Republic of The Marshall Islands		4400		98-0454169
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

David Matheson Chris Hall Perkins Coie LLP 1120 N.W. Couch Street, 10th Floor Portland, Oregon 97209 (503) 727-2000		Joshua Davidson Laura Tyson Baker Botts L.L.P. 910 Louisiana Street Houston, TX 77002-4995 (713) 229-1234

Title of Each Class			Proposed Maximum			Amount of
of Securities to Be Registered			Aggregate Offering Price(1)(2)			Registration Fee(3)
Common Units			$128,845,770			$15,166

(1)	Includes common units issuable upon exercise of the underwriters’ over-allotment option.
(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended, based on $28.01, the average of the high and low per unit prices of the common units, no par value, of the Registrant on the New York Stock Exchange on October 28, 2005.
(3)	Computed in accordance with Rule 457(f) under the Securities Act of 1933, as amended, to be the product of 0.0001177 multiplied by the proposed maximum aggregate offering price.

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

•	We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves and payment of fees and expenses.
•	We must make substantial capital expenditures to maintain and expand the operating capacity of our fleet, which reduces our cash available for distribution.
•	Our substantial debt levels may limit our ability to obtain additional financing, pursue other business opportunities and pay distributions to you.
•	We derive a substantial majority of our revenues from a limited number of customers, and the loss of any customer, time charter or vessel could result in a significant loss of revenues and cash flow.
•	We depend on Teekay Shipping Corporation to assist us in operating our business, competing in our markets and providing interim financing for three new LNG carriers.
•	Our growth depends on continued growth in demand for LNG and LNG shipping.
•	Teekay Shipping Corporation and its affiliates may engage in competition with us.
•	Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment.
•	Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.
•	You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

		Per Common Unit				Total
Public Offering Price		$				$
Underwriting Discount		$				$
Proceeds to Teekay LNG Partners L.P. (before expenses)		$				$

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Summary					1
	Teekay LNG Partners L.P.				1
	Business Opportunities				4
	Business Strategies				4
	Competitive Strengths				5
	Summary of Risk Factors				5
	Holding Company and Organizational Structures				8
	Management of Teekay LNG Partners L.P.				9
	Principal Executive Offices and Internet Address; SEC Filing Requirements				9
	Summary of Conflicts of Interest and Fiduciary Duties				9
	The Offering				11
	Summary Historical and Pro Forma Financial and Operating Data				14
Risk Factors					20
	Risks Inherent in Our Business				20
		We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves and payment of fees and expenses.			20
		The assumptions underlying our financial estimates relating to the operation of the three Suezmax tankers we will acquire from Teekay Shipping Corporation that we include in the “Summary” section of this prospectus are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated.			21
		We make substantial capital expenditures to maintain the operating capacity of our fleet, which reduce our cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted.			21
		We will be required to make substantial capital expenditures to expand the size of our fleet. We generally will be required to make significant installment payments for acquisitions of new building vessels prior to their delivery and generation of revenue. Depending on whether we finance our expenditures through cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished or our financial leverage could increase or our unitholders could be diluted.			22
		Our substantial debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.			23
		We derive a substantial majority of our revenues from a limited number of customers, and the loss of any customer, time charter or vessel could result in a significant loss of revenues and cash flow.			24
		We depend on Teekay Shipping Corporation to assist us in operating our business, competing in our markets, and providing interim financing for certain vessel acquisitions.			25
		Our growth depends on continued growth in demand for LNG and LNG shipping.			26
		Growth of the LNG market may be limited by infrastructure constraints and community and environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism.			26
		Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we face substantial competition.			27
		Delays in deliveries of newbuildings could harm our operating results and lead to the termination of related time charters.			27

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	We may have more difficulty entering into long-term, fixed-rate time charters if an active short-term or spot LNG shipping market develops.			28
	Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur a loss.			28
	We may be unable to make or realize expected benefits from acquisitions, and implementing our growth strategy through acquisitions may harm our business, financial condition and operating results.			28
	Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.			29
	Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.			30
	Marine transportation is inherently risky, and an incident involving significant loss of or environmental contamination by any of our vessels could harm our reputation and business.			30
	Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.			31
	The marine energy transportation industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.			31
	Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.			32
	Many of our seafaring employees are covered by collective bargaining agreements and the failure to renew those agreements or any future labor agreements may disrupt our operations and adversely affect our cash flows.			32
	Due to our lack of diversification, adverse developments in our LNG or oil marine transportation business could reduce our ability to make distributions to our unitholders.			33
Risks Inherent in an Investment in Us				33
	Teekay Shipping Corporation and its affiliates may engage in competition with us.			33
	Our general partner and its other affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment.			34
	Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner.			35
	Fees and cost reimbursements, which our general partner determines for services provided to us and certain of our subsidiaries, are substantial and reduce our cash available for distribution to you.			35
	Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.			36
	The control of our general partner may be transferred to a third party without unitholder consent.			36
	You will experience immediate and substantial dilution of $13.19 per common unit.			36
	We may issue additional common units without your approval, which would dilute your ownership interests.			36
	In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.			37
	Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.			37
	Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.			38
	You may not have limited liability if a court finds that unitholder action constitutes control of our business.			38
	Our financing agreements will contain operating and financial restrictions which may restrict our business and financing activities.			38
	Restrictions in our debt agreements may prevent us from paying distributions.			39

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		We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.			39
		Unitholders may have liability to repay distributions.			40
		We have been organized as a limited partnership under the laws of the Republic of The Marshall Islands, which does not have a well-developed body of partnership law.			40
		Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.			40
	Tax Risks				40
		You may be required to pay U.S. taxes on your share of our income even if you do not receive any cash distributions from us.			41
		Because distributions may reduce your tax basis in our common units, you may realize greater gain on the disposition of your units than you may otherwise expect, and you may have a tax gain even if the price you receive is less than your original cost.			41
		The after-tax benefit of an investment in the common units may be reduced if we cease to be treated as a partnership for U.S. federal income tax purposes.			41
		U.S. tax-exempt entities and non-U.S. persons face unique U.S. tax issues from owning common units that may result in adverse U.S. tax consequences to them.			42
		The sale or exchange of 50% or more of our capital or profits interests in any 12-month period will result in the termination of our partnership for U.S. federal income tax purposes.			42
		You may be subject to income tax in one or more non-U.S. countries, including Canada, as a result of owning our common units if, under the laws of any such country, we are considered to be carrying on business there. Such laws may require you to file a tax return with and pay taxes to those countries. Any foreign taxes imposed on us or any of our subsidiaries will reduce our cash available for distribution to you.			42
Use of Proceeds					43
Capitalization					44
Dilution					45
Price Range of Common Units and Distributions					46
Cash Distribution Policy					47
	General				47
	Distributions of Available Cash				48
	Operating Surplus and Capital Surplus				48
	Subordination Period				51
	Distributions of Available Cash From Operating Surplus During the Subordination Period				52
	Distributions of Available Cash From Operating Surplus After the Subordination Period				53
	Incentive Distribution Rights				53
	Percentage Allocations of Available Cash From Operating Surplus				53
	Distributions From Capital Surplus				54
	Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels				54
	Distributions of Cash Upon Liquidation				55
Selected Historical and Pro Forma Financial and Operating Data					58
Management’s Discussion and Analysis of Financial Condition and Results of Operations					64
	Overview				64
	Results of Operations				72
	Liquidity and Capital Resources				80
	Contractual Obligations and Contingencies				87
	Critical Accounting Policies				87
	Quantitative and Qualitative Disclosures About Market Risk				89

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Industry				92
	Liquefied Natural Gas			92
	Crude Oil Shipping — Suezmax Tankers			104
Business				109
	Overview			109
	Business Opportunities			110
	Business Strategies			111
	Competitive Strengths			112
	Our Fleet			113
	Our Customers			116
	Time Charters — General Provisions			116
	LNG Time Charters			118
	Crude Oil Time Charters			120
	Classification, Inspection and Maintenance			120
	Safety, Management of Ship Operations and Administration			121
	Crewing and Staff			122
	Risk of Loss, Insurance and Risk Management			123
	Regulation			123
	Properties			127
	Legal Proceedings			127
	Taxation of the Partnership			127
Management				132
	Management of Teekay LNG Partners L.P.			132
	Directors, Executive Officers and Key Employees			133
	Officers of Teekay LNG Projects Ltd.			135
	Reimbursement of Expenses of Our General Partner			135
	Executive Compensation			136
	Compensation of Directors			136
	2005 Long-Term Incentive Plan			136
Security Ownership of Certain Beneficial Owners and Management				139
Certain Relationships and Related Party Transactions				140
	Distributions and Payments to the General Partner and Its Affiliates			140
	Omnibus Agreement			140
	Advisory and Administrative Services Agreements			143
	Agreement to Purchase Suezmax Tankers and Time Charters			144
	Joint Venture with an Entity Controlled by Mr. Fernando Tapias			145
	Granada Spirit Charter and Purchase Agreement			145
	Agreement to Purchase RasGas II Interest			146
	Agreement Relating to Toledo Spirit			147
	Sale of Suezmax Newbuilding			147
	Directors and Officers of Our General Partner and Key Employees			147
Conflicts of Interest and Fiduciary Duties				149
	Conflicts of Interest			149
	Fiduciary Duties			152

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Description of the Common Units				155
	The Units			155
	Transfer Agent and Registrar			155
	Transfer of Common Units			155
The Partnership Agreement				157
	Organization and Duration			157
	Purpose			157
	Power of Attorney			157
	Capital Contributions			157
	Voting Rights			158
	Limited Liability			159
	Issuance of Additional Securities			160
	Amendment of the Partnership Agreement			161
	Action Relating to the Operating Company			163
	Merger, Sale or Other Disposition of Assets			163
	Termination and Dissolution			163
	Liquidation and Distribution of Proceeds			164
	Withdrawal or Removal of the General Partner			164
	Transfer of General Partner Interest			165
	Transfer of Ownership Interests in General Partner			165
	Transfer of Incentive Distribution Rights			166
	Change of Management Provisions			166
	Limited Call Right			166
	Meetings; Voting			167
	Status as Limited Partner or Assignee			168
	Indemnification			168
	Books and Reports			168
	Right to Inspect Our Books and Records			169
	Registration Rights			169
Units Eligible for Future Sale				170
Material U.S. Federal Income Tax Consequences				171
	Classification as a Partnership			171
	Status as a Partner			172
	Consequences of Unit Ownership			173
	Tax Treatment of Operations			177
	Disposition of Common Units			178
	Foreign Tax Credit Considerations			180
	Tax-Exempt Organizations and Non-U.S. Investors			180
	Functional Currency			181
	Administrative Matters			182
	Possible Classification as a Corporation			184
Non-United States Tax Consequences				188
	Marshall Islands Tax Consequences			188
	Canadian Federal Income Tax Consequences			188

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Investment in Teekay LNG Partners L.P. by Employee Benefit Plans			190
Underwriting			191
Service of Process and Enforcement of Civil Liabilities			194
Legal Matters			194
Experts			194
Expenses Related to This Offering			195
Where You Can Find More Information			195
Industry and Market Data			196
Forward-Looking Statements			197
INDEX TO FINANCIAL STATEMENTS			F-1
APPENDIX A Glossary of Terms			A-1
APPENDIX B Non-GAAP Financial Measures			B-1

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19

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	We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves and payment of fees and expenses.

	•	the rates we obtain from our charters;
	•	the level of our operating costs, such as the cost of crews and insurance;
	•	the continued availability of LNG production, liquefaction and regasification facilities;
	•	the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, scheduled drydocking of our vessels;
	•	delays in the delivery of newbuildings and the beginning of payments under charters relating to those vessels;
	•	prevailing global and regional economic and political conditions;
	•	currency exchange rate fluctuations; and
	•	the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business.

	•	the level of capital expenditures we make, including for maintaining vessels, building new vessels, acquiring existing vessels and complying with regulations;
	•	our debt service requirements and restrictions on distributions contained in our debt instruments;
	•	fluctuations in our working capital needs;
	•	our ability to make working capital borrowings, including to pay distributions to unitholders; and
	•	the amount of any cash reserves, including reserves for future capital expenditures and other matters, established by our general partner in its discretion.

20

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The assumptions underlying our financial estimates relating to the operation of the three Suezmax tankers we will acquire from Teekay Shipping Corporation that we include in the “Summary” section of this prospectus are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated.

	We make substantial capital expenditures to maintain the operating capacity of our fleet, which reduce our cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted.

	•	the cost of labor and materials;
	•	customer requirements;
	•	increases in the size of our fleet;
	•	governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and
	•	competitive standards.

21

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We will be required to make substantial capital expenditures to expand the size of our fleet. We generally will be required to make significant installment payments for acquisitions of newbuilding vessels prior to their delivery and generation of revenue. Depending on whether we finance our expenditures through cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished or our financial leverage could increase or our unitholders could be diluted.

22

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	Our substantial debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

	•	our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;
	•	we will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders;
	•	our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and
	•	our debt level may limit our flexibility in responding to changing business and economic conditions.

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	We derive a substantial majority of our revenues from a limited number of customers, and the loss of any customer, time charter or vessel could result in a significant loss of revenues and cash flow.

	•	the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
	•	the customer exercises certain rights to terminate the charter, purchase or cause the sale of the vessel or, under some of our charters, convert the time charter to a bareboat charter (some of which rights are exercisable at any time);
	•	the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter; or
	•	under some of our time charters, the customer terminates the charter because of the termination of the charterer’s LNG sales agreement supplying the LNG designated for our services, or a prolonged force majeure event affecting the customer, including damage to or destruction of relevant LNG production or regasification facilities, war or political unrest preventing us from performing services for that customer.

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	We depend on Teekay Shipping Corporation to assist us in operating our business, competing in our markets, and providing interim financing for certain vessel acquisitions.

	•	renew existing charters upon their expiration;
	•	obtain new charters;
	•	successfully interact with shipyards during periods of shipyard construction constraints;
	•	obtain financing on commercially acceptable terms; or
	•	maintain satisfactory relationships with our employees and suppliers.

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	Our growth depends on continued growth in demand for LNG and LNG shipping.

	•	increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
	•	increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets;
	•	decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of natural gas less attractive;
	•	availability of new, alternative energy sources, including compressed natural gas; and
	•	negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its growth.

	Growth of the LNG market may be limited by infrastructure constraints and community and environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism.

	•	increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially reasonable terms;
	•	decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects;
	•	the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities;
	•	local community resistance to proposed or existing LNG facilities based on safety, environmental or security concerns;
	•	any significant explosion, spill or similar incident involving an LNG facility or LNG carrier;
	•	labor or political unrest affecting existing or proposed areas of LNG production; and
	•	capacity constraints at existing shipyards, which are expected to continue until at least the end of 2008.

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	Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we face substantial competition.

	•	shipping industry relationships and reputation for customer service and safety;
	•	LNG shipping experience and quality of ship operations (including cost effectiveness);
	•	quality and experience of seafaring crew;
	•	the ability to finance LNG carriers at competitive rates and financial stability generally;
	•	relationships with shipyards and the ability to get suitable berths;
	•	construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;
	•	willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
	•	competitiveness of the bid in terms of overall price.

	Delays in deliveries of newbuildings could harm our operating results and lead to the termination of related time charters.

	•	quality or engineering problems;
	•	changes in governmental regulations or maritime self-regulatory organization standards;

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	•	work stoppages or other labor disturbances at the shipyard;
	•	bankruptcy or other financial crisis of the shipbuilder;
	•	a backlog of orders at the shipyard;
	•	political or economic disturbances in South Korea or Spain, where the vessels are being built;
	•	weather interference or catastrophic event, such as a major earthquake or fire;
	•	our requests for changes to the original vessel specifications;
	•	shortages of or delays in the receipt of necessary construction materials, such as steel;
	•	our inability to finance the purchase of the vessels; or
	•	our inability to obtain requisite permits or approvals.

	We may have more difficulty entering into long-term, fixed-rate time charters if an active short-term or spot LNG shipping market develops.

	Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur a loss.

	•	prevailing economic conditions in natural gas, oil and energy markets;
	•	a substantial or extended decline in demand for natural gas, LNG or oil;
	•	increases in the supply of vessel capacity; and
	•	the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.

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	We may be unable to make or realize expected benefits from acquisitions, and implementing our growth strategy through acquisitions may harm our business, financial condition and operating results.

	•	fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;
	•	be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
	•	decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;
	•	significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
	•	incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or
	•	incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

	Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.

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	Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.

	Marine transportation is inherently risky, and an incident involving significant loss of or environmental contamination by any of our vessels could harm our reputation and business.

	•	marine disasters;
	•	bad weather;
	•	mechanical failures;
	•	grounding, fire, explosions and collisions;
	•	piracy;
	•	human error; and
	•	war and terrorism.

	•	death or injury to persons, loss of property or environmental damage;
	•	delays in the delivery of cargo;
	•	loss of revenues from or termination of charter contracts;
	•	governmental fines, penalties or restrictions on conducting business;
	•	higher insurance rates; and
	•	damage to our reputation and customer relationships generally.

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	Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.

	The marine energy transportation industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.

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	Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.

	Many of our seafaring employees are covered by collective bargaining agreements and the failure to renew those agreements or any future labor agreements may disrupt our operations and adversely affect our cash flows.

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	Due to our lack of diversification, adverse developments in our LNG or oil marine transportation business could reduce our ability to make distributions to our unitholders.

	Teekay Shipping Corporation and its affiliates may engage in competition with us.

	•	acquire LNG carriers and related time charters as part of a business if a majority of the value of the total assets or business acquired is not attributable to the LNG carriers and time charters, as determined in good faith by the board of directors of Teekay Shipping Corporation; however, if at any time Teekay Shipping Corporation completes such an acquisition, it must offer to sell the LNG carriers and related time charters to us for their fair market value plus any additional tax or other similar costs to Teekay Shipping Corporation that would be required to transfer the LNG carriers and time charters to us separately from the acquired business; or
	•	own, operate and charter LNG carriers that relate to a bid or award for a proposed LNG project that Teekay Shipping Corporation or any of its subsidiaries has submitted or hereafter submits or receives; however, at least 180 days prior to the scheduled delivery date of any such LNG carrier, Teekay Shipping Corporation must offer to sell the LNG carrier and related time charter to us, with the vessel valued at its “fully-built-up cost,” which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Shipping Corporation to acquire or construct and bring such LNG carrier to the condition and location necessary for our intended use.

	•	acquire, operate or charter LNG carriers if our general partner has previously advised Teekay Shipping Corporation that the board of directors of our general partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate the carriers;
	•	own and operate the three RasGas II LNG newbuilding carriers and related time charters if we fail to perform our obligation to purchase such vessels under our agreement with Teekay Shipping Corporation (please read “Certain Relationships and Related Party Transactions — Agreement to Purchase RasGas II Interest”);

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	•	acquire up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates LNG carriers; and
	•	provide ship management services relating to LNG carriers.

	Our general partner and its other affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment.

	•	neither our partnership agreement nor any other agreement requires our general partner or Teekay Shipping Corporation to pursue a business strategy that favors us or utilizes our assets, and Teekay Shipping Corporation’s officers and directors have a fiduciary duty to make decisions in the best interests of the stockholders of Teekay Shipping Corporation, which may be contrary to our interests;
	•	the executive officers and three of the directors of our general partner also serve as executive officers or directors of Teekay Shipping Corporation and another director of our general partner is employed by an affiliate of Teekay Shipping Corporation;
	•	our general partner is allowed to take into account the interests of parties other than us, such as Teekay Shipping Corporation, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
	•	our general partner has limited its liability and reduced its fiduciary duties under the laws of the Marshall Islands, while also restricting the remedies available to our unitholders, and as a result of purchasing common units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner, all as set forth in the partnership agreement;
	•	our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders;
	•	in some instances, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units or to make incentive distributions or to accelerate the expiration of the subordination period;
	•	our general partner determines which costs incurred by it and its affiliates are reimbursable by us;
	•	our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf;
	•	our general partner controls the enforcement of obligations owed to us by it and its affiliates; and
	•	our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

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	Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner.

	•	permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such cases it has no duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or any limited partner;
	•	provides that our general partner is entitled to make other decisions in “good faith” if it reasonably believes that the decision is in our best interests;
	•	generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and
	•	provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud, willful misconduct or gross negligence.

	Fees and cost reimbursements, which our general partner determines for services provided to us and certain of our subsidiaries, are substantial and reduce our cash available for distribution to you.

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	Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.

	The control of our general partner may be transferred to a third party without unitholder consent.

	You will experience immediate and substantial dilution of $13.19 per common unit.

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	We may issue additional common units without your approval, which would dilute your ownership interests.

	•	our unitholders’ proportionate ownership interest in us will decrease;
	•	the amount of cash available for distribution on each unit may decrease;
	•	because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
	•	the relative voting strength of each previously outstanding unit may be diminished;
	•	the market price of the common units may decline; and
	•	the ratio of taxable income to distributions may increase.

	In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.

	Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

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	•	our general partner determines to pay a portion of the purchase price for the Suezmax tankers and related assets we will acquire from Teekay Shipping Corporation upon the closing of this offering with our common units, as described in “Use of Proceeds”; or
	•	in connection with the sale to us of its 70% interest in Teekay Nakilat, which owns the three RasGas II LNG newbuilding carriers, Teekay Shipping Corporation elects to receive common units in satisfaction of the estimated $92.8 million cash portion of the purchase price for that ownership interest.

	Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

	You may not have limited liability if a court finds that unitholder action constitutes control of our business.

	Our financing agreements will contain operating and financial restrictions which may restrict our business and financing activities.

	•	incur or guarantee indebtedness;
	•	change ownership or structure, including mergers, consolidations, liquidations and dissolutions;
	•	make dividends or distributions;
	•	make capital expenditures in excess of specified levels;

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	•	make certain negative pledges and grant certain liens;
	•	sell, transfer, assign or convey assets;
	•	make certain loans and investments; and
	•	enter into a new line of business.

	Restrictions in our debt agreements may prevent us from paying distributions.

	•	failure to pay any principal, interest, fees, expenses or other amounts when due;
	•	default under any vessel mortgage;
	•	failure to notify the lenders of any material oil spill or discharge of hazardous material, or of any action or claim related thereto;
	•	breach or lapse of any insurance with respect to the vessels;
	•	breach of certain financial covenants;
	•	failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;
	•	default under other indebtedness of our operating company, our general partner or any of our subsidiaries;
	•	bankruptcy or insolvency events involving us, our general partner or any of our subsidiaries;
	•	failure of any representation or warranty to be materially correct;
	•	a change of control, as defined in the applicable agreement; and
	•	a material adverse effect, as defined in the applicable agreement, occurs relating to us or our business.

	We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.

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	Unitholders may have liability to repay distributions.

	We have been organized as a limited partnership under the laws of the Republic of The Marshall Islands, which does not have a well-developed body of partnership law.

	Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

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	You may be required to pay U.S. taxes on your share of our income even if you do not receive any cash distributions from us.

	Because distributions may reduce your tax basis in our common units, you may realize greater gain on the disposition of your units than you may otherwise expect, and you may have a tax gain even if the price you receive is less than your original cost.

	The after-tax benefit of an investment in the common units may be reduced if we cease to be treated as a partnership for U.S. federal income tax purposes.

	•	The ratio of taxable income to distributions with respect to your units would increase because items would not be allocated to you to account for any differences between the fair market value and the basis of our assets at the time of the offering. Please read “Material U.S. Federal Income Tax Consequences — Consequences of Unit Ownership — Allocation of Income Gain, Loss and Deduction.”
	•	You may recognize income or gain on any change in our status from a partnership to a corporation that occurs while you hold units. Please read “Material U.S. Federal Income Tax Consequences — Possible Classification as a Corporation.”
	•	We would not be permitted to adjust the tax basis of a secondary market purchaser in our assets under Section 743(b) of the U.S. Internal Revenue Code of 1986, as described below under “Material U.S. Federal Income Tax Consequences — Consequences of Unit Ownership — Section 754 Election.” As a result, a person who purchases common units from you in the market may realize materially more taxable income each year with respect to the units if we are treated as a corporation than if we are treated as a partnership for U.S. federal income tax purposes. This could reduce the value of your common units.
	•	You would not be entitled to claim any credit against your U.S. federal income tax liability for non-U.S. income tax liabilities incurred by us if we are treated as a corporation for U.S. federal

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		income tax purposes. Please read “Material U.S. Federal Income Tax Consequences — Possible Classification as a Corporation.”
	•	If we fail to qualify for an exemption from U.S. tax on the U.S. source portion of our income attributable to transportation that begins or ends (but not both) in the United States, we will be subject to U.S. tax on such income on a gross basis (that is, without any allowance for deductions) at a rate of 4%. The imposition of this tax would have a negative effect on our business and would result in decreased cash available for distribution to you. Please read “Material U.S. Federal Income Tax Consequences — Possible Classification as a Corporation — Taxation of Operating Income.”
	•	We also may be considered a passive foreign investment company (or PFIC) for U.S. federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences — Possible Classification as a Corporation — Consequences of Possible PFIC Classification.”

	U.S. tax-exempt entities and non-U.S. persons face unique U.S. tax issues from owning common units that may result in adverse U.S. tax consequences to them.

	The sale or exchange of 50% or more of our capital or profits interests in any 12-month period will result in the termination of our partnership for U.S. federal income tax purposes.

You may be subject to income tax in one or more non-U.S. countries, including Canada, as a result of owning our common units if, under the laws of any such country, we are considered to be carrying on business there. Such laws may require you to file a tax return with, and pay taxes to, those countries. Any foreign taxes imposed on us or any of our subsidiaries will reduce our cash available for distribution to you.

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	•	our historical capitalization as of June 30, 2005; and
	•	our as adjusted capitalization as of June 30, 2005, adjusted to reflect the offering of the common units at an assumed offering price of $29.91 per unit (the closing price of our common units on October 31, 2005), and the application of the estimated net proceeds we will receive in this offering in the manner described under “Use of Proceeds” on the preceding page.

				As of June 30, 2005
				Actual				As Adjusted
				(in thousands)
Cash and cash equivalents				$	55,875			$	20,437
Restricted cash(1)					387,040				387,040
	Total cash and restricted cash			$	442,915			$	407,477
Long-term debt, including current portion:
	Long-term debt				403,635				431,635
	Long-term obligation under capital leases(1)				561,919				561,919
		Total long-term debt			965,554				993,554
Equity:
	Partners’ equity				682,852				799,414
		Total capitalization		$	1,648,406			$	1,792,968

(1)

Under certain capital lease arrangements, we maintain restricted cash deposits that, together with interest earned on the deposits, will equal the remaining amounts we owe under the capital leases. The interest we receive from those deposits is used solely to pay interest associated with the capital leases, and the amount of interest we receive approximates the amount of interest we pay on the capital leases.

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Assumed offering price per common unit							$	29.91
	Pro forma net tangible book value per common unit before this offering(1)		$	15.16
	Increase in net tangible book value per common unit attributable to purchasers in this offering			1.56
Less: Pro forma net tangible book value per common unit after this offering(2)								16.72
Immediate dilution in net tangible book value per common unit to purchasers in this offering							$	13.19

(1)	Determined by dividing the total number of our units (15,638,072 common units, 14,734,572 subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to 619,850 units) outstanding as of June 30, 2005 into our net tangible book value before this offering. The dilutive effect of the general partner’s interest was determined by multiplying the total number of units outstanding as of June 30, 2005 (i.e., the total number of common and subordinated units outstanding divided by 98%) by the general partner’s 2% general partner interest.
(2)	Determined by dividing the total number of our units (19,638,072 common units, 14,734,572 subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to 701,483 units) to be outstanding after this offering into our pro forma net tangible book value, after giving effect to the application of the estimated net proceeds of this offering.

			Units Owned								Total Consideration
			Number				Percent				Amount				Percent
General partner and its affiliates(1)(2)				24,170,627				68.9	%		$	530,968,633				66.2	%
Prior investors				6,903,500				19.7				151,800,000				18.9
New investors				4,000,000				11.4				119,640,000				14.9
	Total			35,074,127				100.0	%		$	802,408,633				100.0	%

(1)	Upon the consummation of this offering, our general partner and its affiliates will own an aggregate of 8,734,572 common units and 14,734,572 subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to 701,483 units.
(2)	The assets contributed by our general partner and its affiliates in connection with our formation and initial public offering were recorded at book value in accordance with accounting principles generally accepted in the United States. Book value of the consideration provided by our general partner and its affiliates, as of May 9, 2005, was $528.5 million. Our general partner will contribute an additional $2.4 million in connection with this offering.

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		Price Range								Cash
										Distributions
		High				Low				per Unit(1)
2005
Quarter Ended December 31 (through October 31)		$	32.25			$	27.50
Quarter Ended September 30			34.70				28.12			$	0.4125	(2)
Quarter Ended June 30(3)			28.45				24.30				0.2357	(4)
2005
Month Ended October 31		$	32.25			$	27.50
Month Ended September 30			32.70				30.00
Month Ended August 31			34.70				29.50
Month Ended July 31			32.92				28.12
Month Ended June 30			28.45				25.37
Month Ended May 31(3)			26.37				24.30

(1)	Represents cash distributions attributable to the quarter and paid within 45 days after the quarter.
(2)	The distributions attributable to this quarter have been declared but not paid.
(3)	Period beginning May 5, 2005.
(4)	The distribution reflects the 52-day period from May 10, 2005 to June 30, 2005.

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	•	Our distribution policy is subject to restrictions on distributions under our credit agreement. Specifically, our credit agreement contains material financial tests and covenants that we must satisfy. These financial tests and covenants are described in this prospectus under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Covenants and Other Restrictions in Our Financing Agreements.” Should we be unable to satisfy these restrictions under our credit agreement, we would be prohibited from making cash distributions to you notwithstanding our stated cash distribution policy.
	•	The board of directors of our general partner will have the authority to establish reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of those reserves could result in a reduction in cash distributions to you from levels we currently anticipate pursuant to our stated distribution policy.
	•	Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement.
	•	Under Section 51 of the Marshall Islands Limited Partnership Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets.
	•	We may lack sufficient cash to pay distributions to our unitholders due to increases in our general and administrative expense, principal and interest payments on our outstanding debt, tax expenses, working capital requirements and anticipated cash needs.
	•	While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including provisions requiring us to make cash distributions contained therein, may be amended. Although during the subordination period, with certain exceptions, our partnership agreement may not be amended without the approval of the public common unitholders, our partnership agreement can be amended with the approval of a majority of the outstanding common units, voting as a class (including common units held by affiliates of our general partner) after the subordination period has ended.

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	General

	Definition of Available Cash

	•	less the amount of cash reserves established by our general partner to:

	•	provide for the proper conduct of our business (including reserves for future capital expenditures and for our anticipated credit needs);
	•	comply with applicable law, any of our debt instruments, or other agreements; or
	•	provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;

	•	plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are made under our credit agreement and in all cases are used solely for working capital purposes or to pay distributions to partners.

	Minimum Quarterly Distribution

	General

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	Definition of Operating Surplus

	•	our cash balance on the closing date of our initial public offering, other than cash reserved to terminate interest rate swap agreements; plus
	•	$10 million (as described below); plus
	•	all of our cash receipts after the closing of our initial public offering, excluding cash from (1) borrowings, other than working capital borrowings, (2) sales of equity and debt securities, (3) sales or other dispositions of assets outside the ordinary course of business, (4) termination of interest rate swap agreements, (5) capital contributions or (6) corporate reorganizations or restructurings; plus
	•	working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter; plus
	•	interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case, to finance all or any portion of the construction, replacement or improvement of a capital asset such as vessels during the period from such financing until the earlier to occur of the date the capital asset is put into service or the date that it is abandoned or disposed of; plus
	•	interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case, to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance the construction projects described in the immediately preceding bullet; less
	•	all of our cash operating expenditures after the closing of our initial public offering and the repayment of working capital borrowings, but not (1) the repayment of other borrowings, (2) actual maintenance capital expenditures or expansion capital expenditures, (3) transaction expenses (including taxes) related to interim capital transactions or (4) distributions; less
	•	estimated maintenance capital expenditures and the amount of cash reserves established by our general partner to provide funds for future operating expenditures.

	Capital Expenditures

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	•	it reduces the risk that actual maintenance capital expenditures in any one quarter will be large enough to make operating surplus less than the minimum quarterly distribution to be paid on all the units for that quarter and subsequent quarters;
	•	it reduces the need for us to borrow under our working capital facility to pay distributions;
	•	it is more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions to our general partner; and
	•	it reduces the likelihood that a large maintenance capital expenditure in a period will prevent the general partner’s affiliates from being able to convert some or all of their subordinated units into common units since the effect of an estimate is to spread the expected expense over several periods, mitigating the effect of the actual payment of the expenditure on any single period.

	Definition of Capital Surplus

	•	borrowings other than working capital borrowings;
	•	sales of debt and equity securities; and
	•	sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or non-current assets sold as part of normal retirements or replacements of assets.

	Characterization of Cash Distributions

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	General

	Definition of Subordination Period

	•	distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
	•	the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted basis and the related distribution on the 2% general partner interest during those periods; and
	•	there are no arrearages in payment of the minimum quarterly distribution on the common units.

	Early Conversion of Subordinated Units

	•	March 31, 2008 with respect to 25% of the subordinated units outstanding immediately after our initial public offering; and
	•	March 31, 2009 with respect to a further 25% of the subordinated units outstanding immediately after our initial public offering.

	•	distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
	•	the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted basis and the related distribution on the 2% general partner interest during those periods; and
	•	there are no arrearages in payment of the minimum quarterly distribution on the common units.

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	Definition of Adjusted Operating Surplus

	•	operating surplus generated with respect to that period; less
	•	any net increase in working capital borrowings with respect to that period; less
	•	any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus
	•	any net decrease in working capital borrowings with respect to that period; plus
	•	any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.

	Effect of Expiration of the Subordination Period

	•	the subordination period will end and each subordinated unit will immediately convert into one common unit;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	our general partner will have the right to convert its general partner interest and, if any, its incentive distribution rights into common units or to receive cash in exchange for those interests.

	•	first, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
	•	second, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
	•	third, 98% to the subordinated unitholders, pro rata, and 2% to our general partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and
	•	thereafter, in the manner described in “— Incentive Distribution Rights” below.

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	•	first, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
	•	thereafter, in the manner described in “— Incentive Distribution Rights” below.

	•	we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and
	•	we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

	•	first, 98% to all unitholders, pro rata, and 2% to our general partner, until each unitholder receives a total of $0.4625 per unit for that quarter (the “first target distribution”);
	•	second, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives a total of $0.5375 per unit for that quarter (the “second target distribution”);
	•	third, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives a total of $0.6500 per unit for that quarter (the “third target distribution”); and
	•	thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

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				Marginal Percentage Interest
				in Distributions
		Total Quarterly
		Distribution Target Amount		Unitholders				General Partner
Minimum Quarterly Distribution		$0.4125			98	%			2	%
First Target Distribution		up to $0.4625			98				2
Second Target Distribution		above $0.4625 up to $0.5375			85				15
Third Target Distribution		above $0.5375 up to $0.6500			75				25
Thereafter		above $0.6500			50				50

	How Distributions From Capital Surplus Will Be Made

	•	first, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit that was issued in this offering, an amount of available cash from capital surplus equal to the initial public offering price;
	•	second, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and
	•	thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus.

	Effect of a Distribution From Capital Surplus

	•	the minimum quarterly distribution;
	•	the target distribution levels;

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	•	the unrecovered initial unit price; and
	•	the number of common units issuable during the subordination period without a unitholder vote.

	General

	Manner of Adjustments for Gain

	•	first, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances;
	•	second, 98% to the common unitholders, pro rata, and 2% to our general partner, until the capital account for each common unit is equal to the sum of:

	(1) the unrecovered initial unit price;
	(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and
	(3) any unpaid arrearages in payment of the minimum quarterly distribution;

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	•	third, 98% to the subordinated unitholders, pro rata, and 2% to our general partner until the capital account for each subordinated unit is equal to the sum of:

	(1) the unrecovered initial unit price; and
	(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

	•	fourth, 98% to all unitholders, pro rata, and 2% to our general partner, until we allocate under this paragraph an amount per unit equal to:

	(1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less
	(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98% to the unitholders, pro rata, and 2% to our general partner, for each quarter of our existence;

	•	fifth, 85% to all unitholders, pro rata, and 15% to our general partner, until we allocate under this paragraph an amount per unit equal to:

	(1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less
	(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85% to the unitholders, pro rata, and 15% to our general partner for each quarter of our existence;

	•	sixth, 75% to all unitholders, pro rata, and 25% to our general partner, until we allocate under this paragraph an amount per unit equal to:

	(1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less
	(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75% to the unitholders, pro rata, and 25% to our general partner for each quarter of our existence; and

	•	thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

	Manner of Adjustments for Losses

	•	first, 98% to holders of subordinated units in proportion to the positive balances in their capital accounts and 2% to our general partner, until the capital accounts of the subordinated unitholders have been reduced to zero;
	•	second, 98% to the holders of common units in proportion to the positive balances in their capital accounts and 2% to our general partner, until the capital accounts of the common unitholders have been reduced to zero; and
	•	thereafter, 100% to our general partner.

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	Adjustments to Capital Accounts

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	•	historical financial and operating data of Teekay Shipping Spain S.L. (or Teekay Spain), which was named Naviera F. Tapias S.A. (or Tapias) prior to its acquisition by Teekay Shipping Corporation through its subsidiary, Teekay Luxembourg S.a.r.l. (or Luxco), on April 30, 2004;
	•	historical financial and operating data of Teekay LNG Partners L.P. since its initial public offering on May 10, 2005, in connection with which it acquired Luxco from Teekay Shipping Corporation; and
	•	pro forma financial and operating data of Teekay LNG Partners L.P.

	•	the historical financial and operating data of Teekay Spain excludes financial information related to three businesses previously held in separate subsidiaries and unrelated to the marine transportation of LNG and crude oil, which were disposed of prior to Teekay Shipping Corporation’s acquisition of Teekay Spain;
	•	the historical financial and operating data of Teekay Spain as at and for the years ended December 31, 2002 and 2003 and the four months ended April 30, 2004 are derived from the audited consolidated financial statements of Teekay Spain included elsewhere in this prospectus;
	•	the historical financial and operating data of Teekay Spain as at and for the years ended December 31, 2000 and 2001 are derived from the unaudited consolidated financial statements of Teekay Spain, which are not included in this prospectus;
	•	the historical financial and operating data of Teekay Spain as at December 31, 2004 and for the eight months ended December 31, 2004 reflect the acquisition of Teekay Spain by Teekay Shipping Corporation and are derived from the audited consolidated financial statements of Teekay Spain included elsewhere in this prospectus;
	•	the historical financial and operating data of Teekay Spain, for the four months ended April 30, 2004, the two months ended June 30, 2004 and the period from January 1, 2005 to May 9, 2005 reflect the acquisition of Teekay Spain by Teekay Shipping Corporation and are derived from the unaudited consolidated interim financial statements of Teekay LNG Partners L.P. included elsewhere in this prospectus; and
	•	the historical financial and operating data of Teekay LNG Partners L.P. as at June 30, 2005 and for the period from May 10, 2005 to June 30, 2005 reflect its initial public offering and related acquisition of Luxco and are derived from the unaudited consolidated interim financial statements of Teekay LNG Partners L.P. included elsewhere in this prospectus.

	•	The acquisition of Teekay Spain;
	•	the contribution by Teekay Shipping Corporation to us of the capital stock and notes receivable of Luxco;
	•	Teekay Shipping Corporation’s loans and contributions to us, prior to our initial public offering, which we used, together with existing cash, to repay indebtedness and settle interest rate swaps; and
	•	the completion of our initial public offering and the use of the net proceeds of that offering.

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	•	advances (including accrued interest) of $465.7 million and $312.3 million as of December 31, 2004 and June 30, 2004, respectively, from Teekay Shipping Corporation that Luxco used to purchase Teekay Spain and to prepay certain debt of Teekay Spain;
	•	net interest expense related to the advances of $9.8 million, $2.4 million and $7.3 million for the nine months ended December 31, 2004, the two months ended June 30, 2004 and for the 2005 Pre-IPO Period, respectively;
	•	unrealized foreign exchange losses of $44.7 million and $3.8 million for the nine months ended December 31, 2004 and the two months ended June 30, 2004, respectively, related to the advances, which are Euro- denominated, and a $23.8 million unrealized foreign exchange gain related to the advances for the 2005 Pre-IPO Period;
	•	other expenses of $1.1 million, $0.1 million and $0.1 million for those respective periods;
	•	cash and cash equivalents of $2.2 million and $10.0 million as of December 31, 2004 and June 30, 2004, respectively; and
	•	its ownership interest in Teekay Spain and certain purchase rights and obligations for Suezmax tankers operated by Teekay Spain under capital lease arrangements, which it acquired from Teekay Spain on December 30, 2004.

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			Historical
																			Four				Eight
																			Months				Months
			Years Ended December 31,																Ended				Ended
																			April 30,				December 31,
			2000				2001				2002				2003				2004				2004
			(unaudited)								(audited)								(audited)
			(in thousands, except per unit and fleet data)
Income Statement Data:
Voyage revenues			$	52,217			$	60,326			$	59,866			$	86,709			$	40,718			$	83,115
Operating expenses:
	Voyage expenses(1)			4,304				5,092				5,334				4,911				1,842				3,090
	Vessel operating expenses(2)			10,883				12,403				16,104				26,440				10,302				20,315
	Depreciation and amortization			14,803				16,094				17,689				23,390				8,585				26,275
	General and administrative			3,967				5,061				6,501				8,799				2,103				4,300
Total operating expenses				33,957				38,650				45,628				63,540				22,832				53,980
Income from vessel operations				18,260				21,676				14,238				23,169				17,886				29,135
Interest expense				(15,625	)			(20,104	)			(18,109	)			(34,862	)			(21,475	)			(40,560	)
Interest income				1,278				3,752				5,248				8,431				8,692				13,426
Foreign currency exchange gain (loss)(3)				(179	)			3,462				(44,310	)			(71,502	)			18,010				(34,149	)
Interest rate swaps gain (loss)(4)				—				(7,618	)			(71,400	)			14,715				3,985				—
Other income (loss)(5)				3,615				5,327				563				617				(10,934	)			3,361
Net income (loss) before change in accounting principle				7,349				6,495				(113,770	)			(59,432	)			16,164				(28,787	)
Change in accounting principle(6)				—				(4,366	)			—				—				—				—
Net income (loss)			$	7,349			$	2,129			$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)
Pro forma net loss per unit (basic and diluted)(7)
Balance Sheet Data (at end of period):
Cash and marketable securities			$	24,185			$	24,625			$	20,141			$	22,533			$	11,289			$	154,203
Restricted cash deposits(8)				29,243				70,051				106,399				398,038				385,564				435,112
Vessels and equipment(9)				277,076				368,951				705,010				602,550				602,055				813,431
Total assets(8)				357,247				491,058				882,604				1,069,081				1,021,695				1,651,522
Total debt and capital lease obligations(8)(10)				317,710				444,865				882,027				1,129,426				1,072,379				1,200,499
Total stockholders’/partners’ equity (deficit)				34,673				29,849				(106,105	)			(164,809	)			(144,186	)			184,650
Cash Flow Data:
Net cash provided by (used in):
	Operating activities		$	19,695			$	24,770			$	20,418			$	18,318			$	14,808			$	7,381
	Financing activities			11,623				31,852				176,316				(277,616	)			(25,846	)			95,645
	Investing activities			(23,304	)			(55,695	)			(199,218	)			262,766				901				39,986
Other Financial Data:
Net voyage revenues			$	47,913			$	55,234			$	54,532			$	81,798			$	38,876			$	80,025
EBITDA(11)				36,556				33,912				(81,056	)			(6,578	)			36,887				24,571
Capital expenditures:
	Expenditures for vessels and equipment			173,186				110,097				186,755				133,628				5,522				83,703
	Expenditures for drydocking			784				—				984				4,711				—				4,085
LNG Fleet Data:
Calendar-ship-days(12)				—				—				93				518				242				660
Average age of our fleet (in years at end of period)				—				—				0.3				0.8				1.2				1.1
Vessels at end of period				—				—				1.0				2.0				2.0				4.0
Suezmax Fleet Data:
Calendar-ship-days(12)				1,737				2,085				2,190				2,190				726				1,134
Average age of our fleet (in years at end of period)				4.0				4.3				5.3				6.3				6.6				3.2
Vessels at end of period				7.0				6.0				6.0				6.0				6.0				4.0

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			Historical																Pro Forma
			Six Months Ended June 30,
			2004								2005
																							Six
			January 1,				May 1,				January 1,				May 10,								Months
			to				to				to				to				Year Ended				Ended
			April 30,				June 30,				May 9,				June 30,				December 31,				June 30,
			2004				2004				2005				2005				2004				2005
			(audited)				(unaudited)												(unaudited)
			(in thousands, except per unit and fleet data)
Income Statement Data:
Voyage revenues			$	40,718			$	17,453			$	50,129			$	20,364			$	123,833			$	70,493
Operating expenses:
	Voyage expenses(1)			1,842				1,462				251				73				4,932				324
	Vessel operating expenses(2)			10,302				4,584				10,771				3,932				30,617				14,703
	Depreciation and amortization			8,585				6,426				14,751				5,852				37,808				20,603
	General and administrative			2,103				808				2,916				1,274				8,813				5,027
Total operating expenses				22,832				13,280				28,689				11,131				82,170				40,657
Income from vessel operations				17,886				4,173				21,440				9,233				41,663				29,836
Interest expense				(21,475	)			(8,632	)			(28,356	)			(8,196	)			(31,060	)			(26,778	)
Interest income				8,692				3,473				9,098				3,003				22,211				12,101
Foreign currency exchange gain (loss)(3)				18,010				(6,189	)			23,835				22,993				(16,139	)			46,828
Interest rate swaps gain (loss)(4)				3,985				—				—				—				(905	)			—
Other income (loss)(5)				(10,934	)			604				(17,927	)			1,670				(17,269	)			(1,864	)
Net income (loss) before change in accounting principle				16,164				(6,571	)			8,090				28,703				(1,499	)			60,123
Change in accounting principle(6)				—				—				—				—				—				—
Net income (loss)			$	16,164			$	(6,571	)		$	8,090			$	28,703			$	(1,499	)		$	60,123
Pro forma net income (loss) per unit (basic and diluted)(7)																			$	(0.05	)		$	1.58
Balance Sheet Data (at end of period):
Cash and marketable securities			$	11,289			$	15,362							$	55,875
Restricted cash deposits(8)				385,564				393,403								387,040
Vessels and equipment(9)				602,055				823,400								1,152,747
Total assets(8)				1,021,695				1,476,184								1,826,128
Total debt and capital lease obligations(8)(10)				1,072,379				1,089,247								965,554
Total stockholders’/partners’ equity (deficit)				(144,186	)			284,622								682,852
Cash Flow Data:
Net cash provided by (used in):
	Operating activities		$	14,808			$	3,596			$	11,867			$	13,158
	Financing activities			(25,846	)			1,647				(159,845	)			(400	)
	Investing activities			901				(4,965	)			19,066				15,619
Other Financial Data:
Net voyage revenues			$	38,876			$	15,991			$	49,879			$	20,291			$	118,901			$	70,169
EBITDA(11)				36,887				4,441				44,747				38,076				46,141				97,268
Capital expenditures:
	Expenditures for vessels and equipment			5,522				4,965				43,962				4,959				89,225				48,921
	Expenditures for drydocking			—				—				—				—				4,085				—
LNG Fleet Data:
Calendar-ship-days(12)				242				122				516				208				902				724
Average age of our fleet (in years at end of period)				1.2				1.3				1.4				1.6				1.1				1.6
Vessels at end of period				2.0				2.0				4.0				4.0				4.0				4.0
Suezmax Fleet Data:
Calendar-ship-days(12)				726				366				516				229				1,860				1,860
Average age of our fleet (in years at end of period)				6.6				6.8				3.6				3.7				3.2				3.7
Vessels at end of period				6.0				6.0				4.0				4.0				5.0				4.0

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	(1)	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.
	(2)	Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses.
	(3)	Substantially all of these foreign currency exchange gains and losses were unrealized and not settled in cash. Under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. Our primary source for the foreign currency gains and losses is our Euro-denominated term loans, which totaled 294.8 million Euros ($372.4 million) as at December 31, 2003, 325.8 million Euros ($443.7 million) at December 31, 2004 and 321.7 million Euros ($389.2 million) at June 30, 2005.
	(4)	We have entered into interest rate swaps to hedge our interest rate risk from our floating-rate debt used to purchase our LNG carriers. These interest rate swaps were not designated as hedges under U.S. accounting guidelines until April 30, 2004. Consequently, the changes in the fair values of these swaps that occurred during periods prior to April 30, 2004 have been recorded in earnings as “interest rate swaps gain (loss)” for those periods. Had these interest rate swaps been designated as hedges prior to 2003, any subsequent changes in fair value would have been recognized in “accumulated other comprehensive income (loss)” to the extent the hedge was effective and until the hedged item was recognized as income.
	(5)	The $10.9 million other loss in the four months ended April 30, 2004 primarily resulted from a $11.9 million loss on the sale of non-shipping assets by Teekay Spain prior to its April 30, 2004 acquisition by Teekay Shipping Corporation. The $17.9 million other loss in the period from January 1, 2005 to May 9, 2005 primarily resulted from the write-off of capitalized loan costs and the loss on cancellation of interest rate swaps. The $17.3 million other loss in the pro forma year ended December 31, 2004 primarily resulted from the $11.9 million loss on sale of non-shipping assets and from a write-down of capitalized loan costs on a pro forma basis.
	(6)	In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (or SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” which establishes new standards for recording derivatives in interim and annual financial statements. We adopted SFAS 133 on January 1, 2001. We recognized the fair value of our derivatives as liabilities of $4.4 million on our consolidated balance sheet as of January 1, 2001. This amount was recorded as a change in accounting principle in our consolidated statement of income for the year ended December 31, 2001.
	(7)	Please read Note 5 of our unaudited pro forma consolidated financial statements included in this prospectus for a calculation of our pro forma net income (loss) per unit.
	(8)	We operate two of our LNG carriers under “Spanish tax lease” arrangements. Under these arrangements, we borrow under term loans and deposit the proceeds into restricted cash accounts. Concurrently, we enter into capital leases for the vessels, which are recorded as assets on our balance sheet. The restricted cash deposits, plus the interest earned on the deposits, will equal the remaining amounts we owe under the capital lease arrangements, including our obligations to purchase the vessels at the end of the lease term. Therefore, the payments under our capital leases are fully funded through our restricted cash deposits, and our continuing obligation is the repayment of the term loans. However, under GAAP we record both the obligations under the capital leases and the term loans as liabilities, and both the restricted cash deposits and our vessels under capital leases as assets. This accounting treatment has the effect of overstating our assets and liabilities by the amount of restricted cash deposits relating to the corresponding capital lease obligations. As at December 31, 2004 and June 30, 2005, our total assets and total debt each included $413.3 million and $377.6 million, respectively, of such amount. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Ship Financing Arrangements.”

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	(9)	Vessels and equipment consist of (a) our vessels, at cost less accumulated depreciation, (b) vessels under capital leases, at cost less accumulated depreciation, and (c) advances on our newbuildings.

(10)	Total debt for Teekay Spain as at December 31, 2004 excludes a loan made to it in December 2004 of 82.1 million Euros ($111.8 million) by Teekay Spain’s direct parent company, Teekay Spain, S.L., a subsidiary of Luxco. In April 2005, Teekay Spain used these funds to repay debt associated with two of its LNG carriers.
(11)	EBITDA is calculated as net income (loss) before interest, taxes, depreciation and amortization, as set forth in Appendix B to this prospectus, which also includes reconciliations of EBITDA to our most directly comparable GAAP Financial measure. EBITDA includes our foreign currency exchange and interest rate swap gains and losses, substantially all of which were unrealized, as follows:

		Historical
																		Four				Eight
																		Months				Months
		Years Ended December 31,																Ended				Ended
																		April 30,				December 31,
		2000				2001				2002				2003				2004				2004
Foreign currency exchange gain (loss)		$	(179	)		$	3,462			$	(44,310	)		$	(71,502	)		$	18,010			$	(34,149	)
Interest rate swaps gain (loss)			—				(7,618	)			(71,400	)			14,715				3,985				—
		$	(179	)		$	(4,156	)		$	(115,710	)		$	(56,787	)		$	21,995			$	(34,149	)

		Historical																Pro Forma
		Six Months Ended June 30,
		2004								2005
																						Six
		January 1,				May 1,				January 1,				May 10,				Year				Months
		to				to				to				to				Ended				Ended
		April 30,				June 30,				May 9,				June 30,				December 31,				June 30,
		2004				2004				2005				2005				2004				2005
Foreign currency exchange gain (loss)		$	18,010			$	(6,189	)		$	23,835			$	22,993			$	(16,139	)		$	46,828
Interest rate swaps gain (loss)			3,985				—				—				—				—				—
		$	21,995			$	(6,189	)		$	23,835			$	22,993			$	(16,139	)		$	46,828

(12)	Calendar-ship-days are equal to the aggregate number of calendar days in a period that our vessels were in our possession during that period.

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	Our Initial Public Offering

	Our Charters

	•	Time charters, where vessels are chartered to customers for a fixed period of time at rates that are generally fixed but may contain a variable component, such as an inflation adjustment or a current market rate component; and
	•	Voyage charters, which are charters for shorter intervals, usually a single round trip, that are priced on a current, or “spot,” market rate.

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	•	Capital Component. The capital component typically approximates the amounts we are required to pay under financing obligations related to the vessel, including under bareboat charters included in capital lease arrangements. The capital component of our Suezmax time charters fluctuates with the floating interest rates for the debt used to finance the related vessels. If interest rates increase, the amount we pay under the capital leases relating to the chartered vessels increases by the amount of the additional interest payments, and the capital component we receive from the related time charters correspondingly increases. Consequently, the fluctuating portion of the capital component has no net effect on our cash flows or net income, but does affect our recorded voyage revenues and interest expense. The capital component of our LNG time charters is fixed.
	•	Operating Component. The operating component is intended to compensate us for voyage and vessel operating expenses and adjusts for inflation. This component is established at the beginning of the charter and then typically fluctuates annually based on changes in a specified cost-of-living index.

	•	operational deficiencies; drydocking for repairs, maintenance or inspection; equipment breakdowns; or delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or
	•	our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

	Important Financial and Operational Terms and Concepts

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	•	Crews. Crews represented approximately 53% of our vessel operating expenses for 2003 and 2004 and approximately 50% for the six months ended June 30, 2005. A substantial majority of our crewing expenses are denominated in Euros, which is primarily a function of the nationality of our crew. Fluctuations in the Euro relative to the U.S. Dollar have caused, and will continue to cause, fluctuations in our operating results.
	•	Repairs and Maintenance. Repairs and maintenance represented approximately 30% of vessel operating expenses for 2003 and 2004 and approximately 31% for the six months ended June 30, 2005. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydockings. Please read “— Drydocking” below. Because vessel operating expenses such as repairs and maintenance are lower for newer vessels, and our fleet is relatively new, we expect these expenses to increase as our fleet matures.

	•	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;
	•	charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking; and
	•	charges related to the amortization of the fair value of the time charters acquired in the Teekay Spain acquisition (over the remaining terms of the charters), which was initially determined at

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		approximately $183 million in April 2004 when Teekay Shipping Corporation acquired Teekay Spain.

	•	Unrealized end of period revaluations. Under United States accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, restricted cash, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. A substantial majority of our foreign currency gains and losses are attributable to this revaluation in respect of our Euro-denominated term loans. Substantially all of these gains and losses are unrealized.
	•	Foreign currency revenues and expenses. A portion of our voyage revenues are denominated in Euros. A substantial majority of our vessel operating expenses and general and administrative expenses are denominated in Euros, which is primarily a function of the nationality of our crew and administrative staff. We also have Euro-denominated interest expense and interest income related to our Euro-denominated loans and Euro-denominated restricted cash deposits, respectively. As a result, fluctuations in the Euro relative to the U.S. Dollar have caused, and are likely to continue to cause, fluctuations in our reported voyage revenues, vessel operating expenses, general and administrative expenses, interest expense and interest income.

	Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects

	•	Our financial results reflect changes in our capital structure. Prior to the closing of our initial public offering on May 10, 2005, we repaid $337.3 million of term loans on two LNG carriers and settled related interest rate swaps. We also settled other interest rate swaps associated with 322.8 million Euros ($390.5 million) of other term loans and entered into new swaps of the same amount with a lower fixed interest rate. These reductions in our debt and effective interest rates have decreased the amount of our interest expense.
	•	Our financial results reflect the revaluation of our assets and liabilities. On April 30, 2004, Teekay Shipping Corporation acquired 100% of the issued and outstanding shares of Teekay Spain through Luxco, which Teekay Shipping Corporation subsequently contributed to us in May 2005.

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		Results for periods subsequent to April 30, 2004 reflect the comprehensive revaluation of all assets, including intangible assets and goodwill, and liabilities of Teekay Spain at their fair values on the date of acquisition by Teekay Shipping Corporation. This revaluation primarily increased depreciation and amortization expense.
	•	We have disposed of certain assets included in our historical results of operations. Immediately prior to its acquisition by Teekay Shipping Corporation in April 2004, Tapias disposed of certain assets unrelated to the marine transportation operations purchased by Teekay Shipping Corporation. These unrelated assets included certain investments in marketable securities and other non-shipping assets, including real estate and a yacht. Since these unrelated assets were held in Tapias ship-owning subsidiaries acquired by Teekay Shipping Corporation, the financial impact of the assets is included in our historical operating results discussed below through the date of their disposition (as opposed to three unrelated businesses previously held in separate subsidiaries not acquired in the Tapias acquisition, which are not included in our historical operating results). Excluding expenses associated with the yacht, none of the unrelated assets had a significant impact on our operating results.
	•	The size of our LNG carrier and Suezmax tanker fleets has changed. Our historical results of operations reflect changes in the size and composition of our fleet due to certain vessel deliveries and vessel dispositions. In particular, during most of 2003 and 2004 we had six Suezmax tankers, while during most of the first six months of 2005 we had four Suezmax tankers, and we have increased the size of our LNG carrier fleet from one carrier in the last part of 2002 to four in 2005. Please read “Results of Operations” below for further details about our vessel dispositions and deliveries.
	•	We do not anticipate earning revenues from voyage charters in the foreseeable future. Since December 2004, all of our vessels have operated under fixed-rate time charters, and we do not anticipate earning any revenues from voyage charters in the foreseeable future. Our results for 2003 and 2004 reflect relatively high voyage charter rates earned by the Granada Spirit, which operated under voyage charters based on spot market rates and was part of our fleet until December 2004, when we sold it to Teekay Shipping Corporation. Teekay Shipping Corporation contributed the Granada Spirit back to us on May 6, 2005, and we chartered it to Teekay Shipping Corporation under a short-term, fixed-rate time charter until we disposed of the vessel on May 26, 2005.

	•	We have designated our interest rate swaps as hedges. We have entered into interest rate swaps to hedge our interest rate risk from our floating-rate debt used to purchase our LNG carriers. These interest rate swaps were not designated as hedges under U.S. accounting guidelines until April 30, 2004. Consequently, the changes in the fair values of these swaps that occurred during 2002, 2003 and the four months ended April 30, 2004 have been recorded in earnings as “interest rate swaps gain (loss)” for those periods. Had these interest rate swaps been designated as hedges prior to 2003, any subsequent changes in fair value would have been recognized in “accumulated other comprehensive income (loss)” to the extent the hedge was effective and until the hedged item was recognized as income. Because the swaps have been highly effective, the change in fair value after April 30, 2004 has been reflected in accumulated other comprehensive income (loss) and, because we expect the swaps, or replacement swaps, to continue to be highly effective, we expect that most of the change in value will continue to be reflected in accumulated other comprehensive income (loss). For further information on our interest rate swaps, please read Note 13 to the consolidated

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		audited financial statements of Teekay Spain included elsewhere in this prospectus. In addition, in April 2005 we settled interest rate swaps in connection with prepayment of debt associated with two of our LNG carriers, and settled and replaced the interest rate swaps associated with our other two LNG carriers.
	•	We are incurring additional general and administrative expenses following our initial public offering. In connection with the closing of our initial public offering, we and certain of our subsidiaries entered into services agreements with certain subsidiaries of Teekay Shipping Corporation pursuant to which those subsidiaries provide us and our subsidiaries certain services, including strategic consulting, advisory, ship management, technical and administrative services. Our cost for these services depends on the amount and type of services provided during each period. The services are valued at a reasonable, arm’s-length rate that includes reimbursement of reasonable direct or indirect expenses incurred to provide the services. We also reimburse our general partner for all expenses it incurs on our behalf. We may also pay “incentive fees” to Teekay Shipping Corporation to reward and motivate it for pursuing LNG projects that we may elect to undertake, and we may grant equity compensation that would result in an expense to us. In addition, since our initial public offering on May 10, 2005, we have begun to incur expenses as a result of being a publicly traded limited partnership, including costs associated with annual reports to unitholders and SEC filings, investor relations, incremental director and officer liability insurance costs and director compensation. Please read “Certain Relationships and Related Party Transactions — Advisory and Administrative Services,” “Certain Relationships and Related Party Transactions — Omnibus Agreement” and “Management — 2005 Long-Term Incentive Plan.”

	We Have Derived, and We Expect to Continue to Derive, a Substantial Majority of Our Revenues From a Limited Number of Customers.

	•	the customer exercises certain rights to terminate the charter, purchase or cause the sale of the vessel or, under some of our charters, convert the time charter to a bareboat charter (some of which rights are exercisable at any time);
	•	the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter; or
	•	under some of our time charters, the customer terminates the charter because of the termination of the charter’s LNG sales agreement supplying the LNG designated for our services, or a prolonged force majeure event affecting the customer, including damage to or destruction of relevant LNG

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		production or regasification facilities, war or political unrest preventing us from performing services for that customer.

	Teekay Luxembourg S.a.r.l.

	•	advances (including accrued interest) of $465.7 million and $312.3 million as of December 31, 2004) and June 30, 2004, respectively, from Teekay Shipping Corporation that Luxco used to purchase Teekay Spain and to prepay certain debt of Teekay Spain;
	•	net interest expense related to the advances of $9.8 million, $2.4 million and $7.3 million for the nine months ended December 31, 2004, the two months ended June 30, 2004 and for the 2005 Pre-IPO Period;
	•	unrealized foreign exchange losses of $44.7 million and $3.8 million for the nine months ended December 31, 2004 and the two months ended June 30, 2004, respectively, related to the advances, which are Euro- denominated, and a $23.8 million unrealized foreign exchange gain related to the advances for the 2005 Pre-IPO Period;
	•	other expenses of $1.1 million, $0.1 million and $0.1 million for those respective periods;
	•	cash and cash equivalents of $2.2 million and $10.0 million as of December 31, 2004 and June 30, 2004, respectively; and
	•	its ownership interest in Teekay Spain and certain purchase rights and obligations for Suezmax tankers operated by Teekay Spain under capital lease arrangements, which it acquired from Teekay Spain on December 30, 2004.

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		Six Months Ended June 30,
		2004												2005
		Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total
		(unaudited, in thousands)
Voyage revenues		$	34,162			$	24,009			$	58,171			$	21,450			$	49,043			$	70,493
Voyage expenses			3,156				148				3,304				274				50				324
Net voyage revenues			31,006				23,861				54,867				21,176				48,993				70,169
Vessel operating expenses			10,143				4,743				14,886				6,563				8,140				14,703
Depreciation and amortization			9,726				5,285				15,011				5,558				15,045				20,603
General and administrative(1)			2,181				730				2,911				2,125				2,065				4,190
Income from vessel operations		$	8,956			$	13,103			$	22,059			$	6,930			$	23,743			$	30,673

		Year Ended December 31,
		2002												2003												2004
		Suezmax				LNG								Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total				Segment				Segment				Total
		(in thousands)
Voyage revenues		$	54,418			$	5,448			$	59,866			$	54,102			$	32,607			$	86,709			$	64,438			$	59,395			$	123,833
Voyage expenses			5,319				15				5,334				4,788				123				4,911				4,678				254				4,932
Net voyage revenues		$	49,099			$	5,433			$	54,532			$	49,314			$	32,484			$	81,798			$	59,760			$	59,141			$	118,901
Vessel operating expenses			15,789				315				16,104				20,584				5,856				26,440				20,002				10,615				30,617
Depreciation and amortization			16,579				1,110				17,689				17,760				5,630				23,390				19,469				15,391				34,860
General and administrative(1)			6,237				264				6,501				7,116				1,683				8,799				4,466				1,937				6,403
Income from vessel operations		$	10,494			$	3,744			$	14,238			$	3,854			$	19,315			$	23,169			$	15,823			$	31,198			$	47,021

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

	LNG Carrier Segment

	•	an increase of $25.1 million relating to the LNG Deliveries; and
	•	an increase of $0.8 million due to the effect on our Euro-denominated revenue from the strengthening of the Euro against the U.S. Dollar during the six months ended June 30, 2005;

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	•	a decrease of $0.8 million from 15.2 days of off-hire for one of our LNG carriers during February 2005.

	•	an increase of $2.3 million relating to the LNG Deliveries;
	•	an increase of $0.9 million relating to repair and maintenance work completed on our LNG carriers during February 2005; and
	•	an increase of $0.2 million due to the effect on our Euro-denominated vessel operating expenses from the strengthening of the Euro against the U.S. Dollar during the six months ended June 30, 2005 (a majority of our vessel operating expenses are denominated in Euros, which is primarily a function of the nationality of our crew).

	•	an increase of $7.9 million relating to the LNG Deliveries;
	•	an increase of $1.1 million resulting from the amortization, as an intangible asset, of the value of the Teekay Spain time charters acquired on April 30, 2004; and
	•	an increase of $0.7 million resulting from an increase in the book values of the Teekay Spain vessels acquired on April 30, 2004 to their respective fair values.

	Suezmax Tanker Segment

	•	the delivery of a tanker newbuilding, the Teide Spirit, in November 2004 (or the Suezmax Delivery);
	•	the sale of two tankers, the Sevilla Spirit and the Leon Spirit, in the fourth quarter of 2004 (collectively, the Suezmax Dispositions);
	•	the sale of the Granada Spirit to Teekay Shipping Corporation in December 2004 in connection with a significant drydocking and re-flagging of the vessel, the contribution of this vessel to us on May 6, 2005, and its subsequent sale back to Teekay Shipping Corporation on May 26, 2005 (collectively, the Granada Spirit Transactions); and
	•	the delivery and concurrent sale of the Suezmax tanker newbuilding, the Santiago Spirit, to Teekay Shipping Corporation in March 2005.

	•	a decrease of $9.5 million relating to the Suezmax Dispositions; and
	•	a decrease of $9.0 million relating to the Granada Spirit Transactions, which include the change in employment of the Granada Spirit from operating on the spot market during 2004 to operating under a lower fixed-rate time charter during the period from May 6, 2005 to May 26, 2005, when we disposed of the vessel;

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	•	an increase of $7.3 million relating to the Suezmax Delivery; and
	•	an increase of $1.4 million due to adjustments to the daily charter rate based on inflation and increases from rising interest rates in accordance with the time charter contracts for all Suezmax tankers other than the Granada Spirit. However, under the terms of our capital leases for our tankers subject to these charter rate fluctuations, we had a corresponding increase in our lease payments, which is reflected as an increase to interest expense. Therefore, these interest rate adjustments, which will continue, did not affect our cash flow or net income.

	•	a decrease of $5.2 million relating to the Suezmax Dispositions and the Granada Spirit Transactions;

	•	an increase of $1.1 million relating to the Suezmax Delivery;
	•	an increase of $0.3 million due to the effect on our Euro-denominated vessel operating expenses from the strengthening of the Euro against the U.S. Dollar during the six months ended June 30, 2005 (a majority of our vessel operating expenses are denominated in Euros, which is primarily a function of the nationality of our crew); and
	•	an increase of $0.3 million relating to repair and maintenance work completed on our Suezmax tankers during January 2005.

	•	a decrease of $5.9 million relating to the Suezmax Dispositions and the Granada Spirit Transactions;

	•	an increase of $1.3 million relating to the Suezmax Delivery; and
	•	an increase of $0.5 million resulting from an increase in the book values of the Teekay Spain vessels acquired on April 30, 2004 to their respective fair values.

	Other Operating Results

	•	an increase of $0.6 million relating to the legal costs associated with repayment of term loans and the settlement of interest rate swaps made in connection with our initial public offering;
	•	an increase of $0.5 million relating to a bonus program for shore staff adopted in December 2004;
	•	an increase of $0.3 million associated with (a) services agreements we and certain of our subsidiaries entered into with subsidiaries of Teekay Shipping Corporation in connection with our initial public offering, (b) fees and cost reimbursements of our general partner and (c) additional expenses as a result of being a publicly traded limited partnership; and
	•	a number of smaller factors that decreased general and administrative expenses by $0.1 million in the six months ended June 30, 2005.

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	•	an increase of $5.4 million relating to debt incurred to finance the LNG Deliveries and Suezmax Delivery, partially offset by the reduction in interest expense from the repayments of debt with the proceeds of the Suezmax Dispositions;
	•	an increase of $4.6 million relating to the increase in capital lease obligations in connection with the delivery of one LNG carrier in December 2004, partially offset by lower interest expense resulting from scheduled capital lease repayments on a second LNG carrier that delivered in August 2003 (these vessels have been financed pursuant to Spanish tax lease arrangements, under which we borrow under term loans and deposit the proceeds into restricted cash accounts and enter into capital leases for the vessels; as a result, these increases in interest expense are offset by a corresponding increase in the interest income from restricted cash); and
	•	an increase of $0.8 million due to the effect on our Euro-denominated debt of the strengthening of the Euro against the U.S. Dollar during the six months ended June 30, 2005;

	•	a decrease of $4.3 million resulting from the repayment in April 2005 of $337.3 million of term loans and the settlement of related interest rate swaps.

	•	a decrease of $2.1 million resulting from $76.3 million of cash withdrawals during December 2004 used to make scheduled repayments of capital lease obligations (including accrued interest);
	•	an increase of $1.4 million relating to $54.5 million of additional cash being placed in restricted cash deposits during December 2004; and
	•	an increase of $0.6 million due to the effect on our Euro-denominated deposits from the strengthening of the Euro against the U.S. Dollar during the six months ended June 30, 2005.

	•	a $7.8 million loss from the settlement of interest rate swaps that were being used to hedge the interest rate risk on two of our term loans we repaid in April 2005;
	•	a $7.5 million loss from the write-off of capitalized loan costs relating to the two term loans we repaid in April 2005;
	•	income tax expense of $0.1 million; and
	•	other miscellaneous expenses of $1.1 million;

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	•	a $0.2 million gain from the sale of the Granada Spirit to Teekay Shipping Corporation during May 2005.

	•	a $11.9 million loss on the sale of non-shipping assets by Teekay Spain immediately preceding its acquisition by Luxco on April 30, 2004;

	•	income tax recoveries of $1.2 million; and
	•	other miscellaneous income and gains on the sale of marketable securities of $0.4 million.

	LNG Carrier Segment

	•	the addition of our three LNG carriers in August 2003 and July and December 2004;
	•	the amortization, as an intangible asset, of the value of the Tapias time charters acquired on April 30, 2004; and
	•	increased depreciation resulting from recording the Tapias vessels at their acquisition cost as compared to their depreciated value prior to the acquisition.

	Suezmax Tanker Segment

	•	a $5.1 million increase in net voyage revenues for 2004 compared to 2003 due to increases in average spot market rates earned by the Granada Spirit;
	•	a $4.2 million increase in net voyage revenues for 2004 compared to 2003 due to an increase in the voyage revenues earned from a charter with a variable component based on spot market rates; and

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	•	a $2.9 million increase in net voyage revenues due to fewer off-hire days from drydocking in 2004 compared to 2003.

	•	the amortization, as an intangible asset, of the value of the Tapias time charters acquired on April 30, 2004; and
	•	increased depreciation resulting from recording the Tapias vessels at their acquisition cost as compared to their depreciated value prior to the acquisition.

	Other Operating Results

	•	a $11.9 million loss on the sale of non-shipping assets by Tapias prior to its acquisition on April 30, 2004 by Teekay Shipping Corporation; and
	•	$0.1 million of minority interest expense;

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	•	$3.4 million of gains on the sale of vessels and equipment;
	•	$0.7 million of income tax recoveries;
	•	$0.1 million of gains on the sale of marketable securities; and
	•	$0.3 million of other miscellaneous income.

	•	a $1.6 million gain on the sale of marketable securities; and
	•	$2.2 million of other miscellaneous income;

	•	$3.0 million of income taxes; and
	•	$0.2 million of minority interest expense.

	LNG Carrier Segment

	Suezmax Tanker Segment

	•	a $4.5 million increase in voyage revenues from the Granada Spirit from the prior period, due primarily to an increase in average spot market rates;

	•	a $3.7 million decrease in voyage revenues due to a greater number of off-hire days from drydocking in 2003 compared to 2002; and
	•	to a lesser extent, from $0.6 million in decreased voyage revenues from three time charters that fluctuate based on changes in interest rates.

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	Other Operating Results

	•	a $0.5 million gain on the sale of marketable securities;
	•	$0.1 million in dividend income; and
	•	$2.4 million of other miscellaneous income;

	•	$2.2 million of income taxes; and
	•	$0.2 million of minority interest expense.

	•	a $1.6 million gain on sale of marketable securities; and
	•	$2.2 million of other miscellaneous income;

	•	$3.0 million in income taxes; and
	•	$0.2 million of minority interest expense.

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	Liquidity and Cash Needs

		Year Ended												Six Months Ended
		December 31,												June 30,
		2002				2003				2004				2004				2005
		(in thousands)
Net cash flow from operating activities		$	20,418			$	18,318			$	22,189			$	19,526			$	25,025
Net cash flow from financing activities			176,316				(277,616	)			69,799				282,029				(160,245	)
Net cash flow from investing activities			(199,218	)			262,766				40,887				(301,367	)			34,685

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	Ongoing Capital Expenditures

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	Historical Capital Expenditures

		Year Ended												Six Months
		December 31,												June 30,
		2002				2003				2004				2004				2005
		(in thousands)
Expenditures for drydocking		$	984			$	4,711			$	4,085			$	—			$	—
Expenditures for vessels and equipment			186,755				133,628				89,225				10,487				48,921
Total capital expenditures		$	187,739			$	138,339			$	93,310			$	10,487			$	48,921

	Ship Financing Arrangements

	•	Term Loans. Two of our LNG carriers have been financed with term loans that are collateralized by first preferred mortgages. We repaid these term loans in April 2005.

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	•	Capital Lease Arrangements. Under the capital lease arrangements for our Suezmax tankers on charter to CEPSA, we leased the vessels from third parties pursuant to bareboat charters and make lease payments based on the lessee’s repayment schedule for the vessel construction financing costs. At the end of the lease terms, we are obligated to purchase the vessels for a fixed price based on the remaining unamortized portion of the vessel construction financing costs.
	•	Spanish Tax Lease Arrangements. Under capital lease arrangements for two of our LNG carriers, we have borrowed under term loans and deposited the proceeds into restricted cash accounts. Concurrently, we entered into capital leases for the vessels pursuant to bareboat charters and recorded the vessels as assets when the vessels began operations. The restricted cash deposits, together with interest earned on the deposits, will equal the remaining amounts we owe under the lease arrangements, including our obligations to purchase the vessels at the end of the lease terms. At the end of the lease terms, the amounts remaining in the restricted cash deposit accounts will be used to purchase the vessels, and we will obtain title to the vessels.
	•	Warehousing. Teekay Shipping Corporation’s subsidiary, Teekay Nakilat, has contracted to have built the three RasGas II vessels. Upon delivery of the first vessel, we will acquire all of Teekay Shipping Corporation’s interest in Teekay Nakilat for a price that will reimburse Teekay Shipping Corporation for (1) its costs related to the construction of the three vessels and (2) a reasonable cost of capital on vessel construction payments. Please read “Certain Relationships and Related Party Transactions — Agreement to Purchase RasGas II Interest.”

Vessel			Type of Financing Arrangement		Financial Commitment
					(in dollars)
Operating LNG Vessels:
Hispania Spirit			Credit facility(1)			None	(1)
Galicia Spirit			None			None
Catalunya Spirit			Spanish tax lease			176.0 million	(2)
Madrid Spirit			Spanish tax lease			213.2 million	(2)
LNG Newbuildings:
Hull No. 2238			Warehousing			140.1 million	(3)
Hull No. 2239			Warehousing			140.1 million	(3)
Hull No. 2240			Warehousing			140.1 million	(3)
Operating Suezmax Tankers:
Tenerife Spirit			Capital lease(4)			45.5 million	(4)
Algeciras Spirit			Capital lease(4)			45.7 million	(4)
Huelva Spirit			Capital lease(4)			43.4 million	(4)
Teide Spirit			Capital lease(4)			49.7 million	(4)
Toledo Spirit			Capital lease(5)			50.5 million	(5)
Acquired Suezmax Tankers:
African Spirit			None (6)			None
Asian Spirit			None (6)			None
European Spirit			None (6)			None
	Total					$1,038.6 million

(1)	We have entered into a $100 million revolving credit facility which is secured by a mortgage on the Hispania Spirit and a pledge of certain shares of our subsidiary operating this LNG carrier. As at June 30, 2005, this credit facility was undrawn.

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(2)	Represents the principal amount on the term loans used to make the restricted cash deposit that will fully pay the capital lease obligations and pay capitalized interest and other miscellaneous construction costs.
(3)	We estimate that the total cost to purchase Teekay Shipping Corporation’s 70% interest in Teekay Nakilat, which owns the three RasGas II LNG newbuilding carriers, will be approximately $420.5 million. However, actual costs will vary depending on the amount of miscellaneous construction costs and when the vessels are actually delivered, which affects the amount of capitalized interest. For purposes of this table, we have provided our estimate and divided the amounts evenly over the three vessels. If Teekay Shipping Corporation completes U.K. lease arrangements for the RasGas II vessels, our equity contribution relating to the vessels will be reduced significantly. Please read “U.K. Lease Arrangements” below.
(4)	Under the terms of the capital leases, the vessel owner enters into a seven-year capital lease with financial institutions and then leases the vessel to us for seven years pursuant to a bareboat charter. At the end of the term, we are obligated to purchase the vessel at a fixed price based on the unamortized portion of the vessel construction financing costs. The purchase obligations will be at various times from 2007 to 2011 and range from $39.4 million to $43.5 million per vessel. We expect that we will complete the purchase by assuming the outstanding financing obligations; however, we may be required to obtain separate debt or equity financing to complete the purchases if the requisite lenders do not consent to our assuming the financing obligations. The amount in the table represents our remaining capital lease obligations, including the amount of the vessel purchase price.
(5)	As at June 30, 2005, we had made $14.3 million of progress payments on this vessel. We financed additional construction installment payments prior to its delivery in July 2005, with temporary debt financing. We permanently financed the vessel upon its delivery pursuant to financing arrangements substantially similar to those for our other Suezmax tankers subject to capital lease arrangements.
(6)	We will acquire these vessels from Teekay Shipping Corporation upon the closing of this offering. We anticipate entering into a $137.5 million credit facility secured by the vessels upon or following the closing of this offering. Please read “Certain Relationship and Related Party Transactions — Agreement to Purchase Suezmax Tankers and Time Charters.”

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	New Projects

	Credit Facilities

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	Covenants and Other Restrictions in Our Financing Agreements

	•	incurring or guaranteeing indebtedness;
	•	changing ownership or structure, including mergers, consolidations, liquidations and dissolutions;
	•	making dividends or distributions;
	•	making capital expenditures in excess of specified levels;
	•	making certain negative pledges and granting certain liens;
	•	selling, transferring, assigning or conveying assets;
	•	making certain loans and investments; and
	•	entering into a new line of business.

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				Total				Less than 1 Year				1-3 Years				3-5 Years				More than 5 Years
				(in millions of U.S. Dollars)
U.S. Dollar-Denominated Obligations:
	Long-term debt(1)			$	14.5			$	14.5			$	—			$	—			$	—
	Commitments under capital leases (2)(3)				210.6				10.4				149.7				7.7				42.8
	Newbuilding installments(4)				33.3				33.3				—				—				—
	Purchase obligation(5)				92.8				—				92.8				—				—
		Total U.S. Dollar-denominated obligations			351.2				58.2				242.5				7.7				42.8
Euro-Denominated Obligations:(6)
	Long-term debt(7)				389.2				3.9				17.2				19.7				348.4
	Commitments under capital leases (2)(8)				441.9				93.3				177.1				60.5				111.0
	Total Euro-denominated obligations				831.1				97.2				194.3				80.2				459.4
Totals				$	1182.3			$	155.4			$	436.8			$	87.9			$	502.2

(1)	Excludes interest payments that are based on LIBOR plus a margin.
(2)	Includes amounts we are required to pay to purchase the vessels at the end of the lease terms.
(3)	Excludes payments for a Suezmax tanker (the Toledo Spirit) on capital lease that was delivered in July 2005.
(4)	Represents remaining construction costs, excluding capitalized interest, supervision and other miscellaneous costs, for the Toledo Spirit that was delivered in July 2005.
(5)	Represents our estimate of the purchase price for Teekay Shipping Corporation’s 70% interest in Teekay Nakilat, excluding the assumption of approximately $327.7 million of debt. Subsequent to June 30, 2005, Qatar Gas Transport Company Ltd. (Nakilat) exercised its options to purchase a 30% interest in the RasGas II vessels, which reduced our estimated purchase commitment to approximately $92.8 million.
(6)	Euro-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of June 30, 2005.
(7)	Excludes interest payments that are based on EURIBOR plus a margin.
(8)	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.

	Revenue Recognition

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	Vessel Lives and Impairment

	Drydocking

	Derivative Instruments

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	Goodwill and Intangible Assets

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			Expected Maturity Date
			2005				2006				2007				2008				2009				Thereafter				Rate(1)
			(in millions of U.S. Dollars, except percentages)
Long-Term Debt:
Variable Rate Debt
	U.S. Dollar-denominated(2)		$	14.5			$	—			$	—			$	—			$	—			$	—				3.6	%
	Euro-denominated(3)(4)		$	3.9			$	8.3			$	8.9			$	9.5			$	10.2			$	348.4				3.3	%
Capital Lease Obligations(5)
	Fixed-Rate Obligations(6)		$	3.4			$	134.0			$	1.9			$	1.9			$	2.0			$	41.1				7.7	%
	Average Interest Rate(7)			7.7	%			8.9	%			4.4	%			4.4	%			4.4	%			4.4	%
Interest Rate Swaps:(3)(8)
	Contract amount (Euro-denominated)(4)		$	3.9			$	8.3			$	8.9			$	9.5			$	10.2			$	348.4				3.8	%
	Average fixed pay rate(3)			3.8	%			3.8	%			3.8	%			3.8	%			3.8	%			3.8	%

(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 June 30, 2005, 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 June 30, 2005, ranged from 1.1% to 1.3%.
(2)	Interest payments for U.S. Dollar-denominated debt are based on LIBOR.
(3)	Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.
(4)	Euro-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of June 30, 2005.
(5)	Excludes the capital lease obligations (present value of minimum lease payments and purchase obligations) of 312.1 million Euros ($377.6 million) on two of our LNG carriers. Under the terms of these lease obligations, we are required to have on deposit with financial institutions 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. Consequently, we are not subject to interest rate risk from these obligations.
(6)	The amount of capital lease obligations represents the present value of minimum lease payments together with our applicable purchase obligation.
(7)	The average interest rate is the weighted-average interest rate implicit in the capital lease obligations at the inception of the leases.
(8)	The average variable receive rate for our interest rate swaps is set monthly at one-month EURIBOR or semi-annually at the six-month EURIBOR.

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							Fair
			Contract				Value/Carrying
			Amount				Amount				Rate(1)
			(in millions)
June 30, 2005
Interest Rate Swap Agreements:
	Euro-denominated		$	389.2			$	(15.0	)			3.8	%
Long-Term Debt:(2)
	U.S. Dollar-denominated		$	14.5			$	14.5				3.6	%
	Euro-denominated		$	389.2			$	(389.2	)			3.3	%
December 31, 2004
Interest Rate Swap Agreements:
	U.S. Dollar-denominated		$	328.5			$	(44.3	)			6.7	%
	Euro-denominated		$	441.0			$	(90.6	)			5.9	%
Long-Term Debt:(2)
	U.S. Dollar-denominated		$	343.4			$	(343.4	)			3.7	%
	Euro-denominated		$	443.7			$	(443.7	)			3.4	%

(1)	Rate refers to the weighted-average effective interest rate for our debt and average fixed pay rate for our swap agreements. The average fixed pay rate excludes the margin we pay on our floating-rate debt.
(2)	Excludes fixed-rate capital lease obligations.

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	Overview of Natural Gas Market

	•	global economic growth and increasing energy demand;
	•	natural gas being a cleaner burning fuel than coal and oil, contributing to an increase in the development of power plants that run on natural gas;
	•	the wide applicability of natural gas as a fuel source, along with consumer desires to diversify fuel sources; and
	•	market deregulation.

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	Overview of LNG Market

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	LNG Supply

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								Percentage
		2003 Percentage						Change in Country				Change in
		of Worldwide						Exports From				Exports From
Country		Market		2003 Exports				2000 to 2003				2000 to 20003
				(billion cubic feet)								(billion cubic feet)
Indonesia		21%			1,245				(4	)%			(55	)
Algeria		16			968				2				18
Malaysia		14			822				11				82
Qatar		11			669				30				153
Other Middle East		10			582				70				239
Trinidad & Tobago		7			419				198				278
Nigeria		7			405				151				243
Australia		6			371				1				3
Brunei		6			341				7				21
United States		1			65				(2	)			(1	)
Libya		Less than 1%			25				(8	)			(2	)

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										Percentage
		2003 Percentage								Change in Country				Change in
		of Worldwide				2003				Imports From				Imports From
Country		Market				Imports				2000 to 2003				2000 to 2003
						(billion cubic feet)								(billion cubic feet)
Japan			48	%			2,824				6	%			167
South Korea			15				896				34				227
Spain			9				519				91				247
United States			9				507				124				280
France			5				319				(15	)			(58	)
Taiwan			4				258				18				40
Italy			4				234				31				55
Turkey			3				161				13				19
Belgium			2				119				(27	)			(44	)
Other Western Europe			1				39				117				21
Other Americas		Less than 1%					37				191				24

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	LNG Shipping Industry

	•	The Moss Rosenberg spherical system, which was designed in the 1970s and is used by nearly half of the current LNG fleet. In this system, multiple self-supporting, spherical tanks are built independent of the carrier and arranged inside its hull.
	•	The Gaz Transport membrane system, which is built inside the carrier and consists of insulation between thin primary and secondary barriers. The membrane containment system makes up the remainder of the current fleet and dominates the orderbook. The predominant types of membrane systems are Gaz Transport’s “NO96” and the Technigaz “Mark III” design. Both systems are built

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		inside the carrier and consist of insulation between thin primary and secondary barriers. The membrane is designed to accommodate thermal expansion and contraction without overstressing the membrane.

Moss Rosenberg System		Gaz Transport System

Delivery Year		Number of Vessels				Total Vessel Capacity
						(cubic meters)
2005			9				1,139,500
2006			26				3,697,968
2007			36				5,401,200
2008 and after			52				8,659,700
Total			123				18,898,368

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*	Through October 2005.

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	•	shipping industry relationships and reputation for customer service and safety;
	•	LNG shipping experience and quality of ship operations (including cost effectiveness);
	•	quality and experience of seafaring crew;
	•	the ability to finance LNG carriers at competitive rates and financial stability generally;
	•	relationships with shipyards and the ability to get suitable berths;
	•	construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;
	•	willingness to accept operational risk pursuant to the charter contract, such as allowing termination of the charter for force majeure events; and
	•	competitiveness of bids in terms of overall price.

	•	LNG projects are expensive and typically involve an integrated chain of dedicated facilities and cooperative activities; accordingly, the overall success of an LNG project depends heavily on long-range planning and coordination of project activities, including marine transportation;
	•	LNG carriers are expensive to build, so the cash-flow from long-term, fixed-rate charters supports the vessel financing;

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	•	most end users of LNG are utility companies, power stations and petrochemical producers that depend on reliable and uninterrupted delivery of LNG; and
	•	the limited size of the world LNG fleet and number of independent operators historically has not been conducive to development of a spot market for LNG transportation services.

	•	increases in new LNG production capacity that is not fully committed to a particular importer;
	•	increases in seasonal demand for LNG due to, for example, reliance on natural gas as a commercial and residential heating source or for power generation during times of peak electricity usage;
	•	the increasing availability of LNG carriers not committed to a particular project, either as a result of the termination of existing time charters without a replacement charter or the building of new carriers on a speculative basis;
	•	increased emphasis on delivery flexibility by importers and related increased charter contract flexibility; and
	•	unforeseen disruptions to production capacity in some exporting countries.

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	Overview

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	Oil Tanker Demand

			2000				2001				2002				2003				2004				2005E				2006E
			(millions of barrels per day)
OECD* North America Demand				24.1				24.0				24.1				24.5				25.3				25.6				26.0
OECD Europe Demand				15.2				15.3				15.3				15.4				15.6				15.6				15.6
OECD Pacific Demand				8.7				8.6				8.6				8.7				8.5				8.6				8.7
	Total OECD Demand			47.9				48.0				48.0				48.6				49.5				49.9				50.3
	Total NON-OECD Demand			28.6				29.1				29.7				30.6				32.7				33.6				34.8
	Total Demand			76.5				77.1				77.7				79.2				82.1				83.4				85.2

*	OECD indicates countries that are members of the international Organization for Economic Cooperation and Development.

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	Oil Tanker Supply

	Types of Crude Oil Tankers

	•	Ultra Large Crude Carriers (or ULCCs), of 320,000 dwt or more;
	•	Very Large Crude Carriers (or VLCCs), of 200,000 to 320,000 dwt;
	•	Suezmax tankers of 120,000 to 200,000 dwt;
	•	Aframax tankers of 80,000 to 120,000 dwt; and
	•	Smaller tankers (such as Panamax and Handysize) of less than 80,000 dwt.

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	Suezmax Tankers

	Competition

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	(1)	Conventional oil tankers exclude those vessels that can carry dry bulk and ore, tankers that currently are used for storage purposes and shuttle tankers that are designed to transport oil from offshore production platforms to onshore storage and refinery facilities.
	(2)	OMI Corporation and Frontline Ltd. have a Suezmax cooperation agreement through Alliance Chartering. Other owners are also participating.
	(3)	Data for Teekay Shipping Corporation includes our Suezmax tankers.

	•	price;
	•	location (for single-voyage or short-term charters);
	•	the size, age, condition and acceptability of the vessel;
	•	oil tanker shipping experience and quality of ship operations; and
	•	the size of an operating fleet, with larger fleets allowing for greater vessel substitution, availability and customer service.

	Nature of Charters

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	•	Strong increase in demand for LNG vessels. Natural gas represented approximately 23% of world energy consumption in 2002 and is the fastest growing primary energy source according to the U.S. Department of Energy. Between 1993 and 2003, the annual amount of LNG shipped internationally increased from 3.0 trillion cubic feet (or Tcf) to 5.9 Tcf, as a result of improvements in liquefaction and regasification technologies, decreases in LNG shipping costs and increases in demand from consuming regions located far from natural gas reserves. Due to the vast distances between many areas of natural gas production and consumption and the related cost, regulatory and geological challenges of pipeline construction, seaborne transportation of LNG provides either the only or the most cost-effective means of transporting natural gas to many consuming regions. As of October 1, 2005, the world LNG carrier fleet consisted of 187 existing vessels and 123 vessels under order or construction. To meet projected LNG shipping demand, LNG Shipping Solutions Ltd. estimates that the worldwide LNG fleet must expand to approximately 386 vessels by 2010.
	•	Globalization of LNG trade routes. We believe more opportunities to transport LNG are developing outside traditional trade routes. Historically, LNG trade primarily centered around the major LNG exporters of Indonesia, Malaysia and Algeria and the major LNG importers of Japan, South Korea and Taiwan. However, we expect the Middle East and Africa to continue to be increasingly important LNG exporting areas and Russia, with its vast natural gas reserves, to become an LNG exporter. We also expect Europe and North America to be among the major LNG importers. We believe that the increase in the number and scope of LNG trade routes will result in greater accessibility to LNG and lead to increased LNG demand.
	•	Increasing ownership of world LNG carrier fleet by independent owners. Until recently, major private and state-owned energy companies owned most of the world LNG carrier fleet. However, companies such as us that are independent of major energy companies now own about 45% of the existing LNG fleet, and independent owners have placed approximately 65% of existing LNG newbuilding orders. We believe that the increasing ownership of the world LNG fleet by independent owners is attributable in part to the desire of some major energy companies to limit their commitment to:

	•	the marine transportation business, which is non-core to their operations; and
	•	the cost of financing of new LNG carriers in addition to the high construction costs of LNG facilities.

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	•	Stringent customer standards favor high-quality operators. Major energy companies are highly selective in their choice of LNG transportation partners due to:

	•	their need for reliable, uninterrupted access to LNG transportation;
	•	the heightened reliance on the LNG transportation partner once selected, resulting from the lack of commercially viable transportation alternatives; and
	•	public perception of LNG projects, which magnifies customer sensitivity to hiring energy transportation providers with strong reputations for maintaining high safety, environmental and quality standards.

These factors have contributed to increasingly stringent pre-qualification operational and financial standards that LNG vessel operators must meet prior to bidding on nearly all significant LNG transportation contracts. We believe that these rigorous and comprehensive standards will increase our ability relative to less qualified or experienced operators to compete effectively for new LNG contracts.

	•	Acquire new LNG carriers built to project specifications after long-term, fixed-rate time charters have been awarded for an LNG project. Our LNG carriers (including the three RasGas II vessels) were built or will be built to customer specifications included in the related long-term, fixed-rate time charters for the vessels. We intend to continue our practice of acquiring LNG carriers as needed for approved projects only after the long-term, fixed-rate time charters for the projects have been awarded, rather than ordering vessels on a speculative basis. We believe this approach is preferable to speculative newbuilding because it:

	•	eliminates the risk of incremental or duplicative expenditures to alter our LNG carriers to meet customer specifications;
	•	facilitates the financing of new LNG carriers based on their anticipated future revenues; and
	•	ensures that new vessels will be employed upon acquisition, which should generate more stable cash flow.

	•	Expand our LNG operations globally. We seek to capitalize on opportunities emerging from the global expansion of the LNG sector by selectively targeting:

	•	long-term, fixed-rate time charters wherever significant LNG liquefaction and regasification facilities are being built or expanded;
	•	joint ventures and partnerships with companies that may provide increased access to opportunities in attractive LNG importing and exporting geographic regions; and
	•	strategic vessel and business acquisitions.

	•	Provide superior customer service by maintaining high reliability, safety, environmental and quality standards. LNG project operators seek LNG transportation partners that have a reputation for high reliability, safety, environmental and quality standards. We seek to leverage our own and Teekay Shipping Corporation’s operational expertise to create a sustainable competitive advantage with consistent delivery of superior customer service by our:

	•	responsiveness, reliability, professionalism and integrity;
	•	adoption of responsible environmental practices and strict adherence to environmental regulations;

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	•	dedication to safe operations, commencing with our care in selecting and training our sea and office personnel; and
	•	use of customer feedback and industry and internal performance measures to drive continuous improvements.

	•	Manage our Suezmax tanker fleet to provide stable cash flows. The remaining terms for our existing long-term Suezmax tanker charters, including those we will acquire from Teekay Shipping Corporation upon the closing of this offering, are 10 to 20 years. We believe the fixed-rate time charters for our oil tanker fleet provide us stable cash flows during their terms and a source of funding for expanding our LNG operations. Depending on prevailing market conditions during and at the end of each existing charter, we may seek to extend the charter, enter into a new charter, operate the vessel on the spot market or sell the vessel, in order to maximize returns on our Suezmax fleet while managing residual risk.

	•	We have a strategic platform from which to expand our presence in the rapidly growing LNG marine transportation sector. We currently operate four LNG carriers and are scheduled to receive deliveries of three LNG newbuildings beginning in the fourth quarter of 2006 through the first half of 2007. Our LNG fleet, combined with our existing relationships with leading energy and utility companies in Spain, a significant importer of LNG, and our new relationship, through RasGas II, to the important LNG exporting nation of Qatar, give us a significant presence in the rapidly growing LNG marine transportation sector. We believe this platform provides a strategic base from which we will seek to expand existing relationships and attract new customers.
	•	Our management and the personnel of Teekay Shipping Corporation’s subsidiaries who provide services to us have extensive experience in fleet expansion. The Chief Executive Officer and Chief Financial Officer of our general partner, key employees of our subsidiary Teekay Spain and personnel of other subsidiaries of Teekay Shipping Corporation who provide services to us pursuant to advisory and administrative services agreements have successfully identified and acquired over $3.7 billion in vessels since 1999, expanding Teekay’s fleet from 50 to 145 vessels through a combination of newbuildings, vessel and business acquisitions and, in some cases, joint ventures. These individuals have overseen all aspects of the construction of over 50 newbuildings (including those currently under order) during that period, including:

	•	identifying and pre-qualifying shipyards with reputations for quality workmanship and timely vessel completion;
	•	advising customers about technical vessel specifications and suggested improvements, and conducting related negotiations with the shipyard; and
	•	supervising construction quality and shipyard progress toward identified budgetary constraints and completion milestones.

	•	We believe our relationship with Teekay Shipping Corporation and its prominence and customer relationships in the shipping industry significantly enhances our growth opportunities. Established in 1973, Teekay Shipping Corporation has achieved a global brand name in the shipping industry, developed an extensive network of long-standing relationships with major energy companies and earned a reputation for reliability, safety and excellence. We believe that our relationship with Teekay Shipping Corporation significantly enhances our growth opportunities and that we are able to leverage this relationship to our advantage in competing for the transportation requirements of LNG projects and in attracting and retaining long-term charter contracts throughout the world. We also believe that Teekay Shipping Corporation’s established relationships with leading shipyards and

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		the high number of newbuilding orders it places with these shipyards will facilitate our interactions with these shipyards during periods of shipyard production constraints, which is anticipated over the next few years.
	•	We supplement our operational experience through continued access to Teekay Shipping Corporation’s expertise in various functions critical to our vessel operations. The key employees of our primary operating subsidiary, Teekay Spain, bring to us significant technical, financial and commercial capabilities relating to vessel operations and other business matters. Through Teekay Shipping Corporation’s extensive experience operating its large fleet and its commitment to exceptional customer service, it has developed specialized core competencies addressing various functions critical to its and our operations, has adopted best practices in the shipping industry and has developed an infrastructure to efficiently coordinate and implement these skills and practices. Subsidiaries of Teekay Shipping Corporation have agreed to provide ship management services to us, including:

	•	vessel maintenance;
	•	crewing;
	•	purchasing;
	•	shipyard supervision;
	•	insurance; and
	•	financial services.

Please read “Certain Relationships and Related Party Transactions — Advisory and Administrative Services Agreements — Advisory, Technical and Administrative Services Agreements Between Certain of Our Operating Subsidiaries and Teekay Shipping Limited.” We believe these services complement our existing operational experience and provide strict quality and cost controls and effective safety monitoring.

	•	We have financial flexibility to pursue acquisitions and other expansion opportunities through additional debt borrowings and the issuance of additional partnership units. Our existing revolving credit facility provides us access to approximately $100 million for working capital and acquisition purposes. We believe that borrowings available under our revolving credit facility, access to other bank financing facilities and the debt capital markets, and our ability to issue additional partnership units will provide us with financial flexibility to pursue acquisition and expansion opportunities.

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	LNG Carriers

Remaining

Vessel

Capacity

Delivery

Our Ownership

Charterer

Charter Term*

(cubic meters)

Operating LNG carriers:

Hispania Spirit

140,500

Sept. 2002

100%

Repsol YPF

17 years(1)

Catalunya Spirit

138,000

Aug. 2003

Capital lease(2)

Gas Natural SDG

18 years(1)

Galicia Spirit

140,500

July 2004

100%

Unión Fenosa Gas

24 years(3)

Madrid Spirit

138,000

Dec. 2004

Capital lease(2)

Repsol YPF

19 years(1)

Newbuildings:

Hull No. 2238

151,700

Oct. 2006

Teekay-owned(4)

RasGas II

20 years(5)

Hull No. 2239

151,700

Jan. 2007

Teekay-owned(4)

RasGas II

20 years(5)

Hull No. 2240

151,700

Apr. 2007

Teekay-owned(4)

RasGas II

20 years(5)

Total Capacity:

1,012,100

*	Each of our time charters are subject to certain termination and purchase obligations. Please read “— LNG Time Charters — Purchase Options, Termination Rights and Bareboat Conversion Options.”
(1)	The charterer has two options to extend the term for an additional five years each.
(2)	We lease the vessel under a Spanish tax lease arrangement and will purchase the vessel when the lease terminates in 2006 for the Catalunya Spirit and 2011 for the Madrid Spirit. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Ship Financing Arrangements.”
(3)	The charterer has one option to extend the term for an additional five years.
(4)	These newbuilding vessels are currently owned by subsidiaries of Teekay Shipping Corporation. Upon the delivery of the first vessel, we will purchase Teekay Shipping Corporation’s 70% interest in Teekay Nakilat, which owns the vessels. We anticipate that Teekay Shipping Corporation will complete U.K. lease arrangements for the financing of these vessels. Please read “Management’s Discussion and Analysis and Results of Operations — Liquidity and Capital Resources — Ship Financing Arrangements” and “Certain Relationships and Related Party Transactions — Agreement to Purchase RasGas II Interest.”
(5)	The charterer has three options to extend the term for an additional five years each.

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	Suezmax Tankers

Remaining

Vessel

Capacity

Delivery

Our Ownership

Charterer

Charter Term

(dwt)

Operating Tankers:

Tenerife Spirit

159,500

July 2000

Capital lease(1)

CEPSA

15 years(2)

Algeciras Spirit

159,500

Oct. 2000

Capital lease(1)

CEPSA

15 years(2)

Huelva Spirit

159,500

Mar. 2001

Capital lease(1)

CEPSA

16 years(2)

Teide Spirit

159,500

Oct. 2004

Capital lease(1)

CEPSA

19 years(2)

Toledo Spirit

159,500

July 2005

Capital lease(1)

CEPSA

20 years(2)

Acquired Tankers:

European Spirit

151,800

Sept. 2003

100%(3)

ConocoPhillips

10 years(4)

African Spirit

151,700

Nov. 2003

100%(3)

ConocoPhillips

10 years(4)

Asian Spirit

151,700

Jan. 2004

100%(3)

ConocoPhillips

10 years(4)

Total Capacity:

1,252,700

(1)	We are the lessee under a capital lease arrangement and are required to purchase the vessel seven years after the commencement of the capital lease, which we expect to accomplish by assuming the existing vessel financing. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Ship Financing Arrangements.”
(2)	CEPSA has the right to terminate the time charter 13 years after the original delivery date, in which case we are generally expected to sell the vessel, subject to our right of first refusal to purchase the vessel. Please read “— Crude Oil Time Charters — Rights to Terminate Charter or Cause Sale of Vessel.”
(3)	Reflects our ownership following acquisition of the vessel from Teekay Shipping Corporation upon the closing of this offering. Please read “Certain Relationship and Related Party Transactions — Agreement to Purchase Suezmax Tankers and Time Charters.”
(4)	The term of the time charter is 12 years from the original delivery date, which may be extended at the customer’s option for up to an additional six years. In addition, the customer has the right to terminate the time charter upon notice and payment of a cancellation fee. Either party also may require the sale of the vessel at any time, subject to the other party’s right of first refusal to purchase the vessel. Please read “— Crude Oil Time Charters — Rights to Terminate Charter or Cause Sale of Vessel.”

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	LNG Customers

	•	Repsol YPF, S.A., Spain’s largest oil company and largest seller of liquefied petroleum gas. As of December 31, 2004, Repsol reported having proved reserves of 4.9 billion barrels of crude oil equivalent, mostly in Latin America, the Middle East and North Africa. Repsol owns Argentina’s largest oil company and, as of December 31, 2004, had operations in 32 countries and owned five refineries in Spain and four refineries in Latin America.
	•	Gas Natural SDG, S.A., Spain’s largest natural gas distributor. Gas Natural operates a group of companies that supply, store, transport and distribute natural gas in Spain and Latin America. As of December 31, 2004, Gas Natural reported having 4.8 million Spanish customers and 4.5 million Latin American customers. As of December 31, 2004, Repsol owned approximately 30.8% of Gas Natural.
	•	Unión Fenosa Gas, S.A., a jointly held subsidiary of Unión Fenosa, S.A., a diversified Spanish energy and telecommunication company, and ENI S.p.a., an Italian oil and gas company. Unión Fenosa’s primary business is the generation, distribution and commercialization of electricity and natural gas in Spain.
	•	RasGas II, a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation, established for the purpose of expanding LNG production in Qatar. RasGas II will become one of our customers following our acquisition from Teekay Shipping Corporation of all of its interest in the three RasGas II LNG newbuildings and related time charters. We expect to take delivery of the three vessels during the fourth quarter of 2006 and the first half of 2007.

	Oil Tanker Customers

	•	Compania Espanola de Petroleos, S.A. (or CEPSA), a Spanish energy conglomerate. CEPSA is Spain’s second largest oil company and a diversified provider of natural gas and petrochemical products. Teekay Spain or its predecessors have provided services to CEPSA since 1988.
	•	ConocoPhillips, the third largest energy company and the second largest oil refiner in the United States. A subsidiary of ConocoPhillips will become one of our customers upon the transfer to us of the three Suezmax tankers and related charters in connection with the closing of this offering.

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	Initial Term; Extensions

	Hire Rate

	Expenses

	Off-hire

	•	operational deficiencies; drydocking for repairs, maintenance or inspection; equipment breakdowns; or delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or
	•	our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

	Ship Management and Maintenance

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	Termination

	Hire

	Prolonged Off-hire

	•	request that we provide a substitute vessel, which the customer must accept on the hire terms of the original time charter;
	•	require us to pay the difference between the hire rate in the time charter and the cost of chartering a substitute vessel, up to 30% of the original hire rate;
	•	take over management of the vessel and set off management expenses from the hire payments under the time charter (but not against the fixed hire rate component); or
	•	terminate the time charter contract.

	Ship Delivery and Modifications

	Purchase Options, Termination Rights and Bareboat Conversion Options

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	•	the customer may purchase the vessel

	(a) at the end of the initial or any extended charter period, at a price designated in the charter; or
	(b) if the customer’s LNG sales agreement supplying the LNG designated for our services is terminated, at a price that covers all of our outstanding indebtedness on the vessel and any prepayment fees (or, if applicable, an amount that approximates the amount of debt that would have been outstanding had we not prepaid the indebtedness in connection with our initial public offering) plus an additional amount designated in the charter; and

	•	the customer may terminate the charter

	(a) if the customer’s LNG sales agreement supplying the LNG designated for our services is terminated, in which case the customer would be obligated to pay all outstanding indebtedness on the vessel and any prepayment fees (or, if applicable, an amount that approximates the amount of debt that would have been outstanding had we not prepaid the indebtedness in connection with our initial public offering); or
	(b) if the free trade of the vessel is disrupted due to war, without any payment or penalty.

	•	the customer may purchase the vessel at any time at a price that equals the amount of indebtedness that would had been outstanding had we not prepaid the indebtedness on the vessel in connection with our initial public offering, plus an additional amount designated in the charter; and
	•	the customer may terminate the time charter if the supply of LNG is generally unavailable, in which case the customer would be obligated to pay an amount equal to the indebtedness that would have been outstanding on the vessel had we not prepaid the indebtedness in connection with our initial public offering.

	•	the customer may purchase the vessel

	(a) when it is otherwise entitled to terminate the charter or under certain circumstances if we are in default under the charter, at a price designated in the charter that is designed to cover all of our remaining financing costs plus certain lost profits; or
	(b) at any time at a price designated in the charter that is designed to cover all of our remaining financing costs, certain lost profits and an additional amount;

	•	the customer may terminate the charter

	(a) at any time, in which case the customer would be obligated to pay a substantial cancellation fee; or
	(b) in the event of a prolonged continuation of certain specified “force majeure” events that are beyond the parties’ control and that would prevent the customer’s performance under the charter (including damage to or destruction of relevant LNG production facilities or LNG customer regasification facilities), upon our bankruptcy or if we are in breach of a specified provision of the charter, in each case without any payment or penalty; and

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	•	the customer may convert the time charter to a bareboat charter

	(a) if we breach our obligations to deliver a vessel built to the customer’s specifications or to remedy warranty deficiencies and we fail to cure this breach;
	(b) due to our negligence, the vessel is involved in a significant marine incident or is off-hire for a prolonged period; or
	(c) the customer could otherwise then terminate the time charter.

	•	maintain the structural integrity of the vessel;
	•	ensure reliability;
	•	optimize performance in terms of speed and fuel consumption; and
	•	ensure the vessel’s appearance will support our brand and meet customer expectations.

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121

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	•	vessel maintenance;
	•	crewing;
	•	purchasing;
	•	shipyard supervision;
	•	insurance; and
	•	financial services.

122

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	General

123

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	Regulation — International Maritime Organization (or IMO)

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	•	is the subject of a contract for a major conversion or original construction on or after July 6, 1993;
	•	commences a major conversion or has its keel laid on or after January 6, 1994; or
	•	completes a major conversion or is a newbuilding delivered on or after July 6, 1996.

	Environmental Regulations — The United States Oil Pollution Act of 1990 (or OPA 90)

	•	natural resources damages and the related assessment costs;
	•	real and personal property damages;
	•	net loss of taxes, royalties, rents, fees and other lost revenues;
	•	lost profits or impairment of earning capacity due to property or natural resources damage;
	•	net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and
	•	loss of subsistence use of natural resources.

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	•	address a “worst case” scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a “worst case discharge”;
	•	describe crew training and drills; and
	•	identify a qualified individual with full authority to implement removal actions.

126

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	Environmental Regulation — Other Environmental Initiatives

	Marshall Islands Taxation

127

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	Luxembourg Taxation

128

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	Spanish Taxation

		Tonnage Tax Base
Net Tonnage of Vessel		Daily Rate per 100 Tonnes
0 to 1,000			0.90 Euros
1,001 to 10,000			0.70 Euros
10,001 to 25,000			0.40 Euros
Over 25,000			0.20 Euros

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	•	a Spanish company must be enrolled in any Spanish registry for shipping companies specified under the regime;
	•	the company must own or charter out vessels;
	•	the vessels must be managed strategically and commercially from Spain or another country belonging to the European Union; and
	•	the vessels must engage in certain maritime-related activities, including the transportation of goods or merchandise.

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	Qatar Taxation

	•	in relation to expenses that are incurred wholly, necessarily and exclusively in relation to the periods for which individual vessels operate in Qatari waters, the QPRTD should accept these expenses as a deduction in arriving at taxable income;
	•	in relation to expenses that accrue over the period of the time-charter contract for each vessel, it is more likely than not that the QPRTD will accept an apportionment of these expenses as a deduction in arriving at taxable income based on the time the vessel operates in Qatari waters as a proportion of the total period of the charter; and
	•	in relation to depreciation of each of the vessels in a tax year, the QPRTD should accept as a deduction in arriving at taxable income an apportionment of the annual depreciation allowance permitted under the tax law based on the time the vessel operates in Qatari waters.

131

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Name		Age				Position
C. Sean Day			56			Chairman
Bjorn Moller			48			Vice Chairman and Director
Peter Evensen			47			Chief Executive Officer, Chief Financial Officer and Director
Robert E. Boyd			66			Director*†
Ida Jane Hinkley			55			Director*
Ihab J.M. Massoud			37			Director†
George Watson			58			Director*†
Bruce C. Bell			58			Secretary
Andres Luna			49			Managing Director, Teekay Spain
Pedro Solana			49			Director, Finance and Accounting, Teekay Spain

*	Member of Audit Committee and Conflicts Committee.

†	Member of Corporate Governance Committee.

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134

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Name		Age				Position
David Glendinning			51				President
Kenneth Hvid			37				Senior Vice President
Roy E. Spires			59				Vice President, Finance

135

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136

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137

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138

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Percentage of

Percentage of

Percentage of

Total Common

Common

Subordinated

Subordinated

and Subordinated

Common

Units

Units

Units

Units

Units Beneficially

Beneficially

Beneficially

Beneficially

Beneficially

Name of Beneficial Owner

Owned

Owned

Owned

Owned

Owned

Teekay Shipping Corporation (1)

8,734,572

55.9

%

14,734,572

100

%

77.3

%

All executive officers, key employees and directors as a group (10 persons)(2)(3)

506,372

3.3

%

—

—

1.7

%

(1)	Excludes the 2% general partner interest held by our general partner, a wholly owned subsidiary of Teekay Shipping Corporation.
(2)	Excludes units owned by Teekay Shipping Corporation, on the board of which serve the directors of our general partner, C. Sean Day and Bjorn Moller. In addition, Mr. Moller is Teekay Shipping Corporation’s chief executive officer, and Peter Evensen, our general partner’s chief executive officer, chief financial officer and director, is Teekay Shipping Corporation’s chief financial officer. Mr. Day also serves as a director and as the Chairman of Teekay Shipping Corporation’s largest stockholder.
(3)	Subject to note 2 above, each of these individuals beneficially owns less than one percent of our outstanding common units.

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	Noncompetition

	•	acquiring LNG carriers and related time charters as part of a business and operating or chartering those vessels if a majority of the value of the total assets or business acquired is not attributable to the LNG carriers and related time charters, as determined in good faith by the board of directors of Teekay Shipping Corporation; however, if at any time Teekay Shipping Corporation completes such an acquisition, it must offer to sell the LNG carriers and related time charters to us for their fair market value plus any additional tax or other similar costs to Teekay Shipping Corporation that would be required to transfer the LNG carriers and time charters to us separately from the acquired business;
	•	owning, operating or chartering LNG carriers that relate to a bid or award for a proposed LNG project that Teekay or any of its subsidiaries has submitted or hereafter submits or receives; however, at least 180 days prior to the scheduled delivery date of any such LNG carrier, Teekay Shipping Corporation must offer to sell the LNG carrier and related time charter to us, with the vessel valued at its “fully-built-up cost,” which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Shipping Corporation to acquire or construct and bring such LNG carrier to the condition and location necessary for our intended use;
	•	owning, operating or chartering LNG carriers subject to the offers to us described in the preceding two paragraphs pending our determination whether to accept such offers and pending the closing of any offers we accept;
	•	acquiring, operating or chartering LNG carriers if our general partner has previously advised Teekay Shipping Corporation that the board of directors of our general partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate the carriers;

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	•	owning or operating any of the three RasGas II LNG newbuilding carriers and related time charters if we fail to perform our obligation to purchase such vessels under our agreement with Teekay Shipping Corporation (please read “— Agreement to Purchase RasGas II Interest”);
	•	acquiring up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates LNG carriers; or
	•	providing ship management services relating to LNG carriers.

	(1)	apply to any oil tankers owned, operated or chartered by us or any of our subsidiaries as of the closing of this offering (including the three Suezmax tankers to be acquired by us from Teekay Shipping Corporation upon the closing of this offering), and the ownership, operation or chartering of any oil tankers that replace any of those oil tankers (or Replacement Oil Tankers) in connection with:

	•	the destruction or total loss of the original tanker; the tanker being damaged to an extent that makes repairing it uneconomical or renders it permanently unfit for normal use, as determined in good faith by our general partner within 90 days after the occurrence of the damage; or the tanker’s condemnation, confiscation, requisition or a similar taking of title to or use of it that continues for at least six months; or
	•	the replacement of a time charter existing on the closing of this offering, where the tanker that was subject to the charter has been sold or transferred due to the exercise by the customer of its right under the charter to cause the sale or transfer;

	(2)	prevent us or any of our subsidiaries from:

	•	acquiring oil tankers and any related time charters as part of a business and operating or chartering those vessels, if a majority of the value of the total assets or business acquired is not attributable to the oil tankers and any related charters, as determined by the conflicts committee of our general partner’s board of directors; however, if at any time we complete such an acquisition, we are required to promptly offer to sell the oil tankers and time charters to Teekay Shipping Corporation for fair market value plus any additional tax or other similar costs to us that would be required to transfer the oil tankers and time charters to Teekay Shipping Corporation separately from the acquired business;
	•	owning, operating or chartering crude oil tankers subject to the offer to Teekay Shipping Corporation described in the preceding paragraph pending its determination whether to accept such offer and pending the closing of any offer it accepts;

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	•	acquiring up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates crude oil tankers; or
	•	acquiring, operating or chartering oil tankers if Teekay Shipping Corporation has previously advised our general partner that it has elected not to acquire or operate those tankers.

	Rights of First Offer on Suezmax Tankers and LNG Carriers

	Indemnification

	•	certain defects in title to the assets contributed to us and any failure to obtain, prior to the closing of this offering, certain consents and permits necessary to conduct our business, which liabilities arise within two years after the closing of this offering; and
	•	certain income tax liabilities attributable to the operation of the assets contributed to us prior to the time they were contributed.

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	Amendments

	Administrative Services Agreement Between Us and Teekay Shipping Limited

	•	legal, investor relations and financial compliance services;
	•	bookkeeping and accounting services; and
	•	banking and finance services.

	Advisory, Technical and Administrative Services Agreements Between Certain of Our Operating Subsidiaries and Teekay Shipping Limited

	•	vessel maintenance;
	•	crewing;
	•	purchasing;
	•	shipyard supervision;
	•	insurance; and
	•	financial services.

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	LNG Strategic Consulting and Advisory Services Agreement Between Certain of Our Operating Subsidiaries and Teekay LNG Projects Ltd.

	•	strategic planning;
	•	business development opportunities;
	•	integration of any acquired businesses;
	•	client relations; and
	•	any other matters relating to the business of Teekay Spain’s LNG business that Teekay Spain may request assistance with, to the extent Teekay LNG Projects Ltd. has knowledge or experience related to such matters.

	•	its 100% ownership interests in three ship-owning subsidiaries; and
	•	an aggregate of $137.5 million of demand notes receivable that will be owing from these subsidiaries to Teekay Shipping Corporation. After the acquisition, the notes receivable will be intercompany receivables owing from the subsidiaries to us and will be eliminated in our consolidated results.

144

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145

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	•	Depot Spares. Teekay Nakilat will purchase spare parts for the LNG carriers during their construction periods. These “depot spares” are critical replacement parts that are purchased in advance of being required due to long order lead times to procure these parts at a later stage. Purchasing the spares in advance avoids or minimizes any vessel downtime if these parts are required with little notice. Depot spare costs are estimated to be $2.2 million per vessel.
	•	Provisions for Modifications. These costs relate to potential vessel modifications that the customer may request during the vessel construction period, which Teekay Nakilat initially will fund. The estimated cost is $2.5 million per vessel.
	•	Supervision and Management. These costs cover Teekay Nakilat’s expense in supervising construction of the vessels at the shipyard. Estimated costs are approximately $1.3 million per vessel.
	•	Other Costs. These costs represent other significant costs incurred by Teekay Nakilat such as vessel start-up costs, crew training, crew supplies and flag registration. The total of these other costs is estimated to be $2.6 million per vessel.

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	•	Financing Costs. Teekay Shipping Corporation has arranged for long-term financing for the three RasGas II vessels, which are obligations of the ship owning subsidiaries of Teekay Nakilat, and currently are guaranteed by Teekay Shipping Corporation. To the extent Teekay Shipping Corporation or Teekay Nakilat pays the closing costs relating to this financing, we will reimburse 70% of those costs. Closing costs for this financing are estimated to be $2.0 million per vessel.

147

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148

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	•	approved by the conflicts committee, although our general partner is not obligated to seek such approval;
	•	approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates;
	•	on terms no less favorable to us than those generally being provided to or available from unrelated third parties, but the general partner is not required to obtain confirmation to such effect from an independent third party; or
	•	fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us.

149

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	Actions taken by our general partner may affect the amount of cash available for distribution to unitholders or accelerate the right to convert subordinated units.

	•	the amount and timing of asset purchases and sales;
	•	cash expenditures;
	•	borrowings;
	•	the issuance of additional units; and
	•	the creation, reduction or increase of reserves in any quarter.

	•	enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or
	•	hastening the expiration of the subordination period.

	We do not have any officers and rely solely on officers of Teekay GP L.L.C.

	We reimburse our general partner and its affiliates for expenses.

150

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	Our general partner limits its liability regarding our obligations.

	Common unitholders have no right to enforce obligations of our general partner and its affiliates under agreements with us.

	Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arm’s-length negotiations.

	•	on terms no less favorable to us then those generally being provided to or available from unrelated third parties; or
	•	“fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).

	Common units are subject to our general partner’s limited call right.

	We may not choose to retain separate counsel for ourselves or for the holders of common units.

	Our general partner’s affiliates may compete with us.

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	•	the fiduciary duties imposed on our general partner by the Marshall Islands Act;
	•	material modifications of these duties contained in our partnership agreement; and
	•	certain rights and remedies of unitholders contained in the Marshall Islands Act.

Marshall Islands law fiduciary duty standards		Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Marshall Islands limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
Partnership agreement modified standards		Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties under the laws of the Marshall Islands. For example, Section 7.9 of our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under the laws of the Marshall Islands. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as

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		our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partner would otherwise be held.
		Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our general partner must be:
		• on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
		• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).
		If our general partner does not seek approval from the conflicts committee, and the board of directors of our general partner determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.
Rights and remedies of unitholders		In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or its officers and directors acted in bad faith or engaged in fraud, willful misconduct or gross negligence. The provisions of the Marshall Islands Act resemble the provisions of the limited partnership act of Delaware. For example, like Delaware, the Marshall Islands Act favors the principles of freedom of contract and enforceability of partnership agreements and allows the partnership agreement to contain terms governing the rights of the unitholders. The rights of our unitholders, including voting and approval rights and the ability of the partnership to issue additional units, are governed by the terms of our partnership agreement. Please read “The Partnership Agreement.”
		As to remedies of unitholders, the Marshall Islands Act permits a limited partner to institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of the partnership agreement.

153

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154

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	Duties

	•	surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
	•	special charges for services requested by a holder of a common unit; and
	•	other similar fees or charges.

	Resignation or Removal

	•	becomes the record holder of the common units and is an assignee until admitted into our partnership as a substituted limited partner;
	•	automatically requests admission as a substituted limited partner in our partnership;
	•	agrees to be bound by the terms and conditions of, and executes, our partnership agreement;
	•	represents that the transferee has the capacity, power and authority to enter into the partnership agreement;
	•	grants powers of attorney to officers of our general partner and any liquidator of us as specified in the partnership agreement; and

155

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	•	gives the consents and approvals contained in our partnership agreement, such as the approval of all transactions and agreements we are entering into in connection with our formation and this offering.

	•	the right to assign the common unit to a purchaser or other transferee; and
	•	the right to transfer the right to seek admission as a substituted limited partner in our partnership for the transferred common units.

	•	will not receive cash distributions or federal income tax allocations, unless the common units are held in a nominee or “street name” account and the nominee or broker has executed and delivered a transfer application; and
	•	may not receive some U.S. federal income tax information or reports furnished to record holders of common units.

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	•	with regard to distributions of available cash, please read “Cash Distribution Policy”;
	•	with regard to the fiduciary duties of our general partner, please read “Conflicts of Interests and Fiduciary Duties”;
	•	with regard to the transfer of common units, please read “Description of the Common Units — Transfer of Common Units”; and
	•	with regard to allocations of U.S. federal taxable income and loss, please read “Material U.S. Federal Income Tax Consequences.”

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	•	during the subordination period, the approval of a majority of the common units, excluding those common units held by our general partner and its affiliates, and a majority of the subordinated units, voting as separate classes; and
	•	after the subordination period, the approval of a majority of the common units.

Action		Unitholder Approval Required
Issuance of additional units		No approval rights.
Amendment of the partnership agreement		Certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read “— Amendment of the Partnership Agreement.”
Amendment of the operating agreement of the operating company and other action taken by us as a member of the operating company		Unit majority if such amendment or other action would adversely affect our limited partners (or any particular class of limited partners) in any material respect. Please read “— Action Relating to the Operating Company.”
Merger of our partnership or the sale of all or substantially all of our assets		Unit majority. Please read “— Merger, Sale or Other Disposition of Assets.”
Dissolution of our partnership		Unit majority. Please read “— Termination and Dissolution.”
Reconstitution of our partnership upon dissolution		Unit majority. Please read “— Termination and Dissolution.”
Withdrawal of the general partner		Under most circumstances, the approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required for the withdrawal of the general partner prior to March 31, 2015 in a manner which would cause a dissolution of our partnership. Please read “— Withdrawal or Removal of the General Partner.”
Removal of the general partner		Not less than 662/3% of the outstanding units, voting as a single class, including units held by our general partner and its affiliates. Please read “— Withdrawal or Removal of the General Partner.”

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Action		Unitholder Approval Required
Transfer of the general partner interest in us		Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to such person. The approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest to a third party prior to March 31, 2015. Please read “— Transfer of General Partner Interest.”
Transfer of incentive distribution rights		Except for transfers to an affiliate or another person as part of the general partner’s merger or consolidation with or into, or sale of all or substantially all of its assets to such person, the approval of a majority of the common units, excluding common units held by our general partner and its affiliates, voting separately as a class, is required in most circumstances for a transfer of the incentive distribution rights to a third party prior to March 31, 2015. Please read “— Transfer of Incentive Distribution Rights.”
Transfer of ownership interests in the general partner		No approval required at any time. Please read “— Transfer of Ownership Interests in General Partner.”

	•	to remove or replace our general partner;
	•	to approve some amendments to our partnership agreement; or
	•	to take other action under our partnership agreement;

159

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160

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	General

	Prohibited Amendments

	(1) increase the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected;
	(2) increase the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to the general partner or any of its affiliates without the consent of the general partner, which may be given or withheld at its option;
	(3) change the term of our partnership;
	(4) provide that our partnership is not dissolved upon an election to dissolve our partnership by our general partner that is approved by the holders of a unit majority; or
	(5) give any person the right to dissolve our partnership other than our general partner’s right to dissolve our partnership with the approval of the holders of a unit majority.

	No Unitholder Approval

	Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner or assignee to reflect:
	(1) a change in our name, the location of our principal place of business, our registered agent or our registered office;
	(2) the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
	(3) a change that our general partner determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction or to ensure that neither we, the operating company, nor its subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;
	(4) an amendment that is necessary, upon the advice of our counsel, to prevent us or our general partner or its directors, officers, agents, or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisors Act of 1940, or plan

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	asset regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;
	(5) an amendment that the general partner determines to be necessary or appropriate for the authorization of additional partnership securities or rights to acquire partnership securities;
	(6) any amendment expressly permitted in the partnership agreement to be made by the general partner acting alone;
	(7) an amendment effected, necessitated, or contemplated by a merger agreement that has been approved under the terms of the partnership agreement;
	(8) any amendment that the general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by the partnership agreement;
	(9) a change in our fiscal year or taxable year and related changes;
	(10) certain mergers or conveyances as set forth in our partnership agreement; or
	(11) any other amendments substantially similar to any of the matters described in (1) through (10) above.

	(1) do not adversely affect the limited partners (or any particular class of limited partners) in any material respect;
	(2) are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;
	(3) are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading;
	(4) are necessary or appropriate for any action taken by the general partner relating to splits or combinations of units under the provisions of the partnership agreement; or
	(5) are required to effect the intent expressed in this prospectus or the intent of the provisions of the partnership agreement or are otherwise contemplated by the partnership agreement.

	Opinion of Counsel and Unitholder Approval

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	(1) the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
	(2) the sale, exchange, or other disposition of all or substantially all of our assets and properties and our subsidiaries;
	(3) the entry of a decree of judicial dissolution of us; or
	(4) the withdrawal or removal of our general partner or any other event that results in its ceasing to be the general partner other than by reason of a transfer of its general partner interest in accordance with the partnership agreement or withdrawal or removal following approval and admission of a successor.

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	(1) the action would not result in the loss of limited liability of any limited partner; and
	(2) none of our partnership or the operating company nor any of our other subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue.

	•	the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;

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	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	the general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of the interests at the time.

	•	an affiliate of the general partner (other than an individual), or
	•	another entity as part of the merger or consolidation of our general partner with or into another entity or the transfer by the general partner of all or substantially all of its assets to another entity,

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	•	the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	the general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.

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	•	our general partner determines to pay a portion of the purchase price for the Suezmax tankers and related assets we will acquire from Teekay Shipping Corporation upon the closing of this offering with our common units; or
	•	in connection with the sale to us of its 70% interest in Teekay Nakilat, which owns the three RasGas II LNG newbuilding carriers, Teekay Shipping Corporation elects to receive common units in satisfaction of the cash portion of the purchase price for that ownership interest.

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	(1) our general partner;
	(2) any departing general partner;
	(3) any person who is or was an affiliate of our general partner or any departing general partner;
	(4) any person who is or was an officer, director, member or partner of any entity described in (1), (2) or (3) above;
	(5) any person who is or was serving as a director, officer, member, partner, fiduciary or trustee of another person at the request of our general partner or any departing general partner; or
	(6) any person designated by our general partner.

168

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	(1) a current list of the name and last known address of each partner;
	(2) a copy of our tax returns;
	(3) information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each became a partner;
	(4) copies of the partnership agreement, the certificate of limited partnership of the partnership, related amendments and powers of attorney under which they have been executed;
	(5) information regarding the status of our business and financial condition; and
	(6) any other information regarding our affairs as is just and reasonable.

169

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	•	1% of the total number of the class of securities outstanding; or
	•	the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale.

170

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171

---

 

	•	We have not elected and will not elect to be treated as a corporation, and each of our direct or indirect wholly-owned subsidiaries has properly elected to be disregarded as an entity separate from us, for U.S. federal income tax purposes; and
	•	For each taxable year, at least 90% of our gross income is either (a) income to which the IRS ruling described above applies or (b) of a type that Perkins Coie LLP has opined or will opine is “qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code.

	•	assignees of common units who have executed and delivered transfer applications, and are awaiting admission as limited partners and

172

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	•	unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units

173

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174

---

 

	•	interest on indebtedness properly allocable to property held for investment;
	•	our interest expense attributed to portfolio income; and
	•	the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.

175

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	•	his relative contributions to us;
	•	the interests of all the partners in profits and losses;
	•	the interest of all the partners in cash flow; and
	•	the rights of all the partners to distributions of capital upon liquidation.

	•	any of our income, gain, loss, deduction or credit with respect to the units may not be reportable by the unitholder who loaned them; and
	•	any cash distributions received by such unitholder with respect to those units may be fully taxable as ordinary income.

176

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177

---

 

178

---

 

	•	a short sale;
	•	an offsetting notional principal contract; or
	•	a futures or forward contract with respect to the partnership interest or substantially identical property.

179

---

 

180

---

 

181

---

 

182

---

 

183

---

 

	Taxation of Operating Income

	The 4% Gross Basis Tax

	Net Income Tax and Branch Tax Regime

184

---

 

	The Section 883 Exemption

185

---

 

	Consequences of Possible PFIC Classification

186

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	•	the excess distribution or gain will be allocated ratably over the unitholder’s holding period;
	•	the amount allocated to the current taxable year and any year prior to the first year in which we were a PFIC will be taxed as ordinary income in the current year;
	•	the amount allocated to each of the other taxable years in the unitholder’s holding period will be subject to U.S. federal income tax at the highest rate in effect for the applicable class of taxpayer for that year; and
	•	an interest charge for the deemed deferral benefit will be imposed with respect to the resulting tax attributable to each of these other taxable years.

	Consequences of Possible Controlled Foreign Corporation Classification

187

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188

---

 

	•	Teekay Shipping Limited for the provision of advisory, technical, ship management and administrative services; and
	•	Teekay LNG Projects Ltd., a Canadian subsidiary of Teekay Shipping Corporation, for the provision of strategic advisory and consulting services.

189

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	•	whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
	•	whether in making the investment, the plan will satisfy the diversification requirements of Section 404(a)(l)(C) of ERISA; and
	•	whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return.

	•	the equity interests acquired by employee benefit plans are publicly offered securities; i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, are freely transferable and are registered under specified provisions of the federal securities laws;
	•	the entity is an “operating company” (i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority owned subsidiary or subsidiaries); or
	•	there is no significant investment by benefit plan investors, which means that less than 25% of the value of each class of equity interest (disregarding some interests held by our general partner, its affiliates and any other persons who have the ability to control our assets) or who provide investment advice with respect to such assets, is held by the employee benefit plans referred to above, IRAs, other employee benefit plans not subject to ERISA, including governmental plans, and certain entities whose underlying assets are deemed to be plan assets.

190

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			Number of
Underwriter			Common Units
Citigroup Global Markets Inc.
	Total			4,000,000

	•	during the last 17 days of the 90-day restricted period we issue an earnings release or announce material news or a material event; or
	•	prior to the expiration of the 90-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 90-day restricted period;

191

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		Paid by Teekay LNG
		Partners L.P.
		No Exercise				Full Exercise
Per common unit		$				$
Total		$				$

192

---

 

193

---

 

	•	the balance sheets of Teekay Shipping Spain S.L. as at December 31, 2003 and 2004 and the related financial statements for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004;
	•	the financial statements of Teekay Luxembourg S.a.r.l. as at and for the nine months ended December 31, 2004; and
	•	the balance sheet of Teekay GP L.L.C. as at December 31, 2004.

194

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U.S. Securities and Exchange Commission registration fee		$	15,166
National Association of Securities Dealers, Inc. filing fee			13,385
Legal fees and expenses			400,000
Accounting fees and expenses			150,000
Printing costs			150,000
Transfer agent fees and other			5,000
Total		$	733,551

195

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196

---

 

	•	our ability to make cash distributions on the units or any increases in our quarterly distributions;
	•	our future financial condition or results of operations and our future revenues and expenses;
	•	the EBITDA and other contributions to our operating results of the three Suezmax tankers and related time charters we will acquire from Teekay Shipping Corporation upon the closing of this offering;
	•	our ability to enter into any new credit facility;
	•	future LNG and crude oil prices and production;
	•	planned capital expenditures and availability of capital resources to fund capital expenditures;
	•	future supply of, and demand for, LNG and crude oil;
	•	increases in domestic oil and natural gas consumption;
	•	forecasts of likely future LNG exporters and importers and of the accompanying expansion in the LNG global trade routes;
	•	forecasts of global LNG liquefaction and regasification capacity;
	•	our ability to maintain long-term relationships with major LNG importers and exporters, and major crude oil companies;
	•	our ability to leverage to our advantage Teekay Shipping Corporation’s relationships and reputation in the shipping industry;
	•	our continued ability to enter into long-term, fixed-rate time charters with our LNG customers;
	•	obtaining LNG projects that we or Teekay Shipping Corporation bid on or that Teekay Shipping Corporation has been or may be awarded;
	•	our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
	•	expected purchases and deliveries of newbuilding vessels;
	•	expected financial flexibility to pursue acquisitions and other expansion opportunities;
	•	our ability to compete successfully for future chartering and newbuilding opportunities;
	•	the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards applicable to our business;

197

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	•	our anticipated incremental general and administrative expenses as a public company and our expenses under service agreements with other affiliates of Teekay Shipping Corporation and for reimbursements of fees and costs of our general partner;
	•	the anticipated taxation of our partnership and distributions to our unitholders;
	•	estimated future maintenance capital expenditures;
	•	expected demand in the LNG and crude oil shipping sectors in general and the demand for our vessels in particular;
	•	customers’ increasing emphasis on environmental and safety concerns;
	•	continued outsourcing of non-core functions, such as seaborne transportation, by companies in the oil and energy industry;
	•	entering into credit facilities or vessel financing arrangements, including any U.K. lease arrangements for the RasGas II vessels or otherwise, and the effects of any such arrangements; and
	•	our business strategy and other plans and objectives for future operations.

198

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ORGANIZATIONAL STRUCTURE			F-2
TEEKAY LNG PARTNERS L.P.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction			F-4
Unaudited Pro Forma Consolidated Statement of Loss for the year ended December 31, 2004			F-5
Unaudited Pro Forma Consolidated Statement of Income for the six months ended June 30, 2005			F-6
Notes to Unaudited Pro Forma Consolidated Financial Statements			F-7
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Unaudited Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2005 and 2004			F-12
Unaudited Consolidated Balance Sheet at June 30, 2005 and December 31, 2004			F-13
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2005			F-14
Unaudited Consolidated Statement of Partners’ Equity/ Stockholders’ Deficit for the six months ended June 30, 2005			F-15
Notes to Unaudited Consolidated Financial Statements			F-16
TEEKAY SHIPPING SPAIN S.L.
CONSOLIDATED AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm			F-31
Consolidated Statements of Income (Loss) for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004			F-32
Consolidated Balance Sheets as at December 31, 2003 and 2004			F-33
Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004			F-34
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004			F-35
Notes to Consolidated Audited Financial Statements			F-36
TEEKAY LUXEMBOURG S.A.R.L.
CONSOLIDATED AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm			F-49
Consolidated Statement of Loss for the nine months ended December 31, 2004			F-50
Consolidated Balance Sheet as at December 31, 2004			F-51
Consolidated Statement of Cash Flows for the nine months ended December 31, 2004			F-52
Consolidated Statement of Changes in Stockholder Deficit for the nine months ended December 31, 2004			F-53
Notes to Consolidated Audited Financial Statements			F-54
TEEKAY GP L.L.C.
AUDITED BALANCE SHEET
Report of Independent Registered Public Accounting Firm			F-65
Balance Sheet as at December 31, 2004			F-66
Notes to Audited Balance Sheet			F-67

F-1

---

 

F-2

---

 

F-3

---

 

	•	Teekay LNG Partners L.P.’s historical consolidated financial statements and related notes for the six months ended June 30, 2005;
	•	Teekay Spain’s historical audited consolidated financial statements and related notes for the four months ended April 30, 2004 and the eight months ended December 31, 2004; and
	•	Luxco’s historical audited consolidated financial statements and related notes as at and for the nine months ended December 31, 2004.

	•	for the year ended December 31, 2004, by adjusting (1) the audited historical consolidated statement of income of Teekay Spain for the period from January 1, 2004 to April 30, 2004, and (2) the audited historical consolidated statement of loss of Luxco for the period from April 7, 2004 (the date of its incorporation) to December 31, 2004, which includes the results of Teekay Spain from May 1, 2004 to December 31, 2004; and
	•	for the six months ended June 30, 2005, by adjusting the unaudited historical consolidated statement of income of Teekay LNG Partners L.P for the six months ended June 30, 2005.

F-4

---

 

			Year Ended December 31, 2004
											Initial Public
			Teekay				Teekay				Offering and
			Luxembourg				Shipping				Other				Teekay LNG
			S.a.r.l.				Spain, S.L.				Transaction				Partners L.P.
			Historical(1)				Historical(2)				Adjustments				Pro Forma
			(in thousands of U.S. dollars, except for unit data)
VOYAGE REVENUES			$	83,115			$	40,718				—			$	123,833
OPERATING EXPENSES
Voyage expenses				3,090				1,842				—				4,932
Vessel operating expenses				20,315				10,302				—				30,617
Depreciation and amortization				26,275				8,585			$	970	(3a)			37,808
												1,978	(3b)
General and administrative				4,375				2,103				1,000	(3c)			8,813
												1,309	(3h)
												26	(3i)
Total operating expenses				54,055				22,832				5,283				82,170
Income from vessel operations				29,060				17,886				(5,283	)			41,663
OTHER ITEMS
Interest expense				(50,485	)			(21,475	)			24,807	(3d)			(31,060	)
												10,065	(3e)
												5,662	(3f)
												366	(3g)
Interest income				13,519				8,692				—				22,211
Foreign currency exchange gain (loss)				(78,831	)			18,010				44,682	(3e)			(16,139	)
Interest rate swap gain (loss)				—				3,985				(4,890	)(3f)			(905	)
Other income (loss)				2,342				(10,934	)			(8,016	)(3g)			(17,269	)
												(661	)(3j)
Total other items				(113,455	)			(1,722	)			72,015				(43,162	)
Net income (loss)			$	(84,395	)		$	16,164			$	66,732			$	(1,499	)
General partner’s interest in net loss															$	(30	)
Limited partners’ interest:
	Net loss															(1,469	)
Net loss per:
	— Common unit (basic and diluted) (note 5)														$	(0.05	)
	— Subordinated unit (basic and diluted) (note 5)															(0.05	)
	— Total unit (basic and diluted) (note 5)															(0.05	)
Weighted average number of units outstanding (in thousands):
	— Common units outstanding (basic and diluted)															15,638
	— Subordinated units outstanding (basic and diluted)															14,735
	— Total units outstanding (basic and diluted)															30,373

(1)	Reflects consolidated results of Teekay Luxembourg S.a.r.l. from April 7, 2004 (date of incorporation) to December 31, 2004, which include the results of Teekay Shipping Spain, S.L. from May 1, 2004 to December 31, 2004.
(2)	Reflects results of Teekay Shipping Spain, S.L. from January 1, 2004 to April 30, 2004.

F-5

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			Six Months Ended June 30, 2005
											Initial Public
			Teekay				Teekay LNG				Offering and
			Luxembourg				Partners				Other				Teekay LNG
			S.a.r.l.				L.P.				Transaction				Partners L.P.
			Historical(1)				Historical(2)				Adjustments				Pro Forma
			(in thousands of U.S. dollars, except for unit data)
VOYAGE REVENUES			$	50,129			$	20,364				—			$	70,493
OPERATING EXPENSES
Voyage expenses				251				73				—				324
Vessel operating expenses				10,771				3,932				—				14,703
Depreciation and amortization				14,751				5,852				—				20,603
General and administrative				2,928				1,274				353	(3c)			5,027
												463	(3h)
												9	(3i)
Total operating expenses				28,701				11,131				825				40,657
Income from vessel operations				21,428				9,233				(825	)			29,836
OTHER ITEMS
Interest expense				(35,679	)			(8,196	)			7,914	(3d)			(26,778	)
												7,323	(3e)
												1,598	(3f)
												262	(3g)
Interest income				9,098				3,003				—				12,101
Foreign currency exchange gain (loss)				52,295				22,993				(28,460	)(3e)			46,828
Other income (loss)				(17,927	)			1,670				7,820	(3f)			(1,864	)
												7,462	(3g)
												(889	)(3j)
Total other items				7,787				19,470				3,030				30,287
Net income			$	29,215			$	28,703			$	2,205			$	60,123
General partner’s interest in net income															$	12,147
Limited partners’ interest:
	Net income															47,976
Net income per:
	— Common unit (basic and diluted) (note 5)														$	1.58
	— Subordinated unit (basic and diluted) (note 5)															1.58
	— Total unit (basic and diluted) (note 5)															1.58
Weighted-average number of units outstanding (in thousands):
	— Common units (basic and diluted)															15,638
	— Subordinated units (basic and diluted)															14,735
	— Total units (basic and diluted)															30,373

(1)	Reflects consolidated results of Teekay Luxembourg S.a.r.l. (predecessor to Teekay LNG Partners L.P.) from January 1, 2005 to May 9, 2005.
(2)	Reflects consolidated results of Teekay LNG Partners L.P., which include the results of Teekay Luxembourg S.a.r.l., from May 10, 2005 to June 30, 2005.

F-6

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1.	Basis of Presentation

	•	The purchase of Teekay Spain by Teekay Shipping Corporation through Luxco. On April 30, 2004, Luxco purchased all the outstanding shares of Tapias from an unrelated party for $298.2 million in cash plus the assumption of debt and remaining newbuilding commitments.
	•	The contribution by Teekay Shipping Corporation to Teekay LNG Partners L.P. (or the Partnership) of (a) the shares of, and an aggregate of $742.8 million in notes receivable (including accrued interest) from, Luxco, and (b) the shares of the subsidiary that owned the Suezmax tanker the Granada Spirit, in exchange for:

	•	the issuance to Teekay Shipping Corporation of 8,734,572 common units and 14,734,572 subordinated units of the Partnership;
	•	the issuance to Teekay GP L.L.C., a wholly owned subsidiary of Teekay Shipping Corporation, of the 2% general partner interest in the Partnership and all of the Partnership’s incentive distribution rights; and
	•	an interest bearing loan of $10.0 million and a non-interest bearing loan of $119.4 million to Teekay Spain from Teekay Shipping Corporation.

	•	The issuance by the Partnership of 6,900,000 common units to the public at an initial public offering price of $22.00 per common unit, resulting in aggregate gross proceeds to the Partnership of $151.8 million.
	•	Teekay Shipping Corporation’s contribution to the Partnership prior to the Partnership’s initial public offering of an amount that the Partnership used, together with the loans and existing cash, to repay $337.3 million of Teekay Spain term loans and to pay $143.3 million to settle interest rate swaps associated with $337.3 million of debt of Teekay Spain and to settle and re-enter into interest rate swaps associated with 322.8 million Euros ($390.5 million) of term loans.
	•	The use of the net proceeds of the initial public offering to repay the $10.0 million loan and $119.4 million loan from Teekay Shipping Corporation.
	•	The payment by the Partnership in connection with its initial public offering of underwriting commissions, structuring fees and offering expenses of $15.9 million.

	(a) The unaudited pro forma consolidated statement of loss for the year ended December 31, 2004 includes revenues and expenses relating to marketable securities, real estate, a yacht and other assets that were sold by Teekay Spain prior to its acquisition by Teekay Shipping Corporation on April 30, 2004. The disposition of these assets resulted in other loss of $11.8 million during the year ended December 31, 2004.
	(b) The unaudited pro forma consolidated statement of loss for the year ended December 31, 2004 also include revenues and expenses associated with one Suezmax tanker (the Granada Spirit) that was operating in the spot tanker market prior to its transfer to Teekay Shipping Corporation in the fourth quarter of 2004. Teekay Shipping Corporation contributed this vessel back to us at the

F-7

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closing of the initial public offering and we sold it again to Teekay Shipping Corporation on May 26, 2005. The revenue earned by this vessel is not representative of the revenue we earned from it during 2005, as the vessel was absent from our fleet for part of the year and it was chartered to Teekay Shipping Corporation from the Partnership at a fixed, daily time charter rate. If this vessel had been earning the same fixed charter rate in 2004, as during 2005, income from vessel operations would have been lower by $6.1 million.

2.	Summary of Significant Accounting Policies

3.	Pro Forma Adjustments and Assumptions

	(a) The purchase of Teekay Spain by Teekay Shipping Corporation through its subsidiary Luxco as described above in Note 1. Depreciation expense related to the acquired vessels has been based upon their estimated fair market values on the date of acquisition of April 30, 2004 ($821.9 million), and a 25-year vessel life for Suezmax tankers and a 35-year vessel life for LNG carriers. As a result of the adjusted values of the acquired vessels, depreciation expense increased by $1.0 million for the four months ended April 30, 2004.
	(b) The purchase of Teekay Spain by Teekay Shipping Corporation through its subsidiary Luxco. Amortization expense related to the acquired time charter contracts has been based upon their estimated fair market values on the date of acquisition of April 30, 2004 ($183.1 million), and a weighted-average amortization period of 19.2 years. As a result, amortization expense increased by $2.0 million for the four months ended April 30, 2004.
	(c) The incurrence by the Partnership of estimated incremental general and administrative expenses of $1.0 million annually, including costs associated with annual reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and directors compensation. The Partnership has estimated this amount based on its experience since its initial public offering, the experience of its affiliate, Teekay Shipping Corporation, which is a public company, and discussions with certain advisors.
	(d) The prepayment of $337.3 million of Teekay Spain term loans with existing cash, and loans from, Teekay Shipping Corporation, which are described in Note 1 above. These term loans had a weighted-average interest rate of 7.9% per annum. Had these term loans been repaid on January 1, 2004 rather than April 30, 2005, interest expense would have decreased by $24.8 million for the year ended December 31, 2004 and by $7.9 million for the six months ended June 30, 2005. Although the Partnership entered into a $100 million credit facility in connection with its initial public offering, it has not drawn on the facility in connection with the transactions referred to in Note 1 above.
	(e) The contribution by Teekay Shipping Corporation to the Partnership of the Luxco shares and the aggregate amount of $742.8 million of notes receivable from Luxco as described above in

F-8

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	Note 1. If these Euro-denominated notes receivable from Luxco had been contributed to the Partnership on January 1, 2004 rather than May 6, 2005, interest expense would have decreased by $10.1 million for the year ended December 31, 2004 and by $7.3 million for the six months ended June 30, 2005. In addition, foreign exchange loss would have decreased by $44.7 million for the year ended December 31, 2004, and foreign exchange gain would have decreased by $28.5 million for the six months ended June 30, 2005.
	(f) The payment of the settlement cost of $143.3 million under interest rate swaps relating to the $337.3 million debt repayment described above in Note 3(d) and 322.8 million Euros ($390.5 million) of debt not repaid. If these interest rate swaps had been repaid on January 1, 2004 rather than April 30, 2005, the interest rate swap gain would have decreased by $4.9 million for the year ended December 31, 2004 and other loss would have decreased by $7.8 million for the six months ended June 30, 2005. Had the interest rate swaps relating to the $390.5 million of debt been settled and new swaps of the same amount been entered into with a lower fixed interest rate both on January 1, 2004, interest expense would have decreased by $5.7 million for the year ended December 31, 2004 and by $1.6 million for the six months ended June 30, 2005. If these interest rate swaps had been settled on January 1, 2004, we would have funded the settlement with either a contribution from Teekay Shipping Corporation or a loan from Teekay Shipping Corporation, which would have subsequently been contributed to the Partnership. Consequently, the Partnership would not have recorded interest expense from the funding of these interest rate swap settlements with debt.
	(g) The write-downs of capitalized loan costs upon the $337.3 million debt repayment described above in Note 3(d) of $8.0 million for the year ended December 31, 2004 and the elimination of the actual write-down of capitalized loan costs in April 2005. The amount of the write-downs is the net book value of the capitalized loan costs on the two term loans repaid. The corresponding decrease in interest expense from these write-downs was $0.4 million and $0.3 million, respectively, for the year ended December 31, 2004 and the six months ended June 30, 2005.
	(h) After the closing of the transactions referred to in Note 1 above, subsidiaries of Teekay Shipping Corporation have agreed to provide certain services to the Partnership and the Partnership’s subsidiaries. These services include strategic consulting, advisory, ship management, technical and administrative services. The services are valued at a reasonable, arms’-length rate that includes reimbursement of the reasonable direct or indirect expenses incurred in providing the services. In addition, the Partnership reimburses its general partner for expenses it incurs on behalf of the Partnership. These costs are estimated to be approximately $1.3 million annually.
	(i) Expenses associated with the 2005 Long-Term Incentive Plan. Concurrent with the initial public offering, the Partnership awarded 700 common units as compensation to each of the Partnership’s five non-employee directors. These common units reverse vest equally over a three-year period. As a result, compensation expense would have increased by $0.03 million for the year ended December 31, 2004 and by $0.01 million for the six months ended June 30, 2005.
	(j) The effect on provision for income taxes from the incremental general and administrative expenses, prepayment of debt, settlement of interest rate swaps and write-off of capitalized loan costs described in Notes 3(d), (f), (g), and (h). These effects on provision for income taxes are determined by applying a 3.5% effective income tax rate to the previously mentioned pro forma adjustments.

F-9

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4.	Commitments and Contingencies

5.	Net Income (Loss) per Unit

			Common				Subordinated				All Unit
			Unit Holders				Unit Holders				Holders
			(in thousands, except number of units and per
			unit data)
Year Ended December 31, 2004
	Pro forma Net Loss		$	(756	)		$	(713	)		$	(1,469	)
	Pro forma Weighted Average Number of Units Outstanding			15,638,072				14,734,572				30,372,644
	Pro forma Net Loss Per Unit		$	(0.05	)		$	(0.05	)		$	(0.05	)
Six Months Ended June 30, 2005
	Pro forma Net Income		$	24,702			$	23,274			$	47,976
	Pro forma Weighted Average Number of Units Outstanding			15,638,072				14,734,572				30,372,644
	Pro forma Net Income Per Unit		$	1.58			$	1.58			$	1.58

F-10

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F-11

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			Three Months Ended June 30,																Six Months Ended June 30,
			2004								2005								2004								2005
			April 1 to				May 1 to				April 1 to				May 10 to				January 1 to				May 1 to				January 1 to				May 10 to
			April 30,				June 30,				May 9,				June 30,				April 30,				June 30,				May 9,				June 30,
			2004				2004				2005				2005				2004				2004				2005				2005
			(in thousands of U.S. Dollars, except unit and per unit data)
VOYAGE REVENUES			$	10,125			$	17,453			$	15,365			$	20,364			$	40,718			$	17,453			$	50,129			$	20,364
OPERATING EXPENSES
Voyage expenses				610				1,462				59				73				1,842				1,462				251				73
Vessel operating expenses				2,576				4,584				2,777				3,932				10,302				4,584				10,771				3,932
Depreciation and amortization				2,151				6,426				4,541				5,852				8,585				6,426				14,751				5,852
General and administrative				526				854				1,418				1,274				2,103				854				2,928				1,274
Total operating expenses				5,863				13,326				8,795				11,131				22,832				13,326				28,701				11,131
Income from vessel operations				4,262				4,127				6,570				9,233				17,886				4,127				21,428				9,233
OTHER ITEMS
Interest expense (notes 8 and 9)				(5,369	)			(11,070	)			(10,068	)			(8,196	)			(21,475	)			(11,070	)			(35,679	)			(8,196	)
Interest income				2,173				3,491				2,829				3,003				8,692				3,491				9,098				3,003
Foreign currency exchange gain (loss) (note 9)				11,007				(9,975	)			7,296				22,993				18,010				(9,975	)			52,295				22,993
Interest rate swaps gain				996				—				—				—				3,985				—				—				—
Other income (loss) — net (note 10)				(11,611	)			604				(19,320	)			1,670				(10,934	)			604				(17,927	)			1,670
Total other items				(2,804	)			(16,950	)			(19,263	)			19,470				(1,722	)			(16,950	)			7,787				19,470
Net income (loss)			$	1,458			$	(12,823	)		$	(12,693	)		$	28,703			$	16,164			$	(12,823	)		$	29,215			$	28,703
General partner’s interest in net income			$	—			$	—			$	—			$	9,233			$	—			$	—			$	—			$	9,233
Limited partners’ interest: (note 15)
	Net income (loss)			1,458				(12,823	)			(12,693	)			19,470				16,164				(12,823	)			29,215				19,470
	Net income (loss) per:
	- Common unit (basic and diluted)			0.06				(0.55	)			(0.54	)			0.64				0.69				(0.55	)			1.24				0.64
	- Subordinated unit (basic and diluted)			0.06				(0.55	)			(0.54	)			0.64				0.69				(0.55	)			1.24				0.64
	- Total unit (basic and diluted)			0.06				(0.55	)			(0.54	)			0.64				0.69				(0.55	)			1.24				0.64
Weighted-average number of units outstanding:
	- Common units (basic and diluted)			8,734,572				8,734,572				8,734,572				15,638,072				8,734,572				8,734,572				8,734,572				15,638,072
	- Subordinated units (basic and diluted)			14,734,572				14,734,572				14,734,572				14,734,572				14,734,572				14,734,572				14,734,572				14,734,572
	- Total units (basic and diluted)			23,469,144				23,469,144				23,469,144				30,372,644				23,469,144				23,469,144				23,469,144				30,372,644

F-12

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		As at				As at
		December 31,				June 30,
		2004				2005
		(in thousands of U.S. dollars)
ASSETS
Current
Cash and cash equivalents		$	156,410			$	55,875
Restricted cash — current (note 5)			82,387				83,240
Accounts receivable			7,197				3,576
Prepaid expenses and other assets			3,449				2,758
Total current assets			249,443				145,449
Restricted cash — long-term (note 5)			352,725				303,800
Vessels and equipment (note 9)
At cost, less accumulated depreciation of $10,947 (December 31, 2004 — $5,829)			366,334				361,216
Vessels under capital leases, at cost, less accumulated depreciation of $20,237 (December 31, 2004 — $9,597) (note 5)			629,569				619,083
Advances on newbuilding contracts (note 14)			49,165				172,448
Total vessels and equipment			1,045,068				1,152,747
Other assets			20,394				11,061
Intangible assets — net (note 6)			178,457				173,792
Goodwill (note 6)			39,279				39,279
Total assets		$	1,885,366			$	1,826,128
LIABILITIES AND PARTNERS’ EQUITY/ STOCKHOLDER DEFICIT
Current
Accounts payable		$	11,411			$	2,590
Accrued liabilities			8,240				19,073
Current portion of long-term debt (note 9)			22,368				22,449
Current obligation under capital leases (note 5)			87,687				80,679
Advances from affiliate (note 8)			465,695				520
Total current liabilities			595,401				125,311
Long-term debt (note 9)			764,758				381,186
Long-term obligation under capital leases (note 5)			513,361				481,240
Other long-term liabilities			134,848				14,985
Total liabilities			2,008,368				1,002,722
Commitments and contingencies (notes 12 and 14)
Minority interest (note 14)			—				140,554
Partners’ equity/ Stockholder deficit
Partners’ equity			—				745,361
Capital stock			180				—
Accumulated deficit			(79,504	)			—
Accumulated other comprehensive loss (note 11)			(43,678	)			(62,509	)
Total partners’ equity/stockholder deficit			(123,002	)			682,852
Total liabilities and partners’ equity/stockholder deficit		$	1,885,366			$	1,826,128

F-13

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			Six Months Ended June 30,
			2004				2005
			(in thousands of
			U.S. Dollars)
Cash and cash equivalents provided by (used for):
OPERATING ACTIVITIES
Net income			$	3,341			$	57,918
Non-cash items:
	Depreciation and amortization			15,011				20,603
	Gain on sale of marketable securities			(85	)			—
	Loss (gain) on sale of other assets			11,922				(186	)
	Deferred income taxes			(1,745	)			1,500
	Foreign currency exchange gain			(6,718	)			(79,014	)
	Interest rate swaps gain			(3,985	)			—
	Loss from settlement of interest rate swaps			—				7,820
	Write-off of capitalized loan costs			—				7,462
	Accrued interest and other — net			(253	)			7,464
Change in non-cash working capital items related to operating activities				2,038				1,458
Net operating cash flow				19,526				25,025
FINANCING ACTIVITIES
Proceeds from long-term debt				7,144				10,900
Scheduled repayments of long-term debt				(12,236	)			(5,600	)
Scheduled repayments of capital lease obligations				(2,578	)			(3,346	)
Prepayments of long-term debt				(20,575	)			(339,438	)
Proceeds from issuance of common units				—				141,327
Interest rate swap settlement costs				—				(143,295	)
Advances from affiliate				306,048				353,069
Advances to affiliate				—				(184,302	)
Decrease in restricted cash				—				10,440
Other				4,226				—
Net financing cash flow				282,029				(160,245	)
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(10,487	)			(48,921	)
Purchase of Teekay Shipping Spain, S.L.				(297,303	)			—
Proceeds from sale of vessels and equipment				—				83,606
Proceeds from sale of marketable securities				899				—
Proceeds from sale of other assets				6,251				—
Other				(727	)			—
Net investing cash flow				(301,367	)			34,685
Increase (Decrease) in cash and cash equivalents				188				(100,535	)
Cash and cash equivalents, beginning of the period				21,328				156,410
Cash and cash equivalents, end of the period			$	21,516			$	55,875

F-14

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						PARTNERS’ EQUITY
																										Accumulated
		Stockholder																								Other
						Limited Partners
		Deficit																				General				Comprehensive
		(Predecessor)				Common Units								Subordinated Units								Partner				Loss				Total
		(in thousands of U.S. dollars and units)
Balance as at December 31, 2004		$	(123,002	)			—			$	1				—			$	—			$	—			$	—			$	(123,001	)
Net income (January 1 to May 9, 2005)			29,215				—				—				—				—				—				—				29,215
Unrealized loss on derivative instruments (note 13)			(22,874	)			—				—				—				—				—				—				(22,874	)
Reclassification adjustment for loss on derivative instruments included in net income (note 13)			14,359				—				—				—				—				—				—				14,359
Sale of the Santiago Spirit (note 12)			(3,115	)			—				—				—				—				—				—				(3,115	)
Balance as at May 9, 2005			(105,417	)			—				1				—				—				—				—				(105,416	)
Equity contribution by Teekay Shipping Corporation (note 1)			105,417				8,734				211,788				14,735				357,318				11,614				(52,194	)			633,943
Proceeds from initial public offering of limited partnership interests, net of offering costs of $15,863 (note 2)			—				6,900				135,937				—				—				—				—				135,937
Issuance of units to non-employee directors (note 2)			—				4				—				—				—				—				—				—
Net income (May 10 to June 30, 2005)			—				—				10,025				—				9,445				9,233				—				28,703
Unrealized loss on derivative instruments (note 13)			—				—				—				—				—				—				(11,916	)			(11,916	)
Reclassification adjustment for loss on derivative instruments included in net income (note 13)			—				—				—				—				—				—				1,601				1,601
Balance as at June 30, 2005		$	—				15,638			$	357,751				14,735			$	366,763			$	20,847			$	(62,509	)		$	682,852

F-15

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1.	Basis of Presentation

F-16

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2.	Initial Public Offering

Proceeds received:
	Sale of 6,900,000 common units at $22.00 per unit		$	151,800
Use of proceeds from sale of common units:
	Underwriting and structuring fees		$	10,473
	Professional fees and other offering expenses to third parties			5,390
	Repayment of advances from Teekay Shipping Corporation			129,400
	Working capital			6,537
			$	151,800

3.	Acquisition of Teekay Shipping Spain S.L.

F-17

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			As at
			April 30, 2004
ASSETS
Cash, cash equivalents and short-term restricted cash			$	85,092
Other current assets				7,415
Vessels and equipment				821,939
Restricted cash – long-term				311,664
Other assets – long-term				15,355
Intangible assets subject to amortization:
	Time-charter contracts (weighted-average useful life of 19.2 years)			183,052
Goodwill ($3.6 million Suezmax tanker segment and $35.7 million LNG carrier segment)				39,279
Total assets acquired			$	1,463,796
LIABILITIES
Current liabilities			$	98,428
Long-term debt				668,733
Obligations under capital leases				311,011
Other long-term liabilities				87,439
Total liabilities assumed				1,165,611
Net assets acquired (cash consideration)			$	298,185

4.	Segment Reporting

F-18

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		Three Months Ended June 30, 2004
		April 1 to April 30, 2004												May 1 to June 30, 2004
		Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total
Voyage revenues		$	6,122			$	4,003			$	10,125			$	9,454			$	7,999			$	17,453
Voyage expenses			602				8				610				1,347				115				1,462
Vessel operating expenses			1,799				777				2,576				2,947				1,637				4,584
Depreciation and amortization			1,512				639				2,151				3,679				2,747				6,426
General and administrative(1)			394				132				526				638				216				854
Income from vessel operations		$	1,815			$	2,447			$	4,262			$	843			$	3,284			$	4,127
Expenditures for vessels and equipment		$	267			$	80			$	347			$	4,651			$	314			$	4,965

		Three Months Ended June 30, 2005
		April 1 to May 9, 2005												May 10 to June 30, 2005
		Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total
Voyage revenues		$	4,746			$	10,619			$	15,365			$	6,204			$	14,160			$	20,364
Voyage expenses			58				1				59				72				1				73
Vessel operating expenses			1,151				1,626				2,777				1,763				2,169				3,932
Depreciation and amortization			1,317				3,224				4,541				1,553				4,299				5,852
General and administrative(1)			709				709				1,418				667				607				1,274
Income from vessel operations		$	1,511			$	5,059			$	6,570			$	2,149			$	7,084			$	9,233
Expenditures for vessels and equipment		$	—			$	—			$	—			$	4,959			$	—			$	4,959

		Six Months Ended June 30, 2004
		January 1 to April 30, 2004												May 1 to June 30, 2004
		Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total
Voyage revenues		$	24,708			$	16,010			$	40,718			$	9,454			$	7,999			$	17,453
Voyage expenses			1,809				33				1,842				1,347				115				1,462
Vessel operating expenses			7,196				3,106				10,302				2,947				1,637				4,584
Depreciation and amortization			6,047				2,538				8,585				3,679				2,747				6,426
General and administrative(1)			1,577				526				2,103				638				216				854
Income from vessel operations		$	8,079			$	9,807			$	17,886			$	843			$	3,284			$	4,127
Expenditures for vessels and equipment		$	5,039			$	483			$	5,522			$	4,651			$	314			$	4,965

F-19

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		Six Months Ended June 30, 2005
		January 1 to May 9, 2005												May 10 to June 30, 2005
		Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total
Voyage revenues		$	15,246			$	34,883			$	50,129			$	6,204			$	14,160			$	20,364
Voyage expenses			202				49				251				72				1				73
Vessel operating expenses			4,800				5,971				10,771				1,763				2,169				3,932
Depreciation and amortization			4,005				10,746				14,751				1,553				4,299				5,852
General and administrative(1)			1,464				1,464				2,928				667				607				1,274
Income from vessel operations		$	4,775			$	16,653			$	21,428			$	2,149			$	7,084			$	9,233
Expenditures for vessels and equipment		$	43,962			$	—			$	43,962			$	4,959			$	—			$	4,959

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

			As at				As at
			December 31,				June 30,
			2004				2005
Total assets of the Suezmax tanker segment			$	287,058			$	264,563
Total assets of the LNG carrier segment				1,423,191				1,492,903
Cash and cash equivalents and marketable securities				156,410				55,875
Accounts receivable and other assets				18,707				12,787
	Consolidated total assets		$	1,885,366			$	1,826,128

5.	Capital Lease Obligations and Restricted Cash

	Capital Leases

Year		Commitment
2005		$	10.4 million
2006			145.8 million
2007			3.9 million
2008			3.9 million
2009			3.8 million
Thereafter			42.8 million

F-20

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Year		Commitment
2005			77.1 million Euros ($93.3  million	)
2006			123.2 million Euros ($149.0  million	)
2007			23.3 million Euros ($28.1  million	)
2008			24.4 million Euros ($29.5  million	)
2009			25.6 million Euros ($31.0  million	)
Thereafter			91.7 million Euros ($111.0  million	)

	Restricted cash

6.	Intangible Assets and Goodwill

Weighted-Average

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

(years)

Time-charter contracts

19.2

$

182,522

$

8,760

$

173,792

F-21

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Three Months Ended June 30,																Six Months Ended June 30,
2004								2005								2004								2005
April 1				May 1				April 1				May 10				January 1				May 1				January 1				May 10
to				to				to				to				to				to				to				to
April 30, 2004				June 30, 2004				May 9, 2005				June 30, 2005				April 30, 2004				June 30, 2004				May 9, 2005				June 30, 2005
$	—			$	1,763			$	1,037			$	1,296			$	—			$	1,763			$	3,369			$	1,296

		Suezmax Tanker				LNG Carrier
		Segment				Segment				Total
Balance as at December 31, 2004 and June 30, 2005 (note 3)		$	3,648			$	35,631			$	39,279

7.	Cash Flows

8.	Advances from Affiliate

		December 31, 2004				June 30, 2005
Euro-denominated Demand Promissory Notes		$	371,073			$	—
Euro-denominated Participating Loan			94,622				—
Other (non-interest bearing)			—				520
Total		$	465,695			$	520

F-22

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Three Months Ended June 30,																Six Months Ended June 30,
2004								2005								2004								2005
April 1				May 1				April 1				May 10				January 1				May 1				January 1				May 10
to				to				to				to				to				to				to				to
April 30,				June 30,				May 9,				June 30,				April 30,				June 30,				May 9,				June 30,
2004				2004				2005				2005				2004				2004				2005				2005
$	—			$	2,438			$	2,526			$	—			$	—			$	2,438			$	7,325			$	—

9.	Long-Term Debt

		December 31, 2004				June 30, 2005
U.S. Dollar-denominated Term Loans due through 2005		$	343,390			$	14,462
Euro-denominated Term Loans due through 2023			443,736				389,173
			787,126				403,635
Less current portion			22,368				22,449
Total		$	764,758			$	381,186

Three Months Ended June 30,																Six Months Ended June 30,
2004								2005								2004								2005
April 1				May 1				April 1				May 10				January 1				May 1				January 1				May 10
to				to				to				to				to				to				to				to
April 30,				June 30,				May 9,				June 30,				April 30,				June 30,				May 9,				June 30,
2004				2004				2005				2005				2004				2004				2005				2005
$	11,007			$	(9,975	)		$	7,296			$	22,993			$	18,010			$	(9,975	)		$	52,295			$	22,993

F-23

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10.	Other Income (Loss) — Net

		Three Months Ended June 30,																Six Months Ended June 30,
		2004								2005								2004								2005
		April 1				May 1				April 1				May 10				January 1				May 1				January 1				May 10
		to				to				to				to				to				to				to				to
		April 30,				June 30,				May 9,				June 30,				April 30,				June 30,				May 9,				June 30,
		2004				2004				2005				2005				2004				2004				2005				2005
Loss on cancellation of interest rate swaps		$	—			$	—			$	(7,820	)		$	—			$	—			$	—			$	(7,820	)		$	—
Gain (loss) on sale of assets			(11,922	)			—				—				186				(11,922	)			—				—				186
Write-off of capitalized loan costs			—				—				(7,462	)			—				—				—				(7,462	)			—
Income tax recovery (expense)			161				573				(4,004	)			1,672				645				573				(2,648	)			1,672
Miscellaneous			150				31				(34	)			(188	)			343				31				3				(188	)
Other income (loss) — net		$	(11,611	)		$	604			$	(19,320	)		$	1,670			$	(10,934	)		$	604			$	(17,927	)		$	1,670

F-24

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11.	Comprehensive Income (Loss)

			Three Months Ended June 30,																Six Months Ended June 30,
			2004								2005								2004								2005
			April 1				May 1				April 1				May 10				January 1				May 1				January 1				May 10
			to				to				to				to				to				to				to				to
			April 30,				June 30,				May 9,				June 30,				April 30,				June 30,				May 9,				June 30,
			2004				2004				2005				2005				2004				2004				2005				2005
Net income (loss)			$	1,458			$	(12,823	)		$	(12,693	)		$	28,703			$	16,164			$	(12,823	)		$	29,215			$	28,703
Other comprehensive income (loss):
	Unrealized loss on derivative instruments			—				(9,420	)			(24,882	)			(11,916	)			—				(9,420	)			(22,874	)			(11,916	)
	Reclassification adjustment for loss on derivative instruments included in net income			—				4,428				9,246				1,601				—				4,428				14,359				1,601
	Unrealized gain on marketable securities			—				—				—				—				467				—				—				—
	Reclassification adjustment for gain on available-for-sale securities included in net income			—				—				—				—				(55	)			—				—				—
	Comprehensive income (loss)		$	1,458			$	(17,815	)		$	(28,329	)		$	18,388			$	16,576			$	(17,815	)		$	20,700			$	18,388

12.	Related Party Transactions

F-25

---

 

13.	Derivative Instruments and Hedging Activities

Fair Value/

Weighted-

Carrying

Average

Fixed

Interest Rate

Principal

Amount of

Remaining

Interest

Index

Amount

Liability

Term

Rate(1)

(years)

Euro-denominated interest rate swaps(2)

EURIBOR

$

389,173

$

14,985

19.0

3.8

%

(1)	Excludes the margin the Partnership pays on its floating-rate debt (please see Note 9).
(2)	Principal amount reduces monthly to 70.1 million Euros ($84.8 million) by the maturity dates of the swap agreements.

F-26

---

 

14.	Commitments and Contingencies

F-27

---

 

15.	Net Income (Loss) Per Unit

16.	Subsequent Events

F-28

---

 

F-29

---

 

F-30

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-31

---

 

		Years Ended December 31,								Four Months				Eight Months
										Ended				Ended
		2002				2003				April 30, 2004				December 31, 2004
		(in thousands of U.S. Dollars)
VOYAGE REVENUES		$	59,866			$	86,709			$	40,718			$	83,115
OPERATING EXPENSES
Voyage expenses			5,334				4,911				1,842				3,090
Vessel operating expenses			16,104				26,440				10,302				20,315
Depreciation and amortization			17,689				23,390				8,585				26,275
General and administrative			6,501				8,799				2,103				4,300
Total operating expenses			45,628				63,540				22,832				53,980
Income from vessel operations			14,238				23,169				17,886				29,135
OTHER ITEMS
Interest expense			(18,109	)			(34,862	)			(21,475	)			(40,560	)
Interest income			5,248				8,431				8,692				13,426
Foreign currency exchange gain (loss) (note 7)			(44,310	)			(71,502	)			18,010				(34,149	)
Interest rate swaps gain (loss) (note 13)			(71,400	)			14,715				3,985				—
Other income (loss) — net (note 12)			563				617				(10,934	)			3,361
Total other items			(128,008	)			(82,601	)			(1,722	)			(57,922	)
Net income (loss)		$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)

F-32

---

 

		As at December 31,
		2003				2004
		(in thousands of U.S. Dollars)
ASSETS
Current
Cash and cash equivalents		$	21,328			$	154,203
Restricted cash — current (note 3)			73,894				82,387
Accounts receivable			17,682				7,197
Prepaid expenses and other assets			2,145				3,449
Total current assets			115,049				247,236
Marketable securities — long term (note 5)			1,205				—
Restricted cash — long term (note 3)			324,144				352,725
Vessels and equipment (note 7)
At cost, less accumulated depreciation of $5,829 (December 31, 2003 — $92,171)			220,643				366,334
Vessels under capital leases, at cost, less accumulated depreciation of $4,233 (December 31, 2003 — $18,663) (note 3)			256,504				397,932
Advances on newbuilding contracts (note 14)			125,403				49,165
Total vessels and equipment			602,550				813,431
Other assets			26,133				20,394
Intangible assets — net (note 6)			—				178,457
Goodwill (note 6)			—				39,279
Total assets		$	1,069,081			$	1,651,522
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current
Accounts payable		$	5,881			$	11,410
Accrued liabilities			1,644				8,301
Advance from affiliate (note 8)			—				111,814
Current portion of long-term debt (note 7)			53,242				22,368
Current obligation under capital leases (note 3)			62,684				80,956
Total current liabilities			123,451				234,849
Long-term debt (note 7)			690,447				764,758
Long-term obligation under capital leases (note 3)			323,053				332,417
Other long-term liabilities (note 9)			96,415				134,848
Total liabilities			1,233,366				1,466,872
Commitments and contingencies (note 14)
Minority interest			524				—
Stockholders’ equity (deficit)
Capital stock (note 10)			1,580				1,580
Additional paid in capital (note 1)			—				439,978
Accumulated deficit			(165,584	)			(213,230	)
Accumulated other comprehensive loss			(805	)			(43,678	)
Total stockholders’ equity (deficit)			(164,809	)			184,650
Total liabilities and stockholders’ equity (deficit)		$	1,069,081			$	1,651,522

F-33

---

 

			Years Ended December 31,								Four Months				Eight Months
											Ended				Ended
			2002				2003				April 30, 2004				December 31, 2004
			(in thousands of U.S. Dollars)
Cash and cash equivalents provided by (used for):
OPERATING ACTIVITIES
Net income (loss)			$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)
Non-cash items:
	Depreciation and amortization			17,689				23,390				8,585				26,275
	Gain on sale of vessels and equipment			—				—				—				(3,428	)
	Gain on sale of marketable securities			(490	)			(1,576	)			(85	)			—
	Loss on sale of other assets			—				—				11,922				—
	Deferred income tax expense (recovery)			1,818				1,634				(1,131	)			(4,398	)
	Foreign currency exchange loss (gain)			43,314				68,897				(16,525	)			31,144
	Interest rate swap loss (gain)			71,400				(14,715	)			(3,985	)			—
	Other — net			1,188				4,594				(1,048	)			(15,275	)
Change in non-cash working capital items related to operating activities (note 15)				253				237				911				5,935
Expenditures for drydocking				(984	)			(4,711	)			—				(4,085	)
Net operating cash flow				20,418				18,318				14,808				7,381
FINANCING ACTIVITIES
Proceeds from long-term debt				232,829				211,089				2,359				131,368
Long-term debt issuance costs				(4,289	)			—				—				—
Scheduled repayments of long-term debt				(28,946	)			(291,730	)			(9,899	)			(60,644	)
Scheduled repayments of capital lease obligations				(6,425	)			(4,115	)			(1,777	)			(64,950	)
Prepayments of long-term debt				—				—				(20,575	)			(41,316	)
Advance from affiliate				—				—				—				111,817
Proceeds from government grants				—				49,215				—				—
Decrease (increase) in restricted cash				(16,853	)			(242,075	)			—				19,370
Other				—				—				4,046				—
Net financing cash flow				176,316				(277,616	)			(25,846	)			95,645
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(186,755	)			(133,628	)			(5,522	)			(83,703	)
Purchase of Naviera F. Tapias Gas S.A. (net of cash acquired of $5,140) (note 11b)				(11,039	)			(4,515	)			—				—
Proceeds from sale of vessels and equipment				—				399,234				—				123,689
Proceeds from sale of marketable securities				451				3,929				899				—
Proceeds from sale of other assets				—				—				6,251				—
Other				(1,875	)			(2,254	)			(727	)			—
Net investing cash flow				(199,218	)			262,766				901				39,986
Increase (decrease) in cash and cash equivalents				(2,484	)			3,468				(10,137	)			143,012
Cash and cash equivalents, beginning of the year				20,344				17,860				21,328				11,191
Cash and cash equivalents, end of the year			$	17,860			$	21,328			$	11,191			$	154,203

F-34

---

 

															Retained				Accumulated								Total
			Number of								Additional				Earnings				Other								Stockholders’
			Common				Common				Paid in				(Accumulated				Comprehensive				Comprehensive				Equity
			Shares				Stock				Capital				Deficit)				Loss				Income (Loss)				(Deficit)
			(in thousands of U.S. dollars, except for share data)
Balance as at December 31, 2001				18,425			$	1,580			$	—			$	28,370			$	(101	)						$	29,849
Net loss																(113,770	)						$	(113,770	)			(113,770	)
Other comprehensive income (loss):
	Unrealized loss on available-for-sale securities																			(1,750	)			(1,750	)			(1,750	)
	Reclassification adjustment for loss on available-for-sale securities included in net loss																			318				318				318
Comprehensive loss																								(115,202	)
Purchase of Naviera F. Tapias Gas S.A. (note 11b)																(20,752	)											(20,752	)
Balance as at December 31, 2002				18,425				1,580				—				(106,152	)			(1,533	)							(106,105	)
Net loss																(59,432	)							(59,432	)			(59,432	)
Other comprehensive income (loss):
	Unrealized loss on available-for-sale securities																			(296	)			(296	)			(296	)
	Reclassification adjustment for loss on available-for-sale securities included in net loss																			1,024				1,024				1,024
Comprehensive loss																								(58,704	)
Balance as at December 31, 2003				18,425				1,580				—				(165,584	)			(805	)							(164,809	)
Net income																16,164								16,164				16,164
Other comprehensive income:
	Unrealized gain on available-for-sale securities																			467				467				467
	Reclassification adjustment for gain on available-for-sale securities included in net income																			(55	)			(55	)			(55	)
Comprehensive income																								16,576
Sale of unrelated businesses (note 1)																4,047												4,047
Balance as at April 30, 2004				18,425				1,580				—				(145,373	)			(393	)							(144,186	)
Net loss																(28,787	)							(28,787	)			(28,787	)
Other comprehensive income:
	Unrealized loss on derivative instruments (note 13)																			(57,444	)			(57,444	)			(57,444	)
	Reclassification adjustment for loss on derivative instruments included in net income (note 13)																			13,766				13,766				13,766
	Reclassification adjustment for loss on available-for-sale securities included in net loss																			393				393				393
Comprehensive loss																							$	(72,072	)
Revaluation of assets and liabilities (note 1)												439,978																439,978
Transfer of Suezmax purchase obligations (note 11d)																(43,961	)											(43,961	)
Sale of Granada Spirit (note 11e)																4,891												4,891
Balance as at December 31, 2004				18,425			$	1,580			$	439,978			$	(213,230	)		$	(43,678	)						$	184,650

F-35

---

 

1.	Summary of Significant Accounting Policies

	Basis of presentation

F-36

---

 

ASSETS
Cash, cash equivalents and short-term restricted cash		$	85,092
Other current assets			7,415
Vessels and equipment			821,939
Restricted cash — long term			311,664
Other assets — long-term			15,355
Intangible assets subject to amortization:
Time-charter contracts (weighted average remaining useful life of 19.2 years)			183,052
Goodwill — non-tax deductible ($3.6 million Suezmax tanker segment and $35.7 million LNG carrier segment)			39,279
Total assets acquired		$	1,463,796
LIABILITIES
Current liabilities		$	98,428
Long-term debt			668,733
Obligations under capital leases			311,011
Other long-term liabilities			87,439
Total liabilities assumed			1,165,611
Net assets acquired (cash consideration)		$	298,185

	Reporting currency

	Operating revenues and expenses

F-37

---

 

	Cash and cash equivalents

	Marketable securities

	Vessels and equipment

F-38

---

 

	Loan costs

	Goodwill and intangible assets

	Derivative instruments

F-39

---

 

	Income taxes

	Comprehensive income (loss)

2.	Segment Reporting

		Year Ended December 31,
																		Four Months								Eight Months
																		Ended								Ended
		2002								2003								April 30, 2004								December 31, 2004
		(dollars in millions)
Customer 1 — Suezmax tanker segment		$	42.9				(72)%			$	41.1				(47)%			$	15.4				(38)%			$	29.7				(36)%
Customer 2 — LNG carrier segment			*								9.8				(11)				8.5				(21)				17.3				(21)
Customer 3 — LNG carrier segment			*								22.8				(26)				7.5				(18)				15.2				(18)
Customer 4 — LNG carrier segment			*								*								*								10.8				(13)

*	Customer accounted for less than 10% of the Company’s consolidated voyage revenues.

F-40

---

 

		Suezmax
		Tanker				LNG Carrier
Year ended December 31, 2002		Segment				Segment				Total
Voyage revenues		$	54,418			$	5,448			$	59,866
Voyage expenses			5,319				15				5,334
Vessel operating expenses			15,789				315				16,104
Depreciation and amortization			16,579				1,110				17,689
General and administrative(1)			6,237				264				6,501
Income from vessel operations		$	10,494			$	3,744			$	14,238
Total assets at December 31, 2002		$	215,139			$	596,269			$	811,408
Expenditures for vessels and equipment			2,385				184,370				186,755

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

		Suezmax
		Tanker				LNG Carrier
Year ended December 31, 2003		Segment				Segment				Total
Voyage revenues		$	54,102			$	32,607			$	86,709
Voyage expenses			4,788				123				4,911
Vessel operating expenses			20,584				5,856				26,440
Depreciation and amortization			17,760				5,630				23,390
General and administrative(1)			7,116				1,683				8,799
Income from vessel operations		$	3,854			$	19,315			$	23,169
Total assets at December 31, 2003		$	209,329			$	791,259			$	1,000,588
Expenditures for vessels and equipment			7,220				126,408				133,628

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

		Suezmax
		Tanker				LNG Carrier
Four months ended April 30, 2004		Segment				Segment				Total
Voyage revenues		$	24,708			$	16,010			$	40,718
Voyage expenses			1,809				33				1,842
Vessel operating expenses			7,196				3,106				10,302
Depreciation and amortization			6,047				2,538				8,585
General and administrative(1)			1,577				526				2,103
Income from vessel operations		$	8,079			$	9,807			$	17,886
Expenditures for vessels and equipment		$	5,039			$	483			$	5,522

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

F-41

---

 

		Suezmax
		Tanker				LNG Carrier
Eight months ended December 31, 2004		Segment				Segment				Total
Voyage revenues		$	39,730			$	43,385			$	83,115
Voyage expenses			2,869				221				3,090
Vessel operating expenses			12,806				7,509				20,315
Depreciation and amortization			13,422				12,853				26,275
General and administrative(1)			2,889				1,411				4,300
Income from vessel operations		$	7,744			$	21,391			$	29,135
Total assets at December 31, 2004		$	55,421			$	1,423,191			$	1,478,612
Expenditures for vessels and equipment			48,989				34,714				83,703

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

			December 31,
			2003				2004
Total assets of all segments			$	1,000,588			$	1,478,612
Cash, cash equivalents and marketable securities				22,533				154,203
Accounts receivable and other assets				45,960				18,707
	Consolidated total assets		$	1,069,081			$	1,651,522

3.	Capital Lease Obligations and Restricted Cash

	Capital Leases

Year		Commitment
2005			77.1 million Euros ($105.0  million)
2006			123.2 million Euros ($167.8  million)
2007			23.3 million Euros ($31.7 million)
2008			24.4 million Euros ($33.3 million)
2009			25.6 million Euros ($34.9 million)
Thereafter			91.7 million Euros ($124.9  million)

F-42

---

 

	Restricted Cash

4.	Operating Leases

Year		Commitment
2005		$	21.0  million
2006			17.9 million
2007			3.9 million
2008			3.9 million
2009			3.8 million
Thereafter			3.5 million

5.	Investments in Marketable Securities

						Gross				Approximate
						Unrealized				Market and
		Cost				Losses				Carrying Values
December 31, 2003
Marketable securities — long term		$	1,846			$	641			$	1,205
December 31, 2004
Marketable securities — long term			—				—				—

F-43

---

 

6.	Intangible Assets and Goodwill

Weighted-

Average

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

(years)

Time-charter contracts

19.2

$

182,552

$

4,095

$

178,457

		Suezmax				LNG
		Tanker				Carrier
		Segment				Segment				Total
Balance as at December 31, 2003			—				—				—
Goodwill acquired (note 1)		$	3,648			$	35,631			$	39,279
Balance as at December 31, 2004			3,648				35,631				39,279

7.	Long-Term Debt

		As at December 31,
		2003				2004
U.S. Dollar-denominated Term Loans due through 2022		$	371,334			$	343,390
Euro-denominated Term Loans due through 2025			372,355				443,736
Total, including current portion			743,689				787,126
Less current portion			53,242				22,368
Total		$	690,447			$	764,758

F-44

---

 

8.	Advance from Affiliate

9.	Fair Value of Financial Instruments

		December 31,
		2003								2004
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Cash and cash equivalents and restricted cash		$	420,571			$	420,571			$	589,315			$	589,315
Long-term debt (including capital lease obligations)			1,129,426				1,129,426				1,200,499				1,200,499
Derivative instruments (note 13) — Interest rate swap agreements			96,415				96,415				134,848				134,848

10.	Capital Stock

F-45

---

 

11.	Related Party Transactions

12.	Other Income (Loss) — net

		Year Ended
		December 31,								Four Months				Eight Months
										Ended				Ended
		2002				2003				April 30, 2004				December 31, 2004
Gain on sale of vessels and equipment		$	—			$	—			$	—			$	3,428
Gain on sale of marketable securities			490				1,576				85				—
Loss on sale of other assets (note 1)			—				—				(11,922	)			—
Income tax recovery (expense)			(2,164	)			(3,033	)			645				51
Miscellaneous			2,237				2,074				258				(118	)
Total		$	563			$	617			$	(10,934	)		$	3,361

13.	Derivative Instruments and Hedging Activities

Weighted-

Average

Fixed

Interest Rate

Principal

Remaining

Interest

Index

Amount

Term

Rate(1)

(years)

U.S. Dollar-denominated interest rate swaps(2)

LIBOR

$

328,459

21.4

6.7

%

Euro-denominated interest rate swaps(3)

EURIBOR

442,401

19.4

5.9

(1)	Excludes the margin the Company pays on its floating-rate debt (see Note 7).
(2)	Principal amount reduces monthly to zero by the maturity dates of the swap agreements.

F-46

---

 

(3)	Principal amount reduces monthly to 70.1 million Euros ($95.5 million) by the maturity dates of the swap agreements.

14.	Commitments and Contingencies

15.	Change in Non-Cash Working Capital Items Related to Operating Activities

		Year Ended								Four Months				Eight Months
		December 31,								Ended				Ended
										April 30,				December 31,
		2002				2003				2004				2004
Accounts receivable		$	(493	)		$	825			$	2,123			$	(4,125	)
Prepaid expenses and other assets			(646	)			(186	)			(2,156	)			(727	)
Accounts payable			1,285				(770	)			1,151				5,051
Accrued liabilities			107				368				(207	)			5,736
Total		$	253			$	237			$	911			$	5,935

16.	Subsequent Events

F-47

---

 

F-48

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-49

---

 

		Nine Months
		Ended
		December 31, 2004
		(in thousands of
		U.S. Dollars)
VOYAGE REVENUES		$	83,115
OPERATING EXPENSES
Voyage expenses			3,090
Vessel operating expenses			20,315
Depreciation and amortization			26,275
General and administrative			4,375
Total operating expenses			54,055
Income from vessel operations			29,060
OTHER ITEMSInterest expense (notes 6 and 7)			(50,485	)
Interest income			13,519
Foreign currency exchange loss (note 6)			(78,831	)
Other income — net (note 11)			2,342
Total other items			(113,455	)
Net loss		$	(84,395	)

F-50

---

 

		As at
		December 31, 2004
		(in thousands of
		U.S. dollars)
ASSETS (note 7)
Current
Cash and cash equivalents		$	156,410
Restricted cash — current (note 4)			82,387
Accounts receivable			7,197
Prepaid expenses and other assets			3,449
Total current assets			249,443
Restricted cash — long term (note 4)			352,725
Vessels and equipment (note 6)
At cost, less accumulated depreciation of $5,829			366,334
Vessels under capital leases, at cost, less accumulated depreciation of $9,597 (note 4)			629,569
Advances on newbuilding contracts (note 13)			49,165
Total vessels and equipment			1,045,068
Other assets			20,394
Intangible assets — net (note 5)			178,457
Goodwill (note 5)			39,279
Total assets		$	1,885,366
LIABILITIES AND STOCKHOLDER DEFICIT
Current
Accounts payable		$	11,411
Accrued liabilities			19,222
Current portion of long-term debt (note 6)			22,368
Current obligation under capital leases (note 4)			87,687
Advances from affiliate (note 7)			454,713
Total current liabilities			595,401
Long-term debt (note 6)			764,758
Long-term obligation under capital leases (note 4)			513,361
Other long-term liabilities (note 9)			134,848
Total liabilities			2,008,368
Commitments and contingencies (note 13)
Stockholder deficit
Capital stock (note 9)			180
Accumulated deficit			(79,504	)
Accumulated other comprehensive loss			(43,678	)
Total stockholder deficit			(123,002	)
Total liabilities and stockholder deficit		$	1,885,366

F-51

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			Nine Months
			Ended
			December 31, 2004
			(in thousands of
			U.S. dollars)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net loss			$	(84,395	)
Non-cash items:
	Depreciation and amortization			26,275
	Gain on sale of vessels and equipment			(3,428	)
	Deferred income tax			(4,398	)
	Foreign currency exchange loss			77,705
	Other — net			(5,125	)
Change in non-cash working capital items related to operating activities (note 14)				7,719
Expenditures for drydocking				(4,085	)
Net operating cash flow				10,268
FINANCING ACTIVITIES
Proceeds from long-term debt				131,368
Scheduled repayments of long-term debt				(60,644	)
Scheduled repayments of capital lease obligations				(64,950	)
Prepayments of long-term debt				(41,316	)
Proceeds from issuance of Common Stock				180
Advances from affiliate				409,141
Decrease in restricted cash				19,370
Net financing cash flow				393,149
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(83,703	)
Purchase of Teekay Shipping Spain, S.L. net of cash acquired of $11,191 (note 2)				(286,993	)
Proceeds from sale of vessels and equipment				123,689
Net investing cash flow				(247,007	)
Increase in cash and cash equivalents				156,410
Cash and cash equivalents, beginning of the period				—
Cash and cash equivalents, end of the period			$	156,410

F-52

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															Accumulated
			Number of												Other								Total
			Common				Common				Accumulated				Comprehensive				Comprehensive				Stockholder
			Shares				Stock				Deficit				Loss				Loss				Deficit
			(in thousands of U.S. dollars, except number of common shares)
Balance as at April 7, 2004				—			$	—			$	—			$	—							$	—
Issuance of common stock				1,500				180																180
Net loss												(84,395	)						$	(84,395	)			(84,395	)
Other comprehensive income:
	Unrealized loss on derivative instruments (note 12)															(57,444	)			(57,444	)			(57,444	)
	Reclassification adjustment for loss on derivative instruments included in net loss (note 12)															13,766				13,766				13,766
Comprehensive loss																			$	(128,073	)
Sale of Granada Spirit (note 10)												4,891												4,891
Balance as at December 31, 2004				1,500			$	180			$	(79,504	)		$	(43,678	)						$	(123,002	)

F-53

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1.	Summary of Significant Accounting Policies

	Basis of presentation

	Reporting currency

	Operating revenues and expenses

F-54

---

 

	Cash and cash equivalents

	Vessels and equipment

F-55

---

 

	Loan costs

	Goodwill and intangible assets

	Derivative instruments

	Income taxes

F-56

---

 

	Comprehensive income (loss)

2.	Acquisition of Teekay Shipping Spain, S.L.

ASSETS
Cash, cash equivalents and short-term restricted cash			$	85,092
Other current assets				7,415
Vessels and equipment				821,939
Restricted cash — long term				311,664
Other assets — long-term				15,355
Intangible assets subject to amortization:
	Time-charter contracts (weighted average remaining useful life of 19.2 years)			183,052
Goodwill — non-tax deductible ($3.6 million fixed-rate tanker segment, and $35.7 million fixed-rate LNG segment)				39,279
Total assets acquired			$	1,463,796
LIABILITIES
Current liabilities			$	98,428
Long-term debt				668,733
Obligations under capital leases				311,011
Other long-term liabilities				87,439
Total liabilities assumed				1,165,611
Net assets acquired (cash consideration)			$	298,185

F-57

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3.	Segment Reporting

		Suezmax
		Tanker				LNG Carrier
Nine Months Ended December 31, 2004		Segment				Segment				Total
Voyage revenues		$	39,730			$	43,385			$	83,115
Voyage expenses			2,869				221				3,090
Vessel operating expenses			12,806				7,509				20,315
Depreciation and amortization			13,422				12,853				26,275
General and administrative(1)			2,939				1,436				4,375
Income from vessel operations		$	7,694			$	21,366			$	29,060
Total assets at December 31, 2004		$	287,058			$	1,423,191			$	1,710,249
Expenditures for vessels and equipment			48,989				34,714				83,703

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

			December 31, 2004
Total assets of all segments			$	1,710,249
Cash and cash equivalents				156,410
Accounts receivable and other assets				18,707
	Consolidated total assets		$	1,885,366

F-58

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4.	Capital Lease Obligations and Restricted Cash

	Capital Leases

Year		Commitment
2005		$	21.0 million
2006			145.8 million
2007			3.9 million
2008			3.9 million
2009			3.8 million
Thereafter			42.8 million

Year		Commitment
2005		77.1 million Euros ($105.0 million)
2006		123.2 million Euros ($167.8 million)
2007		23.3 million Euros ($31.7 million)
2008		24.4 million Euros ($33.3 million)
2009		25.6 million Euros ($34.9 million)
Thereafter		91.7 million Euros ($124.9 million)

	Restricted Cash

F-59

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5.	Intangible Assets and Goodwill

Weighted-

Average

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

(years)

Time-charter contracts

19.2

$

182,552

$

4,095

$

178,457

		Suezmax
		Tanker				LNG Carrier
		Segment				Segment				Total
Balance as of April 7, 2004			—				—				—
Goodwill acquired (note 2)		$	3,648			$	35,631			$	39,279
Balance as of December 31, 2004		$	3,648			$	35,631			$	39,279

6.	Long-Term Debt

		As at
		December 31,
		2004
U.S. Dollar-denominated Term Loans due through 2022		$	343,390
Euro-denominated Term Loans due through 2025			443,736
Total, including current portion			787,126
Less current portion			22,368
Total		$	764,758

F-60

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7.	Advances from Affiliate

		As at
		December 31, 2004
Euro-denominated Demand Promissory Notes		$	371,073
Euro-denominated Participating Loan			94,622
Total		$	465,695

F-61

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8.	Fair Value of Financial Instruments

			December 31, 2004
			Carrying
			Amount				Fair Value
Cash and cash equivalents and restricted cash			$	591,522			$	591,522
Long-term debt (including capital lease obligations)				1,388,174				1,388,174
Derivative instruments (note 12)
	Interest rate swap agreements			134,848				134,848

9.	Capital Stock

10.	Related Party Transactions

11.	Other Income (Loss)

		Nine Months
		Ended
		December 31, 2004
Gain on sale of vessels and equipment		$	3,428
Income tax expense			(967	)
Miscellaneous			(119	)
Total		$	2,342

12.	Derivative Instruments and Hedging Activities

Weighted-

Average

Fixed

Interest Rate

Principal

Remaining

Interest

Index

Amount

Term

Rate(1)

(years)

U.S. Dollar-denominated interest rate swaps(2)

LIBOR

$

328,459

21.4

6.7

%

Euro-denominated interest rate swaps(3)

EURIBOR

442,401

19.4

5.9

F-62

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(1)	Excludes the margin the Company pays on its floating-rate debt (see Note 6).
(2)	Principal amount reduces monthly to zero by the maturity dates of the swap agreements.
(3)	Principal amount reduces monthly to 70.1 million Euros ($95.5 million) by the maturity dates of the swap agreements.

13.	Commitments and Contingencies

14.	Change in Non-Cash Working Capital Items Related to Operating Activities

		Nine Months Ended
		December 31, 2004
Accounts receivable		$	(4,125	)
Prepaid expenses and other assets			(806	)
Accounts payable			5,865
Accrued liabilities			6,785
Total		$	7,719

15.	Subsequent Events

F-63

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F-64

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-65

---

 

				As at
				December 31, 2004
				(U.S. Dollars)
ASSETS
Current
Cash and cash equivalents				$	980
Investment in Teekay LNG Partners L.P.					20
		Total assets		$	1,000
MEMBER’S EQUITY
	Member’s equity			$	1,000

F-66

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1.	Nature of Operations

2.	Subsequent Events

F-67

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Adjusted operating surplus:		For any period, operating surplus generated during that period is adjusted to:
		(a) Decrease operating surplus by:
		(1) any net increase in working capital borrowings with respect to that period; and
		(2) any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; and
		(b) increase operating surplus by:
		(1) any net decrease in working capital borrowings with respect to that period; and
		(2) any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
		Adjusted operating surplus does not include that portion of operating surplus included in clauses (a)(1) and (a)(2) of the definition of operating surplus.
Available cash:		For any quarter ending prior to liquidation:
		(a) the sum of:
		(1) all cash and cash equivalents of Teekay LNG Partners and its subsidiaries on hand at the end of that quarter; and
		(2) all additional cash and cash equivalents of Teekay LNG Partners and its subsidiaries on hand on the date of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter;
		(b) less the amount of cash reserves established by our general partner to:
		(1) provide for the proper conduct of the business of Teekay LNG Partners and its subsidiaries (including reserves for future capital expenditures and for future credit needs of Teekay LNG Partners and its subsidiaries) after that quarter;
		(2) comply with applicable law or any debt instrument or other agreement or obligation to which Teekay LNG Partners or any of its subsidiaries is a party or its assets are subject; and
		(3) provide funds for minimum quarterly distributions and cumulative common unit arrearages for any one or more of the next four quarters;
		provided, however, that the general partner may not establish cash reserves for distributions to the subordinated units unless our general partner has determined that the establishment of reserves will not

A-1

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		prevent Teekay LNG Partners from distributing the minimum quarterly distribution on all common units and any cumulative common unit arrearages thereon for the next four quarters; and
		provided, further, that disbursements made by Teekay LNG Partners or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that quarter if our general partner so determines.
Bareboat charter:		A charter in which the customer (the charterer) pays a fixed daily rate for a fixed period of time for the full use of the vessel and becomes responsible for all crewing, management and navigation of the vessel and the expenses therefor.
Boil-off:		LNG that evaporates during its transport voyage and converts into natural gas, which is then used to assist in propelling the LNG carrier.
Bunkers:		Any hydrocarbon mineral oil used or intended to be used for the operation or propulsion of a ship.
Capital account:		The capital account maintained for a partner under the partnership agreement. The capital account in respect of a general partner interest, a common unit, a subordinated unit, an incentive distribution right or other partnership interest will be the amount which that capital account would be if that general partner interest, common unit, subordinated unit, incentive distribution right or other partnership interest were the only interest in Teekay LNG Partners held by a partner.
Capital surplus:		All available cash distributed by us from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of the initial public offering equals the operating surplus as of the end of the quarter before that distribution. Any excess available cash will be deemed to be capital surplus.
Charter:		The hiring of a vessel, or use of its carrying capacity, for either (1) a specified period of time or (2) a specific voyage or set of voyages.
CLC:		International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended.
Closing price:		The last sale price on a day, regular way, or in case no sale takes place on that day, the average of the closing bid and asked prices on that day, regular way, as reported in the principal consolidated transaction reporting system for securities listed on the principal national securities exchange (other than the Nasdaq Stock Market) on which the units of that class are listed. If the units of that class are not listed on any national securities exchange (other than the Nasdaq Stock Market), the last quoted price on that day. If no quoted price exists, the average of the high bid and low asked prices on that day in the over-the-counter market, as reported by the Nasdaq Stock Market or any other system then in use. If on any day the units of that class are not quoted by any organization of that type, the average of the closing bid and asked prices on that day as furnished by a professional

A-2

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		market maker making a market in the units of the class selected by our general partner. If on that day no market maker is making a market in the units of that class, the fair value of the units on that day as determined reasonably and in good faith by our general partner.
COFR:		Certificates of financial responsibility sufficient to meet potential liabilities under OPA 90 and CERCLA, which owners and operators of vessels, including LNG carriers, must establish and maintain with the United States Coast Guard.
Common unit arrearage:		The amount by which the minimum quarterly distribution for a quarter during the subordination period exceeds the distribution of available cash from operating surplus actually made for that quarter on a common unit, cumulative for that quarter and all prior quarters during the subordination period.
Current market price:		For any class of units listed on any national securities exchange as of any date, the average of the daily closing prices for the 20 consecutive trading days immediately prior to that date.
Double hull:		Hull construction technique by which a ship has an inner and outer hull, separated by void space, usually several feet in width.
Dwt:		Deadweight, a measure of oil tanker carrying capacity, usually in tons, based upon weight of cargo and other items necessary to submerge the vessel to its maximum permitted draft.
EBITDA:		Earnings before interest, taxes, depreciation and amortization.
Estimated maintenance capital expenditures:		An estimate made by the board of directors of our general partner, with the concurrence of the conflicts committee, of the average quarterly maintenance capital expenditures that Teekay LNG Partners will incur over the long-term. The estimate is made annually and whenever an event occurs that is likely to result in a material adjustment to the amount of maintenance capital expenditures on a long-term basis.
Expansion capital expenditures:		Cash capital expenditures for acquisitions or capital improvements. Expansion capital expenditures include the cash cost of equity and debt capital during construction of a capital asset. Expansion capital expenditures do not include maintenance capital expenditures.
GAAP:		Accounting principles generally accepted in the United States.
General and administrative expenses:		General and administrative expenses consist of employment costs of shoreside staff and cost of facilities, as well as legal, audit and other administrative costs.
Hire Rate:		The agreed sum or rate to be paid by the charterer for the use of the vessel.
IGC Code:		International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk, which specifies certain requirements for LNG carriers, including regulations regarding carrier design and construction.
IMO:		International Maritime Organization, a United Nations agency that issues international trade standards for shipping.

A-3

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Incentive distribution right:		A non-voting limited partner partnership interest issued to the general partner. The partnership interest confers upon its holder only the rights and obligations specifically provided in the partnership agreement for incentive distribution rights.
Incentive distributions:		The distributions of available cash from operating surplus initially made to the general partner that are in excess of the general partner’s aggregate 2% general partner interest.
Interim capital transactions:		The following transactions if they occur prior to liquidation:
		(a) Borrowings, refinancings or refundings of indebtedness and sales of debt securities (other than for working capital borrowings and other than for items purchased on open account in the ordinary course of business) by Teekay LNG Partners or any of its subsidiaries;
		(b) sales of equity interests by Teekay LNG Partners or any of its subsidiaries;
		(c) sales or other voluntary or involuntary dispositions of any assets of Teekay LNG Partners or any of its subsidiaries (other than sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, and sales or other dispositions of assets as a part of normal retirements or replacements);
		(d) the termination of interest rate swap agreements;
		(e) capital contributions; or
		(f) corporate reorganizations or restructurings.
ISM Code:		International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, which, among other things, requires vessel owners to obtain a safety management certification for each vessel they manage.
ISPS:		International Security Code for Ports and Ships, which enacts measures to detect and prevent security threats to ships and ports.
Liquefaction:		The process of liquefying natural gas.
LNG:		Liquefied natural gas.
Long-term charter:		An LNG charter to an entity for a term greater than ten years or an oil tanker charter for a term greater than five years.
Maintenance capital expenditure:		Cash capital expenditures (including expenditures for the addition or improvement to our capital assets or for the acquisition of existing, or the construction of new, capital assets) if such expenditure is made to maintain over the long term the operating capacity of or the revenue generated by Teekay LNG Partners’ capital assets, as such assets existed at the time of such expenditure. Maintenance capital expenditures include the cash cost of equity and debt capital during construction of a capital asset. Maintenance capital expenditures do not include expansion capital expenditures.
Newbuilding:		A new vessel under construction.
Off-hire:		The time during which a vessel is not available for service.

A-4

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OPA 90:		The United States Oil Pollution Act of 1990, as amended.
Operating expenditures:		All cash expenditures of Teekay LNG Partners and its subsidiaries, including, but not limited to, taxes, reimbursements of the general partner, repayment of working capital borrowings, debt service payments and capital expenditures, subject to the following:
		(a) Payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness, other than working capital borrowings will not constitute operating expenditures.
		(b) Operating expenditures will not include expansion capital expenditures or actual maintenance capital expenditures but will include estimated maintenance capital expenditures.
		(c) Operating expenditures will not include:
		(1) Payment of transaction expenses (including taxes) relating to interim capital transactions; or
		(2) Distributions to partners.
		Where capital expenditures consist of both maintenance capital expenditures and expansion capital expenditures, the general partner, with the concurrence of the conflicts committee, shall determine the allocation between the portion consisting of maintenance capital expenditures and the portion consisting of expansion capital expenditures, and the period over which the maintenance capital expenditures will be deducted as an operating expenditure in calculating operating surplus.
Operating surplus:		For any period prior to liquidation, on a cumulative basis and without duplication:
		(a) the sum of
		(1) $10 million;
		(2) all the cash of Teekay LNG Partners and its subsidiaries on hand as of the closing date of the initial public offering of Teekay LNG Partners, other than cash reserved to terminate interest rate swap agreements;
		(3) all cash receipts of Teekay LNG Partners and its subsidiaries for the period beginning on the closing date of the initial public offering and ending with the last day of that period, other than cash receipts from interim capital transactions;
		(4) all cash receipts of Teekay LNG Partners and its subsidiaries after the end of that period but on or before the date of determination of operating surplus for the period resulting from working capital borrowings;
		(5) interest paid on debt incurred (including periodic net interest payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case, to finance all or any portion of the construction of a capital improvement or replacement asset and paid during the period prior to the earlier of the completion of construction or being abandoned or disposed of; and

A-5

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		(6) interest paid on debt incurred (including periodic net interest payments under related interest rate swap agreements) and cash distributions on equity securities issued, in each case, to pay the construction period interest, or to pay construction period distributions or equity issued to finance all or any portion of the construction of a capital improvement or replacement asset as described in (5) above, less
		(b) the sum of:
		(1) operating expenditures for the period beginning on the closing date of the initial public offering of Teekay LNG Partners and ending with the last day of that period, including estimated maintenance capital expenditures and the repayment of working capital borrowers, but not (x) the repayment of other borrowings or (y) expenditures incurred in connection with the expansion or increase in the transportation capacity of our fleet; and
		(2) the amount of cash reserves established by our general partner to provide funds for future operating expenditures; provided however, that disbursements made (including contributions to a member of Teekay LNG Partners and its subsidiaries or disbursements on behalf of a member of Teekay LNG Partners and its subsidiaries) or cash reserves established, increased or reduced after the end of that period but on or before the date of determination of available cash for that period shall be deemed to have been made, established, increased or reduced for purposes of determining operating surplus, within that period if the general partner so determines.
RasGas II:		Ras Laffan Liquefied Natural Gas Co. Limited (II), a joint venture between Qatar Petroleum (formerly Qatar General Petroleum Corporation) and Exxon Mobil RasGas Inc. (formerly Mobil QM Gas Inc.), an indirect wholly-owned subsidiary of ExxonMobil Corporation, established for the purpose of expanding LNG production in Qatar.
Regasification:		The process of returning LNG to its gaseous state.
Short-term charter:		An LNG charter for a term less than ten years or an oil tanker charter for a term less than five years.
SOLAS:		International Convention for Safety of Life at Sea, which provides, among other things, rules for the construction and equipment of commercial vessels.
Spot market:		The market for chartering a vessel for single voyages.

A-6

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Subordination period:		The subordination period will generally extend from the closing of the initial public offering of Teekay LNG Partners until the first to occur of:
		(a) the first day of any quarter beginning after March 31, 2010, for which:
		(1) distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units for each of the three consecutive, non- overlapping four-quarter periods immediately preceding that date;
		(2) the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the common units and subordinated units that were outstanding during those periods on a fully diluted basis, and the related distribution on the general partner interest in Teekay LNG Partners; and
		(3) there are no outstanding cumulative common units arrearages.
		(b) the date on which the general partner is removed as general partner of Teekay LNG Partners upon the requisite vote by the limited partners under circumstances where cause does not exist and units held by our general partner and its affiliates are not voted in favor of the removal;
		provided, however, that subordinated units may convert into common units as described in “Cash Distribution Policy — Subordination Period.”
Suezmax tanker:		An oil tanker of a size and capacity that make it capable of transiting the Suez Canal when fully loaded, and usually filling within a range of 120,000 to 200,000 dwt.
Tapias:		Naviera F. Tapias S.A., which Teekay Shipping Corporation renamed as Teekay Shipping Spain S.L. following its acquisition of Tapias on April 30, 2004, and which Teekay Shipping Corporation contributed to Teekay LNG Partners L.P. in connection with the initial public offering of Teekay LNG Partners.
Tcf:		Trillion cubic feet, a measure of natural gas volume.
Teekay Spain:		Teekay Shipping Spain S.L., formerly Naviera F. Tapias S.A. prior to its acquisition by Teekay Shipping Corporation on April 30, 2004, and which Teekay Shipping Corporation contributed to Teekay LNG Partners L.P. in connection with the initial public offering of Teekay LNG Partners.
Time charter:		A charter in which the charterer pays for the use of a ship’s cargo capacity for a specified period of time. The owner provides the ship with crew, stores and provisions, ready in all aspects to load cargo and

A-7

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		proceed on a voyage as directed by the charterer. The charterer usually pays for bunkering and all voyage-related expenses, including canal tolls and port charges.
Voyage charter:		A charter in which the charterer pays for the use of a ship’s cargo capacity for one, or sometimes more than one, voyage between specified ports. Under this type of charter, the ship owner pays all the operating costs of the ship (including bunkers, canal and port charges, pilotage, towage and ship’s agency) while payment for cargo handling charges are subject of agreement between the parties. Freight is generally paid per unit of cargo, such as a ton, based on an agreed quantity, or as a lump sum irrespective of the quantity loaded.
Working capital borrowings:		Borrowings used exclusively for working capital purposes or to pay distributions to partners made pursuant to a credit agreement or other arrangement to the extent such borrowings are required to be reduced to a relatively small amount each year for an economically meaningful period of time.

A-8

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	•	Non-GAAP financial measures included in the “Summary — Recent Developments,” — “Summary — Summary Historical and Pro Forma Financial and Operating Data” and “Selected Historical and Pro Forma Financial and Operating Data” sections of this prospectus; and
	•	Our estimated EBITDA and distributable cash flow contributions from the three Suezmax tankers we will acquire upon the closing of this offering during the 12 months following this offering and a reconciliation of the estimated amount to our most directly comparable financial measures under accounting principles generally accepted in the United States (or GAAP).

		Historical
																		Four				Eight
																		Months				Months
		Years Ended December 31,																Ended				Ended
																		April 30,				December 31,
		2000				2001				2002				2003				2004				2004
Voyage revenues		$	52,217			$	60,326			$	59,866			$	86,709			$	40,718			$	83,115
Voyage expenses			4,304				5,092				5,334				4,911				1,842				3,090
Net voyage revenues		$	47,913			$	55,234			$	54,532			$	81,798			$	38,876			$	80,025

		Historical
		Six Months Ended June 30,																				Pro Forma
		2004								2005
																										Six
		January 1,				May 1,				January 1,				May 10,				Three Months				Year				Months
		to				to				to				to				Ended				Ended				Ended
		April 30,				June 30,				May 9,				June 30,				September 30,				December 31,				June 30,
		2004				2004				2005				2005				2005				2004				2005
Voyage revenues		$	40,718			$	17,453			$	50,129			$	20,364			$	34,760			$	123,833			$	70,493
Voyage expenses			1,842				1,462				251				73				135				4,932				324
Net voyage revenues		$	38,876			$	15,991			$	49,878			$	20,291			$	34,625			$	118,901			$	70,169

B-1

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	•	Financial and operating performance. EBITDA allows us to measure the financial and operating performance of our assets without regard to financing methods, capital structure or historical cost basis. For instance, our net income is affected by whether we finance assets or operations with debt or equity and by changing interest rates. Likewise, our net income is affected by how much we pay for an asset and that asset’s depreciation or amortization schedule. By reviewing our earnings before the impact of interest, taxes, depreciation and amortization, we, our investors and others can understand the performance of our assets and operations on a more comparable basis from period to period and against the performance of other companies in our industry.

	•	Liquidity. EBITDA allows us to assess the ability of our assets to generate cash sufficient to service debt, make distributions to our unitholders and undertake capital expenditures. For example, reviewing our earnings before the impact of non-cash depreciation and amortization charges, and before the payment of interest on debt we incur, provides us an understanding of how much cash is available to pay interest.

		Historical
																		Four				Eight
																		Months				Months
		Years Ended December 31,																Ended				Ended
																		April 30,				December 31,
		2000				2001				2002				2003				2004				2004
Reconciliation of “EBITDA” to “Net income”:
Net income (loss)		$	7,349			$	2,129			$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)
Depreciation and amortization			14,803				16,094				17,689				23,390				8,585				26,275
Interest expense, net			14,347				16,352				12,861				26,431				12,783				27,134
Provision (benefit) for income taxes			57				(663	)			2,164				3,033				(645	)			(51	)
EBITDA		$	36,556			$	33,912			$	(81,056	)		$	(6,578	)		$	36,887			$	24,571
Reconciliation of “EBITDA” to “Net operating cash flow”:
Net operating cash flow		$	19,695			$	24,470			$	20,418			$	18,318			$	14,808			$	7,381
Expenditures for drydocking			784				—				984				4,711				—				4,085
Interest expense, net			14,347				16,352				12,861				26,431				12,783				27,134
Gain (loss) on sale of assets			2,109				2,661				490				1,576				(11,837	)			3,428
Change in working capital			2,817				(846	)			(253	)			(237	)			(911	)			(5,935	)
Interest rate swaps gain (loss) and change in accounting principle			—				(11,984	)			(71,400	)			14,715				3,985				—
Foreign currency exchange gain (loss) and other, net			(3,196	)			3,259				(44,156	)			(72,093	)			18,059				(11,522	)
EBITDA		$	36,556			$	33,912			$	(81,056	)		$	(6,578	)		$	36,887			$	24,571

B-2

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		Historical
		Six Months Ended June 30,
																						Pro Forma
		2004								2005
																		Three								Six
		January 1,				May 1,				January 1,				May 10,				Months								Months
		to				to				to				to				Ended				Year Ended				Ended
		April 30,				June 30,				May 9,				June 30,				September 30,				December 31,				June 30,
		2004				2004				2005				2005				2005				2004				2005
Reconciliation of “EBITDA” to “Net income”:
Net income (loss)		$	16,164			$	(6,571	)		$	8,090			$	28,703			$	8,904			$	(1,499	)		$	60,123
Depreciation and amortization			8,585				6,426				14,751				5,852				10,607				37,808				20,603
Interest expense, net			12,783				5,159				19,258				5,193				8,744				8,849				14,677
Provision (benefit) for income taxes			(645	)			(573	)			2,648				(1,672	)			(1,587	)			983				1,865
EBITDA		$	36,887			$	4,441			$	44,747			$	38,076			$	26,668			$	46,141			$	97,268
Reconciliation of “EBITDA” to “Net operating cash flow”:
Net operating cash flow		$	14,808			$	3,596			$	11,867			$	13,158			$	15,543
Expenditures for drydocking			—				—				—				—				1,249
Interest expense, net			12,783				5,159				19,258				5,193				8,744
Gain (loss) on sale of assets			(11,837	)			—				(15,282	)			186				—
Change in working capital			(911	)			11				(73	)			(1,385	)			1,854
Interest rate swaps gain and change in accounting principle			3,985				—				—				—				—
Foreign currency exchange gain (loss) and other, net			18,059				(4,325	)			28,977				20,924				(722	)
EBITDA		$	36,887			$	4,441			$	44,747			$	38,076			$	26,668

	Reconciliation of estimated range of “EBITDA” to estimated range of “Net income”:

			Lower End				Upper End
			of Range				of Range
			(unaudited)
Net Income			$	10,289			$	12,289
Add:
	Depreciation expense			6,248				6,248
	Interest expense			2,463				2,463
EBITDA			$	19,000			$	21,000

B-3

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			For the
			Three Months
			Ended
			September 30, 2005
			(in thousands)
Net Income			$	8,904
Add:
	Depreciation and amortization			10,607
	Non-cash interest expense			1,288
Less:
	Estimated maintenance capital expenditure			4,137
	Foreign exchange gain			1,347
	Income tax recovery			1,587
Distributable Cash Flow			$	13,728

B-4

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Item 6.	Indemnification of Directors and Officers

Item 7.	Recent Sales of Unregistered Securities

Item 8.	Exhibits and Financial Statement Schedules

Exhibit
Number						Description
	1	.1*		—		Form of Underwriting Agreement
	3	.1		—		Certificate of Limited Partnership of Teekay LNG Partners L.P. (incorporated by reference to Exhibit 3.1 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	3	.2		—		First Amended and Restated Agreement of Limited Partnership of Teekay LNG Partners L.P. (incorporated by reference to Appendix A to the Prospectus contained within the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	3	.3		—		Certificate of Formation of Teekay GP L.L.C. (incorporated by reference to Exhibit 3.3 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	3	.4		—		Second Amended and Restated Limited Liability Company Agreement of Teekay GP L.L.C. (incorporated by reference to Exhibit 3.4 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	5	.1		—		Opinion of Watson, Farley & Williams, as to the legality of the securities being registered
	8	.1		—		Opinion of Perkins Coie LLP. relating to tax matters
	8	.2		—		Opinion of Watson, Farley & Williams, relating to tax matters
	10	.1		—		Form of Credit Facility (incorporated by reference to Exhibit 10.1 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.2		—		Form of Contribution, Conveyance and Assumption Agreement (incorporated by reference to Exhibit 10.2 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)

II-1

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Exhibit
Number						Description
	10	.3		—		Form of Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.4		—		Form of Omnibus Agreement (incorporated by reference to Exhibit 10.4 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.5		—		Form of Amendment to Omnibus Agreement
	10	.6		—		Form of Administrative Services Agreement with Teekay Shipping Limited (incorporated by reference to Exhibit 10.5 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.7		—		Form of Advisory, Technical and Administrative Services Agreement (incorporated by reference to Exhibit 10.6 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.8		—		Form of LNG Strategic Consulting and Advisory Services Agreement (incorporated by reference to Exhibit 10.7 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.9		—		Form of Agreement to Purchase Nakilat Interest (incorporated by reference to Exhibit 10.10 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.10		—		Syndicated Loan Agreement between Naviera Teekay Gas III, S.L. (formerly Naviera F. Tapias Gas III, S.A.) and Caixa de Afforos de Vigo Ourense e Pontevedra, as Agent, dated as of October 2, 2000, as amended (incorporated by reference to Exhibit 10.11 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.11		—		Bareboat Charter Agreement between Naviera Teekay Gas III, S.L. (formerly Naviera F. Tapias Gas III, S.A.) and Poseidon Gas AIE, dated as of October 20, 2000 (incorporated by reference to Exhibit 10.12 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.12		—		Credit Facility Agreement between Naviera Teekay Gas IV, S.L. (formerly Naviera F. Tapias Gas IV, S.A.) and Chase Manhattan International Limited, as Agent, dated as of December 21, 2001, as amended (incorporated by reference to Exhibit 10.13 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.13		—		Bareboat Charter Agreement between Naviera Teekay Gas IV, S.L. (formerly Naviera F. Tapias Gas IV, S.A.) and Pagumar AIE, dated as of December 30, 2003 (incorporated by reference to Exhibit 10.14 of the Registrant’s Form F-1, declared effective by the Securities and Exchange Commission on May 5, 2005, File No. 333-120727)
	10	.14*		—		Form of Purchase Agreement relating to African Spirit L.L.C., Asian Spirit L.L.C. and European Spirit L.L.C.
	21	.1		—		List of Subsidiaries of Teekay LNG Partners L.P.
	23	.1		—		Consent of Ernst & Young LLP
	23	.2		—		Consent of Watson, Farley & Williams (contained in Exhibit 5.1)
	23	.3		—		Consent of Perkins Coie LLP (contained in Exhibit 8.1)
	24	.1		—		Powers of Attorney (contained on Page II-4)

II-2

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Item 9.	Undertakings

	(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
	(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

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	TEEKAY LNG PARTNERS L.P.
	By: Teekay GP LLC, its General Partner

	By:	/s/ Bruce C. Bell

	Name: Bruce C. Bell
	Title:   Secretary

Signature				Title		Date
/s/ Peter Evensen   Peter Evensen				Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer), Director and Authorized Representative in the United States		November 1, 2005
/s/ C. Sean Day   C. Sean Day				Director		November 1, 2005
/s/ Bjorn Moller   Bjorn Moller				Director		November 1, 2005
/s/ Robert E. Boyd   Robert E. Boyd				Director		November 1, 2005
/s/ Ida Jane Hinkley   Ida Jane Hinkley				Director		November 1, 2005
/s/ Ihab J.M. Massoud   Ihab J.M. Massoud				Director		November 1, 2005
/s/ George Watson   George Watson				Director		November 1, 2005

II-4