TEEKAY SHIPPING CORP (Form: 6-K, Received: 12/21/2006 15:14:49)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

_______________________________

For the quarterly period ended September 30, 2006

Commission file number 1- 12874

TEEKAY SHIPPING CORPORATION

(Exact name of Registrant as specified in its charter)

Bayside House

Bayside Executive Park

West Bay Street & Blake Road

P.O. Box AP-59212, Nassau, Bahamas

(Address of principal executive office)

_______________________________

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

Form 20-F

Form 40- F

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

Yes

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

Yes

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

Yes

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

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

INDEX

PART I: FINANCIAL INFORMATION PAGE

Item 1. Financial Statements (Unaudited)

Report of Independent Registered Public Accounting Firm		3

Unaudited Consolidated Statements of Income
	for the three and nine months ended September 30, 2006 and 2005	4

Unaudited Consolidated Balance Sheets
	as at September 30, 2006 and December 31, 2005	5

Unaudited Consolidated Statements of Cash Flows
	for the nine months ended September 30, 2006 and 2005	6

Notes to the Unaudited Consolidated Financial Statements		7


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures about Market Risk		45

PART II: OTHER INFORMATION		47

SIGNATURES		48

ITEM 1 - FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Teekay Shipping Corporation

We have reviewed the consolidated balance sheet of Teekay Shipping Corporation and subsidiaries as of September 30, 2006, the related consolidated statements of income for the three and nine months ended September 30, 2006 and 2005, and the related consolidated statements of cash flows for the nine months ended September 30, 2006 and 2005. These financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Teekay Shipping Corporation and subsidiaries as of December 31, 2005, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended, and in our report dated February 21, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Vancouver, Canada,	/s/	ERNST & YOUNG LLP
December 13, 2006		Chartered Accountants

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands of U.S. dollars, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
	$			$			$			$

VOYAGE REVENUES		477,733			425,594			1,426,316			1,423,145
OPERATING EXPENSES
Voyage expenses		133,430			107,835			378,458			304,660
Vessel operating expenses		52,939			50,743			157,866			156,524
Time-charter hire expense		100,848			120,556			299,975			353,592
Depreciation and amortization		49,849			50,411			150,490			154,800
General and administrative ( note 10 )		39,822			40,455			121,538			114,332
Writedown / (gain) on sale of vessels and equipment ( note 12 )		(7,138	)		(6,576	)		(6,095	)		(124,323	)
Restructuring charge ( note 13 )		2,948			-			7,414			-
Total operating expenses		372,698			363,424			1,109,646			959,585
Income from vessel operations		105,035			62,170			316,670			463,560
OTHER ITEMS
Interest expense		(40,572	)		(29,599	)		(114,059	)		(100,615	)
Interest income		14,262			8,254			39,948			24,910
Equity income from joint ventures		1,965			854			2,259			6,565
Foreign exchange gain (loss) ( note 7 )		277			3,063			(32,991	)		50,602
Other - net ( note 13 )		(1,120	)		(2,067	)		(9,883	)		(18,732	)
Total other items		(25,188	)		(19,495	)		(114,726	)		(37,270	)
Net income ( note 14 )		79,847			42,675			201,944			426,290

Per common share amounts
- Basic earnings ( note 16 )		1.09			0.55			2.76			5.34
- Diluted earnings ( note 16 )		1.07			0.52			2.68			4.99
- Cash dividends declared		0.2075			0.1375			0.6225			0.4125
Weighted average number of common shares ( note 16 )
- Basic		73,251,038			77,104,662			73,223,613			79,872,761
- Diluted		74,944,038			82,559,885			75,318,853			85,395,369

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

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)


	As at September 30, 2006 $			As at December 31, 2005 $
ASSETS
Current Cash and cash equivalents ( note 7 )		303,231			236,984
Restricted cash ( note 9 )		161,056			152,286
Accounts receivable		135,941			151,732
Net investment in direct financing leases - current		21,184			20,240
Prepaid expenses		86,735			60,134
Other assets		10,579			9,041
Total current assets		718,726			630,417
Restricted cash ( note 9 )		618,449			158,798
Vessels and equipment ( note 7 )
At cost, less accumulated depreciation of $833,017 (December 31, 2005 - $766,696)		2,501,348			2,536,002
Vessels under capital leases, at cost, less accumulated depreciation of $49,845 (December 31, 2005 - $35,574) ( note 9 )		662,875			712,120
Advances on newbuilding contracts ( note 11 )		365,257			473,552
Total vessels and equipment		3,529,480			3,721,674
Net investment in direct financing leases		92,501			100,996
Investment in Petrojarl ASA ( note 3 )		355,936			-
Investment in joint ventures ( note 11 )		151,844			145,448
Other assets		223,303			113,590
Intangible assets - net ( note 5 )		237,213			252,280
Goodwill ( note 5 )		171,253			170,897
Total assets		6,098,705			5,294,100
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Accounts payable		44,356			40,908
Accrued liabilities		141,028			125,878
Current portion of long-term debt ( note 7 )		41,820			159,053
Current obligation under capital leases ( note 9 )		160,284			139,001
Total current liabilities		387,488			464,840
Long-term debt ( note 7 )		2,399,416			1,686,190
Obligation under capital leases ( note 9 )		386,895			415,234
Loan from joint venture partner ( note 8 )		34,729			33,500
Other long-term liabilities		243,016			174,991
Total liabilities		3,451,544			2,774,755
Commitments and contingencies ( notes 3, 9, 11 and 15 )
Minority interest		276,331			282,803
Stockholders’ equity Capital stock ( note 10 )		587,737			471,784
Additional paid-in capital ( note 10 )		6,829			-
Retained earnings		1,815,284			1,833,588
Accumulated other comprehensive loss ( note 15 )		(39,020	)		(68,830	)
Total stockholders’ equity		2,370,830			2,236,542
Total liabilities and stockholders’ equity		6,098,705			5,294,100

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

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

	Nine Months Ended September 30,
	2006			2005
	$			$
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income		201,944			426,290
Non-cash items:
Depreciation and amortization		150,490			154,800
Writedown / (gain) on sale of vessels and equipment		(6,095	)		(124,323	)
Loss on repurchase of bonds		375			10,109
Equity income (net of dividends received: September 30, 2006 - $5,583; September 30, 2005 - $6,477)		3,324			(88	)
Income tax expense (recovery)		5,839			(11,877	)
Employee stock option compensation ( note 10 )		6,829			-
Loss from settlement of interest rate swaps		-			7,820
Writeoff of capitalized loan costs		-			7,462
Unrealized foreign exchange loss (gain) and other - net		48,691			(36,624	)
Change in non-cash working capital items related to operating activities		13,531			19,025
Expenditures for drydocking		(26,087	)		(13,420	)
Net operating cash flow		398,841			439,174
FINANCING ACTIVITIES
Proceeds from long-term debt		986,929			1,706,310
Capitalized loan costs		(9,241	)		(3,879	)
Scheduled repayments of long-term debt		(14,205	)		(57,902	)
Prepayments of long-term debt		(259,375	)		(1,981,349	)
Repayments of capital lease obligations		(7,486	)		(6,092	)
Loan from joint venture partner		5,795			-
(Increase) decrease in restricted cash		(433,184	)		15,861
Settlement of interest rate swaps		-			(143,295	)
Net proceeds from sale of 22.3% of Teekay LNG Partners L.P. ( note 4 )		-			135,713
Distribution by subsidiaries to minority owners		(19,610	)		(10,297	)
Investment in subsidiaries from minority owners		-			61,183
Issuance of common stock upon exercise of stock options ( note 10 )		11,660			17,913
Repurchase of common stock ( note 10 )		(212,330	)		(369,047	)
Cash dividends paid		(46,057	)		(33,450	)
Net financing cash flow		2,896			(668,331	)
INVESTING ACTIVITIES
Expenditures for vessels and equipment		(285,834	)		(357,062	)
Proceeds from sale of vessels and equipment		321,876			505,196
Investment in Petrojarl ASA ( note 3 )		(347,173	)		-
Investment in joint venture		(8,060	)		(80,756	)
Loan to joint venture		(20,217	)		-
Investment in direct financing leases		(6,797	)		(17,032	)
Repayment of direct financing leases		13,897			9,007
Other		(3,182	)		(4,382	)
Net investing cash flow		(335,490	)		54,971
Increase (decrease) in cash and cash equivalents		66,247			(174,186	)
Cash and cash equivalents, beginning of the period		236,984			427,037
Cash and cash equivalents, end of the period		303,231			252,851

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

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

1. Basis of Presentation

The unaudited interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. They include the accounts of Teekay Shipping Corporation (or Teekay ), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly owned or controlled subsidiaries (collectively, the Company ). Certain information and footnote disclosures required by generally accepted accounting principles in the United States for complete annual financial statements have been omitted and, therefore, it is suggested that these interim financial statements be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2005. In the opinion of management, these financial statements reflect all adjustments necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the three and nine months ended September 30, 2006 are not necessarily indicative of those for a full fiscal year.

Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period.

2. Segment Reporting

The Company has three reportable segments: its fixed-rate tanker segment, its fixed-rate liquefied natural gas (or LNG ) segment, and its spot tanker segment. The Company’s fixed-rate tanker segment consists of shuttle tankers, floating storage and offtake vessels, liquid petroleum gas carriers and conventional crude oil and product tankers subject to long-term, fixed-rate time-charter contracts or contracts of affreightment. The Company’s fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time-charter contracts. The Company’s spot tanker segment consists of conventional crude oil tankers and product carriers operating in the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or on short-term, fixed-rate contracts. The Company considers contracts that have an original term of less than three years in duration to be short-term. Segment results are evaluated based on income from vessel operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements.

The following tables present results for these segments for the three and nine months ended September 30, 2006 and 2005:

Three months ended September 30, 2006	Fixed-Rate Tanker Segment $			Fixed-Rate LNG Segment $		Spot Tanker Segment $			Total $

Voyage revenues - external		191,916			25,218		260,599			477,733
Voyage expenses		26,579			394		106,457			133,430
Vessel operating expenses		33,900			4,156		14,883			52,939
Time-charter hire expense		45,669			-		55,179			100,848
Depreciation and amortization		28,867			7,959		13,023			49,849
General and administrative ⁽¹⁾		15,459			3,478		20,885			39,822
Writedown / (gain) on sale of vessels and equipment		(6,509	)		-		(629	)		(7,138	)
Restructuring charge		-			-		2,948			2,948
Income from vessel operations		47,951			9,231		47,853			105,035

Voyage revenues - intersegment		3,486			-		-			3,486

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Three months ended September 30, 2005	Fixed-Rate Tanker Segment $		Fixed-Rate LNG Segment $		Spot Tanker Segment $			Total $

Voyage revenues - external		178,669		24,503		222,422			425,594
Voyage expenses		19,497		-		88,338			107,835
Vessel operating expenses		32,102		3,401		15,240			50,743
Time-charter hire expense		52,467		-		68,089			120,556
Depreciation and amortization		29,512		7,522		13,377			50,411
General and administrative ⁽¹⁾		14,970		3,397		22,088			40,455
Writedown / (gain) on sale of vessels and equipment		2,111		-		(8,687	)		(6,576	)
Income from vessel operations		28,010		10,183		23,977			62,170

Voyage revenues - intersegment		1,158		-		-			1,158

Nine months ended September 30, 2006	Fixed-Rate Tanker Segment $			Fixed-Rate LNG Segment $		Spot Tanker Segment $			Total $

Voyage revenues - external		566,437			71,437		788,442			1,426,316
Voyage expenses		69,333			794		308,331			378,458
Vessel operating expenses		101,795			12,677		43,394			157,866
Time-charter hire expense		140,052			-		159,923			299,975
Depreciation and amortization		87,772			23,392		39,326			150,490
General and administrative ⁽¹⁾		45,876			10,233		65,429			121,538
Writedown / (gain) on sale of vessels and equipment		(4,664	)		-		(1,431	)		(6,095	)
Restructuring charge		-			-		7,414			7,414
Income from vessel operations		126,273			24,341		166,056			316,670

Voyage revenues - intersegment		6,104			-		-			6,104

Nine months ended September 30, 2005	Fixed-Rate Tanker Segment $		Fixed-Rate LNG Segment $		Spot Tanker Segment $			Total $

Voyage revenues - external		539,627		73,546		809,972			1,423,145
Voyage expenses		50,722		50		253,888			304,660
Vessel operating expenses		95,845		11,564		49,115			156,524
Time-charter hire expense		147,007		-		206,585			353,592
Depreciation and amortization		90,306		22,567		41,927			154,800
General and administrative ⁽¹⁾		41,010		9,599		63,723			114,332
Writedown / (gain) on sale of vessels and equipment		7,480		-		(131,803	)		(124,323	)
Income from vessel operations		107,257		29,766		326,537			463,560

Voyage revenues - intersegment		3,449		-		-			3,449

______________

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

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

	As at September 30, 2006 $		As at December 31, 2005 $

Fixed-rate tanker segment		2,386,956		2,050,122
Fixed-rate LNG segment		1,982,489		1,753,289
Spot tanker segment		1,061,226		906,028
Cash and restricted cash		310,790		244,510
Accounts receivable and other assets		357,244		340,151
Consolidated total assets		6,098,705		5,294,100

3. Acquisition of Petrojarl ASA

During the third quarter of 2006, the Company acquired 43% of the outstanding shares of Petrojarl ASA (or Petrojarl ), which is listed on the Oslo Stock Exchange, for $355.9 million. Petrojarl is a leading independent operator of floating production, storage and offloading (or FPSO ) units. After acquiring 40% of Petrojarl's outstanding shares, on September 18, 2006, the Company launched a mandatory bid, in accordance with Norwegian law, for Petrojarl's remaining shares at a price of Norwegian Kroner 70 per share. The mandatory bid expired on October 18, 2006, and as of December 1, 2006, the Company owned approximately 64.5% of Petrojarl's shares. On December 1, 2006, Petrojarl was renamed Teekay Petrojarl ASA. The Company financed its acquisition of Petrojarl through a combination of bank financing and cash balances. The Company was not able to obtain financial or other information on a timely basis from Petrojarl to be able to use the equity method of accounting for its investment. Accordingly, the investment is recorded at cost as at September 30, 2006.

Petrojarl, based in Trondheim, Norway, has a fleet of four owned FPSO units operating under long-term service contracts in the North Sea. To service these contracts, Petrojarl also charters two shuttle tankers and one floating storage and offtake (or FSO ) unit from the Company.

In June 2006, the Company and Petrojarl entered into an agreement to form, as equal partners, a joint venture company called Teekay Petrojarl Offshore (or TPO ) that will focus on pursuing new opportunities involving FPSO units, FSO units and other mobile oil production solutions. On September 28, 2006, Petrojarl announced that it had been awarded a contract by Petroleo Brasileiro S.A. to supply an FPSO for the Siri project in Brazil. In connection with this contract, Petrojarl exercised a purchase option on a 1981-built single hull product tanker. The contract, which will be assigned to and performed by TPO, is for a two-year firm period, with options for Petrobras to extend up to an additional year, and is scheduled to commence production during the first quarter of 2008.

4. Public Offerings of Teekay LNG Partners L.P.

On May 10, 2005, the Company’s subsidiary Teekay LNG Partners L.P. (or Teekay LNG ) completed its initial public offering (or the Offering ) of 6.9 million common units at a price of $22.00 per unit. During November 2005, Teekay LNG issued an additional 4.6 million common units at a price of $27.40 per unit (or the Follow-On Offering ). As a result of these transactions, the Company recorded a $7.9 million increase to stockholders’ equity which represents the Company’s gain from the issuance of units in the Offering and the Follow-on Offering.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The proceeds received by Teekay LNG from the public offerings and the use of those proceeds are summarized as follows:

Proceeds received:	Offering $		Follow-On Offering $		Total $
Sale of 6,900,000 common units at $22.00 per unit		151,800		-		151,800
Sale of 4,600,000 common units at $27.40 per unit		-		126,040		126,040
		151,800		126,040		277,840
Use of proceeds from sale of common units:
Underwriting and structuring fees.		10,473		5,042		15,515
Professional fees and other offering expenses to third parties		5,616		959		6,575
Repayment of loans from Teekay Shipping Corporation		129,400		-		129,400
Purchase of three Suezmax tankers from Teekay Shipping Corporation		-		120,039		120,039
Working capital		6,311		-		6,311
		151,800		126,040		277,840

Teekay LNG is a Marshall Islands limited partnership formed by the Company as part of its strategy to expand its operations in the LNG shipping sector. Teekay LNG provides LNG and crude oil marine transportation service under long-term, fixed-rate contracts with major energy and utility companies through its fleet of LNG carriers and Suezmax-class crude oil tankers, primarily consisting of vessels obtained through the Company’s acquisition in April 2004 of Teekay Shipping Spain S.L. (which was previously named Naviera F. Tapias S.A.).

Immediately preceding the Offering, the Company entered into an omnibus agreement with Teekay LNG governing, among other things, when the Company and Teekay LNG may compete with each other and certain rights of first offer on LNG carriers and Suezmax tankers. In December 2006, the omnibus agreement was amended in connection with the initial public offering of Teekay Offshore Partners L.P. Please see Note 18(d).

Concurrently with Teekay LNG’s Follow-On Offering, the Company sold to Teekay LNG three double-hulled Suezmax tankers and related long-term, fixed-rate time charters for an aggregate price of $180 million. These vessels, the African Spirit , the Asian Spirit and the European Spirit , are chartered to a subsidiary of ConocoPhillips, an international, integrated energy company. Teekay LNG financed the acquisition with the net proceeds of the public offering, together with borrowings under its revolving credit facility and cash balances.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2006 for the Company’s reporting segments are as follows:

	Fixed- Rate Tanker Segment $		Fixed-Rate LNG Segment $		Spot Tanker Segment $		Other $		Total $
Balance as of December 31, 2005		134,196		35,631		-		1,070		170,897
Goodwill acquired		356		-		-		-		356
Balance as of September 30, 2006		134,552		35,631		-		1,070		171,253

As at September 30, 2006, the Company’s intangible assets consisted of:

	Weighted-Average Amortization Period (years)		Gross Carrying Amount $		Accumulated Amortization $			Net Carrying Amount $
Contracts of affreightment		10.2		124,250		(54,806	)		69,444
Time-charter contracts		19.2		182,552		(20,205	)		162,347
Intellectual property		7.0		9,588		(4,166	)		5,422
		15.4		316,390		(79,177	)		237,213

As at December 31, 2005, the Company’s intangible assets consisted of:

	Weighted-Average Amortization Period (years)		Gross Carrying Amount $		Accumulated Amortization $			Net Carrying Amount $
Contracts of affreightment		10.2		124,250		(45,748	)		78,502
Time-charter contracts		19.2		182,552		(13,358	)		169,194
Intellectual property		7.0		7,701		(3,117	)		4,584
		15.4		314,503		(62,223	)		252,280

Aggregate amortization expense of intangible assets for the three and nine months ended September 30, 2006 was $5.7 million ($6.3 million - 2005) and $17.0 million ($19.4 million - 2005), respectively. Amortization of intangible assets for the next five fiscal years is expected to be $5.7 million (fourth quarter of 2006), $21.8 million (2007), $20.7 million (2008), $19.7 million (2009), $17.6 million (2010) and $151.7 million (thereafter).

6. Cash Flows

Cash interest paid by the Company during the nine months ended September 30, 2006 and 2005 totaled approximately $118.7 million and $101.2 million, respectively.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

7. Long-Term Debt

	September 30,		December 31,
	2006		2005
	$		$
Revolving Credit Facilities		1,306,185		769,000
Premium Equity Participating Security Units (7.25%) due May 18, 2006		-		143,750
Senior Notes (8.875%) due July 15, 2011		262,383		265,559
U.S. Dollar-denominated Term Loans due through 2019		475,486		289,582
EURO-denominated Term Loans due through 2023		397,182		377,352
		2,441,236		1,845,243
Less current portion		41,820		159,053
Total		2,399,416		1,686,190

As at September 30, 2006, the Company had six long-term revolving credit facilities (or the Revolvers ) available, which, as at such date, provided for borrowings of up to $1.9 billion, of which $634.6 million was undrawn. Interest payments are based on LIBOR plus margins. At September 30, 2006, the margins ranged between 0.50% and 0.70% and the three-month LIBOR was 5.37%. The amount available under the Revolvers reduces by $38.4 million (2006), $173.1 million (2007), $388.8 million (2008), $115.7 million (2009), $117.6 million (2010) and $1,107.2 million (thereafter). The Revolvers are collateralized by first-priority mortgages granted on 43 of the Company’s vessels, together with other related collateral, and are guaranteed by Teekay or its subsidiaries.

On February 16, 2006, the Company issued 6,534,300 shares of its Common Stock upon settlement of the purchase contracts associated with its 7.25% Premium Equity Participating Security Units (or Equity Units ). The Equity Units were issued in February 2003 and each consisted of a share purchase contract and a $25 principal amount subordinated note due May 18, 2006. On February 16, 2006, the Company repurchased the notes for net proceeds equal to 100% of their aggregate principal amount. The net proceeds were applied to satisfy the obligations of the holders of the Equity Units to purchase Company Common Stock under the related purchase contracts. The notes were subsequently cancelled and are no longer outstanding. The Equity Units are no longer outstanding.

The 8.875% Senior Notes due July 15, 2011 (or the 8.875% Notes ) rank equally in right of payment with all of Teekay’s existing and future senior unsecured debt and senior to Teekay’s existing and future subordinated debt. The 8.875% Notes are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debt of Teekay and other liabilities, secured and unsecured, of its subsidiaries. During the nine months ended September 30, 2006, the Company repurchased a principal amount of $3.0 million of the 8.875% Notes (see also Note 13).

The Company has five U.S. Dollar-denominated term loans outstanding, which, as at September 30, 2006, totaled $475.5 million. Two of the term loans bear interest at fixed rates of 4.06% and 5.37%, respectively. Interest payments on the other loans are based on LIBOR plus a margin. At September 30, 2006, the margins ranged between 0.50% and 1.05%. The term loans reduce in quarterly or semi-annual payments commencing three or six months after delivery of each newbuilding, and four of them also have balloon repayments due at maturity. The term loans are collateralized by first-preferred mortgages on four of the Company’s vessels, together with certain other collateral, and are guaranteed by Teekay or its subsidiaries.

The Company has two Euro-denominated term loans outstanding, which, as at September 30, 2006 totaled 313.4 million Euros ($397.2 million). The Company used the loans in financing capital leases for two vessels. The Company repays the loans with funds generated by two Euro-denominated long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus a margin. At September 30, 2006, the margins ranged between 1.10% and 1.30% and the one-month EURIBOR was 3.27%. The Euro-denominated term loans reduce in monthly payments with varying maturities through 2023 and are collateralized by first-preferred mortgages on two of the Company’s vessels, together with certain other collateral, and are guaranteed by a subsidiary of Teekay.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Both Euro-denominated term loans are revalued at the end of each period using the then-prevailing Euro/U.S. Dollar exchange rate. Due substantially to this revaluation, the Company recognized unrealized foreign exchange gains during the three months ended September 30, 2006 of $0.3 million ($3.1 million gain - 2005) and unrealized foreign exchange losses during the nine months ended September 30, 2006 of $33.0 million ($50.6 million gain - 2005).

Among other matters, our long-term debt agreements generally provide for maintenance of certain vessel market value-to-loan ratios and minimum consolidated financial covenants. Certain loan agreements require that a minimum level of free cash be maintained. As at September 30, 2006, this amount was $100.0 million. Certain of the loan agreements also require that the Company maintain a minimum aggregate level of free liquidity and undrawn revolving credit lines with at least six months to maturity. As at September 30, 2006, this amount was $131.4 million.

8. Loan from Joint Venture Partner

The Company has one U.S. Dollar-denominated loan outstanding owing to a joint venture partner, which, as at September 30, 2006, totaled $34.7 million, including accrued interest at a fixed rate of 4.84%. This loan relates to a $33.5 million equity investment in Teekay Nakilat Holdings Corporation (or Teekay Nakilat ), which indirectly owns three LNG newbuilding carriers (collectively, the RasGas II vessels ) and is 30% owned by Qatar Gas Transport Company Ltd. The loan is unsecured and repayable on demand no earlier than 20 years from the delivery date of the last of the RasGas II vessels, which is scheduled for the first quarter of 2007.

9. Capital Leases and Restricted Cash

Capital Leases

Suezmax Tankers. As at September 30, 2006, the Company was party to capital leases on five Suezmax tankers. Under the terms of the lease arrangements, which include the Company’s contractual right to full operation of the vessels pursuant to bareboat charters, the Company is required to purchase these vessels after the end of their respective lease terms, which will occur at various times from 2007 to 2010, for a fixed price. The weighted-average annual interest rate implicit in these capital leases, at the inception of the leases, was 7.4%. These capital leases are variable-rate capital leases; however, any change in the Company’s lease payments resulting from changes in interest rates is offset by a corresponding change in the charter hire payments the Company receives under the vessels’ time charter contract. As at September 30, 2006, the remaining commitments under these capital leases, including the purchase obligations, approximated $256.6 million, including imputed interest of $32.3 million, repayable as follows:

Year	Commitment
2006	$	6.3 million
2007		145.1 million
2008		8.6 million
2009		8.5 million
2010		88.1 million

During September 2006, the Company exercised its option and purchased an Aframax tanker, that was previously subject to a capital lease, for $39.0 million.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

LNG Carriers. As at September 30, 2006, the Company was a party to capital leases on two LNG carriers that are structured as “Spanish tax leases.” Under the terms of the Spanish tax leases, the Company will purchase these vessels at the end of their respective lease terms in 2006 and 2011, both of which purchase obligations have been fully funded with restricted cash deposits described below. As at September 30, 2006, the weighted-average annual interest rate implicit in the Spanish tax leases was 5.7%. As at September 30, 2006, the commitments under these capital leases, including the purchase obligations, approximated 288.2 million Euros ($365.3 million), including imputed interest of 33.6 million Euros ($42.5 million), repayable as follows:

Year	Commitment
2006	123.2 million Euros ($156.1 million)
2007	23.3 million Euros ($29.5 million)
2008	24.4 million Euros ($30.9 million)
2009	25.6 million Euros ($32.5 million)
2010	26.9 million Euros ($34.1 million)
Thereafter	64.8 million Euros ($82.2 million)

During January 2006, the Company sold its shipbuilding contracts for the three RasGas II vessels to SeaSpirit Leasing Limited (or SeaSpiri t) for proceeds of $313.0 million, which represented previously-paid shipyard installments and other construction costs. Concurrently with the sale, the Company entered into 30-year leases for these three vessels, which commence upon the respective deliveries of the vessels, the first of which occurred in October 2006.

Restricted Cash

Under the terms of the Spanish tax leases for the two LNG carriers, the Company is required to have on deposit with financial institutions an amount of cash that, together with interest on the deposit, will equal the remaining amounts owing under the leases, including the obligations to purchase the LNG carriers at the end of the lease periods. This amount was 258.9 million Euros ($328.1 million) as at September 30, 2006 and 249.0 million Euros ($295.0 million) at December 31, 2005. These cash deposits are restricted to being used for capital lease payments and have been fully funded with term loans and a Spanish government grant. The interest rates earned on the deposits approximate the interest rates implicit in the Spanish tax leases. As at September 30, 2006 and December 31, 2005, the weighted-average interest rate earned on the deposits was 5.2%.

Under the terms of the leases for the RasGas II vessels, the Company is required to have on deposit an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the leases. This amount was $437.6 million as at September 30, 2006. These cash deposits are restricted to being used for capital lease payments and have been funded with term loans and loans from the Company’s joint venture partners (see also Note 8 and 11). As at September 30, 2006, the weighted-average interest rate earned on the deposits was 5.6%.

The Company also maintains restricted cash deposits relating to certain term loans and other obligations. As at September 30, 2006 and December 31, 2005, these amounts were $13.8 million and $16.1 million, respectively.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

10. Capital Stock

Capital Stock

The authorized capital stock of Teekay at September 30, 2006 was 25,000,000 shares of Preferred Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a par value of $0.001 per share. During the nine months ended September 30, 2006, the Company issued 6.5 million shares of its Common Stock upon settlement of the purchase contracts associated with its Equity Units (see Note 7), issued 0.6 million shares upon exercise of stock options, and repurchased 5.3 million shares for a total cost of $212.3 million. As at September 30, 2006, Teekay had 73,144,180 shares of Common Stock and no shares of Preferred Stock issued and outstanding.

During 2005 and June 2006, Teekay announced that its Board of Directors had authorized the repurchase of up to $655 million and $150 million, respectively, of shares of its Common Stock in the open market. As at September 30, 2006, Teekay had repurchased 16,429,400 shares of Common Stock subsequent to such authorizations at an average price of $41.58 per share, for a total cost of $683.1 million. The total remaining share repurchase authorization at September 30, 2006 was approximately $121.9 million.

Share-Based Payments

Effective January 1, 2006, the Company adopted the fair value recognition provisions of the Financial Accounting Standards Board Statement No. 123(R) (or SFAS 123(R) ), “Share-Based Payment”, using the “modified prospective” method. Under this transition method, compensation cost is recognized in the financial statements beginning with the effective date for all share-based payments granted after January 1, 2006 and for all awards granted to employees prior to, but not yet vested as of January 1, 2006. Accordingly, prior period amounts have not been restated.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s net income for the three and nine months ended September 30, 2006 is $2.5 million and $6.8 million lower, respectively, than if it had continued to account for share-based compensation under APB Opinion No. 25 (or APB 25 ), “Accounting for Stock Issued to Employees.” Both basic and diluted earnings per share for the three months ended September 30, 2006 are $0.03 lower, and for the nine months ended September 30, 2006 are $0.09 lower, than if the Company had continued to account for share based compensation under APB 25.

Prior to January 1, 2006, the Company accounted for stock options under the recognition and measurement provision using the intrinsic value method, as permitted by Statement of Financial Accounting Standards No. 123 (or SFAS 123 ), “Accounting for Stock-Based Compensation.” As the exercise price of the Company’s employee stock options equals the market price of underlying stock on the date of grant, no compensation expense was recognized under APB 25.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table illustrates the effect on net income and earnings per share for the three and nine months ended September 30, 2005 had the Company applied the fair value recognition provisions of SFAS 123, as amended, to stock-based employee compensation.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2005		2005
		$		$
Net income - as reported		42,675		426,290
Less: Total stock option compensation expense		1,978		6,099
Net income - pro forma		40,697		420,191
Basic earnings per common share:
- As reported		0.55		5.34
- Pro forma		0.53		5.26
Diluted earnings per common share:
- As reported		0.52		4.99
- Pro forma		0.49		4.92

As at September 30, 2006, the Company had reserved pursuant to its 1995 Stock Option Plan and 2003 Equity Incentive Plan (collectively referred to as the Plans ) 8,051,061 shares of Common Stock for issuance upon exercise of options or equity awards granted or to be granted. The options under the Plans have a 10-year term and vest equally over three years from the grant date, except for one grant of 50,000 options made in 2004 which will vest 100% on December 31, 2006. All outstanding options expire between June 13, 2007 and March 7, 2016, ten years after the date of each respective grant.

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2006 is as follows:

	Options (000’s) #			Weighted-Average Exercise Price $

Outstanding at December 31, 2005		4,160			24.81
Granted		1,045			38.94
Exercised		(568	)		20.55
Forfeited		(37	)		30.15
Outstanding at September 30, 2006		4,600			28.50

Exercisable at September 30, 2006		2,881			21.74

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2006 was $11.30 per option. As at September 30, 2006, the intrinsic value of the outstanding stock options and exercisable stock options was $61.4 million and $57.0 million, respectively.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of the Company’s nonvested stock option activity and related information for the nine months ended September 30, 2006 is as follows:

	Options (000’s) #			Weighted-Average Grant Date Fair Value $

Nonvested at December 31, 2005		1,774			9.75
Granted		1,045			11.30
Vested		(1,083	)		7.68
Forfeited		(17	)		12.20
Nonvested at September 30, 2006		1,719			11.98

As of September 30, 2006, there was $14.0 million of total unrecognized compensation cost related to nonvested stock options granted under the Plans. Recognition of this compensation is expected to be $2.3 million (fourth quarter of 2006), $6.9 million (2007), $4.1 million (2008) and $0.7 million (2009).

The fair value of each option granted was estimated on the date of the grant using the Black-Scholes option pricing model. The resulting compensation expense is being amortized over three years using the straight-line method. The following weighted-average assumptions were used in computing the fair value of the options granted: expected volatility of 31% in 2006 and 35% in 2005, expected life of five years, dividend yield of 2.0% in 2006 and 1.5% in 2005, and risk-free interest rate of 4.8% in 2006 and 4.1% in 2005.

As at September 30, 2006, the Company had 388,763 remaining restricted stock units outstanding that were awarded in March 2005 as incentive-based compensation. Each restricted stock unit is equal in value to one share of the Company’s Common Stock and reinvested dividends from the date of the grant to the vesting of the restricted stock unit. Based on the September 30, 2006 share price of $41.11 per share, these restricted stock units had a notional value of $16.0 million and will vest in equal amounts on March 31 and November 30, 2007. Upon vesting, 76,684 of the restricted stock units will be paid to the grantees in the form of cash, and 312,079 of the restricted stock units will be paid to the grantees in the form of cash or shares of Teekay’s Common Stock, at the election of the grantee. Shares of Teekay's Common Stock issued as payment of the restricted stock units will be purchased in the open market by the Company. On March 31, 2006, 211,267 restricted stock units with a market value of $8.3 million vested and that amount was paid to grantees in cash. During the three and nine months ended September 30, 2006, the Company recorded an expense of $1.5 million ($4.3 million - 2005) and $6.5 million ($9.6 million - 2005), respectively, related to the vested and unvested restricted stock units, which is primarily included in general and administrative expenses.

During March 2006, the Company granted 18,990 shares of restricted stock awards with a fair value of $0.7 million, based on the quoted market price, to certain of the Company’s Directors. The stock will be released from a forfeiture provision equally over three years from the date of the award.

11. Commitments and Contingencies

a) Vessels Under Construction

As at September 30, 2006, the Company was committed to the construction of two Aframax tankers, ten Suezmax tankers and four product tankers scheduled for delivery between November 2006 and August 2009, at a total cost of approximately $993.0 million, excluding capitalized interest. As at September 30, 2006, payments made towards these commitments totaled $245.9 million, excluding $15.0 million of capitalized interest and other miscellaneous construction costs. Long-term financing arrangements existed for $745.1 million of the unpaid cost of these vessels. The Company intends to finance the remaining unpaid amount of $2.0 million through incremental debt or surplus cash balances, or a combination thereof. As at September 30, 2006, the remaining payments required to be made under these newbuilding contracts were $55.4 million in 2006, $145.1 million in 2007, $320.3 million in 2008 and $226.3 million in 2009. The two Aframax tankers will be subject to 10-year fixed-rate time charters to Skaugen PetroTrans Inc., a joint venture of the Company, upon delivery scheduled for January and April 2008.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

As at September 30, 2006, the Company was committed to the construction of two LNG carriers scheduled for delivery in November 2008 and January 2009. The Company has entered into these transactions with a joint venture partner (BLT LNG Tangguh Corporation, a subsidiary of PT Berlian Tanker Tbk), which owns a 30% interest in the vessels and related long-term, fixed-rate time charter contracts. All amounts below include the joint venture partner’s 30% share. The total cost of these LNG carriers is approximately $376.9 million, excluding capitalized interest. As at September 30, 2006, payments made towards these commitments totaled $82.3 million, excluding $7.5 million of capitalized interest and other miscellaneous construction costs. Long-term financing arrangements existed for all of the remaining $294.6 million unpaid cost of these LNG carriers. As at September 30, 2006, the remaining payments required to be made under these contracts were $147.3 million in 2007, $111.2 million in 2008 and $36.1 million in 2009. Upon delivery, these two LNG carriers will be subject to 20-year, fixed-rate time charters to The Tangguh Production Sharing Contractors, a consortium led by BP Berau, a subsidiary of BP plc. Pursuant to existing agreements, on November 1, 2006, Teekay LNG agreed to acquire the Company’s ownership interest in these two vessels and related charter contracts upon delivery of the first LNG carrier.

As at September 30, 2006, the Company, through Teekay Nakilat, was committed to lease the three RasGas II vessels that were scheduled for delivery between October 2006 and February 2007. (See Note 9). The Company has entered into these transactions with its joint venture partner, Qatar Gas Transport Company Ltd., which owns a 30% interest in the vessel leases and related long-term, fixed-rate time charter contracts. All amounts below include the joint venture partner’s 30% share. During January 2006, the Company sold the three LNG carrier shipbuilding contracts to SeaSpirit for $313.0 million, which approximated the accumulated construction costs incurred to that date. Concurrently with the sale, the Company entered into 30-year leases for the RasGas II vessels, to commence upon delivery of the respective vessels. The Company used the sale proceeds to partially fund restricted cash deposits. During vessel construction, the amount of restricted cash approximates the accumulated vessel construction costs. Under the terms of the leases and upon vessel delivery, the Company is required to have on deposit an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the leases. The Company is committed to funding an additional $102.9 million of restricted cash deposits ($34.3 million - fourth quarter of 2006 and $68.6 million - 2007) through the remainder of the construction period. The Company has long-term financing arrangements in place to fund these remaining commitments. Upon their deliveries, the RasGas II vessels will operate under 20-year, fixed-rate time charters to Ras Laffan Natural Gas Co. Limited (II), a joint venture between Qatar Gas Transport Company Ltd. and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. Pursuant to existing agreements, the Company sold to Teekay LNG its ownership interest in these three vessels and related charter contracts upon delivery of the first vessels in October 2006.

Under the terms of the RasGas II capital lease arrangements, the lessor claims tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the lessee. The rentals payable under the lease arrangements are predicated on the basis of certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the rentals so as to maintain its agreed after-tax margin. However, the terms of the lease arrangements enable Teekay Naiklat to terminate the lease arrangements on a voluntary basis at any time. In the event of a termination of the lease arrangements, Teekay Nakilat would be obliged to pay termination sums to the lessor sufficient to repay its investment in the vessels and to compensate it for the tax-effect of the terminations, including recapture of tax depreciation, if any.

As at September 30, 2006, the Company had options to have constructed four LNG carriers at predetermined prices. During February and June 2006, these options expired. Of the $12.0 million cost of these options, $6.0 million was forfeited and expensed in other - net (see Note 13). The Company may apply $6.0 million against the purchase price of any LNG carriers the Company orders during 2006.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

b) Vessel Purchases and Conversions

In February 2006, the Company announced that it has been awarded 13-year fixed-rate contracts to charter two Suezmax shuttle tankers and one Aframax shuttle tanker to Fronape International Company, a subsidiary of Petrobras Transporte S.A., the shipping arm of Petroleo Brasileiro S.A.. In connection with these contracts, the Company exercised a purchase option on a 2000-built Aframax tanker presently trading as part of the Company’s spot rate chartered-in fleet and acquired a 2006-built Suezmax tanker, both of which will be converted to shuttle tankers between January and April 2007. The purchase price for these two vessels, including conversion costs, is approximately $176.3 million. As of September 30, 2006, the Company has paid $8.5 million of such amount. The Company intends to finance the remaining unpaid amount through additional financing or surplus cash balances, or a combination thereof. The third vessel is a 2003-built Suezmax shuttle tanker from the Company’s shuttle tanker fleet that commenced operation under these contracts in July 2006.

c) Joint Ventures

In August 2005, the Company announced that it had been awarded long-term fixed-rate contracts to charter four LNG carriers to Ras Laffan Liquefied Natural Gas Co. Limited (3) (or RasGas 3 ), a joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum. The vessels will be chartered to RasGas 3 at fixed rates, with inflation adjustments, for a period of 25 years (with options to extend up to an additional 10 years), scheduled to commence in the first half of 2008. The Company is entering into these transactions with its joint venture partner, Qatar Petroleum, which has taken a 60% interest in the vessels and time charters. In connection with this award, the joint venture has entered into agreements with Samsung Heavy Industries Co. Ltd. to construct four 217,000 cubic meter LNG carriers at a total cost of approximately $1.0 billion (of which the Company’s 40% portion is $400.7 million), excluding capitalized interest. As at September 30, 2006, payments made towards these commitments by the joint venture company totaled $250.9 million (of which the Company’s 40% contribution was $100.3 million), excluding capitalized interest and other miscellaneous construction costs. Long-term financing arrangements existed for all of the remaining $750.8 million unpaid cost of these LNG carriers. As at September 30, 2006, the remaining payments required to be made under these newbuilding contracts (including the joint venture partners’ 60% share) were $100.6 million in 2006, $449.9 million in 2007 and $200.3 million in 2008. Pursuant to existing agreements, on November 1, 2006, Teekay LNG agreed to acquire the Company’s ownership interest in these four vessels and related charter contracts upon delivery of the first LNG carrier.

Under the terms of a joint venture agreement with an entity controlled by the former controlling shareholder of Teekay Shipping Spain S.L., the Company will pay the other partner up to $25.0 million (calculated by a pre-determined formula based on the occurrence of certain future events) unless the Company makes capital contributions to the joint venture company of $50.0 million in share premium prior to April 30, 2007.

Teekay and certain of its subsidiaries have guaranteed their share of the outstanding mortgage debt in five 50%-owned joint venture companies. As at September 30, 2006, Teekay and these subsidiaries had guaranteed $114.5 million, or 50% of the total $228.9 million, of this mortgage debt. These joint venture companies own an aggregate of five shuttle tankers.

d) Long-Term Incentive Program

In 2005, the Company adopted the Vision Incentive Plan (or the Vision Plan) to reward exceptional corporate performance and shareholder returns. This Vision Plan will result in an award pool for senior management based on the following two measures: (a) economic profit from 2005 to 2010 (or the Economic Profit); and (b) market value added from 2001 to 2010 (or the Market Value Added). The Vision Plan terminates on December 31, 2010. Under the Vision Plan, the Economic Profit is the difference between the Company’s annual return on invested capital and its weighted-average cost of capital multiplied by its average invested capital employed during the year, and Market Value Added is the amount by which the average market value of the Company for the preceding 18 months exceeds the average book value of the Company for the same period.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

In 2008, if the Vision Plan’s award pool has a cumulative positive balance based on the Economic Profit contributions for the preceding three years, an interim distribution may be made to participants in an amount not greater than half of the award pool. In 2011, the balance of the Vision Plan award pool will be distributed to the participants. Fifty percent of any distribution from the award pool, in each of 2008 and 2011, must be paid in a form that is equity-based, with vesting on half of this percentage deferred for one year and vesting on the remaining half of this percentage deferred for two years.

The Economic Profit contributions added to the award pool each quarter are accrued when incurred. The estimated Market Value Added contributions are accrued on a straight-line basis from the date of plan approval, which was March 9, 2005, until December 31, 2010. Any subsequent increases or decreases to the Market Value Added contribution are accrued on a straight-line basis until December 31, 2010. During the three and nine months ended September 30, 2006, the Company accrued $2.8 million ($3.6 million - 2005) and $9.6 million ($13.9 million - 2005), respectively, of the Vision Plan contributions in general and administrative expenses.

e) Other

The Company has been awarded a contract by a consortium of major oil companies to construct and install on seven of its shuttle tankers volatile organic compound emissions plants, which reduce emissions during cargo operations. These plants are leased to the consortium of major oil companies. The construction and installation of these plants are expected to be completed by the second quarter of 2007 at a total cost of approximately $105.4 million. As at September 30, 2006, the Company had made payments towards these commitments of approximately $90.4 million. As at September 30, 2006, the remaining payments required to be made towards these commitments were $15.0 million in 2006.

The Company enters into indemnification agreements with certain officers and directors. In addition, the Company enters into other indemnification agreements in the ordinary course of business. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company maintains what it believes is appropriate liability insurance that reduces its exposure and enables the Company to recover future amounts paid up to the maximum amount of the insurance coverage, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.

12. Vessel Sales and Writedown on Vessel and Equipment

During the third quarter of 2006, the Company completed the sale of a 1981-built, 50.5%-owned shuttle tanker, which was presented as held for sale at June 30, 2006, and recorded a gain of $6.4 million and a minority interest expense of $3.2 million relating to the sale.

During the nine months ended September 30, 2006, the Company sold the shipbuilding contracts for three LNG carriers to SeaSpirit and was reimbursed for previously paid shipyard installments and other construction costs in the amount of $313.0 million (see Notes 9 and 11a).

During the nine months ended September 30, 2006, the Company incurred a $2.2 million writedown of certain offshore equipment. This writedown occurred due to a reassessment of the estimated net realizable value of this equipment and follows a $12.3 million writedown in June 2005 arising from the early termination of a contract for this equipment.

In March 2005, the Company sold and leased back a 1991-built shuttle tanker that is now being accounted for as an operating lease. The sale generated a $2.8 million gain, which has been deferred and is being amortized over the 6.5 year term of the lease. The Company is also amortizing a deferred gain from the sale and lease back pursuant to operating leases of three vessels sold in December 2003. The results for the three and nine months ended September 30, 2006 include $0.7 million ($0.6 million - 2005) and $2.1 million ($2.0 million - 2005), respectively, of amortization of these deferred gains.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

13. Restructuring Charge and Other - net

	Three Months Ended						Nine Months Ended
	September 30, 2006 $			September 30, 2005 $			September 30, 2006 $			September 30, 2005 $
Minority interest expense		(7,289	)		(5,354	)		(4,682	)		(12,429	)
Loss on bond redemption ( note 7 )		-			(1,334	)		(375	)		(10,109	)
Loss from settlement of interest rate swaps		-			-			-			(7,820	)
Writeoff of capitalized loan costs		-			-			-			(7,462	)
Income tax recovery (expense)		4,985			2,005			(5,839	)		11,877
Loss on expiry of options to construct LNG carriers		-			-			(6,102	)		-
Miscellaneous		1,184			2,616			7,115			7,211
Other - net		(1,120	)		(2,067	)		(9,883	)		(18,732	)

During the three and nine months ended September 30, 2006, the Company incurred $2.9 million and $7.4 million, respectively, of restructuring costs primarily relating to the relocation of certain operational functions. During the fourth quarter of 2006, the Company expects to incur approximately $2.0 million of further restructuring charges to complete the relocations.

14. Comprehensive Income

	Three Months Ended						Nine Months Ended
	September 30, 2006 $			September 30, 2005 $			September 30, 2006 $			September 30, 2005 $
Net income		79,847			42,675			201,944			426,290
Other comprehensive income:
Unrealized gain on marketable securities		2,680			-			7,277			-
Unrealized (loss) gain on derivative instruments		(80,480	)		39,251			24,678			(46,925	)
Reclassification adjustment for (gain) loss on derivative instruments included in net income		(711	)		(2,211	)		(2,145	)		12,493
Comprehensive income		1,336			79,715			231,754			391,858

15. Derivative Instruments and Hedging Activities

The Company uses derivatives only for hedging purposes. The following summarizes the Company's risk strategies with respect to market risk from foreign currency fluctuations, changes in interest rates, spot market rates for vessels and bunker fuel prices.

The Company hedges portions of its forecasted expenditures denominated in foreign currencies with foreign exchange forward contracts. As at September 30, 2006, the Company was committed to foreign exchange contracts for the forward purchase of approximately Norwegian Kroner 1.4 billion, Canadian Dollars 19.7 million, Euros 6.8 million, Australian Dollars 7.5 million and British Pounds 5.1 million for U.S. Dollars at an average rate of Norwegian Kroner 6.34 per U.S. Dollar, Canadian Dollar 1.15 per U.S. Dollar, Euro 0.82 per U.S. Dollar, Australian Dollar 1.39 per U.S. Dollar and British Pound 0.57 per U.S. Dollar, respectively. The foreign exchange forward contracts mature as follows: $240.8 million in 2006; $130.6 million in 2007; and $84.5 million in 2008. In addition, certain of the Company’s forward contracts obligate the Company to enter into forward purchase contracts for approximately Norwegian Kroner 90.0 million at a rate of 6.34 Norwegian Kroner per U.S. Dollar at the discretion of the counterparty during 2008.

As at September 30, 2006, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt, restricted cash deposits and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt and restricted cash deposits were swapped with fixed-rate obligations or fixed-rate deposits:

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	Interest Rate Index		Principal Amount $		Fair Value / Carrying Amount of Liability $			Weighted-Average Remaining Term (years)		Fixed Interest Rate (%) ⁽¹⁾
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps ⁽²⁾		LIBOR		421,499		19,494			30.3		4.9
U.S. Dollar-denominated interest rate swaps		LIBOR		850,000		10,871			4.7		4.8
U.S. Dollar-denominated interest rate swaps ⁽³⁾		LIBOR		1,513,536		(14,546	)		14.3		5.2
LIBOR-Based Restricted Cash Deposit:
U.S. Dollar-denominated interest rate swaps ⁽²⁾		LIBOR		432,549		(24,265	)		30.3		4.8
EURIBOR-Based Debt:
Euro-denominated interest rate swaps ^(4) (5)		EURIBOR		397,182		5,488			17.7		3.8

_____________________________________________________________________________

(1)	Excludes the margin the Company pays on its variable-rate debt, which as of September 30, 2006 ranged from 1.1% to 1.3%.

(2)	U.S. Dollar-denominated interest rate swaps are held in Teekay Nakilat to hedge its floating-rate lease obligations and floating-rate restricted cash deposits. (See Note 11a). Principal amount reduces quarterly following delivery of each LNG newbuilding.

(3)	Inception dates of swaps are 2006 ($984 million), 2007 ($226 million) and 2009 ($304 million).

(4)	Principal amount reduces monthly to 70.1 million Euros ($88.8 million) by the maturity dates of the swap agreements.

(5)	Principal amount is the U.S. Dollar equivalent of 313.4 million Euros.

During May 2006, the Company sold two swaptions for $2.4 million which will be amortized into earnings over the term of the swaptions. These options, if exercised by the holders, will obligate the Company to enter into interest rate swap agreements whereby certain of the Company’s floating-rate debt will be swapped with fixed-rate obligations. The terms of these swaptions are as follows:

Interest Rate Index	Principal Amount ⁽¹⁾ $		Start Date		Remaining Term (years)		Fixed Interest Rate (%)
LIBOR		150,000		August 31, 2009		12.0		4.3
LIBOR		125,000		May 15, 2007		12.0		4.0

_____________________________________________________________________________

(1)	Principal amount reduces $5.0 million semi-annually ($150.0 million) and $2.6 million quarterly ($125.0 million).

The Company hedges certain of its voyage revenues through the use of forward freight agreements. Forward freight agreements involve contracts to provide a fixed number of theoretical voyages at fixed-rates, thus hedging a portion of the Company’s exposure to the spot charter market. As at September 30, 2006, the Company was committed to forward freight agreements totalling 1.0 million metric tonnes with an aggregate notional principal amount of $4.6 million. The forward freight agreements expire during the fourth quarter of 2006.

The Company hedges a portion of its bunker fuel expenditures with bunker fuel swap contracts. As at September 30, 2006, the Company was committed to contracts totalling 25,000 metric tonnes with a weighted-average price of $292.76 per tonne. The fuel swap contracts expire between October 2006 and September 2007.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company is exposed to credit loss in the event of non-performance by the counter-parties to the foreign exchange forward contracts, interest rate swap agreements, forward freight agreements and bunker fuel swap contracts; however, the Company does not anticipate non-performance by any of the counter-parties.

During the three and nine months ended September 30, 2006, the Company recognized a net loss of $1.6 million ($0.2 million gain - 2005) and a net loss of $1.3 million ($0.8 million loss - 2005), respectively, relating to the ineffective portion of its interest rate swap agreements and foreign currency forward contracts. The ineffective portion of these derivative instruments is presented as interest expense and other (loss) income, respectively.

As at September 30, 2006 and December 31, 2005, the Company’s accumulated other comprehensive loss consisted of the following components :

	September 30, 2006 $			December 31, 2005 $

Unrealized loss on derivative instruments		(44,948	)		(67,482	)
Unrealized gain (loss) on marketable securities		5,928			(1,348	)
		(39,020	)		(68,830	)

16. Earnings Per Share

	Three Months Ended				Nine Months Ended
	September 30, 2006		September 30, 2005		September 30, 2006		September 30, 2005
Net income available for common stockholders	$	79,847	$	42,675	$	201,944	$	426,290

Weighted-average number of common shares		73,251,038		77,104,662		73,223,613		79,872,761
Dilutive effect of employee stock options and restricted stock awards		1,693,000		2,132,202		1,615,771		2,212,487
Dilutive effect of Equity Units		-		3,323,021		479,469		3,310,121
Common stock and common stock equivalents ...		74,944,038		82,559,885		75,318,853		85,395,369

Earnings per common share:
- Basic	$	1.09	$	0.55	$	2.76	$	5.34
- Diluted		1.07		0.52		2.68		4.99

For the three and nine months ended September 30, 2006, the anti-dilutive effect of 0.6 million and 1.3 million, respectively, shares attributable to outstanding stock options were excluded from the calculations of diluted earnings per share. For both the three and nine months ended September 30, 2005, the anti-dilutive effect of 0.6 million shares attributable to outstanding stock options was excluded from the calculations of diluted earnings per share.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

17. Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (or FASB ) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" (or FIN 48 ). This interpretation clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes". FIN 48 will require companies to determine whether it is more-likely-than-not that a tax position taken or expected to be taken in a tax return will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements based on guidance in the interpretation. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has not determined the effect, if any, that the adoption of FIN 48 will have on the Company’s consolidated financial position or results of operations.

18. Subsequent Events

During October 2006, the Company terminated one of its revolving credit facilities, amended another to allow for additional borrowing of up to $119 million, and entered into a new 8-year reducing revolving credit facility that allows for borrowing of up to $940 million. The amended credit facility, which bears interest based on LIBOR plus a margin of 0.625%, is collateralized by first-priority mortgages on eight of the Company’s vessels. The new credit facility, which bears interest based on LIBOR plus a margin of 0.625%, is collateralized by first-priority mortgages on 19 of the Company’s vessels.

In December 2006, the Company has agreed to sell a 2000-built LPG carrier to Teekay LNG and the related long-term, fixed-rate time charter for a purchase price of approximately $18.2 million effective January 1, 2007. It is anticipated that the purchase will be financed with Teekay LNG’s existing revolving credit facilities. This vessel is chartered to the Norwegian state-owned oil company, Statoil ASA, and has a remaining contract term of nine years.

In December 2006, Teekay LNG announced that it has agreed to acquire three liquefied petroleum gas (or LPG ) carriers from I.M. Skaugen ASA (or Skaugen ) for approximately $29.2 million per vessel. The vessels are currently under construction and are expected to deliver between early 2008 and mid-2009. Teekay LNG will acquire the vessels upon their delivery and will finance the acquisition of these vessels through existing and/or incremental debt, surplus cash balances, issuance of additional common units or combinations thereof. Upon delivery, the vessels will be chartered to Skaugen, which engages in the marine transportation of petrochemical gases and LPG, and the lightering of crude oil, at fixed rates, for a period of 15 years.

On December 19, 2006, the Company’s subsidiary Teekay Offshore Partners L.P. (or Teekay Offshore ) completed its initial public offering of 8,050,000 common units at a price of $21.00 per unit, for proceeds of $155.3 million, net of an estimated $13.8 million of expenses associated with the offering. Teekay Offshore used the net offering proceeds to repay indebtedness to the Company and to redeem 1,050,000 of the common units held by the Company. Following the offering, the public owned a 40.3% limited partner interest in Teekay Offshore and the Company owned the remaining partnership interests, including common units, subordinated units, incentive distribution rights and Teekay Offshore's 2% general partner interest.

The Company formed Teekay Offshore in August 2006 to be an international provider of marine transportation and storage services to the offshore oil industry. Teekay Offshore's only cash-generating asset is its 26% interest in Teekay Offshore Operating L.P., which Teekay Offshore controls and which holds substantially all of the Company’s shuttle tankers and FSO units. Teekay Offshore also has rights to participate in certain FPSO opportunities involving Petrojarl.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Immediately preceding the closing of the initial public offering, the Company amended its omnibus agreement with Teekay LNG to include Teekay Offshore. The omnibus agreement governs, among other things, when the Company, Teekay LNG and Teekay Offshore may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers and FSO and FPSO units. Under the amended agreement, Teekay LNG and Teekay Offshore have each granted to the Company a 30-day right of first offer on any proposed (a) sale, transfer or other disposition of any of Teekay LNG’s Suezmax tankers or of Teekay Offshore's Aframax tankers, respectively, or (b) re-chartering of any of such Suezmax tankers or Aframax tankers pursuant to a time-charter with a term of at least three years if the existing charter expires or is terminated early. Likewise, the Company has granted similar rights of first offer to Teekay LNG for any LNG carriers and Teekay Offshore for any shuttle tankers or FSO or FPSO units, it might own, together with a purchase right upon any such proposed re-chartering of those vessels.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

September 30, 2006

PART I - FINANCIAL INFORMATION

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

General

Teekay is one of the world’s leading providers of international crude oil and petroleum product transportation services. We estimate that we transported more than 10 percent of the world’s seaborne oil in 2005. As at September 30, 2006, our fleet (excluding vessels managed for third parties) consisted of 149 vessels (including 48 vessels chartered-in, 25 newbuildings on order, and five vessels owned through joint ventures). Our conventional oil tankers (including newbuildings) provide a total cargo-carrying capacity of approximately 17.0 million deadweight tonnes (or mdwt ), and our LNG and liquid petroleum gas carriers (including newbuildings) have total cargo-carrying capacity of approximately 2.2 million cubic meters.

Our voyage revenues are derived from:

·	Voyage charters, which are charters for shorter intervals that are priced on a current, or “spot,” market rate;

·	Time charters and bareboat charters, whereby vessels are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates or current market rates; and

·	Contracts of affreightment, where we carry an agreed quantity of cargo for a customer over a specified trade route within a given period of time.

The table below illustrates the primary distinctions among these types of charters and contracts:

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

_____________________________________________________________________________

(1)	Under a consecutive voyage charter, the customer pays for idle time.

(2)	“ Hire ” rate refers to the basic payment from the charterer for the use of the vessel.

(3)	Defined below under “Important Financial and Operational Terms and Concepts.”

(4)	“ Off-hire ” refers to the time a vessel is not available for service.

Segments

Our fleet is divided into three main segments: the fixed-rate tanker segment, the fixed-rate LNG segment and the spot tanker segment.

Fixed-Rate Tanker Segment

Our fixed-rate tanker segment includes our shuttle tanker operations, floating storage and offtake (or FSO ) units, a liquid petroleum gas carrier, and conventional crude oil and product tankers on long-term, fixed-rate time-charter contracts or contracts of affreightment. Our shuttle tanker business, which is operated through our business unit Teekay Navion Shuttle Tankers, provides services to oil companies, primarily in the North Sea, under long-term, fixed-rate contracts of affreightment or time-charter contracts. Historically, the utilization of shuttle tankers in the North Sea is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to the offshore oil platforms, which generally reduces oil production. As at September 30, 2006, we had on order, for our fixed-rate tanker segment, two Aframax newbuilding conventional crude oil tankers scheduled to be delivered in January and April 2008 and two Suezmax newbuilding tankers scheduled to be delivered in July and August 2009. Upon deliveries, the Aframax tankers will commence 10-year fixed-rate time charters to our Skaugen PetroTrans joint venture.

In February 2006, we were awarded 13-year fixed-rate contracts to charter two Suezmax shuttle tankers and one Aframax shuttle tanker to Fronape International Company, a subsidiary of Petrobras Transporte S.A., the shipping arm of Petroleo Brasileiro S.A.. In connection with these contracts, we exercised a purchase option on a 2000-built Aframax tanker currently included as part of our spot rate chartered-in fleet and acquired a 2006-built Suezmax tanker, both of which vessels are being converted to shuttle tankers through January and April 2007, respectively. The purchase price for these two vessels, including conversion costs, is approximately $176.3 million. Please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies. The third vessel is a 2003-built Suezmax shuttle tanker from our fleet, which commenced operation under these contracts in July 2006.

Fixed-Rate LNG Segment

Our fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time charter contracts. We entered the LNG shipping sector through our acquisition of Teekay Shipping Spain, S.L. (or Teekay Spain ) on April 30, 2004. Our fixed-rate LNG segment includes four LNG carriers acquired as part of the Teekay Spain acquisition.

During January 2006, we entered into sale-leaseback transactions with SeaSpirit Leasing Limited (or SeaSpirit ) relating to the three LNG newbuilding carriers (collectively, the RasGas II vessels ) that, upon delivery, will provide service under long-term contracts with Ras Laffan Liquefied Natural Gas Co. Limited II (or RasGas II ), a joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum. In connection with the sale-leaseback transactions, we sold the shipbuilding contracts to SeaSpirit and entered into 30-year leases for the three LNG carriers. SeaSpirit reimbursed us $313.0 million (including our joint venture partner’s 30% interest) for previously paid shipyard installments and other construction costs. We used these proceeds to fund restricted cash deposits relating to the capital leases. The benefits of this lease arrangement are expected to effectively reduce the equity portion of our 70% interest in the three newbuildings by approximately $40 million, from approximately $90 million to approximately $50 million. One of these newbuildings was delivered in October 2006 and the remaining two newbuildings are scheduled for delivery in the first quarter of 2007. Pursuant to existing agreements, upon delivery of the first newbuilding, we sold to Teekay LNG our interest in all RasGas II vessels and related time charters. As of December 1, 2006, we owned a 67.8% interest in Teekay LNG, including our 2% general partner interest. Please read Item 1 - Financial Statements: Note 9 - Capital Leases and Restricted Cash and Note 11 - Commitments and Contingencies.

As at September 30, 2006, we had six newbuilding LNG carriers on order. Two of these carriers, in which we have a 70% interest, will commence service under 20-year, fixed-rate time charters to The Tangguh Production Sharing Contractors, a consortium led by BP Berau, a subsidiary of BP plc, upon vessel deliveries, which are scheduled for late 2008 and early 2009. The remaining 30% interest in the project is held by BLT LNG Tangguh Corporation, a subsidiary of PT Berlian Tanker Tbk. We will have operational responsibility for the vessels in this project. In accordance with an existing agreement, we were required to offer our ownership interest in these carriers and related charter contracts to our publicly listed subsidiary, Teekay LNG Partners L.P. (or Teekay LNG ). On November 1, 2006, Teekay LNG agreed to acquire the Company’s ownership interest in these two vessels and related charter contracts upon delivery of the first LNG carrier.

The other four newbuilding LNG carriers, in which we have a 40% interest, will commence service under 25-year, fixed-rate time charters (with options to extend up to an additional 10 years) to Ras Laffan Liquefied Natural Gas Co. Limited (3) (or RasGas 3 ), a joint venture company between Qatar Petroleum and a subsidiary of ExxonMobil Corporation, upon vessel deliveries, which are scheduled for the first half of 2008. The remaining 60% interest in the project is held by Qatar Gas Transport Company Ltd. We will have operational responsibility for the vessels in this project. Under the charters, Qatar Gas Transport Company Ltd. may assume operational responsibility beginning 10 years following delivery of the vessels. In accordance with an existing agreement, we were required to offer our ownership interest in these vessels and related charter contracts to Teekay LNG. On November 1, 2006, Teekay LNG agreed to acquire the Company’s ownership interest in these four vessels and related charter contracts upon delivery of the first LNG carrier.

Spot Tanker Segment

Our spot tanker segment consists of conventional crude oil tankers and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts. We consider contracts that have an original term of less than three years in duration to be short-term. Substantially all of our conventional Aframax, large product, medium product and small product tankers are among the vessels included in the spot tanker segment. Our spot market operations contribute to the volatility of our revenues, cash flow from operations and net income. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. As at September 30, 2006, we had four large product newbuilding tankers scheduled to be delivered between November 2006 and May 2007 and eight Suezmax newbuilding tankers scheduled to be delivered between June 2008 and August 2009.

Acquisition of Petrojarl ASA

During the third quarter of 2006, we acquired 43% of the outstanding shares of Petrojarl ASA (or Petrojarl ), which is listed on the Oslo Stock Exchange, for $355.9 million. Petrojarl is a leading independent operator of floating production, storage and offloading units (or FPSO ) units. After acquiring 40% of Petrojarl's outstanding shares, on September 18, 2006, we launched a mandatory bid, in accordance with Norwegian law, for Petrojarl's remaining shares at a price of Norwegian Kroner 70 per share. The mandatory bid expired on October 18, 2006, and as of December 1, 2006, we owned approximately 64.5% of Petrojarl's shares. On December 1, 2006, Petrojarl was renamed Teekay Petrojarl ASA. We financed our acquisition of Petrojarl through a combination of bank financing and cash balances. We were not able to obtain financial or other information on a timely basis from Petrojarl to be able to use the equity method of accounting for our investment. Accordingly, our investment is recorded at cost as at September 30, 2006.

Petrojarl, based in Trondheim, Norway, has a fleet of four owned FPSO units operating under long-term service contracts in the North Sea. To service these contracts Petrojarl also charters two shuttle tankers and one FSO unit from us. Please read Item 1 - Financial Statements: Note 3 - Acquisition of Petrojarl ASA.

Public Offerings by Teekay LNG Partners L.P.

On May 10, 2005, Teekay LNG sold, as part of an initial public offering, 6.9 million of its common units at $22.00 per unit for proceeds of $135.7 million, net of $16.1 million of commissions and other expenses associated with the offering.

In November 2005, Teekay LNG completed a follow-on public offering of 4.6 million common units at a price of $27.40 per unit. Proceeds from the follow-on offering were $120.0 million, net of an estimated $6.0 million of commissions and other expenses associated with the offering. As of September 30, 2006, we owned a 67.8% interest in Teekay LNG, including our 2% general partner interest. Please read Item 1 - Financial Statements: Note 4 - Public Offerings of Teekay LNG Partners L.P.

Sale of Three Suezmax Tankers to Teekay LNG Partners L.P.

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

Public Offering by Teekay Offshore Partners L.P.

On December 19, 2006, our subsidiary Teekay Offshore Partners L.P. (or Teekay Offshore) completed its initial public offering of 8,050,000 common units at a price of $21.00 per unit, for proceeds of $155.3 million, net of an estimated $13.8 million of expenses associated with the offering. Teekay Offshore used the net offering proceeds to repay indebtedness to us and to redeem 1,050,000 of its common units we held. Following the offering, the public owned a 40.3% limited partner interest in us and we owned the remaining partnership interests, including common units, subordinated units, incentive distribution rights and Teekay Offshore's 2% general partner interest.

We formed Teekay Offshore in August 2006 to be an international provider of marine transportation and storage services to the offshore oil industry. Teekay Offshore's only cash-generating asset is its 26% interest in Teekay Offshore Operating L.P., which Teekay Offshore controls and which holds substantially all of our shuttle tankers and FSO units. Teekay Offshore also has rights to participate in certain FPSO opportunities involving Petrojarl.

Immediately preceding the closing of the initial public offering, we amended our omnibus agreement with Teekay LNG to include Teekay Offshore. The omnibus agreement governs, among other things, when we, Teekay LNG and Teekay Offshore may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers and FSO and FPSO units. Under the amended agreement, Teekay LNG and Teekay Offshore have each granted to us a 30-day right of first offer on any proposed (a) sale, transfer or other disposition of any of Teekay LNG’s Suezmax tankers or of Teekay Offshore's Aframax tankers, respectively, or (b) re-chartering of any of such Suezmax tankers or Aframax tankers pursuant to a time-charter with a term of at least three years if the existing charter expires or is terminated early. Likewise, we have granted similar rights of first offer to Teekay LNG for any LNG carriers and Teekay Offshore for any shuttle tankers or FSO or FPSO units, we might own, together with a purchase right upon any such proposed re-chartering of those vessels.

Important Financial and Operational Terms and Concepts

We use a variety of financial and operational terms and concepts when analyzing our performance. These include the following:

Voyage Revenues. Voyage revenues primarily include revenues from voyage charters, time charters and contracts of affreightment. Voyage revenues are affected by hire rates and the number of calendar-ship-days a vessel operates. Voyage revenues are also affected by the mix of business between voyage charters, time charters and contracts of affreightment. Hire rates for voyage charters are more volatile, as they are typically tied to prevailing market rates at the time of a voyage.

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

Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are typically paid by the customer under time charters and by us under voyage charters and contracts of affreightment. When we pay voyage expenses, we typically add them to our hire rates at an approximate cost.

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

Vessel Operating Expenses. Under all types of charters for our vessels, except for bareboat charters, we are responsible for vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses.

Income from Vessel Operations. To assist us in evaluating our operations by segment, we analyze our income from vessel operations for each segment, which represents the income we receive from the segment after deducting operating expenses, but prior to the deduction of interest expense, income taxes, foreign currency and other income and losses.

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

Depreciation and Amortization. Our depreciation and amortization expense typically consists of:

• 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, contracts of affreightment and intellectual property where amounts have been attributed to those

items in acquisitions. These amounts are amortized over the period during which the asset is expected to contribute to our future cash flows.

Time Charter Equivalent Rates. Bulk shipping industry freight rates are commonly measured in the shipping industry at the net voyage revenues level in terms of "time-charter equivalent" (or TCE ) rates, which represent net voyage revenues divided by revenue days.

Revenue Days. Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs, drydockings or mandated surveys. Consequently, revenue days represents the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available for the vessel to earn revenue, yet is not employed, are included in revenue days. We use revenue days to explain changes in our net voyage revenues between periods.

Calendar-ship-days. Calendar-ship-days are equal to the total number of calendar days that our vessels were in our possession during a period. As a result, we use calendar ship days in explaining changes in vessel operating expenses, time charter hire expense and depreciation and amortization.

Restricted Cash Deposits. Under capital lease arrangements for two of our LNG carriers, we (a) borrow under term loans and deposit the proceeds into restricted cash accounts and (b) enter into capital leases, or bareboat charters, for the vessels. The restricted cash deposits, together with interest earned thereon, will equal the remaining amounts we owe under the lease arrangements, including our obligation to purchase the vessels at the end of the lease terms. During vessel construction, we borrowed under the term loans and made restricted cash deposits equal to construction installment payments. We also maintain restricted cash deposits relating to certain term loans and other obligations, including under our lease agreements for the three RasGas II vessels. Please read Item 1 - Financial Statements: Note 9 - Capital Leases and Restricted Cash.

Tanker Market Overview

During the third quarter of 2006, crude tanker freight rates strengthened counter-seasonally, reaching levels not experienced in three decades for that time of year. An increase in oil imports by the United States, and continued firm volumes imported by China and India, were key factors behind the strength in tanker freight rates. The Prudhoe Bay, Alaska pipeline disruption in August 2006 led to an increase in long-haul crude shipments to the U.S. West Coast, which provided further support to crude tanker rates.

During the quarter, freight rates for product tankers also rose as refined product imports into the United States remained high, and China’s demand for distillates remained firm. In addition, tonne-mile intensive refined product movements from Asia to the U.S. West Coast increased following the Prudhoe Bay pipeline disruption.

Global oil demand, an underlying driver of oil tanker demand, increased to 83.9 million barrels per day (or mb/d ) during the third quarter of 2006, an increase of 0.9 mb/d, or 1.1%, from the previous quarter, and 0.6 mb/d, or 0.7% higher than the third quarter of 2005. The International Energy Agency’s (or IEA ) outlook remains firm with global oil demand in the fourth quarter of 2006 estimated to be 2.2 mb/d, or 2.6%, higher than the fourth quarter of 2005. For calendar year 2007, the IEA forecasts a further increase in oil demand of 1.5 mb/d to 85.9 mb/d, 1.7% higher than 2006.

Global oil supply, a direct driver of tanker demand, rose to a record high of 85.6 mb/d during the third quarter of 2006, which was 0.6 mb/d higher than the previous quarter and 1.3 mb/d, or 1.5%, higher than the third quarter of 2005. Much of the growth during the quarter originated from the non-OPEC regions such as the former Soviet Union, Latin America and Africa. Early in the fourth quarter, OPEC members announced a 1.2 mb/d reduction in oil production in response to easing oil prices. However, the IEA estimates that non-OPEC oil supply will increase by 0.8 mb/d during the fourth quarter of 2006, compared to the previous quarter, with growth expected to originate from the former Soviet Union, the North Sea, Africa, and Latin America.

The size of the world tanker fleet rose to 369.0 million mdwt as of September 30, 2006, up 5.5 mdwt, or 1.5%, from the end of the previous quarter. Deletions, including vessels converted for offshore projects and thus removed from the trading tanker fleet, aggregated 1.5 mdwt in the third quarter of 2006, compared to 1.1 mdwt in the previous quarter. Deliveries of tanker newbuildings during the third quarter of 2006 increased to 7.0 mdwt from 5.4 mdwt in the second quarter of 2006.

As of September 30, 2006, the world tanker orderbook stood at 121.5 mdwt, representing 33.0% of the world tanker fleet, compared to 110.0 mdwt, or 30.2%, as of June 30, 2006.

Results of Operations

In accordance with GAAP, we report gross voyage revenues in our income statements and include voyage expenses among our operating expenses. However, shipowners base economic decisions regarding the deployment of their vessels upon anticipated TCE rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. This is because under time charter contracts the customer usually pays the voyage expenses, while under voyage charters and contracts of affreightment the shipowner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Accordingly, the discussion of revenue below focuses on net voyage revenues ( i.e. voyage revenues less voyage expenses) and TCE rates of our three reportable segments where applicable. Please read Item 1 - Financial Statements: Note 2 - Segment Reporting.

The following tables compare our operating results by reportable segment for the three and nine months ended September 30, 2006 and 2005, and compare our net voyage revenues (which is a non-GAAP financial measure) by reportable segment for the three and nine months ended September 30, 2006 and 2005 to voyage revenues, the most directly comparable GAAP financial measure:

Three Months Ended

September 30, 2006

Three Months Ended

September 30, 2005

Fixed-Rate Tanker Segment

($000’s)

Fixed-Rate LNG Segment

($000’s)

Spot

Tanker

Segment

($000’s)

Total

($000’s)

Fixed-Rate Tanker Segment

($000’s)

Fixed-Rate LNG Segment

($000’s)

Spot

Tanker

Segment ($000’s)

Total

($000’s)

Voyage revenues	191,916		25,218	260,599		477,733		178,669	24,503	222,422		425,594
Voyage expenses	26,579		394	106,457		133,430		19,497	-	88,338		107,835
Net voyage revenues	165,337		24,824	154,142		344,303		159,172	24,503	134,084		317,759
Vessel operating expenses	33,900		4,156	14,883		52,939		32,102	3,401	15,240		50,743
Time charter hire expense	45,669		-	55,179		100,848		52,467	-	68,089		120,556
Depreciation and amortization	28,867		7,959	13,023		49,849		29,512	7,522	13,377		50,411
General and administrative ⁽¹⁾	15,459		3,478	20,885		39,822		14,970	3,397	22,088		40,455
Writedown / (gain) on sale of vessels and equipment	(6,509	)	-	(629	)	(7,138	)	2,111	-	(8,687	)	(6,576	)
Restructuring charge	-		-	2,948		2,948		-	-	-		-
Income from vessel operations	47,951		9,231	47,853		105,035		28,010	10,183	23,977		62,170

	Nine Months Ended September 30, 2006											Nine Months Ended September 30, 2005
	Fixed-Rate Tanker Segment ($000’s)			Fixed-Rate LNG Segment ($000’s)		Spot Tanker Segment ($000’s)			Total ($000’s)			Fixed-Rate Tanker Segment ($000’s)		Fixed-Rate LNG Segment ($000’s)		Spot Tanker Segment ($000’s)			Total ($000’s)

Voyage revenues		566,437			71,437		788,442			1,426,316			539,627		73,546		809,972			1,423,145
Voyage expenses		69,333			794		308,331			378,458			50,722		50		253,888			304,660
Net voyage revenues		497,104			70,643		480,111			1,047,858			488,905		73,496		556,084			1,118,485
Vessel operating expenses		101,795			12,677		43,394			157,866			95,845		11,564		49,115			156,524
Time charter hire expense		140,052			-		159,923			299,975			147,007		-		206,585			353,592
Depreciation and amortization		87,772			23,392		39,326			150,490			90,306		22,567		41,927			154,800
General and administrative ⁽¹⁾		45,876			10,233		65,429			121,538			41,010		9,599		63,723			114,332
Writedown / (gain) on sale of vessels and equipment		(4,664	)		-		(1,431	)		(6,095	)		7,480		-		(131,803	)		(124,323	)
Restructuring charge		-			-		7,414			7,414			-		-		-			-
Income from vessel operations		126,273			24,341		166,056			316,670			107,257		29,766		326,537			463,560

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

Fixed-Rate Tanker Segment

The following table provides a summary of the change in calendar-ship-days by owned and chartered-in vessels for our fixed-rate tanker segment:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006 (Calendar Days)		2005 (Calendar Days)		Percentage Change (%)		2006 (Calendar Days)		2005 (Calendar Days)		Percentage Change (%)

Owned Vessels		3,693		3,868		(4.5)		11,076		11,264		(1.7)
Chartered-in Vessels		1,390		1,694		(17.9)		4,297		4,636		(7.3)
Total		5,083		5,562		(8.6)		15,373		15,900		(3.3)

The average fleet size of our fixed-rate tanker segment (including vessels chartered-in) decreased for the three and nine months ended September 30, 2006, compared to the same periods last year. These decreases were primarily the result of:

·	a reduction in our chartered-in fleet; and

·	the sale of two older shuttle tankers in 2005 and one 1981-built shuttle tanker in July 2006 (the Tanker Dispositions );

partially offset by

·	the delivery of a Suezmax tanker newbuilding in July 2005;

·	the inclusion of an Aframax tanker, previously operating in our spot tanker segment, that commenced service under a long-term time charter during the fourth quarter of 2005 (the Aframax Transfer ); and

·	the inclusion of a chartered-in VLCC, previously operating in our spot tanker segment, that commenced service under a long-term time charter in April 2005 (the VLCC Transfer ).

Net Voyage Revenues. Net voyage revenues increased 3.9% and 1.7%, respectively, to $165.3 million and $497.1 million for the three and nine months ended September 30, 2006, from $159.2 million and $488.9 million for the same periods last year. These increases were primarily due to:

increases of $5.8 million and $3.0 million, respectively, relating to increased utilization of our shuttle tanker fleet under contracts of affreightment due to the completion in 2006 of seasonal maintenance of North Sea offshore oil facilities primarily during the second quarter, rather than the third quarter as is typical and as occurred in 2005, and recent contract renewals at higher rates. The increase for the nine months ended September 30, 2006 was partially offset by lower oil production levels in the North Sea;

·	increases of $3.1 million and $10.6 million, respectively, relating to the Suezmax delivery in July 2005;

·	increases of $2.1 million and $6.2 million, respectively, relating to the Aframax Transfer;

·	increases of $1.2 million and $3.1 for the three and nine months ended September 30, 2006 relating to rate adjustments on certain of our long-term time charters; and

·	an increase of $5.0 million for the nine months ended September 30, 2006 relating to the VLCC Transfer;

partially offset by

·	decreases of $2.9 million and $10.6 million, respectively, relating to the completion of a contract of affreightment primarily serviced by a chartered-in methanol carrier in late 2005;

·	a decrease of $2.0 million for both the three and nine months ended September 30, 2006 relating to a settlement of a rate adjustment for the prior year on one of our long-term time charters in the three months ended September 30, 2005; and

·	decreases of $1.2 million and $7.1 million, respectively, relating to the Tanker Dispositions.

Vessel Operating Expenses. Vessel operating expenses increased 5.6% and 6.2%, respectively, to $33.9 million and $101.8 million for the three and nine months ended September 30, 2006, from $32.1 million and $95.8 million for the same periods last year, primarily due to:

·	an increase of $0.7 million for both the three and nine months ended September 30, 2006 relating to our Australian-crewed vessels and certain offshore vessels;

·	increases of $0.6 million and $4.1 million, respectively, due to increased crew-related costs, and repairs and maintenance relating to certain vessels in our shuttle tanker fleet;

·	increases of $0.5 million and $1.5 million, respectively, relating to the Aframax Transfer;

·	increases of $0.4 million and $1.8 million, respectively, from the depreciation of the U.S. Dollar from corresponding 2005 levels relative to other currencies in which we pay certain vessel operating expenses; and

·	increases of $0.3 million and $1.5 million, respectively, relating to the Suezmax delivery in July 2005;

partially offset by

·	decreases of $0.7 million and $3.6 million, respectively, from the sale of two older shuttle tankers during 2005 as part of the Tanker Dispositions.

Time-Charter Hire Expense. Time-charter hire expense decreased 13.0% and 4.7%, respectively, to $45.7 million and $140.1 million for the three and nine months ended September 30, 2006, compared to $52.5 million and $147.0 million for the same periods last year. These decreases are primarily due to a 17.9% and 7.3% decrease in the average number of vessels chartered-in, partially offset by a 6.1% and 2.8% increase in the average per day time-charter rates on our shuttle tankers.

Depreciation and Amortization. Depreciation and amortization expense decreased 2.2% and 2.8%, respectively, to $28.9 million and $87.8 million for the three and nine months ended September 30, 2006, from $29.5 million and $90.3 million for the same periods last year, primarily due to:

·	decreases of $1.0 million and $2.0 million, respectively, relating to the Tanker Dispositions and the sale and leaseback of one shuttle tanker in 2005; and

·	decreases of $0.7 million and $2.7 million, respectively, relating to a reduction in amortization from the contracts of affreightment we acquired as part of our acquisition of Navion AS during 2003;

partially offset by

·	increases of $0.7 million and $2.7 million, respectively, relating to the Aframax Transfer and the Suezmax delivery during 2005 to our fixed-rate tanker segment.

Depreciation and amortization expense included amortization of drydocking costs of $1.9 million and $5.8 million, respectively, for the three and nine months ended September 30, 2006, compared to $2.1 million and $6.4 million for the same periods last year, and included amortization of contracts of $3.1 million and $9.3 million, respectively, for the three and nine months ended September 30, 2006, compared to $3.8 million and $11.9 million for the same periods last year.

Writedown and Gain on Sale of Vessel and Equipment. Vessel and equipment writedown and gain on sale of vessel for the three and nine months ended September 30, 2006 was a net gain of $6.5 million and $4.7 million, respectively, which were primarily comprised of:

·	a $6.4 million gain on the sale of a 1981-built shuttle tanker in July 2006 as part of the Tanker Dispositions; and

·	gains of $0.1 million and $0.4 million, respectively, from amortization of a deferred gain on the sale and leaseback of one shuttle tanker in March 2005;

partially offset by

a $2.2 million writedown of certain offshore equipment during the nine months ended September 30, 2006 that occurred due to a reassessment of the estimated net realizable value of this equipment and followed a $12.3 million writedown in June 2005 arising from the early termination of a contract for this equipment.

Writedown and gain on sale of vessel and equipment was a net loss of $2.1 million and $7.5 million, respectively, for the three and nine months ended September 30, 2005, and was primarily related to the writedown of the previously mentioned equipment, partially offset by a $4.8 million gain on the sale of one of the Tanker Dispositions in the first quarter of 2005.

Fixed-Rate LNG Segment

The following table provides a summary of the change in calendar-ship-days for our fixed-rate LNG segment:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006 (Calendar Days)		2005 (Calendar Days)		Percentage Change (%)		2006 (Calendar Days)		2005 (Calendar Days)		Percentage Change (%)

Owned Vessels		368		368		-		1,092		1,092		-

On May 10, 2005, our subsidiary Teekay LNG issued 6,900,000 common units as part of its initial public offering, effectively reducing our ownership of Teekay LNG to 77.7%. In November 2005, Teekay LNG issued an additional 4,600,000 common units, further reducing our ownership of Teekay LNG to 67.8%, including our 2% general partner interest. Please read “-- Public Offerings by Teekay LNG Partners L.P.” above. As of September 30, 2006, all of the vessels in our fixed-rate LNG segment were owned by Teekay LNG. The results below reflect 100% of these vessels. The minority owners’ share of the results of these vessels is reflected as minority interest expense contained in other - net in our consolidated statements of income.

Net Voyage Revenues. Net voyage revenues for the fixed-rate LNG segment increased slightly and decreased 3.9%, respectively, to $24.8 million and $70.6 million for the three and nine months ended September 30, 2006, from $24.5 million and $73.5 million for the same periods last year primarily due to:

·	a decrease of $2.4 million due to the Catalunya Spirit being off-hire for 35.5 days to complete repairs and for a scheduled drydock during the second quarter of 2006; and

·	a decrease of $1.4 million during the nine months ended September 30, 2006 due to the effect on our Euro-denominated revenues from the weakening of the Euro against the U.S. Dollar during the 2006 period compared to the same period in 2005;

partially offset by

·	an increase of $0.8 million from 15.2 days of off-hire for one of our LNG carriers during February 2005.

Vessel Operating Expenses . Vessel operating expenses increased 22.2% and 9.6% to $4.2 million and $12.7 million, respectively, for the three and nine months ended September 30, 2006, from $3.4 million and $11.6 million for the same periods last year. These increases were primarily the result of:

·	increases of $0.6 million and $1.2 million, respectively, relating to increased spending on spares, consumables and maintenance costs;

·	an increase of $1.0 million for the nine months ended September 30, 2006, from the cost of the repairs completed on the Catalunya Spirit during the second quarter of 2006 in excess of estimated insurance recoveries; and

an increase of $0.1 million for the three months ended September 30, 2006 due to the effect on our Euro-denominated vessel operating expenses from the strengthening of the Euro against the U.S. Dollar during such period compared to the same period last year (a majority of our vessel operating expenses are denominated in Euros, which is primarily a function of the nationality of our crew);

partially offset by

·	a decrease of $0.7 million for the nine months ended September 30, 2006 primarily relating to repair and maintenance work completed on one of our LNG carriers during February 2005; and

·	a decrease of $0.3 million for the nine months ended September 30, 2006 due to the effect on our Euro-denominated vessel operating expenses from the weakening of the Euro against the U.S. Dollar during such period compared to the same period last year.

Depreciation and Amortization. Depreciation and amortization increased 5.8% and 3.7% to $8.0 million and $23.4 million for the three and nine months ended September 30, 2006, from $7.5 million and $22.6 million for the same periods last year, primarily due to increases from the amortization of drydock expenditures incurred during 2005 and 2006.

Depreciation and amortization expense in the fixed-rate LNG segment for both the three and nine months ended September 30, 2006 and the same periods last year included $2.2 million and $6.6 million, respectively, of amortization of time-charter contracts acquired as part of the Teekay Spain acquisition.

Spot Tanker Segment

TCE rates for the vessels in our spot tanker segment primarily depend on oil production and consumption levels, the number of vessels in the worldwide tanker fleet scrapped, the number of newbuildings delivered and charterers' preference for modern tankers. As a result of our significant dependence on the tanker spot market, any fluctuations in TCE rates affect our revenues and earnings. Our average TCE rate for the vessels in our spot tanker segment increased 27.3% and 2.9%, respectively, to $29,338 and $31,271 for the three and nine months ended September 30, 2006, from $23,050 and $30,397 for the same periods last year.

The following tables outline the TCE rates earned by the vessels in our spot tanker segment for the three and nine months ended September 30, 2006 and 2005 and include the effect of forward freight agreements (or FFAs ), which we enter into at times as hedges against a portion of our exposure to spot market rates:

	Three Months Ended September 30, 2006						Three Months Ended September 30, 2005
Vessel Type	Net Voyage Revenues ($000’s)		Revenue Days		TCE per Revenue Day ($)		Net Voyage Revenues ($000’s)		Revenue Days		TCE per Revenue Day ($)

Suezmax Tankers ⁽¹⁾		14,617		460		31,776		10,064		409		24,606
Aframax Tankers ⁽¹⁾		102,172		2,937		34,788		85,225		3,430		24,846
Large/Medium Product Tankers		22,955		867		26,476		26,671		975		27,355
Small Product Tankers		14,398		990		14,543		12,124		1,003		12,088
Totals		154,142		5,254		29,338		134,084		5,817		23,050

(1)

Results for the three months ended September 30, 2005 for our Suezmax tankers include realized losses from FFAs of $0.1 million ($289 per revenue day). Results for the three months ended September 30, 2006 and 2005 for our Aframax tankers include realized losses from FFAs of $1.2 million ($411 per revenue day) and gains of $1.8 million ($512 per revenue day), respectively.

	Nine Months Ended September 30, 2006						Nine Months Ended September 30, 2005
Vessel Type	Net Voyage Revenues ($000’s)		Revenue Days		TCE per Revenue Day ($)		Net Voyage Revenues ($000’s)		Revenue Days		TCE per Revenue Day ($)

Very Large Crude Carriers		-		-		-		8,347		90		92,744
Suezmax Tankers ⁽¹⁾		45,042		1,240		36,324		55,589		1,526		36,428
Aframax Tankers ⁽¹⁾		317,259		8,789		36,097		379,733		11,326		33,529
Large/Medium Product Tankers		73,266		2,530		28,959		69,630		2,404		28,964
Small Product Tankers		44,544		2,794		15,943		42,785		2,948		14,513
Totals		480,111		15,353		31,271		556,084		18,294		30,397

(1)

Results for the nine months ended September 30, 2005 for our Suezmax tankers include realized losses from FFAs of $3.0 million ($1,989 per revenue day). Results for the nine months ended September 30, 2006 and 2005 for our Aframax tankers include realized gains from FFAs of $0.2 million ($24 per revenue day) and $2.2 million ($197 per revenue day), respectively.

The following table provides a summary of the changes in calendar-ship-days by owned and chartered-in vessels in our spot tanker segment:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2006 (Calendar Days)		2005 (Calendar Days)		Percentage Change (%)			2006 (Calendar Days)		2005 (Calendar Days)		Percentage Change (%)

Owned Vessels		2,392		2,510		(4.7	)		7,098		8,287		(14.3	)
Chartered-in Vessels		2,907		3,425		(15.1	)		8,311		10,251		(18.9	)
Total		5,299		5,935		(10.7	)		15,409		18,538		(16.9	)

The decreases in the average fleet size of our spot tanker fleet (including vessels chartered-in) for the three and nine months ended September 30, 2006 were primarily the result of:

·	the sale of 13 older Aframax tankers and one older Suezmax tanker in 2005 (collectively, the Spot Tanker Dispositions );

·	the net decrease of the number of chartered-in vessels, primarily Aframax tankers;

·	the Aframax Transfer; and

·	the VLCC Transfer;

partially offset by

·	the delivery of four new Aframax tankers in 2005 (collectively, the Spot Tanker Deliveries ).

Net Voyage Revenues. Net voyage revenues for the spot tanker segment increased 15.0% to $154.1 million for the three months ended September 30, 2006, from $134.1 million for the same period last year, and decreased 13.7% to $480.1 million for the nine months ended September 30, 2006, from $556.1 million for the same period last year, primarily due to:

·	decreases of $3.3 million and $50.9 million, respectively, relating to the Spot Tanker Dispositions;

·	decreases of $1.7 million and $7.8 million, respectively, relating to the Aframax Transfer;

·	a decrease of $30.2 million for the nine months ended September 30, 2006 from the decreases in the number of chartered-in vessels, partially offset by the slight increases in our average TCE rate and the impact of our FFAs mentioned above for such period compared to the same period in 2005; and

·	a decrease of $8.4 million relating to the VLCC Transfer for the nine months ended September 30, 2006;

partially offset by

·	an increases of $21.0 million for the three months ended September 30, 2006 from the increases in our average TCE rate, partially offset by the decreases in the number of chartered-in vessels and the impact of our FFAs mentioned above for such period compared to the same period in 2005; and

·	increases of $4.0 million and $21.3 million, respectively, relating to the Spot Tanker Deliveries.

Vessel Operating Expenses. Vessel operating expenses decreased 2.3% and 11.6%, respectively, to $14.9 million and $43.4 million for the three and nine months ended September 30, 2006, from $15.2 million and $49.1 million for the same periods last year, primarily due to:

·	decreases of $0.8 million and $8.1 million, respectively, relating to the Spot Tanker Dispositions; and

·	decreases of $0.4 million and $1.3 million, respectively, relating to the Aframax Transfer;

partially offset by

·	increases of $0.9 million and $3.5 million, respectively, relating to the Spot Tanker Deliveries.

Time-Charter Hire Expense. Time-charter hire expense decreased 19.0% and 22.6%, respectively, to $55.2 million and $159.9 million for the three and nine months ended September 30, 2006, from $68.1 million and $206.6 million for the same periods last year, primarily due to:

decreases of $12.9 million and $44.2 million, respectively, relating to the net decrease of the number of chartered-in vessels and a decrease of 4.5% in our average per day time-charter hire expense to $18,981 per day and $19,242 per day for the three and nine months ended September 30, 2006, from $19,880 per day and $20,153 per day for the same periods last year; and

·	a decrease of $2.5 million relating to the VLCC Transfer for the nine months ended September 30, 2006.

Depreciation and Amortization. Depreciation and amortization expense decreased 2.6% and 6.2%, respectively, to $13.0 million and $39.3 million for the three and nine months ended September 30, 2006, from $13.4 million and $41.9 million for the same periods last year, primarily due to:

·	decreases of $0.7 million and $4.5 million, respectively, relating to the Spot Tanker Dispositions; and

·	decreases of $0.4 million and $1.1 million, respectively, relating to the Aframax Transfer;

partially offset by

·	increases of $0.7 million and $3.0 million, respectively, relating to Spot Tanker Deliveries.

Drydock amortization was $1.7 million and $4.9 million, respectively, for both the three and nine months ended September 30, 2006 and for the same periods last year.

Gain on Sale of Vessels. Gain on sale of vessels for the three and nine months ended September 30, 2006 primarily reflects $0.6 million and $1.8 million, respectively, of amortization of a deferred gain on the sale and leaseback of three Aframax tankers in December 2003, partially offset by adjustments on vessels sold in 2005. Gain on sale of vessels for the three months ended September 30, 2005 reflects gains of $8.7 million, which include $8.1 million of gains primarily from the sale of an older single-hulled Aframax vessel, as well as $0.6 million of amortization of a deferred gain on the sale and leaseback of three Aframax tankers in December 2003. Gain on sale of vessels for the nine months ended September 30, 2005 reflects gains of $131.8 million, which include $130.0 million of gains from the sale of 12 older Aframax vessels, one Suezmax tanker built in 1990 and a Suezmax tanker newbuilding, as well as $1.8 million of amortization of a deferred gain on the sale and leaseback of the three Aframax tankers in December 2003.

Restructuring Charges. We incurred restructuring charges of $2.9 million and $7.4 million, respectively, for the three and nine months ended September 30, 2006, relating to the relocation of certain operational functions from our Vancouver, Canada office to locations closer to where our customers are located and to where our ships operate. During the fourth quarter of 2006, we expect to incur approximately $2.0 million of further restructuring charges as we complete these relocations. We did not incur any restructuring charges in the three or nine months ended September 30, 2005.

Other Operating Results

General and Administrative Expenses. General and administrative expenses decreased 1.6% to $39.8 million for the three months ended September 30, 2006, from $40.5 million for the same period last year, and increased 6.3% to $121.5 million for the nine months ended September 30, 2006, from $114.3 million for the same period last year. These changes primarily reflect:

·	increases of $2.3 million and $6.6 million, respectively, relating to employee stock option compensation;

·	increases of $0.8 million and $3.4 million, respectively, from the depreciation of the U.S. Dollar from corresponding 2005 levels relative to other currencies in which we pay certain general and administrative expenses;

·	an increase $2.1 million during the nine months ended September 30, 2006 in severance costs; and

·	an increase of $0.7 million during the nine months ended September 30, 2006 due to the incremental costs of Teekay LNG being a public company since May 2005;

partially offset by

·	decreases of $2.6 million and $2.4 million, respectively, relating to the grant of 0.7 million restricted stock units to employees in March 2005 (please read Item 1 - Financial Statements: Note 10 - Capital Stock); and

·	decreases of $0.8 million and $4.3 million, respectively, relating to the reduction in costs associated with our long-term incentive program for management (please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies - Long-Term Incentive Program).

Effective January 1, 2006, we adopted the fair value recognition provisions of the Financial Accounting Standards Board Statement No. 123(R), “Share-Based Payment,” using the “modified prospective” method. Under this transition method, compensation cost is recognized in the financial statements beginning with the effective date for all share-based payments granted after January 1, 2006 and for all awards granted to employees prior to, but not yet vested as of January 1, 2006. Accordingly, prior period amounts have not been restated. As of September 30, 2006, there was $14.0 million of total unrecognized compensation cost related to nonvested stock options granted. Recognition of this compensation is expected to be $2.3 million (fourth quarter of 2006), $6.9 million (2007), $4.1 million (2008) and $0.7 million (2009). Please read Item 1 - Financial Statements: Note 10 - Capital Stock.

Interest Expense. Interest expense increased 37.1% and 13.4%, respectively, to $40.6 million and $114.1 million for the three and nine months ended September 30, 2006, from $29.6 million and $100.6 million for the same periods last year, primarily due to interest incurred from financing our acquisition of Petrojarl shares, an increase in interest rates applicable to our floating-rate debt and the expiry of $500 million of interest rate swaps during January 2006, partially offset by the conversion of our 7.25% Premium Equity Participating Security Units into shares of our common stock in February 2006 and reduction in amortization of capitalized loan costs. Please read Item 1 - Financial Statements: Note 7 - Long-Term Debt. The increase in the nine months ended September 30, 2006 was also partially offset by the settlement of interest rate swaps in connection with Teekay LNG’s initial public offering in May 2005.

Interest Income. Interest income increased 72.8% and 60.4%, respectively, to $14.3 million and $39.9 million for the three and nine months ended September 30, 2006, from $8.3 million and $24.9 million for the same periods last year, primarily due to interest earned on cash and cash equivalents and restricted cash held in Teekay Spain relating to capital lease arrangements for two LNG carriers and on restricted cash held under the leases for the three RasGas II vessels. Please read Item 1 - Financial Statements: Note 9 - Capital Leases and Restricted Cash.

Equity Income From Joint Ventures. Equity income from joint ventures was $2.0 million and $2.3 million, respectively, for the three and nine months ended September 30, 2006, compared to $0.9 million and $6.6 million for the same periods last year. These changes are primarily due to changes in earnings from our 50% share in Skaugen Petrotrans, which provides lightering services primarily in the Gulf of Mexico. Skaugen Petrotrans incurred higher in-chartering costs during the nine months ended September 30, 2006, and was adversely affected by Hurricane Katrina during the three months ended September 30, 2005.

Foreign Exchange Gains (Losses). Foreign exchange gains were $0.3 million for the three months ended September 30, 2006 and foreign exchange losses were $33.0 million for the nine months ended September 30, 2006, compared to foreign exchange gains of $3.1 million and $50.6 million, respectively, for the same periods last year. Most of our foreign currency gains or losses are attributable to the revaluation of our Euro-denominated term loans at the end of each period for financial reporting purposes, and substantially all of the gains or losses are unrealized. Gains reflect a stronger U.S. Dollar against the Euro on the date of revaluation. Losses reflect a weaker U.S. Dollar against the Euro on the date of revaluation. As of the date of this report, our Euro-denominated revenues generally approximate our Euro-denominated operating expenses and our Euro-denominated interest and principal repayments.

Other Loss. Other loss for the three and nine months ended September 30, 2006 was $1.1 million and $9.9 million, respectively, and was primarily comprised of minority interest expense of $7.3 million (three months) and $4.7 million (nine months), loss on expiry of options to construct LNG carriers of $6.1 million (nine months), income tax expense of $5.8 million (nine months), and loss on bond redemption of $0.4 million (nine months), partially offset by income tax recovery of $5.0 million (three months), and leasing income from our volatile organic compound emissions equipment.

Other loss for the three and nine months ended September 30, 2005 was $2.1 million and $18.7 million, respectively, and was primarily comprised of minority interest expense of $5.4 million (three months) and $12.4 million (nine months), loss on bond redemption of $1.3 million (three months) and $10.1 million (nine months), loss from settlement of interest rate swaps of $7.8 million (nine months), writeoff of capitalized loan costs of $7.5 million (nine months), partially offset by income tax recovery of $2.0 million (three months) and $11.9 million (nine months), and leasing income from our volatile organic compound emissions equipment. The loss from settlement of interest rate swaps and the writeoff of capitalized loan costs are non-recurring items related to debt repayments made prior to the initial public offering of Teekay LNG.

The minority interest expense in the three and nine months ended September 30, 2006 and September 30, 2005 primarily reflects the minority owners’ share of the foreign exchange gains and losses incurred by Teekay LNG. (Please read Item 1 - Financial Statements: Note 13 - Restructuring Charge and Other - net).

Net Income. As a result of the foregoing factors, net income was $79.8 million and $201.9 million, respectively, for the three and nine months ended September 30, 2006, compared to $42.7 million and $426.3 million for the same periods last year.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Cash Needs

As at September 30, 2006, our total cash and cash equivalents was $303.2 million, compared to $237.0 million as at December 31, 2005. Our total liquidity, including cash and undrawn long-term borrowings, was $937.8 million as at September 30, 2006, down slightly from $966.8 million as at December 31, 2005. The decrease in liquidity was mainly the result of long-term debt repayments, scheduled reductions of revolving credit facilities and cash used for capital expenditures, investment in Petrojarl ASA, share repurchases and dividend payments, partially offset by additions of new and amended revolving credit facilities and cash generated by our operating activities during the nine months ended September 30, 2006. We believe that our working capital is sufficient for our present requirements.

Cash Flows

The following table summarizes our cash and cash equivalents provided by (used for) operating, financing and investing activities for the periods presented:

	Nine Months Ended
	September 30, 2006	September 30, 2005
	($000’s)	($000’s)
Net operating cash flows	398,841	439,174
Net financing cash flows	2,896	(668,331)
Net investing cash flows	(335,490)	54,971

Operating Cash Flows

The decrease in net operating cash flow mainly reflects the decrease in aggregate calendar-ship-days for our fleet (to 31,874 calendar-ship-days for the nine months ended September 30, 2006, compared to 35,530 calendar-ship-days for the same period in 2005), a decrease in non-cash working capital and an increase in expenditures for drydocking.

Financing Cash Flows

Scheduled debt repayments were $14.2 million during the nine months ended September 30, 2006, compared to $57.9 million during the same period last year. Debt prepayments were $259.4 million during the nine months ended September 30, 2006, compared to $2.0 billion during the same period last year. We used cash generated from operations and longer-term financings to make these prepayments. Of our debt prepayments in the nine months ended September 30, 2006, $256.0 million was used to prepay revolving credit facilities. In addition, we used $3.4 million to repay a portion of the 8.875% Senior Notes due July 15, 2011. Our investment in Petrojarl ASA was financed primarily with our revolving credit facilities. Occasionally we use our revolving credit facilities to temporarily finance capital expenditures until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer-term financings to prepay outstanding amounts under the facilities. Please read Item 1 - Financial Statements: Note 7 - Long-Term Debt.

As at September 30, 2006, our total long-term debt was $2.4 billion, compared to $1.8 billion as at December 31, 2005. As at September 30, 2006, our revolving credit facilities provided for borrowings of up to $1.9 billion, of which $634.6 million was undrawn. The aggregate amount available under our revolving credit facilities reduces by $38.4 million (2006), $173.1 million (2007), $388.8 million (2008), $115.7 million (2009), $117.6 million (2010) and $1,107.2 million (thereafter). The revolving credit facilities are collateralized by first-priority mortgages granted on 43 of our vessels, together with other related collateral, and are guaranteed by Teekay or our subsidiaries. Our unsecured 8.875% Senior Notes are due July 15, 2011. Our outstanding term loans reduce in monthly, quarterly or semi-annual payments with varying maturities through 2023. Some of the term loans also have balloon repayments at maturity. In February 2006, our 7.25% Premium Equity Participating Security Units due May 18, 2006 settled and are no longer outstanding. Please read Item 1 - Financial Statements: Note 7 - Long-Term Debt.

Among other matters, our long-term debt agreements generally provide for maintenance of certain vessel market value-to-loan ratios and minimum consolidated financial covenants, and prepayment privileges (in some cases with penalties). Certain of the loan agreements require that a minimum level of free cash be maintained. As at September 30, 2006, this amount was $100.0 million. Certain of the loan agreements also require that we maintain a minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity. As at September 30, 2006, this amount was $131.4 million.

In January 2006, we entered into sale-leaseback transactions relating to the three RasGas II LNG vessels. Under the terms of the leases as part of these transactions, we are required to have on deposit with financial institutions an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the leases. This amount was $437.6 million as at September 30, 2006. These cash deposits are restricted to being used for capital lease payments and have been fully funded with term loans and loans from our joint venture partners for these vessels. Please read Item 1 - Financial Statements: Note 9 - Capital Leases and Restricted Cash.

Dividends paid during the nine months ended September 30, 2006 were $46.1 million, or $0.6225 per share.

During the nine months ended September 30, 2006, we repurchased 5.3 million shares for $212.3 million, or an average of $39.72 per share, pursuant to previously-announced share repurchase programs. In June 2006, we announced a further increase to the share repurchase programs of up to $150.0 million. Please read Item 1 - Financial Statements: Note 10 - Capital Stock.

Investing Cash Flows

During the nine months ended September 30, 2006, we acquired 43% of the outstanding shares of Petrojarl ASA for $355.9 million. Please read Item 1 - Financial Statements: Note 3 - Acquisition of Petrojarl ASA.

During the nine months ended September 30, 2006, we incurred capital expenditures for vessels and equipment of $285.8 million. These capital expenditures primarily represented the installment payments on our Suezmax tankers and LNG carriers under construction and the exercise of a purchase option on one Aframax tanker that was previously subject to a capital lease.

During the nine months ended September 30, 2006 and in connection with our sale-leaseback transactions involving the three RasGas II LNG carriers, we sold the shipbuilding contracts for the vessels to SeaSpirit, which reimbursed us for previously paid shipyard installments and other construction costs in the amount of $313.0 million. In July 2006, we completed the sale of a 1981-built shuttle tanker for proceeds of $8.9 million.

Commitments and Contingencies

The following table summarizes our long-term contractual obligations as at September 30, 2006:

In millions of U.S. Dollars	Total		Balance of 2006		2007 and 2008		2009 and 2010		Beyond 2010

U.S. Dollar-Denominated Obligations:
Long-term debt ⁽¹⁾		2,078.7		4.2		428.9		252.4		1,393.2
Chartered-in vessels (operating leases)		1,105.6		103.9		561.0		237.7		203.0
Commitments under capital leases ⁽²⁾		256.6		6.3		153.7		96.6		-
Commitments under capital leases - newbuildings ⁽³⁾		1,093.6		-		54.7		52.1		986.8
Newbuilding installments ⁽⁴⁾		1,041.6		55.4		723.9		262.3		-
Vessel purchases and conversion ⁽⁵⁾		167.8		41.6		126.2		-		-
Commitment for volatile organic compound emissions equipment		15.0		15.0		-		-		-
Total U.S. Dollar-denominated obligations		5,758.9		226.4		2,048.4		901.1		2,583.0

Euro-Denominated Obligations: ⁽⁶⁾
Long-term debt ⁽¹⁾		397.2		2.2		19.3		22.2		353.5
Commitments under capital leases ^(2) (7)		365.3		156.1		60.4		66.6		82.2
Total Euro-denominated obligations		762.5		158.3		79.7		88.8		435.7

Total		6,521.4		384.7		2,128.1		989.9		3,018.7

(1)	Excludes interest payments.

(2)

We are committed to capital leases on five Suezmax tankers and two LNG carriers. Each of these capital lease requires us to purchase the vessel at the end of its respective lease term. The amounts in the table include our purchase obligations for the vessels. Please read Item 1 - Financial Statements: Note 9 - Capital Leases and Restricted Cash.

(3)

As of September 30, 2006, we were committed to capital leases on three LNG carriers scheduled for delivery between October 2006 and February 2007. Under the terms of the leases and upon vessel delivery, we are required to have on deposit an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the leases. As of September 30, 2006, we were committed to funding an additional $102.9 million of deposits ($34.3 million - fourth quarter of 2006 and $68.6 million - 2007) throughout the remainder of the construction period (including our joint venture partner’s 30% interest). We have long-term financing arrangements in place to fund these remaining commitments. Please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies.

(4)

Represents remaining construction costs, including the joint venture partner’s 30% interest, as applicable, but excluding capitalized interest and miscellaneous construction costs, for two Aframax tankers, four product tankers, ten Suezmax tankers and two LNG carriers. Please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies.

(5)	Represents remaining purchase obligations and conversion costs, but excluding capitalized interest and miscellaneous conversion costs, for one Suezmax tanker and one Aframax tanker. Please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies.

(6)	Euro-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of September 30, 2006.

(7)	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.

We have entered into a joint venture agreement with our 60% partner to construct four LNG carriers. As at September 30, 2006, the remaining commitments on these vessels, excluding capitalized interest and other miscellaneous construction costs, totaled $750.8 million, of which our share is $300.3 million. Please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies.

Off-Balance Sheet Arrangements

We and certain of our subsidiaries have guaranteed our share of the outstanding mortgage debt in four 50%-owned joint venture companies. Please read Item 1 - Financial Statements: Note 11 - Commitments and Contingencies - Joint Ventures. We do not believe these off-balance sheet arrangements have, and we have no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

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

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP, which require us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read Note 1 to our consolidated financial statements for the year ended December 31, 2005, included in our Annual Report on Form 20-F filed with the SEC.

Revenue Recognition

Description . We generate a majority of our revenues from spot voyages and voyages servicing contracts of affreightment. Within the shipping industry, the two methods used to account for voyage revenues and expenses are the percentage of completion and the completed voyage methods. Most shipping companies, including us, use the percentage of completion method. For each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In other words, revenues are recognized ratably either from the beginning of when product is loaded for one voyage to when it is loaded for another voyage, or from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. We recognize revenues from time charters daily over the term of the charter as the applicable vessel operates under the charter. We do not recognize revenues during days that the vessel is off-hire.

Judgments and Uncertainties. In applying the percentage of completion method, we believe that in most cases the discharge-to-discharge basis of calculating voyages more accurately reflects voyage results than the load-to-load basis. At the time of cargo discharge, we generally have information about the next load port and expected discharge port, whereas at the time of loading we are normally less certain what the next load port will be. We use this method of revenue recognition for all spot voyages and voyages servicing contracts of affreightment, with an exception for our shuttle tankers servicing contracts of affreightment with offshore oil fields. In this case a voyage commences with tendering of notice of readiness at a field, within the agreed lifting range, and ends with tendering of notice of readiness at a field for the next lifting. However we do not begin recognizing voyage revenue for any of our vessels until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

Effect if Actual Results Differ from Assumptions. If actual results are not consistent with our estimates in applying the percentage of completion method, our voyage revenues could be overstated or understated for any given period by the amount of such difference.

Vessel Lives and Impairment

Description . The carrying value of each of our vessels represents its original cost at the time of delivery or purchase less depreciation or impairment charges. We depreciate our vessels on a straight-line basis over a vessel's estimated useful life, less an estimated residual value. The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature. We review vessels and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure the recoverability of an asset by comparing its carrying amount to future undiscounted cash flows that the asset is expected to generate over its remaining useful life.

Judgments and Uncertainties. Depreciation is calculated using an estimated useful life of 25 years for Aframax, Suezmax, VLCC and product tankers, and 35 years for LNG carriers, from the date the vessel was originally delivered from the shipyard. In the shipping industry, the use of a 25-year vessel life for Aframax, Suezmax, VLCC and product tankers has become the prevailing standard. In addition, the use of a 30 to 40 year vessel life for LNG carriers is typical. However, the actual life of a vessel may be different, with a shorter life resulting in an increase in the quarterly depreciation and potentially resulting in an impairment loss. The estimates and assumptions regarding expected cash flows require considerable judgment and are based upon existing contracts, historical experience, financial forecasts and industry trends and conditions. We are not aware of any indicators of impairments nor any regulatory changes or environmental liabilities that we anticipate will have a material impact on our current or future operations.

Effect if Actual Results Differ from Assumptions. If we consider a vessel or equipment to be impaired, we recognize impairment in an amount equal to the excess of the carrying value of the asset over its fair market value. The new lower cost basis will result in a lower annual depreciation than before the vessel impairment.

Drydocking

Description . We capitalize a substantial portion of the costs we incur during drydocking and for the survey and amortize those costs on a straight-line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next drydocking. We expense costs related to routine repairs and maintenance incurred during drydocking that do not improve or extend the useful lives of the assets.

Judgments and Uncertainties. Amortization of capitalized drydock expenditures requires us to estimate the period of the next drydocking. While we typically drydock each vessel every two and a half to five years and have a shipping society classification intermediate survey performed on our LNG carriers between the second and third year of the five-year drydocking period, we may drydock the vessels at an earlier date.

Effect if Actual Results Differ from Assumptions. If we change our estimate of the next drydock date we will adjust our annual amortization of drydocking expenditures. Amortization expense of capitalized drydock expenditures for the three and nine months ended September 30, 2006 and 2005 was $3.9 million and $11.3 million, and $3.7 million and $11.3 million, respectively. As at September 30, 2006 and December 31, 2005, our capitalized drydock expenditures were $54.6 million and $39.4 million, respectively.

Goodwill and Intangible Assets

Description . We allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. Certain intangible assets, such as time-charter contracts, are being amortized over time. Our future operating performance will be affected by the amortization of intangible assets and potential impairment charges related to goodwill. Accordingly, the allocation of purchase price to intangible assets and goodwill may significantly affect our future operating results. Goodwill and indefinite lived assets are not amortized, but reviewed for impairment annually, or more frequently if impairment indicators arise. The process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis.

Judgments and Uncertainties . The allocation of the purchase price of acquired companies to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows. In addition, the process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis. The fair value of our reporting units was estimated based on discounted expected future cash flows using a weighted-average cost of capital rate. The estimates and assumptions regarding expected cash flows and the discount rate require considerable judgment and are based upon existing contracts, historical experience, financial forecasts and industry trends and conditions.

Effect if Actual Results Differ from Assumptions. In the fourth quarter of 2005, we completed our annual impairment testing of goodwill using the methodology described herein, and determined there was no impairment. If actual results are not consistent with our assumptions and estimates, we may be exposed to a goodwill impairment charge. As at September 30, 2006 and December 31, 2005, the net book value of our goodwill was $171.3 million and $170.9 million, respectively. Amortization expense of intangible assets for the three and nine months ended September 30, 2006 and 2005 was $5.3 million annd $15.9 million, and $6.0 million and $18.6 million, respectively. If actual results are not consistent with our estimates used to value our intangible assets, we may be exposed to an impairment charge and a decrease in the annual amortization expense of our intangible assets.

FORWARD-LOOKING STATEMENTS

This Report on Form 6-K for the quarterly period ended September 30, 2006 contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, in particular, statements regarding: our future growth prospects; tanker market fundamentals, including the balance of supply and demand in the tanker market, and spot tanker charter and product tanker rates; future capital expenditures; delivery dates of and financing for newbuildings, and the commencement of service of newbuildings under long-term contracts; the adequacy of restricted cash deposits to fund capital lease obligations; gains on sales of vessels; economic growth; benefits from lease arrangements; future restructuring charges; and Teekay’s share repurchase plan. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, “plan”, “intend”, or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: changes in production of or demand for oil, petroleum products and LNG, either generally or in particular regions; the cyclical nature of the tanker industry and our dependence on oil and LNG markets; greater or less than anticipated levels of vessel newbuilding orders or greater or less than anticipated rates of vessel scrapping; changes in trading patterns significantly impacting overall vessel tonnage requirements; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; changes in typical seasonal variations in tanker charter rates; changes in the offshore production of oil; competitive factors in the markets in which we operate; our potential inability to integrate effectively the operations of any future acquisitions; the potential for early termination of long-term contracts and our inability to renew or replace long-term contracts; shipyard production delays; conditions in the public equity markets; and other factors detailed from time to time in our periodic reports, including our Annual Report on Form 20-F for the year ended December 31, 2005, filed with the SEC. We do not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 2006

PART I - FINANCIAL INFORMATION

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to fluctuations in foreign currency exchange rates, interest rates, bunker fuel prices and spot market rates for vessels. We use foreign currency forward contracts, interest rate swaps, bunker fuel swap contracts and forward freight agreements to manage currency, interest rate, bunker fuel price risks and spot market rates. Please read Item 1 - Financial Statements: Note 15 - Derivative Instruments and Hedging Activities.

The table below provides information about our financial instruments as at September 30, 2006, which are sensitive to changes in interest rates. For debt obligations, the table presents principal payments and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by expected contractual maturity dates.


	Expected Maturity Date
		2006	2007	2008	2009	2010	Thereafter	Rate ⁽¹⁰⁾
		(in millions of U.S. dollars, except percentages)

Long-Term Debt :
Fixed-Rate ($U.S.)		1.8	7.2	8.4	13.4	17.2	355.4	7.3%
Average Interest Rate		4.1%	4.1%	4.3%	4.7%	4.8%	7.6%

Variable Rate ($U.S.) ⁽¹⁾		2.4	87.8	325.5	103.7	118.1	1,037.8	6.1%
Variable Rate (Euro) ^(2) (3)		2.2	9.3	10.0	10.7	11.5	353.5	4.4%

Capital Lease Obligations ^(4) (5)
Fixed-Rate ($U.S.) ⁽⁶⁾		2.2	130.7	3.7	3.8	84.0	-	7.4%
Average Interest Rate ⁽⁷⁾		7.5%	8.8%	5.4%	5.4%	5.5%	-

Interest Rate Swaps: ⁽⁸⁾
Contract Amount ($U.S.) ^(5) (9)		-	296.2	8.6	213.4	28.8	1,816.5	5.1%
Average Fixed Pay Rate ⁽¹⁾		-	5.4%	5.7%	4.3%	5.3%	5.1%
Contract Amount (Euro) ⁽³⁾		2.2	9.3	10.0	10.7	11.5	353.5	3.8%
Average Fixed Pay Rate ⁽²⁾		3.8%	3.8%	3.8%	3.8%	3.8%	3.8%

_________________

(1)	Interest payments for U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR.

(2)	Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.

(3)	Euro-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of September 30, 2006.

(4)

Excludes capital lease obligations (present value of minimum lease payments) of 254.6 million Euros ($322.8 million) on two of our LNG carriers with a weighted-average fixed interest rate of 5.7%. Under the terms of these fixed-rate lease obligations, we are required to have on deposit, subject to a weighted-average fixed interest rate of 5.2%, an amount of cash that, together with the interest earned thereon, will fully fund the amount owing under the capital lease obligations, including purchase obligations. As at September 30, 2006, this amount was 258.9 million Euros ($328.1 million). Consequently, we are not subject to interest rate risk from these obligations or deposits.

(5)

During January 2006, three subsidiaries of Teekay Nakilat, each of which has contracted to have built one of the RasGas II vessels, sold their shipbuilding contracts and entered into 30-year leases with SeaSpirit, that will commence upon the delivery of the respective vessels. Under the terms of the leases and upon vessel delivery, we are required to have on deposit, subject to a variable rate of interest, an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the variable-rate leases. The deposits, which as at September 30, 2006 totaled $437.6 million, and the lease obligations, which upon delivery are expected to be approximately $180 million per vessel, have been swapped for fixed-rate deposits and fixed-rate obligations. Consequently, we are not subject to interest rate risk from these obligations and deposits and the lease obligations, cash deposits and related interest rate swaps have been excluded from the table above. As at September 30, 2006, the contract amount, fair value and fixed interest rates of these interest rate swaps related to these capital lease obligations and restricted cash deposits were $421.5 million and $432.5 million, $19.5 million and ($24.3) million, 4.9% and 4.8%, respectively.

(6)	The amount of capital lease obligations represents the present value of minimum lease payments together with our 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 the 1-month LIBOR or EURIBOR, quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR.

(9)	Includes interest rate swaps of $984.0 million, $226.0 million and $304.0 million that have inception dates of 2006, 2007 and 2009, respectively.

(10)

Rate refers to the weighted-average effective interest rate for our debt, including the margin we pay on our floating-rate debt, as at September 30, 2006, and average fixed pay rate for our swap agreements, as applicable. The average fixed pay rate for our interest rate swaps excludes the margin we pay on our floating-rate debt, which as of September 30, 2006, ranged from 1.1% to 1.3%.

The following table sets forth further information about our foreign exchange forward contracts, interest rate swap agreements, interest rate swaptions, bunker fuel swap contracts, forward freight agreements and our long-term debt as at September 30, 2006 and December 31, 2005:

	Contract		Carrying Amount				Fair
	Amount		Asset		Liability		Value
	(in millions of U.S. dollars)
September 30, 2006
Foreign Currency Forward Contracts		455.9				1.7		(1.7	)
Interest Rate Swap Agreements		2,749.7		35.8		38.8		(3.0	)
Interest Rate Swaptions		275.0				1.7		(1.7	)
Bunker Fuel Swap Contracts		7.3				0.1		(0.1	)
Forward Freight Agreements		4.6				3.2		(3.2	)
Debt ⁽¹⁾		3,023.1				3,023.1		(3,040.2	)

December 31, 2005
Foreign Currency Forward Contracts		119.1				1.2		(1.2	)
Interest Rate Swap Agreements		2,421.4				33.5		(33.5	)
Forward Freight Agreements		35.4				0.2		(0.2	)
Debt ⁽¹⁾		2,433.0				2,433.0		(2,466.2	)

_________________

(1)	Includes capital lease obligations and loan from joint venture partner.

For a more comprehensive discussion related to the general characteristics of Quantitative and Qualitative Disclosures about Market Risk, please refer to Item 11 - Quantitative and Qualitative Disclosures about Market Risk contained in our Annual Report on Form 20-F for the year ended December 31, 2005.

TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES

SEPTEMBER 30, 2006

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

None

Item 1A - Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, “Item 3. Key Information” in our Annual Report on Form 20-F for the year ended December 31, 2005, which could materially affect our business, financial condition or results of operations. There have been no material changes in our risk factors from those disclosed in our 2005 Annual Report on Form 20-F.

Item 2 - Changes in Securities and Use of Proceeds

None

Item 3 - Defaults Upon Senior Securities

None

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

None

Item 5 - Other Information

None

Item 6 - Exhibits

4.13 Agreement dated October 2, 2006, for a U.S. $940,000,000 Secured Reducing Revolving Loan Facility between Teekay Offshore Operating L.P., Den Norske Bank ASA and various other banks.

4.14 Agreement, dated August 23, 2006, for a U.S. $330,000,000 Secured Reducing Revolving Loan Facility Agreement between TK LNG Partners L.P., ING Bank N.V. and other banks

THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENTS OF THE COMPANY.

·	REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 33-97746) FILED WITH THE SEC ON OCTOBER 4, 1995;

·	REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-42434) FILED WITH THE SEC ON JULY 28, 2000;

·	REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-102594) FILED WITH THE SEC ON JANUARY 17, 2003; AND

·	REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119564) FILED WITH THE SEC ON OCTOBER 6, 2004

SIGNATURES

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


	TEEKAY SHIPPING CORPORATION

Date: December 21, 2006	By:	/s/ Vincent Lok
		Vincent Lok
		Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit 15.1

ACKNOWLEDGEMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Teekay Shipping Corporation

We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 333-42434) pertaining to the Amended 1995 Stock Option Plan of Teekay Shipping Corporation (or Teekay ), in the Registration Statement (Form S-8 No. 333-119564) pertaining to the 2003 Equity Incentive Plan and the Amended 1995 Stock Option Plan of Teekay, in the Registration Statement (Form F-3 No. 333-102594) and related Prospectus of Teekay for the registration of up to $500,000,000 of its common stock, preferred stock, warrants, stock purchase contracts, stock purchase units or debt securities and in the Registration Statement (Form F-3 No. 33-97746) and related Prospectus of Teekay for the registration of 2,000,000 shares of Teekay common stock under its Dividend Reinvestment Plan of our report dated December 13, 2006, relating to the unaudited consolidated interim financial statements of Teekay and its subsidiaries that is included in its interim report (Form 6-K) for the three and nine months ended September 30, 2006.

Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933.

Vancouver, Canada,	/s/	Ernst & Young LLP
December 21, 2006		Chartered Accountants

LOAN FACILITY AGREEMENT

Dated: 2006

BETWEEN:-

(1)	TEEKAY LNG PARTNERS L.P. a limited partnership formed and existing under the laws of the Republic of the Marshall Islands with its registered office at c/o Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (the " Borrower "); and

(2)	the banks and financial institutions listed in Schedule 1, each acting through its office at the address indicated against its name in Schedule 1 (together " the Banks " and each a " Bank "); and

(3)	ING BANK N.V. acting as arranger (in that capacity the " Arranger "); and

(4)	ING BANK N.V. acting as administrative agent and security trustee through its office at 60 London Wall, London EC2M 5TQ (in that capacity the " Agent ").

WHEREAS:-

Each of the Banks has agreed t o advance to the Borrower its respective Commitment of an aggregate principal amount not exceeding three hundred and thirty million Dollars ($330,000,000) to refinance the Existing Indebtedness and thereafter for the general corporate purposes of the Borrower Group on the terms and conditions herein set forth.

IT IS AGREED as follows:-

1	Definitions and Interpretation

1.1 Definitions

In this Agreement:-

1.1.1

" Administration " has the meaning given to it in paragraph 1.1.3 of the ISM Code.

1.1.2

the " Advance Date ", in relation to any Drawing, means the date on which that Drawing is advanced by the Banks to the Borrower pursuant to Clause 2.

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1.1.3

" Assignments " means the first priority assignments of each of the Vessels' Earnings, Insurance, Requisition Compensation and Charter Rights referred to in clause 8.1.4.

1.1.4

" Approved Brokers " means H. Clarkson & Co. Ltd, Simpson Spence & Young Shipbrokers Ltd, Compass Maritime Services LLC, Fearnley AS, R. S. Platou AS and P.F. Bassoe AS.

1.1.5

" Borrower's Accounts " means the consolidated financial accounts of the Borrower to be provided to the Agent pursuant to Clause 10.2.18 of this Agreement.

1.1.6

" Borrower Group " means, from time to time, the Borrower, the Guarantors and each of their respective Subsidiaries.

1.1.7

" the Borrower's Obligations " means all of the liabilities and obligations of the Borrower to the Finance Parties under or pursuant to the Borrower's Security Documents, whether actual or contingent, present or future, and whether incurred alone or jointly or jointly and severally with any other and in whatever currency, including (without limitation) interest, commission and all other charges and expenses.

1.1.8

" the Borrower's Security Documents " means those of the Security Documents to which the Borrower is or is to be a party.

1.1.9

" Break Costs " means all documented costs, losses, premiums or penalties incurred by any of the Finance Parties in the circumstances contemplated by Clause 17.4 or as a result of any of them receiving any prepayment of all or any part of the Facility (whether pursuant to Clauses 5.2 and 5.3 or otherwise) or any other payment under or in relation to the Security Documents on a day other than the due date for payment of the sum in question, and includes (without limitation) any losses or costs incurred in liquidating or re-employing deposits from third parties acquired to effect or maintain the Facility, and any liabilities, expenses or losses incurred by any of the Finance Parties in terminating or reversing, or otherwise in connection with, any interest rate and/or currency swap, transaction or arrangement entered into by any of the Finance Parties with any member of the Borrower Group to hedge any exposure arising under this Agreement, or in terminating or reversing, or otherwise in connection with, any open position arising under this Agreement.

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1.1.10

" Business Day " means a day on which banks are open for the transaction of business of the nature contemplated by this Agreement (and not authorised by law to close) in New York City, United States of America; London, England; Madrid, Spain and any other financial centre which the Agent may reasonably consider appropriate for the operation of the provisions of this Agreement.

1.1.11

" Change of Control " means that

(i)

Teekay Shipping Corporation ceases to own (directly or indirectly) a majority of the limited liability company interests in the General Partner; or

(ii)

the Corporate Guarantor ceases to own (directly or indirectly) a majority of the shares in the Owners; or

(iii)

the Borrower ceases to own (directly or indirectly) a majority of the shares in the Corporate Guarantor.

1.1.12

" Charters " means the charterparty for Vessel A dated 22 February 2001 and made between the relevant Owner and Charterer A and the charterparty for Vessel B dated 28 June 2001 made between the relevant Owner and Union Fenosa, S.A. (formerly Union Electrica Fenosa, S.A.) as assigned by Union Fenosa, S.A. to Charterer B (each a " Charter ") as each has been and may be supplemented and amended from time to time.

1.1.13

" Charterers " means Charterer A and Charterer B (each a " Charterer ").

1.1.14

" Charterer A " means Repsol YPF Trading Y Transporte S.A.

1.1.15

" Charterer B " means Union Fenosa Gas, S.A.

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1.1.16

" Charter Rights ", in relation to a Vessel, means all rights and benefits accruing to the Owner of that Vessel under or pursuant to the relevant Charter and not forming part of the Earnings.

1.1.17

" Commitment " means, in relation to each Bank, the amount of the Facility which that Bank agrees to advance to the Borrower as its several liability as indicated against the name of that Bank in Schedule 1 Part I and Schedule 1 Part II, as reduced from time to time in accordance with Clause 2.4, or, where the context permits, the amount of the Facility advanced by that Bank and remaining outstanding.

1.1.18

" Commitment Commission " means the commitment commission to be paid by the Borrower to the Agent on behalf of the Banks pursuant to Clause 7.

1.1.19

" Commitment Termination Date " means the date falling one month prior to the Termination Date.

1.1.20

a " Communication " means any notice, approval, demand, request or other communication from one party to this Agreement to any other party to this Agreement.

1.1.21

" the Communications Address " means c/o Teekay Shipping (Canada) Ltd, Suite 2000, Bentall 5, 550 Burrard Street, Vancouver, B.C., Canada V6C 2K2 , fax no: +1 604 681 3011 marked for the attention of Vice President, Finance.

1.1.22

" Company " means at any given time the company responsible for a Vessel's compliance with (i) the ISM Code under paragraph 1.1.2 of the ISM Code and or (ii) the ISPS Code (as the case may be).

1.1.23

" Confirmation " means a confirmation exchange or deemed exchanged between a Future Swap Provider and the Borrower as contemplated by a Master Agreement.

1.1.24

" Corporate Guarantor " means Teekay Shipping Spain, S.L.

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1.1.25

" Corporate Guarantee " means the guarantee and indemnity of the Corporate Guarantor in respect of the Borrower's Obligations referred to in clause 8.1.2.

1.1.26

" Currency of Account " means, in relation to any payment to be made to a Finance Party pursuant to any of the Security Documents, the currency in which that payment is required to be made by the terms of the relevant Security Document.

1.1.27

" Default Rate " means the rate which is the aggregate of LIBOR, any Mandatory Cost, the Margin and one point five per centum (1.5%) per annum.

1.1.28

" Distribution Drawing " means a Drawing used or intended to be used by the Borrower to fund cash distributions to its general partner and limited partners.

1.1.29

" DOC " means in relation to the ISM Company, a valid Document of Compliance issued for the ISM Company by the Administration under paragraph 13.2 of the ISM Code.

1.1.30

" Dollars " " US$ " and " $ " each means available and freely transferable and convertible funds in lawful currency of the United States of America.

1.1.31

" Drawdown Notice " means a notice complying with Clause 2.3 in the form set out in Schedule 5.

1.1.32

" Drawing " means a part (or, if requested and available, all) of the Facility advanced by the Banks to the Borrower in accordance with Clause 2, and which shall be designated either a General Revolving Drawing or a Distribution Drawing.

1.1.33

" Earnings ", in relation to a Vessel, means all hires including (without limitation) all time charter hire and bareboat charter hire, freights, pool income and other sums payable to or for the account of the Owner in respect of that Vessel including (without limitation) all remuneration for salvage and towage services, demurrage and detention moneys, contributions in general average, compensation in respect of any requisition for hire and damages and other payments (whether awarded by any court or arbitral tribunal or by agreement or otherwise) for breach, termination or variation of any contract for the operation, employment or use of that Vessel.

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1.1.34

" Earnings Account " means a bank account to be opened (in the event that an Event of Default has occurred) in the joint names of the Owners with the Earnings Account Holder .

1.1.35

" Earnings Account Holder " means the bank or financial institution which (following the occurrence of an Event of Default) at any time, with the Agent's prior written consent, holds the Earnings Account.

1.1.36

" Encumbrance " means any mortgage, charge, pledge, lien, assignment, hypothecation, preferential right, option, title retention or trust arrangement or any other agreement or arrangement which, in any of the aforementioned instances, has the effect of creating security.

1.1.37

" Environmental Affiliate " means an agent or employee of an Owner or a person in a contractual relationship with an Owner in respect of the Vessel owned by it (including without limitation, the operation of or the carriage of cargo of such Vessel).

1.1.38

" Environmental Approvals " means any present or future permit, licence, approval, ruling, variance, exemption or other authorisation required under the applicable Environmental Laws.

1.1.39

" Environmental Claim " means any and all enforcement, clean-up, removal, administrative, governmental, regulatory or judicial actions, orders, demands or investigations instituted or completed pursuant to any Environmental Laws or Environmental Approvals together with any claims made by any third person relating to damage, contribution, loss or injury resulting from any Environmental Incident.

1.1.40

" Environmental Incident " means:

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(a)

any release of Environmentally Sensitive Material from a Vessel; or

(b)

any incident in which Environmentally Sensitive Material is released from a vessel other than a Vessel and which involves a collision between a Vessel and such other vessel or some other incident of navigation or operation, in either case, in connection with which the relevant Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where any guarantor, any manager (or any sub-manager of such Vessel) or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action; or

(c)

any other incident in which Environmentally Sensitive Material is released otherwise than from such Vessel and in connection with which that Vessel is actually or potentially liable to be arrested and/or where any guarantor, any manager (or any sub-manager of the relevant Vessel) or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action.

1.1.41

" Environmental Laws " means all present and future laws, regulations, treaties and conventions of any applicable jurisdiction which:

(a)

have as a purpose or effect the protection of, and/or prevention of harm or damage to, the environment;

(b)

relate to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material;

(c)

provide remedies or compensation for harm or damage to the environment; or

(d)

relate to Environmentally Sensitive Materials or health or safety matters.

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1.1.42

" Environmentally Sensitive Material " means (i) oil and oil products and (ii) any other waste, pollutant, contaminant or other substance (including any liquid, solid, gas, ion, living organism or noise) that may be harmful to human health or other life or the environment or a nuisance to any person or that may make the enjoyment, ownership or other territorial control of any affected land, property or waters more costly for such person to a material degree.

1.1.43

" Event of Default " means any of the events set out in Clause 12.2.

1.1.44

" Execution Date " means the date on which this Agreement is executed by each of the parties hereto.

1.1.45

" Existing Indebtedness " means the Financial Indebtedness owed by Naviera Teekay Gas S.L. under the terms of a syndicated credit agreement dated 22 February 2001 entered into with J.P. Morgan Europe Limited as agent for a syndicate of lenders in respect of Vessel A.

1.1.46

" Facility " means the reducing revolving credit facility made available by the Banks to the Borrower pursuant to this Agreement.

1.1.47

" the Facility Outstandings " at any time means the total of all Drawings made at that time, to the extent not reduced by repayments, prepayments or voluntary reductions.

1.1.48

" the Facility Period " means the period beginning on the Execution Date and ending on the date when the whole of the Indebtedness has been repaid in full and the Borrower has ceased to be under any further actual or contingent liability to the Finance Parties under or in connection with the Security Documents.

1.1.49

" Fee Letter " means a letter or letters from the Agent to the Borrower setting out certain fees payable to the Agent in connection with the Facility.

1.1.50

" the Finance Parties " means the Banks, the Arranger, the Agent and any Future Swap Provider.

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1.1.51

" Financial Indebtedness " means any indebtedness of any person for or in respect of:

(a)

moneys borrowed or raised;

(b)

amounts raised under any acceptance credit facility;

(c)

amounts raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or similar instruments;

(d)

amounts raised pursuant to any issue of shares of the relevant person which are expressed to be redeemable;

(e)

the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with GAAP, be treated as finance or capital leases;

(f)

the amount of any liability in respect of any purchase price for assets or services, the payment of which is deferred for a period in excess of one hundred and eighty (180) days;

(g)

all reimbursement obligations whether contingent or not in respect of amounts paid under a letter of credit or similar instrument;

(h)

all interest rate, currency swap and similar agreements obliging the making of payments, whether periodically or upon the happening of a contingency (and the value of such indebtedness shall be the mark-to-market valuation of such transaction at the relevant time);

(i)

amounts raised under any other transaction (including, without limitation, any forward sale or purchase agreement) having the commercial effect of a borrowing; and

(j)

any guarantee of indebtedness falling within paragraphs (a) to (i) above.

1.1.52

" First Reduction Date " means the date falling six (6) calendar months after the Execution Date.

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1.1.53

" Free Liquidity " means cash, cash equivalents and marketable securities to which the Borrower and/or its Subsidiaries shall have free, immediate and direct access each as reflected in the Borrower's most recent Borrower's Accounts.

1.1.54

" Future Swap Provider " means any party that enters into a Master Agreement with the Borrower for the purpose of hedging interest costs in relation to the Facility and is designated by the Borrower to the Agent as a Future Swap Provider.

1.1.55

" GAAP " means the generally accepted accounting principles in the United States of America.

1.1.56

" General Revolving Drawing " means a Drawing other than a Distribution Drawing.

1.1.57

" General Partner " means Teekay GP L.L.C., a Marshall Islands limited liability company acting in its capacity as the general partner in the Borrower.

1.1.58

" Guarantors " means the Corporate Guarantor and each of the Owners (each a " Guarantor ").

1.1.59

" the Indebtedness " means the Facility Outstandings; any Master Agreement Liabilities; all other sums of any nature including costs (together with all interest on any of those sums) which from time to time may be payable by the Borrower to the Finance Parties pursuant to the Security Documents; any damages payable as a result of any breach by the Borrower of any of the Security Documents; and any damages or other sums payable as a result of any of the obligations of the Borrower under or pursuant to any of the Security Documents being disclaimed by a liquidator or any other person, or, where the context permits, the amount thereof for the time being outstanding.

1.1.60

" Insurances ", in relation to a Vessel, means all policies and contracts of insurance (including but not limited to hull and machinery, all entries in protection and indemnity or war risks associations) which are from time to time taken out or entered into in respect of or in connection with that Vessel or her increased value and (where the context permits) all benefits thereof, including all claims of any nature and returns of premium.

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1.1.61

" Interest Payment Date " means each date for the payment of interest in accordance with Clause 6.

1.1.62

" Interest Period " means each interest period selected by the Borrower or agreed by the Banks pursuant to Clause 6.

1.1.63

" the ISM Code " means the International Ship Management Code for the Safe Operation of Ships and for Pollution Prevention.

1.1.64

" ISM Company " means, at any given time, the company responsible for a Vessel's compliance with the ISM Code under paragraph 1.1.2 of the ISM Code.

1.1.65

" the ISPS Code " means the International Ship and Port Security Code as adopted by the Conference of Contracting Governments to the Safety of Life at Sea Convention 1974 on 13 December 2002 and incorporated as Chapter XI-2 of the Safety of Life at Sea Convention 1974.

1.1.66

" law " or " Law " means any law, statute, treaty, convention, regulation, instrument or other subordinate legislation or other legislative or quasi-legislative rule or measure, or any order or decree of any government, judicial or public or other body or authority, or any directive, code of practice, circular, guidance note or other direction issued by any competent authority or agency (whether or not having the force of law).

1.1.67

" LIBOR " means the rate, rounded to the nearest four decimal places downwards (if the digit displayed in the fifth decimal place is 1,2,3 or 4) or upwards (if the digit displayed in the fifth decimal place is 5,6,7,8 or 9) displayed on Telerate page 3750 (or such other page or pages which replace(s) such page for the purposes of displaying offered rates of leading banks, for deposits in Dollars of amounts equal to the amount of the relevant Drawing for a period equal in length to the relevant Interest Period or if there is no such display rate then available for Dollars for an amount comparable to the Drawing, the arithmetic mean (rounded to the nearest four decimal places downwards (if the digit displayed in the fifth decimal place is 1, 2, 3 or 4) or upwards if the digit displayed in the fifth decimal place is 5, 6, 7, 8 or 9) of the respective rates notified to the Agent by each of the Reference Banks as the rate at which it is offered deposits in Dollars and for the required period by prime banks in the London Interbank Market.

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1.1.68

" Majority Banks " means any one or more Banks whose combined Proportionate Shares exceed sixty six and two thirds per centum (66⅔%).

1.1.69

" Managers " means Teekay Servicios Maritimos S.L. as the technical managers of the Vessels and Teekay Shipping Limited as the commercial managers of the Vessel (each a " Manager ").

1.1.70

" Mandatory Cost " means for each Bank to which it applies, the cost imputed to that Bank of compliance with the mandatory liquid asset requirements of the Bank of England and/or the banking supervision or other costs imposed by the Financial Services Authority, determined in accordance with Schedule 6 ( Calculation of the Mandatory Cost ).

1.1.71

" Margin " means fifty five basis points (55bps).

1.1.72

" Master Agreement " means any ISDA Master Agreement entered into between a Future Swap Provider and the Borrower for the purpose of hedging interest costs under the Facility (and designated by the Borrower as a Master Agreement for the purposes of this Facility) and each Confirmation exchanged pursuant to that Master Agreement.

1.1.73

" Master Agreement Liabilities " means at any relevant time all liabilities of the Borrower to a Future Swap Provider under or pursuant to a Master Agreement, whether actual or contingent, present or future.

1.1.74

" Material Adverse Effect " means a material adverse change in, or a material adverse effect on:

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(a)

the financial condition, assets, prospects or business of any Security Party or on the consolidated financial condition, assets, prospects or business of the Borrower Group;

(b)

the ability of any Security Party to perform and comply with its obligations under any Security Document or to avoid any Event of Default;

(c)

the validity, legality or enforceability of any Security Document; or

(d)

the validity, legality or enforceability of any security expressed to be created pursuant to any Security Document or the priority and ranking of any such security,

provided that, in determining whether any of the forgoing circumstances shall constitute such a material adverse change or material adverse effect for the purposes of this definition, the Finance Parties shall consider such circumstance in the context of (x) the Borrower Group taken as a whole and (y) the ability of the Borrower to perform each of its obligations under the Security Documents.

1.1.75

" Material Subsidiary " means a Subsidiary of the Borrower whose:

(a)

net assets exceed 10 per cent. of the consolidated net assets of the Borrower Group; or

(b)

gross assets exceed 10 per cent of the consolidated gross assets of the Borrower Group;

(c)

current revenues exceed 10 percent. of the consolidated revenues of the Borrower Group during the two most recent consecutive quarters.

1.1.76

" the Maximum Facility Amount " means an amount not exceeding the three hundred and thirty million Dollars ($330,000,000) subject to any reductions effected in accordance with Clauses 2.4, 15.7 and 15.8.

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1.1.77

" Mortgages " means together the first priority Spanish ship mortgages over each of the Vessels made or to be made between the relevant Owner and the Banks referred to in Clause 8.1.5 (each a " Mortgage ").

1.1.78

" Owner " means in respect of Vessel A, Naviera Teekay Gas S.L. (formerly Naviera F Tapias Gas S.A.) and in respect of Vessel B, Naviera Teekay Gas II S.L. (formerly Naviera F Tapias Gas II S.A.)

1.1.79

" Owners Guarantee " means the joint and several guarantee and indemnity of each of the Owners in respect of the Indebtedness referred to in Clause 8.1.1.

1.1.80

" Party " means a party to this Agreement and any Future Swap Provider.

1.1.81

" Permitted Liens " means (i) any Encumbrance which has the prior written approval of the Agent acting upon the instructions of all the Banks or (ii) any Encumbrances that do not exceed ten million Dollars ($10,000,000) and arise either by operation of law or in the ordinary course of the business of the relevant Security Party which are discharged in the ordinary course of business.

1.1.82

" Pledgor " means the Corporate Guarantor.

1.1.83

" Potential Event of Default " means any event which, with the giving of notice and/or the passage of time and/or the satisfaction of any materiality test, would constitute an Event of Default.

1.1.84

" Pre-Approved Classification Society " means any of Det norske Veritas, Lloyds Register of Shipping, American Bureau of Shipping (ABS), Germanischer Lloyd or Bureau Veritas.

1.1.85

" Pre-Approved Flag " means Spain, Bahamas, Singapore, the Marshall Islands, Norwegian International Ship Registry, Liberia, Isle of Man, Cayman Islands and Bermuda.

1.1.86

" Proceedings " means any suit, action or proceedings begun by any of the Finance Parties arising out of or in connection with the Security Documents.

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1.1.87

" Proportionate Share " means, for each Bank, the percentage that its Commitment bears to the aggregate Commitments of all Banks from time to time, being initially the percentage indicated against the name of that Bank in Schedule 1.

1.1.88

" Reference Banks " means ING Bank N.V., HSBC Bank plc and The Royal Bank of Scotland plc.

1.1.89

" Requisition Compensation ", in relation to a Vessel, means all compensation or other money which may from time to time be payable to an Owner as a result of that Vessel being requisitioned for title or in any other way compulsorily acquired (other than by way of requisition for hire).

1.1.90

" the Security Documents " means this Agreement, the Assignments, the Owners Guarantee, the Shares Charges, the Corporate Guarantee, the Mortgages, or (where the context permits) any one or more of them, and any other agreement or document which may at any time be executed as security for the payment of all or any part of the Indebtedness.

1.1.91

" Security Parties " means, at any relevant time, the Borrower, the Owners, the Corporate Guarantor, the Pledgor and any other party who may at any time during the Facility Period be liable for, or provide security for, all or any part of the Indebtedness, and " Security Party " means any one of them.

1.1.92

" Shares Charges " means the pledges or charges of the shares of each of the Owners executed by the Pledgor in favour of the Banks referred to in Clause 8.1.3.

1.1.93

" SMC " means a valid safety management certificate issued for a Vessel by or on behalf of the Administration under paragraph 13.7 of the ISM Code.

1.1.94

" SMS " means, in relation to each Vessel, a safety management system for that Vessel developed and implemented in accordance with the ISM Code and including the functional requirements, duties and obligations required by the ISM Code.

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1.1.95

" Subordination Agreement " means a subordination agreement to be entered into between the Borrower, the Agent on behalf of the Banks and itself and a Future Swap Provider pursuant to which the Future Swap Provider will subordinate its interest in the Security Documents to that of the Banks and the Agent in such form as the Agent (acting on the instructions of all the Lenders, such instructions to be obtained by the Agent and given by the Lenders as soon as possible) shall reasonably require.

1.1.96

" Subsequent Reduction Dates " means each date falling at consecutive six (6) monthly intervals after the previous Subsequent Reduction Date which in the case of the first Subsequent Reduction Date shall be six (6) months after the First Reduction Date.

1.1.97

" Subsidiary " means a subsidiary undertaking, as defined in section 736 Companies Act 1985 or any analogous definition under any other relevant system of law.

1.1.98

" Tangible Net Worth " means the issued and paid up share capital (including share premium or items of a similar nature (but excluding shares which are expressed to be redeemable)), loans from shareholders (where subordinated to the satisfaction of the Agent), and amounts standing to the credit of the capital reserves of the Borrower,

(a)

plus any credit balance carried forward on the Borrower's consolidated profit and loss account,

(b)

less:

(i) any debit balance carried forward on the Borrower's consolidated profit and loss account;

(ii) any amount shown for goodwill, including on consolidation, or any other intangible property (other than intangible property relating to contracts as shown in the balance sheet of the Borrower); and

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(iii) any amount attributable to minority interests in Subsidiaries.

1.1.99

" Taxes " means all taxes, levies, imposts, duties, charges, fees, deductions and withholdings (including any related interest and penalties) and any restrictions or conditions resulting in any charge, other than taxes on the overall net income of a Finance Party or branch thereof, and " Tax " and " Taxation " shall be interpreted accordingly.

1.1.100

" the Termination Date " means the twelfth anniversary of the Execution Date.

1.1.101

" Total Commitment " means at any time the sum of all the Commitments.

1.1.102

" Total Loss ", in relation to a Vessel, means:-

(a)

an actual, constructive, arranged, agreed or compromised total loss of that Vessel; or

(b)

the requisition for title, compulsory acquisition, nationalisation or expropriation of that Vessel by or on behalf of any government or other authority (other than by way of requisition for hire); or

(c)

the capture, seizure, arrest, detention or confiscation of that Vessel, unless the Vessel is released and returned to the possession of its Owner within ninety (90) days after the capture, seizure, arrest, detention or confiscation in question.

1.1.103

" Transfer Certificate " means a certificate materially in the form set forth in Schedule 4 signed by a Bank and a Transferee whereby:-

(a)

such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank's rights and obligations under this Agreement upon and subject to the terms and conditions set out in Clause 14; and

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(b)

such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as is contemplated in Clause 14.

1.1.104

" Transfer Date " means, in relation to any Transfer Certificate, the date for the making of the transfer specified in the schedule to such Transfer Certificate.

1.1.105

" Transferee " means a bank or other financial institution to which a Bank seeks to transfer all or part of such Bank's rights and obligations under this Agreement.

1.1.106

" the Trust Property " means:-

(a)

the benefit of Clause 8 and the covenants contained in Clause 9.3; and

(b)

all benefits arising under (including, without limitation, all proceeds of the enforcement of) each of the Security Documents (other than this Agreement, the Mortgages and the Shares Charges), with the exception of any benefits arising solely for the benefit of the Agent.

1.1.107

" Valuation " means in relation to a Vessel, the written valuation of that Vessel expressed in Dollars addressed to all the Banks prepared by one of the Approved Brokers (or such other firms of reputable independent shipbrokers as may be acceptable to the Majority Banks), to be nominated by the Borrower. Such valuations shall be prepared at the Borrower's expense, without a physical inspection, on the basis of a sale for prompt delivery for cash at arm's length on a charter free basis between a willing buyer and a willing seller.

1.1.108

" Vessel A " means m.v. "HISPANIA SPIRIT" and everything now or in the future belonging to her on board and ashore.

1.1.109

" Vessel B " means m.v. "GALICIA SPIRIT" and everything now or in the future belonging to her on board and ashore.

1.1.110

" the Vessels " means Vessel A and Vessel B (each a " Vessel ").

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1.2 Interpretation

In this Agreement:-

1.2.1

words denoting the plural number include the singular and vice versa;

1.2.2

words denoting persons include corporations, limited liability companies, partnerships, associations of persons (whether incorporated or not) or governmental or quasi-governmental bodies or authorities and vice versa;

1.2.3

references to Recitals, Clauses, Schedules and Appendices are references to recitals and clauses of, and schedules and appendices to, this Agreement;

1.2.4

references to this Agreement include the Recitals, the Schedules and the Appendices;

1.2.5

the headings and contents page(s) are for the purpose of reference only, have no legal or other significance, and shall be ignored in the interpretation of this Agreement;

1.2.6

references to any document (including, without limitation, to all or any of the Security Documents) are, unless the context otherwise requires, references to that document as amended, supplemented, novated or replaced from time to time;

1.2.7

references to statutes or provisions of statutes are references to those statutes, or those provisions, as from time to time amended, replaced or re-enacted;

1.2.8

references to any of the Finance Parties include its successors, transferees and assignees;

1.2.9

in the case of the Borrower, any references to company or body corporate, incorporation, shares, officers and directors and shareholders shall be construed as references to limited partnership, formation, common units, partners and unitholders as appropriate;

1.2.10

references to times of day are unless otherwise stated to London time; and

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1.2.11

unless the contrary intention appears, a reference to a month or months is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month or the calendar month in which it is to end, except that:

(i)

if the numerically corresponding day is not a Business Day, the period will end on the next Business Day in that month (if there is one) or the preceding Business Day (if there is not);

(ii)

if there is no numerically corresponding day in that month, that period will end on the last Business Day in that month; and

(iii)

notwithstanding sub-paragraph (i) above, a period which commences on the last Business Day of a month will end on the last Business Day in the next month or the calendar month in which it is to end, as appropriate.

2	The Facility and its Purpose

2.1

Agreement to lend Subject to the terms and conditions of this Agreement, and in reliance on each of the representations and warranties made or to be made in or in accordance with each of the Security Documents, each of the Banks agrees to advance to the Borrower its Commitment of an aggregate principal amount not exceeding the Maximum Facility Amount to be used by the Borrower for the purposes referred to in the Recital provided however that any Drawing that the Borrower intends to use as a Distribution Drawing shall be designated as a Distribution Drawing in the relevant Drawdown Notice completed in accordance with clause 2.3 and such Distribution Drawing shall be subject to the repayment terms set forth in Clause 5.1.

2.2

Drawings Subject to satisfaction by the Borrower of the conditions set out in Clause 3.1 (in respect of the first Drawing), Clause 3.3 (in respect of all subsequent Drawings), and subject to Clause 2.3, and provided that the maximum aggregate amount of the Facility Outstandings at any given time during the Facility Period shall not exceed the Maximum Facility Amount, each Drawing shall be advanced to the Borrower, in each case by the Agent transferring the amount of the Drawing to such account as the Borrower shall notify to the Agent in the relevant Drawdown Notice by such same day method of funds transfer as the Agent shall select.

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2.3

Advance of Drawings Each Drawing shall be advanced in Dollars. Each Drawing shall be advanced on a Business Day, provided that the Borrower shall have given to the Agent not more than ten and not fewer than three Business Days' notice in writing (and if such notice is given on the third Business Day prior to the required Advance Date it shall be given not later than 3:00 pm) materially in the form set out in Schedule 5 of the required Advance Date of the Drawing in question and provided that the requested Drawing would not cause a breach of Clause 2.5. Each Drawdown Notice once given shall be irrevocable and shall constitute a warranty by the Borrower that:-

2.3.1

all conditions precedent to the advance of the Drawing requested in that Drawdown Notice will have been satisfied on or before the Advance Date requested;

2.3.2

no Event of Default or Potential Event of Default has occurred or will then have occurred; and

2.3.3

no Event of Default or Potential Event of Default will result from the advance of the Drawing in question.

The Drawdown Notice shall state that the Drawing shall be designated, based on its intended use either as a General Revolving Drawing or a Distribution Drawing

The Agent shall promptly notify each Bank of the receipt of each Drawdown Notice, following which each Bank will make its Proportionate Share of the amount of the requested Drawing available to the Borrower through the Agent on the Advance Date requested.

2.4

Facility Reduction

2.4.1

The aggregate amount of the Facility available to the Borrower for drawing under this Agreement shall be three hundred and thirty million Dollars ($330,000,000) during the period from the Execution Date until the First Reduction Date. On the First Reduction Date and on each of the Subsequent Reduction Dates the amount of the Facility available for drawing shall be reduced in accordance with the reduction schedule set out in Schedule 3. On the Termination Date the Facility available shall be reduced to zero. Subject to the proviso hereto, the mandatory reductions in the amount of the Facility available for drawing required pursuant to this Clause will be made in the amounts and at the times specified whether or not the Maximum Facility Amount is reduced pursuant to Clause 2.4.2, Clause 2.4.3, Clause 2.4.4, Clause 15.7 or Clause 15.8. PROVIDED ALWAYS THAT any reductions pursuant to Clause 2.4.2 (voluntary reductions), Clause 2.4.3 (sale) or Clause 2.4.4 (Total Loss) shall be applied to the remaining mandatory reductions hereunder on a pro rata basis.

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2.4.2

The Borrower may voluntarily cancel the Maximum Facility Amount in whole or in part in an amount of not less than five million Dollars ($5,000,000) such amount to be in integral multiples of one million Dollars ($1,000,000), provided that it has first given to the Agent not fewer than three (3) Business Days' prior written notice expiring on a Business Day (the " Cancellation Date ") of its desire to reduce the Maximum Facility Amount. Such notice, once received by the Agent, shall be irrevocable and shall oblige the Borrower to make payment of all interest and Commitment Commission accrued on the amount so cancelled up to and including the Cancellation Date together with any Break Costs in respect of such cancelled amount if the Cancellation Date is not an Interest Payment Date. Any such reduction in the Maximum Facility Amount shall not be reversed.

2.4.3

In the event of a sale or disposal of a Vessel, the Maximum Facility Amount shall be reduced by the greater of (i) an amount equal to the Total Commitment multiplied by a fraction the numerator of which is the value of the relevant Vessel (based on a Valuation) and the denominator of which is the aggregate value of the Vessels (based on their Valuations) and (ii) an amount sufficient to ensure that the Total Commitment remaining after such reduction does not exceed the aggregate of the remaining scheduled charterhire payments to be paid to the relevant Owner under the relevant Charter for the remaining Vessel during the remaining period of that Charter (ignoring any option period which has not been exercised) (the " Mandatory Commitment Reduction "). Such reduction shall be made on the date of such sale or disposal. If, as a result of any reduction in the Maximum Facility Amount pursuant to this Clause, the Facility Outstandings exceed the Maximum Facility Amount, the Borrower shall, on the date of the sale or disposal, prepay such amount of the Facility Outstandings as will ensure that the Facility Outstandings are not greater than the Maximum Facility Amount. Any such prepayment shall oblige the Borrower to make payment of all interest and Commitment Commission accrued on the amount so reduced up to and including the date of reduction together with any Break Costs in respect of such reduced amount if the date of such reduction is not an Interest Payment Date. Any such reduction in the Maximum Facility Amount shall not be reversed.

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2.4.4

In the event that either Vessel becomes a Total Loss, on the earlier to occur of (a) the date of receipt of the proceeds of the Total Loss and (b) the date falling one hundred and eighty (180) days after the occurrence of the Total Loss (the " Reduction Date "), the Maximum Facility Amount shall be reduced by the Mandatory Commitment Reduction. Any such reductions in the Maximum Facility Amount shall not be reversed. If, as a result of any reduction in the Maximum Facility Amount pursuant to this Clause the Facility Outstandings exceed the Maximum Facility Amount, the Borrower shall, on the earlier to occur of (i) the date on which the relevant Owner receives the proceeds of such Total Loss and (ii) the one hundred and eightieth day after the date of such Total Loss occurring, prepay such amount of the Facility Outstandings as will ensure that the Facility Outstandings are not greater than the Maximum Facility Amount. Any such prepayment shall not be reborrowed and Clause 5.4 shall apply to any such prepayment.

2.4.5

To the extent that repayments or prepayments made by the Borrower to the Agent in accordance with this Agreement reduce the Facility Outstandings to less than the Maximum Facility Amount, the Borrower shall again be entitled to make Drawings up to the Commitment Termination Date in accordance with and subject to the terms of this Agreement. Any part of the Facility which is undrawn on the Commitment Termination Date shall be automatically cancelled.

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2.4.6

Simultaneously with each reduction of the Maximum Facility Amount in accordance with Clause 2.4.1, Clause 2.4.2, Clause 2.4.3 and Clause 2.4.4 (as the case may be), the Commitment of each Bank will reduce so that the Commitments of the Banks in respect of the reduced Maximum Facility Amount remain in accordance with their respective Proportionate Shares.

2.4.7

Any voluntary reductions of the Facility under Clause 2.4.2 or mandatory reductions of the Facility under Clause 2.4.3 or 2.4.4 shall be applied pro rata against the scheduled reductions of Commitment set out in Schedule 3.

2.5

Restrictions on Drawings The Borrower shall not be entitled to make more than one Drawing on any Business Day. Each Drawing shall be of an amount of not less than five million Dollars ($5,000,000). If at any time during the Facility Period the Facility Outstandings exceed the Maximum Facility Amount then available or if a proposed Drawing added to the Facility Outstandings would result in the Maximum Facility Amount being exceeded then the Borrower shall immediately pay to the Agent on behalf of the Banks such amounts as will ensure that the Facility Outstandings are equal to or less than the Maximum Facility Amount then available.

2.6

Termination Date No Bank shall be under any obligation to advance all or any part of its Commitment after the Commitment Termination Date.

2.7

Several obligations The obligations of the Banks under this Agreement are several. The failure of a Bank to perform its obligations under this Agreement shall not affect the obligations of the Borrower to any Finance Party nor shall any Finance Party be liable for the failure of another Bank to perform any of its obligations under or in connection with this Agreement.

2.8

Application of Facility Without prejudice to the obligations of the Borrower under this Agreement, no Finance Party shall be obliged to concern itself with the application of the Facility by the Borrower.

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2.9

Loan facility and control accounts The Agent will open and maintain such loan facility account or such other control accounts as the Agent shall in its discretion consider necessary or desirable in connection with the Facility, and shall debit or credit such account with the amount of any Drawings hereunder, interest accrued, commission and expenses payable hereunder, and any amounts paid by the Borrower in respect of such obligations. Additionally:-

2.9.1

The balance on that account shall represent the amount of the Borrower's debt to the Banks from time to time hereunder.

2.9.2

Without prejudice to that account, each Bank shall open an account in the name of the Borrower which shall show, according to the Commitments of each Bank, the amounts owing to it in respect of the liabilities referred to above, with the effect that the balance on that account shall represent the amount owed by the Borrower to each Bank from time to time.

2.9.3

For the purposes of Article 571 et seq. of the Spanish Law on Civil Procedure (Ley de Enjuiciamiento Civil), the parties expressly agree that the Agent (or the Bank in question) may determine the debt due and payable which may be claimed in enforcement proceedings, by means of a certificate showing the balance on the Borrower's account or accounts. For the purposes of the preceding paragraph, it shall be sufficient for the purposes of bringing enforcement proceedings to produce an authorised copy of that document and a notarial instrument incorporating a certificate issued by the Agent (or by the Bank in question) showing that the debt has been calculated in accordance with the terms agreed by the parties in this deed and that the balance in question is the same as that on the account or accounts maintained by the Borrower.

2.9.4

It is expressly agreed that the balance on the account or accounts in question shall be treated as the evidence of the debt owed by the Borrower, and that may be claimed in accordance with this Clause 2.9 and the Security Documents.

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3	Conditions Precedent and Subsequent

3.1

Conditions Precedent - First Drawing Before any Bank shall have any obligation to advance the first Drawing under the Facility, the Borrower shall deliver or cause to be delivered to or to the order of the Agent the following documents and evidence:-

3.1.1

Evidence of incorporation Such evidence as the Agent may reasonably require that each Security Party was duly incorporated in its country of incorporation and remains in existence and, where appropriate, in good standing, with power to enter into, and perform its obligations under, those of the Security Documents to which it is, or is intended to be, a party, including (without limitation) a copy, certified by a director or an officer of the Security Party (or its sole member or general partner) in question as true, complete, accurate and unamended, of all documents establishing or limiting the constitution of each Security Party.

3.1.2

Corporate authorities A copy, certified by a director or any duly authorised officer of the Security Party (or its sole member or general partner) in question as true, complete, accurate and neither amended nor revoked, of a resolution of the directors of each Security Party or such Security Party's general partner (together, where appropriate, with signed waivers of notice of any directors' meetings) approving, and authorising or ratifying the execution of, those of the Security Documents and each Drawdown Notice to which that Security Party is or is intended to be a party and all matters incidental thereto.

3.1.3

Officer's certificate A certificate (i) signed by a duly authorised officer or representative of each of the Security Parties (or its sole member or general partner) setting out the names of the directors and officers of that Security Party (or its sole member or general partner) and (ii) issued by each Security Party's company registry confirming due incorporation and valid existence and (when such information is maintained by the registry) the names of its directors and shareholders.

3.1.4

Power of attorney The power of attorney (notarially attested and legalised, if necessary, for registration purposes) of each of the Security Parties under which any documents are to be executed or transactions undertaken by that Security Party.

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3.1.5

The Security Documents The Security Documents, together with all notices and other documents required by any of them, duly executed.

3.1.6

Drawdown Notice A Drawdown Notice.

3.1.7

Process agent A letter from Teekay Shipping (UK) Ltd accepting their appointment by each of the Security Parties as agent for service of Proceedings pursuant to the Security Documents.

3.1.8

Legal opinions Confirmation satisfactory to the Agent that all legal opinions required by the Agent on behalf of the Finance Parties will be given substantially in the form required by the Agent on behalf of the Finance Parties.

3.1.9

Shares Charges Documents Any documents required by the Shares Charges.

3.1.10

Certified copies Certified copies of the Charters.

3.1.11

Fee Letter The Fee Letter duly signed and payment of all bank fees that have fallen due thereunder and hereunder.

3.1.12

Evidence of Owners' title Confirmation satisfactory to the Agent that (a) the Vessels are permanently registered under the Vessels' respective flag states in the ownership of their respective Owners (b) that the Mortgages will be registered with first priority against the Vessels and (c) there will be no further Encumbrances registered against the Vessels.

3.1.13

Accounts The audited consolidated accounts for the Borrower for the year ended 31 December 2005.

3.1.14

Evidence of insurance Evidence that the Vessels are insured in the manner required by the Security Documents and that letters of undertaking will be issued in the manner required by the Security Documents, together with a written opinion on the Insurances from an insurance adviser appointed by the Agent.

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3.1.15

Confirmation of class A Certificate of Confirmation of Class for hull and machinery confirming that each of the Vessels is classed with the highest class applicable to vessels of her type with a Pre-Approved Classification Society.

3.2

Conditions Subsequent The Borrower undertakes to deliver or to cause to be delivered to the Agent on, or not later than ten (10) days or such other period as the Agent may have consented to after, the first Advance Date, the following additional documents and evidence:-

3.2.1

Legal opinions Such legal opinions as the Agent on behalf of the Banks shall require pursuant to Clause 3.1.8.

3.2.2

Companies Act registrations Evidence that the prescribed particulars of the Security Documents have been delivered to the Registrar of Companies of England and Wales and any other relevant authorities within the statutory time limit.

3.2.3

Letters of undertaking Letters of undertaking in respect of the Insurances as required by the Security Documents together with copies of the relevant policies or cover notes or entry certificates duly endorsed with the interest of the Agent.

3.2.4

Evidence of Owners' title Certificates of ownership and encumbrance (or equivalent) issued by the Registrar of Ships and the Registrar of Movable Assets (or equivalent officials) of the Vessels' flag state confirming that (a) the Vessels are permanently registered under that flag in the ownership of their respective Owners (b) the Mortgages have been registered with first priority against the Vessels and (c) there are no further Encumbrances registered against the Vessels.

3.3

Conditions Precedent - Subsequent Drawings Before any Bank shall have any obligation to advance any subsequent Drawings under the Facility, the Borrower shall deliver or cause to be delivered to the order of the Agent, a Drawdown Notice, in addition to the documents and evidence referred to in Clause 3.1 where such documents and evidence have not already been delivered to and received by the Agent.

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3.4

No waiver If the Banks in their sole discretion agree to advance any part of the Facility to the Borrower before all of the documents and evidence required by Clause 3.1 or Clause 3.3 (as the case may be) have been delivered to or to the order of the Agent, the Borrower undertakes to deliver all outstanding documents and evidence to or to the order of the Agent no later than the date agreed by the Agent and the Borrower and the advance of any part of the Facility shall not be taken as a waiver of the Agent's right to require production of all the documents and evidence required by Clause 3.1 or Clause 3.3 (as the case may be).

3.5

Form and content All documents and evidence delivered to the Agent pursuant to this Clause shall:-

3.5.1

be in form and substance reasonably acceptable to the Agent;

3.5.2

be accompanied, if required by the Agent, by translations into the English language, certified in a manner acceptable to the Agent acting reasonably;

3.5.3

if required for registration purposes, be certified, notarised, legalised or attested in a manner acceptable for registration.

3.6

Event of Default No Bank shall be under any obligation to advance any part of its Commitment nor to act on any Drawdown Notice if, at the date of the Drawdown Notice or at the date on which the advance of a Drawing is requested in the Drawdown Notice, an Event of Default or Potential Event of Default shall have occurred, or if an Event of Default or Potential Event of Default would result from the advance of the Drawing in question.

4	Representations and Warranties

The Borrower represents and warrants to each of the Finance Parties at the Execution Date and (by reference to the facts and circumstances then pertaining) at the date of each Drawdown Notice, at each Advance Date and at each Interest Payment Date as follows (except that the representation and warranty contained at Clause 4.16 shall only be made on the first Advance Date and that the representation and warranty contained at Clause 4.9 shall only be made on the Execution Date) :-

4.1

Incorporation and capacity Each of the Security Parties is a body corporate duly constituted, organised and validly existing and (where applicable) in good standing under the law of its country of incorporation, in each case with perpetual corporate existence and the power to sue and be sued, to own its assets and to carry on its business, and all of the corporate shareholders (if any) of each Security Party are duly constituted and existing under the laws of their countries of incorporation with perpetual corporate existence and the power to sue and be sued, to own their assets and to carry on their business and are acting on their own account.

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4.2

Solvency None of the Security Parties is insolvent or in liquidation or administration or subject to any other insolvency procedure, and no receiver, administrative receiver, administrator, liquidator, trustee or analogous officer has been appointed in respect of any of the Security Parties. For this purpose a Security Party will be deemed insolvent if it is unable to pay its debts within the meaning of S.123 of the Insolvency Act 1986 or, as the case may be, the Spanish Insolvency Act, 22/2003.

4.3

Binding obligations The Security Documents when duly executed and delivered will constitute the legal, valid and binding obligations of the Security Parties enforceable in accordance with their respective terms subject to applicable laws regarding creditors' rights in general.

4.4

Satisfaction of conditions All acts, conditions and things required to be done and satisfied and to have happened prior to the execution and delivery of the Security Documents in order to constitute the Security Documents the legal, valid and binding obligations of the Security Parties in accordance with their respective terms have been done, satisfied and have happened in compliance with all applicable laws.

4.5

Registrations and consents With the exception only of the registrations referred to in Clauses 3.2.2 and registration in Spain of the relevant Security Documents all (if any) consents, licences, approvals and authorisations of, or registrations with or declarations to, any governmental authority, bureau or agency which may be required in connection with the execution, delivery, performance, validity or enforceability of the Security Documents have been obtained or made and remain in full force and effect and the Borrower is not aware of any event or circumstance which could reasonably be expected adversely to affect the right of any of the Security Parties to hold and/or obtain renewal of any such consents, licences, approvals or authorisations.

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4.6

Disclosure of material facts The Borrower is not aware of any material facts or circumstances which have not been disclosed to the Agent and which might, if disclosed, have reasonably been expected to adversely affect the decision of a person considering whether or not to make loan facilities of the nature contemplated by this Agreement available to the Borrower.

4.7

No material litigation Except for those matters disclosed in writing to the Agent, there is no action, suit, arbitration or administrative proceeding nor any contemplated action, suit, arbitration or administrative proceeding pending or to its knowledge about to be pursued before any court, tribunal or governmental or other authority which is not covered by adequate insurance which would, or would be likely to, have a materially adverse effect on the business or financial condition of the Borrower Group taken as a whole.

4.8

No breach of law or contract The execution, delivery and performance of the Security Documents will not contravene any contractual restriction or any law binding on any of the Security Parties or on any shareholder (whether legal or beneficial) of any of the Security Parties, or the constitutional documents of any of the Security Parties, nor result in the creation of, nor oblige any of the Security Parties to create, any Encumbrance over all or any of its assets, with the exception of the Encumbrances created by or pursuant to the Security Documents.

4.9

No deductions Except as disclosed to the Agent in writing, that to the best of their knowledge belief and without undue enquiry, none of the Security Parties is required to make any deduction or withholding from any payment which it may be obliged to make to any of the Finance Parties under or pursuant to the Security Documents.

4.10

Use of Facility The Facility will be used to refinance the Existing Indebtedness and thereafter for the general corporate purposes of the Borrower Group.

4.11

Material Adverse Change Since the publication of the Borrower's Accounts for the year ended 31 December 2005 there has been no change in the business, assets, operations or condition (financial or otherwise) of the Borrower Group taken as a whole which has had a Material Adverse Effect.

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4.12

No default None of the Security Parties is in default of its obligations under any other financing documents to which it is a party to an extent or in a manner which might have a Material Adverse Effect on the business or condition (financial or otherwise) of the Borrower Group taken as a whole and no Event of Default is continuing or might reasonably be expected to result from the advance of any Drawing.

4.13

Pari passu ranking The payment obligations of each of the Security Parties under the Security Documents to which it is a party rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies incorporated in the relevant Security Party's country of incorporation or otherwise applicable to that Security Party.

4.14

No Immunity In any proceedings taken in any of the Security Parties' respective jurisdictions of incorporation in relation to any of the Security Documents, none of the Security Parties will be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process.

4.15

Governing Law and Judgments In any proceedings taken in any of the Security Parties' jurisdiction of incorporation or organisation in relation to any of the Security Documents in which there is an express choice of the law, the submission to that jurisdiction of a particular country as the governing law thereof, that choice of law and any judgment or (if applicable) arbitral award obtained in that country will be recognised and enforced.

4.16

Validity and Admissibility in Evidence As at the date hereof, all acts, conditions and things required to be done, fulfilled and performed in order (a) to enable each of the Security Parties lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Security Documents, (b) to ensure that the obligations expressed to be assumed by each of the Security Parties in the Security Documents are legal, valid and binding and (c) to make the Security Documents admissible in evidence in the jurisdictions of incorporation or organization of each of the Security Parties, have been done, fulfilled and performed.

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4.17

No Filing or Stamp Taxes Under the laws of the Security Parties' respective jurisdictions of incorporation or organisation in force at the date hereof, it is not necessary that any of the Security Documents be filed, recorded or enrolled with any court or other authority in its jurisdiction of incorporation or organisation (other than the Registrar of Companies for England and Wales or the relevant maritime registry, to the extent applicable) or that any stamp, registration or similar tax be paid on or in relation to any of the Security Documents.

4.18

Borrower's Accounts The Borrower's Accounts for the year ending 31 December 2005 and all other annual financial statements relating to the Borrower required to be delivered under Clause 10.2.18 of this Agreement, were each prepared in accordance with GAAP, give (in conjunction with the notes thereto) a true and fair view of (in the case of annual financial statements) or fairly represent (in the case of quarterly accounts) the financial condition of the Borrower Group at the date as of which they were prepared and the results of the Borrower Group’s operations during the financial period then ended.

4.19

Ownership and Security

4.19.1

(i) The Corporate Guarantor owns (directly or indirectly) a majority of the shares in the Owners;

(ii) the Borrower owns (directly or indirectly) a majority of the shares in the Corporate Guarantor; and

(iii) Teekay Shipping Corporation owns (directly or indirectly) a majority of the limited liability company interests in the General Partner.

4.19.2

Each of the Security Parties is the legal and beneficial owner of all assets and other property which it purports to charge, mortgage, pledge, assign or otherwise secure pursuant to each Security Document and those Security Documents to which it is a party create and give rise to valid and effective Security having the ranking expressed in those Security Documents.

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4.20

Money Laundering Any amount borrowed hereunder, and the performance of the obligations of the Security Parties under the Security Documents, will be for the account of members of the Borrower Group and will not involve any breach by any of them of any law or regulatory measure relating to "money laundering" as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities.

4.21

Adverse consequences To the best of the Borrower's knowledge the execution, delivery and subsequent performance by each of the Security Parties and Finance Parties of the Security Documents will not have any adverse consequences for the Finance Parties.

4.22

Representations Limited The representation and warranties of the Borrower in this Clause 4 are subject to:

4.22.1

the principle that equitable remedies are remedies which may be granted or refused at the discretion of the court;

4.22.2

the limitation of enforcement by laws relating to bankruptcy, insolvency, liquidation, reorganisation, court schemes, moratoria, administration and other laws generally affecting or limiting the rights of creditors;

4.22.3

the time barring of claims under any applicable limitation acts;

4.22.4

the possibility that a court may strike out provisions for a contract as being invalid for reasons of oppression, undue influence or similar; and

4.22.5

any other reservations or qualifications of law expressed in any legal opinions obtained by the Agent in connection with the Facility.

5	Repayment and Prepayment

5.1

Repayment Each Drawing shall be repaid by the Borrower to the Agent on behalf of the Banks on the last day of its Interest Period unless the Borrower selects a further Interest Period for that Drawing in accordance with Clause 6, provided that the Borrower shall not be permitted to select such further Interest Period if an Event of Default or Potential Event of Default has occurred and shall then be obliged to repay such Drawing on the last day of its then current Interest Period. The Borrower shall on the Termination Date repay to the Agent as agent for the Banks all Facility Outstandings. The Borrower will cause the aggregate outstanding principal balance of Distribution Drawings to be zero for a period of at least fifteen (15) consecutive Business Days during any twelve (12) month period.

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5.2

Prepayment The Borrower may prepay the Facility Outstandings in whole or in part in integral multiples of one million Dollars ($1,000,000) (or as otherwise may be agreed by the Agent), each such prepayment to be of a minimum amount of five million Dollars ($5,000,000) on the last day of an Interest Period, provided that it has first given to the Agent not fewer than five (5) days prior written notice expiring on the last day of an Interest Period of its intention to do so. Any notice pursuant to this Clause 5.2 once given shall be irrevocable and shall oblige the Borrower to make the prepayment referred to in the notice on the last day of the Interest Period specified in the notice, together with all interest accrued on the amount prepaid up to and including that last day of the Interest Period in question.

5.3

Mandatory Prepayment If at any time the Facility Outstandings shall exceed the Maximum Facility Amount the Borrower shall immediately prepay to the Agent on behalf of the Banks such amounts as will ensure that the Facility Outstandings do not exceed the Maximum Facility Amount and shall pay to the Banks all interest accrued on the amount prepaid up to and including the date on which such prepayment occurred.

5.4

Prepayment indemnity If the Borrower shall make a prepayment on a Business Day other than the last day of an Interest Period, it shall pay to the Agent on behalf of the Banks such amount which is necessary to compensate the Banks for any Break Costs incurred by the Agent or any of the Banks as a result of the prepayment in question.

5.5

Application of prepayments Any prepayment by the Borrower in an amount less than the Indebtedness shall be applied in satisfaction or reduction first of any costs and other expenses outstanding; secondly of all interest accrued with respect to the outstanding Drawings; and thirdly of the outstanding Drawings.

5.6

Reborrowing of prepayments Any amount prepaid pursuant to this Agreement may be reborrowed in accordance with Clause 2.2.

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6	Interest

6.1

Interest Periods The period during which any Drawing shall be outstanding pursuant to this Agreement shall be divided into consecutive Interest Periods of one, three, six or twelve months' duration, as selected by the Borrower by written notice to the Agent not later than 3:00 p.m. on the fourth Business Day before the beginning of the Interest Period in question, or such other duration as may be agreed by the Banks in their discretion. No more than three one (1) month Interest Periods may be selected by the Borrower in each twelve (12) month period during the Facility Period.

6.2

Beginning and end of Interest Periods The first Interest Period in respect of each Drawing shall begin on the Advance Date of that Drawing and shall end on the last day of the Interest Period selected in accordance with Clause 6.1. Any subsequent Interest Period selected in respect of each Drawing shall commence on the day following the last day of its previous Interest Period and shall end on the last day of its current Interest Period selected in accordance with Clause 6.1. However, in respect of any Drawings outstanding on the Termination Date, the Interest Period applicable to such Drawings shall end on the Termination Date.

6.3

Interest rate During each Interest Period, interest shall accrue on each Drawing at the rate determined by the Agent to be the aggregate of (a) the Margin (b) LIBOR and (c), if applicable, the Mandatory Cost determined at or about 11.00 a.m. (London time) on the second Business Day prior to the beginning of the Interest Period relating to that Drawing.

6.4

Accrual and payment of interest During the Facility Period, interest shall accrue from day to day, shall be calculated on the basis of a 360 day year and the actual number of days elapsed (or, in any circumstance where market practice differs, in accordance with the prevailing market practice) and shall be paid by the Borrower to the Agent on behalf of the Banks on the last day of each Interest Period and additionally, during any Interest Period exceeding three months, on the last day of each successive three month period after the beginning of that Interest Period.

6.5

Ending of Interest Periods If any Interest Period would end on a day which is not a Business Day, that Interest Period shall end on the next succeeding Business Day (unless the next succeeding Business Day falls in the next calendar month, in which event the Interest Period in question shall end on the immediately preceding Business Day).

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6.6

Default Rate If an Event of Default shall occur, the whole of the Indebtedness shall, from the date of the occurrence of the Event of Default, bear interest up to the date of actual payment (both before and after judgment) at the Default Rate, compounded at such intervals as the Agent shall in its reasonable discretion determine, which interest shall be payable from time to time by the Borrower to the Agent on behalf of the Banks on demand.

6.7

Determinations conclusive Each determination of an interest rate made by the Agent in accordance with Clause 6 shall (save in the case of manifest error or on any question of law) be final and conclusive.

Fees

7.1

The Borrower shall pay to the Agent for distribution to the Banks Commitment Commission at the rate of seventeen point five basis points (17.5bps) per annum on any undrawn and uncancelled part of the Facility. The Commitment Commission will accrue from day to day on the basis of a 360 day year and the actual number of days elapsed and shall be paid quarterly in arrears from the Execution Date until the Commitment Termination Date with a pro rata payment being due and payable on the Commitment Termination Date.

7.2

The Borrower shall pay to the Agent the fees detailed in a fee letter dated on or about the date hereof made between the Borrower and the Agent.

8	Security Documents

8.1

As security for the repayment of the Indebtedness, the Borrower will execute and deliver to the Agent or cause to be executed and delivered to the Agent, on or before the first Advance Date, the following Security Documents in such forms and containing such terms and conditions as the Agent requires:-

8.1.1

the Owners Guarantee the joint and several guarantee and indemnity of each of the Owners in respect of the Borrower's Obligations;

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8.1.2

the Corporate Guarantee the guarantee and indemnity of the Corporate Guarantor in respect of the Borrower's Obligations;

8.1.3

Shares Charges a pledge of the shares of each of the Owners entered into by the Pledgor in favour of the Banks;

8.1.4

the Assignments deeds of assignment of the Earnings, Insurances, Requisition Compensation and Charter Rights executed by the Owners as security for the Owners Guarantee;

8.1.5

the Mortgages the first priority statutory ship mortgages over each of the Vessels executed by the relevant Owner and the Borrower in favour of the Banks as security for the Owners Guarantee.

9	Agency and Trust

9.1

Appointment Each of the Finance Parties appoints the Agent its agent for the purpose of administering the Facility and the Security Documents and authorises the Agent and its directors, officers, employees and agents acting on the instructions from time to time of the Majority Banks, and subject to Clauses 9.4 and 9.19, to execute the Security Documents (other than the Mortgages and the Shares Charges) on its behalf and to exercise all rights, powers, discretions and remedies vested in the Banks under or pursuant to the Security Documents, together with all powers reasonably incidental to them.

9.2

Authority Each of the Finance Parties irrevocably authorises the Agent, acting on the instructions from time to time of the Majority Banks (save where the terms of any Security Document expressly require the instructions of all of the Banks):-

9.2.1

to give or withhold any consents or approvals; and

9.2.2

to exercise, or refrain from exercising, any discretions; and

9.2.3

to collect, receive, release or pay any money;

under or pursuant to any of the Security Documents. The Agent shall have no duties or responsibilities as agent or as security trustee other than those expressly conferred on it by the Security Documents and shall not be obliged to act on any instructions if to do so would, in the opinion of the Agent, be contrary to any provision of the Security Documents or to any law, or would expose the Agent to any actual or potential liability to any third party.

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9.3

Trust The Agent agrees and declares, and each of the Banks acknowledges, that, subject to the terms and conditions of this Clause, the Agent holds the Trust Property on trust absolutely for (i) the Banks, in accordance with their respective Proportionate Shares, and (ii) any Future Swap Provider provided that such Future Swap Provider enters into a Subordination Agreement. Each of the Finance Parties agrees that the obligations, rights and benefits vested in the Agent in its capacity as security trustee shall be performed and exercised in accordance with this Clause. The Agent in its capacity as security trustee shall have the benefit of all of the provisions of this Agreement benefiting it in its capacity as agent for the Finance Parties, and all the powers and discretions conferred on trustees by the Trustee Act 1925 (to the extent not inconsistent with this Agreement). In addition:-

9.3.1

the Agent (and any attorney, agent or delegate of the Agent) may indemnify itself or himself out of the Trust Property against all liabilities, costs, fees, damages, charges, losses and expenses sustained or incurred by it or him in relation to the taking or holding of any of the Trust Property or in connection with the exercise or purported exercise of the rights, trusts, powers and discretions vested in the Agent or any other such person by or pursuant to the Security Documents or in respect of anything else done or omitted to be done in any way relating to the Security Documents other than as a result of its gross negligence or wilful misconduct; and

9.3.2

the Finance Parties acknowledge that the Agent shall be under no obligation to insure any property nor to require any other person to insure any property and shall not be responsible for any loss which may be suffered by any person as a result of the lack or insufficiency of any insurance; and

9.3.3

the Agent and the Finance Parties agree that the perpetuity period applicable to the trusts declared by this Agreement shall be the period of eighty years from the Execution Date.

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9.4

Limitations on authority Except with the prior written consent of each of the Banks, the Agent shall not be entitled to :-

9.4.1

release or vary any security given for the Borrower's obligations under this Agreement; nor

9.4.2

agree to waive the payment of any sum of money payable by any of the Security Parties under the Security Documents; nor

9.4.3

change the meaning of the expression " Majority Banks "; nor

9.4.4

exercise, or refrain from exercising, any discretion, or give or withhold any consent, the exercise or giving of which is, by the terms of this Agreement, expressly reserved to the Banks; nor

9.4.5

extend the due date for the payment of any sum of money payable by any of the Security Parties under the Security Documents; nor

9.4.6

take or refrain from taking any step if the effect of such action or inaction may lead to the increase of the obligations of a Bank under any of the Security Documents; nor

9.4.7

agree to change the currency in which any sum is payable under the Security Documents; nor

9.4.8

agree to amend this Clause 9.4; nor

9.4.9

agree to reduce the rate under the definitions of " Margin " " Commitment Commission " or " Default Rate ".

9.5

Liability Neither the Agent nor any of its directors, officers, employees or agents shall be liable to any of the other Finance Parties for anything done or omitted to be done by the Agent under or in connection with the Security Documents unless as a result of the Agent's wilful misconduct or gross negligence.

9.6

Acknowledgement Each of the Finance Parties (other than the Agent) acknowledges that:-

9.6.1

it has not relied on any representation made by the Agent or any of the Agent's directors, officers, employees or agents or by any other person acting or purporting to act on behalf of the Agent to induce it to enter into any of the Security Documents;

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9.6.2

it has made and will continue to make without reliance on the Agent, and based on such documents and other evidence as it considers appropriate, its own independent investigation of the financial condition and affairs of the Security Parties in connection with the making and continuation of the Facility;

9.6.3

it has made its own appraisal of the creditworthiness of the Security Parties;

9.6.4

the Agent shall not have any duty or responsibility at any time to provide it with any credit or other information relating to any of the Security Parties unless that information is received by the Agent pursuant to the express terms of the Security Documents.

Each of the Finance Parties (other than the Agent) agrees that it will not assert nor seek to assert against any director, officer, employee or agent of the Agent or against any other person acting or purporting to act on behalf of the Agent any claim which it might have against them in respect of any of the matters referred to in this Clause.

9.7

Limitations on responsibility The Agent shall have no responsibility to any of the Security Parties or to any of the other Finance Parties on account of:-

9.7.1

the failure of any of the Finance Parties or of any of the Security Parties to perform any of their respective obligations under the Security Documents;

9.7.2

the financial condition of any of the Security Parties;

9.7.3

the completeness or accuracy of any statements, representations or warranties made in or pursuant to any of the Security Documents, or in or pursuant to any document delivered pursuant to or in connection with any of the Security Documents;

9.7.4

the negotiation, execution, effectiveness, genuineness, validity, enforceability, admissibility in evidence or sufficiency of any of the Security Documents or of any document executed or delivered pursuant to or in connection with any of the Security Documents.

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9.8

The Agent's rights The Agent may:-

9.8.1

assume that all representations or warranties made or deemed repeated by any of the Security Parties in or pursuant to any of the Security Documents are true and complete, unless, in its capacity as the Agent, it has acquired actual knowledge to the contrary; and

9.8.2

assume that no Event of Default or Potential Event of Default has occurred unless, in its capacity as the Agent, it has acquired actual knowledge to the contrary; and

9.8.3

rely on any document or Communication believed by it to be genuine; and

9.8.4

rely as to legal or other professional matters on opinions and statements of any legal or other professional advisers selected or approved by it; and

9.8.5

rely as to any factual matters which might reasonably be expected to be within the knowledge of any of the Security Parties on a certificate signed by or on behalf of that Security Party; and

9.8.6

refrain from exercising any right, power, discretion or remedy unless and until instructed to exercise that right, power, discretion or remedy and as to the manner of its exercise by the Banks (or, where applicable, by the Majority Banks) and unless and until the Agent has received from the Banks any payment which the Agent may require on account of, or any security which the Agent may require for, any costs, claims, expenses (including legal and other professional fees) and liabilities which it considers it may incur or sustain in complying with those instructions.

9.9

The Agent's duties The Agent shall:-

9.9.1

if requested in writing to do so by a Bank, make enquiry and advise the Banks as to the performance or observance of any of the provisions of the Security Documents by any of the Security Parties or as to the existence of an Event of Default; and

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9.9.2

inform the Banks promptly of any Event of Default of which the Agent has actual knowledge.

9.10

No deemed knowledge The Agent shall not be deemed to have actual knowledge of the falsehood or incompleteness of any representation or warranty made or deemed repeated by any of the Security Parties or actual knowledge of the occurrence of any Event of Default or Potential Event of Default unless a Bank or any of the Security Parties shall have given written notice thereof to the Agent.

9.11

Other business The Agent may, without any liability to account to the Banks, generally engage in any kind of banking or trust business with any of the Security Parties or any of their respective Subsidiaries or associated companies or with a Bank as if it were not the Agent.

9.12

Indemnity The Banks shall, promptly on the Agent's request, reimburse the Agent in their respective Proportionate Shares, for, and keep the Agent fully indemnified in respect of:-

9.12.1

all amounts payable by the Borrower to the Agent pursuant to Clause 17 (other than under Clauses 17.3 and 17.4) to the extent that those amounts are not paid by the Borrower;

9.12.2

all liabilities, damages, costs and claims sustained or incurred by the Agent in connection with the Security Documents, or the performance of its duties and obligations, or the exercise of its rights, powers, discretions or remedies under or pursuant to any of the Security Documents; or in connection with any action taken or omitted by the Agent under or pursuant to any of the Security Documents, unless in any case those liabilities, damages, costs or claims arise solely from the Agent's wilful misconduct or gross negligence.

9.13

Employment of agents In performing its duties and exercising its rights, powers, discretions and remedies under or pursuant to the Security Documents, the Agent shall be entitled to employ and pay agents to do anything which the Agent is empowered to do under or pursuant to the Security Documents (including the receipt of money and documents and the payment of money) and to act or refrain from taking action in reliance on the opinion of, or advice or information obtained from, any lawyer, banker, broker, accountant, valuer or any other person believed by the Agent in good faith to be competent to give such opinion, advice or information.

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9.14

Distribution of payments The Agent shall pay promptly to the order of each of the Banks that Bank's Proportionate Share and provided that a Future Swap Provider had entered into a Subordination Agreement to a Future Swap Provider its share of every sum of money received by the Agent pursuant to the Security Documents (with the exception of any amounts payable pursuant to Clause 7 and any amounts which, by the terms of the Security Documents, are paid to the Agent for the account of the Agent alone or specifically for the account of one or more of the Finance Parties) and until so paid such amount shall be held by the Agent on trust absolutely for that Finance Party.

9.15

Reimbursement The Agent shall have no liability to pay any sum to another Party until it has itself received payment of that sum. If, however, the Agent does pay any sum to a Party on account of any amount prospectively due to it pursuant to Clause 9.14 or otherwise before it has itself received payment of that amount, and the Agent does not in fact receive payment within five Business Days after the date on which that payment was required to be made by the terms of the Security Documents, the recipient will, on demand by the Agent, refund to the Agent an amount equal to the amount received by it, together with an amount sufficient to reimburse the Agent for the cost of money for funding the amount in question during the period beginning on the date on which that amount was required to be paid by the terms of the Security Documents and ending on the date on which the Agent receives reimbursement.

9.16

Redistribution of payments Unless otherwise agreed between the Finance Parties, if at any time a Finance Party receives or recovers by way of set-off, the exercise of any lien or otherwise other than from any assignee or transferee of or sub-participant in that Bank's Commitment, an amount greater than that Bank's Proportionate Share of any sum due from any of the Security Parties under the Security Documents or in the case of a Future Swap Provider (provided that such Future Swap Provider has entered into a Subordination Agreement) an amount greater than the amount outstanding and due to any Future Swap Provider under a Master Agreement (the amount of the excess being referred to in this Clause as the " Excess Amount ") then:-

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9.16.1

that Finance Party shall promptly notify the Agent (which shall promptly notify each other Finance Party);

9.16.2

that Finance Party shall pay to the Agent an amount equal to the Excess Amount within ten days of its receipt or recovery of the Excess Amount; and

9.16.3

the Agent shall treat that payment as if it were a payment by the Security Party in question on account of the sum owed to the Finance Parties as aforesaid and shall account to the Finance Parties in respect of the Excess Amount in accordance with the provisions of this Clause.

However, if a Finance Party has commenced any Proceedings to recover sums owing to it under the Security Documents and, as a result of, or in connection with, those Proceedings has received an Excess Amount, the Agent shall not distribute any of that Excess Amount to any other Finance Party which had been notified of the Proceedings and had the legal right to, but did not, join those Proceedings or commence and diligently prosecute separate Proceedings to enforce its rights in the same or another court.

9.17

Rescission of Excess Amount If all or any part of any Excess Amount is rescinded or must otherwise be restored to any of the Security Parties or to any other third party, the Finance Parties which have received any part of that Excess Amount by way of distribution from the Agent pursuant to Clause 9.16 shall repay to the Agent for the account of the Finance Party which originally received or recovered the Excess Amount, the amount which shall be necessary to ensure that (i) all of the Banks share rateably in accordance with their Proportionate Shares and (ii) subject to any Subordination Agreement each Future Swap Provider shares in the amount of the receipt or payment retained, together with interest on that amount at a rate equivalent to that (if any) paid by the Finance Party receiving or recovering the Excess Amount to the person to whom that Finance Party is liable to make payment in respect of such amount, and Clause 9.16.3 shall apply only to the retained amount.

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9.18

Proceedings Each of the Finance Parties shall notify one another of the proposed commencement of any Proceedings under any of the Security Documents prior to their commencement. No such Proceedings may be commenced without the prior written consent of the Majority Banks.

9.19

Instructions Where the Agent is authorised or directed to act or refrain from acting in accordance with the instructions of the Banks, or of the Majority Banks where applicable, each of the Banks shall provide the Agent with instructions within seven Business Days of the Agent's written request or such shorter period as the Agent may reasonably specify. If a Bank does not provide the Agent with instructions within that period, (i) that Bank shall be bound by the decision of the Agent, (ii) that Bank shall have no vote for the purposes of this Clause and (iii) the combined Proportionate Shares of the other Banks who provided such instructions shall be deemed to contribute 100%. Nothing in this Clause shall limit the right of the Agent to take, or refrain from taking, any action without obtaining the instructions of the Banks if the Agent in its discretion considers it necessary or appropriate to take, or refrain from taking, such action in order to preserve the rights of the Banks under or in connection with the Security Documents. In that event, the Agent will notify the Banks of the action taken by it as soon as reasonably practicable, and the Banks agree to ratify any action taken by the Agent pursuant to this Clause.

9.20

Communications Any Communication under this Clause shall be given, delivered, made or served, in the case of the Agent (in its capacity as Agent or as one of the Banks), and in the case of the other Finance Parties, at the address indicated in Schedule 1 or such other addresses as shall be duly notified in writing to the Agent on behalf of the Banks.

9.21

Payments All amounts payable to a Finance Party under this Clause shall be paid to such account at such bank as that Finance Party may from time to time direct in writing to the Agent.

9.22

Retirement Subject to a successor being appointed in accordance with this Clause, the Agent may retire as agent and/or security trustee at any time without assigning any reason by giving to the Borrower and the other Finance Parties notice of its intention to do so, in which event the following shall apply:-

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9.22.1

with the consent of the Borrower, not to be unreasonably withheld, the other Finance Parties may within thirty days after the date of the Agent's notice appoint a successor to act as agent and/or security trustee or, if they fail to do so with the consent of the Borrower, not to be unreasonably withheld, the Agent may appoint any other bank or financial institution as its successor;

9.22.2

the resignation of the Agent shall take effect simultaneously with the appointment of its successor on written notice of that appointment being given to the Borrower and the other Finance Parties;

9.22.3

the Agent shall thereupon be discharged from all further obligations as agent and/or security trustee but shall remain entitled to the benefit of the provisions of this Clause;

9.22.4

the Agent's successor and each of the other parties to this Agreement shall have the same rights and obligations amongst themselves as they would have had if that successor had been a party to this Agreement.

9.23

No fiduciary relationship Except as provided in Clauses 9.3 and 9.14, the Agent shall not have any fiduciary relationship with or be deemed to be a trustee of or for any other Finance Party and nothing contained in any of the Security Documents shall constitute a partnership between any two or more Banks or between the Agent and any other Finance Party.

9.24

The Agent as a Bank The expression " the Banks " when used in the Security Documents includes the Agent in its capacity as one of the Banks. The Agent shall be entitled to exercise its rights, powers, discretions and remedies under or pursuant to the Security Documents in its capacity as one of the Banks in the same manner as any other Bank and as if it were not also the Agent.

9.25

The Agent as security trustee Unless the context otherwise requires, the expression " the Agent " when used in the Security Documents includes the Agent acting in its capacities both as agent and security trustee.

9.26

Notwithstanding the provisions of Clauses 9.1 and 9.2 the Agent shall not carry out any action or execute any document on behalf of the Banks pursuant to its rights and powers under the Security Documents until such time as the Majority Banks have authorised it to do so and each Bank has either:

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(i)

authorised the Agent to take such action or execute such document on its behalf or

(ii)

taken such action as is necessary to execute any such document.

Each of the Banks undertakes to the Agent that it will either grant such authority or execute such documents within three (3) Business Days of the Agent notifying the Banks that the Majority Banks have given such authority to the Agent. If such authorisation or execution have not been carried out within such three (3) Banking Days period the Agent shall be entitled to carry out any action or execute any document on behalf of those of the Banks that have complied with the provisions of (i) or (ii) above only, pursuant to its rights and powers under the Security Documents. For the avoidance of doubt as between the Borrower, the Agent and the Banks the Borrower shall not be concerned with the Agent's authority to act under the provisions of this Clause 9

10	Covenants

The Borrower covenants with the Finance Parties in the following terms.

10.1

Negative covenants

The Borrower will not:-

10.1.1

no third party rights without the Majority Banks' prior written consent, create or permit to arise or continue and procure that the Owners do not consent, create, or permit to arise or continue any Encumbrance on or over all or any part of the Vessels or their Earnings or Insurances or the Charters except for Permitted Liens; nor

10.1.2

no other business materially change the nature of its business as carried on at the Execution Date and shall procure that there is no material change in the nature of the business of the Borrower Group as a whole from that advised to the Agent of the date of this Agreement; nor

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10.1.3

merger or amalgamation without the prior written consent of the Majority Banks, permit any merger or amalgamation, save with another member of the Borrower Group where the Borrower is to be the only surviving entity; nor

10.1.4

no change in management permit anyone other than the Managers or a subsidiary of Teekay Shipping Corporation, the Borrower or a Subsidiary of the Borrower to be appointed as commercial or technical managers of the Vessels; nor

10.1.5

no dealings with a Master Agreement assign, novate or encumber or in any other way transfer any of its rights or obligations under a Master Agreement.

10.2

Positive covenants

10.2.1

Other information The Borrower will promptly supply to the Agent such information and explanations as the Majority Banks may from time to time reasonably require in connection with the operation of the Vessels.

10.2.2

Notification of Event of Default The Borrower will promptly upon becoming aware of the same notify the Agent in writing of the occurrence of any Event of Default and upon receipt of a written request to that effect from the Agent confirm to the Agent that save as previously notified to the Agent or as notified in such confirmation no Event of Default has occurred.

10.2.3

Pari Passu The Borrower shall ensure that its obligations under this Agreement shall at all times rank at least pari passu with all of its other present and future unsecured and unsubordinated indebtedness with the exception of any obligations which are mandatorily preferred by any applicable laws to companies generally and not by contract.

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10.2.4

Corporate Existence Save as permitted by Clause 10.1.3, the Borrower shall ensure that throughout the Facility Period each of the Security Parties shall (i) remain duly formed and validly existing under the laws of its respective jurisdiction of incorporation (ii) remain authorised to do business in the jurisdiction in which it transacts its business (iii) continue to have the power to carry on its business as it is now being conducted and to enter into and perform its obligations under the Security Documents to which it is a party and (iv) continue to comply with all applicable laws, statutory, regulatory and other requirements relative to its business, where a failure so to comply could reasonably be expected to have a Material Adverse Effect.

10.2.5

Registration of Vessels The Borrower undertakes to procure that the Owners shall maintain the registration of the Vessels under the flag indicated in Schedule 2 (or a Pre-Approved Flag or such other flag as the Majority Banks may approve in writing) for the duration of the Facility Period.

10.2.6

Evidence of current COFR The Borrower will from time to time on the request of the Agent provide the Agent with such evidence as the Agent may reasonably require that each Vessel has a valid and current Certificate of Financial Responsibility pursuant to the United States Oil Pollution Act 1990.

10.2.7

ISM Code compliance The Borrower will and will procure that the relevant Owner will:-

(a)

procure that each of the Vessels remains for the duration of the Facility Period subject to a SMS;

(b)

maintain a valid and current SMC for each of the Vessels throughout the Facility Period;

(c)

procure that each Company maintains a valid and current DOC throughout the Facility Period;

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(d)

immediately notify the Agent in writing of any withdrawal, suspension, cancellation or modification of the SMC of any Vessel or of the DOC of any Company; and

(e)

not without the prior written consent of the Agent (which will not be unreasonably withheld) change the identity of any Company to any company which is not a Subsidiary of either the Borrower or Teekay Shipping Corporation.

10.2.8

ISPS Code compliance The Borrower will and will procure that the relevant Owner will:-

(a)

procure that each of the Vessels maintains for the duration of the Facility Period a valid International Ship Security Certificate;

(b)

procure that each of the Vessels' security system and associated security equipment complies in all material respects with the applicable requirements of Chapter XI-2 of SOLAS and Part A of the ISPS Code; and

(c)

procure that an approved ship security plan is in place.

10.2.9

Classification The Borrower shall procure that the Owners shall ensure that each Vessel maintains the highest classification required for the purpose of the relevant trade of such Vessel which shall be with a Pre-Approved Classification Society or such other society as may be acceptable to the Agent, in each case, free from any overdue recommendations and conditions affecting that Vessel’s class.

10.2.10

Master Agreements The Borrower or any of its Subsidiaries may enter into an ISDA Master Agreement or similar arrangement for a notional amount not exceeding the Facility Outstandings as applicable from time to time and that ISDA Master Agreement may be designated by the Borrower as a Master Agreement for the purposes of this Facility and secured by the Security Documents provided that the relevant Future Swap Provider enters into a Subordination Agreement.

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10.2.11

Compliance with Applicable Laws The Borrower shall comply with all applicable laws to which it may be subject if a failure to do the same may have a Material Adverse Effect.

10.2.12

Inspection of records The Borrower will permit the inspection of its financial records and accounts on reasonable notice from time to time during business hours by the Agent or its nominee.

10.2.13

Information re Charters The Borrower will promptly notify the Agent of:

(i)

any termination, purported termination or threat by the Charterers to terminate either of the Charters; or

(ii)

any circumstances where a Vessel is off-hire for a period in excess of 45 consecutive days; or

(iii)

any failure of a Charterer to pay hire when due or within 10 Business Days of the due date; or

(iv)

if a Charterer shall, on three (3) consecutive occasions, pay hire at a rate that represents a reduction of twenty five per centum (25%) or more on the full rate of hire.

10.2.14

Financial covenants of the Borrower Throughout the Facility Period the Borrower shall:-

(i)

maintain an aggregate to Free Liquidity and undrawn committed revolving credit lines available to the Borrower and/or its Subsidiaries (excluding undrawn committed revolving credit lines with less than six (6) months to maturity) of not less than thirty five million Dollars ($35,000,000); and

(ii)

maintain a Tangible Net Worth of at least four hundred million Dollars ($400,000,000).

10.2.15

Financial statements The Borrower will (i) deliver to the Agent without request copies of its accounts for each financial period ending during the Facility Period, containing (amongst other things) the Borrower's consolidated profit and loss account for, and balance sheet at the end of, each such financial period, prepared in accordance with GAAP and, in the case of the annual financial statements, audited by a firm of chartered accountants (or equivalent) acceptable to the Agent:

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(a)

in the case of annual financial statements within one hundred and twenty (120) days of the end of the financial year to which they relate together with a compliance certificate in the form set out in Schedule 7; and

(b)

in the case of quarterly financial statements within ninety (90) days of the end of the financial quarter to which they relate

together with a compliance certificate in the form set out in Schedule 7 and such financial statements shall accurately and fairly represent the financial condition of the Borrower Group. Such financial statements may be provided in electronic form at the Borrower's option.

10.2.16

Further financial information The Borrower shall provide such further financial or other information as the Agent may reasonably request.

10.2.17

Inspection of Property The Borrower will, after the occurrence and during the continuance of an Event of Default or a Potential Event of Default, permit the Agent to inspect any property owned by it on reasonable notice from the Agent.

10.2.18

Notification The Borrower will notify the Agent in writing of any Proceedings brought against it or its Subsidiaries where the same may, if adversely determined, have a Material Adverse Effect.

10.2.19

Environmental Laws The Borrower shall ensure that the Owners comply in all material respects with any applicable Environmental Laws.

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10.2.20

Borrower Listing The Borrower shall remain listed on a recognised stock exchange throughout the Facility Period.

10.2.21

Insurances The Borrower shall procure that the Owners comply with the requirements to insure and maintain the Vessels set out in the respective Deeds of Assignment.

10.2.22

Payment of Taxes The Borrower shall pay, or shall procure that the Owners shall pay, all Taxes and other obligations due in respect of the Vessels or the Indebtedness.

11	Earnings

11.1

Remittance of Earnings Immediately upon the occurrence of an Event of Default which is continued unremedied or unwaived, the Borrower shall procure that all Earnings and any Requisition Compensation are paid to the Earnings Account (to be opened in the joint names of the Owners with the Account Holder following the occurrence of an Event of Default) or to such other account(s) as the Agent shall from time to time specify by notice in writing to the Borrower.

11.2

Earnings Account The Borrower shall procure that following the occurrence of an Event of Default which is continued unremedied or unwaived, the Owners shall maintain the Earnings Account with the Earnings Account Holder for the duration of the remainder of the Facility Period free of Encumbrances and rights of set off other than those created by or under the Finance Documents.

12	Events Of Default

12.1

The Agent's rights If any of the events set out in Clause 12.2 occurs, the Agent may at its discretion (and, on the instructions of the Majority Banks, will):

12.1.1

by notice to the Borrower declare the Banks to be under no further obligation to the Borrower under or pursuant to this Agreement and may (and, on the instructions of the Majority Banks, will) declare all or any part of the Indebtedness (including such unpaid interest as shall have accrued and any Break Costs incurred by the Finance Parties) to be immediately payable, whereupon the Indebtedness (or the part of the Indebtedness referred to in the Agent's notice) shall immediately become due and payable without any further demand or notice of any kind; and/or

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12.1.2

declare that any undrawn portion of the Facility shall be cancelled, whereupon the same shall be cancelled and the corresponding Commitment of each Bank shall be reduced to zero; and/or

12.1.3

exercise any rights and remedies in existence or arising under the Security Documents.

12.2

Events of Default The events referred to in Clause 12.1 are:-

12.2.1

payment default if

(a)

the Borrower defaults in the payment of any part of the Indebtedness when due PROVIDED ALWAYS that if the Borrower can demonstrate to the reasonable satisfaction of the Agent that they have given all necessary instructions to effect payment and the non-receipt thereof is attributable to an error in the banking system, such Event of Default shall only occur five (5) Business Days after such payment fell due; or

(b)

A Security Party fails to pay any other amount due from it under a Security Document and such failure continues unremedied for five (5) Business Days or, in the case of sums payable on demand, eight (8) Business Days, after such demand has been duly made on the relevant Security Party; or

12.2.2

other default if any of the Security Parties fails to observe or perform any of the covenants, conditions, undertakings, agreements or obligations on its part contained in any of the Security Documents or shall in any other way be in breach of or do or cause to be done any act repudiating or evidencing an intention to repudiate any of the Security Documents and such default (if in the reasonable opinion of the Majority Banks capable of remedy) is not remedied within twenty one (21) days after notice of the default has been given to the Borrower PROVIDED ALWAYS that any breach of (i) a financial covenant set out in Clause 10.2.17 or (ii) the change of management covenant set out in Clause 10.1.4 shall constitute an immediate Event of Default; or

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12.2.3

misrepresentation or breach of warranty if any representation, warranty or statement made, deemed to be made, or repeated under any of the Security Documents or in any accounts, certificate, notice instrument, written statement or opinion delivered by a Security Party under or in connection with any Security Document is incorrect or misleading in any material respect when made, deemed to be made or repeated and gives rise to a Material Adverse Effect; or

12.2.4

execution if a distress or execution or other process of a court or authority is levied on any of the property of any of the Security Parties before or after final judgment or by order of any competent court or authority for an amount in excess of ten million Dollars ($10,000,000) (in the case of the Owners), twenty five million Dollars ($25,000,000) (in the case of the Corporate Guarantor) or fifty million Dollars ($50,000,000) (in the case of the Borrower) or its equivalent in any other currency and is not satisfied or stayed (with a view to being contested in good faith) within thirty days of levy or any other applicable cure period (if longer); or

12.2.5

insolvency events if any of the Security Parties or their Subsidiaries:-

(a)

resolves to appoint, or applies for, or consents to the appointment of, a receiver, administrative receiver, trustee, administrator or liquidator of itself or of all or part of its assets other than for the purposes of a merger or amalgamation approved pursuant to Clause 10.1.3; or

(b)

is unable or admits its inability to pay its debts as they fall due; or

(c)

makes a general assignment for the benefit of creditors; or

(d)

ceases trading or threatens to cease trading; or

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(e)

has appointed an Inspector under the Companies Act 1985 or any statutory provision which the Agent in its discretion considers analogous thereto; or

12.2.6

insolvency proceedings if any proceedings are commenced or threatened, or any order or judgment is given by any court, for the bankruptcy, liquidation, winding up, administration or re-organisation of any of the Security Parties or a Material Subsidiary or for the appointment of a receiver, administrative receiver, administrator, liquidator or trustee of any of the Security Parties or a Material Subsidiary or of all or any material part of the assets of any of the Security Parties or a Material Subsidiary or if any person appoints or purports to appoint such receiver, administrative receiver, administrator, liquidator or trustee which proceeding is not discharged within thirty (30) days of its commencement; or

12.2.7

impossibility or illegality unless covered by Clause 15.7, if any event occurs which would, or would with the passage of time, render performance of any of the Security Documents impossible, unlawful or unenforceable by the Banks or the Agent and such illegality is not remedied or mitigated to the satisfaction of the Agent within 30 days after it has given notice thereof to the relevant Security Party; or

12.2.8

conditions subsequent if any of the conditions set out in Clause 3.2 is not satisfied within the time reasonably required by the Agent; or

12.2.9

revocation or modification of consents etc. if any material consent, licence, approval or authorisation which is now or which at any time during the Facility Period becomes necessary to enable any of the Security Parties to comply with any of their obligations in or pursuant to any of the Security Documents is revoked, withdrawn or withheld, or modified in a manner which the Agent reasonably considers is, or may be, prejudicial to the interests of the Banks in a material manner, or any material consent, licence, approval or authorisation ceases to remain in full force and effect; or

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12.2.10

curtailment of business if the business of any of the Security Parties is wholly or materially curtailed by any intervention by or under authority of any government, or if all or a substantial part of the undertaking, property or assets of any of the Security Parties is seized, nationalised, expropriated or compulsorily acquired by or under authority of any government or any Security Party disposes or threatens to dispose of a substantial part of its business or assets; or

12.2.11

acceleration of other indebtedness if any other indebtedness or obligation for borrowed money of any of the Security Parties becomes due prior to its stated maturity by reason of default on the part of that Security Party, or is not repaid or satisfied on the due date for its repayment (or within any applicable grace period) or any such other loan, guarantee or indebtedness becomes enforceable save for amounts of less than ten million Dollars ($10,000,000) (in the case of the Owners), twenty five million Dollars ($25,000,000) (in the case of the Corporate Guarantor) or fifty million Dollars ($50,000,000) (in the case of the Borrower) in aggregate, or its equivalent in any other currency; or

12.2.12

reduction of capital If any of the Security Parties reduces its authorised or issued or subscribed capital; or

12.2.13

challenge to registration if the registration of any Vessel or any Mortgage becomes void or voidable or liable to cancellation or termination; or

12.2.14

war if the country of registration of any Vessel becomes involved in war (whether or not declared) or civil war or is occupied by any other power and the Agent reasonably considers that, as a result, the security conferred by the Security Documents is materially prejudiced; or

12.2.15

notice of termination if the Corporate Guarantor gives notice to the Agent to determine its obligations under its Corporate Guarantee or either Owner gives notice to the Agent to determine its obligations under the Owners Guarantee; or

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12.2.16

material adverse change etc. if at any time there shall occur a change in the business or operations of a Security Party or a change in the financial condition of any Security Party which, in the reasonable opinion of the Majority Banks, materially impairs such Security Party's ability to discharge its obligations under the Security Documents to which it is a party in the manner provided therein and such change, if capable of remedy, is not so remedied within 15 Business Days of the delivery of a notice confirming such change by the Agent to the relevant Security Party; or

12.2.17

final judgements if any of the Security Parties fails to comply with any non appealable court order or fails to pay a final unappealable judgment against it, in either case, in excess of ten million Dollars ($10,000,000) (in the case of the Owners), twenty five million Dollars ($25,000,000) in the case of the Corporate Guarantor or fifty million Dollars ($50,000,000) (in the case of the Borrower) which remains unsettled for fourteen (14) days; or

12.2.18

loss of stock market listing if the Borrower ceases to be listed on a recognised stock exchange; or

12.2.19

similar event any event occurs which, under the laws of any jurisdiction, has a similar or analogous effect to any of those events mentioned in Clauses 12.2.4, 12.2.5 and 12.2.6; or

12.2.20

environmental matters

(a)

any Environmental Claim is pending or made against an Owner or any of the Owner's Environmental Affiliates or in connection with a Vessel, where such Environmental Claim has a Material Adverse Effect;

(b)

any actual Environmental Incident occurs in connection with a Vessel, where such Environmental Incident has a Material Adverse Effect; or

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12.2.21

repudiation any Security Party repudiates any Security Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate any such Security Documents; or

12.2.22

Change of Control a Change of Control occurs in relation to any of the Owners, the Corporate Guarantor or the General Partner; or

12.2.23

termination of a Charter if (a) either of the Owners is in material breach of the Charter relative to its Vessel such that a right of the Charterer to terminate or treat as repudiated that Charter has arisen or (b) either of the Charters is terminated by the Charterers (save where a Charterer has exercised its contractual rights to early termination under a Charter and made any corresponding payments); or

12.2.24

insurances and class if the Owners fail to comply with the Insurance obligations outlined in the relevant Deed of Assignment or a Vessel has its classification withdrawn by the relevant Classification Society PROVIDED THAT if such breach is (in the opinion of the Agent in its absolute discretion) capable of remedy such Event of Default shall only occur if the breach is not remedied to the satisfaction of the Agent within twenty one (21) days.

12.3

Events of Default in the Mortgage In the event of there being any conflict between the Events of Default listed in this Clause 12 and the events listed in Clause 5.1.1 of the Mortgages the Events of Default listed in this Clause 12 shall prevail.

13	Application of Monies

13.1

Master Agreement rights The rights conferred on a Future Swap Provider by this Clause 13 shall be in addition to, and without prejudice to or limitation of, the rights of netting and set off conferred on such Future Swap Provider by the relevant Master Agreement.

13.2

Application Whilst an Event of Default is continuing unremedied or unwaived, the Borrower irrevocably authorises the Agent to apply all sums which the Agent may receive:-

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13.2.1

pursuant to a sale or other disposition of a Vessel or any right, title or interest in a Vessel; or

13.2.2

by way of payment to the Agent of any sum in respect of the Insurances, Earnings or Requisition Compensation of a Vessel; or

13.2.3

otherwise arising under or in connection with any of the Security Documents

in or towards satisfaction, or by way of retention on account, of the Indebtedness, in such manner as the Agent may in its discretion determine PROVIDED THAT any part of the Indebtedness arising out of a Master Agreement shall be satisfied only after every other part of the Indebtedness for the time being due and payable has been satisfied in full.

14	Assignment and Sub-Participation

14.1

Right to assign Subject always to the provisions of clause 14.7 each of the Banks may assign or transfer to any other bank or financial institution all or any of its rights under or pursuant to the Security Documents or assign or grant sub-participations in all or any part of its Commitment provided that each such assignment, transfer or sub-participation shall (unless the assignment transfer or sub-participation is to another Bank or an affiliate of a Bank) be in a minimum amount of five million Dollars ($5,000,000) and with the prior written consent of the Borrower (which shall not be unreasonably withheld and which shall be deemed given if no response shall be received within ten (10) Business Days of a request or at any time whilst an Event of Default is in existence).

14.2

Borrower's co-operation The Borrower will co-operate fully and will procure that the other Security Parties co-operate fully with the Banks in connection with any assignment, transfer or sub-participation pursuant to Clause 14.1; will execute and procure the execution of such documents as the Banks may require in connection therewith; and irrevocably authorise each of the Finance Parties to disclose to any proposed assignee, transferee or sub-participant (whether before or after any assignment, transfer or sub-participation and whether or not any assignment, transfer or sub-participation shall take place) all information relating to the Security Parties, the Facility or the Security Documents which each such Finance Party may in its discretion consider necessary or desirable (subject to any duties of confidentiality applicable to the Banks generally).

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14.3

Rights of assignee Any assignee or transferee of a Bank shall (unless limited by the express terms of the assignment or transfer) take the full benefit of every provision of the Security Documents benefiting that Bank.

14.4

Transfer Certificates If any Bank wishes to transfer all or any of its Commitment as contemplated in Clause 14.1 then such transfer may be effected by the delivery to the Agent of a duly completed and duly executed Transfer Certificate in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth Business Day after the date of delivery of such Transfer Certificate to the Agent:

14.4.1

to the extent that in such Transfer Certificate the Bank which is a party thereto seeks to transfer its Commitment in whole, the Borrower and such Bank shall be released from further obligations towards each other under this Agreement and their respective rights against each other shall be cancelled other than existing claims against such Bank for breach of this Agreement (such rights, benefits and obligations being referred to in this Clause 14.4 as " discharged rights and obligations ");

14.4.2

the Borrower and the Transferee which is a party thereto shall assume obligations towards each other and/or acquire rights against each other which differ from such discharged rights and obligations only insofar as the Borrower and such Transferee have assumed and/or acquired the same in place of the Borrower and such Bank;

14.4.3

the Finance Parties and the Transferee shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party to this Agreement as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer; and

14.4.4

the Transferee shall pay to the Agent a transfer fee of four thousand Dollars ($4,000). Subject to the provision of Clause 17.3, any expense incurred in connection with any Spanish registration requirements resulting from any such assignment or transfer, including but not limited to any registration requirements in respect of the Mortgages and any legal fees, notarial fees and other registration taxes and fees) shall be for the cost of the Transferee.

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14.5

Power of Attorney In order to give effect to each Transfer Certificate the Finance Parties and the Borrower each hereby irrevocably and unconditionally appoint the Agent as its true and lawful attorney and/or irrevocably authorise with full power to execute on their respective behalves each Transfer Certificate delivered to the Agent pursuant to Clause 14.4 without the Agent being under any obligation to take any further instructions from or give any prior notice to, any of the Finance Parties or, subject to the Borrower's rights under Clause 14.1, the Borrower before doing so and the Agent shall so execute each such Transfer Certificate on behalf of the other Finance Parties and the Borrower immediately on their receipt of the same pursuant to Clause 14.4.

14.6

Notification The Agent shall promptly notify the other Finance Parties, the Transferee and the Borrower on the execution by it of any Transfer Certificate together with details of the amount transferred, the Transfer Date and the parties to such transfer.

14.7

Transfer of the Loan Agreement by KfW . Notwithstanding the provisions of Clause 14.1 KfW may transfer all its rights and obligations under this Agreement to a KfW Subsidiary with effect from 1 January 2008 or any later date. By signing this Agreement the Borrower consents to such a transfer. KfW or the KfW Subsidiary will inform the Borrower of the date on which the transfer of KfW’s rights and obligations to the KfW Subsidiary takes effect. In this connection the following will apply:

14.7.1

Deductions and Increased costs. If, by reason of circumstances already existing at the transfer date, the Borrower would be obliged to make a payment to the KfW Subsidiary under Clauses 15.2, 15.3 or 15.6, it need pay the KfW Subsidary only such an amount as it would have been obliged to pay KfW if the transfer had not occurred.

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14.7.2

Costs . KfW will pay all costs incurred as a result of or in connection with such transfer.

For the purposes of this Clause KfW Subsidiary means a company which within the meaning of section 15 ff. German Stock Corporation Act ( Aktiengesetz ) is directly or indirectly (i) majority owned ( im Mehrheitsbesitz ) by KfW or (ii) controlled ( abh’ngig ) by KfW.

14.8

Disclosure of information . In connection with any transfer under Clause 14.7 KfW may disclose confidential information to the KfW Subsidiary or its agents or its legal advisors.

14.9

Mitigation If a transfer is to take place under Clause 14.7 then, without in any way limiting the rights of KfW under Clauses 15.2, 15.3 or 15.6, KfW shall take reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to Clauses 15.2, 15.3 or 15.6 and it shall co-operate in completing any procedural formalities necessary for the Borrower to obtain authorisation to make any payment under Clauses 15.2, 15.3 and 15.6 without a deduction or withholding.

15	Payments, Mandatory Prepayment, Reserve Requirements and Illegality

15.1

Payments All amounts payable by the Borrower under or pursuant to any of the Security Documents shall be paid to such accounts at such banks as the Agent may from time to time direct to the Borrower and shall be paid in Dollars in same day funds (or such funds as are required by the authorities in the United States of America for settlement of international payments for immediate value). Payments shall be deemed to have been received by the Agent on the date on which the Agent receives authenticated advice of receipt, unless that advice is received by the Agent on a day other than a Business Day or at a time of day (whether on a Business Day or not) when the Agent in its reasonable discretion considers that it is impossible or impracticable for the Agent to utilise the amount received for value that same day, in which event the payment in question shall be deemed to have been received by the Agent on the Business Day next following the date of receipt of advice by the Agent.

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15.2

No deductions or withholdings All payments (whether of principal or interest or otherwise) to be made by the Borrower pursuant to the Security Documents shall, subject only to Clause 15.3, be made free and clear of and without deduction for or on account of any Taxes or other deductions, withholdings, restrictions, conditions or counterclaims of any nature, and the Borrower will not claim any equity in respect of any payment due from it to the Banks or to the Agent under or in relation to any of the Security Documents.

15.3

Grossing-up If at any time any law requires (or is interpreted to require) the Borrower to make any deduction or withholding from any payment, or to change the rate or manner in which any required deduction or withholding is made, the Borrower will promptly notify the Agent and, simultaneously with making that payment, will pay to the Agent whatever additional amount (after taking into account any additional Taxes on, or deductions or withholdings from, or restrictions or conditions on, that additional amount) is necessary to ensure that, after making the deduction or withholding, the Agent and the Banks receive a net sum equal to the sum which they would have received had no deduction or withholding been made.

15.4

Evidence of deductions If at any time the Borrower is required by law to make any deduction or withholding from any payment to be made by it pursuant to any of the Security Documents, the Borrower will pay the amount required to be deducted or withheld to the relevant authority within the time allowed under the applicable law and will, no later than thirty days after making that payment, deliver to the Agent an original receipt issued by the relevant authority, or other evidence reasonably acceptable to the Agent, evidencing the payment to that authority of all amounts required to be deducted or withheld. If the Borrower makes any deduction or withholding from any payment under or pursuant to any of the Security Documents, and a Bank subsequently receives a refund or allowance from any tax authority which that Bank at its sole discretion identifies as being referable to that deduction or withholding, that Bank shall, as soon as reasonably practicable, pay to the Borrower an amount equal to the amount of the refund or allowance received, if and to the extent that it may do so without prejudicing its right to retain that refund or allowance and without putting itself in any worse financial position than that in which it would have been had the deduction or withholding not been required to have been made. Nothing in this Clause shall be interpreted as imposing any obligation on any Bank to apply for any refund or allowance nor as restricting in any way the manner in which any Bank organises its tax affairs, nor as imposing on any Bank any obligation to disclose to the Borrower any information regarding its tax affairs or tax computations. All costs and expenses incurred by any Bank in obtaining or seeking to obtain a refund or allowance from any tax authority pursuant to this Clause shall be for the Borrower's account.

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15.5

Adjustment of due dates If any payment to be made under any of the Security Documents, other than a payment of interest on the Facility (to which Clause 6.5 applies), shall be due on a day which is not a Business Day, that payment shall be made on the next succeeding Business Day (unless the next succeeding Business Day falls in the next calendar month in which event the payment shall be made on the next preceding Business Day). Any such variation of time shall be taken into account in computing any interest in respect of that payment.

15.6

Change in law If, by reason of the introduction of any law, or any change in any law, or the interpretation or administration of any law, or in compliance with any request or requirement from any central bank or any fiscal, monetary or other authority:-

15.6.1

any Finance Party (or the holding company of any Finance Party) shall be subject to any Tax with respect to payments of all or any part of the Indebtedness; or

15.6.2

the basis of Taxation of payments to any Finance Party in respect of all or any part of the Indebtedness shall be changed; or

15.6.3

any reserve requirements shall be imposed, modified or deemed applicable against assets held by or deposits in or for the account of or loans by any branch of any Finance Party or its direct or indirect holding company; or

15.6.4

any ratio (whether cash, capital adequacy, liquidity or otherwise) which any Finance Party or its direct or indirect holding company is required or requested to maintain shall be affected; or

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15.6.5

there is imposed on any Finance Party (or on the direct or indirect holding company of any Finance Party) any other condition in relation to the Indebtedness or the Security Documents;

and the result of any of the above shall be to increase the cost to any Bank (or to the direct or indirect holding company of any Bank) of that Bank making or maintaining its Commitment or its Drawing, or to cause any Finance Party to suffer (in its reasonable opinion) a material reduction in the rate of return on its overall capital below the level which it reasonably anticipated at the Execution Date and which it would have been able to achieve but for its entering into this Agreement and/or performing its obligations under this Agreement, the Finance Party affected shall notify the Agent and, on demand to the Borrower by the Agent, the Borrower shall from time to time pay to the Agent for the account of the Finance Party affected the amount which shall compensate that Finance Party or the Agent (or the relevant holding company) for such additional cost or reduced return. A certificate signed by an authorised signatory of the Agent or of the Finance Party affected setting out the amount of that payment and the basis of its calculation shall be submitted to the Borrower and shall be conclusive evidence of such amount save for manifest error or on any question of law.

15.7

Illegality and impracticality Notwithstanding anything contained in the Security Documents, the obligations of a Bank to advance or maintain its Commitment shall terminate in the event that a change in any law or in the interpretation of any law by any authority charged with its administration shall make it unlawful for that Bank to advance or maintain its Commitment. In such event the Bank affected shall notify the Agent and the Agent shall, by written notice to the Borrower, declare that Bank's obligations to be immediately terminated. If all or any part of the Facility shall have been advanced by the Banks to the Borrower the portion of the Indebtedness (including all accrued interest) advanced by the Bank so affected shall be prepaid within thirty days from the date of such notice, or sooner if illegality is determined. Clause 5.4 shall apply to that prepayment if it is made on a day other than the last day of an Interest Period. During that period, the affected Bank shall negotiate in good faith with the Borrower to find an alternative method or lending base in order to maintain the Facility.

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15.8

Changes in market circumstances If at any time a Bank determines (which determination shall be final and conclusive and binding on the Borrower) that, by reason of changes affecting the London Interbank market, adequate and fair means do not exist for ascertaining the rate of interest on the Facility or any part thereof pursuant to this Agreement:-

15.8.1

that Bank shall give notice to the Agent and the Agent shall give notice to the Borrower of the occurrence of such event; and

15.8.2

the Agent shall as soon as reasonably practicable certify to the Borrower in writing the effective cost to that Bank of maintaining its Commitment for such further period as shall be selected by that Bank and the rate of interest payable by the Borrower for that period; or, if that is not acceptable to the Borrower,

15.8.3

the Agent in accordance with instructions from that Bank and subject to that Bank's approval of any agreement between the Agent and the Borrower, will negotiate with the Borrower in good faith with a view to modifying this Agreement to provide a substitute basis for that Bank’s Commitment which is financially a substantial equivalent to the basis provided for in this Agreement.

If, within thirty days of the giving of the notice referred to in Clause 15.8.1, the Borrower and the Agent fail to agree in writing on a substitute basis for such Bank’s Commitment the Borrower will immediately prepay the amount of such Bank’s Commitment and the Maximum Facility Amount will automatically decrease by the amount of such Commitment and such decrease shall not be reversed. Clause 5.4 shall apply to that prepayment if it is made on a day other than the last day of an Interest Period.

15.9

Non-availability of currency If a Bank is for any reason unable to obtain Dollars in the London Interbank market and is, as a result, or as a result of any other contingency affecting the London Interbank market, unable to advance or maintain its Commitment in Dollars, that Bank shall give notice to the Agent and the Agent shall give notice to the Borrower and that Bank's obligations to make the Facility available shall immediately cease. In that event, if all or any part of the Facility shall have been advanced by that Bank to the Borrower, the Agent in accordance with instructions from that Bank and subject to that Bank's approval of any agreement between the Agent and the Borrower, will negotiate with the Borrower in good faith with a view to establishing a mutually acceptable basis for funding the Facility or relevant part thereof from an alternative source. If the Agent and the Borrower have failed to agree in writing on a basis for funding the Facility or relevant part thereof from an alternative source by 11.00 a.m. on the second Business Day prior to the end of the then current relevant Interest Period, the Borrower will (without prejudice to its other obligations under or pursuant to this Agreement, including, without limitation, its obligation to pay interest on the Facility, arising on the expiry of the then relevant Interest Period) prepay the Indebtedness (or relevant part thereof) to the Agent on behalf of that Bank on the expiry of the then current relevant Interest Period.

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16	Communications

16.1

Method Except for Communications pursuant to Clause 9, which shall be made or given in accordance with Clause 9.20, any Communication may be given, delivered, made or served (as the case may be) under or in relation to this Agreement by letter or fax and shall be in the English language and sent addressed:-

16.1.1

in the case of any of the Finance Parties to the Agent at its address at the head of this Agreement (fax no:+44 20 7767 7324) marked for the attention of: the Agency Department; and

16.1.2

in the case of the Borrower to the Communications Address;

or to such other address or fax number as the Agent or the Borrower may designate for themselves by written notice to the others.

16.2

Timing A Communication shall be deemed to have been duly given, delivered, made or served to or on, and received by a party to this Agreement:-

16.2.1

in the case of a fax when the sender receives one or more transmission reports showing the whole of the Communication to have been transmitted to the correct fax number;

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16.2.2

if delivered to an officer of the relevant party or (in the case of the Borrower) left at the Communications Address at the time of delivery or leaving; or

16.2.3

if posted, at 9.00 a.m. on the fifth Business Day after posting by prepaid first class post. PROVIDED ALWAYS that Communications to the Agent and (to the extent that they relate to the matters specified in Clause 9.4 only) the Banks shall be effective only upon receipt.

Any Communication by fax shall be promptly confirmed in writing by post or hand delivery.

17	General Indemnities

17.1

Currency In the event of any Finance Party receiving or recovering any amount payable under any of the Security Documents in a currency other than the Currency of Account, and if the amount received or recovered is insufficient when converted into the Currency of Account at the date of receipt to satisfy in full the amount due, the Borrower shall, on the Agent's written demand, pay to the Agent such further amount in the Currency of Account as is sufficient to satisfy in full the amount due and that further amount shall be due to the Agent on behalf of the Finance Parties as a separate debt under this Agreement.

17.2

Costs and expenses The Borrower will, within fourteen (14) days of the Agent's written demand, reimburse the Agent (on behalf of each of the Finance Parties) for all reasonable out of pocket expenses including internal and external legal costs (including stamp duty, Value Added Tax or any similar or replacement tax if applicable) of and incidental to:-

17.2.1

the negotiation, syndication, preparation, execution and registration of the Security Documents (whether or not any of the Security Documents are actually executed or registered and whether or not all or any part of the Facility is advanced);

17.2.2

any amendments, addenda or supplements to any of the Security Documents (whether or not completed);

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17.2.3

any other documents which may at any time be required by any Finance Party to give effect to any of the Security Documents or which any Finance Party is entitled to call for or obtain pursuant to any of the Security Documents; and

17.2.4

the exercise of the rights, powers, discretions and remedies of the Finance Parties under or pursuant to the Security Documents.

17.3

Events of Default The Borrower shall indemnify the Finance Parties from time to time on demand against all losses and costs incurred or sustained by any Finance Party as a consequence of any Event of Default, including (without limitation) any Break Costs and any costs of assignment of transfer (as envisaged by Clause 14.4.4) following and during the continuance of an Event of Default.

17.4

Funding costs The Borrower shall indemnify the Finance Parties from time to time on demand against all losses and costs incurred or sustained by any Finance Party if, for any reason due to a default or other action by the Borrower, any Drawing is not advanced to the Borrower after the relevant Drawdown Notice has been given to the Agent, or is advanced on a date other than that requested in the Drawdown Notice, including (without limitation) any Break Costs.

17.5

Protection and enforcement The Borrower shall indemnify the Finance Parties from time to time on demand against all losses, costs and liabilities which any Finance Party may from time to time sustain, incur or become liable for in or about the protection, maintenance or enforcement of the rights conferred on the Finance Parties by the Security Documents or in or about the exercise or purported exercise by the Finance Parties of any of the rights, powers, discretions or remedies vested in them under or arising out of the Security Documents, including (without limitation) any losses, costs and liabilities which any Finance Party may from time to time sustain, incur or become liable for by reason of any Finance Party being mortgagees of any Vessel, assignees of any Mortgage and/or a lender to the Borrower, or by reason of any Finance Party being deemed by any court or authority to be an operator or controller, or in any way concerned in the operation or control, of any Vessel. No such indemnity will be given to a Finance Party where any such loss, cost or liability has occurred due to gross negligence or wilful misconduct on the part of that Finance Party; however this shall not affect the right of any other Finance Party to receive any such indemnity.

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17.6

Liabilities of Finance Parties The Borrower will from time to time reimburse the Finance Parties on demand for all sums which any Finance Party may pay on account of any of the Security Parties or in connection with any Vessel (whether alone or jointly or jointly and severally with any other person) including (without limitation) all sums which any Finance Party may pay or guarantees which any Finance Party may give in respect of the Insurances, any expenses incurred by any Finance Party in connection with the maintenance or repair of any Vessel or in discharging any lien, bond or other claim relating in any way to any Vessel, and any sums which any Finance Party may pay or guarantees which they may give to procure the release of any Vessel from arrest or detention.

17.7

Taxes The Borrower shall pay all Taxes to which all or any part of the Indebtedness or any of the Security Documents may be at any time subject and shall indemnify the Finance Parties on demand against all liabilities, costs, claims and expenses incurred in connection therewith, including but not limited to any such liabilities, costs, claims and expenses resulting from any omission to pay or delay in paying any such Taxes. The indemnity contained in this Clause shall survive the repayment of the Indebtedness.

18	Miscellaneous

18.1

Waivers No failure or delay on the part of any Finance Party in exercising any right, power, discretion or remedy under or pursuant to any of the Security Documents, nor any actual or alleged course of dealing between any Finance Party and any of the Security Parties, shall operate as a waiver of, or acquiescence in, any default on the part of any Security Party, unless expressly agreed to do so in writing by the Agent, nor shall any single or partial exercise by any Finance Party of any right, power, discretion or remedy preclude any other or further exercise of that right, power, discretion or remedy, or the exercise by a Finance Party of any other right, power, discretion or remedy.

18.2

No oral variations No variation or amendment of any of the Security Documents shall be valid unless in writing and signed on behalf of the Agent and the relevant Security Party.

18.3

Severability If at any time any provision of any of the Security Documents is invalid, illegal or unenforceable in any respect that provision shall be severed from the remainder and the validity, legality and enforceability of the remaining provisions shall not be affected or impaired in any way.

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18.4

Successors etc. The Security Documents shall be binding on the Security Parties and on their successors and permitted transferees and assignees, and shall inure to the benefit of the Finance Parties and their respective successors, transferees and assignees. The Borrower may not assign or transfer any of its rights or duties under or pursuant to any of the Security Documents without the prior written consent of the Banks.

18.5

Further assurance If any provision of the Security Documents shall be invalid or unenforceable in whole or in part by reason of any present or future law or any decision of any court, or if the documents at any time held by the Finance Parties on their behalf are considered by the Banks for any reason insufficient to carry out the terms of this Agreement, then from time to time the Borrower will promptly, on demand by the Agent, execute or procure the execution of such further documents as in the reasonable opinion of the Banks are necessary to provide adequate security for the repayment of the Indebtedness.

18.6

Other arrangements The Finance Parties may, without prejudice to their rights under or pursuant to the Security Documents, at any time and from time to time, on such terms and conditions as they may in their discretion determine, and without notice to the Borrower, grant time or other indulgence to, or compound with, any other person liable (actually or contingently) to the Finance Parties or any of them in respect of all or any part of the Indebtedness, and may release or renew negotiable instruments and take and release securities and hold funds on realisation or suspense account without affecting the liabilities of the Borrower or the rights of the Finance Parties under or pursuant to the Security Documents.

18.7

Advisers The Borrower irrevocably authorises the Agent, at any time and from time to time during the Facility Period, to consult insurance advisers on any matters relating to the Insurances, including, without limitation, the collection of insurance claims, and from time to time to consult or retain advisers or consultants to monitor or advise on any other claims relating to the Vessels. The Borrower will provide such advisers and consultants with all information and documents which they may from time to time reasonably require and will reimburse the Agent on demand for all reasonable costs and expenses incurred by the Agent in connection with the consultation or retention of such advisers or consultants.

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18.8

Delegation The Finance Parties may at any time and from time to time delegate to any person any of their rights, powers, discretions and remedies pursuant to the Security Documents, other than rights relating to actions to be taken by the Majority Banks or the Banks as a group on such terms as they may consider appropriate (including the power to sub-delegate).

18.9

Rights etc. cumulative Every right, power, discretion and remedy conferred on the Finance Parties under or pursuant to the Security Documents shall be cumulative and in addition to every other right, power, discretion or remedy to which they may at any time be entitled by law or in equity. The Finance Parties may exercise each of their rights, powers, discretions and remedies as often and in such order as they deem appropriate subject to obtaining the prior written consent of the Majority Banks. The exercise or the beginning of the exercise of any right, power, discretion or remedy shall not be interpreted as a waiver of the right to exercise any other right, power, discretion or remedy either simultaneously or subsequently.

18.10

No enquiry The Finance Parties shall not be concerned to enquire into the powers of the Security Parties or of any person purporting to act on behalf of any of the Security Parties, even if any of the Security Parties or any such person shall have acted in excess of their powers or if their actions shall have been irregular, defective or informal, whether or not any Finance Parties had notice thereof.

18.11

Continuing security The security constituted by the Security Documents shall be continuing and shall not be satisfied by any intermediate payment or satisfaction until the Indebtedness shall have been repaid in full and none of the Finance Parties shall be under any further actual or contingent liability to any third party in relation to the Vessels, the Insurances, Earnings or Requisition Compensation or any other matter referred to in the Security Documents.

18.12

Security cumulative The security constituted by the Security Documents shall be in addition to any other security now or in the future held by the Finance Parties or any of them for or in respect of all or any part of the Indebtedness, and shall not merge with or prejudice or be prejudiced by any such security or any other contractual or legal rights of any of the Finance Parties, nor affected by any irregularity, defect or informality, or by any release, exchange or variation of any such security. Section 93 of the Law of Property Act 1925 and all provisions which the Agent considers analogous thereto under the law of any other relevant jurisdiction shall not apply to the security constituted by the Security Documents.

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18.13

Re-instatement If any Finance Party takes any steps to exercise any of its rights, powers, remedies or discretions pursuant to the Security Documents and the result shall be adverse to the Finance Parties, the Borrower and the Finance Parties shall be restored to their former positions as if no such steps had been taken.

18.14

No liability None of the Finance Parties, nor any agent or employee of any Finance Party, nor any receiver and/or manager appointed by the Agent, shall be liable for any losses which may be incurred in or about the exercise of any of the rights, powers, discretions or remedies of the Finance Parties under or pursuant to the Security Documents nor liable as mortgagee in possession for any loss on realisation or for any neglect or default of any nature for which a mortgagee in possession might otherwise be liable unless such Finance Party’s action constitutes gross negligence or wilful misconduct.

18.15

Rescission of payments etc. Any discharge, release or reassignment by any of the Finance Parties of any of the security constituted by, or any of the obligations of any Security Party contained in, any of the Security Documents shall be (and be deemed always to have been) void if any act (including, without limitation, any payment) as a result of which such discharge, release or reassignment was given or made is subsequently wholly or partially rescinded or avoided by operation of any law, unless such Finance Party's action constitutes gross negligence or wilful misconduct.

18.16

Subsequent Encumbrances If the Agent receives notice of any subsequent Encumbrance (other than any Encumbrance permitted by the terms of this Agreement) affecting any Vessel or all or any part of the Insurances, Earnings, Requisition Compensation or Charter Rights, the Agent may open a new account in its books for the Borrower. If the Agent does not open a new account, then (unless the Encumbrance is permitted by the terms of this Agreement or the Agent gives written notice to the contrary to the Borrower) as from the time of receipt by the Agent of notice of such subsequent Encumbrance, all payments made to the Agent shall be treated as having been credited to a new account of the Borrower and not as having been applied in reduction of the Indebtedness.

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18.17

Releases If any Finance Party shall at any time in its discretion release any party from all or any part of any of the Security Documents or from any term, covenant, clause, condition or obligation contained in any of the Security Documents, the liability of any other party to the Security Documents shall not be varied or diminished.

18.18

Certificates Any certificate or statement signed by an authorised signatory of the Agent purporting to show the amount of the Indebtedness (or any part of the Indebtedness) or any other amount referred to in any of the Security Documents shall, save for manifest error or on any question of law, be conclusive evidence as against the Borrower of that amount.

18.19

Survival of representations and warranties The representations and warranties on the part of the Borrower contained in this Agreement shall survive the execution of this Agreement and the advance of the Facility or any part thereof.

18.20

Counterparts This Agreement may be executed in any number of counterparts each of which shall be original but which shall together constitute the same instrument.

18.21

Third Party Rights Notwithstanding the provisions of the Contracts (Rights of Third Parties) Act 1999, no term of this Agreement is enforceable by a person who is not a party to it other than any Future Swap Provider.

19	Law and Jurisdiction

19.1

Governing law This Agreement shall in all respects be governed by and interpreted in accordance with English law.

19.2

Jurisdiction For the exclusive benefit of the Finance Parties, the parties to this Agreement irrevocably agree that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that any Proceedings may be brought in those courts. The Borrower irrevocably waives any objection which it may now or in the future have to the laying of the venue of any Proceedings in any court referred to in this Clause, and any claim that those Proceedings have been brought in an inconvenient or inappropriate forum.

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19.3

Alternative jurisdictions Nothing contained in this Clause shall limit the right of the Finance Parties to commence any Proceedings against the Borrower in any other court of competent jurisdiction nor shall the commencement of any Proceedings against the Borrower in one or more jurisdictions preclude the commencement of any Proceedings in any other jurisdiction, whether concurrently or not.

19.4

Service of process Without prejudice to any other mode of service allowed under any relevant law, the Borrower:

19.4.1

irrevocably appoints Teekay Shipping (UK) Ltd of 2 ^nd Floor, 86 Jermyn Street, London SW1Y 6JD, England as its agent for service of process in relation to any proceedings before the English courts in connection with this Agreement; and

19.4.2

agrees that failure by a process agent to notify the Borrower of the process will not invalidate the proceedings concerned.

IN WITNESS of which the parties to this Agreement have executed this Agreement the day and year first before written.

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SCHEDULE 1

The Banks, the Commitments and the Proportionate Shares

The Banks	The Commitments ($)	The Proportionate Shares (%)

ING Bank N.V., London Branch 60 London Wall London EC2M 5TQ Fax no: +44 207 767 7252 Attention: David Rolls	70,000,000	21.212%
Alliance & Leicester Commercial Finance plc 120 New Cavendish Street London W1W 6XX Fax no: + 44 (0) 161 953 3517 Attention: Head of Corporate Administration	30,000,000	9.091%
Banco Bilbao Vizcaya Argentaria S.A. Via de los Poblados s/n 28033 Madrid Spain Fax no: +34 91 374 4140 Attention: Trinidad Bernad Oritz	30,000,000	9.091%
Caja de Ahorros Y Monte de Piedad de Madrid Paseo de la Castellana 180 4 ° Planta Madrid Spain Fax no: +3491 423 9727/28 Attention: Martin Alonso Ana Marie del Pozo	50,000,000	15.152%
KfW Palmengartenstr. 5-9 D - 60325 Frankfurt am Main Fax: +49-69 7431-3768 Attention: Dr Marco Albers	50,000,000	15.152%

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Landesbank Hessen-Thüringen Girozentrale (Helaba) 420 Fifth Avenue, 24th Fl. New York, NY 10018-2729 Fax: +1 212 703 - 5256 Attention: Ralf Goebel Gerhard Winklmeier	50,000,000	15.152%
Lloyds TSB Bank plc 25 Gresham Street London EC2V 7HN Fax no: +44 0207 356 2396 Attention: Head of Portfolio Management	50,000,000	15.152%

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SCHEDULE 2

The Vessels

Owner	Country of Incorporation	Vessel	Flag
Naviera Teekay Gas II S.L.	Spain	GALICIA SPIRIT	Spain
Naviera Teekay Gas S.L.	Spain	HISPANIA SPIRIT	Spain

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SCHEDULE 3

Reduction Schedule

Months after Execution Date	Scheduled Commitment Reduction	Maximum Facility Amount
0		US$330,000,000
6	US$4,328,000	US$325,672,000
12	US$4,459,000	US$321,213,000
18	US$4,595,000	US$316,618,000
24	US$4,735,000	US$311,883,000
30	US$4,880,000	US$307,003,000
36	US$5,029,000	US$301,974,000
42	US$5,182,000	US$296,792,000
48	US$5,340,000	US$291,452,000
54	US$5,503,000	US$285,949,000
60	US$5,670,000	US$280,279,000
66	US$5,844,000	US$274,435,000
72	US$6,022,000	US$268,413,000
78	US$6,206,000	US$262,207,000
84	US$6,395,000	US$255,812,000
90	US$6,589,000	US$249,223,000
96	US$6,791,000	US$242,432,000
102	US$6,998,000	US$235,434,000
108	US$7,212,000	US$228,222,000
114	US$7,431,000	US$220,791,000
120	US$7,658,000	US$213,133,000
126	US$7,892,000	US$205,241,000
132	US$8,132,000	US$197,109,000
138	US$8,381,000	US$188,728,000
144	US$8,636,000	US$180,092,000

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SCHEDULE 4

Form of Transfer Certificate English Version

To: ING Bank N.V. as agent (the " Agent ")

TRANSFER CERTIFICATE

This transfer certificate relates to a facility agreement (as the same may be from time to time amended, varied, novated or supplemented, the " Facility Agreement ") dated 2006 whereby an initial reducing revolving credit facility of up to $330,000,000 was made available to Teekay LNG Partners L.P. as borrower by a group of banks on whose behalf the Agent acts as agent and security trustee.

1	Terms defined in the Facility Agreement shall, subject to any contrary indication, have the same meanings herein. The terms "Bank" and "Transferee" are defined in the schedule to this transfer certificate .

The Bank (i) confirms that the details in the Schedule hereto under the heading " Bank's Commitment " accurately summarises its Commitment in the Facility Agreement and (ii) requests the Transferee to accept and procure the transfer to the Transferee of the portion of such Commitment specified in the Schedule hereto by counter-signing and delivering the Transfer Certificate to the Agent at its address for the service of Communications specified in the Facility Agreement.

The Transferee requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of clause 14.4 of the Facility Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof.

The Transferee confirms that it has received a copy of the Facility Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not in the future rely on the Bank or any other party to the Facility Agreement to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank or any other party to the Facility Agreement to access or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrower or any other party to the Facility Agreement.

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Execution of this Transfer Certificate by the Transferee constitutes its representation to the Transferor and all other parties to the Facility Agreement that it has power to become a party to the Facility Agreement as a Bank on the terms herein and therein set out and has taken all steps to authorise execution and delivery of this Transfer Certificate.

The Transferee undertakes with the Bank and each of the other parties to the Facility Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Facility Agreement will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which the Transfer Certificate is expressed to take effect.

The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Facility Agreement or any document relating thereto and assumes no responsibility for the financial condition of the Borrower or for the performance and observance by the Borrower of any of its obligations under the Facility Agreement or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded.

The Bank gives notice that nothing in this transfer certificate or in the Facility Agreement (or any document relating thereto) shall oblige the Bank to (i) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Facility Agreement transferred pursuant hereto or (ii) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including, without limitation, the non-performance by the Borrower or any other party to the Facility Agreement (or any document relating thereto) of its obligations under any such document. The Transferee acknowledges the absence of any such obligation as is referred to in (i) or (ii) above.

9	This Transfer Certificate and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with English law.

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THE SCHEDULE

Bank:

2	Transferee:

3	Transfer Date:

4	Commitment ¹ : Portion Transferred

[Transferor Bank]	[Transferee Bank]
By:	By:
Date:	Date:
ING Bank N.V.

As agent for and on behalf of itself,

the Borrower and the other Finance Parties:-

By: ……………………………………

Date: [ ]

¹ Details of the Bank's Commitment should not be completed after the Termination Date.

\P1\3522333.10

Form of Transfer Certificate Spanish Version

A: ING Bank N. V. como agente (el “ Agente” ).

Este certificado de cesión se refiere a un acuerdo de financiación (según éste pueda ser de tanto en vez modificado, variado, novado o complementado, el “ Acuerdo de Financiación ”) de fecha (…) de 2006 por el cual se puso a disposición de Teekay LNG Partners, L. P., como prestatario, una facilidad crediticia inicial tipo “ revolving” sobre una base de reducción progresiva de hasta US$ 330.000.000 por un grupo de bancos en nombre de los cuáles actúa el Agente como agente y agente de garantías.

1.	Los términos definidos en el Acuerdo de Financiación tendrán, salvo indicación en contrario, los mismos significados que en aquél. Los términos “Banco” y “Cesionario” se definen en el anexo a este certificado de cesión.

El Banco (i) confirma que los particulares recogidos en el Anexo a la presente bajo el encabezamiento “Compromiso del Banco” resume de forma ajustada su Compromiso bajo el Acuerdo de Financiación y (ii) requiere al Cesionario para que acepte y procure la cesión al Cesionario de la parte de tal Compromiso que se especifica en el Anexo mediante la firma y entrega del Certificado de Cesión al Agente en la dirección para el servicio de Comunicaciones especificado en el Acuerdo de Financiación.

El Cesionario requiere al Agente para que acepte este Certificado de Cesión como entregado al Agente para y a los efectos de la cláusula 14.4 del Acuerdo de Financiación para que despliegue los efectos de conformidad con los términos allí referidos en la Fecha de Cesión o en aquella fecha posterior según ésta pueda ser fijada de conformidad con los términos allá recogidos.

El Cesionario confirma que ha recibido una copia del Acuerdo de Financiación junto con cualquier otra información que ha requerido en relación con esta transacción y que no se ha basado ni se basará en ningún momento en el futuro en el Banco o en cualquier otra parte en el Acuerdo de Financiación para verificar o requerir en su nombre sobre la legalidad, validez, efectividad, adecuación, exactitud o integridad de cualquiera de dicha información y además acuerda que no se ha basado y no se basará en el Banco o en ninguna otra parte en el Contrato de Financiación para acceder o mantener bajo revisión en su nombre la condición financiera, capacidad crediticia, condición, asuntos, estatus o naturaleza del Prestatario o de cualquier otra parte en el Acuerdo de Financiación.

\P1\3522333.10

La ejecución de este Certificado de Cesión por el Cesionario constituye su manifestación al Cedente y a todas las partes en el Contrato de Financiación de que tiene el poder de constituirse en parte del Acuerdo de Financiación como un Banco en los términos aquí y allí recogidos y de que ha adoptado todos los pasos necesarios para la firma y entrega de este Certificado de Cesión.

El Cesionario se compromete con el Banco y con cada una de las otras partes en el Contrato de Financiación a que cumplirá de conformidad con sus términos todas aquellas obligaciones que de conformidad con el Acuerdo de Financiación serán asumidas por aquél tras la entrega de este Certificado de Cesión al Agente y que cumplirá todas las condiciones (si las hubiere) sujetas a las cuales se exprese que este Certificado de Cesión tendrá efecto.

El Banco no presta representación ni garantía alguna y no asume ninguna responsabilidad con relación a la legalidad, validez, efectividad, adecuación o ejecutabilidad del Acuerdo de Financiación o de cualquier documento con él relacionado y no asume responsabilidad alguna en relación a la situación financiera del Prestatario o por el cumplimiento y observancia por el Prestatario de cualquiera de sus obligaciones bajo el Acuerdo de Financiación o bajo cualquier documento relacionado con el mismo y todas y cada una de las condiciones o garantías, ya sean expresas o implícitas por ley o de cualquier otra forma, se excluyen por la presente.

El Banco notifica que nada en este certificado de cesión o en el Acuerdo de Financiación (o en cualquier otro documento referente al mismo) obligará al Banco a (i) aceptar una retrocesión por parte del Cesionario de todos o parte de sus derechos, beneficios y/o obligaciones bajo el Acuerdo de Financiación cedidos por la presente o (ii) a soportar ninguna pérdida sufrida o incurrida directa o indirectamente por el Cesionario por cualquier razón incluida, sin limitación, la falta de cumplimiento por el Prestatario o por cualquier otra parte en el Acuerdo de Financiación (o de cualquier otro documento relacionado con éste) bajo cualquiera de dichos documentos. El Cesionario reconoce la ausencia de cualquiera de dichas obligaciones referidas en los apartados (i) o (ii) precedentes.

9.	Este Certificado de Cesión y los derechos y obligaciones de las partes bajo el mismo se regirán e interpretarán de conformidad con la ley inglesa.

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EL ANEXO

Banco:

2.	Cesionario:

3.	Fecha de la Cesión:

4.	Compromiso ² : Parte Cedida:

(Banco Cedente)	(Banco Cesionario)
Por:	Por:
Fecha:	Fecha:

ING Bank N. V.

Como agente en su propio nombre y en el del

Prestatario y las otras Partes Financieras:-

Por:……………………………..

Fecha:( )

² Los detalles del Compromiso del Banco no deben cumplimentarse tras la Fecha de Terminación.

\P1\3522333.10

SCHEDULE 5

Form of Drawdown Notice

To:	ING BANK N.V.

From:

TEEKAY LNG PARTNERS L.P.

[Date]

Dear Sirs,

Drawdown Notice

We refer to the Revolving Credit Facility Agreement dated 2006 made between, amongst others, ourselves and yourselves (" the Agreement ").

Words and phrases defined in the Agreement have the same meaning when used in this Drawdown Notice.

Pursuant to Clause 2.3 of the Agreement, we irrevocably request that the Banks advance a Drawing of [ ] to us on 20[ ], which is a Business Day, by paying the amount of the Drawing to [ ].

We hereby specify that the Drawing shall be designated as a [General Revolving Drawing] [Distribution Drawing].

We warrant that the representations and warranties contained in Clause 4 of the Agreement (except those contained in Clause 4.9 and Clause 4.16) are true and correct at the date of this Drawdown Notice and (except those contained in Clause 4.9 [and Clause 4.16] ³ ) will be true and correct on 20[ ]; that no Event of Default nor Potential Event of Default has occurred and is continuing, and that no Event of Default or Potential Event of Default will result from the advance of the Drawing requested in this Drawdown Notice.

³ Not to be in first Drawdown Notice, only to include in subsequent Drawdown Notices

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[We further confirm and certify that no material adverse change has occurred since the Execution Date in the business, assets, operations, condition (financial or otherwise) or prospects of the Guarantors or their subsidiaries or in the facts and information regarding such entities as represented to date ⁴ ].

We select the period of [ ] months as the [first] Interest Period in respect of the Drawing.

Yours faithfully

TEEKAY LNG PARTNERS L.P.

By: TEEKAY GP L.L.C., its General Partner

By:

Name:

Title:

⁴ To be in first Drawdown Notice only.

\P1\3522333.10

SCHEDULE 6

Calculation of the Mandatory Cost

The Mandatory Cost is an addition to the interest rate to compensate the Banks for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.

On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the " Additional Cost Rate ") for each Bank, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Banks' Additional Cost Rates (weighted in proportion to the percentage participation of each Bank in the Loan) and will be expressed as a percentage rate per annum.

The Additional Cost Rate for any Bank lending from a Facility Office in a Participating Member State will be the percentage notified by that Bank to the Agent. This percentage will be certified by that Bank in its notice to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Bank's participation in all loans made from that Facility Office) of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that Facility Office.

4	The Additional Cost Rate for any Bank lending from a Facility Office in the United Kingdom will be calculated by the Agent as follows:

E x 0.01
300 per cent. per annum.

Where E is the rate of charge payable by a Bank to the Financial Services Authority under the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by the Agent as being the average of the Fee Tariffs applicable to that Bank for that financial year).

5	For the purposes of this Schedule:

(a)

" Eligible Liabilities and " Special Deposits " have the meanings given to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;

\P1\3522333.10

(b)

" Facility Office " means the office notified by a Bank to the Agent in writing on or before the date it becomes a Bank as the office through which it will perform its obligations under the Agreement;

(c)

" Fee Rules " means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits;

(d)

" Fee Tariffs " means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fee Rules but taking into account any applicable discount rate); and

(e)

" Participating Member State " means any member state of the European Communities that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Union relating to European Monetary Union;

(f)

" Parties " means any party to the Agreement, including its successors in title permitted assigns and permitted transferees; and

(g)

" Tariff Base " has the meaning given to it in, and will be calculated in accordance with, the Fees Rules.

If requested by the Agent, each Bank shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Bank to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Bank as being the average of the Fee Tariffs applicable to that Bank for that financial year).

7	Each Bank shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Bank Shall supply the following information on or prior to the date on which it becomes a Bank:

(a)

the jurisdiction of its Facility Office; and

(b)

any other information that the Agent may reasonably require for such purpose.

Each Bank shall promptly notify the Agent of any change to the information provided by it pursuant to this paragraph.

\P1\3522333.10

The percentages of each Bank for the purpose of E above shall be determined by the Agent based upon the information supplied to it pursuant to paragraphs 6 and 7 above and on the assumption that, unless the Bank notifies the Agent to the contrary, each Bank's obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a Facility Office in the same jurisdiction as in its Facility Office.

9	The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Bank and shall be entitled to assume that the information provided by any Bank pursuant to paragraphs 3, 6 and 7 above is true and correct in all respects.

10	The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Banks on the basis of the Additional Cost Rate for each Bank based on the information provided by each Bank pursuant to paragraphs 3, 6 and 7 above.

11	Any determination by the Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Bank shall, in the absence of manifest error, be conclusive and binding on all Parties.

The Agent may from time to time, after consultation with the Borrower and the Banks determine and notify to all Parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all Parties.

\P1\3522333.10

SCHEDULE 7

Form of Compliance Certificate : Teekay LNG Partners L.P.

To: ING Bank N.V. (the " Agent ")

From: Teekay LNG Partners L.P. (the " Borrower ")

Date: [ Ÿ ]

Dear Sirs,

We refer to an agreement (the " Agreement ") dated [ ] 2006 and made between (inter alia) (1) ourselves as borrower (2) the banks and financial institutions listed in Schedule 1 of the Agreement as banks and (3) the Agent as the agent and security trustee (as from time to time amended, varied, novated or supplemented).

Terms defined or construed in the Agreement have the same meanings and constructions in this Certificate.

We attach the relevant calculation details applicable on the last day of our financial [year][quarter] ending [ Ÿ ] (the " Relevant Period ") which confirm that:-

the aggregate of Free Liquidity and undrawn committed revolving credit lines available to be drawn by the Borrower and/or its Subsidiaries (but excluding undrawn committed revolving credit lines with less than six (6) months to maturity) was at all times equal to or greater than/fell below $35,000,000. Therefore the condition contained in Clause 10.2.15(i) of the Loan Agreement [has/has not] been complied with in respect of the Relevant Period.

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2	The Tangible Net Worth of the Borrower [was at all times equal to or greater than/fell below] $400,000,000. Therefore the condition contained in Clause 10.2.15(ii) of the Loan Agreement [has/has not] been complied with.

TEEKAY LNG PARTNERS L.P.

By: TEEKAY GP L.L.C., its General Partner

By:

Name:

Title:

\P1\3522333.10

SIGNED by	)
duly authorised for and on behalf	)
of TEEKAY GP L.L.C . as General Partner	)
for and on behalf of	)
TEEKAY LNG PARTNERS L.P.	)
in the presence of:-	)

SIGNED by	)
duly authorised for and on behalf	)
of ING BANK N.V.	)
(as the Agent)	)
in the presence of:-	)

SIGNED by	)
duly authorised for and on behalf	)
of ING BANK N.V.	)
(as the Arranger)	)
in the presence of:-	)

SIGNED by	)
duly authorised for and on behalf	)
of ING BANK N.V.	)
(as Bank)	)

SIGNED by	)
duly authorised for and on behalf	)
of ALLIANCE & LEICESTER	)
COMMERICAL FINANCE PLC	)
(as Bank)	)

\P1\3522333.10

SIGNED by	)
duly authorised for and on behalf	)
of BANCO BILBAO	)
VIZCAYA ARGENTARIA S.A.	)
(as Bank)	)

SIGNED by	)
duly authorised for and on behalf	)
of CAJA DE AHORROS Y MONTE DE	)
PIEDAD DE MADRID	)
(as Bank)	)

SIGNED by	)
duly authorised for and on behalf	)
of KfW
(as Bank)	)

SIGNED by	)
duly authorised for and on behalf	)
of LANDESBANK HESSEN-	)
THURINGEN GIROZENTRALE	)
(as Bank)	)

SIGNED by	)
duly authorised for and on behalf	)
of LLOYDS TSB BANK PLC	)
(as Bank)	)

\P1\3522333.10

Executed Version

DATED 2006

TEEKAY LNG PARTNERS L.P.

(as borrower)

- and -

ING BANK N.V.

and others

(as banks)

- and -

ING BANK N.V.

(as arranger)

- and -

ING BANK N.V.

(as agent and security trustee)

_________________________________________

US$330,000,000 SECURED

REDUCING REVOLVING LOAN

FACILITY AGREEMENT

_________________________________________

STEPHENSON HARWOOD

One, St. Paul's Churchyard

London EC4M 8SH

Tel: 020 7329 4422

Fax: 020 7329 7100

Ref: 1138/819

\P1\3522333.10

	CONTENTS	Page

1	Definitions and Interpretation	1
2	The Facility and its Purpose	20
3	Conditions Precedent and Subsequent	26
4	Representations and Warranties	29
5	Repayment and Prepayment	34
6	Interest	36
7	Fees	37
8	Security Documents	37
9	Agency and Trust	38
10	Covenants	48
11	Earnings	54
12	Events Of Default	54
13	Application of Monies	60
14	Assignment and Sub-Participation	61
15	Payments, Mandatory Prepayment, Reserve Requirements and Illegality	64
16	Communications	69
17	General Indemnities	70
18	Miscellaneous	72
19	Law and Jurisdiction	76
SCHEDULE 1		78
The Banks, the Commitments and the Proportionate Shares		78
SCHEDULE 2		80
The Vessels		80
SCHEDULE 3		81
Reduction Schedule		81
SCHEDULE 4		82
Form of Transfer Certificate English Version		82
Form of Transfer Certificate Spanish Version		85
SCHEDULE 5		89
Form of Drawdown Notice		89
SCHEDULE 6		91
Calculation of the Mandatory Cost		91
SCHEDULE 7		94
Form of Compliance Certificate : Teekay LNG Partners L.P.		94

\P1\3522333.10

CONFORMED COPY

DATED 2 ^nd October 2006

TEEKAY OFFSHORE OPERATING L.P.

(as Borrower)

- and -

DNB NOR BANK ASA

NORDEA BANK NORGE ASA

FORTIS CAPITAL CORP.

and others

(as Lenders)

- and -

DNB NOR BANK ASA

(as Agent)

- and -

DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT

(as Security Agent)

- and -

DNB NOR BANK ASA

NORDEA BANK NORGE ASA

FORTIS CAPITAL CORP.

(as Mandated Lead Arrangers)

- and -

DNB NOR BANK ASA

NORDEA BANK NORGE ASA

(as Bookrunners)

___________________________________

US$940,000,000 SECURED

LOAN AGREEMENT

___________________________________

STEPHENSON HARWOOD

One St. Paul's Churchyard

London EC4M 8SH

Tel: 020 7329 4422

Fax: 020 7329 7100

Ref: 819/1138

\P1\3549672.7

	CONTENTS	Page
1	Definitions and Interpretation………………………………………………………….
2	The Loan and its Purposes……………………………………………………………..	21
3	Conditions of Utilisation……………………………………………………………….	21
4	Advance………………………………………………………………………………...	26
5	Repayment……………………………………………………………………………...	26
6	Prepayment……………………………………………………………………………..	26
7	Interest………………………………………………………………………………….	28
8	Indemnities……………………………………………………………………………..	30
9	Fees…………………………………………………………………………………….	34
10	Security and Application of Moneys…………………………………………………..	35
11	Representations and Warranties………………………………………………………..	36
12	Undertakings and Covenants…………………………………………………………..	41
13	Events of Default……………………………………………………………………….	47
14	Assignment and Sub-Participation……………………………………………………..	53
15	The Agent, the Security Agent and the Lenders……………………………………….	56
16	Set-Off………………………………………………………………………………….	65
17	Payments……………………………………………………………………………….	65
18	Notices…………………………………………………………………………………	67
19	Partial Invalidity………………………………………………………………………..	70
20	Remedies and Waivers…………………………………………………………………	70

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21	Miscellaneous…………………………………………………………………………..	70
22	Law and Jurisdiction…………………………………………………………………...	71
SCHEDULE 1: The Lenders and the Commitments………………………………………….		73
SCHEDULE 2: Conditions Precedent and Subsequent………………………………………		74
Part I: Conditions precedent to the First Drawdown Date…………………………		74
Part II: Conditions subsequent to the First Drawdown Date………………………		77
Part III: Conditions precedent to the Step-up Date………………………………..		78
Part IV: Conditions subsequent to the Step-up Date……………………………….		80
SCHEDULE 3: Calculation of Mandatory Cost……………………………………………...		81
SCHEDULE 4: Form of Drawdown Notice………………………………………………….		83
SCHEDULE 5: Form of Transfer Certificate…………………………………………………		84
SCHEDULE 6: Form of Compliance Certificate……………………………………………..		87
SCHEDULE 7: The Vessels…………………………………………………………………..		88
Part I: The Initial Vessels………………………………………………………….		88
Part II: The Step-up Vessels……………………………………………………….		89
SCHEDULE 8: Reductions…………………………………………………………………...		90

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LOAN AGREEMENT

Dated: 2 ^nd October 2006

BETWEEN:

(1)	TEEKAY OFFSHORE OPERATING L.P. , a limited partnership formed and existing under the laws of the Republic of the Marshall Islands whose registered office is at The Trust Company Complex, Ajeltake Island, PO Box 1405 Majuro, The Marshall Islands, MH96960 (the " Borrower "); and

(2)	the banks listed in Schedule 1, each acting through its office at the address indicated against its name in Schedule 1 (together the " Lenders " and each a " Lender "); and

(3)	DNB NOR BANK ASA , acting as agent (in that capacity the " Agent ");

(4)	DNB NOR BANK ASA, NORDEA BANK NORGE ASA, New York Branch and FORTIS CAPITAL CORP. acting as mandated lead arrangers (in that capacity each an " MLA " and together the "MLAs ");

(5)	DNB NOR BANK ASA and NORDEA BANK NORGE ASA , New York Branch acting as bookrunners (in that capacity each a " Bookrunner " and together the " Bookrunners " ); and

(6)	DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT acting as security agent (in that capacity the " Security Agent ").

WHEREAS:

Each of the Lenders has agreed to advance to the Borrower its Commitment (aggregating, with all the other Commitments , a revolving credit facility of up to nine hundred and forty million Dollars $940,000,000) for the general corporate purposes of the Borrower (including but not limited to the making of intercompany loans to its shareholders and/or unitholders and Subsidiaries).

IT IS AGREED as follows:

1	Definitions and Interpretation

1.1

In this Agreement:

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" Administration" has the meaning given to it in paragraph 1.1.3 of the ISM Code.

" Affiliate " means, in relation to any entity, a Subsidiary of that entity, a Holding Company of that entity or any other Subsidiary of that Holding Company.

" Approved Brokers " means H. Clarkson & Co. Ltd, Simpson Spence & Young Shipbrokers Ltd, Fearnley AS, R.S. Platou AS and P.F. Bassoe AS.

" Assignments " means the deeds of assignment of Insurances, Earnings and Requisition Compensation, the Charter Rights (if applicable) and of the benefit of any relevant Charterer's Assignment, in respect of each of the Vessels referred to in Clause 10.1.2 (each an " Assignment ").

" Authorisation " means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.

" Bareboat Charters " means the bareboat charters identified in Schedule 7 for certain of the Vessels only on the terms and subject to the conditions of which the relevant Charterer will bareboat charter its Vessel to the Bareboat Charterer.

" Bareboat Charterer " means in respect of certain Vessels either (i) FIC and Transpetro or (ii) Petrojarl Production as identified against the names of the relevant Vessels in Schedule 7.

" Borrower's Accounts " means the consolidated financial accounts of the Borrower to be provided to the Agent pursuant to Clause 12.1.

" Break Costs " means all sums payable by the Borrower from time to time under Clause 8.3.

" Business Day " means a day on which banks are open for business of a nature contemplated by this Agreement (and not authorised by law to close) in New York, London and any other financial centre which the Agent may reasonably consider appropriate for the operation of the provisions of this Agreement.

" Charter Rights " in relation to a Vessel means all rights and benefits accruing to the Charterer of that Vessel under or pursuant to the relevant Bareboat Charter and not forming part of the Earnings.

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" Charterer " in respect of certain Vessels only means either UNS or TKN as identified against the names of the relevant Vessels in Schedule 7.

" Charterer's Assignments " means, in respect of NORDIC STAVANGER, NORDIC BRASILIA and NORDIC SPIRIT only, assignments by the relevant Charterer to the Owner of the Earnings and Charter Rights.

" Commitment " means, in relation to a Lender, the aggregate amount of the Loan which that Lender agrees to advance to the Borrower as its several liability as indicated against the name of that Lender in Schedule 1 and/or, where the context permits, the amount of the Loan advanced by that Lender and remaining outstanding and " Commitments " means more than one of them.

" Commitment Commission " means the commitment commission to be paid by the Borrower to the Agent on behalf of the Lenders pursuant to Clause 9.1.

" Commitment Termination Date " means the date being one (1) month before the Maturity Date or such later date as the Lenders may in their discretion agree.

" Completion of Syndication " means that the Commitments have been fully syndicated in a manner acceptable to the MLAs, as conclusively certified in writing by the Agent.

" Compliance Certificate " means a certificate substantially in the form set out in Schedule 6.

" Currency of Account " means, in relation to any payment to be made to a Finance Party under a Finance Document, the currency in which that payment is required to be made by the terms of that Finance Document.

" Deeds of Covenants " means the deeds of covenants referred to in Clause 10.1.1. (each a " Deed of Covenant ").

" Default " means an Event of Default or any event or circumstance specified in Clause 13.1 which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.

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" DOC " means, in relation to the ISM Company, a valid Document of Compliance issued for the ISM Company by the Administration under paragraph 13.2 of the ISM Code.

" Dollars ", " US$ " and " $ " each means available and freely transferable and convertible funds in lawful currency of the United States of America.

" Drawdown Date " means the date on which a Drawing is advanced under Clause 4.

" Drawdown Notice " means a notice substantially in the form set out in Schedule 4.

" Drawing " means any one amount advanced or to be advanced pursuant to a Drawdown Notice or, where the context permits, the amount advanced and for the time being outstanding and " Drawings " means more than one of them.

" Earnings " in relation to a Vessel means all hires, freights, pool income and other sums payable to or for the account of the Owner or the relevant Charterer in respect of that Vessel including (without limitation) all remuneration for salvage and towage services, demurrage and detention moneys, contributions in general average, compensation in respect of any requisition for hire, and damages and other payments (whether awarded by any court or arbitral tribunal or by agreement or otherwise) for breach, termination or variation of any contract for the operation, employment or use of that Vessel.

" Encumbrance " means a mortgage, charge, assignment, pledge, lien, or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

" Environmental Affiliate " means an agent or employee of the Owner or a person in a contractual relationship with the Owner in respect of the Vessel owned by it (including without limitation, the operation of or the carriage of cargo of such Vessel).

" Environmental Approvals " means any present or future permit, licence, approval, ruling, variance, exemption or other authorisation required under the applicable Environmental Laws.

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" Environmental Incident " means:

(a)

any release of Environmentally Sensitive Material from a Vessel; or

(b)

(c)

" Environmental Laws " means all present and future laws, regulations, treaties and conventions of any applicable jurisdiction which:

(a)

have as a purpose or effect the protection of, and/or prevention of harm or damage to, the environment;

(b)

relate to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material;

\P1\3549672.7

(c)

provide remedies or compensation for harm or damage to the environment; or

(d)

relate to Environmentally Sensitive Materials or health or safety matters.

" Event of Default " means any of the events or circumstances set out in Clause 13.1.

" Execution Date " means the date on which this Agreement is executed by each of the parties hereto.

" Facility " means the reducing revolving credit facility made available by the Lenders to the Borrower pursuant to this Agreement.

" Facility Outstandings " means the total of all Drawings made at that time, to the extent not reduced by repayments, prepayments and voluntary reductions.

" Facility Period " means the period beginning on the date of this Agreement and ending on the date when the whole of the Indebtedness has been repaid in full and the Security Parties have ceased to be under any further actual or contingent liability to the Finance Parties under or in connection with the Finance Documents.

" Fee Letter " means the letters dated 30 August 2006 between the Borrower and the Agent and/or the Bookrunners and/or the MLAs as applicable setting out any of the fees referred to in Clause 9.

" FIC " means Fronape International Company of P.O. Box 714, Georgetown, Grand Cayman, Cayman Islands.

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" Finance Documents " means this Agreement, the Security Documents, any Fee Letter and any other document designated as such by the Agent and the Borrower and " Finance Document " means any one of them.

" Finance Parties " means the Agent, the Security Agent, the MLAs, the Bookrunners and the Lenders and " Finance Party " means any one of them.

" First Drawdown Date " means the date on which the first Drawing is advanced under Clause 4.

" Free Liquidity " means cash, cash equivalents and marketable securities of maturities less than one (1) year to which the Group shall have free, immediate and direct access each as reflected in the Borrower's most recent quarterly management accounts forming part of the Borrower's Accounts.

" GAAP " means generally accepted accounting principles in the United States of America.

" Group " means the Borrower and each of its Subsidiaries.

" Guarantee " means the guarantee and indemnity referred to in Clause 10.1.3.

" Guarantor " means the Owner and/or (where the context permits) any other person who shall at any time during the Facility Period give to the Lenders or to the Security Agent on their behalf a guarantee and/or indemnity for the repayment of all or part of the Indebtedness.

" Head Charter ", in respect of NORDIC STAVANGER, NORDIC BRASILIA and NORDIC SPIRIT only, means the charter between the Owner and the relevant Charterer.

" Holding Company " means, in relation to any entity, any other entity in respect of which it is a Subsidiary.

" Indebtedness " means the aggregate from time to time of: the amount of the Loan outstanding; all accrued and unpaid interest on the Loan ; and all other sums of any nature (together with all accrued and unpaid interest on any of those sums) which from time to time may be payable by the Borrower to any of the Finance Parties under all or any of the Finance Documents.

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" Initial Vessels " means the Vessels listed in Schedule 7 Part 1 and everything now or in the future belonging to them on board and ashore (each an " Initial Vessel ").

" Insurances " in relation to a Vessel means all policies and contracts of insurance (including all entries in protection and indemnity or war risks associations) which are from time to time taken out or entered into in respect of or in connection with that Vessel or her increased value and (where the context permits) all benefits under such contracts and policies, including all claims of any nature and returns of premium.

" Interest Payment Date " means each date for the payment of interest in accordance with Clause 7 . 7 .

" Interest Period " means each period for the payment of interest selected by the Borrower or agreed by the Agent pursuant to Clause 7.

" ISM Code " means the International Management Code for the Safe Operation of Ships and for Pollution Prevention.

" ISM Company " means, at any given time, the company responsible for a Vessel's compliance with the ISM Code under paragraph 1.1.2 of the ISM Code.

" ISPS " Code " means the International Ship and Port Facility Security Code.

" ISPS Company " means, at any given time, the company responsible for a Vessel's compliance with the ISPS Code.

" ISSC " means a valid international ship security certificate for a Vessel issued under the ISPS Code.

" LIBOR " means:

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(a)

the applicable Screen Rate; or

(b)

(if no Screen Rate is available for any Interest Period) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Agent at its request quoted by the Reference Banks (or by two of them if one is unable to quote) to leading banks in the London interbank market,

at 11.00 a.m. London time two (2) Business Days before the first day of the relevant Interest Period for the offering of deposits in Dollars in an amount comparable to the Loan (or any relevant part of the Loan) and for a period comparable to the relevant Interest Period.

" Loan " means the aggregate amount advanced or to be advanced by the Lenders to the Borrower under Clause 4 or, where the context permits, the amount advanced and for the time being outstanding.

" Majority Lenders " means a Lender or Lenders whose Commitments aggregate more than sixty six and two thirds per cent (66 2/3%) of the aggregate of all the Commitments.

" Management Agreement " means any agreement(s) for the commercial and/or technical management of the Vessels entered into between the Owner and a company which is not controlled either by Teekay Shipping Corporation or the Borrower.

" Managers " in relation to each Vessel means a management company which is controlled by Teekay Shipping Corporation or such other commercial and/or technical managers of the Vessels nominated by the Borrower as the Agent acting on the instructions of the Majority Lenders may approve such approval not to be unreasonably withheld or delayed.

" Mandatory Cost " means the percentage rate per annum calculated by the Agent in accordance with Schedule 3.

" Margin " means nought point six two five per cent (0.625%) per annum .

" Material Adverse Effect " means a material adverse change in, or a material adverse effect on:

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(a)

the financial condition, assets, prospects or business of any Security Party or on the consolidated financial condition, assets, prospects or business of the Group;

(b)

the ability of any Security Party to perform and comply with its obligations under any Security Document or to avoid any Event of Default;

(c)

the validity, legality or enforceability of any Security Document; or

(d)

the validity, legality or enforceability of any security expressed to be created pursuant to any Security Document or the priority and ranking of any such security,

provided that, in determining whether any of the forgoing circumstances shall constitute such a material adverse change or material adverse effect for the purposes of this definition, the Finance Parties shall consider such circumstance in the context of (x) the Group taken as a whole and (y) the ability of the Borrower and the Guarantor to perform each of their obligations under the Security Documents.

" Maturity Date " means the earlier of (i) the date falling ninety six (96) months after the First Drawdown Date and (ii) 31 October 2014.

" Material Subsidiary " means:

any Subsidiary of the Borrower whose assets, as determined in accordance with GAAP and as shown from the most recent financial statements available to the Agent relating to it, as multiplied by the Relevant Percentage in respect of such Subsidiary, equal or exceed 10% of the aggregate value of the assets of the Group as determined in accordance with GAAP and as shown from the most recently available financial statements of the Group,

provided that:

(i)

in respect of any Subsidiary of the Borrower, only the value of its assets as multiplied by the Relevant Percentage in respect of such Subsidiary shall be taken into account in the computation of the value of the assets of the Group;

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(ii)

a statement by the auditors of the Borrower to the effect that, in their opinion, a Subsidiary of the Borrower is or is not or was or was not at any particular time a Material Subsidiary shall, in the absence of manifest error, be conclusive and binding on each of the parties to this Agreement.

" Maximum Amount " means

(i)

prior to the Step-up Date, five hundred and twenty million Dollars ($520,000,000); and

(ii)

on or after the Step-up Date, nine hundred and forty million Dollars ($940,000,000),

as reduced from time to time in accordance with Clause 3.4 and/or Clause 7.9.5.

the " MLP " means Teekay Offshore Partners L.P.

" Mortgages " means the statutory mortgages referred to in Clause 10.1.1 together with the Deeds of Covenants.

" Necessary Authorisations " means all Authorisations of any person including any government or other regulatory authority required by applicable Law to enable it to:

(a)

lawfully enter into and perform its obligations under the Security Documents to which it is party;

(b)

ensure the legality, validity, enforceability or admissibility in evidence in England and, if different, its jurisdiction of incorporation, of such Security Documents to which it is party; and

(c)

carry on its business from time to time.

" Owner " means Teekay Navion Offshore Loading Pte Ltd, a company incorporated according to the law of Singapore with company registration no. 20041820N whose registered office is at 8 Shenton Way, #44-04 Temasek Tower, Singapore 068811 at all times to be a Subsidiary of the Borrower.

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" Petroatlantic " means Petroatlantic L.L.C. of Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands, MH96960.

" Petrol Geo " means Petroleum Geo Services ASA of Strandveien 50, Postboks 89, N-1324 Lysaker.

" Petrojarl Production " means Petrojarl Production AS of Beddingen 16, 7405 Trondheim, Norway (formerly known as Golar-Nor Offshore AS).

" Petrojarl " means Petrojarl ASA of Beddingen 16, 7405 Trondheim, Norway.

" Petronordic " means Petronordic LLC of Trust Company Complex, Ajelktake Road, Ajeltake Island, Majuro, The Marshall Islands, MH96960.

" Permitted Encumbrance " means (i) any Encumbrance which has the prior written approval of the Agent acting on the instructions of all the Lenders or (ii), or any liens for current crews' wages and salvage and liens incurred in the ordinary course of trading a Vessel up to an aggregate amount at any time not exceeding ten million Dollars ($10,000,000).

" Pre-Approved Classification Society " means any of Det norske Veritas, Lloyds Register, American Bureau of Shipping (ABS), Germanischer Lloyd or Bureau Veritas or such other classification society acceptable to the Majority Lenders.

" Pre-Approved Flag " means Marshall Islands, Norwegian International Ship Registry, Liberia, Panama, Isle of Man, Cayman Islands, Bermuda, Bahamas, Singapore or (in the case of "NAVION STAVANGER", "NORDIC BRASILIA", "NORDIC SPIRIT" and any other Vessels on charter to Transpetro) Registro Especial Brasileiro

" Proportionate Share " means, at any time, the proportion which a Lender’s Commitment (whether or not advanced) then bears to the aggregate Commitments of all the Lenders (whether or not advanced) being on the Execution Date the percentage indicated against the name of that Lender in Schedule 1.

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" Quiet Enjoyment Letters " means those letters between the Agent and the Bareboat Charterer relating to those Vessels subject to Bareboat Charters.

" Reduction Date " means each date falling at consecutive six monthly intervals after the earlier to occur of (i) the First Drawdown Date and (ii) 31 October 2006.

" Reference Banks " means, in relation to LIBOR, the principal London offices of each of the MLAs or such other banks as may be appointed by the Agent in consultation with the Borrower.

" Relevant Documents " means the Finance Documents, the Bareboat Charters, the Charterer's Assignments, the Quiet Enjoyment Letters and the Management Agreements.

" Relevant Percentage " means, in respect of any Subsidiary of the Borrower at any time, the percentage of the equity share capital or the partnership capital, as the case may be, of such Subsidiary which is beneficially owned (free from Encumbrances) by the Borrower at such time.

" Relevant Reduction Amount " means, in respect of each Vessel, a figure equal to (x) a fraction in which (i) the numerator is the market value of such Vessel (based on the most recent Valuation) and (ii) the denominator is the aggregate market value of all the Vessels (based on the most recent Valuations) multiplied by (y) the Maximum Amount.

" Replacement Vessel " means a vessel acceptable to the Agent acting on the instructions of the Majority Lenders.

" Requisition Compensation " in relation to a Vessel means all compensation or other money which may from time to time be payable to the Owner as a result of that Vessel being requisitioned for title or in any other way compulsorily acquired (other than by way of requisition for hire).

" Same Day Drawing ", means, in respect of the first drawing only, a Drawing requested by the Borrower prior to 1600 hours (New York time) on the day before the First Drawdown Date and made by the Lenders on the First Drawdown Date.

" Screen Rate " means in relation to LIBOR, the British Bankers' Association Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Reuters page LIBOR 01 (or such other page or pages which replace(s) such page for the purposes of displaying offered rates of leading banks, for deposits in Dollars of amounts equal to the amount of the relevant Drawing for a period equal in length to the relevant Interest Period .

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" Security Documents " means the Mortgages, the Deeds of Covenants, the Assignments, the Guarantee, or (where the context permits) any one or more of them and any other agreement or document which may at any time be executed by any person as security for the payment of all or any part of the Indebtedness and " Security Document " means any one of them.

" Security Parties " means at any relevant time, the Borrower, the Guarantor and any other person who may at any time during the Facility Period be liable for, or provide security for, all or any part of the Indebtedness (but for the avoidance of doubt shall not include the Charterer or Bareboat Charterer), and " Security Party " means any one of them.

" SMC " means a valid safety management certificate issued for a Vessel by or on behalf of the Administration under paragraph 13.7 of the ISM Code.

" SMS " means a safety management system for a Vessel developed and implemented in accordance with the ISM Code.

" Step-up Date " means the date on which the Agent confirms that both (i) all of the conditions set out in Part III of Schedule 2 have been satisfied and (ii) Completion of Syndication has occurred.

" Step-up Vessels " means the Vessels listed in Schedule 7 Part II and everything now or in the future belonging to them on board and ashore (each a " Step-up Vessel ").

" Subsidiary " means a subsidiary undertaking, as defined in section 736 Companies Act 1985 or any analogous definition under any other relevant system of law.

" Tax " means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same) and " Taxation " shall be interpreted accordingly.

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" TKN " means Teekay Norway AS of Verven 4, N-4014, P.O. Box 8035, N-4068, Stavanger, Norway.

" Total Debt " means the aggregate of:-

(a)

the amount calculated in accordance with GAAP shown as each of "long term debt", "short term debt" and "current portion of long term debt" on the latest consolidated balance sheet of the Borrower; and

(b)

the amount of any liability in respect of any lease or hire purchase contract entered into by the Borrower or any of its Subsidiaries which would, in accordance with GAAP, be treated as a finance or capital lease (excluding any amounts applicable to leases to the extent that the lease obligations are secured by a security deposit which is held on the balance sheet under " Restricted Cash ").

" Total Loss " in relation to a Vessel means:

(a)

an actual, constructive, arranged, agreed or compromised total loss of that Vessel; or

(b)

the requisition for title or compulsory acquisition, nationalisation or expropriation of that Vessel by or on behalf of any government or other authority (other than by way of requisition for hire); or

(c)

the capture, seizure, arrest, detention or confiscation of that Vessel unless the Vessel is released and returned to the possession of the Owner within ninety (90) days after the capture, seizure, arrest, detention or confiscation in question.

" Transfer Certificate " means a certificate substantially in the form set out in Schedule 5 or any other form agreed between the Agent and the Borrower.

" Transfer Date " means, in relation to any Transfer Certificate, the date for the making of the Transfer specified in the schedule to such Transfer Certificate.

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" Transpetro " means Petrobras Transporte S.A. - Transpetro of Av Presidente Vargas, 328, 20091-060 Rio de Janeiro, R.J. Brazil.

" Trust Property " means:

(a)

all benefits derived by the Security Agent from Clause 10; and

(b)

all benefits arising under (including, without limitation, all proceeds of the enforcement of) each of the Security Documents,

with the exception of any benefits arising solely for the benefit of the Security Agent.

" UNS " means Ugland Nordic Shipping AS of P.O. Box 54, 3201 Sandefjord, Norway a company formed by the merger under Norwegian law of Ugland Nordic Investment AS and Ugland Nordic Shipping AS.

" Valuation " means in relation to a Vessel or a Replacement Vessel, the written valuation of that Vessel or Replacement Vessel expressed in Dollars prepared by one of the Approved Brokers (or such other firm of reputable independent shipbrokers as may be acceptable to the Majority Lenders) to be nominated by the Borrower, such nomination to be subject to the approval of the Agent. Such valuations shall be prepared at the Borrower's expense, without a physical inspection, on the basis of a sale for prompt delivery for cash at arm's length between a willing buyer and a willing seller without the benefit of any charterparty or other engagement.

" Vessels" means the vessels listed in Schedule 7 (comprising the Initial Vessels and the Step-up Vessels and including any Replacement Vessel) and everything now or in the future belonging to them on board and ashore (each a " Vessel )".

" WSJ Prime Rate " means the "Prime Rate" as published in the printed copy of the Wall Street Journal on any particular day as the same may be adjusted from time to time. .

1.2

In this Agreement:

1.2.1

words denoting the plural number include the singular and vice versa;

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1.2.2

words denoting persons include corporations, partnerships, associations of persons (whether incorporated or not) or governmental or quasi-governmental bodies or authorities and vice versa;

1.2.3

references to Recitals, Clauses and Schedules are references to recitals, clauses and schedules to or of this Agreement;

1.2.4

references to this Agreement include the Recitals and the Schedules;

1.2.5

the headings and contents page(s) are for the purpose of reference only, have no legal or other significance, and shall be ignored in the interpretation of this Agreement;

1.2.6

references to any document (including, without limitation, to all or any of the Relevant Documents) are, unless the context otherwise requires, references to that document as amended, supplemented, novated or replaced from time to time;

1.2.7

references to statutes or provisions of statutes are references to those statutes, or those provisions, as from time to time amended, replaced or re-enacted;

1.2.8

references to any Finance Party include its successors, transferees and assignees;

1.2.9

a time of day (unless otherwise specified) is a reference to New York time.

1.3

Offer letter

This Agreement supersedes the terms and conditions contained in any correspondence relating to the subject matter of this Agreement exchanged between any Finance Party and the Borrower or their representatives prior to the date of this Agreement.

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2	The Loan and its Purpose s

2.1

Amount Subject to the terms of this Agreement, each of the Lenders agrees to make available to the Borrower its Commitment of a revolving credit in an aggregate amount not exceeding the Maximum Amount at any one time .

2.2

Finance Parties' obligations The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other party to the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.

2.3

Purpose s The Borrower shall apply the Loan for the purpose referred to in the Recital .

2.4

Monitoring No Finance Party is bound to monitor or verify the application of any amount borrowed under this Agreement.

3	Conditions of Utilisation

3.1

Conditions precedent Before any Lender shall have any obligation to advance any Drawing under the Facility the Borrower shall deliver or cause to be delivered to or to the order of the Agent all of the documents and other evidence listed in Part I of Schedule 2.

3.2

Further conditions precedent The Lenders will only be obliged to advance a Drawing if on the date of the Drawdown Notice and on the proposed Drawdown Date:

3.2.1

no Default is continuing or would result from the advance of that Drawing ; and

3.2.2

the representat ions made by the Borrower under Clause 11 are true in all material respects.

3.3

Drawing limit The Lenders will only be obliged to advance a Drawing if:

3.3.1

no other Drawing has been made on the same Business Day;

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3.3.2

that Drawing will not result in there being more than seven Drawings outstanding at any one time;

3.3.3

that Drawing is not less than five million Dollars ($5,000,000) and in an integral multiple of one million Dollars ($1,000,000); and

3.3.4

that Drawing will not increase the outstanding amount of the Loan to a sum in excess of the Maximum Amount.

The First Drawdown Date must occur on or before 31 October 2006 or such later date as the Majority Lenders shall agree.

3.4

Facility Reduction

3.4.1

The amount of the Facility available to the Borrower for drawing under this Agreement shall, subject to the provisions of Clause 3.4.5, be five hundred and twenty million Dollars ($520,000,000) prior to the Step-up Date and nine hundred and forty million Dollars ($940,000,000) during the period from the Step-up Date until the first Reduction Date. On the Reduction Dates the amount of the Facility available for drawing shall be reduced by the amounts set out in Schedule 8 (the " Initial Reduction Amounts "). On the Maturity Date the Facility available shall be reduced to zero. Subject to the proviso hereto, the mandatory reductions in the amount of the Facility available for drawing required pursuant to this Clause will be made in the amounts and at the times specified whether or not the Maximum Amount is reduced pursuant to Clause 3.4.2, Clause 3.4.3, Clause 3.4.4, Clause 6.1 or Clause 7.9. PROVIDED ALWAYS THAT any reductions pursuant to Clause 3.4.2 (voluntary reductions), Clause 3.4.3 (sale) or Clause 3.4.4 (Total Loss) shall be applied to the remaining mandatory reductions hereunder on a pro rata basis.

3.4.2

The Borrower may voluntarily cancel the Maximum Amount in whole or in part in an amount of not less than five million Dollars ($5,000,000) such amount to be in integral multiples of one million Dollars ($1,000,000) (or as otherwise may be agreed by the Agent), provided that it has first given to the Agent not fewer than five (5) Business Days' prior written notice expiring on a Business Day (the " Cancellation Date ") of its desire to reduce the Maximum Amount; such notice once received by the Agent shall be irrevocable and shall oblige the Borrower to make payment of all interest and Commitment Commission accrued on the amount so cancelled up to and including the Cancellation Date together with any Break Costs in respect of such cancelled amount if the Cancellation Date is not the final day of an Interest Period. Any such reduction in the Maximum Amount shall not be reversed. If, as a result of any such cancellation, the Loan outstanding would exceed the Maximum Amount, the Borrower shall, on the Cancellation Date, prepay such amount of the Loan as will ensure that the Loan outstanding is not greater than the Maximum Amount.

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3.4.3

In the event of a sale or disposal of a Vessel or the Agent having received not less than 5 Business Days' notice from the Borrower requesting that the security relating to a Vessel be released and discharged (a " Released Vessel "), the Maximum Amount shall be reduced by the Relevant Reduction Amount applicable to that Vessel, such reduction to be applied on a pro rata basis against the Initial Reduction Amounts as reduced from time to time in accordance with this clause 3.4. Such reduction shall be made in the case of a sale or disposal of such Vessel on the date of such sale or disposal and in the case of a Released Vessel on the date proposed by the Borrower for release and discharge of the security relating to that Vessel unless the Vessel or Released Vessel in question is replaced on or prior to the sale, disposal or release with a Replacement Vessel and in such case of replacement any security held by the Agent (whether directly or indirectly) from the Owner and over such Vessel or Released Vessel is reconstituted immediately after the sale to the new owner or after the release and discharge of security (as the case may be) or over the Replacement Vessel in substantially identical form, and the Agent obtains favourable legal opinions in respect of such reconstituted security. If, as a result of any reduction in the Maximum Amount pursuant to this Clause, the Loan outstanding would exceed the Maximum Amount, the Borrower shall, on the date of the sale, disposal or replacement, prepay such amount of the Loan as will ensure that the Loan outstanding is not greater than the Maximum Amount. Any such prepayment shall oblige the Borrower to make payment of all interest and Commitment Commission accrued on the amount so reduced up to and including the date of reduction together with any Break Costs in respect of such reduced amount if the date of such reduction is not the final day of an Interest Period. Any such reduction in the Maximum Amount shall not be reversed.

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3.4.4

In the event that any Vessel becomes a Total Loss, on the earlier to occur of (a) the date of receipt of the proceeds of the Total Loss and (b) the date falling one hundred and eighty (180) days after the occurrence of the Total Loss (the " Reduction Date "), the Maximum Amount shall (subject to the proviso hereto) be reduced by the Relevant Reduction Amount in respect of such Vessel. Any such reductions in the Maximum Amount shall not be reversed. If, as a result of any reduction in the Maximum Amount pursuant to this Clause the Loan outstanding would exceed the Maximum Amount, the Borrower shall, on the earlier to occur of (i) the date on which the Owner receives the proceeds of such Total Loss and (ii) the one hundred and eightieth day after the date of such Total Loss occurring, prepay such amount of the Loan as will ensure that the Loan outstanding is equal to or less than the Maximum Amount. Any such prepayment shall not be reborrowed and Clause 8.3 shall apply to any such prepayment. PROVIDED ALWAYS that if there is an investment in a Replacement Vessel on or prior to the Reduction Date, and a guarantee from the owner of the Replacement Vessel (in substantially the same form as the Guarantee or such other form as the Majority Lenders may require at that time) and security over such Replacement Vessel acceptable to the Majority Lenders in their absolute discretion is also executed and delivered either prior to or on the Reduction Date, then the reduction in the Maximum Amount shall not apply.

3.4.5

To the extent that repayments or prepayments made by the Borrower to the Agent in accordance with this Agreement reduce the Loan outstanding to less than the Maximum Amount, the Borrower shall again be entitled to make Drawings up to the Commitment Termination Date in accordance with and subject to the terms of this Agreement. Any part of the Facility which is undrawn on the Commitment Termination Date shall be automatically cancelled.

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3.4.6

Simultaneously with each reduction of the Maximum Amount in accordance with Clause 3.4.1, Clause 3.4.2, Clause 3.4.3 or Clause 3.4.4 (as the case may be), the Commitment of each Lender will reduce so that the Commitments of the Lenders in respect of the reduced Maximum Amount remain in accordance with their respective Proportionate Shares.

3.5

Termination Date No Lender shall be under any obligation to advance all or any part of its Commitment after the Commitment Termination Date.

3.6

Conditions subsequent The Borrower undertakes to deliver or to cause to be delivered to the Agent:

3.6.1

on, or as soon as practicable after, the First Drawdown Date the additional documents and other evidence listed in Part II of Schedule 2; and

3.6.2

on, or as soon as practicable after, the Step-up Date the additional documents and other evidence listed in Part IV of Schedule 2.

3.7

No Waiver If the Lenders in their sole discretion agree to advance a Drawing to the Borrower before all of the documents and evidence required by Clause 3.1 have been delivered to or to the order of the Agent, the Borrower undertakes to deliver all outstanding documents and evidence to or to the order of the Agent no later than the date specified by the Agent.

The advance of all or any part of the Loan under this Clause 3. 7 shall not be taken as a waiver of the Lenders' right to require production of all the documents and evidence required by Clause 3.1.

3.8

Form and content All documents and evidence delivered to the Agent under this Clause 3 shall:

3.8.1

be in form and substance reasonably acceptable to the Agent; and

3.8.2

if reasonably required by the Agent, be certified, notarised, legalised or attested in a manner acceptable to the Agent.

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4	Advance

4.1

Drawdown Request The Borrower may request a Drawing to be advanced in one amount on any Business Day prior to the Commitment Termination Date by delivering to the Agent a duly completed Drawdown Notice not more than ten (10) and not fewer than three (3) Business Days before the proposed Drawdown Date save in respect of a Same Day Drawing.

4.2

Lenders' participation Subject to Clauses 2 and 3, the Agent shall promptly notify each Lender of the receipt of a Drawdown Notice, following which each Lender shall advance its Proportionate Share of the relevant Drawing to the Borrower through the Agent on the relevant Drawdown Date.

5	Repayment

5.1

Repayment of each Drawing The Borrower agrees to repay each Drawing to the Agent for the account of the Lenders on the last day of the Interest Period in respect of that Drawing unless the Borrower selects a further Interest Period for that Drawing in accordance with Clause 7 provided that the Borrower shall not be permitted to select such a further Interest Period if a Default has occurred and shall then be obliged to repay such Drawing on the last day of its then current Interest Period. The Borrower shall on the Maturity Date repay to the Agent as agent for the Lenders all Facility Outstandings.

5.2

Reborrowing Amounts of the Loan which are repaid or prepaid shall be available for reborrowing in accordance with Clause 3 prior to the Commitment Termination Date .

6	Prepayment

6.1

Illegality If it becomes unlawful in any jurisdiction for a Lender to fund or maintain its Commitment as contemplated by this Agreement or to fund or maintain the Loan :

6.1.1

that Lender shall promptly notify the Agent of that event;

6.1.2

upon the Agent notifying the Borrower, the Commitment of that Lender (to the extent not already advanced) will be immediately cancelled; and

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6.1.3

the Borrower shall repay that Lender's Proportionate Share of any Drawing on the last day of its current Interest Period or, if earlier, the date specified by that Lender in the notice delivered to the Agent and notified by the Agent to the Borrower (being no earlier than the last day of any applicable grace period permitted by law) and the Maximum Amount shall be reduced by the amount of that Lender's Commitment in the Loan. Prior to the date on which repayment is required to be made under this Clause 6.1.3 the affected Lender shall negotiate in good faith with the Borrower to find an alternative method or lending base in order to maintain the Facility.

6.2

Voluntary prepayment of Loan The Borrower may prepay the whole or any part of a Drawing (but, if in part, being an amount that reduces that Drawing by a minimum amount of five million Dollars ($5,000,000)) provided that it gives the Agent not less than three (3) Business Days' prior notice.

6.3

Restrictions Any notice of prepayment given under this Clause 6 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant prepayment is to be made and the amount of that prepayment.

Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty.

If the Agent receives a notice under this Clause 6 it shall promptly forward a copy of that notice to the Borrower or the Lenders, as appropriate.

6.4

Mandatory Prepayment If at any time the Facility Outstandings shall exceed the Maximum Amount the Borrower shall immediately prepay to the Agent on behalf of the Lenders such amounts as will ensure that the Facility Outstandings do not exceed the Maximum Amount and shall pay to the Lenders all interest accrued on the amount prepaid up to and including the date on which such prepayment occurred.

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7	Interest

7.1

Interest Periods The period during which each Drawing shall be outstanding under this Agreement shall be an Interest Period of one, three or six months' duration, as selected by the Borrower in the Drawdown Notice in respect of the Drawing in question, or such other duration as may be agreed by the Agent (acting on the instructions of all the Lenders). Not more than five one (1) month Interest Periods may be selected by the Borrower in each twelve (12) month period.

7.2

Beginning and end of Interest Periods The first Interest Period in respect of each Drawing shall begin on the Drawdown Date of that Drawing and shall end on the last day of the Interest Period selected in accordance with Clause 7.1. Any subsequent Interest Period selected in respect of each Drawing shall commence on the day following the last day of its previous Interest Period and shall end on the last day of its current Interest Period selected in accordance with Clause 7.1.

7.3

Interest Periods to meet Maturity Date If an Interest Period for a Drawing would otherwise expire after the Maturity Date, the Interest Period for that Drawing shall expire on the Maturity Date .

7.4

Non-Business Days If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that calendar month (if there is one) or the preceding Business Day (if there is not).

7.5

Interest rate During each Interest Period interest shall accrue on the relevant Drawing at the rate determined by the Agent to be

(i)

the WSJ Prime Rate in the case of a Same Day Drawing; or

(ii)

in all other cases the aggregate of (a) the Margin, (b) LIBOR and (c) the Mandatory Cost, if applicable.

7.6

Failure to select Interest Period If the Borrower at any time fails to select or agree an Interest Period in accordance with Clause 7.1 , the interest rate applicable shall be three (3) months.

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7.7

Accrual and payment of interest Interest shall accrue from day to day, shall be calculated on the basis of a 360 day year and the actual number of days elapsed (or, in any circumstance where market practice differs, in accordance with the prevailing market practice) and shall be paid by the Borrower to the Agent for the account of the Lenders on the last day of each Interest Period and, if the Interest Period is longer than three months, on the dates falling at three monthly intervals after the first day of that Interest Period.

7.8

Default interest If the Borrower fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date, subject to any applicable grace period, up to the date of actual payment (both before and after judgment) at a rate which is one point five per cent (1.5%) higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Drawing for successive Interest Periods, each selected by the Agent (acting reasonably). Any interest accruing under this Clause 7. 8 shall be immediately payable by the Borrower on demand by the Agent. If unpaid, any such interest will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.

7.9

Changes in market circumstances If at any time the Agent determines (which determination shall be final and conclusive and binding on the Borrower) that, by reason of changes affecting the London interbank market, adequate and fair means do not exist for determining the rate of interest on a Drawing for any Interest Period:

7.9.1

the Agent shall give notice to the Lenders and the Borrower of the occurrence of such event; and

7.9.2

the rate of interest on each Lender's Commitment in the relevant Drawing for that Interest Period shall be the rate per annum which is the sum of:

(a)

the Margin; and

(b)

the rate notified to the Agent by that Lender as soon as practicable, and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its Commitment in the relevant Drawing from whatever source it may reasonably select; and

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(c)

the Mandatory Cost, if any, applicable to that Lender's Commitment,

PROVIDED THAT if the resulting rate of interest on any Commitment is not acceptable to the Borrower:

7.9.3

the Agent on behalf of the Lenders will negotiate with the Borrower in good faith with a view to modifying this Agreement to provide a substitute basis for determining the rate of interest which is financially a substantial equivalent to the basis provided for in this Agreement;

7.9.4

any substitute basis agreed pursuant to Clause 7. 9 .3 shall be binding on all the parties to this Agreement and shall apply to all Commitments in the relevant Drawing ; and

7.9.5

if, within thirty (30) days of the giving of the notice referred to in Clause 7.9.1, the Borrower and the Agent fail to agree in writing on a substitute basis for determining the rate of interest in respect of the relevant Drawing, the relevant Lender shall cease to be obliged to advance its Proportionate Share of that Drawing, but, if it has already been advanced, the Borrower will immediately prepay that Proportionate Share of that Drawing, together with any Break Costs, and the Maximum Amount shall be reduced by the amount of that Lender's Proportionate Share of that Drawing .

7.10

Determinations conclusive The Agent shall promptly notify the Borrower of the determination of a rate of interest under this Clause 7 and each such determination shall (save in the case of manifest error) be final and conclusive.

8	Indemnities

8.1

Transaction expenses The Borrower will, within fourteen (14) days of the Agent's written demand, pay the Agent (for the account of the Finance Parties) the amount of all reasonable out of pocket costs and expenses (including legal fees and Value Added Tax or any similar or replacement tax if applicable) reasonably incurred by the Finance Parties or any of them in connection with:

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8.1.1

the negotiation, preparation, printing, execution and registration of the Finance Documents (whether or not any Finance Document is actually executed or registered and whether or not a Drawing is advanced );

8.1.2

any amendment, addendum or supplement to any Finance Document (whether or not completed); and

8.1.3

any other document which may at any time be required by a Finance Party to give effect to any Finance Document or which a Finance Party is entitled to call for or obtain under any Finance Document.

8.2

Funding costs The Borrower shall indemnify each Finance Party, by payment to the Agent (for the account of that Finance Party) on the Agent's written demand, against all losses and costs incurred or sustained by that Finance Party if, for any reason due to a default or other action by the Borrower , a Drawing is not ad vanced to the Borrower after the relevant Drawdown Notice has been given to the Agent, or is advanced on a date other than that requested in the Drawdown Notice.

8.3

Break Costs The Borrower shall indemnify each Finance Party, by payment to the Agent (for the account of that Finance Party) on the Agent's written demand, against all documented costs, losses, premiums or penalties incurred by that Finance Party as a result of its receiving any prepayment of all or any part of a Drawing (whether pursuant to Clause 6 or otherwise) on a day other than the last day of an Interest Period for that Drawing , or any other payment under or in relation to the Finance Documents on a day other than the due date for payment of the sum in question, including (without limitation) any losses or costs incurred in liquidating or re-employing deposits from third parties acquired to effect or maintain all or any part of a Drawing , and any liabilities, expenses or losses incurred by that Finance Party in terminating or reversing, or otherwise in connection with, any interest rate and/or currency swap, transaction or arrangement entered into by that Finance Party with any member of the Group to hedge any exposure arising under this Agreement, or in terminating or reversing, or otherwise in connection with, any open position arising under this Agreement .

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8.4

Currency indemnity In the event of a Finance Party receiving or recovering any amount payable under a Finance Document in a currency other than the Currency of Account, and if the amount received or recovered is insufficient when converted into the Currency of Account at the date of receipt to satisfy in full the amount due, the Borrower shall, on the Agent's written demand, pay to the Agent for the account of the relevant Finance Party such further amount in the Currency of Account as is sufficient to satisfy in full the amount due and that further amount shall be due to the Agent on behalf of the relevant Finance Party as a separate debt under this Agreement.

8.5

Increased costs (subject to Clause 8.6) If, by reason of the introduction of any law, or any change in any law, or any change in the interpretation or administration of any law, or compliance with any request or requirement from any central bank or any fiscal, monetary or other authority occurring after the date of this Agreement:

8.5.1

a Finance Party (or the holding company of a Finance Party) shall be subject to any Tax with respect to payment of all or any part of the Indebtedness (other than Tax on overall net income); or

8.5.2

the basis of Taxation of payments to a Finance Party in respect of all or any part of the Indebtedness shall be changed; or

8.5.3

any reserve requirements shall be imposed, modified or deemed applicable against assets held by or deposits in or for the account of or loans by any branch of a Finance Party; or

8.5.4

the manner in which a Finance Party allocates capital resources to its obligations under this Agreement or any ratio (whether cash, capital adequacy, liquidity or otherwise) which a Finance Party is required or requested to maintain shall be affected; or

8.5.5

there is imposed on a Finance Party (or on the holding company of a Finance Party) any other condition in relation to the Indebtedness or the Finance Documents;

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and the result of any of the above shall be to increase the cost to a Finance Party (or to the holding company of a Finance Party) of that Finance Party making or maintaining its Commitment, or to cause a Finance Party to suffer (in its opinion) a material reduction in the rate of return on its overall capital below the level which it reasonably anticipated at the date of this Agreement and which it would have been able to achieve but for its entering into this Agreement and/or performing its obligations under this Agreement, then, subject to Clause 8.6, the Finance Party affected shall notify the Agent and the Borrower shall from time to time pay to the Agent on demand for the account of that Finance Party the amount which shall compensate that Finance Party (or the relevant holding company) for such additional cost or reduced return. A certificate signed by an authorised signatory of that Finance Party setting out the amount of that payment and the basis of its calculation shall be submitted to the Borrower and shall be conclusive evidence of such amount save for manifest error or on any question of law.

8.6

Exceptions to increased costs Clause 8.5 does not apply to the extent any additional cost or reduced return referred to in that Clause is:

8.6.1

compensated for by a payment made under Clause 8.10; or

8.6.2

compensated for by a payment made under Clause 17.3; or

8.6.3

compensated for by the payment of the Mandatory Cost; or

8.6.4

attributable to the wilful breach by the relevant Finance Party (or the holding company of that Finance Party) of any law or regulation.

8.7

Events of Default The Borrower shall indemnify each Finance Party from time to time, by payment to the Agent (for the account of that Finance Party) on the Agent's written demand, against all losses and costs incurred or sustained by that Finance Party as a consequence of any Event of Default.

8.8

Enforcement costs The Borrower shall pay to the Agent (for the account of each Finance Party) on the Agent's written demand the amount of all costs and expenses (including legal fees) incurred by a Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document including (without limitation) any losses, costs and expenses which that Finance Party may from time to time sustain, incur or become liable for by reason of that Finance Party being mortgagee of a Vessel and/or a lender to the Borrower, or by reason of that Finance Party being deemed by any court or authority to be an operator or controller, or in any way concerned in the operation or control, of a Vessel. No such indemnity will be given where any such loss or cost has occurred due to gross negligence or wilful misconduct on the part of that Finance Party; however, this shall not effect the right of any other Finance Party to receive such indemnity.

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8.9

Other costs The Borrower shall pay to the Agent (for the account of each Finance Party) on the Agent's written demand the amount of all sums which a Finance Party may pay or become actually or contingently liable for on account of the Borrower in connection with a Vessel (whether alone or jointly or jointly and severally with any other person) including (without limitation) all sums which that Finance Party may pay or guarantees which it may give in respect of the Insurances, any expenses incurred by that Finance Party in connection with the maintenance or repair of a Vessel or in discharging any lien, bond or other claim relating in any way to a Vessel, and any sums which that Finance Party may pay or guarantees which it may give to procure the release of a Vessel from arrest or detention.

8.10

Taxes The Borrower shall pay all Taxes to which all or any part of the Indebtedness or any Finance Document may be at any time subject (other than Tax on a Finance Party's overall net income) and shall indemnify the Finance Parties, by payment to the Agent (for the account of the Finance Parties) on the Agent's written demand, against all liabilities, costs, claims and expenses resulting from any omission to pay or delay in paying any such Taxes.

Fees

9.1

Commitment fee The Borrower shall pay to the Agent (for the account of the Lenders in proportion to their Commitments) a fee computed at the rate of thirty two point five per cent (32.5%) of the Margin on the undrawn and uncancelled amount of the Maximum Amount from time to time from the date of this Agreement until the Commitment Termination Date. The accrued commitment fee is payable on the last day of each successive period of three months from the Execution Date and on the Commitment Termination Date.

9.2

Other fees The Borrower shall pay to the Agent the fees in the amount and at the times agreed in a Fee Letter.

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10	Security and Application of Moneys

10.1

Security Documents As security for the payment of the Indebtedness, the Borrower shall execute and deliver to the Security Agent or cause to be executed and delivered to the Security Agent the following documents in such forms and containing such terms and conditions as the Security Agent shall require:

10.1.1

a first priority statutory mortgage over each of the Vessels together with a collateral deed of covenants;

10.1.2

a first priority deed or deeds of assignment of the Insurances, Earnings, Charter Rights (if applicable) and Requisition Compensation of each of the Vessels, and of the benefit of any relevant Charterer's Assignment; and

10.1.3

an on demand guarantee and indemnity from the Guarantor;

10.2

Remittance of Earnings Immediately upon the occurrence of an Event of Default the Borrower shall procure that all Earnings are paid to such account(s) as the Agent shall from time to time specify by notice in writing to the Borrower.

10.3

General application of moneys Whilst an Event of Default is continuing unremedied and unwaived the Borrower irrevocably authorises the Agent and the Security Agent to apply all sums which either of them may receive:

10.3.1

pursuant to a sale or other disposition of a Vessel or any right, title or interest in the Vessel; or

10.3.2

by way of payment of any sum in respect of the Insurances, Earnings, Charter Rights or Requisition Compensation; or

10.3.3

otherwise arising under or in connection with any Security Document,

in accordance with Clause 3.4.3 or Clause 3.4.4 (if relevant) or otherwise in or towards satisfaction, or by way of retention on account, of the Indebtedness, as follows:-

(i)

first in payment of all outstanding fees and expenses of the Agent and the Security Agent;

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(ii)

secondly in or towards payment of all outstanding interest hereunder;

(iii)

thirdly in or towards payment of all outstanding principal hereunder;

(iv)

fourthly in or towards payment of all other Indebtedness hereunder;

(v)

fifthly the balance, if any, shall be remitted to the Borrower or whoever may be entitled thereto.

11	Representations and Warranties

The Borrower represents and warrants to each of the Finance Parties at the Execution Date and (by reference to the facts and circumstances then pertaining) at the date of each Drawdown Notice, at each Drawdown Date and at each Interest Payment Date as follows (except that the representation and warranty contained at Clause 11.6 shall only be made on the First Drawdown Date and that the representations and warranties contained at Clause 11.2 and 11.21 shall only be made on the Execution Date) :-

11.1

Status and Due Authorisation Each of the Security Parties is a corporation or limited partnership duly incorporated or formed under the laws of its jurisdiction of incorporation, organisation or formation (as the case may be) with power to enter into the Security Documents and to exercise its rights and perform its obligations under the Security Documents and all corporate and other action required to authorise its execution of the Security Documents and its performance of its obligations thereunder has been duly taken.

11.2

No Deductions or Withholding Under the laws of the Security Parties' respective jurisdictions of incorporation or formation in force at the date hereof, none of the Security Parties will be required to make any deduction or withholding from any payment it may make under any of the Security Documents.

11.3

Claims Pari Passu Under the laws of the Security Parties' respective jurisdictions of incorporation or formation in force at the date hereof, the Indebtedness will, to the extent that it exceeds the realised value of any security granted in respect of the Indebtedness, rank at least pari passu with all the Security Parties' other unsecured indebtedness save that which is preferred solely by any bankruptcy, insolvency or other similar laws of general application.

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11.4

No Immunity In any proceedings taken in any of the Security Parties' respective jurisdictions of incorporation or formation in relation to any of the Security Documents, none of the Security Parties will be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process.

11.5

Governing Law and Judgments In any proceedings taken in any of the Security Parties' jurisdiction of incorporation or formation in relation to any of the Security Documents in which there is an express choice of the law of a particular country as the governing law thereof, that choice of law and any judgment or (if applicable) arbitral award obtained in that country will be recognised and enforced.

11.6

Validity and Admissibility in Evidence As at the date hereof, all acts, conditions and things required to be done, fulfilled and performed in order (a) to enable each of the Security Parties lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Security Documents, (b) to ensure that the obligations expressed to be assumed by each of the Security Parties in the Security Documents are legal, valid and binding and (c) to make the Security Documents admissible in evidence in the jurisdictions of incorporation or formation of each of the Security Parties, have been done, fulfilled and performed.

11.7

No Filing or Stamp Taxes Under the laws of the Security Parties' respective jurisdictions of incorporation or formation in force at the date hereof, it is not necessary that any of the Security Documents be filed, recorded or enrolled with any court or other authority in its jurisdiction of incorporation or formation (other than the Registrar of Companies for England and Wales or the relevant maritime registry, to the extent applicable) or that any stamp, registration or similar tax be paid on or in relation to any of the Security Documents.

11.8

Binding Obligations The obligations expressed to be assumed by each of the Security Parties in the Security Documents are legal and valid obligations, binding on each of them in accordance with the terms of the Security Documents and no limit on any of their powers will be exceeded as a result of the borrowings, granting of security or giving of guarantees contemplated by the Security Documents or the performance by any of them of any of their obligations thereunder.

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11.9

No Winding-up Neither the Borrower, the Guarantor nor any Material Subsidiary have taken any corporate or limited partnership action nor have any other steps been taken or legal proceedings been started or (to the best of the Borrower's knowledge and belief) threatened against the Borrower, the Guarantor or any Material Subsidiary for its winding-up, dissolution, administration or reorganisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues which might have a material adverse effect on the business or financial condition of the Group taken as a whole.

11.10

Solvency

11.10.1

Neither the Borrower, the Guarantor nor the Group taken as a whole is unable, or admits or has admitted its inability, to pay its debts or has suspended making payments in respect of any of its debts.

11.10.2

Neither the Borrower, the Guarantor nor any Material Subsidiary by reason of actual or anticipated financial difficulties, has commenced, or intends to commence, negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.

11.10.3

The value of the assets of each of the Borrower, the Guarantor and the Group taken as a whole is not less than the liabilities of such entity or the Group taken as a whole (as the case may be) (taking into account contingent and prospective liabilities).

11.10.4

No moratorium has been, or may, in the reasonably foreseeable future be, declared in respet of any indebtedness of the Borrower, the Guarantor or any Material Subsidiary.

11.11

No Material Defaults

11.11.1

Without prejudice to Clause 11.11.2, neither the Borrower, the Guarantor nor any Material Subsidiary is in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which might have a material adverse effect on the business or financial condition of the Group taken as a whole.

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11.11.2

No Event of Default is continuing or might reasonably be expected to result from the advance of any Drawing.

11.12

No Material Proceedings No action or administrative proceeding of or before any court, arbitral body or agency which is not covered by adequate insurance or which might have a material adverse effect on the business or financial condition of the Group taken as a whole has been started or is reasonably likely to be started.

11.13

Borrower's Accounts All financial statements relating to the Group required to be delivered under Clause 12.1, were each prepared in accordance with GAAP, give (in conjunction with the notes thereto) a true and fair view of (in the case of annual financial statements) or fairly represent (in the case of quarterly accounts) the financial condition of the Group at the date as of which they were prepared and the results of the Group’s operations during the financial period then ended.

11.14

No Material Adverse Change Since the publication of the last financial statements relating to the Group delivered pursuant to Clause 12.1, there has been no change that has a Material Adverse Effect.

11.15

No Undisclosed Liabilities As at the date to which the Borrower's Accounts were prepared neither the Borrower, the Guarantor nor any Material Subsidiary had any material liabilities (contingent or otherwise) which were not disclosed thereby (or by the notes thereto) or reserved against therein nor any unrealised or anticipated losses arising from commitments entered into by it which were not so disclosed or reserved against therein.

11.16

No Obligation to Create Security The execution of the Security Documents by the Security Parties and their exercise of their rights and performance of their obligations thereunder will not result in the existence of nor oblige the Borrower or the Guarantor to create any Encumbrance over all or any of their present or future revenues or assets, other than pursuant to the Security Documents.

11.17

No Breach The execution of the Security Documents by each of the Security Parties and their exercise of their rights and performance of their obligations under any of the Security Documents do not constitute and will not result in any breach of any agreement or treaty to which any of them is a party.

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11.18

Security Each of the Security Parties is the legal and beneficial owner of all assets and other property which it purports to charge, mortgage, pledge, assign or otherwise secure pursuant to each Security Document and those Security Documents to which it is a party create and give rise to valid and effective security having the ranking expressed in those Security Documents.

11.19

Necessary Authorisations The Necessary Authorisations required by each Security Party, are in full force and effect, and each Security Party is in compliance with the material provisions of each such Necessary Authorisation relating to it and, to the best of its knowledge, none of the Necessary Authorisations relating to it are the subject of any pending or threatened proceedings or revocation.

11.20

Money Laundering Any amount borrowed hereunder, and the performance of the obligations of the Security Parties under the Security Documents, will be for the account of members of the Group and will not involve any breach by any of them of any law or regulatory measure relating to "money laundering" as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities.

11.21

11.22

Use of Facility The Facility will be used for the purposes specified in the Recital.

11.23

Representations Limited The representation and warranties of the Borrower in this Clause 11 are subject to:

11.23.1

the principle that equitable remedies are remedies which may be granted or refused at the discretion of the court;

11.23.2

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11.23.3

the time barring of claims under any applicable limitation acts;

11.23.4

the possibility that a court may strike out provisions for a contract as being invalid for reasons of oppression, undue influence or similar; and

11.23.5

any other reservations or qualifications of law expressed in any legal opinions obtained by the Agent in connection with the Facility.

12	Undertakings and Covenants

The undertakings and covenants in this Clause 12 remain in force for the duration of the Facility Period.

12.1

General Undertakings

12.1.1

Financial statements The Borrower shall supply to the Agent as soon as the same become available, but in any event within one hundred and fifty (150) days after the end of each of its financial years, its audited consolidated financial statements for that financial year, together with a Compliance Certificate, signed by a duly authorised representative of the Borrower, setting out computations as to compliance with Clause 12.2 as at the date as at which those financial statements were drawn up.

12.1.2

Requirements as to financial statements Each set of financial statements delivered by the Borrower under Clause 12.1.1:

(a)

shall be certified by an authorised signatory of the Borrower as fairly representing its financial condition as at the date as at which those financial statements were drawn up; and

(b)

shall be prepared in accordance with GAAP.

12.1.3

Interim financial statements The Borrower shall supply to the Agent as soon as the same become available, but in any event within ninety (90) days after the end of each quarter during each of its financial years, its unaudited consolidated quarterly financial statements for that quarter together with a Compliance Certificate, signed by a duly authorised representative of the Borrower, setting out computations as to compliance with Clause 12.2 as at the date such financial statements were drawn up.

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12.1.4

Maintenance of Legal Validity The Borrower shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws and regulations of its jurisdiction of formation and all other applicable jurisdictions, to enable it lawfully to enter into and perform its obligations under the Security Documents and to ensure the legality, validity, enforceability or admissibility in evidence of the Security Documents in its jurisdiction of incorporation or organisation and all other applicable jurisdictions.

12.1.5

Notification of Default The Borrower shall promptly, upon becoming aware of the same, inform the Agent in writing of the occurrence of any Event of Default and, upon receipt of a written request to that effect from the Agent, confirm to the Agent that, save as previously notified to the Agent or as notified in such confirmation, no Event of Default has occurred.

12.1.6

Claims Pari Passu The Borrower shall ensure that at all times the claims of the Finance Parties against it under the Security Documents rank at least pari passu with the claims of all its other unsecured creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation, winding-up or other similar laws of general application.

12.1.7

Management of Vessels The Borrower shall procure that the Owner shall ensure that each of the Vessels is at all times technically and commercially managed by a management company controlled by Teekay Shipping Corporation or the Borrower or such other management company as may be acceptable to the Agent acting on the instructions of the Majority Lenders.

12.1.8

Classification The Borrower shall procure that the Owner shall ensure that each of the Vessels maintains the highest classification required for the purpose of the relevant trade of such Vessel which shall be with a Pre-Approved Classification Society, in each case, free from any overdue recommendations and conditions affecting that Vessel’s class.

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12.1.9

Certificate of Financial Responsibility The Borrower shall procure that the Owner shall obtain and maintain a certificate of financial responsibility in relation to any Vessel which is to call at the United States of America.

12.1.10

Negative Pledge The Borrower shall procure that the Owner does not create, or permit to subsist, any Encumbrance (other than pursuant to the Security Documents) over all or any part of the Vessels or the Insurances other than a Permitted Encumbrance.

12.1.11

Registration The Borrower shall procure that for the duration of the Facility Period the Owner shall not change or permit a change to the flag of the Vessels other than to a Pre-Approved Flag or under such other flag as may be approved by the Agent acting on the instructions of the Majority Lenders, such approval not to be unreasonably withheld or delayed.

12.1.12

ISM and ISPS Compliance The Borrower shall procure that the Owner shall ensure that the relevant Company complies in all material respects with the ISM Code and the ISPS Code or any replacements thereof and in particular (without prejudice to the generality of the foregoing) shall procure that the Owner shall ensure that the Company holds (i) a valid and current Document of Compliance issued pursuant to the ISM Code, (ii) a valid and current SMC issued in respect of each Vessel pursuant to the ISM Code, and (iii) an ISSC in respect of each Vessel, and the Borrower shall promptly, upon request, supply the Agent with copies of the same.

12.1.13

Necessary Authorisations Without prejudice to Clause 12.1.12 or any other specific provision of the Security Documents relating to an Authorisation, the Borrower shall (i) obtain, comply with and do all that is necessary to maintain in full force and effect all Necessary Authorisations if a failure to do the same may cause a Material Adverse Effect; and (ii) promptly upon request, supply certified copies to the Agent of all Necessary Authorisations.

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12.1.14

Compliance with Applicable Laws The Borrower shall comply with all applicable laws to which it may be subject if a failure to do the same may have a Material Adverse Effect.

12.1.15

Loans and Guarantees The Borrower shall be permitted to make loans and grant credit upon such terms as it may determine to any other member of the Group or to any of the Borrower's shareholders or unitholders and may otherwise give any guarantee or indemnity to procure financing for other members of the Group, but shall not otherwise make any loans or grant any credit (save in the ordinary course of business) or give any guarantee or indemnity (except pursuant to the Security Documents); Provided that the Borrower shall not make any such loans following the occurrence of an Event of Default which is continuing unremedied or unwaived.

12.1.16

Further Assurance The Borrower shall at its own expense, promptly take all such action as the Agent may reasonably require for the purpose of perfecting or protecting any Finance Party’s rights with respect to the security created or evidenced (or intended to be created or evidenced) by the Security Documents.

12.1.17

Other information The Borrower will promptly supply to the Agent such information and explanations as the Majority Lenders may from time to time reasonably require in connection with the operation of the Vessels and any reasonable financial information in connection with the Borrower, and will procure that the Agent be given the like information and explanations relating to all other Security Parties.

12.1.18

Inspection of records The Borrower will permit the inspection of its financial records and accounts on reasonable notice from time to time during business hours by the Agent or its nominee.

12.1.19

Valuations The Borrower will deliver to the Agent a Valuation of each of the Vessels (i) on the due date for delivery of the annual Borrower's Accounts pursuant to Clause 12.1 (ii) on a sale or Total Loss of any Vessel to determine the Relevant Reduction Amount for the purposes of clauses 3.4.3 and 3.4.4 respectively and (iii) following the occurrence of an Event of Default which is continuing unremedied and unwaived on such other occasions as the Agent may request.

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12.1.20

Insurance The Borrower shall procure that the Owner shall ensure at its own expense throughout the Facility Period that the Vessels are insured and operated in accordance with the provisions set out in the relevant Security Documents.

12.1.21

Change of Control The Borrower shall procure that throughout the Facility Period:

(a)

Teekay Shipping Corporation owns a minimum of fifty one percent (51%) of the voting rights in Teekay Offshore GP L.L.C, the general partner in the MLP;

(b)

Teekay Shipping Corporation or the MLP owns a minimum of fifty one percent (51%) of the voting rights in Teekay Offshore Operating GP L.L.C., the general partner in the Borrower;

(c)

there is no change in the legal or beneficial ownership of the Guarantor from that advised to the Agent at the date of this Agreement without the Agent's prior written consent provided that the Agent's consent shall not be required if the change of Guarantor shareholding arises from a corporate reorganisation of the Group and the legal and beneficial ownership of the Guarantor remains wholly owned within the Group following such re-organisation.

12.1.22

"Know your customer" checks If:

(a)

the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

(b)

any change in the status of the Borrower after the date of this Agreement; or

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(c)

a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,

obliges the Agent or any Lender (or, in the case of (c) above, any prospective new Lender) to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender for itself (or, in the case of (c) above, on behalf of any prospective new Lender) in order for the Agent or that Lender (or, in the case of (c) above, any prospective new Lender) to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

12.1.23

Intercompany borrowings The Borrower will only borrow from other members of the Group on a subordinated and unsecured basis.

12.2

Financial covenants

Throughout the Facility Period the Group shall:-

12.2.1

maintain a Free Liquidity together with undrawn committed revolving credit lines available to the Group (including under this Agreement but excluding undrawn committed revolving credit lines with less than six (6) months to maturity) of not less than seventy five million Dollars ($75,000,000); and

12.2.2

ensure that the aggregate of the Free Liquidity and undrawn committed revolving credit lines available to be drawn by members of the Group (including under this Agreement, but excluding undrawn committed revolving credit lines with less than six (6) months to maturity) will not be less than five per cent (5%) of the Total Debt of the Group.

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PROVIDED THAT following any change in the applicable accounting policies for the Borrower from GAAP the Agent (acting on the instructions of the Majority Lenders and in consultation with the Borrower) may require an amendment to this Clause 12.2 as the Agent deems logical and necessary having regard to the nature of such changes in policy and the intended substance of this Clause 12.2.

13	Events of Default

13.1

Events of Default Each of the events or circumstances set out in this Clause 13.1 is an Event of Default.

13.1.1

Borrower's Failure to Pay under this Agreement The Borrower fails to pay any amount of principal due from it under this Agreement at the time, in the currency and otherwise in the manner specified herein provided that, if the Borrower can demonstrate to the reasonable satisfaction of the Agent that all necessary instructions were given to effect such payment and the non-receipt thereof is attributable solely to an error in the banking system, such payment shall instead be deemed to be due, solely for the purposes of this paragraph, within three (3) Business Days of the date on which it actually fell due under this Agreement (if a payment of principal), five (5) Business Days (if a payment of interest) or ten (10) Business Days (if a sum payable on demand); or

13.1.2

Misrepresentation Any representation or statement made by any Security Party in any Security Document to which it is a party or in any notice or other document, certificate or statement delivered by it pursuant thereto or in connection therewith is or proves to have been incorrect or misleading in any material respect, where the circumstances causing the same give rise to a Material Adverse Effect; or

13.1.3

Specific Covenants A Security Party fails duly to perform or comply with any of the obligations expressed to be assumed by or procured by the Borrower under Clauses 12.1.4, 12.1.6, 12.1.10 or 12.1.21; or

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13.1.4

Financial Covenants The Borrower is in breach of the Borrower's financial covenants set out in Clause 12.2 at any time; or

13.1.5

Other Obligations A Security Party fails duly to perform or comply with any of the obligations expressed to be assumed by it in any Security Document (other than those referred to in Clause 13.1.3 or Clause 13.1.4) and such failure is not remedied within 30 days after the Agent has given notice thereof to the Borrower; or

13.1.6

Cross Default Any indebtedness of any Security Party or any Material Subsidiary is not paid when due (or within any applicable grace period) or any indebtedness of any Security Party or any Material Subsidiary is declared to be or otherwise becomes due and payable prior to its specified maturity where (in either case) the aggregate of all such unpaid or accelerated indebtedness (i) of the Borrower is equal to or greater than fifty million Dollars ($50,000,000) or its equivalent in any other currency; or (ii) of the Guarantor, or any Material Subsidiary is equal to or greater than twenty five million Dollars ($25,000,000) or its equivalent in any other currency; or

13.1.7

Insolvency and Rescheduling A Security Party or a Material Subsidiary is unable to pay its debts as they fall due, commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of its creditors or a composition with its creditors; or

13.1.8

Winding-up A Security Party or a Material Subsidiary takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration or re-organisation or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its revenues or assets or any moratorium is declared or sought in respect of any of its indebtedness; or

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13.1.9

Execution or Distress

(a)

Any Security Party or a Material Subsidiary fails to comply with or pay any sum due from it (within 30 days of such amount falling due) under any final judgment or any final order made or given by any court or other official body of a competent jurisdiction in an aggregate (i) in respect of the Borrower equal to or greater than fifty million Dollars ($50,000,000) or its equivalent in any other currency; or (ii) in respect of the Guarantor or a Material Subsidiary equal to or greater than twenty five million Dollars ($25,000,000) or its equivalent in any other currency, being a judgment or order against which there is no right of appeal or if a right of appeal exists, where the time limit for making such appeal has expired.

(b)

Any execution or distress is levied against, or an encumbrancer takes possession of, the whole or any part of, the property, undertaking or assets of a Security Party or a Material Subsidiary in an aggregate amount (i) in respect of the Borrower equal to or greater than fifty million Dollars ($50,000,000) or its equivalent in any other currency; or (ii) in respect of the Guarantor or a Material Subsidiary equal to or greater than twenty five million Dollars ($25,000,000) or its equivalent in any other currency, other than any execution or distress which is being contested in good faith and which is either discharged within 30 days or in respect of which adequate security has been provided within 30 days to the relevant court or other authority to enable the relevant execution or distress to be lifted or released.

(c)

Notwithstanding the foregoing paragraphs of this Clause 13.1.9, any levy of any distress on or any arrest, condemnation, confiscation, requisition for title or use, compulsory acquisition, seizure, detention or forfeiture of a Vessel (or any part thereof) or any exercise or purported exercise of any lien or claim on or against a Vessel where the release of or discharge the lien or claim on or against such Vessel has not been procured within 30 days; or

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13.1.10

Similar Event Any event occurs which, under the laws of any jurisdiction, has a similar or analogous effect to any of those events mentioned in Clauses 13.1.7, 13.1.8 and 13.1.9; or

13.1.11

Insurances Insurance is not maintained in respect of any Vessel in accordance with the terms of the relevant Security Document in respect of that Vessel; or

13.1.12

Class A Vessel has its classification withdrawn by the relevant classification society PROVIDED THAT if such withdrawal is (in the opinion of the Agent in its absolute discretion) capable of remedy such Event of Default shall only occur if the Vessel's classification is not reinstated to the satisfaction of the Agent within twenty one (21) days; or

13.1.13

Environmental Matters

(a)

Any Environmental Claim is pending or made against the Owner or any of the Owner's Environmental Affiliates or in connection with a Vessel, where such Environmental Claim has a Material Adverse Effect.

(b)

Any actual Environmental Incident occurs in connection with a Vessel, where such Environmental Incident has a Material Adverse Effect; or

13.1.14

Repudiation Any Security Party repudiates any Security Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate any such Security Document; or

13.1.15

Validity and Admissibility At any time any act, condition or thing required to be done, fulfilled or performed in order:

(a)

to enable any Security Party lawfully to enter into, exercise its rights under and perform the respective obligations expressed to be assumed by it in the Security Documents;

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(b)

to ensure that the obligations expressed to be assumed by each of the Security Parties in the Security Documents are legal, valid and binding; or

(c)

to make the Security Documents admissible in evidence in any applicable jurisdiction

is not done, fulfilled or performed within 30 days after notification from the Agent to the relevant Security Party requiring the same to be done, fulfilled or performed; or

13.1.16

Illegality At any time it is or becomes unlawful for any Security Party to perform or comply with any or all of its obligations under the Security Documents to which it is a party or any of the obligations of the Borrower hereunder are not or cease to be legal, valid and binding and such illegality is not remedied or mitigated to the satisfaction of the Agent within thirty (30) days after it has given notice thereof to the relevant Security Party; or

13.1.17

Material Advers Change At any time there shall occur a change in the business or operations of a Security Party or a change in the financial condition of any Security Party which, in the reasonable opinion of the Majority Lenders, materially impairs such Security Party's ability to discharge its obligations under the Security Documents in the manner provided therein and such change, if capable of remedy, is not so remedied within 15 days of the delivery of a notice confirming such change by the Agent to the relevant Security Party; or

13.1.18

Qualifications of Financial Statements The auditors of the Group qualify their report on any audited consolidated financial statements of the Group in any regard which, in the reasonable opinion of the Agent, has a Material Adverse Effect; or

13.1.19

Conditions Subsequent if any of the conditions set out in Clause 3.6 is not satisfied within thirty (30) days or such other time period specified by the Agent in its discretion; or

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13.1.20

Revocation or Modification of consents etc. if any Necessary Authorisation which is now or which at any time during the Facility Period becomes necessary to enable any of the Security Parties to comply with any of their obligations in or pursuant to any of the Security Documents is revoked, withdrawn or withheld, or modified in a manner which the Agent reasonably considers is, or may be, prejudicial to the interests of a Finance Party in a material manner, or if such Necessary Authorisation ceases to remain in full force and effect; or

13.1.21

Curtailment of Business if the business of any of the Security Parties is wholly or materially curtailed by any intervention by or under authority of any government, or if all or a substantial part of the undertaking, property or assets of any of the Security Parties is seized, nationalised, expropriated or compulsorily acquired by or under authority of any government or any Security Party disposes or threatens to dispose of a substantial part of its business or assets; or

13.1.22

Reduction of Capital if the Borrower reduces its committed or subscribed capital; or

13.1.23

C hallenge to Registration if the registration of any Vessel or any Mortgage becomes void or voidable or liable to cancellation or termination; or

13.1.24

War if the country of registration of any Vessel becomes involved in war (whether or not declared) or civil war or is occupied by any other power and the Agent reasonably considers that, as a result, the security conferred by the Security Documents is materially prejudiced; or

13.1.25

Notice of Termination if the Guarantor gives notice to the Agent to determine its obligations under the Guarantee.

13.2

Acceleration If an Event of Default is continuing unremedied or unwaived the Agent may (with the consent of the Majority Lenders) and shall (at the request of the Majority Lenders) by notice to the Borrower cancel any part of the Maximum Amount not then advanced and :

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13.2.1

declare that the Loan , together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents are immediately due and payable, whereupon they shall become immediately due and payable; and/or

13.2.2

declare that the Loan is payable on demand, whereupon it shall immediately become payable on demand by the Agent; and/or

13.2.3

declare the Commitments terminated and the Maximum Amount reduced to zero.

14	Assignment and Sub-Participation

14.1

Lenders' rights A Lender may assign any of its rights under this Agreement or transfer by novation any of its rights and obligations under this Agreement to any other branch or Affiliate of that Lender or (subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld but not to be required at any time after an Event of Default which is continuing unremedied and unwaived) to any other bank or financial institution, and may grant sub-participations in all or any part of its Commitment .

14.2

Borrower's co-operation The Borrower will co-operate fully with a Lender in connection with any assignment, transfer or sub-participation by that Lender; will execute and procure the execution of such documents as that Lender may require in that connection; and irrevocably authorises any Finance Party to disclose to any proposed assignee, transferee or sub-participant (whether before or after any assignment, transfer or sub-participation and whether or not any assignment, transfer or sub-participation shall take place) all information relating to the Security Parties, the Loan, the Relevant Documents and the Vessels which any Finance Party may in its discretion consider necessary or desirable (subject to any duties of confidentiality applicable to the Lenders generally). Additionally, (but subject to the same duties of confidentiality), any Lender may disclose the size and term of the Facility and the names of each Security Party to any investor or potential investor in a securitisation (or similar transaction of broadly equivalent economic effect) of that Lender's rights and obligations under the Finance Documents.

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14.3

Rights of assignee Any assignee of a Lender shall (unless limited by the express terms of the assignment) take the full benefit of every provision of the Finance Documents benefitting that Lender PROVIDED THAT an assignment will only be effective on notification by the Agent to that Lender and the assignee that the Agent is satisfied it has complied with all necessary "Know your customer" or other similar checks under all applicable laws and regulations in relation to the assignment to the assignee.

14.4

Transfer Certificates If a Lender wishes to transfer any of its rights and obligations under or pursuant to this Agreement, it may do so by delivering to the Agent a duly completed Transfer Certificate, in which event on the Transfer Date:

14.4.1

to the extent that that Lender seeks to transfer its rights and obligations, the Borrower (on the one hand) and that Lender (on the other) shall be released from all further obligations towards the other;

14.4.2

the Borrower (on the one hand) and the transferee (on the other) shall assume obligations towards the other identical to those released pursuant to Clause 14.4.1; and

14.4.3

the Agent, each of the Lenders and the transferee shall have the same rights and obligations between themselves as they would have had if the transferee had been an original party to this Agreement as a Lender

PROVIDED THAT the Agent shall only be obliged to execute a Transfer Certificate once:

(a)

it is satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to the transfer to the transferee; and

(b)

the transferee has paid to the Agent for its own account a transfer fee of three thousand Dollars.

The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate, send to the Borrower a copy of that Transfer Certificate.

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14.5

Finance Documents Unless otherwise expressly provided in any Finance Document or otherwise expressly agreed between a Lender and any proposed transferee and notified by that Lender to the Agent on or before the relevant Transfer Date, there shall automatically be assigned to the transferee with any transfer of a Lender's rights and obligations under or pursuant to this Agreement the rights of that Lender under or pursuant to the Finance Documents (other than this Agreement) which relate to the portion of that Lender's rights and obligations transferred by the relevant Transfer Certificate.

14.6

No assignment or transfer by the Borrower The Borrower may not assign any of its rights or transfer any of its rights or obligations under the Finance Documents.

14.7

Transfer of the Loan Agreement by KfW . Notwithstanding the provisions of Clause 14.1 KfW may transfer all its rights and obligations under this Agreement to a KfW Subsidiary with effect from 1 January 2008 or any later date. By signing this Agreement the Borrower consents to such a transfer. KfW or the KfW Subsidiary will inform the Borrower of the date on which the transfer of KfW’s rights and obligations to the KfW Subsidiary takes effect. In this connection the following will apply:

14.7.1

Deductions and Increased costs. If, by reason of circumstances already existing at the transfer date, the Borrower would be obliged to make a payment to the KfW Subsidiary under Clauses 8.5, 17.2 or 17.3, it need pay the KfW Subsidiary only such an amount as it would have been obliged to pay KfW if the transfer had not occurred.

14.7.2

Costs . KfW will pay all costs incurred as a result of or in connection with such transfer.

For the purposes of this Clause KfW Subsidiary means a company which within the meaning of section 15 ff. German Stock Corporation Act ( Aktiengesetz ) is directly or indirectly (i) majority owned ( im Mehrheitsbesitz ) by KfW or (ii) controlled ( abh’ngig ) by KfW.

14.8

Disclosure of information . In connection with any transfer under Clause 14.7 KfW may disclose confidential information to the KfW Subsidiary or its agents or its legal advisors.

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14.9

Mitigation If a transfer is to take place under Clause 14.7 then, without in any way limiting the rights of KfW under Clauses 8.5, 17.2 or 17.3, KfW shall take reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to Clauses 8.5, 17.2 or 17.3 and it shall co-operate in completing any procedural formalities necessary for the Borrower to obtain authorisation to make any payment under Clauses 8.5, 17.2 or 17.3 without a deduction or withholding.

15	The Agent, the Security Agent and the Lenders

15.1

Appointment

15.1.1

Each Lender appoints the Agent to act as its agent under and in connection with the Finance Documents and each Lender and the Agent appoints the Security Agent to act as its security agent for the purpose of the Security Documents.

15.1.2

Each Lender authorises the Agent and each Lender and the Agent authorises the Security Agent to exercise the rights, powers, authorities and discretions specifically given to the Agent or the Security Agent (as the case may be) under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.

15.1.3

Except where the context otherwise requires, references in this Clause 15 to the " Agent " shall mean the Agent and the Security Agent individually and collectively.

15.2

Authority Each Lender irrevocably authorises the Security Agent (in the case of Clause 15.2.1) and the Agent (in the case of Clauses 15.2.2, 15.2.3 and 15.2.4) (in each case subject to Clauses 15.4 and 15.18):

15.2.1

to execute any Finance Document (other than this Agreement) on its behalf;

15.2.2

to collect, receive, release or pay any money on its behalf;

15.2.3

acting on the instructions from time to time of the Majority Lenders (save where the terms of any Security Document expressly provide otherwise) to give or withhold any waivers, consents or approvals under or pursuant to any Finance Document; and

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15.2.4

acting on the instructions from time to time of the Majority Lenders (save where the terms of any Security Document expressly provide otherwise) to exercise, or refrain from exercising, any rights, powers, authorities or discretions under or pursuant to any Finance Document.

The Agent shall have no duties or responsibilities as agent or as security agent other than those expressly conferred on it by the Finance Documents and shall not be obliged to act on any instructions from the Lenders or the Majority Lenders if to do so would, in the opinion of the Agent, be contrary to any provision of the Finance Documents or to any law, or would expose the Agent to any actual or potential liability to any third party.

15.3

Trust The Security Agent agrees and declares, and each of the other Finance Parties acknowledges, that, subject to the terms and conditions of this Clause 15.3, the Security Agent holds the Trust Property on trust for the Finance Parties absolutely. Each of the other Finance Parties agrees that the obligations, rights and benefits vested in the Security Agent shall be performed and exercised in accordance with this Clause 15.3. The Security Agent shall have the benefit of all of the provisions of this Agreement benefiting it in its capacity as security agent for the Finance Parties, and all the powers and discretions conferred on trustees by the Trustee Act 1925 (to the extent not inconsistent with this Agreement). In addition:

15.3.1

the Security Agent and any attorney, agent or delegate of the Security Agent may indemnify itself or himself out of the Trust Property against all liabilities, costs, fees, damages, charges, losses and expenses sustained or incurred by it or him in relation to the taking or holding of any of the Trust Property or in connection with the exercise or purported exercise of the rights, trusts, powers and discretions vested in the Security Agent or any other such person by or pursuant to the Security Documents or in respect of anything else done or omitted to be done in any way relating to the Security Documents other than as a result of its gross negligence or wilful misconduct;

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15.3.2

the other Finance Parties acknowledge that the Security Agent shall be under no obligation to insure any property nor to require any other person to insure any property and shall not be responsible for any loss which may be suffered by any person as a result of the lack or insufficiency of any insurance; and

15.3.3

the Finance Parties agree that the perpetuity period applicable to the trusts declared by this Agreement shall be the period of eighty years from the date of this Agreement.

15.4

Limitations on authority Except with the prior written consent of all the Lenders, the Agent shall not be entitled to:

15.4.1

release or vary any security given for the Borrower's obligations under this Agreement; nor

15.4.2

waive the payment of any sum of money payable by any Security Party under the Finance Documents; nor

15.4.3

change the meaning of the expressions " Majority Lenders ", " Margin ", " Commitment Commission " or " Default Rate "; nor

15.4.4

exercise, or refrain from exercising, any right, power, authority or discretion, or give or withhold any consent, the exercise or giving of which is, by the terms of this Agreement, expressly reserved to the Lenders; nor

15.4.5

extend the due date for the payment of any sum of money payable by any Security Party under any Finance Document; nor

15.4.6

take or refrain from taking any step if the effect of such action or inaction may lead to the increase of the obligations of a Lender under any Finance Document; nor

15.4.7

agree to change the currency in which any sum is payable under any Finance Document (other than in accordance with the terms of the relevant Finance Document); nor

15.4.8

agree to amend this Clause 15.4.

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15.5

Liability Neither the Agent nor any of its directors, officers, employees or agents shall be liable to the Lenders for anything done or omitted to be done by the Agent under or in connection with any of the Relevant Documents unless as a result of the Agent's gross negligence or wilful misconduct.

15.6

Acknowledgement Each Lender acknowledges that:

15.6.1

15.6.2

15.6.3

it has made its own appraisal of the creditworthiness of the Security Parties; and

15.6.4

the Agent shall not have any duty or responsibility at any time to provide it with any credit or other information relating to any Security Party unless that information is received by the Agent pursuant to the express terms of a Finance Document.

Each Lender agrees that it will not assert nor seek to assert against any director, officer, employee or agent of the Agent or against any other person acting or purporting to act on behalf of the Agent any claim which it might have against them in respect of any of the matters referred to in this Clause 15.6.

15.7

Limitations on responsibility The Agent shall have no responsibility to any Security Party or to any Lender on account of:

15.7.1

the failure of a Lender or of any Security Party to perform any of its obligations under a Finance Document; nor

15.7.2

the financial condition of any Security Party; nor

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15.7.3

the completeness or accuracy of any statements, representations or warranties made in or pursuant to any Finance Document, or in or pursuant to any document delivered pursuant to or in connection with any Finance Document; nor

15.7.4

the negotiation, execution, effectiveness, genuineness, validity, enforceability, admissibility in evidence or sufficiency of any Finance Document or of any document executed or delivered pursuant to or in connection with any Finance Document.

15.8

The Agent's rights The Agent may:

15.8.1

assume that all representations or warranties made or deemed repeated by any Security Party in or pursuant to any Finance Document are true and complete, unless, in its capacity as the Agent, it has acquired actual knowledge to the contrary;

15.8.2

assume that no Default has occurred unless, in its capacity as the Agent, it has acquired actual knowledge to the contrary;

15.8.3

rely on any document or notice believed by it to be genuine;

15.8.4

rely as to legal or other professional matters on opinions and statements of any legal or other professional advisers selected or approved by it;

15.8.5

rely as to any factual matters which might reasonably be expected to be within the knowledge of any Security Party on a certificate signed by or on behalf of that Security Party; and

15.8.6

refrain from exercising any right, power, discretion or remedy unless and until instructed to exercise that right, power, discretion or remedy and as to the manner of its exercise by the Lenders (or, where applicable, by the Majority Lenders) and unless and until the Agent has received from the Lenders any payment which the Agent may require on account of, or any security which the Agent may require for, any costs, claims, expenses (including legal and other professional fees) and liabilities which it considers it may incur or sustain in complying with those instructions.

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15.9

The Agent's duties The Agent shall:

15.9.1

if requested in writing to do so by a Lender, make enquiry and advise the Lenders as to the performance or observance of any of the provisions of any Finance Document by any Security Party or as to the existence of an Event of Default; and

15.9.2

inform the Lenders promptly of any Event of Default of which the Agent has actual knowledge.

15.10

No deemed knowledge The Agent shall not be deemed to have actual knowledge of the falsehood or incompleteness of any representation or warranty made or deemed repeated by any Security Party or actual knowledge of the occurrence of any Default unless a Lender or a Security Party shall have given written notice thereof to the Agent in its capacity as the Agent. Any information acquired by the Agent other than specifically in its capacity as the Agent shall not be deemed to be information acquired by the Agent in its capacity as the Agent.

15.11

Other business The Agent may, without any liability to account to the Lenders, generally engage in any kind of banking or trust business with a Security Party or with a Security Party's subsidiaries or associated companies or with a Lender as if it were not the Agent.

15.12

Indemnity The Lenders shall, promptly on the Agent's request, reimburse the Agent in their respective Proportionate Shares , for, and keep the Agent fully indemnified in respect of all liabilities, damages, costs and claims sustained or incurred by the Agent in connection with the Finance Documents, or the performance of its duties and obligations, or the exercise of its rights, powers, discretions or remedies under or pursuant to any Finance Document, to the extent not paid by the Security Parties and not arising solely from the Agent's gross negligence or wilful misconduct.

15.13

Employment of agents In performing its duties and exercising its rights, powers, discretions and remedies under or pursuant to the Finance Documents, the Agent shall be entitled to employ and pay agents to do anything which the Agent is empowered to do under or pursuant to the Finance Documents (including the receipt of money and documents and the payment of money) and to act or refrain from taking action in reliance on the opinion of, or advice or information obtained from, any lawyer, banker, broker, accountant, valuer or any other person believed by the Agent in good faith to be competent to give such opinion, advice or information.

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15.14

Distribution of payments The Agent shall pay promptly to the order of each Lender that Lender's Proportionate Share of every sum of money received by the Agent pursuant to the Finance Documents (with the exception of any amounts payable pursuant to Clause 9 and/or any Fee Letter and any amounts which, by the terms of the Finance Documents, are paid to the Agent for the account of the Agent alone or specifically for the account of one or more Lenders) and until so paid such amount shall be held by the Agent on trust absolutely for that Lender.

15.15

Reimbursement The Agent shall have no liability to pay any sum to a Lender until it has itself received payment of that sum. If, however, the Agent does pay any sum to a Lender on account of any amount prospectively due to that Lender pursuant to Clause 15.14 before it has itself received payment of that amount, and the Agent does not in fact receive payment within five (5) Business Days after the date on which that payment was required to be made by the terms of the Finance Documents, that Lender will, on demand by the Agent, refund to the Agent an amount equal to the amount received by it, together with an amount sufficient to reimburse the Agent for any amount which the Agent may certify that it has been required to pay by way of interest on money borrowed to fund the amount in question during the period beginning on the date on which that amount was required to be paid by the terms of the Finance Documents and ending on the date on which the Agent receives reimbursement.

15.16

Redistribution of payments Unless otherwise agreed between the Lenders and the Agent, if at any time a Lender receives or recovers by way of set-off, the exercise of any lien or otherwise from any Security Party, an amount greater than that Lender's Proportionate Share of any sum due from that Security Party to the Lenders under the Finance Documents (the amount of the excess being referred to in this Clause 15.16 and in Clause 15.17 as the " Excess Amount ") then:

15.16.1

that Lender shall promptly notify the Agent (which shall promptly notify each other Lender);

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15.16.2

that Lender shall pay to the Agent an amount equal to the Excess Amount within ten (10) days of its receipt or recovery of the Excess Amount; and

15.16.3

the Agent shall treat that payment as if it were a payment by the Security Party in question on account of the sum due from that Security Party to the Lenders and shall account to the Lenders in respect of the Excess Amount in accordance with the provisions of this Clause 15.16.

However, if a Lender has commenced any legal proceedings to recover sums owing to it under the Finance Documents and, as a result of, or in connection with, those proceedings has received an Excess Amount, the Agent shall not distribute any of that Excess Amount to any other Lender which had been notified of the proceedings and had the legal right to, but did not, join those proceedings or commence and diligently prosecute separate proceedings to enforce its rights in the same or another court.

15.17

Rescission of Excess Amount If all or any part of any Excess Amount is rescinded or must otherwise be restored to any Security Party or to any other third party, the Lenders which have received any part of that Excess Amount by way of distribution from the Agent pursuant to Clause 15.16 shall repay to the Agent for the account of the Lender which originally received or recovered the Excess Amount, the amount which shall be necessary to ensure that the Lenders share rateably in accordance with their Proportionate Shares in the amount of the receipt or payment retained, together with interest on that amount at a rate equivalent to that (if any) paid by the Lender receiving or recovering the Excess Amount to the person to whom that Lender is liable to make payment in respect of such amount, and Clause 15.16.3 shall apply only to the retained amount.

15.18

Instructions Where the Agent is authorised or directed to act or refrain from acting in accordance with the instructions of the Lenders or of the Majority Lenders each of the Lenders shall provide the Agent with instructions within three (3) Business Days of the Agent's request (which request may be made orally or in writing). If a Lender does not provide the Agent with instructions within that period, that Lender shall be bound by the decision of the Agent. Nothing in this Clause 15.18 shall limit the right of the Agent to take, or refrain from taking, any action without obtaining the instructions of the Lenders or the Majority Lenders if the Agent in its discretion considers it necessary or appropriate to take, or refrain from taking, such action in order to preserve the rights of the Lenders under or in connection with the Finance Documents. In that event, the Agent will notify the Lenders of the action taken by it as soon as reasonably practicable, and the Lenders agree to ratify any action taken by the Agent pursuant to this Clause 15.18.

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15.19

Payments All amounts payable to a Lender under this Clause 15 shall be paid to such account at such bank as that Lender may from time to time direct in writing to the Agent.

15.20

"Know your customer" checks Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.

15.21

Resignation Subject to a successor being appointed in accordance with this Clause 15.21, the Agent may resign as agent and/or the Security Agent may resign as security agent at any time without assigning any reason by giving to the Borrower and the Lenders notice of its intention to do so, in which event the following shall apply:

15.21.1

with the consent of the Borrower not to be unreasonably withheld (but such consent not to be required at any time after an Event of Default which is continuing unremedied and unwaived) the Lenders may within thirty (30) days after the date of the notice from the Agent or the Security Agent (as the case may be) appoint a successor to act as agent and/or security agent or, if they fail to do so with the consent of the Borrower, not to be unreasonably withheld (but such consent not to be required at any time after an Event of Default which is continuing unremedied and unwaived), the Agent or the Security Agent (as the case may be) may appoint any other bank or financial institution as its successor;

15.21.2

the resignation of the Agent or the Security Agent (as the case may be) shall take effect simultaneously with the appointment of its successor on written notice of that appointment being given to the Borrower and the Lenders;

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15.21.3

the Agent or the Security Agent (as the case may be) shall thereupon be discharged from all further obligations as agent and/or security agent but shall remain entitled to the benefit of the provisions of this Clause 15; and

15.21.4

the successor of the Agent or the Security Agent (as the case may be) and each of the other parties to this Agreement shall have the same rights and obligations amongst themselves as they would have had if that successor had been a party to this Agreement.

15.22

No fiduciary relationship Except as provided in Clauses 15.3 and 15.14, the Agent shall not have any fiduciary relationship with or be deemed to be a trustee of or for any other person and nothing contained in any Finance Document shall constitute a partnership between any two or more Lenders or between the Agent and any other person.

16	Set-Off

A Finance Party may set off any matured obligation due from the Borrower under any Finance Document (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to the Borrower, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, that Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

17	Payments

17.1

Payments Each amount payable by the Borrower under a Finance Document shall be paid to such account at such bank as the Agent may from time to time direct to the Borrower in the Currency of Account and in such funds as are customary at the time for settlement of transactions in the relevant currency in the place of payment. Payment shall be deemed to have been received by the Agent on the date on which the Agent receives authenticated advice of receipt, unless that advice is received by the Agent on a day other than a Business Day or at a time of day (whether on a Business Day or not) when the Agent in its reasonable discretion considers that it is impossible or impracticable for the Agent to utilise the amount received for value that same day, in which event the payment in question shall be deemed to have been received by the Agent on the Business Day next following the date of receipt of advice by the Agent.

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17.2

No deductions or withholdings Each payment (whether of principal or interest or otherwise) to be made by the Borrower under a Finance Document shall, subject only to Clause 17.3, be made free and clear of and without deduction for or on account of any Taxes or other deductions, withholdings, restrictions, conditions or counterclaims of any nature.

17.3

Grossing-up If at any time any law requires (or is interpreted to require) the Borrower to make any deduction or withholding from any payment, or to change the rate or manner in which any required deduction or withholding is made, the Borrower will promptly notify the Agent and, simultaneously with making that payment, will pay to the Agent whatever additional amount (after taking into account any additional Taxes on, or deductions or withholdings from, or restrictions or conditions on, that additional amount) is necessary to ensure that, after making the deduction or withholding, the relevant Finance Parties receive a net sum equal to the sum which they would have received had no deduction or withholding been made.

17.4

Evidence of deductions If at any time the Borrower is required by law to make any deduction or withholding from any payment to be made by it under a Finance Document, the Borrower will pay the amount required to be deducted or withheld to the relevant authority within the time allowed under the applicable law and will, no later than thirty (30) days after making that payment, deliver to the Agent an original receipt issued by the relevant authority, or other evidence reasonably acceptable to the Agent, evidencing the payment to that authority of all amounts required to be deducted or withheld.

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17.5

Rebate If the Borrower pays any additional amount under Clause 17.3, and a Finance Party subsequently receives a refund or allowance from any tax authority which that Finance Party identifies as being referable to that increased amount so paid by the Borrower, that Finance Party shall, as soon as reasonably practicable, pay to the Borrower an amount equal to the amount of the refund or allowance received, if and to the extent that it may do so without prejudicing its right to retain that refund or allowance and without putting itself in any worse financial position than that in which it would have been had the relevant deduction or withholding not been required to have been made. Nothing in this Clause 17.5 shall be interpreted as imposing any obligation on any Finance Party to apply for any refund or allowance nor as restricting in any way the manner in which any Finance Party organises its tax affairs, nor as imposing on any Finance Party any obligation to disclose to the Borrower any information regarding its tax affairs or tax computations.

17.6

Adjustment of due dates If any payment or transfer of funds to be made under a Finance Document, other than a payment of interest on a Drawing , shall be due on a day which is not a Business Day, that payment shall be made on the next succeeding Business Day (unless the next succeeding Business Day falls in the next calendar month in which event the payment shall be made on the next preceding Business Day). Any such variation of time shall be taken into account in computing any interest in respect of that payment.

17.7

Control Account The Agent shall open and maintain on its books a control account in the name of the Borrower showing the advance of the Loan and the computation and payment of interest and all other sums due under this Agreement. The Borrower's obligations to repay the Loan and to pay interest and all other sums due under this Agreement shall be evidenced by the entries from time to time made in the control account opened and maintained under this Clause 17.7 and those entries will, in the absence of manifest error, be conclusive and binding.

18	Notices

18.1

Communications in writing Any communication to be made under or in connection with this Agreement shall be made in writing and, unless otherwise stated, may be made by fax or letter or (subject to Clause 18.6) electronic mail.

18.2

Addresses The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each party to this Agreement for any communication or document to be made or delivered under or in connection with this Agreement are:

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18.2.1

in the case of the Borrower, c/o Teekay Shipping (Canada) Ltd Suite 2000, Bentall 5, 550 Burrard Street, Vancouver, B.C., Canada V6C 2K2 (fax no: +1 604 681 3011) marked for the attention of Director Finance;

18.2.2

in the case of each Lender, those appearing opposite its name in Schedule 1;

18.2.3

in the case of the Agent, 200 Park Avenue, 31 ^st Floor, New York, New York 10166-0396, United States of America (fax no: +1 212 681 3900) marked for the attention of Credit, Sanjiv Nayer/Erlend Bryn; and

18.2.4

in the case of the Security Agent, Domshof 17, 28195 Bremen, Federal Republic of Germany (fax no: + 49 421 3609 329) marked for the attention of Credit Department;

or any substitute address, fax number, department or officer as any party may notify to the Agent (or the Agent may notify to the other parties, if a change is made by the Agent) by not less than five (5) Business Days' notice.

18.3

Delivery Any communication or document made or delivered by one party to this Agreement to another under or in connection this Agreement will only be effective:

18.3.1

if by way of fax, when received in legible form; or

18.3.2

if by way of letter, when it has been left at the relevant address or five (5) Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or

18.3.3

if by way of electronic mail, in accordance with Clause 18.6;

and, if a particular department or officer is specified as part of its address details provided under Clause 18.2, if addressed to that department or officer.

Any communication or document to be made or delivered to the Agent will be effective only when actually received by the Agent.

All notices from or to the Borrower shall be sent through the Agent.

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18.4

Notification of address and fax number Promptly upon receipt of notification of an address, fax number or change of address, pursuant to Clause 18.2 or changing its own address or fax number, the Agent shall notify the other parties to this Agreement.

18.5

English language Any notice given under or in connection with this Agreement must be in English. All other documents provided under or in connection with this Agreement must be:

18.5.1

in English; or

18.5.2

if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

18.6

Electronic communication

(a)

Any communication to be made in connection with this Agreement may be made by electronic mail or other electronic means, if the Borrower and the relevant Finance Party:

(i)

agree that, unless and until notified to the contrary, this is to be an accepted form of communication;

(ii)

notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and

(iii)

notify each other of any change to their address or any other such information supplied by them.

(b)

Any electronic communication made between the Borrower and the relevant Finance Party will be effective only when actually received in readable form and acknowledged by the recipient (it being understood that any system generated responses do not constitute an acknowledgement) and in the case of any electronic communication made by the Borrower to a Finance Party only if it is addressed in such a manner as the Finance Party shall specify for this purpose.

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19	Partial Invalidity

If, at any time, any provision of a Finance Document is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

20	Remedies and Waivers

No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under a Finance Document shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

21	Miscellaneous

21.1

No oral variations No variation or amendment of a Finance Document shall be valid unless in writing and signed on behalf of all the Finance Parties.

21.2

Further Assurance If any provision of a Finance Document shall be invalid or unenforceable in whole or in part by reason of any present or future law or any decision of any court, or if the documents at any time held by or on behalf of the Finance Parties or any of them are considered by the Lenders for any reason insufficient to carry out the terms of this Agreement, then from time to time the Borrower will promptly, on demand by the Agent, execute or procure the execution of such further documents as in the opinion of the Lenders are necessary to provide adequate security for the repayment of the Indebtedness.

21.3

Rescission of payments etc. Any discharge, release or reassignment by a Finance Party of any of the security constituted by, or any of the obligations of a Security Party contained in, a Finance Document shall be (and be deemed always to have been) void if any act (including, without limitation, any payment) as a result of which such discharge, release or reassignment was given or made is subsequently wholly or partially rescinded or avoided by operation of any law.

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21.4

Certificates Any certificate or statement signed by an authorised signatory of the Agent purporting to show the amount of the Indebtedness (or any part of the Indebtedness) or any other amount referred to in any Finance Document shall, save for manifest error or on any question of law, be conclusive evidence as against the Borrower of that amount.

21.5

Counterparts This Agreement may be executed in any number of counterparts each of which shall be original but which shall together constitute the same instrument.

21.6

Contracts (Rights of Third Parties) Act 1999 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.

21.7

Disclosure of Information The Borrower authorises each Lender to disclose any information and/or document(s) concerning its relationship with such Lender (i) to authorities in any other countries where such Lender or any Affiliate is represented and/or where any Lender or any Affiliate may be requested information by any regulatory authority, when this shall be deemed necessary in order for such Lender or any Affiliate to meet its requirements for the contribution to reduction or prevention of money laundering, terrorism and corruption, and (ii) to any Affiliate of that Lender making it possible to consolidate the client's total commitments and offer the client any other products offered by that Lender or any Affiliate, subject always to the duties of confidentiality on the Lenders set out herein.

22	Law and Jurisdiction

22.1

Governing law This Agreement shall in all respects be governed by and interpreted in accordance with English law.

22.2

22.3

Alternative jurisdictions Nothing contained in this Clause 22 shall limit the right of the Finance Parties to commence any proceedings against the Borrower in any other court of competent jurisdiction nor shall the commencement of any proceedings against the Borrower in one or more jurisdictions preclude the commencement of any proceedings in any other jurisdiction, whether concurrently or not.

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22.4

Waiver of objections The Borrower irrevocably waives any objection which it may now or in the future have to the laying of the venue of any proceedings in any court referred to in this Clause 22, and any claim that those proceedings have been brought in an inconvenient or inappropriate forum, and irrevocably agrees that a judgment in any proceedings commenced in any such court shall be conclusive and binding on it and may be enforced in the courts of any other jurisdiction.

22.5

Service of process Without prejudice to any other mode of service allowed under any relevant law, the Borrower:

22.5.1

irrevocably appoints Teekay Shipping (UK) Ltd of 2 ^nd Floor, 86 Jermyn Street, London SW1Y 6JD England as its agent for service of process in relation to any proceedings before the English courts in connection with this Agreement; and

22.5.2

agrees that failure by a process agent to notify the Borrower of the process will not invalidate the proceedings concerned.

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SCHEDULE 1: The Lenders and the Commitments

The Lenders The Commitments The Proportionate Share

(US$) (%)

DnB NOR Bank ASA 200 Park Avenue 31 ^st Floor New York, NY10166 United States of America Fax no. +1 212 681 4123 Attn: Teresa Rosu	230,000,000	24.5
Fortis Capital Corp. 520 Madison Avenue New York NY 10022 USA Fax no: +1 212 340 5370 Attn: Global Shipping Group	230,000,000	24.5
Nordea Bank Finland PLC, New York Branch 437 Madison Avenue New York NY 10022 Fax no: +1 212 421 4420 Attention: Shipping, Offshore and Oil Services Group	230,000,000	24.5
Deutsche Schiffsbank Aktiengesellschaft Domshof 17 28195 Bremen Federal Republic of Germany Fax no: +49 421 3609 329 Attn: Credit Department	125,000,000	13.25
Landesbank Hessen-Thuringen Girozentrale New York Branch 420 Fifth Avenue, 25 ^th Floor New York NY 10018-2729 U.S.A. Fax no: +1212 703 5256 Attn: Shipping Finance	125,000,000	13.25

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SCHEDULE 2: Conditions Precedent and Subsequent

Part I: Conditions precedent to the First Drawdown Date

1	Security Parties

(a)

Constitutional Documents Copies of the constitutional documents of each Security Party together with such other evidence as the Agent may reasonably require that each Security Party is duly formed or incorporated in its country of formation or incorporation and remains in existence with power to enter into, and perform its obligations under, the Relevant Documents to which it is or is to become a party.

(b)

Certificates of good standing A certificate of good standing in respect of each Security Party (if such a certificate can be obtained).

(c)

Board resolutions A copy of a resolution of the board of directors of each Security Party (or its sole member or general partner):

(i)

approving the terms of, and the transactions contemplated by, the Relevant Documents to which it is a party and ratifying or resolving that it execute those Relevant Documents; and

(ii)

if required authorising a specified person or persons to execute those Relevant Documents (and all documents and notices to be signed and/or despatched under those documents) on its behalf.

(d)

Officer's certificates A certificate of a duly authorised officer or representative of each Security Party certifying that each copy document relating to it specified in this Part I of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement and setting out the names of the directors and officers of that Security Party (or its sole member or general partner) and the proportion of shares held by each shareholder.

(e)

Powers of attorney The notarially attested and legalised (where necessary for registration purposes) power of attorney of each Security Party under which any documents are to be executed or transactions undertaken by that Security Party.

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2	Security and related documents

(a)

Vessel documents In respect of each Initial Vessel photocopies, certified as true, accurate and complete by a duly authorised representative of the Borrower, of any relevant Management Agreement together with all addenda, amendments or supplements.

(b)

Evidence of Owner's title Evidence that on the Drawdown Date (i) each of the Initial Vessels will be registered under the flag stated in Schedule 7 in the ownership of the Owner and (ii) each of the relevant Mortgages will be capable of being registered against the Initial Vessels with first priority.

(c)

Evidence of insurance Evidence that each of the Initial Vessels is insured in the manner required by the Security Documents and that letters of undertaking will be issued in the manner required by the Security Documents, together with the written approval of the Insurances by an insurance adviser appointed by the Agent.

(d)

Security Documents The Security Documents (other than those relating to the Step-up Vessels), together with all other documents required by any of them, including, without limitation, all notices of assignment and/or charge and evidence that those notices will be duly acknowledged by the recipients.

(e)

Other Relevant Documents Copies of each of the Relevant Documents (other than those relating to the Step-up Vessels) not otherwise comprised in the documents listed in this Part I of Schedule 2.

3	Legal opinions

If a Security Party is incorporated in a jurisdiction other than England and Wales or if any Finance Document is governed by the laws of a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Lenders in each relevant jurisdiction, substantially in the form provided to the Agent prior to the Drawdown Date or confirmation satisfactory to the Agent that such an opinion will be given.

4	Other documents and evidence

(a)

Drawdown Notice A duly completed Drawdown Notice.

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(b)

Process agent Evidence that any process agent referred to in Clause 22.5 and any process agent appointed under any other Finance Document has accepted its appointment.

(c)

Other authorisations A copy of any other consent, licence, approval, authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrower accordingly) in connection with the entry into and performance of the transactions contemplated by any of the Relevant Documents or for the validity and enforceability of any of the Relevant Documents.

(d)

Fees Evidence that the fees, costs and expenses then due from the Borrower under Clause 8 and Clause 9 have been paid or will be paid by the Drawdown Date.

(e)

"Know your customer" documents Such documentation and other evidence as is reasonably requested by the Agent in order for the Lenders to comply with all necessary "know your customer" or similar identification procedures in relation to the transactions contemplated in the Finance Documents.

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Part II: Conditions subsequent to the First Drawdown Date

Evidence of Owner's title Certificate of ownership and encumbrance (or equivalent) issued by the Registrar of Ships (or equivalent official) of each Initial Vessel's flag state confirming that (a) each of the Initial Vessels is permanently registered under that flag in the ownership of the Owner, (b) each of the relevant Mortgages has been registered with first priority against the Initial Vessels and (c) there are no further Encumbrances registered against the Initial Vessels.

Letters of undertaking Letters of undertaking in respect of the Insurances as required by the Security Documents (other than those relating to the Step-up Vessels) together with copies of the relevant policies or cover notes or entry certificates duly endorsed with the interest of the Finance Parties.

3	Acknowledgements of notices Acknowledgements of all notices of assignment and/or charge given pursuant to the Security Documents (other than those relating to the Step-up Vessels).

4	Legal opinions Such of the legal opinions specified in Part I of this Schedule 2 as have not already been provided to the Agent.

5	Companies Act registrations Evidence that the prescribed particulars of the Security Documents have been delivered to the Registrar of Companies of England and Wales and (where relevant) the appropriate registry in Singapore within the statutory time limit.

6	Confirmation of class Certificates of Confirmation of Class for hull and machinery confirming that each of the Initial Vessels is classed with the highest class applicable to vessels of her type with a Pre-Approved Classification Society.

7	Structure Such documents and information as the Lenders may require to satisfy themselves as to the corporate structure of the Borrower and the Guarantor.

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Part III: Conditions precedent to the Step-up Date

1	Security Parties

A certificate from a duly authorised officer or representative of the Borrower confirming that none of the documents delivered to the Agent pursuant to Schedule 2 Part I (a), (b), (c), (d) and (e) have been amended or modified in any way since the date of their delivery to the Agent .

2	Security and related documents

(a)

Vessel documents In respect of each Step-up Vessel photocopies, certified as true, accurate and complete by a duly authorised representative of the Borrower, of:

(i)

the Bareboat Charters and any relevant Head Charters;

(ii)

any relevant Management Agreement

together in each case with all addenda, amendments or supplements.

(b)

Evidence of Owner's title Evidence that on the Step-up Date (i) the Step-up Vessels will be registered under the flag stated in Schedule 7 in the ownership of the Owner and (ii) each of the relevant Mortgages will be capable of being registered against the Step-up Vessels with first priority.

(c)

Evidence of insurance Evidence that each of the Step-up Vessels is insured in the manner required by the Security Documents and that letters of undertaking will be issued in the manner required by the Security Documents, together with the written approval of the Insurances by an insurance adviser appointed by the Agent.

(d)

Security Documents The Security Documents relating to the Step-up Vessels, together with all other documents required by any of them, including, without limitation, all notices of assignment and/or charge and evidence that those notices will be duly acknowledged by the recipients.

(e)

Charterer's Assignments The Charterer's Assignments, duly executed, together with evidence of the signing authority of the relevant Charterer and all notices of assignment and evidence that those notices have been or will be duly acknowledged by the recipient.

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(f)

Quiet Enjoyment Letters Any relevant Quiet Enjoyment Letters, duly executed, together with evidence of the signing authority of the Bareboat Charterer.

(g)

Other Relevant Documents Copies of each of the Relevant Documents not otherwise comprised in the documents listed in Part I of Schedule 2 or this Part III of Schedule 2.

3	Legal opinions

If a Security Party is incorporated in a jurisdiction other than England and Wales or if any Finance Document is governed by the laws of a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Lenders in each relevant jurisdiction, substantially in the form provided to the Agent prior to the Step-up Date or confirmation satisfactory to the Agent that such an opinion will be given.

4	Other documents and evidence

(a)

Process agent Evidence that any process agent appointed under any Finance Document relating to the Step-up Vessels has accepted its appointment.

(b)

(c)

Fees Evidence that the fees, costs and expenses then due from the Borrower under Clause 8 and Clause 9 have been paid or will be paid by the Step-up Date.

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Part IV: Conditions subsequent to the Step-up Date

Evidence of Owner's title Certificate of ownership and encumbrance (or equivalent) issued by the Registrar of Ships (or equivalent official) of each Step-up Vessel's flag state confirming that (a) each of the Step-up Vessels is permanently registered under that flag in the ownership of the Owner, (b) each of the relevant Mortgages has been registered with first priority against the Step-up Vessels and (c) there are no further Encumbrances registered against the Step-up Vessels.

2	Letters of undertaking Letters of undertaking in respect of the Insurances as required by the Security Documents relating to the Step-up Vessels together with copies of the relevant policies or cover notes or entry certificates duly endorsed with the interest of the Finance Parties.

3	Acknowledgements of notices Acknowledgements of all notices of assignment and/or charge given pursuant to the Security Documents relating to the Step-up Vessels.

4	Legal opinions Such of the legal opinions specified in Part III of this Schedule 2 as have not already been provided to the Agent.

5	Companies Act registrations Evidence that the prescribed particulars of the Security Documents have been delivered to the Registrar of Companies of England and Wales and (where relevant) the appropriate registry in Singapore within the statutory time limit.

6	Confirmation of class Certificates of Confirmation of Class for hull and machinery confirming that each of the Step-up Vessels is classed with the highest class applicable to vessels of her type with a Pre-Approved Classification Society.

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SCHEDULE 3: Calculation of Mandatory Cost

The Mandatory Cost is an addition to the interest rate to compensate the Lenders for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.

(a)

On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the "Additional Cost Rate" ) for each Lender in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Lenders' Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the Loan) and will be expressed as a percentage rate per annum.

(b)

The Additional Cost Rate for any Lender lending from an office in the euro-zone will be the percentage notified by that Lender to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Lender's participation in the Loan) of complying with the minimum reserve requirements of the European Central Bank as a result of participating in the Loan from that office.

(c)	The Additional Cost Rate for any Lender lending from an office in the United Kingdom will be calculated by the Agent as follows:

F x 0.01 per cent per annum

300

where F is the charge payable by that Lender to the Financial Services Authority under paragraph 2.02 or 2.03 (as appropriate) of the Fees Regulations or the equivalent provisions in any replacement regulations (with, for this purpose, the figure for the minimum amount in paragraph 2.02b or such equivalent provision deemed to be zero), expressed in pounds per £1 million of the fee base of that Lender.

2	For the purpose of this Schedule:

(a)

" eligible liabilities " and " special deposits " have the meanings given to them at the time of application of the formula by the Bank of England;

(b)

" fee base " has the meaning given to it in the Fees Regulations;

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(c)

" Fees Regulations " means the regulations governing periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits.

3	If a Lender does not supply the information required by the Agent to determine its Additional Cost Rate when requested to do so, the applicable Mandatory Cost shall be determined on the basis of the information supplied by the remaining Lenders.

If a change in circumstances has rendered, or will render, the formula inappropriate, the Agent shall notify the Borrower of the manner in which the Mandatory Cost will subsequently be calculated. The manner of calculation so notified by the Agent shall, in the absence of manifest error, be binding on the Borrower.

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SCHEDULE 4: Form of Drawdown Notice

To:	DnB NOR Bank ASA

From: Teekay Offshore Operating L.P.

[Date]

Dear Sirs,

Drawdown Notice

We refer to the Loan Agreement dated 2006 made between, amongst others, ourselves and yourselves (the " Agreement ").

Words and phrases defined in the Agreement have the same meaning when used in this Drawdown Notice.

Pursuant to Clause 4.1 of the Agreement, we irrevocably request that you advance a Drawing in the sum of [ ] to us on 200 , which is a Business Day, by paying the amount of the advance to [ ] .

We warrant that the representations and warranties contained in Clause 11.1 of the Agreement are true and correct at the date of this Drawdown Notice and will be true and correct on 200 , that no Default has occurred and is continuing, and that no Default will result from the advance of the sum requested in this Drawdown Notice.

We select the period of [ ] months as the Interest Period in respect of the said Drawing .

Yours faithfully

.......................

For and on behalf of

Teekay Offshore Operating L.P.

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SCHEDULE 5: Form of Transfer Certificate

To: DnB NOR Bank ASA

TRANSFER CERTIFICATE

This transfer certificate relates to a secured loan facility agreement (as from time to time amended, varied, supplemented or novated the " Loan Agreement ") dated 2006, on the terms and subject to the conditions of which a secured revolving credit facility w as made available to Teekay Offshore Operating L.P., by a syndicate of banks on whose behalf you act as agent and security agent .

1	Terms defined in the Loan Agreement shall, unless otherwise expressly indicated, have the same meaning when used in this certificate. The terms " Transferor " and " Transferee " are defined in the schedule to this certificate.

2	The Transferor:

2.1

confirms that the details in the Schedule under the heading " Transferor's Commitment " accurately summarise its Commitment ; and

2.2

requests the Transferee to accept by way of novation the transfer to the Transferee of the amount of the Transferor’s Commitment specified in the Schedule by counter-signing and delivering this certificate to the Agent at its address for communications specified in the Loan Agreement.

3	The Transferee requests the Agent to accept this certificate as being delivered to the Agent pursuant to and for the purposes of clause 14.4 of the Loan Agreement so as to take effect in accordance with the terms of that clause on the Transfer Date specified in the Schedule.

4	The Agent confirms its acceptance of this certificate for the purposes of clause 14.4 of the Loan Agreement.

5	The Transferee confirms that:

5.1

it has received a copy of the Loan Agreement together with all other information which it has required in connection with this transaction;

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5.2

it has not relied and will not in the future rely on the Transferor or any other party to the Loan Agreement to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information; and

5.3

it has not relied and will not in the future rely on the Transferor or any other party to the Loan Agreement to keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any Security Party.

Execution of this certificate by the Transferee constitutes its representation and warranty to the Transferor and to all other parties to the Loan Agreement that it has the power to become a party to the Loan Agreement as a Lender on the terms of the Loan Agreement and has taken all steps to authorise execution and delivery of this certificate.

The Transferee undertakes with the Transferor and each of the other parties to the Loan Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Loan Agreement will be assumed by it after delivery of this certificate to the Agent and the satisfaction of any conditions subject to which this certificate is expressed to take effect.

The Transferor makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any document relating to any Finance Document, and assumes no responsibility for the financial condition of any Finance Party or for the performance and observance by any Security Party of any of its obligations under any Finance Document or any document relating to any Finance Document and any conditions and warranties implied by law are expressly excluded.

9	The Transferee acknowledges that nothing in this certificate or in the Loan Agreement shall oblige the Transferor to:

9.1

accept a re-transfer from the Transferee of the whole or any part of the rights, benefits and/or obligations transferred pursuant to this certificate; or

9.2

support any losses directly or indirectly sustained or incurred by the Transferee for any reason including, without limitation, the non-performance by any party to any Finance Document of any obligations under any Finance Document.

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10	The address and fax number of the Transferee for the purposes of clause 18 of the Loan Agreement are set out in the Schedule.

11	This certificate may be executed in any number of counterparts each of which shall be original but which shall together constitute the same instrument.

12	This certificate shall be governed by and interpreted in accordance with English law.

THE SCHEDULE

1	*Transferor* :

2	*Transferee* :

3	*Transfer Date* (not earlier that the fifth Business Day after the date of delivery of the Transfer Certificate to the Agent):

4	*Transferor’s Commitment* :

5	*Amount transferred* :

6	*Transferee’s address and fax number for the purposes of clause 18 of the Loan Agreement* :

[ name of Transferor ] [ name of Transferee ]

By: By:

Date: Date:

DnB NOR Bank ASA as Agent

By:

Date:

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SCHEDULE 6: Form of Compliance Certificate

To: DnB NOR Bank ASA

From: Teekay Offshore Operating L.P.

Dated:

Dear Sirs

Teekay Offshore Operating L.P. Loan Agreement dated [ ] (the "Agreement")

1.	We refer to the Agreement. This is a Compliance Certificate. Terms defined in the Agreement have the same meaning when used in this Compliance Certificate unless given a different meaning in this Compliance Certificate.

2. We confirm that as at the date of this certificate:

2.1

we maintain a Free Liquidity together with undrawn committed revolving credit lines available to us (including under the Loan Agreement but excluding undrawn committed revolving credit lines with less than six (6) months to maturity) of not less than seventy five million Dollars ($75,000,000); and

2.2

the aggregate of the Free Liquidity and undrawn committed revolving credit lines available to be drawn by us (including under the Loan Agreement, but excluding undrawn committed revolving credit lines with less than six (6) months to maturity) is not less than five per cent (5%) of our Total Debt.

3. We confirm that no Default is continuing. ^*

Signed:	…..................
	Duly authorised representative
	of
	Teekay Offshore Operating L.P.

^* If this statement cannot be made, the certificate should identify any Default that is continuing and the steps, if any, being taken to remedy it.]

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SCHEDULE 7: The Vessels

Part I: The Initial Vessels

Vessel	Flag	Bareboat Charter (where relevant)
Fuji Spirit	Bahamas
Gotland Spirit	Bahamas
Hamane Spirit	Bahamas
Kilimanjaro Spirit	Bahamas
Leyte Spirit	Bahamas
Luzon Spirit	Bahamas
Navion Fennia	Bahamas
Navion Torinita	Bahamas
Nordic Marita	Bahamas
Navion Svenita	Bahamas
Poul Spirit	Bahamas
Torben Spirit	Bahamas

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Part II: The Step-up Vessels

Vessel	Flag	Bareboat Charter (where relevant)
Basker Spirit	Bahamas
Navion Stavanger	Bahamas	Bareboat Charter dated 16 January 2006 granted by TKN as charterer in favour of FIC and Transpetro as bareboat charterers.
Nordic Brasilia	Bahamas	Bareboat Charter dated 26 August 2003 granted by UNS as charterer in favour of FIC and Transpetro as bareboat charterers;
Nordic Savonita	NIS
Nordic Spirit	Bahamas	Bareboat Charter dated 5 August 2002 granted by UNS as charterer in favour of FIC and Transpetro as bareboat charterers;
Petroatlantic	Bahamas	Bareboat Charter dated 19 June 2000 between UNS as original owner and Petrojarl Production (in its former name of PGS Production AS) as bareboat charterer as transferred pursuant to a transfer agreement dated 23 August 2004 entered into between UNS as original owner, Petroatlantic as new owner, Petrojarl Production as bareboat charterer and Petroleum Geo as guarantor (with Petrojarl having replaced Petroleum Geo as guarantor by a release and replacement agreement dated 22 March 2006) as further transferred to the Owner by a deed of assignment dated on or about the date hereof between Petroatlantic, the Owner, Petrojarl Production and Petrojarl;
Petronordic	Bahamas	Bareboat Charter dated 19 June 2000 between UNS as original owner and Petrojarl Production (in its former name of PGS Production AS) as bareboat charterer as transferred pursuant to a transfer agreement dated 23 August 2004 entered into between UNS as original owner, Petronordic as new owner, Petrojarl Production as bareboat charterer and Petroleum Geo as guarantor (with Petrojarl having replaced Petroleum Geo as guarantor by a release and replacement agreement dated 22 March 2006) as further transferred to the Owner by a deed of assignment dated on or about the date hereof between Petronordic, the Owner, Petrojarl Production and Petrojarl;

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SCHEDULE 8: Reductions

Reduction Dates (months after the earlier to occur of (i) the First Drawdown Date and (ii) 31 October 2006)	Reductions	Committed amount	Initial Reduction Amounts
0		$940,000,000	0
6	1 ^st reduction	$910,902,375	$29,097,625
12	2 ^nd reduction	$880,909,998	$29,992,377
18	3 ^rd reduction	$849,995,355	$30,914,643
24	4 ^th reduction	$818,130,088	$31,865,267
30	5 ^th reduction	$785,284,963	$32,845,125
36	6 ^th reduction	$751,429,850	$33,855,113
42	7 ^th reduction	$716,533,693	$34,896,157
48	8 ^th reduction	$680,564,479	$35,969,214
54	9 ^th reduction	$643,489,212	$37,075,267
60	10 ^th reduction	$605,273,880	$38,215,332
66	11 ^th reduction	$565,883,427	$39,390,453
72	12 ^th reduction	$525,281,718	$40,601,709
78	13 ^th reduction	$483,431,505	$41,850,213
84	14 ^th reduction	$440,294,399	$43,137,106
90	15 ^th reduction	$395,830,827	$44,463,572
96	16 ^th reduction	$350,000,000	$45,830,827

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IN WITNESS of which the parties to this Agreement have executed this Agreement the day and year first before written.

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of TEEKAY OFFSHORE

)

OPERATING L.P.

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of DNB NOR BANK ASA (as a Lender)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of NORDEA BANK NORGE ASA

)

(as a Lender)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of FORTIS CAPITAL CORP.

)

(as a Lender)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of DEUTSCHE SCHIFFSBANK

)

AKTIENGESELLSCHAFT

)

(as a Lender)

)

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SIGNED by

)

duly authorised for and on behalf

)

[signed]

of LANDESBANK HESSEN-THURINGEN

)

GIROZENTRALE

)

(as a Lender)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of DNB NOR BANK ASA (as a Agent)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of DEUTSCHE SCHIFFSBANK

)

AKTIENGESELLSCHAFT

)

(as the Security Agent)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of DNB NOR BANK ASA (as an MLA)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of NORDEA BANK NORGE ASA

)

(as an MLA)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of FORTIS CAPITAL CORP.

)

(as an MLA)

)

\P1\3549672.7

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of DNB NOR BANK ASA

)

(as a bookrunner)

)

SIGNED by

)

duly authorised for and on behalf

)

[signed]

of NORDEA BANK NORGE ASA

)

(as a bookrunner)

)

\P1\3549672.7