We generated distributable cash flow in the second quarter of $54.2 million, up approximately 27% from the 42.6 million of distributable cash flow generated in the same quarter one year ago. This increase is primarily due to higher revenues in our FPSO segment and a termination fee of $14.7 million, paid to the partnership by Teekay Corporation relating to the cancellation of a time charter.For the second quarter, we declared in today paid cash distribution of $0.5125 per unit, which is consistent with the last quarter. As I highlighted last quarter, Teekay Offshore remains in a strong financial position to grow with $373 million of liquidity in the form of cash and undrawn revolving credit facilities, including our $46 million private placement which closed in July. Also during the second quarter, we received conformation from Talisman Energy on the extension of the Petrojarl Varg FPSO contract for a further three year period, taking the contract out to mid 2016. Talisman has another two three-year extension options in addition to the one they just declared. Securing the Varg contract for another three years, further enhances the partnership's cash flow stability. In June 2012, we received an offer from Teekay Corporation for the acquisition of the Voyageur Spirit FPSO which is expected to sail away from the Nemo shipyard later this month. On slide number four, I will discuss this offer that we received from Teekay corporation to acquire the Voyageur Spirit FPSO. In November of last year, Teekay and Sevan collaborated to jointly work toward completing the necessarily upgrades on the FPSO. We now expect the FPSO commence its charter with the German power and gas company E.ON upon the FPSO. We now expect the FPSO to commence its charter with the German power and gas company E.ON upon the start up of the Huntington oil field before the end of this year. Teekay has offered to sell us the FPSO for a price of $540 million and the offer is currently being reviewed by our conflicts committee.
We expect the FPSO will initially generate annual cash flow from vessel operations of approximately $70 million to $75 million. We will provide further details on this transaction in due course.On slide number five I will review our consolidated operating results for the quarter comparing an adjusted Q2 2012 income statement with an adjusted Q1 2012 income statement which excludes the items listed in Appendix A of our second quarter’s earnings release and reallocates realized gains and losses from derivatives to their respective income statement line items. Net revenues decreased by $9.4 million primarily due to a decrease in time charter revenue in the shuttle segment from the expiration of three time charter contracts and the dry dock of one shuttle tanker which remains on time charter. FPSO revenue also decreased due to a planned shutdown for maintenance on the Petrojarl Varg in the second quarter. Vessel operating expenses were in line with last quarter. We had increases in the FPSO segment relating to the planned maintenance of the Petrojarl Varg and the cost of repairs on the Piranema Spirit to comply with Brazilian regulations. This was offset by decreases in the shuttle and conventional tanker segments resulting from the timing of services and repairs, reduced cost of damages and cost reductions due to lay up of two vessels and the sale of one vessel in the conventional fleet. Vessel operating expenses are expected to rise by approximately $3 million to $4 million in the next quarter given the usual seasonal maintenance period during the summer months. Time charter higher expenses decreased by $600,000 mainly due to less spot-in chartering by optimizing the capacity of TOO’s own fleet, partially offset by a decrease in off hire days in the charter fleet compared to the first quarter. Read the rest of this transcript for free on seekingalpha.com