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<SEC-DOCUMENT>0000911971-06-000021.txt : 20060517
<SEC-HEADER>0000911971-06-000021.hdr.sgml : 20060517
<ACCEPTANCE-DATETIME>20060517151034
ACCESSION NUMBER:		0000911971-06-000021
CONFORMED SUBMISSION TYPE:	6-K
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20060331
FILED AS OF DATE:		20060517
DATE AS OF CHANGE:		20060517

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TEEKAY SHIPPING CORP
		CENTRAL INDEX KEY:			0000911971
		STANDARD INDUSTRIAL CLASSIFICATION:	DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			1T
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		6-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-12874
		FILM NUMBER:		06848904

	BUSINESS ADDRESS:	
		STREET 1:		TK HOUSE, BAYSIDE EXECUTIVE PARK
		STREET 2:		WEST BAY ST & BLAKE RD, PO BOX AP-59213
		CITY:			NASSAU BAHAMAS
		STATE:			C5
		ZIP:			00000
		BUSINESS PHONE:		8093228020

	MAIL ADDRESS:	
		STREET 1:		SUITE 2000,  BENTALL 5
		STREET 2:		550 BURRARD STREET
		CITY:			VANCOUVER
		STATE:			A1
		ZIP:			V6C 2K2

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	VIKING STAR SHIPPING INC
		DATE OF NAME CHANGE:	19930914
</SEC-HEADER>
<DOCUMENT>
<TYPE>6-K
<SEQUENCE>1
<FILENAME>form6kmarch31_033106.htm
<DESCRIPTION>FORM6K FOR THE PERIOD ENDED MARCH 31, 2006
<TEXT>
<HTML>
<HEAD>
<TITLE>TEEKAY SHIPPING CORPORATION</TITLE>
     <!-- Created by EDGAR Ease Plus (EDGAR Ease+ 1.4a) -->
</HEAD>

<BODY><H1 align=center><FONT face="Times New Roman, Times, Serif" size=5>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION</FONT></H1>

<H1 align=center><FONT face="Times New Roman, Times, Serif" size=3><U><B>WASHINGTON, D.C. 20549</B></U> </FONT></H1>
<BR>
<H1 align=center><FONT face="Times New Roman, Times, Serif" size=4>FORM 6-K</FONT></H1>

<P align=center>Report of Foreign Private Issuer</P>

<P align=center>Pursuant to Rule 13a-16 or 15d-16 of<BR>the Securities Exchange Act of 1934</P>

<HR width="15%" noShade SIZE=1>

<P align=center>For the quarterly period ended <U>March 31, 2006</U><BR>
<BR>
<FONT SIZE=2>Commission file number 1- 12874</FONT><BR>
<BR>
<FONT size=4><B>TEEKAY SHIPPING CORPORATION</B></FONT><BR>
(Exact name of Registrant as specified in its charter)<BR><BR>
Bayside House<BR>
Bayside Executive Park<BR>
West Bay Street &amp; Blake Road<BR>
P.O. Box AP-59212, Nassau, Bahamas<BR>
(Address of principal executive office)<BR>
</P>

<HR width="15%" noShade SIZE=1>


<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant
 files or will file annual reports under cover Form 20-F or Form 40-F.</P>

<P align=center>Form 20-F&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;X&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
 Form 40- F&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</P>


<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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).
</P>

<P align=center>Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;X&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</P>


<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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).
</P>

<P align=center>Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;X&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</P>


<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</P>

<P align=center>Yes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;X&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</P>


<P>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If "Yes" is marked, indicate below the file
 number assigned to the registrant in connection with Rule 12g3-2(b):82-<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</P>
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>



<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>REPORT ON FORM 6-K FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2006 </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>INDEX</U></FONT></H1>

<PRE>
PART I:       FINANCIAL INFORMATION                                                                           <U>PAGE</U>

Item 1.  Financial Statements (Unaudited)

                Report of Independent Registered Public Accounting Firm...................................      3

                Unaudited Consolidated Statements of Income
                       for the three months ended March 31, 2006 and 2005.................................      4

                Unaudited Consolidated Balance Sheets
                       as at March 31, 2006 and December 31, 2005.........................................      5

                Unaudited Consolidated Statements of Cash Flows
                       for the three months ended March 31, 2006 and 2005.................................      6

                Notes to the Unaudited Consolidated Financial Statements..................................      7


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............     22

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.......................................     38

PART II: OTHER INFORMATION................................................................................     40

SIGNATURES................................................................................................     41

</PRE>

<PAGE>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Project" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 1 &#151; FINANCIAL
STATEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To the Board of Directors and
Stockholders of<BR><B>Teekay Shipping
Corporation</B></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have reviewed the consolidated
balance sheet of Teekay Shipping Corporation and subsidiaries as of March 31, 2006 and the
related consolidated statements of income and cash flows for the three months ended March
31, 2006 and 2005. These financial statements are the responsibility of the Company&#146;s
management. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We conducted our reviews in
accordance with the standards of the Public Company Accounting Oversight Board (United
States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board (United
States), the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Based on our reviews, we are not
aware of any material modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with U.S. generally accepted
accounting principles. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have previously audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheet of Teekay Shipping Corporation and subsidiaries as
of December 31, 2005, and the related consolidated statements of income, changes in
stockholders&#146; equity and cash flows for the year then ended, and in our report dated
February 21, 2006, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the consolidated balance sheet as
of December 31, 2005, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived. </FONT></P>

<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
        <TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vancouver, Canada,<BR>
        May 2, 2006</FONT></TD>
        <TD WIDTH=55% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ ERNST &amp; YOUNG LLP<BR>
Chartered Accountants</FONT></TD>
</TR>
</TABLE>
<BR>

<BR>
<BR>
<BR>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNAUDITED CONSOLIDATED
STATEMENTS OF INCOME<BR>(in thousands of U.S.
dollars, except share and per share amounts)</FONT></H1>

<PRE>
                                                                                 <B>Three Months Ended March 31,
                                                                                    2006              2005
                                                                                      $                 $</B>
                                                                             ----------------- -----------------

<B>VOYAGE REVENUES</B>                                                                    525,996           517,411
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>OPERATING EXPENSES</B>
Voyage expenses                                                                    133,611            98,529
Vessel operating expenses                                                           53,224            54,440
Time-charter hire expense                                                          104,424           108,582
Depreciation and amortization                                                       50,484            54,083
General and administrative (<I>note 9</I>)                                                 40,260            33,698
Gain on sale of vessels (<I>note 11</I>)                                                     (607)         (101,853)
Restructuring charge (<I>note 12</I>)                                                       1,887                 -
- ---------------------------------------------------------------------------- ----------------- -----------------
<B>Total operating expenses</B>                                                           383,283           247,479
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>Income from vessel operations</B>                                                      142,713           269,932
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>OTHER ITEMS</B>
Interest expense                                                                   (36,758)          (37,697)
Interest income                                                                     12,101             8,230
Equity income from joint ventures                                                    1,145             2,827
Foreign exchange (loss) gain (<I>note 6</I>)                                              (11,464)           25,874
Other - net (<I>note 12</I>)                                                               (6,033)            9,880
- ---------------------------------------------------------------------------- ----------------- -----------------
<B>Total other items</B>                                                                  (41,009)            9,114
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>Net income</B> (<I>note 13</I>)                                                               101,704           279,046
============================================================================ ================= =================
<B>Earnings per common share</B> (<I>note 15</I>)
     - Basic                                                                          1.41              3.41
     - Diluted                                                                        1.35              3.19
<B>Weighted average number of common shares</B>
     - Basic                                                                    72,153,868        81,712,320
     - Diluted                                                                  75,230,591        87,467,141
============================================================================ ================= =================
</PRE>
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>The accompanying notes are an
integral part of the unaudited interim consolidated financial statements.</I> </FONT></P>


<PAGE>
<BR>
<BR>
<BR>
<BR>
<BR>


<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNAUDITED CONSOLIDATED
BALANCE SHEETS<BR>(in thousands of U.S.
dollars)</FONT></H1>

<PRE>
                                                                                   <B> As at             As at
                                                                                   March 31,        December 31,
                                                                                     2006              2005
                                                                                      $                 $</B>
                                                                             ---------------- -----------------
<B>ASSETS
Current</B>
Cash and cash equivalents (<I>note 6</I>)                                                 257,003           236,984
Restricted cash  (<I>note 8</I>)                                                          155,952           152,286
Accounts receivable                                                                157,555           151,732
Vessels held for sale (<I>note 11</I>)                                                      3,091                 -
Net investment in direct financing leases - current                                 19,749            20,240
Prepaid expenses and other assets                                                   99,509            69,175
- ---------------------------------------------------------------------------- ----------------- -----------------
<B>Total current assets</B>                                                               692,859           630,417
- ---------------------------------------------------------------------------- ----------------- -----------------
                                                                                   567,517           158,798
Restricted cash (<I>note 8</I>)

<B>Vessels and equipment</B> (<I>note 6</I>)
At cost, less accumulated depreciation of  $751,346
    (December 31, 2005 -  $766,696)                                              2,496,853         2,536,002
Vessels under capital leases, at cost, less accumulated
    depreciation of $40,880 (December 31, 2005 - $35,574) (<I>note 8</I>)                 707,255           712,120
Advances on newbuilding contracts (<I>note 10</I>)                                        224,283           473,552
- ---------------------------------------------------------------------------- ----------------- -----------------
<B>Total vessels and equipment</B>                                                      3,428,391         3,721,674
- ---------------------------------------------------------------------------- ----------------- -----------------
Net investment in direct financing leases                                           98,305           100,996
Investment in joint ventures (<I>note 10</I>)                                             147,689           145,448
Other assets                                                                       201,653           113,590
Intangible assets - net (<I>note 4</I>)                                                   248,590           252,280
Goodwill (<I>note 4</I>)                                                                  170,897           170,897
- ---------------------------------------------------------------------------- ----------------- -----------------
                                                                                 5,555,901         5,294,100
============================================================================ ================= =================

<B>LIABILITIES AND STOCKHOLDERS' EQUITY</B>
<B>Current</B>
Accounts payable                                                                    43,508            40,908
Accrued liabilities                                                                104,214           125,878
Current portion of long-term debt (<I>note 6</I>)                                          22,589           159,053
Current obligation under capital leases (<I>note 8</I>)                                   146,250           139,001
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>Total current liabilities</B>                                                          316,561           464,840
- ---------------------------------------------------------------------------- ----------------- -----------------
Long-term debt (<I>note 6</I>)                                                          1,938,846         1,686,190
Obligation under capital leases (<I>note 8</I>)                                           416,342           415,234
Loan from joint venture partner (<I>note 7</I>)                                            33,905            33,500
Other long-term liabilities                                                        178,877           174,991
- ---------------------------------------------------------------------------- ----------------- -----------------
<B>Total liabilities</B>                                                                2,884,531         2,774,755
- ---------------------------------------------------------------------------- ----------------- -----------------
Commitments and contingencies (<I>notes 8, 10 and 14</I>)

<B>Minority interest</B>                                                                  284,350           282,803

<B>Stockholders' equity</B>
Capital stock (<I>note 9</I>)                                                             590,046           471,784
Additional paid-in capital (<I>note 9</I>)                                                  2,011                 -
Retained earnings                                                                1,797,987         1,833,588
Accumulated other comprehensive loss (<I>note 14</I>)                                      (3,024)          (68,830)
- ---------------------------------------------------------------------------- ----------------- -----------------
<B>Total  stockholders' equity</B>                                                      2,387,020         2,236,542
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>Total  liabilities and stockholders' equity</B>                                      5,555,901         5,294,100
============================================================================ ================= =================
</PRE>
<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>
The accompanying notes are an integral part of the unaudited interim consolidated
financial statements.</I> </FONT></P>


<PAGE>
<BR>
<BR>
<BR>
<BR>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS<BR>(in thousands of U.S.
dollars)</FONT></H1>

<PRE>
                                                                                 <B>Three Months Ended March 31,
                                                                                    2006              2005
                                                                                     $                 $</B>
                                                                             ---------------- -----------------

Cash and cash equivalents provided by (used for)
<B>OPERATING ACTIVITIES</B>
Net income                                                                         101,704           279,046
Non-cash items:
     Depreciation and amortization                                                  50,484            54,083
     Gain on sale of vessels                                                          (607)         (101,853)
     Loss on repurchase of bonds                                                       375                 -
     Equity income (net of dividends received: March 31, 2006 - $2,500;
        March 31, 2005 - $4,154)                                                     1,355             1,327
     Income taxes                                                                    3,784           (13,898)
     Employee stock option compensation (<I>note 9</I>)                                     2,011                 -
     Unrealized foreign exchange (gain) loss and other - net                        14,536           (34,991)
Change in non-cash working capital items related to operating activities           (62,330)           (5,471)
Expenditures for drydocking                                                         (1,663)           (4,498)
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>Net operating cash flow</B>                                                            109,649           173,745
- ---------------------------------------------------------------------------- ----------------- -----------------

<B>FINANCING ACTIVITIES</B>
Proceeds from long-term debt                                                       449,252           157,817
Capitalized loan costs                                                              (2,459)             (283)
Scheduled repayments of long-term debt                                              (3,809)          (49,078)
Prepayments of long-term debt                                                     (194,375)         (357,588)
Repayments of capital lease obligations                                             (2,448)           (1,956)
(Increase) decrease in restricted cash                                            (398,477)            3,247
Distribution by subsidiaries to minority owners                                     (4,745)                -
Issuance of common stock upon exercise of stock options                              1,517             6,660
Repurchase of common stock (<I>note 9</I>)                                               (147,824)          (67,618)
Cash dividends paid                                                                (15,058)          (11,290)
- ---------------------------------------------------------------------------- ----------------- -------------------

<B>Net financing cash flow</B>                                                           (318,426)         (320,089)
- ---------------------------------------------------------------------------- ----------------- -------------------

<B>INVESTING ACTIVITIES</B>
Expenditures for vessels and equipment                                             (84,399)          (61,587)
Proceeds from sale of vessels and equipment                                        312,972           339,801
Investment in joint venture                                                         (2,664)                -
Investment in direct financing leases                                               (1,609)           (7,157)
Repayment of direct financing leases                                                 4,496             2,565
- ---------------------------------------------------------------------------- ----------------- ------------------

<B>Net investing cash flow</B>                                                            228,796           273,622
- ---------------------------------------------------------------------------- ----------------- ------------------

<B>Increase in cash and cash equivalents</B>                                               20,019           127,278
Cash and cash equivalents, beginning of the period                                 236,984           427,037
- ---------------------------------------------------------------------------- ----------------- ------------------

<B>Cash and cash equivalents, end of the period</B>                                       257,003           554,315
============================================================================ ================= ==================
</PRE>
<!-- MARKER FORMAT-SHEET="Para Large Indent Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The
accompanying notes are an integral part of the unaudited interim consolidated financial
statements.</I> </FONT></P>


<PAGE>
<BR>
<BR>
<BR>
<BR>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>



<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Project" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>1.</B>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Basis of Presentation</B> </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 4-TNR" FSL="Project" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
unaudited interim consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. They include the accounts
of Teekay Shipping Corporation (or <I>Teekay</I>), which is incorporated under the laws of
the Republic of the Marshall Islands, and its wholly owned or controlled subsidiaries
(collectively, the <I>Company</I>). Certain information and footnote disclosures required
by generally accepted accounting principles in the United States for complete annual
financial statements have been omitted and, therefore, it is suggested that these interim
financial statements be read in conjunction with the Company&#146;s audited financial
statements for the year ended December 31, 2005. In the opinion of management, these
statements reflect all adjustments (consisting only of normal recurring accruals)
necessary to present fairly, in all material respects, the Company&#146;s consolidated
financial position, results of operations, and cash flows for the interim periods
presented. The results of operations for the three months ended March 31, 2006 are not
necessarily indicative of those for a full fiscal year.

</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 4-TNR" FSL="Project" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Certain
of the comparative figures have been reclassified to conform with the presentation adopted
in the current period.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Lv 0-TNR" FSL="Project" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>2.</B>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Segment Reporting</B> </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 5-TNR" FSL="Project" -->
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has three reportable segments: its spot tanker segment, its fixed-rate tanker
segment, and its fixed-rate liquefied natural gas (or <I>LNG</I>) segment. The
Company&#146;s spot tanker segment consists of conventional crude oil tankers and product
carriers operating in the spot market or subject to time charters or contracts of
affreightment priced on a spot-market basis or on short-term, fixed-rate contracts. The
Company considers contracts that have an original term of less than three years in
duration to be short-term. The Company&#146;s fixed-rate tanker segment consists of
shuttle tankers, floating storage and offtake vessels, liquid petroleum gas carriers and
conventional crude oil and product tankers subject to long-term, fixed-rate time-charter
contracts or contracts of affreightment. The Company&#146;s fixed-rate LNG segment
consists of LNG carriers subject to long-term, fixed-rate time-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
Company&#146;s consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The following tables present results for these segments for the three months ended March 31,
2006 and 2005:
</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
         --------------------------------------- ---------------- ---------------- ---------------- ----------------
                                                    <B>Fixed-Rate        Fixed-Rate         Spot
                                                      Tanker             LNG            Tanker
                                                      Segment          Segment          Segment           Total</B>
         Three months ended March 31, 2006               <B>$                $                $                $</B>
         --------------------------------------- ---------------- ---------------- ---------------- ----------------

         Voyage revenues - external.............      195,669           23,700          306,627          525,996
         Voyage expenses........................       23,132                -          110,479          133,611
         Vessel operating expenses..............       34,883            3,693           14,648           53,224
         Time-charter hire expense..............       49,921                -           54,503          104,424
         Depreciation and amortization..........       29,611            7,678           13,195           50,484
         General and administrative(1)..........       14,539            3,381           22,340           40,260
         Gain on sale of vessels................         (105)               -             (502)            (607)
         Restructuring charge...................            -                -            1,887            1,887
                                                 ---------------- ---------------- ---------------- ----------------
         Income from vessel operations(2).......       43,688            8,948           90,077          142,713
                                                 ================ ================ ================ ================

         Voyage revenues - intersegment.........        1,133                -                -            1,133
         Total assets as at March 31, 2006......    2,029,070        1,905,687          967,531        4,902,288

</PRE>

<PAGE>
<BR>
<BR>
<BR>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

<PRE>
         --------------------------------------- ---------------- ---------------- ---------------- ----------------
                                                     <B>Fixed-Rate       Fixed-Rate         Spot
                                                      Tanker             LNG            Tanker</B>
                                                      <B>Segment          Segment          Segment           Total</B>
         Three months ended March 31, 2005               <B>$                $                $                $</B>
         --------------------------------------- ---------------- ---------------- ---------------- ----------------

         Voyage revenues - external.............      172,162           24,265          320,984          517,411
         Voyage expenses........................       14,285               48           84,196           98,529
         Vessel operating expenses..............       32,290            4,343           17,807           54,440
         Time-charter hire expense..............       42,366                -           66,216          108,582
         Depreciation and amortization..........       30,695            7,522           15,866           54,083
         General and administrative (1).........       12,433            2,940           18,325           33,698
          Gain on sale of vessels...............       (4,884)               -          (96,969)        (101,853)
                                                 ---------------- ---------------- ---------------- ----------------
         Income from vessel operations(2).......       44,977            9,412          215,543          269,932
                                                 ================ ================ ================ ================

         Voyage revenues - intersegment.........        1,133                -                -            1,133
         Total assets as at March 31, 2005......    2,008,725        1,498,015          966,559        4,473,299
</PRE>

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               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Includes direct general and administrative expenses and indirect general and
               administrative expenses (allocated to each segment based on estimated use of
               corporate resources). </FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(2) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               The Company&#146;s subsidiary, Teekay LNG Partners L.P., contributed $19.1
               million of income from vessel operations to the Company&#146;s fixed-rate tanker
               segment and fixed-rate LNG segment for the three months ended March 31, 2006
               (2005 &#150; $nil). </FONT></TD>
               </TR>
               </TABLE>
               <BR>


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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
A reconciliation of total segment assets to amounts presented in the consolidated balance
sheets is as follows:
</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                                    <B>As at               As at
                                                                                  March 31,          December 31,
                                                                                   2006                2005
                                                                                     $                   $</B>
                                                                            ------------------- -------------------

         Fixed-rate tanker segment..........................................    2,029,070           2,050,122
         Fixed-rate LNG segment.............................................    1,905,687           1,753,289
         Spot tanker segment................................................      967,531             906,028
         Cash and restricted cash...........................................      270,681             244,510
         Accounts receivable and other assets...............................      382,932             340,151
                                                                            ------------------- -------------------
            Consolidated total assets ......................................    5,555,901           5,294,100
                                                                            =================== ===================
</PRE>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>3.</B>  </FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Public Offerings of Teekay LNG Partners L.P.</B> </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
May 10, 2005, the Company&#146;s subsidiary Teekay LNG Partners L.P. (or <I>Teekay
LNG</I>) completed its initial public offering (or the <I>Offering</I>) of 6.9 million
common units at a price of $22.00 per unit. During November 2005, Teekay LNG issued an
additional 4.6 million common units at a price of $27.40 per unit (or the <I>Follow-on
Offering</I>). As a result of these transactions, the Company recorded a $7.9 million
increase to stockholders&#146; equity which represents the Company&#146;s gain from the
issuance of units for the Offering and Follow-on Offering.</FONT></TD>
</TR>
</TABLE>

<PAGE>
<BR>
<BR>
<BR>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The proceeds received from the public offerings and the use of those proceeds are summarized
as follows:</FONT></TD>
</TR>
</TABLE>
<BR>


<PRE>
                                                                                  <B>Follow-On
                                                                  Offering         Offering            Total
                                                                     $                $                  $
        Proceeds received:</B>                                  ----------------- ------------------ -----------------
         Sale of 6,900,000 common units at $22.00 per unit..      151,800                -            151,800
         Sale of 4,600,000 common units at $27.40 per unit..            -          126,040            126,040
                                                            ------------------ ------------------ -----------------
                                                                  151,800          126,040            277,840
                                                            ------------------ ------------------ -----------------
        <B>Use of proceeds from sale of common units:</B>
         Underwriting and structuring fees..................       10,473            5,042             15,515
         Professional fees and other offering expenses to
           third parties....................................        5,616              790              6,406
         Repayment of loans from Teekay Shipping
           Corporation......................................      129,400                -            129,400
         Purchase of three Suezmax tankers from Teekay
           Shipping Corporation.............................            -          120,208            120,208
         Working capital....................................        6,311                -              6,311
                                                            ------------------ ------------------ -----------------
                                                                  151,800          126,040            277,840
                                                            ------------------ ------------------ -----------------

</PRE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Teekay
LNG is a Marshall Islands limited partnership formed by the Company as part of its
strategy to expand its operations in the LNG shipping sector. Teekay LNG provides LNG and
crude oil marine transportation service under long-term, fixed-rate contracts with major
energy and utility companies through its fleet of LNG carriers and Suezmax class crude oil
tankers, primarily consisting of vessels obtained through the Company&#146;s acquisition
of Teekay Spain in April 2004.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Immediately
preceding the Offering, the Company entered into an omnibus agreement with Teekay LNG
governing, among other things, when the Company and Teekay LNG may compete with each other
and certain rights of first offering on LNG carriers and Suezmax tankers. Under the
agreement, Teekay LNG has granted to the Company a 30-day right of first offering on any
proposed (a) sale, transfer or other disposition of any of Teekay LNG&#146;s Suezmax
tankers or (b) re-chartering of any of Teekay LNG&#146;s Suezmax tankers pursuant to a
time-charter with a term of at least three years if the existing charter expires or is
terminated early. Likewise, the Company has granted a similar right of first offer to
Teekay LNG for any LNG carriers it might own.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Concurrently
with Teekay LNG&#146;s Follow-On Offering, the Company sold to Teekay LNG three
double-hulled Suezmax tankers and related long-term, fixed-rate time charters for an
aggregate price of $180 million. These vessels, the <I>African Spirit</I>, the <I>Asian
Spirit</I> and the <I>European Spirit</I>, are chartered to a subsidiary of
ConocoPhillips, an international, integrated energy company. Teekay LNG financed the
acquisition with the net proceeds of the public offering, together with borrowings under
its revolving credit facility and cash balances.</FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>4.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Goodwill and Intangible Assets</B> </FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The carrying amount of goodwill for the Company&#146;s reporting segments is as follows:
</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                   <B>Fixed-       Fixed-
                                                    Rate         Rate         Spot
                                                   Tanker         LNG        Tanker
                                                   Segment      Segment      Segment       Other       Total
                                                      $            $            $            $           $</B>
                                                ------------ ------------ ------------ ------------ -----------
          Balance as of March 31, 2006
            and December 31, 2005...............   134,196       35,631            -        1,070     170,897
                                                ============ ============ ============ ============ ===========
</PRE>

<PAGE>
<BR>
<BR>
<BR>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Default" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As at March 31, 2006, intangible assets consisted of:
</FONT></TD>
</TR>
</TABLE>
<PRE>
                                                       <B>Weighted-
                                                        Average        Gross                             Net
                                                      Amortization    Carrying      Accumulated       Carrying
                                                        Period         Amount       Amortization       Amount
                                                        (years)           $               $               $</B>
                                                   --------------- --------------- --------------- ---------------
          Contracts of affreightment...............      10.2          124,250         (48,767)         75,483
          Time-charter contracts...................      19.2          182,552         (15,641)        166,911
          Intellectual property....................       7.0            9,588          (3,392)          6,196
                                                   --------------- --------------- --------------- ---------------
                                                         15.4          316,390         (67,800)        248,590
                                                   =============== =============== =============== ===============

</PRE>


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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As at December 31, 2005, intangible assets consisted of:
</FONT></TD>
</TR>
</TABLE>
<PRE>
                                                       <B>Weighted-
                                                        Average        Gross                             Net
                                                      Amortization    Carrying      Accumulated       Carrying
                                                        Period         Amount       Amortization       Amount
                                                        (years)           $               $               $</B>
                                                   --------------- --------------- --------------- --------------
          Contracts of affreightment...............      10.2          124,250         (45,748)         78,502
          Time-charter contracts...................      19.2          182,552         (13,358)        169,194
          Intellectual property....................       7.0            7,701          (3,117)          4,584
                                                   --------------- --------------- --------------- --------------
                                                         15.4          314,503         (62,223)        252,280
                                                   =============== =============== =============== ==============

</PRE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Aggregate
amortization expense of intangible assets for the three months ended March 31, 2006 and
2005 was $5.6 million and $6.3 million, respectively. Amortization of intangible assets
for the next five fiscal years is expected to be $17.1 million (remainder of 2006), $21.8
million (2007), $20.7 million (2008), $19.7 million (2009), $17.6 million (2010) and
$151.7 million (thereafter).</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>5.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Cash Flows</B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Cash
interest paid by the Company during the three months ended March 31, 2006 and 2005 totaled
approximately $36.3 million and $47.4 million, respectively.</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>6.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Long-Term Debt</B></FONT></TD>
</TR>
</TABLE>
<BR>


<PRE>
                                                                                   <B> March 31,       December 31,
                                                                                      2006              2005
                                                                                        $                $</B>
                                                                                ---------------- ----------------
         Revolving Credit Facilities............................................     958,625          769,000
         Premium Equity Participating Security Units (7.25%) due May 18, 2006...           -          143,750
         Senior Notes (8.875%) due July 15, 2011................................     262,500          265,559
         U.S. Dollar-denominated Term Loans due through 2019....................     356,409          289,582
         EURO-denominated Term Loans due through 2023...........................     383,901          377,352
                                                                                ---------------- ----------------
                                                                                   1,961,435        1,845,243
         Less current portion...................................................      22,589          159,053
                                                                                ---------------- ----------------
            Total...............................................................   1,938,846        1,686,190
                                                                                ================ ================
</PRE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company had six long-term revolving credit facilities (or the
<I>Revolvers</I>) available, which, as at such date, provided for borrowings of up to $1.7
billion, of which $709.4 million was undrawn. Interest payments are based on LIBOR (March 31, 2006 - 4.8%) plus
margins; at March 31, 2006, the margins
ranged between 0.50% and 1.20%. The amount available under the Revolvers reduces by $103.0
million (2006), $148.2 million (2007), $363.4 million (2008), $189.7 million (2009), $91.1
million (2010) and $772.6 million (thereafter). The Revolvers are collateralized by
first-priority mortgages granted on 49 of the Company&#146;s vessels, together with other
related collateral, and include a guarantee from Teekay or its subsidiaries for all
outstanding amounts.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>
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<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
On
February 16, 2006, the Company issued 6,534,300 shares of its Common Stock upon settlement
of the purchase contracts associated with its 7.25% Premium Equity Participating Security
Units (or <I>Equity Units</I>). The Equity Units were issued in February 2003 and each
consisted of a share purchase contract and a $25 principal amount subordinated note due
May 18, 2006. On February 16, 2006, the Company repurchased the notes for net proceeds
equal to 100% of their aggregate principal amount. The net proceeds were applied to
satisfy the obligations of the holders of the Equity Units to purchase Company Common
Stock under the related purchase contracts. The notes were subsequently cancelled and are
no longer outstanding. The Equity Units are no longer outstanding.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
8.875% Senior Notes due July 15, 2011 (or the <I>8.875% Notes</I>) rank equally in right
of payment with all of Teekay&#146;s existing and future senior unsecured debt and senior
to Teekay&#146;s existing and future subordinated debt. The 8.875% Notes are not
guaranteed by any of Teekay&#146;s subsidiaries and effectively rank behind all existing
and future secured debt of Teekay and other liabilities, secured and unsecured, of its
subsidiaries. During the three months ended March 31, 2006, the Company repurchased a
principal amount of $3.0 million of the 8.875% Notes (see also Note 12).</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has two U.S. Dollar-denominated term loans outstanding, which, as at March 31,
2006, totaled $356.4 million. One term loan bears interest at a fixed rate of 4.06%.
Interest payments on the second loan are based on LIBOR plus a margin. At March 31, 2006,
the margins ranged between 0.90% and 1.05%. The U.S. Dollar-denominated term loans reduce
in quarterly payments through 2019 and are collateralized by first-preferred mortgages on
the vessels to which the loans relate, together with certain other collateral, and are
guaranteed by Teekay.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has two Euro-denominated term loans outstanding, which, as at March 31, 2006
totaled 316.8 million Euros ($383.9 million). The Company used the loans in financing
capital leases for two vessels. The Company repays the loans with funds generated by two
Euro-denominated long-term time-charter contracts. Interest payments on the loans are
based on EURIBOR (March 31, 2006 - 2.7%) plus a margin. At March 31, 2006, the margins ranged between 1.10% and
1.30%. The Euro-denominated term loans reduce in monthly payments with varying maturities
through 2023 and are collateralized by first-preferred mortgages on the two vessels to
which the loans relate, together with certain other collateral, and are guaranteed by a
subsidiary of Teekay.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Both
Euro-denominated term loans are revalued at the end of each period using the then
prevailing Euro/U.S. Dollar exchange rate. Due substantially to this revaluation, the
Company recognized unrealized foreign exchange losses during the three months ended March
31, 2006 of $11.5 million ($25.9 million gain &#150; 2005).</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Certain
loan agreements require that a minimum level of free cash be maintained. As at March 31,
2006, this amount was $100.0 million. Certain of the loan agreements also require that the
Company maintain a minimum aggregate level of free liquidity and undrawn revolving credit
lines with at least six months to maturity. As at March 31, 2006, this amount was $119.1
million.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>7.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Loan from Joint Venture Partner</B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has one U.S. Dollar-denominated loan outstanding due to a joint venture partner,
which, as at March 31, 2006, totaled $33.9 million including accrued interest. This loan
relates to a $33.5 million equity investment in Teekay Nakilat Holdings Corporation (or
<I>Teekay Nakilat</I>) (which indirectly owns three LNG newbuilding carriers) by Qatar Gas
Transport Company Ltd., who holds a 30% interest in Teekay Nakilat. During December 2005,
this equity investment was converted to an interest-bearing shareholder loan at a fixed
rate of 4.84%. The loan is unsecured and repayable on demand no earlier than twenty years
from the delivery date of the last of the three LNG carriers.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>
<BR>
<BR>
<BR>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Capital Leases and Restricted Cash</B></FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Capital Leases</I></B></FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I>Aframax
and Suezmax Tankers.</I> As at March 31, 2006, the Company was party to capital leases on
one Aframax tanker and five Suezmax tankers. Under the terms of the lease arrangements,
which include the Company&#146;s contractual right to full operation of the vessels
pursuant to bareboat charters, the Company is required to purchase these vessels after the
end of their respective lease terms for a fixed price. The weighted-average annual
interest rate implicit in these capital leases, at the inception of the leases, was 7.6%.
The Aframax tanker capital lease is a fixed-rate capital lease. The Suezmax tanker capital
leases are variable-rate capital leases, however, any change in the Company&#146;s lease
payments resulting from changes in interest rates is offset by a corresponding change in
the charter hire payments the Company receives under the vessels&#146; time charter
contract. As at March 31, 2006, the remaining commitments under these capital leases,
including the purchase obligations, approximated $325.7 million, including imputed
interest of $63.1 million, repayable as follows:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
         <B><U>Year</U></B>                                                                                 <B><U>Commitment</U></B>
         2006..........................................................................    $22.2 million
         2007..........................................................................    149.2 million
         2008..........................................................................     12.7 million
         2009..........................................................................     12.6 million
         2010..........................................................................     92.2 million
         Thereafter....................................................................     36.8 million
</PRE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<I>LNG
Carriers.</I> As at March 31, 2006, the Company was a party to capital leases on two LNG
carriers that are structured as &#147;Spanish tax leases.&#148; Under the terms of the
Spanish tax leases, the Company will purchase these vessels at the end of their respective
lease terms in 2006 and 2011, both of which purchase obligations have been fully funded
with restricted cash deposits described below. As at March 31, 2006, the weighted-average
annual interest rate implicit in the Spanish tax leases was 5.7%. As at March 31, 2006,
the commitments under these capital leases, including the purchase obligations,
approximated 288.2 million Euros ($349.3 million), including imputed interest of 40.7
million Euros ($49.3 million), repayable as follows:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
         <B><U>Year</U></B>                                                                          <B><U>Commitment</U></B>
         2006.........................................................    123.2 million Euros ($149.3 million)
         2007.........................................................     23.3 million Euros ($28.2 million)
         2008.........................................................     24.4 million Euros ($29.6 million)
         2009.........................................................     25.6 million Euros ($31.1 million)
         2010.........................................................     26.9 million Euros ($32.6 million)
         Thereafter...................................................     64.8 million Euros ($78.5 million)
</PRE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
January 2006, the Company sold its shipbuilding contracts for three LNG carriers to
SeaSpirit Leasing Limited (or <I>SeaSpiri</I>t) for proceeds of $313.0 million. Concurrent
with the sale, the Company entered into 30-year leases, commencing upon the
completion of vessel construction, for these three LNG carriers.</FONT></TD>
</TR>
</TABLE>
<BR>

<PAGE>
<BR>
<BR>
<BR>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR"  -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Restricted Cash</I></B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Under
the terms of the Spanish tax leases for the two LNG carriers, the Company is required to
have on deposit with financial institutions an amount of cash that, together with interest
on the deposit, will equal the remaining amounts owing under the leases, including the
obligations to purchase the LNG carriers at the end of the lease periods. This amount was
252.3 million Euros ($305.7 million) as at March 31, 2006 and 249.0 million Euros ($295.0
million) at December 31, 2005. These cash deposits are restricted to being used for
capital lease payments and have been fully funded with term loans and a Spanish government
grant. The interest rates earned on the deposits approximate the interest rates implicit
in the Spanish tax leases. As at March 31, 2006 and December 31, 2005, the
weighted-average interest rate earned on the deposits was 5.2%.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Under
the terms of the leases for the three LNG newbuilding carriers, the Company is
required to have on deposit an amount of cash that, together with interest earned on the
deposit, will equal the remaining amounts owing under the leases. This amount was
$395.3&nbsp;million as at March 31, 2006. These cash deposits are restricted to being used
for capital lease payments and have been funded with term loans and loans from the
Company&#146;s joint venture partners (see also Note 7 and&nbsp;10). As at March 31, 2006,
the weighted-average interest rate earned on the deposits was&nbsp;4.7%.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company also maintains restricted cash deposits relating to certain term loans and other
obligations. As at March 31, 2006 and December 31, 2005, these amounts were $22.5 million
and $16.1 million, respectively.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>9.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Capital Stock</B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Capital Stock</I></B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
authorized capital stock of Teekay at March 31, 2006 was 25,000,000 shares of Preferred
Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a
par value of $0.001 per share. On February 16, 2006, the Company issued 6,534,300 shares
of its Common Stock upon settlement of the purchase contracts associated with its Equity
Units (see also Note 6). As at March 31, 2006, Teekay had 74,208,460 shares of Common
Stock and no shares of Preferred Stock issued and outstanding.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
April, July and December 2005, Teekay announced that its Board of Directors had authorized
the repurchase of up to $225 million, $250 million and $180 million, respectively, of
shares of its Common Stock in the open market. As at March 31, 2006, Teekay had
repurchased 14,873,500 shares of Common Stock subsequent to such authorizations at an
average price of $41.59 per share, for a total cost of $618.6 million. The total remaining
share repurchase authorization at March 31, 2006 was approximately $36.4 million.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Share-Based Payments</I></B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Effective
January 1, 2006, the Company adopted the fair value recognition provisions of the
Financial Accounting Standards Board Statement No. 123(R) (or <I>SFAS 123(R)</I>),
&#147;Share-Based Payment&#148;, using the &#147;modified prospective&#148; method. Under
this transition method, compensation cost is recognized in the financial statements
beginning with the effective date for all share-based payments granted after January 1,
2006 and for all awards granted to employees prior to, but not yet vested as of January 1,
2006. Accordingly, prior period amounts have not been restated.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
a result of adopting SFAS 123(R) on January 1, 2006, the Company&#146;s net income for the
three months ended March 31, 2006 is $2.0 million lower than if it had continued to
account for share-based compensation under APB 25. Basic and diluted earnings per share
for the three months ended March 31, 2006 would have been $1.44 and $1.38, respectively,
if the Company had not adopted SFAS 123(R), compared to reported basic and diluted
earnings per share of $1.41 and $1.35, respectively.</FONT></TD>
</TR>
</TABLE>
<BR>

<PAGE>
<BR>
<BR>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Prior
to January 1, 2006, the Company accounted for stock options under the recognition and
measurement provision of APB Opinion No. 25 (or <I>APB 25</I>), &#147;Accounting for Stock
Issued to Employees,&#148; using the intrinsic value method, as permitted by Statement of
Financial Accounting Standards No. 123 (or <I>SFAS 123</I>), &#147;Accounting for
Stock-Based Compensation.&#148; As the exercise price of the Company&#146;s employee stock
options equals the market price of underlying stock on the date of grant, no compensation
expense has been recognized under APB 25.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
following table illustrates the effect on net income and earnings per share for the three
month period ended March 31, 2005 had the Company applied the fair value recognition
provisions of SFAS 123, as amended, to stock-based employee compensation.</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                                             <B>Three Months
                                                                                            Ended March 31,
                                                                                                 2005
                                                                                                  $</B>
                                                                                         ---------------------
         Net income - as reported........................................................      279,046
           Less: Total stock option compensation expense.................................        2,106
                                                                                         ---------------------
         Net income - pro forma..........................................................      276,940
                                                                                         =====================
          Basic earnings per common share:
           - As reported.................................................................         3.41
           - Pro forma...................................................................         3.39
         Diluted earnings per common share:
           - As reported.................................................................         3.19
           - Pro forma...................................................................         3.17

</PRE>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company had reserved pursuant to its 1995 Stock Option Plan and
2003 Equity Incentive Plan (collectively referred to as the <I>Plans</I>) 5,538,148 shares
of Common Stock for issuance upon exercise of options or equity awards granted or to be
granted. The options under the Plans have a 10-year term and vest equally over three years
from the grant date, except for one grant of 50,000 options made in 2004 which will vest
100% on December 31, 2006. As at March 31, 2006, the number of options available for
issuance under the Plans was 435,049. All outstanding options expire between May 28, 2006
and March 7, 2016, ten years after the date of each respective grant.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
A summary of the Company&#146;s stock option activity and related information for the three
months ended March 31, 2006 is as follows:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                                    <B>March 31, 2006</B>
                                                                       -------------------- ---------------------
                                                                             <B>Options          Weighted-Average
                                                                             (000's)           Exercise Price
                                                                                #                    $</B>
                                                                       -------------------- ---------------------

         Outstanding at December 31, 2005.............                         4,160               24.81
         Granted......................................                         1,031               38.94
         Exercised....................................                           (80)              18.88
         Forfeited....................................                            (8)              34.74
                                                                       --------------------
         Outstanding at March 31, 2006................                         5,103               27.74
                                                                       --------------------
         Exercisable at March 31, 2006................                         3,324               21.47
                                                                       ====================
</PRE>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
weighted-average grant-date fair value of options granted during the three months ended
March 31, 2006 was $11.30 per option. As at March 31, 2006, the intrinsic value of the
outstanding stock options and exercisable stock options was $55.4 million and $53.8
million, respectively.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>
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<BR>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
A
summary of the Company&#146;s nonvested stock option activity and related information for
the three months ended March 31, 2006 is as follows:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                                   <B>March 31, 2006</B>
                                                                       -------------------- ---------------------
                                                                                              <B>Weighted-Average
                                                                             Options             Grant Date
                                                                             (000's)             Fair Value
                                                                                #                    $</B>
                                                                       -------------------- ---------------------

         Nonvested at December 31, 2005...............                         1,774                9.75
         Granted......................................                         1,031               11.30
         Vested.......................................                        (1,019)               7.65
         Forfeited....................................                            (7)              11.00
                                                                       --------------------
         Nonvested at March 31, 2006..................                         1,779               11.85
                                                                       --------------------
</PRE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
of March 31, 2006, there was $18.7 million of total unrecognized compensation cost related
to nonvested stock options granted under the Plans. Recognition of this compensation is expected to be $6.8 million (2006), $7.0 million
(2007), $4.2 million (2008) and $0.7 million (2009).</FONT></TD>
</TR>
</TABLE>
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The
fair value of each option granted was estimated on the date of the grant using the
Black-Scholes option pricing model. The resulting compensation expense is being amortized
over three years using the straight-line method. The following weighted-average
assumptions were used in computing the fair value of the options granted: expected
volatility of 31% in 2006 and 35% in 2005, expected life of five years, dividend yield of
2.0% in 2006 and 1.5% in 2005, and risk-free interest rate of 4.8% in 2006 and 4.1% in
2005.</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company had 423,894 remaining restricted stock units outstanding
that were awarded in March 2005 as incentive based compensation. Each restricted stock
unit is equal in value to one share of the Company&#146;s Common Stock and reinvested
dividends from the date of the grant to the vesting of the restricted stock unit. Based on
the March 31, 2006 share price of $37.07 per share, these restricted stock units had a
notional value of $15.7 million and will vest in equal amounts on March 31 and November
30, 2007. Upon vesting, 83,667 of the restricted stock units will be paid to the grantees
in the form of cash, and 340,227 of the restricted stock units will be paid to the
grantees in the form of cash or shares of Teekay&#146;s Common Stock, at the election of
the grantee. Shares of Teekay&#146;s Common Stock issued as payment of the restricted
stock units will be purchased in the open market by the Company. On March 31, 2006,
207,399 restricted stock units with a market value of $7.6 million vested and that amount
was paid to grantees in cash. During the three months ended March 31, 2006 and 2005, the
Company recorded an expense of $2.9 million and $0.8 million, respectively, related to the
vested and unvested restricted stock units, which is primarily included in general and
administrative expenses.</FONT></TD>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>10.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Commitments and Contingencies</B></FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>a)&nbsp;&nbsp; Vessels Under Construction</B></FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company was committed to the construction of two Aframax tankers,
six Suezmax tankers and four product tankers scheduled for delivery between November 2006
and August 2009, at a total cost of approximately $676.6 million, excluding capitalized
interest. As at March 31, 2006, payments made towards these commitments totaled $111.8
million, excluding $7.4 million of capitalized interest and other miscellaneous
construction costs. Long-term financing arrangements existed for $431.1 million of the
unpaid cost of these vessels. The Company intends to finance the remaining unpaid amount
of $133.7 million through incremental debt or surplus cash balances, or a combination
thereof. As at March 31, 2006, the remaining payments required to be made under these
newbuilding contracts were $141.8 million in 2006, $105.7 million in 2007, $280.6 million
in 2008 and $36.7 million in 2009. Two of the Aframax tankers will be subject to 10-year
time charters to Skaugen PetroTrans Inc., a joint venture of the Company, upon delivery
scheduled for 2008.</FONT></TD>
</TR>
</TABLE>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company was committed to the construction of two LNG carriers
scheduled for delivery in November 2008 and January 2009. The Company has entered into
these transactions with a joint venture partner who has taken a 30% interest in the
vessels and related long-term, fixed-rate time charter contracts. The total cost of these
LNG carriers is approximately $376.9 million (including the joint venture partner&#146;s
share of $113.1 million), excluding capitalized interest. As at March 31, 2006, payments
made towards these commitments totaled $82.3 million (including the joint venture
partner&#146;s 30% share of $24.7 million), excluding $5.0 million of capitalized interest
and other miscellaneous construction costs. Long-term financing arrangements existed for
all of the remaining $294.6 million unpaid cost of these LNG carriers. As at March 31,
2006, the remaining payments required to be made under these contracts (including the
joint venture partner&#146;s 30% share) were, $184.9 million in 2007, $73.6 million in
2008 and $36.1 million in 2009. Upon delivery, these two LNG carriers will be subject to
20-year, fixed-rate time charters to The Tangguh Production Sharing Contractors, a
consortium led by BP Berau, a subsidiary of BP plc. Pursuant to existing agreements, the
Company is required to offer its ownership interest in these two vessels and related
charter contracts to Teekay LNG.</FONT></TD>
</TR>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company was committed to lease three LNG carriers scheduled for
delivery between October 2006 and April 2007. The Company has entered into these
transactions with joint venture partners who have taken a 30% interest in the vessel
leases and related long-term, fixed-rate time charter contracts. All amounts below include
the joint venture partners' 30% share. During January 2006, the Company sold three LNG
carrier shipbuilding contracts to SeaSpirit Leasing Limited for proceeds of $313.0
million, which approximated the accumulated construction costs incurred to that date.
Concurrent with the sale, the Company entered into 30-year leases, commencing upon
the completion of vessel construction, for these three LNG carriers. The proceeds from the
sale were used to partially fund restricted cash deposits. During vessel construction, the
amount of restricted cash approximates the accumulated vessel construction costs. Under
the terms of the leases and upon vessel delivery, the Company is required to have on
deposit an amount of cash that, together with interest earned on the deposit, will equal
the remaining amounts owing under the leases. The Company is committed to funding an
additional $137.2 million of restricted cash deposits ($68.6 million &#150; 2006 and $68.6
million &#150; 2007) throughout the remainder of the construction period. The Company has
long-term financing arrangements in place to fund these remaining commitments.</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
These
three LNG carriers will be subject to 20-year, fixed-rate time charters to Ras Laffan
Natural Gas Co. Limited (II), a joint venture between Qatar Gas Transport Company Ltd. and
ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. Pursuant to existing
agreements, the Company has agreed to sell to Teekay LNG its ownership interest in these
three vessels and related charter contracts.</FONT></TD>
</TR>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company had options to have constructed four LNG carriers at
predetermined prices. The options for two of these carriers, which are scheduled for
delivery between 2009 and 2010, expire on June 5, 2006. If the options are exercised, the
$6.0 million cost for the options will be applied to the first construction installment
payments. During February 2006, options to order two other LNG carriers expired. Of the
$6.0 million cost of these options, $3.0 million was forfeited and expensed in other
&#150; net (see Note 12), and $3.0 million is to be applied against any LNG newbuildings
which the Company may order at this particular shipyard during 2006.</FONT></TD>
</TR>
</TABLE>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>


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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>b)&nbsp;&nbsp; Vessel Purchases and Conversions</B></FONT></TD>
</TR>
</TABLE>
<BR>


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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
February 2006, the Company announced that it has been awarded 13-year fixed-rate contracts
to charter two Suezmax shuttle tankers and one Aframax shuttle tanker to Fronape
International Company (or <I>FIC</I>), a subsidiary of Petrobras Transporte S.A., the
shipping arm of Petroleo Brasileiro S.A. (or <I>Petrobras</I>). In connection with these
contracts, the Company has exercised the purchase option on a 2000-built Aframax tanker
presently trading as part of the Company&#146;s spot rate chartered-in fleet and has
acquired a 2006-built Suezmax tanker, both of which will be converted to shuttle tankers
between December 2006 and February 2007. The purchase price for these two vessels,
including conversion costs, is approximately $169.3 million.
As of March 31, 2006, the Company has paid $8.5 million of such amount. The third vessel that will be
employed under these contracts is a 2003-built Suezmax shuttle tanker which is already
operating in the Company&#146;s shuttle tanker fleet. Upgrade costs for this vessel are
expected to be approximately $11.5 million and to be completed in July 2006.</FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>c)&nbsp;&nbsp; Joint Ventures</B></FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
August 2005, the Company announced that it had been awarded long-term fixed-rate contracts
to charter four LNG carriers to Ras Laffan Liquefied Natural Gas Co. Limited (3) (or
<I>RasGas 3</I>), a joint venture company between a subsidiary of ExxonMobil Corporation
and Qatar Petroleum. The vessels will be chartered to RasGas 3 at fixed rates, with
inflation adjustments, for a period of 25 years (with options to extend up to an
additional 10 years), scheduled to commence in the first half of 2008. The Company is
entering into these transactions with its joint venture partner, Qatar Petroleum, which
has taken a 60% interest in the vessels and time charters. In connection with this award,
the joint venture has entered into agreements with Samsung Heavy Industries Co. Ltd. to
construct four 217,000 cubic meter LNG carriers at a total cost of approximately $1.0
billion (of which the Company&#146;s 40% portion is $400.7 million), excluding capitalized
interest. As at March 31, 2006, payments made towards these commitments by the joint
venture company totaled $200.3 million, excluding capitalized interest and other
miscellaneous construction costs (of which the Company&#146;s 40% contribution was $80.1
million). Long-term financing arrangements existed for all of the remaining $801.3 million unpaid cost of these LNG carriers.
As at March 31, 2006, the remaining payments required to be made under these newbuilding
contracts (including the joint venture partners&#146; 60% share) were $200.8 million in
2006, $400.2 million in 2007 and $200.3 million in 2008.</FONT></TD>
</TR>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Under
the terms of a joint venture agreement with an entity controlled by the former controlling
shareholder of Teekay Shipping Spain S.L., Teekay will make capital contributions to the
joint venture company of $50.0 million in share premium. If Teekay has not contributed the
$50.0 million equity prior to April 30, 2007, it will be required to pay the other partner
up to $25.0 million calculated by a pre-determined formula based on the occurrence of
certain future events.</FONT></TD>
</TR>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Teekay
and certain of its subsidiaries have guaranteed their share of the outstanding mortgage
debt in five 50%-owned joint venture companies. As at March 31, 2006, Teekay and these
subsidiaries had guaranteed $119.6 million, or 50% of the total $239.2 million, in
outstanding mortgage debt of the joint venture companies. These joint venture companies
own an aggregate of five shuttle tankers.</FONT></TD>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>d)&nbsp;&nbsp;Long-Term Incentive Program</B></FONT></TD>
</TR>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
2005, the Company adopted the Vision Incentive Plan (or the <I>Vision</I> <I>Plan</I>) to
reward exceptional corporate performance and shareholder returns. This Vision Plan will
result in an award pool for senior management based on the following two measures: (a)
economic profit from 2005 to 2010 (or the <I>Economic Profit</I>); and (b) market value
added from 2001 to 2010 (or the <I>Market Value Added</I>). The Vision Plan terminates on
December 31, 2010. Under the Vision Plan, the Economic Profit is the difference between
the Company&#146;s annual return on invested capital and its weighted-average cost of
capital multiplied by its average invested capital employed during the year, and Market
Value Added is the amount by which the average market value of the Company for the
preceding 18 months exceeds the average book value of the Company for the same period.</FONT></TD>
</TR>
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<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
2008, if the Vision Plan&#146;s award pool has a cumulative positive balance based on the
Economic Profit contributions for the preceding three years, an interim distribution may
be made to participants in an amount not greater than half of the award pool. In 2011, the
balance of the Vision Plan award pool will be distributed to the participants. Fifty
percent of any distribution from the award pool, in each of 2008 and 2011, must be paid in
a form that is equity-based, with vesting on half of this percentage deferred for one year
and vesting on the remaining half of this percentage deferred for two years.</FONT></TD>
</TR>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Economic Profit contributions added to the award pool each quarter are accrued when
incurred. The estimated Market Value Added contributions are accrued on a straight-line
basis from the date of plan approval, which was March 9, 2005, until December 31, 2010.
Any subsequent increases or decreases to the Market Value Added contribution are accrued
on a straight-line basis until December 31, 2010. During the three months ended March 31,
2006 and 2005, the Company accrued $3.9 million and $5.1 million, respectively, of the
Vision Plan contributions in general and administrative expenses.</FONT></TD>
</TR>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>e)&nbsp;&nbsp;Other</B></FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company has been awarded a contract by a consortium of major oil companies to construct
and install on seven of its shuttle tankers volatile organic compound emissions plants,
which reduce emissions during cargo operations. These plants are leased to the consortium
of major oil companies. The construction and installation of these plants are expected to
be completed by the end of 2006 at a total cost of approximately $105.1 million. As at
March 31, 2006, the Company had made payments towards these commitments of approximately
$85.4 million. As at March 31, 2006, the remaining payments required to be made towards
these commitments were $19.7 million in 2006.</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company enters into indemnification agreements with certain officers and directors. In
addition, the Company enters into other indemnification agreements in the ordinary course
of business. The maximum potential amount of future payments required under these
indemnification agreements is unlimited. However, the Company maintains what it believes
is appropriate liability insurance that reduces its exposure and enables the Company to
recover future amounts paid up to the maximum amount of the insurance coverage, less any
deductible amounts pursuant to the terms of the respective policies, the amounts of which
are not considered material.</FONT></TD>
</TR>
</TABLE>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>11.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Vessel Sales and Vessels Held for Sale</B></FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
February 2005, the Company entered into an agreement to sell one shuttle tanker built in
1981. The Company expects to record a gain of approximately $6.1 million relating to the
sale upon delivery in the third quarter of 2006. The vessel is presented on the March 31,
2006 balance sheet as vessel held for sale.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
the three months ended March 31, 2006, the Company sold the shipbuilding contracts for
three LNG carriers to SeaSpirit and was reimbursed for previously paid shipyard
installments and other construction costs in the amount of $313.0 million (see also Note
8).</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
March 2005, the Company sold and leased back a 1991-built shuttle tanker that is now being
accounted for as an operating lease. The sale generated a $2.8 million gain, which has
been deferred and is being amortized over the 6.5 year term of the lease. The Company is
also amortizing a deferred gain from the sale and lease back pursuant to operating leases
of three vessels sold in December 2003. The results for the three months ended March 31,
2006 and 2005 include $0.7 million and $0.6 million, respectively, of amortization of
these deferred gains.</FONT></TD>
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<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>12.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Restructuring Charge and Other &#150; net</B></FONT></TD>
</TR>
</TABLE>
<BR>


<PRE>

                                                                                        <B>Three Months Ended
                                                                                    March 31,        March 31,
                                                                                       2006            2005
                                                                                         $               $</B>
                                                                                  --------------- ---------------
         Minority interest expense................................................     (1,264)           (593)
         Loss on bond redemption (<I>note 6</I>).........................................       (375)              -
         Income tax (expense) recovery............................................     (3,784)          9,317
         Loss on expiry of options to construct LNG carriers......................     (3,102)              -
         Miscellaneous............................................................      2,492           1,156
                                                                                  --------------- ---------------
         Other - net..............................................................     (6,033)          9,880
                                                                                  =============== ===============
</PRE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
the three months ended March 31, 2006, the Company incurred $1.9 million of restructuring
costs primarily relating to the relocation of certain operational functions. During the
remainder of 2006, the Company expects to incur approximately $5.0 million of further
restructuring charges to complete the relocation.</FONT></TD>
</TR>
</TABLE>
<BR>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>13.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Comprehensive Income</B></FONT></TD>
</TR>
</TABLE>
<BR>
<PRE>

                                                                                        <B>Three Months Ended
                                                                                    March 31,        March 31,
                                                                                       2006            2005
                                                                                         $               $</B>
                                                                                  --------------- ---------------
         Net income...............................................................    101,704         279,046
         Other comprehensive income:
            Unrealized gain on marketable securities..............................      2,265               -
            Unrealized gain on derivative instruments.............................     60,595           4,776
            Reclassification adjustment for loss on derivative
               instruments included in net income.................................      2,947          15,236
                                                                                  --------------- ---------------
           Comprehensive income...................................................    167,511         299,058
                                                                                  =============== ===============
</PRE>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>14.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Derivative Instruments and Hedging Activities</B></FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company uses derivatives only for hedging purposes. The following summarizes the
Company&#146;s risk strategies with respect to market risk from foreign currency
fluctuations, changes in interest rates, spot market rates for vessels and bunker fuel
prices.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company hedges portions of its forecasted expenditures denominated in foreign currencies
with foreign exchange forward contracts. As at March 31, 2006, the Company was committed
to foreign exchange contracts for the forward purchase of approximately Norwegian Kroner
771.8 million, Canadian Dollars 29.8 million, Euros 11.3 million, Australian Dollars 10.5
million and British Pounds 7.0 million for U.S. Dollars at an average rate of Norwegian
Kroner 6.53 per U.S. Dollar, Canadian Dollar 1.18 per U.S. Dollar, Euro 0.83 per U.S.
Dollar, Australian Dollar 1.38 per U.S. Dollar and British Pound 0.57 per U.S. Dollar,
respectively. The foreign exchange forward contracts mature as follows: $112.0 million in
2006; and $64.9 million in 2007.</FONT></TD>
</TR>
</TABLE>
<BR>

<PAGE>
<BR>
<BR>
<BR>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006, the Company was committed to the following interest rate swap
agreements related to its LIBOR-based debt, restricted cash deposits and EURIBOR-based
debt, whereby certain of the Company&#146;s floating-rate debt and restricted cash
deposits were swapped with fixed-rate obligations or fixed-rate deposits:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                              <B>Fair Value/    Weighted-
                                                                               Carrying       Average      Fixed
                                                    Interest      Principal    Amount of     Remaining    Interest
                                                      Rate         Amount      Liability       Term        Rate
                                                      Index           $            $          (years)     (%) (1)</B>
                                                  ------------- ------------ ------------- ------------ ------------
         <B>LIBOR-Based Debt:</B>
          U.S. Dollar-denominated interest
           rate swaps..............................   LIBOR        387,519       29,198        30.8         4.9
         U.S. Dollar-denominated interest
            rate swaps.............................   LIBOR        520,000       18,555         6.7         4.7
         U.S. Dollar-denominated interest
            rate swaps (2).........................   LIBOR      1,025,000        9,254        16.1         5.3
         <B>LIBOR-Based Restricted Cash Deposit:</B>
         U.S. Dollar-denominated interest rate
           swaps...................................   LIBOR        392,137      (35,050)       30.8         4.8
         <B>EURIBOR-Based Debt:</B>
         Euro-denominated interest rate
            swaps (3) (4)..........................  EURIBOR       383,901        7,867        18.2         3.8
</PRE>


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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1)</FONT></TD>
<TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Excludes the margin the Company pays on its variable-rate debt, which as of
          March 31, 2006 ranged from 1.1% to 1.3%.</FONT></TD>
</TR>
</TABLE>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(2)</FONT></TD>
<TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Inception dates of swaps are 2006 ($224 million), 2007 ($226 million) and 2009
          ($575 million).</FONT></TD>
</TR>
</TABLE>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(3)</FONT></TD>
<TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Principal amount reduces monthly to 70.1 million Euros ($84.9 million) by the
          maturity dates of the swap agreements.</FONT></TD>
</TR>
</TABLE>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(4)</FONT></TD>
<TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
Principal amount is the U.S. Dollar equivalent of 316.8 million Euros.</FONT></TD>
</TR>
</TABLE>
<BR>
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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company hedges certain of its voyage revenues through the use of forward freight
agreements. Forward freight agreements involve contracts to provide a fixed number of
theoretical voyages at fixed-rates, thus hedging a portion of the Company&#146;s exposure
to the spot charter market. As at March 31, 2006, the Company was committed to forward
freight agreements totaling 5.8 million metric tonnes with an aggregate notional principal
amount of $37.6 million. The forward freight agreements expire between April and December
2006.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company hedges a portion of its bunker fuel expenditures with bunker fuel swap contracts.
As at March 31, 2006, the Company was committed to contracts totalling 32,700 metric
tonnes with a weighted-average price of $294.16 per tonne. The fuel swap contracts expire
between April and December 2006.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Company is exposed to credit loss in the event of non-performance by the counter parties
to the foreign exchange forward contracts, interest rate swap agreements, forward freight
agreements and bunker fuel swap contracts; however, the Company does not anticipate
non-performance by any of the counter parties.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
During
the three months ended March 31, 2006, the Company recognized a net gain of $0.2 million
($0.1 million loss &#150; 2005), relating to the ineffective portion of its interest rate
swap agreements and foreign currency forward contracts. The ineffective portion of these
derivative instruments is presented as interest expense and other (loss) income,
respectively.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
at March 31, 2006 and December 31, 2005, the Company&#146;s accumulated other
comprehensive loss consisted of the following components:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                      <B> March 31, 2006          December 31, 2005
                                                                             $                         $</B>
                                                                   ----------------------- -----------------------

         Unrealized loss on derivative instruments.................        (3,941)                  (67,482)
         Unrealized gain (loss) on marketable securities...........           917                    (1,348)
                                                                   ----------------------- -----------------------
                                                                           (3,024)                  (68,830)
                                                                   ======================= =======================
</PRE>
<BR>
<BR>
<BR>
<!-- MARKER FORMAT-SHEET="Head Major Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES </FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Minor Center Bold-TNR" FSL="Project" -->
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS<BR>(all tabular amounts stated in thousands of U.S.
dollars, except share and per share data) </FONT></H1>


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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>15.</B></FONT></TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Earnings Per Share</B></FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                                                   <B>Three Months Ended
                                                                              March 31,                March 31,
                                                                               2006                     2005
                                                                                $                         $</B>
                                                                      ----------------------- -----------------------
         Net income available for common stockholders.................       101,704                   279,046
                                                                      ----------------------- -----------------------

         Weighted-average number of common shares.....................    72,153,868                81,712,320
         Dilutive effect of employee stock options and restricted
             stock awards.............................................     1,622,333                 2,385,705
         Dilutive effect of Equity Units..............................     1,454,390                 3,369,116
                                                                      ----------------------- -----------------------
         Common stock and common stock equivalents....................    75,230,591                87,467,141
                                                                     ======================= =======================
         Earnings per common share:
           - Basic....................................................        1.41                      3.41
           - Diluted..................................................        1.35                      3.19


</PRE>
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<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
For
the three months ended March 31, 2006 and 2005, the anti-dilutive effect of 1.6 million
shares and 0.6 million shares, respectively, attributable to outstanding stock options was
excluded from the calculations of diluted earnings per share.</FONT></TD>
</TR>
</TABLE>
<BR>

<PAGE>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Project" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 2 &#151;
MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS </FONT></H1>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Teekay is one of the world&#146;s
leading providers of international crude oil and petroleum product transportation
services. We estimate that we transported more than 10 percent of the world&#146;s
seaborne oil in 2005. Through our publicly listed subsidiary, Teekay LNG Partners L.P. (or
<I>Teekay LNG</I>), we have expanded into the liquefied natural gas (or <I>LNG</I>)
shipping sector. As at March 31, 2006, our fleet (excluding vessels managed for third
parties) consisted of 140 vessels (including 42 vessels time-chartered-in, 21 newbuildings
on order, and five vessels owned through joint ventures). Our conventional oil tankers
(including newbuildings) provide a total cargo-carrying capacity of approximately 16.0
million deadweight tonnes (or <I>mdwt</I>), and our LNG and liquid petroleum gas carriers
(including newbuildings) have total cargo-carrying capacity of approximately 2.2 million
cubic meters. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our voyage revenues are derived from: </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Voyage charters, which are charters for shorter intervals that are priced on a current, or
&#147;spot,&#148; market rate;
</FONT></TD>
</TR>
</TABLE>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Time charters and bareboat charters, whereby vessels are chartered to customers for a
fixed period of time at rates that are generally fixed, but may contain a variable
component, based on inflation, interest rates or current market rates; and
</FONT></TD>
</TR>
</TABLE>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Contracts of affreightment, where we carry an agreed quantity of cargo for a customer over
a specified trade route within a given period of time.
</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The table below illustrates the
primary distinctions among these types of charters and contracts: </FONT></P>

<PRE>
                                                                                        <U>Contract of</U>
                              <U>Voyage Charter(1)</U>   <U>Time-Charter</U>      <U>Bareboat-Charter</U>    <U>Affreightment</U>
Typical contract length.......Single voyage       One year or more  One year or more    One year or more
Hire rate basis(2)............Varies              Daily             Daily               Typically daily
Voyage expenses(3)............We pay              Customer pays     Customer pays       We pay
Vessel operating expenses(3)..We pay              We pay            Customer pays       We pay
Off-hire(4)...................Customer does not   Varies            Customer            Customer typically
                              pay                                   typically pays      does not pay
</PRE>

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          <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1)</FONT></TD>
          <TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
          Under a consecutive voyage charter, the customer pays for idle time.</FONT></TD>
          </TR>
          </TABLE>
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          <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(2)</FONT></TD>
          <TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
          &#147;<I>Hire</I>&#148; rate refers to the basic payment from the charterer for the use of the vessel.</FONT></TD>
          </TR>
          </TABLE>
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          <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(3)</FONT></TD>
          <TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
          Defined below under "Important Financial and Operational Terms and Concepts."</FONT></TD>
          </TR>
          </TABLE>
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          <TR VALIGN=TOP>
          <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(4)</FONT></TD>
          <TD WIDTH=97%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
          &#147;<I>Off-hire</I>&#148; refers to the time a vessel is not available for service.</FONT></TD>
          </TR>
          </TABLE>
          <BR>


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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Segments </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our fleet is divided into three main
segments: the fixed-rate tanker segment, the fixed-rate LNG segment and the spot tanker
segment. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Fixed-Rate Tanker Segment</I></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our fixed-rate tanker segment
includes our shuttle tanker operations, floating storage and offtake vessels, a liquid
petroleum gas carrier, and conventional crude oil, methanol and product tankers on
long-term, fixed-rate time-charter contracts or contracts of affreightment. Our shuttle
tanker business, which is operated through our business unit Teekay Navion Shuttle
Tankers, includes the shuttle tanker operations of our subsidiaries Navion AS and Ugland
Nordic Shipping AS. This business unit provides services to oil companies, primarily in
the North Sea, under long-term, fixed-rate contracts of affreightment or time-charter
contracts. 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 the offshore oil platforms, which generally
reduces oil production. As at March 31, 2006, we had on order, for our fixed-rate tanker
segment, two newbuilding conventional crude oil Aframax tankers. Upon their deliveries,
which are scheduled for January and March 2008, the vessels will commence 10-year time
charters to our Skaugen PetroTrans joint venture. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In February 2006, we were awarded
13-year fixed-rate contracts to charter two Suezmax shuttle tankers and one Aframax
shuttle tanker to Fronape International Company (or <I>FIC</I>), a subsidiary of Petrobras
Transporte S.A., the shipping arm of Petroleo Brasileiro S.A. (or <I>Petrobras</I>). In
connection with these contracts, we have exercised the purchase option on a 2000-built
Aframax tanker presently trading as part of our spot rate chartered-in fleet and have
acquired a 2006-built Suezmax tanker, both of which will be converted to shuttle tankers
between December 2006 and February 2007. The purchase price for these two vessels,
including conversion costs, is approximately $169.3 million. The third vessel that will be
employed under these contracts is a 2003-built Suezmax shuttle tanker which is already
operating in our shuttle tanker fleet. Upgrade costs for this vessel are expected to be
approximately $11.5 million and to be completed in July 2006. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Fixed-Rate LNG Segment</I></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our fixed-rate LNG segment consists
of LNG carriers subject to long-term, fixed-rate time charter contracts. We entered the
LNG shipping sector through our acquisition of Teekay Shipping Spain, S.L. (or <I>Teekay
Spain</I>) on April 30, 2004. Our fixed-rate LNG segment includes four LNG carriers
acquired as part of the Teekay Spain acquisition. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During January 2006, we entered into
sale-leaseback transactions with SeaSpirit Leasing Limited (or <I>SeaSpirit</I>) relating
to the three LNG carriers that will provide service under long-term contracts with Ras
Lafan Liquefied Natural Gas Co. Limited II (or <I>RasGas II</I>), a joint venture company
between a subsidiary of ExxonMobil Corporation and Qatar Petroleum. In connection with the
sale-leaseback transactions, we sold the shipbuilding contracts to SeaSpirit and entered
into 30-year leases for the three LNG carriers. SeaSpirit reimbursed us $313.0
million for previously paid shipyard installments and other construction costs. We used
these proceeds to fund restricted cash deposits relating to the capital leases. The
benefits of this lease arrangement are expected to reduce the equity portion of our 70%
interest in the three newbuildings by approximately $40 million, from approximately $93
million to approximately $53 million. The deliveries of these newbuildings are scheduled
for the fourth quarter of 2006 and the first half of 2007. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As at March 31, 2006, we had six
newbuilding LNG carriers on order. Two of these carriers, in which we have a 70% interest,
will commence service under 20-year, fixed-rate time charters to The Tangguh Production
Sharing Contractors, a consortium led by BP Berau, a subsidiary of BP plc, upon vessel
deliveries, which are scheduled for late 2008 and early 2009. We will have operational
responsibility for the vessels in this project. In accordance with an existing agreement,
we are required to offer our ownership interest in these carriers and related charter
contracts to Teekay LNG. The remaining 30% interest in the project is held by BLT LNG
Tangguh Corporation, a subsidiary of PT Berlian Tanker Tbk. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The other four newbuilding LNG
carriers, in which we have a 40% interest, will commence service under 25-year, fixed-rate
time charters (with options to extend up to an additional 10 years) to Ras Laffan
Liquefied Natural Gas Co. Limited (3) (or <I>RasGas 3</I>), a joint venture company
between Qatar Petroleum and a subsidiary of ExxonMobil Corporation, upon vessel
deliveries, which are scheduled for the first half of 2008. The remaining 60% interest in
the project is held by Qatar Gas Transport Company Ltd. We will have operational
responsibility for the vessels in this project. Under the charters, Qatar Gas Transport
Company Ltd. may assume operational responsibility beginning 10 years following delivery
of the vessels. In accordance with an existing agreement, we are required to offer our
ownership interest in these vessels and related charter contracts to Teekay LNG. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Spot Tanker Segment</I></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Our spot tanker segment consists of
conventional crude oil tankers and product carriers operating on the spot market or
subject to time charters or contracts of affreightment priced on a spot-market basis or
short-term fixed-rate contracts. We consider contracts that have an original term of less
than three years in duration to be short-term. Substantially all of our conventional
Aframax and large product and small product tankers are among the vessels included in the
spot tanker segment. Our spot market operations contribute to the volatility of our
revenues, cash flow from operations and net income. Historically, the tanker industry has
been cyclical, experiencing volatility in profitability and asset values resulting from
changes in the supply of, and demand for, vessel capacity. In addition, tanker spot
markets historically have exhibited seasonal variations in charter rates. Tanker spot
markets are typically stronger in the winter months as a result of increased oil
consumption in the northern hemisphere and unpredictable weather patterns that tend to
disrupt vessel scheduling. As at March 31, 2006, we had four large product tankers
scheduled to be delivered between November 2006 and April 2007 and six Suezmax tankers
scheduled to be delivered between August 2008 and August 2009. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Public Offerings by
Teekay LNG Partners L.P. </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 10, 2005, Teekay LNG sold, as part
of an initial public offering, 6.9 million of its common units at $22.00 per unit for
proceeds of $135.7 million, net of $16.1 million of commissions and other expenses
associated with the offering. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In November 2005, Teekay LNG
completed a follow-on public offering of 4.6 million common units at a price of $27.40 per
unit. Proceeds from the follow-on offering were $120.2 million, net of an estimated $5.8
million of commissions and other expenses associated with the offering. As of March 31,
2006, we owned a 67.8% interest in Teekay LNG, including our 2% general partner interest.
Please read Item 1 &#150; Financial Statements: Note 3 &#150; Public Offerings of Teekay
LNG Partners L.P. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sale of Three Suezmax
Tankers to Teekay LNG Partners L.P. </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In November 2005, we sold to Teekay
LNG three double-hulled Suezmax class crude oil tankers and related long-term, fixed-rate
time charters for an aggregate price of $180.0 million. These vessels, the <I>African
Spirit</I>, the <I>Asian Spirit</I> and the <I>European Spirit</I>, are chartered to a
subsidiary of ConocoPhillips, an international, integrated energy company. Teekay LNG
financed the acquisition with the net proceeds of the previously-mentioned follow-on
public offering of its common units, together with borrowings under a revolving credit
facility and cash balances. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Important Financial and
Operational Terms and Concepts </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We use a variety of financial and
operational terms and concepts when analyzing our performance. These include the
following: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Voyage Revenues.</I></B><I></I>
Voyage revenues primarily include revenues from voyage charters, time charters and
contracts of affreightment. Voyage revenues are affected by hire rates and the number of
calendar-ship-days a vessel operates. Voyage revenues are also affected by the mix of
business between voyage charters, time charters and contracts of affreightment. Hire rates
for voyage charters are more volatile, as they are typically tied to prevailing market
rates at the time of a voyage. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Forward Freight
Agreements.</I></B><I></I> We are exposed to market risk for vessels in our spot tanker
segment from changes in spot market rates for vessels. In certain cases, we use forward
freight agreements (or <I>FFAs</I>) to manage this risk. FFAs involve contracts to provide
a fixed number of theoretical voyages at fixed-rates, thus hedging a portion of our
exposure to the spot charter market. These agreements are recorded as assets or
liabilities and measured at fair value. Changes in the fair value of the FFAs are
recognized in other comprehensive income (loss) until the hedged item is recognized as
voyage revenues in income. The ineffective portion of a change in fair value is
immediately recognized into income through voyage revenues. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Voyage Expenses.</I></B><I></I>
Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel
expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and
commissions. Voyage expenses are typically paid by the customer under time charters and by
us under voyage charters and contracts of affreightment. When we pay voyage expenses, we
typically add them to our hire rates at an approximate cost. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Net Voyage
Revenues.</I></B><I></I> Net voyage revenues represent voyage revenues less voyage
expenses. Because the amount of voyage expenses we incur for a particular charter depends
upon the form of the charter, we use net voyage revenues to improve the comparability
between periods of reported revenues that are generated by the different forms of
charters. We principally use net voyage revenues, a non-GAAP financial measure, because it
provides more meaningful information to us about the deployment of our vessels and their
performance than voyage revenues, the most directly comparable financial measure under
accounting principles generally accepted in the United States (or <I>GAAP</I>). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Vessel Operating
Expenses.</I></B><I></I> Under all types of charters for our vessels, except for bareboat
charters, we are responsible for vessel operating expenses, which include crewing, repairs
and maintenance, insurance, stores, lube oils and communication expenses. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Income from Vessel Operations.
</I></B><I></I>To assist us in evaluating our operations by segment, we analyze our income
from vessel operations for each segment, which represents the income we receive from the
segment after deducting operating expenses and depreciation and amortization, but prior to
the deduction of interest expense, income taxes, foreign currency and other income and
losses. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Drydocking.
</I></B><I></I>We must periodically drydock each of our vessels for inspection, repairs and
          maintenance and any modifications to comply with industry certification or
          governmental requirements. Generally, we drydock each of our vessels every two
          and a half to five years, depending upon the type of vessel and its age. In
          addition, a shipping society classification intermediate survey is performed on
          our LNG carriers between the second and third year of a five-year drydocking
          period. We capitalize a substantial portion of the costs incurred during
          drydocking and for the survey and amortize those costs on a straight-line basis
          from the completion of a drydocking or intermediate survey to the estimated
          completion of the next drydocking. We expense costs related to routine repairs
          and maintenance incurred during drydocking or intermediate survey that do not
          improve or extend the useful lives of the assets. The number of drydockings
          undertaken in a given period, and the nature of the work performed determine the
          level of drydocking expenditures.</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Depreciation and Amortization.</I></B>
Our depreciation and amortization expense typically consists of:</FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
charges related to the  depreciation  of the historical cost of our fleet (less an estimated  residual value)
        over the estimated useful lives of our vessels;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
charges related to the  amortization  of drydocking  expenditures  over the estimated  number of years to the
        next scheduled drydocking; and
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
charges related to the amortization of the fair value of the time charters,  contracts of  affreightment  and
        intellectual  property where amounts have been attributed to those items in  acquisitions.  These amounts are
        amortized over the period during which the asset is expected to contribute to our future cash flows.
</FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Time Charter Equivalent
Rates.</I></B> Bulk shipping industry freight rates are commonly measured in the
shipping industry at the net voyage revenues level in terms of &#147;time-charter
equivalent&#148; (or <I>TCE</I>) rates, which represent net voyage revenues divided by
revenue days. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Revenue Days.</I></B><I></I>
Revenue days are the total number of calendar days our vessels were in our possession
during a period, less the total number of off-hire days during the period associated with
major repairs, drydockings or mandated surveys. Consequently, revenue days represents the
total number of days available for the vessel to earn revenue. Idle days, which are days
when the vessel is available for the vessel to earn revenue, yet is not employed, are
included in revenue days. We use revenue days to explain changes in our net voyage
revenues between periods. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Calendar-ship-days.</I></B><I></I>
Calendar-ship-days are equal to the total number of calendar days that our
          vessels were in our possession during a period. As a result, we use calendar
          ship days in explaining changes in vessel operating expenses, time charter hire
          expense and depreciation and amortization.</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Restricted Cash
Deposits.</I></B><I></I> Under capital lease arrangements for two of our LNG carriers, we
(a) borrow under term loans and deposit the proceeds into restricted cash accounts and (b)
enter into capital leases, or bareboat charters, for the vessels. The restricted cash
deposits, together with interest earned thereon, will equal the remaining amounts we owe
under the lease arrangements, including our obligation to purchase the vessels at the end
of the lease terms. During vessel construction, we borrowed under the term loans and made
restricted cash deposits equal to construction installment payments. We also maintain
restricted cash deposits relating to certain term loans and other obligations, such as the
lease agreements for the RasGas II LNG carriers. Please read Item 1 &#150; Financial
Statements: Note 8 &#150; Capital Leases and Restricted Cash. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Tanker Market Overview </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the first quarter of 2006,
crude oil tanker freight rates eased from the near record levels of the previous quarter
but continued to remain firm compared to historical averages. Seasonal factors,
hurricane-related crude production outages in the U.S. Gulf, and a significant increase in
crude import volumes into China, were key drivers for the crude tanker market. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Product tanker rates during the first
quarter of 2006 continued to remain at the firm levels experienced in the fourth quarter
of 2005, driven largely by hurricane-related refinery disruptions in the U.S. Gulf which
led to an increase in product imports from longer-haul sources. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Early in the second quarter of 2006,
tanker freight rates declined as a result of heavier than usual refinery maintenance in
the United States and Asia, planned maintenance at some oil fields in the North Sea, and
production disruptions in Nigeria. However, freight rates started to recover toward the
end of April as refinery maintenance in the United States neared completion, and gasoline
inventories were being re-built to meet peak demand during the summer driving season. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Global oil demand, an underlying
driver of oil tanker demand, increased to 84.9 million barrels per day (or <I>mb/d</I>)
during the first quarter of 2006, an increase of 0.7 mb/d over the previous quarter and
0.4 mb/d higher than the first quarter of 2005. Global economic growth remains robust and
as of April 2006, the International Monetary Fund raised its estimate for 2006 economic
growth to 4.9%, continuing the strong growth experienced in 2005. On May 12, 2006, the
International Energy Agency forecast average global oil demand of 84.8 mb/d for 2006, an
increase of 1.2 mb/d, or 1.5%, from 2005. Oil demand growth is expected to accelerate
during the second half of 2006, after bottoming in the seasonally weaker second quarter at
83.3 mb/d. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Global oil supply, a direct driver of
oil tanker demand, averaged 84.6 mb/d during the first quarter of 2006, an increase of 0.4
mb/d over the previous quarter and 0.9 mb/d higher than the first quarter of 2005. OPEC
production for the first quarter of 2006 was slightly lower than the previous quarter
mainly as a result of production outages in Nigeria. Non-OPEC production rose by 0.5 mb/d,
led by a recovery in U.S. Gulf offshore oil production. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The size of the world tanker fleet
rose to 362.0 mdwt as of March 31, 2006, up 5.7 mdwt, or 1.6%, from the end of the fourth
quarter of 2005. Deletions, including vessels converted for offshore projects and thus
removed from the trading tanker fleet, aggregated 1.0 mdwt in the first quarter of 2006,
compared to 0.5 mdwt in the previous quarter. Deliveries of tanker newbuildings during the
first quarter of 2006 declined to 6.7 mdwt from 7.0 mdwt during the fourth quarter of
2005. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of March 31, 2006, the world
tanker orderbook stood at 98.8 mdwt, representing 27.3% of the world tanker fleet,
compared to 85.4 mdwt, or 24.0%, as of December 31, 2005. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Results of Operations </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In accordance with GAAP, we report
gross voyage 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 TCE rates, and industry analysts typically measure bulk
shipping freight rates in terms of TCE rates. This is because under time charter contracts
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>i.e.</I> voyage revenues less voyage expenses) and TCE
rates of our three reportable segments where applicable. Please read Item 1 &#150;
Financial Statements: Note 2 &#150; Segment Reporting. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table compares our
operating results by reportable segment for the three months ended March 31, 2006 and
2005, and compares our net voyage revenues (which is a non-GAAP financial measure) by
reportable segment for the three months ended March 31, 2006 and 2005 to voyage revenues,
the most directly comparable GAAP financial measure: </FONT></P>

<PRE>
- ----------------------------- ------------------------------------------ --------------------------------------------
                                         <B>Three Months Ended                          Three Months Ended
                                           March 31, 2006                              March 31, 2005</B>
                              ---------- ---------- ---------- --------- ---------- ---------- ----------- ----------
                             Fixed-Rate Fixed-Rate    Spot              Fixed-Rate Fixed-Rate    Spot
                               Tanker       LNG      Tanker               Tanker       LNG      Tanker
                               Segment    Segment    Segment   Total      Segment    Segment    Segment    Total
                              ($000's)   ($000's)   ($000's)  ($000's)   ($000's)   ($000's)   ($000's)   ($000's)
- ----------------------------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------

Voyage revenues............... 195,669    23,700    306,627   525,996    172,162     24,265    320,984    517,411
Voyage expenses...............  23,132         -    110,479   133,611     14,285         48     84,196     98,529
                              --------- --------- ---------- --------- ---------- ---------- ---------- ----------
Net voyage revenues........... 172,537    23,700    196,148   392,385    157,877     24,217    236,788    418,882
Vessel operating expenses.....  34,883     3,693     14,648    53,224     32,290      4,343     17,807     54,440
Time charter hire expense.....  49,921         -     54,503   104,424     42,366          -     66,216    108,582
Depreciation and amortization.  29,611     7,678     13,195    50,484     30,695      7,522     15,866     54,083
General and administrative(1).  14,539     3,381     22,340    40,260     12,433      2,940     18,325     33,698
Gain on sale of vessels.......    (105)        -       (502)     (607)    (4,884)         -    (96,969)  (101,853)
Restructuring  charge.........       -         -      1,887     1,887          -          -          -          -
                              --------- --------- ---------- --------- ---------- ---------- ---------- ----------
Income from vessel operations.  43,688     8,948     90,077   142,713     44,977      9,412    215,543    269,932
- ----------------------------- --------- --------- ---------- --------- ---------- ---------- ---------- ----------
</PRE>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Includes direct general and administrative expenses and indirect general and
               administrative expenses (allocated to each segment based on estimated use of
               corporate resources).</FONT></TD>
               </TR>
               </TABLE>
               <BR>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><B>Fixed-Rate Tanker Segment</B></I></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table provides a
summary of the change in calendar-ship-days by owned and chartered-in vessels for our
fixed-rate tanker segment: </FONT></P>

<PRE>
- -------------------------------------------------- --------------------------------------------------------
                                                      <B> Three Months Ended March 31,</B>
- -------------------------------------------------- ------------------------------------- ------------------
                                                          <B>2006                2005             Percentage</B>
                                                     (Calendar Days)     (Calendar Days)         Change
                                                                                                  (%)
- -------------------------------------------------- ------------------ ------------------ ------------------

Owned Vessels.....................................        3,600              3,757               (4.2)
Chartered-in Vessels..............................        1,440              1,279               12.6
- -------------------------------------------------- ------------------ ------------------ ------------------
Total.............................................        5,040              5,036                0.1
- -------------------------------------------------- ------------------ ------------------ ------------------

</PRE>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The average fleet size of our
fixed-rate tanker segment (including vessels chartered-in) increased slightly for the
three months ended March 31, 2006, compared to the same period last year. This increase
was primarily the result of: </FONT></P>

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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the delivery of a Suezmax tanker newbuilding in July 2005;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the inclusion of an Aframax tanker, previously operating in our spot tanker segment, that
commenced service under a long-term charter during the fourth quarter of 2005 (the
<I>Aframax Transfer</I>);
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the inclusion of a chartered-in VLCC, previously operating in our spot tanker segment,
that commenced service under a long-term charter in April 2005 (the <I>VLCC Transfer</I>);
and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the sale of two older shuttle tankers in 2005.
</FONT></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Net Voyage
Revenues.</U></I><U></U> Net voyage revenues increased by 9.3% to $172.5 million for the
three months ended March 31, 2006, from $157.9 million for the same period last year,
primarily due to: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $7.3 million from our shuttle tanker fleet for the three months ended March
31, 2006 compared to the same period in 2005, primarily due to unscheduled temporary
shutdowns of oil production on three oil fields in the North Sea in the first quarter of
2005;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $6.8 million relating to the Aframax Transfer and VLCC Transfer;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $4.1 million relating to the Suezmax delivery in July 2005; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $4.2 million relating to the sale of two shuttle tankers during 2005.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the first quarter of 2006,
approximately 44% of our net voyage revenues were earned by the vessels in the fixed-rate
tanker segment, compared to approximately 38% in the same period last year, primarily due
to the reduction in the contribution from our spot rate segment. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Vessel Operating
Expenses.</U></I><U></U> Vessel operating expenses increased 8.0% to $34.9 million for the
three months ended March 31, 2006, from $32.3 million for the same period last year,
primarily due to: </FONT></P>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $2.2 million due to increased crew related costs,  and repairs and  maintenance  relating
               to certain vessels in our shuttle tanker fleet;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $1.3 million for the three months ended March 31, 2006 from the
depreciation of the U.S. Dollar from corresponding 2005 levels relative to other
currencies in which we pay certain vessel operating expenses;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $0.6 million relating to the Aframax Transfer;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $0.5 million relating to the Suezmax delivery in July 2005; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $2.1 million from the sale of two older shuttle tankers during 2005.
</FONT></TD>
</TR>
</TABLE>
<BR>




<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Time-Charter Hire
Expense.</U></I><U></U> Time-charter hire expense increased 17.8% to $49.9 million for the
three months ended March 31, 2006, compared to $42.4 million for the same period last
year, primarily due to a 12.6% increase in the average number of vessels chartered-in and
a 4.7% increase in the average per day time-charter rates on our shuttle tankers. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Depreciation and
Amortization.</U></I><U></U> Depreciation and amortization expense decreased 3.5 % to
$29.6 million for the three months ended March 31, 2006, from $30.7 million for the same
period last year, primarily due to: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $1.0 million  relating to a reduction in amortization  from our contracts of affreightment
               that were acquired during 2003;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $0.8 million  relating to the sale of two older shuttle  tankers during 2005, and the sale
               and leaseback of one shuttle tanker in 2005; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $1.0 million relating to the Aframax Transfer and the Suezmax delivery
during 2005 to our fixed-rate tanker segment.
</FONT></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Depreciation and amortization expense
included amortization of drydocking costs of $2.0 million for the three months ended March
31, 2006, compared to $2.2 million for the same period last year, and includes
amortization of contracts of $3.1 million for the three months ended March 31, 2006,
compared to $4.1 million for the same period last year. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Gain on Sale of
Vessel.</U></I><U></U> Gain on sale of vessels for the three months ended March 31, 2006
reflects $0.1 million of amortization of a deferred gain on the sale and leaseback of one
shuttle tanker in March 2005. Gain on sale of vessels for the three months ended March 31,
2005 reflects a gain of $4.9 million on the sale of an older shuttle tanker. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><B>Fixed-Rate LNG Segment</B></I></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table provides a
summary of the change in calendar-ship-days for our fixed-rate LNG segment: </FONT></P>

<PRE>

- -------------------------------------------------- ------------------------------------- -----------------
                                                      <B> Three Months Ended March 31,</B>
- -------------------------------------------------- ------------------------------------- -----------------
                                                          <B>2006                2005             Percentage</B>
                                                     (Calendar Days)     (Calendar Days)         Change
                                                                                                   (%)
- -------------------------------------------------- ------------------ ------------------ ------------------
Owned Vessels.....................................          360                360                  -
- -------------------------------------------------- ------------------ ------------------ ------------------
</PRE>
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On May 10, 2005, our subsidiary
Teekay LNG issued 6,900,000 common units as part of its initial public offering,
effectively reducing our ownership of Teekay LNG to 77.7%. In November 2005, Teekay LNG
issued an additional 4,600,000 common units, further reducing our ownership of Teekay LNG
to 67.8%. Please read &#147; &#151; Public Offerings by Teekay LNG Partners L.P.&#148;
above. As of March 31, 2006, all of the vessels in our fixed-rate LNG segment were owned
by Teekay LNG. The results below reflect 100% of these vessels. The minority owners&#146;
share of the results of these vessels is reflected as minority interest expense contained
in other &#150; net in our consolidated statements of income. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Net Voyage
Revenues.</U></I><U></U> Net voyage revenues for the fixed-rate LNG segment decreased 2.1%
to $23.7 million, or $65,833 per calendar-ship-day, for the three months ended March 31,
2006 from $24.2 million, or $67,269 per calendar-ship-day, for the same period last year
primarily due to: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $1.3 million due to the effect on our Euro-denominated revenue from the
weakening of the Euro against the U.S. Dollar during the three months ended March 31, 2006
compared to the same period last year; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $0.8  million  from 15.2 days of off-hire  for one of our LNG  carriers  during  February
               2005.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Vessel Operating
Expenses.</U></I><U></U> Vessel operating expenses decreased 15.0% to $3.7 million, or
$10,258 per calendar-ship-day, for the three months ended March 31, 2006 from $4.3
million, or $12,064 per calendar-ship-day, for the same period last year primarily due to: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $0.7 million  primarily  relating to repair and  maintenance  work completed on one of our
               LNG carriers during February 2005;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $0.2 million due to the effect on our Euro-denominated vessel operating
expenses from the weakening of the Euro against the U.S. Dollar during the three months
ended March 31, 2006 compared to the same period last year (a majority of our vessel
operating expenses are denominated in Euros, which is primarily a function of the
nationality of our crew); and
</FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a number of smaller factors that increased vessel operating expenses by $0.3 million.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Depreciation and
Amortization.</U></I><U></U> Depreciation and amortization increased 2.1% to $7.7 million
for the three months ended March 31, 2006, from $7.5 million for the same period last year
primarily due to: </FONT></P>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $0.2 million  resulting from the  amortization  of drydock  expenditures  incurred during
               2005.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Depreciation and amortization expense
in the fixed-rate LNG segment for both the three months ended March 31, 2006 and the same
period last year included $2.2 million of amortization of time-charter contracts acquired
as part of the Teekay Spain acquisition. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><B>Spot Tanker Segment</B></I></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TCE rates for the vessels in our spot
tanker segment primarily depend on oil production and consumption levels, the number of
vessels in the worldwide tanker fleet scrapped, the number of newbuildings delivered and
charterers&#146; preference for modern tankers. As a result of our dependence on the
tanker spot market, any fluctuations in TCE rates affect our revenues and earnings. Our
average TCE rate for the vessels in our spot tanker segment increased 5.7 % to $38,243 for
the three months ended March 31, 2006, from $36,167 for the same period last year. </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table outlines the TCE
rates earned by the vessels in our spot tanker segment for the three months ended March
31, 2006 and 2005 and includes the effect of forward freight agreements (or <I>FFAs</I>)
which we enter into at times as hedges against a portion of our exposure to spot market
rates: </FONT></P>

<PRE>

- ------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
                                                   <B><U>Three Months Ended</U>               <U>Three Months Ended</U>
                                                     <U>March 31, 2006</U>                   <U>March 31, 2005</U></B>
                                            -----------------------------------------------------------------
                                            Net Voyage             TCE per   Net Voyage             TCE per
                                             Revenues   Revenue    Revenue    Revenues   Revenue    Revenue
Vessel Type                                  ($000's)     Days      Day ($)   ($000's)     Days      Day ($)
- ------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------

Very Large Crude Carriers..................         -          -          -      8,356         90     92,844
Suezmax Tankers (1)........................    19,493        360     54,147     20,987        540     38,865
Aframax Tankers(1).........................   129,675      2,925     44,333    171,205      4,321     39,622
Large/Medium Product Tankers...............    31,597        948     33,330     20,666        647     31,941
Small Product Tankers......................    15,383        896     17,169     15,574        949     16,411
- ------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Totals.....................................   196,148      5,129     38,243    236,788      6,547     36,167
=========================================== ========== ========== ========== ========== ========== ==========

</PRE>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Lvl 4-TNR" FSL="Project" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Results for the three months ended March 31, 2005 for our Suezmax tankers
               include realized losses from FFAs of $2.1 million ($3,842 per revenue day).
               Results for the three months ended March 31, 2006 and 2005 for our Aframax
               tankers include realized gains from FFAs of $0.2 million ($63 per revenue day)
               and $0.3 million ($68 per revenue day), respectively.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the first quarter of 2006,
approximately 50% of our net voyage revenues were earned by the vessels in the spot tanker
segment, compared to approximately 57% in the same period last year. This percentage
decrease was due primarily to the sale of a number of older vessels from our spot tanker
segment during 2005 and a decrease in the number of chartered-in vessels in our spot
tanker segment, partially offset by newbuilding deliveries and the increase in average
spot tanker rates for the first quarter of 2006 compared to the first quarter of 2005. </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table provides a
summary of the changes in calendar-ship-days by owned and chartered-in vessels in our spot
tanker segment: </FONT></P>

<PRE>

- -------------------------------------------------- ------------------------------------- ------------------
                                                      <B> Three Months Ended March 31,</B>
- -------------------------------------------------- ------------------------------------- ------------------
                                                          <B>2006                2005           Percentage</B>
                                                     (Calendar Days)     (Calendar Days)       Change
                                                                                                 (%)
- -------------------------------------------------- ------------------ ------------------ ------------------

Owned Vessels.....................................        2,340              3,213             (27.2)
Chartered-in Vessels..............................        2,801              3,373             (17.0)
- -------------------------------------------------- ------------------ ------------------ ------------------
Total.............................................        5,141              6,586             (21.9)
- -------------------------------------------------- ------------------ ------------------ ------------------
</PRE>
<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The average fleet size of our spot
tanker fleet (including vessels chartered-in) decreased 21.9% to 5,141 calendar days for
the three months ended March 31, 2006, from 6,586 calendar days for the same period last
year. This decrease was primarily the result of: </FONT></P>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the sale of 13 older  Aframax  tankers  and one older  Suezmax  tanker in 2005  (collectively,  the Spot
               Tanker Dispositions);
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 the net decrease of the number of chartered-in vessels which was primarily Aframax tankers;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the removal of a chartered-in VLCC, now operating in our fixed-rate tanker segment, that
commenced service under a long-term charter during April 2005;
</FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the removal of an Aframax tanker, now operating in our fixed-rate tanker segment, that
commenced service under a long-term charter during the fourth quarter of 2005; and
</FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the delivery of four new Aframax tankers in 2005 (collectively, the Spot Tanker Deliveries).
</FONT></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Net Voyage
Revenues.</U></I><U></U> Net voyage revenues for the spot tanker segment decreased 17.2%
to $196.1 million for the three months ended March 31, 2006, from $236.8 million for the
same period last year, primarily due to: </FONT></P>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $40.9 million relating to the Spot Tanker Dispositions;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $8.4 million relating to the VLCC Transfer;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $2.2 million relating to the Aframax Transfer;

</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $0.4 million from the decrease in the number of chartered-in vessels,
partially offset by the increase in our average TCE rate and the impact of our FFA&#146;s
both mentioned above; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $11.3 million relating to Spot Tanker Deliveries.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Vessel Operating
Expenses.</U></I><U></U> Vessel operating expenses decreased 17.7% to $14.6 million for
the three months ended March 31, 2006, from $17.8 million for the same period last year,
primarily due to: </FONT></P>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $5.4 million relating to the Spot Tanker Dispositions;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 a decrease of $0.4 million relating to the Aframax Transfer;
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $1.5 million relating to Spot Tanker Deliveries; and
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 an increase of $1.1  million  primarily  relating to an  increase in crew  related  costs and  insurance
               premiums.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Time-Charter Hire
Expense.</U></I><U></U> Time-charter hire expense decreased 17.7% to $54.5 million for the
three months ended March 31, 2006, from $66.2 million for the same period last year,
primarily due to: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $9.2 million relating to the net decrease of the number of chartered-in
vessels, partially offset by a 0.9% increase in our average per day time-charter hire expense to $19,458
per day for the three months ended March 31, 2006, from $19,631 per day for the same
period last year; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $2.5 million relating to the VLCC Transfer.
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Depreciation and
Amortization.</U></I><U></U> Depreciation and amortization expense decreased 16.8% to
$13.2 million for the three months ended March 31, 2006, from $15.9 million for the same
period last year, primarily due to: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $3.6 million relating to the Spot Tanker Dispositions;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
 a decrease of $0.3 million relating to the Aframax Transfer; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $1.3 million relating to Spot Tanker Deliveries.
</FONT></TD>
</TR>
</TABLE>
<BR>


<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Drydock amortization was $1.6 million
for the three months ended March 31, 2006, compared to $1.9 million for the same period
last year. The decrease in drydock amortization was primarily due to the dispositions of
older vessels. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Gain on Sale of
Vessels.</U></I><U></U> Gain on sale of vessels for the three months ended March 31, 2006
primarily reflects $0.5 million of amortization of a deferred gain on the sale and
leaseback of three Aframax tankers in December 2003. Gain on sale of vessels for the three
months ended March 31, 2005 reflects gains of $97.0 million, which include $96.3 million
of gains from the sale of eight older Aframax vessels and one Suezmax newbuilding, as well
as $0.7 million of amortization of a deferred gain on the sale and leaseback of those
three Aframax vessels. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Restructuring
Charges.</U></I><U></U> We incurred restructuring charges of $1.9 million for the three
months ended March 31, 2006 relating to the relocation of certain operational functions
from our Vancouver office to locations closer to where our customers are located and to
where our ships operate. During the remainder of 2006, we expect to incur approximately
$5.0 million of further restructuring charges as we complete this relocation. We did not incur any
restructuring charges in the three months ended March 31, 2005. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><B>Other Operating Results</B></I></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>General and Administrative
Expenses.</U></I><U></U> General and administrative expenses increased 19.5% to $40.3
million for the three months ended March 31, 2006, from $33.7 million for the same period
last year. The increase primarily reflects: </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase  of $2.0  million  for the three  months  ended March 31, 2006 from the grant of 0.7 million
             restricted stock units to employees in March 2005 (please read Item 1 - Financial  Statements:  Note 9 -
             Capital Stock);
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase  of $2.0  million  relating to employee  stock  option  compensation  (please  read Item 1 -
             Financial Statements:  Note 9 - Capital Stock);
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $1.6 million from the  depreciation  of the U.S.  Dollar from  corresponding  2005 levels
             relative to other currencies in which we pay certain general and administrative expenses;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $1.5 million in severance costs;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $0.4  million  relating to  increases in rent  expense,  insurance  costs and a number of
             smaller factors;
</FONT></TD>
</TR>
</TABLE>
<BR>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
an increase of $0.3 million due to the costs  associated with Teekay LNG becoming a public entity in the
             second quarter of 2005; and
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=98%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
partially offset by
</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=2%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&#149;</FONT></TD>
<TD WIDTH=93%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
a decrease of $1.2 million for the three months ended March 31, 2006 relating to the
reduction in costs associated with our long-term incentive program for management (please
read Item 1 &#150; Financial Statements: Note 10 &#150; Commitments and Contingencies
&#150; Long-Term Incentive Program).
</FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Interest
Expense.</U></I><U></U> Interest expense decreased 2.5% to $36.7 million for the three
months ended March 31, 2006, from $37.7 million for the same period last year, primarily
due to the repayment of debt and settlement of interest rate swaps in connection with
Teekay LNG&#146;s initial public offering in May 2005 and the conversion of our 7.25%
Premium Equity Participating Security Units in February 2006, partially offset by an
increase in interest rates applicable to our floating-rate debt and the expiry of $500
million of interest rate swaps during January 2006. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Interest Income.</U></I><U></U>
Interest income increased 47.0% to $12.1 million for the three months ended March 31,
2006, from $8.2 million for the same period last year, primarily due to interest earned on
cash and cash equivalents and restricted cash held in Teekay Spain relating to capital
lease arrangements for two LNG carriers and on restricted cash held under the leases
for the three RasGas II LNG newbuilding carriers. Please read Item 1 &#150; Financial
Statements: Note 8 &#150; Capital Leases and Restricted Cash. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Equity Income From Joint
Ventures.</U></I><U></U> Equity income from joint ventures decreased to $1.1 million for
the three months ended March 31, 2006, compared to $2.8 million for the same period last
year, primarily due to a decline in earnings from our 50% share in Skaugen Petrotrans,<I>
</I>which provides lightering services primarily in the Gulf of Mexico. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Foreign Exchange Gains
(Losses).</U></I><U></U> Foreign exchange losses were $11.5 million for the three months
ended March 31, 2006, compared to foreign exchange gains of $25.9 million for the same
period last year, primarily due to the strengthening of the U.S. Dollar relative to other
currencies, particularly the Euro, since March 31, 2005. Most of our foreign currency
gains or losses are attributable to the revaluation of our Euro-denominated term loans at
the end of each period for financial reporting purposes, and substantially all of the
gains or losses are unrealized. As of the date of this report, our Euro-denominated
revenues generally approximate our Euro-denominated operating expenses and our
Euro-denominated interest and principal repayments. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Other Income
(Loss).</U></I><U></U> Other loss for the three months ended March 31, 2006 was $6.0
million, which was primarily comprised of income tax expense of $3.8 million, loss on
expiry of options to construct LNG carriers of $3.1 million, minority interest expense of
$1.3 million and a $0.4 million loss on bond redemption, partially offset by leasing
income from our volatile organic compound emissions equipment. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other income for the three months
ended March 31, 2005 was $9.9 million, and was primarily comprised of income tax recovery
of $9.3 million and leasing income from our volatile organic compound emissions equipment,
partially offset by minority interest expense. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I><U>Net Income.</U></I><U></U> As a
result of the foregoing factors, net income was $101.7 million for the three months ended
March 31, 2006, compared to $279.0 million for the same period last year. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LIQUIDITY AND CAPITAL
RESOURCES </FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Liquidity and Cash Needs</U></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As at March 31, 2006, our total cash
and cash equivalents was $257.0 million, compared to $237.0 million as at December 31,
2005. Our total liquidity, including cash and undrawn long-term borrowings, was $966.4
million as at March 31, 2006, down slightly from $966.8 million as at December 31, 2005.
The slight decrease in liquidity was mainly the result of long-term debt repayments,
scheduled reductions of revolving credit facilities, cash used for capital expenditures,
share repurchases and payment of dividends, partially offset by cash generated by our
operating activities during the three months ended March 31, 2006. We believe that our
working capital is sufficient for our present requirements. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Cash Flows</U></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table summarizes our
cash and cash equivalents provided by (used for) operating, financing and investing
activities for the periods presented: </FONT></P>

<PRE>
- ---------------------------------------------------------- -----------------------------------------------
                                                                          <B>Three Months Ended</B>
- ---------------------------------------------------------- -----------------------------------------------
                                                                  <B>March 31, 2006          March 31, 2005</B>
                                                                     ($000's)                ($000's)
- ---------------------------------------------------------- ----------------------- -----------------------
Net operating cash flows..................................           109,649                 173,745
Net financing cash flows..................................          (318,426)               (320,089)
Net investing cash flows..................................           228,796                 273,622
- ---------------------------------------------------------- ----------------------- -----------------------
</PRE>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Operating Cash Flows</U></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The decrease in net operating cash
flow mainly reflects the decrease in aggregate calendar-ship-days for our fleet to 10,541
calendar-ship-days for the three months ended March 31, 2006, compared to 11,982
calendar-ship-days for the same period in 2005, and reduction in working capital,
partially offset by the increase in average spot TCE rates. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Financing Cash Flows</U></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Scheduled debt repayments were $3.8
million during the three months ended March 31, 2006, compared to $49.1 million during the
same period last year. Debt prepayments were $194.4 million during the three months ended
March 31, 2006, compared to $357.6 million during the same period last year. We used cash
generated from operations and longer-term financings to make these prepayments. Of our
debt prepayments in the three months ended March 31, 2006, $191.0 million was used to
prepay revolving credit facilities. In addition, we used $3.4 million to repay a portion
of the 8.875% Senior Notes due July 11, 2011. Occasionally we use our revolving credit
facilities to temporarily finance capital expenditures until longer-term financing is
obtained, at which time we typically use all or a portion of the proceeds from the
longer-term financings to prepay outstanding amounts under the facilities. Please read
Item 1 &#150; Financial Statements: Note 6 &#150; Long-Term Debt. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As at March 31, 2006, our total
long-term debt was $2.0 billion, compared to $1.8 billion as at December 31, 2005. As at
March 31, 2006, our revolving credit facilities provided for borrowings of up to $1.7
billion, of which $709.4 million was undrawn. The aggregate amount available under our
revolving credit facilities reduces by $103.0 million (2006), $148.2 million (2007),
$363.4 million (2008), $189.7 million (2009), $91.1 million (2010) and $772.6 million
(thereafter). The revolving credit facilities are collateralized by first-priority
mortgages granted on 49 of our vessels, together with other related collateral, and are
guaranteed by Teekay or our subsidiaries. Our unsecured 8.875% Senior Notes are due July
15, 2011. Our outstanding term loans reduce in monthly or quarterly payments with varying
maturities through 2023. In February 2006, our 7.25% Premium Equity Participating Security
Units due May 18, 2006 settled and are no longer outstanding. Please read Item 1 &#150;
Financial Statements: Note 6 &#150; Long-Term Debt. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Among other matters, our long-term
debt agreements generally provide for maintenance of certain vessel market value-to-loan
ratios and minimum consolidated financial covenants, and prepayment privileges (in some
cases with penalties). Certain of the loan agreements require that a minimum level of free
cash be maintained. As at March 31, 2006, this amount was $100.0 million. Certain of the
loan agreements also require that we maintain a minimum level of free liquidity and
undrawn revolving credit lines with at least six months to maturity. As at March 31, 2006,
this amount was $119.1 million. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In January 2006, we entered into
sale-leaseback transactions relating the three RasGas II LNG newbuilding carriers. Under
the terms of the leases as part of these transactions, we are required to have on
deposit with financial institutions an amount of cash that, together with interest earned
on the deposit, will equal the remaining amounts owing under the leases. This amount was
$395.3&nbsp;million as at March 31, 2006. These cash deposits are restricted to being used
for capital lease payments and have been fully funded with term loans and loans from the
joint venture partners. Please read Item 1 &#150; Financial Statements: Note 8 &#150;
Capital Leases and Restricted Cash. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dividends paid during the three
months ended March 31, 2006 were $15.1 million, or $0.2075 per share. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the first quarter of 2006,
pursuant to the share repurchase programs announced in April, July and December 2005 for
up to $225.0 million, $250.0 million and $180.0 million, respectively, we repurchased 3.8
million shares for $147.8 million, or an average of $39.00 per share. Please read Item 1
&#150; Financial Statements: Note 9 &#150; Capital Stock. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Investing Cash Flows</U></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the three months ended March
31, 2006, we incurred capital expenditures for vessels and equipment of $84.4 million.
These capital expenditures primarily represented the installment payments on our Suezmax
tankers and LNG carriers under construction. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the three months ended March
31, 2006 and in connection with our sale-leaseback transactions involving the three RasGas
II LNG carriers, we sold the shipbuilding contracts for the vessels to SeaSpirit, which
reimbursed us for previously paid shipyard installments and other construction costs in
the amount of $313.0 million. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commitments and
Contingencies </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The following table summarizes our long-term contractual obligations as at March 31, 2006:</FONT></P>
<PRE>
- ------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
In millions of U.S. Dollars                                         Balance     2007 and    2009 and      Beyond
                                                          Total     of 2006       2008         2010        2010
- ------------------------------------------------------ ----------- ----------- ----------- ----------- -----------

<B>U.S. Dollar-Denominated Obligations:</B>
    Long-term debt (1)................................   1,577.5        10.3       367.7       143.4     1,056.1
    Chartered-in vessels (operating leases) ..........   1,036.7       261.4       370.2       200.0       205.1
    Commitments under capital leases (2) .............     325.7        22.2       161.9       104.8        36.8
    Commitments under capital leases-newbuildings (3).   1,118.8           -        41.4        48.0     1,029.4
    Newbuilding installments (4)......................     859.3       141.8       644.8        72.7           -
    Vessel purchases and conversion (5)...............     172.3       152.8        19.5           -           -
    Commitment for volatile organic compound
         emissions equipment..........................      19.7        19.7           -           -           -
                                                       ----------- ----------- ----------- ----------- -----------
   <B>Total U.S. Dollar-denominated obligations</B>             5,110.0       608.2     1,605.5       568.9     2,327.4
                                                       ----------- ----------- ----------- ----------- -----------

<B>Euro-Denominated Obligations:</B> (6)
    Long-term debt (1)................................     383.9         6.3        18.4        21.2       338.0
    Commitments under capital leases (2) (7)..........     349.3       149.3        57.8        63.7        78.5
                                                       ----------- ----------- ----------- ----------- -----------
    <B>Total Euro-denominated obligations</B>                     733.2       155.6        76.2        84.9       416.5
                                                       ----------- ----------- ----------- ----------- -----------

<B>Total</B>                                                    5,843.2       763.8     1,681.7       653.8     2,743.9
                                                       =========== =========== =========== =========== ===========
</PRE>


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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Excludes interest payments.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Lvl 4-TNR" FSL="Project" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(2) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               We are committed to capital leases on one Aframax tanker, five Suezmax tankers
          and two LNG carriers. Each capital lease requires us to purchase the vessel at
          the end of its respective lease term. The amounts in the table include our
          purchase obligations for the vessels. Please read Item 1 &#150; Financial
          Statements: Note 8 &#150; Capital Leases and Restricted Cash.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

<!-- MARKER FORMAT-SHEET="Para (List) Hang Lvl 4-TNR" FSL="Project" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(3) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               We are committed to capital leases on three LNG carriers scheduled for delivery between October 2006 and April 2007. Under
the terms of the leases and upon vessel delivery, we are required to have on deposit an amount of cash that, together with interest earned on
the deposit, will equal the remaining amounts owing under the leases.  We are committed to funding an additional $137.2 million of deposits
($68.6 million - 2006 and $68.6 million - 2007) throughout the remainder of the construction period.  We have long-term financing arrangements in place to fund
these remaining commitments.  Please read Item 1 - Financial Statements: Note 10 - Commitments and Contingencies.
</FONT></TD>
               </TR>
               </TABLE>
               <BR>
<!-- MARKER FORMAT-SHEET="Para (List) Hang Lvl 4-TNR" FSL="Project" -->
          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(4) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Represents remaining construction costs, including the joint venture partners&#146; 30% interest, if
applicable, but excluding capitalized interest and miscellaneous construction costs, for
two Aframax tankers, four product tankers, six Suezmax tankers and two LNG carriers.
Please read Item 1 &#150; Financial Statements: Note 10 &#150; Commitments and
Contingencies.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(5) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Represents remaining purchase obligations and conversion costs, but excluding
capitalized interest and miscellaneous conversion costs, for one Suezmax tanker and one
Aframax tanker, and conversion costs for one Suezmax tanker. Please read Item 1 &#150; Financial Statements: Note 10 &#150; Commitments
and Contingencies.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(6) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Euro-denominated obligations are presented in U.S. Dollars and have been
          converted using the prevailing exchange rate as of March 31, 2006.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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          <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(7) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Existing restricted cash deposits, together with the interest earned on the
          deposits, will equal the remaining amounts we owe under the lease arrangements,
          including our obligation to purchase the vessels at the end of the lease terms.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We have entered into a joint venture
agreement with our 60% partner to construct four LNG carriers. As at March 31, 2006, the
remaining commitments, excluding capitalized interest and other miscellaneous construction
costs, on these vessels totaled $801.3 million, of which our share is $320.5 million. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Project" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Off-Balance Sheet
Arrangements </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We and certain of our subsidiaries have
guaranteed our share of the outstanding mortgage debt in four 50%-owned joint venture
companies. Please read Item 1 &#150; Financial Statements: Note 10 &#150; Commitments and
Contingencies &#150; Joint Ventures. We do not believe these off-balance sheet
arrangements have, and we have no other off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial condition,
results of operations, liquidity, capital expenditures or capital resources. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As part of our growth strategy, we
will continue to consider strategic opportunities, including the acquisition of additional
vessels and expansion into new markets. We may choose to pursue such opportunities through
internal growth, joint ventures or business acquisitions. We intend to finance any future
acquisitions through various sources of capital, including internally-generated cash flow,
existing credit facilities, additional debt borrowings, and the issuance of additional
equity securities or any combination thereof. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Project" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Critical Accounting
Policies and Estimates </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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.
Following is a discussion of the accounting policies that involve a high degree of
judgment and the methods of their application. For a further description of our material
accounting policies, please read Note 1 to our consolidated financial statements for the
year ended December 31, 2005, included in our Annual Report on Form 20-F filed with the
SEC. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Revenue Recognition</I> </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We generate a majority of our
revenues from spot voyages and voyages servicing contracts of affreightment. Within the
shipping industry, the two methods used to account for voyage revenues and expenses are
the percentage of completion and the completed voyage methods. Most shipping companies,
including us, use the percentage of completion method. For each method, voyages may be
calculated on either a load-to-load or discharge-to-discharge basis. In other words,
revenues are recognized ratably either from the beginning of when product is loaded for
one voyage to when it is loaded for another voyage, or from when product is discharged
(unloaded) at the end of one voyage to when it is discharged after the next voyage. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In applying the percentage of
completion method, we believe that in most cases the discharge-to-discharge basis of
calculating voyages more accurately reflects voyage results than the load-to-load basis.
At the time of cargo discharge, we generally have information about the next load port and
expected discharge port, whereas at the time of loading we are normally less certain what
the next load port will be. We use this method of revenue recognition for all spot voyages
and voyages servicing contracts of affreightment, with an exception for our shuttle
tankers servicing contracts of affreightment with offshore oil fields. In this case a
voyage commences with tendering of notice of readiness at a field, within the agreed
lifting range, and ends with tendering of notice of readiness at a field for the next
lifting. However we do not begin recognizing voyage revenue for any of our vessels until a
charter has been agreed to by the customer and us, even if the vessel has discharged its
cargo and is sailing to the anticipated load port on its next voyage. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We recognize revenues from time
charters daily over the term of the charter as the applicable vessel operates under the
charter. We do not recognize revenues during days that the vessel is off-hire. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Vessel Lives and Impairment</I></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The carrying value of each of our
vessels represents its original cost at the time of delivery or purchase less depreciation
or impairment charges. We depreciate our vessels on a straight-line basis over a
vessel&#146;s estimated useful life, less an estimated residual value. Depreciation is
calculated using an estimated useful life of 25 years for Aframax, Suezmax, VLCC and
product tankers, and 35 years for LNG carriers, from the date the vessel was originally
delivered from the shipyard, or a shorter period if regulations prevent us from operating
the vessels to 25 or 35 years, respectively. In the shipping industry, the use of a
25-year vessel life for Aframax, Suezmax, VLCC and product tankers has become the
prevailing standard. In addition, the use of a 30 to 40 year vessel life for LNG carriers
is typical. However, the actual life of a vessel may be different, with a shorter life
potentially resulting in an impairment loss. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The carrying values of our vessels
may not represent their fair market value at any point in time since the market prices of
secondhand vessels tend to fluctuate with changes in charter rates and the cost of
newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature. We
review vessels and equipment for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. We measure the
recoverability of an asset by comparing its carrying amount to future undiscounted cash
flows that the asset is expected to generate over its remaining useful life. If we
consider a vessel or equipment to be impaired, we recognize impairment in an amount equal
to the excess of the carrying value of the asset over its fair market value. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Drydocking</I></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Generally, we drydock each vessel
every two and a half to five years. In addition, a shipping society classification
intermediate survey is performed on our LNG carriers between the second and third year of
their five-year drydocking period. We capitalize a substantial portion of the costs we
incur during drydocking and for the survey and amortize those costs on a straight-line
basis from the completion of a drydocking or intermediate survey to the estimated
completion of the next drydocking. We expense costs related to routine repairs and
maintenance incurred during drydocking or intermediate survey that do not improve or
extend the useful lives of the assets. When significant drydocking expenditures occur
prior to the expiration of the original amortization period, the remaining unamortized
balance of the original drydocking cost and any unamortized intermediate survey costs are
expensed in the month of the subsequent drydocking. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Project" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Goodwill and Intangible Assets</I></FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Project" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We allocate the cost of acquired
companies to the identifiable tangible and intangible assets and liabilities acquired,
with the remaining amount being classified as goodwill. Certain intangible assets, such as
time charter contracts, contracts of affreightment and intellectual property are amortized
over time. Our future operating performance will be affected by the amortization of
intangible assets and potential impairment charges related to goodwill. Accordingly, the
allocation of purchase price to intangible assets has, and goodwill may have a significant
impact on our future operating results. The allocation of the purchase price of the
acquired companies to intangible assets and goodwill requires management to make
significant estimates and assumptions, including estimates of future cash flows expected
to be generated by the acquired assets and the appropriate discount rate to value these
cash flows. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Goodwill and indefinite lived assets
are not amortized, but reviewed for impairment annually, or more frequently if impairment
indicators arise. The process of evaluating the potential impairment of goodwill and
intangible assets is highly subjective and requires significant judgment at many points
during the analysis. The fair value of our reporting units was estimated based on
discounted expected future cash flows using a weighted-average cost of capital rate. The
estimates and assumptions regarding expected cash flows and the discount rate require
considerable judgment and are based upon existing contracts, historical experience,
financial forecasts and industry trends and conditions. </FONT></P>


<PAGE>
<BR>
<BR>
<BR>
<BR>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Project" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FORWARD-LOOKING
STATEMENTS </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush Lv 0-TNR" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This Report on Form 6-K for the
quarterly period ended March 31, 2006 contains certain forward-looking statements (as such
term is defined in Section 27A of the Securities 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; tanker market fundamentals, including the balance
of supply and demand in the tanker market, and spot tanker charter and product tanker
rates; future capital expenditures; delivery dates of and financing for newbuildings, and
the commencement of service of newbuildings under long-term contracts; gains on sales of
vessels; economic growth; benefits from lease arrangements; future restructuring
charges; and Teekay&#146;s share repurchase plan. 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 &#147;believe&#148;,
&#147;anticipate&#148;, &#147;expect&#148;, &#147;estimate&#148;, &#147;project&#148;,
&#147;will be&#148;, &#147;will continue&#148;, &#147;will likely result&#148;, 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 or demand for oil, petroleum
products and LNG, either generally or in particular regions; the cyclical nature of the
tanker industry and our dependence on oil and LNG markets; greater or less than
anticipated levels of vessel newbuilding orders or greater or less than anticipated rates
of vessel scrapping; changes in trading patterns significantly impacting overall vessel
tonnage requirements; changes in applicable industry laws and regulations and the timing
of implementation of new laws and regulations; changes in typical seasonal variations in
tanker charter rates; changes in the offshore production of oil; competitive factors in
the markets in which we operate; our potential inability to integrate effectively the
operations of any future acquisitions; the potential for early termination of long-term
contracts and our inability to renew or replace long-term contracts; shipyard production
delays; conditions in the public equity markets; and other factors detailed from time to
time in our periodic reports, including our Annual Report on Form 20-F for the year ended
December 31, 2005, filed with the SEC. 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. </FONT></P>


<PAGE>
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<BR>
<BR>
<BR>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TEEKAY SHIPPING
CORPORATION AND SUBSIDIARIES<BR>MARCH 31, 2006<BR>PART I &#150;
FINANCIAL INFORMATION</FONT></H1>


<!-- MARKER FORMAT-SHEET="Head Major Left Bold-TNR" FSL="Project" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ITEM 3 &#151;
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We are exposed to fluctuations in
foreign currency exchange rates, interest rates, bunker fuel prices and spot market rates
for vessels. We use foreign currency forward contracts, interest rate swaps, bunker fuel
swap contracts and forward freight agreements to manage currency, interest rate, bunker
fuel price risks and spot market rates. Please read Item 1 &#151; Financial Statements:
Note 14 &#151; Derivative Instruments and Hedging Activities. </FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The table below provides  information  about our financial  instruments as at March 31, 2006,  which are sensitive to
changes in interest rates. For debt obligations,  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.</FONT></P>

<PRE>
                                                                 <B>Expected Maturity Date
                                       2006       2007       2008       2009       2010    Thereafter  Rate</B> (10)
                                    ---------- ---------- ---------- ---------- ---------- ---------- ----------
                                                     <B>(in millions of U.S. dollars, except percentages)</B>

<U>Long-Term Debt:</U>
  Fixed-Rate ($U.S.).............      5.4        7.2        7.2        7.2        7.2       344.1        7.4%
  Average Interest Rate..........      4.1%       4.1%       4.1%       4.1%       4.1%        7.7%

  Variable Rate ($U.S.)(1).......      4.9       31.3      322.0       64.5       64.5       745.9        5.4%
  Variable Rate (Euro)(2)(3).....      6.3        8.9        9.5       10.2       11.0       338.0        3.8%

  Capital Lease Obligations(4)(5)
     Fixed-Rate ($U.S.)(6).......      7.5      132.2        5.3        5.5       85.9        26.2        7.6%
     Average Interest Rate (7)...      7.6%       8.8%       6.3%       6.3%       5.5%        8.3%

<U>Interest Rate Swaps: (8)</U>
  Contract Amount ($U.S.)(5)(9)..         -       2.2        4.5      209.3       14.1     1,314.9        5.1%
  Average Fixed Pay Rate(1)......         -       6.2%       6.2%       4.3%       5.6%        5.2%
  Contract Amount (Euro)(3)......      6.3        8.9        9.5       10.2       11.0       338.0        3.8%
  Average Fixed Pay Rate(2)......      3.8%       3.8%       3.8%       3.8%       3.8%        3.8%

</PRE>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(1) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Interest payments for U.S. Dollar-denominated debt and interest rate swaps are
          based on LIBOR.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(2) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Interest payments on Euro-denominated debt and interest rate swaps are based on
          EURIBOR.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(3) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Euro-denominated amounts have been converted to U.S. Dollars using the
               prevailing exchange rate as of March 31, 2006.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(4) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Excludes capital lease obligations (present value of minimum lease payments) of
               247.5 million Euros ($300.0 million) on two of our LNG carriers with a weighted-average fixed interest rate
of 5.7%.  Under the terms of these fixed-rate lease obligations, we are required to have on deposit, subject to a weighted-average
fixed interest rate of 5.2%, an amount of cash that, together with the interest earned thereon,
               will fully fund the amount owing under the capital lease obligations, (including
               purchase obligations). As at March 31, 2006, this amount was 252.3 million
Euros ($305.7 million). Consequently, we are not subject to interest rate risk
               from these obligations or deposits.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(5) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               During January 2006, three of our subsidiaries, each of which has contracted to have built one LNG carrier sold their
shipbuilding contracts and entered into 30-year leases, commencing upon the completion of vessel construction, for these
three LNG carriers.  Under the terms of the leases and upon vessel delivery, we are required to have on deposit, subject to
a variable rate of interest, an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the variable-rate
leases.  Both the deposits, which as at March 31, 2006 were $395.3 million, and the lease obligations, which upon delivery are expected to be
approximately $180 million per vessel, have been swapped for fixed-rate deposits and fixed-rate obligations.  Consequently, we are not subject
to interest rate risk from these obligations and deposits and thus the lease obligations, cash deposits and related interest rate
swaps have been excluded from the table above. As at March 31, 2006, the contract amount, fair value and fixed interest rates of these interest rate
swaps related to its capital lease obligations and restricted cash deposits were $387.5 million and $392.1 million, $29.2 million
and ($35.1) million, 4.9% and 4.8%, respectively. </FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(6) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               The amount of capital lease obligations represents the present value of minimum lease payments together with
our purchase obligation.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(7) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               The average interest rate is the weighted-average interest rate implicit in the
               capital lease obligations at the inception of the leases.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(8) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               The average variable receive rate for our interest rate swaps is set monthly at
               the 1-month LIBOR or EURIBOR, quarterly at the 3-month LIBOR or semi-annually at
               the 6-month LIBOR.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(9) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Includes interest rate swaps of $344.0 million, $226.0 million and $575.0
               million that have inception dates of 2006, 2007 and 2009, respectively.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TD>
               <TD WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>(10) </FONT></TD>
               <TD WIDTH=82%><FONT FACE="Times New Roman, Times, Serif" SIZE=1>
               Rate refers to the weighted-average effective interest rate for our debt,
               including the margin we pay on our floating-rate debt, as at March 31, 2006, and
               average fixed pay rate for our swap agreements, as applicable. The average fixed
               pay rate for our interest rate swaps excludes the margin we pay on our
               floating-rate debt, which as of March 31, 2006 ranged from 1.1% to 1.3%.</FONT></TD>
               </TR>
               </TABLE>
               <BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table sets forth
further information about these foreign exchange forward contracts, interest rate swap
agreements, bunker fuel swap contracts, forward freight agreements and our long-term debt
as at March 31, 2006 and December 31, 2005: </FONT></P>

<PRE>
                                                     <B>Contract               Carrying Amount                Fair
                                                      Amount            Asset          Liability          Value</B>
                                                ----------------- ---------------- ---------------- ---------------
                                                                    <B>(in millions of U.S. dollars)</B>
<U>March 31, 2006</U>
Foreign Currency Forward Contracts.............        176.9              0.9                               0.9
Interest Rate Swap Agreements..................      1,924.3             64.9             35.1             29.8
Bunker Fuel Swap Contracts.....................          9.6              0.8                               0.8
Forward Freight Agreements.....................         37.6              2.6                               2.6
Debt (including capital lease obligations
  and loan from joint venture partner).........      2,557.9                           2,557.9         (2,578.9)

<U>December 31, 2005</U>
Foreign Currency Forward Contracts.............        119.1                               1.2             (1.2)
Interest Rate Swap Agreements..................      2,421.4                              33.5            (33.5)
Forward Freight Agreements.....................         35.4                               0.2             (0.2)
Debt (including capital lease obligations
  and loan from joint venture partner).........      2,433.0                           2,433.0         (2,466.2)


</PRE>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
For a more comprehensive discussion related to the general characteristics of Quantitative and
Qualitative Disclosures about Market Risk, please refer to Item 11 &#151; Quantitative and
Qualitative Disclosures about Market Risk contained in our Annual Report on Form 20-F for
the year ended December 31, 2005.</FONT></P>

<PAGE>

<BR>
<BR>
<BR>
<BR>


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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
<BR>March 31, 2006<BR>PART II &#150; OTHER INFORMATION</FONT></H1>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 1 &#150; Legal Proceedings</U><BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</FONT></P>


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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 1A &#150; Risk Factors</U><BR><BR></FONT></P>

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               <TR VALIGN=TOP>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               In addition to the other information set forth in this Quarterly Report on Form 6-K, you should
             carefully consider the risk factors discussed in Part I, &#147;Item 3. Key Information&#148; in our Annual Report
             on Form 20-F for the year ended December 31, 2005, which could materially affect our business,
             financial condition or results of operations. There have been no material changes in our risk factors
             from those disclosed in our 2005 Annual Report on Form 20-F.</FONT></TD>
               </TR>
               </TABLE>
               <BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 2 &#150; Changes in Securities and Use of Proceeds</U><BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 3 &#150; Defaults Upon Senior Securities</U><BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 4 &#150; Submission of Matters to a Vote of Security Holders</U><BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 5 &#150; Other Information</U><BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;None</FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<U>Item 6 &#150; Exhibits</U><BR><BR>&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</FONT></P>



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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENTS OF THE COMPANY.
</B>
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
<B>&#149;       &nbsp;&nbsp;&nbsp;REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 33-97746) FILED WITH THE SEC ON OCTOBER 4, 1995;
<BR>
&#149;        &nbsp;&nbsp;&nbsp;REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-42434) FILED WITH THE SEC
ON JULY&nbsp;28, 2000;<BR>
&#149;        &nbsp;&nbsp;&nbsp;REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-102594) FILED WITH THE SEC ON JANUARY&nbsp;17, 2003; AND<BR>
&#149;        &nbsp;&nbsp;&nbsp;REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119564) FILED WITH THE SEC ON OCTOBER 6, 2004</B>
</FONT></P>


<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>

<PAGE>

<BR>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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.
</font></P>

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<TR>
<TD WIDTH=45% VALIGN=MIDDLE>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;May 17, 2006</font>
</TD>
<TD WIDTH=55% VALIGN=TOP>
<FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
TEEKAY SHIPPING CORPORATION
<BR>
<BR>
<BR>

By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>/s/ Peter Evensen&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Peter Evensen<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President and Chief Financial Officer<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Principal Financial and Accounting Officer)
</font>
</TD>
</TR>
</TABLE>
<BR>
<BR>
<BR>
<BR>



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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Exhibit 15.1</B></FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
ACKNOWLEDGEMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
</FONT></H1>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<TD WIDTH=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To the Board of Directors and Stockholders of<BR>
Teekay Shipping Corporation</font></TD>
</TR>
</TABLE>
<BR>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
We are aware of the incorporation by
reference in the Registration Statement (Form S-8 No. 333-42434) pertaining to the Amended
1995 Stock Option Plan of Teekay Shipping Corporation (or <I>Teekay</I>), in the
Registration Statement (Form S-8 No. 333-119564) pertaining to the 2003 Equity Incentive
Plan and the Amended 1995 Stock Option Plan of Teekay, in the Registration Statement (Form
F-3 No. 333-102594) and related Prospectus of Teekay for the registration of up to
$500,000,000 of its common stock, preferred stock, warrants, stock purchase contracts,
stock purchase units or debt securities and in the Registration Statement (Form F-3 No.
33-97746) and related Prospectus of Teekay for the registration of 2,000,000 shares of
Teekay common stock under its Dividend Reinvestment Plan of our report dated May 2, 2006,
relating to the unaudited consolidated interim financial statements of Teekay and its
subsidiaries that is included in its interim report (Form 6-K) for the three months ended
March 31, 2006.</FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Pursuant to Rule 436(c) of the
Securities Act of 1933, our report is not a part of the registration statements prepared
or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of
1933.</FONT></P>


<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
<TD WIDTH=65%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vancouver, Canada,<BR>
May 2, 2006</font></TD>

<TD WIDTH=35%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Ernst &amp; Young LLP<BR>
Chartered Accountants</font></TD>
</TR>
</TABLE>


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