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Acquisition of FPSO Units and Investment in Sevan Marine ASA
 12 Months Ended
Dec. 31, 2011
Acquisition of FPSO Units and Investment in Sevan Marine ASA [Abstract]  
Acquisition of FPSO Units and Investment in Sevan Marine ASA
3.   Acquisition of FPSO Units and Investment in Sevan Marine ASA

On November 30, 2011, the Company acquired from Sevan Marine ASA (or Sevan) the FPSO unit Sevan Hummingbird (or Hummingbird) and its existing customer contract for approximately $184 million (including an adjustment for working capital) and made an investment of approximately $25 million to obtain a 40% ownership interest in a recapitalized Sevan. The Company also entered into a cooperation agreement with Sevan relating to joint marketing of offshore projects, the development of future projects, and the financing of such projects. Concurrently, the Company’s subsidiary, Teekay Offshore Partners L.P. (or Teekay Offshore), acquired from Sevan the FPSO unit Sevan Piranema (or Piranema) and its existing customer contract for approximately $164 million (including an adjustment for working capital). The purchase price for the acquisitions of the Hummingbird and the Piranema and the investment in Sevan Marine were paid in cash and financed by a combination of new debt facilities, a private placement offering of Teekay Offshore common units and existing liquidity.

On November 30, 2011, the Company also entered into an agreement to acquire the FPSO unit Sevan Voyageur (or Voyageur) and its existing customer contract from Sevan. The Company will acquire the Voyageur once the existing upgrade project is completed and the Voyageur commences operations under its customer contract, currently expected to be in the fourth quarter of 2012. The Company will pay Sevan $94.0 million to acquire the Voyageur, will assume the Voyageur’s existing $230.0 million credit facility, which had an outstanding balance of $220.0 million on November 30, 2011, and are responsible for all upgrade costs after November 30, 2011, which are estimated to be between $110 and $130 million. The Company has control over the upgrade project and has guaranteed the repayment of the existing credit facility. The Voyageur has been consolidated by the Company effective November 30, 2011, as the Voyageur has been determined to be a variable interest entity (or VIE) and the Company has been determined to be the primary beneficiary. The following table summarizes the balance sheet of the Voyageur as at December 31, 2011:

 

         

ASSETS

        

Cash and cash equivalents

     30,963  

Other current assets

     7,195  

Vessels and equipment

     322,092  

Deferred tax assets

     1,955  
   

 

 

  

Total assets

     362,205  
   

 

 

  

LIABILITIES AND EQUITY

        

Accounts payable

     11,860  

Accrued liabilities

     3,063  

Long-term debt (note 8)

     220,497  

Derivative liabilities

     4,969  

Other long-term liabilities

     1,523  
   

 

 

  

Total liabilities

     241,912  

Total equity

     120,293  
   

 

 

  

Total liabilities and total equity

     362,205  
   

 

 

  

The 2007-built Piranema FPSO is currently operating under a long-term charter to Petrobras S.A. on the Piranema field located in the Brazil offshore region. The charter includes a firm contract period through March 2018, with up to 11 one-year extension options that includes cost-escalation clauses.

The 2008-built Hummingbird FPSO is currently operating under a charter to Centrica Energy Upstream on the Chestnut field in the UK sector of the North Sea. The charter was recently extended to September 2012 and thereafter, includes one six-month extension option, one three-year extension option and two one-year extension options.

The 2009-built Voyageur FPSO operated successfully on the Shelley field in the UK sector of the North Sea from August 2009 to August 2010. The unit is currently undergoing an upgrade prior to commencement of its charter contract with E.ON Ruhrgas UK E&P on the Huntington field in the UK sector of the North Sea. The charter is expected to commence in the fourth quarter of 2012 for a firm period of five years, with extension options.

This transaction consolidates the industry in the harsh environment FPSO space, broadens the Company’s FPSO offering to include both ship shape and cylindrical FPSO solutions and was concluded at an attractive price. A total bargain purchase gain of $58.2 million related to the acquisition of the FPSO units and the 40% equity investment in Sevan has been recorded in the consolidated statements of income (loss) for the year ended December 31, 2011.

 

During 2011, Sevan encountered severe financial difficulties following significant cost overruns on the upgrade of the Voyageur and was unable to service its existing financial obligations. The acceptance of the Company’s offer and the recognition of the bargain purchase gain, was in part due to the Company’s ability to structure the transaction in a way that would satisfy all the various stakeholders, including Sevan’s management, lenders, customers and shareholders, within a short time frame, the Company’s financial strength and limited competition in the transaction. As a result, the Company was able to purchase the assets at a discount in this distressed acquisition situation.

The Company’s acquisition was accounted for using the purchase method of accounting, based upon estimates of fair value. The estimated fair values of certain assets and liabilities have been determined with the assistance of third-party valuation specialists. Certain of these estimates of fair value, most notably vessels and equipment, investment in Sevan Marine and in-process revenue contracts, are preliminary and are subject to further adjustment. The operating results of the Hummingbird, Piranema and Voyageur are reflected in the Company’s consolidated financial statements from November 30, 2011, the effective date of acquisition. During December 2011, the Company recognized $14.5 million of revenue and $60.3 million of net income, including the bargain purchase gain, resulting from these acquisitions. In addition, the Company incurred $1.1 million of acquisition-related expenses, which are reflected in general and administrative expenses.

The following table summarizes the preliminary fair values of the assets acquired and liabilities, including the Voyageur VIE, assumed by the Company at November 30, 2011:

 

         
    As at November 30,  
    2011  
    $  

ASSETS

        

Cash and cash equivalents

     50,230  

Other current assets

     29,209  

Vessels and equipment

     869,952  

Deferred income taxes

     3,307  

Investment in Sevan Marine

     49,200  

Other assets—long-term

     659  
   

 

 

  

Total assets acquired

     1,002,557  
   

 

 

  

LIABILITIES

        

Current liabilities

     41,376  

In-process revenue contracts

     158,968  

Long-term debt (note 8)

     220,497  

Other long-term liabilities

     6,036  

Non-controlling interest

     144,600  
   

 

 

  

Total liabilities assumed

     571,477  
   

 

 

  

Net assets acquired

     431,080  
   

 

 

  

Bargain purchase gain

     (58,235 ) 
   

 

 

  

Cash consideration

     372,845  
   

 

 

  

The Company is obligated to fund the upgrade of the Voyageur. In addition to the upgrade, the Company is also obligated to make remaining payments to acquire the Voyageur (see Note 16 c).

The following table shows comparative summarized consolidated pro forma financial information for the Company for the years ended December 31, 2011 and 2010, giving effect to the Company’s acquisition of the Sevan FPSO units as if it had taken place on January 1, 2010:

 

                 
    Pro Forma
Year Ended
December 31,
2011
(unaudited)
$		     Pro Forma
Year Ended
December 31,
2010
(unaudited)
$		  

Revenues

     2,109,929       2,284,336  

Net loss

     (382,432 )      (176,456 ) 

Loss per common share

                

—Basic

     (5.18 )      (3.79 ) 

—Diluted

     (5.18 )      (3.79 )