• TOO announced it has agreed to acquire from Teekay Corporation (TK - $46.21,
OW rated) (the parent of TOO's general partner) an additional 25% interest in
Teekay Offshore Operating L.P. (OPCO) for $205 million. TK's offer to sell this
interest to TOO was previously announced. This transaction will bring TOO
ownership interest in OPCO to 51%.
• Additionally, TOO also announced that OPCO agreed to acquire from Teekay
Corporation two 2008-built Aframax lightering tankers for a total cost of $106
million including the assumption of $90 million of existing debt relating to the
vessels. These vessels are employed under a 10-year fixed rate bareboat
charter to a JV 50% owned by Teekay Corporation.
• Both of these transactions are expected to close in June and to be financed
through a combination of existing cash balances, borrowings and the issuance
of additional equity.
• Due to the above two transactions, TOO management anticipates
recommending to the Board of Directors of TOO's general partner a 12% to 15%
increase in the quarterly cash distribution rate (implying approximately $0.45 to
$0.46 for 3Q08 compared to $0.40 during 1Q08).
• Taking into account the above transactions, our FY08 EPU and EBITDA
estimates decline slightly from $1.23 to $1.17 while our FY08 EBITDA estimate
increases from $295.6 million to $301.0 million.
• We maintain our OW rating and our $33 target price. Through its strategy of
growing its fleet of shuttle tankers, FSOs and FPSOs, TOO is leveraged to
increasing investment in energy infrastructure to develop deepwater oil fields.
We believe TOO has attractive opportunities to grow its cash distributions per
unit over the next several years through the acquisition of shuttle tankers, FSOs
and FPSOs (Brazil in particular is expected to be actively tendering for FPSOs
over the next several years) as well as increasing its equity interest in OPCO