UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

ý           Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2006 or

o           Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                           to                          

Commission file number 1-9356

BUCKEYE PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 484-232-4000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” defined in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ý   Accelerated Filer o   Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

BUCKEYE PARTNERS, L.P.

INDEX

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Buckeye Partners, L.P.

Condensed Consolidated Statements of Income

(In thousands, except per unit amounts)

(Unaudited)

See Notes to condensed consolidated financial statements.

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Buckeye Partners, L.P.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

See Notes to condensed consolidated financial statements.

2

Buckeye Partners, L.P.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See Notes to condensed consolidated financial statements.

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BUCKEYE PARTNERS, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1.     BASIS OF PRESENTATION

In the opinion of management, the accompanying condensed consolidated financial statements of Buckeye Partners, L.P. (the “Partnership”), which are unaudited except that the Balance Sheet as of December 31, 2005 which is derived from audited financial statements, include all adjustments necessary to present fairly the Partnership’s financial position as of March 31, 2006, along with the results of the Partnership’s operations and its cash flows for the three months ended March 31, 2006 and 2005.  The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year ending December 31, 2006.

The Partnership is a master limited partnership organized in 1986 under the laws of the state of Delaware.  The Partnership conducts all of its operations through subsidiary entities.  These operating subsidiaries are Buckeye Pipe Line Company, L.P. (“Buckeye”), Laurel Pipe Line Company, L.P. (“Laurel”), Everglades Pipe Line Company, L.P. (“Everglades”), Buckeye Pipe Line Holdings, L.P. (“BPH”), Wood River Pipe Lines LLC (“Wood River”), Buckeye Pipe Line Transportation LLC (“BPL Transportation”) and Buckeye NGL Pipe Lines LLC (“Buckeye NGL”).  Buckeye NGL commenced operations on January 31, 2006 with the acquisition of a natural gas liquids pipeline located in Colorado and Kansas (see Note 3).  Each of these entities is referred to hereinafter as an “Operating Subsidiary” or collectively as the “Operating Subsidiaries.”  The Partnership owns an approximate 99% limited partnership interest in each Operating Subsidiary except Wood River, BPL Transportation and Buckeye NGL, in each of which it owns a 100% interest.

Buckeye GP LLC (the “General Partner”) serves as the general partner of the Partnership.   As of March 31, 2006, the General Partner owned approximately a 0.6% general partnership interest in the Partnership and approximately a 1% general partnership interest in each Operating Subsidiary except Wood River, BPL Transportation and Buckeye NGL.  The General Partner is a wholly-owned subsidiary of MainLine Sub LLC (“MainLine Sub”), which is a wholly-owned subsidiary of MainLine L.P. (“MainLine”).  MainLine is a limited partnership owned by affiliates of Carlyle/Riverstone Global Energy and Power Fund II, L.P. (“Carlyle/Riverstone”) and certain members of senior management.  See Note 12 for other events.

At March 31, 2006, Buckeye Pipe Line Services Company (“Services Company”) employed all of the employees who work for the Operating Subsidiaries.  Under a services agreement entered into in December 2004, (the “Services Agreement”), the Operating Subsidiaries and their subsidiaries directly reimburse Services Company for the cost of the services provided by the employees.  Under the Services Agreement, certain executive compensation costs and related benefits for the General Partner’s four highest salaried officers are not reimbursed by the Partnership or the Operating Subsidiaries, but are reimbursed to Services Company by MainLine Sub.  At March 31, 2006, Services Company owned an approximate 5.9% limited partnership interest in the Partnership.

The General Partner receives reimbursement for certain costs and expenses (other than the costs charged by Services Company) from the Partnership and the Operating Subsidiaries in accordance with the terms of the Partnership Agreement, the governing documents of the respective Operating Subsidiaries and certain management agreements.  The General Partner also receives cash distributions on its partnership interests in the Partnership and each Operating Subsidiary except Wood River, BPL Transportation and Buckeye NGL.  In addition, MainLine Sub receives cash distributions on limited partnership interests it owns in the Partnership and incentive compensation payments from the Partnership based on the cash distributions paid to the limited partners

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of the Partnership.  As a result of their ownership interest in MainLine, Carlyle/Riverstone and certain members of senior management indirectly benefit from the cash distributions paid to the General Partner and the cash distributions and incentive compensation paid to MainLine Sub.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the condensed consolidated financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with accounting principles generally accepted in the United States of America.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2005.

2.     CONTINGENCIES

Claims and Proceedings

The Partnership and the Operating Subsidiaries in the ordinary course of business are involved in various claims and legal proceedings, some of which are covered by insurance.  The General Partner is generally unable to predict the timing or outcome of these claims and proceedings. Based upon its evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, the Partnership has accrued certain amounts relating to such claims and proceedings, none of which are considered material.

Environmental Contingencies

In accordance with its accounting policy on environmental expenditures, the Partnership recorded operating expenses, net of insurance recoveries, of $1.8 million and $2.8 million for the three months ended March 31, 2006 and 2005, respectively, which were related to environmental expenditures unrelated to claims and proceedings.  Expenditures, both capital and operating, relating to environmental matters are expected to continue due to the Partnership’s commitment to maintaining high environmental standards and to increasingly strict environmental laws and government enforcement policies.

3.     ACQUISITIONS

On January 1, 2006, the Partnership acquired a refined petroleum products terminal located in Niles, Michigan from affiliates of Shell Oil Products, U.S. (“Shell”) for $13.0 million.  On January 31, 2006, the Partnership completed the acquisition of a natural gas liquids pipeline, which extends generally from Wattenberg, Colorado to Bushton, Kansas, from BP Pipelines (North America) Inc. for approximately $87.0 million, which includes a deposit of $7.7 million paid in December 2005.  The Partnership also completed certain miscellaneous asset acquisitions during the first quarter of 2006 which approximated $1 million.

Buckeye NGL acquired the natural gas liquids pipeline and Buckeye Terminals, LLC, a subsidiary of BPH, acquired the refined petroleum products terminal.

In connection with each of these acquisitions, the Partnership determined that the transaction represented the acquisition of various assets, and not the acquisition of a business, as that term is defined in Statement of Financial Accounting Standards No. 141 – “Business Combinations”.  Accordingly, the Partnership has allocated, on a preliminary basis, the cost of each acquisition to the various tangible assets acquired, principally property, plant and equipment.  The Partnership is in the process of determining the final allocation.

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In December 2005, the Partnership acquired a refined petroleum products terminal and related assets (including certain railroad offloading facilities) located in Taylor, Michigan for $20 million.  The Partnership allocated, on a preliminary basis, the cost of the assets to the tangible terminal assets acquired, and is in the process of determining the final allocation.

4.     LONG-TERM DEBT AND CREDIT FACILITIES

Long-term debt consists of the following:

The fair value of the Partnership’s debt was estimated to be $917 million as of March 31, 2006 and $908 million at December 31, 2005.  The values at March 31, 2006 and December 31, 2005 were based on approximate market value on the respective dates.

The Partnership has a $400 million 5-year revolving credit facility (the “Credit Facility”) with a syndicate of banks led by SunTrust Bank.  The Credit Facility contains a one-time expansion feature to $550 million subject to certain conditions.  Borrowings under the Credit Facility are guaranteed by certain of the Partnership’s subsidiaries.  The Credit Facility matures on August 6, 2009.  The weighted average interest rate on amounts outstanding under the Credit Facility at March 31, 2006 was 5.22%.

Borrowings under the Credit Facility bear interest under one of two rate options, selected by the Partnership, equal to either (i) the greater of (a) the federal funds rate plus one half of one percent and (b) SunTrust Bank’s prime rate or (ii) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin. The applicable margin is determined based upon ratings assigned by Standard and Poors and Moody’s Investor Services for the Partnership’s senior unsecured non-credit enhanced long-term debt. The applicable margin will increase during any period in which the Partnership’s Funded Debt Ratio (described below) exceeds 5.25 to 1.0.  At March 31, 2006 and December 31, 2005, the Partnership had $100.0 million and $50.0 million outstanding under the Credit Facility, respectively, and had committed $2.0 million and $1.3 million in support of letters of credit, respectively.

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The Credit Facility contains covenants and provisions that:

•      Restrict the Partnership and certain of its subsidiaries’ ability to incur additional indebtedness based on certain ratios described below;

•      Prohibit the Partnership and certain of its subsidiaries from creating or incurring certain liens on their property;

•      Prohibit the Partnership and certain of its subsidiaries from disposing of property material to their operations;

•      Limit consolidations, mergers and asset transfers by the Partnership and certain of its subsidiaries.

The Credit Facility requires that the Partnership and certain of its subsidiaries maintain a maximum “Funded Debt Ratio” and a minimum “Fixed Charge Coverage Ratio”.  The Funded Debt Ratio equals the ratio of the long-term debt of the Partnership and certain of its subsidiaries (including the current portion, if any) to “Adjusted EBITDA”, which is defined in the Credit Facility as earnings before interest, taxes, depreciation, depletion, amortization and incentive compensation payments to the General Partner, for the four preceding fiscal quarters.  As of the end of any fiscal quarter, the Funded Debt Ratio may not exceed 4.75 to 1.00, subject to a provision for increases to 5.25 to 1.00 in connection with future acquisitions.  At March 31, 2006 the Partnership’s Funded Debt Ratio was 4.40 to 1.00.

The Fixed Charge Coverage Ratio is defined as the ratio of Adjusted EBITDA for the four preceding fiscal quarters to the sum of payments for interest and principal on debt plus certain capital expenditures required for the ongoing maintenance and operation of the Partnership’s assets.  The Partnership is required to maintain a Fixed Charge Coverage Ratio of greater than 1.25 to 1.00 as of the end of any fiscal quarter.  As of March 31, 2006, the Partnership’s Fixed Charge Coverage Ratio was 2.86 to 1.00.

At March 31, 2006 the Partnership was in compliance with all of the covenants under the Credit Facility.

In December 2004, the Partnership terminated an interest rate swap agreement associated with the 4.625% Notes due June 15, 2013 and received proceeds of $2.0 million.  In accordance with FASB Statement No. 133 – “Accounting for Derivative Instruments and Hedging Activities”, the Partnership has deferred the $2.0 million gain as an adjustment to the fair value of the hedged portion of the Partnership’s debt and is amortizing the gain as a reduction of interest expense over the remaining term of the hedged debt.  Interest expense was reduced by $59 thousand during each of the first quarters of 2006 and 2005, related to the amortization of the gain on the interest rate swap.

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5.     PARTNERS’ CAPITAL AND EARNINGS PER PARTNERSHIP UNIT

Partners’ capital consists of the following:

During the three months ended March 31, 2006 and 2005, Partnership comprehensive income equaled net income.

The following is a reconciliation of basic and diluted net income per Partnership Unit for the three month periods ended March 31, 2006 and 2005:

6.     CASH DISTRIBUTIONS

The Partnership generally makes quarterly cash distributions of substantially all of its available cash, generally defined as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as the General Partner deems appropriate.

On April 27, 2006, the Partnership declared a cash distribution of $0.75 per unit payable on May 31, 2006 to Unitholders of record on May 8, 2006. The total cash distribution to Unitholders will amount to approximately $29,755,000.  As a result of the cash distribution, the Partnership will also pay to MainLine Sub an incentive compensation payment of approximately $6,173,000.

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7.     RELATED PARTY ACCRUED CHARGES

Accrued and other current liabilities include $2,262,000 and $3,821,000 due to the General Partner, MainLine Sub and MainLine for direct and indirect costs related to the business activities of the Partnership and Operating Subsidiaries at March 31, 2006 and December 31, 2005, respectively.  Accrued and other current liabilities included a payable to Services Company of $385,000 and $450,000 at March 31, 2006 and December 31, 2005, respectively.

8.     UNIT OPTION AND DISTRIBUTION EQUIVALENT PLAN

The Partnership sponsors the Unit Option and Distribution Equivalent Plan (the “Option Plan”), pursuant to which it grants options to purchase limited partner units (“LP units”) at 100% of the market price of the LP units on the date of grant. Generally the options vest three years from the date of grant and expire ten years from date of grant. As unit options are exercised, the Partnership issues new LP units. The Partnership has not historically repurchased, and does not expect to repurchase any of its LP units in 2006.

Effective January 1, 2006, the Partnership adopted the fair value measurement and recognition provisions of Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), using the modified prospective basis transition method. Under this method, unit-based compensation expense recognized in the first quarter of fiscal year 2006 includes: (a) compensation expense for all grants made prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all grants made on or after January 1, 2006, based on the grant date fair value estimated using the Black-Scholes option pricing model.  The Partnership will recognize compensation expense for awards granted on or after January 1, 2006 on a straight-line basis over the requisite service period.

For the retirement eligibility provisions of the Option Plan, the Partnership follows the non-substantive vesting method and recognizes compensation expense immediately for options granted to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved. Unit-based compensation expense recognized in the Condensed Consolidated Statements of Income for the first quarter of 2006 is based upon options ultimately expected to vest. In accordance with SFAS 123R, forfeitures have been estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based upon historical experience.

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As a result of adopting SFAS 123R on January 1, 2006, the Partnership’s net income for the three month period ended March 31, 2006 was $0.2 million lower than it would have been if the Partnership had continued to account for unit-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”).  Basic earnings per unit would not have changed.  Diluted earnings per unit would have been increased by $0.01 if the Partnership had not adopted SFAS 123R. The reported basic and diluted earnings per unit for the three months ended March 31, 2006 were $0.60 and $0.59, respectively. The following table summarizes the total unit-based compensation expense included in the Partnership’s Condensed Consolidated Statements of Income:

Prior to January 1, 2006, the Partnership accounted for the Option Plan under the recognition and measurement provisions of APB No. 25, and related Interpretations, as permitted by Financial Accounting Standards Board Statement No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (SFAS 148).  No unit-based employee compensation cost was recognized in the Condensed Consolidated Statements of Income for the three-month period ended March 31, 2005, as all unit options granted under the Option Plan had an exercise price equal to the market value of the underlying units on the date of grant.

The following table illustrates the effect on net income for the three months ended March 31, 2005 as if the Partnership had applied the fair value recognition provisions of SFAS 123 to options granted under the Option Plan.  For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option pricing model and amortized to expense over the units’ vesting periods:

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The fair value of unit options granted to employees was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions for the three months ended March 31, 2006 and 2005, respectively: 

The dividend yield is based on 6.5 years of historic yields. The expected volatility is based upon 6.5 years of historical volatility of the Partnership’s LP units. Effective January 1, 2006, the Partnership has elected to use the simplified method for the expected life which is the option vesting period of three years plus the option term of ten years divided by two. The risk-free interest rate is calculated using the U.S. Treasury yield curves in effect at the time of grant, for the periods within the expected life of the options.

The following table summarizes employee unit option activity for the three month period ended March 31, 2006:

As of January 1, 2006, there were 173,100, unvested options. During the first quarter of 2006, 54,300 options vested. The aggregate intrinsic value in the preceding table represents the total intrinsic value that would have been received by the option holders had all option holders exercised their options on March 31, 2006. Intrinsic value is determined by calculating the difference between the Partnership’s closing LP unit price on the last trading day of the first quarter of 2006 and the exercise price, multiplied by the number of units. The total intrinsic value of options exercised during the three month period ending March 31, 2006 was $109,800. The total number of in-the-money options exercisable as of March 31, 2006 was 117,500. As of March 31, 2006, total unrecognized compensation cost related to unvested options was $440,200.  The cost is expected to be recognized over a weighted average period of 0.8 years.  At March 31, 2006, 576,500 LP units were available for grant in connection with the Option Plan.

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9.     PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Services Company sponsors a retirement income guaranty plan (a defined benefit plan) which generally guarantees employees hired before January 1, 1986 a retirement benefit at least equal to the benefit they would have received under a previously terminated defined benefit plan (“Pension Benefits”).  Services Company’s policy is to fund amounts necessary to at least meet the minimum funding requirements under ERISA.

Services Company also provides postretirement health care and life insurance benefits to certain of its retirees (“Postretirement Benefits”).  To be eligible for these retirement benefits, an employee must have been hired prior to January 1, 1991 with respect to health care benefits and January 1, 2002 with respect to life insurance benefits, and the employee must satisfy certain service requirements.  Services Company does not pre-fund these postretirement benefit obligations.

In the three months ended March 31, 2006 and 2005, the components of the net periodic benefit cost recognized by the Partnership for Services Company’s retirement income guarantee plan and postretirement health care and life insurance plan were as follows:

The Partnership previously disclosed in its financial statements for the year ended December 31, 2005 that a minimum funding contribution was not required to be made during 2006.

10.   SEGMENT INFORMATION

Prior to 2005, the Partnership determined that it had one reportable operating segment, the transportation segment, based on its management and financial reporting structure.  Beginning in the fourth quarter of 2004 and continuing throughout 2005, the Partnership substantially expanded its business, including a significant increase in its terminalling operations.   In the fourth quarter of 2005, the Partnership determined that its operations are appropriately presented in three reportable operating segments: Pipeline Operations, Terminalling and Storage and Other Operations.

Pipeline Operations:

The Pipeline Operations segment receives petroleum products including gasoline, jet and diesel fuel and other distillates from refineries, connecting pipelines, bulk and marine terminals and transports these products to other locations for a tariff charge.  This segment owns and operates approximately 5,350 miles of pipelines in the following states: California, Colorado, Connecticut, Florida, Illinois, Indiana, Kansas, Massachusetts, Michigan, Missouri, New Jersey, Nevada, New York, Ohio, Pennsylvania and Tennessee.  This segment also includes the operations of Buckeye NGL.

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Terminalling and Storage:

The Terminalling and Storage segment provides bulk storage and terminal throughput services.  This segment owns and operates 45 terminals that have the capacity to store an aggregate of approximately 17.6 million barrels of refined petroleum products.  The terminals are located in Indiana, Illinois, Massachusetts, Michigan, Missouri, New York, Ohio and Pennsylvania.

Other Operations:

The Other Operations segment consists primarily of the Partnership’s contract operation of third-party pipelines, which are owned primarily by major petrochemical companies and are located in Texas.  This segment also performs pipeline construction management services, typically for cost plus a fixed fee, for these same customers.  The Other Operations segment also includes the Partnership’s ownership and operation of interests in two petrochemical pipelines.

Financial information about each segment is presented below. Each segment uses the same accounting policies as those used in the preparation of the Partnership’s condensed consolidated financial statements. All inter-segment revenues, operating income and assets have been eliminated.  All periods are presented on a consistent basis.

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* All equity investments are included in the assets of Pipeline Operations.

11.   RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R which requires that compensation costs related to share-based payment transactions be recognized in the Partnership’s financial statements and effectively eliminates the intrinsic value method permitted by APB No. 25.  SFAS No. 123R became effective for the Partnership on January 1, 2006.  The Partnership adopted SFAS No. 123R using the modified prospective method, as permitted under the Statement.  The impact of adoption of SFAS No. 123R is described in Note 8.

On June 30, 2005, the Federal Energy Regulatory Commission (“FERC”) issued an Order on Accounting for Pipeline Assessment Costs (the “Order”) to address what has been diverse practice by FERC-regulated pipeline companies (including natural gas pipelines and refined petroleum product pipelines like the Partnership) and to enhance comparability of financial statements filed with FERC.  The Order, which was effective prospectively commencing January 1, 2006, requires companies to record certain costs related to pipeline integrity programs as capital and other costs as operating expenses in financial reports filed with FERC.  The Partnership has disclosed that, prior to January 1, 2006, its practice was to capitalize integrity management expenditures when such expenditures improved or extended the life of the pipeline or related assets.  Other integrity management costs were expensed as incurred.  The Partnership followed this practice for both reports prepared under generally accepted accounting principles and periodic regulatory reports to FERC.  The Partnership determined that, effective January 1, 2006; it would adopt the requirements of the Order for generally accepted accounting principles purposes as well as regulatory purposes.  The effect of adopting the Order was not material to the Partnership’s financial statements for the three months ended March 31, 2006.

12.   OTHER EVENTS

On April 20, 2006, Buckeye GP Holdings L.P. (“Buckeye GP Holdings”), filed a Registration Statement on Form S-1 with the Securities and Exchange Commission to register the sale of 12,500,000 of its common units representing limited partner interests. Buckeye GP Holdings was formed in March 2006 in order to (i) reorganize the ownership of the general partner interests in the Partnership which are indirectly owned by MainLine, (ii) become the owner of the general partnership interests in the Partnership, and (iii) complete an initial public offering of its common units.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Overview

Buckeye Partners, L.P. (the “Partnership”) is a master limited partnership which operates through subsidiary entities (the “Operating Subsidiaries”) in the transportation, terminalling and storage of refined petroleum products on a fee basis through facilities owned and operated by the Partnership.  The Partnership also operates pipelines owned by third parties under contracts with major integrated oil and chemical companies, and performs certain construction activities, generally for the owners of these third-party pipelines.

The Partnership’s subsidiaries are Buckeye Pipe Line Company, L.P. (“Buckeye”), Laurel Pipe Line Company, L.P. (“Laurel”), Everglades Pipe Line Company, L.P. (“Everglades”), Buckeye Pipe Line Holdings, L.P. (“BPH”), Wood River Pipe Lines LLC (“Wood River”), Buckeye Pipe Line Transportation LLC (“BPL Transportation”) and Buckeye NGL Pipe Lines LLC (“Buckeye NGL”).  Each of these entities is referred to individually as an “Operating Subsidiary” and collectively as the “Operating Subsidiaries”. The Partnership owns approximately a 99% interest in each Operating Subsidiary except Wood River, BPL Transportation and Buckeye NGL, in each of which it owns a 100% interest.

During 2005 and 2004, the Partnership significantly expanded its operations through acquisitions.  This expansion continued in the first quarter of 2006.  In October 2004, the Partnership acquired five refined petroleum products pipelines with aggregate mileage of approximately 900 miles and 24 petroleum products terminals with aggregate storage capacity of approximately 9.3 million barrels in the Midwestern United States from affiliates of Shell Oil Products U.S. (“Shell”).  In May 2005, the Partnership acquired a refined petroleum products pipeline system comprising approximately 478 miles of pipeline and four refined products terminals with aggregate storage capacity of approximately 1.3 million barrels located in the northeastern United States from affiliates of ExxonMobil Corporation (the “Northeast Pipelines and Terminals”).  On January 1, 2006, the Partnership acquired a refined petroleum products terminal located in Niles, Michigan, with aggregate storage capacity of 630,000 barrels from affiliates of Shell for $13.0 million.  On January 31, 2006, Buckeye NGL acquired a natural gas liquids pipeline (the “NGL Pipeline”) with aggregate mileage of approximately 350 miles from BP Pipelines (North America) Inc. for approximately $87.0 million, which includes a deposit of $7.7 million paid in December 2005.  The NGL Pipeline extends generally from Wattenberg, Colorado to Bushton, Kansas.  The acquired assets have been included in the Partnership’s operations from their dates of acquisition.  The asset acquisitions completed in 2005 and 2006 added $7.8 million of revenue in the three months ended March 31, 2006.

As a result of the Partnership’s expansion, in the fourth quarter of 2005 the Partnership determined that its operations are most appropriately presented in three reportable operating segments:  Pipeline Operations, Terminalling and Storage and Other Operations.  The business of each operating segment is:

Pipeline Operations:

The Pipeline Operations segment receives petroleum products including gasoline, jet and diesel fuel and other distillates from refineries, connecting pipelines, and bulk and marine terminals and transports those products to other locations for a fee.  As of March 31, 2006, this segment owned and operated approximately 5,350 miles of pipeline systems in the following states: California, Colorado, Connecticut, Florida, Illinois,

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Indiana, Kansas, Massachusetts, Michigan, Missouri, New Jersey, Nevada, New York, Ohio, Pennsylvania and Tennessee.  This segment also includes the operations of Buckeye NGL.

Terminalling and Storage:

The Terminalling and Storage segment provides bulk storage and terminal throughput services.  This segment owns and operates 45 active terminals with the capacity to store an aggregate of approximately 17.6 million barrels of refined petroleum products.  The terminals are located in Indiana, Illinois, Massachusetts, Michigan, Missouri, New York, Ohio and Pennsylvania.

Other Operations:

The Other Operations segment consists primarily of the Partnership’s contract operation of third-party pipelines, which are owned primarily by major petrochemical companies and are located in Texas.  This segment also performs pipeline construction management services, typically for cost plus a fixed fee, for these same customers.  The Other Operations segment also includes the Partnership’s ownership and operation of interests in two petrochemical pipelines.

Results of Operations

Summary operating results for the Partnership were as follows:

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Revenues and operating income by operating segment for the three months ended March 31, 2006 and 2005 were as follows:

First Quarter

Total revenues for the quarter ended March 31, 2006 were $105.7 million, $9.8 million or 10.3% greater than revenue of $95.9 million in 2005.

Pipeline Operations:

Revenue from Pipeline Operations was $81.9 million in the first quarter of 2006 compared to $73.3 million in the first quarter of 2005. The increase of $8.6 million in transportation revenue was primarily the result of:

•      BPL Transportation revenue of $4.7 million (BPL Transportation’s assets were acquired on May 5, 2005);

•      Buckeye NGL revenue of $1.8 million (Buckeye NGL commenced operations on January 31, 2006);

•      a 3.7% average tariff rate increase effective May 1, 2005;

•      a 0.4%, or $0.1 million, decrease, net of BPL Transportation revenue, in gasoline transportation revenue on a 3.0% decrease in gasoline volumes delivered;

•      a 10.7%, or $1.2 million, increase, net of BPL Transportation revenue, in jet fuel transportation revenue on a 5.5% increase in jet fuel volumes delivered;

•      a 5.9%, or $1.1 million increase, net of BPL Transportation revenue, in distillate transportation revenue on a 3.4% increase in distillate volumes delivered;

•      an increase in liquefied petroleum gas (“LPG”) and other product transportation revenue of $0.4 million as a result of higher tariffs and an increase in volumes delivered;

•      a $1.1 million increase in incidental revenue primarily from increased revenues under a product supply arrangement in connection with WesPac Pipelines – Reno LLC (“WesPac – Reno”);

•      a $0.9 million increase in miscellaneous rental revenue; and

•      a $3.5 million decrease in transportation settlement revenue, representing primarily the settlement of overages and shortages on product deliveries.

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Product deliveries for each of the quarters ended March 31, 2006 and 2005, including BPL Transportation product deliveries were as follows:

During the first quarter of 2006, BPL Transportation product deliveries averaged 79,100 barrels per day.

Terminalling and Storage:

Terminalling and Storage revenues of $18.2 million for the quarter ended March 31, 2006 increased by $1.0 million from the comparable period in 2005.

The terminals acquired from ExxonMobil on May 5, 2005 (the “ExxonMobil Terminals”), a terminal located in Taylor, Michigan and acquired in December 2005, and the Niles, Michigan terminal acquired in January 2006, generated, in the aggregate, terminalling and storage revenues of $2.3 million in the first quarter of 2006.

Terminalling and Storage revenues at other terminals owned by the Partnership were $15.9 million for the quarter ended March 31, 2006, a decline of $1.2 million from the first quarter of 2005.  The decline in terminal and storage revenues of approximately $2.4 million is attributable primarily to a decrease in terminal settlement charges (representing the settlement of overages and shortages in connection with terminal deliveries).  The first quarter of 2006, compared with the same quarter in 2005, was partially offset by a $1.2 million increase in rent and incidental charges, which is included in Terminalling and Storage revenues.

Average daily throughput for the refined products terminals for quarters ended March 31 was as follows:

Other Operations:

Revenue from other operations of $5.7 million for the quarter ended March 31, 2006 increased by $0.2 million from the comparable period in 2005. Revenue from other operations in the first quarter of 2006 includes revenue from pipeline construction activities of $0.5 million, contract operating services of $3.1 million and rent and other revenues of $2.1 million.

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Operating Expenses

Costs and expenses for the three months ended March 31, 2006 and 2005 were as follows:

Payroll and payroll benefits were $19.9 million in the first quarter of 2006, an increase of $1.3 million compared to the first quarter of 2005.  Of this increase, approximately $0.9 million is related to employees hired as a result of the Northeast Pipelines and Terminals acquisition in May 2005 and subsequent acquisitions.  Increases in salaries and wages of $1.2 million resulted from an increase in the number of employees and overtime pay due to the Partnership’s expanded operations and higher wage rates.  The Partnership also experienced increases in benefit costs of $0.3 million.  These increases were partially offset by an increase of capitalized payroll of $0.7 million resulting from increased charges to capital projects by internal personnel and a decrease in severance pay.  The Partnership incurred expense of $0.6 million for severance pay in 2005 which did not occur during 2006.

Depreciation and amortization expense was $10.2 million in the first quarter of 2006, an increase of $1.7 million from the first quarter of 2005.  Depreciation related to assets acquired over the last year was $1.2 million.  The remaining increase in depreciation and amortization expense resulted from the Partnership’s ongoing maintenance and expansion capital program.

Operating power costs were $7.1 million in the three months ended March 31, 2006, an increase of $1.0 million from the same period in 2005.  The Northeast Pipelines and Terminals and the remaining assets acquired over the last year added $0.9 million of power costs in the first quarter of 2006.  Operating power consists primarily of electricity required to operate pumping facilities.

Outside services costs increased $0.4 million from $4.7 million in the first quarter of 2005 to $5.1 million in the first quarter of 2006.  Outside services costs related to the assets acquired after April 1, 2005 were $0.2 million.  Outside services costs consist principally of third-party contract services for pipeline and terminal maintenance activities.

Property and other taxes were $5.1 million in the first quarter of 2006, an increase of $1.1 million compared to the first quarter of 2005.  Property and other taxes in the first quarter of 2006 related to the Northeast Pipelines and Terminals and subsequent acquisitions were $0.6 million.  Of the remaining increase of $0.5 million, the Partnership experienced higher real property tax assessments in several states.

All other costs were $18.0 million in the three months ended March 31, 2006, an increase of $1.4 million compared to $16.6 million in the same period in 2005.  The increase reflects $1.1 million of costs associated with fuel purchases by Wes Pac – Reno related to a product-supply arrangement.  Other costs related to all acquisitions that occurred after April 1, 2005 were $0.9 million.  These cost increases were partially offset by a decrease in casualty losses of $1.0 million. The remainder of the increases related to various other pipeline operating costs.

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Costs and expenses by segment for the quarters ended March 31, 2006 and 2005 were as follows: