UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

Commission file number 1-9356

Buckeye Partners, L.P.

(Exact name of registrant as specified in its charter)

Delaware		23-2432497
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification number)
One Greenway Plaza
Suite 600
Houston, TX		77046
(Address of principal executive offices)		(Zip Code)

     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 þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

     Limited partner units outstanding as of May 3, 2010: 51,501,265

 

 

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			2
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			3
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 (Unaudited)			4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			5
Condensed Consolidated Statements of Partners’ Capital (Deficit) for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			6
Notes to Unaudited Condensed Consolidated Financial Statements:
1. Organization and Basis of Presentation			7
2. Acquisition and Disposition			8
3. Commitments and Contingencies			9
4. Inventories			10
5. Prepaid and Other Current Assets			11
6. Equity Investments			11
7. Intangible Assets			12
8. Other Non-Current Assets			12
9. Accrued and Other Current Liabilities			13
10. Debt Obligations			13
11. Other Non-Current Liabilities			15
12. Accumulated Other Comprehensive Income (Loss)			16
13. Derivative Instruments, Hedging Activities and Fair Value Measurements			16
14. Pensions and Other Postretirement Benefits			22
15. Unit-Based Compensation Plans			22
16. Related Party Transactions			24
17. Partners’ Capital and Distributions			25
18. Earnings Per Limited Partner Unit			25
19. Business Segments			27
20. Supplemental Cash Flow Information			30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			46
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			47
Item 6. Exhibits			47
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

BUCKEYE PARTNERS, L.P.

		Three Months Ended
		March 31,
		2010				2009
Revenues:
Product sales		$	568,170			$	268,779
Transportation and other services			163,004				148,061
Total revenue			731,174				416,840
Costs and expenses:
Cost of product sales and natural gas storage services			569,737				250,676
Operating expenses			65,709				73,507
Depreciation and amortization			15,644				14,480
General and administrative			9,064				8,074
Total costs and expenses			660,154				346,737
Operating income			71,020				70,103
Other income (expense):
Earnings from equity investments			2,652				2,082
Interest and debt expense			(21,549	)			(17,176	)
Other income			155				111
Total other expense			(18,742	)			(14,983	)
Net income			52,278				55,120
Less: net income attributable to noncontrolling interests			(1,765	)			(1,360	)
Net income attributable to Buckeye Partners, L.P.		$	50,513			$	53,760
Allocation of net income attributable to Buckeye Partners, L.P.:
Net income allocated to general partner		$	12,495			$	11,666
Net income allocated to limited partners		$	38,018			$	42,094
Earnings Per Limited Partner Unit:
Basic		$	0.73			$	0.87
Diluted		$	0.73			$	0.87
Weighted average number of limited partner units outstanding:
Basic			51,471				48,401
Diluted			51,634				48,406

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE PARTNERS, L.P.

		Three Months Ended
		March 31,
		2010				2009
Net income		$	52,278			$	55,120
Other comprehensive income (loss):
Change in value of derivatives			(1,928	)			190
Amortization of interest rate swaps			240				240
Amortization of benefit plan costs			22				(359	)
Total other comprehensive income (loss)			(1,666	)			71
Comprehensive income		$	50,612			$	55,191

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE PARTNERS, L.P.

		March 31,				December 31,
		2010				2009
Assets:
Current assets:
Cash and cash equivalents		$	16,507			$	34,599
Trade receivables, net			134,563				124,165
Construction and pipeline relocation receivables			11,420				14,095
Inventories			246,230				310,214
Derivative assets			1,964				4,959
Assets held for sale			—				22,000
Prepaid and other current assets			77,125				103,691
Total current assets			487,809				613,723
Property, plant and equipment, net			2,224,409				2,228,265
Equity investments			99,503				96,851
Goodwill			208,876				208,876
Intangible assets, net			44,044				45,157
Other non-current assets			56,333				62,777
Total assets		$	3,120,974			$	3,255,649
Liabilities and partners’ capital:
Current liabilities:
Line of credit		$	183,500			$	239,800
Accounts payable			53,562				56,525
Derivative liabilities			2,831				14,665
Accrued and other current liabilities			105,604				106,743
Total current liabilities			345,497				417,733
Long-term debt			1,441,076				1,498,970
Other non-current liabilities			105,800				102,851
Total liabilities			1,892,373				2,019,554
Commitments and contingent liabilities			—				—
Partners’ capital:
Buckeye Partners, L.P. unitholders’ capital:
General Partner (243,914 units outstanding as of March 31, 2010 and December 31, 2009)			1,801				1,849
Limited Partners (51,492,565 and 51,438,265 units outstanding as of March 31, 2010 and December 31, 2009, respectively)			1,207,739				1,214,136
Accumulated other comprehensive loss			(2,513	)			(847	)
Total Buckeye Partners, L.P. unitholders’ capital			1,207,027				1,215,138
Noncontrolling interests			21,574				20,957
Total partners’ capital			1,228,601				1,236,095
Total liabilities and partners’ capital		$	3,120,974			$	3,255,649

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE PARTNERS, L.P.

		Three Months Ended
		March 31,
		2010				2009
Cash flows from operating activities:
Net income		$	52,278			$	55,120
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			15,644				14,480
Net changes in fair value of derivatives			(19,183	)			4,103
Non-cash deferred lease expense			1,059				1,125
Earnings from equity investments			(2,652	)			(2,082	)
Distributions from equity investments			—				235
Amortization of other non-cash items			2,481				879
Change in assets and liabilities:
Trade receivables			(10,398	)			(2,012	)
Construction and pipeline relocation receivables			2,675				3,064
Inventories			73,705				26,101
Prepaid and other current assets			26,899				2,704
Accounts payable			(2,963	)			(11,079	)
Accrued and other current liabilities			347				(17,748	)
Other non-current assets			2,964				2,103
Other non-current liabilities			1,890				2,640
Total adjustments from operating activities			92,468				24,513
Net cash provided by operating activities			144,746				79,633
Cash flows from investing activities:
Capital expenditures			(10,963	)			(20,976	)
Net proceeds (expenditures) for disposal of property, plant and equipment			22,174				(42	)
Net cash provided by (used in) investing activities			11,211				(21,018	)
Cash flows from financing activities:
Net proceeds from issuance of limited partner units			—				91,042
Proceeds from exercise of limited partner unit options			2,376				—
Borrowings under credit facilities			59,500				30,000
Repayments under credit facilities			(117,500	)			(120,267	)
Net repayments under BES credit agreement			(56,300	)			(46,000	)
Debt issuance costs			(9	)			(13	)
Distributions paid to noncontrolling interests			(1,148	)			(1,307	)
Distributions paid to partners			(60,968	)			(53,651	)
Net cash used in financing activities			(174,049	)			(100,196	)
Net decrease in cash and cash equivalents			(18,092	)			(41,581	)
Cash and cash equivalents — Beginning of period			34,599				58,843
Cash and cash equivalents — End of period		$	16,507			$	17,262

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE PARTNERS, L.P.

		Buckeye Partners, L.P. Unitholders
										Accumulated
										Other
		General				Limited				Comprehensive				Noncontrolling
		Partner				Partners				Income (Loss)				Interests				Total
Balance — January 1, 2009		$	(6,680	)		$	1,201,144			$	(18,967	)		$	20,775			$	1,196,272
Net income			11,666				42,094				—				1,360				55,120
Change in value of derivatives			—				—				190				—				190
Amortization of interest rate swaps			—				—				240				—				240
Amortization of benefit plan costs			—				—				(359	)			—				(359	)
Distributions paid to partners			(10,721	)			(42,930	)			—				—				(53,651	)
Distributions paid to noncontrolling interests			—				—				—				(1,307	)			(1,307	)
Net proceeds from the issuance of limited partner units			—				91,042				—				—				91,042
Amortization of unit-based compensation awards			—				90				—				—				90
Balance — March 31, 2009		$	(5,735	)		$	1,291,440			$	(18,896	)		$	20,828			$	1,287,637
Balance — January 1, 2010		$	1,849			$	1,214,136			$	(847	)		$	20,957			$	1,236,095
Net income			12,495				38,018				—				1,765				52,278
Change in value of derivatives			—				—				(1,928	)			—				(1,928	)
Amortization of interest rate swaps			—				—				240				—				240
Amortization of benefit plan costs			—				—				22				—				22
Distributions paid to partners			(12,543	)			(48,425	)			—				—				(60,968	)
Distributions paid to noncontrolling interests			—				—				—				(1,148	)			(1,148	)
Non-cash accrual for distribution equivalent rights			—				(390	)			—				—				(390	)
Amortization of unit-based compensation awards			—				2,024				—				—				2,024
Exercise of limited partner unit options			—				2,376				—				—				2,376
Balance — March 31, 2010		$	1,801			$	1,207,739			$	(2,513	)		$	21,574			$	1,228,601

See Notes to Unaudited Condensed Consolidated Financial Statements.

BUCKEYE PARTNERS, L.P.

     Except for per unit amounts, or as otherwise noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands.

1. ORGANIZATION AND BASIS OF PRESENTATION

   Partnership Organization

     Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership (“MLP”), the limited partner units (“LP Units”) of which are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “BPL.” As used in these Notes to Unaudited Condensed Consolidated Financial Statements, “we,” “us,” “our,” and “Buckeye” mean Buckeye Partners, L.P. and, where the context requires, includes our subsidiaries.

     We were formed in 1986 and own and operate one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered with approximately 5,400 miles of pipeline and 67 active products terminals that provide aggregate storage capacity of approximately 27.2 million barrels. In addition, we operate and maintain approximately 2,400 miles of other pipelines under agreements with major oil and gas, petrochemical and chemical companies, and perform certain engineering and construction management services for third parties. We also own and operate a major natural gas storage facility in northern California, and are a wholesale distributor of refined petroleum products in the United States in areas also served by our pipelines and terminals. We operate and report in five business segments: Pipeline Operations; Terminalling & Storage; Natural Gas Storage; Energy Services; and Development & Logistics.

     Buckeye GP LLC (“Buckeye GP”) is our general partner. Buckeye GP is a wholly owned subsidiary of Buckeye GP Holdings L.P. (“BGH”), a Delaware MLP that is also publicly traded on the NYSE under the ticker symbol “BGH.”

     Buckeye Pipe Line Services Company (“Services Company”) was formed in 1996 in connection with the establishment of the Buckeye Pipe Line Services Company Employee Stock Ownership Plan (the “ESOP”). At March 31, 2010, Services Company owned approximately 3.0% of our LP Units. Services Company employees provide services to our operating subsidiaries. Pursuant to a services agreement entered into in December 2004 (the “Services Agreement”), our operating subsidiaries reimburse Services Company for the costs of the services provided by Services Company.

   Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of our management, of a normal and recurring nature and necessary for a fair statement of our financial position as of March 31, 2010, and the results of our operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of results of our operations for the 2010 fiscal year. The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). We have eliminated all intercompany transactions in consolidation. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations. These interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on February 26, 2010.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   Reclassifications

     Certain prior year amounts have been reclassified in the condensed consolidated statements of operations and condensed consolidated statements of cash flows to conform to the current-year presentation. The reclassifications in the condensed consolidated statements of operations are as follows:

•

Earnings from equity investments are now presented on a separate line item in the condensed consolidated statements of operations for the three months ended March 31, 2009. The other investment income that had previously been included with earnings from equity investments has been reclassified and included in “Other income” in the 2009 period.

The reclassifications in the condensed consolidated statements of cash flows are as follows:

•

We have separately disclosed cash flows from the issuance of long-term debt and borrowings under our credit facilities for the three months ended March 31, 2009. These amounts had been included within the same line item in the 2009 period.

     These reclassifications had no impact on net income or cash flows from operating, investing or financing activities.

   Recent Accounting Developments

     Consolidation of Variable Interest Entities (“VIEs”). In June 2009, the Financial Accounting Standards Board (“FASB”) amended consolidation guidance for VIEs. The objective of this new guidance is to improve financial reporting by companies involved with VIEs. This guidance requires each reporting company to perform an analysis to determine whether the company’s variable interest or interests give it a controlling financial interest in a VIE. The new guidance is effective as of the beginning of each reporting company’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. This guidance was effective for us on January 1, 2010. The adoption of this guidance did not have an impact on our consolidated financial statements.

     Fair Value Measurements. In January 2010, the FASB issued guidance that requires new disclosures related to fair value measurements. The new guidance requires expanded disclosures related to transfers between Level 1 and 2 activities and a gross presentation for Level 3 activity. The new accounting guidance is effective for fiscal years and interim periods beginning after December 15, 2009, except for the new disclosures related to Level 3 activities, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The new guidance became effective for us on January 1, 2010, except for the new disclosures related to Level 3 activities, which will be effective for us on January 1, 2011. We have included the enhanced disclosure requirements regarding fair value measurements in Note 13.

2. ACQUISITION AND DISPOSITION

   Refined Petroleum Products Terminals and Pipeline Assets Acquisition

     On November 18, 2009, we acquired from ConocoPhillips certain refined petroleum product terminals and pipeline assets for approximately $47.1 million in cash. In addition, we acquired certain inventory on hand upon completion of the transaction for additional consideration of $7.3 million. The assets include over 300 miles of active pipeline that provide connectivity between the East St. Louis, Illinois and East Chicago, Indiana markets and three terminals providing 2.3 million barrels of storage tankage. ConocoPhillips entered into certain commercial contracts with us concurrent with our acquisition regarding usage of the acquired facilities. We believe the acquisition of these assets has given us greater access to markets and refinery operations in the Midwest and increased the commercial value of these assets and certain of our existing assets to our customers by offering enhanced distribution connectivity and flexible storage capabilities. The operations of these acquired assets are

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

reported in the Pipeline Operations and Terminalling & Storage segments. The purchase price has been allocated to the tangible and intangible assets acquired, as follows:

Inventory		$	7,287
Property, plant and equipment			44,400
Intangible assets			4,580
Environmental and other liabilities			(1,834	)
Allocated purchase price		$	54,433

   Sale of Buckeye NGL Pipeline

     Effective January 1, 2010, we sold our ownership interest in an approximately 350-mile natural gas liquids pipeline (the “Buckeye NGL Pipeline”) that runs from Wattenberg, Colorado to Bushton, Kansas for $22.0 million. The assets had been classified as “Assets held for sale” in our consolidated balance sheet at December 31, 2009 with a carrying amount equal to the proceeds received. Revenues for Buckeye NGL Pipeline for the three months ended March 31, 2009 were $3.3 million.

3. COMMITMENTS AND CONTINGENCIES

   Claims and Proceedings

     In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance. We are generally unable to predict the timing or outcome of these claims and proceedings. Based upon our evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, we have accrued certain amounts relating to such claims and proceedings, none of which are considered material.

     In April 2010, the Pipeline Hazardous Materials Safety Administration (“PHMSA”) proposed penalties totaling approximately $0.5 million in connection with a tank overfill incident that occurred at our facility in East Chicago, Indiana, in May 2005 and other related personnel qualification issues raised as a result of PHMSA’s 2008 Integrity Inspection. We plan on contesting the proposed penalty. The timing or outcome of this appeal cannot reasonably be determined at this time.

   Environmental Contingencies

     In accordance with our accounting policy, we recorded operating expenses, net of insurance recoveries, of $2.8 million and $5.3 million during the three months ended March 31, 2010 and 2009, respectively, related to environmental expenditures unrelated to claims and proceedings.

   Ammonia Contract Contingencies

     On November 30, 2005, Buckeye Gulf Coast Pipe Lines, L.P. (“BGC”) purchased an ammonia pipeline and other assets from El Paso Merchant Energy-Petroleum Company (“EPME”), a subsidiary of El Paso Corporation (“El Paso”). As part of the transaction, BGC assumed the obligations of EPME under several contracts involving monthly purchases and sales of ammonia. EPME and BGC agreed, however, that EPME would retain the economic risks and benefits associated with those contracts until their expiration at the end of 2012. To effectuate this agreement, BGC passes through to EPME both the cost of purchasing ammonia under a supply contract and the proceeds from selling ammonia under three sales contracts. For the vast majority of monthly periods since the closing of the pipeline acquisition, the pricing terms of the ammonia contracts have resulted in ammonia costs exceeding ammonia sales proceeds. The amount of the shortfall generally increases as the market price of ammonia increases.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     EPME has informed BGC that, notwithstanding the parties’ agreement, it will not continue to pay BGC for shortfalls created by the pass-through of ammonia costs in excess of ammonia revenues. EPME encouraged BGC to seek payment by invoking a $40.0 million guaranty made by El Paso which guaranteed EPME’s obligations to BGC. If EPME fails to reimburse BGC for these shortfalls for a significant period during the remainder of the term of the ammonia agreements, then such unreimbursed shortfalls could exceed the $40.0 million cap on El Paso’s guaranty. To the extent the unreimbursed shortfalls significantly exceed the $40.0 million cap, the resulting costs incurred by BGC could adversely affect our financial position, results of operations and cash flows. To date, BGC has continued to receive payment for ammonia costs under the contracts at issue. BGC has not called on El Paso’s guaranty and believes only BGC may invoke the guaranty. EPME, however, contends that El Paso’s guaranty is the source of payment for the shortfalls, but has not clarified the extent to which it believes the guaranty has been exhausted. We have been working with EPME to terminate the ammonia sales contracts and ammonia supply contracts and, at no cost to us, have terminated one of the ammonia sales contracts. Given, however, the uncertainty of future ammonia prices and EPME’s future actions, we continue to believe we have risk of loss and, at this time, are unable to estimate the amount of any such losses we might incur in the future. We are assessing our options in the event that we and EPME are unable to terminate the remaining contracts or otherwise mitigate the remaining risk, including potential recourse against EPME and El Paso, with respect to this matter.

   Customer Bankruptcy

     One of our customers filed for bankruptcy in October 2009 and, since such filing, has not paid any amounts due to us pursuant a contract under which approximately $4.2 million remains payable. At this time, we are unable to estimate the impact of the bankruptcy on amounts payable to us.

4. INVENTORIES

     Our inventory amounts were as follows at the dates indicated:

		March 31,				December 31,
		2010				2009
Refined petroleum products (1)		$	235,696			$	299,473
Materials and supplies			10,534				10,741
Total inventories		$	246,230			$	310,214

     At March 31, 2010 and December 31, 2009, approximately 93% and 99%, respectively, of our inventory was hedged. Hedged inventory is valued at current market prices with the change in value of the inventory reflected in our condensed consolidated statements of operations.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Prepaid insurance		$	4,718			$	6,916
Insurance receivables			12,948				13,544
Ammonia receivable			7,005				7,429
Margin deposits			5,731				21,037
Prepaid services			21,267				21,571
Unbilled revenue			3,087				13,201
Tax receivable			7,162				7,162
Prepaid taxes			4,226				2,213
Other			10,981				10,618
Total prepaid and other current assets		$	77,125			$	103,691

6. EQUITY INVESTMENTS

     We own interests in related businesses that are accounted for using the equity method of accounting. The following table presents our equity investments, all included within the Pipeline Operations segment, at the dates indicated:

						March 31,				December 31,
		Ownership				2010				2009
Muskegon Pipeline LLC			40.0	%		$	15,617			$	15,273
Transport4, LLC			25.0	%			418				379
West Shore Pipe Line Company			24.9	%			31,526				30,320
West Texas LPG Pipeline Limited Partnership			20.0	%			51,942				50,879
Total equity investments						$	99,503			$	96,851

     The following table presents earnings from equity investments for the periods indicated:

		Three Months Ended
		March 31,
		2010				2009
Muskegon Pipeline LLC		$	344			$	365
Transport4, LLC			39				29
West Shore Pipe Line Company			1,207				1,103
West Texas LPG Pipeline Limited Partnership			1,062				585
Total earnings from equity investments		$	2,652			$	2,082

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. INTANGIBLE ASSETS

     Intangible assets consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Customer relationships		$	38,300			$	38,300
Accumulated amortization			(6,373	)			(5,631	)
Net carrying amount			31,927				32,669
Customer contracts			16,380				16,380
Accumulated amortization			(4,263	)			(3,892	)
Net carrying amount			12,117				12,488
Total intangible assets		$	44,044			$	45,157

     For the three months ended March 31, 2010 and 2009, amortization expense related to intangible assets was $1.1 million and $0.9 million, respectively. Amortization expense related to intangible assets is expected to be approximately $4.5 million for each of the next five years.

8. OTHER NON-CURRENT ASSETS

Other non-current assets consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Deferred charge, net (1)		$	4,849			$	6,024
Prepaid services			8,799				11,640
Long-term derivative assets			15,900				17,204
Debt issuance costs			10,123				11,058
Insurance receivables			7,057				7,265
Other			9,605				9,586
Total other non-current assets		$	56,333			$	62,777

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. ACCRUED AND OTHER CURRENT LIABILITIES

     Accrued and other current liabilities consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Taxes — other than income		$	18,794			$	15,381
Accrued charges due Buckeye GP			937				1,218
Accrued charges due Services Company			420				6,104
Accrued employee benefit liability			3,287				3,287
Environmental liabilities			10,746				10,799
Accrued interest			18,568				30,609
Payable for ammonia purchase			7,056				7,015
Deferred revenue			18,501				6,829
Accrued capital expenditures			256				1,611
Reorganization			854				2,133
Deferred consideration			2,010				1,675
Other			24,175				20,082
Total accrued and other current liabilities		$	105,604			$	106,743

10. DEBT OBLIGATIONS

Long-term debt consists of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
4.625% Notes due July 15, 2013 (1)		$	300,000			$	300,000
5.300% Notes due October 15, 2014 (1)			275,000				275,000
5.125% Notes due July 1, 2017 (1)			125,000				125,000
6.050% Notes due January 15, 2018 (1)			300,000				300,000
5.500% Notes due August 15, 2019 (1)			275,000				275,000
6.750% Notes due August 15, 2033 (1)			150,000				150,000
Credit Facility			20,000				78,000
BES Credit Agreement			183,500				239,800
Total debt			1,628,500				1,742,800
Less: Unamortized discount			(4,689	)			(4,854	)
Adjustment associated with fair value hedges			765				824
Subtotal debt			1,624,576				1,738,770
Less: Current portion of long-term debt			(183,500	)			(239,800	)
Total long-term debt		$	1,441,076			$	1,498,970

     The fair values of our aggregate debt and credit facilities were estimated to be $1,677.4 million and $1,762.1 million at March 31, 2010 and December 31, 2009, respectively. The fair values of the fixed-rate debt were estimated by observing market trading prices and by comparing the historic market prices of our publicly-issued debt with the market prices of other MLPs’ publicly-issued debt with similar credit ratings and terms. The fair

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

values of the variable-rate debt are their carrying amounts, as the carrying amount reasonably approximates fair value due to the variability of the interest rates.

   Credit Facility

     We have a borrowing capacity of $580.0 million under an unsecured revolving credit agreement (the “Credit Facility”) with SunTrust Bank, as administrative agent, which may be expanded up to $780.0 million subject to certain conditions and upon the further approval of the lenders. The Credit Facility’s maturity date is August 24, 2012, which we may extend for up to two additional one-year periods. Borrowings under the Credit Facility bear interest under one of two rate options, selected by us, equal to either (i) the greater of (a) the federal funds rate plus 0.5% and (b) SunTrust Bank’s prime rate plus an applicable margin, or (ii) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin. The applicable margin is determined based on the current utilization level of the Credit Facility and ratings assigned by Standard & Poor’s Rating Services and Moody’s Investor Service for our senior unsecured non-credit enhanced long-term debt. At March 31, 2010 and December 31, 2009, $20.0 million and $78.0 million, respectively, were outstanding under the Credit Facility. The weighted average interest rate for borrowings outstanding under the Credit Facility was 0.6% at March 31, 2010.

     The Credit Facility requires us to maintain a specified ratio (the “Funded Debt Ratio”) of no greater than 5.00 to 1.00 subject to a provision that allows for increases to 5.50 to 1.00 in connection with certain future acquisitions. The Funded Debt Ratio is calculated by dividing consolidated debt by annualized EBITDA, which is defined in the Credit Facility as earnings before interest, taxes, depreciation, depletion and amortization, in each case excluding the income of certain of our majority-owned subsidiaries and equity investments (but including distributions from those majority-owned subsidiaries and equity investments). At March 31, 2010, our Funded Debt Ratio was approximately 4.29 to 1.00. As permitted by the Credit Facility, the $183.5 million of borrowings by Buckeye Energy Services LLC (“BES”) under its separate credit agreement (discussed below) were excluded from the calculation of the Funded Debt Ratio.

     In addition, the Credit Facility contains other covenants including, but not limited to, covenants limiting our ability to incur additional indebtedness, to create or incur liens on our property, to dispose of property material to our operations, and to consolidate, merge or transfer assets. At March 31, 2010, we were not aware of any instances of noncompliance with the covenants under our Credit Facility.

     At March 31, 2010 and December 31, 2009, we had committed $1.4 million in support of letters of credit. The obligations for letters of credit are not reflected as debt on our condensed consolidated balance sheets.

   BES Credit Agreement

     BES has a credit agreement (the “BES Credit Agreement”) that provides for borrowings of up to $250.0 million. The BES Credit Agreement’s maturity date is May 20, 2011. Under the BES Credit Agreement, borrowings accrue interest under one of three rate options, at BES’s election, equal to (i) the Administrative Agent’s Cost of Funds (as defined in the BES Credit Agreement) plus 1.75%, (ii) the Eurodollar Rate (as defined in the BES Credit Agreement) plus 1.75% or (iii) the Base Rate (as defined in the BES Credit Agreement) plus 0.25%. The BES Credit Agreement also permits Daylight Overdraft Loans (as defined in the BES Credit Agreement), Swingline Loans (as defined in the BES Credit Agreement) and letters of credit. Such alternative extensions of credit are subject to certain conditions as specified in the BES Credit Agreement. The BES Credit Agreement is secured by liens on certain assets of BES, including its inventory, cash deposits (other than certain accounts), investments and hedging accounts, receivables and intangibles.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The balances outstanding under the BES Credit Agreement were approximately $183.5 million and $239.8 million at March 31, 2010 and December 31, 2009, respectively, both of which were classified as current liabilities in our condensed consolidated balance sheets. The BES Credit Agreement requires BES to meet certain financial covenants, which are defined in the BES Credit Agreement and summarized below (in millions, except for the leverage ratio):

Borrowings		Minimum		Minimum		Maximum
outstanding on		Consolidated Tangible		Consolidated Net		Consolidated
BES Credit Agreement		Net Worth		Working Capital		Leverage Ratio
$150		$40		$30		7.0 to 1.0
Above $150 up to $200		$50		$40		7.0 to 1.0
Above $200 up to $250		$60		$50		7.0 to 1.0

     At March 31, 2010, BES’s Consolidated Tangible Net Worth and Consolidated Net Working Capital were $122.3 million and $75.0 million, respectively, and the Consolidated Leverage Ratio was 2.1 to 1.0. The weighted average interest rate for borrowings outstanding under the BES Credit Agreement was 2.0% at March 31, 2010.

     In addition, the BES Credit Agreement contains other covenants, including, but not limited to, covenants limiting BES’s ability to incur additional indebtedness, to create or incur certain liens on its property, to consolidate, merge or transfer its assets, to make dividends or distributions, to dispose of its property, to make investments, to modify its risk management policy, or to engage in business activities materially different from those presently conducted. At March 31, 2010, we were not aware of any instances of noncompliance with the covenants under the BES Credit Agreement.

11. OTHER NON-CURRENT LIABILITIES

     Other non-current liabilities consist of the following at the dates indicated:

		March 31,				December 31,
		2010				2009
Accrued employee benefit liabilities (see Note 14)		$	44,772			$	45,837
Accrued environmental liabilities			18,687				19,053
Deferred consideration			17,923				18,425
Deferred rent			10,217				9,158
Deferred revenue			6,762				1,532
Other			7,439				8,846
Total other non-current liabilities		$	105,800			$	102,851

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

     The following table presents the components of accumulated other comprehensive income (loss) on the condensed consolidated balance sheets at the dates indicated:

		March 31,				December 31,
		2010				2009
Adjustments to funded status of retirement income guarantee plan and retiree medical plan		$	(4,453	)		$	(4,453	)
Amortization of interest rate swap			(7,513	)			(7,753	)
Derivative instruments			15,573				17,501
Accumulated amortization of retirement income guarantee plan and retiree medical plan			(6,120	)			(6,142	)
Total accumulated other comprehensive loss		$	(2,513	)		$	(847	)

13. DERIVATIVE INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

     We are exposed to certain risks, including changes in interest rates and commodity prices in the course of our normal business operations. We use derivative instruments to manage risks associated with certain identifiable and anticipated transactions. Derivatives are financial instruments whose fair value is determined by changes in a specified benchmark such as interest rates or commodity prices. Typical derivative instruments include futures, forward contracts, swaps and other instruments with similar characteristics. We have no trading derivative instruments and do not engage in hedging activity with respect to trading instruments.

     Our policy is to formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategies for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives used in a transaction are highly effective in offsetting changes in cash flows or the fair value of hedged items. A discussion of our derivative activities by risk category follows.

  Interest Rate Derivatives

     We utilize forward-starting interest rate swaps to manage interest rate risk related to forecasted interest payments on anticipated debt issuances. This strategy is a component in controlling our cost of capital associated with such borrowings. When entering into interest rate swap transactions, we become exposed to both credit risk and market risk. We are subject to credit risk when the value of the swap transaction is positive and the risk exists that the counterparty will fail to perform under the terms of the contract. We are subject to market risk with respect to changes in the underlying benchmark interest rate that impacts the fair value of the swaps. We manage our credit risk by only entering into swap transactions with major financial institutions with investment-grade credit ratings. We manage our market risk by associating each swap transaction with an existing debt obligation or a specified expected debt issuance generally associated with the maturity of an existing debt obligation.

     Our practice with respect to derivative transactions related to interest rate risk has been to have each transaction in connection with non-routine borrowings authorized by the Board of Directors of Buckeye GP. In January 2009, Buckeye GP’s Board of Directors adopted an interest rate hedging policy which permits us to enter into certain short-term interest rate swap agreements to manage our interest rate and cash flow risks associated with the Credit Facility. In addition, in July 2009, Buckeye GP’s Board of Directors authorized us to enter into certain transactions, such as forward-starting interest rate swaps, to manage our interest rate and cash flow risks related to certain expected debt issuances associated with the maturity of an existing debt obligation.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     We expect to issue new fixed-rate debt (i) on or before July 15, 2013 to repay the $300.0 million of 4.625% Notes that are due on July 15, 2013 and (ii) on or before October 15, 2014 to repay the $275.0 million of 5.300% Notes that are due on October 15, 2014, although no assurances can be given that the issuance of fixed-rate debt will be possible on acceptable terms. During 2009, we entered into four forward-starting interest rate swaps with a total aggregate notional amount of $200.0 million related to the anticipated issuance of debt on or before July 15, 2013 and three forward-starting interest rate swaps with a total aggregate notional amount of $150.0 million related to the anticipated issuance of debt on or before October 15, 2014. The purpose of these swaps is to hedge the variability of the forecasted interest payments on these expected debt issuances that may result from changes in the benchmark interest rate until the expected debt is issued. During the three months ended March 31, 2010, unrealized losses of $1.3 million were recorded in accumulated other comprehensive income (loss) to reflect the change in the fair values of the forward-starting interest rate swaps. We designated the swap agreements as cash flow hedges at inception and expect the changes in values to be highly correlated with the changes in value of the underlying borrowings.

     Over the next twelve months, we expect to reclassify $1.0 million of accumulated other comprehensive loss as an increase to interest expense that was generated by terminated forward-starting interest rate swaps in 2008 associated with our 6.050% Notes.

  Commodity Derivatives

     Our Energy Services segment primarily uses exchange-traded refined petroleum product futures contracts to manage the risk of market price volatility on its refined petroleum product inventories and its fixed-price sales contracts. The derivative contracts used to hedge refined petroleum product inventories are designated as fair value hedges. Accordingly, our method of measuring ineffectiveness compares the change in the fair value of New York Mercantile Exchange (“NYMEX”) futures contracts to the change in fair value of our hedged fuel inventory. Hedge accounting is discontinued when the hedged fuel inventory is sold or when the related derivative contracts expire. In addition, we periodically enter into offsetting exchange-traded futures contracts to economically close-out an existing futures contract based on a near-term expectation to sell a portion of our fuel inventory. These offsetting derivative contracts are not designated as hedging instruments and any resulting gains or losses are recognized in earnings during the period. Presentations of futures contracts for inventory designated as hedging instruments in the following tables have been presented net of these offsetting futures contracts.

     Our Energy Services segment has not used hedge accounting with respect to its fixed-price sales contracts. Therefore, our fixed-price sales contracts and the related futures contracts used to offset those fixed-price sales contracts are all marked-to-market on the consolidated balance sheets with gains and losses being recognized in earnings during the period.

     In order to hedge the cost of natural gas used to operate our turbine engines at our Linden, New Jersey location, our Pipeline Operations segment bought natural gas futures contracts in March 2009 with terms that coincide with the remaining term of an ongoing natural gas supply contract (January 2010 through July 2011). We designated the futures contract as a cash flow hedge at inception.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following table summarizes our commodity derivative instruments outstanding at March 31, 2010 (amounts in thousands of gallons, except as noted):

Volume (1)

Accounting

Derivative Purpose

Current

Long-Term (2)

Treatment

Derivatives NOT designated as hedging instruments:

Fixed-price sales contracts

18,417

210

Mark-to-market

Futures contracts for fixed-price sales contracts

11,844

210

Mark-to-market

Futures contracts for inventory

5,586

—

Mark-to-market

Derivatives designated as hedging instruments:

Futures contracts for inventory

90,426

—

Fair Value Hedge

Futures contracts for natural gas (BBtu) (3)

360

120

Cash Flow Hedge

     The following table sets forth the fair value of each classification of derivative instruments at the dates indicated:

		March 31, 2010												December 31, 2009
										Derivative												Derivative
		Assets				(Liabilities)				Net Carrying				Assets				(Liabilities)				Net Carrying
		Fair value				Fair value				Value				Fair value				Fair value				Value
Derivatives NOT designated as hedging instruments:
Fixed-price sales contracts		$	1,906			$	(1,217	)		$	689			$	4,959			$	(3,662	)		$	1,297
Futures contracts for fixed-price sales contracts			4,817				(13	)			4,804				7,594				(384	)			7,210
Futures contracts for inventory			1,749				(1,443	)			306				—				—				—
Derivatives designated as hedging instruments:
Futures contracts for inventory			1,277				(7,616	)			(6,339	)			1,992				(20,517	)			(18,525	)
Futures contracts for natural gas			—				(327	)			(327	)			312				—				312
Interest rate contracts			15,900				—				15,900				17,204				—				17,204
Total										$	15,033											$	7,498
		March 31,				December 31,
Balance Sheet Locations:		2010				2009
Derivative assets		$	1,964			$	4,959
Other non-current assets			15,900				17,204
Derivative liabilities			(2,831	)			(14,665	)
Total		$	15,033			$	7,498

     Substantially all of the unrealized net loss of $6.0 million at March 31, 2010 for inventory hedges represented by futures contracts will be realized by the second quarter of 2010 as the related inventory is sold. Gains recorded on inventory hedges that were ineffective were approximately $4.8 million and $4.3 million for the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010, open refined petroleum product derivative contracts (represented by the fixed-price sales contracts and futures contracts for fixed-price sales contracts noted

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

above) varied in duration, but did not extend beyond May 2011. In addition, at March 31, 2010, we had refined petroleum product inventories which we intend to use to satisfy a portion of the fixed-price sales contracts.

     The gains and losses on our derivative instruments recognized in income on our derivatives were as follows for the periods indicated:

				Gain (Loss) Recognized in
				Income on Derivatives
				Three Months Ended
				March 31,
		Location		2010				2009
Derivatives NOT designated as hedging instruments:
Fixed-price sales contracts		Product sales		$	2,410			$	13,295
Futures contracts for fixed-price sales contracts		Cost of product sales and natural gas storage services			(494	)			(7,546	)
Futures contracts for inventory		Cost of product sales and natural gas storage services			246				—
Derivatives designated as fair value hedging instruments:
Futures contracts for inventory		Cost of product sales and natural gas storage services		$	(4,910	)		$	27,648

     The gains and losses reclassified from accumulated other comprehensive income (“AOCI”) to income and the change in value recognized in other comprehensive income (“OCI”) on our derivatives were as follows for the periods indicated:

				Gain (Loss) Reclassified from
				AOCI to Income
				Three Months Ended
				March 31,
		Location		2010				2009
Derivatives designated as cash flow hedging instruments:
Futures contracts for natural gas		Cost of product sales and natural gas storage services		$	(72	)		$	(53	)
Interest rate contracts		Interest and debt expense			(240	)			(602	)

		Change in Value Recognized
		in OCI on Derivatives
		Three Months Ended
		March 31,
		2010				2009
Derivatives designated as cash flow hedging instruments:
Futures contracts for natural gas		$	(696	)		$	116
Futures contracts for refined petroleum products			—				(233	)
Interest rate contracts			(1,304	)			(108	)

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  Fair Value Measurements

     Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. Our fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk. Recognized valuation techniques employ inputs such as product prices, operating costs, discount factors and business growth rates. These inputs may be either readily observable, corroborated by market data or generally unobservable. In developing our estimates of fair value, we endeavor to utilize the best information available and apply market-based data to the extent possible. Accordingly, we utilize valuation techniques (such as the income or market approach) that maximize the use of observable inputs and minimize the use of unobservable inputs.

     A three-tier hierarchy has been established that classifies fair value amounts recognized or disclosed in the financial statements based on the observability of inputs used to estimate such fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy. The characteristics of fair value amounts classified within each level of the hierarchy are described as follows.

	•		Level 1 inputs are based on quoted prices, which are available in active markets for identical assets or liabilities as of the reporting date. Active markets are defined as those in which transactions for identical assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
	•		Level 2 inputs are based on pricing inputs other than quoted prices in active markets and are either directly or indirectly observable as of the measurement date. Level 2 fair values include instruments that are valued using financial models or other appropriate valuation methodologies and include the following:

	•		Quoted prices in active markets for similar assets or liabilities.
	•		Quoted prices in markets that are not active for identical or similar assets or liabilities.
	•		Inputs other than quoted prices that are observable for the asset or liability.
	•		Inputs that are derived primarily from or corroborated by observable market data by correlation or other means.

•

Level 3 inputs are based on unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the reporting entity’s own ideas about the assumptions that market participants would use in pricing an asset or liability (including assumptions about risk). Unobservable inputs are based on the best information available in the circumstances, which might include the reporting entity’s internally developed data. The reporting entity must not ignore information about market participant assumptions that is reasonably available without undue cost and effort. Level 3 inputs are typically used in connection with internally developed valuation methodologies where management makes its best estimate of an instrument’s fair value.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  Recurring

     The following table sets forth financial assets and liabilities, measured at fair value on a recurring basis, as of the measurement dates, March 31, 2010 and December 31, 2009, and the basis for that measurement, by level within the fair value hierarchy:

		March 31, 2010								December 31, 2009
						Significant								Significant
		Quoted Prices				Other				Quoted Prices				Other
		in Active				Observable				in Active				Observable
		Markets				Inputs				Markets				Inputs
		(Level 1)				(Level 2)				(Level 1)				(Level 2)
Financial assets:
Fixed-price sales contracts		$	—			$	1,906			$	—			$	4,959
Futures contracts for inventory and fixed-price sales contracts			58				—				—				—
Asset held in trust			—				—				1,793				—
Interest rate derivatives			—				15,900				—				17,204
Financial liabilities:
Fixed-price sales contracts			—				(1,217	)			—				(3,662	)
Futures contracts for inventory and fixed-price sales contracts			(1,614	)			—				(11,003	)			—
Total		$	(1,556	)		$	16,589			$	(9,210	)		$	18,501

     The value of the Level 1 derivative assets and liabilities were based on quoted market prices obtained from the NYMEX. The value of the Level 1 asset held in trust was obtained from quoted market prices. The value of the Level 2 derivative assets and liabilities were based on observable market data related to the obligations to provide petroleum products. The value of the Level 2 interest rate derivative was based on observable market data related to similar obligations.

     The Level 2 derivative assets of $1.9 million and $5.0 million as of March 31, 2010 and December 31, 2009, respectively, are each net of a credit valuation adjustment (“CVA”) of ($0.9) million. Because few of the Energy Services segment’s customers entering into these fixed-price sales contracts are large organizations with nationally-recognized credit ratings, the Energy Services segment determined that a CVA, which is based on the credit risk of such contracts, is appropriate. The CVA is based on the historical and expected payment history of each customer, the amount of product contracted for under the agreement, and the customer’s historical and expected purchase performance under each contract.

  Non-Recurring

     Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of possible impairment. There were no fair value adjustments for such assets or liabilities reflected in our condensed consolidated financial statements for the three months ended March 31, 2010 and 2009.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

     Services Company, which employs the majority of our workforce, sponsors a retirement income guarantee plan (“RIGP”), which is a defined benefit plan that generally guarantees employees hired before January 1, 1986 a retirement benefit based on years of service and the employee’s highest compensation for any consecutive 5-year period during the last 10 years of service or other compensation measures as defined under the respective plan provisions. The retirement benefit is subject to reduction at varying percentages for certain offsetting amounts, including benefits payable under a retirement and savings plan discussed further below. Services Company funds the plan through contributions to pension trust assets, generally subject to minimum funding requirements as provided by applicable law.

     Services Company also sponsors an unfunded post-retirement benefit plan (the “Retiree Medical Plan”), which provides health care and life insurance benefits to certain of its retirees. To be eligible for these benefits, an employee must have been hired prior to January 1, 1991 and meet certain service requirements.

     The components of the net periodic benefit cost for the RIGP and Retiree Medical Plan were as follows for the periods indicated:

		RIGP								Retiree Medical Plan
		Three Months Ended								Three Months Ended
		March 31,								March 31,
		2010				2009				2010				2009
Service cost		$	68			$	208			$	30			$	105
Interest cost			232				371				205				492
Expected return on plan assets			(88	)			(191	)			—				—
Amortization of prior service benefit			(12	)			(117	)			(307	)			(860	)
Amortization of unrecognized losses			248				357				93				261
Net periodic benefit costs		$	448			$	628			$	21			$	(2	)

     During the three months ended March 31, 2010, we contributed $1.5 million to the RIGP.

15. UNIT-BASED COMPENSATION PLANS

     We award unit-based compensation to employees and directors primarily under the 2009 Long-Term Incentive Plan of Buckeye Partners, L.P. (the “Buckeye LTIP”), which became effective in March 2009. We formerly awarded options to acquire LP Units to employees pursuant to the Unit Option and Distribution Equivalent Plan (the “Option Plan”). We recognized total unit-based compensation expense of $0.9 million and $0.1 million for the three months ended March 31, 2010 and 2009, respectively.

  Long-Term Incentive Plan

     The Buckeye LTIP provides for the issuance of up to 1,500,000 LP Units, subject to certain adjustments. After giving effect to the issuance or forfeiture of phantom unit and performance unit awards through March 31, 2010, a total of 1,114,277 additional LP Units could be issued under the Buckeye LTIP.

     On December 16, 2009, the Compensation Committee approved the terms of the Buckeye Partners, L.P. Unit Deferral and Incentive Plan (“Deferral Plan”). The Compensation Committee is expressly authorized to adopt the Deferral Plan under the terms of the Buckeye LTIP, which grants the Compensation Committee the authority to establish a program pursuant to which our phantom units may be awarded in lieu of cash compensation at the election of the employee. At December 31, 2009, eligible employees were allowed to defer up to 50% of their 2009 compensation award under our Annual Incentive Compensation Plan or other discretionary bonus program in

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

exchange for grants of phantom units equal in value to the amount of their cash award deferral (each such unit, a “Deferral Unit”). Participants also receive one matching phantom unit for each Deferral Unit. Approximately $1.8 million of 2009 compensation awards had been deferred at December 31, 2009, for which 62,332 phantom units (including matching units) were granted during the three months ended March 31, 2010. These grants are included as granted in the Buckeye LTIP activity table below.

  Awards under the Buckeye LTIP

     During the three months ended March 31, 2010, the Compensation Committee granted 119,691 phantom units to employees (including the 62,332 phantom units granted pursuant to the Deferral Plan discussed above), 12,000 phantom units to independent directors of Buckeye GP and MainLine Management LLC, and 114,725 performance units to employees. The amount paid with respect to phantom unit distributions under the Buckeye LTIP was $0.2 million for the three months ended March 31, 2010.

     The following table sets forth the Buckeye LTIP activity for the periods indicated:

						Weighted
						Average
						Grant Date
		Number of				Fair Value
		LP Units				per LP Unit (1)				Total Value
Unvested at January 1, 2010			140,095			$	39.81			$	5,577
Granted			246,416				56.42				13,903
Forfeited			(1,307	)			39.06				(51	)
Unvested at March 31, 2010			385,204			$	50.44			$	19,429

     At March 31, 2010, approximately $14.5 million of compensation expense related to the Buckeye LTIP is expected to be recognized over a weighted average period of approximately 2.3 years.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unit Option and Distribution Equivalent Plan

     The following is a summary of the changes in the LP Unit options outstanding (all of which are vested or are expected to vest) under the Option Plan for the periods indicated:

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
		Number of				Strike Price				Contractual				Intrinsic
		LP Units				($/LP Unit)				Term (in years)				Value (1)
Outstanding at January 1, 2010			349,400			$	46.25
Exercised			(54,300	)			43.74
Outstanding at March 31, 2010			295,100				46.66				6.3			$	3,956
Exercisable at March 31, 2010			189,900			$	45.59				5.4			$	2,750

     The total intrinsic value of options exercised during the three months ended March 31, 2010 was $0.8 million. There were no option exercises during the three months ended March 31, 2009. At March 31, 2010, total unrecognized compensation cost related to unvested LP Unit options was $0.1 million. We expect to recognize this cost over a weighted average period of 0.9 years. At March 31, 2010, 333,000 LP Units were available for grant in connection with the Option Plan. However, with the adoption of the Buckeye LTIP, we do not expect to make any future grants pursuant to the Option Plan. The fair value of options vested was $0.4 million and $0.3 million during the three months ended March 31, 2010 and 2009, respectively.

16. RELATED PARTY TRANSACTIONS

     We are managed by Buckeye GP, which is a wholly owned subsidiary of BGH. BGH is managed by its general partner, MainLine Management LLC (“MainLine Management”). MainLine Management is a wholly owned subsidiary of BGH GP Holdings, LLC (“BGH GP”). Affiliates of each of ArcLight Capital Partners, LLC (“ArcLight”) and Kelso & Company, along with certain members of our senior management, own the majority of the outstanding equity interests of BGH GP. In addition to owning MainLine Management, BGH GP owns approximately 62% of BGH’s common units.

     Under certain agreements, we are obligated to reimburse Services Company for certain direct and indirect costs related to the business activities of us and our subsidiaries. Services Company is reimbursed for insurance-related expenses, general and administrative costs, compensation and benefits payable to employees of Services Company, tax information and reporting costs, legal and audit fees and an allocable portion of overhead expenses. BGH previously reimbursed Services Company for the executive compensation costs and related benefits paid to Buckeye GP’s four highest salaried employees. Since January 1, 2009, we are paying for all executive compensation and related benefits earned by Buckeye GP’s four highest salaried officers in exchange for an annual fixed payment from BGH of $3.6 million. Total costs incurred by us for the above services totaled $27.5 million and $28.6 million for the three months ended March 31, 2010 and 2009, respectively. We reimbursed Services Company for these costs.

     Services Company, which is beneficially owned by the ESOP, owned 1.6 million of our LP Units (approximately 3.0% of our LP Units outstanding) as of March 31, 2010. Distributions received by Services Company from us on such LP Units are used to fund obligations of the ESOP. Distributions paid to Services Company totaled $1.5 million and $1.9 million for the three months ended March 31, 2010 and 2009, respectively.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     We incurred a senior administrative charge for certain management services performed by affiliates of Buckeye GP of $0.5 million for the three months ended March 31, 2009. The senior administrative charge was waived indefinitely on April 1, 2009 as these affiliates are currently not providing services to us that were contemplated as being covered by the senior administrative charge. As a result, there were no related charges recorded in the last nine months of 2009 or during the three months ended March 31, 2010.

     Buckeye GP receives incentive distributions from us pursuant to our partnership agreement and incentive compensation agreement. Incentive distributions are based on the level of quarterly cash distributions paid per LP Unit. Incentive distribution payments totaled $12.3 million and $10.5 million during the three months ended March 31, 2010 and 2009, respectively.

17. PARTNERS’ CAPITAL AND DISTRIBUTIONS

   Summary of Changes in Outstanding General Partner Units and LP Units

     The following is a reconciliation of General Partner Units and LP Units outstanding for the periods indicated:

		General				Limited
		Partner				Partners				Total
Units outstanding at December 31, 2009			243,914				51,438,265				51,682,179
LP Units issued pursuant to the Option Plan			—				54,300				54,300
Units outstanding at March 31, 2010			243,914				51,492,565				51,736,479

  Cash Distributions

     We make quarterly cash distributions to unitholders of substantially all of our available cash, generally defined in our partnership agreement as consolidated cash receipts less consolidated cash expenditures and such retentions for working capital, anticipated cash expenditures and contingencies as our general partner deems appropriate. Cash distributions totaled $61.0 million and $53.7 million during the three months ended March 31, 2010 and 2009, respectively.

     On May 7, 2010, we announced a quarterly distribution of $0.95 per LP Unit that will be paid on May 28, 2010, to unitholders of record on May 17, 2010. Total cash distributed to unitholders on May 28, 2010 will total approximately $61.7 million.

18. EARNINGS PER LIMITED PARTNER UNIT

     We use the two-class method for the computation of earnings per LP Unit. The two-class method requires the determination of net income allocated to limited partner interests as shown in the table below. Basic earnings per LP Unit is computed by dividing net income or loss allocated to limited partner interests per the two-class method by the weighted-average number of LP Units outstanding during a period. Diluted earnings per LP Unit is computed by dividing net income or loss allocated to limited partner interests per the two-class method by the weighted-average number of LP Units outstanding during a period, plus the dilutive effect of outstanding unit options and Buckeye LTIP awards calculated using the treasury stock method. Outstanding unit options and Buckeye LTIP awards are excluded from the calculation of diluted earnings per LP Unit in periods we experience a net loss because the effect is antidilutive.

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following table presents the computation of basic and diluted earnings per LP Unit for the periods indicated:

		Three Months Ended
		March 31,
		2010				2009
Net income allocation:
Net income attributable to Buckeye Partners, L.P.		$	50,513			$	53,760
Less: General partner’s allocation of incentive distributions			(12,315	)			(11,466	)
Net income available to limited partners and general partner after incentive distributions			38,198				42,294
General partner’s ownership interest			0.472	%			0.474	%
Income allocation to general partner based upon ownership interest		$	180			$	200
General partner’s incentive distributions		$	12,315			$	11,466
Income allocation to general partner			180				200
Total income allocated to general partner			12,495				11,666
Adjustment for application of two-class method for MLPs (1)			281				—
Net income allocated to general partner in accordance with two-class method		$	12,776			$	11,666

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following table presents the computation of basic and diluted earnings per LP Unit for the periods indicated:

		Three Months Ended
		March 31,
		2010				2009
Earnings per LP Unit Calculation:
Numerator:
Net income attributable to Buckeye Partners, L.P.		$	50,513			$	53,760
Less: Net income allocated to general partner in accordance with two-class method			(12,776	)			(11,666	)
Net income available to limited partners in accordance with two-class method		$	37,737			$	42,094
Denominator:
Basic:
Weighted average LP Units oustanding			51,471				48,401
Diluted:
Weighted average LP Units oustanding			51,471				48,401
Dilutive effect of LP Unit options and Buckeye LTIP awards granted			163				5
Total			51,634				48,406
Earnings per LP Unit:
Basic		$	0.73			$	0.87
Diluted		$	0.73			$	0.87