SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act 12b-2).     Yes þ          No o

     At June 30, 2004, the aggregate market value of the registrant’s LP Units held by non-affiliates was $1.06 billion. The calculation of such market value should not be construed as an admission or conclusion by the registrant that any person is in fact an affiliate of the registrant.

     LP Units outstanding as of February 22, 2005: 35,384,546

TABLE OF CONTENTS

PART I

Introduction

      Buckeye Partners, L.P. (the “Partnership”) is a master limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership’s principal line of business is the transportation, terminalling and storage of refined petroleum products for major integrated oil companies, large refined product marketing companies and major end users of 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 pipeline construction activities, generally for these same customers. Buckeye GP LLC, a Delaware limited liability company, is the general partner of the Partnership (the “General Partner”). See “Business — Significant Partnership Events in 2004 — GP Restructuring and Acquisition of the General Partner by Carlyle/ Riverstone” in this Item 1.

      The Partnership owns and operates one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered, with approximately 4,500 miles of pipeline serving 13 states, and operates another approximately 1,300 miles of pipeline under agreements with major oil and chemical companies. The Partnership also owns and operates 38 active refined petroleum products terminals with aggregate storage capacity of approximately 15.4 million barrels in Illinois, Indiana, Michigan, Missouri, New York, Ohio and Pennsylvania.

      The Partnership’s pipelines service approximately 100 delivery locations, transporting refined petroleum products including gasoline, turbine fuel, diesel fuel, heating oil and kerosene from major supply sources to terminals and airports located within major end-use markets. These pipelines also transport other refined products, such as propane and butane, refinery feedstocks and blending components. The Partnership’s transportation services are typically provided on a common carrier basis under published tariffs for customers. The Partnership’s geographical diversity, connections to multiple sources of supply and extensive delivery system help create a stable base business. The Partnership is an independent transportation provider that is not affiliated with any oil company or marketer of refined petroleum products and generally does not own the petroleum products that it transports.

      The Partnership currently conducts all of its operations through five operating subsidiaries, which are referred to as the Operating Subsidiaries:

Significant Partnership Events in 2004

      On October 1, 2004, the Partnership acquired five refined petroleum products pipelines and 24 petroleum products terminals located in the Midwestern United States from Shell for a purchase price of $517 million. Wood River was created to purchase the Shell pipeline assets and the terminal assets were acquired through an existing subsidiary of BPH.

      The acquisition of these assets expanded the Partnership’s presence in the Midwestern U.S. markets. According to the Department of Energy’s Energy Information Administration, or EIA, demand for refined products in Petroleum Administration Defense District II (“PADD II”), which generally constitutes the upper Midwestern United States, exceeded refinery output in the region in the first nine months of 2004. This shortfall creates the need for refined petroleum products to be delivered from other regions via pipeline, barge or, to a lesser degree, truck.

      The acquisition more than doubled the number of terminals the Partnership operates and provided it with connections to the ConocoPhillips Wood River refinery in Illinois, the Explorer pipeline and other common carrier pipelines throughout the Midwest. The Wood River refinery, with a capacity of 288,000 barrels per day, is ConocoPhillips’s largest refinery and the second largest refinery in PADD II. Also, there are no other refineries located within a 200-mile radius of the Wood River refinery. Wood River’s connection to the 1,400-mile Explorer pipeline also provides access to refined products produced in numerous Gulf Coast refining centers.

      The Shell assets complement the Partnership’s current infrastructure. Several of the pipelines acquired from Shell connect to the Partnership’s existing pipeline system. Given the strategic importance of these assets to the Partnership and their connections to its existing pipelines and terminals, the General Partner believes that opportunities exist for several expansion projects to improve the utilization of, and integration of the acquired assets into, the Partnership’s existing operations. As of December 31, 2004, the pipelines had been substantially integrated into the Partnership’s existing Midwest field operations and the terminals had been integrated into the Partnership’s existing terminal operations.

      As of December 31, 2004, the General Partner owned approximately a 1% general partnership interest in the Partnership and approximately a 1% general partnership interest in each Operating Subsidiary except Wood River, for an approximate 2% overall general partnership interest in the Partnership’s activities. 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. and certain members of senior management.

      The General Partner was formed on December 15, 2004 as part of a restructuring of the Partnership’s general partner organization structure (the “GP Restructuring”) pursuant to which Buckeye Pipe Line Company LLC (the “Prior General Partner”) transferred its general partner interests, except for its right to receive incentive compensation from the Partnership, to the General Partner. The purpose of the GP Restructuring was to clarify that the Partnership and the General Partner are distinct legal entities with separate legal responsibilities from MainLine Sub and MainLine and to provide better assurance that the assets and liabilities of the Partnership, the General Partner and Buckeye Pipe Line Services Company

(“Services Company”) would be considered separate from those of MainLine Sub and MainLine. The Prior General Partner, its immediate parent Buckeye Management Company LLC (“BMC”) and BMC’s immediate parent Glenmoor, LLC (“Glenmoor”) were then merged and renamed MainLine Sub LLC, and Glenmoor’s immediate parent, BPL Acquisition L.P. then changed its name to MainLine L.P.

      Until May 4, 2004, Glenmoor, which had been the indirect parent of the Prior General Partner, was owned by certain directors and members of senior management of the Prior General Partner, trusts for the benefit of their children and certain other management employees of Services Company. On May 4, 2004, each of Glenmoor, BMC and the Prior General Partner converted from a stock corporation to a limited liability company, and the membership interests in Glenmoor were sold to BPL Acquisition L.P. (now MainLine) for approximately $235 million. BPL Acquisition L.P. was formed by affiliates of Carlyle/ Riverstone Global Energy and Power Fund II, L.P. for the purpose of purchasing the Glenmoor membership interest.

      At December 31, 2004, Services Company employed all of the employees that work for the Operating Subsidiaries. At December 31, 2004, Services Company had 739 employees. Prior to December 26, 2004, the 122 employees of Norco Pipe Line Company, LLC (“Norco”) Buckeye Gulf Coast Pipe Lines, L.P. (“BGC”) and Buckeye Terminals, LLC (“BT”), each a wholly-owned subsidiary of BPH, were employed directly by each respective entity. On December 26, 2004, these employees became employees of Services Company. As part of the GP Restructuring, the services agreement between the Prior General Partner and Services Company (the “Prior Services Agreement”) was terminated and a new services agreement was entered into among Services Company, the Partnership, the Operating Subsidiaries and their subsidiary companies (the “New Services Agreement”). Under the New Services Agreement, Services Company continues to employ the employees that work for the Operating Subsidiaries, and is reimbursed directly by the Operating Subsidiaries and their subsidiaries for those services. Prior to the New Services Agreement, Services Company was reimbursed by the Prior General Partner who was in turn reimbursed by the Partnership and the Operating Subsidiaries. Under both the Prior Services Agreement and the New Services Agreement, certain executive compensation costs and related benefits are not reimbursed by the Partnership or the Operating Subsidiaries, but are reimbursed by MainLine Sub LLC.

      The following chart depicts the Partnership’s ownership structure as of December 31, 2004, reflecting the GP Restructuring and the creation of Wood River

Ownership of Buckeye Partners, L.P.

Business Activities

      The Partnership receives petroleum products from refineries, connecting pipelines and bulk and marine terminals, and transports those products to other locations. In 2004, refined petroleum products transportation accounted for approximately 77% of the Partnership’s consolidated revenues.

      The Partnership transported an average of approximately 1,200,600 barrels per day of refined products in 2004. The following table shows the volume and percentage of refined petroleum products transported over the last three years.

Volume and Percentage of Refined Petroleum Products Transported(1)

(Volume in thousands of barrels per day)

      The Partnership provides refined product pipeline transportation service in the following states: California, Connecticut, Florida, Illinois, Indiana, Massachusetts, Michigan, Missouri, New Jersey, Nevada, New York, Ohio and Pennsylvania.

      Buckeye serves major population centers in Pennsylvania, New York and New Jersey through 928 miles of pipeline. Refined petroleum products are received at Linden, New Jersey from approximately 17 major source points, including two refineries, six connecting pipelines and nine storage and terminalling facilities. Products are then transported through two lines from Linden, New Jersey to Allentown, Pennsylvania. From Allentown, the pipeline continues west through a connection with the Laurel pipeline to Pittsburgh, Pennsylvania (serving Reading, Harrisburg, Altoona/ Johnstown and Pittsburgh) and north through eastern Pennsylvania into New York (serving Scranton/ Wilkes-Barre, Binghamton, Syracuse, Utica, Rochester and, via a connecting carrier, Buffalo). Buckeye leases capacity in one of the pipelines extending from Pennsylvania to upstate New York to a major oil pipeline company. Products received at Linden, New Jersey are also transported through one line to Newark and through two additional lines to JFK, LaGuardia and to commercial refined product terminals at Long Island City and Inwood, New York. These pipelines supply JFK, LaGuardia and Newark airports with substantially all of each airport’s turbine fuel requirements.

      Laurel transports refined petroleum products through a 345-mile pipeline extending westward from five refineries and a connection to Colonial Pipeline Company in the Philadelphia area to Reading, Harrisburg, Altoona/ Johnstown and Pittsburgh, Pennsylvania.

      Buckeye and Norco transport refined petroleum products through 2,025 miles of pipeline in northern Illinois, central Indiana, eastern Michigan, western and northern Ohio and western Pennsylvania. A number of receiving lines and delivery lines connect to a central corridor which runs from Lima, Ohio through Toledo, Ohio to Detroit, Michigan. Refined petroleum products are received at a refinery and other pipeline connection points near Toledo, Lima, Detroit and East Chicago. Major market areas served include Peoria, Illinois; Huntington/ Fort Wayne, Indianapolis and South Bend, Indiana; Bay City, Detroit and Flint, Michigan; Cleveland, Columbus, Lima and Toledo, Ohio and Pittsburgh, Pennsylvania.

      Wood River owns five refined petroleum products pipelines with aggregate mileage of approximately 900 miles located in the Midwestern United States. Refined petroleum products are received at the

ConocoPhillips Wood River refinery in Illinois and transported to the Chicago area, to a terminal in the St. Louis area and to the Lambert-St. Louis Airport, to receiving points across Illinois and Indiana and to Buckeye’s pipeline in Lima, Ohio. At the Partnership’s tank farm located in Hartford, Illinois, one of Wood River’s pipelines also receives refined petroleum products from the Explorer pipeline, which are transported to the Partnership’s 1.3 million barrel terminal located on the Ohio River in Mt. Vernon, Indiana.

      Buckeye serves Connecticut and Massachusetts through 112 miles of pipeline (the “Jet Lines System”) that carry refined products from New Haven, Connecticut to Hartford, Connecticut and Springfield, Massachusetts.

      Everglades transports primarily turbine fuel on a 37-mile pipeline from Port Everglades, Florida to Ft. Lauderdale-Hollywood International Airport and Miami International Airport. Everglades supplies Miami International Airport with substantially all of its turbine fuel requirements.

      WesPac Pipelines — Reno LLC owns a 3.0 mile pipeline serving the Reno/ Tahoe International Airport. WesPac Pipelines — San Diego LLC owns a 4.3 mile pipeline serving the San Diego International Airport. WesPac Pipelines — Memphis LLC is in the process of constructing an 11-mile pipeline and related terminal facilities to serve Memphis International Airport. Each of these WesPac entities is a joint venture between BPH and Kealine Partners. BPH owns a 75% ownership interest in each of WesPac Pipelines — Reno LLC and WesPac Pipelines — Memphis LLC and a 50% ownership interest in WesPac Pipelines — San Diego LLC. As of December 31, 2004, the Partnership provided $13.4 million in intercompany debt financing to these WesPac entities.

Other Business Activities

      Through BPH and its subsidiaries, the Partnership owns and operates 38 terminals located in Indiana, Illinois, Michigan, Missouri, New York, Ohio and Pennsylvania that provide bulk storage and throughput services and have the capacity to store an aggregate of approximately 15.4 million barrels of refined petroleum products. In addition, these subsidiaries own five currently idled terminals with an aggregate storage capacity of approximately 924,000 barrels. Together, the Partnership’s terminalling and storage activities provided approximately 13% of total revenue in 2004.

      BGC is a contract operator of pipelines owned in Texas and Louisiana by major petrochemical companies. BGC currently has eight operations and maintenance contracts in place. In addition, BGC owns a 16-mile pipeline located in Texas that it leases to a third-party chemical company. Subsidiaries of BGC also own an approximate 63% interest in a crude butadiene pipeline between Deer Park, Texas and Port Arthur, Texas that was completed in March 2003. Crude butadiene transported on this pipeline, known as the Sabina pipeline, are supported by a long-term throughput agreement with Sabina Petrochemicals, LLC. BGC also provides engineering and construction management services to major chemical companies in the Gulf Coast area.

      BPH owns a 24.99% equity interest in West Shore Pipe Line Company (“West Shore”). West Shore owns and operates a pipeline system that originates in the Chicago, Illinois area and extends north to Green Bay, Wisconsin and west and then north to Madison, Wisconsin. The pipeline system transports refined petroleum products to markets in northern Illinois and Wisconsin. The other equity holders of West Shore are a number of major oil companies. The pipeline is operated under contract by Citgo Pipeline Company.

      BPH also owns a 20% interest in West Texas LPG Pipeline Limited Partnership (“WTP”), which it acquired on August 8, 2003 for $28.5 million. WTP owns and operates a pipeline system that delivers natural gas liquids to Mont Belvieu, Texas for fractionation. The natural gas liquids are delivered to the WTP pipeline

system from the Rocky Mountain region via connecting pipelines and from gathering fields located in West and Central Texas. The majority owners and the operators of WTP are affiliates of ChevronTexaco, Inc.

Competition and Other Business Considerations

      The Operating Subsidiaries conduct business without the benefit of exclusive franchises from government entities. In addition, the Operating Subsidiaries’ pipeline operations generally operate as common carriers, providing transportation services at posted tariffs and without long-term contracts. The Operating Subsidiaries do not own the products they transport. Demand for the services provided by the Operating Subsidiaries derives from demand for petroleum products in the regions served and the ability and willingness of refiners, marketers and end-users to supply such demand by deliveries through the Operating Subsidiaries’ pipelines. Demand for refined petroleum products is primarily a function of price, prevailing general economic conditions and weather. The Operating Subsidiaries’ businesses are, therefore, subject to a variety of factors partially or entirely beyond their control. Multiple sources of pipeline entry and multiple points of delivery, however, have historically helped maintain stable total volumes even when volumes at particular source or destination points have changed.

      The Partnership’s business may in the future be affected by changing oil prices or other factors affecting demand for oil and other fuels. The Partnership’s business may also be impacted by energy conservation, changing sources of supply, structural changes in the oil industry, changes in transportation and travel patterns in the areas served by the Partnership’s pipelines and new energy technologies. The General Partner is unable to predict the effect of such factors.

      In 2004, the Partnership had approximately 110 customers, most of which were either major integrated oil companies or large refined product marketing companies. The largest two customers accounted for 6% each of consolidated revenues, while the 20 largest customers accounted for 56% of consolidated revenues.

      Generally, pipelines are the lowest cost method for long-haul overland movement of refined petroleum products. Therefore, the Operating Subsidiaries’ most significant competitors for large volume shipments are other pipelines, many of which are owned and operated by major integrated oil companies. Although it is unlikely that a pipeline system comparable in size and scope to the Operating Subsidiaries’ pipeline system will be built in the foreseeable future, new pipelines (including pipeline segments that connect with existing pipeline systems) could be built to effectively compete with the Operating Subsidiaries in particular locations. In the Midwest, several petroleum product pipeline expansions and two new petroleum product pipeline construction projects have recently been completed. Generally, these projects have increased the capacity to bring additional refined products into the Partnership’s service area. However, because the Operating Subsidiaries own multiple pipelines throughout the Midwest, the General Partner believes that these pipeline projects may result in volumes shifting from one Operating Subsidiary pipeline segment to another, but will not, in the aggregate, have a material adverse effect on the Operating Subsidiaries’ results of operations or financial condition.

      The Operating Subsidiaries compete with marine transportation in some areas. Tankers and barges on the Great Lakes account for some of the volume to certain Michigan, Ohio and upstate New York locations during the approximately eight non-winter months of the year. Barges are presently a competitive factor for deliveries to the New York City area, the Pittsburgh area, Connecticut and Ohio.

      Trucks competitively deliver product in a number of areas served by the Operating Subsidiaries. While their costs may not be competitive for longer hauls or large volume shipments, trucks compete effectively for certain volumes in many areas served by the Operating Subsidiaries. The availability of truck transportation places a significant competitive constraint on the ability of the Operating Subsidiaries to increase their tariff rates.

      Privately arranged exchanges of product between marketers in different locations are another form of competition. Generally, such exchanges reduce both parties’ costs by eliminating or reducing transportation charges. In addition, consolidation among refiners and marketers that has accelerated in recent years has

altered distribution patterns, reducing demand for transportation services in some markets and increasing them in other markets.

      Distribution of refined petroleum products depends to a large extent upon the location and capacity of refineries. However, because the Partnership’s business is largely driven by the consumption of fuel in its delivery areas and the Operating Subsidiaries’ pipelines have numerous source points, the General Partner does not believe that the expansion or shutdown of any particular refinery is likely, in most instances, to have a material effect on the business of the Partnership. Certain of the pipelines which were acquired from Shell on October 1, 2004, emanate from a refinery owned by ConocoPhillips and located in the vicinity of Wood River, Illinois. While these pipelines are, in part, supplied by connecting pipelines, a temporary or permanent closure of the ConocoPhillips Wood River refinery in connection with maintenance activities or casualty events could have a negative impact on volumes delivered through these pipelines. The General Partner is unable to determine whether refinery expansions or shutdowns will occur or what their specific effect would be. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Information — Competition and Other Business Conditions.”

      The Operating Subsidiaries’ mix of products transported tends to vary seasonally. Declines in demand for heating oil during the summer months are, to a certain extent, offset by increased demand for gasoline and jet fuel. Overall, operations have been only moderately seasonal, with somewhat lower than average volume being transported during March, April and May and somewhat higher than average volume being transported in November, December and January.

      Neither the Partnership nor any of the Operating Subsidiaries has any employees. The Operating Subsidiaries are managed and operated by employees of Services Company. In addition, MainLine Sub provides certain management services to the General Partner and Services Company. At December 31, 2004, Services Company had a total of 739 full-time employees, 142 of whom were represented by two labor unions. The Operating Subsidiaries (and their predecessors) have never experienced any work stoppages or other significant labor problems.

Capital Expenditures

      The Partnership incurs capital expenditures in order to maintain and enhance the safety and integrity of its pipelines and related assets, to expand the reach or capacity of its pipelines, to improve the efficiency of its operations or to pursue new business opportunities. See “Pipeline Regulation and Safety Matters” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

      During 2004, the Partnership incurred approximately $72.6 million of capital expenditures, of which $32.8 million related to maintenance and integrity and $39.8 million related to expansion and cost reduction projects.

      In 2005, the Partnership anticipates capital expenditures of approximately $84 million, of which approximately $28 million is projected to be sustaining capital expenditures for maintenance and integrity projects and approximately $56 million, of which $32.5 million relates to a project at the Memphis International Airport, is projected for expansion and cost reduction projects. See “Pipeline Regulation and Safety Matters” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Regulation

      Wood River, as owner of the pipelines recently acquired from Shell, Buckeye and Norco are interstate common carriers subject to the regulatory jurisdiction of the Federal Energy Regulatory Commission (“FERC”) under the Interstate Commerce Act and the Department of Energy Organization Act. FERC regulation requires that interstate oil pipeline rates be posted publicly and that these rates be “just and reasonable” and non-discriminatory. FERC regulation also enforces common carrier obligations and specifies

a uniform system of accounts. In addition, Wood River, Buckeye, Norco and the other Operating Subsidiaries are subject to the jurisdiction of certain other federal agencies with respect to environmental and pipeline safety matters.

      The Operating Subsidiaries are also subject to the jurisdiction of various state and local agencies, including, in some states, public utility commissions which have jurisdiction over, among other things, intrastate tariffs, the issuance of debt and equity securities, transfers of assets and pipeline safety.

      The generic oil pipeline regulations issued under the Energy Policy Act of 1992 rely primarily on an index methodology, whereby a pipeline is allowed to change its rates in accordance with an index (currently the Producer Price Index, or PPI) that FERC believes reflects cost changes appropriate for application to pipeline rates. The tariff rates of each of Norco and Wood River are governed by this generic FERC index methodology, and therefore are subject to change annually according to the index. If the PPI is negative, Norco and Wood River could be required to reduce their rates if they exceed the new maximum allowable rate.

      In addition, in decisions involving unrelated pipeline limited partnerships, FERC has ruled that pass-through entities, like the Partnership and the Operating Subsidiaries, may not claim an income tax allowance for income attributable to non-corporate limited partners in justifying the reasonableness of their rates. The General Partner believes only a small number of the Partnership’s limited partnership units (“LP Units”) are held by corporations. Further, in a 2004 decision involving an unrelated pipeline limited partnership, the United States Court of Appeals for the District of Columbia Circuit overruled a prior FERC decision allowing a limited partnership to claim a partial income tax allowance in an opinion that suggested that in the future a limited partnership may not be able to claim any income tax allowance despite being partially owned by a corporation. On December 2, 2004, FERC issued a Notice of Inquiry that seeks comments regarding whether the 2004 Appeals Court decision applies only to the specific facts of that case, or whether it applies more broadly, and, if the latter, what effect that ruling might have on energy infrastructure investments. Comments in response to the Notice of Inquiry were due on January 21, 2005. It is not clear what action FERC will ultimately take in response to the 2004 Appeals Court decision, to what extent such action will be challenged and, if so, whether it will withstand further FERC or judicial review. A shipper or FERC could cite these decisions in a protest or complaint challenging indexed rates maintained by certain of the Partnership’s Operating Subsidiaries. If a challenge were brought and FERC were to find that some of the indexed rates exceed levels justified by the cost of service, FERC could order a reduction in the indexed rates and could require reparations. As a result, the Partnership’s results of operations could be adversely affected.

      Under FERC’s regulations, as an alternative to indexed rates, a pipeline is also allowed to charge market-based rates if the pipeline establishes that it does not possess significant market power in a particular market. The final rules became effective on January 1, 1995.

      Buckeye’s rates are governed by an exception to the rules discussed above, pursuant to specific FERC authorization. Buckeye’s market-based rate regulation program was initially approved by FERC in March 1991 and was subsequently extended in 1994. Under this program, in markets where Buckeye does not have significant market power, individual rate increases: (a) will not exceed a real (i.e., exclusive of inflation) increase of 15% over any two-year period (the “rate cap”), and (b) will be allowed to become effective without suspension or investigation if they do not exceed a “trigger” equal to the change in the Gross Domestic Product implicit price deflator since the date on which the individual rate was last increased, plus 2%. Individual rate decreases will be presumptively valid upon a showing that the proposed rate exceeds marginal costs. In markets where Buckeye was found to have significant market power and in certain markets where no market power finding was made: (i) individual rate increases cannot exceed the volume-weighted average rate increase in markets where Buckeye does not have significant market power since the date on which the individual rate was last increased, and (ii) any volume-weighted average rate decrease in markets where Buckeye does not have significant market power must be accompanied by a corresponding decrease in all of Buckeye’s rates in markets where it does have significant market power. Shippers retain the right to file

complaints or protests following notice of a rate increase, but are required to show that the proposed rates violate or have not been adequately justified under the market-based rate regulation program, that the proposed rates are unduly discriminatory, or that Buckeye has acquired significant market power in markets previously found to be competitive.

      The Buckeye program was subject to review by FERC in 2000 when FERC reviewed the index selected in the generic oil pipeline regulations. FERC decided to continue the generic oil pipeline regulations with no material changes and did not modify or discontinue Buckeye’s program. The General Partner cannot predict the impact that any change to Buckeye’s rate program would have on Buckeye’s operations. Independent of regulatory considerations, it is expected that tariff rates will continue to be constrained by competition and other market factors.

Environmental Matters

      The Operating Subsidiaries are subject to federal, state and local laws and regulations relating to the protection of the environment. Although the General Partner believes that the operations of the Operating Subsidiaries comply in all material respects with applicable environmental laws and regulations, risks of substantial liabilities are inherent in pipeline operations, and there can be no assurance that material environmental liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly rigorous environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or injuries to persons resulting from the operations of the Operating Subsidiaries, could result in substantial costs and liabilities to the Partnership. See “Legal Proceedings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Environmental Matters.”

      The Oil Pollution Act of 1990 (“OPA”) amended certain provisions of the federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act (“CWA”), and other statutes as they pertain to the prevention of and response to petroleum product spills into navigable waters. The OPA subjects owners of facilities to strict joint and several liability for all containment and clean-up costs and certain other damages arising from a spill. The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial liability for the costs of removing a spill. State laws for the control of water pollution also provide varying civil and criminal penalties and liabilities in the case of releases of petroleum or its derivatives into surface waters or into the ground.

      Contamination resulting from spills or releases of refined petroleum products occurs in the petroleum pipeline industry. The Operating Subsidiaries’ pipelines cross numerous navigable rivers and streams. Although the General Partner believes that the Operating Subsidiaries comply in all material respects with the spill prevention, control and countermeasure requirements of federal laws, any spill or other release of petroleum products into navigable waters may result in material costs and liabilities to the Partnership.

      The Resource Conservation and Recovery Act (“RCRA”), as amended, establishes a comprehensive program of regulation of “hazardous wastes.” Hazardous waste generators, transporters, and owners or operators of treatment, storage and disposal facilities must comply with regulations designed to ensure detailed tracking, handling and monitoring of these wastes. RCRA also regulates the disposal of certain non-hazardous wastes. As a result of these regulations, certain wastes typically generated by pipeline operations are considered “hazardous wastes” which are subject to rigorous disposal requirements.

      The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), also known as “Superfund,” governs the release or threat of release of a “hazardous substance.” Releases of a hazardous substance, whether on or off-site, may subject the generator of that substance to liability under CERCLA for the costs of clean-up and other remedial action. Pipeline maintenance and other activities in the ordinary course of business generate “hazardous substances.” As a result, to the extent a hazardous substance generated by the Operating Subsidiaries or their predecessors may have been released or disposed of in the past, the Operating Subsidiaries may in the future be required to remedy contaminated property. Governmental authorities such as the Environmental Protection Agency, and in some instances third parties, are authorized under CERCLA to seek to recover remediation and other costs from responsible persons, without

regard to fault or the legality of the original disposal. In addition to its potential liability as a generator of a “hazardous substance,” the property or right-of-way of the Operating Subsidiaries may be adjacent to or in the immediate vicinity of Superfund and other hazardous waste sites. Accordingly, the Operating Subsidiaries may be responsible under CERCLA for all or part of the costs required to cleanup such sites, which costs could be material.

      The Clean Air Act, amended by the Clean Air Act Amendments of 1990 (the “Amendments”), imposes controls on the emission of pollutants into the air. The Amendments required states to develop facility-wide permitting programs over the past several years to comply with new federal programs. Existing operating and air-emission requirements like those currently imposed on the Operating Subsidiaries are being reviewed by appropriate state agencies in connection with the new facility-wide permitting program. It is possible that new or more stringent controls will be imposed upon the Operating Subsidiaries through this permit review process.

      The Operating Subsidiaries are also subject to environmental laws and regulations adopted by the various states in which they operate. In certain instances, the regulatory standards adopted by the states are more stringent than applicable federal laws.

      In 1986, certain predecessor companies acquired by the Partnership, namely Buckeye Pipe Line Company and its subsidiaries (“Pipe Line”), entered into an Administrative Consent Order (“ACO”) with the New Jersey Department of Environmental Protection and Energy under the New Jersey Environmental Cleanup Responsibility Act of 1983 (“ECRA”) relating to all six of Pipe Line’s facilities in New Jersey. The ACO permitted the 1986 acquisition of Pipe Line to be completed prior to full compliance with ECRA, but required Pipe Line to conduct in a timely manner a sampling plan for environmental conditions at the New Jersey facilities and to implement any required clean-up plan. Sampling continues in an effort to identify areas of contamination at the New Jersey facilities, while clean-up operations have begun and have been completed at certain of the sites. The obligations of Pipe Line were not assumed by the Partnership and the costs of compliance have been and will continue to be paid by American Financial Group, Inc.

Pipeline Regulation and Safety Matters

      The Operating Subsidiaries are subject to regulation by the United States Department of Transportation (“DOT”) under the Hazardous Liquid Pipeline Safety Act of 1979 (“HLPSA”), and its subsequent re-authorizations relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities. HLPSA covers petroleum and petroleum products and requires any entity that owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain a plan of inspection and maintenance and to comply with such plans.

      The Pipeline Safety Reauthorization Act of 1988 requires coordination of safety regulation between federal and state agencies, testing and certification of pipeline personnel, and authorization of safety-related feasibility studies. The Partnership has a drug and alcohol testing program that complies in all material respects with the regulations promulgated by the Office of Pipeline Safety and DOT.

      HLPSA also requires, among other things, that the Secretary of Transportation consider the need for the protection of the environment in issuing federal safety standards for the transportation of hazardous liquids by pipeline. The legislation also requires the Secretary of Transportation to issue regulations concerning, among other things, the identification by pipeline operators of environmentally sensitive areas; the circumstances under which emergency flow restricting devices should be required on pipelines; training and qualification standards for personnel involved in maintenance and operation of pipelines; and the periodic integrity testing of pipelines in unusually sensitive and high-density population areas by internal inspection devices or by hydrostatic testing. Effective in August 1999, the DOT issued its Operator Qualification Rule, which required a written program by April 27, 2001, for ensuring operators are qualified to perform tasks covered by the pipeline safety rules. All persons performing covered tasks were required to be qualified under the program by October 28, 2002. The Partnership has filed its written plan and has qualified its employees and contractors as required. In addition, on March 31, 2001, DOT’s rule for Pipeline Integrity Management in High Consequence Areas (Hazardous Liquid Operators with 500 or more Miles of Pipeline) became effective. This rule sets forth regulations that require pipeline operators to assess, evaluate, repair and validate the integrity of

hazardous liquid pipeline segments that, in the event of a leak or failure, could affect populated areas, areas unusually sensitive to environmental damage or commercially navigable waterways. Under the rule, pipeline operators were required to identify line segments which could impact high consequence areas by December 31, 2001. Pipeline operators were required to develop “Baseline Assessment Plans” for evaluating the integrity of each pipeline segment by March 31, 2002 and to complete an assessment of the highest risk 50% of line segments by September 30, 2004, with full assessment of the remaining 50% by March 31, 2008. Pipeline operators will thereafter be required to re-assess each affected segment in intervals not to exceed five years. The Partnership has implemented an Integrity Management Program in compliance with the requirements of this rule.

      In December 2002 the Pipeline Safety Improvement Act of 2002 (“PSIA”) became effective. The PSIA imposes additional obligations on pipeline operators, increases penalties for statutory and regulatory violations, and includes provisions prohibiting employers from taking adverse employment action against pipeline employees and contractors who raise concerns about pipeline safety within the company or with government agencies or the press. Many of the provisions of the PSIA are subject to regulations to be issued by the Department of Transportation. The PSIA also requires public education programs for residents, public officials and emergency responders and a measurement system to ensure the effectiveness of the public education program. The Partnership has commenced implementation of a public education program that complies with these requirements. While the PSIA imposes additional operating requirements on pipeline operators, the Partnership does not believe that cost of compliance with the PSIA is likely to be material.

      The Partnership also has certain contractual obligations to Shell for testing and maintenance of pipelines. In 2003, Shell entered into a consent decree with the United States Environmental Protection Agency arising out of a June 1999 incident unrelated to the assets acquired. The consent decree included requirements for testing and maintenance of two of the pipelines (the “North Line” and the “East Line”) acquired from Shell, the creation of a damage prevention program, submission to independent monitoring and various reporting requirements. In the purchase agreement with Shell, the Partnership agreed to perform, at its own expense, the work required of Shell on North Line and East Line under the consent decree. The Partnership’s obligations to Shell with respect to the consent decree extend to approximately 2008, a date five years from the date of the consent decree. For more information regarding the acquisition, see “Business — Significant Partnership Events in 2004 — Acquisition of Midwest Pipelines and Terminals.”

      The Partnership believes that the Operating Subsidiaries currently comply in all material respects with HLPSA and other pipeline safety laws and regulations. However, the industry, including the Partnership, will, in the future, incur additional pipeline and tank integrity expenditures and the Partnership is likely to incur increased operating costs based on these and other government regulations. During 2004, the Partnership’s integrity expenditures for these programs were approximately $22.9 million (of which $21.8 million was capital and $0.9 million was expense). The Partnership expects 2005 integrity expenditures for these programs to be approximately $19 million of which approximately $12 million will be capital and $7 million will be expense.

      The Operating Subsidiaries are also subject to the requirements of the Federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes. The Partnership believes that the Operating Subsidiaries’ operations comply in all material respects with OSHA requirements, including general industry standards, record-keeping, hazard communication requirements, training and monitoring of occupational exposure to benzene, asbestos and other regulated substances.

      The Partnership cannot predict whether or in what form any new legislation or regulatory requirements might be enacted or adopted or the costs of compliance. In general, any such new regulations could increase operating costs and impose additional capital expenditure requirements, but the Partnership does not presently expect that such costs or capital expenditure requirements would have a material adverse effect on its results of operations or financial condition.

Tax Treatment of Publicly Traded Partnerships under the Internal Revenue Code

      The Internal Revenue Code of 1986, as amended (the “Code”), imposes certain limitations on the current deductibility of losses attributable to investments in publicly traded partnerships and treats certain publicly traded partnerships as corporations for federal income tax purposes. The following discussion briefly describes certain aspects of the Code that apply to individuals who are citizens or residents of the United States without commenting on all of the federal income tax matters affecting the Partnership or the holders of LP Units (“Unitholders”), and is qualified in its entirety by reference to the Code. UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN THE PARTNERSHIP.

      The Code treats a publicly traded partnership that existed on December 17, 1987, such as the Partnership, as a corporation for federal income tax purposes, unless, for each taxable year of the Partnership, under Section 7704(d) of the Code, 90% or more of its gross income consists of “qualifying income.” Qualifying income includes interest, dividends, real property rents, gains from the sale or disposition of real property, income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy and timber), and gain from the sale or disposition of capital assets that produce such income. The Partnership is engaged primarily in the refined products pipeline transportation business. In addition, the Partnership elected effective August 1, 2004 to treat BGC as a corporation for federal income tax purposes in order for distributions from BGC to be treated as dividends constituting qualifying income. Prior to this election, BGC’s operations generally did not generate qualifying income for the Partnership. The General Partner believes that 90 percent or more of the Partnership’s gross income has been qualifying income. If this continues to be true and no subsequent legislation amends this provision, the Partnership will continue to be classified as a partnership and not as a corporation for federal income tax purposes.

      The Code provides that an individual, estate, trust or personal service corporation generally may not deduct losses from passive business activities, to the extent they exceed income from all such passive activities, against other (active) income. Income that may not be offset by passive activity losses includes not only salary and active business income, but also portfolio income such as interest, dividends or royalties or gain from the sale of property that produces portfolio income. Credits from passive activities are also limited to the tax attributable to any income from passive activities. The passive activity loss rules are applied after other applicable limitations on deductions, such as the at-risk rules and basis limitations. Certain closely held corporations are subject to slightly different rules that can also limit their ability to offset passive losses against certain types of income.

      Under the Code, net income from publicly traded partnerships is not treated as passive income for purposes of the passive loss rule, but is treated as non-passive income. Net losses and credits attributable to an interest in a publicly traded partnership are not allowed to offset a partner’s other income. Thus, a Unitholder’s proportionate share of the Partnership’s net losses may be used to offset only Partnership net income from its trade or business in succeeding taxable years or, upon a complete disposition of a Unitholder’s interest in the Partnership to an unrelated person in a fully taxable transaction, may be used to (i) offset gain recognized upon the disposition, and (ii) then against all other income of the Unitholder. In effect, net losses are suspended and carried forward indefinitely until utilized to offset net income of the Partnership from its trade or business or allowed upon the complete disposition to an unrelated person in a fully taxable transaction of the Unitholder’s interest in the Partnership. A Unitholder’s share of Partnership net income may not be offset by passive activity losses generated by other passive activities. In addition, a Unitholder’s proportionate share of the Partnership’s portfolio income, including portfolio income arising from the investment of the Partnership’s working capital, is not treated as income from a passive activity and may not be offset by such Unitholder’s share of net losses of the Partnership.

      The Code generally provides that investment interest expense is deductible only to the extent of a non-corporate taxpayer’s net investment income. In general, net investment income for purposes of this limitation includes gross income from property held for investment, gain attributable to the disposition of property held for investment (except for net capital gains for which the taxpayer has elected to be taxed at special capital gains rates) and portfolio income (determined pursuant to the passive loss rules) reduced by certain expenses (other than interest) which are directly connected with the production of such income. Property subject to the passive loss rules is not treated as property held for investment. However, the IRS has issued a Notice which provides that net income from a publicly traded partnership (not otherwise treated as a corporation) may be included in net investment income for purposes of the limitation on the deductibility of investment interest. A Unitholder’s investment income attributable to its interest in the Partnership will include both its allocable share of the Partnership’s portfolio income and trade or business income. A Unitholder’s investment interest expense will include its allocable share of the Partnership’s interest expense attributable to portfolio investments.

      Certain entities otherwise exempt from federal income taxes (such as individual retirement accounts, pension plans and charitable organizations) are nevertheless subject to federal income tax on net unrelated business taxable income and each such entity must file a tax return for each year in which it has more than $1,000 of gross income from unrelated business activities. The General Partner believes that substantially all of the Partnership’s gross income will be treated as derived from an unrelated trade or business and taxable to such entities. The tax-exempt entity’s share of the Partnership’s deductions directly connected with carrying on such unrelated trade or business are allowed in computing the entity’s taxable unrelated business income. ACCORDINGLY, INVESTMENT IN THE PARTNERSHIP BY TAX-EXEMPT ENTITIES SUCH AS INDIVIDUAL RETIREMENT ACCOUNTS, PENSION PLANS AND CHARITABLE TRUSTS MAY NOT BE ADVISABLE.

      A regulated investment company, or “mutual fund,” is required to derive 90% or more of its gross income from specific sources including interest, dividends and gains from the sale of stocks or securities, foreign currency or specified related sources. Recent legislation adds net income derived from the ownership of an interest in a “qualified publicly traded partnership” to the categories of qualifying income for a regulated investment company. We expect that we will meet the definition of a “qualified publicly traded partnership.” The legislation is effective, however, only for taxable years beginning after October 22, 2004. For taxable years beginning prior to this time, an insignificant amount of our income will be qualifying income to a regulated investment company.

      During 2004, the Partnership owned property or conducted business in the states of California, Connecticut, Florida, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, Pennsylvania and Texas. A Unitholder will likely be required to file state income tax returns and to pay applicable state income taxes in many of these states and may be subject to penalties for failure to comply with such requirements. Some of the states have proposed that the Partnership withhold a percentage of income attributable to Partnership operations within the state for Unitholders who are non-residents of the state. In the event that amounts are required to be withheld (which may be greater or less than a particular Unitholder’s income tax liability to the state), such withholding would generally not relieve the non-resident Unitholder from the obligation to file a state income tax return.

      Upon formation of the Partnership in 1986, the General Partner elected twelve-year straight-line depreciation for tax purposes. For this reason, starting in 1999, the amount of depreciation available to the Partnership has been reduced significantly and taxable income has increased accordingly. Unitholders, however, will continue to offset Partnership income with individual LP Unit depreciation under their IRC section 754 election. Each Unitholder’s tax situation will differ depending upon the price paid and when LP Units were purchased. Unitholders are reminded that, in spite of the additional taxable income beginning in 1999, the current level of cash distributions exceed expected tax payments. In addition, gain recognized on the sale of LP Units will, generally, result in taxable ordinary income as a consequence of depreciation recapture. UNITHOLDERS ARE ENCOURAGED TO CONSULT THEIR PROFESSIONAL TAX ADVISORS REGARDING THE TAX IMPLICATIONS TO THEIR INVESTMENT IN LP UNITS.

Available Information

      The Partnership files annual, quarterly, and current reports and other documents with the SEC under the Securities Exchange Act of 1934. The public can obtain any documents that we file with the SEC at http://www.sec.gov. We also make available free of charge our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such materials with, or furnishing such materials to, the SEC, on or through our Internet website, www.buckeye.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K.

      You can also find information about the Partnership at the offices of the New York Stock Exchange (“NYSE”), 20 Broad Street, New York, New York 10005 or at the NYSE’s Internet site (www.nyse.com). The NYSE requires the chief executive officer of each listed company to certify annually that he is not aware of any violation by the company of the NYSE corporate governance listing standards as of the date of the certification, qualifying the certification to the extent necessary. The Chief Executive Officer of the General Partner provided such certification to the NYSE in 2004 without qualification. In addition, the certifications of the General Partner’s Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act have been included as exhibits to the Partnership’s Annual Report on Form 10-K.

      As of December 31, 2004, the principal facilities of the Partnership included approximately 4,500 miles of 6-inch to 24-inch diameter pipeline, 100 delivery points and 38 bulk storage and terminal facilities with aggregate capacity of approximately 15.4 million barrels. The Operating Subsidiaries and their subsidiaries own substantially all of these facilities.

      In general, the Partnership’s pipelines are located on land owned by others pursuant to rights granted under easements, leases, licenses and permits from railroads, utilities, governmental entities and private parties. Like other pipelines, certain of the Operating Subsidiaries’ rights are revocable at the election of the grantor or are subject to renewal at various intervals, and some require periodic payments. The Operating Subsidiaries have not experienced any revocations or lapses of such rights which were material to their business or operations, and the General Partner has no reason to expect any such revocation or lapse in the foreseeable future. Most delivery points, pumping stations and terminal facilities are located on land owned by the Operating Subsidiaries.

      The General Partner believes that the Operating Subsidiaries have sufficient title to their material assets and properties, possess all material authorizations and revocable consents from state and local governmental and regulatory authorities and have all other material rights necessary to conduct their business substantially in accordance with past practice. Although in certain cases the Operating Subsidiaries’ title to assets and properties or their other rights, including their rights to occupy the land of others under easements, leases, licenses and permits, may be subject to encumbrances, restrictions and other imperfections, none of such

imperfections are expected by the General Partner to interfere materially with the conduct of the Operating Subsidiaries’ businesses.

      The Partnership, in the ordinary course of business, is involved in various claims and legal proceedings, some of which are covered in whole or in part by insurance. The General Partner is unable to predict the timing or outcome of these claims and proceedings. Although it is possible that one or more of these claims or proceedings, if adversely determined, could, depending on the relative amounts involved, have a material effect on the Partnership for a future period, the General Partner does not believe that their outcome will have a material effect on the Partnership’s consolidated financial condition or results of operations.

      With respect to environmental litigation, certain Operating Subsidiaries (or their predecessors) have been named in the past as defendants in lawsuits, or have been notified by federal or state authorities that they are potentially responsible parties (“PRPs”) under federal laws or a respondent under state laws relating to the generation, disposal or release of hazardous substances into the environment. In connection with actions brought under CERCLA and similar state statutes, the Operating Subsidiary is usually one of many PRPs for a particular site and its contribution of total waste at the site is usually de minimis. However, because CERCLA and similar statutes impose liability without regard to fault and on a joint and several basis, the liability of an Operating Subsidiary in connection with such a proceeding could be material.

      Although there is no material environmental litigation pending against the Partnership or the Operating Subsidiaries at this time, claims may be asserted in the future under various federal and state laws, and the amount of any potential liability associated with such claims cannot be estimated. See “Business — Environmental Matters.”

      No matters were submitted to a vote of the holders of LP Units during the fourth quarter of the fiscal year ended December 31, 2004.

      In January 2005, the Partnership began a consent solicitation to amend certain provisions of the Partnership’s Unit Option and Distribution Equivalent Plan. The Partnership has proposed increasing the number of Units authorized for issuance under the Plan by 720,000 LP Units.

PART II

      The LP Units of the Partnership are listed and traded principally on the New York Stock Exchange. The high and low sales prices of the LP Units in 2004 and 2003, as reported in the New York Stock Exchange Composite Transactions, were as follows:

      On February 28, 2003, the Partnership sold 1,750,000 LP Units in an underwritten public offering at a price of $36.01 per LP Unit. Proceeds to the Partnership, net of underwriters’ discount of $1.62 per LP unit and offering expenses, were approximately $59.9 million.

      On October 19, 2004, the Partnership sold 5,500,000 LP Units in an underwritten public offering at a price of $42.50 per Unit. Proceeds to the Partnership, net of underwriters’ discount of $1.81 per unit and offering expenses, were approximately $223.3 million.

      On February 7, 2005, the Partnership sold 1,100,000 LP Units in an underwritten public offering at a price of $45.00 per unit. Proceeds to the Partnership, net of underwriter’s discount of $1.46 per unit and offering expenses, were approximately $47.6 million. The principal use of proceeds was to repay, in part, amounts outstanding under the Partnership’s revolving line of credit

      The Partnership has gathered tax information from its known LP Unitholders and from brokers/nominees and, based on the information collected, the Partnership estimates its number of beneficial LP Unitholders to be approximately 34,000 at December 31, 2004.

      Cash distributions paid during 2003 and 2004 were as follows:

      The following tables set forth, for the period and at the dates indicated, the Partnership’s income statement and balance sheet data for each of the last five years. The tables should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Report.

      The following is a discussion of the results of operations and the liquidity and capital resources of the Partnership for the periods indicated below. This discussion should be read in conjunction with the Partnership’s consolidated financial statements and notes thereto, which are included elsewhere in this report.

Overview

      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.

      On October 1, 2004, the Partnership significantly expanded its operations in the upper Midwestern United States with the acquisition of 5 refined petroleum products pipelines with an aggregate mileage of approximately 900 miles and 24 refined products terminals with an aggregate storage capacity of 9.3 million barrels (the “Midwest Pipelines and Terminals”) from Shell Oil Products U.S., (“Shell”) for a purchase price of $517 million. See Item 1 “Business — Introduction” and Item 1 “Significant Partnership Events in 2004 — Acquisition of Midwest Pipelines and Terminals.” The Partnership entered into equity and debt financings to fund the acquisition of these assets. These financings included the issuance of $275 million of 5.300% Notes (the “5.300% Notes”) on October 12, 2004 and 5.5 million LP Units on October 19, 2004 at an offering price of $42.50 per LP Unit. See “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The acquisition of these assets added $17.7 million of revenue in 2004.

Results of Operations

      Summary operating results for the Partnership were as follows:

      In 2003, the Partnership repaid $240 million of Senior Notes of Buckeye. In conjunction with this repayment, the Partnership incurred a yield maintenance premium of $45.5 million, which has been reflected in other income (expenses) in the Partnership’s financial statements. The Partnership’s 2003 net income before the yield maintenance premium was $75.6 million, or $2.64 per unit.

      To supplement its financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Partnership’s management has used the financial measure of “net income before the yield maintenance premium.” The Partnership has presented net income before the yield maintenance premium in this discussion to enhance an investor’s overall understanding of the way that management analyzes the Partnership’s financial performance. Specifically, the Partnership’s management used the presentation of net income before the yield maintenance premium to allow for a more meaningful comparison of the Partnership’s operating results in 2004 (which were not impacted by the yield maintenance premium) to 2003 (which were impacted by the yield maintenance premium). The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

      A reconciliation of 2003 net income before the yield maintenance premium to 2003 net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP, is as follows:

      The improvement in revenues and operating income in 2004 compared to 2003 is generally due to higher pipeline transportation and storage revenues as well as the addition of the Midwest Pipelines and Terminals. The improvement in revenues and operating income in 2003 compared to 2002 was generally due to higher pipeline transportation revenues. Earnings per unit were impacted by the issuance of 1.75 million LP Units in February 2003 and 5.5 million LP Units in October 2004.

      Revenues for each of the three years ended December 31, 2004, 2003 and 2002 were as follows:

      Results of operations are affected by factors that include general economic conditions, weather, competitive conditions, demand for refined petroleum products, seasonal factors and regulation. See Item 1 — “Business — Competition and Other Business Considerations.”

      Total revenues for the year ended December 31, 2004 were $323.5 million, $50.6 million or 18.5% greater than revenue of $272.9 million in 2003.

      Revenue from pipeline transportation of petroleum products was $249.3 million in 2004 compared to $228.7 million in 2003. The increase of $20.6 million in transportation revenue was primarily the result of:

      Product deliveries for each of the three years in the period ended December 31, including Wood River product deliveries, were as follows:

      During the three months in 2004 that the Partnership owned the Wood River pipelines, volumes on the Wood River pipelines averaged 196,000 barrels per day. Excluding the Wood River pipelines, volumes would have averaged 1,151,400 barrels per day for all of 2004.

      Terminalling, storage and rental revenues of $42.5 million increased by $16.0 million from the comparable period in 2003. Of this increase, $9.2 million was generated by the terminals acquired from Shell on October 1, 2004. Additionally, 2004 revenues include $3.2 million of revenues of WesPac Pipelines – Reno LLC under a product supply arrangement recorded on a gross basis rather than the net-of-cost basis previously used. Rental revenues increased by $2.1 million while other revenues increased by $1.5 million.

      Contract operations revenue of $31.8 million for the year ended December 31, 2004 increased by $14.0 million from the comparable period in 2003. Revenue from pipeline construction activities increased by $12.7 million due to a new contract but was partially offset by a decline in contract operation service revenue of $3.2 million which resulted from the loss of a contract. Additionally, in 2004 the Partnership began recording revenues from a contract operation services contract on a gross basis rather than the net-of-cost basis previously used. This reclassification resulted in additional contract operations revenue of $4.0 million in 2004.

      Costs and expenses for the years ended December 31, 2004, 2003 and 2002 were as follows:

      Payroll and payroll benefits costs were $61.1 million in 2004, an increase of $6.4 million over 2003. Of this increase, approximately $3.9 million is related to employees added as a result of the acquisition of the Midwest Pipelines and Terminals on October 1, 2004. The Partnership added approximately 104 employees, most of whom previously worked for Shell in the operation of the acquired assets. The employees were added as new employees of Services, and the Partnership did not incur liability for any benefits or other costs related to the time those employees were employed by Shell. Of the remaining increase of $2.5 million of payroll costs, approximately $1.2 million resulted from recording expenses from a contract operation services contract on a gross basis, rather than the net-of-cost basis previously used. The balance of the increase resulted principally from increases in wage rates in 2004 compared to 2003, as well as increased employee benefits (principally related to retiree medical costs), partially offset by increased salaries and wages capitalized as part of maintenance and expansion capital projects.

      Depreciation and amortization expense of $26.0 million increased by $3.4 million in 2004 over 2003. Depreciation related to the Midwest Pipelines and Terminals was $2.5 million. The remaining increase of $0.9 million resulted from the Partnership’s ongoing maintenance and expansion capital program.

      Operating power, consisting primarily of electricity required to operate pumping facilities was $23.0 million in 2004, an increase of $1.1 million over 2003. The Midwest Pipelines and Terminals added $0.7 million from the date of acquisition. Of the remaining increase of $0.4 million, increases at Buckeye and Laurel of $1.4 million (related to higher volumes) were partially offset by a decrease of $1.0 million at BGC related to the loss of an operating contract in 2004.

      Outside services costs, consisting principally of third-party contract services for maintenance activities, were $19.9 million, an increase of $1.1 million over 2003. Outside services costs related to the Midwest

Pipelines and Terminals were $1.6 million. Pipeline and terminals operations added approximately $0.7 million related to ongoing maintenance activities, which were more than offset by reductions of $1.2 million at BGC that resulted from the loss of an operating contract.

      Property and other taxes were $13.3 million in 2004, an increase of $2.8 million over 2003. Property and other taxes related to the Midwest Pipelines and Terminals were $0.6 million. Of the remaining increases of $2.2 million, the Partnership experienced higher real property tax assessments in several states.

      Construction management costs were $12.3 million in 2004 as a result of a significant construction contract with a major chemical company. Construction management costs were minimal in 2003.

      All other costs were $45.8 million in 2004 compared to $35.2 million in 2003, an increase of $10.6 million. Of this increase, $3.7 million resulted from recording certain expenses on a gross basis compared to the net-of-cost basis previously used, including fuel purchases by WesPac Pipelines — Reno LLC ($3.0 million) and costs related to an operation services contract ($0.7 million). Other costs related to the Midwest Pipelines and Terminals added $2.3 million. Casualty losses increased by $1.4 million primarily as a result of pipeline releases in 2004. In addition, in August 2004, BGC elected to be treated as a corporation for Federal income tax purposes. The Partnership accrued $0.5 million, included in operating expenses, related to these income taxes incurred during the period after BGC elected to be treated as a corporation. Professional fees increased by $1.2 million, principally associated with Sarbanes-Oxley compliance and the GP Restructuring. The remainder of the increases related to various other pipeline operating costs.

      Other income (expense) for the years ended December 31, 2004, 2003 and 2002 were as follows:

      Other income (expense) was a net expense of $39.2 million in 2004, a decrease of $40.0 million from 2003. In 2003, the Partnership paid a yield maintenance premium of $45.5 million on the retirement of the $240 million Senior Notes of Buckeye. No such premium was incurred in 2004. Investment income of $6.0 million increased by $2.4 million from 2003, which resulted from a full year’s investment income from West Texas LPG Pipeline, L.P. (“WTP”) compared to five months of such investment income in 2003 (the Partnership’s 20% interest in WTP was acquired in August 2003) and increased earnings from the Partnership’s ownership interest in West Shore. Interest expense was $27.6 million in 2004 compared to $22.8 million in 2003, an increase of $4.8 million. The Partnership incurred approximately $3.3 million in interest related to its 5.300% Notes due 2014 which were issued in October 2004 in connection with the acquisition of the Midwest Pipelines and Terminals. The balance of the increase in interest expense resulted from higher average balances outstanding on the Partnership’s 5-year revolving line of credit in the second half of the 2004 compared to 2003, a portion of which is related to the acquisition of the Midwest Pipelines and Terminals.

      General Partner incentive compensation was $14.0 million in 2004 compared to $11.9 million in 2003 as a result of the issuance of 5.5 million LP Units in October 2004 as well as a higher limited partnership cash distributions paid throughout 2004 compared to 2003. Minority interests and other of $3.6 million increased by $0.9 million.

      Total revenue for the year ended December 31, 2003 was $272.9 million, $25.6 million or 10.4% greater than revenue of $247.3 million in 2002.

      Revenue from pipeline transportation of petroleum products was $228.7 million in 2003 compared to $214.1 million in 2002. The increase of $14.6 million in transportation revenue was primarily the result of:

      Terminalling, storage and rental revenue of $26.4 million increased by $7.5 million from 2002 levels. Approximately $6.9 million of this increase reflects lease revenue received with respect to a crude butadiene pipeline which is approximately 63% owned by a subsidiary of BPH (the “Sabina Pipeline”) and was completed in early 2003.

      Contract operation services revenue of $17.8 million for 2003 increased by $3.4 million over contract operation services revenues for 2002. The increase in contract services revenues was due to increased operations services provided by BGC as a result of additional contracts obtained during 2002, as well as the commencement of the Sabina Pipeline operation and maintenance agreement effective January 1, 2003. Contract operations revenues typically consist of costs reimbursable under the contracts plus an operator’s fee. Accordingly, revenues from these operations carry a lower gross profit percentage than revenues from pipeline transportation or terminalling, storage and rentals.

      The Partnership’s costs and expenses were $163.6 million in 2003 compared to $145.0 million in 2002.

      Payroll and payroll benefits increased to $54.7 million in 2003, or $5.1 million over 2002 amounts, principally due to increases in benefits costs ($2.3 million) related to the Partnership’s defined benefit pension plan, retiree medical plan and other medical costs. In addition, payroll costs increased at BGC ($1.0 million) due to additional staff associated with expanded contract operations. Payroll costs rose in pipeline, terminalling and administrative activities due to wage increases ($1.8 million).

      Depreciation and amortization expense increased to $22.6 million, or $1.9 million due to commencement of depreciation on the Sabina Pipeline ($0.6 million), depreciation related to the Partnership’s new Enterprise Asset Management (EAM) information system implemented in January 2003 ($0.5 million) and other capital additions to the Partnership’s pipeline and terminalling assets ($0.8 million).

      Operating power, consisting primarily of electricity required to operate pumping facilities, increased to $21.9 million, $2.9 million over operating power costs incurred in 2002. Expanded contract operations at BGC caused $1.0 million of this increase. The remainder was due to additional pipeline volumes in the Partnership’s pipeline operations.

      Outside services costs, consisting principally of third-party contract services for maintenance activities, remained relatively stable in 2003 compared to 2002.

      Property and other taxes in 2003 increased to $10.4 million or $1.9 million over 2002 amounts. The Partnership recorded a favorable settlement of $1.2 million related to certain state real property tax issues in 2002 which was not repeated in 2003. Additionally, state property and other taxes increased in 2003 by $0.7 million.

      All other costs increased to $35.2 million, or $6.5 million in 2003 compared to 2002. Casualty losses increased by $2.0 million related to two environmental incidents which occurred in 2003 and a reimbursement of $0.5 million from a third party in 2002 which did not recur in 2003. Insurance costs increased by $1.4 million due to higher premiums charged by insurance carriers. Professional fees increased by $1.3 million related to accounting and legal costs associated with investment, acquisition and other activities. Communications costs increased by $0.5 million as the Partnership expanded its communications infrastructure in support of the new EAM system. The remainder of the cost increases of $1.3 million relate to a number of operating cost categories principally associated with the increased volume in 2003 compared to 2002.

Liquidity and Capital Resources

      The Partnership’s financial condition at December 31, 2004, 2003, and 2002 is highlighted in the following comparative summary:

      During 2004, the Partnership’s principal sources of cash were cash from operations and proceeds from the 2004 financing transactions described below. During 2003, the Partnership’s principal sources of cash were cash from operations as well as the 2003 financing transactions described below. During 2002, the Partnership’s principal sources of cash were cash from operations and borrowings under its 5-year revolving line of credit. The Partnership’s principal uses of cash are capital expenditures, investments and acquisitions, distributions to Unitholders and repayments of borrowings.

      On August 6, 2004, the Partnership entered into 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. The new Credit Facility replaced a $277.5 million 5-year credit facility that would have expired in September 2006 and a $100 million 364-day facility that would have expired in September 2004 (the “Prior Credit Facilities”). Borrowings under the Credit Facility are guaranteed by certain of the Partnership’s subsidiaries. The Credit Facility matures on August 6, 2009. At December 31, 2004, the Partnership had $73.0 million outstanding under the Credit Facility and the weighted average interest rate was 3.00%. At the time of the refinancing, the Partnership had $30.0 million outstanding under the Prior Credit Facilities, of which $26.5 million had been borrowed for a deposit paid June 30, 2004 on the Midwest Pipelines and Terminals.

      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, which was 0.5% at December 31, 2004, will increase during any period in which the Partnership’s Funded Debt Ratio (described below) exceeds 5.25 to 1.0.

      The Credit Facility contains covenants and provisions that:

      The Credit Facility requires that the Partnership and 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 (including the current portion, if any) to “Adjusted EBITDA”, which is defined in the Credit Facility as earnings before interest, taxes, depreciation, depletion and 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 certain increases in connection with future acquisitions. In connection with the Partnership’s acquisition of the Midwest Pipelines and Terminals, the Credit Facility provided for an increase in the Funded Debt Ratio limit to 5.75 to 1.00 for the first two quarters following the closing of such acquisition and 5.25 to 1.00 for the third quarter following the closing of such acquisition.

      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 December 31, 2004, the Partnership’s Funded Debt Ratio was 4.35 to 1.00 (using certain pro forma amounts permitted under the Credit Facility Agreement), its Fixed Charge Coverage Ratio was 2.48 to 1.00 and the Partnership was in compliance with the remainder of its covenants under the Credit Facility.

      In connection with the acquisition of the Midwest Pipelines and Terminals, the Partnership borrowed a total of $490.0 million, consisting of $300.0 million under a 364-day interim loan (the “Interim Loan”) and $190.0 million under the Credit Facility. On October 12, 2004, the Partnership sold $275.0 million aggregate principal amount of its 5.300% Notes due 2014 in an underwritten public offering. Proceeds from the note offering, after underwriter’s discount and commissions, were approximately $272.1 million. Proceeds from the note offering, together with additional borrowings under the Credit Facility, were used to repay the Interim Loan.

      On October 19, 2004, the Partnership issued 5.5 million LP Units in an underwritten public offering at $42.50 per LP Unit. Proceeds from the LP unit offering were approximately $223.3 million after underwriters’ discount and expenses and were used to reduce amounts outstanding under the Credit Facility.

      On July 7, 2003, the Partnership sold $300 million aggregate principal amount of its 4.625% Notes due 2013 in an underwritten public offering. Proceeds from the note offering, after underwriters’ fees and expenses, were approximately $296.4 million. On August 14, 2003, the Partnership sold $150 million aggregate principal amount of its 6³/4% Notes due 2033 in a Rule 144A offering. The Notes were subsequently exchanged for equivalent notes which are publicly traded. Proceeds from the note offering, after underwriters’ fees and expenses, were approximately $148.1 million. Proceeds from these offerings were used in part to repay all amounts then outstanding under the Prior Credit Facilities and to repay the Buckeye $240 million Senior Notes and applicable yield maintenance premium of $45.5 million. The amounts outstanding under the 5-year

Revolving Credit Agreement were repaid on July 10, 2003 and the $240 million Senior Notes were repaid on August 19, 2003.

      In connection with the repayment of the $240 million Senior Notes, Buckeye was required to pay a yield maintenance premium of $45.5 million. The yield maintenance premium has been charged to expense in 2003 in the Partnership’s consolidated financial statements.

      On February 28, 2003, the Partnership issued 1,750,000 LP Units in an underwritten public offering at $36.01 per LP unit. Net proceeds from the Partnership, after underwriters’ discount of $1.62 per LP Unit and offering costs, were approximately $59.9 million.

      The Partnership anticipates that cash from operations plus amounts available under the Credit Facility will be sufficient to fund its cash requirements for 2005.

      On February 7, 2005, the Partnership sold 1,100,000 LP Units in an underwritten public offering at a price of $45.00 per unit. Proceeds to the Partnership, net of underwriter’s discount of $1.46 per unit and offering expenses, were approximately $47.6 million. The principal use of proceeds was to repay, in part, amounts outstanding under the Credit Facility.

      The components of cash flows from operations for the years ended December 31, 2004, 2003 and 2002 are as follows:

      Cash flows from operations were $99.7 million in 2004 compared to $109.4 million in 2003, a decrease of $9.6 million. The principal reason for the decrease was an increase in working capital related to current assets and liabilities of $13.4 million in 2004, compared to a decrease in working capital of $6.9 million in 2003. In 2004, trade receivables increased by $15.4 million and construction receivables increased by $4.4 million. The increase in trade receivables was related to increased outstanding billings related primarily to the terminal assets acquired as part of the Midwest Pipelines and Terminals. In connection with terminal revenue, the Partnership bills on a monthly basis, compared to the weekly basis used in pipeline billings. During 2003 trade receivables balances were essentially unchanged. Construction receivables increased in 2004 due to an increase in construction activity in the fourth quarter. In 2003 construction receivables decreased by $0.6 million. Prepaid and other current assets increased by $4.4 million in 2004, principally related to insurance receivables associated with environmental claims. Partially offsetting these reductions in cash from operations were increases in accounts payable of $0.7 million and accrued and other current liabilities of $10.3 million. The increase in accrued and other current liabilities resulted from an increase in accrued interest payable related to the timing of the semi-annual interest payments due on the Partnership’s 5.300% Notes issued in October 2004 and an increase in accrued environmental liabilities. In 2003, accounts payable increased by $6.4 million mostly due to certain insurance amounts payable at year-end. Accrued and other liabilities increased in 2003 by $11.7 million principally due to an increase in accrued interest related to the timing of the semi-annual interest payments due on the Partnership’s 4⁵/8% and 6³/4% Notes. These changes more than offset the increase in net income of $7.3 million in 2004 to $82.9 million compared to net

income before the yield maintenance premium of $75.6 million in 2003. Depreciation and amortization, a non-cash expense, increased by $3.4 million in 2004 compared to 2003 as a result of the addition of the Midwest Pipelines and Terminals and ongoing capital additions.

      Cash flows from operations in 2003 increased by $16.3 million over $93.1 million in 2002. The increase resulted from an increase in net income before the yield maintenance premium to $75.6 million, or $3.7 million, over net income of $71.9 million in 2002, an increase in depreciation and amortization of $1.9 million to $22.6 million in 2003 compared to $20.7 million in 2002, an increase in minority interest expense of $1.7 million to $2.7 million in 2003, favorable changes in current assets and liabilities of $6.9 million, and favorable changes in noncurrent assets and liabilities of $1.5 million. In 2003, increases in accounts payable and accrued liabilities of $18.1 million more than offset an increase in prepaid and other current assets of $9.9 million.

      Net cash used in investing activities for the years ended December 31, 2004, 2003 and 2002 are as follows:

      In 2004, investments and acquisitions consisted of the acquisition of the Midwest Pipelines and Terminals. In 2003, the Partnership invested $36.0 million for a 20% interest in WTP ($28.5 million) and an additional 7% interest in West Shore ($7.5 million). The Partnership had no investments or acquisitions in 2002.

      Capital expenditures are summarized below:

      During 2004, the Partnership’s capital expenditures of $72.6 million increased by $30.4 million from 2003. During 2004, the Partnership’s sustaining capital expenditures of $32.8 million increased by $4.4 million over 2003. In 2004 and 2003, the Partnership continued to emphasize its pipeline and tank integrity projects, including electronic internal inspections and other integrity assessments and associated repairs, as part of its comprehensive program to comply with legal requirements and to improve the reliability of the Partnership’s pipelines and terminals (see “Business — Environmental Matters” and “Business — Pipeline Regulation and Safety Matters”). Expansion and cost reduction expenditures of $39.8 million increased by $28.4 million in 2004. These expenditures related primarily to three projects. The first project, which commenced in 2003, involves the replacement of approximately 45 miles of pipeline in the Midwest between Lima, Ohio and Huntington, Indiana. The pipeline replacement project is designed to improve the reliability of the pipeline

and to expand pipeline capacity. In 2004, approximately $12.8 million was expended in connection with this project. This project is substantially complete. The second project involves a major expansion of the Laurel pipeline across Pennsylvania. This project is designed to expand the capacity of the Laurel pipeline system which has experienced steady volume growth during the last several years. The project involves the construction of two new pump stations, and the expansion of an existing pump station at Macungie, Pennsylvania, and is designed to increase the capacity of the Laurel pipeline by approximately 17%. The Laurel expansion project is scheduled to be complete in the second quarter of 2005. In 2004, approximately $11.0 million was expended in connection with this project. The third project involves the construction of an approximately 11-mile pipeline and associated terminal to serve Federal Express at the Memphis International Airport. This project is being implemented by WesPac Pipelines-Memphis, LLC, an affiliate of the Partnership. The pipeline and terminal construction project is supported by a long-term throughput and deficiency agreement entered into between WesPac Pipelines-Memphis, LLC and Federal Express. The project is expected to be complete in late 2005 or early 2006. In 2004, approximately $10.3 million was expended in connection with this project.

      The Partnership expects to spend approximately $84 million in capital expenditures in 2005, of which approximately $28 million is expected to relate to sustaining capital expenditures and $56 million is expected to relate to expansion and cost reduction projects. Sustaining capital expenditures, in addition to pipeline integrity, include renewals and replacement of tank floors and roofs, upgrades to field instrumentation and cathodic protection systems. Of the planned 2005 sustaining expenditures, approximately $12 million relate to pipeline and tank integrity projects.

      As discussed under Critical Accounting Policies and Estimates below, the Partnership’s initial integrity expenditures are capitalized as part of pipeline cost when such expenditures improve or extend the life of the pipeline or related assets. Subsequent integrity expenditures are expensed as incurred. Accordingly, over time, integrity expenditures will shift from capital to operating expenditures. In 2004, approximately $0.9 million of integrity costs were charged to expense. The amount of these types of integrity expenditures charged to expense is expected to increase to approximately $7 million in 2005.

      Expansion and cost reduction expenditures include projects to facilitate increased pipeline volumes, extend the pipeline incrementally to new facilities, expand terminal facilities or improve the efficiency of operations. In 2005, the Partnership anticipates expenditures of approximately $4.0 million to complete the Laurel pipeline expansion project, and expenditures of approximately $32.5 million in connection with the pipeline and terminal construction project for Federal Express at the Memphis International Airport.

      During 2003 and 2004, the Partnership initiated the financing activities outlined above under “Liquidity and Capital Resources.” As a result of these transactions, approximately $223.3 million in 2004 and $59.9 million in 2003, net of offering costs, was provided by the issuance of LP Units. In 2004, the Partnership issued the $275 million 5.300% Notes, borrowed and repaid the $300 million Interim Loan and borrowed $320 million and repaid $247 million under the Credit Facility and the Prior Credit Facilities. In 2003, the Partnership issued the $300 million 4⁵/8% Notes and the $150 million 6³/4% Notes. In addition, the Partnership borrowed $24 million and repaid $189 million under the Prior Credit Facilities. The Partnership repaid the $240 million Senior Notes of Buckeye, and incurred a yield maintenance premium of $45.5 million associated with the retirement. In 2002, the Partnership borrowed $46.0 million under the Prior Credit Facilities and repaid $14.0 million.

      The Partnership received $2.2 million and $14.2 million in 2003 and 2002, respectively, from its minority interest partners in the Sabina Pipeline project.

      Distributions to Unitholders increased to $80.2 million in 2004 compared to $72.4 million in 2003 and $67.9 million in 2002. Distributions in 2004 increased over 2003 as a result of increases in the unit distribution rate and the issuance of 5,500,000 LP Units in October 2004. Distributions in 2003 increased over 2002 due to increases in the distribution rate and the issuance of 1,750,000 LP Units in February 2003.

      At December 31, 2004, the Partnership had $798.0 million in aggregate outstanding long-term debt, consisting of $275 million of the 5.300% Notes due 2014, $300 million of the 4⁵/8% Notes due 2013, $150.0 million of the 6³/4% Notes due 2033 and $73 million outstanding under the Credit Facility. The terms of the Credit Facility are described in “Liquidity and Capital Resources” above. At December 31, 2004, the Partnership had $326.8 million available under the Credit Facility, with $0.2 million allocated in support of certain operational letters of credit.

      In order to hedge a portion of its fair value risk related to the 4⁵/8% Notes due 2013, on October 28, 2003, the Partnership entered into an interest rate swap agreement with a financial institution. The notional amount of the swap agreement was $100 million. The swap agreement called for the Partnership to receive fixed payments from the financial institution at a rate of 4⁵/8% of the notional amount in exchange for floating rate payments from the Partnership based on the notional amount using a rate equal to the six-month LIBOR (determined in arrears) minus 0.28%. The swap agreement was scheduled to terminate on the maturity date of the 4⁵/8% Notes and interest amounts under the swap agreement were payable semiannually on the same date as interest payments on the 4⁵/8% Notes. The Partnership designated the swap agreement as a fair value hedge at the inception of the agreement and elected to use the short-cut method provided for in SFAS No. 133, which assumes no ineffectiveness will result from the use of the hedge.

      The Partnership terminated the interest rate swap agreement on December 8, 2004 and received proceeds of $2.0 million. 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 life of the hedged debt. Interest expense in the Partnership’s income statement was reduced by $2.6 million in 2004 and by $0.6 million in 2003 as a result of the interest rate swap agreement. The fair value of the swap agreement at December 31, 2003 was a gain of $0.2 million.

      The Operating Partnerships lease certain land and rights-of-way. Minimum future lease payments for these leases as of December 31, 2004 are approximately $4.2 million for each of the next five years. Substantially all of these lease payments may be canceled at any time should the leased property no longer be required for operations.

      The General Partner leases space in an office building and certain office equipment and charges these costs to the Operating Subsidiaries. Buckeye leases certain computing equipment and automobiles. Future minimum lease payments under these noncancelable operating leases at December 31, 2004 were as follows: $1,016,000 for 2005, $888,000 for 2006, $435,000 for 2007, $305,000 for 2008 and none thereafter.

      Buckeye entered into an energy services agreement for certain main line pumping equipment and the natural gas requirements to fuel this equipment at its Linden, New Jersey facility. Under the energy services agreement, which is designed to reduce power costs at the Linden facility, Buckeye is required to pay a minimum of $1,743,000 annually over the next seven years. This minimum payment is based on an annual minimum usage requirement of the natural gas engines at the rate of $0.049 per kilowatt hour equivalent. In addition to the annual usage requirement, Buckeye is subject to minimum usage requirements during peak and off-peak periods. Buckeye’s use of the natural gas engines has exceeded the minimum annual requirement in 2002, 2003, and 2004.

      Rent expense under operating leases was $8,477,000, $7,824,000 and $7,285,000 for 2004, 2003 and 2002, respectively.

      Contractual obligations are summarized in the following table:

      Other long-term obligations represent the minimum payments due under the energy services agreement for the purchase of natural gas to fuel the main line pumping equipment at Linden, New Jersey discussed above.

      Purchase obligations generally represent commitments for recurring operating expenses or capital projects. At December 31, 2004, $22.3 million related to the construction activity at Memphis International Airport.

      Interest payable on fixed long-term debt obligations include semi-annual payments required for the Partnership’s 4⁵/8% Notes, its 6³/4% Notes and its 5.300% Notes.

      The Partnership’s obligations related to its pension and postretirement benefit plans are discussed in Footnote 13 in the Partnership’s accompanying consolidated financial statements.

      The Operating Subsidiaries are subject to federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations, as well as the Partnership’s own standards relating to protection of the environment, cause the Operating Subsidiaries to incur current and ongoing operating and capital expenditures. Environmental expenses are incurred in connection with emergency response activities associated with the release of petroleum products to the environment from the Partnership’s pipelines and terminals, and in connection with longer term environmental remediation efforts which may involve groundwater monitoring and treatment. The Partnership regularly incurs expenses in connection with these environmental remediation activities. In 2004, the Operating Subsidiaries incurred operating expenses of $6.2 million and, at December 31, 2004, had $16.8 million accrued for environmental matters. Of the amount accrued at December 31, 2004, $4.9 million was established in connection with the acquisition of the Midwest Pipelines and Terminals where the Partnership agreed to perform monitoring activities at its own expense related to certain active or potential remediation sites for those assets At December 31, 2004, the Partnership estimates that approximately $11.2 million of environmental expenditures will be covered by insurance. These amounts have not been included in expense in the Partnership’s financial statements. 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 rigorous environmental laws.

      Various claims for the cost of cleaning up releases of hazardous substances and for damage to the environment resulting from the activities of the Operating Subsidiaries or their predecessors have been asserted and may be asserted in the future under various federal and state laws. The General Partner believes that the generation, handling and disposal of hazardous substances by the Operating Subsidiaries and their

predecessors have been in material compliance with applicable environmental and regulatory requirements. The total potential remediation costs to be borne by the Operating Subsidiaries relating to these clean-up sites cannot be reasonably estimated and could be material. With respect to certain sites, however, the Operating Subsidiary involved is one of several or as many as several hundred PRPs that would share in the total costs of clean-up under the principle of joint and several liability. Although the Partnership has made a provision for certain legal expenses relating to these and other environmental matters, the General Partner is unable to determine the timing or outcome of any pending proceedings or future claims or proceedings. See “Business — Environmental Matters” and “Legal Proceedings.”

      Several major refiners and marketers of petroleum products announced strategic alliances or mergers in recent years. These alliances or mergers have the potential to alter refined product supply and distribution patterns within the Operating Subsidiaries’ market area resulting in both gains and losses of volume and revenue. While the General Partner believes that individual delivery locations within its market area may have significant gains or losses, it is not possible to predict the overall impact these alliances or mergers may have on the Operating Subsidiaries’ business. However, the General Partner does not believe that these alliances or mergers will have a material adverse effect on the Partnership’s results of operations or financial condition.

      Certain changes in refined petroleum product specifications are likely to impact the transportation of refined petroleum products over the next several years. Methyl-Tertiary-Butyl-Ether (“MTBE”), a gasoline component frequently used to meet gasoline oxygenate requirements for air pollution control purposes, has been banned for use in certain states. To the extent that ethanol or other similar oxygenates not shipped by pipeline are substituted for MTBE, this may result in a reduction in gasoline volumes delivered in the Partnership’s service area. The Partnership is unable to quantify the amount by which its transportation volumes might be affected by the discontinuance of MTBE. In addition, new requirements for the use of ultra low-sulfur diesel (“ULSD”) fuel, which will be phased in commencing in 2006 through 2010, could require significant capital expenditures at certain locations in order to permit the Partnership to handle this new product grade. The Partnership is finalizing plans to make the necessary modifications to its facilities to be able to transport ULSD efficiently. It is not expected that these expenditures will have a materially adverse effect on the Partnership’s results of operations and financial condition.

      In September 2004, the Partnership completed its annual negotiation of its insurance program and included the Midwest Pipelines and Terminals in the group of assets covered by the Partnership’s property and environmental insurance policies. As part of this negotiation, the Partnership increased the per occurrence deductible payable by the Partnership from $0.5 million to $2.5 million. As a result of this increase in deductible amounts under these insurance policies, environmental or property losses which previously were covered under the partnership’s insurance program could now be funded to a greater extent by the Partnership’s internal resources.

Employee Stock Ownership Plan

      Services Company provides an employee stock ownership plan (the “ESOP”) to the majority of its regular full-time employees hired before September 16, 2004. Effective September 16, 2004, new employees do not participate in the ESOP. Those employees who were transferred into Services Company from BGC, BT and Norco on December 26, 2004, along with the employees added as a result of the acquisition of the Midwest Pipelines and Terminals and certain employees covered by a union multiemployer pension plan do not participate in the ESOP. The ESOP owns all of the outstanding common stock of Services Company. Services Company owns 2,395,173 LP Units of the Partnership. At December 31, 2004, the ESOP was directly obligated to a third-party lender for $39.7 million of 3.60% Notes due 2011 (the “ESOP Notes”). The ESOP Notes were issued on May  4, 2004 to refinance Services Company’s 7.24% Notes which were originally issued to purchase Services Company common stock. The ESOP Notes are secured by 2,395,173 shares of Services Company’s common stock. The Partnership has committed that, in the event that the value of the 2,395,173 LP Units owned by Services Company falls to less than 125% of the balance payable under the ESOP Notes, the Partnership will fund an escrow account with sufficient assets to bring the value of the total

collateral (the value of the Services Company LP Units and the escrow account) up to the 125% minimum. Amounts deposited in the escrow account are returned to the Partnership when the value of the Services Company LP Units returns to an amount which exceeds the 125% minimum. At December 31, 2004, the value of the LP Units was approximately $101 million, which exceeded the 125% minimum requirement.

      The proceeds from the issuance of the ESOP Notes on May 4, 2004 were used to refinance Services Company’s 7.24% Notes which were originally issued to purchase Services Company common stock. Services Company common stock is released to employee accounts in the proportion that current payments of principal and interest on the ESOP Notes bear to the total of all principal and interest payments due under the ESOP Notes. Individual employees are allocated shares based on the ratio of their eligible compensation to total eligible compensation. Eligible compensation generally includes base salary, overtime payments and certain bonuses. Except for the period March 1, 2003 through November 1, 2004, Services Company stock held in employee accounts received stock dividends in lieu of cash. The ESOP was amended to eliminate the payment of stock dividends on allocations made after February 28, 2003. Based upon provisions contained in the American Jobs Creation Act of 2004, the plan was amended further to reinstate this feature on allocations made after November 1, 2004.

      The Partnership contributed 2,573,146 LP Units to Services Company in August 1997 in exchange for the elimination of the Partnership’s obligation to reimburse the Prior General Partner and its parent for certain executive compensation costs, a reduction of the incentive compensation paid by the Partnership to the Prior General Partner, and other changes that made the ESOP a less expensive fringe benefit for the Partnership. Funding for the ESOP Notes is provided by distributions that Services Company receives on the LP Units that it owns and from cash payments from the Partnership, which are required to cover any shortfall between the distributions that Services Company receives on the LP Units that it owns and amounts currently due under the ESOP Notes (the “top-up reserve”), except that the Partnership has no obligation to fund the accelerated portion of the ESOP Notes upon a default. The Partnership will also incur ESOP-related costs for routine administrative costs and taxes associated with annual taxable income or the sale of LP Units, if any. Total ESOP related costs charged to earnings were $0.6 million in 2004, $1.1 million in 2003 and $1.2 million in 2002.

Critical Accounting Policies and Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to select appropriate accounting principles from those available, to apply those principles consistently and to make reasonable estimates and assumptions that affect revenues and associated costs as well as reported amounts of assets and liabilities.

      Approximately 86% of the Partnership’s consolidated assets consist of property, plant and equipment. Property, plant and equipment consists of pipeline and related transportation facilities and equipment, including land, rights-of-way, buildings and leasehold improvements and machinery and equipment. Pipeline assets are generally self-constructed, using either contractors or the Partnership’s own employees. Additions and improvement to the pipeline are capitalized based on the cost of the improvement while repairs and maintenance are expensed. Pipeline integrity expenditures are capitalized the first time such expenditures are incurred, when such expenditures improve or extend the life of the pipeline or related assets. Subsequent integrity expenditures are expensed as incurred. During 2004, 2003 and 2002, the Partnership capitalized $21.8 million, $18.9 million and $21.2 million, respectively, of integrity expenditures. In 2004, the Partnership also charged approximately $0.9 million of similar integrity expenditures to expense, which was the first year that significant subsequent integrity expenditures were incurred. Over the next several years, the Partnership expects integrity expenditures, both capital and operating, to range between $15 million and $20 million per year. During this time, the portion of expenditures capitalized is expected to decrease and the portion recorded as expense is expected to increase, including approximately $7 million which is expected to be expensed in 2005.

      As discussed under “Environmental Matters” above, the Operating Partnerships are subject to federal, state and local laws and regulations relating to the protection of the environment. Environmental expenditures

that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the Partnership’s commitment to a formal plan of action. Accrued environmental remediation related expenses include estimates of direct costs of remediation and indirect costs related to the remediation effort, such as compensation and benefits for employees directly involved in the remediation activities and fees paid to outside engineering, consulting and law firms. The Partnership maintains insurance which may cover certain environmental expenditures. During 2004, the Operating Partnerships incurred operating expenses, net of insurance recoveries, of $6.2 million and, at December 31, 2004, had $16.8 million accrued for environmental matters. Of the amount accrued at December 31, 2004, approximately $4.9 million was established in connection with the acquisition of the Midwest Pipelines and Terminals where the Partnership agreed to perform monitoring activities at its own expense related to certain active or potential remediation sites for those assets. The environmental accruals are revised as new matters arise, or as new facts in connection with environmental remediation projects require a revision of estimates previously made with respect to the probable cost of such remediation projects.

      In the event a known environmental liability results in expenditures that exceed the amount that has been accrued in connection with the matter, the additional expenditures would result in an increase in expenses and a reduction in income, in the period when the additional expense is incurred. Based on its experience, however, the Partnership believes that the amounts it has accrued for the future costs related to environmental liabilities is reasonable.

      In connection with the acquisition of the Midwest Pipelines and Terminals, 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 allocated the cost of the assets acquired, which consisted principally of the purchase price of $517 million, the direct costs of acquisition and the environmental monitoring liabilities assumed with the purchase, to the assets acquired using appraised values established in consultation with a qualified appraiser. In conjunction with the appraisal, the Partnership determined that substantially all of the value of the purchase related to the physical assets acquired, which are generally depreciated over 50 years. Allocations of value to other assets or differently among the various physical assets could have resulted in different depreciation charges in future years for the assets acquired. Additionally, adjustments to the environmental monitoring liability established in conjunction with the purchase will result in increases or decreases in net income by the amount of any such adjustment. Management continues to evaluate on an ongoing basis the amounts required for environmental monitoring activities.

Related Party Transactions

      With respect to related party transactions see Note 17 to the consolidated financial statements and Item 13 “Certain Relationships and Related Transactions.”

Recent Accounting Pronouncements

      In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 Consolidation of Variable Interest Entities (“FIN 46”), which was subsequently modified and reissued in December 2003. FIN 46 establishes accounting and disclosure requirements for ownership interests in entities that have certain financial or ownership characteristics. FIN 46, as revised, is generally applicable for the first fiscal year or interim accounting period ending after March 15, 2004. The adoption of the provisions of FIN 46 has not had a material effect on the Partnership’s consolidated financial statements.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 affects how an entity measures and reports financial instruments that have characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first

interim period beginning after June 15, 2003. The FASB continues to address certain implementation issues associated with the application of SFAS No. 150, including those related to mandatory redeemable financial instruments representing non-controlling interests in subsidiaries’ consolidated financial statements. The Partnership will continue to monitor the actions of the FASB and assess the impact, if any, on its consolidated financial statements. The effective provisions of SFAS No. 150 did not have a material impact on the Partnership’s consolidated financial statements.

      In May 2004, the staff of the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which superseded FASB Staff Position 106-1 issued in January 2004. FASB Staff Position No. 106-2, which is effective for the first period beginning after June 15, 2004, provides guidance on how recent Federal legislation which provides certain prescription drug benefits and subsidies to sponsors of certain medical plans which substitute benefits for Medicare Part D is to be incorporated into a plan sponsor’s calculation of retiree medical liabilities. FASB Staff Position 106-2 generally requires plan sponsors, like the Partnership, to determine the effects of the recent Federal legislation and, if significant, to record those effects as an actuarial experience gain in the retiree medical benefits cost included in its financial statements. The Partnership measured the effects of the Act in the third quarter of 2004 and recorded an actuarial experience gain of $0.3 million.

      In December 2004, the FASB issued Statement No. 123 (Revised 2004) “Share-Based Payment” 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 25. SFAS No. 123R is effective for interim or annual periods beginning after June 15, 2005 for any new awards granted, modified, repurchased or cancelled after that date. The Partnership is currently evaluating the impact that SFAS No. 123R will have on its financial statements.

Forward-Looking Information

      The information contained above in this Management’s Discussion and Analysis and elsewhere in this Report on Form 10-K includes “forward-looking, statements,” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements use forward-looking words such as “anticipate,” “continue,” “estimate,” “expect,” “may,” “will,” or other similar words, although some forward-looking statements are expressed differently. These statements discuss future expectations or contain projections. Specific factors which could cause actual results to differ from those in the forward-looking statements include: (1) price trends and overall demand for refined petroleum products in the United States in general and in our service areas in particular (economic activity, weather, alternative energy sources, conservation and technological advances may affect price trends and demands); (2) changes, if any, in laws and regulations, including, among others, safety, tax and accounting matters or Federal Energy Regulatory Commission regulation of our tariff rates; (3) liability for environmental claims; (4) security issues affecting our assets, including, among others, potential damage to our assets caused by acts of war or terrorism; (5) unanticipated capital expenditures and operating expenses to repair or replace our assets; (6) availability and cost of insurance on our assets and operations; (7) our ability to successfully identify and complete strategic acquisitions and make cost saving changes in operations; (8) expansion in the operations of our competitors; (9) our ability to integrate any acquired operations into our existing operations; (10) shut-downs or cutbacks at major refineries that use our services; (11) deterioration in our labor relations; (12) changes in real property tax assessments; (13) disruptions to the air travel system; and (14) interest rate fluctuations and other capital market conditions.

      These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Although the expectations in the forward-looking statements are based on our current beliefs and expectations, we do not assume responsibility for the accuracy and completeness of such statements. Further, we undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events.

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

      Currently the Partnership has no derivative instruments and does not engage in hedging activity with respect to trading instruments.

      The Partnership is exposed to risk resulting from changes in interest rates. The Partnership does not have significant commodity or foreign exchange risk. The Partnership is exposed to fair value risk with respect to the fixed portion of its financing arrangements (the 5.300% Notes, the 4⁵/8% Notes and the 6³/4% Notes) and to cash flow risk with respect to its variable rate obligations (the Credit Facility). Fair value risk represents the risk that the value of the fixed portion of its financing arrangements will rise or fall depending on changes in interest rates. Cash flow risk represents the risk that interest costs related to the Credit Facility will rise or fall depending on changes in interest rates.

      The Partnership’s practice with respect to derivative transactions has been to have each transaction authorized by the Board of Directors of the General Partner.

      At December 31, 2004, the Partnership had total fixed debt obligations at face value of $725 million, consisting of $275 million of the 5.300% Notes, $300 million of the 4⁵/8% Notes and $150 million of the 6³/4% Notes. The fair value of these obligations at December 31, 2004 was approximately $736 million. The Partnership estimates that a 1% decrease in rates for obligations of similar maturities would increase the fair value of these obligations by $66.7 million. The Partnership’s variable debt obligation under the Credit Facility was $73 million. Based on the balance outstanding at December 31, 2004, a 1% increase or decrease in interest rates would increase or decrease annual interest expense by $0.7 million.

      On October 28, 2003, the Partnership entered into an interest rate swap agreement with a financial institution in order to hedge a portion of its fair value risk associated with its 4⁵/8% Notes. The notional amount of the swap agreement was $100 million. The swap agreement called for the Partnership to receive fixed payments from the financial institution at a rate of 4⁵/8% of the notional amount in exchange for floating rate payments from the Partnership based on the notional amount using a rate equal to the six-month LIBOR (determined in arrears) minus 0.28%. The swap agreement was scheduled to settle on the maturity date of the 4⁵/8% Notes and interest amounts under the swap agreement were payable semiannually on the same date as interest payments on the 4⁵/8% Notes. The Partnership designated the swap agreement as a fair value hedge at the inception of the agreement and elected to use the short-cut method provided for in SFAS No. 133, which assumes no ineffectiveness will result from the use of the hedge.

      The Partnership terminated the interest rate swap agreement on December 8, 2004 and received proceeds of $2.0 million. 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 life of the hedged debt. Interest expense in the Partnership’s income statement was reduced by $2.6 million in 2004 and by $0.6 million in 2003 as a result of the interest rate swap agreement. The fair value of the swap agreement at December 31, 2003 was a gain of $0.2 million

BUCKEYE PARTNERS, L.P.

INDEX TO FINANCIAL STATEMENTS

      Schedules are omitted because they are either not applicable or not required or the information required is included in the consolidated financial statements or notes thereto.

MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

      Management of Buckeye GP LLC, as general partner of Buckeye Partners, L.P. (the “General Partner”), is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      Management evaluated the General Partner’s internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2004, the General Partner’s internal control over financial reporting was effective.

      The Partnership’s independent registered public accounting firm, Deloitte & Touche LLP, has audited management’s assessment of the General Partner’s internal control over financial reporting. Their opinion on management’s assessment and their opinion on the effectiveness of the General Partner’s internal control over financial reporting appears herein.

March 14, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Buckeye Partners, L.P.

      We have audited the accompanying consolidated balance sheets of Buckeye Partners, L.P. and subsidiaries (the “Partnership”) as of December 31, 2004 and 2003, and the related consolidated statements of income, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Partnership’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 14, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Buckeye Partners, L.P.

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Buckeye Partners, L.P. and subsidiaries (the “Partnership”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Partnership’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that the Partnership maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2004 of the Partnership and our report dated March 14, 2005 expressed an unqualified opinion on those financial statements.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

March 14, 2005

BUCKEYE PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

See Notes to consolidated financial statements.

BUCKEYE PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

See Notes to consolidated financial statements.

BUCKEYE PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

See Notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

      Buckeye Partners, L.P. (the “Partnership”) is a master limited partnership organized in 1986 under the laws of the state of Delaware. The Partnership’s principal line of business is the transportation, terminalling and storage of refined petroleum products in the United States for major integrated oil companies, large refined product marketing companies and major end users of 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 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”) and Wood River Pipe Lines LLC (“Wood River”). These entities are hereinafter referred to as the “Operating Subsidiaries.” The Partnership owns an approximate 99% ownership interest in each Operating Subsidiary except Wood River, in which it owns a 100% interest. BPH owns directly, or indirectly, a 100% interest in each of Buckeye Terminals, LLC (“BT”), Norco Pipe Line Company, LLC (“Norco”) and Buckeye Gulf Coast Pipe Lines, L.P. (“BGC”). BPH also owns a 75% interest in WesPac Pipelines — Reno LLC and WesPac Pipelines — Memphis LLC, and a 50% interest in WesPac Pipelines — San Diego LLC (collectively known as “WesPac”), an approximate 25% interest in West Shore Pipe Line Company (“West Shore”) and a 20% interest in West Texas LPG Pipeline Limited Partnership (“WTP”). Subsidiaries of BGC also own approximately 63% of a crude butadiene pipeline between Deer Park, Texas and Port Arthur, Texas that was completed in March 2003 (the “Sabina Pipeline”).

      Buckeye is one of the largest independent pipeline common carriers of refined petroleum products in the United States, with 2,643 miles of pipeline serving 9 states. Laurel owns a 345-mile common carrier refined products pipeline located principally in Pennsylvania. Norco owns a 422-mile refined products pipeline system located primarily in Illinois, Indiana and Ohio. Everglades owns a 37-mile refined products pipeline in Florida. Wood River owns five refined petroleum products pipelines with aggregate mileage of approximately 900 miles located in the Midwestern United States. BPH and its subsidiaries provide bulk storage service through facilities with an aggregate capacity of 15.4 million barrels of refined petroleum products. WesPac provides pipeline transportation service to Reno/ Tahoe International and San Diego International airports and is constructing an 11-mile pipeline and related terminalling and storage facilities at Memphis International Airport.

      The assets owned by Wood River and certain terminal assets owned by BPH were acquired from Shell Oil Products, U.S. (“Shell”) on October 1, 2004 for approximately $517 million. See Note 3 — Acquisitions.

      BGC is an owner and contract operator of pipelines owned by major chemical companies in the Gulf Coast area. BGC leases its 16-mile pipeline to a chemical company. In March 2003, BGC completed construction of the Sabina Pipeline. The Sabina Pipeline originates at a Shell Chemicals, L.P. facility in Deer Park, Texas and terminates at a chemical plant owned by Sabina Petrochemicals, LLC in Port Arthur, Texas. Subsidiaries of BGC hold an approximate 63% interest in the Sabina Pipeline. Two petrochemical companies own the remaining 37% minority interest. The Sabina Pipeline has entered into a long-term agreement with Sabina Petrochemicals LCC to provide pipeline transportation throughput services. Revenues under the throughput services agreement commenced January 2003, although the pipeline did not commence shipping product until February 2004. Separately, BGC entered into an agreement to operate and maintain the Sabina Pipeline.

      Buckeye GP LLC serves as the general partner of the Partnership. As of December 31, 2004, the General Partner owned approximately a 1% general partnership interest in the Partnership and approximately a 1% general partnership interest in each Operating Subsidiary except Wood River, for an approximate 2% overall

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 — (Continued)

general partnership interest in the Partnership’s activities. 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. and certain members of senior management.

      The General Partner was formed on December 15, 2004 as part of a restructuring of the Partnership’s general partner organization structure (the “GP Restructuring”), pursuant to which Buckeye Pipe Line Company LLC (the “Prior General Partner”) transferred its general partner interests, except for its right to receive incentive compensation from the Partnership, to the General Partner. The Prior General Partner, its immediate parent Buckeye Management Company LLC (“BMC”) and BMC’s immediate parent Glenmoor, LLC (“Glenmoor”) were then merged and renamed MainLine Sub LLC. Glenmoor’s immediate parent, BPL Acquisition L.P. then changed its name to MainLine L.P. The purpose of the GP Restructuring was to clarify that the Partnership and the General Partner are distinct legal entities with separate legal responsibilities from MainLine Sub and MainLine and to provide better assurance that the assets and liabilities of the Partnership, the General Partner and Buckeye Pipe Line Services Company (“Services Company”) would be considered separate from those of MainLine Sub and MainLine.

      Until May 4, 2004, Glenmoor, which had been the indirect parent of the Prior General Partner, was owned by certain directors and members of senior management of the Prior General Partner, trusts for the benefit of their children and certain other management employees of Services Company. On May 4, 2004, each of Glenmoor, BMC and the Prior General Partner converted from a stock corporation to a limited liability company, and the membership interests in Glenmoor were sold to BPL Acquisition L.P. (now MainLine) for approximately $235 million. BPL Acquisition L.P. was formed by affiliates of Carlyle/ Riverstone Global Energy and Power Fund II, L.P. for the purpose of purchasing the Glenmoor membership interest.

      At December 31, 2004, Services Company employed all of the employees that work for the Operating Subsidiaries. At December 31, 2004, Services Company had 739 employees. Prior to December 26, 2004, the 122 employees of Norco, BGC and Buckeye Terminals, LLC, each a wholly-owned subsidiary of BPH, were employed directly by each respective entity. On December 26, 2004, these employees became employees of Services Company. As part of the GP Restructuring, the services agreement between the Prior General Partner and Services Company (the “Prior Services Agreement”) was terminated and a new services agreement was entered into among Services Company, the Partnership, the Operating Subsidiaries and their subsidiary companies (the “New Services Agreement”). Under the New Services Agreement, Services Company continues to employ the employees that work for the Operating Subsidiaries, and is reimbursed directly by the Operating Subsidiaries and their subsidiaries for those services. Prior to the New Services Agreement, Services Company was reimbursed by the Prior General Partner which was in turn reimbursed by the Partnership and the Operating Subsidiaries. Under both the Prior Services Agreement and the New Services Agreement, certain executive compensation costs and related benefits are not reimbursed by the Partnership or the Operating Subsidiaries, but are reimbursed by MainLine Sub LLC.

      The Partnership maintains its accounts in accordance with the Uniform System of Accounts for Pipeline Companies, as prescribed by the Federal Energy Regulatory Commission (“FERC”). Wood River, Buckeye and Norco are subject to rate regulation as promulgated by FERC. Reports to FERC differ from the accompanying consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”), generally in that such reports calculate depreciation over estimated useful lives of the assets as prescribed by FERC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 — (Continued)

      The financial statements include the accounts of the Partnership and its Operating Subsidiaries on a consolidated basis. All significant intercompany transactions have been eliminated in consolidation. The financial statements do not include the accounts of the General Partner, MainLine Sub, MainLine or Services, Company which are independent entities from the Partnership.

      The preparation of the Partnership’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America necessarily requires management to make estimates and assumptions. These estimates and assumptions, which may differ from actual results, will affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expense during the reporting period.

      The fair values of financial instruments are determined by reference to various market data and other valuation techniques as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their carrying values (see Note 11).

      The Partnership accounts for hedging activities in accordance with SFAS No. 133 “Accounting for Financial Instruments and Hedging Activities” and SFAS No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” These statements establish accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet at fair value as either assets or liabilities.

      The Partnership adopted SFAS No. 133 effective January 1, 2001, with no effect on the Partnership’s financial statements because the Partnership had no derivative instruments outstanding at that time.

      The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and its resulting designation, which is established at the inception of the derivative instrument. SFAS No. 133 provides for a short-cut method which permits gains and losses on certain derivatives qualifying as fair value hedges to directly offset the changes in value of the hedged item in the Partnership’s income statement, and for the Partnership to assume no hedge ineffectiveness with respect to the hedged financial instrument.

      The Partnership had no derivative instruments during 2002. On October 28, 2003, the Partnership entered into an interest rate swap contract with a financial institution in order to hedge the fair value risk associated with a portion of its 4⁵/8% Notes due 2013 (the “4⁵/8% Notes”). The Partnership designated the swap as a fair value hedge at the inception of the contract and utilized the short-cut method provided for in SFAS No. 133. The interest rate swap was terminated on December 8, 2004 (see Note 11).

      By entering into interest rate swap transactions, the Partnership becomes exposed to both credit risk and market risk. Credit risk occurs when the value of the swap transaction is positive, and the Partnership is subject to the risk that the counterparty will fail to perform under the terms of the contract. The Partnership is subject to market risk with respect to changes in value of the swap. The Partnership manages its credit risk by only entering into swap transactions with major financial institutions with investment-grade credit ratings. The Partnership manages its market risk by associating each swap transaction with an existing debt obligation. The Partnership’s practice is to have the Board of Directors of the General Partner approve each swap transaction.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 — (Continued)

      All highly liquid debt instruments purchased with a maturity of three months or less are classified as cash equivalents.

      Revenue from the transportation of refined petroleum products is recognized as products are delivered. Revenues from terminalling, storage and rental operations are recognized as the services are performed. Customers for transportation and ancillary terminalling, storage and rental services include major integrated oil companies, major petroleum refiners, major petrochemical companies, large regional marketing companies and large commercial airlines. The consolidated Partnership’s customer base was approximately 110 in 2004. No customer contributed more than 10% of total revenue during 2004. The largest two customers accounted for 6% each of consolidated revenues, while the 20 largest customers accounted for 56% of consolidated revenues. The Partnership does not maintain an allowance for doubtful accounts due to its favorable collections experience.

      Revenues for contract operation and construction services of facilities and pipelines not directly owned by the Partnership are recognized as the services are performed. Contract and construction services revenue typically includes costs to be reimbursed by the customer plus an operator fee.

      In 2004, the Partnership reclassified revenues related to a jet fuel supply arrangement and an operating services contract to a gross basis, rather than the net-of-cost basis previously used. This reclassification, which had no effect on operating income or net income, increased both revenues and operating expenses by $3.0 million with respect to the jet fuel supply arrangement and $4.0 million with respect to the operating services contract. Amounts for 2003 and 2002 were not reclassified.

      Inventories, consisting of materials and supplies such as: pipe, valves, pumps, electrical/electronic components, drag reducing agent and other miscellaneous items are carried at the lower of cost or market based on the first-in, first-out method.

      Property, plant and equipment consist primarily of pipeline and related transportation facilities and equipment. For financial reporting purposes, depreciation on pipe assets is calculated using the straight-line method over the estimated useful life of 50 years. Other plant and equipment is depreciated on a straight-line basis over an estimated life of 5 to 50 years. Additions and betterments are capitalized and maintenance and repairs are charged to income as incurred. Generally, upon normal retirement or replacement, the cost of property (less salvage) is charged to the depreciation reserve, which has no effect on income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 — (Continued)

      The following table represents the depreciation life for the major components of the Partnership’s assets:

      Effective January 1, 2002, the Partnership no longer amortizes goodwill. The Partnership assesses its goodwill annually for potential impairment based on the market value of its business compared to its book value.

      The Partnership regularly assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Partnership assesses recoverability based on estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposal. The measurement of an impairment loss is based on the difference between the carrying amount and fair value of the assets.

      For federal and state income tax purposes, the Partnership and the Operating Subsidiaries, except for BGC, are not taxable entities. Accordingly, the taxable income or loss of the Partnership and the Operating Subsidiaries other than BGC, which may vary substantially from income or loss reported for financial reporting purposes, is generally includable in the federal and state income tax returns of the individual partners. As of December 31, 2004 and 2003, the Partnership’s reported amount of net assets for financial reporting purposes exceeded its tax basis by approximately $352 million and $348 million, respectively.

      Effective August 1, 2004, BGC elected to be treated as a taxable corporation for Federal income tax purposes. Accordingly, BGC has recognized deferred tax assets and liabilities for temporary differences between the amounts of assets and liabilities measured for financial reporting purposes and the amounts measured for Federal income tax purposes. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. Deferred tax assets are reduced by a valuation allowance when the amount of any tax benefit is not expected to be realized.

      Total income tax expense for the period August 1, 2004 to December 31, 2004 was $0.5 million and is included in operating expenses in 2004.

      Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 — (Continued)

coincides with the Partnership’s commitment to a formal plan of action. Accrued environmental remediation related expenses include direct costs of remediation and indirect costs related to the remediation effort, such as compensation and benefits for employees directly involved in the remediation activities and fees paid to outside engineering, consulting and law firms. The Partnership maintains insurance which may cover certain environmental expenditures.

      Services Company maintains a defined contribution plan (see Note 13), defined benefit plans (see Note 13) and an employee stock ownership plan (see Note 15) which provide retirement benefits to certain regular full-time employees. Certain hourly employees of Services Company are covered by a defined contribution plan under a union agreement (see Note 13).

      Services Company provides postretirement health care and life insurance benefits for certain of its retirees. Certain other retired employees are covered by a health and welfare plan under a union agreement (see Note 13).

      The Partnership has adopted Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation,” (“SFAS No. 123”), which requires expanded disclosures of stock-based compensation arrangements with employees. SFAS No. 123 encourages, but does not require, compensation cost to be measured based on the fair value of the equity instrument awarded. It allows the Partnership to continue to measure compensation cost for these plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). The Partnership has elected to continue to recognize compensation cost based on the intrinsic value of the equity instrument awarded as promulgated in APB No. 25.

      If compensation cost had been determined based on the fair value at the time of the grant dates for awards consistent with SFAS No. 123, the Partnership’s net income and earnings per Unit would have been as indicated by the pro forma amounts below: