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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

OR

For the transition period from            to            

Commission file number 1-31219

SUNOCO LOGISTICS PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (215) 977-3000

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

Securities registered pursuant to Section 12(g) of the Act:  None

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  x    No  ¨

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 amendments of this  Form 10-K.    x

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

The aggregate value of the Common Units held by non-affiliates of the registrant (treating all executive officers and directors of the registrant and holders of 10% or more of the Common Units outstanding (including the General Partner of the registrant, Sunoco Partners LLC) as if they may be affiliates of the registrant) was approximately $124.5 million on June 28, 2002, based on $21.82 per unit, the closing price of the Common Units as reported on the New York Stock Exchange on that date.

At February 28, 2003, the number of the registrant’s Common Units outstanding were 11,388,154, and its Subordinated Units outstanding were 11,383,639.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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Forward-Looking Statements

Certain matters discussed in this report, excluding historical information, include forward-looking statements made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements discuss Sunoco Logistics Partners L.P.’s (the “Partnership”) expected future results based on current and pending business operations, and may be identified by words such as “anticipates”, “believes”, “expects”, “planned”, “scheduled” or similar expressions. Although management of the Partnership believes these forward-looking statements are reasonable, they are based upon a number of assumptions, any or all of which ultimately may prove to be inaccurate. Statements made regarding future results are subject to numerous assumptions, uncertainties and risks that may cause future results to be materially different from the results stated or implied in this document.

The following are among the important factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted:

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These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the Partnership’s forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. The Partnership undertakes no obligation to update publicly any forward-looking statement whether as a result of new information or future events.

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PART I

ITEM 1.    BUSINESS

(a)  General Development of Business

The Partnership is a Delaware limited partnership formed on October 15, 2001. The principal executive offices of Sunoco Partners LLC, the Partnership’s general partner (the “General Partner”), are located at Ten Penn Center, 1801 Market Street, Philadelphia, Pennsylvania 19103 (telephone (215) 977-3000). The Partnership’s website address is www.sunocologistics.com.

On October 22, 2001, a Registration Statement on Form S-1 related to an initial public offering (the “IPO”) of the Partnership’s common units was filed with the Securities and Exchange Commission. In February 2002, 5,750,000 common units, representing approximately 24.7% of the partnership interests, were sold to the public. Sunoco, Inc., through its wholly-owned subsidiaries (collectively, “Sunoco”), currently owns approximately 75.3% of the partnership interests, including the 2% general partner interest.

(b)  Financial Information about Segments

See Part II, Item 8. Financial Statements and Supplementary Data.

(c)  Narrative Description of Business

The Partnership is a limited partnership formed by Sunoco, Inc. to own, operate and acquire a geographically diversified portfolio of complementary energy assets. The Partnership is principally engaged in the transport, terminalling and storage of refined products and crude oil and the purchase and sale of crude oil. Sunoco, Inc. (R&M), a wholly-owned refining and marketing subsidiary of Sunoco (“Sunoco R&M”), accounted for approximately 63% of the Partnership’s revenues for the year ended December 31, 2002. The business comprises three segments:

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The Partnership and its equity interests are principally engaged in the transport, terminalling, and storage of refined products and crude oil and in the purchase and sale of crude oil in 17 states. Revenues are generated by charging tariffs for transporting refined products and crude oil through the pipelines and by charging fees for storing refined products, crude oil, and other hydrocarbons in, and for providing other services at the Partnership’s terminals. The Partnership also generates revenue by purchasing domestic crude oil and selling it to Sunoco R&M and other customers. Generally, as crude oil is purchased, corresponding sale transactions are simultaneously entered into involving physical deliveries of crude oil, which enables the Partnership to secure a profit on the transaction at the time of purchase and establish a substantially balanced position, thereby minimizing exposure to price volatility after the initial purchase. The Partnership’s practice is to not enter into futures contracts.

Upon the closing of the Partnership’s IPO on February 8, 2002, the Eastern Pipeline System, Terminal Facilities and Western Pipeline System were transferred to the Partnership, including certain related liabilities. Certain other liabilities, including environmental and toxic tort liabilities, have been retained by Sunoco, Inc. under the indemnification provisions of an omnibus agreement (the “Omnibus Agreement”) (see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Agreements with Sunoco R&M and Sunoco, Inc.”). The following discussion has been prepared as if the assets were operated as a stand-alone business throughout the periods presented. Unless otherwise noted, the Partnership owns and operates all of the assets described.

Eastern Pipeline System

Sunoco R&M accounted for approximately 71% of the Eastern Pipeline segment’s total revenues for the year ended December 31, 2002.

Refined Product Pipelines

The refined product pipelines transport refined products from Sunoco R&M’s Philadelphia, Pennsylvania, Marcus Hook, Pennsylvania and Toledo, Ohio refineries, as well as from third parties, to markets in New York, New Jersey, Pennsylvania, Ohio, and Michigan. The refined products transported in these pipelines include multiple grades of gasoline, low-octane gasoline for ethanol blending, middle distillates (such as heating oil, diesel and jet fuel), LPGs (such as propane, butane, isobutane, and a butane/butylene mixture), refining feedstocks, and other hydrocarbons (such as toluene and xylene). The refined product pipelines were originally constructed between 1931 and 1967. The pipelines are regularly maintained, and management of the Partnership believes they are in good repair. The Federal Energy Regulatory Commission (“FERC”) regulates the rates for interstate shipments on the Eastern Pipeline System and the Pennsylvania Public Utility Commission (“PA PUC”) regulates the rates for intrastate shipments in Pennsylvania.

The following table details the average aggregate daily number of barrels of refined products transported on the refined product pipelines in each of the years presented. The information in the following table does not include interrefinery pipelines and transfer pipelines that transport large volume over short distances and generate minimal revenues:

The mix of refined petroleum products delivered varies seasonally, with gasoline demand peaking during the summer months, and demand for heating oil and other distillate fuels being higher in the winter. In addition, weather conditions in the areas served by the Eastern Pipeline System affect both the demand for, and the mix of, the refined petroleum products delivered through the Eastern Pipeline System, although historically any overall impact on the total volume shipped has been short term.

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The following table sets forth, for each of the refined product pipeline systems, the origin and destination, miles of pipeline and diameter. Except as shown below, the Partnership owns 100% of the refined product pipeline systems.

N.M. Not meaningful.

The following text provides additional information about each of the refined product pipelines.

Philadelphia, Pennsylvania to Montello, Pennsylvania.    The Philadelphia to Montello refined product pipeline system is the principal means by which Sunoco R&M moves its refined products from its Philadelphia and Marcus Hook refineries into the Partnership’s Montello terminal for further transportation on the Eastern Pipeline System. The Philadelphia to Montello pipeline system consists of four segments:

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The 12-inch Point Breeze pump station to Montello segment also serves the Partnership’s Exton, Pennsylvania terminal. The 8-inch Point Breeze pump station to Montello segment connects with the 8-inch Boot to Fullerton segment at the Boot pump station and continues to Montello, with connections to a ConocoPhillips pipeline in Swarthmore, Pennsylvania and the Partnership’s terminal in Exton along its route. The 8-inch segment from the Twin Oaks pump station to the Point Breeze to Montello pipeline segment serves the Partnership’s terminal at Malvern, Pennsylvania and the Partnership’s storage facility at Icedale, Pennsylvania. The 8-inch Boot to Fullerton segment originates at the Boot pump station and terminates at the Partnership’s Fullerton terminal and Gulf Oil’s Fullerton terminal. This segment also serves terminals operated by Pipeline Petroleum Corp. and Farm & Home and delivers to a third-party pipeline in Macungie, Pennsylvania.

Sunoco R&M accounted for approximately three-quarters of the volume transported on this pipeline system for 2002. Other shippers on this system include ExxonMobil, BP, Gulf Oil, Major Oil, Delphi Petroleum, CITGO, Pipeline Petroleum, Farm & Home, Petroleum Products, United Refining, Griffith Oil, NOCO Energy, Pickelner, and TransMontaigne. ConocoPhillips’ Trainer, Pennsylvania refinery and Motiva’s Delaware City, Delaware refinery can access the system at the Twin Oaks pump station. Products can also enter the system from ST Services’ terminal in Philadelphia and from Valero’s Paulsboro, New Jersey refinery via ExxonMobil’s Malvern terminal. Refined products from Buckeye’s Laurel pipeline can enter this system at Montello.

Montello, Pennsylvania to Buffalo, New York.    The Montello to Buffalo refined product pipeline system consists of the following segments:

The Montello to Williamsport segment makes deliveries to Petroleum Products Corp., the Partnership’s Northumberland, Pennsylvania terminal, and to the Sunoco R&M, Farm & Home, Pickelner, and Gulf Oil terminals in the Williamsport area. The Williamsport to Buffalo segment makes deliveries to the Energy East terminal in Big Flats, New York. At Caledonia Junction, the spur runs to the Partnership’s Rochester terminal, as well as to terminals operated by ExxonMobil, Buckeye, Alaskan Oil, and Energy East. In the Buffalo area, the pipeline serves the Partnership’s terminal and those of United Refining and NOCO Energy.

Sunoco R&M accounted for approximately one-half of the volumes transported on this pipeline system for 2002. In addition to Sunoco R&M and the other companies who are served by this pipeline system, the Partnership also transports refined products for Agway, CITGO, BP, ConocoPhillips, El Paso, ExxonMobil, Farm & Home, Griffith Oil, Gulf Oil, Duke, Petroleum Products, Pickelner, United Refining, NOCO Energy, and Motiva. The Partnership also receives refined products for shipment into the Buffalo market through its interconnection with Buckeye’s Buckeye pipeline at Caledonia Junction.

Montello, Pennsylvania to Kingston, Pennsylvania.    The Montello to Kingston refined product pipeline system consists of an 84-mile, 6-inch pipeline serving the Partnership’s terminal in Kingston, the Lehigh Oil & Gas terminal in Barnesville, Pennsylvania, and the Tri-State Oil terminal in Beach Haven, Pennsylvania. In addition to Sunoco R&M, which accounted for most of the volume transported on this system for 2002, product was also transported for Griffith Oil and TransMontaigne. In early 2003, the Partnership filed a request with the PA PUC to idle 74 miles of this pipeline segment due to expected higher costs. The Partnership plans to supply its terminal in Kingston by connecting it to the Partnership’s Montello to Syracuse pipeline.

Montello, Pennsylvania to Syracuse, New York.    The Montello to Syracuse refined product pipeline system consists of 15 miles of 8-inch pipeline and 215 miles of 6-inch pipeline. This pipeline system serves the Partnership’s terminals in Tamaqua, Pennsylvania and Binghamton, New York, and terminates at a

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Hess/ExxonMobil terminal in Syracuse, New York. Sunoco R&M is the only shipper on this pipeline system. In early 2003, the Partnership idled the northern most 160 miles of this pipeline segment. This segment now ends at Kingston. Movements to Binghamton and Syracuse will now be made via the Partnership’s pipeline to Macungie and via a long-term, third-party capacity lease from Macungie to Syracuse.

The request to the PA PUC to idle 74 miles of the Montello to Kingston, PA pipeline segment and the idling of the northern-most 160 miles of the Montello, PA to Syracuse, NY pipeline segment were undertaken as a result of a long-term agreement entered into by the Partnership in December 2002 to lease throughput capacity on a third-party refined product pipeline which allowed it to provide substantially the same service as existed on the idled pipeline while reducing operating expenses.

Montello, Pennsylvania to Pittsburgh, Pennsylvania.    The Montello to Pittsburgh refined product pipeline system consists of a 221-mile, 8-inch pipeline supplied by the Partnership’s Philadelphia to Montello pipeline system and Buckeye’s Laurel pipeline at Delmont, Pennsylvania. The pipeline system serves the Partnership’s terminals located in Mechanicsburg, Altoona, Delmont, Blawnox, and Pittsburgh, Pennsylvania. This pipeline system is connected to the Partnership’s Toledo, Ohio to Blawnox pipeline system, through which the Partnership’s Pittsburgh, Blawnox, Delmont, and Altoona terminals can be supplied with refined product from Sunoco R&M’s Toledo refinery. Sunoco R&M is the only shipper on this pipeline system.

Toledo, Ohio to Blawnox, Pennsylvania.    The Toledo to Blawnox refined product pipeline system consists of 115 miles of 10-inch pipeline and 145 miles of 8-inch pipeline. This pipeline system transports refined products and petrochemicals from Sunoco R&M’s Toledo refinery, as well as petrochemicals from Sarnia, Canada, to the Partnership’s terminals in Akron and Youngstown, Ohio and Vanport and Blawnox, Pennsylvania. The pipeline system also makes deliveries to the Kinder Morgan Indianola, Pennsylvania facility and accesses the Inland Pipeline system owned by a subsidiary of Sunoco, Inc., BP, Citgo, and Shell. Sunoco R&M accounted for most of the volume transported on this pipeline system for 2002.

Toledo, Ohio to Sarnia, Canada.    The Toledo to Sarnia refined product pipeline system consists of three segments totaling 241 miles of 6-inch and 8-inch pipelines originating at Sunoco R&M’s Toledo refinery and terminating at three separate points. The system includes one 6-inch and two 8-inch pipelines running approximately 50 miles between Toledo and the Partnership’s Inkster Terminal near Detroit, Michigan. At Inkster, the 6-inch pipeline continues 11 miles to River Rouge, Michigan, and one of the 8-inch pipelines continues 80 miles to Sarnia.

Deliveries into and out of Toledo originate from Sunoco R&M’s Toledo refinery, BP’s Toledo refinery, Buckeye’s Buckeye pipeline, and Marathon Ashland Petroleum’s (“MAP”) Toledo terminal. The Toledo to River Rouge segment serves the Atlas, Buckeye, and MAP terminals in Taylor, Michigan and the Partnership’s Inkster Terminal and River Rouge Terminal. Product terminals in the Detroit area served by the Toledo to Sarnia segment include those of BP, MAP, and RKA. The Toledo to Sarnia segment serves the Inkster Terminal and the Consumers Power Marysville, Michigan underground storage facilities and has delivery and origin capabilities at Sarnia that include the Suncor, BP, Royal Dutch/Shell, and Novacor refineries. Each section of this system is bi-directional and can ship refined products or LPG.

Sunoco R&M accounted for approximately half of the volume on this system for 2002. Other shippers on this system include Suncor, CITGO, Imperial Oil, Inergy Services, Northwest Airlines, BP and Kinetic Resources.

Twin Oaks, Pennsylvania to Newark, New Jersey.    The Twin Oaks to Newark refined product pipeline system consists of an 111-mile, 14-inch pipeline originating at the Twin Oaks pump station, adjacent to the Partnership’s Marcus Hook Tank Farm, and terminating in Newark and Linden, New Jersey. Motiva’s Delaware City refinery, ConocoPhillips’ Trainer refinery, and Sunoco R&M’s Marcus Hook refinery can access this pipeline system at its origin. Deliveries are made to the Partnership’s Willow Grove, Pennsylvania and

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Piscataway and Newark, New Jersey terminals, as well as into the Linden area via a 7-mile, 12-inch spur that serves terminals owned by Kaneb, Kinder Morgan, ExxonMobil, ConocoPhillips, and Buckeye. The Partnership’s Linden transfer facility allows transfers between these third-party terminals while the Partnership’s main-line deliveries are made. In Newark, the pipeline system serves terminals owned by Lukoil and Motiva. The Partnership interconnects with Buckeye’s Laurel pipeline at the Twin Oaks pump station using a 2-mile, 16-inch transfer pipeline. Shippers on this pipeline include Sunoco R&M, which accounted for most of the volume transported in 2002, Motiva, ConocoPhillips, and Kaneb.

Philadelphia, Pennsylvania to Linden, New Jersey.    The Philadelphia to Linden refined product pipeline system consists of an 80-mile, 16-inch segment called the Harbor pipeline, and an 8-mile, 12-inch segment. The Partnership owns 100% of the 12-inch segment and operates the 16-inch segment, which is owned jointly, in equal percentages, by El Paso, ConocoPhillips, and the Partnership. Each owner of the 16-inch segment has a right to 60,000 bpd of capacity. The pipeline system is connected at its origin to the El Paso refinery in Eagle Point, New Jersey, the ConocoPhillips tank farm in Woodbury, New Jersey, the Gulf Oil terminal in Woodbury, and Sunoco R&M’s Philadelphia refinery. Sunoco R&M can also deliver product to the Gulf Oil terminal while other parties are shipping product to New York. Deliveries at Linden are made to a ConocoPhillips terminal, a Gulf Oil terminal, CITGO terminals, and Buckeye’s and El Paso’s pipelines. This pipeline system is also connected and makes deliveries into the Partnership’s Twin Oaks, Pennsylvania to Newark pipeline, allowing the Partnership to transport refined product to its Newark, New Jersey terminal. Sunoco R&M accounted for all of the Partnership’s allocated share of the volume transported on the 16-inch segment for 2002 and for all of the volume transported on the 12-inch segment for the same period.

Interrefinery Pipelines

The Partnership leases to Sunoco R&M, for a fixed amount, three bi-directional 18-mile pipelines and a four-mile pipeline spur extending to the Philadelphia International Airport. One pipeline and the spur transfer jet fuel from Sunoco R&M’s Philadelphia and Marcus Hook refineries to the Philadelphia International Airport. A second pipeline transfers LPG to and from Sunoco R&M’s Philadelphia refinery and Marcus Hook storage facility. The third pipeline transfers gasoline blending components and intermediate feedstocks between Sunoco R&M’s Marcus Hook and Philadelphia refineries. The third pipeline is used to optimize refinery operations, such as gasoline blending and unit turnaround scheduling.

Crude Oil Pipeline

This 123-mile, 16-inch crude oil pipeline runs from Marysville, Michigan to Toledo, Ohio. This pipeline receives crude oil from the Lakehead pipeline system for delivery to Sunoco R&M and BP refineries located in Toledo, Ohio and to MAP’s Samaria, Michigan tank farm, which supplies its refinery in Detroit, Michigan. Marysville is also a truck injection point for local production. Sunoco R&M is the major shipper on the pipeline. The pipeline was built in 1967 and its tariffs are regulated by the FERC. This pipeline is regularly maintained and management of the Partnership believes that it is in good repair.

The table below sets forth the average daily number of barrels of crude oil transported through this crude oil pipeline in each of the years presented:

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Explorer Pipeline

The Partnership owns a 9.4% interest in Explorer Pipeline Company (“Explorer”), a joint venture that owns and operates an 1,413-mile common carrier refined product pipeline. Other owners of Explorer are Shell, MAP, ChevronTexaco, CITGO, and ConocoPhillips. The system originates from the refining centers of Lake Charles, Louisiana and Beaumont, Port Arthur and Houston, Texas, and extends to Chicago, Illinois, with delivery points in the Houston, Dallas/Fort Worth, Tulsa, St. Louis, and Chicago areas. The pipeline was built in 1972. Refined products transported on this system primarily include gasoline, jet fuel, diesel fuel, and heating oil. Shippers on the pipeline include most of the affiliates of the owners and many non-affiliated customers. The Partnership and its affiliates do not ship on the pipeline. In 2000, the FERC approved Explorer’s application for market-based rates for all its tariffs. The Partnership receives a quarterly cash dividend from Explorer that is commensurate with the ownership interest.

Volume transported on this system has increased as the refining centers in the Gulf Coast region have increased shipments to meet higher demand. Explorer is currently completing an expansion of the system’s capacity by 130,000 bpd from Port Arthur to Tulsa and by 100,000 bpd from Tulsa to Chicago. The expansions, planned to be completed in the second quarter of 2003, are currently projected to cost more than $100 million. The Partnership will not be required to make an equity contribution to finance these capital expenditures. A member of the Partnership’s management team serves on Explorer’s board of directors.

Wolverine Pipe Line

On November 15, 2002, the Partnership acquired a 31.5% interest in Wolverine Pipe Line Company (“Wolverine”), a joint venture that owns and operates a 719-mile common carrier refined product pipeline. Other owners of Wolverine are Citgo, ExxonMobil, MAP, and Shell. The system originates from the Chicago, Illinois refining center and extends to Detroit, Grand Haven, and Bay City, Michigan and Toledo, Ohio with delivery points along the way. Refined products transported on this system include gasoline, jet fuel, diesel fuel, and heating oil. Shippers on the pipeline include affiliates of most of the owners and several non-affiliated customers. The Partnership and its affiliates do not ship on the pipeline. In 2002, the FERC approved Wolverine’s application for market-based rates for the Detroit, Jackson, Niles, Hammond, and Lockport destinations. The Partnership receives a quarterly cash dividend from Wolverine that is commensurate with its ownership interest.

In 1999, Wolverine purchased the pipeline assets belonging to Total in Michigan that supported the Alma refinery. Wolverine has used these assets to make deliveries to Lansing and Bay City. Since the purchase, Wolverine has been expanding the capacity to those cities and expects to complete the expansion in 2003.

West Shore Pipe Line

On November 15, 2002, the Partnership acquired a 9.2% interest in West Shore Pipe Line Company (“West Shore”), a joint venture that owns and operates a 596-mile common carrier refined product pipeline. Other owners of West Shore are Citgo, ExxonMobil, MAP, Buckeye, and Shell. The system originates from the Chicago, Illinois refining center and extends to Madison and Green Bay, Wisconsin with delivery points along the way. Refined products transported on this system include gasoline, jet fuel, diesel fuel, and heating oil. Shippers on the pipeline include affiliates of most of the owners and several non-affiliated customers. The Partnership and its affiliates do not ship on the pipeline. In 2002, the FERC approved West Shore’s application for market-based rates for the Chicago area. The Partnership receives a quarterly cash dividend from West Shore that is commensurate with its ownership interest.

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Yellowstone Pipe Line

On November 15, 2002, the Partnership acquired a 14.0% interest in Yellowstone Pipe Line Company (“Yellowstone”), a joint venture that owns and operates a 746-mile common carrier refined product pipeline. Other owners of Yellowstone are ExxonMobil and ConocoPhillips. The system originates from the Billings, Montana refining center and extends to Spokane, Washington with delivery points along the way. Refined products transported on this system include gasoline, jet fuel, diesel fuel, and heating oil. Shippers on the pipeline include affiliates of the owners and some non-affiliated customers. The Partnership and its affiliates do not ship on the pipeline.

Since 1996, Yellowstone has not paid a dividend due to restrictions under existing credit facility covenants due to additional debt incurred as a result of a multi-year pipeline upgrade program.

Terminal Facilities

Sunoco R&M accounted for approximately 64% of the Terminal Facilities segment’s total revenues for the year ended December 31, 2002.

Refined Product Terminals

The Partnership’s 32 inland refined product terminals receive refined products from pipelines and distribute them to Sunoco R&M and to third parties, who in turn deliver them to end-users and retail outlets. Terminals play a key role in moving to the end-user market by providing the following services: storage and inventory management; distribution; blending to achieve specified grades of gasoline; and other ancillary services that include the injection of additives and the filtering of jet fuel.

Typically, the Partnership’s terminal facilities consist of multiple storage tanks and are equipped with automated truck loading equipment that is available 24 hours a day. This automated system provides for control of allocations, credit and carrier certification by remote input of data by the Partnership’s customers. In addition, all of the Partnership’s terminals are equipped with truck loading racks capable of providing automated blending to individual customer specifications.

The Partnership’s refined product terminals derive most of their revenues from terminalling fees paid by customers. A fee is charged for transferring refined products from the terminal to trucks, barges, or pipelines. In addition to terminalling fees, the Partnership’s revenues are generated by charging customers fees for blending, injecting additives, and filtering jet fuel. The Partnership generates the balance of its revenues from other hydrocarbons handled for Sunoco R&M in Vanport, Pennsylvania and Toledo, Ohio and for lubricants handled for Sunoco R&M in Cleveland, Ohio. Sunoco R&M accounts for substantially all of the Partnership’s refined product terminal revenues.

The Eastern Pipeline System supplies the majority of the Partnership’s inland refined product terminals. Third-party pipelines supply the remainder of the inland refined product terminals.

The table below sets forth the total average throughput for the inland refined product terminals in each of the years presented:

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The following table outlines the locations of the inland refined product terminals and their storage capacities, supply source and mode of delivery:

The Nederland Terminal

The Texas Gulf Coast region is the major hub for petroleum refining in the United States. Growth in refining capacity in this region, including new heavy oil conversion projects, and increased product flow from the

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Gulf Coast region to other regions has created a need for additional transportation, storage, and distribution facilities on the Gulf Coast. Management of the Partnership believes that demand for imported crude oil and for petroleum products refined in the Gulf Coast region will continue to increase.

The Nederland Terminal, which is located on the Sabine-Neches waterway between Beaumont and Port Arthur, Texas, is a large marine terminal that provides inventory management, storage, and distribution services for refiners and other large end-users of crude oil. The Nederland Terminal receives, stores, and distributes crude oil, feedstocks, lubricants, petrochemicals, and bunker oils (used for fueling ships and other marine vessels). In addition, the Nederland Terminal also blends and packages lubricants and is equipped with petroleum laboratory facilities.

The Nederland Terminal currently has a total storage capacity of approximately 11.2 million barrels in 126 aboveground storage tanks with individual capacities of up to 660,000 barrels. The terminal currently uses its aggregate storage capacity as follows:

In May 2002, the Partnership announced the construction of 2 new storage tanks, which will add 1.3 million barrels of capacity. Construction is expected to be completed in the second quarter of 2003.

The terminal can receive crude oil at each of its five ship docks and three barge berths, which can accommodate any vessel capable of navigating the 40-foot freshwater draft of the Sabine-Neches Ship Channel. The five ship docks are capable of receiving a total of 1.0 million bpd of crude oil. The terminal can also receive crude oil through a number of pipelines, including the Shell pipeline from Louisiana, the Department of Energy (“DOE”) Big Hill pipeline, the DOE West Hackberry pipeline, the EOTT Louisiana pipeline system, and the Partnership’s Western Pipeline System. The DOE pipelines connect the Nederland Terminal to the United States Strategic Petroleum Reserve’s West Hackberry caverns at Hackberry, Louisiana and Big Hill caverns near Winnie, Texas, which have an aggregate storage capacity of 370 million barrels. The Nederland Terminal’s pipeline connections to major markets in the Lake Charles, Beaumont, Port Arthur, Houston, and Midwest areas provide customers with maximum flexibility.

The Nederland Terminal can deliver crude oil and other petroleum products via pipeline, barge, ship, rail, or truck. In the aggregate, the Nederland Terminal is capable of delivering over 1.0 million bpd of crude oil to 12 connecting pipelines.

The table below sets forth the total average throughput for the Nederland Terminal in each of the years presented:

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The following table describes the Nederland Terminal’s pipeline delivery connections, including the destination of the pipelines to which the Partnership can deliver, the diameter of each pipeline, the rate which the Partnership can make deliveries, and the key delivery points along each pipeline’s route:

Revenues are generated at the Nederland Terminal primarily by providing long-term and short-term, or spot, storage services and throughput capability to a broad spectrum of customers. Approximately 89% of the terminal’s total revenues in 2002 came from unaffiliated third parties. A significant portion of the Nederland Terminal’s revenues are derived from multi-year contracts, which enhance the stability and predictability of its revenue stream.

Fort Mifflin Terminal Complex

The Fort Mifflin Terminal Complex is located on the Delaware River in Philadelphia and supplies Sunoco R&M’s Philadelphia refinery with all of its crude oil. These assets include the Fort Mifflin Terminal, the Hog Island Wharf, the Darby Creek Tank Farm and connecting pipelines. Revenues are generated from the Fort Mifflin Terminal Complex by charging Sunoco R&M and others a storage fee based on tank capacity and

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throughput. Substantially all of the revenues from the Fort Mifflin Terminal Complex are derived from Sunoco R&M.

Fort Mifflin Terminal.    The Fort Mifflin Terminal consists of two ship docks with 40-foot freshwater drafts and nine tanks with a total storage capacity of 570,000 barrels. Six 80,000-barrel tanks are used to store crude oil, and three 30,000-barrel tanks are used to provide fuel to ships. Two of the 80,000-barrel tanks can be used to store refined products. This terminal also has a connection with the Colonial Pipeline System.

Crude oil and some refined products enter the Fort Mifflin Terminal primarily from marine vessels on the Delaware River. One Fort Mifflin dock is designed to handle crude oil from very large crude carrier-class tankers and smaller crude oil vessels. The other dock can accommodate only smaller crude oil vessels.

Hog Island Wharf.    The Hog Island Wharf is located next to the Fort Mifflin Terminal on the Delaware River. The Hog Island Wharf receives crude oil via two ship docks, one of which can accommodate crude oil tankers and smaller crude oil vessels and the other of which can accommodate some smaller crude oil vessels. Hog Island Wharf supplies the Partnership’s Darby Creek Tank Farm and Fort Mifflin Terminal with crude oil. Crude oil from the Hog Island Wharf is delivered to Sunoco R&M’s Philadelphia refinery via the Darby Creek Tank Farm.

Darby Creek Tank Farm.    The Darby Creek Tank Farm is a primary crude oil storage terminal for Sunoco R&M’s Philadelphia refinery. This facility has 26 tanks with a total storage capacity of 2.9 million barrels. Darby Creek receives crude oil from the Fort Mifflin Terminal and Hog Island Wharf via the Partnership’s 24-inch pipelines. The tank farm then stores the crude oil and pumps it to the Philadelphia refinery via the Partnership’s 16-inch pipeline. The multiple tanks in this storage facility provide added flexibility in blending crude oil to achieve the optimal crude oil slate for the Philadelphia refinery.

Crude Oil and Refined Product Delivery.    The Fort Mifflin Terminal Complex includes a number of crude oil pipelines:

The Fort Mifflin Terminal Complex also includes several pipelines that deliver refined products to Sunoco R&M’s Philadelphia refinery:

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The Partnership charges Sunoco R&M a fee for each barrel delivered to its Philadelphia refinery via the Fort Mifflin Terminal or the Darby Creek Tank Farm. The table below sets forth the average daily number of barrels of crude oil and refined products delivered to Sunoco R&M’s Philadelphia refinery in each of the years presented:

Marcus Hook Tank Farm

The Marcus Hook Tank Farm stores substantially all of the gasoline and middle distillates that Sunoco R&M ships from its Marcus Hook refinery. This facility has 17 tanks with a total storage capacity of approximately 2.0 million barrels. After receipt of refined products from the Marcus Hook refinery, the tank farm either stores them or delivers them to the Partnership’s Twin Oaks terminal or to the Twin Oaks pump station, which supplies the Eastern Pipeline System.

The table below sets forth the total average throughput for the Marcus Hook Tank Farm in each of the years presented:

The Inkster Terminal

The Inkster Terminal, located near Detroit, Michigan, consists of eight salt caverns with a total storage capacity of 975,000 barrels. The Partnership uses the Inkster Terminal’s storage in connection with its Toledo, Ohio to Sarnia, Canada pipeline system and for the storage of LPGs from Sunoco R&M’s Toledo refinery and from Canada. The terminal can receive and ship LPGs in both directions at the same time and has a propane truck loading rack. For the last five years, Sunoco R&M has used the full capacity of the Inkster Terminal. Buckeye has access to the terminal through the Partnership’s spur line to Joan Junction in Taylor, Michigan.

Western Pipeline System

Sunoco R&M accounted for approximately 62% of the Western Pipeline System segment’s total revenues for the year ended December 31, 2002.

Crude Oil Pipelines

The Partnership owns and operates approximately 1,870 miles of crude oil trunk pipelines and approximately 840 miles of crude oil gathering lines in three primary geographic regions—Oklahoma, West Texas, and the Texas Gulf Coast and East Texas region. The Partnership is the primary shipper on the Western Pipeline System. The Partnership also delivers crude oil for Sunoco R&M and for various third parties from points in Texas and Oklahoma. Delivery points on the Western Pipeline System include Sunoco R&M’s and Sinclair’s Tulsa, Oklahoma refineries and the Gary-Williams refinery in Wynnewood, Oklahoma.

The Partnership’s pipelines also access several trading hubs, including the largest and most significant trading hub for crude oil in the United States located in Cushing, Oklahoma, as well as other trading hubs located in Colorado City and Longview, Texas. The Partnership’s crude oil pipelines also connect with other pipelines

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that deliver crude oil to a number of third-party refineries. The majority of the pipelines in the Western Pipeline System were constructed between 1925 and 1967. The Partnership’s pipelines are subject to ongoing maintenance, and management of the Partnership believes they are in good repair.

The table below sets forth the average aggregate daily number of barrels of crude oil transported on the Partnership’s crude oil pipelines in each of the years presented:

In each geographic region, the Partnership has major crude oil trunk line systems that ship crude oil across a number of different-sized trunk pipeline segments. The following table details the mileage and diameter for the pipelines in each major crude oil trunk line system. The Partnership transported most of the crude oil to and lube extracted feedstock from Sunoco R&M’s Tulsa, Oklahoma refinery for the year ended December 31, 2002.

Oklahoma

The Partnership owns and operates a large crude oil pipeline and gathering system in Oklahoma. This system contains 681 miles of crude oil trunk pipelines and 443 miles of crude oil gathering lines. The Partnership has the ability to deliver all of the crude oil gathered on its Oklahoma system to Cushing. Additionally, deliveries are made on the Oklahoma system to:

Revenues are generated on the Partnership’s Oklahoma system from tariffs paid by shippers utilizing the Partnership’s transportation services. The Partnership files these tariffs with the Oklahoma Corporation

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Commission and the FERC. The Partnership is the largest purchaser of crude oil from producers in the state, and is the primary shipper on its Oklahoma system. Other significant shippers are Sunoco R&M and Sinclair, which ship primarily on the Cushing to Tulsa segment.

The Partnership’s Oklahoma crude oil pipelines consist of two major systems, the Enid to Tulsa system and the Velma to Tulsa system, and several smaller pipelines.

Enid, Oklahoma to Tulsa, Oklahoma.    The Enid to Tulsa crude oil pipeline system originates in Northwestern Oklahoma, connects to the Cushing, Oklahoma trading hub, and terminates in Tulsa at the Sunoco R&M and Sinclair refineries. This system has three segments which deliver crude oil received from trucks and gathering systems to Enid for further delivery on this system. Enid is a hub from which Partnership crude oil is transported on its two east-bound pipelines to third-party pipelines and refineries, and to the Cushing trading hub. The two east-bound pipelines from Enid include the Partnership’s Enid to Morris pipeline, which connects to ConocoPhillips’ pipeline, which delivers to its Ponca City refinery, and the Partnership’s Enid to Cushing pipeline, which receives crude oil from the Partnership’s Oklahoma City to Douglas segment and delivers crude oil to the Partnership’s storage tanks at the Cushing trading hub.

Shippers utilizing the Partnership’s pipeline may also access the BP, Shell, Plains All American, and TEPPCO storage terminals in Cushing. The Partnership’s Cushing to Tulsa pipeline provides transportation services, under tariffs filed with the FERC, from third-party terminals and the Partnership’s tanks in Cushing to the Sunoco R&M and Sinclair refineries in Tulsa.

Velma, Oklahoma to Tulsa, Oklahoma.    The Velma to Tulsa crude oil pipeline system originates in Southwestern Oklahoma, moves eastward to the Gary-Williams refinery at Wynnewood, and terminates at the Sunoco R&M and Sinclair refineries in Tulsa. This system consists of seven major segments.

The Velma to Eola, Eola to Maysville, and Eola to Wynnewood segments are used to transport crude oil from trucks and gathering systems owned by the Partnership and third parties to Gary-Williams’ Wynnewood refinery and to the Partnership’s pipeline that delivers to Cushing and Sunoco R&M’s Tulsa refinery. The Maysville to Seminole, Seminole to Bad Creek, Fitts to Bad Creek, and Bad Creek to Tulsa pipelines are primarily used to transport crude oil to the Sunoco R&M and Sinclair refineries in Tulsa. These pipelines are supplied by the Partnership’s gathering systems and trucks, as well as EOTT’s and Seminole Trading and Gathering’s (“STG”) gathering lines. The Partnership ships substantially all of the volumes on these pipelines.

Other Oklahoma Pipelines.    The Partnership’s other Oklahoma pipelines include the Tulsa to Cushing segment that transports lube extracted feedstock from Sunoco R&M’s Tulsa refinery to Cushing for ultimate delivery by third-party pipelines to other refineries for further processing. The Partnership’s Barnsdall to Tulsa segment receives crude oil gathered by the Partnership’s and a third-party’s trucks for shipment to Sunoco R&M’s Tulsa refinery.

West Texas

The Partnership owns and operates approximately 817 miles of crude oil trunk pipelines and 247 miles of crude oil gathering lines in West and North Central Texas. Deliveries are made on the West Texas system to:

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The Partnership is the shipper of substantially all the volume on this system. Revenues are generated in West Texas from tariffs paid by shippers utilizing the Partnership’s transportation services. These tariffs are filed with the Texas Railroad Commission.

The West Texas pipelines include the three following systems:

Jameson and Salt Creek, Texas to Colorado City, Texas.    The Jameson and Salt Creek to Colorado City crude oil pipeline system consists of two pipeline segments. Crude oil is pipeline gathered or trucked into this system and transported from Jameson to Colorado City, or from Salt Creek to Colorado City, where it can be delivered into BP, Basin, ChevronTexaco, EOTT, or West Texas Gulf pipelines. These connections allow the Partnership to deliver crude oil to Sunoco R&M’s Tulsa and Toledo refineries and other unaffiliated third-party destinations.

Hearne, Texas to Hawley, Texas.    The Hearne to Hawley system is comprised of the two segments delivering into Comyn, Texas, and is supplied with crude oil from the Partnership’s trucks, third-party trucks, and third-party pipelines, including the Genesis, Koch, and Plains All American pipelines located in Hearne. From Comyn, crude oil can be shipped to:

At Tye, the Partnership has tankage and a bi-directional connection with the West Texas Gulf pipeline that allows it to receive and deliver crude oil.

Hawley, Texas to Dixon, Texas.    On the Hawley to Dixon system, crude oil is received from the following sources:

The Partnership delivers this crude oil to Dixon, where it connects with the Valero L.P. pipeline that delivers crude oil to the Valero Energy Corporation refinery at McKee. Crude oil received from the Partnership’s Hearne to Hawley system accounts for approximately 40% of the volume transported on this system.

Texas Gulf Coast and East Texas

The Partnership’s Texas Gulf Coast and East Texas pipeline system includes 370 miles of crude oil trunk pipelines and 150 miles of crude oil gathering lines that extend between the Texas Gulf Coast region near Beaumont and Baytown, Texas and the East Texas field near Longview, Texas. The Partnership transports multiple grades of crude oil, including foreign imports, and other refinery and petrochemical feedstocks, such as condensate and naphtha, on these pipelines. Crude oil is received for these systems from other pipelines, the Nederland Terminal, the Partnership’s trucks, third-party trucks, and the Partnership’s pipeline gathering

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systems. This system provides access to major delivery points with interconnecting pipelines in Texas at Longview, Sour Lake, and Nederland.

Revenues are generated from tariffs paid by shippers utilizing the Partnership’s transportation services. These tariffs are filed with the Texas Railroad Commission and the FERC. The Partnership is the primary shipper on the Texas Gulf Coast and East Texas system. Sunoco R&M ships on the Nederland to Longview segment, which connects with the Mid-Valley pipeline for deliveries to Sunoco R&M’s Toledo refinery.

The Partnership’s Texas Gulf Coast and East Texas system consists of the following pipelines:

Seabreeze and Orange, Texas to Nederland, Texas.    The Seabreeze and Orange to Nederland crude oil pipeline system consists of two pipelines:

The Seabreeze pipeline transports condensate received from TransTexas’ Winnie, Texas plant and by truck to the Nederland Terminal. The Seabreeze pipeline also transports naphtha for BASF/Fina from the Nederland Terminal to the TEPPCO pipeline for delivery to BASF/Fina’s new steam cracker in Port Arthur. Crude oil gathered or trucked to the Orange pipeline is transported to the Nederland Terminal for delivery to a number of destinations.

Nederland, Texas to Longview, Texas.    The Nederland to Longview pipeline transports primarily foreign crude oil from the Nederland Terminal to the 240,000 bpd Mid-Valley pipeline in Longview, Texas. Other connections in the Longview area include BP’s pipeline from Longview to Cushing, Oklahoma, McMurrey’s pipeline that supplies Crown Central’s Tyler, Texas refinery, and ExxonMobil’s pipeline that delivers to Wichita Falls, Texas and Patoka, Illinois.

Baytown, Texas to Nederland, Texas.    The Baytown to Nederland crude oil pipeline passes through Sour Lake, Texas where it makes deliveries to the Nederland to Longview pipeline and the CITGO tank farm and pipeline that supplies CITGO’s Lake Charles, Louisiana refinery. The system also delivers to the ExxonMobil Baytown, Texas refinery.

Thomas, Texas to Longview, Texas.    The Thomas to Longview crude oil pipeline originates in Thomas, Texas and makes deliveries to all of the connections in Longview, Texas described above. The pipeline receives crude oil from the Partnership’s pipeline gathering system in the East Texas field.

West Texas Gulf Pipe Line

On November 15, 2002, the Partnership acquired a 43.8% interest in the West Texas Gulf Pipe Line Company (“West Texas Gulf”), a joint venture that owns and operates a 580-mile common carrier crude oil pipeline. Other owners of West Texas Gulf are ChevronTexaco, BP, and Citgo. The system originates from the West Texas oil fields at Colorado City and the Nederland crude oil import terminals and extends to Longview, Texas where deliveries are made to several pipelines, including Mid-Valley pipeline. The pipeline was built in 1953. Shippers on the pipeline are the Partnership, Sunoco, an affiliate of one other owner and several unaffiliated customers. The Partnership receives a quarterly cash dividend from West Texas Gulf that is commensurate with its ownership interest.

Crude Oil Acquisition and Marketing

In addition to receiving tariff revenues for transporting crude oil on the Western Pipeline System, the Partnership generates most of its revenues through its crude oil acquisition and marketing operations, primarily in

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Oklahoma and Texas. These activities include: purchasing crude oil at the wellhead from producers and in bulk from aggregators at major pipeline interconnections and trading locations; transporting crude oil on the Partnership’s pipelines and trucks or, when necessary or cost effective, pipelines or trucks owned and operated by third parties; and marketing crude oil to refiners or resellers.

The marketing of crude oil is complex and requires detailed knowledge of the crude oil market and a familiarity with a number of factors, including types of crude oil, individual refinery demand for specific grades of crude oil, area market price structures for different grades of crude oil, location of customers, availability of transportation facilities, timing, and customers’ costs (including storage). The Partnership sells crude oil to major integrated oil companies, independent refiners, including Sunoco R&M for its Tulsa and Toledo refineries, and other resellers in various types of sale and exchange transactions, at market prices for terms generally ranging from one month to one year.

The Partnership mitigates most of its pricing risk on purchased contracts by selling crude oil for an equal term on a similar pricing basis. The Partnership also mitigates most of its volume risk by entering into sales agreements, generally at the same time that purchase agreements are executed, at similar volumes. As a result, volumes sold are generally equal to volumes purchased.

The Partnership enters into contracts with producers at market prices generally for a term of one year or less, with a majority of the transactions on a 30-day renewable basis. For the year ended December 31, 2002, the Partnership purchased approximately 189,300 bpd from approximately 3,400 producers from approximately 36,000 leases and undertook approximately 214,800 bpd of exchanges and bulk purchases during the same period.

Crude Oil Lease Purchases and Exchanges

In a typical producer’s operation, crude oil flows from the wellhead to a separator where the petroleum gases are removed. After separation, the producer treats the crude oil to remove water, sand, and other contaminants and then moves it to an on-site storage tank. When the tank is full, the producer contacts the Partnership’s field personnel to purchase and transport the crude oil to market. The crude oil in producers’ tanks is then either delivered to the Partnership’s pipeline or transported via truck to the Partnership’s pipeline or a third party’s pipeline. The trucking services are performed either by the Partnership’s truck fleet or third party trucking operations.

The Partnership also enters into exchange agreements to enhance margins throughout the acquisition and marketing process. When opportunities arise to increase its margin or to acquire a grade of crude oil that more nearly matches its delivery requirement or the preferences of its refinery customers, the Partnership’s physical crude oil is exchanged with third parties. Generally, the Partnership enters into exchanges to acquire crude oil of a desired quality in exchange for a common grade crude oil or to acquire crude oil at locations that are closer to the Partnership’s end markets, thereby reducing transportation costs.

The following table shows the Partnership’s average daily volume for the crude oil lease purchases and exchanges for the years presented:

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The Partnership’s business practice is generally to purchase only crude oil for which there is a corresponding sale agreement for physical delivery of crude oil to a third party or a Sunoco R&M refinery. Through this process, the Partnership seeks to maintain a position that is substantially balanced between crude oil purchases and future delivery obligations. The Partnership does not acquire and hold crude oil futures contracts or enter into other commodity derivative contracts.

The following table shows the average daily sales and exchange volume of crude oil for the years presented:

Market Conditions

Market conditions impact the Partnership’s sales and marketing strategies. During periods when demand for crude oil is weak, the market for crude oil is often in contango, meaning that the price of crude oil in a given month is less than the price of crude oil for delivery in a subsequent month. In a contango market, storing crude oil is favorable because storage owners at major trading locations can simultaneously purchase production at low current prices for storage and sell at higher prices for future delivery. When there is a higher demand than supply of crude oil in the near term, the market is backwardated, meaning that the price of crude oil in a given month exceeds the price of crude oil for delivery in a subsequent month. A backwardated market has a positive impact on marketing margins because crude oil marketers can continue to purchase crude oil from producers at a fixed premium to posted prices while selling crude oil at a higher premium to such prices.

Producer Services

Crude oil purchasers who buy from producers compete on the basis of competitive prices and highly responsive services. Through its team of crude oil purchasing representatives, the Partnership maintains ongoing relationships with more than 3,400 producers. Management of the Partnership believes that its ability to offer competitive pricing and high-quality field and administrative services to producers is a key factor in its ability to maintain volume of lease purchased crude oil and to obtain new volume. Field services include efficient gathering capabilities, availability of trucks, willingness to construct gathering pipelines where economically justified, timely pickup of crude oil from storage tanks at the lease or production point, accurate measurement of crude oil volume received, avoidance of spills, and effective management of pipeline deliveries. Accounting and other administrative services include securing division orders (statements from interest owners affirming the division of ownership in crude oil purchased by the Partnership), providing statements of the crude oil purchased each month, disbursing production proceeds to interest owners, and calculating and paying production taxes on behalf of interest owners. In order to compete effectively, records of title and division order interests must be maintained by the Partnership in an accurate and timely manner for purposes of making prompt and correct payment of crude oil production proceeds, together with the correct payment of all production taxes associated with these proceeds.

Credit with Customers

When crude oil is marketed, the Partnership must determine the amount of any line of credit to be extended to a customer. Since typical sales transactions can involve tens of thousands of barrels of crude oil, the risk of nonpayment and nonperformance by customers is a major consideration in this business. Management of the

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Partnership believes that its sales are made to creditworthy entities or entities with adequate credit support. Credit review and analysis are also integral to the Partnership’s lease purchases. Payment for substantially all of the monthly lease production is sometimes made to the operator of the lease. The operator, in turn, is responsible for the correct payment and distribution of such production proceeds to the proper parties. In these situations, it must be determined by the Partnership whether the operator has sufficient financial resources to make such payments and distributions and to indemnify and defend the Partnership in the event a third party brings a protest, action, or complaint in connection with the ultimate distribution of production proceeds by the operator.

Crude Oil Trucking

The Partnership owns approximately 130 crude oil truck unloading facilities in Oklahoma, Texas, and New Mexico, of which approximately 90 are located on the Partnership’s pipeline system and approximately 40 are located on third-party pipeline systems. The Partnership also owns and operates a one-mile crude oil gathering line in New Mexico, which is associated with its crude oil trucking operations there. Approximately 270 crude oil truck drivers are employed by the Partnership and approximately 120 crude oil transport trucks are owned. The crude oil truck drivers pick up crude oil at production lease sites and transport it to various truck unloading facilities on the Partnership’s pipelines and third-party pipelines. Third-party trucking firms are also retained to transport crude oil to certain facilities.

Pipeline and Terminal Control Operations

All of the Partnership’s refined products and crude oil pipelines are operated via satellite, microwave, and frame relay communication systems from central control rooms located in Montello, Pennsylvania and Tulsa, Oklahoma. The Montello control center, which was moved from Philadelphia during 2002, primarily monitors and controls the Partnership’s Eastern Pipeline System, and the Tulsa control center primarily monitors and controls the Western Pipeline System. The Montello control center, which is located at a pipeline facility located approximately 50 miles from Philadelphia, has a backup control center in Philadelphia. The Nederland Terminal has its own control center.

The control centers operate with modern, state-of-the-art System Control and Data Acquisition, or SCADA, systems. The control centers are equipped with computer systems designed to continuously monitor real time operational data, including refined product and crude oil throughput, flow rates, and pressures. In addition, the control centers monitor alarms and throughput balances. The control centers operate remote pumps, motors, engines, and valves associated with the delivery of refined products and crude oil. The computer systems are designed to enhance leak-detection capabilities, sound automatic alarms if operational conditions outside of pre-established parameters occur, and provide for remote-controlled shutdown of pump stations on the Partnership’s pipelines. Pump stations and meter-measurement points along the Partnership’s pipelines are linked by satellite or telephone communication systems for remote monitoring and control, which reduces the requirement for full-time on-site personnel at most of these locations.

Acquisitions

GulfMark Acquisition.    On November 1, 2001, the Partnership acquired a 54-mile, 8-inch bi-directional crude oil pipeline and a related crude oil acquisition business from GulfMark Energy, Inc. for $5.0 million in cash. The pipeline extends from Sour Lake, Texas to Baytown, Texas and complements the existing Texas Gulf Coast and East Texas pipeline system.

Wolverine, West Shore and Yellowstone Pipe Line Interest Acquisition.    On November 15, 2002, the Partnership acquired an affiliate of Union Oil Company of California, whose assets include a 31.5% interest in Wolverine, a joint venture that owns a 719-mile refined product pipeline; a 9.2% interest in West Shore, a joint venture that owns a 596-mile refined product pipeline; and a 14.0% interest in Yellowstone, a joint venture that owns a 746-mile refined product pipeline, for $54 million in cash.

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West Texas Gulf Pipe Line Interest Acquisition.    On November 15, 2002, the Partnership acquired a 43.8% interest in West Texas Gulf, a joint venture that owns a 580-mile crude oil pipeline, from an affiliate of Sunoco, Inc. for $10.6 million, including the issuance of 4,515 Partnership common units with a fair value at the date of issuance of $0.1 million.

The Partnership and its equity interests are principally engaged in the transport, terminalling and storage of refined products and crude oil and in the purchasing and sale of crude oil. Although the Partnership does not currently engage in business unrelated to the transportation or storage of crude oil and refined products and the other businesses described above, management of the Partnership may, in the future, consider and make acquisitions in other business areas.

Competition

As a result of the physical integration with Sunoco R&M’s refineries and the contractual relationship with Sunoco pursuant to the Omnibus Agreement and Sunoco R&M pursuant to the pipelines and terminals storage and throughput agreement, management of the Partnership believes that it will not face significant competition for crude oil transported to the Philadelphia, Toledo, and Tulsa refineries, or refined products transported from the Philadelphia, Marcus Hook, and Toledo refineries, particularly during the term of the pipelines and terminals storage and throughput agreement with Sunoco R&M. For further information on this agreement, please see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Agreements with Sunoco R&M and Sunoco, Inc.” For the year ended December 31, 2002, Sunoco R&M accounted for approximately 63% of the Partnership’s total revenues.

Eastern Pipeline System

Nearly all of the Eastern Pipeline System is directly linked to Sunoco R&M’s refineries. Sunoco R&M constructed or acquired these assets as the most cost-effective means to access raw materials and distribute refined products. Generally, pipelines are the lowest cost method for long-haul, overland movement of refined products. Therefore, the most significant competitors for large volume shipments in the area served by the Eastern Pipeline System are other pipelines. Management of the Partnership believes that high capital requirements, environmental considerations, and the difficulty in acquiring rights-of-way and related permits make it hard for other companies to build competing pipelines in areas served by the Partnership’s pipelines. As a result, competing pipelines are likely to be built only in those cases in which strong market demand and attractive tariff rates support additional capacity in an area.

Although it is unlikely that a pipeline system comparable in size and scope to the Eastern Pipeline System will be built in the foreseeable future, new pipelines (including pipeline segments that connect with existing pipeline systems, such as those operated by Colonial, Buckeye, ExxonMobil, and Inland) could be built to effectively compete with it in particular locations.

In addition, the Partnership faces competition from trucks that deliver product in a number of areas that are served. While their costs may not be competitive for longer hauls or large volume shipments, trucks compete effectively for incremental and marginal volume in many areas that are served. The availability of truck transportation places a significant competitive constraint on the Partnership’s ability to increase tariff rates.

Explorer’s primary competition is the TEPPCO pipeline, which transports petroleum products from the Beaumont, Port Arthur and Houston, Texas refining centers to Little Rock, Indianapolis, Chicago, and other markets along its route; the Seaway pipeline, a large diameter pipeline from Houston to Cushing, Oklahoma; and Centennial Pipeline, a natural gas pipeline that was converted in 2002 into a refined products pipeline and which originates near Beaumont, Texas and terminates in southern Illinois.

Wolverine’s primary competition is the Buckeye pipeline from Chicago, Illinois to Toledo, Ohio and Toledo to Bay City, Michigan; the MAP pipeline from Chicago to Grand Haven, Michigan; the BP pipeline from Chicago to Detroit, Michigan; and the MAP refinery in Detroit.

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West Shore’s primary competition is the Koch pipeline from Minneapolis, Minnesota to the Milwaukee, Wisconsin area; the BP, ExxonMobil, and CITGO Chicago area refineries.

Yellowstone’s primary competition is the Chevron pipeline from Salt Lake City, Utah to Spokane, Washington; other modes of transportation; and the supply from Seattle, Washington.

Terminal Facilities

Historically, except for the Nederland Terminal, essentially all of the throughput at the terminal facilities has come from Sunoco R&M. Under the terms of the pipelines and terminals storage and throughput agreement, the Partnership will continue to receive a significant portion of the throughput at these facilities from Sunoco R&M.

The 32 inland refined product terminals compete with other independent terminals for price, versatility, and services provided. The competition primarily comes from integrated petroleum companies, refining and marketing companies, independent terminal companies, and distribution companies with marketing and trading arms.

The primary competitors for the Nederland Terminal are its refinery customers’ docks and terminal facilities, and the Unocal terminal and the Oil Tanking terminal, both located in Beaumont. Management of the Partnership believes the Nederland Terminal has superior docking capabilities and tankage facilities, and is better connected supply and distribution pipelines than these competing terminals.

The Inkster Terminal’s primary competition comes from the Marysville Underground Storage Terminal, MAP’s LPG storage facility in Trenton, Michigan and BP’s facilities in St. Clair, Michigan and Windsor, Canada. The Inkster Terminal enjoys a competitive advantage with respect to volume from Sunoco R&M’s Toledo refinery due to the relatively short distance between Toledo and the Inkster Terminal. The Partnership owns three pipelines running between Toledo and the Inkster Terminal, which provide Sunoco R&M with additional flexibility.

Western Pipeline System

The Western Pipeline System faces competition from a number of major oil companies and smaller entities. Pipeline competition among common carrier pipelines is based primarily on transportation charges, access to producing areas, and demand for the crude oil by end users. Management of the Partnership believes that high capital costs make it unlikely for other companies to build competing crude oil pipeline systems in areas served by the Western Pipeline System. Crude oil purchasing and marketing competitive factors includes price and contract flexibility, quantity and quality of services, and accessibility to end markets. The principal competitors of the Western Pipeline System are EOTT, Plains All American, ConocoPhillips, Seminole Trading and Gathering, and TEPPCO.

West Texas Gulf’s primary competition is numerous pipelines originating from West Texas and numerous pipelines from Nederland, Texas to Longview, Texas.

Inactive Assets

The Partnership owns approximately 381 miles of inactive trunk lines. Of those inactive trunk lines, approximately 229 miles are located in the Oklahoma pipeline system, approximately 120 miles are located in the West Texas pipeline system and approximately 32 miles are located in the Texas Gulf Coast and East Texas pipeline system. Management of the Partnership is evaluating placing some of these pipelines back in service in the future either for the transportation of crude oil or as alternative service pipelines.

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In January 2003, the Partnership idled the northern most 160 miles of the Montello, PA to Syracuse, NY pipeline in the Eastern Pipeline System. In addition, the Partnership is seeking permission from the PA PUC to idle 74 miles of the Montello to Kingston, PA pipeline. These assets were idled or are expected to be idled as a result of a long-term agreement entered into by the Partnership to lease throughput capacity on a third-party refined product pipeline which allowed it to provide the same service as existed on the idled pipeline while reducing operating expenses.

Pipeline, Terminalling, and Storage Assets Retained by Sunoco

Sunoco has transferred to the Partnership most of its pipeline, terminalling, storage, and related assets that support Sunoco R&M’s refinery operations. Sunoco has retained the assets described below because they are either interests in crude oil pipelines that may not provide consistent revenues and cash flows or are inactive.

Assets That May Not Provide Consistent Revenues and Cash Flows

Sunoco has granted the Partnership a ten-year option to purchase its interest in any of the preceding assets for fair market value at the date of purchase. Sunoco’s interests in these assets are subject to agreements with the other interest owners that include, among other things, consent requirements and rights of first refusal that may be triggered upon certain transfers. The exercise of the option with respect to any of these assets is subject to the terms and conditions of those agreements, which may or may not require consents or trigger rights of first refusal, depending on the facts and circumstances existing at the time of the option exercise. On November 15, 2002, the Partnership acquired Sunoco’s 43.8% interest in West Texas Gulf pipeline. This interest included Sunoco’s 17.3% interest and a 26.5% interest Sunoco acquired from an affiliate of Union Oil Company of California in November 2002. The Partnership has no current intention to purchase the retained assets noted above.

Assets That Are Inactive

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Sunoco has granted the Partnership a ten-year option to purchase the pipeline from Icedale, Pennsylvania to Cleveland, Ohio for fair market value at the date of purchase. The Partnership has no current intention to purchase this pipeline.

Both of the ten-year option agreements described above, which expire in 2012, are contained in the Omnibus Agreement that was entered into with Sunoco, Sunoco R&M and the general partner. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Agreements with Sunoco R&M and Sunoco, Inc.” In accordance with this agreement, if the Partnership decides to exercise the option to purchase any of the assets described above, written notice must be provided to Sunoco setting forth the fair market value the Partnership proposes to pay for the asset. If Sunoco does not agree with the proposed fair market value, the Partnership and Sunoco will appoint a mutually agreed-upon, nationally recognized investment banking firm to determine the fair market value of the asset. Once the investment bank submits its valuation of the asset, the Partnership will have the right, but not the obligation, to purchase the asset at the price determined by the investment banking firm.

Safety Regulation

A majority of the Partnership’s pipelines are subject to regulation by the United States Department of Transportation (“DOT”) under the Hazardous Liquid Pipeline Safety Act of 1979 (“HLPSA”) relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities or comparable state statutes and regulations. The HLPSA covers petroleum and petroleum products pipelines and requires any entity that owns or operates pipeline facilities to comply with such safety regulations and to permit access to and copying of records and to make certain reports and provide information as required by the Secretary of Transportation.

Effective in August 1999, the DOT issued its Operator Qualification Rule, which required a written program by April 27, 2001 to ensure that operators were qualified to perform tasks covered by the pipeline safety rules. The Partnership identified the tasks that must be performed to comply with this rule and has developed a written program as required. All persons performing covered tasks were qualified under the program by October 28, 2002.

On December 1, 2000, the DOT issued new regulations intended by the DOT to assess the integrity of hazardous liquid pipeline segments that, in the event of a leak or failure, could adversely affect highly populated areas, areas unusually sensitive to environmental impact and commercially navigable waterways. Under the regulations, an operator is required, among other things, to conduct baseline integrity assessment tests (such as internal inspections) within seven years, conduct future integrity tests at typically five year intervals and develop and follow a written risk-based integrity management program covering the designated high consequence areas. Under the rule, pipeline operators were required to identify line segments which could impact high consequence areas by December 31, 2001, develop “Baseline Assessment Plans” for evaluating the integrity of each pipeline segment by March 31, 2002 and complete an assessment of the highest risk 50 percent of line segments by September 30, 2004, with full assessment of the remaining 50 percent by March 31, 2008. The Partnership has prepared its own written Risk Based Integrity Management Program, identified the line segments that could impact high consequence areas and developed Baseline Assessment Plans.

The Pipeline Safety Improvement Act of 2002, which was signed into law on December 17, 2002, includes numerous provisions that tighten federal inspection and safety requirements for natural gas and hazardous liquids pipeline facilities. Many of the statute’s provisions build on existing statutory requirements and strengthen

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existing regulations of the Research and Special Programs Administration (“RSPA”) and the Office of Pipeline Safety (“OPS”), in particular, with respect to operator qualifications programs, public education programs, national mapping system, and safe excavation practices/one-call programs. Management of the Partnership believes that compliance with the Pipeline Safety Improvement Act of 2002 will not have a material effect on its operation.

Employee Safety

The Partnership is subject to the requirements of the United States Federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that certain information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local authorities and citizens. Management believes that the Partnership is in general compliance with OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to benzene.

The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the Federal Superfund Amendment and Reauthorization Act, and comparable state statutes require the organization of information about the hazardous materials used in the Partnership’s operations. Certain parts of this information must be reported to employees, state and local governmental authorities, and local citizens upon request.

Environmental Regulation

General

The operation of pipelines, terminals, and associated facilities in connection with the storage and transportation of refined products, crude oil, and other liquid hydrocarbons are subject to stringent and complex federal, state, and local laws and regulations governing the discharge of materials into the environment, or otherwise relating to the protection of the environment. These laws and regulations apply to all participants in the industry, including the Partnership and its equity interests. To the extent the following discussion summarizes these laws and regulations, it is applicable to all those participants. Otherwise, the following discussion is limited to the effects of the laws and regulations on the Partnership. As with the industry generally, compliance with existing and anticipated laws and regulations increases the overall cost of business, including the capital costs to construct, maintain, and upgrade equipment and facilities. While these laws and regulations affect maintenance capital expenditures and net income, management believes that they do not affect the Partnership’s competitive position in that the operations of competitors are similarly affected. Management believes that the Partnership’s operations are in substantial compliance with applicable environmental laws and regulations. However, these laws and regulations are subject to frequent change by regulatory authorities, and the Partnership is unable to predict the ongoing cost of complying with these laws and regulations or the future impact of these laws and regulations on operations. Violation of environmental laws, regulations, and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions, and construction bans or delays. A discharge of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject the Partnership to substantial expense, including both the cost to comply with applicable laws and regulations and claims made by neighboring landowners and other third parties for personal injury and property damage.

Under the terms of the Omnibus Agreement with Sunoco, Inc., and in connection with the contribution of assets by affiliates of Sunoco, Inc., Sunoco, Inc. agreed to indemnify the Partnership for 30 years from environmental and toxic tort liabilities related to the assets transferred to the Partnership that arise from the operation of such assets prior to the closing of the IPO on February 8, 2002. Sunoco, Inc. is obligated to indemnify the Partnership for 100% of all such losses asserted within the first 21 years of closing. Sunoco, Inc.’s

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share of liability for claims asserted thereafter will decrease by 10% a year. For example, for a claim asserted during the twenty-third year after closing, Sunoco, Inc. would be required to indemnify the Partnership for 80% of the loss. There is no monetary cap on the amount of indemnity coverage provided by Sunoco, Inc. Any remediation liabilities not covered by this indemnity will be the Partnership’s responsibility. Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the technology available and needed to meet the various existing legal requirements, the nature and extent of future environmental laws, inflation rates, and the determination of the Partnership’s liability at multi-party sites, if any, in light of the number, participation levels, and financial viability of other parties. The Partnership has agreed to indemnify Sunoco, Inc. and its affiliates for events and conditions associated with the operation of the assets that occur on or after the closing of the IPO and for environmental and toxic tort liabilities related to these assets to the extent Sunoco, Inc. is not required to indemnify the Partnership.

Air Emissions

The Partnership’s operations are subject to the Clean Air Act and comparable state and local statutes. Amendments to the Clean Air Act enacted in late 1990 as well as recent or soon to be adopted changes to state implementation plans for controlling air emissions in regional, non-attainment areas require or will require most industrial operations in the United States to incur capital expenditures in order to meet air emission control standards developed by the Environmental Protection Agency and state environmental agencies. As a result of these amendments, the Partnership’s facilities that emit volatile organic compounds or nitrogen oxides are subject to increasingly stringent regulations, including requirements that some sources install maximum or reasonably available control technology. In addition, the 1990 Clean Air Act Amendments established a new operating permit for major sources, which applies to some of the Partnership’s facilities. The Partnership will be required to incur certain capital expenditures in the next several years for air pollution control equipment in connection with maintaining or obtaining permits and approvals addressing air emission related issues. Although no assurances can be given, management believes implementation of the 1990 Clean Air Act Amendments will not have a material adverse effect on the Partnership’s financial condition or results of operations.

The Partnership’s customers, including Sunoco R&M, are also subject to, and affected by, environmental regulations. Since the late 1990s, the EPA has undertaken significant enforcement initiatives under authority of the Clean Air Act. These enforcement initiatives have been targeted at industries that have large manufacturing facilities and that are significant sources of emissions, such as the refining, paper and pulp, and electric power generating industries. The basic premise of the enforcement initiative is the EPA’s assertion that many of these industrial establishments have modified or expanded their operations over time without complying with New Source Review regulations that require permits and new emission controls in connection with any significant facility modifications or expansions that can result in emission increases above certain thresholds, and have violated various other provisions of the Clean Air Act, including New Source Review and Prevention of Significant Deterioration (“NSR/PSD”) Programs, Benzene Waste Organic National Emissions Standards for Hazardous Air Pollutants (“NESHAP”), Leak Detection and Repair (“LDAR”) and flaring requirements. As part of this enforcement initiative, the EPA has entered into consent agreements with several refiners that require them to pay civil fines and penalties and make significant capital expenditures to install emissions control equipment at selected facilities. For some of these refineries, the cost of the required emissions control equipment is significant, depending on the size, age and configuration of the refinery. Sunoco R&M received information requests in 2000, 2001 and 2002 in connection with the enforcement initiative pertaining to its four current refineries, the Puerto Rico refinery divested by Sunoco R&M in 2001 and its phenol facility in Philadelphia, PA. Sunoco R&M has completed its responses to the EPA, which focus solely on the refineries at this time.

Sunoco R&M has received Notices of Violation and Findings of Violation from the EPA relating to its Marcus Hook, Philadelphia and Toledo refineries. The Notices and Findings of Violation allege failure to comply with certain requirements relating to benzene waste-water emissions at its Marcus Hook, Toledo and Philadelphia refineries and failure to comply with certain requirements relating to leak detection and repair at the Toledo refinery. In addition, the EPA has alleged that: at Sunoco R&M’s Philadelphia refinery, certain

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modifications were made to one of the fluid catalytic cracking units in 1992 and 1998 without obtaining requisite permits; at Sunoco R&M’s Marcus Hook refinery, certain modifications were made to the fluid catalytic cracking unit in 1990 and 1996 without obtaining requisite permits; and at its Toledo refinery, certain physical and operational changes were made to the fluid catalytic cracking unit in 1985 without obtaining requisite permits. The EPA has also alleged that at Sunoco R&M’s Toledo refinery, certain physical and operational changes were made to the sulfur plant in 1995, 1998 and 1999 without obtaining requisite permits; certain physical and operational changes were made to a flare system without obtaining requisite permits; and that the flare system was not being operated in compliance with the Clean Air Act. Sunoco R&M has met with representatives of the EPA on these Notices and Findings of Violation and is currently evaluating its position. Although Sunoco R&M does not believe that it has violated any Clean Air Act requirements, as part of this initiative, Sunoco R&M could be required to make significant capital expenditures, operate these refineries at reduced levels and pay significant penalties.

During the 2001-2002 session, the U.S. Congress was considering energy policy legislation. Congress failed to approve the legislation during the session. The Senate and House both approved bills, which included provisions concerning ethanol and MTBE; however, a conference committee was unable to resolve differences between the two pieces of legislation. Provisions concerning MTBE, ethanol, and fuels standards were among the disputed issues. It is expected that these issues will be on the Congressional agendas in 2003. Sunoco R&M uses MTBE and ethanol as an oxygenate in different geographic areas of its refining and marketing system. While federal action to ban or phase down MTBE or to require increased usage of ethanol is uncertain, some states are scheduled to begin enforcing MTBE bans within the next year. Sunoco R&M is currently evaluating its options to produce MTBE-free gasoline when the additive is banned in states where it markets, including Connecticut (October 2003) and New York (January 2004). While Sunoco R&M does not market in California, that state’s ban on MTBE (January 2004) could have an impact on market conditions. Numerous other states are expected to consider legislation to ban MTBE during their 2003 legislative sessions. If MTBE is banned throughout the United States or on a state-by-state basis, the effect on Sunoco R&M and the industry in general could be significant. It will depend on the specific regulations, the impact on gasoline supplies, the cost and availability of alternative oxygenates if the minimum oxygenate requirements remain in effect, and the ability of Sunoco R&M and the industry in general to recover their costs in the marketplace.

During 2001, the EPA issued its final rule addressing emissions of toxic air pollutants from mobile sources (the Mobile Source Air Toxics (“MSAT”) Rule). The rule is currently being challenged by certain environmental organizations and a number of states, and by a member of the petroleum industry. It requires refiners to produce gasoline which maintains their average 1998-2000 gasoline toxic emission performance level. If the rule survives the challenges and if MTBE is banned, it could result in significant additional expenditures or significant reductions in reformulated gasoline production levels for Sunoco R&M as well as the industry.

It is uncertain what Sunoco, Inc.’s or Sunoco R&M’s responses to these emerging issues will be. Those responses could reduce Sunoco R&M’s obligations under the pipelines and terminals storage and throughput agreement, thereby reducing the Partnership’s throughput in the pipelines, cash flow, and ability to make distributions or satisfy its debt obligations.

Hazardous Substances and Waste

To a large extent, the environmental laws and regulations affecting the Partnership’s operations relate to the release of hazardous substances or solid wastes into soils, groundwater, and surface water, and include measures to control pollution of the environment. These laws generally regulate the generation, storage, treatment, transportation, and disposal of solid and hazardous waste. They also require corrective action, including the investigation and remediation, of certain units at a facility where such waste may have been released or disposed. For instance, the Comprehensive Environmental Response, Compensation, and Liability Act, referred to as CERCLA and also known as Superfund, and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a “hazardous substance” into the environment. These persons include the owner or operator of the site where the release

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occurred and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Under CERCLA, these persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. In the course of ordinary operations, the Partnership may generate waste that falls within CERCLA’s definition of a “hazardous substance” and, as a result, may be jointly and severally liable under CERCLA for all or part of the costs required to clean up sites at which these hazardous substances have been released into the environment. Costs for any such remedial actions, as well as any related claims, could have a material adverse effect on maintenance capital expenditures and operating expenses to the extent not all are covered by an indemnity from Sunoco. For more information, please see “Environmental Remediation”.

The Partnership also generates solid wastes, including hazardous wastes, that are subject to the requirements of the federal Resource Conservation and Recovery Act, referred to as RCRA, and comparable state statutes. From time to time, the EPA considers the adoption of stricter disposal standards for non-hazardous wastes, including crude oil and gas wastes. The Partnership is not currently required to comply with a substantial portion of the RCRA requirements because the operations generate minimal quantities of hazardous wastes. However, it is possible that additional wastes, which could include wastes currently generated during operations, will in the future be designated as “hazardous wastes.” Hazardous wastes are subject to more rigorous and costly disposal requirements than are non-hazardous wastes. Any changes in the regulations could have a material adverse effect on maintenance capital expenditures and operating expenses.

The Partnership currently owns or leases, and the Partnership’s predecessor has in the past owned or leased, properties where hydrocarbons are being or have been handled for many years. Although operating and disposal practices have been utilized that were standard in the industry at the time, hydrocarbons or other waste may have been disposed of or released on or under the properties owned or leased by the Partnership or on or under other locations where these wastes have been taken for disposal. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes was not under the Partnership’s control. These properties and wastes disposed thereon may be subject to CERCLA, RCRA, and analogous state laws. Under these laws, the Partnership could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated groundwater), or to perform remedial operations to prevent future contamination.

The Partnership has not been identified by any state or federal agency as a PRP in connection with the transport and/or disposal of any waste products to third party disposal sites.

Water

The Partnership’s operations can result in the discharge of pollutants, including crude oil. The Oil Pollution Act was enacted in 1990 and amends provisions of the Water Pollution Control Act of 1972 and other statutes as they pertain to prevention and response to oil spills. The Oil Pollution Act subjects owners of covered facilities to strict, joint, and potentially unlimited liability for removal costs and other consequences of an oil spill, where the spill is into navigable waters, along shorelines or in the exclusive economic zone of the United States. In the event of an oil spill into navigable waters, substantial liabilities could be imposed upon the Partnership. States in which the Partnership operates have also enacted similar laws. Regulations are currently being developed under the Oil Pollution Act and state laws that may also impose additional regulatory burdens on the Partnership’s operations. Spill prevention control and countermeasure requirements of federal laws and some state laws require diking and similar structures to help prevent contamination of navigable waters in the event of an oil overflow, rupture, or leak. The Partnership is in substantial compliance with these laws. Additionally, the Office of Pipeline Safety of the DOT has approved the Partnership’s oil spill emergency response plans.

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The Water Pollution Control Act of 1972 imposes restrictions and strict controls regarding the discharge of pollutants into navigable waters. Permits must be obtained to discharge pollutants into state and federal waters. The Water Pollution Control Act of 1972 imposes substantial potential liability for the costs of removal, remediation, and damages. In addition, some states maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions. Management believes that compliance with existing permits and compliance with foreseeable new permit requirements will not have a material adverse effect on the Partnership’s financial condition or results of operations.

Endangered Species Act

The Endangered Species Act restricts activities that may affect endangered species or their habitats. While some of the Partnership’s facilities are in areas that may be designated as habitat for endangered species, management believes that the Partnership is in substantial compliance with the Endangered Species Act. However, the discovery of previously unidentified endangered species could cause the Partnership to incur additional costs or become subject to operating restrictions or bans in the affected area.

Environmental Remediation

Contamination resulting from spills of refined products and crude oil is not unusual within the petroleum pipeline industry. Historic spills along the Partnership’s pipelines, gathering systems, and terminals as a result of past operations have resulted in contamination of the environment, including soils and groundwater. Site conditions, including soils and groundwater, are being evaluated at a number of properties where operations may have resulted in releases of hydrocarbons and other wastes.

Sunoco has agreed to indemnify the Partnership from environmental and toxic tort liabilities related to the assets transferred to the extent such liabilities exist or arise from operation of these assets prior to the closing of the IPO and are asserted within 30 years after the closing of the IPO. This indemnity will cover the costs associated with performance of the assessment, monitoring, and remediation programs, as well as any related claims and penalties. See “Environmental Regulation—General.”

The Partnership has experienced several petroleum releases for which it is not covered by an indemnity from Sunoco, Inc., and is therefore the responsible party and needs to perform the necessary assessment, remediation, and/or monitoring activities. Remediation programs may be mandated at two sites, one in Texas and one in Pennsylvania. Management estimates that the total aggregate cost of performing the currently anticipated assessment, monitoring, and remediation activities at these two sites is not material to the Partnership at December 31, 2002.

The Partnership has implemented an extensive inspection program to prevent releases of refined products or crude oil into the environment from its pipelines, gathering systems, and terminals. Any damages and liabilities incurred due to future environmental releases from the Partnership’s assets have the potential to substantially affect its business.

Rate Regulation

General Interstate Regulation.    Interstate common carrier pipeline operations are subject to rate regulation by the FERC under the Interstate Commerce Act. The Interstate Commerce Act requires that tariff rates for oil pipelines, a category that includes crude oil, petroleum products, and petrochemical pipelines (crude oil, petroleum product, and petrochemical pipelines are referred to collectively as “petroleum pipelines”), be just and reasonable and not unduly discriminatory. The Interstate Commerce Act permits challenges to proposed new or changed rates by protest, and challenges to rates that are already on file and in effect by complaint. Upon the appropriate showing, a successful complainant may obtain damages or reparations for generally up to two years prior to the filing of a complaint.

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The FERC is authorized to suspend the effectiveness of a new or changed tariff rate for a period of up to seven months and to investigate the rate. If upon the completion of an investigation the FERC finds that the rate is unlawful, it may require the pipeline operator to refund to shippers, with interest, any difference between the rates the FERC determines to be lawful and the rates under investigation. The FERC will order the pipeline to change its rates prospectively to the lawful level.

Index-Based Rates and Other Subsequent Developments.    In October 1992, Congress passed the Energy Policy Act of 1992. The Energy Policy Act deemed interstate petroleum pipeline rates in effect for the 365-day period ending on the date of enactment of the Energy Policy Act, or that were in effect on the 365th day preceding enactment and had not been subject to complaint, protest, or investigation during the 365-day period, to be just and reasonable under the Interstate Commerce Act. These rates are commonly referred to as “grandfathered rates.” All of the Partnership’s interstate pipeline rates were deemed just and reasonable and therefore are grandfathered under the Energy Policy Act. The Energy Policy Act provides that the FERC may change grandfathered rates upon complaints only under the following limited circumstances:

The Energy Policy Act further required the FERC to issue rules establishing a simplified and generally applicable ratemaking methodology for interstate petroleum pipelines and to streamline procedures in petroleum pipeline proceedings. On October 22, 1993, the FERC responded to the Energy Policy Act directive by issuing Order No. 561, which adopted a new indexed rate methodology for interstate petroleum pipelines. Under the resulting regulations, effective January 1, 1995, petroleum pipelines were able to change their rates within prescribed ceiling levels that were tied to changes in the Producer Price Index for Finished Goods, minus one percent (“PPI-1”). Rate increases made under the index are subject to protest, but the scope of the protest proceeding will be limited to an inquiry into whether the portion of the rate increase resulting from application of the index is substantially in excess of the pipeline’s increase in costs. The indexing methodology is applicable to any existing rate, whether grandfathered or whether established after enactment of the Energy Policy Act.

In December 2000, the FERC concluded that the PPI-1 index should be continued for another five-year period. However, the U.S. Court of Appeals for the District of Columbia found the decision to be flawed in certain respects and remanded the matter to the FERC for further consideration. On February 24, 2003, the FERC issued its Order on Remand. The Commission concluded that the appropriate index for the current five-year period should be the PPI without the minus one percent adjustment. It further ruled that pipelines may calculate the current ceiling rate using the PPI as though it had been the index in effect since July 1, 2001.

In Order No. 561, the FERC said that as a general rule pipelines must utilize the indexing methodology to change their rates. Indexing includes the requirement that, in any year in which the index is negative, pipelines must file to lower their rates if they would otherwise be above the reduced ceiling. However, the pipeline is not required to reduce its rates below the level deemed just and reasonable under the Energy Policy Act. The FERC further indicated in Order No. 561, however, that it is retaining cost-of-service ratemaking, market-based rates, and settlement rates as alternatives to the indexing approach. A pipeline can follow a cost-of-service approach when seeking to increase its rates above index levels (or when seeking to avoid lowering rates to index levels) provided that the pipeline can establish that there is a substantial divergence between the actual cost increases (or decreases) experienced by the pipeline and the rate resulting from application of the index. A pipeline can charge market-based rates if it establishes that it lacks significant market power in the affected markets. In addition, a pipeline can establish rates under settlement if agreed upon by all current shippers. As specified in Order 561 and subsequent decisions, a pipeline can seek to establish initial rates for new services through a cost-of-service showing, by establishing in advance that it lacks significant market power in the affected markets, or through an

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agreement between the pipeline and at least one shipper not affiliated with the pipeline who intends to use the new service.

Another development affecting petroleum pipeline ratemaking arose in Opinion No. 397, involving a partnership operating a crude oil pipeline. In Opinion No. 397, the FERC concluded that there should not be a corporate income tax allowance built into a petroleum pipeline’s rates for income attributable to noncorporate partners because those partners, unlike corporate partners, do not pay a corporate income tax on partnership distributions. Opinion No. 397 was affirmed by the FERC on rehearing in May 1996. The parties subsequently settled the case, so no judicial review of the tax ruling took place.

A current proceeding, however, is pending at the FERC that could result in changes to the FERC’s income tax method announced in Opinion No. 397 as well as to other elements of the FERC’s rate methods for petroleum pipelines. This proceeding involves another publicly traded limited partnership engaged in petroleum products pipeline transportation. In January, 1999, the FERC issued Opinion No. 435 in this proceeding, which, among other things, affirmed Opinion No. 397’s determination that there should not be a corporate income tax allowance built into a petroleum pipeline’s rates for income attributable to noncorporate partners. In subsequent decisions on rehearing, the FERC further defined the scope of the income tax allowance for publicly traded limited partnerships, and resolved a number of other cost of service issues as well.

Market-Based Rates.    In a proceeding involving Buckeye Pipeline Company, L.P., the FERC found that a petroleum pipeline able to demonstrate a lack of market power may be allowed a lighter standard of regulation than that imposed by the trended original cost methodology. In such a case, the pipeline company has the opportunity to establish that it faces sufficient competition to justify relief from the strict application of the cost-based principles. In Buckeye, the FERC determined, based on the existing level of market concentration in the pipeline’s market areas, that Buckeye exercised significant market power in only five of its 21 market areas and therefore was entitled to charge market-based rates in the other 16 market areas. The opportunity to charge market-based rates means that the pipeline may charge what the market will bear. Order No. 572, a companion order to Order No. 561, was issued by the FERC on October 25, 1994 and established procedural rules governing petroleum pipelines’ applications for a finding that the pipeline lacks significant market power in the relevant market.

Settlement Rates.    In Order No. 561, the FERC specifically held that it would also permit changes in rates that are the product of unanimous agreement between the pipeline and all the shippers using the service to which the rate applies. The rationale behind allowing this type of rate change is to further the FERC’s policy of favoring settlements among parties and to lessen the regulatory burdens on all concerned. The FERC, however, will also entertain a challenge to settlement rates, in response to a protest or a complaint that alleges the same circumstances required to challenge an indexed rate. An example of this type of challenge is that there is a discrepancy between the rate and the pipeline’s cost of service that is so substantial as to render the settlement (or indexed) rate unjust and unreasonable.

Intrastate Regulation.     Some of the Partnership’s pipeline operations are subject to regulation by the Texas Railroad Commission, the PA PUC, the Ohio Public Utility Commission, and the Oklahoma Corporation Commission. The applicable state statutes require that pipeline rates be nondiscriminatory and provide no more than a fair return on the aggregate value of the pipeline property used to render services. State commissions have generally not been aggressive in regulating common carrier pipelines and have generally not investigated the rates or practices of petroleum pipelines in the absence of shipper complaints. Complaints to state agencies have been infrequent and are usually resolved informally. Although management cannot be certain that the Partnership’s intrastate rates would ultimately be upheld if challenged, management believes that, given this history, the tariffs now in effect are not likely to be challenged or, if challenged, are not likely to be ordered to be reduced.

The Partnership’s Pipelines.    The FERC generally has not investigated interstate rates on its own initiative when those rates, like the Partnership’s, have not been the subject of a protest or a complaint by a shipper. In

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addition, as discussed above, intrastate pipelines generally are subject to “light-handed” regulation by state commissions and management of the Partnership does not believe the intrastate tariffs now in effect are likely to be challenged. However, the FERC or a state regulatory commission could investigate the Partnership’s rates at the urging of a third party if the third party is either a current shipper or is able to show that it has a substantial economic interest in the tariff rate level. If an intrastate rate were challenged, the Partnership would defend it on a cost of service basis. If an interstate rate were challenged, that rate would be defended as grandfathered under the Energy Policy Act. As that Act applies to the Partnership’s rates, a person challenging a grandfathered rate must, as a threshold matter, establish a substantial change since the date of enactment of the Act, in either the economic circumstances or the nature of the service that formed the basis for the rate. A complainant might assert that the creation of the Partnership itself constitutes such a change, an argument that has not previously been specifically addressed by the FERC and to which management believes there are valid defenses. If the FERC were to find a substantial change in circumstances, then the existing rates could be subject to detailed review. Management believes that most such rates can be supported on a cost of service basis, even recognizing the reduction in the income tax allowance that is likely to result from the conversion from a corporation to a partnership. Although there are some rates that might not be defensible on that basis, management believes that all of those rates involve movements as to which (1) Sunoco R&M is the only shipper, (2) the Partnership has a reasonable basis to assert the lack of significant market power and therefore are entitled to market based rates, or (3) the revenue amounts involved do not materially affect the Partnership’s performance.

If the FERC investigated the Partnership’s rate levels, it could inquire into the costs, including:

Management of the Partnership does not believe that it is likely that there will be a rate challenge by a current shipper that would materially affect revenues or cash flows. Sunoco R&M and its subsidiaries are the only current shippers in many of the pipelines. Sunoco R&M has agreed not to challenge, or to cause others to challenge or assist others in challenging, the tariff rates for the term of the pipelines and terminals storage and throughput agreement.

Because most of the pipelines are common carrier pipelines, the Partnership may be required to accept new shippers who wish to transport in the pipelines. It is possible that any new shippers, current shippers, or other interested parties, may decide to challenge the tariff rates. If any rate challenge or challenges were successful, the cash available for distribution could be materially reduced.

Title to Properties

Substantially all of the pipelines were constructed on rights-of-way granted by the apparent record owners of the property and in some instances these rights-of-way are revocable at the election of the grantor. Several rights-of-way for the pipelines and other real property assets are shared with other pipelines and other assets owned by affiliates of Sunoco, Inc. and by third parties. In many instances, lands over which rights-of-way have been obtained are subject to prior liens that have not been subordinated to the right-of-way grants. The Partnership has obtained permits from public authorities to cross over or under, or to lay facilities in or along, watercourses, county roads, municipal streets, and state highways and, in some instances, these permits are revocable at the election of the grantor. The Partnership has also obtained permits from railroad companies to

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cross over or under lands or rights-of-way, many of which are also revocable at the grantor’s election. In some cases, property for pipeline purposes was purchased in fee. In some states and under some circumstances, the Partnership has the right of eminent domain to acquire rights-of-way and lands necessary for the common carrier pipelines. The previous owners of the applicable pipelines may not have commenced or concluded eminent domain proceedings for some rights-of-way.

Some of the leases, easements, rights-of-way, permits, and licenses transferred to the Partnership upon the completion of the IPO in February 2002 required the consent of the grantor to transfer these rights, which in some instances is a governmental entity. The Partnership has obtained or is in the process of obtaining third-party consents, permits, and authorizations sufficient for the transfer of the assets necessary to operate the business in all material respects. With respect to any consents, permits, or authorizations that have not been obtained, the failure to obtain these consents, permits, or authorizations will have no material adverse effect on the operation of the business.

The Partnership has satisfactory title to all of the assets, or is entitled to indemnification from Sunoco, Inc. under the Omnibus Agreement for title defects to the assets contributed to the Partnership and for failures to obtain certain consents and permits necessary to conduct the business that arise within ten years after the closing of the IPO. Record title to some of the assets may continue to be held by affiliates of Sunoco, Inc. until the Partnership has made the appropriate filings in the jurisdictions in which such assets are located and obtained any consents and approvals that were not obtained prior to the closing of the IPO. Although title to these properties is subject to encumbrances in some cases, such as customary interests generally retained in connection with acquisition of real property, liens that can be imposed in some jurisdictions for government-initiated action to clean up environmental contamination, liens for current taxes and other burdens, and easements, restrictions, and other encumbrances to which the underlying properties were subject at the time of acquisition by the predecessor or the Partnership, none of these burdens should materially detract from the value of these properties or from the Partnership’s interest in these properties or should materially interfere with their use in the operation of the business.

Employees

To carry out the Partnership’s operations, the general partner and its affiliates employ approximately 1,200 people who provide direct support to the operations. Labor unions or associations represent approximately 680 of these employees. The general partner considers its employee relations to be good. The Partnership has no employees.

(d) Financial Information about Geographical Areas

The Partnership has no significant amounts of revenue or segment profit or loss attributable to international activities. As a result, management does not consider those proceedings material to the Partnership.

Available Information

The Partnership makes available free of charge on its website, www.sunocologistics.com, all materials that it files electronically with the Securities Exchange Commission, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.

ITEM 2.    PROPERTIES

See Item 1.(c) for a description of the locations and general character of the Partnership’s material properties.

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ITEM 3.    LEGAL PROCEEDINGS

With respect to a pipeline release of crude oil in February 2000 in the John Heinz National Wildlife Refuge in Philadelphia, the Partnership has conducted remedial activities at the release area and has initiated restoration efforts in the area. Management of the Partnership expects the Environmental Protection Agency (“EPA”) to assess a penalty with respect to this release that could exceed $100,000. Sunoco has agreed to indemnify the Partnership, among other things, for any penalty that may be assessed. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Agreements with Sunoco R&M and Sunoco, Inc.”

There are certain legal and administrative proceedings pending against the Partnership’s Sunoco-affiliated predecessors and the Partnership (as successor to certain liabilities of those predecessors). Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them may be resolved unfavorably. Sunoco has agreed to indemnify the Partnership for any losses it may suffer as a result of these pending legal actions.

There are certain other pending legal proceedings related to matters arising after the IPO that are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material to the Partnership.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders, through solicitation of proxies or otherwise, during fiscal 2002.

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PART II

The Partnership’s common units were listed on the New York Stock Exchange under the symbol “SXL” beginning on February 5, 2002. Prior to February 5, 2002, the Partnership’s equity securities were not traded on any public trading market. At the close of business on February 28, 2002, there were 52 holders of record of the Partnership’s common units. These holders of record included the general partner with 5,638,154 common units registered in its name, and Cede & Co. with 5,695,632 common units (representing approximately 5,700 beneficial owners) registered to it.

The high and low closing sales price ranges (composite transactions) and distributions declared by quarter for 2002 since the close of the IPO on February 8, 2002 were as follows:

The Partnership has also issued 11,383,639 subordinated units, all of which are held by the general partner and for which there is no established public trading market.

The Partnership distributes all cash on hand within 45 days after the end of each quarter, less reserves established by the general partner in its discretion. This is defined as “available cash” in the partnership agreement. The general partner has broad discretion to establish cash reserves that it determines are necessary or appropriate to properly conduct the Partnership’s business.

The Partnership will make minimum quarterly distributions of $0.45 per common unit, to the extent there is sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the general partner.

During the subordination period the Partnership will, in general, pay cash distributions each quarter in the following manner:

The subordination period is generally defined as the period that ends on the first day of any quarter beginning after December 31, 2006 if (1) the Partnership has distributed at least the minimum quarterly distribution on all outstanding units with respect to each of the immediately preceding three consecutive, non-overlapping four quarter periods; and (2) the adjusted operating surplus, as defined in the partnership agreement, during such periods equals or exceeds the amount that would have been sufficient to enable the Partnership to distribute the minimum quarterly distribution on all outstanding units on a fully diluted basis and the related distribution on the 2% general partner interest during those periods. In addition, one-quarter of the

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subordinated units may convert to common units on a one-for-one basis after December 31, 2004, and one-quarter of the subordinated units may convert to common units on a one-for-one basis after December 31, 2005, if the Partnership meets the tests set forth in the partnership agreement. If the subordination period ends, the rights of the holders of subordinated units will no longer be subordinated to the rights of the holders of common units and the subordinated units may be converted into common units.

After the subordination period, the Partnership will, in general, pay cash distributions each quarter in the following manner:

As presented in the table below, if cash distributions exceed $0.50 per unit in a quarter, the general partner will receive increasing percentages, up to 50%, of the cash distributed in excess of that amount. These distributions are referred to as “incentive distributions.” The amounts shown in the table below under “Percentage of Distributions” are the percentage interests of the general partner and the unitholders in any available cash from operating surplus that is distributed up to and including the corresponding amount in the column “Quarterly Distribution Amount per Unit,” until the available cash that is distributed reaches the next target distribution level, if any. The percentage interests shown for the unitholders and the general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.

There is no guarantee that the Partnership will pay the minimum quarterly distribution on the common units in any quarter, and the Partnership will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default is existing, under the credit facility or the senior notes (Please see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”).

Use of Proceeds

On February 4, 2002, the Partnership’s Registration Statement on Form S-1 (Registration No. 333-71968), filed with the Securities and Exchange Commission, became effective. Pursuant to the Registration Statement, on February 4, 2002, 5,000,000 common units were sold to the public at a price of $20.25 per unit for aggregate gross proceeds of $101.3 million. Subsequent to the IPO, the underwriters exercised their over-allotment option for 750,000 additional common units at a price of $20.25 per unit for aggregate gross proceeds of $15.1 million. Underwriting fees paid in connection with these transactions were $6.7 million and $1.0 million, respectively. On February 8, 2002, the closing date of the IPO, the Partnership received net proceeds of $108.7 million (including proceeds of the over-allotment option). The aggregate offering price of 5,750,000 common units was $116.4 million, and the aggregate underwriting fees were $7.7 million. Approximately $12.2 million of the net proceeds were used to pay expenses associated with the IPO and related formation transactions, which consisted primarily of legal, accounting and other professional services costs. The remaining $96.5 million of net proceeds was used to increase working capital to the level necessary for the operation of the business, thereby establishing working capital that was not contributed to the Partnership by Sunoco, Inc. in connection with the Partnership’s formation. The underwriters of the IPO were Lehman Brothers, Salomon Smith Barney, UBS Warburg, Banc of America Securities, Wachovia Securities and Credit Suisse First Boston.

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In addition, concurrent with the closing of the IPO, Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”), a wholly-owned operating subsidiary, issued $250.0 million of 7.25% Senior Notes due 2012 (the “Senior Notes”) in an offering exempt from registration under the Securities Act of 1933. The Senior Notes were issued at a price of 99.325% of their principal amount. Gross proceeds from this offering were $248.3 million and aggregate underwriting discounts and commissions were $1.6 million. Net proceeds were $246.7 million. Expenses incurred in connection with the issuance of the Senior Notes were approximately $1.9 million, which consisted primarily of legal, accounting and other professional services costs. The initial purchasers of the Notes were Lehman Brothers, Credit Suisse First Boston, Salomon Smith Barney, UBS Warburg, Banc of America Securities and Wachovia Securities.

The $244.8 million of net proceeds from the sale of the Senior Notes were distributed to Sunoco, Inc. and its affiliates.

On April 11, 2002, the Operating Partnership filed an exchange offer registration statement on SEC Form S-4 in connection with the registration of the exchange of the Senior Notes and the guarantees covering the Senior Notes. This registration statement was declared effective on June 28, 2002. The exchange offer was completed on August 2, 2002, with all $250 million aggregate principal amount of the Senior Notes being exchanged for a like principle amount of new publicly tradable notes having substantially identical terms issued pursuant to the exchange offer registration statement filed under the Securities Act of 1933, as amended.

ITEM 6.    SELECTED FINANCIAL DATA

On February 8, 2002, the Partnership completed an IPO and related transactions whereby it became the successor to Sunoco Logistics (Predecessor), which consisted of a substantial portion of the wholly-owned logistics operations of Sunoco, Inc. and its subsidiaries.

The selected financial and operating data for Sunoco Logistics Partners L.P. for 1998, 1999, 2000 and 2001 are derived from the audited financial statements of Sunoco Logistics Partners L.P., which reflect the historical cost basis amounts of Sunoco Logistics (Predecessor), the predecessor. The selected financial and operating data for Sunoco Logistics Partners L.P. for 2002 are derived from the audited financial statements for Sunoco Logistics Partners L.P. and Sunoco Logistics (Predecessor).

The Partnership defines EBITDA as operating income plus depreciation and amortization. EBITDA provides additional information for evaluating the Partnership’s ability to service debt obligations and make the minimum quarterly distribution and is presented solely as a supplemental measure. You should not consider EBITDA as an alternative to net income, income before income taxes, cash flows from operations, or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States. The Partnership’s EBITDA may not be comparable to EBITDA or similarly titled measures of other entities as other entities may not calculate EBITDA in the same manner.

For the periods presented, Sunoco R&M was the primary or exclusive user of the refined product terminals, the Fort Mifflin Terminal Complex, and the Marcus Hook Tank Farm. Prior to January 1, 2002, most of the terminalling and throughput services provided by Sunoco Logistics (Predecessor) for Sunoco R&M’s refining and marketing operations were at fees that enabled the recovery of costs, but not to generate any operating income. Accordingly, historical EBITDA for those assets was equal to their depreciation and amortization. Sunoco Logistics Partners L.P. began charging Sunoco R&M fees for these services comparable to those charged in arm’s length, third-party transactions, generally effective January 1, 2002, using the terms included in a pipelines and terminals storage and throughput agreement entered into at the closing of the IPO.

Maintenance capital expenditures are capital expenditures made to replace partially or fully depreciated assets in order to maintain the existing operating capacity of the assets and to extend their useful lives. Expansion capital expenditures are capital expenditures made to expand the existing operating capacity of the assets, whether through construction or acquisition. The Partnership treats repair and maintenance expenditures that do not extend the useful life of existing assets as operating expenses as incurred. The maintenance capital expenditures for the periods presented include several one-time projects to upgrade technology, increase reliability, and lower the Partnership’s cost structure.

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Throughput is the total number of barrels per day transported on a pipeline system or through a terminal and includes barrels ultimately transported to a delivery point on another pipeline system.

The following table should be read together with, and is qualified in its entirety by reference to, the financial statements and the accompanying notes of Sunoco Logistics Partners L.P. included in Item 8. “Financial Statements and Supplementary Data.” The table should be read together with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

SUNOCO LOGISTICS PARTNERS L.P.