2005           2004            2003           2002            2001
                                            (in thousands, except share and per share data and ratios)
Income Statement Data:
Voyage revenues....................  $1,954,618     $2,219,238     $1,576,095       $ 783,327     $1,039,056
Total operating expenses (1).......  (1,322,842)    (1,398,052)    (1,283,131)       (663,981)      (655,593)
Income from vessel operations......     631,776        821,186        292,964         119,346        383,463
Interest expense...................    (132,428)      (121,518)       (80,999)        (57,974)       (66,249)
Interest income....................      33,943         18,528          3,921           3,494          9,196
Equity income from joint ventures..      11,141         13,730          6,970           4,523         17,324
Gain (loss) on sale of marketable
    securities.....................           -         93,175            517          (1,130)           758
Foreign exchange gain (loss).......      59,810        (42,704)        (3,855)          3,897             52
Other - net........................     (33,342)       (24,957)       (42,154)        (18,765)        (8,026)
Net income.........................     570,900        757,440        177,364          53,391        336,518

Per Share Data:
Net income-- basic (2).............       $7.30          $9.14          $2.22           $0.67           $4.24
Net income-- diluted (2)...........        6.83           8.63           2.18            0.66            4.16
Cash dividends declared (2)........        0.62           0.51           0.45            0.43            0.43

Balance Sheet Data
(at end of year):
Cash and marketable securities.....     $236,984      $427,037       $387,795        $298,255        $196,004
Restricted cash....................      311,084       448,812          2,672           8,785           7,833
Vessels and equipment..............    3,721,674     3,531,287      2,574,860       2,066,657       2,043,098
Total assets.......................    5,294,100     5,503,740      3,588,044       2,723,506       2,467,781
Total debt (including capital lease
    obligations)...................    2,432,978     2,744,545      1,636,758       1,130,822         935,702
Capital stock......................      471,784       534,938        492,653         470,988         467,341
Total stockholders' equity.........    2,236,542     2,237,358      1,651,827       1,421,898       1,398,200
Number of outstanding shares of
    common stock (2)...............   71,375,593    82,951,275     81,222,350      79,384,120      79,100,652

Other Financial Data:
Net voyage revenues (3)............   $1,535,449    $1,786,843     $1,181,439        $543,872        $789,494
Net operating cash flow............      609,042       814,704        455,575         179,531         500,086
Total debt to total
    capitalization(4) (5)..........        49.1%         54.9%          49.5%           43.9%           39.8%
Net debt to total net
    capitalization(5) (6)..........        42.8%         45.3%          44.5%           36.4%           34.3%
Capital expenditures:
 Vessel and equipment
    purchases, gross (7)...........     $555,142      $548,587       $372,433        $135,650        $184,983

                                        2005            2004            2003           2002           2001
                                                                    (in thousands)
       Vessel and equipment
       writedowns and (gain) loss
       on sale of vessels..........  $(139,184)       $(79,254)       $90,389      $       -       $       -
       Restructuring charges.......      2,882           1,002          6,383              -               -
                                   --------------- ---------------- --------------- -------------- --------------
                                      (136,302)        (78,252)        96,772              -               -
                                   =============== ================ =============== ============== ==============

                                        2005            2004            2003           2002           2001
                                                                    (in thousands)

       Voyage revenues............. $1,954,618      $2,219,238       $1,576,095       $783,327      $1,039,056
       Voyage expenses.............   (419,169)       (432,395)        (394,656)      (239,455)       (249,562)
                                   --------------- ---------------- --------------- -------------- --------------
       Net voyage revenues.........  1,535,449       1,786,843        1,181,439        543,872         789,494
                                   =============== ================ =============== ============== ==============

Factors That May Affect Future Results

The cyclical nature of the tanker industry causes volatility in our profitability.

Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of, and demand for, tanker capacity. Increases or decreases in the supply of tankers could have a material adverse effect on our business, financial condition and results of operations. The supply of tanker capacity is influenced by the number and size of new vessels built, older vessels scrapped, converted and lost, the number of vessels that are out of service and regulations that may effectively cause early obsolescence of tonnage. The demand for tanker capacity is influenced by, among other factors: global and regional economic conditions; increases and decreases in production of and demand for crude oil and petroleum products; increases and decreases in OPEC oil production quotas; the distance crude oil and petroleum products need to be transported by sea; and developments in international trade and changes in seaborne and other transportation patterns.

Because many of the factors influencing the supply of and demand for tanker capacity are unpredictable, the nature, timing and degree of changes in tanker industry conditions are also unpredictable.

We depend upon oil markets, changes in which could result in decreased demand for our vessels and services.

Demand for our vessels and services in transporting crude oil and petroleum products depends upon world and regional oil markets. Any decrease in shipments of crude oil in those markets could have a material adverse effect on our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of oil, as well as competition from alternative energy sources. A slowdown of the United States and world economies may result in reduced consumption of crude oil and petroleum products and a decreased demand for our vessels and services.

Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.

Terrorist attacks, such as the attacks that occurred in the United States on September 11, 2001, the bombings in Spain on March 11, 2004, the current conflict in Iraq and current and future conflicts, may adversely affect our business, operating results, financial condition, ability to raise capital or future growth. Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States, Spain or elsewhere, which may contribute further to economic instability and disruption of oil and liquefied natural gas (or LNG) production and distribution, which could result in reduced demand for our services. In addition, oil and LNG facilities, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport oil and LNG to or from certain locations. Terrorist attacks, war or other events beyond our control that adversely affect the distribution, production or transportation of oil or LNG to be shipped by us could entitle our customers to terminate our charter contracts, which could harm our cash flow and our business.

Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.

Because our operations are primarily conducted outside of the United States, they may be affected by economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered. Any disruption caused by these factors could harm our business. In particular, we derive a substantial portion of our revenues from shipping oil and LNG from politically unstable regions. Past political conflicts in these regions, particularly in the Arabian Gulf, have included attacks on ships, mining of waterways and other efforts to disrupt shipping in the area. In addition to acts of terrorism, vessels trading in this and other regions have also been subject, in limited circumstances, to piracy. Future hostilities or other political instability in the Arabian Gulf or other regions where we operate or may operate could have a material adverse effect on the growth of our business, results of operations and financial condition. In addition, tariffs, trade embargoes and other economic sanctions by Spain, the United States or other countries against countries in the Middle East, Southeast Asia or elsewhere as a result of terrorist attacks, hostilities or otherwise may limit trading activities with those countries, which could also harm our business.

Our dependence on spot voyages may result in significant fluctuations in the utilization of our vessels and our profitability.

During 2005 and 2004, we derived approximately 51% and 62%, respectively, of our net voyage revenues from the vessels in our spot tanker segment. Our spot tanker segment consists of conventional crude oil tankers and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts. We consider contracts that have an original term of less than three years in duration to be short-term. Part of our conventional Aframax tanker fleet and our large and small product tanker fleets, and some of our Suezmax tanker fleet are among the vessels included in our spot tanker segment. Due to our dependence on the spot charter market, declining charter rates in a given period generally will result in corresponding declines in operating results for that period. The spot charter market is highly competitive and spot charter rates are subject to significant fluctuations based on tanker and oil supply and demand. Charter rates have varied significantly in the last few years. Future spot charters may not be available at rates that will be sufficient to enable our vessels to be operated profitably or to provide sufficient cash flow to service our debt obligations.

Reduction in oil produced from offshore oil fields could harm our shuttle tanker business.

Demand for our shuttle tankers in transporting crude oil and petroleum products depends upon the amount of oil produced from offshore oil fields, especially in the North Sea, where our shuttle tankers primarily operate. As oil prices increase, the prospect of offshore oil exploration and development of offshore oil fields, which cost more to develop than land oil fields, becomes more attractive to oil companies. However, when oil prices decline, it becomes less attractive for oil companies to explore for oil offshore and develop offshore oil fields. If the amount of oil produced from offshore oil fields declines, especially in the North Sea, our shuttle tanker business could be harmed. In addition, if for environmental or other reasons there is a change in policy towards using pipelines rather than oceangoing vessels in transporting crude oil and petroleum products from offshore oil fields, our shuttle tanker business could be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations. As at December 31, 2005, we had 40 vessels (including 13 chartered-in vessels) in our shuttle tanker fleet. Most of our shuttle tanker revenues are derived from long-term contracts of affreightment. Revenue under most of these contracts depends upon the amount of oil we transport, the production of which is beyond our control and which can vary depending upon the nature of a given oil field and the field operator’s production decisions. Decreased oil production could reduce our revenue under such contracts.

Our growth partially depends on continued growth in demand for LNG and LNG shipping.

A significant portion of our growth strategy focuses on continued expansion in the LNG shipping sector, which depends on continued growth in world and regional demand for LNG and LNG shipping and the supply of LNG.

Demand for LNG and LNG shipping could be negatively affected by a number of factors, such as increases in the costs of natural gas derived from LNG relative to the cost of natural gas generally, increases in the production of natural gas in areas linked by pipelines to consuming areas, increases in the price of LNG relative to other energy sources, the availability of new energy sources, and negative global or regional economic or political conditions. Reduced demand for LNG and LNG shipping would have a material adverse effect on future growth of our LNG segment, and could harm that segment’s results.

Growth of the LNG market may be limited by infrastructure constraints and community and environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism. If the LNG supply chain is disrupted or does not continue to grow, or if a significant LNG explosion, spill or similar incident occurs, it could have a material adverse effect on our business, results of operations and financial condition.

The intense competition in our markets may lead to reduced profitability or expansion opportunities.

Our crude oil and product tankers operate in highly competitive markets. Competition arises primarily from other conventional Aframax and shuttle tanker owners, including major oil companies and independent companies. We also compete with owners of other size tankers. Our market share is insufficient to enforce any degree of pricing discipline in the markets in which we operate and our competitive position may erode in the future. Any new markets that we enter could include participants that have greater financial strength and capital resources than we have. We may not be successful in entering new markets.

One of our objectives is to enter into additional long-term, fixed-rate LNG time charters. The process of obtaining new long-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. We expect substantial competition for providing marine transportation services for potential LNG projects from a number of experienced companies, including state-sponsored entities and major energy companies affiliated with the LNG project requiring LNG shipping services. Many of these competitors have greater experience in the LNG market and significantly greater financial resources than do we. We anticipate that an increasing number of marine transportation companies, including many with strong reputations and extensive resources and experience will enter the LNG transportation sector. This increased competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations and financial condition.

The loss of any key customer could result in a significant loss of revenue in a given period.

We have derived, and believe that we will continue to derive, a significant portion of our voyage revenues from a limited number of customers. One customer accounted for 20% ($392.2 million) of our consolidated voyage revenues during 2005. The same customer accounted for 17% ($373.7 million) of our consolidated voyage revenues during 2004 and 15% ($239.5 million) during 2003. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could have a material adverse effect on our business, financial condition and results of operations.

The oil tanker and LNG carrier industries are subject to substantial environmental and other regulations, which may significantly increase our expenses.

Our operations are affected by extensive and changing environmental protection laws and other regulations and international conventions. We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and regulations, including expenses for ship modifications and changes in operating procedures. Additional laws and regulations may be adopted that could limit our ability to do business or further increase our costs. This could have a material adverse effect on our business, financial condition and results of operations.

The United States Oil Pollution Act of 1990 (or OPA 90) in particular has increased our expenses. OPA 90 provides for the phase-in of the exclusive use of double-hull tankers at United States ports, as well as potentially unlimited liability for owners, operators and demise or bareboat charterers for oil pollution in U.S. waters. To comply with the OPA 90, tanker owners generally incur increased costs in meeting additional maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining required insurance coverage. OPA 90 requires owners and operators of vessels operating in U.S. waters to establish and maintain with the United States Coast Guard evidence of insurance or of qualification as a self-insurer or other evidence of financial responsibility sufficient to meet their potential liabilities under the OPA 90.

Following the example of the OPA 90, the International Maritime Organization (or IMO), the United Nations’ agency for maritime safety, has adopted regulations for tanker design and inspection that are designed to reduce oil pollution in international waters. In December 2003 the IMO announced regulations accelerating the phase out of single-hull tankers. The regulations impose a more rigorous inspection regime for older tankers and ban the carriage of heavy oils on single-hull tankers. As a result of changes to these regulations, we recorded a non-cash write-down of the book value of certain vessels totalling $56.9 million during the fourth quarter of 2003. We have subsequently sold all of our vessels affected by these regulations. Please read Item 4 – Information on the Company: Regulations.

Our shuttle tankers primarily operate in the North Sea. In addition to the regulations imposed by the IMO, countries having jurisdiction over North Sea areas impose regulatory requirements in connection with operations in those areas. These regulatory requirements, together with additional requirements imposed by operators of North Sea oil fields, require that we make further expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle tankers and for the training of seagoing staff. Additional regulations and requirements may be adopted or imposed that could limit our ability to do business or further increase the cost of doing business in the North Sea.

We may not be able to successfully integrate future acquisitions.

A principal component of our strategy is to continue to grow by expanding our business both in the geographic areas and markets where we have historically focused as well as into new geographic areas, market segments and services. We may not be successful in expanding our operations and any expansion may not be profitable. Our strategy of growth through acquisitions involves business risks commonly encountered in acquisitions of companies, including: disruption of our ongoing business; difficulties in integrating the operations, personnel and business culture of acquired companies; difficulties of coordinating and managing geographically separate organizations; adverse effects on relationships with our existing suppliers and customers, and those of the companies acquired; difficulties entering geographic markets or new market segments in which we have no or limited experience; and loss of key officers and employees of acquired companies.

Our failure to effectively integrate businesses we may acquire in the future may harm our business and results of operations.

The process of integrating operations could also cause an interruption of, or loss of momentum in, the activities of one or more of an acquired company’s businesses and our businesses. Members of our senior management may be required to devote considerable amounts of time to this integration process, which would decrease the time they have to manage our business, service existing customers and attract new customers. If our senior management were unable to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer.

We may not realize expected benefits from acquisitions, and implementing our strategy of growth through acquisitions may harm our financial condition and performance.

Acquisitions may not be profitable to us at the time of their completion and may not generate revenues sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our results of operations and financial condition, including risks that we may: fail to realize anticipated benefits, such as cost-savings, revenue and cash flow enhancements and earnings accretion; decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions; incur additional indebtedness, which may result in significantly increased interest expense or financial leverage, or issue additional equity securities to finance acquisitions, which may result in significant shareholder dilution; incur or assume unanticipated liabilities, losses or costs associated with the business acquired; or incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

The strain that growth places upon our systems and management resources may harm our business.

Our growth has placed and will continue to place significant demands on our management, operational and financial resources. As we expand our operations, we must effectively manage and monitor operations, control costs and maintain quality and control in geographically dispersed markets. Our future growth and financial performance will also depend on our ability to recruit, train, manage and motivate our employees to support our expanded operations and continue to improve our customer support, financial controls and information systems.

These efforts may not be successful and may not occur in a timely or efficient manner. Failure to effectively manage our growth and the system and procedural transitions required by expansion in a cost-effective manner could have a material adverse affect on our business.

Our insurance may not be sufficient to cover losses that may occur to our property or as a result of our operations.

The operation of oil tankers and LNG carriers is inherently risky. Although we carry hull and machinery (marine and war risk) protection and indemnity insurance, all risks may not be adequately insured against, and any particular claim may not be paid. In addition, we do not carry insurance on our vessels covering the loss of revenues resulting from vessel off-hire time based on its cost compared to our off-hire experience. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves.

We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage of pollution. A catastrophic oil spill or marine disaster could result in losses that exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime self-regulatory organizations.

Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain. In addition, the insurance that may be available may be significantly more expensive than our existing coverage.

An incident involving environmental damage or pollution and any of our vessels could harm our reputation and business.

Oil spills and other tanker-related environmental incidents have created increased demand for modern vessels operated by ship management companies with a reputation for safety and environmental compliance. Any event involving our tankers that results in material environmental damage or pollution could harm our reputation for safety and environmental compliance and decrease the demand for our services, which could harm our business.

Our operating results are subject to seasonal fluctuations.

We operate our tankers in markets that have historically exhibited seasonal variations in demand and, therefore, in charter rates. This seasonality may result in quarter-to-quarter volatility in our results of operations. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, our revenues have historically been weaker during fiscal quarters ended June 30 and September 30, and, conversely, revenues have been stronger in fiscal quarters ended December 31 and March 31.

We expend substantial sums during construction of newbuildings without earning revenue and without assurance that they will be completed.

We are typically required to expend substantial sums as progress payments during construction of a newbuilding, but we do not derive any revenue from the vessel until after its delivery. In addition, under some of our time charters if our delivery of a vessel to a customer is delayed, we may be required to pay liquidated damages in amounts equal to or, under some charters, almost double the hire rate during the delay. For prolonged delays, the customer may terminate the time charter and, in addition to the resulting loss of revenues, we may be responsible for additional substantial liquidated charges.

If we were unable to obtain financing required to complete payments on any of our newbuilding orders, we could effectively forfeit all or a portion of the progress payments previously made. As of December 31, 2005, we had 17 newbuildings on order with deliveries scheduled between 2006 and 2009. As of December 31, 2005, progress payments made towards these newbuildings, excluding payments made by our joint venture partners, totaled $397.5 million. We may order additional newbuildings in the future.

As at December 31, 2005, we had options to have constructed four LNG carriers at predetermined prices. The options for two of these carriers, which are scheduled for delivery in 2010, expire on April 15, 2006. If we exercise the options then the $6.0 million cost for the options will be applied to the first construction installment payments. The options for the other two LNG carriers expired on February 28, 2006 and have been forfeited. However, as of the date of this annual report, we were in discussions with the counterparty to the options on these two LNG carriers and were exploring various alternatives which may enable us to apply some or all of the forfeited option cost against other vessels we may order from them.

Exposure to currency exchange rate and interest rate fluctuations could result in fluctuations in our cash flows and operating results.

Substantially all of our revenues are earned in U.S. Dollars, although we are paid in Euros and Australian Dollars under some of our charters. A portion of our operating costs are incurred in currencies other than U.S. Dollars. This partial mismatch in operating revenues and expenses could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to other currencies, in particular the Norwegian Kroner, the Australian Dollar, the Canadian Dollar, the Singapore Dollar, the Japanese Yen, the British Pound and the Euro. We also make payments under two Euro-denominated term loans. If the amount of our Euro-denominated obligations exceeds our Euro-denominated revenues, we must convert other currencies, primarily the U.S. Dollar, into Euros. An increase in the strength of the Euro relative to the U.S. Dollar would require us to convert more U.S. Dollars to Euros to satisfy those obligations.

Because we report our operating results in U.S. Dollars, changes in the value of the U.S. Dollar relative to other currencies also result in fluctuations of our reported revenues and earnings. In addition, under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. This revaluation historically has caused us to report significant non-monetary foreign currency exchange gains or losses each period. The primary source of these gains and losses is our Euro-denominated term loans.

At December 31, 2005, approximately $1,352.2 million, or 73%, of our long-term debt bore interest at floating interest rates. To partially mitigate this interest rate exposure, we have entered into interest rate swaps that effectively change our interest rate exposure from floating LIBOR and EURIBOR rates to average fixed rates. Please read Item 11 – Quantitative and Qualitative Disclosures About Market Risk.

We may not be exempt from United States tax on our United States source income, which would reduce our net income and cash flow by the amount of the applicable tax.

If we are not exempt from tax under Section 883 of the United States Internal Revenue Code, the shipping income derived from the United States sources attributable to our subsidiaries’ transportation of cargoes to or from the United States will be subject to U.S. federal income tax. If our subsidiaries were subject to such tax, our net income and cash flow would be reduced by the amount of such tax. Currently, we have claimed an exemption under Section 883. We cannot give any assurance that future changes and shifts in ownership of our stock will not preclude us from being able to satisfy the existing exemption.

In 2005 and 2004, approximately 13.1% and 15.2%, respectively, of our gross shipping revenues were derived from U.S. sources attributable to the transportation of cargoes to or from the United States. The average U.S. federal income tax on such U.S. source income, in the absence of exemption under Section 883, would have been 4% thereof, or approximately $10.3 million and $13.7 million, respectively, for 2005 and 2004.

Item 4. Information on the Company

A. Overview, History and Development

Overview

We are a leading provider of international crude oil and petroleum product transportation services through our spot tanker fleet, which includes the world’s largest fleet of Aframax-size oil tankers, our fixed-rate fleet, which includes the world’s largest fleet of shuttle tankers, and our LNG fleet. Our tankers and LNG carriers provide transportation services to major oil companies, oil traders and government agencies worldwide.

Our spot tanker segment includes our conventional crude oil tankers and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts (contracts with an initial term of less than three years). As of December 31, 2005, our Aframax vessels, which had a total cargo capacity of approximately 4.6 million deadweight tonnes, represented approximately 7% of the total tonnage of the world Aframax fleet. Please read Item 4 – Information on the Company: Our Fleet.

Our fixed-rate tanker segment includes our shuttle tanker operations, floating storage and off-take vessels, a liquid petroleum gas carrier and certain conventional crude oil, methanol and product tankers on long-term fixed-rate time-charter contracts or contracts of affreightment, under which we carry an agreed quantity of cargo for a customer over a specified trade route within a given period of time. As of December 31, 2005, our shuttle tanker fleet, which had a total cargo capacity of approximately 4.8 million deadweight tonnes, represented approximately 65% of the total tonnage of the world shuttle tanker fleet. Please read Item 4 – Information on the Company: Our Fleet.

Our fixed-rate LNG segment includes our thirteen LNG carriers, including five newbuildings we have a 70% interest in and four newbuildings we have a 40% interest in. All of our LNG carriers are subject to long-term fixed-rate time charter contracts. As of December 31, 2005, our LNG Fleet, including newbuildings, had a total cargo carrying capacity of 2.2 million cubic meters.

The Teekay organization was founded in 1973. We are incorporated under the laws of the Republic of The Marshall Islands as Teekay Shipping Corporation and maintain our principal executive headquarters at Bayside House, Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59212, Nassau, The Bahamas. Our telephone number at such address is (242) 502-8820. Our principal operating office is located at Suite 2000, Bentall 5, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 2K2. Our telephone number at such address is (604) 683-3529.

Business Acquisitions and Divestitures

Public Offerings by Teekay LNG Partners L.P.

On May 10, 2005, Teekay’s subsidiary Teekay LNG Partners L.P. (or Teekay LNG) completed its initial public offering of 6.9 million common units and during November 2005 Teekay LNG completed a follow-on public offering of an additional 4.6 million common units. As of December 31, 2005, we owned a 67.8% interest in Teekay LNG, including our general partner interest. Please read Item 18 – Financial Statements: Note 3 – Public Offerings of Teekay LNG Partners L.P.

Teekay LNG is a Marshall Islands limited partnership formed by Teekay as part of our strategy to expand our operations in the LNG shipping sector. Teekay LNG provides LNG and crude oil marine transportation service under long-term, fixed-rate contracts with major energy and utility companies through its fleet of seven LNG carriers (including 3 newbuildings) and eight Suezmax class crude oil tankers, primarily consisting of four LNG carriers and five Suezmax tankers obtained through Teekay’s acquisition of Teekay Spain in April 2004, described in detail below.

Immediately preceding Teekay LNG’s initial public offering, Teekay and Teekay LNG entered into an omnibus agreement governing when they may compete with each other and setting forth certain rights of first offer on LNG carriers and related time charters, in favor of Teekay LNG, and Suezmax tankers and related charters, in favor of Teekay.

Acquisition of Teekay Shipping Spain S.L., formerly Naviera F. Tapias S.A.

On April 30, 2004, we acquired all of the outstanding shares of Naviera F. Tapias S.A. and its subsidiaries and renamed it Teekay Shipping Spain S.L. (or Teekay Spain). Teekay Spain engages in the marine transportation of crude oil and LNG. We funded this acquisition with a combination of cash, cash generated from operations and borrowings under existing credit facilities. We believe the acquisition of the Teekay Spain business provided us with a strategic platform from which to expand our presence in the LNG shipping sector and immediate access to reputable LNG operations. We anticipate this will continue to benefit us when bidding on future LNG projects. In the transaction, we also entered into an agreement with an entity controlled by the former controlling shareholder of Teekay Spain to establish a 50/50 joint venture that will pursue new business in the oil and gas shipping sectors that relate only to the Spanish market or are led by Spanish entities or entities controlled by a Spanish company.

As at December 31, 2005, Teekay Spain’s LNG fleet consisted of four LNG carriers, which are all contracted under long-term fixed-rate charters to major Spanish energy companies. As at December 31, 2005, Teekay Spain’s conventional crude oil tanker fleet consisted of five Suezmax tankers, all of which are contracted under long-term fixed-rate charters with a major Spanish oil company.

Acquisition of Navion AS

In April 2003, we completed our acquisition of 100% of the issued and outstanding shares of Navion AS. Navion, based in Stavanger, Norway, operates primarily in the shuttle tanker and the conventional crude oil and product tanker markets. Its modern shuttle tanker fleet, which as of December 31, 2005, consisted of eight owned and 19 chartered-in vessels (excluding five vessels chartered-in from our shuttle tanker subsidiary, Ugland Nordic Shipping AS, and our other subsidiaries), provides logistical services to the Norwegian state-owned oil company, Statoil ASA, and other oil companies in the North Sea under fixed-rate, long-term contracts of affreightment. Subsequent to the acquisition, the operations of UNS and the shuttle tanker operations of Navion were combined into one business unit, Teekay Navion Shuttle Tankers. Navion’s modern, chartered-in, conventional tanker fleet, which as of December 31, 2005, consisted of eight crude oil tankers and 20 product tankers, operates primarily in the Atlantic region, providing services to Statoil and other oil companies. In addition, Navion owns two floating storage and off-take vessels currently trading as conventional crude oil tankers in the Atlantic region and one chartered-in methanol carrier on long-term charter to Statoil. Through Navion Chartering AS, an entity owned jointly with Statoil, Navion has a right of first refusal on Statoil’s oil transportation requirements at the prevailing market rate until December 31, 2007. In addition to tanker operations, Navion also constructs, installs, operates and leases equipment that reduces volatile organic compound emissions during loading, transportation and storage of oil and oil products.

Additional information about these acquisitions, including our financing of them, is included in Item 5 – Operating and Financial Review and Prospects.

B. Operations

Spot Tanker Segment

The vessels in our spot tanker segment compete primarily in the Aframax tanker market. In the Aframax market, international seaborne oil and other petroleum products transportation services are provided by two main types of operators: captive fleets of major oil companies (both private and state-owned) and independent ship owner fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by us, also operate their own vessels and transport their own oil and oil for third party charterers in direct competition with independent owners and operators. Competition for charters in the Aframax spot charter market is intense and is based upon price, location, the size, age, condition and acceptability of the vessel, and the reputation of the vessel’s manager.

We compete principally with other Aframax owners in the spot charter market through the global tanker charter market. This market is comprised of tanker broker companies that represent both charterers and ship owners in chartering transactions. Within this market, some transactions, referred to as “market cargoes,” are offered by charterers through two or more brokers simultaneously and shown to the widest possible range of owners; other transactions, referred to as “private cargoes,” are given by the charterer to only one broker and shown selectively to a limited number of owners whose tankers are most likely to be acceptable to the charterer and are in position to undertake the voyage.

As of December 31, 2005, other large operators of Aframax tonnage (including newbuildings on order) included Malaysian International Shipping Corporation (approximately 38 Aframax vessels), Aframax International Pool (approximately 36 Aframax vessels), Novorossiisk Sea Shipping Co. (approximately 25 Aframax vessels), General Maritime Corporation (approximately 19 Aframax vessels), British Petroleum (approximately 20 Aframax vessels) and Minerva (approximately 17 Aframax vessels).

Our competition in the Aframax (75,000 to 119,999 dwt) market is also affected by the availability of other size vessels that compete in our markets. Suezmax (120,000 to 199,999 dwt) size vessels and Panamax (50,000 to 74,999 dwt) size vessels can compete for many of the same charters for which our Aframax tankers compete. Because of their large size, Very Large Crude Carriers (200,000 to 319,999 dwt) (or VLCCs) and Ultra Large Crude Carriers (320,000+ dwt) (or ULCCs) rarely compete directly with Aframax tankers for specific charters. However, because VLCCs and ULCCs comprise a substantial portion of the total capacity of the market, movements by such vessels into Suezmax trades and of Suezmax vessels into Aframax trades would heighten the already intense competition.

We believe that we have competitive advantages in the Aframax tanker market as a result of the quality, type and dimensions of our vessels and our market share in the Indo-Pacific and Atlantic Basins. As of December 31, 2005, our Aframax tanker fleet (excluding Aframax-size shuttle tankers and newbuildings) had an average age of approximately 7 years, compared to an average age for the world oil tanker fleet, including Aframax tankers, of approximately 8.7 years and for the world Aframax tanker fleet of approximately 9.3 years.

We have chartering staff located in Vancouver, Canada; Stavanger, Norway; Tokyo, Japan; London, England; Houston, USA; and Singapore. Each office serves our clients headquartered in that office’s region. Fleet operations, vessel positions and charter market rates are monitored around the clock. We believe that monitoring such information is critical to making informed bids on competitive brokered business.

During 2005, approximately 51% of our net voyage revenues were earned by the vessels in the spot tanker segment, compared to approximately 62% in 2004 and 63% in 2003. Please read Item 5 – Operating and Financial Review and Prospects: Results of Operations.

Fixed-Rate Tanker Segment

The vessels in our fixed-rate tanker segment compete primarily in the offshore loading business. These offshore loading vessels, called “shuttle tankers”, transport oil from offshore production platforms to onshore storage and refinery facilities. Our shuttle tankers are primarily subject to long-term, fixed-rate time-charter contracts for a specific offshore oil field or under contracts of affreightment for various fields. The number of voyages performed under these contracts of affreightment normally depends upon the oil production of each field. Competition for charters is based primarily upon price, availability, the size, technical sophistication, age and condition of the vessel and the reputation of the vessel’s manager. Technical sophistication of the vessel is especially important in harsh operating environments such as the North Sea. Although the size of the world shuttle tanker fleet has been relatively unchanged in recent years, conventional tankers could be converted into shuttle tankers by adding specialized equipment to meet the requirements of the oil companies. Shuttle tanker demand may also be affected by the possible substitution of sub-sea pipelines to transport oil from offshore production platforms.

As of December 31, 2005, there were approximately 63 vessels in the world shuttle tanker fleet (including newbuildings), the majority of which operate in the North Sea. As of December 31, 2005, we owned 27 shuttle tankers and chartered-in an additional 13 shuttle tankers. Other shuttle tanker owners in the North Sea include Knutsen OAS Shipping AS, JJ Ugland Group and Penny Ugland, which as of December 31, 2005 owned approximately 17, four and two shuttle tankers, respectively. The remaining owners in the North Sea each owned three or fewer vessels as of that date. We believe that we have significant competitive advantages in the shuttle tanker market as a result of the quality, type and dimensions of our vessels combined with our market share in the North Sea.

In addition to our shuttle tankers, we have four Floating Storage & Offtake (or FSO) units. FSO units are oil tankers that have been moored in an oil field and have been modified to store and transfer oil. Our large fleet and the secondhand market provide potential vessels for further FSO conversion.

In February 2006, we entered into an agreement with PGS Production AS, a wholly owned subsidiary of Petroleum Geo-Services ASA, to form a joint venture company called Teekay Petrojarl Offshore that will focus on pursuing opportunities involving Floating Production Storage and Offloading (or FPSO) units. An FPSO unit is a type of floating tank system designed to process and store crude oil from a nearby offshore oil platform. An FPSO unit will typically have onboard the capability to carry out the oil separation process, obviating the need for such facilities to be located on an oil platform. The processed oil is periodically offloaded onto shuttle tankers or ocean-going barges for transport to shore. FPSOs are particularly effective in remote or deepwater locations where seabed pipelines or oil platforms are not cost effective.

During 2005, approximately 43% of our net voyage revenues were earned by the vessels in the fixed-rate tanker segment, compared to approximately 36% in 2004 and 37% in 2003. Please read Item 5 – Operating and Financial Review and Prospects: Results of Operations.

Fixed-Rate LNG Segment

The vessels in our fixed-rate LNG segment compete in the LNG market. LNG carriers are usually chartered to carry LNG pursuant to time charter contracts, where a vessel is hired for a fixed period of time, usually between 20 and 25 years, and the charter rate is payable to the owner on a monthly basis. LNG shipping historically has been transacted with these long-term, fixed-rate time charter contracts. LNG projects require significant capital expenditures and typically involve an integrated chain of dedicated facilities and cooperative activities. Accordingly, the overall success of an LNG project depends heavily on long-range planning and coordination of project activities, including marine transportation. Although most shipping requirements for new LNG projects continue to be provided on a long-term basis, spot voyages (typically consisting of a single voyage) and short-term time charters of less than 12 months duration have grown from 1% of the market in 1992 to 12% in 2004.

In the LNG market, we compete principally with other private and state-controlled energy and utilities companies that generally operate captive fleets, and independent ship owners and operators. Many major energy companies compete directly with independent owners by transporting LNG for third parties in addition to their own LNG. Given the complex, long-term nature of LNG projects, major energy companies historically have transported LNG through their captive fleets. However, independent fleet operators have been obtaining an increasing percentage of charters for new or expanded LNG projects as major energy companies have continued to divest non-core businesses.

LNG carriers transport LNG internationally between liquefaction facilities and import terminals. After natural gas is transported by pipeline from production fields to a liquefaction facility, it is supercooled to a temperature of approximately negative 260 degrees Fahrenheit. This process reduces its volume to approximately 1 / 600^th of its volume in a gaseous state. The reduced volume facilitates economical storage and transportation by ship over long distances, enabling countries with limited natural gas reserves or limited access to long-distance transmission pipelines to meet their demand for natural gas. LNG carriers include a sophisticated containment system that holds and insulates the LNG so it maintains its liquid form. The LNG is transported overseas in specially built tanks on double-hulled ships to a receiving terminal, where it is offloaded and stored in heavily insulated tanks. In regasification facilities at the receiving terminal, the LNG is returned to its gaseous state (or regasified) and then shipped by pipeline for distribution to natural gas customers.

Most new vessels, including all of our vessels, are being built with a membrane containment system. These systems are built inside the carrier and consist of insulation between thin primary and secondary barriers and are designed to accommodate thermal expansion and contraction without overstressing the membrane. New LNG carriers are generally expected to have a lifespan of approximately 40 years. Unlike the oil tanker industry, there currently are no regulations that require the phase-out from trading of LNG carriers after they reach a certain age. As at December 31, 2005, there were approximately 194 vessels in the world LNG fleet, with an average age of approximately 13 years and an additional 127 LNG carriers under construction or on order for delivery through 2010.

Our fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time-charter contracts. The acquisition of Teekay Spain on April 30, 2004 established our entry into the LNG shipping sector. Our fixed-rate LNG segment includes four LNG carriers acquired as part of the Teekay Spain acquisition. As at December 31, 2005, we had nine newbuilding LNG carriers on order, all of which will commence operations upon delivery under long-term fixed-rate time charters and in which our interests range from 40% to 70%. Please read Item 5 – Operation and Financial Review and Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Segments – Fixed-Rate LNG Segment.

During 2005, approximately 6% of our net voyage revenues were earned by the vessels in the fixed-rate LNG segment, compared to approximately 2% in 2004. We did not operate LNG carriers prior to 2004. Please read Item 5 – Operating and Financial Review and Prospects: Results of Operations.

Ship Management

Safety and environmental compliance are our top operational priorities. We operate our vessels in a manner intended to protect the safety and health of our employees, the general public and the environment. We actively manage the risks inherent in our business and are committed to eliminating incidents that threaten the safety and integrity of our vessels. We are also committed to reducing our emissions and waste generation.

Customers and tanker rating services have recognized us for safety, environment, quality and service. Given the emphasis by customers on quality as a result of stringent environmental regulations, and heightened concerns about liability for oil pollution, we believe that our emphasis on quality and safety provides us with a favorable competitive profile. We are one of a few companies who have fully integrated our health, safety, environment and quality management systems. This integration has increased efficiencies in operations and management by reducing redundancies and better aligns our strategies and programs in the relevant systems.

We have achieved certification under the standards reflected in International Standards Organization’s (or ISO) 9001 for Quality Assurance, ISO 14001 for Environment Management Systems, OHSAS 18001 for Occupational Health and Safety, and the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention on a fully integrated basis. As part of ISM Code compliance, all of our vessels’ safety management certificates are maintained through ongoing internal audits performed by our certified internal auditors and intermediate external audits performed by the classification society Det Norske Veritas.

In our various worldwide facilities we carry out the critical ship management functions of vessel maintenance, crewing, purchasing, shipyard supervision, insurance and financial management services for most of our fleet. These functions are supported by onboard and onshore systems for maintenance, inventory, purchasing and budget management. Teekay Marine Services AS, our wholly owned subsidiary, provides ship management services for our shuttle tankers, including crewing and maintenance. OSM Ship Management AS (or OSM), a company which is unrelated to us, provides ship management services for three of our conventional tankers. OSM is under contract to provide these services to us until October 2008.

We establish key performance indicators to facilitate regular monitoring of our operational performance. We set targets on an annual basis to drive continuous improvement, and we review performance indicators monthly to determine if remedial action is necessary to reach our targets. In 2003, we established a purchasing alliance with two other shipping companies and named it Teekay Bergesen Worldwide. This alliance leverages the purchasing power of the combined fleets, mainly in such commodity areas as lube oils, paints and other chemicals.

We believe that the generally uniform design of some of our existing and newbuilding vessels and the adoption of common equipment standards provides operational efficiencies, including with respect to crew training and vessel management, equipment operation and repair and spare parts ordering.

Business Structure

Our organization is divided into four key areas: Teekay Tanker Services; Teekay Navion Shuttle Tankers; Teekay Gas & Offshore; and Teekay Marine Services. These centers of expertise work closely with customers and internally to ensure a thorough understanding of our customers’ requirements and to develop tailored solutions.

Business Strategy

We pursue an intensively customer- and operations-oriented business strategy designed to achieve superior operating results. We believe that we have four key competitive strengths:

As part of our growth strategy, we will continue to consider strategic opportunities, including business acquisitions, such as our acquisitions of Teekay Spain in 2004 and Navion in 2003. To the extent we enter new geographic areas or tanker market segments, there can be no assurance that we will be able to compete successfully. New markets, including the LNG market, may involve competitive factors that differ from those of the Aframax market segment in the Indo-Pacific and Atlantic Basins and the North Sea shuttle tanker market and may include participants that have greater financial strength and capital resources than we have.

Our growth strategy is to leverage our existing competitive strengths to continue to expand our business. We anticipate that the continued upgrade and expansion of our tanker business will continue to be a key component of our strategy. In addition, we believe that our full-service marine operations capabilities, reputation for safety and quality and strong customer orientation provide us with the opportunity to expand our business by providing additional value-added and innovative services, in many cases to existing customers. Finally, we intend to identify expansion opportunities in new tanker market segments, geographic areas and services to which our competitive strengths are well suited, such as our entry into the shuttle tanker market through our acquisitions of UNS and Navion and our entry into the LNG market through our acquisition of Teekay Spain, as described above. We may choose to pursue such opportunities through internal growth, joint ventures or business acquisitions.

Risk of Loss and Insurance

The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters, death or injury of persons and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, the transportation of crude oil and LNG is subject to the risk of spills and to business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts. The occurrence of any of these events may result in loss of revenues or increased costs.

We carry hull and machinery (marine and war risks) and protection and indemnity insurance coverage to protect against most of the accident-related risks involved in the conduct of our business. Hull and machinery insurance covers loss of or damage to a vessel due to marine perils such as collisions, grounding and weather. Protection and indemnity insurance indemnifies us against liabilities incurred while operating vessels, including injury to our crew or third parties, cargo loss and pollution. The current available amount of our coverage for pollution is $1 billion per vessel per incident. We also carry insurance policies covering war risks (including piracy and terrorism). We do not carry insurance on our vessels covering the loss of revenues resulting from vessel off-hire time based on its cost compared to our off-hire experience. We believe that our current insurance coverage is adequate to protect against most of the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage. However, we cannot assure that all covered risks are adequately insured against, that any particular claim will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. More stringent environmental regulations have resulted in increased costs for, and may result in the lack of availability of, insurance against risks of environmental damage or pollution.

We use in our operations a thorough risk management program that includes, among other things, computer-aided risk analysis tools, maintenance and assessment programs, a seafarers competence training program, seafarers workshops and membership in emergency response organizations.

Operations Outside the United States

Because our operations are primarily conducted outside of the United States, they may be affected by currency fluctuations and by changing economic, political and governmental conditions in the countries where we engage in business or where our vessels are registered.

During 2005, we derived approximately 19% of our total net voyage revenues from our operations in the Indo-Pacific Basin, compared to approximately 23% during 2004. Past political conflicts in that region, particularly in the Arabian Gulf, have included attacks on tankers, mining of waterways and other efforts to disrupt shipping in the area. Vessels trading in the region have also been subject to, in limited instances, acts of piracy. In addition to tankers, oil pipelines, LNG facilities and offshore oil fields could also be targets of terrorist attacks. The escalation of existing or the outbreak of future hostilities or other political instability in this region or other regions where we operate could affect our trade patterns, increase insurance costs, increase tanker operational costs and otherwise adversely affect our operations and performance. In addition, tariffs, trade embargoes, and other economic sanctions by the United States or other countries against countries in the Indo-Pacific Basin or elsewhere as a result of terrorist attacks or other hostilities may limit trading activities with those countries, which could also adversely affect our operations and performance.

Customers

We have derived, and believe that we will continue to derive, a significant portion of our voyage revenues from a limited number of customers. Our customers include major oil companies, major oil traders, large oil consumers and petroleum product producers, government agencies, and various other entities that depend upon the tanker transportation trade. One customer, an international oil company, accounted for 20% ($392.2 million) of our consolidated voyage revenues during 2005. The same customer accounted for 17% ($373.7 million) of our consolidated voyage revenues during 2004 and 15% ($239.5 million) of our consolidated voyage revenues during 2003. No other customer accounted for more than 10% of our consolidated voyage revenues during 2005, 2004 or 2003. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could have a material adverse effect on our business, financial condition and results of operations.

Our Fleet

The following list provides additional information with respect to our vessels as at December 31, 2005.

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                                                                         Number of Vessels(1)
                                            -----------------------------------------------------------------------------
                                                                  Chartered-in      Newbuildings on
                                              Owned Vessels         Vessels             Order              Total
-------------------------------------------------------------------------------------------------------------------------
 Spot Tanker Segment:
       Suezmax Tankers                                 1                 3                  2                 6
       Aframax Tankers                                21                11                  1                33
       Large Product Tankers                           3                10                  3                16
       Small Product Tankers                           -                11                  -                11
-------------------------------------------------------------------------------------------------------------------------
       Total Spot Tanker Segment                      25                35                  6                66
=========================================================================================================================

 Fixed-Rate Tanker Segment:
       Shuttle Tankers (2)                            27                13                  -                40
       Conventional Tankers (3)                       16                 2                  2                20
       Floating Storage & Offtake (or FSO)
         Units (4)                                     4                 -                  -                 4
       LPG / Methanol Carriers                         1                 1                  -                 2
-------------------------------------------------------------------------------------------------------------------------
       Total Fixed-Rate Tanker Segment                48                16                  2                66
=========================================================================================================================

 Fixed-Rate LNG Segment (5)                            4                 -                  9                13
-------------------------------------------------------------------------------------------------------------------------
                                           Total      77                51                 17               145
=========================================================================================================================

Our vessels are of Australian, Bahamian, Canadian, Cayman Islands, Liberian, Norwegian, Norwegian International Ship and Spanish registry.

Many of our Aframax vessels and some of our shuttle tankers have been designed and constructed as substantially identical sister ships. These vessels can, in many situations, be interchanged, providing scheduling flexibility and greater capacity utilization. In addition, spare parts and technical knowledge can be applied to all the vessels in the particular series, thereby generating operating efficiencies.

As of December 31, 2005, we had 17 newbuildings on order. Please read Item 5 – Operating and Financial Review and Prospects: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 18 – Financial Statements: Note 17(a) – Commitments and Contingencies – Vessels Under Construction.

Please read Item 18 – Financial Statements: Note 9 – Long-Term Debt for information with respect to major encumbrances against our vessels.

Classification, Audits and Inspections

The hull and machinery of all of our vessels have been “classed” by one of the major classification societies: Det Norske Veritas, Lloyd’s Register of Shipping, Nippon Kaiji Kyokai or American Bureau of Shipping. The classification society certifies that the vessel has been built and maintained in accordance with the rules of that classification society. Each vessel is inspected by a classification society surveyor annually, with either the second or third annual inspection being a more detailed survey (an Intermediate Survey) and the fourth or fifth annual inspection being the most comprehensive survey (a Special Survey). The inspection cycle resumes after each Special Survey. Vessels also may be required to be drydocked at each Intermediate and Special Survey for inspection of the underwater parts of the vessel in addition to a more detailed inspection of hull and machinery. Many of our vessels have qualified with their respective classification societies for drydocking every four or five years in connection with the Special Survey and are no longer subject to the Intermediate Surveys. To qualify, we were required to enhance the resiliency of the underwater coatings of each vessel hull to accommodate underwater inspections by divers.

The vessel’s flag state, or the vessel’s classification if nominated by the flag state, also inspect our vessels to ensure they comply with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a signatory.

In addition to the classification inspections, many of our customers regularly inspect our vessels as a condition to chartering, and regular inspections are standard practice under long-term charters as well.

Port state authorities, such as the U.S. Coast Guard and the Australian Maritime Safety Authority, also inspect our vessels when they visit their ports.

We believe that our relatively new, well-maintained and high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality of service.

Our vessels are also regularly inspected by our seafaring staff, who perform much of the necessary routine maintenance. Shore-based operational and technical specialists also inspect our vessels at least twice a year. Upon completion of each inspection, action plans are developed to address any items requiring improvement. All action plans are monitored until they are completed. The objectives of these inspections are to:

To achieve our vessel structural integrity objective, we use a comprehensive “Structural Integrity Management System” we developed. This system is designed to closely monitor the condition of our vessels and to ensure that structural strength and integrity are maintained throughout a vessel’s life.

We have obtained approval for our safety management system as being in compliance with the ISM Code. Our safety management system has also been certified as being compliant with ISO 9001, 14001 and OSHAS 18001 standards. To maintain compliance, the system is audited regularly by either the vessels’ flag state or, when nominated by them, a classification society. Certification is valid for five years subject to satisfactorily completing internal and external audits.

Organizational Structure

Please read Exhibit 8.1 to this Annual Report for a list of our significant subsidiaries as at December 31, 2005.

C. Regulations

Our business and the operation of our vessels are significantly affected by international conventions and national, state and local laws and regulations in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration. Because these conventions, laws, and regulations change frequently, we cannot predict the ultimate cost of compliance or their impact on the resale price or useful life of our vessels. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and that may materially adversely affect our operations. We are required by various governmental and quasi-governmental agencies to obtain permits, licenses and certificates with respect to our operations. Subject to the discussion below and to the fact that the kinds of permits, licenses and certificates required for the operations of the vessels we own will depend on a number of factors, we believe that we will be able to continue to obtain all permits, licenses and certificates material to the conduct of our operations.

We believe that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will generally lead to greater inspection and safety requirements on all vessels in the oil tanker and LNG carrier markets and will accelerate the scrapping of older vessels throughout these industries.

Regulation—International Maritime Organization (or IMO). IMO regulations relating to pollution prevention for tankers apply to many jurisdictions in which our tanker fleet operates. These regulations provide that:

Under IMO regulations, an oil tanker must be of double-hull construction, be of mid-deck design with double-side construction or be of another approved design ensuring the same level of protection against oil pollution in the event that such tanker:

In December 2003, the IMO revised its regulations relating to the prevention of pollution from oil tankers. These regulations, which became effective April 5, 2005, accelerate the mandatory phase-out of single-hull tankers and impose a more rigorous inspection regime for older tankers. As a result of these regulations, in 2003 we recorded a non-cash write-down of the book value of the affected vessels totaling $56.9 million. We subsequently sold all the vessels affected by these regulations and no longer own any single-hull vessels.

IMO regulations also include the International Convention for Safety of Life at Sea (or SOLAS), including amendments to SOLAS implementing the International Security Code for Ports and Ships (or ISPS), the ISM Code, the International Convention on Prevention of Pollution from Ships (the MARPOL Convention), the International Convention on Civic Liability for Oil Pollution Damage of 1969, the International Convention on Load Lines of 1966, and, specifically with respect to LNG carriers, the International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (or the IGC Code). SOLAS provides rules for the construction of and equipment required for commercial vessels and includes regulations for safe operation. Flag states which have ratified the convention and the treaty generally employ the classification societies, which have incorporated SOLAS requirements into their class rules, to undertake surveys to confirm compliance.

SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving appliances, radio equipment and the global maritime distress and safety system, are applicable to our operations. Non-compliance with IMO regulations, including SOLAS, the ISM Code, ISPS and the IGC Code, may subject us to increased liability or penalties, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to or detention in some ports. For example, the Coast Guard and European Union authorities have indicated that vessels not in compliance with ISM Code will be prohibited from trading in U.S. and European ports.

The ISM Code requires vessel operators to obtain a safety management certification for each vessel they manage, evidencing the shipowner’s compliance with requirements of the ISM Code relating to the development and maintenance of an extensive “Safety Management System.” Such a system includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Each of the existing vessels in our fleet currently is ISM Code-certified, and we expect to obtain safety management for each newbuilding vessel upon delivery.

ISPS was adopted in December 2002 in the wake of heightened concern over worldwide terrorism and became effective on July 1, 2004. The objective of ISPS is to enhance maritime security by detecting security threats to ships and ports and by requiring the development of security plans and other measures designed to prevent such threats. The United States implemented ISPS with the adoption of the Maritime Transportation Security Act of 2002 (or MTSA), which requires vessels entering U.S. waters to obtain certification of plans to respond to emergency incidents there, including identification of persons authorized to implement the plans. Each of the existing vessels in our fleet currently complies with the requirements of ISPS and MTSA, and we expect all relevant newbuildings to comply upon delivery.

LNG carriers are also subject to regulation under the IGC Code. Each LNG carrier must obtain a certificate of compliance evidencing that it meets the requirements of the IGC Code, including requirements relating to its design and construction. Each of our LNG carriers currently is in substantial compliance with the IGC Code, and each of our LNG newbuilding shipbuilding contracts requires compliance prior to delivery.

Annex VI to MARPOL, which became effective internationally on May 19, 2005, sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances. Annex VI also imposes a global cap on the sulfur content of fuel oil and allows for specialized areas to be established internationally with more stringent controls on sulfur emissions. For vessels over 400 gross tons, Annex VI imposes various survey and certification requirements. The United States has not yet ratified Annex VI. Vessels operated internationally, however, are subject to the requirements of Annex VI in those countries that have implemented its provisions. We believe that the cost of our complying with Annex VI will not be material.

Environmental Regulations—The United States Oil Pollution Act of 1990 (or OPA 90). OPA 90 established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills, including discharges of oil cargoes, fuel (or bunkers) or lubricants. OPA 90 affects all owners and operators whose vessels trade to the United States or its territories or possessions or whose vessels operate in United States waters, which include the U.S. territorial sea and 200-mile exclusive economic zone around the United States.

Under OPA 90, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war and the responsible party reports the incident and reasonably cooperates with the appropriate authorities) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. These other damages are defined broadly to include:

OPA 90 limits the liability of responsible parties to the greater of $1,200 per gross ton or $10 million per tanker that is over 3,000 gross tons per incident, subject to possible adjustment for inflation. These limits of liability would not apply if the incident were proximately caused by violation of applicable U.S. federal safety, construction or operating regulations, including IMO conventions to which the United States is a signatory, or by the responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. We currently plan to continue to maintain for each of our vessel's pollution liability coverage in the amount of $1 billion per incident. A catastrophic spill could exceed the coverage available, which could harm our business, financial condition and results of operations.

Under OPA 90, with limited exceptions, all newly built or converted tankers delivered after January 1, 1994 and operating in United States waters must be built with double-hulls, and existing vessels that do not comply with the double-hull requirement must be phased out over a 20-year period (1995 to 2015) based on size, age and hull construction. Vessels with double-sides and double-bottoms are granted an additional five years of service life before being phased out. Notwithstanding the phase-out period, OPA 90 currently permits existing single-hull tankers to operate until the year 2015 if their operations within United States waters are limited to discharging at the Louisiana Off-shore Oil Platform, or off-loading by means of lightering activities within authorized lightering zones more than 60 miles offshore. All of our existing tankers are, and all of our newbuildings will be, double-hulled.

In December 1994, the United States Coast Guard (or Coast Guard) implemented regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton for tankers, coupling the OPA limitation on liability of $1,200 per gross ton with the Comprehensive Environmental Response, Compensation, and Liability Act (or CERCLA) liability limit of $300 per gross ton. Under the regulations, such evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance, guaranty or an alternate method subject to agency approval. Under OPA 90, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessel in the fleet having the greatest maximum limited liability under OPA 90 and CERCLA.

The Coast Guard’s regulations concerning certificates of financial responsibility (or COFR) provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes COFR. In addition, in the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations, which had typically provided COFR under pre-OPA 90 laws, including the major protection and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses.

The Coast Guard’s financial responsibility regulations may also be satisfied by evidence of surety bond, guaranty or by self-insurance. Under the self-insurance provisions, the shipowner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the Coast Guard regulations by obtaining financial guaranties from a third-party. If other vessels in our fleet trade into the United States in the future, we expect to obtain additional guaranties from third-party insurers or to provide guaranties through self-insurance.

OPA 90 and CERCLA permit individual states to impose their own liability regimes with regard to oil or hazardous substance pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited strict liability for spills. We intend to comply with all applicable state regulations in the ports where our vessels call.

Owners or operators of tank vessels operating in United States waters are required to file vessel response plans with the Coast Guard, and their tank vessels are required to operate in compliance with their Coast Guard approved plans. Such response plans must, among other things:

We have filed vessel response plans with the Coast Guard for the tankers we own and have received approval of such plans for all vessels in our fleet to operate in United States waters. In addition, we conduct regular oil spill response drills in accordance with the guidelines set out in OPA 90. The Coast Guard has announced it intends to propose similar regulations requiring certain vessels to prepare response plans for the release of hazardous substances.

OPA 90 allows U.S. state legislatures to pre-empt associated regulation if the state’s regulations are equal or more stringent. Several coastal states such as California, Washington and Alaska require state specific COFR and vessel response plans.

CERCLA contains a similar liability regime to OPA 90, but applies to the discharge of “hazardous substances” rather than “oil.” Petroleum products and LNG should not be considered hazardous substances under CERCLA, but additives to oil or lubricants used on LNG carriers might fall within its scope. CERCLA imposes strict joint and several liability upon the owner, operator or bareboat charterer of a vessel for cleanup costs and damages arising from a discharge of hazardous substances.

OPA 90 and CERCLA do not preclude claimants from seeking damages for the discharge of oil and hazardous substances under other applicable law, including maritime tort law. Such claims could include attempts to characterize the transportation of LNG aboard a vessel as an ultra-hazardous activity under a doctrine that would impose strict liability for damages resulting from that activity. The application of this doctrine varies by jurisdiction. There can be no assurance that a court in a particular jurisdiction will not determine that the carriage of oil or LNG aboard a vessel is an ultra-hazardous activity, which would expose us to strict liability for damages we cause to injured parties even when we have not acted negligently.

Environmental Regulation—Other Environmental Initiatives.

Although the United States is not a party, many countries have ratified and follow the liability scheme adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (or CLC), and the Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, which are applicable to vessels that carry persistent oil (not LNG) as cargo, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. Many of the countries that have ratified the CLC have increased the liability limits through a 1992 Protocol to the CLC. The liability limits in the countries that have ratified this Protocol are currently approximately $6.5 million plus approximately $899 per gross registered tonne above 5,000 gross tonnes with an approximate maximum of $128 million per vessel and the exact amount tied to a unit of account which varies according to a basket of currencies. The right to limit liability is forfeited under the CLC when the spill is caused by the owner’s actual fault or privity and, under the 1992 Protocol, when the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance covering the limited liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CLC.

In addition, the IMO, various countries and states, such as Australia, the United States and the State of California, and various regulators, such as port authorities, the U.S. Coast Guard and the U.S. Environmental Protection Agency, have either adopted legislation or regulations, or are separately considering the adoption of legislation or regulations, aimed at regulating the transmission, distribution, supply and storage of LNG, the discharge of ballast water and the discharge of bunkers as potential pollutants, and requiring the installation on ocean-going vessels of pollution prevention equipment such as oily water separators and bilge alarms.

Shuttle Tanker Regulation

Our shuttle tankers primarily operate in the North Sea. In addition to the regulations imposed by the IMO, countries having jurisdiction over North Sea areas impose regulatory requirements in connection with operations in those areas. These regulatory requirements, together with additional requirements imposed by operators in North Sea oil fields, require that we make further expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle tankers and for the training of seagoing staff. Additional regulations and requirements may be adopted or imposed that could limit our ability to do business or further increase the cost of doing business in the North Sea.

D. Taxation of the Company

The following discussion is a summary of the principal United States, Bahamian, Bermudian, Marshall Islands, Norwegian and Spanish tax laws applicable to us. The following discussion of tax matters, as well as the conclusions regarding certain issues of tax law that are reflected in such discussion, are based on current law. No assurance can be given that changes in or interpretation of existing laws will not occur or will not be retroactive or that anticipated future factual matters and circumstances will in fact occur. Our views have no binding effect or official status of any kind, and no assurance can be given that the conclusions discussed below would be sustained if challenged by taxing authorities.

United States Taxation

The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (or the Code), existing and proposed U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report.

We have made special U.S. tax elections in respect of some of our vessel-owning or vessel-operating subsidiaries that are potentially subject to U.S. tax as a result of deriving income attributable to the transportation of cargoes to or from the United States. Our Norwegian, Canadian and Spanish subsidiaries that occasionally transport cargoes to and from the United States are eligible to claim exemption from United States tax under the United States-Norway, United States-Canada or United States-Spain Income Tax Treaties. Other subsidiaries that are considered to derive income from sources within the United States rely on our ability to claim exemption under Section 883 of the Code.

For 2005 and 2004, approximately 13.1% and 15.2%, respectively, of our gross shipping revenues were derived from U.S. sources attributable to the transportation of cargoes to or from the United States. The average U.S. federal income tax on such U.S. source income, in the absence of exemption under Section 883, would have been 4% thereof, or approximately $10.3 million and $13.7 million, respectively, for 2005 and 2004.

Under Section 883 of the Code, we will be exempt from U.S. Taxation on our U.S. source shipping income if:

Final Treasury regulations interpreting Section 883 were promulgated in August 2003 and became effective for tax years beginning after September 24, 2004 (January 1, 2005 for calendar year taxpayers). For purposes of this discussion, we have assumed these regulations apply for 2005. As of the date of this report, we believe that we qualify for the Section 883 exemption from U.S. tax on U.S. source shipping income under the final Treasury Regulations on the basis that we satisfy the country of organization requirement because we are organized in the Marshall Islands and the publicly-traded requirement because our stock is primarily and regularly traded on an established securities market in the United States within the meaning of the Section 883 of the Code and the Treasury Regulations thereunder. We can give no assurance that any changes in the ownership of our stock subsequent to the date of this report will permit us to continue to qualify for the Section 883 exemption.

If we do not qualify for the Section 883 exemption, we would be subject to U.S. federal income taxation under one of two alternative tax regimes (the 4% gross basis tax or the net basis tax). We may be subject to a 4% U.S. federal income tax on the U.S. source portion of our gross income (without the benefit of deductions) attributable to shipping transportation that begins or ends in the United States. For this purpose, the U.S. source portion of such gross income is deemed to be 50% of the income attributable to transportation that begins or ends in the United States.

If we have transportation income that is deemed to be “effectively connected” with a trade or business in the U.S. and we do not qualify for the Section 883 exemption, we may be subject to corporate income tax on a net basis (currently the highest statutory rate is 35%); however, we do not expect to have any transportation income that is U.S. effectively connected income.

Marshall Islands, Bahamian and Bermudian Taxation

We believe that neither we nor our subsidiaries will be subject to taxation under the laws of the Marshall Islands, the Bahamas or Bermuda, and distributions by our subsidiaries to us also will not be subject to any taxes under the laws of such countries.

Norwegian Taxation

Our Norwegian subsidiaries are subject to the ordinary Norwegian corporate tax legislation, which in general charges a 28% tax on taxable income. As of December 31, 2005, the operations of our Norwegian subsidiaries consisted of:

We don’t expect that payment of Norwegian income taxes will have a material effect on our results.

Spanish Taxation

Spain imposes income taxes on income generated by our majority owned Spanish subsidiary’s shipping related activities at a rate of 35%. Two alternative Spanish tax regimes provide incentives for Spanish companies engaged in shipping activities, the Canary Islands Special Ship Registry (or CISSR) and the Spanish Tonnage Tax Regime (or TTR). As at December 31, 2005, the vessels operated by our operating Spanish subsidiaries were subject to the CISSR; however, we have applied for all but two of these vessels to be taxed under the TTR commencing with the 2006 tax year.

Our Spanish subsidiary’s vessels are registered in the CISSR and are thus allowed a credit, equal to 90% of the tax payable on income from the commercial operation of the Canary Islands registered ships, against the tax otherwise payable. This effectively results in an income tax rate of approximately 3.5% on income from the operation of these vessels. Vessel sales are subject to the full 35% Spanish tax rate. A 20% reinvestment credit it available if the entire gross proceeds from the vessel sale are reinvested in a qualifying asset and if the asset disposed of has been held for a minimum period of one year.

Under the TTR, the applicable income tax is based on the weight (measured as net tonnage) of the vessel and the number of days during the taxable period that the vessel is at the company’s disposal, excluding time required for repairs. The tax base ranges from 0.20 Euros per day per 100 tonnes to 0.90 Euros per day per 100 tonnes, against which the generally applicable tax rate of 35% will apply. If the shipping company also engages in activities other than those subject to the TTR regime, income from those other activities will be subject to tax at the generally applicable rate of 35%. If a vessel is acquired and disposed of by a company while it is subject to the TTR regime, any gain on the disposition of the vessel generally is not subject to Spanish taxation. If the company acquired the vessel prior to becoming subject to the TTR regime or if the company acquires a used vessel after becoming subject to the TTR regime, the difference between the fair market value of the vessel at the time it enters into the TTR and the tax value of the vessel at that time is added to the taxable income in Spain when the vessel is disposed of and generally remains subject to Spanish taxation at the rate of 35%.

We don’t expect Spanish income taxes will have a material effect on our results.

Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Teekay is one of the world’s leading providers of international crude oil and petroleum product transportation services. We estimate that we transported more than 10% of the world’s seaborne oil in 2005. Through our publicly listed subsidiary, Teekay LNG Partners L.P. (or Teekay LNG), we have expanded into the liquefied natural gas (or LNG) shipping sector. As at December 31, 2005, our fleet (excluding vessels managed for third parties) consisted of 145 vessels (including 17 newbuildings on order, 53 vessels time-chartered-in and five vessels owned through joint ventures). Our conventional oil tankers provide a total cargo-carrying capacity of approximately 13.6 million deadweight tonnes (or mdwt), and our LNG and liquid petroleum gas carriers have total cargo-carrying capacity of approximately 2.2 million cubic meters.

Our voyage revenues are derived from:

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

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

Segments

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

Spot Tanker Segment

Our spot tanker segment consists of conventional crude oil tankers and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts. We consider contracts that have an original term of less than three years in duration to be short-term. Substantially all of our conventional Aframax, large product and small product tankers are among the vessels included in the spot tanker segment. Our spot market operations contribute to the volatility of our revenues, cash flow from operations and net income. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. As at December 31, 2005, we had one Aframax tanker on order in our spot tanker segment scheduled to be delivered in April 2007, three large product tanker scheduled to be delivered between November 2006 and January 2007 and two Suezmax tankers scheduled to be delivered in August and December 2008.

Fixed-Rate Tanker Segment

Our fixed-rate tanker segment includes our shuttle tanker operations, floating storage and offtake vessels, a liquid petroleum gas carrier and conventional crude oil, methanol and product tankers on long-term fixed-rate time charter contracts or contracts of affreightment. Our shuttle tanker business, which is operated through our business unit Teekay Navion Shuttle Tankers, includes the shuttle tanker operations of our subsidiaries Navion AS and Ugland Nordic Shipping AS. This business unit provides services to oil companies, primarily in the North Sea, under long-term fixed-rate contracts of affreightment or time charter contracts. Historically, the utilization of shuttle tankers in the North Sea is higher in the winter months as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to the offshore oil platforms, which generally reduces oil production. As at December 31, 2005, we had on order for our fixed-rate segment two newbuilding conventional crude oil Aframax tankers. Upon their deliveries, which are scheduled for January and March 2008, the vessels will commence 10-year time charters to our Skaugen PetroTrans joint venture.

Fixed-Rate LNG Segment

Our fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time charter contracts. The acquisition of Teekay Shipping Spain, S.L. (or Teekay Spain) on April 30, 2004 established our entry into the LNG shipping sector. Our fixed-rate LNG segment includes four LNG carriers acquired as part of the Teekay Spain acquisition. Two of the LNG carriers have been included from the date of the Teekay Spain acquisition. The other two LNG carriers delivered in July and December 2004, respectively. As at December 31, 2005, we had nine newbuilding LNG carriers on order. Three of these carriers will commence service under long-term contracts with Ras Lafan Liquefied Natural Gas Co. Limited II (or RasGas II), a joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum. These charters will commence upon deliveries of the vessels, which are scheduled for the fourth quarter of 2006 and the first half of 2007. The vessels will be time-chartered to RasGas II for a period of 20 years, with a charterer’s option to extend for periods up to an additional 15 years. These LNG charter contracts are subject, in certain circumstances, to termination and vessel purchase rights in favor of RasGas II. Qatar Gas Transport Company has exercised its right to acquire a 30% interest in these vessels. In connection with the closing of its initial public offering, we transferred to Teekay LNG all of our delivered LNG carriers and agreed to sell to Teekay LNG all of our interest in the three RasGas II vessels upon delivery of the first vessel in 2006.

In July 2005, we were awarded a 70% interest in two LNG carriers and related 20-year, fixed-rate time charters to service the Tangguh LNG project in Indonesia. The customer will be The Tangguh Production Sharing Contractors, a consortium led by BP Berau, a subsidiary of BP plc. We have contracted to construct two double-hulled LNG carriers of 155,000 cubic meters each at a total delivered cost of approximately $450.0 million (including the joint venture partner’s 30% share of approximately $135.0 million). The charters will commence upon vessel deliveries, which are scheduled for late 2008 and early 2009. We will have operational responsibility for the vessels in this project. In accordance with an existing agreement, we are required to offer our ownership interest in these carriers and related charter contracts to Teekay LNG. The remaining 30% interest in the project is held by BLT LNG Tangguh Corporation, a subsidiary of PT Berlian Tanker Tbk.

In August 2005, we were awarded a 40% interest in four LNG carriers and related 25-year, fixed-rate time charters (with options to extend up to an additional 10 years) to service expansion of the LNG project in Qatar. The customer will be Ras Laffan Liquefied Natural Gas Co. Limited (3) (or RasGas 3), a joint venture company between Qatar Petroleum and a subsidiary of ExxonMobil Corporation. We have contracted to construct four double-hulled LNG carriers of 217,000 cubic meters each at a total delivered cost of approximately $1.1 billion (of which our 40% portion is approximately $0.4 billion). The charters will commence upon vessel deliveries, which are scheduled for the first half of 2008. The remaining 60% interest in the project will be held by Qatar Gas Transport Company Ltd. We will have operational responsibility for the vessels in this project. Under the charters, Qatar Gas Transport Company Ltd. may assume operational responsibility beginning 10 years following delivery of the vessels. In accordance with an existing agreement, we are required to offer our ownership interest in these vessels and related charter contracts to Teekay LNG.

Public Offerings by Teekay LNG Partners L.P.

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

In November 2005, Teekay LNG completed a follow-on public offering of 4.6 million common units at a price of $27.40 per unit. Proceeds from the follow-on offering were $120.3 million, net of an estimated $5.8 million of commissions and other expenses associated with the offering. As of December 31, 2005, we owned a 67.8% interest in Teekay LNG, including our 2% general partner interest. Please read Item 18 – Financial Statements: Note 3 – Public Offerings of Teekay LNG Partners L.P.

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

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

Acquisition of Teekay Shipping Spain, S.L.

On April 30, 2004, we acquired 100% of the issued and outstanding shares of Teekay Spain for $298.2 million in cash and the assumption of existing debt and then remaining newbuilding commitments. Please read Item 4 – Information on the Company: Business Acquisitions and Divestitures – Acquisition of Teekay Shipping Spain S.L., formerly Naviera F. Tapias S.A. and Item 18 – Financial Statements: Note 4 – Acquisition of Teekay Shipping Spain S.L.

Acquisition of Navion AS

In April 2003, we completed our acquisition of 100% of the issued and outstanding shares of Navion AS for approximately $774.2 million in cash, including transaction costs of approximately $7.0 million. Please read Item 4 – Information on the Company: Business Acquisitions and Divestitures – Acquisition of Navion AS and Item 18 – Financial Statements: Note 5 – Acquisition of Navion AS.

IMO and European Union Regulatory Changes

As described above under “Item 4. Information on the Company: Regulations,” in 2003 both the International Maritime Organization (or IMO), the United Nations’ global maritime regulatory body, and the European Union Parliament adopted regulations that, among other things, accelerate the phasing-out of single-hull tankers. As a result of these regulations, which became effective April 5, 2005, we recorded a $56.9 million non-cash write-down in our spot tanker segment in 2003. We have subsequently sold all of our vessels affected by these regulations as part of our fleet renewal program. Management believes that these IMO and European Union regulations may result in further market discrimination against older single-hull vessels.

We are not aware of any other regulatory changes or environment liabilities that we anticipate will have a material impact on our current or future operations.

Important Financial and Operational Terms and Concepts

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

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

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

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

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

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

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

Drydocking.     We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, we drydock each of our vessels every two and a half to five years, depending upon the type of vessel and its age. In addition, a shipping society classification intermediate survey is performed on our LNG carriers between the second and third year of the 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 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:

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

Revenue Days. Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs, drydockings or 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, time charter hire expense and depreciation and amortization.

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, or bareboat charters, for the vessels. The restricted cash deposits, together with interest earned thereon, will equal the remaining amounts we owe under the lease arrangements, including our obligation to purchase the vessels at the end of the lease terms. During vessel construction, we used the term loan borrowings to make restricted cash deposits equal to construction installment payments. We also maintain restricted cash deposits relating to certain term loans and other obligations. Please read Item 18 – Financial Statements: Note 11 – Capital Leases and Restricted Cash.

Tanker Market Overview

During 2005, crude tanker freight rates eased from the peaks of 2004 but remained significantly higher than historical averages. Freight rates for product tankers rose to near record levels, driven to a large extent by tightness in refinery upgrading capacity in key consuming regions and hurricane-related disruptions in the U.S. Gulf. In the aftermath of the hurricanes, U.S. Gulf crude production and refinery operations faced severe disruptions, which led to longer haul movements of crude oil and finished products, resulting in increased tonne-mile demand for tankers.

The pace of global economic growth eased from 2004 but remained robust in historical terms, driven predominantly by the United States, China and India. Growth in oil demand in 2005 compared to 2004 was dampened by high oil prices and the elimination of price subsidies in some Asian countries. The majority of growth in oil demand was met by longer-haul OPEC production, as non-OPEC output remained flat from the previous year. Overall, global oil supply rose 1.0 mb/d (or 1.2%) over 2004 to 84.1 mb/d. The increase in transportation distances helped to maintain high utilization of the world tanker fleet in spite of its growing at an above-average rate. Overall, the size of the world tanker fleet rose to 327.5 mdwt as of December 31, 2005, up 22.7 mdwt (or 7.4%) from the end of 2004. As a result, tanker freight markets remained sensitive to external disruptions which kept spot tanker rates at healthy levels.

The outlook for the tanker market during 2006 is positive based on market fundamentals and the effect of short-term events. The global economy remains strong and is expected to drive oil demand growth during the year.

As of March 2006 the International Energy Agency estimated oil demand growth of 1.5 mb/d (or 1.8%) for 2006 compared to 2005 demand, driven mainly by the United States and China. With oil prices remaining at high levels, OPEC members are not cutting back on their oil production quota limits, in spite of the seasonally weak second quarter due to ongoing geopolitical factors. OPEC is expected to increase its crude oil production capacity by approximately 0.9 mb/d during 2006 with the majority of the increase coming from Middle East producers. Non-OPEC production is also estimated to grow during 2006, led by the former Soviet Union, West Africa and Latin America.

Longer haul crude trades are likely to increase as a result of U.S. Gulf offshore crude production outages expected to persist through to the middle of the 2006 and anticipated increase in crude and fuel oil movements from the Atlantic Basin to Asia. In the product tanker sector, bottlenecks in the refining system, coupled with refinery outages and implementation of new fuel specifications in the United States, may also result in a further increase in the long haul trades.

During 2006, the growth in the tanker fleet will be dictated mainly by mandatory and voluntary scrapping levels, and the removal of vessels from the fleet for conversion and use in the offshore sector, where demand is rising. The tanker orderbook at the end of 2005 was down slightly from 2004, and it is expected that the pace of crude tanker deliveries will be slower in 2006, while product tanker deliveries in 2006 are expected to remain consistent with 2005 levels. Charterer discrimination against single-hull tonnage continues to grow, which marginalizes a portion of the world fleet.

Based on finely balanced market fundamentals, the tanker market is likely to remain above mid-cycle with short-term disruptions having the potential to stretch fleet utilization levels.

Results of Operations

In accordance with GAAP, we report gross voyage revenues in our income statements and include voyage expenses among our operating expenses. However, shipowners base economic decisions regarding the deployment of their vessels upon anticipated TCE rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. This is because under time charter contracts the customer usually pays the voyage expenses while under voyage charters and contracts of affreightment the shipowner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Accordingly, the discussion of revenue below focuses on net voyage revenues (i.e. voyage revenues less voyage expenses) and TCE rates of our three reportable segments where applicable. Please read Item 18 – Financial Statements: Note 2 – Segment Reporting.

The following table compares our operating results by reportable segment for 2005, 2004 and 2003, and compares our net voyage revenues (which is a non-GAAP financial measure) by reportable segment for 2005, 2004, and 2003 to voyage revenues, the most directly comparable GAAP financial measure:

----------- ------------------------------------------- ------------------------------------------ ---------------------
                           2005                                   2004                            2003
                     Fixed-   Fixed-                        Fixed-   Fixed-                       Fixed-
             Spot     Rate     Rate                Spot      Rate     Rate                Spot     Rate
            Tanker   Tanker    LNG                Tanker    Tanker    LNG                Tanker   Tanker
           Segment  Segment  Segment    Total     Segment   Segment  Segment   Total     Segment  Segment   Total
           ($000's) ($000's) ($000's)  ($000's)  ($000's)  ($000's) ($000's)  ($000's)  ($000's) ($000's) ($000's)
----------- -------- -------- ------- ---------- ---------- -------- ------- ---------- ---------- -------- ----------

Voyage
 revenues 1,122,845  734,128  97,645  1,954,618  1,450,791  725,061  43,386  2,219,238 1,081,974 494,121 1,576,095
Voyage
 expenses   347,043   72,078      48    419,169    355,116   77,058     221    432,395   342,928  51,728   394,656
----------- -------- -------- ------- ---------- ---------- -------- ------- ---------- --------- -------- ---------
Net voyage
 revenues   775,802  662,050  97,597  1,535,449  1,095,675  648,003  43,165  1,786,843   739,046 442,393 1,181,439
Vessel
 operating
 expenses    62,525  128,916  15,308    206,749     93,394  117,586   7,509    218,489   126,261  84,435   210,696
Time charter
 hire
 expense    273,730  194,260       -    467,990    263,122  194,058       -    457,180   168,344 136,279   304,623
Depreciation
 and amor-
 tization    55,105  120,064  30,360    205,529     95,570  129,074  12,854    237,498   106,374  84,863   191,237
General and
 administ-
 rative (1)  89,465   57,059  13,183    159,707     70,371   56,431   3,940    130,742    53,338  31,809    85,147
Writedown/
 (gain) on
 sale of
 vessels and
 equipment (142,004)   2,820       -   (139,184)   (72,101)  (7,153)      -    (79,254)   90,326      63    90,389
Restructuring
 charge       1,927      955       -      2,882      1,002        -       -      1,002     4,382   2,001     6,383
            -------- ------- -------- ---------- ---------- -------- ------- ---------- --------- -------- ---------
Income from
 vessel
 operations 435,054  157,976  38,746    631,776    644,317  158,007  18,862    821,186   190,021 102,943   292,964
----------- -------- ------- -------- ---------- ---------- -------- ------- ---------- --------- -------- ---------

The following table outlines the TCE rates earned by the vessels in our spot tanker segment for 2005, 2004 and 2003:

------------------ -------------------------------- -------------------------------- --------------------------------
                               2005                             2004                            2003
                                       TCE per                          TCE per                           TCE per
                Net Voyage             Revenue   Net Voyage             Revenue   Net Voyage              Revenue
Vessel Type      Revenues    Revenue      Day     Revenues    Revenue      Day     Revenues    Revenue      Day
                 ($000's)     Days        ($)     ($000's)     Days        ($)     ($000's)     Days        ($)
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

VLCC                 8,347         90     92,744     67,129        876     76,631     36,891        807    45,714
Suezmax(1)          68,395      1,862     36,732    122,412      2,374     51,564     62,909      1,790    35,145
Aframax(1)         536,390     14,587     36,769    802,914     20,377     39,403    535,260     20,704    25,853
Oil/Bulk/Ore (2)         -          -          -      3,269        150     21,793     39,849      2,389    16,680
Large Product(1)   103,802      3,480     29,828     50,221      1,962     25,597     17,331        560    30,948
Small Product       58,868      3,957     14,877     49,175      3,515     13,990     27,960      2,392    11,689
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
  Totals           775,802     23,976     32,357  1,095,120     29,254     37,435    720,200     28,642    25,145
=============== ========== ========== ========== ========== ========== ========== ========== ========== ==========

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

We acquired Teekay Spain on April 30, 2004. Consequently, our 2004 financial results for our segments only reflect Teekay Spain’s results of operations commencing May 1, 2004.

Spot Tanker Segment

TCE rates for the vessels in our spot tanker segment primarily depend on oil production and consumption levels, the number of vessels in the worldwide tanker fleet scrapped, the number of newbuildings delivered and charterers’ preference for modern tankers. As a result of our dependence on the spot tanker market, any fluctuations in TCE rates will affect our revenues and earnings. Our average TCE rate for the vessels in our spot tanker segment decreased 13.6% to $32,357 for 2005, from $37,454 for 2004. During 2005, approximately 51% of our net voyage revenues were earned by the vessels in the spot tanker segment, compared to approximately 62% in 2004. This percentage decrease from 2004 was due primarily to our acquisition of Teekay Spain’s fixed-rate Suezmax tanker and LNG fleet, the sale of a number of older vessels from our spot tanker segment during 2005 and the decrease in spot tanker rates compared to 2004, partially offset by newbuilding deliveries and an increase in the number of chartered-in vessels in our spot tanker segment.

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

--------------------------------------------------------------------------------------------------------------------
                                  2005                              2004                       Percentage Change
                             (Calendar Days)                   (Calendar Days)                        (%)
--------------------- --------------------------------- -------------------------------- ---------------------------

Owned Vessels                    10,733                            16,181                            (33.7)
Chartered-in Vessels             13,552                            13,460                              0.7
--------------------- --------------------------------- -------------------------------- ----------------------------
Total                            24,285                            29,641                            (18.1)
===================== ================================= ================================ ============================

The average fleet size of our spot tanker fleet decreased 18.1% from 29,641 calendar days in 2004 to 24,285 calendar days in 2005. This decrease was primarily the result of:

As at December 31, 2005, all our owned and chartered-in vessels in the spot tanker segment were double-hulled.

Net Voyage Revenues. Net voyage revenues for the spot tanker segment decreased 29.2% to $775.8 million for 2005, from $1,095.7 million for 2004. This decrease was primarily due to the decrease in our fleet size as well as the decrease in TCE rates compared to 2004. Voyage expenses decreased 2.3% to $347.0 million for 2005, from $355.1 million for 2004, primarily as a result of the decrease in fleet size, which was primarily offset by an increase in average bunker fuel prices. Port expenses also increased for 2005 compared to 2004 as a result of increased security concerns, particularly in the United States. On a per revenue day basis, voyage expenses increased to $14,475 in 2005 compared to $12,139 in 2004.

Vessel Operating Expenses. Vessel operating expenses decreased 33.1% to $62.5 million for 2005, from $93.4 million for 2004. The decrease in vessel operating expenses was primarily due to the sale of a number of older vessels in 2005 and 2004, partially offset by our newbuilding deliveries during these periods.

Time-Charter Hire Expense. Time-charter hire expense increased 4.0% to $273.7 million for 2005, from $263.1 million for 2004. This increase was due primarily to a 0.7% increase of chartered-in vessels. In addition, our average per ship per day time-charter hire expense increased 3.3% to $20,198 in 2005 compared to $19,548 in 2004.

Depreciation and Amortization. Depreciation and amortization expense decreased 42.3% to $55.1 million for 2005, from $95.6 million for 2004. The decrease was primarily attributable to the previously-mentioned vessel dispositions, partially offset by newbuilding deliveries. Depreciation and amortization expense included amortization of drydocking costs of $6.5 million for 2005, compared to $16.1 million for 2004. The decrease in drydock amortization was primarily due to the previously-mentioned sale of older vessels which required more frequent drydocks.

Gain on Sale of Vessels. Gain on sale of vessels for 2005 of $142.0 million included gains on the sale of the 14 older vessels and one newbuilding, as well as amortization of a deferred gain on the sale and leaseback of three Aframax tankers that occurred in December 2003. The gain on sale of vessels for 2004 of $72.1 million included gains on the sale of 11 older vessels, as well as the amortization of deferred gain from the 2003 sale-leaseback transactions.

Restructuring Charges. The spot tanker segment incurred restructuring charges of $1.9 million in 2005 relating to the relocation of certain operational functions from our Vancouver office to locations closer to where our customers are located and to where our ships operate, which we undertook in response to the global nature of our operations. During 2006, we expect to incur approximately $7.0 million of further restructuring charges as we complete this relocation. Restructuring charges of $1.0 million in 2004 relate to the closure of our Oslo, Norway office.

Fixed-Rate Tanker Segment

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

--------------------------------------------------------------------------------------------------------------------
                                  2005                              2004                       Percentage Change
                             (Calendar Days)                   (Calendar Days)                        (%)
--------------------- --------------------------------- -------------------------------- ---------------------------

Owned Vessels                    14,464                            14,808                             (2.3)
Chartered-in Vessels              6,157                             5,905                              4.3
--------------------- --------------------------------- -------------------------------- ----------------------------
Total                            20,621                            20,713                             (0.4)
===================== ================================= ================================ ============================

The average fleet size of our fixed-rate tanker segment (including vessels chartered-in) decreased slightly in 2005 compared to 2004. This decrease was primarily the result of:

Net Voyage Revenues. Net voyage revenues increased slightly by 2.2% to $662.1 million for 2005, from $648.0 million for 2004, primarily due to:

During 2005, approximately 43% of our net voyage revenues were earned by the vessels in the fixed-rate tanker segment, compared to approximately 36% in 2004, primarily due to the reduction in the contribution from our spot rate segment.

Vessel Operating Expenses. Vessel operating expenses increased 9.6% to $128.9 million for 2005, from $117.6 million for 2004. The increase in vessel operating expenses was primarily due to:

Time-Charter Hire Expense. Time-charter hire expense remained virtually unchanged at $194.3 million for 2005, compared to $194.1 million for 2004. The 4.3% increase in the number of chartered-in vessels was substantially offset by a decrease in per day time-charter rates on certain of our shuttle tankers.

Depreciation and Amortization. Depreciation and amortization expense decreased 7.0% to $120.1 million for 2005, from $129.1 million for 2004. The decrease was mainly due to:

Depreciation and amortization expense included amortization of drydocking costs of $8.4 million for 2005, compared to $7.3 million for 2004, and includes amortization of contracts of $15.3 million for 2005, compared to $21.0 million for 2004.

Vessel and Equipment Writedowns and Gain on Sale of Vessels. Vessel and equipment writedowns and gain on sale of vessels for 2005 was a net loss of $2.8 million, which was comprised of:

Gain on sale of vessels for 2004 of $7.2 million represents gains on the sale of three older vessels.

Restructuring Charges. Restructuring charges of $1.0 million in 2005 relate to the closure of our Sandefjord, Norway office. We incurred no restructuring charges in 2004 in our fixed-rate tanker segment.

Fixed-Rate LNG Segment

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

---------------------------------------------------------------------------------------------------------------------
                                     2005                             2004                       Percentage Change
                              (Calendar Days)                  (Calendar Days)                        (%)
--------------------- --------------------------------- -------------------------------- ---------------------------

Owned Vessels                     1,460                               660                             121.2
--------------------- --------------------------------- -------------------------------- ----------------------------

The results of our fixed-rate LNG segment reflect the operations of two LNG carriers acquired as part of our acquisition of Teekay Spain on April 30, 2004. We had two newbuilding LNG carriers delivered to us in July 2004 and December 2004 (collectively, the LNG Deliveries). We had no LNG shipping operations prior to the Teekay Spain acquisition. On May 10, 2005, our subsidiary, Teekay LNG, issued 6,900,000 common units as part of its initial public offering, effectively reducing our ownership of Teekay LNG to 77.7%. In November 2005, Teekay LNG issued an additional 4,600,000 common units, further reducing our ownership of Teekay LNG to 67.8%. Please read “ — Public Offerings by Teekay LNG Partners L.P.” above. As of December 31, 2005, all of the vessels (excluding vessels under construction) in our fixed-rate LNG segment were owned by Teekay LNG. The results below reflect 100% of these vessels. The minority owners’ share of the results of these vessels is reflected as minority expense contained in other – net in our consolidated statements of income.

Net Voyage Revenues. Net voyage revenues for the fixed-rate LNG segment increased 126.1% to $97.6 million, or $66,847 per calendar-ship-day, for 2005 from $43.2 million, or $65,402 per calendar-ship-day, for 2004 primarily due to:

Vessel Operating Expenses. Vessel operating expenses increased 103.9% to $15.3 million, or $10,485 per calendar-ship-day, for 2005 from $7.5 million for 2004, or $11,377 per calendar-ship-day, primarily due to:

Depreciation and Amortization. Depreciation and amortization increased 136.2% to $30.4 million in 2005 from $12.9 million in 2004 primarily due to:

Depreciation and amortization expense in the fixed-rate LNG segment included $8.9 million in 2005 and $3.6 million in 2004 of amortization of time-charter contracts acquired as part of the Teekay Spain acquisition.

Other Operating Results

General and Administrative Expenses. General and administrative expenses increased 22.2% to $159.7 million for 2005, from $130.7 million for 2004, primarily due to:

Interest Expense. Interest expense increased 9.0% to $132.4 million for 2005, from $121.5 million for 2004. This increase primarily reflects interest on the additional debt we incurred in connection of our acquisition of Teekay Spain.

Interest Income. Interest income increased 83.2% to $33.9 million for 2005, compared to $18.5 million for 2004. This increase was primarily due to our acquisition of Teekay Spain during April 2004. A majority of our interest income is the result of interest earned on restricted cash balances Teekay Spain is required to have on deposit relating to capital lease arrangements. Please read “ — Important Financial and Operational Terms and Concepts — Restricted Cash Deposits” above.

Equity Income From Joint Ventures. Equity income from joint ventures decreased 18.9% to $11.1 million for 2005, from $13.7 million for 2004, primarily due to a decline in earnings from our 50% share in Skaugen PetroTrans, which provides lightering services primarily in the Gulf of Mexico and was adversely affected by hurricanes Katrina and Rita.

Gain on Sale of Marketable Securities. We sold no marketable securities in 2005. During 2004 we sold all of our marketable securities for proceeds of $135.4 million, which resulted in a gain on sale of marketable securities of $93.2 million.

Foreign Exchange Gains (Losses). Foreign exchange gains were $59.8 million in 2005 compared to foreign exchange losses of $42.7 million in 2004, primarily due to the strengthening of the U.S. Dollar in 2005 and weakening of the U.S. Dollar in 2004, relative to other currencies, particularly the Euro. Most of our foreign currency gains or losses are attributable to the revaluation of our Euro-denominated term loans at the end of each period for financial reporting purposes, and substantially all of the gains or losses are unrealized. As of the date of this report, our Euro-denominated revenues generally approximate our Euro-denominated operating expenses and our Euro-denominated interest and principal repayments.

Other Income (Loss). Other loss of $33.3 million for 2005 was primarily comprised of minority interest expense of $16.6 million, a $13.3 million loss on bond redemption, a $7.8 million loss from settlement of interest rate swaps and $7.5 million writeoff of capitalized loan costs, partially offset by $2.3 million income tax recovery and leasing income from our volatile organic compound emissions equipment. The loss from settlement of interest rate swaps and the writeoff of capitalized loan costs are non-recurring items related to debt prepayments made prior to the initial public offering of Teekay LNG. The minority interest expense primarily reflects the minority owners share of the foreign exchange gains incurred by Teekay LNG. Other loss of $25.0 million for 2004 was primarily comprised of income taxes of $35.0 million, minority interest expense of $2.3 million and a $0.8 million loss on bond redemption, partially offset by dividend income and income from our volatile organic compound emissions equipment.

Net Income. As a result of the foregoing factors, net income decreased to $570.9 million for 2005, from $757.4 million for 2004.

Year Ended December 31, 2004 versus Year Ended December 31, 2003

We acquired Teekay Spain on April 30, 2004. Consequently, our 2004 financial results for our segments only reflect Teekay Spain’s results of operations commencing May 1, 2004. We completed our acquisition of Navion on April 1, 2003. Consequently, our 2003 financial results for our segments only reflect Navion’s results of operations from that date.

Spot Tanker Segment

As a result of strong tanker freight rates during 2004, our average TCE rate for the vessels in our spot tanker segment increased 48.9% to $37,435 for 2004, from $25,145 for 2003. During 2004, approximately 62% of our net voyage revenues were earned by the vessels in the spot tanker segment, compared to approximately 63% in 2003. The percentage decrease from 2003 was due primarily to our acquisition of Teekay Spain and its fixed-rate Suezmax tanker and LNG fleet and the sale of 11 older spot vessels as part of our fleet renewal program, partially offset by the increase in spot tanker rates compared to 2003 and an increase in the chartered-in vessels in our spot tanker segment.

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

---------------------------------------------------------------------------------------------------------------------
                                     2004                             2003                       Percentage Change
                              (Calendar Days)                   (Calendar Days)                        (%)
--------------------- --------------------------------- -------------------------------- ---------------------------

Owned Vessels                    16,181                            21,206                             (23.7)
Chartered-in Vessels             13,460                             8,370                              60.8
--------------------- --------------------------------- -------------------------------- ----------------------------
Total                            29,641                            29,576                               0.2
===================== ================================= ================================ ============================

The average fleet size of our spot tanker fleet (including vessels chartered-in) increased slightly in 2004, primarily due the delivery of four Aframax newbuildings and an increase in the number of vessels chartered-in due to the inclusion of Navion for a fully year in 2004, compared to nine months in 2003, as well as the sale and leaseback of three Aframax tankers in December 2003. These increases were substantially offset by the sale of 11 older tankers in the spot tanker segment during 2004.

Net Voyage Revenues. Net voyage revenues for the spot tanker segment increased 48.3% to $1,095.7 million for 2004, from $739.0 million for 2003. This increase was primarily due to the increases in average TCE rates from 2003.

Vessel Operating Expenses. Vessel operating expenses decreased 26.0% to $93.4 million for 2004, from $126.3 million for 2004. The decrease in vessel operating expenses was primarily due to the sale of 11 older vessels during 2004.

Time-Charter Hire Expense. Time-charter hire expense increased 56.3% to $263.1 million for 2004, from $168.3 million for 2003. This increase was due primarily to the previously-mentioned increase of chartered-in vessels.

Depreciation and Amortization. Depreciation and amortization expense decreased 10.2% to $95.6 million for 2004, from $106.4 million for 2003. The decrease was primarily attributable to the previously-mentioned vessel dispositions, partially offset by the deliveries of the four newbuilding Aframax tankers during 2004 and the increased amortization of older vessels due to the accelerated depreciation of vessels affected by IMO regulations. Depreciation and amortization expense included amortization of drydocking costs of $16.1 million for 2004, compared to $22.3 million for 2003. The decrease in drydock amortization was primarily due to the previously-mentioned sale of older vessels, which required more frequent drydocks.

Gain (Loss) on Sale of Vessels. Gain on sale of vessels for 2004 of $72.1 million included gains on the sale of the 11 older vessels, as well as amortization of a deferred gain on the sale and leaseback of the three Aframax tankers in December 2003. The write-downs and loss on sale of vessels for 2003 of $90.3 million was primarily comprised of the write-down of vessel values as a result of the previously-mentioned IMO regulations and vessels sold in 2003.

Restructuring Charges. We incurred restructuring charges of $1.0 million in 2004 relating to the closure of our Oslo, Norway office. Restructuring charges of $4.4 million in 2003 relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance costs related to the termination of seafaring staff.

Fixed-Rate Tanker Segment

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

---------------------------------------------------------------------------------------------------------------------
                                     2004                             2003                       Percentage Change
                              (Calendar Days)                   (Calendar Days)                        (%)
--------------------- --------------------------------- -------------------------------- ---------------------------

Owned Vessels                    14,808                            10,196                              45.2
Chartered-in Vessels              5,905                             4,370                              35.1
--------------------- --------------------------------- -------------------------------- ----------------------------
Total                            20,713                            14,566                              42.2
===================== ================================= ================================ ============================

The average fleet size of our fixed-rate tanker segment (including vessels chartered-in) increased significantly in 2004 compared to 2003 primarily due to our acquisition of Teekay Spain, which included four Suezmax tankers in this segment, and the delivery of four newbuildings in 2004. In addition, the results of Navion, including its fixed-rate shuttle tanker fleet, were only included for nine months in 2003, compared to a full year in 2004.

Net Voyage Revenues. Net voyage revenues increased 46.5% to $648.0 million for 2004, from $442.4 million for 2003 primarily due to the increase in fleet size. The shuttle tankers acquired as part of our acquisition of Navion generated, on average, more revenue per ship than the remaining vessels in our fixed-rate tanker segment. During 2004, approximately 36% of our net voyage revenues were earned by the vessels in the fixed-rate tanker segment, compared to approximately 37% in 2003.

Vessel Operating Expenses. Vessel operating expenses increased 39.3% to $117.6 million for 2004, from $84.4 million for 2003. The increase in vessel operating expenses was primarily due to the increase in fleet size and the appreciation of other major currencies in which we incur expenses against the U.S. Dollar. The shuttle tankers acquired as part of our acquisition of Navion incurred, on average, higher operating costs per ship than the remaining vessels in our fixed-rate tanker segment.

Time-Charter Hire Expense. Time-charter hire expense increased 42.4% to $194.1 million for 2004, from $136.3 million for 2003. The increase is due primarily to Navion’s chartered-in shuttle tankers being included for the full year in 2004, but only for nine months in 2003.

Depreciation and Amortization. Depreciation and amortization expense increased 52.1% to $129.1 million for 2004, from $84.9 million for 2003. The increase was mainly due to increased vessel cost amortization during 2004 as a result of the increase in fleet size of owned vessels in this segment, the amortization of the estimated fair market value of the time-charter contracts we acquired as part of the Teekay Spain acquisition and a full year of amortization during 2004 of the contracts of affreightment we acquired as part of the 2003 Navion acquisition. Depreciation and amortization expense included amortization of drydocking costs of $7.3 million for 2004, compared to $4.2 million for 2003.

Gain on Sale of Vessels. Gain on sale of vessels for 2004 of $7.2 million represents gains on the sale of three older vessels. Loss on sale of vessels for 2003 of $0.1 million relates to the sale of a shuttle tanker in our fixed-rate tanker segment.

Restructuring Charges. We incurred no restructuring charges in 2004 in our fixed-rate tanker segment. Restructuring charges of $2.0 million in 2003 relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance costs related to the termination of seafaring staff.

Fixed-Rate LNG Segment

The results of our fixed-rate LNG segment reflect the operations of our four LNG carriers (including one newbuilding that delivered in July 2004, and one newbuilding that delivered in December 2004) acquired as part of our acquisition of Teekay Spain on April 30, 2004. The total number of calendar ship days of our LNG carriers during 2004 was 660. We had no LNG shipping operations prior to the Teekay Spain acquisition.

Net Voyage Revenues. Net voyage revenues totaled $43.2 million for 2004, or $65,402 per calendar-ship-day. During 2004 approximately 2% of our net voyage revenues were earned by the vessels in the fixed-rate LNG segment.

Vessel Operating Expenses. Vessel operating expenses totaled $7.5 million for 2004, or $11,377 per calendar-ship-day.

Depreciation and Amortization. Depreciation and amortization was $12.9 million in 2004, which includes $3.6 million of amortization of time-charter contracts acquired as part of the Teekay Spain acquisition.

Other Operating Results

General and Administrative Expenses. General and administrative expenses increased 53.5% to $130.7 million for 2004, from $85.1 million for 2003, primarily as a result of the Teekay Spain acquisition, the inclusion of Navion for 12 months in 2004 compared to only nine months in 2003, an increase in the accrual for performance-based bonuses in 2004, including $12.5 million authorized accrued in addition to the bonuses under our annual bonus plan, and the appreciation of several major currencies against the U.S. Dollar.

Interest Expense. Interest expense increased 50.0% to $121.5 million for 2004, from $81.0 million for 2003. This increase primarily reflects interest on the additional debt we incurred in connection of our acquisitions of Navion and Teekay Spain.

Interest Income. Interest income increased 372.5% to $18.5 million for 2004, compared to $3.9 million for 2003. This increase was primarily due to interest earned on higher average cash and restricted cash balances. Please read “Important Financial and Operational Terms and Concepts — Restricted Cash Deposits” above.

Equity Income From Joint Ventures. Equity income from 50%-owned joint ventures increased 97.0% to $13.7 million for 2004, from $7.0 million for 2003, primarily as a result of our acquisition of a 50% interest in Skaugen PetriTrans during September 2003.

Gain on Sale of Marketable Securities. We sold our investment in A/S Dampkibsselskabet Torm for a gain of $93.2 million in 2004. In 2003 we recorded a gain on sale of marketable securities of $0.5 million.

Foreign Exchange Gains (Losses). Foreign exchange losses were $42.7 million in 2004 compared to $3.9 million in 2003, primarily due to the weakening of the U.S. Dollar relative to other currencies, particularly the Euro. Most of our foreign currency gains or losses are attributable to the revaluation of our Euro-denominated term loans at the end of each period for financial reporting purposes, and substantially all of the gains or losses are unrealized. We did not have any Euro-denominated term loans prior to our acquisition of Teekay Spain in 2004.

Other Income (Loss). Other loss of $25.0 million for 2004 was primarily comprised of income taxes of $35.0 million, minority interest expense of $2.3 million and a $0.8 million loss on bond redemption partially offset by dividend income and income from our volatile organic compound emissions equipment. Other loss of $42.2 million for 2003 was primarily comprised of income taxes of $36.5 million, a $5.4 million loss on redemption of $57.9 million of our 8.32% First Preferred Ship Mortgage Notes, a write-down of marketable securities, goodwill and other assets, and minority interest expense, partially offset by dividend income from Nordic American Tanker Shipping Ltd. and leasing income from our volatile organic compound emissions equipment.

Net Income. As a result of the foregoing factors, net income increased to $757.4 million for 2004, from $177.4 million for 2003.

Liquidity and Capital Resources

Liquidity and Cash Needs

As at December 31, 2005, our total cash and cash equivalents was $237.0 million, compared to $427.0 million at December 31, 2004. Our total liquidity, including cash and undrawn long-term borrowings, was $966.8 million as at December 31, 2005, down from $1,258.2 million as at December 31, 2004. The decrease in liquidity was mainly the result of long-term debt repayments, scheduled reductions of our revolving credit facilities and cash used for capital expenditures, share repurchases and payment of dividends, partially offset by cash generated by our operating activities, proceeds from the sale of vessels during 2005, and net proceeds from the public offerings of common units by our subsidiary Teekay LNG. In addition, we were amending two of our revolving credit facilities at December 31, 2005, which were completed in January 2006 and provide an additional $213.0 million of liquidity. We believe that our working capital is sufficient for our present requirements.

Cash Flows

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

------------------------------------------------------------------------ -----------------------------------------------
                                                                                  2005                    2004
                                                                                 ($000's)                ($000's)
------------------------------------------------------------------------ ------------------------ ----------------------
Net operating cash flows................................................         609,042                 814,704
Net financing cash flows................................................        (632,402)               (370,403)
Net investing cash flows................................................        (166,693)               (309,548)
------------------------------------------------------------------------ ------------------------ ----------------------

Operating Cash Flows

The decrease in net operating cash flow mainly reflects the decrease in aggregate calendar-ship-days for our fleet to 46,366 in 2005, compared to 51,014 in 2004, and the reduction in average spot TCE rates.

Financing Cash Flows

Scheduled debt repayments were $61.2 million during 2005, compared to $150.3 million during 2004. Debt prepayments were $2.6 billion during 2005, compared to $1.7 billion during 2004. We used cash generated from operations, proceeds from vessel sales, net proceeds from the public offerings of common units by our subsidiary Teekay LNG and longer-term financings to make these prepayments. Of our debt prepayments in 2005, $1.9 billion was used to prepay revolving credit facilities and $640.0 million was used to prepay a number of term loans. In addition, we used $99.0 million to repay a portion of the 8.875% Senior Notes due July 11, 2011 and $5.9 million to repay the 8.32% First Preferred Ship Mortgage Notes by way of a deposit held at The Bank of New York, the trustee. Occasionally we use our revolving credit facilities to temporarily finance capital expenditures until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer-term financings to prepay outstanding amounts under the facilities. Please read Item 18 – Financial Statements: Note 8 – Long-Term Debt. In addition, in April 2005 we paid $143.3 million to settle interest rate swaps associated with $727.4 million of debt. Please read Item 18 – Financial Statements: Note 16 – Derivative Instruments and Hedging Activities and Item 18 – Financial Statements: Note 3 – Public Offerings of Teekay LNG Partners L.P.

As at December 31, 2005, our total long-term debt was $1.8 billion, compared to $2.1 billion as at December 31, 2004. As at December 31, 2005, our revolving credit facilities provided for borrowings of up to $1.5 billion, of which $729.8 million was undrawn. The amount available under these credit facilities reduces by $133.2 million (2006), $134.4 million (2007), $349.6 million (2008), $176.0 million (2009), $77.4 million (2010) and $628.2 million (thereafter). All of our revolving credit facilities are collateralized by first-priority mortgages granted on 44 of our vessels, together with other related collateral, and are guaranteed by Teekay or our subsidiaries. Our unsecured 8.875% Senior Notes are due July 15, 2011. Our outstanding term loans reduce in monthly or quarterly payments with varying maturities through 2023. In February 2006, our 7.25% Premium Equity Participating Security Units due May 18, 2006 settled and are no longer outstanding. Please read Item 18 – Financial Statements: Note 8 – Long-Term Debt and Note 21(b) – Subsequent Events.

Among other matters, our long-term debt agreements generally provide for the maintenance of certain vessel market value-to-loan ratios and minimum consolidated financial covenants and prepayment privileges (in some cases with penalties). Certain of the loan agreements require that we maintain a minimum level of free cash. As at December 31, 2005, this amount was $100.0 million. Certain of the loan agreements also require that we maintain a minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity. As at December 31, 2005, this amount was $110.5 million.

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 Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars, British Pounds, Euros and Norwegian Kroner.

We are exposed to market risk from foreign currency fluctuations and changes in interest rates, spot market rates for vessels and bunker fuel prices. We use forward foreign currency contracts, interest rate swaps, forward freight agreements and bunker fuel swap contracts to manage currency, interest rate, spot tanker rates and bunker fuel price risks, but we do not use these financial instruments for trading or speculative purposes. Please read Item 11 – Quantitative and Qualitative Disclosures About Market Risk.

Dividends declared during 2005 were $49.2 million, or $0.62 per share.

During the first quarter of 2005, we repurchased 1.6 million shares of our common stock for $67.6 million, or $42.27 per share, which completed a 3.0 million share repurchase program announced in November 2004 at a total cost of $128.9 million, or $42.95 per share. During the remainder of 2005, pursuant to share repurchase programs announced in April, July and December 2005 for up to $225.0 million, $250.0 million and $180.0 million, respectively, we repurchased 11.1 million shares for $470.8 million, or $42.47 per share.

Investing Cash Flows

During 2005, we:

Commitments and Contingencies

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

-------------------------------------------------- ------------- ------------ ------------ ------------ -------------
(in millions of U.S. dollars)                                    Less than 1      1 - 3       3 - 5     More than
                                                       Total        year          years       years      5 years
-------------------------------------------------- ------------- ------------ ------------ ------------ -------------

U.S. Dollar-Denominated Obligations:
    Long-term debt (1)...........................     1,467.9        150.9        379.3        155.4        782.3
    Chartered-in vessels (operating leases) .....     1,172.3        351.6        345.9        197.6        277.2
    Commitments under capital leases (2) ........       333.1         29.6        161.9        104.8         36.8
    Newbuilding installments (3).................       845.1        270.3        538.8         36.0            -
    Commitment for volatile organic compound
         emissions equipment.....................        22.0         22.0            -            -            -
                                                  ------------ ------------ ------------ ------------ ------------
   Total U.S. Dollar-denominated obligations          3,840.4        824.4      1,425.9        493.8      1,096.3
                                                  ------------ ------------ ------------ ------------ ------------
Euro-Denominated Obligations: (4)
    Long-term debt (1)...........................       377.4          8.1         18.0         20.8        330.5
    Commitments under capital leases(2) (5)......       341.5        146.0         56.4         62.3         76.8
                                                  ------------ ------------ ------------ ------------ ------------
    Total Euro-denominated obligations                  718.9        154.1         74.4         83.1        407.3
                                                  ------------ ------------ ------------ ------------ ------------
Total                                                 4,559.3        978.5      1,500.3        576.9      1,503.6
                                                  ============ ============ ============ ============ ============
______________________

We have entered into a joint venture agreement with our 60% partner to construct four LNG carriers. As at December 31, 2005, the remaining commitments, excluding capitalized interest and other miscellaneous construction costs, on these vessels totaled $801.3 million, of which our share is $320.5 million. Pursuant to existing agreements, we are required to offer our ownership interest and related charter contracts to Teekay LNG. Please read Item 18 – Financial Statements: Note 17(b) – Commitments and Contingencies – Joint Ventures.

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

Off-Balance Sheet Arrangements

We and certain of our subsidiaries have guaranteed our share of the outstanding mortgage debt in five 50%-owned joint venture companies. Please read Item 18 – Financial Statements: Note 17(b) – Commitments and Contingencies – Joint Ventures. We do not believe these off-balance sheet arrangements have, and we have no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

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

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

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.

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 Aframax, Suezmax, VLCC and product 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 Aframax, Suezmax, VLCC and product tankers has become the prevailing standard. In addition, the use of a 30 to 40 year vessel life for LNG carriers is typical. However, the actual life of a vessel may be different, with a shorter life potentially resulting in an impairment loss.

The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of secondhand 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 vessel every two and a half to 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 the original amortization period, the remaining unamortized balance of the original drydocking cost and any unamortized intermediate survey costs are expensed in the month of the subsequent drydocking.

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, contracts of affreightment and intellectual property are amortized over time. Our future operating performance will be affected by the future amortization of intangible assets and potential impairment charges related to goodwill. Accordingly, the allocation of the purchase price to intangible assets and goodwill has a significant impact on our future operating results. The allocation of the purchase price of the 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 intangible 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.

Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (or FASB) issued FASB Statement No. 123(R) (or SFAS 123(R)), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an acceptable alternative.

SFAS 123(R) permits public companies to adopt its requirements using one of the following two methods:

SFAS 123(R) must be adopted at the beginning of the first fiscal year commencing after June 15, 2005, and we adopted SFAS 123(R) using the modified-prospective method on January 1, 2006. The adoption of SFAS 123(R)‘s fair value method will have a significant impact on our result of operations, although it will not affect our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123. Please read Item 18 – Financial Statements: Note 1 – Summary of Significant Accounting Policies.

Item 6. Directors, Senior Management and Employees

Directors and Senior Management

Our directors and executive officers as of the date of this annual report and their ages as of December 31, 2005 are listed below:

Name                    Age    Position


C. Sean Day             56      Director and Chair of the Board
Bjorn Moller            48      Director, President and Chief Executive Officer
Axel Karlshoej          65      Director and Chair Emeritus
Bruce C. Bell           58      Director
Dr. Ian D. Blackburne   59      Director
Peter S. Janson         58      Director
Thomas Kuo-Yuen Hsu     59      Director
Eileen A. Mercier       58      Director
Tore I. Sandvold        58      Director
Peter Antturi           47      President, Teekay Navion Shuttle Tankers, a division of
                                    Teekay Shipping Corporation
Arthur Bensler          48      SVP, Secretary and General Counsel
Peter Evensen           47      EVP and Chief Financial Officer
David Glendinning       51      President, Teekay Gas and Offshore, a division of Teekay Shipping Corporation
Bruce Chan              33      SVP, Corporate Resources
Vincent Lok             37      SVP and Treasurer
Graham Westgarth        51      President, Teekay Marine Services, a division of Teekay Shipping Corporation
Paul Wogan              43      President, Teekay Tanker Services, a division of Teekay Shipping Corporation

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

C. Sean Day has served as a Teekay director since 1998 and as our Chair of the Board since September 1999. Mr. Day has also served as Chair of Teekay GP L.L.C., a wholly owned subsidiary of Teekay and the general partner of Teekay LNG Partners L.P., a publicly traded entity controlled by Teekay, since Teekay GP L.L.C. was formed in November 2004. 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 Chair of the Board of Resolute Investments, Inc., our largest shareholder. Please read Item 7 – Major Shareholders and Related Party Transactions.

Bjorn Moller became a Teekay director and our President and Chief Executive Officer in April 1998. Mr. Moller has also served as Vice Chair and a Director of Teekay GP L.L.C. since it was formed in November 2004. Mr. Moller has over 20 years’ experience in shipping and has served in senior management positions with Teekay for more than 15 years. He has headed our overall operations since January 1997, following his promotion to the position of Chief Operating Officer. Prior to this, Mr. Moller headed our global chartering operations and business development activities.

Axel Karlshoej has been a Teekay director since 1989 and was Chair of the Teekay Board from June 1994 to September 1999, and has been Chair Emeritus since stepping down as Chair. Mr. Karlshoej is President and serves on the compensation committee of Nordic Industries, a California general construction firm with which he has served for the past 30 years. He is the older brother of the late J. Torben Karlshoej, Teekay’s founder. Please read Item 7 – Major Shareholders and Related Party Transactions.

Bruce C. Bell is the Managing Director of Oceanic Bank and Trust Limited, a Bahamian bank and trust company, a position he has held since March 1994. In January 2005, Mr. Bell was appointed Chief Executive Officer of Oceanic Bank and Trust and in July 2005 he was appointed Chairman. Prior to joining Oceanic Bank and Trust, Mr. Bell was engaged in the private practice law in Canada, specializing in corporate and commercial banking and international business transactions. From May 2000 until May 2003, Mr. Bell served as our Corporate Secretary. Mr. Bell has served as the Secretary of Teekay GP L.L.C. since it was formed in November 2004. Mr. Bell has been a Teekay director since 2000. Please read Item 7 – Major Shareholders and Related Party Transactions.

Dr. Ian D. Blackburne has served as a Teekay director since 2000. Mr. Blackburne has over 25 years’ experience in petroleum refining and marketing, and in March 2000 he retired as Managing Director and Chief Executive Officer of Caltex Australia Limited, a large petroleum refining and marketing conglomerate based in Australia. He is currently serving as Chairman of CSR Limited and is a director of Suncorp-Metway Ltd. and Symbion Health Limited (formerly Mayne Group Limited), Australian public companies in the diversified industrial and financial sectors. Dr. Blackburne is also the Chairman of the Australian Nuclear Science and Technology Organization.

Peter S. Janson was appointed as a Teekay director in July 2005. From 1999 to 2002, Mr. Janson was the Chief Executive Officer of Amec Inc. (formerly Agra Inc.), a publicly traded engineering and construction company. From 1986 to 1994 he served as the President and Chief Executive Officer of Canadian operations for Asea Brown Boveri Inc., a company for which he also served as Chief Executive Officer for U.S. operations from 1996 to 1999. Mr. Janson has also served as a member of the Business Round Table in the United States, and as a member of the National Advisory Board on Science and Technology in Canada. He currently serves as Vice Chairman of the Royal Ontario Museum. He is also a director of Terra Industries Inc., Tembec Inc. and ATS Automan Tooling Systems Inc.

Thomas Kuo-Yuen Hsu has served as a Teekay director since 1993. He also has served 30 years with, and is presently a director of, CNC Industries, an affiliate of the Expedo Group of Companies that manages a fleet of seven vessels ranging in size from 30,000 dwt to 70,000 dwt. He has been a Committee Director of the Britannia Steam Ship Insurance Association Limited since 1988. Please read Item 7 – Major Shareholders and Related Party Transactions.

Eileen A. Mercier has been a Teekay director since 2000. She has over 35 years’ experience in a wide variety of financial and strategic planning positions, including Senior Vice President and Chief Financial Officer for Abitibi-Price Inc. from 1990 to 1995. She formed her own management consulting company, Finvoy Management Inc. and acted as president from 1995 to 2003. She currently serves as a director for CGI Group Ltd., Hydro One Inc., ING Bank of Canada, ING Canada Inc., Winpak Limited, Shermag Inc., The University Health Network, York University and the Ontario Teachers’ Pension Plan.

Tore I. Sandvold has served as a Teekay director since 2003. He has over 30 years’ experience in the oil and energy industry. From 1973 to 1987 he served in the Norwegian Ministry of Industry, Oil & Energy in a variety of positions in the area of domestic and international energy policy. From 1987 to 1990 he served as the Counselor for Energy in the Norwegian Embassy in Washington, D.C. From 1990 to 2001 Mr. Sandvold served as Director General of the Norwegian Ministry of Oil & Energy, with overall responsibility for Norway’s national and international oil and gas policy. From 2001 to 2002 he served as Chairman of the Board of Petoro, the Norwegian state-owned oil company that is the largest oil asset manager on the Norwegian continental shelf. From 2002 to the present, Mr. Sandvold, through his company, Sandvold Energy AS, has acted as advisor to companies and advisory bodies in the energy industry. Mr. Sandvold serves on other boards, including those of Schlumberger Limited., E. on Ruhrgas Norge AS, Lambert Energy Advisory Ltd., University of Stavanger, Offshore Northern Seas, and the Energy Policy Foundation of Norway.

Peter Antturi joined Teekay in September 1991. Since then, he has held a number of finance and accounting positions, including Controller from March 1992 until his promotion to the position of Senior Vice President, Treasurer and Chief Financial Officer in October 1997. In 2003 he became President of Navion AS upon the closing of our acquisition of Navion. In November 2003 Mr. Antturi was appointed President of our Teekay Navion Shuttle Tankers division, which is responsible for the shuttle tanker activities and projects of our two wholly owned subsidiaries, Navion AS and Ugland Nordic Shipping AS. Prior to joining Teekay, Mr. Antturi held various accounting and finance roles in the shipping industry since 1985.

Arthur Bensler joined Teekay in September 1998 as General Counsel. He was promoted to the position of Vice President in March 2002 and became our Corporate Secretary in May 2003. He was appointed Senior Vice President in February 2004 and Executive Vice President in January 2006. Prior to joining Teekay, Mr. Bensler was a partner in a large Vancouver, Canada law firm, where he practiced corporate, commercial and maritime law from 1986 until joining Teekay.

Peter Evensen joined Teekay in May 2003 as Senior Vice President, Treasurer and Chief Financial Officer. He was appointed Executive Vice President and Chief Financial Officer in February 2004. Mr. 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 Director of Teekay GP L.L.C. since January 2005. Mr. Evensen has over 20 years’ experience in banking and shipping finance. Prior to joining Teekay, 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.

David Glendinning joined Teekay in January 1987. Since then, he has held a number of senior positions, including service as 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. In November 2003 Mr. Glendinning was appointed President of our Teekay Gas and Offshore division, which is responsible for our initiatives in the LNG business and other areas of gas activity as well as building on our international presence in the floating storage and offtake business and related offshore activities. Prior to joining Teekay, Mr. Glendinning, who is a Master Mariner, had 18 years’ sea service on oil tankers of various types and sizes.

Bruce Chan joined Teekay in September 1995. Since then, in addition to spending a year in Teekay’s London office, Mr. Chan has held a number of finance and accounting positions with the Company, including Vice President, Strategic Development from February 2004 until his promotion to the position of Senior Vice President, Corporate Resources in September 2005. Prior to joining Teekay, Mr. Chan worked as a Chartered Accountant in the Vancouver, Canada office of Ernst & Young.

Vincent Lok joined Teekay in June 1993. Since then, he has held a number of finance and accounting positions, including Controller from 1997 until his promotion to the position of Vice President, Finance in March 2002. He was appointed Senior Vice President and Treasurer in February 2004. Prior to joining Teekay, Mr. Lok worked in the Vancouver, Canada audit practice of Deloitte & Touche.

Graham Westgarth joined Teekay in February 1999 as Vice President, Marine Operations. He was promoted to the position of Senior Vice President, Marine Operations in December 1999. In November 2003 Mr. Westgarth was appointed President of our Teekay Marine Services division, which is responsible for all of our marine and technical operations as well as marketing a range of services and products to third parties, such as marine consulting services and computer-based marine training software. He has extensive shipping industry experience. Prior to joining Teekay, Mr. Westgarth was General Manager of Maersk Company (UK), where he joined as Master in 1987. His international industry experience includes 18 years’ sea service, with five years in a command position.

Paul Wogan joined Teekay in November 2000 as the Managing Director of the London office. He was promoted to the position of Vice President, Business Development in March 2002. In November 2003 Mr. Wogan was appointed President of our Teekay Tanker Services division, which is responsible for the commercial management of our conventional crude oil and product tanker transportation services. Prior to joining Teekay, Mr. Wogan was with the chartering arm of a major crude oil and product carrier fleet controlled by the Ceres Hellenic Group (Livanos), which subsequently founded Seachem Tankers Ltd., a chemical tanker company, where he served as the Chief Executive Officer from 1997 until joining Teekay.

Compensation of Directors and Senior Management

Director Compensation

During 2005, the eight non-employee directors received, in the aggregate, $695,000 in cash fees for their services as directors, plus reimbursement of their out-of-pocket expenses. Each non-employee director receives an annual cash retainer of $50,000. Members of the Audit Committee, Compensation and Human Resources Committee, and Nominating and Governance Committee receive an additional annual cash retainer of $8,000, $5,000 and $5,000, respectively. The Chair of the Board and the Chair of the Audit Committee receive an additional annual cash retainer of $228,000 and $16,000, respectively.

In addition, each non-employee director received a $70,000 annual retainer to be paid by way of a grant of restricted stock or stock options under our 2003 Equity Incentive Plan, at the director’s election. In addition to the $70,000 annual retainer, the Chair of the Board received a further $319,000 retainer in the form of a grant of restricted stock and stock options under our 2003 Equity Incentive Plan. Certain of the directors elected to receive this annual retainer in the form of stock options to purchase an aggregate of 6,600 shares of our common stock at an exercise price of $46.80 per share, 3,000 shares of our common stock at an exercise price of $42.33 per share, 3,500 shares of our common stock at an exercise price of $47.13 per share, and 11,000 shares of our common stock at an exercise price of $38.94 per share. These options expire March 10, 2015, June 2, 2015, July 15, 2015 and March 6, 2016, respectively, ten years after the date of their grant. These options vest as to one third of the shares on each of the first three anniversaries of their respective grant date, with the exception of the 11,000 stock option grant which vests as to one third of the shares immediately and one third on each of the first two anniversaries of the grant date. Certain other directors elected to receive this annual retainer in the form of 13,640 shares of restricted stock (11,290 shares of restricted stock on March 10, 2005 and 2,350 shares of restricted stock on June 2, 2005), which also vest with respect to one third of the shares on each of the first three anniversaries of their grant date.

Annual Executive Compensation

The aggregate compensation earned by Teekay’s nine executive officers listed above (or the Executive Officers) for 2005 was $7.2 million. This is comprised of base salary ($3.1 million), annual bonus ($3.2 million) and pension and other benefits ($0.9 million). These amounts were paid primarily in Canadian Dollars, but are reported here in U.S. Dollars using an exchange rate of 1.16 Canadian Dollars for each U.S. Dollar, the exchange rate on December 31, 2005. Teekay’s annual bonus plan considers both company performance, through comparison to established targets and financial performance of peer companies, and individual performance.

Long-Term Incentive Program

Teekay’s long-term incentive program provides focus on the returns realized by the shareholders and acknowledges and retains those executives who can influence our long-term performance. The long-term incentive plan provides a balance against short-term decisions and encourages a longer time horizon for decisions. This program consists of stock option grants, stock appreciation rights (or SARs) and restricted stock awards. All grants in 2005 have been made under our 2003 Equity Incentive Plan.

During 2005, we granted stock options to purchase an aggregate of 189,000 shares of our common stock, 303,291 restricted stock units and SARs with respect to 25,900 shares of common stock to the Executive Officers under our 2003 Equity Incentive Plan. The weighted-average exercise price of these stock options and SARs is $46.80 per share. These options and SARs, which vest equally over three years, expire March 9, 2015, ten years after the date of the grant. The restricted stock units vest in three equal amounts on March 31, 2006, March 31, 2007 and November 30, 2007. Upon vesting, the restricted stock units will be paid to each grantee in the form of cash or shares of Teekay’s common stock, (purchased on the open market) at the election of the grantee. Based on the December 31, 2005 share price of $39.90 per share, the restricted stock units had a notional value of $12.1 million.

Vision Incentive Plan

The Vision Incentive Plan (or the VIP) rewards exceptional corporate performance and shareholder return over the long term and the successful implementation of innovative plans to continue the transformation of Teekay. This is a discrete plan that expires after 2010 and is not a permanent element of our Executive Compensation Program. Under the terms of the VIP, awards may only be made to VIP participants in 2008 and 2011. The VIP will result in an award pool for senior management based on two measures: (a) economic profit from 2005 to 2010; and (b) the increase in market value added from 2001 to 2010. Please read Item 19 - Exhibits: Exhibit 4.6 for further information on the VIP.

During 2005, we accrued $17.0 million of Economic Profit contributions which represents the addition to the award pool for 2005. As of March 15, 2006, 43.8% of this award pool was allocable to the Executive Officers. However, our Board of Directors may, at any time prior to the expiration of the VIP, change the allocation of the award pool between its participants to reflect a change in their relative contribution.

During 2005, we accrued $4.5 million of Market Value contributions which represents a notional contribution to the award pool. These notional contributions assume the following two threshold requirements will be met: (a) shares of our common stock have an average market value, for the 18 months prior to December 31, 2010, that is at least 120% of its average book value for the same period and (b) our cumulative total shareholder return (or TSR) for the period from 2001 to 2010 must be above the 25th percentile relative to the TSR of the S&P 500 (as calculated in accordance with U.S. securities regulations) during the same period. If both threshold requirements are not met, there will be no Market Value contributions to the award pool. As of March 15, 2006, 54.7% of this award pool was allocable to the Executive Officers. However, our Board of Directors may, at any time prior to the expiration of the VIP, change the allocation of the award pool between its participants to reflect a change in their relative contribution.

Options to Purchase Securities from Registrant or Subsidiaries

As at December 31, 2005, we had reserved pursuant to our 1995 Stock Option Plan, which was terminated with respect to new grants effective September 10, 2003, and our 2003 Equity Incentive Plan, which was adopted effective on the same date (together, the Plans), 5,618,518 shares of common stock for issuance upon exercise of options granted or to be granted. During 2005, 2004, and 2003 we granted options under the Plans to acquire up to 620,700, 833,840 and 2,119,160 shares of common stock, respectively, to eligible officers, employees and directors. The options under the Plans have a 10-year term and vest equally over three years from the grant date, except for one grant of 50,000 options which will fully vest on December 31, 2006. The outstanding options under the Plans are exercisable at prices ranging from $8.44 to $47.13 per share, with a weighted-average exercise price of $24.81 per share, and expire between May 28, 2006 and July 15, 2015.

Board Practices

The Board of Directors consists of nine members. The Board of Directors is divided into three classes, with members of each class elected to hold office for a term of three years in accordance with the classification indicated below or until his or her successor is elected and qualifies. Directors Bruce C. Bell, C. Sean Day and Dr. Ian D. Blackburne have terms expiring in 2005. Mr. Day and Dr. Blackburne have been nominated by the Board of Directors for re-election, and James R. Clark has been nominated by the Board of Directors for election at the 2006 Annual Meeting of Shareholders. Directors Peter S. Janson, Eileen A. Mercier and Tore I. Sandvold have terms expiring in 2007. Directors Thomas Kuo-Yuen Hsu, Axel Karlshoej and Bjorn Moller have terms expiring in 2008.

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 determined that each of the current members of the Board, other than Bjorn Moller, our President and Chief Executive Officer, and C. Sean Day, our Chair of the Board, has no material relationship with Teekay (either directly or as a partner, shareholder or officer of an organization that has a relationship with Teekay), and is independent within the meaning of our director independence standards, which reflect the NYSE director independence standards as currently in effect and as they may be changed from time to time. In making this determination the Board considered the relationships of Thomas Kuo-Yuen Hsu and Axel Karlshoej with our largest shareholder and concluded these relationships do not materially affect their independence as current directors.

The Board has the following three committees: Audit Committee, Compensation and Human Resources Committee, and Nominating and 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. All of the committee charters are available under “Corporate Governance” in the Investor Centre of our Web site at www.teekay.com. During 2005, the Board held seven meetings. Each director attended all Board meetings, except for two Board meetings at each of which one director each was absent from each. Each director attended all applicable committee meetings.

Our Audit Committee is composed entirely of directors who satisfy applicable NYSE and SEC audit committee independence standards. Our Audit Committee includes Eileen A. Mercier (Chair), Peter S. Janson and Tore I. Sandvold. All members of the committee are financially literate and the Board has determined that Ms. Mercier qualifies as an audit committee financial expert.

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

During 2005, our Compensation and Human Resources Committee included Axel Karlshoej (Chair), Ian D. Blackburne and Thomas Kuo-Yuen Hsu. C. Sean Day was also a member of this committee until March 2005.

The Compensation and Human Resources Committee:

During 2005, our Nominating and Governance Committee included Ian D. Blackburne (Chair) (effective March 2005), Bruce C. Bell, Eileen A. Mercier and Thomas Kuo-Yuen Hsu (effective March 2005). C. Sean Day was a member (Chair) of this committee until March 2005.

The Nominating and Governance Committee:

Crewing and Staff

As at December 31, 2005, we employed approximately 4,400 seagoing and 700 shore-based personnel, compared to approximately 4,800 seagoing and 700 shore-based personnel in 2004, and 4,000 seagoing and 700 shore-based personnel as at December 31, 2003. The decrease in seagoing personnel from December 31, 2004 to December 31, 2005 was primarily due to the decrease in the size of our fleet. The increase in personnel from December 31, 2003 to December 31, 2004 was primarily due to our acquisition of Teekay Spain in 2004.

We regard attracting and retaining motivated seagoing personnel as a top priority. Through our global manning organization comprised of offices in Glasgow, Scotland, Grimstad, Norway, Riga, Latvia, Manila, Philippines, Mumbai, India, Sydney, Australia, and Madrid, Spain, we offer seafarers competitive employment packages and comprehensive benefits. We also provide excellent opportunities for personal and career development, which relate to our philosophy of promoting internally.

During fiscal 1996, we 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 that cover substantially all of our junior officers and seamen. We are also party to Enterprise Bargaining Agreements with various Australian maritime unions that covers officers and seamen employed through our Australian operations. Our officers and seamen for our Spanish-flagged vessels are covered by a collective bargaining agreement with Spain’s Union General de Trabajdores and Comisiones Obreras. We believe our relationships with these labor unions are good.

We see our commitment to training as fundamental to the development of the highest caliber seafarers for our marine operations. Our cadet training program is designed to balance academic learning with hands-on training at sea. We have 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, the cadets’ training continues on board a Teekay vessel. We also have a career development plan that is designed to ensure a continuous flow of qualified officers who are trained on our vessels and are familiar with our operational standards, systems and policies. We believe that high-quality manning and training policies will play an increasingly important role in distinguishing larger independent tanker companies that have in-house, or affiliate, capabilities from smaller companies that must rely on outside ship managers and crewing agents.

Share Ownership

The following table sets forth certain information regarding beneficial ownership, as of March 15, 2006, of our common stock by the directors and Executive Officers 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 shares that the person or entity has the right to acquire as of May 14, 2006 (60 days after March 15, 2006) through the exercise of any stock 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 shares set forth in the following table. Information for certain holders is based on information delivered to us.

Identity of Person or Group                                                  Shares Owned        Percent of Class
All directors and Executive Officers (17 persons)                          1,287,634 (1) (3)          1.7% (2)

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

The following table sets forth information regarding beneficial ownership, as of March 15, 2006, of Teekay’s common stock by each person we know to beneficially own more than 5% of the common stock. Information for certain holders is based on their latest filings with the SEC or information delivered to us. The number of shares beneficially owned by each person or entity is determined under SEC rules and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person or entity beneficially owns any shares as to which the person or entity has or shares voting or investment power. In addition, a person or entity beneficially owns any shares that the person or entity has the right to acquire as of May 14, 2006 (60 days after March 15, 2006) through the exercise of any stock 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 shares set forth in the following table.

Identity of Person or Group                                              Shares Owned         Percent of Class(5)

Resolute Investments, Inc.(1)............................................ 32,631,380                  44.0%
FMR Corp., Edward C. Johnson 3rd and Abigail P. Johnson, as a group(2)... 11,485,580                  15.5%
Neuberger Berman, Inc. and Neuberger Berman, LLC, as a group(3) .........  5,078,407                   6.8%
Iridian Asset Management, LLC(4) ........................................  5,053,415                   6.8%

Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government or other natural or legal person owns more than 50% of our outstanding common stock. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of Teekay.

Related Party Transactions

As at December 31, 2005, Resolute Investments, Inc. (or Resolute) owned 45.7% (December 31, 2004 – 39.3% and December 31, 2003 – 40.2%) of our outstanding Common Stock. The Chair of our board, C. Sean Day, is a director and the Chairman of Resolute. Two additional directors, Thomas Kuo-Yuen Hsu and Axel Karlshoej, are among the Managing Directors of The Kattegat Trust Company Limited, which is the trustee of the trust that owns all of Resolute’s outstanding equity.

Another of our directors, Bruce Bell, is Manager Director, Chief Executive Officer and Chairman of Oceanic Bank and Trust Limited. Payments made by us to Oceanic Bank and Trust Limited in respect of corporate administration fees and shared office costs for 2005, 2004 and 2003, totaled approximately $0.5 million in each of these years.

Item 8. Financial Information

Consolidated Financial Statements and Notes

Please read Item 18 below.

Legal Proceedings

From time to time we have been, and we 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. Such 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 our financial condition or results of operations.

Dividend Policy

Commencing with the quarter ended September 30, 1995, we declared and paid quarterly cash dividends in the amount of $0.1075 per share on our common stock. We increased our quarterly dividend from $0.1075 to $0.125 per share on our common stock in the fourth quarter of 2003, from $0.125 to $0.1375 per share during the fourth quarter of 2004 and from $0.1375 to $0.2075 per share in the fourth quarter of 2005. Subject to financial results and declaration by the Board of Directors, we currently intend to continue to declare and pay a regular quarterly dividend in such amount per share on our common stock. Pursuant to our dividend reinvestment program, holders of common stock are permitted to choose, in lieu of receiving cash dividends, to reinvest any dividends in additional shares of common stock at then prevailing market prices, but without brokerage commissions or service charges. On May 17, 2004, we effected a two-for-one stock split relating to our common stock. All per share data give effect to this stock split retroactively.

The timing and amount of dividends, if any, will depend, among other things, on our results of operations, financial condition, cash requirements, restrictions in financing agreements and other factors deemed relevant by our Board of Directors. Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends on the common stock depends on the earnings and cash flow of our subsidiaries.

Significant Changes

Please read Item 18 – Financial Statements: Note 21 – Subsequent Events.

Item 9. The Offer and Listing

Our common stock is traded on the New York Stock Exchange (or NYSE) under the symbol "TK". The following table sets forth the high and low closing sales prices for our common stock on the NYSE for each of the periods indicated.(1)

Years Ended             Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                          2005        2004        2003        2002        2001
                       ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
  High                  $50.0100    $54.4500    $28.6750    $20.8500    $26.3050
  Low                    37.2500     27.9500     17.8550     13.1750     12.7450

Quarters Ended          Dec. 31,    Sept. 30,    June 30,    Mar. 31,    Dec. 31,   Sept. 30,  June 30,   Mar. 31,
                          2005        2005         2005        2005        2004       2004       2004       2004
                       ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
  High                  $43.5600    $47.3000    $46.6500    $50.0100    $54.4500   $43.3800   $37.6500   $34.9350
  Low                    37.2500     42.7300     41.6400     40.1200     41.1400    34.5600    29.4100    27.9500

Months Ended            Feb. 28,    Jan. 31,    Dec. 31,    Nov. 30,    Oct. 31,   Sept. 30,
                          2006        2006        2005        2005        2005       2005
                       ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
  High                  $39.6500    $40.9000    $43.5600    $42.9200    $42.5000   $45.8400
  Low                    37.2900     38.7600     39.6500     39.4400     37.2500    42.7300

Our Premium Equity Participating Security Units due May 18, 2006 (or Equity Units) traded on the NYSE under the symbol “TK PR” until they were settled in February 2006. The following table sets forth the high and low closing sales prices for our Equity Units on the NYSE for each of the periods indicated.

Years Ended            Dec. 31,    Dec. 31,    Dec. 31,
                         2005        2004        2003 (1)
                      ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------
  High                 $57.3300    $63.3400    $36.1400
  Low                   46.5400     35.2400     24.8600

Quarters Ended          Dec. 31,    Sept. 30,   June 30,    Mar. 31,    Dec. 31,    Sept. 30,  June 30,   Mar. 31,
                          2005        2005        2005        2005        2004        2004       2004       2004
                       ----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
  High                  $49.6000    $54.9700    $53.8000    $57.3300    $63.3400   $50.3800   $44.6900   $42.9300
  Low                    42.7300     48.7100     47.8800     42.7300     48.1900    41.2500    36.3900    35.2400

Months Ended            Feb. 28,    Jan. 31,    Dec. 31,    Nov. 30,    Oct. 31,    Sept. 30,
                         2006 (2)    2006        2005        2005        2005        2005
                      ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------
  High                  $44.3100    $46.3600    $49.6000    $48.8100    $48.7800   $52.5800
  Low                    42.3700     44.0200     45.2800     44.8100     42.7300    48.7100

Item 10. Additional Information

Memorandum and Articles of Association

Our Articles of Incorporation and Bylaws have previously been filed as exhibits 2.1, 2.2, and 2.3 to our Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on March 30, 2000, and are hereby incorporated by reference into this Annual Report.

The rights, preferences and restrictions attaching to each class of our capital stock are described in the section entitled "Description of Capital Stock" of our Rule 424(b) prospectus (File No. 1-12874), filed with the SEC on June 10, 1998, and hereby incorporated by reference into this Annual Report, provided that since the date of such prospectus (1) the par value of our capital stock has been changed to $0.001 per share, (2) our authorized capital stock has been increased to 725,000,000 shares of common stock and 25,000,000 shares of Preferred Stock, (3) we have been domesticated in the Republic of the Marshall Islands and (4) we have adopted a staggered Board of Directors, with directors serving three-year terms.

The necessary actions required to change the rights of holders of the stock and the conditions governing the manner in which annual general meetings and special meetings of shareholders are convoked are described in our Bylaws filed as exhibit 2.3 to our Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on March 30, 2000, and hereby incorporated by reference into this Annual Report.

We have in place a rights agreement that would have the effect of delaying, deferring or preventing a change in control of Teekay. The rights agreement has been filed as part of our Form 8-A (File No. 1-12874), filed with the SEC on September 11, 2000, and hereby incorporated by reference into this Annual Report.

There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the laws of the Republic of the Marshall Islands or by our Articles of Incorporation or Bylaws.

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:

Exchange Controls and Other Limitations Affecting Security Holders

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

Teekay Shipping Corporation was incorporated in the Republic of Liberia on February 9, 1979 and was domesticated in the Republic of The Marshall Islands on December 20, 1999. Its principal executive headquarters are located in The Bahamas.

Marshall Islands Tax Consequences. Because Teekay and our subsidiaries do not, and do not expect that we or they will, conduct business or operations in the Republic of The Marshall Islands, and because all documentation related issuances of shares of our common stock 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 made to holders of shares of our common stock, so long as such persons do not reside in, maintain offices in, or 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 shares of our common stock.

Bahamian Tax Consequences. Under current Bahamian law, no taxes or withholdings will be imposed by the Commonwealth of the Bahamas on distributions made in respect of the shares of our common stock, and no stamp, capital gains or other taxes will be imposed by the Commonwealth of the Bahamas on the ownership or disposition of the shares of our common stock, as there are no personal income or corporation taxes, capital gains taxes or death duties in the Commonwealth of the Bahamas.

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 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 of the SEC at 100F 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

We are exposed to market risk from foreign currency fluctuations and changes in interest rates, bunker fuel prices and spot market rates for vessels. We use foreign currency forward contracts, interest rate swaps, bunker fuel swap contracts and forward freight agreements to manage currency, interest rate, bunker fuel price and spot market rate risks but do not use these financial instruments for trading or speculative purposes.

Foreign Currency Fluctuation Risk

Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues and most of our operating costs are in U.S. Dollars. We incur certain voyage expenses, vessel operating expenses, drydocking and overhead costs in foreign currencies, the most significant of which are Japanese Yen, Singapore Dollar, Canadian Dollar, Australian Dollar, British Pound, Euro and Norwegian Kroner. During 2005, approximately 29% of vessel and voyage costs, overhead and drydock expenditures were denominated in these currencies. However, we have some ability to shift the purchase of goods and services from one country to another and, thus, from one currency to another, on relatively short notice.

We enter into forward contracts as a hedge against changes in certain foreign exchange rates. As at December 31, 2005, we had the following foreign currency forward contracts:

                                                                              Expected Maturity Date
(contract amounts in millions of U.S. Dollars)                                         2006

Norwegian Kroner:
  Contract amount                                                                     $93.2
  Average contractual exchange rate                                                    6.56
Euro:
  Contract amount                                                                     $10.8
  Average contractual exchange rate                                                    0.83
Canadian Dollar:
  Contract amount                                                                     $10.7
  Average contractual exchange rate                                                    1.23
Australian Dollar:
  Contract amount                                                                      $4.5
  Average contractual exchange rate                                                    1.35

To the extent the hedge is effective, changes in the fair value of the forward contract are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a forward contract’s change in fair value will be immediately recognized in income.

Although the majority of our transactions, assets and liabilities are denominated in U.S. Dollars, certain of our subsidiaries have foreign currency denominated liabilities. There is a risk that currency fluctuations will have a negative effect on the value of our cash flows. We have not entered into any forward contracts to protect against the translation risk of our foreign currency denominated liabilities. As at December 31, 2005, we had Euro-denominated term loans of 318.5 million Euros ($377.4 million) included in long-term debt, and Norwegian Kroner-denominated deferred income taxes of approximately 360.4 million NOK ($57.7 million) included in other long-term liabilities. We have not hedged our Euro-denominated term loans as the revenue we receive from certain of our time charters is denominated in Euros and is used to pay the interest and principal payments on these loans.

Interest Rate Risk

We invest our cash and marketable securities in financial instruments with maturities of less than six months within the parameters of our investment policy and guidelines.

We use interest rate swaps to manage the impact of interest rate changes on earnings and cash flows. Changes in the fair value of our interest rate swaps are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of an interest rate swap change in fair value is immediately recognized in income. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts.

The table below provides information about our financial instruments at December 31, 2005, which are sensitive to changes in interest rates, including our debt and capital lease obligations and interest rate swaps. For long-term debt and capital lease obligations, the table presents principal cash flows 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
(in millions of U.S. dollars, except percentages)  2006    2007    2008    2009    2010   There-after   Rate (1)
Long-Term Debt:
 Fixed-Rate Debt                                 151.0     7.2     7.2     7.2     7.2      346.7        7.4%
 Average Interest Rate                             7.1%    4.1%    4.1%    4.1%    4.1%       7.7%

Variable Rate Debt
U.S. Dollar-Denominated (2)                         -     33.9   331.0    85.0    56.0      468.9       5.2%
Euro-Denominated (3) (4)                           8.1     8.7     9.3    10.0    10.7      330.6       3.6%

Capital Lease Obligations: (5)
 Fixed-Rate Obligations (6)                       10.0   132.2     5.3     5.5    85.9       26.2       7.6%
 Average Interest Rate (7)                         7.6%    8.8%    6.3%    6.3%    5.5%       8.3%

Interest Rate Swaps: (8)
 Contract Amount (U.S. Dollar-denominated) (9)   500.0     2.2     4.5   211.2    17.8     1,308.3      4.5%
 Average Fixed Pay Rate (2)                        2.8%    6.2%    6.2%    4.3%    5.5%        5.2%
 Contract Amount (Euro-Denominated) (4)            8.1     8.7     9.3    10.0    10.7       330.6      3.8%
 Average Fixed Pay Rate (3)                        3.8%    3.8%    3.8%    3.8%    3.8%        3.8%

Commodity Price Risk

From time to time we use bunker fuel swap contracts as a hedge to protect against the change in the cost of forecasted bunker fuel costs for certain vessels being time-chartered-out and for vessels servicing certain contracts of affreightment. To the extent the hedge is effective, changes in the fair value of the forward contract are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a forward contract’s change in fair value is immediately recognized in income. As at December 31, 2005, we were not committed to any bunker fuel swap contracts.

Spot Market Rate Risk

We use written forward freight agreements as a hedge to protect against the change in spot market rates earned by some of our vessels. As at December 31, 2005, we were committed to forward freight agreements totaling 4.9 million metric tonnes with a notional principal amount of $35.4 million, which expire between January and December 2006.

The following table sets forth further information on the magnitude of these foreign currency forward contracts, interest rate swap agreements, bunker fuel swap contracts and forward freight agreements:

                                              Contract                 Carrying Amount                    Fair
(in millions of U.S. dollars)                  Amount              Asset             Liability           Value

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

December 31, 2004
Foreign Currency Forward Contracts         $      104.2       $    16.6       $                    $     16.6
Interest Rate Swap Agreements                   2,304.9                               158.5            (158.5)
Bunker Fuel Swap Contracts                          3.6             0.1                                   0.1
Forward Freight Agreements                         40.0                                 3.3              (3.3)
Debt (including capital lease obligations)      2,744.5                             2,744.5          (2,801.6)

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 Security Holders and Use of Proceeds

None.

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 our 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 Teekay in the reports we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to Teekay’s management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

During 2005 there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our Chief Executive Officer and Chief Financial Officer do 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 Teekay 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 has determined that director and Chair of the Audit Committee, Eileen A. Mercier, 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 for Business Conduct that include a Code of Ethics for all employees and directors. This document is available under “Corporate Governance” in the Investor Centre of our web site (www.teekay.com). We also intend to disclose under “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 our directors and executive officers.

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 Teekay Shipping Corporation and our subsidiaries paid or accrued for audit and other services provided by Ernst & Young LLP for 2005 and 2004.

Fees                                                                          2005                  2004
                                                                   ------------------------ ---------------------

 Audit Fees (1)                                                         $   973,975           $   907,777
 Audit-Related Fees (2)                                                     215,131               395,176
 Tax Fees (3)                                                               212,509               232,640
 All Other Fees (4)                                                           2,167                 1,900
                                                                   ------------------------ ---------------------
  Total                                                                  $1,403,782            $1,537,493
                                                                   ======================== =====================

The Audit Committee 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 Equity Securities by the Issuer and Affiliated Purchasers

In November 2004, we announced that our Board of Directors had authorized the repurchase of up to 3,000,000 shares of our Common Stock in the open market. The following table shows the monthly stock repurchase activity related to this program:

                                                                         Total Number of        Maximum Number of
                                                                        Shares Purchased as   Shares that May Yet
Month of Repurchase                                                       Part of Publicly       Be Purchased
                                Total Number of     Average Price Paid   Announced Plans or        Under the
                                Shares Purchased        per Share           Program           Plans or Program

December 2004.................      1,400,200              $43.73            1,400,200            1,599,800
January 2005..................      1,599,800               42.27            1,599,800                    0
                              ------------------ ------------------- -------------------- -------------------
                                    3,000,000               41.82            3,000,000
                              ================== =================== ==================== ===================

In April, July and December 2005, we announced that its Board of Directors had authorized the repurchase of up to $225 million, $250 million and $180 million, respectively, of shares of our Common Stock in the open market. The following table shows the monthly stock repurchase activity related to these programs:

                                                                      Total Number of        Maximum Dollar
                                                                        Shares Purchased as   Value of Shares that
Month of Repurchase                                                       Part of Publicly         May Yet Be
                                Total Number of     Average Price Paid   Announced Plans or    Purchased Under the
                                Shares Purchased        per Share           Program           Plans or Program

April 2005....................         10,000              $42.15              10,000         $ 654,579,000
May 2005......................      1,430,400               42.54           1,430,400           593,729,000
June 2005.....................      2,163,700               43.72           2,163,700           499,132,000
July 2005.....................        409,300               44.79             409,300           480,800,000
August 2005...................      2,034,000               44.43           2,034,000           390,429,000
September 2005................        850,000               43.37             850,000           353,565,000
October 2005..................      1,827,300               39.18           1,827,300           281,971,000
November 2005.................      1,116,600               41.48           1,116,600           235,654,000
December 2005.................      1,242,200               41.39           1,242,200           184,240,000
January 2006..................      1,715,000               39.59           1,715,000           116,343,000
February 2006.................      1,875,000               38.43           1,875,000            44,287,000
March 2006....................        200,000               39.33             200,000            36,421,000
                              ------------------ ------------------- -------------------- -------------------
                                   14,873,500               41.82          14,873,500
                              ================== =================== ==================== ===================

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 thereon, 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......................................................................   F-2

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

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

Consolidated Statements of Changes in Stockholders' Equity.............................................   F-5

Notes to the Consolidated Financial Statements.........................................................   F-6

     1.1  Amended and Restated Articles of Incorporation of Teekay Shipping Corporation. (1)
     1.2  Articles of Amendment of Articles of Incorporation of Teekay Shipping Corporation. (1)
     1.3  Amended and Restated Bylaws of Teekay Shipping Corporation. (1)
     2.1  Registration Rights Agreement among Teekay Shipping Corporation, Tradewinds Trust Co. Ltd., as
          Trustee for the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (2)
     2.2  Specimen of Teekay Shipping Corporation Common Stock Certificate. (2)
     2.3  Indenture dated June 22, 2001 among Teekay Shipping Corporation and The Bank of New York Trust
          Company of Florida (formerly U.S. Trust Company of Texas, N.A.). for U.S. $250,000,000 8.875%
          Senior Notes due 2011. (3)
     2.4  First Supplemental Indenture dated as of December 6, 2001, among Teekay Shipping Corporation and
          The Bank of New York Trust Company of Florida, N.A. for U.S. $100,000,000 8.875% Senior
          Notes due 2011. (4)
     2.5  Exchange and Registration Rights Agreement dated June 22, 2001 among Teekay Shipping Corporation
          and Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney
          Inc., Deutsche Banc Alex. Brown Inc. and Scotia Capital (USA) Inc. (3)
     2.6  Exchange and Registration Rights Agreement dated December 6, 2001 between Teekay Shipping
          Corporation and Goldman, Sachs & Co. (4)
     2.7  Specimen of Teekay Shipping Corporation's 8.875% Senior Notes due 2011. (3)
     4.1  1995 Stock Option Plan. (2)
     4.2  Amendment to 1995 Stock Option Plan. (5)
     4.3  Amended 1995 Stock Option Plan. (6)
     4.4  2003 Equity Incentive Plan. (7)
     4.5  Annual Executive Bonus Plan. (8)
     4.6  Vision Incentive Plan.
     4.7  Form of Indemnification Agreement between Teekay and each of its officers and directors. (2)
     4.8  Rights agreement, dated as of September 8, 2000, between Teekay Shipping Corporation and The Bank
          of New York, as Rights Agent. (9)
     4.9  Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing Revolving Loan Facility
          between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (10)
    4.10  Agreement, dated September 1, 2004 for a U.S. $500,000,000 Credit Facility Agreement to be
          made available to Teekay Nordic Holdings Incorporated by Nordea Bank Finland PLC. (8)
    4.11  Amendment dated September 30, 2004 to Agreement, dated June 26, 2003, for a
          U.S. $550,000,000 Secured Reducing Revolving Loan
          Facility between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (8)
    4.12  Agreement dated May 26, 2005 for a U.S. $550,000,000 Credit Facility Agreement to be made
          available to Avalon Spirit LLC et al by Nordea Bank Finland PLC and others.
     8.1  List of Significant Subsidiaries.
    12.1  Rule 13a-14(a)/15d-14(a) Certification of Teekay's Chief Executive Officer.
    12.2  Rule 13a-14(a)/15d-14(a) Certification of Teekay's Chief Financial Officer.
    13.1  Teekay Shipping Corporation Certification of Bjorn Moller, Chief Executive Officer,
          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.
    13.2  Teekay Shipping Corporation Certification of Peter Evensen, 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 3, 2006,
          regarding audited financial information.

                                                                   Year Ended       Year Ended       Year Ended
                                                                   December 31,     December 31,     December 31,
                                                                       2005             2004             2003
                                                                         $                $                $
                                                                 ---------------- ---------------- ----------------

VOYAGE REVENUES                                                     1,954,618        2,219,238        1,576,095
---------------------------------------------------------------- ---------------- ---------------- ----------------

OPERATING EXPENSES
Voyage expenses                                                       419,169          432,395          394,656
Vessel operating expenses                                             206,749          218,489          210,696
Time-charter hire expense                                             467,990          457,180          304,623
Depreciation and amortization                                         205,529          237,498          191,237
General and administrative                                            159,707          130,742           85,147
Vessel and equipment writedowns and (gain) loss on sale
    of vessels (note 19)                                             (139,184)         (79,254)          90,389
Restructuring charge (note 15)                                          2,882            1,002            6,383
---------------------------------------------------------------- ---------------- ---------------- ----------------
Total operating expenses                                            1,322,842        1,398,052        1,283,131
---------------------------------------------------------------- ---------------- ---------------- ----------------

Income from vessel operations                                         631,776          821,186          292,964
---------------------------------------------------------------- ---------------- ---------------- ----------------

OTHER ITEMS
Interest expense                                                     (132,428)        (121,518)         (80,999)
Interest income                                                        33,943           18,528            3,921
Equity income from joint ventures                                      11,141           13,730            6,970
Gain on sale of marketable securities                                       -           93,175              517
Foreign exchange gain (loss) (note 8)                                  59,810          (42,704)          (3,855)
Other - net (note 15)                                                 (33,342)         (24,957)         (42,154)
---------------------------------------------------------------- ---------------- ---------------- ----------------
Total other items                                                     (60,876)         (63,746)        (115,600)
---------------------------------------------------------------- ---------------- ---------------- ----------------

Net income                                                            570,900          757,440          177,364
---------------------------------------------------------------- ---------------- ---------------- ----------------

Earnings per common share (note 20)
•Basic                                                                   7.30             9.14             2.22
•Diluted                                                                 6.83             8.63             2.18
Weighted average number of common shares
•Basic                                                             78,201,996       82,829,336       79,986,746
•Diluted                                                           83,547,686       87,729,037       81,466,294
================================================================ ================ ================ ================

                                                                                      As at              As at
                                                                                   December 31,       December 31,
                                                                                       2005               2004
                                                                                         $                  $
                                                                                ------------------ -------------------
ASSETS
Current
Cash and cash equivalents (note 8)                                                    236,984            427,037
Restricted cash (note 11)                                                             152,286             96,087
Accounts receivable                                                                   151,732            210,089
Vessels held for sale                                                                       -            129,952
Net investment in direct financing leases - current                                    20,240                  -
Prepaid expenses and other assets                                                      69,175             54,717
------------------------------------------------------------------------------ ------------------ -------------------

Total current assets                                                                  630,417            917,882
------------------------------------------------------------------------------ ------------------ -------------------

Restricted cash (note 11)                                                             158,798            352,725

Vessels and equipment (note 8)
At cost, less accumulated depreciation of $766,696 (2004 - $960,597)                2,536,002          2,613,379
Vessels under capital leases, at cost, less accumulated depreciation of $35,574
  (2004 - $11,047) (note 11)                                                          712,120            665,331
Advances on newbuilding contracts (note 17)                                           473,552            252,577
------------------------------------------------------------------------------ ------------------ -------------------
Total vessels and equipment                                                         3,721,674          3,531,287
------------------------------------------------------------------------------ ------------------ -------------------
Net investment in direct financing leases (note 5)                                    100,996            109,215
Investment in joint ventures (note 17)                                                145,448             59,637
Other assets                                                                          113,590             85,893
Intangible assets - net (note 6)                                                      252,280            277,511
Goodwill (note 6)                                                                     170,897            169,590
------------------------------------------------------------------------------- ------------------ -------------------

Total assets                                                                        5,294,100          5,503,740
============================================================================== ================== ===================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable                                                                       40,908             61,607
Accrued liabilities (note 7)                                                          125,878            144,415
Current portion of long-term debt (note 8)                                            159,053            119,453
Current obligation under capital leases (notes 11 and 17)                             139,001             88,934
------------------------------------------------------------------------------ ------------------ -------------------

Total current liabilities                                                             464,840            414,409
------------------------------------------------------------------------------ ------------------ -------------------
Long-term debt (note 8)                                                             1,686,190          1,988,551
Long-term obligation under capital leases (note 11)                                   415,234            547,607
Loan from joint venture partner (note 9)                                               33,500                  -
Other long-term liabilities (notes 1 and 10)                                          174,991            301,091
------------------------------------------------------------------------------ ------------------ -------------------

Total liabilities                                                                   2,774,755          3,251,658
------------------------------------------------------------------------------ ------------------ -------------------
Commitments and contingencies (notes 10, 11, 16, 17 and 21)

Minority interest                                                                     282,803             14,724

Stockholders' equity
Capital stock (note 13)                                                               471,784            534,938
Retained earnings                                                                   1,833,588          1,758,552
Accumulated other comprehensive loss                                                  (68,830)           (56,132)
------------------------------------------------------------------------------ ------------------ -------------------

Total stockholders' equity                                                          2,236,542          2,237,358
------------------------------------------------------------------------------ ------------------ -------------------

Total liabilities and stockholders' equity                                          5,294,100          5,503,740
============================================================================== ================== ===================

                                                                          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                                                                    570,900       757,440      177,364
Non-cash items:
  Depreciation and amortization                                               205,529       237,498      191,237
  Gain on sale of vessels                                                    (151,427)      (79,254)      (1,188)
  Gain on sale of marketable securities                                             -       (93,175)        (517)
  Loss on writedown of vessels and equipment                                   12,243             -       91,577
  Loss on writedown of marketable securities                                        -             -        4,910
  Loss on repurchase of bonds (note 15)                                        13,255           769        5,385
  Equity income (net of dividends received: December 31, 2005 -
   $9,227; December 31, 2004 - $12,576; December 31, 2003 - $7,420)            (1,914)       (1,154)         450
  Income taxes (note 15)                                                       (2,340)       35,048       36,501
  Loss from settlement of interest rate swaps (note 15)                         7,820             -            -
  Writeoff of capitalized loan costs (note 15)                                  7,462             -            -
  Unrealized foreign exchange (gain) loss and other - net                     (23,174)       16,971       (3,191)
Change in non-cash working capital items related to operating
    activities (note 18)                                                       (8,644)      (26,550)      (4,256)
Expenditures for drydocking                                                   (20,668)      (32,889)     (42,697)
------------------------------------------------------------------------- --------------- ------------- -------------

Net operating cash flow                                                       609,042       814,704      455,575
------------------------------------------------------------------------- --------------- ------------- -------------

FINANCING ACTIVITIES
Proceeds from long-term debt                                                2,472,316     1,631,181    1,993,270
Capitalized loan costs                                                         (8,495)       (9,960)     (12,442)
Loan from joint venture partner (note 9)                                       33,500             -            -
Scheduled repayments of long-term debt                                        (61,242)     (150,314)     (62,240)
Prepayments of long-term debt                                              (2,629,624)   (1,731,223)  (1,466,815)
Repayments of capital lease obligations                                       (78,919)      (66,109)        (345)
Decrease in restricted cash                                                    81,304         8,341        6,113
Settlement of interest rate swaps                                            (143,295)            -            -
Net proceeds from sale of Teekay LNG Partners L.P. units (note 3)             257,986             -            -
Investment in subsidiaries from minority owners (note 17)                      25,329             -            -
Distribution from subsidiaries to minority owners (note 17)                   (14,093)            -            -
Issuance of Common Stock upon exercise of stock options                        20,359        51,280       25,015
Repurchase of Common Stock (note 13)                                         (538,377)      (61,237)           -
Cash dividends paid                                                           (49,151)      (42,362)     (35,719)
------------------------------------------------------------------------- --------------- ------------- -------------

Net financing cash flow                                                      (632,402)     (370,403)     446,837
------------------------------------------------------------------------- --------------- ------------- -------------

INVESTING ACTIVITIES
Expenditures for vessels and equipment                                       (555,142)     (548,587)    (372,433)
Proceeds from sale of vessels and equipment                                   534,007       440,556      242,111
Proceeds from sale of marketable securities                                         -       135,357        9,642
Purchase of Teekay Shipping Spain S.L., net of cash acquired
    of $11,191 (note 4)                                                             -      (286,993)           -
Purchase of Navion AS (note 5)                                                      -             -     (704,734)
Purchase of intangible assets                                                       -             -       (7,250)
Investment in joint ventures (note 17)                                        (82,399)       (4,369)      25,500
Loan to joint venture partner                                                 (13,000)            -            -
Purchase of PetroTrans Holdings Ltd.                                                -          (357)     (25,050)
Investment in direct financing leases (note 5)                                (23,708)      (53,273)     (25,202)
Repayment of direct financing leases (note 5)                                  12,440         9,381        4,880
Other                                                                         (38,891)       (1,263)     (42,217)
------------------------------------------------------------------------- --------------- ------------- -------------

Net investing cash flow                                                      (166,693)     (309,548)    (894,753)
------------------------------------------------------------------------- --------------- ------------- -------------

(Decrease) increase in cash and cash equivalents                             (190,053)      134,753        7,659
Cash and cash equivalents, beginning of the period                            427,037       292,284      284,625
------------------------------------------------------------------------- --------------- ------------- -------------

Cash and cash equivalents, end of the period                                  236,984       427,037      292,284
------------------------------------------------------------------------- --------------- ------------- -------------

                                                                              Accumulated
                                                                                 Other
                                                                                 Compre-
                                                  Thousands                      hensive   Compre-    Total
                                                  of Common  Common   Retained   Income    hensive  Stockholders'
                                                   Shares     Stock   Earnings   (Loss)    Income    Equity
                                                      #         $         $         $         $         $
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Balance as at December 31, 2002                     79,384   470,988    954,005   (3,095)            1,421,898
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Net income                                                              177,364            177,364     177,364
Other comprehensive income:
 Unrealized gain on marketable securities                                         53,540    53,540      53,540
 Reclassification adjustment for loss on
  marketable securities included in net income                                     4,899     4,899       4,899
 Unrealized gain on derivative instruments
   (note 16)                                                                       8,639     8,639       8,639
 Reclassification adjustment for gain on
  derivative instruments (note 16)                                                  (459)     (459)       (459)
                                                                                          ---------
Comprehensive income                                                                       243,983
                                                                                          ---------
Dividends declared                                                      (35,719)                       (35,719)
Reinvested dividends                                     2         3                                         3
Exercise of stock options                            1,764    25,015                                    25,015
7.25% Premium Equity Participating Security
  Units contract adjustment fee                               (4,803)                                   (4,803)
Issuance of Common Stock (note 13)                      72     1,450                                     1,450
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Balance as at December 31, 2003                     81,222   492,653  1,095,650    63,524            1,651,827
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Net income                                                              757,440            757,440     757,440
Other comprehensive income:
 Unrealized gain on marketable securities                                         39,369    39,369      39,369
 Reclassification adjustment for gain on
   marketable securities included in net income                                  (92,539)  (92,539)    (92,539)
 Unrealized loss on derivative instruments (note 16)                             (94,822)  (94,822)    (94,822)
 Reclassification adjustment for loss on
  derivative instruments (note 16)                                                28,336    28,336      28,336
                                                                                          ---------
Comprehensive income                                                                       637,784
                                                                                          ---------
Dividends declared                                                      (42,366)                       (42,366)
Reinvested dividends                                     1         3                                         3
100% Stock dividend                                               41        (41)                             -
Exercise of stock options                            3,125    51,280                                    51,280
Issuance of Common Stock (note 13)                       3        67                                        67
Repurchase of Common Stock (note 13)                (1,400)   (9,106)   (52,131)                       (61,237)
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Balance as at December 31, 2004                     82,951   534,938  1,758,552  (56,132)            2,237,358
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Net income                                                              570,900            570,900     570,900
Other comprehensive income:
 Unrealized loss on marketable securities                                         (1,348)   (1,348)     (1,348)
 Unrealized loss on derivative instruments (note 16)                             (25,370)  (25,370)    (25,370)
 Reclassification adjustment for loss on
  derivative instruments (note 16)                                                14,020    14,020      14,020
                                                                                         ---------
Comprehensive income                                                                       558,202
                                                                                         ---------
Dividends declared                                                      (49,155)                       (49,155)
Reinvested dividends                                     1         4                                         4
Exercise of stock options                            1,098    20,359                                    20,359
Issuance of Common Stock (note 13)                       9       297                                       297
Repurchase of Common Stock (note 13)               (12,683)  (83,814)  (454,563)                      (538,377)
Gain on public offerings of Teekay LNG (note 3)                           7,854                          7,854
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

Balance as at December 31, 2005                     71,376   471,784  1,833,588  (68,830)            2,236,542
------------------------------------------------- --------- --------- ---------- --------- --------- ----------

                                                                  Year Ended       Year Ended       Year Ended
                                                                  December 31,     December 31,     December 31,
                                                                    2005             2004             2003
                                                                      $                $                $
                                                              ---------------- ---------------- ----------------

     Net income - as reported...............................        570,900          757,440          177,364
     Less: Total stock-based compensation expense...........          8,077            8,996            8,243
                                                               ---------------- ---------------- ----------------
     Net income - pro forma.................................        562,823          748,444          169,121
                                                               ================ ================ ================

     Basic earnings per common share:
       As reported..........................................          7.30             9.14             2.22
       Pro forma............................................          7.20             9.04             2.11

     Diluted earnings per common share:
       As reported..........................................          6.83             8.63             2.18
       Pro forma............................................          6.74             8.53             2.08

     ----------------------------------------------------- --------------- -------------- ------------ -------------
                                                                Spot        Fixed-Rate     Fixed-Rate
                                                               Tanker         Tanker          LNG
     Year ended December 31, 2005                             Segment        Segment        Segment       Total
                                                                 $              $              $            $
     ----------------------------------------------------- --------------- -------------- ------------ -------------

     Voyage revenues - external..........................   1,122,845        734,128        97,645     1,954,618
     Voyage expenses.....................................     347,043         72,078            48       419,169
     Vessel operating expenses...........................      62,525        128,916        15,308       206,749
     Time-charter hire expense...........................     273,730        194,260             -       467,990
     Depreciation and amortization.......................      55,105        120,064        30,360       205,529
     General and administrative (1) .....................      89,465         57,059        13,183       159,707
     Vessel writedowns/(gain) loss on sale of vessels....    (142,004)         2,820             -      (139,184)
     Restructuring charge................................       1,927            955             -         2,882
                                                           --------------- -------------- ------------ -------------
     Income from vessel operations.......................     435,054        157,976        38,746       631,776
                                                           =============== ============== ============ =============

     Voyage revenues - intersegment......................           -          4,607             -         4,607
     Equity income.......................................       5,233          5,908             -        11,141
     Investments in joint ventures at December 31, 2005..      29,142         33,907        82,399       145,448
     Total assets at December 31, 2005...................     906,028      2,050,122     1,753,289     4,709,439
     Expenditures for vessels and equipment (2) .........     174,128         60,653       320,361       555,142

     ---------------------------------------------------- --------------- -------------- ------------ -------------
                                                                Spot        Fixed-Rate     Fixed-Rate
                                                               Tanker         Tanker          LNG
     Year ended December 31, 2004                             Segment        Segment        Segment       Total
                                                                 $              $              $            $
     ---------------------------------------------------- --------------- -------------- ------------ -------------

     Voyage revenues - external.........................    1,450,791        725,061        43,386     2,219,238
     Voyage expenses....................................      355,116         77,058           221       432,395
     Vessel operating expenses..........................       93,394        117,586         7,509       218,489
     Time-charter hire expense..........................      263,122        194,058             -       457,180
     Depreciation and amortization......................       95,570        129,074        12,854       237,498
     General and administrative (1) ....................       70,371         56,431         3,940       130,742
     Vessel writedowns/(gain) loss on sale of vessels...      (72,101)        (7,153)            -       (79,254)
     Restructuring charge...............................        1,002              -             -         1,002
                                                         -------------- -------------- -------------- -------------
     Income from vessel operations......................      644,317        158,007        18,862       821,186
                                                         ============== ============== ============== =============

     Voyage revenues - intersegment.....................            -          4,607             -         4,607
     Equity income......................................        7,040          6,690             -        13,730
     Investments in joint ventures at December 31, 2004.       29,034         30,603             -        59,637
     Total assets at December 31, 2004..................    1,119,302      2,080,855     1,517,027     4,717,184
     Expenditures for vessels and equipment (2) ........      214,572        191,085       142,930       548,587

     ---------------------------------------------------- --------------- -------------- ------------ -------------
                                                                Spot        Fixed-Rate     Fixed-Rate
                                                               Tanker         Tanker          LNG
     Year ended December 31, 2003                             Segment        Segment        Segment       Total
                                                                 $              $              $            $
     ---------------------------------------------------- --------------- -------------- ------------ -------------

     Voyage revenues - external.........................    1,081,974        494,121             -     1,576,095
     Voyage expenses....................................      342,928         51,728             -       394,656
     Vessel operating expenses..........................      126,261         84,435             -       210,696
     Time-charter hire expense..........................      168,344        136,279             -       304,623
     Depreciation and amortization......................      106,374         84,863             -       191,237
     General and administrative (1) ....................       53,338         31,809             -        85,147
     Vessel writedowns/(gain) loss on sale of vessels...       90,326             63             -        90,389
     Restructuring charge...............................        4,382          2,001             -         6,383
                                                         -------------- -------------- -------------- -------------
     Income from vessel operations......................      190,021        102,943             -       292,964
                                                         ============== ============== ============== =============

     Voyage revenues - intersegment.....................            -          8,499             -         8,499
     Equity income......................................        1,441          5,529             -         6,970
     Investments in joint ventures at December 31, 2003.       26,345         28,047             -        54,392
     Total assets at December 31, 2003..................    1,144,087      1,798,617             -     2,942,704
     Expenditures for vessels and equipment (2) ........       28,684        343,749             -       372,433

                                                                                December 31,          December 31,
                                                                                    2005                  2004
                                                                                      $                     $
                                                                           --------------------- --------------------
      Total assets of all segments........................................       4,709,439             4,717,184
      Cash and restricted cash............................................         244,510               428,437
      Accounts receivable and other assets................................         340,151               358,119
                                                                           --------------------- --------------------
         Consolidated total assets........................................       5,294,100             5,503,740
                                                                           ===================== ====================

     Proceeds received:                                                 Offering    Follow-On Offering      Total
                                                                           $                $                 $
                                                                   ----------------- ---------------- ---------------
       Sale of 6,900,000 common units at $22.00 per unit...........     151,800                -          151,800
       Sale of 4,600,000 common units at $27.40 per unit...........           -          126,040          126,040
                                                                   ----------------- ---------------- ---------------
                                                                        151,800          126,040          277,840
                                                                   ----------------- ---------------- ---------------
     Use of proceeds from sale of common units:
       Underwriting and structuring fees...........................      10,473            5,042           15,515
       Professional fees and other offering expenses to third
         parties...................................................       5,614              790            6,404
       Repayment of loans from Teekay Shipping Corporation.........     129,400                -          129,400
       Purchase of three Suezmax tankers from Teekay Shipping
         Corporation...............................................           -          120,208          120,208
       Working capital.............................................       6,313                -            6,313
                                                                   ----------------- ---------------- ---------------
                                                                        151,800          126,040          277,840
                                                                   ----------------- ---------------- ---------------

                                                                                           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 fixed-rate tanker segment and $35.7 million fixed-rate LNG
         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
     ======================================================================================= ===================

                                                                                         Pro Forma
                                                                                   Year Ended December 31,
                                                                                2004                 2003
                                                                             (unaudited)          (unaudited)
                                                                                  $                    $
                                                                       --------------------- ---------------------

     Voyage revenues...................................................      2,259,956             1,662,804
     Net income (1)....................................................        769,240               104,820
     Earnings per share
     - Basic...........................................................           9.29                  1.31
     - Diluted.........................................................           8.77                  1.29

                                                                                                        As at
                                                                                                    April 1, 2003
                                                                                                           $
     ASSETS
     Current assets..............................................................................        64,457
     Vessels and equipment.......................................................................       543,003
     Net investment in direct financing leases...................................................        45,558
     Other assets - long-term....................................................................         3,835
     Intangible assets subject to amortization: Contracts of affreightment (15-year
         sum-of-years declining balance).........................................................       117,000
     Goodwill (fixed-rate tanker segment)........................................................        40,033
     -------------------------------------------------------------------------------------------- -------------------
     Total assets acquired                                                                              813,886
     ============================================================================================ ===================
     LIABILITIES
     Current liabilities.........................................................................        36,270
     Other long-term liabilities.................................................................         3,463
     -------------------------------------------------------------------------------------------- -------------------
     Total liabilities assumed...................................................................        39,733
     -------------------------------------------------------------------------------------------- -------------------
     Net assets acquired (cash consideration)....................................................       774,153
     ============================================================================================ ===================

                                                                                            Pro Forma
                                                                                           Year Ended
                                                                                       December 31, 2003
                                                                                          (unaudited)
                                                                                               $
                                                                                    ------------------------
     Voyage revenues...............................................................      1,804,528
     Net income....................................................................        223,403
     Net income per common share
     - Basic ......................................................................           2.79
     - Diluted.....................................................................           2.74

                                                        Fixed-Rate   Fixed-Rate
                                            Spot Tanker   Tanker        LNG
                                              Segment    Segment      Segment    Other       Total
                                                 $          $            $          $          $
                                             ---------- ----------- ----------- ---------- ----------
      Balance as of December 31, 2004........    -       132,223       35,631      1,736    169,590
      Goodwill acquired......................    -         1,973            -          -      1,973
      Goodwill impairment....................    -             -            -       (666)      (666)
                                             ---------- ----------- ----------- ---------- ----------
        Balance as of December 31, 2005          -       134,196       35,631      1,070    170,897
                                             ========== =========== =========== ========== ==========

                                                       December 31, 2005                   December 31, 2004
                               ------------- ---------- ------------ ---------- ---------- ------------ ----------
                                 Weighted-
                                  Average       Gross                    Net      Gross                    Net
                                Amortization  Carrying  Accumulated   Carrying   Carrying  Accumulated   Carrying
                                   Period       Amount  Amortization   Amount     Amount   Amortization   Amount
                                   (years)        $          $            $         $           $           $
                               ------------- ---------- ------------ ---------- ---------- ------------ ----------
   Contracts of affreightment..     10.2       124,250    (45,748)      78,502   124,250    (30,880)     93,370
   Time-charter contracts......     19.2       182,552    (13,358)     169,194   182,552     (4,095)    178,457
   Intellectual property.......      7.0         7,701     (3,117)       4,584     7,701     (2,017)      5,684
                               ------------- ---------- ------------ ---------- ---------- ------------ ----------
                                    15.4       314,503    (62,223)     252,280   314,503    (36,992)    277,511
                               ============= ========== ============ ========== ========== ============ ==========

                                                                            December 31, 2005    December 31, 2004
                                                                                     $                    $
                                                                          ---------------------- ------------------

     Voyage and vessel....................................................         62,018               79,566
     Interest.............................................................         13,703               21,137
     Payroll and benefits.................................................         50,157               43,712
                                                                          ---------------------- ------------------
                                                                                  125,878              144,415
                                                                          ====================== ==================

                                                                            December 31, 2005    December 31, 2004
                                                                                     $                    $
                                                                          ---------------------- ------------------

     Revolving Credit Facilities..........................................        769,000              530,000
     First Preferred Ship Mortgage Notes (8.32%) .........................              -               50,906
     Premium Equity Participating Security Units (7.25%) due May 18, 2006.        143,750              143,750
     Senior Notes (8.875%) due July 15, 2011 .............................        265,559              351,530
     USD-denominated Term Loans due through 2019 .........................        289,582              588,080
     Euro-denominated Term Loans due through 2023 ........................        377,352              443,738
                                                                          ---------------------- ------------------
                                                                                1,845,243            2,108,004
     Less current portion.................................................        159,053              119,453
                                                                          ---------------------- ------------------
                                                                                1,686,190            1,988,551
                                                                          ====================== ==================

             Year                                                                                 Commitment
     ---------------------                                                                  ------------------------

             2006          .................................................................    $29.6 million
             2007          .................................................................    149.2 million
             2008          .................................................................     12.7 million
             2009          .................................................................     12.6 million
             2010          .................................................................     92.2 million
          Thereafter       .................................................................     36.8 million

             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)

                                                             December 31, 2005         December 31, 2004
                                                           Carrying       Fair       Carrying       Fair
                                                            Amount        Value       Amount        Value
                                                               $            $            $            $
     ---------------------------------------------------- ------------ ------------ ------------ ------------

     Cash and cash equivalents, marketable securities,
       and restricted cash...............................    581,163       581,163      875,849     875,849
     Long-term debt (including capital lease obligation
       and loan from joint venture partner).............. (2,432,978)   (2,466,173)  (2,744,545) (2,801,553)
     Derivative instruments (note 17) ...................
      Interest rate swap agreements .....................    (33,509)      (33,509)    (158,482)   (158,482)
      Foreign currency contracts ........................     (1,241)       (1,241)      16,635      16,635
      Bunker fuel swap contracts.........................           -             -          98          98
      Freight forward agreements ........................       (163)         (163)      (3,276)     (3,276)

                                             December 31, 2005      December 31, 2004      December 31, 2003
                                          ----------- ---------- ----------- ---------- ----------- -----------
                                                        Weighted-              Weighted-              Weighted-
                                                        Average                Average                Average
                                            Options    Exercise   Options     Exercise   Options      Exercise
                                            (000's)     Price     (000's)      Price     (000's)       Price
                                               #           $          #           $          #           $
                                          ----------- ---------- ----------- ---------- ----------- -----------

     Outstanding-beginning of year........    4,721      20.47       7,254      17.18       7,014      15.73
     Granted..............................      621      46.69         834      33.67       2,119      19.55
     Exercised............................   (1,098)     18.54      (3,125)     16.41      (1,764)     14.17
     Forfeited............................      (84)     24.44        (242)     19.39        (115)     19.64
                                          -----------            -----------            -----------
     Outstanding-end of year..............    4,160      24.81       4,721      20.47       7,254      17.18
                                          -----------            -----------            -----------

     Exercisable - end of year ...........    2,386      18.55       1,980      15.82       3,328      14.20
                                          ===========            ===========            ===========

     Weighted-average fair value of options
     granted during the year (per option).               15.49                   9.60                   4.23


     Further details regarding the Company's outstanding and exercisable stock options at December 31, 2005
     are as follows:

                                                     Outstanding Options          Exercisable Options
                                             -----------------------------------------------------------------
                                                          Weighted-    Weighted-              Weighted-
                                                           Average      Average                Average
                                              Options     Remaining    Exercise   Options     Exercise
                                              (000's)       Life        Price     (000's)       Price
      Range of Exercise Prices                   #         (years)        $          #           $
      -------------------------------------- ----------- ----------- ----------- ---------- -----------

      $ 8.44 - $ 9.99                            300         3.6         8.46         300       8.46
      $10.00 - $14.99                            312         3.6        12.26         312      12.26
      $15.00 - $19.99                          1,810         6.8        19.54       1,199      19.55
      $20.00 - $24.99                            384         5.3        20.57         376      20.58
      $25.00 - $29.99                              -          -           -             -        -
      $30.00 - $34.99                            745         8.2        33.66         195      33.62
      $35.00 - $39.99                              -          -           -             -        -
      $40.00 - $44.99                              3         9.4        42.33           -        -
      $45.00 - $47.13                            606         9.2        46.80           4      46.80
                                            ------------                         ----------
                                               4,160         6.8        24.81       2,386      18.55
                                            ============                         ===========

                                                                     Year Ended       Year Ended       Year Ended
                                                                     December 31,     December 31,     December 31,
                                                                       2005             2004             2003
                                                                         $                $                $
                                                                  ---------------- ---------------- ---------------
     Minority interest expense..................................      (16,628)          (2,268)          (3,339)
     Loss on bond repurchase....................................      (13,255)            (769)          (5,385)
     Loss from settlement of interest rate swaps................       (7,820)               -                -
     Writeoff of capitalized loan costs.........................       (7,462)               -                -
     Write-down in the carrying value of marketable securities..            -                -           (4,910)
     Income tax recovery (expense)..............................        2,340          (35,048)         (36,501)
     Miscellaneous..............................................        9,483           13,128            7,981
                                                                  ---------------- ---------------- --------------
     Other - net................................................      (33,342)         (24,957)         (42,154)
                                                                  ================ ================ ===============

                                                                            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......  LIBOR     700,000      (8,022)        2.6         4.5

     U.S. Dollar-denominated interest rate swaps (2)..  LIBOR   1,344,000      31,393        14.1         5.2

     Euro-denominated interest rate swaps (3) (4).....  EURIBOR   377,352      10,138        18.5         3.8

                                                                            December 31, 2005    December 31, 2004
                                                                                     $                    $
                                                                          ---------------------- ------------------

     Unrealized loss on derivative instruments............................        (67,482)             (56,132)
     Unrealized loss on marketable securities.............................         (1,348)               -
                                                                          ---------------------- ------------------
                                                                                  (68,830)             (56,132)
                                                                          ====================== ==================

                                                                      Year Ended     Year Ended     Year Ended
                                                                     December 31,   December 31,   December 31,
                                                                         2005           2004           2003
                                                                           $              $              $
                                                                    -------------- -------------- --------------

     Accounts receivable.........................................        58,357        (60,494)       (26,587)
     Prepaid expenses and other assets...........................       (23,052)        (1,189)         9,474
     Accounts payable............................................       (17,690)        11,484         14,627
     Accrued liabilities.........................................       (26,259)        23,649         (1,770)
                                                                    -------------- -------------- --------------
                                                                         (8,644)       (26,550)        (4,256)
                                                                    ============== ============== ==============

                                                                      Year Ended      Year Ended     Year Ended
                                                                     December 31,    December 31,   December 31,
                                                                         2005            2004           2003
                                                                           $               $              $
                                                                     -------------- -------------- --------------

      Net income available for common stockholders..................     570,900        757,440        177,364
                                                                     ============== ============== ==============

      Weighted average number of common shares......................  78,201,996     82,829,336     79,986,746
      Dilutive effect of employee stock options and
          restricted stock awards...................................   2,110,373      2,189,053      1,479,548
      Dilutive effect of Equity Units...............................   3,235,317      2,710,648              -
                                                                     -------------- -------------- --------------
       Common stock and common stock equivalents....................  83,547,686     87,729,037     81,466,294
                                                                     ============== ============== ==============

      Earnings per common share:
       - Basic.......................................................       7.30           9.14           2.22
       - Diluted.....................................................       6.83           8.63           2.18

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

NAVION OFFSHORE LOADING AS..............................   NORWAY                             100%
NAVION SHIPPING LTD.....................................   MARSHALL ISLANDS                   100%
NORSK TEEKAY AS.........................................   NORWAY                             100%
NORSK TEEKAY HOLDINGS LTD...............................   MARSHALL ISLANDS                   100%
SINGLE SHIP COMPANIES...................................   AUSTRALIA                          100%
SINGLE SHIP COMPANIES...................................   SPAIN                              100%
SINGLE SHIP LIMITED LIABILITY COMPANIES.................   MARSHALL ISLANDS                   100%
TEEKAY CHARTERING LIMITED...............................   MARSHALL ISLANDS                   100%
TEEKAY LIGHTERING SERVICES LLC..........................   MARSHALL ISLANDS                   100%
TEEKAY LNG PARTNERS LP..................................   MARSHALL ISLANDS                    68%
TEEKAY MARINE SERVICES AS...............................   NORWAY                             100%
TEEKAY NAVION OFFSHORE LOADING PTE LTD..................   SINGAPORE                          100%
TEEKAY NORDIC HOLDINGS INC..............................   MARSHALL ISLANDS                   100%
TEEKAY NORWAY AS........................................   NORWAY                             100%
TEEKAY SHIPPING (CANADA) LTD............................   CANADA                             100%
TEEKAY SHIPPING LIMITED.................................   BAHAMAS                            100%
TEEKAY SHIPPING SPAIN SL................................   SPAIN                              100%
UGLAND NORDIC SHIPPING AS...............................   NORWAY                             100%