Teekay LNG Partners L.P. (Form: 6-K, Received: 12/21/2006 15:20:47)

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- 32479

TEEKAY LNG PARTNERS L.P.

(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-_______

Page 1 of 47

TEEKAY LNG PARTNERS L.P. AND SUBISDIARIES

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 (Loss) 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
Unaudited Consolidated Statement of Partners’ Equity/Stockholder Deficit for the nine months ended S eptember 30, 2006…………………….……………….……………….……………….……………….……………….……………....	7
Notes to the Unaudited Consolidated Financial Statements……………….……………….……………….……………….….………	8


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

Item 3. Quantitative and Qualitative Disclosures about Market Risk …………………………………………….….……………….…………..	42

PART II: OTHER INFORMATION……………………………………………………………………….………….…….……………….………...	45

SIGNATURES …………………………………………………………………………………….……………….….……….…….……………….....	46

Page 2 of 47

ITEM 1 - FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Unitholders of

Teekay LNG Partners L.P.

We have reviewed the consolidated balance sheet of Teekay LNG Partners L.P. (successor to Teekay Luxembourg S.a.r.l ) and subsidiaries (or the Partnership ) as at September 30, 2006 and the related consolidated statements of income (loss) for the three and nine months ended September 30, 2006 and 2005 aggregated as follows:

Three months ended September 30, 2006

·	July 1 to September 30, 2006

Three months ended September 30, 2005

·	July 1 to September 30, 2005

Nine months ended September 30, 2006

·	January 1 to September 30, 2006

Nine months ended September 30, 2005

·	January 1 to May 9, 2005

·	May 10 to September 30, 2005

We have also reviewed the consolidated statements of partners’ equity/stockholder deficit for the nine months ended September 30, 2006 and cash flows for the nine months ended September 30, 2006 and 2005. These financial statements are the responsibility of the Partnership's management.

We conducted our review 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 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 the Partnership as at December 31, 2005, the related consolidated statements of income, partners’ equity/stockholder deficit 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 accompanying 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

Page 3 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

(Successor to Teekay Luxembourg S.a.r.l.)

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands of U.S. dollars, except unit and per unit data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
	July 1 to September 30, 2006			July 1 to September 30, 2005			January 1 to September 30, 2006			January 1 to May 9, 2005			May 10 to September 30, 2005
	$			$			$			$			$

VOYAGE REVENUES		46,696			34,760			133,371			50,129			55,124

OPERATING EXPENSES
Voyage expenses		663			135			1,590			251			208
Vessel operating expenses (note 10c)		9,532			6,571			28,260			10,771			10,503
Depreciation and amortization		12,972			10,607			38,374			14,751			16,459
General and administrative (notes 10b and 10d)		2,864			2,733			8,957			2,928			4,008
Total operating expenses		26,031			20,046			77,181			28,701			31,178

Income from vessel operations		20,665			14,714			56,190			21,428			23,946

OTHER ITEMS
Interest expense (notes 4 and 7)		(22,282	)		(14,382	)		(62,287	)		(35,679	)		(22,578	)
Interest income		9,881			5,638			26,761			9,098			8,641
Foreign currency exchange gain (loss) (note 7)		3,752			1,347			(24,401	)		52,295			24,340
Other income (loss) - net (note 8)		569			1,587			1,564			(17,927	)		3,259
Total other items		(8,080	)		(5,810	)		(58,363	)		7,787			13,662

Net income (loss)		12,585			8,904			(2,173	)		29,215			37,608

General partner’s interest in net income (loss)		252			178			(44	)		-			9,411
Limited partners’ interest:
Net income (loss)		12,333			8,726			(2,129	)		29,215			28,197
Net income (loss) per: (note 13) - Common unit (basic and diluted)		0.41			0.41			0.01			1.24			1.05
- Subordinated unit (basic and diluted)		0.27			0.15			(0.17	)		1.24			0.79
- Total unit (basic and diluted)		0.35			0.29			(0.07	)		1.24			0.93
Weighted-average number of units outstanding:
- Common units (basic and diluted)		20,238,072			15,638,072			20,238,072			8,734,572			15,638,072
- Subordinated units (basic and diluted)		14,734,572			14,734,572			14,734,572			14,734,572			14,734,572
- Total units (basic and diluted)		34,972,644			30,372,644			34,972,644			23,469,144			30,372,644
Cash distributions declared per unit		0.4625			0.2357			1.3375			-			0.2357

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

Page 4 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

(Successor to Teekay Luxembourg S.a.r.l.)

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		20,592			34,469
Restricted cash - current (note 4)		151,919			139,525
Accounts receivable		13,287			2,977
Prepaid expenses		7,792			1,149
Other assets		1,198			2,823
Total current assets		194,788			180,943

Restricted cash - long-term (notes 4 and 12)		618,449			158,798
Vessels and equipment (note 7)
At cost, less accumulated depreciation of $29,667 (December 31, 2005 - $16,235)		495,035			507,825
Vessels under capital leases, at cost, less accumulated depreciation of $49,845 (December 31, 2005 - $32,266) (note 4)		662,875			677,686
Advances on newbuilding contracts (note 12)		-			316,875
Total vessels and equipment		1,157,910			1,502,386
Other assets (note 11)		57,300			20,215
Intangible assets - net (note 5)		162,347			169,194
Goodwill (note 5)		39,279			39,279
Total assets		2,230,073			2,070,815
LIABILITIES AND PARTNERS’ EQUITY
Current
Accounts payable		7,126			5,885
Accrued liabilities		14,348			7,789
Unearned revenue		7,307			6,163
Current portion of long-term debt (note 7)		9,190			8,103
Current obligation under capital leases (note 4)		160,284			137,646
Current portion of long-term debt related to newbuilding vessels to be leased (note 12)		14,559			-
Advances from affiliate (notes 10e and 10f )		7,553			2,222
Total current liabilities		220,367			167,808
Long-term debt (note 7)	405,992				398,249
Long-term obligation under capital leases (note 4)		386,895			382,343
Long-term debt related to newbuilding vessels to be leased (note 12)		436,873			319,573
Other long-term liabilities (note 11)		44,287			33,703
Total liabilities		1,494,414			1,301,676
Commitments and contingencies (notes 4 and 12)
Partners’ equity
Partners’ equity		791,595			841,642
Accumulated other comprehensive loss (note 9)		(55,936	)		(72,503	)
Total partners’ equity		735,659			769,139
Total liabilities and partners’ equity		2,230,073			2,070,815

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

Page 5 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

(Successor to Teekay Luxembourg S.a.r.l.)

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 (loss) income		(2,173	)		66,823
Non-cash items:
Depreciation and amortization		38,374			31,210
Gain on sale of assets		-			(186	)
Deferred income tax (recovery) expense		(705	)		1,418
Foreign currency exchange loss (gain)		26,559			(81,567	)
Loss from settlement of interest rate swaps		-			7,820
Write-off of capitalized loan costs		-			7,462
Accrued interest and other - net		3,527			9,337
Change in non-cash working capital items related to operating activities		(3,160	)		(396	)
Expenditures for drydocking		(3,006	)		(1,353	)
Net operating cash flow		59,416			40,568
FINANCING ACTIVITIES
Proceeds from long-term debt		138,176			45,307
Capitalized loan costs		(4,584	)		-
Scheduled repayments of long-term debt		(6,365	)		(7,555	)
Scheduled repayments of capital lease obligations		(6,439	)		(5,175	)
Prepayments of long-term debt		(41,000	)		(388,307	)
Proceeds from issuance of common units		(141	)		141,327
Interest rate swap settlement costs		-			(143,295	)
Advances from affiliate		25,275			353,069
Advances to affiliate		(5,235	)		(184,302	)
(Increase) decrease in restricted cash (note 4)		(436,808	)		10,044
Cash distributions paid		(47,731	)		(7,305	)
Net financing cash flow		(384,852	)		(186,192	)
INVESTING ACTIVITIES
Expenditures for vessels and equipment		(1,413	)		(84,120	)
Proceeds from sale of vessels and equipment (note 4)		312,972			133,268
Net investing cash flow		311,559			49,148
Decrease in cash and cash equivalents		(13,877	)		(96,476	)
Cash and cash equivalents, beginning of the period		34,469			156,410
Cash and cash equivalents, end of the period		20,592			59,934

Please see Note 6 for supplemental cash flow disclosure.

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

Page 6 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

(Successor to Teekay Luxembourg S.a.r.l.)

UNAUDITED CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY/STOCKHOLDER DEFICIT

(in thousands of U.S. dollars and units)

				PARTNERS’ EQUITY
	Stockholder Deficit (Predecessor)			Limited Partners
	Stockholder Deficit (Predecessor)		Common					Subordinated					General Partner					Accumulated Other Comprehensive Loss			Total
	$			Units		$			Units		$			$			$			$
Balance as at December 31, 2004		(123,002	)		-		1			-		-			-			-			(123,001	)
Net income (January 1 - May 9, 2005)		29,215			-		-			-		-			-			-			29,215
Unrealized loss on derivative instruments (notes 9 and 11)		(22,874	)		-		-			-		-			-			-			(22,874	)
Reclassification adjustment for loss on derivative instruments included in net income (notes 9 and 11)		14,359			-		-			-		-			-			-			14,359
Sale of the Santiago Spirit (note 10g)		(3,115	)		-		-			-		-			-			-			(3,115	)
Balance as at May 9, 2005		(105,417	)		-		1			-		-			-			-			(105,416	)
Equity contribution by Teekay Shipping Corporation (note 1)		105,417			8,734		211,788			14,735		357,318			11,614			(52,194	)		633,943
Proceeds from initial public offering of limited partnership interests, net of offering costs of $16,089 (note 2)		-			6,900		135,711			-		-			-			-			135,711
Proceeds from follow-on public offering of limited partnership interests, net of offering costs of $5,832 (note 2)		-			4,600		120,208			-		-			2,572			-			122,780
Issuance of units to non-employee directors (note 2)		-			4		-			-		-			-			-			-
Net income (May 10 - December 31, 2005)		-			-		23,716			-		16,951			9,665			-			50,332
Cash distributions		-			-		(10,137	)		-		(9,551	)		(402	)		-			(20,090	)
Unrealized loss on derivative instruments (note 11)		-			-		-			-		-			-			(26,622	)		(26,622	)
Reclassification adjustment for loss on derivative instruments included in net income (note 11)		-			-		-			-		-			-			6,313			6,313
Purchase of three Suezmax tankers from Teekay Shipping Corporation (note 10h)		-			-		(15,773	)		-		(11,483	)		(556	)		-			(27,812	)
Balance as at December 31, 2005		-			20,238		465,514			14,735		353,235			22,893			(72,503	)		769,139
Net income (January 1 - September 30, 2006)		-			-		297			-		(2,426	)		(44	)		-			(2,173	)
Cash distributions		-			-		(27,068	)		-		(19,708	)		(955	)		-			(47,731	)
Unrealized gain on derivative instruments (notes 9 and 11)		-			-		-			-		-			-			10,025			10,025
Reclassification adjustment for loss on derivative instruments included in net income (notes 9 and 11)		-			-		-			-		-			-			6,542			6,542
Offering costs from follow-on public offering of limited partnership interests (note 2)		-			-		(143	)		-		-			-			-			(143	)
Balance as at September 30, 2006		-			20,238		438,600			14,735		331,101			21,894			(55,936	)		735,659

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

Page 7 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

1. Basis of Presentation

On April 30, 2004, Teekay Shipping Corporation through its subsidiary, Teekay Luxembourg S.a.r.l (or Luxco ), acquired all of the outstanding shares of Naviera F. Tapias S.A. and its subsidiaries (or Tapias ) and renamed it Teekay Shipping Spain S.L. (or Teekay Spain ). Teekay Shipping Corporation acquired Teekay Spain for $298.2 million in cash, plus the assumption of debt and remaining newbuilding commitments.

On November 3, 2004, Teekay Shipping Corporation formed Teekay LNG Partners L.P., a Marshall Islands limited partnership (or the Partnership ), to own and operate the liquefied natural gas (or LNG ) and Suezmax crude oil marine transportation businesses conducted by Luxco and its subsidiaries (collectively, the Predecessor ). On May 6, 2005, Teekay Shipping Corporation contributed to the Partnership all of the outstanding shares of Luxco, all but $54.9 million of the notes receivable from Luxco, and all of the equity interests of Granada Spirit L.L.C., which owned the Suezmax tanker, the Granada Spirit , in connection with the Partnership’s initial public offering on May 10, 2005 of 6.9 million common units, which represent limited partner interests in the Partnership. The Partnership subsequently repaid the $54.9 million note receivable.

In exchange for these shares, equity interests and assets, Teekay Shipping Corporation received 8,734,572 common units and 14,734,572 subordinated units, which represented a 75.7% limited partner interest in the Partnership. The Partnership's general partner, Teekay GP L.L.C. (or the General Partner ), received a 2% general partner interest and all of the incentive distribution rights in the Partnership. Teekay GP L.L.C. is a wholly-owned subsidiary of Teekay Shipping Corporation. During November 2005, the Partnership issued, in a public offering, an additional 4.6 million common units, effectively reducing Teekay Shipping Corporation’s limited partnership interest to 65.8% (please see Note 2).

The accompanying unaudited consolidated interim financial statements include the accounts of Luxco and its subsidiaries, which include Teekay Spain, for periods subsequent to April 30, 2004 and prior to May 10, 2005. The results for the periods subsequent to April 30, 2004 reflect the comprehensive revaluation of all assets (including intangible assets and goodwill) and liabilities of Teekay Spain at their fair values on the date of acquisition. For periods subsequent to May 10, 2005, the consolidated financial statements include the accounts of Teekay LNG Partners L.P., its subsidiaries (which include, among others, Luxco and Teekay Spain), and Teekay Nakilat Corporation (or Teekay Nakilat ), a variable interest entity for which the Partnership is the primary beneficiary (please see Note 12). The transfer to the Partnership of the shares of and notes receivable from Luxco and equity interests of Granada Spirit L.L.C. represented a reorganization of entities under common control and, consequently, was recorded at historical cost. The book value of these assets on their transfer was $633.9 million.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States. 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, these consolidated interim financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2005. In the opinion of the General Partner’s management, these consolidated interim financial statements reflect all adjustments necessary to present fairly, in all material respects, the Partnership’s consolidated financial position, results of operations, changes in partners’ equity and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation. Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period.

Page 8 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

2. Public Offerings

On May 10, 2005, the Partnership completed its initial public offering (or the IPO ) of 6.9 million common units at a price of $22.00 per unit. During November 2005, the Partnership issued in a follow-on public offering an additional 4.6 million common units at a price of $27.40 per unit (or the Follow-On Offering ). Concurrently with the Follow-On Offering, the General Partner contributed $2.6 million to the Partnership to maintain its 2% general partner interest.

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

Proceeds received:	IPO $		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
General Partner contribution .....................................................................................................................		-		2,572		2,572
		151,800		128,612		280,412

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 advances from Teekay Shipping Corporation .............................................................		129,400		-		129,400
Purchase of three Suezmax tankers from Teekay Shipping Corporation .(note 10h) ......................		-		122,611		122,611
Working capital ..........................................................................................................................................		6,311		-		6,311
		151,800		128,612		280,412

Concurrently with the IPO, the Partnership awarded 700 common units as compensation to each of the Partnership’s five non-employee directors. These common units reverse vest equally over a three-year period.

3. Segment Reporting

The Partnership has two reportable segments: its LNG carrier segment and its Suezmax tanker segment. The Partnership’s LNG carrier segment consists of LNG carriers subject to fixed-rate time-charter contracts. The Partnership’s Suezmax tanker segment consists of conventional crude oil tankers operating on fixed-rate time-charter contracts. Segment results are evaluated based on income from vessel operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Partnership’s audited consolidated financial statements for the year ended December 31, 2005.

Page 9 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

The following tables include results for these segments for the interim periods presented in these financial statements.

	Three Months Ended September 30, 2006								Nine Months Ended September 30, 2006
	LNG Carrier Segment $			Suezmax Tanker Segment $		Total $			LNG Carrier Segment $		Suezmax Tanker Segment $		Total $

Voyage revenues ......................................................................		25,225			21,471		46,696			71,444		61,927		133,371
Voyage expenses ......................................................................		394			269		663			794		796		1,590
Vessel operating expenses ......................................................		4,297			5,235		9,532			13,014		15,246		28,260
Depreciation and amortization ................................................		7,959			5,013		12,972			23,393		14,981		38,374
General and administrative ⁽¹⁾ ................................................		1,215			1,649		2,864			3,902		5,055		8,957
Income from vessel operations ..............................................		11,360			9,305		20,665			30,341		25,849		56,190

Expenditures (recovery) for vessels and equipment ..........		(59	)		24		(35	)		1,361		52		1,413

	Three Months Ended September 30, 2005
	Three Months Ended September 30, 2005
	LNG Carrier Segment $		Suezmax Tanker Segment $		Total $

Voyage revenues ......................................................................................................................................................		24,503		10,257		34,760
Voyage expenses ......................................................................................................................................................		-		135		135
Vessel operating expenses ......................................................................................................................................		3,614		2,957		6,571
Depreciation and amortization ................................................................................................................................		7,522		3,085		10,607
General and administrative ⁽¹⁾ ..................................................................................................................................		1,262		1,471		2,733
Income from vessel operations ...............................................................................................................................		12,105		2,609		14,714

Expenditures for vessels and equipment ..............................................................................................................		-		35,199		35,199

	Nine Months Ended September 30, 2005
	January 1 to May 9, 2005						May 10 to September 30, 2005
	LNG Carrier Segment $		Suezmax Tanker Segment $		Total $		LNG Carrier Segment $		Suezmax Tanker Segment $		Total $

Voyage revenues .....................................................................		34,883		15,246		50,129		38,663		16,461		55,124
Voyage expenses .....................................................................		49		202		251		1		207		208
Vessel operating expenses .....................................................		5,971		4,800		10,771		5,783		4,720		10,503
Depreciation and amortization ...............................................		10,746		4,005		14,751		11,820		4,639		16,459
General and administrative ⁽¹⁾ ...............................................		1,464		1,464		2,928		1,869		2,139		4,008
Income from vessel operations .............................................		16,653		4,775		21,428		19,190		4,756		23,946

Expenditures for vessels and equipment .............................		-		43,962		43,962		-		40,158		40,158

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

Page 10 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

A reconciliation of total segment assets to total assets presented in the unaudited consolidated interim balance sheet is as follows:

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

Total assets of the LNG carrier segment		1,747,829		1,576,990
Total assets of the Suezmax tanker segment		435,199		448,525
Cash and cash equivalents		20,592		34,469
Accounts receivable and other assets		26,453		10,831
Consolidated total assets		2,230,073		2,070,815

4. Capital Lease Obligations and Restricted Cash

Capital Leases

LNG Carriers . As at September 30, 2006, the Partnership was a party to capital leases on two LNG carriers, which are structured as “Spanish tax leases”. Under the terms of the Spanish tax leases, the Partnership will purchase these vessels at the end of their respective lease terms on December 31, 2006 and 2011, both of which purchase obligations have been fully funded with restricted cash deposits described below. As at September 30, 2006 and December 31, 2005, the weighted-average 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 three subsidiaries of Teekay Nakilat, each of which has contracted to have built one LNG carrier, sold their shipbuilding contracts to SeaSpirit Leasing Limited (or SeaSpirit ) for proceeds of $313.0 million. Concurrently with the sale, Teekay Nakilat entered into 30-year leases, commencing upon the completion of vessel construction, for these three LNG carriers (please see Note 12 ).

Suezmax Tankers. As at September 30, 2006, the Partnership was a party to capital leases on five Suezmax tankers. Under the terms of the lease arrangements, which include the Partnership’s contractual right to full operation of the vessels pursuant to bareboat charters, the Partnership is required to purchase these vessels for a fixed price after the end of their respective lease terms, which will occur at various times from 2007 to 2010. The weighted-average 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 our lease payments resulting from changes in interest rates is offset by a corresponding change in the charter hire payments received by the Partnership. 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

Page 11 of 47

T EEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

Restricted cash

Under the terms of the Spanish tax leases for the two LNG carriers, the Partnership is 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, 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) and 249.0 million Euros ($295.0 million) as at September 30, 2006 and December 31, 2005, respectively. These cash deposits are restricted to being used for capital lease payments and have been fully funded with term loans (please see Note 7) 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 capital leases for the three LNG newbuilding carriers, Teekay Nakilat 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 to satisfy the Partnership’s obligations under the leases and have been fully funded with term loans and loans from the joint venture partners (please see Note 12). As at September 30, 2006, the weighted-average interest rate earned on the deposits was 5.6%.

The Partnership also maintains restricted cash deposits relating to certain term loans, which cash totaled $4.7 million and $3.3 million as at September 30, 2006 and December 31, 2005, respectively.

5. Intangible Assets and Goodwill

As at September 30, 2006 and December 31, 2005, intangible assets consisted of time-charter contracts with a weighted-average amortization period of 19.2 years.

The carrying amount of intangible assets as at September 30, 2006 and December 31, 2005 is as follows:

	September 30, 2006 $			December 31, 2005 $

Gross carrying amount .…………………………………………………………………….....…………………………………...		182,552			182,552
Accumulated amortization ……………………………………………………….…………………………………………….....		(20,205	)		(13,358	)
Net carrying amount …………………………………………………………………………………………………………….....		162,347			169,194

All intangible assets were recognized on April 30, 2004, when the Predecessor acquired Teekay Spain. Amortization expense of intangible assets for the three and nine months ended September 30, 2006 and 2005 were $2.3 million, $6.9 million, $2.3 million and $7.0 million, respectively.

The carrying amount of goodwill as at September 30, 2006 and December 31, 2005 for the Partnership’s reporting segments are as follows:

	LNG Carrier Segment $	Suezmax Tanker Segment $	Total $
Balance as at September 30, 2006 and December 31, 2005 ……………………………………………....	3,648	35,631	39,279

Page 12 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

6. Cash Flows

Cash interest paid by the Partnership during the nine months ended September 30, 2006 and 2005 totaled $43.4 million and $49.3 million, respectively.

Income taxes paid by the Partnership during the nine months ended September 30, 2005 totaled $5.7 million. No income taxes were paid by the Partnership during the nine months ended September 30, 2006.

7. Long-Term Debt

	September 30, 2006 $		December 31, 2005 $

U.S. Dollar-denominated Revolving Credit Facility due through 2015 ………………………………………………………..…...…		18,000		29,000
Euro-denominated Term Loans due through 2023 ……………………………………………………………………………..………		397,182		377,352
		415,182		406,352
Less current portion ………………………………………………...………………………………………………………………..……		9,190		8,103
Total ……………………………………………………………………………………………………….………………………………...		405,992		398,249

As at September 30, 2006, the Partnership had two long-term revolving credit facilities (or the Revolvers ) available, which, as at such date, provided for borrowings of up to $463.1 million, of which $445.1 million was undrawn. Interest payments are based on LIBOR plus margins. At September 30, 2006, the margins ranged between 0.50% and 0.55%. The amount available under the Revolvers reduces by $4.4 million (2006), $17.7 million (2007), $18.2 million (2008), $18.8 million (2009), $19.4 million (2010) and $384.6 million (thereafter). Both revolving credit facilities may be used by the Partnership to fund general partnership purposes. In addition, one of the revolving credit facilities may be used to fund cash distributions. The Partnership is required to reduce all borrowings used to fund cash distributions to zero for a period of at least 15 consecutive days during any 12-month period. The Revolvers are collateralized by first-priority mortgages granted on five of the Partnership’s vessels, together with other related collateral, and include a guarantee from the Partnership or its subsidiaries for all outstanding amounts.

The Partnership has two Euro-denominated term loans outstanding, which, as at September 30, 2006 totaled 313.4 million Euros ($397.2 million). These loans were used to make restricted cash deposits that fully fund payments under capital leases (please see Note 4). Interest payments are based on EURIBOR plus margins. At September 30, 2006, the margins ranged between 1.10% and 1.30%. The term loans reduce in monthly payments with varying maturities through 2023 and are collateralized by first-preferred mortgages on the vessels to which the loans relate, together with certain other collateral and guarantees from Teekay Spain.

The weighted-average effective interest rate for U.S. Dollar-denominated debt outstanding at September 30, 2006 and December 31, 2005 was 5.8% and 5.6%, respectively. The weighted-average effective interest rate for Euro-denominated debt outstanding at September 30, 2006 and December 31, 2005 was 4.4% and 3.6%, respectively. These rates do not reflect the effect of related interest rate swaps that the Partnership has used to hedge certain of its floating-rate debt (please see Note 11).

Page 13 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

All Euro-denominated term loans and Euro-denominated advances from affiliates (prior to the IPO) are revalued at the end of each period using the then-prevailing Euro/U.S. Dollar exchange rate. Due substantially to this revaluation, the Partnership recognized foreign exchange gains (losses) during the interim periods presented as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

2006

2005

2006

2005

July 1

September 30,

2006

July 1

September 30,

2005

January 1

September 30,

2006

January 1

May 9,

2005

May 10

September 30,

2005

3,752

1,347

(24,401)

52,295

24,340

The aggregate annual long-term debt principal repayments required for periods subsequent to September 30, 2006 are $2.2 million (2006), $9.3 million (2007), $10.0 million (2008), $10.7 million (2009), $11.5 million (2010), and $371.5 million (thereafter).

The Partnership’s ship-owning subsidiaries may not, among other things, pay dividends or distributions if the Partnership is in default under the term loans and the Revolvers. One of the Revolvers contains covenants that require the maintenance of a minimum free liquidity and minimum tangible net worth and provide a maximum leverage ratio. In addition, the Partnership’s term loan for one of its LNG carriers, the Catalunya Spirit , contains covenants that require the maintenance of a minimum liquidity of 5.0 million Euros and annual restricted cash deposits of 1.2 million Euros. The Partnership's capital leases do not contain financial or restrictive covenants other than those relating to operation and maintenance of the vessels.

8. Other Income (Loss) - Net

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
	July 1 to September 30, 2006 $		July 1 to September 30, 2005 $		January 1 to September 30, 2006 $		January 1 to May 9, 2005 $			May 10 to September 30, 2005 $
Loss on cancellation of interest rate swaps……………………………………		-		-		-		(7,820	)		-
Gain on sale of assets…………………………………………………………….		-		-		-		-			186
Write-off of capitalized loan costs……………………………………………...		-		-		-		(7,462	)		-
Income tax recovery (expense)……….……………………………………..…..		180		1,587		558		(2,648	)		3,259
Miscellaneous………………………...……………………………………......…		389		-		1,006		3			(186	)
Other income (loss) - net …………….……………………………………….…		569		1,587		1,564		(17,927	)		3,259

Page 14 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

9. Comprehensive (Loss) Income

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
	July 1 to September 30, 2006 $			July 1 to September 30, 2005 $			January 1 to September 30, 2006 $			January 1 to May 9, 2005 $			May 10 to September 30, 2005 $
Net income (loss) …………………………………………………………………...		12,585			8,904			(2,173	)		29,215			37,608
Other comprehensive (loss) income:
Unrealized (loss) gain on derivative instruments …………..……………….…		(20,455	)		(1,222	)		10,025			(22,874	)		(13,138	)
Reclassification adjustment for loss on derivative instruments included in net income (loss)……………………………………………………..……….		2,099			2,409			6,542			14,359			4,011
Comprehensive (loss) income ……………………………………………………..		(5,771	)		10,091			14,394			20,700			28,481

10. Related Party Transactions

The Partnership has entered into an omnibus agreement with Teekay Shipping Corporation, the General Partner and others governing, among other things, when the Partnership and Teekay Shipping Corporation 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 (or Teekay Offshore ). As amended, the agreement governs, among other things, when the Partnership, Teekay Shipping Corporation and Teekay Offshore may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, floating storage and offtake units and floating production, storage and offloading units.

The Partnership and certain of its operating subsidiaries have entered into services agreements with certain subsidiaries of Teekay Shipping Corporation pursuant to which the Teekay Shipping Corporation subsidiaries provide the Partnership with administrative, advisory, technical and strategic consulting services. During the three and nine months ended September 30, 2006, the Partnership incurred $0.8 million and $2.5 million, respectively, of these costs. During the three months ended September 30, 2005 and the period from May 10, 2005 to September 30, 2005, the partnership incurred $0.4 million and 0.6 million, respectively, of these costs.

The Partnership has entered into an agreement with Teekay Shipping Corporation pursuant to which Teekay Shipping Corporation provides the Partnership with off-hire insurance for its LNG carriers commencing January 1, 2006. During the three and nine months ended September 30, 2006, the Partnership incurred $0.2 million and $0.7 million, respectively, of these costs.

The Partnership reimburses the General Partner for all expenses necessary or appropriate for the conduct of the Partnership’s business. During the three and nine months ended September 30, 2006, the Partnership incurred $0.1 million and $0.3 million, respectively, of these costs. During the three months ended September 30, 2005 and the period from May 10, 2005 to September 30, 2005, the Partnership incurred $0.1 million and $0.2 million, respectively, of these costs.

The Partnership’s Suezmax tanker, the Toledo Spirit , which was delivered in July 2005, operates pursuant to a time-charter contract that increases or decreases the fixed rate established in the charter, depending on the spot charter rates that the Partnership would have earned had it traded the vessel in the spot tanker market. The Partnership has entered into an agreement with Teekay Shipping Corporation under which Teekay Shipping Corporation pays the Partnership any amounts payable to the charter party as a result of spot rates being below the fixed rate, and the Partnership pays Teekay Shipping Corporation any amounts payable to the Partnership as a result of spot rates being in excess of the fixed rate. During the three and nine months ended September 30, 2006, the Partnership incurred $1.7 million and $3.8 million, respectively, of amounts owing to Teekay Shipping Corporation as a result of this agreement. During the period from the date of delivery in July 2005 to September 30, 2005, the Partnership incurred an obligation of $0.3 million to Teekay Shipping Corporation as a result of this agreement.

Page 15 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

f)	At September 30, 2006 and December 31, 2005, advances from affiliates totaled $7.6 million and $2.2 million, respectively. Advances from affiliates are non-interest bearing and unsecured.

In early 2005, the Partnership completed the sale of the Santiago Spirit (a newly constructed, double-hulled Suezmax tanker delivered in March 2005) to a subsidiary of Teekay Shipping Corporation for $70.0 million. The resulting $3.1 million loss on sale, net of income taxes, has been accounted for as an equity distribution.

Concurrently with the closing of the Partnership’s Follow-On Offering, the Partnership acquired from Teekay Shipping Corporation three double-hulled Suezmax oil tankers and related long-term, fixed-rate time charters for an aggregate price of $180.0 million. The resulting $27.8 million loss on purchase has been accounted for as an equity distribution. These vessels, the African Spirit , the Asian Spirit and the European Spirit , are chartered to a subsidiary of ConocoPhillips, an international, integrated energy company. The Partnership financed the acquisition with the net proceeds of the public offering, together with borrowings under one of the Revolvers and cash balances.

11. Derivative Instruments and Hedging Activities

The Partnership, including Teekay Nakilat, uses derivatives only for hedging purposes.

As at September 30 2006, the Partnership 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 Partnership’s floating-rate debt and restricted cash deposits were swapped with fixed-rate obligations and fixed-rate deposits:

	Interest Rate Index	Principal Amount $	Fair Value / Carrying Amount of Asset (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 ⁽³⁾	LIBOR	234,000	(20,625)	12.0	6.2
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⁾	EURIBOR	397,182	5,488	17.7	3.8

_____________________________________________________________________________

(1) Excludes the margin the Partnership pays on its floating-rate debt. (Please see Note 7).

(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. (Please see Note 12). Principal amount reduces quarterly following delivery of each LNG newbuilding.

(3) U.S. Dollar-denominated interest rate swaps are held in Teekay Nakilat to hedge its term loans - Inception dates of swaps are December 2006 ($78.0 million) and March and June of 2007 (aggregate of $156.0 million).

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

Page 16 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

During April 2005, the Predecessor repaid term loans of $337.3 million on two LNG carriers and settled related interest rate swaps. The Predecessor recognized a loss of $7.8 million as a result of these interest rate swap settlements. During April 2005, the Predecessor also settled interest rate swaps associated with 322.8 million Euros ($390.5 million) of term loans and entered into new swaps of the same amount with a lower fixed interest rate. A loss of 39.2 million Euros ($50.4 million) relating to these interest rate swap settlements has been deferred in accumulated other comprehensive loss and is being recognized over the remaining terms of the term loans. The cost to settle all of these interest rate swaps was $143.3 million.

Changes in the fair value of the designated interest rate swaps (cash flow hedges) have been recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a derivative's change in fair value is immediately recognized into income and is presented as interest expense. During the three and nine months ended September 30, 2006, the ineffective portion of the Partnership’s interest rate swaps was nominal.

The Partnership is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, counterparties to these agreements are major financial institutions and the Partnership considers the risk of loss due to non-performance to be minimal. The Partnership requires no collateral from these institutions.

12. Commitments and Contingencies

The Partnership entered into an agreement with Teekay Shipping Corporation to purchase its 70% interest in Teekay Nakilat. Teekay Nakilat has a 30-year capital lease arrangement for three LNG carriers (or the RasGas II vessels ), one of which delivered on October 31, 2006 and the other two of which are scheduled for delivery in the first quarter of 2007. Upon the respective deliveries of the vessels, they will provide transportation services under 20-year, fixed-rate time charters to Ras Laffan Liquefied Natural Gas Co. Limited (II), a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. The Partnership purchased Teekay Shipping Corporation’s interest in Teekay Nakilat upon delivery of the first newbuilding in October 2006. The purchase price for the 70% interest in Teekay Nakilat was approximately $90.0 million, before the expected benefits from the lease arrangements, which are described in further detail below. Payment terms are 30% of the total purchase price is to be paid with each vessel delivery and a final 10% payment to be made 90 days after the delivery of the last vessel. All amounts below relating to the RasGas II vessel capital leases include the joint venture partner’s 30% share.

During January 2006, the three subsidiaries of Teekay Nakilat, each of which had contracted to have built one of the RasGas II vessels, sold their shipbuilding contracts to SeaSpirit for aggregate proceeds of $313.0 million, which approximated the accumulated construction costs incurred to that date. Concurrent with the sale, Teekay Nakilat entered into the 30-year capital leases for the RasGas II vessels, to commence upon the delivery of the respective vessels. The proceeds from the sale were used to partially fund restricted cash deposits, which totaled $437.6 million as at September 30, 2006. During vessel construction, the amount of restricted cash approximates the accumulated vessel construction costs. Under the terms of the leases and upon vessel delivery, Teekay Nakilat 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. Teekay Nakilat is committed to funding an additional $102.9 million ($34.3 million - fourth quarter of 2006 and $68.6 million - 2007) during the remaining construction period. Teekay Nakilat has long-term financing arrangements in place to fund its remaining funding commitments of these restricted cash deposits. The benefits of these lease arrangements will be realized subsequent to the Partnership’s purchase of Teekay Shipping Corporation’s 70% interest in Teekay Nakilat. Consequently, the Partnership’s 70% share of these benefits, are estimated to be approximately $40 million, will be obtained by a reduction in the capital lease obligation for the three RasGas II vessels.

Page 17 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

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.

In January 2003, the Financial Accounting Standards Board (or FASB ) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (or FIN 46 ). In general, a variable interest entity (or VIE ) is a corporation, partnership, limited-liability company, trust, or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. If a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE's activities, is entitled to receive a majority of the VIE's residual returns (if no party absorbs a majority of the VIE's losses), or both, then FIN 46 requires that this party consolidate the VIE. Prior to its purchase of a controlling interest in Teekay Nakilat in October 2006, the Partnership already included Teekay Nakilat in its consolidated financial statements, as Teekay Nakilat was a VIE and the Partnership was its primary beneficiary. The assets and liabilities of Teekay Nakilat in the Partnership’s financial statements are recorded at historical cost as the Partnership and Teekay Nakilat are under common control.

The following table summarizes the balance sheet of Teekay Nakilat at September 30, 2006 and December 31, 2005.

	September 30, 2006 $		December 31, 2005 $
ASSETS
Prepaid expenses and other current assets		5,106		-
Restricted cash - long-term		437,571		-
Advances on newbuilding contracts		-		316,875
Other assets		30,694		4,175
Total assets		473,371		321,050

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accrued liabilities	6,367		1,477
Debt related to newbuilding vessels to be leased (please see table below)	451,432		319,573
Other long-term liabilities	44,287		23,565
Total liabilities	502,086		344,615

Total shareholders’ deficit	(28,715	)	(23,565	)
Total liabilities and shareholders’ deficit	473,371		321,050

Page 18 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

Teekay Nakilat’s assets have been financed with the following debt financing:

	September 30, 2006 $		December 31, 2005 $

U.S. Dollar-denominated Term Loans due through 2019		308,823		205,882
Interest-bearing Shareholder Loans of Teekay Nakilat		115,765		111,666
Non-interest bearing Shareholder Loans of Teekay Nakilat		26,844		2,025
		451,432		319,573
Less current portion		14,559		-
Total		436,873		319,573

Teekay Nakilat had U.S. Dollar-denominated term loans outstanding, which, as at September 30, 2006, totaled $308.8 million. Interest payments on these term loans are based on LIBOR plus margins. At September 30, 2006, these margins ranged between 0.68% and 1.05%. At December 31, 2005, these margins ranged between 0.9% and 1.05%. The term loans reduce in quarterly payments commencing three months after delivery of each RasGas II LNG newbuilding. Once fully drawn, the loans will have approximately $56.0 million per vessel in bullet repayments, due at maturity. Upon delivery of the first RasGas II vessel under capital lease in October 2006, a portion of the term loans was drawn to repay the non-interest bearing shareholder loans of Teekay Nakilat (described below). All term loans are collateralized by first-preferred mortgages on the vessels to which the loans relate, together with certain other collateral and guarantees from Teekay Shipping Corporation. The creditors of Teekay Nakilat do not have recourse to the Partnership.

During December 2005, $111.7 million of Teekay Nakilat’s equity owned by Teekay Shipping Corporation ($78.2 million) and Qatar Gas Transport Company Ltd. (Nakilat) ($33.5 million) was converted to interest-bearing shareholder loans. Interest payments on these loans are based on a fixed rate of 4.84% and are payable commencing one year after the delivery of the third LNG carrier. These loans are unsecured and are repayable on demand.

The aggregate annual long-term debt principal repayments of Teekay Nakilat required for periods subsequent to September 30, 2006 are $0.0 (2006), $12.4 million (2007), $16.5 million (2008), $16.5 million (2009), $16.5 million (2010), and $246.9 million (thereafter).

The Partnership’s maximum exposure to loss at September 30, 2006, as a result of its commitment to purchase Teekay Shipping Corporation’s interest in Teekay Nakilat, was limited to the purchase price of its 70% interest in Teekay Nakilat.

13. Net Income (Loss) Per Unit

For periods after the Partnership’s IPO on May 10, 2005, net income (loss) per unit is determined by dividing net income (loss), after deducting the amount of net income (loss) allocated to the General Partner’s interest by the weighted-average number of units outstanding during the period. For periods prior to May 10, 2005, such units are deemed equal to the common and subordinated units received by Teekay Shipping Corporation in exchange for net assets contributed to the Partnership in connection with the IPO, or 23,469,144 units.

As required by Emerging Issues Task Force Issue No. 03-6, Participating Securities and Two-Class Method under FASB Statement No. 128, Earnings Per Share , the General Partner’s, common unit holders’ and subordinated unitholders’ interests in net income are calculated as if all net income for periods subsequent to May 10, 2005 were distributed according to the terms of the Partnership Agreement, regardless of whether those earnings would or could be distributed. The Partnership Agreement does not provide for the distribution of net income; rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after establishment of cash reserves. Unlike available cash, net income (loss) is affected by non-cash items. Net income for the three

Page 19 of 47

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

months ended September 30, 2006 was $12.6 million, which included a $3.8 million foreign currency translation gain relating primarily to long-term debt denominated in Euros. The limited partners’ interest in net income for this period was $12.3 million. Subsequent to September 30, 2006, cash distributions declared and payable on November 14, 2006 to the limited partners for the three months ended September 30, 2006 totaled $16.2 million.

Under the Partnership Agreement, the holder of the incentive distribution rights in the Partnership, which is currently the General Partner, has the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution. Assuming there are no cumulative arrearages on common unit distributions, the target distribution levels entitle the General Partner to receive 2% of quarterly cash distributions up to $0.4625 per unit, 15% of quarterly cash distributions between $0.4625 and $0.5375 per unit, 25% of quarterly cash distributions between $0.5375 and $0.65 per unit, and 50% of quarterly cash distributions in excess of $0.65 per unit. During the three months ended September 30, 2006, net income did not exceed $0.4625 per unit and, consequently, the assumed distributions of net income did not result in the use of the increasing percentages to calculate the General Partner’s interest in net income.

Under the Partnership Agreement, during the subordination period the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $0.4125 per quarter, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. During the three months ended September 30, 2006, net income did not exceed the minimum quarterly distribution of $0.4125 per unit and, consequently, the assumed distributions of net income resulted in unequal distributions of net income between the subordinated unit holders and common unit holders.

14. Other Information

In July 2005, Teekay Shipping Corporation announced that it had been awarded long-term, fixed-rate contracts to charter two LNG carriers to the Tangguh LNG project in Indonesia. The two LNG carriers will be chartered for a period of 20 years to The Tangguh Production Sharing Contractors, a consortium led by BP Berau Ltd., a subsidiary of BP plc. Teekay Shipping Corporation entered into this project with a joint venture partner (BLT LNG Tangguh Corporation, a subsidiary of PT Berlian Tanker Tbk), which owns a 30% interest. All amounts below include the joint venture partner’s 30% share. In connection with this award, Teekay Shipping Corporation has exercised shipbuilding options with Hyundai Heavy Industries Co. Ltd. to construct two 155,000 cubic meter LNG carriers at a total delivered cost of approximately $376.9 million, excluding capitalized interest. As at September 30, 2006 payments made towards these commitments by the joint venture company 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 newbuilding contracts were $147.3 million in 2007, $111.2 million in 2008 and $36.1 million in 2009. The charters will commence upon vessel deliveries, which are scheduled for late 2008 and early 2009. Pursuant to existing agreements, Teekay Shipping Corporation was required to offer its 70% ownership interest in these two vessels and related charter contracts to the Partnership. On November 1, 2006, the Partnership agreed to acquire this 70% ownership interest upon delivery of the first LNG carrier.

In August 2005, Teekay Shipping Corporation 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 exercisable by the customer to extend up to an additional 10 years), scheduled to commence in the first half of 2008. Teekay Shipping Corporation entered into the project with a joint venture partner (Qatar Gas Transport Company Ltd. (Nakilat), which owns a 60% interest. In connection with this award, Teekay Shipping Corporation has entered into agreements with Samsung

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TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

(Successor to Teekay Luxembourg S.a.r.l .)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Cont’d)

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

Heavy Industries Co. Ltd. to construct four 217,000 cubic meter LNG carriers at a total cost of approximately $1.0 billion, excluding capitalized interest. As at September 30, 2006, payments made towards these commitments by the joint venture company totaled $250.9 million, excluding capitalized interest and other miscellaneous construction costs. Long-term financing arrangements existed for all 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 were $100.6 million in 2006, $449.9 million in 2007 and $200.3 million in 2008. The charters will commence upon deliveries, which are scheduled for the first half of 2008. Pursuant to existing agreements, Teekay Shipping Corporation was required to offer its 40% ownership interest in these four vessels and related charter contracts to the Partnership. On November 1, 2006, the Partnership agreed to acquire this 40% ownership interest upon delivery of the first LNG carrier.

15. Recent Accounting Pronouncements

In July 2006, FASB issued FASB 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 Partnership will adopt FIN 48 as of January 1, 2007 as required.

The Partnership has claimed a 3.1 million Euro ($3.9 million) re-investment tax credit in one of its subsidiaries 2005 annual tax filings, which was filed in July 2006. Despite the Partnership’s belief that its tax position is supportable, the Partnership believes that this tax position will be reviewed by the tax authorities and is more likely than not that the re-investment credit will not be realized. Consequently, the Partnership has not recognized the benefit of this re-investment tax credit. As of September 30, 2006, the Partnership does not expect that the adoption of FIN 48 will have a significant impact on the Partnership’s financial position and results of operations.

16. Subsequent Events

In December 2006, the Partnership 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. The Partnership 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.

In December 2006, the Partnership announced that it has agreed to acquire a 2000-built LPG carrier from Teekay Shipping Corporation 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 the Partnership’s existing Revolvers. This vessel is chartered to the Norwegian state-owned oil company, Statoil ASA and has a remaining contract term of nine years.

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TEEKAY LNG PARTNERS L.P. 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 LNG Partners L.P. is an international provider of liquefied natural gas (or LNG ) and crude oil marine transportation services. Our growth strategy focuses on expanding our fleet of LNG carriers under long-term, fixed-rate time charters. We intend to continue our practice of acquiring LNG carriers as needed after the long-term charters have been awarded to us, rather than ordering vessels on a speculative basis. We seek to capitalize on opportunities emerging from the global expansion of the LNG sector by selectively targeting long-term, fixed-rate time charters. We may enter into joint ventures and partnerships with companies that may provide increased access to these opportunities or may engage in vessel or business acquisitions. We plan to leverage the expertise, relationships and reputation of Teekay Shipping Corporation and its affiliates to pursue these growth opportunities in the LNG sector and may consider other opportunities to which our competitive strengths are well suited. In December 2006, we announced that we will be acquiring four liquefied petroleum gas (or LPG ) carriers, as discussed below. LPG is a by-product of natural gas separation and crude oil refining. As a result, LPG transportation services are a natural extension of our core LNG transportation business. We view our Suezmax tanker fleet primarily as a source of stable cash flow as we expand our LNG and LPG operations.

We currently manage our business and analyze and report our results of operations on the basis of the following two business segments:

LNG Carrier Segment . We have four LNG carriers, all of which operate under long-term, fixed-rate charters.

In addition, in October 2006, we purchased Teekay Shipping Corporation’s 70% interest in Teekay Nakilat Corporation (or Teekay Nakilat ) in accordance with the terms of a prior agreement. Teekay Nakilat has a 30-year capital lease arrangement on three LNG carriers (or the RasGas II vessels ), one of which delivered in October 2006 and the remaining two newbuildings of which are scheduled for delivery in the first quarter of 2007. Upon delivery, the respective vessels will commence service under existing 20-year, fixed-rate charters with Ras Laffan Liquefied Natural Gas Co. Limited (II) (or RasGas II ), a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation, established for the purpose of expanding LNG production in Qatar. Please read Item 1 - Financial Statements: Note 12 - Commitments and Contingencies.

During the three and nine months ended September 30, 2006, our LNG carrier segment generated 53.9% and 53.6%, respectively, of our total net voyage revenues (i.e. voyage revenues less voyage expenses). During the three and nine months ended September 30, 2005, this segment generated 70.8% and 70.1%, respectively, of our total net voyage revenues.

Suezmax Tanker Segment. We have eight Suezmax class crude oil tankers, including the Toledo Spirit that delivered in July 2005, and three double-hulled Suezmax tankers we acquired from Teekay Shipping Corporation in November 2005. In May 2005, we sold our only single-hulled Suezmax tanker, the Granada Spirit . During most of the first nine months of 2005, we had four Suezmax tankers. Please read “-- Follow-On Offering and Acquisition of Three Suezmax Tankers” below. We describe our Suezmax tanker dispositions and deliveries in more detail under “-- Results of Operations” below. All of our Suezmax tankers operate under long-term, fixed-rate time charters.

During the three and nine months ended September 30, 2006, our Suezmax tanker segment generated 46.1% and 46.4%, respectively, of our total net voyage revenue. During the three and nine months ended September 30, 2005, this segment generated 29.2% and 29.9%, respectively, of our total net voyage revenues.

Our original fleet was established by Naviera F. Tapias S.A. (or Tapias ), a Spanish company founded in 1991. Teekay Shipping Corporation, through its subsidiary Teekay Luxembourg S.a.r.l. (or Luxco ), acquired Tapias on April 30, 2004 and changed its name to Teekay Shipping Spain S.L. (or Teekay Spain ).

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Our Initial Public Offering

On November 3, 2004, Teekay Shipping Corporation formed Teekay LNG Partners L.P. to own and operate the LNG and Suezmax crude oil marine transportation businesses conducted by Luxco and its subsidiaries. On May 6, 2005, Teekay Shipping Corporation contributed to us all of the outstanding shares of Luxco, all but $54.9 million of notes receivable from Luxco, and all of the equity interests of Granada Spirit L.L.C., which owned the Suezmax tanker, the Granada Spirit , in connection with our initial public offering on May 10, 2005. We subsequently repaid the $54.9 million note receivable.

In exchange for these shares, equity interests and assets, Teekay Shipping Corporation received 8,734,572 common units and 14,734,572 subordinated units, which represented a 75.7% limited partner interest in us. Our general partner, Teekay GP L.L.C., received a 2% general partner interest and all of our incentive distribution rights. Teekay GP L.L.C. is a wholly-owned subsidiary of Teekay Shipping Corporation. In our initial public offering, w e sold 6,900,000 of our common units, which represent limited partner interests, at a price of $22.00 per unit, for proceeds of $135.7 million, net of $16.1 million of underwriting costs and offering expenses. Please read Item 1- Financial Statements: Note 2 - Public Offerings.

New Long-Term, Fixed-Rate LNG Contracts Awarded

In July and August 2005, Teekay Shipping Corporation announced that it has been awarded new long-term, fixed-rate time charter contracts to transport LNG and had entered into agreements to construct a total of six LNG carriers in connection with these awards. Two of the LNG carriers will be chartered for a period of 20 years to The Tangguh Production Sharing Contractors, and four will be chartered for a period of 25 years (with options to extend up to an additional 10 years) to Ras Laffan Liquefied Natural Gas Co. Limited (3). Partners in each of these projects will participate in 30% and 60%, respectively, of the ownership of the related time charters and related vessels. On November 1, 2006, we agreed to acquire from Teekay Shipping Corporation, upon delivery of the first vessel of each project, its interests in these vessels and related charter contracts. Please read Item 1 - Financial Statements: Note 14 - Other Information.

Follow-On Offering and Acquisition of Three Suezmax Tankers

In November 2005, we completed our follow-on public offering of 4,600,000 common units at a price of $27.40 per unit. Proceeds from the offering were $120.0 million, net of $6.0 million of underwriting costs and offering expenses. In addition, our general partner contributed $2.6 million to us to maintain its 2% general partner interest. Please read Item 1 - Financial Statements: Note 2 - Public Offerings.

Concurrently with the closing of the offering, we acquired from Teekay Shipping Corporation three double-hulled Suezmax 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 (collectively, the ConocoPhillips Tankers ), are similar in size to our other five crude oil tankers. The ConocoPhillips Tankers have an average age of three years and are chartered to a subsidiary of ConocoPhillips, an international, integrated energy company. Each time charter has a remaining scheduled term of approximately 9.0 years, subject to termination and vessel sale and purchase rights. In addition, ConocoPhillips has the option to extend the charters for up to an additional six years.

Acquisition of Four Liquefied Petroleum Gas Carriers

In December 2006, the Partnership announced that it has agreed to acquire three LPG carriers from 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. The Partnership 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 at fixed-rates, for a period of 15 years.

In December 2006, we also announced that we will acquire a 2000-built LPG carrier from Teekay Shipping Corporation 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 the Partnership’s existing Revolvers. This vessel is chartered to the Norwegian state-owned oil company, Statoil ASA and has a remaining contract term of nine years.

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Our Charters

We generate revenues by charging customers for the transportation of their LNG and crude oil using our vessels. Historically, we generally have provided these services under the following basic types of contractual relationships:

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

·	Voyage charters, which are charters for shorter intervals, usually a single round trip, that are priced on a current, or “spot,” market rate.

During the three and nine months ended September 30, 2006 and 2005, we derived all of our revenues from time charters. We do not anticipate earning revenues from voyage charters in the foreseeable future.

"Hire" rate refers to the basic payment from the customer for the use of a vessel. Hire is payable monthly, in advance, in U.S. Dollars or Euros, as specified in the charter. The hire rate generally includes two components - a capital cost component and an operating expense component. The capital component typically approximates the amount we are required to pay under vessel financing obligations and, for our existing Suezmax tankers (other than for the ConocoPhillips Tankers), adjusts for changes in the floating interest rates relating to the underlying vessel financing. The operating component, which adjusts annually for inflation, is intended to compensate us for vessel operating expenses and provide us a profit.

The time charters for the ConocoPhillips Tankers include a fixed monthly rate for their initial 12-year term, which increases to another fixed amount for any extensions of the initial term. These time charters do not include capital or operating components or adjust for inflation.

For our charters, other than the charters for the three RasGas II vessels and the ConocoPhillips Tankers, we earn a profit from a margin built into the operating component. Under the RasGas II charters, this margin is built into the capital component.

In addition, we may receive additional revenues beyond the fixed hire rate when current market rates exceed specified amounts under our time charter for one Suezmax tanker, the Teide Spirit .

Hire payments may be reduced or, under some charters, we must pay liquidated damages, if the vessel does not perform to certain of its specifications, such as if the average vessel speed falls below a guaranteed speed or the amount of fuel consumed to power the vessel under normal circumstances exceeds a guaranteed amount. Historically, we have had few instances of hire rate reductions and none that have had a material impact on our operating results.

When a vessel is “off-hire”—or not available for service—generally the customer is not required to pay the hire rate and we are responsible for all costs. Commencing January 1, 2006, Teekay Shipping Corporation began providing off-hire insurance for our LNG carriers. Prolonged off-hire may lead to vessel substitution or termination of the time charter. A vessel will be deemed to be off-hire if it is in drydock. We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications required to comply with industry certification or governmental requirements. In addition, a vessel generally will be deemed off-hire if there is a loss of time due to, among other things: operational deficiencies; equipment breakdowns; delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

The average remaining term of our existing long-term, fixed-rate time charters is approximately 18.4 years for our LNG carriers and 13.3 years for our Suezmax tankers, subject, in certain circumstances, to termination or purchase rights. The initial term of each of the three RasGas II LNG vessel charters is 20 years, in each case from delivery of the vessel.

Our customers include major energy companies and their affiliates. We derive a substantial majority of our revenues from a limited number of customers. During the nine months ended September 30, 2006 and 2005, we derived 84% and 99%, respectively, of our revenues from four customers - Compania Espanola de Petroleos, S.A. (30% and 29%), Repsol YPF, S.A. (28% and 34%), Gas Natural SDG, S.A. (13% and 19%) and Unión Fenosa Gas, S.A (13% and 17%) . In addition, during the nine months ended September 30, 2006, we derived 16% of our revenues from a subsidiary of ConocoPhillips. The loss of any customer or time charter, or a significant decline in payments under any of our time charters, could materially and adversely affect our revenues, cash flows and operating results.

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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 currently include revenues only from time charters. 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 time and voyage charters. Hire rates for voyage charters are more volatile, as they are typically tied to prevailing market rates at the time of a voyage.

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. 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 . We are responsible for vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. The two largest components of vessel operating expenses are crews and repairs and maintenance.

Income from Vessel Operations . To assist us in evaluating our operations by segment, we sometimes analyze the income we receive from each segment after deducting operating expenses, but prior to the deduction of interest expense, taxes, foreign currency and interest rate swap gains or losses and other income and losses. For more information, please read Item 1 - Financial Statements: Note 3 - Segment Reporting.

Drydocking . We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications required to comply with industry certification or governmental requirements. Generally, we drydock each of our vessels every five years. 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 or intermediate survey. 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 the following three components:

·	charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of our vessels;

·	charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking; and

·	charges related to the amortization of the fair value of the time charters acquired in the Teekay Spain acquisition (over the remaining terms of the charters), which was initially determined at approximately $183 million in April 2004 when Teekay Shipping Corporation acquired Teekay Spain.

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 special or intermediate 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 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 primarily in explaining changes in vessel operating expenses and depreciation and amortization.

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Utilization . Utilization is an indicator of the use of our fleet during a given period, and is determined by dividing our revenue days by our calendar-ship-days for the period.

Restricted Cash Deposits . Under capital lease arrangements for two of our LNG carriers, we (a) borrowed under term loans and deposited the proceeds into restricted cash accounts and (b) entered into capital leases, also referred to as “bareboat charters,” for the vessels. The restricted cash deposits, together with 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. During vessel construction, we borrowed under the term loans and made restricted cash deposits equal to construction installment payments. We also maintain restricted cash deposits relating to certain term loans and other obligations, such as the lease agreements for the three RasGas II vessels. For more information, please read Item 1 - Financial Statements: Note 4 - Capital Lease Obligations and Restricted Cash.

Foreign Currency Fluctuations . Our results of operations are affected by fluctuations in currency exchange rates. The volatility in our financial results due to currency exchange rate fluctuations are attributed primarily to the following factors:

Unrealized end-of-period revaluations . Under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, restricted cash, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. A substantial majority of our foreign currency gains and losses are attributable to this revaluation in respect of our Euro-denominated term loans. Substantially all of these gains and losses are unrealized.

Foreign currency revenues and expenses . A portion of our voyage revenues are denominated in Euros. A substantial majority of our vessel operating expenses and general and administrative expenses are denominated in Euros, which is primarily a function of the nationality of our crew and administrative staff. We also have Euro-denominated interest expense and interest income related to our Euro-denominated loans and Euro-denominated restricted cash deposits, respectively. As a result, fluctuations in the Euro relative to the U.S. Dollar have caused, and are likely to continue to cause, fluctuations in our reported voyage revenues, vessel operating expenses, general and administrative expenses, interest expense and interest income.

Our Euro-denominated revenues currently generally approximate our Euro-denominated expenses and Euro-denominated loan and interest payments. For this reason, we have not entered into any forward contracts or similar arrangements to protect against the risk of foreign currency-denominated revenues, expenses or monetary assets or liabilities. If our foreign currency-denominated revenues and expenses become sufficiently disproportionate in the future, we may engage in hedging activities. For more information, please read Item 3 - Quantitative and Qualitative Disclosures About Market Risk.

Items You Should Consider When Evaluating Our Results of Operations

Some factors that have affected our historical financial performance or will affect our future performance are listed below:

Our financial results reflect changes in our capital structure . Prior to the closing of our initial public offering on May 10, 2005, we repaid $337.3 million of term loans on two LNG carriers and settled related interest rate swaps. We also settled other interest rate swaps associated with 322.8 million Euros ($390.5 million) of other term loans and entered into new swaps of the same amount with a lower fixed interest rate. In addition, on May 6, 2005, Teekay Shipping Corporation contributed to us all but $54.9 million of its notes receivable from Luxco, among other assets. We subsequently repaid the $54.9 million note receivable. These reductions in our debt and effective interest rates have decreased the amount of our interest expense.

Our historical operating results include the historical results of Luxco for the period from January 1, 2005 to May 9, 2005. Teekay Shipping Corporation formed Luxco in April 2004 to acquire and hold Teekay Spain. From its formation until our initial public offering, Luxco had no revenues, expenses or income, other than:

·	net interest expense of $7.3 million related to $448.0 million of advances from Teekay Shipping Corporation that Luxco used to purchase Teekay Spain and to prepay certain debt of Teekay Spain;

·	unrealized foreign exchange gains of $23.8 million related to the advances, which were Euro-denominated; and

·	other expense of $0.1 million.

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Luxco’s results relate solely to the financing of the acquisition of Teekay Spain and repayment of Teekay Spain debt by Teekay Shipping Corporation and do not relate to the historical results of Teekay Spain. In addition, because the capital stock of Luxco and the advances from Teekay Shipping Corporation were contributed to us in connection with our initial public offering, these advances and their related effects were eliminated on consolidation for periods subsequent to May 9, 2005. Consequently, certain of our financial and operating data for the nine months ended September 30, 2006 may not be comparable to the same period last year.

Our financial results since May 2005 reflect the consolidation of Teekay Nakilat . In May 2005, we entered into an agreement with Teekay Shipping Corporation to purchase its 70% interest in Teekay Nakilat, which has a 30-year capital lease arrangement on each of the three RasGas II vessels. The purchase will occur upon delivery of the first vessel, which occurred on October 31, 2006.

In January 2003, the Financial Accounting Standards Board (or FASB ) issued FASB Interpretation 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (or FIN 46 ). Prior to our purchase of a 70% interest in Teekay Nakilat, we were required to consolidate Teekay Nakilat in our consolidated financial statements under FIN 46, as Teekay Nakilat was a variable interest entity and we were its primary beneficiary. Please read Item 1 - Financial Statements: Note 1 - Basis of Presentation and Note 12 - Commitments and Contingencies.

Our financial results reflect the sale and leaseback of the three RasGas II vessels of Teekay Nakilat. During January 2006, the three subsidiaries of Teekay Nakilat, each of which had contracted to have built one of the RasGas II vessels, sold their shipbuilding contracts to SeaSpirit Leasing Limited (or SeaSpirit ) and entered into 30-year capital leases for the three LNG carriers, to commence upon their respective deliveries. Under the terms of the leases and upon vessel delivery, Teekay Nakilat 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.

As a result of this transaction, Teekay Nakilat received $313.0 million from the sale of the shipbuilding contracts, which approximated the accumulated construction costs incurred as of the sale date. The proceeds from the sale were used to fund restricted cash deposits. During the nine months ended September 30, 2006, Teekay Nakilat placed an additional $113.5 million in restricted cash deposits, which was funded with $102.9 million of term loans and $10.6 million of loans from its joint venture partners. During the three and nine months ended September 30, 2006, Teekay Nakilat earned $5.4 million and $13.7 million, respectively, of interest income on its restricted cash deposits and incurred $6.6 million and $16.6 million, respectively, of interest expense on its long-term debt and loans from its joint venture partners.

The size of our Suezmax tanker fleet has changed . Our historical results of operations reflect changes in the size and composition of our fleet due to certain vessel deliveries and vessel dispositions. During most of the nine months ended September 30, 2005, we had four Suezmax tankers, while during the nine months ended September 30, 2006, we had eight Suezmax tankers. Please read “-- Results of Operations - Suezmax Tanker Segment" below for further details about our vessel dispositions and deliveries.

One of our Suezmax tankers earns revenues based partly on spot market rates . The time charter for one Suezmax tanker, the Teide Spirit , contains a component providing for additional revenues to us beyond the fixed hire rate when spot market rates exceed certain threshold amounts. Accordingly, even though declining spot market rates will not result in our receiving less than the fixed hire rate, our results may continue to be influenced, in part, by the variable component of the Teide Spirit charter. During the three and nine months ended September 30, 2006, we earned $1.3 million and $2.8 million, and for the same periods in 2005, we earned $0.2 million and $3.1 million, respectively, in additional revenue from this variable component.

We are incurring additional general and administrative expenses following our initial public offering . In connection with the closing of our initial public offering in May 2005 and also with our acquisition of the ConocoPhillips Tankers, we and certain of our subsidiaries entered into services agreements with certain subsidiaries of Teekay Shipping Corporation pursuant to which those subsidiaries provide us and our subsidiaries certain services, including strategic consulting, advisory, ship management, technical and administrative services. Our cost for these services depends on the amount and type of services provided during each period. The services are valued at a reasonable, arm’s-length rate that includes reimbursement of reasonable direct or indirect expenses incurred to provide the services. We also reimburse our general partner for all expenses it incurs on our behalf. We may also grant equity compensation that would result in an expense to us. In addition, since our initial public offering, we have incurred expenses as a result of being a publicly-traded limited partnership, including costs associated with annual reports to unitholders and SEC filings, investor relations, incremental director and officer liability insurance costs and director compensation.

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Results of Operations

The following tables present our operating results by reportable segment for the three and nine months ended September 30, 2006 and 2005, and compare our net voyage revenues, a non-GAAP financial measure, for those periods to the most directly comparable GAAP financial measure. For ease of comparison, we have combined the results of the various time periods set forth in our consolidated statements of income (loss) into three and nine-month comparison periods.

	Three Months Ended September 30, 2006									Three Months Ended September 30, 2005
(in thousands of U.S. dollars, except Operating Data)	LNG Carrier Segment			Suezmax Tanker Segment			Total			LNG Carrier Segment			Suezmax Tanker Segment			Total
Voyage revenues		25,225			21,471			46,696			24,503			10,257			34,760
Voyage expenses		394			269			663			-			135			135
Net voyage revenues		24,831			21,202			46,033			24,503			10,122			34,625
Vessel operating expenses		4,297			5,235			9,532			3,614			2,957			6,571
Depreciation and amortization		7,959			5,013			12,972			7,522			3,085			10,607
General and administrative ⁽¹⁾		1,215			1,649			2,864			1,262			1,471			2,733
Income from vessel operations		11,360			9,305			20,665			12,105			2,609			14,714

Operating Data:
Revenue Days (A)		366			736			1,102			368			423			791
Calendar-Ship-Days (B)		368			736			1,104			368			435			803
Utilization (A)/(B)		99.5	%		100.0	%		99.8	%		100.0	%		97.2	%		98.5	%

	Nine Months Ended September 30, 2006									Nine Months Ended September 30, 2005
(in thousands of U.S. dollars, except Operating Data)	LNG Carrier Segment			Suezmax Tanker Segment			Total			LNG Carrier Segment			Suezmax Tanker Segment			Total
Voyage revenues		71,444			61,927			133,371			73,546			31,707			105,253
Voyage expenses		794			796			1,590			50			409			459
Net voyage revenues		70,650			61,131			131,781			73,496			31,298			104,794
Vessel operating expenses		13,014			15,246			28,260			11,754			9,520			21,274
Depreciation and amortization		23,393			14,981			38,374			22,566			8,644			31,210
General and administrative ⁽¹⁾		3,902			5,055			8,957			3,333			3,603			6,936
Income from vessel operations		30,341			25,849			56,190			35,843			9,531			45,374

Operating Data:
Revenue Days (A)		1,057			2,168			3,225			1,077			1,164			2,241
Calendar-Ship-Days (B)		1,092			2,184			3,276			1,092			1,180			2,272
Utilization (A)/(B)		96.8	%		99.3	%		98.4	%		98.6	%		98.6	%		98.6	%

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

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Three and Nine Months Ended September 30, 2006 Versus Three and Nine Months Ended September 30, 2005

LNG Carrier Segment

We operated four LNG carriers during the three and nine months ended September 30, 2006 and 2005 and, therefore, our total calendar-ship-days remained the same for those respective periods.

During May 2006, the Catalunya Spirit was in drydock undergoing its first intermediate class survey which contributed to 19.1 days of scheduled off-hire during the nine months ended September 30, 2006. While in drydock, damage was discovered on certain of the side membrane walls within the cargo tanks and a latent defect was discovered in the propeller. The cost of repairing the damage to the cargo tanks and replacing the propeller was covered by the hull and machinery insurance policy on the vessel. Insurance claims totaling $4.6 million (net of a $1.0 million deductible) were filed in the second quarter of 2006 to recover these costs. During the nine months ended September 30, 2006, we received insurance payments of $1.9 million and expect to receive the balance of the cargo tank repair claim (less the $500,000 deductible) during early 2007. Recourse action against the builder is being considered to recover this claim. We are in the process of finalizing an agreement with the builder for full recovery of the propeller claim, including the $500,000 deductible. Our claim under our loss-of-hire insurance policy for the Catalunya Spirit to recover lost time-charter revenue resulting from the additional time required in drydock to make these repairs is fully recoverable with the full amount anticipated to be paid in January 2007. The repairs took a total of 47.4 days, in addition to the scheduled 19.1 days related to the intermediate class survey. Coverage under the loss-of-hire insurance policy commences after a 14-day deductible. As a result, during the nine months ended September 30, 2006, the total number of days of off-hire due to the scheduled drydocking and the deductible under our loss-of-hire insurance policy was 33.1 days. We have received notification from our loss-of-hire insurance provider that we have a valid claim and are in discussions regarding the exact amount of the reimbursement. The vessel resumed normal operations in early July 2006.

We have reviewed the operating history of our other LNG carriers and we believe that the conditions that caused the damage to the cargo tanks on the Catalunya Spirit did not occur on these vessels.

Net Voyage Revenues . Net voyage revenues remained relatively unchanged for the three months ended September 30, 2006 and 2005. Net voyage revenues decreased 3.8% to $70.7 million for the nine months ended September 30, 2006, from $73.5 million for the same period last year, primarily as a result of:

·	a decrease of $2.4 million for the nine months ended September 30, 2006, due to the Catalunya Spirit being off-hire for 35.5 days as described above; and

·	a decrease of $1.4 million for 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 such period compared to the same period last year;

partially offset by

·	an effective increase of $0.8 million for the nine months ended September 30, 2006 as a result of not incurring the 15.2 days of off-hire experienced for one of our LNG carriers during February 2005.

Vessel Operating Expenses . Vessel operating expenses increased 19.4% and 10.2% to $4.3 million and $13.0 million, respectively, for the three and nine months ended September 30, 2006, from $3.6 million and $11.8 million for the same periods last year. These increases were primarily the result of:

·	increases of $0.6 million and $1.2 million, respectively, for the three and nine months ended September 30, 2006, 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

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·	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 6.7% and 3.5% to $8.0 million and $23.4 million, respectively, for the three and nine months ended September 30, 2006, from $7.5 million and $22.6 million for the same periods last year. These increases reflect the amortization of drydock expenditures incurred during 2005 and 2006.

Suezmax Tanker Segment

During the three and nine months ended September 30, 2006, we operated eight Suezmax tankers, compared to five Suezmax tankers in the same periods last year. The results of our Suezmax tanker segment reflect the following fleet changes:

·	the delivery and concurrent sale of a Suezmax tanker newbuilding (the Santiago Spirit ) to Teekay Shipping Corporation in March 2005;

·	the delivery of a Suezmax tanker newbuildings (the Toledo Spirit ) in July 2005 (or the Suezmax Delivery );

·	the sale of the Granada Spirit to Teekay Shipping Corporation in December 2004, in connection with a significant drydocking and re-flagging of the vessel, the contribution of this vessel to us on May 6, 2005, and the subsequent sale back to Teekay Shipping Corporation on May 26, 2005; and

·	the acquisition of the ConocoPhillips Tankers from Teekay Shipping Corporation in November 2005.

As a result, our total calendar-ship-days increased by 69.2% and 85.1% to 736 days and 2,184 days, respectively, for the three and nine months ended September 30, 2006, from 435 and 1,180 calendar-ship-days for the same periods last year.

Net Voyage Revenues . Net voyage revenues increased 109.9% and 95.2% to $21.2 million and $61.1 million, respectively, for the three and nine months ended September 30, 2006, from $10.1 million and $31.3 million for the same periods last year. These increases were primarily the result of:

·	increases of $7.1 million and $21.2 million, respectively, for the three and nine months ended September 30, 2006, relating to the acquisition of the ConocoPhillips Tankers;

·	increases of $1.6 million and $6.5 million, respectively, for the three and nine months ended September 30, 2006, relating to the Suezmax Delivery;

increases of $1.4 million and $3.9 million, respectively, for the three and nine months ended September 30, 2006, due to adjustments to the daily charter rates based on inflation and increases from rising interest rates in accordance with the time charter contracts for all Suezmax tankers other than the ConocoPhillips Tankers and the Granada Spirit (however, under the terms of our capital leases for our tankers subject to these charter rate fluctuations, we had a corresponding increase in our lease payments, which is reflected as an increase to interest expense; therefore, these interest rate adjustments, which will continue, did not affect our cash flow or net income); and

an increase of $1.1 million for the three months ended September 30, 2006 relating to revenues earned by the Teide Spirit (the time charter for the Teide Spirit contains a component providing for additional revenues to us beyond the fixed hire rate when spot market rates exceed threshold amounts);

partially offset by

·	a decrease of $0.6 million for the nine months ended September 30, 2006, relating to revenues earned by the Granada Spirit for the period from May 6, 2005, when the vessel was contributed to us, to May 26, 2005, when we disposed of the vessel;

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·	a decrease of $0.4 million for the nine months ended September 30, 2006, from an additional 13 days of off-hire for one of our Suezmax tankers during February 2006 relating to a scheduled drydocking; and

·	a decrease of $0.3 million for the nine months ended September 30, 2006 relating to lower revenues earned by the Teide Spirit during such period compared to the same period last year, as discussed above.

Vessel Operating Expenses . Vessel operating expenses increased 73.3% and 60.0% to $5.2 million and $15.2 million, respectively, for the three and nine months ended September 30, 2006, from $3.0 million and $9.5 million for the same periods last year. These increases were primarily the result of:

·	increases of $1.6 million and $4.4 million, respectively, for the three and nine months ended September 30, 2006, relating to the acquisition of the ConocoPhillips Tankers;

·	increases of $0.3 million and $1.4 million, respectively, for the three and nine months ended September 30, 2006, relating to the Suezmax Delivery; and

partially offset by

·	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 61.3% and 74.4% to $5.0 million and $15.0 million, respectively, for the three and nine months ended September 30, 2006, from $3.1 million and $8.6 million for the same periods last year. These increases were primarily the result of:

·	increases of $1.6 million and $4.8 million, respectively, for the three and nine months ended September 30, 2006, relating to the acquisition of the ConocoPhillips Tankers; and

·	increases of $0.2 million and $1.6 million, respectively, for the three and nine months ended September 30, 2006, relating to the Suezmax Delivery;

partially offset by

·	a decrease of $0.2 million for the nine months ended September 30, 2006, relating to the inclusion of the Granada Spirit for the period from May 6, 2005 to May 26, 2005.

Other Operating Results

General and Administrative Expenses . General and administrative expenses increased 7.4% and 30.4% to $2.9 million and $9.0 million, respectively, for the three and nine months ended September 30, 2006, from $2.7 million and $6.9 million for the same periods last year. These increases were primarily the result of:

increases of $0.2 million and $2.5 million, respectively, for the three and nine months ended September 30, 2006, associated with (a) services agreements we and certain of our subsidiaries entered into with subsidiaries of Teekay Shipping Corporation in connection with our initial public offering and with our acquisition of the ConocoPhillips Tankers, (b) fees and cost reimbursements of our general partner and (c) additional expenses as a result of being a publicly traded limited partnership;

partially offset by

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·	expenses of $0.1 million and $0.7 million, respectively for the three and nine months ended September 30, 2005, relating to legal costs associated with repayment of term loans and settlement of interest rate swaps made in connection with our initial public offering.

Interest Expense . Interest expense increased 54.9% and 6.9% to $22.3 million and $62.3 million, respectively, for the three and nine months ended September 30, 2006, from $14.4 million and $58.3 million for the same periods last year. These increases were primarily the result of:

increases of $6.6 million and $16.6 million, respectively, for the three and nine months ended September 30, 2006, relating to the interest-bearing debt of Teekay Nakilat, of which such interest was capitalized prior to the January 2006 sale and leaseback transaction relating to the three RasGas II vessels;

increases of $1.4 million and $3.6 million, respectively, for the three and nine months ended September 30, 2006, from rising interest rates on our five Suezmax tanker lease obligations (however, under the terms of our time charter contracts for these vessels, we had corresponding increases in our charter payments, which are reflected as an increase to voyage revenues); and

·	increases of $1.1 million and $3.9 million, respectively, for the three and nine months ended September 30, 2006, relating to an increase in debt used to finance the Suezmax Delivery and the acquisition of the ConocoPhillips Tankers; and

·	an increase of $0.4 million for the three months ended September 30, 2006, due to the effect on our Euro-denominated debt from the strengthening of the Euro against the U.S. Dollar during such period compared to the same period last year;

partially offset by

decreases of $1.2 million and $3.5 million, respectively, for the three and nine months ended September 30, 2006, resulting from scheduled debt repayments and capital lease payments on two of our LNG carriers from restricted cash deposits (these LNG vessels have been financed pursuant to Spanish tax lease arrangements, under which we borrow under term loans and deposit the proceeds into restricted cash accounts and enter into capital leases for the vessels; as a result, this decrease in interest expense is offset by a corresponding decrease in the interest income from restricted cash);

·	a decrease of $8.3 million for the nine months ended September 30, 2006, resulting from the repayment of $337.3 million of term loans and the settlement of related interest rate swaps prior to our initial public offering in May 2005;

·	a decrease of $7.3 million for the nine months ended September 30, 2006, resulting from Teekay Shipping Corporation’s contribution to us of interest-bearing loans in connection with our initial public offering in May 2005; and

·	a decrease of $0.6 million for the nine months ended September 30, 2006, due to the effect on our Euro-denominated debt from the weakening of the Euro against the U.S. Dollar during such period compared to the same period last year.

Interest Income . Interest income increased 76.8% and 51.4% to $9.9 million and $26.8 million, respectively, for the three and nine months ended September 30, 2006, from $5.6 million and $17.7 million for the same periods last year. Interest income primarily reflects interest earned on restricted cash deposits that approximate the present value of the remaining amounts we owe under lease arrangements on two of our LNG carriers and on restricted cash deposits held for the three RasGas II vessels. These increases were primarily the result of:

·	increases of $5.4 million and $13.7 million, respectively, for the three and nine months ended September 30, 2006, relating to additional restricted cash deposits which were primarily funded with the proceeds from the sale and leaseback of the three RasGas II vessels; and

·	an increase of $0.3 million for the three months ended September 30, 2006, due to the effect on our Euro-denominated deposits from the strengthening of the Euro against the U.S. dollar during such period compared to the same period last year;

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partially offset by

·	decreases of $0.8 million and $2.9 million, respectively, for the three and nine months ended September 30, 2006, resulting from scheduled capital lease repayments on two of our LNG vessels which were funded from restricted cash deposits;

·	decreases of $0.7 million and $1.8 million, respectively, for the three and nine months ended September 30, 2006, compared to interest earned on temporary investments held during 2005 and interest earned on overnight deposits in our bank accounts; and

·	a decrease of $0.1 million for the nine months ended September 30, 2006, due to the effect on our Euro-denominated deposits from the weakening of the Euro against the U.S. Dollar during such period compared to the same period last year.

Foreign Currency Exchange Gains (Losses) . Foreign currency exchange gains were $3.8 million for the three months ended September 30, 2006 and foreign currency exchange losses were $24.4 million for the nine months ended September 30, 2006, compared to foreign currency exchange gains of $1.3 million and $76.6 million, respectively, for the same periods last year. Our foreign currency exchange gains and losses, substantially all of which have been unrealized, are due substantially to the relevant period-end revaluation of Euro-denominated term loans for financial reporting purposes. 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.

Other Income (Loss) . Other income of $0.6 million and $1.6 million in the three and nine months ended September 30, 2006, respectively, is comprised of $0.2 million and $0.6 million, respectively, of income tax recoveries and $0.4 million and $1.0 million, respectively, of miscellaneous income.

Other income of $1.6 million for the three months ended September 30, 2005 and other loss of $14.7 million for the nine months ended September 30, 2005, resulted from:

·	income tax recovery of $1.6 million and $0.6 million, respectively, incurred during the three and nine months ended September 30, 2005; and

·	a $0.2 million gain for the nine months ended September 30, 2005, from the sale of the Granada Spirit to Teekay Shipping Corporation during May 2005;

partially offset by:

·	a $7.8 million loss for the nine months ended September 30, 2005, from the settlement of interest rate swaps in April 2005 that were being used to hedge the interest rate risk on two of our term loans that were repaid at that time;

·	a $7.5 million loss for the nine months ended September 30, 2005, from the write-off of capitalized loan costs relating to the two term loans we repaid in April 2005; and

·	other miscellaneous expense of $0.2 million that was recognized during the nine months ended September 30, 2005.

Net Income . As a result of the foregoing factors, our net income was $12.6 million for the three months ended September 30, 2006 and our net loss was $2.2 million for the nine months ended September 30, 2006; compared to net income of $8.9 million and $66.8 million, respectively, for the three and nine months ended September 30, 2005.

Liquidity and Capital Resources

Liquidity and Cash Needs

As at September 30, 2006, our total cash and cash equivalents totaled $20.6 million, compared to $34.5 million at December 31, 2005. Our total liquidity including cash, cash equivalents and undrawn long-term borrowings, was $465.7 million as at September 30, 2006, compared to $105.5 million as at December 31, 2005. This increase was primarily the result of the refinancing of two of our existing LNG vessels during the third quarter of 2006, which increased our undrawn medium-term credit facilities from $100.0 million to $330.0 million, and the additional $137.5 million revolving credit facility we entered into during December 2005, which became available to us in January 2006.

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Our primary short-term liquidity needs are to pay quarterly distributions on our outstanding units and to fund general working capital requirements and drydocking expenditures, while our long-term liquidity needs primarily relate to expansion and maintenance capital expenditures and debt repayment. Expansion capital expenditures primarily represent the purchase or construction of vessels to the extent the expenditures increase the operating capacity or revenue generated by our fleet, while maintenance capital expenditures primarily consist of drydocking expenditures and expenditures to replace vessels in order to maintain the operating capacity or revenue generated by our fleet. We anticipate that our primary sources of funds for our short-term liquidity needs will be cash flows from operations, while our long-term sources of funds will be from cash from operations, term loans and debt or equity financings.

We believe that cash flows from operations and existing undrawn revolving credit facilities will be sufficient to meet our liquidity needs for at least the next 12 months. We may need to raise additional capital to finance the purchase of our five Suezmax tankers that we are required to purchase at the end of their capital lease terms, which will be at various times from 2007 to 2010. We anticipate that we will be able to purchase these five tankers by assuming the outstanding financing obligations that relate to them; however, we may be required to obtain separate debt or equity financing to complete the purchases if the lenders do not consent to our assuming the financing obligations. We may be unable to raise additional funds on favorable terms, if at all.

Cash Flows. The following table summarizes our sources and uses of cash for the periods presented:

	Nine Months Ended September 30,
	2006 ($000’s)			2005 ($000’s)
Sources of Cash:
Operating activities:		59,416			40,568
Financing activities:
Advances from affiliate		25,275			353,069
Proceeds from issuance of common units		-			141,327
Proceeds from long-term debt		138,176			45,307
Decrease in restricted cash		-			10,044
Investing activities:
Proceeds from sale of vessels and equipment		312,972			133,268
		535,839			723,583
Uses of Cash:
Financing activities:
Repayments of debt and capital lease obligations		53,804			401,037
Advances to affiliate		5,235			184,302
Interest rate swap settlement costs		-			143,295
Increase in restricted cash		436,808			-
Cash distributions paid		47,731			7,305
Other		4,725			-
Investing activities:
Expenditures for vessels and equipment		1,413			84,120
		549,716			820,059
Net Decrease in Cash and Cash Equivalents		(13,877	)		(96,476	)

Operating Cash Flows. Net cash flow from operating activities increased to $59.4 million for the nine months ended September 30, 2006, from $40.6 million for the same period in 2005, primarily reflecting the increase in operating cash flows from the acquisition of the ConocoPhillips Tankers and the Suezmax Delivery, partially offset by the decrease in operating cash flows due to the Catalunya Spirit being off-hire for 35 days to complete repairs and scheduled drydocking, a $1.7 million increase in drydocking expenditures and the timing of our cash receipts and payments. Net cash flow from operating activities depends upon the timing and amount of drydocking expenditures, repairs and maintenance activity, vessel additions and dispositions, foreign currency rates, changes in interest rates, fluctuations in working capital balances and spot market hire rates (to the extent we have vessels operating in the spot tanker market or our hire rates are partially affected by spot market rates). The number of vessel drydockings tends to be uneven between years.

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Financing Cash Flows. Our investments in vessels and equipment have been financed primarily with term loans and capital lease arrangements. Net proceeds from long-term debt were $138.2 million and $45.3 million, respectively, for the nine months ended September 30, 2006 and 2005. During the nine months ended September 30, 2006, Teekay Nakilat used $102.9 million of these funds, along with $10.6 million of advances from its then-existing shareholders, Teekay Shipping Corporation and Qatar Gas Transport Company Ltd. (Nakilat) , to partially fund its restricted cash deposits for the three RasGas II vessels that are subject to capital leases. The first LNG carrier was delivered during the fourth quarter of 2006 and the remaining two will be delivered in the first quarter of 2007.

Cash distributions paid during the nine months ended September 30, 2006 were $47.7 million. During the second quarter of 2006, we increased our quarterly distribution to $0.4625 per unit from $0.4125 per unit.

Debt repayments were $53.8 million during the nine months ended September 30, 2006, compared to $401.0 million during the same period last year. During the nine months ended September 30, 2005, Teekay Shipping Corporation advanced $353.1 million to us and we used these funds along with existing cash balances to repay certain term loans and settle certain interest rate swaps. Teekay Shipping Corporation contributed to us all but for $54.9 million of these loans and other assets in connection with our initial public offering. Please read Item 1 - Financial Statements: Note 7 - Long-Term Debt.

As at September 30, 2006, our long-term debt was $415.2 million, compared to $406.4 million as at December 31, 2005. As at September 30, 2006, we had Euro-denominated term loans outstanding that totaled 313.4 million Euros ($397.2 million), compared to 318.5 million Euros ($377.4 million) as at December 31, 2005. Interest payments are based on EURIBOR plus margins. As at September 30, 2006 and December 31, 2005, margins ranged between 1.10% and 1.30%. Our Euro-denominated term loans reduce in monthly payments with varying maturities through 2023 and are collateralized by first-preferred mortgages on the vessels to which the loans relate, together with certain other collateral and guarantees from Teekay Spain. Please read Item 1 - Financial Statements: Note 7 - Long-Term Debt. We have used the Euro-denominated loans to make restricted cash deposits that fully fund payments under capital leases. Please read Item 1 - Financial Statements: Note 4 - Capital Lease Obligations and Restricted Cash.

As at September 30, 2006, we had two long-term revolving credit facilities available which provided for borrowings of up to $463.1 million, of which $445.1 million was undrawn. The amount available under the credit facilities reduces by $4.4 million (2006), $17.7 million (2007), $18.2 million (2008), $18.8 million (2009), $19.4 million (2010) and $384.6 million (thereafter). Interest payments are based on LIBOR plus margins. As at September 30, 2006 and December 31, 2005, margins ranged between 0.50% and 0.55% compared to 0.50% and 1.20%, respectively. Both revolving credit facilities may be used to fund general partnership purposes. In addition, one of the revolving credit facilities may be used to fund cash distributions. We are required to reduce all borrowings used to fund cash distributions to zero for a period of at least 15 consecutive days during any 12-month period. The credit facilities are collateralized by first-priority mortgages granted on five of our vessels, together with other related collateral, and are guaranteed by us and our subsidiaries.

As at September 30, 2006, total debt related to newbuilding vessels to be leased was $451.4 million, which consisted of $308.8 million of U.S. Dollar-denominated term loans of Teekay Nakilat, $115.8 million of interest-bearing loans and $26.8 million of non-interest bearing loans to Teekay Nakilat from its then-existing shareholders, Teekay Shipping Corporation and Qatar Gas Transport Company Ltd. (Nakilat). As at December 31, 2005, total debt related to newbuilding vessels to be leased was $319.6 million, which consisted of $205.9 million of U.S. Dollar-denominated term loans of Teekay Nakilat, $111.7 million of interest-bearing loans from Teekay Shipping Corporation and Qatar Gas Transport Company Ltd. (Nakilat), and $2.0 million of non-interest bearing loans from Teekay Shipping Corporation. Please read Item 1 - Financial Statements: Note 12 - Commitments and Contingencies. The amounts above include the 30% share of our joint venture partner in Teekay Nakilat.

Interest payments on the term loans in Teekay Nakilat are based on LIBOR plus margins. At September 30, 2006, these margins ranged between 0.68% and 1.05%. At December 31, 2005, these margins ranged between 0.9% and 1.05%. The term loans reduce in quarterly payments commencing three months after delivery of each LNG newbuilding. Once fully drawn, the loans will have approximately $56.0 million per vessel in bullet repayments, due at maturity. Interest on the interest-bearing loans from Teekay Shipping Corporation and Qatar Gas Transport Company Ltd. (Nakilat) is based on a fixed rate of 4.84% and will be payable commencing one year after the delivery of the third RasGas II vessel. These loans are unsecured and are 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.

Our ship-owning subsidiaries may not pay dividends or distributions if we are in default under our loan agreements and revolving credit facilities. Our capital leases do not contain financial or restrictive covenants other than those relating to operation and maintenance of the vessels.

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The term loan agreements for our LNG carriers, including the RasGas II financing arrangements we assumed on October 31, 2006, are with separate ship-owning subsidiaries, although Teekay Spain guarantees the payments under the term loan agreements for four existing LNG carriers and the Partnership guarantees the payments under the term loan agreements for the RasGas II vessels. In the case of the RasGas II loan agreements, Teekay LNG Partners L.P. guarantees the payments under the terms of the loan as of October 31, 2006 with the delivery of the first RasGas II carrier. These agreements and the agreements that govern our revolving credit facilities contain covenants and other restrictions typical of debt financing secured by vessels, including, but not limited to, one or more of the following that restrict the ship-owning subsidiaries from:

·	incurring or guaranteeing indebtedness;

·	changing ownership or structure, including mergers, consolidations, liquidations and dissolutions;

·	making dividends or distributions if we are in default;

·	making capital expenditures in excess of specified levels;

·	making certain negative pledges and granting certain liens;

·	selling, transferring, assigning or conveying assets;

·	making certain loans and investments; and

·	entering into a new line of business.

The term loan for one of our LNG carriers, the Catalunya Spirit , contains covenants that require the maintenance of a minimum liquidity of 5.0 million Euros and annual restricted cash deposits of 1.2 million Euros. In addition, one of our revolving credit facilities contains covenants that require the maintenance of a minimum free liquidity and minimum tangible net worth and provide a maximum leverage ratio.

Investing Cash Flows. During the nine months ended September 30, 2006, the three subsidiaries of Teekay Nakilat, each of which had contracted to have built one of the three RasGas II vessels, sold their shipbuilding contracts to SeaSpirit and entered into 30-year capital leases for these three LNG carriers, to commence upon completion of vessel construction. Teekay Nakilat was reimbursed by SeaSpirit for previously paid shipyard installments and other construction costs in the amount of $313.0 million. The proceeds were used to fund restricted cash deposits for the three RasGas II vessels subject to the capital leases. During the nine months ended September 30, 2005, we sold two Suezmax tankers to Teekay Shipping Corporation for gross proceeds of $83.6 million, of which $63.0 million was used to repay debt and the remaining $20.6 million was part of our September 30, 2005 cash balance. Immediately after the delivery of the Suezmax newbuilding tanker the Toledo Spirit in July 2005, we sold this vessel for gross proceeds of $49.7 million and leased it back under a capital lease arrangement similar to those in place for our Suezmax tankers other than the ConocoPhillips Tankers.

During the nine months ended September 30, 2005, we incurred capital expenditures for vessels and equipment of $84.1 million. These capital expenditures primarily represent installment payments for two Suezmax tankers under construction.

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Contractual Obligations and Contingencies

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

	Total		Balance of 2006		2007 and 2008		2009 and 2010		Beyond 2010
	(in millions of U.S. Dollars)
U.S. Dollar-Denominated Obligations:
Long-term debt ⁽¹⁾		18.0		-		-		-		18.0
Commitments under capital leases ⁽²⁾		256.6		6.3		153.7		96.6		-
Total U.S. Dollar-denominated obligations		274.6		6.3		153.7		96.6		18.0

Euro-Denominated Obligations: ⁽³⁾
Long-term debt ⁽⁴⁾		397.2		2.2		19.3		22.2		353.5
Commitments under capital leases ^(2) (5)		365.3		156.1		60.4		66.6		82.2
Total Euro-denominated obligations		762.5		158.3		79.7		88.8		435.7

U.S. Dollar-Denominated Obligations (Nakilat): ⁽⁶⁾
Commitments under capital leases ⁽⁷⁾		1,093.6		-		54.7		52.1		986.8
Long-term debt relating to newbuilding vessels to be leased (including purchase obligation)		451.4		80.6		47.8		33.0		290.0
Total U.S. Dollar-denominated obligations		1,545.0		80.6		102.5		85.1		1,276.8

Totals		2,582.1		245.2		335.9		270.5		1,730.5

(1)	Excludes interest payments which are based on LIBOR plus a margin.

(2)

Includes, in addition to lease payments, amounts we are required to pay to purchase certain leased vessels at the end of the lease terms. We are obligated to purchase five of our existing Suezmax tankers upon the termination of the related capital leases, which will occur at various times from 2007 to 2010. The purchase price will be based on the unamortized portion of the vessel construction financing costs for the vessels, which we expect to range from $39.4 million to $41.9 million per vessel. We expect to satisfy the purchase price by assuming the existing vessel financing. We are also obligated to purchase two of our existing LNG carriers upon the termination of the related capital leases on December 31, 2006 for the Catalunya Spirit and on December 31, 2011 for the Madrid Spirit , both of which purchase obligations have been fully funded with restricted cash deposits. Please read Item 1 - Financial Statements: Note 4 - Capital Lease Obligations and Restricted Cash.

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

(4)	Excludes interest payments which are based on EURIBOR plus a margin.

(5)	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.

(6)

During May 2005, we entered into an agreement with Teekay Shipping Corporation to purchase its 70% interest in Teekay Nakilat. Our purchase commitment was $90.0 million. During January 2006, Teekay Shipping Corporation completed a 30-year capital lease arrangement that was used to finance the purchase of the three RasGas II vessels owned by Teekay Nakilat. Our purchase of Teekay Shipping Corporation’s interest in Teekay Nakilat occurred upon the delivery of the first newbuilding on October 31, 2006. As a result of the agreement described above, under current U.S. accounting guidelines we were required to consolidate Teekay Nakilat as of September 30, 2006, even though we did not yet have an ownership interest in Teekay Nakilat. Please read Item 1 - Financial Statements: Note 12 - Commitments and Contingencies.

Under the terms of the capital leases for the RasGas II vessels, 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. During vessel construction, the amount of the deposits approximates the accumulated vessel construction costs and, as of September 30, 2006, was expected to increase by approximately $102.9 million during the remaining construction period. Teekay Nakilat has long-term financing arrangements in place to fund its remaining commitments of these deposits.

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(7) Under the terms of the RasGas II capital lease arrangements, SeaSpirit claims tax depreciation on the capital expenditures it incurred to acquire these vessels. The Partnership has indemnified SeaSpirit for the risk that the vessel’s tax treatment, over the duration of the leases, is different than assumed at the commencement of the leases, and SeaSpirit will be entitled to re-calculate the lease payments in order to maintain its after-tax margin. There are no limitations to the maximum potential future payments under this indemnification.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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.

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 Suezmax 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 Suezmax 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. A one year reduction in the estimated useful lives of our Suezmax tankers and LNG carriers would result in an increase in our current annual depreciation by approximately $1.2 million, assuming this decrease did not also result in an impairment loss.

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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 LNG carrier and Suezmax tanker every 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 were $0.6 million, $1.2 million, and $0.1 million and $0.4 million, respectively. As at September 30, 2006 and December 31, 2005, our capitalized drydock expenditures were $6.0 million and $3.3 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. Our acquisition of Teekay Spain resulted in us allocating $183.1 million of the purchase price to intangible assets and $39.3 million of the purchase price to goodwill. 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. Amortization expense of intangible assets for the three and nine months ended September 30, 2006 and 2005 were $2.3 million and $6.9 million, and $2.3 million and $7.0 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.

Taxes

Description . We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. If we determined that we were able to realize a net deferred tax asset in the future, in excess of the net recorded amount, an adjustment to the deferred tax assets would typically increase our net income in the period such determination was made. Likewise, if we determined that we were not able to realize all or a part of our deferred tax asset in the future, an adjustment to the deferred tax assets would typically decrease our net income in the period such determination was made.

Judgments and Uncertainties . The estimate of our tax contingencies reserve contains uncertainty because management must use judgment to estimate the exposures associated with our various filing positions.

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Effect if Actual Results Differ from Assumptions. We have claimed a 3.1 million Euro ($3.9 million) re-investment tax credit in one of our 2005 annual tax filings that was filed in July 2006. Despite our belief that our tax position is supportable, we believe that this tax position will be reviewed by the tax authorities and it is more likely than not that the re-investment credit will not be realized. If this tax position is accepted by the tax authorities, we will recognize a credit to equity for the amount of the re-investment credit.

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FORWARD-LOOKING STATEMENTS

This Report on Form 6-K for the three and nine months ended September 30, 2006 contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Exchange 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 financial condition, results of operations and revenues and expenses; LNG and tanker market fundamentals, including the balance of supply and demand in the LNG and tanker market; future capital expenditures and availability of capital resources to fund capital expenditures; obtaining LNG projects that we or Teekay Shipping Corporation bid on or have been awarded; delivery dates of and financing for newbuildings; the commencement of service of newbuildings under long-term contracts; our liquidity needs; the expected timing and receipt of insurance proceeds and payments from the shipyard to recover the repair costs of the cargo tanks and the replacement of the propeller on the Catalunya Spirit ; our belief that the damage to the cargo tanks on the Catalunya Spirit will not occur on other LNG carriers; the expected outcome of a review by the tax authorities regarding a 3.1 million Euro ($3.9 million) re-investment tax credit, the expected timing, amount and method of financing for the purchase of joint venture interests and vessels, including our five Suezmax tankers operated pursuant to capital leases; the expected timing, amount and method of receiving benefits from the RasGas II lease arrangements; and the timing of the commencement of the RasGas II, RasGas 3 and Tangguh LNG projects. 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 LNG or oil; greater or less than anticipated levels of vessel newbuilding orders or greater or less than anticipated rates of vessel scrapping; changes in trading patterns; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; LNG infrastructure constraints and community and environmental group resistance to new LNG infrastructure; potential development of an active short-term or spot LNG shipping market; potential inability to implement our growth strategy; competitive factors in the markets in which we operate; potential for early termination of long-term contracts and our potential inability to renew or replace long-term contracts; loss of any customer, time charter or vessel; shipyard production or vessel delivery delays; changes in tax regulations; our potential inability to raise financing to purchase additional vessels; our exposure to currency exchange rate fluctuations; 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.

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TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

SEPTEMBER 30, 2006

PART I - FINANCIAL INFORMATION

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to the impact of interest rate changes primarily through our unhedged floating-rate borrowings. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. We use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating-rate debt. As at September 30, 2006, our unhedged floating-rate borrowings totaled $18.0 million.

The table below provides information about our financial instruments at September 30, 2006, that 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 ⁽¹⁾
	(in millions of U.S. dollars, except percentages)
Long-Term Debt:
Variable Rate ($U.S.) ⁽²⁾		-			12.4			16.5			16.5			16.5			264.9			6.4	%
Variable Rate (Euro) ^(3) (4)		2.2			9.3			10.0			10.7			11.5			353.5			4.4	%
Fixed Rate ($U.S.)		-			-			-			-			-			111.7			4.8	%

Capital Lease Obligations ^(5) (6)
Fixed-Rate ($U.S.) ⁽⁷⁾		2.1			130.7			3.7			3.8			84.0			-			7.4	%
Average Interest Rate ⁽⁸⁾		7.5	%		8.8	%		5.4	%		5.4	%		5.5	%		-

Interest Rate Swaps:
Contract Amount ($U.S.) ^(6) (9)		-			2.2			4.5			4.9			5.3			217.1			6.2	%
Average Fixed Pay Rate ⁽²⁾		-			6.2	%		6.2	%		6.2	%		6.2	%		6.2	%
Contract Amount (Euro) ^(4) (10)		2.2			9.3			10.0			10.7			11.5			353.5			3.8	%
Average Fixed Pay Rate ⁽³⁾		3.8	%		3.8	%		3.8	%		3.8	%		3.8	%		3.8	%

(1)

Rate refers to the weighted-average effective interest rate for our debt and capital lease obligations, including the margin we pay on our floating-rate debt and the average fixed pay rate for our interest rate swaps. The average interest rate for our capital lease obligations is the weighted-average interest rate implicit in our lease obligations at the inception of the leases. 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 0.675% to 1.3%.

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

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

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

(5)

Excludes capital lease obligations (present value of minimum lease payments) of 254.6 million Euros ($322.8 million) on two of our existing 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.

(6)

During January 2006, the three subsidiaries of Teekay Nakilat, each of which had contracted to have built one of the three RasGas II vessels sold their shipbuilding contracts and entered into 30-year capital leases for the vessels, which commence upon delivery of the respective vessels. Under the terms of the leases and upon vessel delivery, Teekay Nakilat is 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, Teekay Nakilat is not subject to interest rate risk from these obligations and deposits and, therefore, 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 its capital lease obligations and restricted cash deposits were $421.5 million and $432.5 million, $19.5 million and ($24.3) million, and 4.9% and 4.8%, respectively.

(7)	The amount of capital lease obligations represents the present value of minimum lease payments together with our purchase obligation, as applicable.

(8)	The average interest rate is the weighted-average interest rate implicit in the capital lease obligations at the inception of the leases.

(9)	The average variable receive rate for our U.S. Dollar-denominated interest rate swaps is set quarterly at 3-month LIBOR.

(10)	The average variable receive rate for our Euro-denominated interest rate swaps is set monthly at 1-month EURIBOR.

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The following table sets forth further information about our interest rate swap agreements, long-term debt and capital lease obligations as at September 30, 2006 and December 31, 2005.

	Contract Amount		Fair Value / Carrying Amount of Asset (Liability)			Rate ⁽¹⁾
	(in millions of U.S. dollars)
September 30, 2006
Interest Rate Swap Agreements:
U.S. Dollar-denominated ⁽²⁾		234.0		(20.6	)		6.2	%
Euro-denominated		397.2		5.5			3.8	%
Long-Term Debt:
U.S. Dollar-denominated		442.6		(442.6	)		6.0	%
Euro-denominated		397.2		(397.2	)		4.4	%
Capital Lease Obligations: ⁽³⁾
U.S. Dollar-denominated		224.3		(224.3	)		7.4	%

December 31, 2005
Interest Rate Swap Agreements:
U.S. Dollar-denominated		234.0		(23.6	)		6.2	%
Euro-denominated		377.4		(10.1	)		3.8	%
Long-Term Debt:
U.S. Dollar-denominated		346.6		(346.6	)		5.1	%
Euro-denominated		377.4		(377.4	)		3.6	%
Capital Lease obligations: ⁽³⁾
U.S. Dollar-denominated		230.8		(230.8	)		7.4	%

(1)	Please read Note 1 from the previous table.

(2)	Please read Note 6 from the previous table.

(3)	Includes capital lease obligations except for capital lease obligations on two of our LNG carriers and the three RasGas II. Please read Notes 5 and 6 from the previous table.

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Foreign Currency Risk

We are exposed to the impact of changes in foreign currency exchange rates. Revenues generated from three of our time charters are either partially or solely denominated in Euros. During the three and nine months ended September 30, 2006, we earned approximately 12.0 million Euros and 33.9 million Euros ($15.2 million and $42.0 million), respectively, in Euro-denominated revenues from these three time charters. The Euro-denominated cash received from these charters is used for payment of Euro-denominated expenditures, including vessel operating expenses for our Spanish crew, general and administrative expenses for our Madrid office and interest and principal repayments for our Euro-denominated debt. Our Euro-denominated revenues currently approximate our Euro-denominated expenses and Euro-denominated loan and interest payments. For this reason, we have not entered into any forward contracts or similar arrangements to protect against the currency risk of foreign currency-denominated revenues, expenses, monetary assets or monetary liabilities. If our foreign currency-denominated revenues and expenses become sufficiently disproportionate in the future, we may engage in hedging activities.

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TEEKAY LNG PARTNERS L.P. 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 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 - Unregistered Sales of Equity 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

The following exhibits are filed as part of this Report:

3.1	Certificate of Limited Partnership of Teekay LNG Partners L.P. (1)

3.2	First Amended and Restated Agreement of Limited Partnership of Teekay LNG Partners L.P, as amended (2)

3.3	Certificate of Formation of Teekay G.P. L.L.C. (1)

3.4	Form of Second Amended and Restated Limited Liability Company Agreement of Teekay GP L.L.C. (3)

4.16

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

15.1 Acknowledgement of Independent Registered Public Accounting Firm.

_____________________________________________________________________________

(1) Previously filed as an exhibit to the Partnership’s Registration Statement on Form F-1 (File No. 333-120727), filed with the SEC on November 24, 2004, and hereby incorporated by reference to such Registration Statement.

(2) Previously filed as an exhibit to the Partnership’s Report on Form 6-K (File No. 1-32479), filed with the SEC on August 17, 2006, and hereby incorporated by reference to such Report.

(3) Previously filed as an exhibit to the Partnership’s Amendment No. 3 to Registration Statement on Form F-1 (File No. 333-120727), filed with the SEC on April 11, 2005, and hereby incorporated by reference to such Registration Statement.

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

·	REGISTRATION STATEMENT ON FORM S-8 (NO. 333-124647) FILED WITH THE SEC ON MAY 5, 2005

·	REGISTRATION STATEMENT ON FORM F-3 (NO. 333-137697) FILED WITH THE SEC ON SEPTEMBER 29, 2006

Page 45 of 47

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.

Date: December 21, 2006

TEEKAY LNG PARTNERS L.P.

By: Teekay GP L.L.C., its general partner

By: /s/ Peter Evensen

Peter Evensen

Chief Executive Officer and Chief Financial Officer

(Principal Financial and Accounting Officer)

Page 46 of 47

Exhibit 15.1

ACKNOWLEDGEMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

December 21, 2006

To the Board of Directors and Unitholders of Teekay LNG Partners L.P.

We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 333-124647) pertaining to the Teekay LNG Partners L.P. 2005 Long Term Incentive Plan and in the Registration Statement (Form F-3 No. 333-137697) and related prospectus of Teekay LNG Partners L.P. for the registration of up to $400,000,000 in total aggregate offering price of an indeterminate number of common units and debt securities of our report dated December 13, 2006 relating to the unaudited consolidated interim financial statements of Teekay LNG Partners L.P. 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 statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933.

/s/ Ernst & Young LLP

Chartered Accountants

Vancouver, Canada

Page 47 of 47

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.

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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.

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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.

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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.

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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;

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(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.

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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.

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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:

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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)	)

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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)	)

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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

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	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

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