Teekay Offshore Partners L.P. $21.00 Per Common Unit

Table of Contents Filed pursuant to Rule 424(b)(4) File No. 333-139116 PROSPECTUS 7,000,000 Common Units Representing Limited Partner Interests Teekay Offshore Partners L.P. $21.00 per common unit We are selling 7,000,000 common units. We have granted the underwriters an option to purchase up to 1,050,000 additional common units to cover over- allotments, if any. We are a Marshall Islands limited partnership recently formed by Teekay Shipping Corporation, a leading provider of marine services to the global oil and natural gas industries, as part of its strategy to expand its operations in the offshore oil marine transportation, processing and storage sectors. Immediately following this offering, we will own a 26.0% interest in and control Teekay Offshore Operating L.P., a Marshall Islands limited partnership (or OPCO), which will own substantially all of the offshore oil transportation and storage assets of Teekay Shipping Corporation. Although we are organized as a partnership, we have elected to be taxed as a corporation solely for U.S. federal income tax purposes. This is the initial public offering of our common units, which have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, under the symbol “TOO.” Investing in our common units involves risks. Please read “Risk Factors” beginning on page 18. These risks include the following: • Because our partnership interest in OPCO currently represents our only cash-generating asset, our cash flow initially will depend completely on OPCO’s ability to make distributions to its partners, including us. • We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units. • OPCO must make substantial capital expenditures to maintain and expand the operating capacity of its fleet, which will reduce our cash available for distribution. • OPCO’s substantial debt levels may limit its or our flexibility in obtaining additional financing, pursuing other business opportunities and our paying distributions to you. • OPCO derives a substantial majority of its revenues from a limited number of customers, and the loss of any such customer could result in a significant loss of revenues and cash flow. • We depend on Teekay Shipping Corporation to assist us and OPCO in operating our businesses and competing in our markets. • Our growth depends on continued growth in demand for offshore oil transportation, processing and storage services. • Because payments under OPCO’s contracts of affreightment are based on the volume of oil it transports, the utilization of OPCO’s shuttle tanker fleet and the success of its shuttle tanker business depends upon continued production from existing or new oil fields it services, which is beyond our or OPCO’s control and generally declines naturally over time. • Teekay Shipping Corporation and its affiliates may engage in competition with OPCO and us. • Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment. • Our general partner, which is owned and controlled by Teekay Shipping Corporation, makes all decisions on our behalf, subject to the limited voting rights of our common unitholders. • Even if public unitholders are dissatisfied, they cannot initially remove our general partner without Teekay Shipping Corporation’s consent. • You will experience immediate and substantial dilution of $16.72 per common unit. • Our general partner has a call right that may require you to sell your common units at an undesirable time or price. • We will be subject to taxes, which will reduce our cash available for distribution to you. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Per Common Unit Total Public Offering Price $21.0000 $147,000,000 Underwriting Discount(1) $ 1.3388 $ 9,371,600 Proceeds to Teekay Offshore Partners L.P. (before expenses) $19.6612 $137,628,400 (1) Excludes structuring fee of $551,250. The underwriters expect to deliver the common units to purchasers on or about December 19, 2006. Citigroup Merrill Lynch & Co. Morgan Stanley A.G. Edwards Deutsche Bank Securities Raymond James Simmons & Company DnB NOR Markets Fortis Securities International The date of this prospectus is December 13, 2006. Table of Contents Table of Contents TABLE OF CONTENTS Page Summary 1 Teekay Offshore Partners L.P. 1 Business Opportunities 2 Competitive Strengths 3 Business Strategies 3 Risk Factors 4 The Transactions 4 Management of Teekay Offshore Partners L.P. 7 Principal Executive Offices and Internet Address; SEC Filing Requirements 7 Summary of Conflicts of Interest and Fiduciary Duties 7 The Offering 9 Summary Historical and Pro Forma Financial and Operating Data 12 Risk Factors 18 Risks Inherent in Our Business 18 Risks Inherent in an Investment in Us 33 Tax Risks 41 Use of Proceeds 44 Capitalization 45 Dilution 46 Our Cash Distribution Policy and Restrictions on Distributions 47 General 47 Pro Forma and Forecasted Results of Operations 49 Summary of Significant Accounting Policies and Forecast Assumptions 53 Pro Forma and Forecasted Cash Available for Distribution 59 How We Make Cash Distributions 64 Distribution of Available Cash 64 Operating Surplus and Capital Surplus 65 Subordination Period 67 Distributions of Available Cash From Operating Surplus During the Subordination Period 69 Distributions of Available Cash From Operating Surplus After the Subordination Period 69 Incentive Distribution Rights 70 Percentage Allocations of Available Cash From Operating Surplus 71 Distributions From Capital Surplus 71 Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels 72 Distributions of Cash Upon Liquidation 72 Selected Historical and Pro Forma Financial and Operating Data 74 Management’s Discussion and Analysis of Financial Condition and Results of Operations 79 Overview 79 Important Financial and Operational Terms and Concepts 81 Seasonality 82 Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects 83 Results of Operations 85 Liquidity and Capital Resources 97 Contractual Obligations and Contingencies 101 Off-Balance Sheet Arrangements 102 Critical Accounting Estimates 102 i Table of Contents Page Recent Accounting Pronouncements 105 Quantitative and Qualitative Disclosures About Market Risk 105 Industry 108 The Offshore Oil Industry 108 Shuttle Tankers 110 Floating Storage and Offtake Units 116 Floating Production Storage and Offloading Units 118 Conventional Oil Tankers 120 Business 124 Overview 124 Business Opportunities 125 Competitive Strengths 125 Business Strategies 126 Fleet 127 Customers 130 Vessel Contracts 130 Classification, Audits and Inspections 133 Safety, Management of Ship Operations and Administration 134 Crewing and Staff 135 Risk of Loss, Insurance and Risk Management 136 Regulation 137 Properties 141 Legal Proceedings 141 Taxation of the Partnership 141 Management 154 Management of Teekay Offshore Partners L.P. 154 Directors and Executive Officers of Teekay Offshore GP L.L.C. 155 Directors and Executive Officers of Teekay Offshore Operating GP L.L.C. 157 Reimbursement of Expenses of Our General Partner 157 Executive Compensation 157 Compensation of Directors 157 2006 Long-Term Incentive Plan 158 Security Ownership of Certain Beneficial Owners and Management 160 Certain Relationships and Related Party Transactions 161 Distributions and Payments to Our General Partner and its Affiliates 161 Agreements Governing the Transactions 162 Omnibus Agreement 163 OPCO Partnership Agreement and Teekay Offshore Operating GP L.L.C. Limited Liability Company Agreement 166 Advisory and Administrative Services Agreements 167 Aframax Tanker Time-Charter Contracts with Teekay Shipping Corporation 168 Joint Venture with Petrojarl ASA 168 Directors and Officers of Our General Partner 169 Other Transactions Relating to OPCO 169 Conflicts of Interest and Fiduciary Duties 170 Conflicts of Interest 170 Fiduciary Duties 174 ii Table of Contents Page Description of the Common Units 177 The Units 177 Transfer Agent and Registrar 177 Transfer of Common Units 177 The Partnership Agreement 179 Organization and Duration 179 Purpose 179 Power of Attorney 179 Capital Contributions 179 Voting Rights 179 Limited Liability 181 Issuance of Additional Securities 182 Amendment of the Partnership Agreement 183 Merger, Sale or Other Disposition of Assets 184 Termination and Dissolution 185 Liquidation and Distribution of Proceeds 185 Withdrawal or Removal of the General Partner 185 Transfer of General Partner Interest 187 Transfer of Ownership Interests in General Partner 187 Transfer of Incentive Distribution Rights 187 Change of Management Provisions 187 Call Right 188 Meetings; Voting 188 Status as Limited Partner 189 Indemnification 189 Reimbursement of Expenses 190 Books and Reports 190 Right to Inspect Our Books and Records 190 Registration Rights 190 Units Eligible for Future Sale 191 Material U.S. Federal Income Tax Considerations 192 Election to be Taxed as a Corporation 192 United States Federal Income Taxation of U.S. Holders 192 United States Federal Income Taxation of Non-U.S. Holders 196 Backup Withholding and Information Reporting 196 Non-United States Tax Considerations 198 Marshall Islands

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