugen PetroTrans, with options exercisable by the charterer to extend up to an additional five years.

In June 2007, OPCO exercised its option to purchase a 2001-built shuttle tanker from a third party, theNavion Oslo, for $41.7 million, which vessel previously had been in-chartered by OPCO and included in our shuttle tanker fleet. The vessel was delivered to OPCO in March 2008.

Page 21 of 36

Potential Additional Shuttle Tanker, FSO and FPSO Projects

Pursuant to an omnibus agreement we entered into in connection with our initial public offering, Teekay Corporation is obligated to offer us certain shuttle tankers, FSO units, and FPSO units it may acquire in the future, provided the vessels are servicing contracts in excess of three years in length.

Teekay Corporation has ordered four Aframax shuttle tanker newbuildings, which are scheduled to deliver in 2010 and 2011, for a total delivered cost of approximately $463.3 million. It is anticipated that these vessels will be offered to us and will be used to service either new long-term, fixed-rate contracts Teekay Corporation may be awarded prior to the vessel deliveries or OPCO’s contracts-of-affreightment in the North Sea.

The omnibus agreement also obligates Teekay Corporation to offer to us (a) its interest in certain future FPSO and FSO projects it may undertake in the future through its 50%-owned joint venture with Teekay Petrojarl ASA and (b) by July 9, 2009 as a result of Teekay Corporation’s obtaining 100% ownership of Teekay Petrojarl ASA on July 9, 2008, the opportunity to purchase for fair market value the existing FPSO units owned by Teekay Petrojarl ASA that are servicing contracts in excess of three years in length.

RESULTS OF OPERATIONS

We use a variety of financial and operational terms and concepts when analyzing our results of operations, which can be found in Item 5. Operating and Financial Review and Prospects in our Annual Report on Form 20-F/A for the year ended December 31, 2007. In accordance with United States generally accepted accounting principles (orGAAP), we report gross revenues in our income statements and include voyage expenses among our operating expenses. However, shipowners base economic decisions regarding the deployment of their vessels upon anticipated time charter equivalent (orTCE) rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. This is because under time charters and bareboat charters the customer usually pays the voyage expenses, while under voyage charters and contracts of affreightment the shipowner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Accordingly, the discussion of revenue below focuses on net voyage revenues (i.e. voyage revenues less voyage expenses) and TCE rates of our three reportable segments where applicable. TCE rates represent net voyage revenues divided by revenue days. Please read Item 1 — Financial Statements: Note 4 — Segment Reporting.

Items You Should Consider When Evaluating Our Results of Operations

You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:

•

Our financial results reflect the results of the interests in vessels acquired from Teekay Corporation for all periods the vessels were under common control.In July 2007, we acquired from Teekay Corporation ownership of its 100% interest in the 2000-built shuttle tankerNavion Bergenand its 50% interest in the 2006-built shuttle tankerNavion Gothenburg.The acquisitions included the assumption of debt, related interest rate swaps and Teekay Corporation’s rights and obligations under 13-year, fixed-rate bareboat charters. In October 2007, we acquired from Teekay Corporation its interest in the FSO unitDampier Spirit, along with its 7-year fixed-rate time-charter. In June 2008, we acquired from Teekay Corporation its interests in two 2008-built Aframax lightering tankers, theSPT Explorerand theSPT Navigator. This acquisition included the assumption of debt and Teekay Corporation’s rights and obligations under 10-year, fixed-rate bareboat charters (with options exercisable by the charterer to extend up to an additional five years).

These transactions were deemed to be business acquisitions between entities under common control. Accordingly, we have accounted for these transactions in a manner similar to the pooling of interest method. Under this method of accounting, our financial statements prior to the date the interests in these vessels were actually acquired by us are retroactively adjusted to include the results of these acquired vessels. The periods retroactively adjusted include all periods that we and the acquired vessels were under common control of Teekay Corporation and had begun operations. As a result, our statements of income (loss) for the three and nine months ended September 30, 2008 and 2007 reflect the results of these vessels (referred to herein as theDropdown Predecessor) as if we had acquired them when each respective vessel began operations under the ownership of Teekay Corporation. These vessels began operations on April 16, 2007 (Navion Bergen), July 24, 2007 (Navion Gothenburg), March 15, 1998 (Dampier Spirit), January 7, 2008 (SPT Explorer)and March 28, 2008 (SPT Navigator).

•

The size of our fleet continues to change.Our results of operations reflect changes in the size and composition of our fleet due to certain vessel deliveries and vessel dispositions. For instance, the average number of owned vessels in our shuttle tanker fleet increased from 24 in 2007 to 27 in 2008, our conventional tanker segment increased from 10 in 2007 to 11 in 2008 and our FSO segment increased from 4 in 2007 to 5 in 2008. Please read “— Results of Operations” below for further details about vessel dispositions and deliveries. Due to the nature of our business, we expect our fleet to continue to fluctuate in size and composition.

•

Our vessel operating costs are facing industry-wide cost pressures. The shipping industry is experiencing a global manpower shortage due to significant growth in the world fleet. This shortage has resulted in crew wage increases during 2007 and 2008, the effect of which is included the “Results of Operations”. We expect a trend of increasing crew compensation to continue during 2009.

Page 22 of 36

•

Our financial results of operations are affected by fluctuations in currency exchange rates. Under GAAP, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, advances from affiliates and deferred income taxes are revalued and reported based on the prevailing exchange rate at the end of the period. OPCO has entered into services agreements with subsidiaries of Teekay Corporation whereby the subsidiaries operate and crew the vessels. Under these service agreements, OPCO pays all vessel operating expenses in U.S. Dollars, and will not be subject to currency exchange fluctuations until 2009. Beginning in 2009, payments under the service agreements are adjusted to reflect any change in Teekay Corporation’s cost of providing services based on fluctuations in the value of the Norwegian Kroner relative to the U.S. Dollar, which may result in increased payments under the services agreements if the strength of the U.S. Dollar declines relative to the Norwegian Kroner. At September 30, 2008, we were committed to foreign exchange contracts for the forward purchase of approximately Norwegian Kroner 810.8 million for U.S. Dollars at an average rate of Norwegian Kroner 5.57 per U.S. Dollar, maturing in 2009 and 2010.

•

Our operations are seasonal.Historically, the utilization of shuttle tankers in the North Sea is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to our vessels and to offshore oil platforms. Downtime for repairs and maintenance generally reduces oil production and, thus, transportation requirements.

We manage our business and analyze and report our results of operations on the basis of three business segments: the shuttle tanker segment, the conventional tanker segment and the FSO segment.

Shuttle Tanker Segment

Our shuttle tanker fleet consists of 37 vessels that operate under fixed-rate contracts of affreightment, time charters and bareboat charters. Of the 37 shuttle tankers, 25 are owned by OPCO (including 5 through 50% owned subsidiaries), 10 are chartered-in by OPCO and two are owned by us (including one through a 50% owned subsidiary). All of these shuttle tankers provide transportation services to energy companies, primarily in the North Sea and Brazil.

The following table presents our shuttle tanker segment’s operating results for the three and nine months ended September 30, 2008 and 2007, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and nine months ended September 30, 2008 and 2007 to voyage revenues, the most directly comparable GAAP financial measure, for the same periods. The following table also provides a summary of the changes in calendar-ship-days by owned and chartered-in vessels for our shuttle tanker segment:


	Three Months Ended September 30,
(in thousands of U.S. dollars, except calendar-ship-days and percentages)	2008		2007		% Change
			(restated)		(restated)

Voyage revenues		168,390		145,166		16.0
Voyage expenses		47,338		29,404		61.0

Net voyage revenues		121,052		115,762		4.6
Vessel operating expenses		33,970		25,676		32.3
Time-charter hire expense		31,474		37,161		(15.3	)
Depreciation and amortization		22,880		22,453		1.9
General and administrative⁽¹⁾		10,825		12,908		(16.1	)

Income from vessel operations		21,903		17,564		24.7


Calendar-Ship-Days
Owned Vessels		2,484		2,369		4.9
Chartered-in Vessels		846		1,074		(21.2	)

Total		3,330		3,443		(3.3	)

Page 23 of 36


	Nine Months Ended September 30,
(in thousands of U.S. dollars, except calendar-ship-days and percentages)	2008		2007		% Change
			(restated)		(restated)

Voyage revenues		488,715		437,794		11.6
Voyage expenses		131,533		81,299		61.8

Net voyage revenues		357,182		356,495		0.2
Vessel operating expenses		95,605		73,326		30.4
Time-charter hire expense		97,382		111,749		(12.9	)
Depreciation and amortization		68,599		63,590		7.9
General and administrative⁽¹⁾		35,712		39,385		(9.3	)

Income from vessel operations		59,884		68,445		(12.5	)


Calendar-Ship-Days
Owned Vessels		7,314		6,789		7.7
Chartered-in Vessels		2,696		3,204		(15.9	)

Total		10,010		9,993		0.2


(1)		Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the shuttle tanker segment based on estimated use of corporate resources).

The average size of OPCO’s owned shuttle tanker fleet increased for the three and nine months ended September 30, 2008 compared to the same periods last year, primarily due to the acquisition from Teekay Corporation in July 2007 of a 2000-built shuttle tanker (theNavion Bergen) and a 50% interest in a 2006-built shuttle-tanker (theNavion Gothenburg) (collectively, the2007 Shuttle Tanker Acquisitions). However, as a result of the inclusion of the Dropdown Predecessor, theNavion Bergenhad been included for accounting purposes in our results as if it was acquired on April 16, 2007, when it completed its conversion and began operations as a shuttle tanker for Teekay Corporation. TheNavion Gothenburgcompleted its conversion and began operations as a shuttle tanker concurrently with our acquisition in July 2007; thus, it has not been included in the Dropdown Predecessor. Please read “—Items You Should Consider When Evaluating Our Results of Operations— Our financial results reflect the results of the interests in vessels acquired from Teekay Corporation for all periods the vessels were under common control.” above.

The average size of OPCO’s chartered-in shuttle tanker fleet decreased for the three and nine months ended September 30, 2008 compared to the same periods last year, primarily due to the purchase of an in-chartered shuttle tanker, which was delivered to us in late March 2008 (or the2008 Shuttle Tanker Acquisition) and the redelivery of one chartered-in vessel back to its owner in December 2007.

Net Voyage Revenues.Net voyage revenues increased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to:

•

increase of $0.9 million and $10.1 million, respectively, for the three and nine months ended September 30, 2008, due to the 2007 Shuttle Tanker Acquisitions (including the impact of the Dropdown Predecessor);

•

increases of $3.7 million and $6.2 million, respectively, for the three and nine months ended September 30, 2008, due to the redeployment of one shuttle tanker from servicing contracts of affreightment to a time-charter effective October 2007, and earning a higher average daily charter rate than for the same period last year;

•

an increase of $2.3 million for the three and nine months ended September 30, 2008, due to the recovery of certain Norwegian environmental taxes as voyage expenses from our customers in the Heidrun oil field; and

•

increases of $0.4 million and $1.7 million, respectively, for the three and nine months ended September 30, 2008, due to more revenue days from shuttle tankers servicing contracts of affreightment in the conventional spot market and earning a higher average daily charter rate than the same period last year;

partially offset by

•

decreases of $1.4 million and $6.7 million, respectively, for the three and nine months ended September 30, 2008, due to declining oil production at mature oil fields in the North Sea that are serviced by certain shuttle tankers on contracts of affreightment;

•

decreases of $1.0 million and $4.9 million, respectively, for the three and nine months ended September 30, 2008, due to an increase in bunker costs which are not passed on to the charterer under certain contracts;

•

decreases of $0.7 million and $4.7 million, respectively, for the three and nine months ended September 30, 2008, due to an increased number of offhire days resulting from an increase in scheduled drydockings and unexpected repairs performed during the three and nine months ended September 30, 2008, compared to the same periods last year; and

•

a decrease of $3.8 million for the nine months ended September 30, 2008, due to customer performance claims under the terms of charter party agreements.

Page 24 of 36

Vessel Operating Expenses.Vessel operating expenses increased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to:

•

increases of $3.8 million and $9.8 million, respectively, for the three and nine months ended September 30, 2008, in salaries for crew and officers primarily due to general wage escalations and a change in the crew rotation system;

•

increases of $0.6 million and $3.9 million, respectively, for the three and nine months ended September 30, 2008, due to an increase in prices for consumables, freight and lubricants;

•

increases of $1.5 million and $3.5 million, respectively, for the three and nine months ended September 30, 2008, relating to the 2008 Shuttle Tanker Acquisition; and

•

increases of $1.7 million and $4.7 million, respectively, for the three and nine months ended September 30, 2008, relating to repairs and maintenance performed for certain vessels those periods.

Time-Charter Hire Expense.Time-charter hire expense decreased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to the 2008 Shuttle Tanker Acquisition and the redelivery of two chartered-in vessels back to their owners in December 2007 and June 2008, respectively.

Conventional Tanker Segment

OPCO owns eleven Aframax-class conventional crude oil tankers. In June 2008, OPCO acquired the lightering tankersSPT ExplorerandSPT Navigator(collectively, the2008 Conventional Tanker Acquisitions), which operate under fixed-rate bareboat charters to Teekay Corporation’s 50% owned joint venture company, Skaugen PetroTrans. However, as a result of the inclusion of the Dropdown Predecessor, theSPT Explorerand theSPT Navigatorhave been included for accounting purposes in our results as if they were acquired on January 7, 2008 and March 28, 2008, respectively, when they completed construction and began operations as conventional tankers for Teekay Corporation. Please read “—Items You Should Consider When Evaluating Our Results of Operations— Our financial results reflect the results of the interests in vessels acquired from Teekay Corporation for all periods the vessels were under common control” above. The remaining nine tankers operate under fixed-rate time charters with Teekay Corporation.

The following table presents our conventional tanker segment’s operating results for the three and nine months ended September 30, 2008 and 2007, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and nine months ended September 30, 2008 and 2007 to voyage revenues, the most directly comparable GAAP financial measure, for the same periods. The following table also provides a summary of the changes in calendar-ship-days by owned vessels for our conventional tanker segment:


	Three Months Ended September 30,
(in thousands of U.S. dollars, except calendar-ship-days and percentages)	2008		2007		% Change

Voyage revenues		40,652		30,100		35.1
Voyage expenses		14,713		6,816		115.9

Net voyage revenues		25,939		23,284		11.4
Vessel operating expenses		6,433		6,125		5.0
Depreciation and amortization		5,636		5,053		11.6
General and administrative⁽¹⁾		2,458		2,070		18.7

Income from vessel operations		11,412		10,036		13.7


Calendar-Ship-Days
Owned Vessels		1,012		828		22.2

Page 25 of 36


	Nine Months Ended September 30,
(in thousands of U.S. dollars, except calendar-ship-days and percentages)	2008		2007		% Change

Voyage revenues		114,248		102,748		11.2
Voyage expenses		40,976		25,969		57.8

Net voyage revenues		73,272		76,779		(4.6	)
Vessel operating expenses		18,544		17,187		7.9
Depreciation and amortization		16,612		15,748		5.5
General and administrative⁽¹⁾		6,531		5,928		10.2

Income from vessel operations		31,585		37,916		(16.7	)


Calendar-Ship-Days
Owned Vessels		2,919		2,577		13.3


(1)		Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the conventional tanker segment based on estimated use of corporate resources).

During 2007, OPCO operated ten conventional crude oil tankers, including theNavion Saga, which was operated as a conventional crude oil tanker within the conventional tanker segment until its conversion to an FSO unit was completed and it commenced a three-year FSO time-charter contract in early May 2007.

Net Voyage Revenues.Net voyage revenues increased during the three months ended September 30, 2008 compared with the same period last year, primarily due to:

•

an increase of $2.5 million due to the 2008 Conventional Tanker Acquisitions (including the impact of the Dropdown Predecessor); and

•

an increase of $1.0 million in net bunker revenues from higher volumes consumed during the three months ended September 30, 2008 compared with the same period last year (under the terms of eight of the nine time-charter contracts with Teekay Corporation, OPCO is responsible for the bunker fuel expenses and the approximate amounts of these expenses are added to the daily hire rate);

partially offset by

•

a relative decrease of $0.6 million during the three months ended September 30, 2008 due to fewer scheduled drydockings.

Net Voyage Revenues.Net voyage revenues decreased during the nine months ended September 30, 2008 compared with the same period last year, primarily due to:

•

a decrease of $6.8 million in net bunker revenues (under the terms of eight of the nine time-charter contracts with Teekay Corporation, OPCO is responsible for the bunker fuel expenses and the approximate amounts of these expenses are added to the daily hire rate; during the annual review of the daily hire rate in the third quarter of 2007, the rate per day was adjusted downwards based on the average daily bunker consumption for the preceding year); and

•

a decrease of $3.4 million due to the transfer of theNavion Sagato the FSO segment in early May 2007;

partially offset by

•

an increase of $6.1 million due to the 2008 Conventional Tanker Acquisitions (including the impact of the Dropdown Predecessor); and

•

a relative increase of $0.7 million due to fewer scheduled drydockings.

Vessel Operating Expenses.Vessel operating expenses increased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to:

•

an increase of $1.0 million for the nine months ended September 30, 2008, due to an increase in repairs and maintenance and an increase in prices for consumables, freight and lubricants; and

•

increases of $0.2 million and $1.4 million, respectively, for the three and nine months ended September 30, 2008, in salaries for crew and officers, primarily due to general wage escalations;

partially offset by

•

a decrease of $1.4 million for the nine months ended September 30, 2008, due to the transfer of theNavion Sagato the FSO segment in early May 2007.

Page 26 of 36

Depreciation and Amortization.Depreciation and amortization expense increased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to:

•

increases of $0.8 million and $2.0 million, respectively, for the three and nine months ended September 30, 2008 due to the 2008 Conventional Tanker Acquisitions (including the impact of the Dropdown Predecessor);

partially offset by

•

a decrease of $1.1 million for the nine months ended September 30, 2008, from the transfer of theNavion Sagato the FSO segment in early May 2007.

FSO Segment

Our FSO fleet consists of five vessels that operate under fixed-rate time charters or fixed-rate bareboat charters. Of the five FSO units, four are owned by OPCO and one is owned by us. FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage.

The following table presents our FSO segment’s operating results for the three and nine months ended September 30, 2008 and 2007, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and nine months ended September 30, 2008 and 2007 to voyage revenues, the most directly comparable GAAP financial measure, for the same periods. The following table also provides a summary of the changes in calendar-ship-days by owned vessels for our FSO segment:


	Three Months Ended September 30,
(in thousands of U.S. dollars, except calendar-ship-days and percentages)	2008		2007		% Change
			(restated)		(restated)

Voyage revenues		17,905		20,445		(12.4	)
Voyage expenses		497		238		108.8

Net voyage revenues		17,408		20,207		(13.9	)
Vessel operating expenses		7,045		5,944		18.5
Depreciation and amortization		5,526		4,439		24.5
General and administrative⁽¹⁾		804		1,030		(21.9	)

Income from vessel operations		4,033		8,794		(54.1	)


Calendar-Ship-Days
Owned Vessels		460		460		0.0


	Nine Months Ended September 30,
(in thousands of U.S. dollars, except calendar-ship-days and percentages)	2008		2007		% Change
			(restated)		(restated)

Voyage revenues		53,400		40,683		31.3
Voyage expenses		1,227		584		110.1

Net voyage revenues		52,173		40,099		30.1
Vessel operating expenses		20,737		14,726		40.8
Depreciation and amortization		18,190		11,559		57.4
General and administrative⁽¹⁾		2,846		2,754		3.3

Income from vessel operations		10,400		11,060		(6.0	)


Calendar-Ship-Days
Owned Vessels		1,370		1,245		10.0


(1)		Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to the FSO segment based on estimated use of corporate resources).

During most of 2007, we were deemed to have operated four FSO units, including theDampier Spirit as a result of the inclusion of the Dropdown Predecessor, which we acquired from Teekay Corporation in October 2007. TheDampier Spirithas been included in our results as if it was acquired on January 1, 2007. Please read “—Items You Should Consider When Evaluating Our Results of Operations— Our financial results reflect the results of the interests in vessels acquired from Teekay Corporation for all periods the vessels were under common control” above.

A fifth FSO unit, theNavion Saga, was operated as a conventional crude oil tanker within our conventional tanker segment until May 2007, as discussed above.

Page 27 of 36

Net Voyage Revenues.Net voyage revenues increased during the nine months ended September 30, 2008 compared with the same period last year, primarily due to:

	•		a net increase of $7.9 million from the inclusion of theNavion Sagain the FSO segment from May 2007, partially offset by a relative decrease in net voyage revenues from the receipt of a mobilization fee of $3.5 million in the third quarter of 2007; and

	•		a relative increase of $4.0 million during the nine months ended September 30, 2008, from theDampier Spiritbeing offhire for 110 days during the first half of 2007 due to a scheduled drydock.

Vessel Operating Expenses.Vessel operating expenses increased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to the inclusion of theNavion Sagain the FSO segment from May 2007.

Depreciation and Amortization.Depreciation and amortization expense increased for the three and nine months ended September 30, 2008, from the same periods last year, primarily due to the inclusion of theNavion Sagain the FSO segment from May 2007 and due to a change in the estimated useful life of a specific vessel upgrade on one of our FSO units.

Other Operating Results

General and Administrative Expenses.General and administrative expenses have decreased to $14.1 million and $45.1 million, respectively, for the three and nine months ended September 30, 2008, from $16.0 million and $48.1 million for the same periods last year. The decrease is primarily due to a decrease in management fees payable to a subsidiary of Teekay Corporation for services rendered to us during the three months ended September 30, 2008. Included in the management fee is an allocation of accrued costs relating to a long-term incentive plan (theVision Incentive Plan or VIP) maintained by Teekay Corporation for the benefit of its senior management, some of whom provide services to us. As a result of the declining share price, there was a decrease in the accrual of the VIP compensation expense during the three months ended September 30, 2008.

Interest Expense.Interest expense was $32.6 million and $76.6 million, respectively, for the three and nine months ended September 30, 2008, compared to interest expense of $60.4 million and interest expense of $69.8 million for the same periods last year.

The decrease in interest expense during the three months ended September 30, 2008 was primarily due to:

•

a decrease of $27.2 million relating to the change in fair value of our interest rate swaps; and

•

a decrease of $1.2 million relating to the scheduled repayment of debt during 2007 and 2008 for five of our subsidiaries;

partially offset by

•

an increase of $1.1 million relating to additional debt drawn under OPCO’s long-term revolving credit facilities, which was used to partially finance the2007 Shuttle Tanker Acquisitionsand the acquisitions of theDampier Spiritand an in-chartered shuttle tanker, theNavion Oslo.

The increase in interest expense during the nine months ended September 30, 2008 was primarily due to:

•

an increase of $4.9 million relating to the change in fair value of our interest rate swaps;

•

an increase of $4.7 due to the assumption of debt relating to the 2007 Shuttle Tanker Acquisitions and the increase in debt relating to the purchase of theDampier Spirit; and

•

an increase of $3.2 million relating to additional debt drawn under OPCO’s long-term revolving credit facilities, which was used to partially finance the acquisition of the2007 Shuttle Tanker Acquisitions, theDampier Spiritand theNavion Oslo; and

•

an assumption of debt

partially offset by

•

a decrease of $3.0 million relating to the scheduled repayment of debt during 2007 and 2008 for five of our subsidiaries; and

•

a decrease of $2.6 million relating to the timing difference in the reset dates between OPCO’s loans and related interest rate swaps.

We have not designated our interest rate swaps as hedges for accounting purposes and as such, the unrealized changes in the fair values of the swaps are reflected in interest expense in our consolidated statements of income (loss).

Foreign Currency Exchange Gains (Losses).Foreign currency exchange gains (losses) were $2.2 million and ($1.4) million, respectively, for the three and nine months ended September 30, 2008, compared to ($4.7) million and ($13.3) million for the same periods last year. Our foreign currency exchange losses and gains, substantially all of which are unrealized, are due primarily to the relevant period-end revaluation of Norwegian Kroner-denominated monetary assets and liabilities for financial reporting purposes. Gains reflect a stronger U.S. Dollar against the Kroner on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses reflect a weaker U.S. Dollar against the Norwegian Kroner on the date of revaluation or settlement compared to the rate in effect at the beginning of the period.

Other Income.Other income was $2.4 million and $7.3 million, respectively, for the three and nine months ended September 30, 2008, compared to $3.0 million and $8.3 million for the same periods last year, and was primarily comprised of leasing income from our volatile organic compound emissions equipment.

Income Tax Recovery.Income tax recovery was $29.5 million and $36.8 million, respectively, for the three and nine months ended September 30, 2008, compared to income tax expense of $6.1 and $1.5 million for the same periods last year. The $35.6 million and $38.3 million increases to income tax recoveries were primarily due to increases in deferred income tax recoveries relating to unrealized foreign exchange translation losses and operational losses for tax purposes for the three and nine months ended September 30, 2008.

Page 28 of 36

Liquidity and Capital Resources

Liquidity and Cash Needs

As at September 30, 2008, our total cash and cash equivalents was $159.2 million, compared to $121.2 million at December 31, 2007. Our total liquidity, including cash, cash equivalents and undrawn long-term borrowings, was $304.0 million as at September 30, 2008, compared to $286.7 million as at December 31, 2007. The increase in liquidity was primarily the result of cash generated by our operating activities during the nine months ended September 30, 2008 partially offset by the $16.7 million cash payment made to Teekay Corporation for the purchase of the subsidiaries that own the lightering tankers,SPT ExplorerandSPT Navigator, the payment of cash distributions by us and OPCO and expenditures for vessels and equipment.

In addition to distributions on our equity interests, our primary short-term liquidity needs are to fund general working capital requirements and drydocking expenditures, while our long-term liquidity needs primarily relate to expansion and investment capital expenditures and other maintenance capital expenditures and debt repayment. Expansion capital expenditures are primarily for the purchase or construction of vessels to the extent the expenditures increase the operating capacity of or revenue generated by our fleet, while maintenance capital expenditures primarily consist of drydocking expenditures and expenditures to replace vessels in order to maintain the operating capacity of or revenue generated by our fleet. Investment capital expenditures are those capital expenditures that are neither maintenance capital expenditures nor expansion capital expenditures.

We anticipate that our primary sources of funds for our short-term liquidity needs will be cash flows from operations. We believe that cash flows from operations will be sufficient to meet our existing liquidity needs for at least the next 12 months. Generally, we anticipate that our long-term sources of funds will be from cash from operations, long-term bank borrowings and other debt or equity financings, or a combination thereof. Because we and OPCO distribute all of our and its available cash, we expect that we and OPCO will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion and investment capital expenditures, including any acquisition opportunities we may pursue under the omnibus agreement with Teekay Corporation and other of its affiliates.

Cash Flows.The following table summarizes our sources and uses of cash for the periods presented:


	Nine Months Ended September 30,
(in thousands of U.S. dollars)	2008			2007
				(restated)

Net cash flow from operating activities		115,986			48,657
Net cash flow from financing activities		70,311			(53,018	)
Net cash flow from investing activities		(148,317	)		(12,797	)

Operating Cash Flows.Net cash flow from operating activities increased to $116.0 million for the nine months ended September 30, 2008, from $48.7 million for the same period in 2007, primarily reflecting the inclusion of theNavion Bergenand theNavion Gothenburgsince April 2007 and July 2007, respectively, partially offset by a $14.4 million increase in cash distributions paid to non-controlling interest owners, an increase in vessel operating expenses due to a trend of increasing crew compensation and an increase in interest expense from the increase in debt due to our acquisition of theSPT Explorer, theSPT Navigator, theNavion Oslo, theNavion Bergenand theDampier Spirit, and our 50% interest in theNavion Gothenburg. Net cash flow from operating activities depends upon the timing and amount of drydocking expenditures, repairs and maintenance activity, vessel additions and dispositions, foreign currency rates, changes in interest rates, fluctuations in working capital balances and spot market hire rates. The number of vessel drydockings tends to be uneven between years.

Financing Cash Flows.Scheduled debt repayments were $24.4 million and $12.1 million during the nine months ended September 30, 2008 and 2007, respectively. Net proceeds from long-term debt of $191.0 million and net advances from affiliates of $46.5 million were used to finance our acquisition of theSPT Explorer, theSPT Navigatorand theNavion Oslo, which is explained in more detail below, and to partially fund debt prepayments. The excess of the purchase price over the contributed basis of theSPT Explorerand theSPT Navigatorwas $16.7 million and is reflected as a financing cash flow.

On June 18, 2008, we completed a follow-on public offering of 7.0 million common units at a price of $20.00 per unit, for gross proceeds of $140.0 million. Concurrently with the public offering, Teekay Corporation acquired 3.25 million of our common units in a private placement at the same public offering price for $65.0 million. On July 16, 2008, the underwriters for the public offering partially exercised their over-allotment option and purchased an additional 375,000 common units for an additional $7.5 million in gross proceeds to us. As a result, we raised gross equity proceeds of $216.8 million (including our general partner’s proportionate 2% capital contribution). The net proceeds were used to fund the purchase of an additional 25% interest in OPCO. The excess of the purchase price over the contributed basis of the 25% additional interest in OPCO was $94.9 million and is reflected as a financing cash flow.

Cash distributions paid by us during the nine months ended September 30, 2008 and 2007 totaled $28.3 million and $15.0 million, respectively. Subsequent to September 30, 2008, cash distributions for the three months ended September 30, 2008 were declared and paid during the fourth quarter of 2008 and totaled $13.9 million.

Page 29 of 36

Investing Cash Flows.During the nine months ended September 30, 2008, net cash used by investing activities relates primarily to the $111.7 million acquisition from Teekay Corporation of an additional 25% interest in OPCO and $41.7 million for the acquisition of theNavion Oslo. During the nine months ended September 30, 2008 and 2007, we incurred $11.3 million and $13.3 million, respectively, of other expenditures for vessels and equipment. During the nine months ended September 30, 2008 and 2007, we received $17.0 million and $15.9 million, respectively, in scheduled repayments from the leasing of our volatile organic compound emissions equipment.

Credit Facilities

As at September 30, 2008, our total debt was $1.61 billion, compared to $1.52 billion as at December 31, 2007. As at September 30, 2008, we had five revolving credit facilities available, which, as at such date, provided for borrowings of up to $1.46 billion, of which $144.8 million was undrawn. As at September 30, 2008, each of our six 50% owned subsidiaries had an outstanding term loan, which, in aggregate, totaled $294.5 million. The joint venture term loans reduce in semi-annual payments with varying maturities through 2017. Please read Item 1 — Financial Statements: Note 6 — Long-Term Debt.

Our five revolving credit facilities are described in Note 6, Long-Term Debt, to our consolidated financial statements included in this report.

Three of the revolving credit facilities contain covenants that require OPCO to maintain the greater of a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months of maturity) of $75.0 million and 5.0% of OPCO’s total consolidated debt. The remaining two revolving credit facilities are guaranteed by Teekay Corporation and contain covenants that require Teekay Corporation to maintain the greater of a minimum liquidity of $50.0 million and 5.0% of Teekay Corporation’s total debt, which has recourse to Teekay Corporation. As at September 30, 2008, we, OPCO and, to our knowledge, Teekay Corporation were in compliance with all of our and its covenants under these credit facilities.

The term loans of our 50% owned subsidiaries are collateralized by first-priority mortgages on the vessels to which the loans relate, together with other related security. As at September 30, 2008, we had guaranteed $96.1 million of these term loans, which represents our 50% share of the outstanding vessel mortgage debt in five of these 50% owned joint venture companies. Teekay Corporation and our joint venture partner have guaranteed the remaining $198.4 million.

Interest payments on the revolving credit facilities and term loans are based on LIBOR plus a margin. At September 30, 2008 and December 31, 2007, the margins ranged between 0.45% and 0.80%.

All of our vessel financings are collateralized by the applicable vessels. The term loans used to finance the six 50% owned joint venture shuttle tankers and our revolving credit facility agreements contain typical covenants and other restrictions, including those that restrict the relevant subsidiaries from:

•

incurring or guaranteeing indebtedness (applicable to our term loans and two of our revolving credit facilities);

•

changing ownership or structure, including by mergers, consolidations, liquidations and dissolutions;

•

making dividends or distributions when in default of the relevant loans;

•

making capital expenditures in excess of specified levels;

•

making certain negative pledges or granting certain liens;

•

selling, transferring, assigning or conveying assets; or

•

entering into a new line of business.

We conduct our funding and treasury activities within corporate policies designed to minimize borrowing costs and maximize investment returns while maintaining the safety of the funds and appropriate levels of liquidity for our purposes. We hold cash and cash equivalents primarily in U.S. Dollars.

Contractual Obligations and Contingencies

The following table summarizes our long-term contractual obligations as at September 30, 2008:


			Balance		2009		2011
			of		and		and		Beyond
	Total		2008		2010		2012		2012
			(in millions of U.S. dollars)
Long-term debt⁽¹⁾		1,610.0		43.6		260.2		316.4		989.8
Chartered-in vessels (operating leases)		397.0		29.4		173.1		118.7		75.8

Total contractual obligations		2,007.0		73.0		433.3		435.1		1,065.6


(1)		Excludes expected interest payments of $14.6 million (remainder of 2008), $105.8 million (2009 and 2010), $83.8 million (2011 and 2012) and $65.9 million (beyond 2012). Expected interest payments are based on LIBOR plus margins which ranged between 0.45% and 0.80% as at September 30, 2008.

Page 30 of 36

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with GAAP, which require us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties, can be found in Item 5 Operating and Financial Review and Prospects, in our Annual Report on Form 20-F/A for the year ended December 31, 2007.

The sharp declines of economic and market conditions during the fourth quarter of 2008, including the significant disruptions in the global credit markets, have affected the estimates used in the valuation of a broad range of assets and liabilities. For the fourth quarter of 2008, we will assess whether these events have caused any of our asset values to be impaired and if so, the amount of any writedown. Any writedowns will not have an effect on our cashflows.

Page 31 of 36

FORWARD-LOOKING STATEMENTS

This Report on Form 6-K for the three months ended September 30, 2008 contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Exchange Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, in particular, statements regarding:

•

our future growth prospects;

•

results of operations and revenues and expenses;

•

offshore and tanker market fundamentals;

•

economic and capital market conditions, including the recent credit crisis, interest rate volatility and the availability and cost of capital, and their effect on our business, operating results and cash flow;

•

future capital expenditures and availability of capital resources to fund capital expenditures;

•

offers of shuttle tankers, FSOs and FPSOs and related contracts from Teekay Corporation;

•

obtaining offshore projects that we or Teekay Corporation bid on or may be awarded;

•

delivery dates of and financing for newbuildings or existing vessels;

•

the commencement of service of newbuildings or existing vessels;

•

our liquidity needs;

•

increasing crew costs;

•

our exposure to foreign currency fluctuations, particularly in Norwegian Kroner; and

•

the outcome of claims and legal action arising from the collision involving theNavion Hispania.

Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, “plan”, “intend” or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: changes in production of oil from offshore oil fields; the current economic and credit crises; changes in the demand for offshore oil transportation, production and storage services; greater or less than anticipated levels of vessel newbuilding orders or greater or less than anticipated rates of vessel scrapping; changes in trading patterns; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; potential inability to implement our growth strategy; competitive factors in the markets in which we operate; potential for early termination of long-term contracts and our potential inability to renew or replace long-term contracts; loss of any customer, time charter or vessel; shipyard production or vessel delivery delays; our potential inability to raise financing to purchase additional vessels; our exposure to currency exchange rate fluctuations; changes to the amount of proportion of revenues and expenses denominated in foreign currencies; and other factors detailed from time to time in our periodic reports filed with the SEC, including our Annual Report on Form 20-F/A for the year ended December 31, 2007. We do not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

Page 32 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2008

PART I — FINANCIAL INFORMATION

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR. Significant increases in interest rates could adversely affect operating margins, results of operations and our ability to service debt. We use interest rate swaps to reduce exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with the floating-rate debt.

In order to minimize counterparty risk, we only enter into derivative transactions with counterparties that are rated A or better by Standard & Poor’s or Aa3 by Moody’s at the time of the transactions. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.

The table below provides information about financial instruments as at September 30, 2008 that are sensitive to changes in interest rates. For long-term debt, the table presents principal payments and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by expected contractual maturity dates.


	Expected Maturity Date
	Balance
	of																					Fair Value
	2008			2009			2010			2011			2012			Thereafter			Total			Liability			Rate⁽¹⁾
										(in millions of U.S. dollars, except percentages)
Long-Term Debt:
Variable Rate⁽²⁾		43.6			125.5			134.7			169.3			147.1			989.8			1,610.0			(1,610.0	)		3.7	%

Interest Rate Swaps:
Contract Amount⁽³⁾		7.6			552.6			18.1			18.7			19.2			723.7			1,339.9			(44.0	)		4.8	%
Average Fixed Pay Rate⁽²⁾		5.0	%		4.7	%		4.9	%		4.9	%		4.9	%		4.8	%		4.8	%


(1)		Rate refers to the weighted-average effective interest rate for our debt, including the margin paid on our floating-rate debt and the average fixed pay rate for interest rate swaps. The average fixed pay rate for interest rate swaps excludes the margin paid on the floating-rate debt, which as of September 30, 2008 ranged from 0.45% to 0.80%.

(2)		Interest payments on floating-rate debt and interest rate swaps are based on LIBOR.

(3)		The average variable receive rate for interest rate swaps is set quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR.

Foreign Currency Risk

Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues and most of our operating costs are in U.S. Dollars. We incur certain vessel operating expenses and general and administrative expenses in foreign currencies, the most significant of which is the Norwegian Kroner and, to a lesser extent, Australian Dollars, British Pounds, Euros and Singapore Dollars. There is a risk that currency fluctuations will have a negative effect on the value of cash flows.

On the closing of our initial public offering in December 2006, OPCO entered into new services agreements with subsidiaries of Teekay Corporation whereby the subsidiaries operate and crew OPCO’s vessels. Under these service agreements, OPCO pays all vessel operating expenses in U.S. Dollars and will not be subject to Norwegian Kroner exchange fluctuations until 2009. Beginning in 2009, payments under the service agreements are adjusted to reflect any change in Teekay Corporation’s cost of providing services based on fluctuations in the value of the Norwegian Kroner relative to the U.S. Dollar. We have begun to hedge this currency fluctuation risk. At September 30, 2008, we were committed to foreign exchange contracts for the forward purchase of approximately Norwegian Kroner 810.8 million, Australian Dollars 3.3 million, British Pounds 0.7 million, and Euros 20.6 million for U.S. Dollars at an average rate of Norwegian Kroner 5.57 per U.S. Dollar, Australian Dollar 1.12 per U.S. Dollar, British Pound 0.52 per U.S. Dollar, and Euro 0.66 per U.S. Dollar. The foreign exchange forward contracts mature as follows: $7.9 million in 2008; $142.1 million in 2009; and $31.0 million in 2010.

Although the majority of transactions, assets and liabilities are denominated in U.S. Dollars, OPCO had Norwegian Kroner-denominated deferred income taxes of approximately 212.2 million ($36.2 million) at September 30, 2008. Neither we nor OPCO has entered into any forward contracts to protect against currency fluctuations on any future taxes.

Page 33 of 36

TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2008

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

On November 13, 2006, a Teekay Offshore Operating L.P. (orOPCO) shuttle tanker, theNavion Hispania, collided with theNjord Bravo, a floating storage and offtake unit, while preparing to load an oil cargo from theNjord Bravo. TheNjord Bravoservices the Njord field, which is operated by StatoilHydro Petroleum AS (orStatoilHydro) and is located off the Norwegian coast. At the time of the incident, StatoilHydro was chartering theNavion Hispaniafrom OPCO. TheNavion Hispaniaand theNjord Bravoboth incurred damages as a result of the collision.

In November 2007, Navion Offshore Loading AS, a subsidiary of OPCO, and two subsidiaries of Teekay Corporation were named as co-defendants in a legal action filed by Norwegian Hull Club (the hull and machinery insurers of theNjord Bravo), StatoilHydro and various licensees in the Njord field. The claim seeks damages for vessel repairs, expenses for a replacement vessel and other amounts related to production stoppage on the field, totaling NOK256,000,000 (or approximately USD$37 million). As anticipated, the Stavanger Conciliation Council has referred the matter to the Stavanger District Court. The claimants must continue the proceedings by September 1, 2009 in order to avoid the matter being time-barred.

The Partnership believes the likelihood of any losses relating to the claim is remote. The Partnership believes that the charter contract relating to theNavion Hispaniarequires that StatoilHydro be responsible and indemnify Navion Offshore Loading AS for all losses relating to the damage to theNjord Bravo. OPCO and Teekay Corporation also maintain insurance for damages to theNavion Hispaniaand insurance for collision-related costs and claims. The Partnership believes that these insurance policies will cover the costs related to this incident, including any costs not indemnified by StatoilHydro, subject to standard deductibles. In addition, Teekay Corporation has agreed to indemnify the Partnership, OPCO and OPCO’s subsidiaries for any losses they may incur in connection with this incident.

Item 1A — Risk Factors

In addition to the other information set forth in this Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, “Item 3. Key Information — Risk Factors” in our Annual Report on Form 20-F/A for the year ended December 31, 2007, which could materially affect our business, financial condition or results of operations. There has been no material changes in our risk factors from those disclosed in our 2007 Annual Report on Form 20-F/A, except for the addition of the following:

The continuation of recent economic conditions, including disruptions in the global credit markets, could adversely affect our results of operations.

The recent economic downturn and financial crisis in the global markets have produced illiquidity in the capital markets, market volatility, heightened exposure to interest rate and credit risks and reduced access to capital markets. If this economic downturn continues, we may face restricted access to the capital markets or secured debt lenders, such as our revolving credit facilities. The decreased access to such resources could have a material adverse effect on our business, financial condition and results of operations.

The recent economic downturn may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.

The recent economic downturn in the global financial markets may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels and services. Our customer’s inability to pay could also result in their default on our current contracts and charters. The decline in the amount of services requested by our customers or their default on our contracts with them could have a material adverse effect on our business, financial condition and results of operations.

We cannot determine whether the difficult conditions in the economy and the financial markets will improve or worsen in the near future.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3 — Defaults Upon Senior Securities

None

Item 4 — Submission of Matters to a Vote of Security Holders

None

Item 5 — Other Information

None

Page 34 of 36

Item 6 — Exhibits

None

THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENT OF THE PARTNERSHIP:

•

REGISTRATION STATEMENT ON FORM S-8 (NO. 333-147682) FILED WITH THE SEC ON NOVEMBER 28, 2007

•

REGISTRATION STATEMENT ON FORM F-3 (NO. 333-150682) FILED WITH THE SEC ON MAY 6, 2008

Page 35 of 36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	TEEKAY OFFSHORE PARTNERS L.P.
	By:	Teekay Offshore GP L.L.C., its general partner

Date: April 2, 2009	By:	/s/ Peter Evensen
		Peter Evensen
		Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)

Page 36 of 36

Altera Infrastructure (ALIN-PA) 6-KCurrent report (foreign)

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