Follow-On Offering and Acquisition of Three Suezmax Tankers

In November 2005, we completed our follow-on public offering of 4.6 million common units at a price of $27.40 per unit. Net proceeds from the offering were $120.2 million, net of an estimated $5.8 million of commissions and offering expenses. In addition, our general partner contributed $2.6 million to us to maintain its 2% general partner interest. Please read Item 18 – 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 five existing crude oil tankers. The vessels have an average age of two years and are chartered to a subsidiary of ConocoPhillips, an international, integrated energy company. Each time charter has a remaining scheduled term of approximately 10 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. Please read Item 18 – Financial Statements: Note 2 – Public Offerings and Note 13(i) – Related Party Transactions.

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:

During 2005 and 2004, we derived 100.0% and 84.3%, respectively, of our revenues from time charters. During 2004, 15.7% of our revenues were derived from voyage charters. During these periods, all our vessels were employed on long-term time charters, except the Granada Spirit, which operated under voyage charters in the spot market during 2004. 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 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. 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 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 19 years for our LNG carriers and 14 years for our Suezmax tankers, subject, in certain circumstances, to termination or purchase rights. The initial term of each of our three LNG newbuilding charters is 20 years, in each case from delivery of the vessel.

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. Prior to our transfer of the Granada Spirit to Teekay Shipping Corporation in December 2004, our voyage revenues also included revenues from voyage 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 expenses, taxes, foreign currency and interest rate swap gains or losses and other income and losses. For more information, please read Item 18 – Financial Statements: Note 4 – Segment Reporting.

Drydocking. We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, we drydock each of our vessels every 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. 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:

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 for the vessel to earn revenue, yet is not employed, are included in revenue days. We use revenue days to explain changes in our net voyage revenues between periods.

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

Utilization. An indicator of the use of our fleet during a given period, which 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. For more information, please read Item 18 – Financial Statements: Note 5 – 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:

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 “— 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:

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

Our customers include major energy companies and their affiliates. We derive a substantial majority of our revenues from a limited number of customers. During 2005 and 2004, we derived 98% and 84%, respectively, of our revenues from four customers – Compania Espanola de Petroleos, S.A. (30% and 36%), Repsol YPF, S.A. (34% and 18%), Gas Natural SDG, S.A. (18% and 21%) and Unión Fenosa Gas, S.A (16% and 9%). As a result of our acquisition of the ConocoPhillips Tankers and related time charters from Teekay Shipping Corporation upon the closing of our follow-on public offering on November 23, 2005, we expect to derive a significant amount of revenues in 2006 from a subsidiary of ConocoPhillips; we also expect that RasGas II will be a significant customer following our acquisition of the RasGas II LNG carriers and related time-charter contracts.

We have long-term, fixed-rate time charters with each of our existing customers and expect to continue to derive a substantial majority of our revenue and cash flows from them. The loss of any customer or time charter, or a significant decline in payments under our time charters, could materially and adversely affect our revenues, cash flows and operating results.

We could lose one of these customers or another customer or the benefits of a time charter if:

Our customers’ primary obligation under the time charter contracts is to pay us for our services, and the contracts provide narrow exceptions to this payment obligation for force majeure events and, in limited circumstances as described above, LNG supply disruptions. However, we could lose the benefits of a time charter if the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise. Our customers include major energy companies and their affiliates. Factors materially and adversely affecting the supply of or demand for LNG or crude oil or the financial condition and operating results of our customers could affect their ability to make charter payments to us.

Results of Operations

The following tables present our operating results by reportable segment for 2005, 2004 and 2003, and compare our net voyage revenues, a non-GAAP financial measure, for those periods to voyage revenues, the most directly comparable GAAP financial measure. For ease of comparison in the following tables and the discussion below, we have combined our results of the various time periods set forth in our consolidated statements of income (loss).

-------------------------- ----------------------------- ----------------------------- -----------------------------
                                       2005                         2004                           2003

(in thousands of U.S.         LNG     Suezmax               LNG     Suezmax               LNG     Suezmax
dollars, except             Carrier   Tanker              Carrier   Tanker              Carrier   Tanker
Operating Data)             Segment   Segment    Total    Segment   Segment    Total    Segment   Segment   Total
-------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Voyage revenues...........  97,645    47,814   145,459    59,395    64,438   123,833    32,607    54,102   86,709
Voyage expenses...........      50       608       658       254     4,678     4,932       123     4,788    4,911
-------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net voyage revenues.......  97,595    47,206   144,801    59,141    59,760   118,901    32,484    49,314   81,798
-------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Vessel operating expenses.  15,622    13,183    28,805    10,615    20,002    30,617     5,856    20,584   26,440
Depreciation and
  amortization............  30,360    12,811    43,171    15,391    19,469    34,860     5,630    17,760   23,390
General and
  administrative (1) .....   4,689     5,268     9,957     1,962     4,516     6,478     1,683     7,116    8,799
-------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from vessel
  operations......          46,924    15,944    62,868    31,173    15,773    46,946    19,315     3,854   23,169
-------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating Data:
  Revenue Days (A)........   1,445     1,714     3,159       902     2,042     2,944       518     2,047    2,565
  Calendar-Ship-Days (B)..   1,460     1,754     3,214       902     2,073     2,975       518     2,190    2,708
  Utilization (A)/(B).....      99%       98%       98%      100%       99%       99%      100%       93%      95%
-------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------

Year Ended December 31, 2005 versus Year Ended December 31, 2004

LNG Carrier Segment

We operated four LNG carriers during 2005 and two LNG carriers during most of 2004. These additional LNG carriers were delivered in July 2004 and December 2004 (collectively, the LNG Deliveries). Accordingly, our total revenue days increased by 60.2%, from 902 days in 2004 to 1,445 days in 2005.

Net Voyage Revenues. Net voyage revenues increased 65.1% to $97.6 million for 2005, from $59.1 million for 2004. This increase was the result of:

          partially offset by

Vessel Operating Expenses. Vessel operating expenses increased 47.2% to $15.6 million for 2005, from $10.6 million for 2004. This increase was the result of:

          partially offset by

Depreciation and Amortization. Depreciation and amortization increased 97.4% to $30.4 million for 2005, from $15.4 million for 2004. This increase was the result of:

Suezmax Tanker Segment

During most of 2004, we had six Suezmax tankers, while during most of 2005, we had five Suezmax tankers. The results of our Suezmax tanker segment reflect the following fleet changes during 2004 and 2005:

As a result, our total revenue days decreased by 16.1% from 2,042 days in 2004 to 1,714 days in 2005.

Net Voyage Revenues. Net voyage revenues decreased 21.1% to $47.2 million for 2005, from $59.8 million for 2004. This decrease was the result of:

          partially offset by

Vessel Operating Expenses. Vessel operating expenses decreased 34.0% to $13.2 million for 2005, from $20.0 million for 2004. This decrease was the result of:

          partially offset by

Depreciation and Amortization. Depreciation and amortization decreased 34.4% to $12.8 million for 2005, from $19.5 million for 2004. This decrease was the result of:

          partially offset by

Other Operating Results

General and Administrative Expenses. General and administrative expenses increased 53.8% to $10.0 million for 2005, from $6.5 million for 2004. This increase was the result of:

Interest Expense. Interest expense increased 1.8% to $73.3 million for 2005, from $72.0 million for 2004. This increase was the result of:

          partially offset by

Interest Income. Interest income increased 4.5% to $23.2 million for 2005, from $22.2 million for 2004. 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. This increase was the result of:

          partially offset by

Foreign Currency Exchange Gains. Foreign currency exchange gains were $81.8 million for 2005, compared to foreign currency exchange losses of $60.8 million for 2004. These foreign currency exchange gains and losses, substantially all of which were unrealized, are due substantially to the relevant period-end revaluation of Euro-denominated term loans for financial reporting purposes. The gains reflect a stronger U.S. Dollar against the Euro on the date of revaluation. The losses reflect a weaker U.S. Dollar against the Euro on the date of revaluation.

Other Loss. Other loss of $15.0 million for 2005 resulted from:

         partially offset by

Other loss of $4.6 million for 2004 resulted from:

         partially offset by

Net Income (Loss). As a result of the foregoing factors, net income was $79.5 million for 2005, compared to a net loss of $68.2 million for 2004.

Year Ended December 31, 2004 Versus Year Ended December 31, 2003

LNG Carrier Segment

Our four LNG carriers were delivered into our fleet in September 2002, August 2003, July 2004 and December 2004. Accordingly, our total revenue days increased by 74.1% from 518 days in 2003 to 902 days in 2004.

Net Voyage Revenues. Net voyage revenues increased 82.1% to $59.1 million for 2004, from $32.5 million for 2003, which was attributable to the addition of our LNG carriers during 2003 and 2004 and higher rates earned by more recently delivered LNG carriers.

Vessel Operating Expenses. Vessel operating expenses increased 81.3% to $10.6 million for 2004, compared to $5.9 million for 2003. Approximately $4.4 million of the increase was attributable to the delivery of our LNG carriers during 2003 and 2004, and approximately $0.3 million of the increase was attributable to the strengthening of the Euro against the U.S. Dollar in 2004. A majority of our vessel operating expenses are denominated in Euros, which is primarily a function of the nationality of our crew.

Depreciation and Amortization. Depreciation and amortization increased 173.4% to $15.4 million for 2004, from $5.6 million for 2003, primarily due to the following factors:

Suezmax Tanker Segment

During 2003, we operated six Suezmax tankers. During the fourth quarter of 2004, we took delivery of one Suezmax newbuilding and sold three Suezmax tankers. As a result, our total revenue days decreased by 0.2% from 2,047 days in 2003 to 2,042 days in 2004.

Net Voyage Revenues. Net voyage revenues increased 21.2% to $59.8 million for 2004, from $49.3 million for 2003. The increase was primarily the result of:

These increases were partially offset by a decrease of $1.2 million in net voyage revenues due to a net reduction in fleet size and corresponding reduction in calendar-ship-days in 2004, and by a $0.5 million decrease in net voyage revenues in 2004 from three time charters that fluctuate based on changes in interest rates. However, under the terms of our capital leases for the three vessels with fluctuating charter rates, we had a corresponding reduction in our lease payments, which is reflected as a reduction of interest expense.

Vessel Operating Expenses. Vessel operating expenses decreased 2.8% to $20.0 million for 2004, compared to $20.6 million for 2003, primarily due to the reduction in calendar-ship-days, partially offset by strengthening of the Euro against the U.S. Dollar.

Depreciation and Amortization. Depreciation and amortization increased 9.6% to $19.5 million for 2004, from $17.8 million for 2003. The increase was primarily due to the following factors:

Other Operating Results

General and Administrative Expenses. General and administrative expenses decreased 26.1% to $6.5 million for 2004, from $8.8 million for 2003, primarily due to a $3.0 million decrease in expenses resulting from four months of expenses associated with a yacht and certain other non-shipping assets disposed of by Tapias immediately prior to its acquisition on April 30, 2004 by Teekay Shipping Corporation, compared to a full year of these expenses included in our results for 2003. The decrease in general and administrative expenses in 2004 was partially offset by an increase of $0.7 million in shore-staff performance-based bonuses.

Interest Expense. Interest expense increased 106.3% to $72.0 million for 2004, from $34.9 million for 2003. This increase primarily reflects increases in interest-bearing debt and capital lease obligations associated with the delivery of one LNG carrier in each of August 2003 and July 2004 and interest-bearing loans from Teekay Shipping Corporation during April 2004 for the purchase of Teekay Spain, partialy offset by the repayment of certain term loans commencing in December 2004.

Interest Income. Interest income increased 164.3% to $22.2 million for 2004, from $8.4 million for 2003. This increase was primarily due to interest earned on increased restricted cash deposits.

Foreign Currency Exchange Loss. Foreign currency exchange loss decreased to $60.8 million for 2004 from $71.5 million for 2003. These foreign currency exchange losses, substantially all of which were unrealized, are due substantially to the period-end revaluation of Euro-denominated term loans for financial reporting purposes. The higher loss in 2003 reflects the greater weakening of the U.S. Dollar against the Euro during 2003 compared to 2004.

Other Income (Loss). Other loss of $4.6 million for 2004 resulted from:

          partially offset by

Other income of $15.3 million for 2003 resulted from:

         partially offset by

The marketable securities, other miscellaneous income and minority interest expense all relate to non-shipping assets disposed of by Tapias prior to its acquisition by Teekay Shipping Corporation.

Net Loss. As a result of the foregoing factors, net loss decreased to $68.2 million for 2004 from $59.4 million for 2003.

Liquidity and Capital Resources

Liquidity and Cash Needs

As at December 31, 2005, our total cash and cash equivalents totaled $34.5 million, compared to $156.4 million at December 31, 2004. Our total liquidity including cash, cash equivalents and undrawn long-term borrowings, was $105.5 million as at December 31, 2005, compared to $156.4 million as at December 31, 2004. Total liquidity as at December 31, 2005 includes $71.0 million of availability under our $100 million senior secured revolving credit facility as discussed below. Total liquidity as at December 31, 2005 does not include our additional $137.5 million nine-year revolving credit facility that we entered into during December 2005, as the facility was not available to us until after year end.

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 other debt or equity financings.

We believe that cash flows from operations will be sufficient to meet our short-term 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 2011. 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:

                                                                                 Years Ended December 31,
                                                                                   2005              2004
                                                                                ($000's)           ($000's)
                                                                            ----------------- -----------------
Sources of Cash:
Operating activities: ......................................................       65,718           25,076
Financing activities:
  Advances from affiliate...................................................      354,277          409,141
  Proceeds from issuance of common units....................................      259,289                -
  Proceeds from long-term debt..............................................      291,189          133,746
  Decrease in restricted cash...............................................       80,365           19,370
  Other.....................................................................            -            4,226
Investing activities:
  Proceeds from sale of vessels and equipment...............................      133,270          123,689
  Other.....................................................................            -            7,150
                                                                            ----------------- -----------------
                                                                                1,184,108          722,398
                                                                            ----------------- -----------------                                                                         ----------------- -----------------
Uses of Cash:
Financing activities:
  Repayments of debt and capital lease obligations..........................      486,525          199,161
  Advances to affiliate.....................................................      252,929                -
  Interest rate swap settlement costs.......................................      143,295                -
  Cash distributions paid...................................................       20,090                -
  Other.....................................................................          628               19
Investing activities:
  Expenditures for vessels and equipment....................................      222,582           89,225
  Purchase of three Suezmax tankers from Teekay Shipping Corporation........      180,000                -
  Purchase of Teekay Shipping Spain S.L., net of cash acquired of $11,191...            -          298,184
  Other.....................................................................            -              727
                                                                            ----------------- ----------------
                                                                                1,306,049          587,316
                                                                            ----------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents........................     (121,941)         135,082
                                                                            ================= ================

Operating Cash Flows. Net cash flow from operating activities increased to $65.7 million in 2005, from $25.1 million in 2004, primarily reflecting the increase in the size of our LNG fleet. 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.

The capital component of the hire rate for our Suezmax time charters (other than for the ConocoPhillips Tankers) fluctuates with the floating interest rates for the debt used to finance the related vessels. If interest rates increase or decrease, the amount we pay under the capital leases relating to the chartered vessels increases or decreases by the amount of the additional or reduced interest payments, and the capital component we receive from the related time charters correspondingly changes. Consequently, the fluctuating portion of the capital component has no net effect on our cash flows or net income, but does affect our recorded voyage revenues and interest expense.

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 $291.2 million and $133.7 million, respectively, for 2005 and 2004. We used these funds to make newbuilding installment payments.

In December 2004, Teekay Shipping Corporation advanced to us $409.1 million primarily for the purchase of Teekay Spain and to prepay debt associated with two of the LNG carriers. During 2005, Teekay Shipping Corporation advanced a further $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 $54.9 million of these loans and other assets in connection with our initial public offering in exchange for notes payable of $129.4 million, which were repaid from the proceeds of the offering and partnership interests in us.

Scheduled debt repayments were $9.5 million during 2005 compared to $70.5 million during 2004. Repayments of capital lease obligations were $77.7 million in 2005 compared to $66.7 million in 2004. Debt prepayments were $399.3 million during 2005 compared to $61.9 million during 2004. Prior to our initial public offering, we repaid $337.3 million of term loans associated with two LNG carriers. Please read Item 18 – Financial Statements: Note 8 – Long-Term Debt.

As at December 31, 2005, our total debt was $406.4 million, compared to $787.1 million as at December 31, 2004. As at December 31, 2005, our revolving credit facility provided for borrowings of up to $100.0 million, of which $71.0 million was undrawn. As at December 31, 2005, we had term loans outstanding that totaled 318.5 million Euros ($377.4 million) of Euro-denominated loans, compared to $343.4 million of U.S. Dollar-denominated loans and 325.8 million Euros ($443.7 million) of Euro-denominated loans as at December 31, 2004. Our Euro-denominated term loans reduce in monthly payments with varying maturities through 2023. Please read Item 18 – Financial Statements: Note 8 – Long-Term Debt. The Euro-denominated loans were used to make restricted cash deposits that fully fund payments under capital leases. Please read Item 18 – Financial Statements: Note 5 – Capital Lease Obligations and Restricted Cash.

We entered into a $100 million revolving credit facility in connection with our initial public offering, of which $71.0 million was undrawn at December 31, 2005. We may use this facility for general partnership purposes and to fund cash distributions. Under the credit facility, 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. Interest payments are based on LIBOR plus a margin. The credit facility is available to us until September 2009. Our obligations under this facility are secured by a first-priority mortgage on one of our LNG carriers, the Hispania Spirit, and a pledge of certain shares of the subsidiary operating the carrier.

During December 2005, we entered into a $137.5 million nine-year revolving credit facility, which became available to us in 2006. This facility may be used by us for general partnership purposes. Our obligations under this facility are secured by a first-priority mortgage on three of our Suezmax tankers and a pledge of certain shares of the subsidiaries operating the Suezmax tankers. The credit facility bears interest at a rate of LIBOR plus a margin. This facility contains covenants that require us to maintain a minimum free liquidity, minimum tangible net worth and a maximum leverage ratio.

As at December 31, 2005, our total debt related to newbuilding vessels to be acquired was $319.6 million, which consists 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. Interest costs on debt related to newbuilding vessels are capitalized to advances on newbuilding contracts. Please read Item 18 – Financial Statements: Note 15– Commitments and Contingencies.

Interest payments on the term loans in Teekay Nakilat are based on LIBOR plus a margin. The term loans reduce in quarterly payments commencing three months after delivery of each LNG newbuilding. Once fully drawn, the loans have approximately $56.0 million per vessel in bullet repayments, due at maturity. Interest payments on the loans from Teekay Shipping Corporation and Qatar Gas Transport Company Ltd. (Nakilat) are based on a fixed interest rate of 4.84%, commencing a year after the delivery of the third LNG carrier. These loans are unsecured and are repayable on demand.

The RasGas II term loan agreements, which we expect to assume, currently require Teekay Shipping Corporation’s guaranty and require Teekay Shipping Corporation to maintain at least $100.0 million of free liquidity (excluding the portion attributable to us). The amount of Teekay Shipping Corporation’s consolidated free liquidity (as defined above) plus any undrawn revolving credit facilities (excluding that portion attributable to us and excluding undrawn committed revolving credit lines with less than six months to maturity) is required to equal at least 7.5% of Teekay Shipping Corporation’s total debt (excluding non-recourse debt).

As at December 31, 2005 and 2004, the margins on our term loans and revolving credit facilities ranged from 0.5% to 1.3%.

All of our existing vessel financing is arranged on a vessel-by-vessel basis, and each financing is secured by first-preferred mortgages on the applicable vessel, together with other related collateral. Our capital leases do not contain financial or restrictive covenants other than those relating to operation and maintenance of the vessels. In addition, our ship-owning subsidiaries may not pay dividends or distributions if we are in default under our loan agreements and revolving credit facilities.

The term loan agreements for our LNG carriers, including the RasGas II financing arrangements we expect to assume, are with separate shipowning subsidiaries, although Teekay Spain guarantees the payments under the term loan agreements for all of our existing LNG carriers (or Teekay Shipping Corporation in the case of the RasGas II loan agreements). 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 shipowning subsidiaries from:

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.

We conduct our funding and treasury activities within corporate policies designed to minimize borrowing costs and maximize investment returns while maintaining the safety of the funds and appropriate levels of liquidity for our purposes. We hold cash and cash equivalents primarily in U.S. dollars, with some balances held in Euros.

We are exposed to the impact of interest rate changes primarily through our unhedged floating-rate borrowings. As at December 31, 2005, our unhedged floating-rate borrowings totaled $29.0 million. 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. Please read Item 11 – Quantitative and Qualitative Disclosures About Market Risk.

Commencing after the date of our initial public offering, cash distributions declared during 2005 were $20.1 million, or $0.4125 per unit per quarter. For the quarter ended June 30, 2005, cash distributions declared were prorated for the period of May 10, 2005 to June 30, 2005.

Investing Cash Flows. During 2005, we sold two Suezmax tankers (the Granada Spirit and the Santiago Spirit) to Teekay Shipping Corporation for gross proceeds of $83.6 million. In addition, immediately after the delivery of 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 2005, we incurred capital expenditures for vessels and equipment of $222.6 million. These capital expenditures represent construction installment payments for three LNG newbuildings owned by Teekay Nakilat and two Suezmax tankers, the Toledo Spirit and the Santiago Spirit. In November 2005, we acquired the ConocoPhillips Tankers from Teekay Shipping Corporation for $180.0 million.

Net cash used in investing activities for 2004 consisted primarily of $89.2 million of construction costs relating to three Suezmax tankers and four LNG carriers we had under construction. In April 2004, Luxco acquired all of the outstanding shares of Teekay Spain S.L. for $298.2 million in cash, plus the assumption of debt and remaining newbuilding commitments.

In 2004, we sold three Suezmax tankers for proceeds of $74.3 million and also sold and leased back one Suezmax tanker for proceeds of $49.4 million. One of these Suezmax tankers, the Granada Spirit, was sold to another subsidiary of Teekay Shipping Corporation. Upon the closing of our initial public offering, Teekay Shipping Corporation contributed the Granada Spirit back to us and chartered it under a short-term, fixed-rate time charter until we disposed of the vessel on May 26, 2005.

We have agreed to acquire from Teekay Shipping Corporation its 70% interest in Teekay Nakilat, which owns three LNG newbuilding carriers. We expect to take delivery of the three LNG newbuildings between the fourth quarter of 2006 and the first half of 2007. Upon their delivery, the three LNG carriers will provide transportation services to RasGas II. Please read Item 18 – Financial Statements: Note 15 – Commitments and Contingencies.

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 2011, seven years from the respective commencement dates of the capital leases. 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 in 2006 for the Catalunya Spirit and 2011 for the Madrid Spirit, both of which purchase obligations have been fully funded with restricted cash deposits. Please read Item 18 – Financial Statements: Note 5 – Capital Lease Obligations and Restricted Cash.

Contractual Obligations and Contingencies

The following table summarizes our long-term contractual obligations as at December 31, 2005:

------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
                                                                            1         1 - 3     3 - 5    More than
                                                               Total       year       years     years     5 years
------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
                                                                           (in millions of U.S. Dollars)
U.S. Dollar-Denominated Obligations:
  Long-term debt (1)........................................     29.0         -          -      29.0           -
  Commitments under capital leases (2)......................    275.8      25.5      153.7      96.6           -
  Long-term debt relating to newbuilding vessels to be
    acquired (3)............................................    319.6         -       17.4      22.0       280.2
                                                            ---------- ---------- ---------- ---------- ----------
  Total U.S. Dollar-denominated obligations.................    624.4      25.5      171.1     147.6       280.2
                                                            ---------- ---------- ---------- ---------- ----------
Euro-Denominated Obligations:(4)
  Long-term debt (5)........................................    377.4       8.1       18.0      20.7       330.6
  Commitments under capital leases (2) (6)..................    341.5     146.0       56.4      62.3        76.8
                                                            ---------- ---------- ---------- ---------- ----------
  Total Euro-denominated obligations........................    718.9     154.1       74.4      83.0       407.4
                                                            ---------- ---------- ---------- ---------- ----------
Totals......................................................  1,343.3     179.6      245.5     230.6       687.6
                                                            ========== ========== ========== ========== ==========

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 Policies

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. Following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application. For a further description of our material accounting policies, please read Item 18 – Financial Statements: Note 1 – Summary of Significant Accounting Policies.

Revenue Recognition

We recognize revenues from time charters daily over the term of the charter as the applicable vessel operates under the charter. We do not recognize revenues during days that the vessel is off-hire.

Prior to 2005, we generated a portion of our revenues from voyage charters. Within the shipping industry, the two methods used to account for voyage revenues and expenses from voyage charters are the percentage of completion and the completed voyage methods. Most shipping companies, including us, use the percentage of completion method. For each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In other words, revenues are recognized ratably either from the beginning of when product is loaded for one voyage to when it is loaded for another voyage, or from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage.

In applying the percentage of completion method, we believe that, in most cases, the discharge-to-discharge basis of calculating voyages more accurately reflects voyage results than the load-to-load basis. At the time of cargo discharge, we generally have information about the next load port and expected discharge port, whereas at the time of loading we are normally less certain what the next load port will be. We have used this method of revenue recognition for all spot voyages. However, we did not begin recognizing voyage revenue until a charter had been agreed to by the customer and us, even if the vessel had discharged its cargo and was sailing to the anticipated load port on its next voyage.

Vessel Lives and Impairment

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. 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, or a shorter period if regulations prevent us from operating the vessels to 25 years or 35 years, respectively. 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 potentially resulting in an impairment loss. We are not aware of any regulatory changes or environmental liabilities that we anticipate will have a material impact on our current or future operations.

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. 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.

Drydocking

Generally, we drydock each LNG carrier and Suezmax tanker every five years. In addition, a shipping society classification intermediate survey is performed on our LNG carriers between the second and third year of the five-year drydocking period. 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. When significant drydocking expenditures occur prior to the expiration of this period, we expense the remaining unamortized balance of the original drydocking cost and any unamortized intermediate survey costs in the month of the subsequent drydocking.

Derivative Instruments

We utilize derivative financial instruments to reduce interest rate risks. We do not hold or issue derivative financial instruments for trading purposes. Statement of Financial Accounting Standards (or SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which was amended in June 2000 by SFAS No. 138 and in May 2003 by SFAS No. 149, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. Derivatives that are not hedges or are not designated as hedges are adjusted to fair value through income. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or 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.

Goodwill and Intangible Assets

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. 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.

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. 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.

Item 6. Directors, Senior Management and Employees

Management of Teekay LNG Partners L.P.

Teekay GP L.L.C., our general partner, manages our operations and activities. Unitholders are not entitled to elect the directors of our general partner or directly or indirectly participate in our management or operation.

Our general partner owes a fiduciary duty to our unitholders. Our general partner is liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are expressly nonrecourse to it. Whenever possible, our general partner intends to cause us to incur indebtedness or other obligations that are nonrecourse to it.

The directors of our general partner oversee our operations. The day-to-day affairs of our business are managed by the officers of our general partner and key employees of certain of our operating subsidiaries. Employees of certain subsidiaries of Teekay Shipping Corporation provide assistance to us and our operating subsidiaries pursuant to services agreements. Please read Item 7 – Major Unitholders and Related Party Transactions.

The Chief Executive Officer and Chief Financial Officer of our general partner, Peter Evensen, allocates his time between managing our business and affairs and the business and affairs of Teekay Shipping Corporation. Mr. Evensen is the Executive Vice President and Chief Financial Officer of Teekay Shipping Corporation. The amount of time Mr. Evensen allocates between our business and the businesses of Teekay Shipping Corporation varies from time to time depending on various circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses. Mr. Evensen devotes sufficient time to our business and affairs as is necessary for their proper conduct.

Officers of Teekay LNG Projects Ltd., a subsidiary of Teekay Shipping Corporation, allocate their time between providing LNG strategic consulting and advisory services to certain of our operating subsidiaries and pursuing LNG project opportunities for Teekay Shipping Corporation, which projects, if awarded to Teekay Shipping Corporation, are offered to us pursuant to the non-competition provisions of the omnibus agreement. This agreement has previously been filed with the SEC. Please see Item 19. The omnibus agreement also permits us to pay to Teekay Shipping Corporation any “incentive fees” approved by the conflicts committee of our general partner’s board of directors, in its sole discretion, and relating to LNG projects provided to us by Teekay Shipping Corporation. Any such fee would be intended to reward Teekay Shipping Corporation for obtaining, and to further motivate it in pursuing additional, LNG projects. Teekay Shipping Corporation, in turn, may pay incentive fees to Teekay LNG Projects Ltd. for LNG projects awarded to it as a result of the efforts of Teekay LNG Projects Ltd.

Officers of our general partner and those individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time between our business and the other business interests of Teekay Shipping Corporation. Our general partner seeks to cause its officers to devote as much time to the management of our business and affairs as is necessary for the proper conduct of our business and affairs.

Directors, Executive Officers and Key Employees     

The following table provides information about the directors and executive officers of our general partner and key employees of our operating subsidiary Teekay Spain as of December 31, 2005. Directors are elected for one-year terms. The business address of each of our directors and executive officers listed below is c/o Bayside House, Bayside Executive Park, West Bay Street and Blake Road, Nassau, Commonwealth of The Bahamas. The business address of each of our key employees of Teekay Spain is Musgo Street 5—28023, Madrid, Spain.

Name                        Age  Position

C. Sean Day..............   56   Chairman
Bjorn Moller.............   48   Vice Chairman and Director
Peter Evensen............   47   Chief Executive Officer, Chief Financial Officer and Director
Robert E. Boyd...........   65   Director (1) (2)
Ida Jane Hinkley.........   55   Director (1)
Ihab J.M. Massoud........   37   Director (2)
George Watson............   58   Director (1) (2)
Bruce C. Bell............   58   Secretary
Andres Luna..............   49   Managing Director, Teekay Spain
Pedro Solana.............   49   Director, Finance and Accounting, Teekay Spain

Certain biographical information about each of these individuals is set forth below:

C. Sean Day has served as Chairman of Teekay GP L.L.C. since it was formed in November 2004. Mr. Day has served as Chairman of Teekay Shipping Corporation’s board of directors since 1999. From 1989 to 1999, he was President and Chief Executive Officer of Navios Corporation, a large bulk shipping company based in Stamford, Connecticut. Prior to this, Mr. Day held a number of senior management positions in the shipping and finance industry. He is currently serving as a director of Kirby Corporation. Mr. Day also serves as the Chairman of Resolute Investments, Inc., the largest stockholder of Teekay Shipping Corporation.

Bjorn Moller has served as the Vice Chairman and a Director of Teekay GP L.L.C. since it was formed in November 2004. Mr. Moller is the President and Chief Executive Officer and a director of Teekay Shipping Corporation and has held those positions since April 1998. Mr. Moller has over 25 years’ experience in the shipping industry and has served in senior management positions with Teekay Shipping Corporation for more than 20 years. He has headed its overall operations since January 1997, following his promotion to the position of Chief Operating Officer. Prior to this, Mr. Moller headed Teekay Shipping Corporation’s global chartering operations and business development activities.

Peter Evensen has served as the Chief Executive Officer and Chief Financial Officer of Teekay GP L.L.C. since it was formed in November 2004 and as a Director of Teekay GP L.L.C. since January 2005. Mr. Evensen is also the Executive Vice President and Chief Financial Officer of Teekay Shipping Corporation. He joined Teekay Shipping Corporation in May 2003 as Senior Vice President, Treasurer and Chief Financial Officer. He was appointed to his current positions with Teekay Shipping Corporation in February 2004. Mr. Evensen has over 20 years’ experience in banking and shipping finance. Prior to joining Teekay Shipping Corporation, Mr. Evensen was Managing Director and Head of Global Shipping at J.P. Morgan Securities Inc. and worked in other senior positions for its predecessor firms. His international industry experience includes positions in New York, London and Oslo.

Robert E. Boyd has served as a Director of Teekay GP L.L.C. since January 2005. From May 1999 until his retirement in March 2004, Mr. Boyd was employed as the Senior Vice President and Chief Financial Officer of Teknion Corporation, a company engaged in the design, manufacture and marketing of office systems and office furniture products. From 1991 to 1999, Mr. Boyd was employed by The Oshawa Group Limited, a company engaged in the wholesale and retail distribution of food products and real estate activities, where his positions included Executive Vice President-Financial and Chief Financial Officer.

Ida Jane Hinkley has served as a Director of Teekay GP L.L.C. since January 2005. From 1998 to 2001, she served as Managing Director of Navion Shipping AS, a shipping company at that time affiliated with the Norwegian state-owned oil company Statoil ASA (and subsequently acquired by Teekay Shipping Corporation in 2003). From 1980 to 1997, Ms. Hinkley was employed by the Gotaas-Larsen Shipping Corporation, an international provider of marine transportation services for crude oil and gas (including LNG), serving as its Chief Financial Officer from 1988 to 1992 and its Managing Director from 1993 to 1997.

Ihab J.M. Massoud has served as a Director of Teekay GP L.L.C. since January 2005. Since 1998, he has been President of The Compass Group International LLC, a private equity investment firm based in Westport, Connecticut and an affiliate of Teekay Shipping Corporation. From 1995 to 1998, Mr. Massoud was employed in management at Petroleum Heat and Power, Inc. From 1993 to 1995, Mr. Massoud was a Vice President of Colony Capital, Inc., a Los Angeles-based private equity firm specializing in acquiring distressed real estate and corporate assets. Since 2005, Mr. Massoud has been serving as a Director and Chairman of Patriot Captial Funding Inc., a Nasdaq listed specialty finance company.

George Watson has served as a Director of Teekay GP L.L.C. since January 2005. Since July 2002, he has served as Chief Executive Officer of CriticalControl Solutions Inc. (formerly WNS Emergent), a provider of information control applications for the energy sector. From February 2000 to July 2002, he served as Executive Chairman at VerticalBuilder.com Inc. Mr. Watson served as President and Chief Executive Officer of TransCanada Pipelines Ltd. from 1993 to 1999 and as its Chief Financial Officer from 1990 to 1993.

Bruce C. Bell has served as the Secretary of Teekay GP L.L.C. since it was formed in November 2004. Since March 1994, Mr. Bell has been employed as the Managing Director of Oceanic Bank and Trust Limited, a Bahamian bank and trust company and in August 2005 he was appointed Chairman. Prior to joining Oceanic Bank and Trust Limited, Mr. Bell was engaged in the private practice of law in Canada, specializing in corporate/commercial, banking and international business transactions. From May 2000 until May 2003, Mr. Bell served as the Corporate Secretary of Teekay Shipping Corporation. Mr. Bell is also a director of Teekay Shipping Corporation.

Andres Luna has served as the Managing Director of Teekay Spain since April 2004. Mr. Luna joined Alta Shipping, S.A., a former affiliate company of Naviera F. Tapias S.A., in September 1992 and served as its General Manager until he was appointed Commercial General Manager of Naviera F. Tapias S.A. in December 1999. He also served as Chief Executive Officer of Naviera F. Tapias S.A. from July 2000 until its acquisition by Teekay Shipping Corporation in April 2004, when it was renamed Teekay Spain. Mr. Luna’s responsibilities with Teekay Spain have included business development, newbuilding contracting, project management, development of its LNG business and the renewal of its tanker fleet. He has been in the shipping business since his graduation as a naval architect from Madrid University in 1981.

Pedro Solana has served as the Director, Finance and Accounting of Teekay Spain since August 2004. Mr. Solana joined Naviera F. Tapias S.A. in 1991 and served as Deputy Financial Manager until its acquisition by Teekay Shipping Corporation. Mr. Solana’s responsibilities with Teekay Spain have included oversight of its accounting department and arranging for financing of its LNG carriers and crude oil tankers. He has been in the shipping business since 1980.

Officers of Teekay LNG Projects Ltd.

The following table provides information about the officers of Teekay LNG Projects Ltd., which is a wholly owned subsidiary of Teekay Shipping Corporation. As described above, Teekay LNG Projects Ltd. provides certain LNG strategic consulting and advisory services to Teekay Spain and certain of our other operating subsidiaries pursuant to services agreements and pursues LNG projects on behalf of Teekay Shipping Corporation, which will be offered to us pursuant to the omnibus agreement.

Name                         Age  Position

David Glendinning..........  51   President
Mark J. Kremin.............  35   Vice President
Roy E. Spires..............  59   Vice President, Finance

David Glendinning has served as the President of Teekay LNG Projects Ltd. since it was formed in November 2004. Mr. Glendinning is also the President of Teekay Shipping Corporation’s Teekay Gas and Offshore division, and has held this position since November 2003. Since joining Teekay Shipping Corporation, Mr. Glendinning has worked in a number of other senior positions with Teekay Shipping Corporation, including Vice President, Marine and Commercial Operations from January 1995 until his promotion to Senior Vice President, Customer Relations and Marine Project Development in February 1999. Prior to joining Teekay Shipping Corporation, Mr. Glendinning, who is a Master Mariner, had 18 years’ sea service on oil tankers of various types and sizes.

Mark J. Kremin has served as Vice President for Teekay LNG Projects Ltd. since March 2006. Mr. Kremin was also appointed Vice President, Gas Services of Teekay Shipping Corporation in March 2006. Mr. Kremin joined Teekay Shipping Corporation in November 2000, and served as its Vice President and Associate General Counsel until he was appointed to his current position. Prior to joining Teekay Shipping Corporation, Mr. Kremin was an attorney with Burke & Parsons, an admiralty law firm in New York City. Prior to attending law school, he worked for Mediterranean Shipping Company.

Roy E. Spires has served as Vice President, Finance of Teekay LNG Projects Ltd. since it was formed in November 2004. Mr. Spires has served as Teekay Shipping Corporation’s Vice President, Finance from February 2004 until the closing of our initial public offering. He also served as Teekay Shipping Corporation’s Director of Finance from November 1999 until February 2004. Prior to joining Teekay Shipping Corporation, Mr. Spires spent seven years with a publicly traded Canadian corporation, where his positions included Treasurer and Corporate Secretary. His experience includes over 17 years of management positions in commercial and corporate banking.

Reimbursement of Expenses of Our General Partner

Our general partner does not receive any management fee or other compensation for managing us. Our general partner and its other affiliates are reimbursed for expenses incurred on our behalf. These expenses include all expenses necessary or appropriate for the conduct of our business and allocable to us, as determined by our general partner. During 2005, these expenses were comprised of a portion of compensation earned by the Chief Executive Officer and Chief Financial Officer of our general partner, directors’ fees and travel expenses, as discussed below.

Annual Executive Compensation

We and our general partner were formed in November 2004. Our general partner neither paid any compensation to its directors or officers nor accrued any obligations with respect to management incentive or retirement benefits for the directors and officers prior to our initial public offering. Because the Chief Executive Officer and Chief Financial Officer of our general partner, Peter Evensen, is an employee of Teekay Shipping Corporation, his compensation (other than any awards under the long-term incentive plan described below) is set and paid by Teekay Shipping Corporation, and we reimburse Teekay Shipping Corporation for time he spends on partnership matters.

Our general partner compensates Bruce Bell, the Secretary of our general partner, for time he spends on partnership matters and may grant Mr. Bell awards under the long-term incentive plan described below. The corporate governance committee of the board of directors of our general partner establishes the compensation for certain key employees of our operating subsidiary Teekay Spain. Officers and employees of our general partner or its affiliates may participate in employee benefit plans and arrangements sponsored by Teekay Shipping Corporation, our general partner or their affiliates, including plans that may be established in the future.

The aggregate compensation earned by the Chief Executive Officer and Chief Financial Officer of our general partner and the two key employees of Teekay Spain listed above (or the Executive Officers) for 2005 was $1.5 million. This is comprised of base salary ($0.8 million), annual bonus ($0.6 million) and pension and other benefits ($0.1 million). These amounts were paid primarily in Canadian Dollars or in Euros, but are reported here in U.S. Dollars using an exchange rate of 1.16 Canadian Dollars for each U.S. Dollar and 0.85 Euro for each U.S. Dollar, the exchange rates on December 31, 2005. Teekay Shipping Corporation’s annual bonus plan considers both company performance, through comparison to established targets and financial performance of peer companies, and individual performance. We have reimbursed our general partner for the portion of time that Mr. Evensen spent providing services to us. Please read Item 7. Major Unitholders and Related Party Transactions.

Compensation of Directors

Officers of our general partner or Teekay Shipping Corporation who also serve as directors of our general partner do not receive additional compensation for their service as directors. Each non-management director receives compensation for attending meetings of the board of directors, as well as committee meetings. Non-management directors receive a director fee of $30,000 per year and 700 common units subject to reverse vesting over a three-year period. Members of the audit and conflicts committees each receive a committee fee of $5,000 per year, and the chair of the audit committee receives an additional fee of $5,000 for serving in that role. In addition, each director is reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or committees. Each director is fully indemnified by us for actions associated with being a director to the extent permitted under Marshall Islands law.

During 2005, the five non-employee directors received, in the aggregate, $170,000 in director and committee fees and reimbursement of $54,000 of their out-of-pocket expenses from our general partner. We reimbursed our general partner for these expenses as they were incurred for the conduct of our business. Please read Item 7. Major Unitholders and Related Party Transactions. During 2005, the five non-employee directors also received, in the aggregate, 3,500 common units of the Partnership.

2005 Long-Term Incentive Plan

Our general partner has adopted the Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan for employees and directors of and consultants to our general partner and employees and directors of and consultants to its affiliates, who perform services for us. The plan provides for the award of restricted units, phantom units, unit options, unit appreciation rights and other unit or cash-based awards. Other than the previously mentioned 3,500 common units awarded to our general partner’s directors, we have not made any awards under the 2005 long-term incentive plan.

Board Practices

Teekay GP L.L.C., our general partner, manages our operations and activities. Unitholders are not entitled to elect the directors of our general partner or directly or indirectly participate in our management or operation.

Our general partner’s board of directors (or the Board) currently consists of seven members. Directors are appointed to serve until their successor is appointed or until they resign or are removed.

There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.

The Board has the following three committees: Audit Committee, Conflicts Committee, and Corporate Governance Committee. The membership of these committees during 2005 and the function of each of the committees are described below. Each of the committees is currently comprised of independent members and operates under a written charter adopted by the Board. The committee charters for the Audit Committee and Corporate Governance Committee are available under “Other Information – Corporate Governance” in the Investor Centre of our web site at www.teekaylng.com. During 2005, the Board held three meetings. Each director attended all Board meetings and all applicable committee meetings.

The Audit Committee of our general partner is composed of three or more directors, each of whom must meet the independence standards of the NYSE and the SEC. This committee is currently comprised of directors Robert E. Boyd (Chair), Ida Jane Hinkley and George Watson. All members of the committee are financially literate and the Board has determined that Mr. Boyd qualifies as an audit committee financial expert.

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of:

The Conflicts Committee of our general partner is composed of the same directors constituting the Audit Committee, being George Watson (Chair), Robert E. Boyd and Ida Jane Hinkley. The members of the Conflicts Committee may not be officers or employees of our general partner or directors, officers or employees of its affiliates, and must meet the independence standards established by the NYSE to serve on an audit committee of a board of directors and certain other requirements.

The Conflicts Committee:

Any matters approved by the Conflicts Committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our general partner of any duties it may owe us or our unitholders.

The Corporate Governance Committee of our general partner is composed of at least two or more directors, a majority of whom must meet the independence standards established by the NYSE. This committee is currently comprised of directors Ihab J.M. Massoud (Chair), Robert E. Boyd and George Watson.

The Corporate Governance Committee:

Crewing and Staff

As of December 31, 2005, we employed approximately 376 seagoing staff who serve on our vessels and approximately 32 shore staff. Teekay Shipping Corporation and its subsidiaries may employ additional seagoing staff to assist us as we grow and has staffed the three Suezmax tankers we acquired in connection with our follow-on offering. Certain subsidiaries of Teekay Shipping Corporation provide advisory, operational and administrative support to us pursuant to services agreements. Please read Item 7 – Major Unitholders and Related Party Transactions.

We regard attracting and retaining motivated seagoing personnel as a top priority. Like Teekay Shipping Corporation, we offer our seafarers competitive employment packages and comprehensive benefits and opportunities for personal and career development, which relates to a philosophy of promoting internally.

Teekay Shipping Corporation has entered into a Collective Bargaining Agreement with the Philippine Seafarers’ Union, an affiliate of the International Transport Workers’ Federation (or ITF), and a Special Agreement with ITF London, which cover substantially all of the officers and seamen that operate our Bahamian-flagged vessels. Our officers and seamen for our Spanish-flagged vessels are covered by a collective bargaining agreement with Spain’s Union General de Trabajadores and Comisiones Obreras. We believe our relationships with these labor unions are good.

Our commitment to training is fundamental to the development of the highest caliber of seafarers for our marine operations. Teekay Shipping Corporation has agreed to allow our personnel to participate in its training programs. Teekay Shipping Corporation’s cadet training approach is designed to balance academic learning with hands-on training at sea. Teekay Shipping Corporation has relationships with training institutions in Canada, Croatia, India, Latvia, Norway, Philippines, Turkey and the United Kingdom. After receiving formal instruction at one of these institutions, our cadets’ training continues on board on one of our vessels. Teekay Shipping Corporation also has a career development plan that we follow, which was designed to ensure a continuous flow of qualified officers who are trained on its vessels and familiarized with its operational standards, systems and policies. We believe that high-quality crewing and training policies will play an increasingly important role in distinguishing larger independent shipping companies that have in-house or affiliate capabilities from smaller companies that must rely on outside ship managers and crewing agents on the basis of customer service and safety.

Unit Ownership

The following table sets forth certain information regarding beneficial ownership, as of March 31, 2006, of our units by all directors and officers of our general partner and key employees as a group. The information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person or entity beneficially owns any units that the person or entity has the right to acquire as of May 30, 2006 (60 days after March 31, 2006) through the exercise of any unit option or other right. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such powers with his or her spouse) with respect to the units set forth in the following table. Information for certain holders is based on information delivered to us.

Identity of Person or Group                                                                  Percentage of
                                                                                             Total Common
                                               Percentage of                 Percentage of       and
                                Common Units   Common Units   Subordinated   Subordinated    Subordinated
                                    Owned          Owned       Units Owned    Units Owned   Units Owned(3)
All executive officers, key
employees and directors as
a group (10 persons) (1) (2)....    254,336         1.26%            -              -            0.73%

Item 7.  Major Unitholders and Related Party Transactions

Major Unitholders

The following table sets forth information regarding beneficial ownership, as of March 31, 2006, of the Partnership’s common and subordinated units by each person we know to beneficially own more than 5% of the common or subordinated units. The number of units beneficially owned by each person is determined under SEC rules and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person beneficially owns any units as to which the person has or shares voting or investment power. In addition, a person beneficially owns any units that the person or entity has the right to acquire as of May 30, 2006 (60 days after March 31, 2006) through the exercise of any unit option or other right. The unitholder listed below has sole voting and investment power with respect to the units set forth in the following table.

Identity of Person or Group                                                                       Percentage of
                                               Percentage of                   Percentage of      Total Common
                               Common Units   Common Units   Subordinated     Subordinated     and Subordinated
                                  Owned          Owned       Units Owned       Units Owned        Units Owned 
Teekay Shipping
Corporation (1).................  8,734,572        43.2%         14,734,572        100.0%            67.1%

Our majority unitholder has the same voting rights as our other unitholders. The Partnership is directly controlled by Teekay Shipping Corporation. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Partnership.

Related Party Transactions

Item 8.  Financial Information

Consolidated Financial Statements and Notes

Please see Item 18 below for additional information required to be disclosed under this Item.

Legal Proceedings

From time to time we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on us.

Cash Distribution Policy

Rationale for Our Cash Distribution Policy.

Our partnership agreement requires us to distribute all of our available cash (as defined in our partnership agreement) within approximately 45 days after the end of each quarter. This cash distribution policy reflects a basic judgment that our unitholders will be better served by our distributing our cash available after expenses and reserves rather than retaining it. Because we believe we will generally finance any capital investments from external financing sources, we believe that our investors are best served by our distributing all of our available cash.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.

There is no guarantee that unitholders will receive quarterly distributions from us. Our distribution policy is subject to certain restrictions and may be changed at any time, including:

Minimum Quarterly Distribution

Common unitholders are entitled under our partnership agreement to receive a quarterly distribution of $0.4125 per unit, or $1.65 per year, prior to any distribution on our subordinated units to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. Our general partner has the authority to determine the amount of our available cash for any quarter. This determination, as well as all determinations made by the general partner, must be made in good faith. There is no guarantee that we will pay the minimum quarterly distribution on the common units in any quarter, and we will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default is existing, under our credit agreements.

Commencing after the date of our initial public offering, cash distributions declared during 2005 were $20.1 million, or $0.4125 per unit per quarter. For the quarter ended June 30, 2005, cash distributions declared were prorated for the period of May 10, 2005 to June 30, 2005.

Subordination Period

During the subordination period, applicable to the subordinated units held by Teekay Shipping Corporation, 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, 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. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed on the common units.

Incentive Distribution Rights

Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus (as defined in our partnership agreement) after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest, subject to restrictions in the partnership agreement.

The following table illustrates the percentage allocations of the additional available cash from operating surplus among the unitholders and our general partner up to the various target distribution levels. The amounts set forth under “Marginal Percentage Interest in Distributions” are the percentage interests of the unitholders and our general partner in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total Quarterly Distribution Target Amount,” until available cash from operating surplus we distribute reaches the next target distribution level, if any. The percentage interests shown for the unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests shown for our general partner include its 2% general partner interest and assume the general partner has not transferred the incentive distribution rights.

                                                                           Marginal Percentage Interest
                                          Total Quarterly Distribution          in Distributions
                                                 Target Amount            Unitholders    General Partner

Minimum Quarterly Distribution ............$0.4125                            98%             2%
First Target Distribution..................up to $0.4625                      98              2
Second Target Distribution.................above $0.4625 up to $0.5375        85             15
Third Target Distribution..................above $0.5375 up to $0.6500        75             25
Thereafter ................................above $0.6500                      50             50

Significant Changes

No significant changes have occurred since the date of the annual financial statements included herein.

Item 9.  The Offer and Listing

Our common units are traded on the New York Stock Exchange (or NYSE) under the symbol “TGP”. The following table sets forth the high and low closing sales prices for our common units on the NYSE for each of the periods indicated.

Year Ended                         Dec. 31,
                                   2005 (1)
                                 ----------- ------------ ----------- ------------ ----------- -----------
  High..........................    34.70
  Low...........................    24.30

Quarters Ended                     Dec. 31,    Sept. 30,    June 30,
                                    2005         2005       2005 (1)
                                 ----------- ------------ ----------- ------------ ----------- -----------
  High..........................    31.66       34.70        28.45
  Low...........................    27.40       28.12        24.30

Months Ended                       Feb. 28,    Jan. 31,    Dec. 31,     Nov. 30,     Oct. 31,   Sept. 30,
                                     2006        2006        2005         2005         2005        2005
                                 ----------- ------------ ----------- ------------ ----------- -----------
  High..........................    30.40       30.00        29.91       30.30        31.66       32.70
  Low...........................    28.65       29.32        28.05       27.40        27.75       30.00

Item 10. Additional Information

Memorandum and Articles of Association

The information required to be disclosed under Item 10.B is incorporated by reference to the following sections of the prospectus included in Amendment No. 2 to our Registration Statement on Form F-1 filed with the SEC on November 15, 2005: “The Partnership Agreement,” “Description of the Common Units – The Units,” Conflicts of Interest and Fiduciary Duties” and “Cash Distribution Policy.”

Material Contracts

The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, for the two years immediately preceding the date of this Annual Report, each of which is included in the list of exhibits in Item 19:

Exchange Controls and Other Limitations Affecting Unitholders

We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in the Republic of The Marshall Islands that restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.

We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws of the Republic of the Marshall Islands or our Articles of Incorporation and Bylaws.

Taxation

Marshall Islands Tax Consequences. Because we and our subsidiaries do not, and we do not expect that we and our subsidiaries will, conduct business or operations in the Republic of the Marshall Islands, and because all documentation related to our initial public offering and follow-on offering was executed outside of the Republic of the Marshall Islands, under current Marshall Islands law, no taxes or withholdings will be imposed by the Republic of the Marshall Islands on distributions, including upon a return of capital, made to unitholders, so long as such persons do not reside in, maintain offices in, nor engage in business in the Republic of the Marshall Islands. Furthermore, no stamp, capital gains or other taxes will be imposed by the Republic of the Marshall Islands on the purchase, ownership or disposition by such persons of our common units.

Canadian Federal Income Tax Consequences. The following discussion is a summary of the material Canadian federal income tax consequences under the Income Tax Act (Canada) (or the Canada Tax Act), that we believe are relevant to holders of common units who are, at all relevant times, for the purposes of the Canada Tax Act and the Canada-United States Tax Convention 1980 (or the Canada-U.S. Treaty) resident in the United States and who deal at arm’s length with us and Teekay Shipping Corporation (or U.S. Resident Holders).

Under the Canada Tax Act, no taxes on income (including taxable capital gains) are payable by U.S. Resident Holders in respect of the acquisition, holding, disposition or redemption of the common units, provided that we do not carry on business in Canada and such U.S. Resident Holders do not, for the purposes of the Canada-U.S. Treaty, otherwise have a permanent establishment or fixed base in Canada to which such common units pertain and, in addition, do not use or hold and are not deemed or considered to use or hold such common units in the course of carrying on a business in Canada and, in the case of any U.S. Resident Holders that carry on an insurance business in Canada and elsewhere, such U.S. Resident Holders establish that the common units are not effectively connected with their insurance business carried on in Canada.

In this connection, we believe that our activities and affairs can be conducted in a manner that we will not be carrying on business in Canada and that U.S. Resident Holders should not be considered to be carrying on business in Canada for purposes of the Canada Tax Act solely by reason of the acquisition, holding, disposition or redemption of their common units. We intend that this is and continues to be the case, notwithstanding that certain services will be provided to Teekay LNG Partners L.P., indirectly through arrangements with a subsidiary of Teekay Shipping Corporation that is resident and based in the Bahamas, by Canadian service providers. However, we cannot asure this result.

Documents on Display

Documents concerning us that are referred to herein may be inspected at our principal executive headquarters at Bayside House, Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59212, Nassau, The Bahamas. Those documents electronically filed via the SEC’s Electronic Data Gathering, Analysis, and Retrieval (or EDGAR) system may also be obtained from the SEC’s website at www.sec.gov, free of charge, or from the Public Reference Section at 100 F Street, NE, Washington, D.C. 20549, at prescribed rates. Further information on the operation of the SEC public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330.

Item 11. 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 December 31, 2005, our unhedged floating-rate borrowings totaled $29.0 million. A 1% increase in the interest rates on that amount would result in $0.3 million in additional annual interest payments.

The table below provides information about our financial instruments at December 31, 2005, 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 Debt
  U.S. Dollar-denominated (2) ..............      -        -        -     29.0        -         -      5.6%
  U.S. Dollar-denominated
    (newbuildings) (2)(3)...................      -      6.4     11.0     11.0     11.0     278.2      5.1%
  Euro-denominated (4)(5) ..................    8.1      8.7      9.3     10.0     10.7     330.6      3.6%

Capital Lease Obligations (6)
  Fixed-Rate Obligations (7)................    8.6    130.7      3.7      3.8     84.0         -      7.4%
  Average Interest Rate (8).................    7.5%     8.8%     5.4%     5.4%     5.5%      n/a

Interest Rate Swaps:
  Contract Amount
    (U.S. Dollar-denominated) (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-denominated) (5)(10)..............    8.1      8.7      9.3     10.0     10.7     330.6      3.8%
  Average Fixed Pay Rate (4) ...............    3.8%     3.8%     3.8%     3.8%     3.8%      3.8%

The following table sets forth further information about our interest rate swap agreements, long-term debt and capital lease obligations as at December 31, 2005 and 2004.

                                                        Contract     Fair Value/
                                                         Amount    Carrying Amount     Rate(1)
                                                     -------------  -------------  -------------
                                                            (in millions of U.S. dollars)
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: (2)
  U.S. Dollar-denominated...........................       29.0         (29.0)          5.6%
  U.S. Dollar-denominated (newbuildings) (3)........      317.6        (317.6)          5.1%
  Euro-denominated..................................      377.4        (377.4)          3.6%
December 31, 2004
Interest Rate Swap Agreements:
  U.S. Dollar-denominated...........................      328.5         (44.3)          6.7%
  Euro-denominated..................................      441.0         (90.6)          5.9%
Long-Term Debt: (2)
  U.S. Dollar-denominated...........................      531.2        (531.2)          5.1%
  Euro-denominated .................................      443.7        (443.7)          3.4%

Counterparties to these financial instruments expose us to credit-related losses in the event of nonperformance; however, counterparties to these agreements are major financial institutions, and we consider the risk of loss due to nonperformance to be minimal. We do not require collateral from these institutions. We do not hold or issue interest rate swaps for trading purposes.

Foreign Currency Fluctuation 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 2005, we earned approximately 47.5 million Euros ($59.5 million) 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.

Item 12.  Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies

None.

Item 14.  Material Modifications to the Rights of Unitholders and Use of Proceeds

The Partnership completed its initial public offering and a follow-on public offering during May 2005 and November 2005, respectively. For information regarding the use of proceeds, please read Item 18 – Financial Statements: Note 2 – Public Offerings

Item 15.  Controls and Procedures

We conducted an evaluation of our disclosure controls and procedures under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2005 to ensure that information required to be disclosed by the Partnership in the reports we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to the Partnership’s management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and Chief Financial Officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Partnership have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Item 16A.  Audit Committee Financial Expert

The board of directors of our general partner has determined that director, Robert E. Boyd, qualifies as an audit committee financial expert and is independent under applicable NYSE and SEC standards.

Item 16B.  Code of Ethics

We have adopted Standards of Business Conduct that include a Code of Ethics for all our employees and the employees and directors of our general partner. This document is available under “Other Information — Corporate Governance” in the Investor Centre of our web site (www.teekaylng.com). We intend to disclose, under “Other Information — Corporate Governance” in the Investor Centre of our web site, any waivers to or amendments of our Standards of Business Conduct or Code of Ethics for the benefit of any directors and executive officers of our general partner.

Item 16C.  Principal Accountant Fees and Services

Our principal accountant for 2005 and 2004 was Ernst & Young LLP, Chartered Accountants. The following table shows the fees we or our predecessor (Luxco and its subsidiaries) paid or accrued for audit services provided by Ernst & Young LLP for 2005 and 2004.

Fees                                       2005              2004
                                    ------------------ ------------------
 Audit Fees (1).....................    $293,225            $141,900
 Audit-Related Fees (2).............      86,350             252,545
                                    ------------------ ------------------
    Total...........................    $379,575            $394,445
                                    ================== ==================

The Audit Committee of our general partner’s board of directors has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved by the Audit Committee or entered into pursuant to detailed pre-approval policies and procedures established by the Audit Committee, as long as the Audit Committee is informed on a timely basis of any engagement entered into on that basis. The Audit Committee separately pre-approved all engagements and fees paid to our principal accountant in 2005.

Item 16D.  Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E.  Purchases of Units by the Issuer and Affiliated Purchasers

Not applicable.

PART III

Item 17.  Financial Statements

Not applicable.

Item 18.  Financial Statements

The following financial statements and schedule, together with the related report of Ernst & Young LLP, Chartered Accountants, are filed as part of this Annual Report:

                                                                                  Page
Report of Independent Registered Public Accounting Firm........................... F-1

Consolidated Financial Statements

Consolidated Statements of Income (Loss).......................................... F-2

Consolidated Balance Sheets....................................................... F-3

Consolidated Statements of Cash Flows............................................. F-4

Consolidated Statements of Changes in Partners' Equity/Stockholder Deficit........ F-5

Notes to the Consolidated Financial Statements.................................... F-7

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial Statements and therefore have been omitted.

Item 19. Exhibits

The following exhibits are filed as part of this Annual Report:

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

   1.2    First Amended and Restated Agreement of Limited Partnership of Teekay LNG Partners L.P. (2)

   1.3    Certificate of Formation of Teekay GP L.L.C. (1)

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

   4.1    Agreement, dated February 21, 2001, for a U.S $100,000,000 Revolving Credit Facility between
          Naviera Teekay Gas S.L. , J.P. Morgan plc and various other banks (5)

   4.2    Contribution, Conveyance and Assumption Agreement (6)

   4.3    Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan (5)

   4.4    Omnibus Agreement (6)

   4.5    Administrative Services Agreement with Teekay Shipping Limited (5)

   4.6    Advisory, Technical and Administrative Services Agreement (5)

   4.7    LNG Strategic Consulting and Advisory Services Agreement (5)

   4.8    Granada Spirit Purchase Agreement (5)

   4.9    Granada Spirit Charter (5)

   4.10   Agreement to Purchase Nakilat Interest (5)

   4.11   Syndicated Loan Agreement between Naviera Teekay Gas III, S.L. (formerly Naviera F. Tapias
          Gas III, S.A.) and Caixa de Aforros de Vigo Ourense e Pontevedra, as Agent,
          dated as of October 2, 2000, as amended (5)

   4.12   Bareboat Charter Agreement between Naviera Teekay Gas III, S.L. (formerly Naviera F. Tapias
          Gas III, S.A.) and Poseidon Gas AIE dated as of October 2, 2000 (5)

   4.13   Credit Facility Agreement between Naviera Teekay Gas IV, S.L.(formerly Naviera F. Tapias Gas IV, S.A.)
          and Chase Manhattan International Limited, as Agent, dated as of December 21, 2001, as amended (5)

   4.14   Bareboat Charter Agreement between Naviera Teekay Gas IV, S.L. (formerly Naviera F. Tapias Gas IV,
          S.A.) and Pagumar AIE dated as of December 30, 2003 (5)

   4.15   Agreement, dated December 7, 2005, for a U.S. $137,500,000 Secured Reducing Revolving Loan
          Facility Agreement between Asian Spirit L.L.C., African Spirit L.L.C., European Spirit L.L.C.,
          DNB Nor Bank ASA and other banks

   8.1    List of Subsidiaries of Teekay LNG Partners L.P.

  12.1    Rule 13a-14(a)/15d-14(a) Certification of Teekay LNG Partners L.P.'s Chief Executive Officer

  12.2    Rule 13a-14(a)/15d-14(a) Certification of Teekay LNG Partners L.P.'s Chief Financial Officer

  13.1    Teekay LNG Partners L.P. Certification of Peter Evensen, Chief Executive Officer
          and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
          Section 906 of the Sarbanes-Oxley Act of 2002.

  15.1    Letter from Ernst & Young LLP, as independent chartered accountants, dated April 13, 2006,
          regarding audited financial information.

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Unitholders of
TEEKAY LNG PARTNERS L.P.

We have audited the accompanying consolidated balance sheets of Teekay LNG Partners L.P. (successor to Teekay Luxembourg S.a.r.l.) and subsidiaries (or the Partnership) as of December 31, 2005 and 2004, and the related consolidated statements of income (loss) for the years ended December 31, 2005, 2004 and 2003 aggregated as follows:

Year ended December 31, 2005
                 •    January 1 to May 9, 2005
                 •    May 10 to December 31, 2005

Year ended December 31, 2004
                 •    January 1 to April 30, 2004
                 •    May 1 to December 31, 2004

Year ended December 31, 2003
                 •    January 1 to December 31, 2003

We have also audited the consolidated statements of the changes in partners’ equity/stockholder deficit and cash flows for the three years ended December 31, 2005, 2004 and 2003. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teekay LNG Partners L.P. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

Vancouver, Canada                                                                                                                                                              /s/ ERNST & YOUNG LLP
February 21, 2006                                                                                                                                                                  Chartered Accountants

                             TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
                                 (Successor to Teekay Luxembourg S.a.r.l.)
                                  CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                         (in thousands of U.S. dollars, except unit and per unit data)


                                             Year Ended December 31,       Year Ended December 31,
                                                     2005                          2004
                                               January 1     May 10        January 1       May 1
                                                  to           to             to             to        Year Ended
                                                May 9,     December 31,    April 30,    December 31,  December 31,
                                                 2005          2005          2004           2004         2003
                                                   $            $              $              $            $
                                         -------------- -------------- -------------- -------------- --------------
VOYAGE REVENUES                                 50,129        95,330        40,718         83,115         86,709
---------------------------------------- -------------- -------------- -------------- -------------- --------------
OPERATING EXPENSES
Voyage expenses                                    251           407         1,842          3,090          4,911
Vessel operating expenses                       10,771        18,034        10,302         20,315         26,440
Depreciation and amortization                   14,751        28,420         8,585         26,275         23,390
General and administrative
  (notes 13c and 13d)                            2,928         7,029         2,103          4,375          8,799
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Total operating expenses                        28,701        53,890        22,832         54,055         63,540
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Income from vessel operations                   21,428        41,440        17,886         29,060         23,169
---------------------------------------- -------------- -------------- -------------- -------------- --------------
OTHER ITEMS
Interest expense (notes 5, 7 and 8)            (35,679)      (37,623)      (21,475)       (50,485)       (34,862)
Interest income                                  9,098        14,084         8,692         13,519          8,431
Foreign currency exchange gain (loss)
  (note 8)                                      52,295        29,524        18,010        (78,831)       (71,502)
Other income (loss) - net (note 11)            (17,927)        2,907        (6,949)         2,342         15,332
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Total other items                                7,787         8,892        (1,722)      (113,455)       (82,601)
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Net income (loss)                               29,215        50,332        16,164        (84,395)       (59,432)
---------------------------------------- -------------- -------------- -------------- -------------- --------------
General partner's interest in net income             -         9,665             -             -               -
Limited partners' interest (note 17)
  Net income (loss)                             29,215        40,667        16,164        (84,395)       (59,432)
  Net income (loss) per:
  • Common unit (basic and diluted)               1.24          1.45          0.69          (3.60)         (2.53)
  • Subordinated unit (basic and diluted)         1.24          1.15          0.69          (3.60)         (2.53)
  • Total unit (basic and diluted)                1.24          1.31          0.69          (3.60)         (2.53)
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Weighted-average number of units
outstanding:
  • Common units (basic and diluted)         8,734,572    16,382,987     8,734,572      8,734,572      8,734,572
  • 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)         23,469,144    31,117,559    23,469,144     23,469,144     23,469,144
======================================== ============== ============== ============== ============== ==============

                             TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
                                 (Successor to Teekay Luxembourg S.a.r.l.)
                                       CONSOLIDATED BALANCE SHEETS
                                      (in thousands of U.S. dollars)


                                                                        As at            As at
                                                                     December 31,     December 31,
                                                                        2005             2004
                                                                         $                 $
                                                                  ---------------- ----------------
ASSETS
Current
Cash and cash equivalents                                               34,469          156,410
Restricted cash  - current (note 5)                                    139,525           82,387
Accounts receivable                                                      2,977            7,197
Prepaid expenses and other assets                                        3,972            3,449
----------------------------------------------------------------- ---------------- ----------------
Total current assets                                                   180,943          249,443
----------------------------------------------------------------- ---------------- ----------------
Restricted cash - long-term (note 5)                                   158,798          352,725

Vessels and equipment (note 8)
At cost, less accumulated depreciation of $16,235 (2004 - $5,829)      507,825          366,334
Vessels under capital leases, at cost, less accumulated
  depreciation of $32,266 (2004 - $9,597) (note 5)                     677,686          629,569
Advances on newbuilding contracts (note 15)                            316,875           49,165
----------------------------------------------------------------- ---------------- ----------------
Total vessels and equipment                                          1,502,386        1,045,068
----------------------------------------------------------------- ---------------- ----------------
Other assets                                                            20,215           20,394
Intangible assets - net (note 6)                                       169,194          178,457
Goodwill (note 6)                                                       39,279           39,279
----------------------------------------------------------------- ---------------- ----------------
Total assets                                                         2,070,815        1,885,366
================================================================= ================ ================


LIABILITIES AND PARTNERS' EQUITY/STOCKHOLDER DEFICIT
Current
Accounts payable                                                         5,885           11,411
Accrued liabilities                                                     13,952            8,240
Current portion of long-term debt (note 8)                               8,103           22,368
Current obligation under capital leases (note 5)                       137,646           87,687
Advances from affiliate (note 7)                                         2,222          465,695
----------------------------------------------------------------- ---------------- ----------------
Total current liabilities                                              167,808          595,401
----------------------------------------------------------------- ---------------- ----------------
Long-term debt (note 8)                                                398,249          764,758
Long-term obligation under capital leases (note 5)                     382,343          513,361
Long-term debt related to newbuilding vessels to be
  acquired (note 15)                                                   319,573                -
Other long-term liabilities (note 14)                                   33,703          134,848
----------------------------------------------------------------- ---------------- ----------------
Total liabilities                                                    1,301,676        2,008,368
----------------------------------------------------------------- ---------------- ----------------
Commitments and contingencies (notes 13 and 15)

Partners' equity/Stockholder deficit
Partners' equity                                                       841,642                -
Capital stock (note 10)                                                      -              180
Accumulated deficit                                                          -          (79,504)
Accumulated other comprehensive loss (note 12)                         (72,503)         (43,678)
----------------------------------------------------------------- ---------------- ----------------
Total partners' equity/stockholder deficit                             769,139         (123,002)
----------------------------------------------------------------- ---------------- ----------------
Total liabilities and partners' equity/stockholder deficit           2,070,815        1,885,366
================================================================= ================ ================

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

                              TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
                                   (Successor to Teekay Luxembourg S.a.r.l.)
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (in thousands of U.S. dollars)


                                                             Year Ended       Year Ended      Year Ended
                                                             December 31,     December 31,    December 31,
                                                                2005             2004            2003
                                                                 $                 $               $
                                                          ---------------- ---------------- ----------------
Cash and cash equivalents provided by (used for)

OPERATING ACTIVITIES
Net income (loss)                                                79,547          (68,231)        (59,432)
Non-cash items:
    Depreciation and amortization                                43,171           34,860          23,390
    Gain on sale of vessels                                        (186)          (3,428)              -
    Gain on sale of marketable securities                             -              (85)         (1,576)
    Loss on sale of other assets                                      -           11,922               -
    Deferred income tax expense (recovery)                        3,682           (5,529)          1,634
    Foreign currency exchange loss (gain)                       (87,198)          61,180          68,897
    Interest rate swaps gain                                          -           (3,985)        (14,715)
    Loss from settlement of interest rate swaps                   7,820                -               -
    Write-off of capitalized loan costs                           7,462                -               -
    Accrued interest and other - net                             10,215           (6,173)          4,594
Change in non-cash working capital items related to
  operating activities (note 16)                                  4,694            8,630             237
Expenditures for drydocking                                      (3,489)          (4,085)         (4,711)
--------------------------------------------------------- ---------------- ---------------- ----------------
Net operating cash flow                                          65,718           25,076          18,318
--------------------------------------------------------- ---------------- ---------------- ----------------
FINANCING ACTIVITIES
Proceeds from long-term debt                                    291,189          133,746         211,089
Capitalized loan costs                                             (628)             (19)              -
Scheduled repayments of long-term debt                           (9,546)         (70,543)       (291,730)
Scheduled repayments of capital lease obligations               (77,672)         (66,727)         (4,115)
Prepayments of long-term debt                                  (399,307)         (61,891)              -
Proceeds from issuance of common stock                                -              180               -
Proceeds from issuance of common units                          259,289                -               -
Interest rate swap settlement costs                            (143,295)               -               -
Advances from affiliate                                         354,277          409,141               -
Advances to affiliate                                          (252,929)               -               -
Proceeds from government grants                                       -                -          49,215
Decrease (increase) in restricted cash                           80,365           19,370        (242,075)
Cash distributions paid                                         (20,090)               -               -
Other                                                                 -            4,046               -
--------------------------------------------------------- ---------------- ---------------- ----------------
Net financing cash flow                                          81,653          367,303        (277,616)
--------------------------------------------------------- ---------------- ---------------- ----------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment                         (222,582)         (89,225)       (133,628)
Purchase of three Suezmax tankers from Teekay
  Shipping Corporation (notes 2 and 13i)                       (180,000)               -               -
Purchase of Teekay Shipping Spain S.L., net of
  cash acquired of $11,191 (note 3)                                   -         (298,184)              -
Purchase of Naviera F. Tapias Gas S.A., net of cash
  acquired of $5,140                                                  -                -          (4,515)
Proceeds from sale of vessels and equipment                     133,270          123,689         399,234
Proceeds from sale of marketable securities                           -              899           3,929
Proceeds from sale of other assets                                    -            6,251               -
Other                                                                 -             (727)         (2,254)
--------------------------------------------------------- ---------------- ---------------- ----------------
Net investing cash flow                                        (269,312)        (257,297)        262,766
--------------------------------------------------------- ---------------- ---------------- ----------------
(Decrease) increase in cash and cash equivalents               (121,941)         135,082           3,468
Cash and cash equivalents, beginning of the year                156,410           21,328          17,860
--------------------------------------------------------- ---------------- ---------------- ----------------
Cash and cash equivalents, end of the year                       34,469          156,410          21,328
========================================================= ================ ================ ================

Non-cash investing and financing activities (note 16)

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

          TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
                               (Successor to Teekay Luxembourg S.a.r.l.)
                  CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY/STOCKHOLDER DEFICIT
                                   (in thousands of U.S. dollars and units)



                                                    STOCKHOLDER DEFICIT (PREDECESSOR)
                                                  -----------------------------------
                                                                                        Accumulated
                                                                                           Other
                                                                          Accumulated  Comprehensive
                                                           Common           Deficit        Loss        Total
                                                     Shares        $           $            $            $
----------------------------------------------    ----------- ----------- -----------  -----------  -----------
Balance as at December 31, 2002                     18,425       1,580     (106,152)     (1,533)     (106,105)
 Net loss (January 1 to December 31, 2003)               -           -      (59,432)          -       (59,432)
 Unrealized loss on available-for-sale securities        -           -            -        (296)         (296)
 Reclassification adjustment for loss on available-
 for-sale securities included  in net loss             -           -            -       1,024         1,024
----------------------------------------------    ----------- ----------- -----------  -----------  -----------
Balance as at December 31, 2003                     18,425       1,580     (165,584)       (805)     (164,809)
 Net income (January 1 to December 31, 2004)             -           -       16,164           -        16,164
 Unrealized gain on available-for-sale
   securities                                            -           -            -         467           467
 Reclassification adjustment for gain on available-
  for-sale securities included in net income            -           -            -         (55)          (55)
 Sale of unrelated businesses (note 1)                   -           -        4,047           -         4,047
----------------------------------------------    ----------- ----------- -----------  -----------  -----------
Balance as at April 30, 2004                        18,425       1,580     (145,373)       (393)     (144,186)
 Elimination of stockholder deficit upon
   acquisition of Teekay Shipping Spain S.L.
   (note 3)                                        (18,425)     (1,580)     145,373         393       144,186
----------------------------------------------    ----------- ----------- -----------  -----------  -----------
Balance as at May 1, 2004                                -           -            -           -             -
 Issuance of common stock                            1,500         180            -           -           180
 Net loss (May 1 to December 31, 2004)                   -           -      (84,395)          -       (84,395)
 Unrealized loss on derivative instruments
   (note 14)                                             -           -            -     (57,444)      (57,444)
 Reclassification adjustment for loss on
  derivative  instruments included in net income
   (note 14)                                             -           -            -      13,766        13,766
 Sale of the Granada Spirit (note 13f)                   -           -        4,891           -         4,891
----------------------------------------------    ----------- ----------- -----------  -----------  -----------
Balance as at December 31, 2004                      1,500         180      (79,504)    (43,678)     (123,002)
 Net income (January 1 to May 9, 2005)                   -           -       29,215           -        29,215
 Unrealized loss on derivative instruments
   (note 14)                                             -           -            -     (22,874)      (22,874)
 Reclassification adjustment for loss on
   derivative  instruments included in net income
   (note 14)                                             -           -            -      14,359        14,359
 Sale of the Santiago Spirit (note 13g)                  -           -       (3,115)          -        (3,115)
----------------------------------------------    ----------- ----------- -----------  -----------  -----------
Balance as at May 9, 2005                            1,500         180      (53,404)    (52,193)     (105,417)
==============================================    =========== =========== ===========  ===========  ===========

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

                                     TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
                                          (Successor to Teekay Luxembourg S.a.r.l.)
                         CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY/STOCKHOLDER DEFICIT
                                           (in thousands of U.S. dollars and units)

                                                           PARTNERS' EQUITY
                                           -------------------------------------------------
                                       Limited Partners
                               ---------------------------------------
                                                                                             Accumulated
                                Stockholder                                                     Other
                                   Deficit                                          General Comprehensive
                               (Predecessor)      Common           Subordinated     Partner     Loss      Total
                                     $        Units       $       Units      $         $         $          $
-------------------------------- --------- --------- --------- --------- --------- --------- ---------  ---------
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 14)                 -        -          -         -         -         -   (26,622)   (26,622)
 Reclassification adjustment for
  loss on derivative instruments
  included in net income(note 14)       -        -          -         -         -         -     6,313      6,313
 Purchase of three Suezmax
  tankers from Teekay
  Shipping Corporation
  (note 13i)                            -        -    (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
================================ ========= ========= ========= ========= ========= ========= =========  =========

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

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

1.   Summary of Significant Accounting Policies

      Basis of presentation

      Reporting currency

      Operating revenues and expenses

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

      Cash and cash equivalents

      Vessels and equipment

      Loan costs

      Goodwill and intangible assets

      Derivative instruments

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

      Income taxes

      Comprehensive income (loss)

2.   Public Offerings

                                                                                Follow-On
                                                               IPO         Offering        Total
                                                                     $              $             $
     Proceeds received:                                         ------------- ------------- -------------
       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           790         6,406
       Repayment of advances from Teekay Shipping Corporation...   129,400             -       129,400
       Purchase of three Suezmax tankers from Teekay Shipping
        Corporation.............................................         -       122,780       122,780
       Working capital..........................................     6,311             -         6,311
                                                                ------------- ------------- -------------
                                                                   151,800       128,612       280,412
                                                                ============= ============= =============

3.   Acquisition of Teekay Shipping Spain S.L.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

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

4.  Segment Reporting

                                              Year Ended December 31,     Year Ended December 31,
                                                      2005                        2004
                                               January 1     May 10      January 1        May 1
                                                  to           to            to             to        Year Ended
                                                May 9,    December 31,    April 30,    December 31,  December 31,
                                                 2005         2005          2004           2004          2003
                                           ------------- ------------- -------------- ------------- --------------
(U.S. dollars in millions)
   Compania Espanola de Petroleos, S.A.(1). $15.2 or 30%  $29.1 or 31%  $15.4 or 38%   $29.7 or 36%  $41.1 or 47%
   Repsol YPF, S.A. (2).................... $16.8 or 34%  $31.4 or 33%   $7.5 or 18%   $15.2 or 18%  $22.8 or 26%
   Gas Natural SDG, S.A. (2)...............  $9.8 or 19%  $16.5 or 17%   $8.5 or 21%   $17.3 or 21%   $9.8 or 11%
   Union Fenosa Gas, S.A. (2)..............  $8.3 or 17%  $14.9 or 16%       (3)       $10.8 or 13%       (3)

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

                                                              Year Ended December 31, 2005
                                      -----------------------------------------------------------------------------
                                           January 1 to May 9, 2005              May 10 to December 31, 2005
                                      -------------------------------------- --------------------------------------
                                          LNG         Suezmax                   LNG         Suezmax
                                        Carrier        Tanker                  Carrier       Tanker
                                        Segment       Segment     Total        Segment      Segment       Total
                                           $             $           $            $            $            $
                                      ------------ ------------ ------------ ------------ ------------ ------------
  Voyage revenues.....................    34,883      15,246      50,129         62,762       32,568       95,330
  Voyage expenses.....................        49         202         251              1          406          407
  Vessel operating expenses...........     5,971       4,800      10,771          9,651        8,383       18,034
  Depreciation and amortization.......    10,746       4,005      14,751         19,614        8,806       28,420
  General and administrative (1)......     1,464       1,464       2,928          3,225        3,804        7,029
                                      ------------ ------------ ------------ ------------ ------------ ------------
  Income from vessel operations.......    16,653       4,775      21,428         30,271       11,169       41,440
                                      ============ ============ ============ ============ ============ ============
  Total assets at December 31, 2005...                                        1,576,990      448,525    2,025,515
  Expenditures for vessels and
    equipment.........................         -      43,962      43,962        209,220      220,158      429,378
                                      -----------------------------------------------------------------------------

                                                              Year Ended December 31, 2004
                                      -----------------------------------------------------------------------------
                                            January 1 to April 30, 2004           May 1 to December 31, 2004
                                      --------------------------------------- -------------------------------------
                                          LNG         Suezmax                     LNG       Suezmax
                                        Carrier        Tanker                   Carrier     Tanker
                                        Segment       Segment      Total        Segment     Segment       Total
                                           $             $            $            $           $            $
                                      ------------ ------------ ------------ ------------ ------------ ------------
   Voyage revenues....................    16,010      24,708      40,718         43,385       39,730       83,115
   Voyage expenses....................        33       1,809       1,842            221        2,869        3,090
   Vessel operating expenses..........     3,106       7,196      10,302          7,509       12,806       20,315
   Depreciation and amortization......     2,538       6,047       8,585         12,853       13,422       26,275
   General and administrative (1) ....       526       1,577       2,103          1,436        2,939        4,375
                                      ------------ ------------ ------------ ------------ ------------ ------------
   Income from vessel operations......     9,807       8,079      17,886         21,366        7,694       29,060
                                      ============ ============ ============ ============ ============ ============
   Total assets at December 31, 2004..                                        1,423,191      287,058    1,710,249
   Expenditures for vessels and
      equipment.......................       483       5,039       5,522         34,714       49,989       83,703
                                      -----------------------------------------------------------------------------
                                                                                 Year Ended December 31, 2003
                                                                              -------------------------------------
                                                                                  LNG        Suezmax
                                                                                Carrier      Tanker
                                                                                Segment      Segment       Total
                                                                                   $            $            $
                                                                              ------------ ------------ -----------
   Voyage revenues............................................................   32,607       54,102       86,709
   Voyage expenses............................................................      123        4,788        4,911
   Vessel operating expenses..................................................    5,856       20,584       26,440
   Depreciation and amortization..............................................    5,630       17,760       23,390
   General and administrative (1) ............................................    1,683        7,116        8,799
                                                                              ------------ ------------ -----------
   Income from vessel operations..............................................   19,315        3,854       23,169
                                                                              ============ ============ ===========
   Total assets at December 31, 2003..........................................  791,259      209,329    1,000,588
   Expenditures for vessels and equipment.....................................  126,408        7,220      133,628

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

                                                     December 31, 2005  December 31, 2004
                                                                  $                  $
                                                          -----------------  -----------------
   Total assets of all segments...........................     2,025,515         1,710,249
   Cash and cash equivalents..............................        34,469           156,410
   Accounts receivable and other assets...................        10,831            18,707
                                                          -----------------  -----------------
     Consolidated total assets............................     2,070,815         1,885,366
                                                          =================  =================

5.  Capital Lease Obligations and Restricted Cash

      Capital Leases

     Year                                                         Commitment
     2006...........................................  123.2 million Euros ($146.0 million)
     2007...........................................   23.3 million Euros  ($27.5 million)
     2008...........................................   24.4 million Euros  ($28.9 million)
     2009...........................................   25.6 million Euros  ($30.4 million)
     2010...........................................   26.9 million Euros  ($31.9 million)
     Thereafter.....................................   64.8 million Euros  ($76.8 million)

     Year                                                Commitment
     2006............................................  $25.5 million
     2007............................................  145.1 million
     2008............................................    8.6 million
     2009............................................    8.5 million
     2010............................................   88.1 million

       Restricted Cash

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

6.   Intangible Assets and Goodwill

                                                                      December 31,      December 31,
                                                                         2005              2004
                                                                          $                  $
                                                                   ----------------  ----------------
   Gross carrying amount...........................................    182,552           182,552
   Accumulated amortization........................................    (13,358)           (4,095)
                                                                   ----------------  ----------------
   Net carrying amount.............................................    169,194           178,457
                                                                   ================  ================

        --------------------------------------------------------------------------------------------
           Year Ended December 31, 2005          Year Ended December 31, 2004

             January 1          May 10           January 1           May 1
                 to               to                 to               to
               May 9,         December 31,       April 30,        December 31,        Year Ended
                2005             2005              2004               2004         December 31, 2003
                 $                $                  $                 $                   $
        ----------------- -----------------  ----------------- -----------------   -----------------
               3,369            5,895                -               6,174                 -
        ================= =================  ================= =================   =================

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

7.   Advances from Affiliate

                                                          December 31, 2005    December 31, 2004
                                                                      $                    $
                                                             ------------------   ------------------
    Euro-denominated Demand Promissory Notes.................           -               371,073
    Euro-denominated Participating Loan......................           -                94,622
    Other (non-interest bearing and unsecured)...............       2,222                     -
                                                             ------------------   ------------------
    Total....................................................       2,222               465,695
                                                             ==================   ==================

8.   Long-Term Debt

                                                                       December 31, 2005  December 31, 2004
                                                                                $                  $
                                                                       ------------------ ------------------
  U.S. Dollar-denominated Revolving Credit Facility due through 2009...       29,000                 -
  U.S. Dollar-denominated Term Loans due through 2022..................            -           343,390
  Euro-denominated Term Loans due through 2023 ........................      377,352           443,736
                                                                       ------------------ ------------------
                                                                             406,352           787,126
  Less current portion.................................................        8,103            22,368
                                                                       ------------------ ------------------
  Total................................................................      398,249           764,758
                                                                       ================== ==================

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

   ------------------------------------------------------------------------------------------------
         Year Ended December 31, 2005         Year Ended December 31, 2004

        January 1           May 10             January 1           May 1
           to                 to                  to                to
         May 9,           December 31,          April 30,       December 31,        Year Ended
          2005               2005                 2004              2004         December 31, 2003
           $                  $                    $                 $                   $
   ------------------ ------------------  ------------------ ------------------  ------------------
         52,295            29,524               18,010            (78,831)           (71,502)
   ================== ==================  ================== ==================  ==================

9.    Fair Value of Financial Instruments

        Carrying amounts of all financial instruments approximate fair market value at the applicable date.

        The estimated fair value of the Partnership’s financial instruments is as follows:

                                                              December 31, 2005          December 31, 2004
                                                             Carrying      Fair         Carrying      Fair
                                                              Amount       Value         Amount       Value
                                                                 $           $             $            $
                                                           ------------ ------------ ------------ ------------
  Cash and cash equivalents and restricted cash............  332,792      332,792        591,522      591,522
  Long-term debt (including capital lease obligations)
   (notes 5 and 8)......................................... (926,341)    (926,341)    (1,388,174)  (1,388,174)
  Long-term debt related to newbuilding vessels to be
    acquired (note 15)..................................... (319,573)    (319,573)             -            -
  Derivative instruments (note 14):
    Interest rate swap agreements .........................  (33,703)     (33,703)      (134,848)    (134,848)
                                                           ============ ============ ============ ============

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

10.   Capital Stock

11.  Other Income (Loss) - Net

                                             Year Ended December 31,       Year Ended December 31,
                                                       2005                         2004
                                             January 1       May 10        January 1      May 1
                                                to             to             to            to         Year Ended
                                              May 9,      December 31,     April 30,    December 31,  December 31,
                                               2005           2005           2004          2004           2003
                                                 $             $               $            $               $
                                          -------------- -------------- -------------- -------------- --------------
  Interest rate swaps gain................         -              -           3,985            -         14,715
  Loss on cancellation of interest rate
    swaps.................................    (7,820)             -               -            -              -
  Gain (loss) on sale of assets...........         -            186         (11,922)       3,428          1,576
  Write-off of capitalized loan costs.....    (7,462)             -               -            -              -
  Income tax recovery (expense)...........    (2,648)         2,910             645         (967)        (3,033)
  Miscellaneous...........................         3           (189)            343         (119)         2,074
                                          -------------- -------------- -------------- -------------- --------------
  Other income (loss) - net...............   (17,927)         2,907          (6,949)       2,342         15,332
                                          ============== ============== ============== ============== ==============

12.  Comprehensive Income (Loss)

                                                  Year Ended December 31,   Year Ended December 31,
                                                         2005                        2004
                                                  January 1     May 10       January 1     May 1
                                                     to           to            to           to        Year Ended
                                                    May 9,    December 31,   April 30,   December 31, December 31,
                                                    2005         2005          2004         2004          2003
                                                      $            $             $            $             $
                                                ------------ ------------  ------------ ------------  ------------
  Net income (loss).............................  29,215         50,332        16,164      (84,395)     (59,432)
  Other comprehensive income (loss):
  Unrealized loss on derivative instruments..... (22,874)       (26,622)            -      (57,444)           -
  Reclassification adjustment for loss on
    derivative instruments included in net
    income......................................  14,359          6,313             -       13,766            -
  Unrealized gain (loss) on
    available-for-sale securities...............       -              -           467            -         (296)
  Reclassification adjustment for loss (gain)
    on available-for-sale securities included
    in net income...............................       -              -           (55)           -        1,024
                                                ------------ ------------  ------------ ------------  ------------
  Comprehensive income (loss)...................  20,700         30,023        16,576     (128,073)     (58,704)
                                                ============ ============  ============ ============  ============

13.  Related Party Transactions

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

14.  Derivative Instruments and Hedging Activities

                                                                       Fair Value/  Weighted-
                                                                     Carrying     Average     Fixed
                                                   Interest  Principal  Amount of   Remaining  Interest
                                                     Rate     Amount    Liability     Term       Rate
                                                    Index        $          $        (years)    (%)(1)
                                                  ---------- ---------- ---------- ---------- ----------
  U.S. Dollar-denominated interest rate swaps(2)..  LIBOR     234,000     23,565       12.0       6.2
  Euro-denominated interest rate swaps(3)......... EURIBOR    377,352     10,138       18.5       3.8

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

15.  Commitments and Contingencies

                                                                 December 31, 2005   December 31, 2004
                                                                         $                   $
                                                                ------------------- -------------------
   U.S. Dollar-denominated Term Loans due through 2019..........     205,882                    -
   Interest-bearing Shareholder Loans of Teekay Nakilat.........     111,666                    -
   Non-interest bearing Shareholder Loans of Teekay Nakilat.....       2,025                    -
                                                                ------------------- -------------------
                                                                     319,573                    -
   Less current portion.........................................           -                    -
                                                                ------------------- -------------------
   Total........................................................     319,573                    -
                                                                =================== ===================

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

16.  Non-Cash Items

                                                        Year Ended      Year Ended      Year Ended
                                                        December 31,    December 31,    December 31,
                                                           2005            2004            2003
                                                            $                $               $
                                                      --------------- --------------- ---------------
   Accounts receivable................................    4,220           (2,002)           825
   Prepaid expenses and other assets..................      337           (2,962)          (186)
   Accounts payable...................................   (7,284)           7,016           (770)
   Accrued liabilities................................    7,421            6,578            368
                                                      --------------- --------------- ---------------
   Total..............................................    4,694            8,630            237
                                                      =============== =============== ===============

17.  Net Income (Loss) Per Unit

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
(Successor to Teekay Luxembourg S.a.r.l.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

18.  Subsequent Events

19.  Other Information

EXHIBIT 8.1

LIST OF SIGNIFICANT SUBSIDIARIES

The following is a list of Teekay LNG Partners L.P.‘s significant subsidiaries as at December 31, 2005:

                                                                                    Proportion of
                                                               State or               Ownership
Name of Significant Subsidiary                        Jurisdiction of Incorporation    Interest 

NAVIERA TEEKAY GAS, SL................................ SPAIN                             100%
NAVIERA TEEKAY GAS II, SL............................. SPAIN                             100%
NAVIERA TEEKAY GAS III, SL............................ SPAIN                             100%
NAVIERA TEEKAY GAS IV, SL............................. SPAIN                             100%
SINGLE SHIP LIMITED LIABILITY COMPANIES............... MARSHALL ISLANDS                  100%
TEEKAY LUXEMBOURG SARL................................ LUXEMBOURG                        100%
TEEKAY SHIPPING SPAIN SL.............................. SPAIN                             100%