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Why Teekay Offshore’s Performance Has Slumped

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Teekay Offshore’s market performance

Teekay Offshore Partners (TOO), the MLP involved in the marine transportation of petroleum products, has been one of the worst-performing MLPs in June 2017. TOO has fallen 45.3% since the beginning of this month and 64.8% in 2017. 

Teekay Offshore Partners’s sharp decline could be attributed to its weak 1Q17 earnings, driven by a contract dispute with Brazil’s Petrobras (PBR). Petrobras terminated the charter contract of one of TOO’s charter units.

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Teekay Offshore’s commodity exposure

Teekay Offshore (TOO) is indirectly exposed to crude oil prices. A significant decline in crude oil prices could impact crude oil production and the partnership’s transportation volumes. 

Crude oil prices below a certain level could impact the financial condition of producer customers. This trend could result in the termination or restructuring of contracts, as in the case of Petrobras.

Teekay Offshore’s valuation

Teekay Offshore is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 5.4x, which is below the five-year average of 7.5x. This multiple is also below the peer median multiple of 10.0x. TOO’s current valuation reflects its weak earnings and declining liquidity position.

Teekay Offshore’s analyst recommendation

Three of the six analysts covering Teekay Offshore stock rated it as a “buy,” two rated it as a “hold,” and one analyst rated it as a “sell.” TOO’s average target price of $5.20 implies a 211.3% return from its current price level of $1.70.

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