RESULTS OF OPERATIONS

Overview

Buckeye Partners, L.P. ("Buckeye") is publicly traded on the New York Stock Exchange (NYSE:BPL) and is organized under the laws of the state of Delaware. Buckeye GP LLC ("Buckeye GP") is the general partner of Buckeye. Buckeye GP is a wholly-owned subsidiary of Buckeye GP Holdings L.P. ("BGH"), a Delaware limited partnership that is separately traded on the New York Stock Exchange (NYSE:BGH).

The following discussion provides an analysis of the results for each of Buckeye's operating segments and an overview of Buckeye's liquidity and capital resources and certain other items related to Buckeye. The following discussion and analysis should be read in conjunction with (i) the accompanying interim condensed consolidated financial statements and related notes and (ii) Buckeye's consolidated financial statements, related notes, and management's discussion and analysis of financial condition and results of operations included in Buckeye's Annual Report on Form 10-K for the year ended December 31, 2008.

Buckeye has one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered with approximately 5,400 miles of pipeline and 64 active products terminals that provide aggregate storage capacity of approximately 24.7 million barrels. In addition, Buckeye operates and maintains approximately 2,400 miles of other pipelines under agreements with major oil and chemical companies. Buckeye also owns and operates a major natural gas storage facility in northern California which provides approximately 33 billion cubic feet ("Bcf") of gas capacity (including capacity provided pursuant to a nearly completed expansion project) and a wholesale distributor of refined petroleum products in the northeastern and midwestern United States in areas also served by Buckeye's pipelines and terminals.

Buckeye conducts business in five reportable operating segments: Pipeline Operations; Terminalling and Storage; Natural Gas Storage; Energy Services; and Other Operations. See Note 16 to the condensed consolidated financial statements for a more detailed discussion of Buckeye's operating segments.

Results of Operations



Summary operating results for Buckeye were as follows:



                                                               Three Months Ended March 31,
                                                                 2009               2008
                                                                      (In thousands)
Revenues                                                    $       416,840    $       380,275
Costs and expenses                                                  346,737            322,143

Operating income                                                     70,103             58,132

Other expense                                                       (14,983 )          (15,276 )

Income from continuing operations                                    55,120             42,856
Income from discontinued operations                                       -              1,413

Net income                                                           55,120             44,269
Less: Net income attributable to noncontrolling interest             (1,360 )           (1,452 )
Net income attributable to Buckeye's unitholders            $        53,760    $        42,817

EBITDA and Adjusted EBITDA

In the first quarter of 2009, Buckeye revised its internal management reports to provide senior management, including the Chief Executive Officer, more information about EBITDA and Adjusted EBITDA (as defined below). EBITDA and Adjusted EBITDA are now the primary measures used by senior management to evaluate Buckeye's operating results and to allocate Buckeye's resources.

The following table summarizes EBITDA and Adjusted EBITDA for Buckeye for the three months ended March 31, 2009 and 2008, respectively. EBITDA, a measure not defined under generally accepted accounting principles ("GAAP"), is defined by Buckeye as income from continuing operations attributable to Buckeye unitholders before interest expense (including amortization and write-off of deferred debt financing costs), income

taxes, depreciation and amortization. EBITDA should not be considered an alternative to net income, operating income, cash flow from operations or any other measure of financial performance presented in accordance with GAAP. The EBITDA measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of Buckeye's businesses and from intangible assets recognized in business combinations. Additionally, EBITDA is unaffected by Buckeye's capital structure. Adjusted EBITDA, which also is a non-GAAP measure, is defined by Buckeye as EBITDA plus the difference between the estimated annual land lease expense for Buckeye's natural gas storage facility to be recorded under GAAP and the actual cash to be paid for the annual land lease. Adjusted EBITDA eliminates this level of noncash land lease expense incurred in the Natural Gas Storage segment.

Because EBITDA and Adjusted EBITDA exclude some items that affect net income attributable to Buckeye's unitholders and these items may vary among other companies, the EBITDA and Adjusted EBITDA data presented may not be comparable to similarly titled measures at other companies. Management uses EBITDA and Adjusted EBITDA to evaluate consolidated operating performance and the operating performance of the operating segments and to allocate resources and capital to the operating segments. Additionally, Buckeye's management uses EBITDA and Adjusted EBITDA as a performance measure on a consolidated and segment level, to evaluate the viability of proposed projects and to determine overall rates of return on alternative investment opportunities.

Buckeye believes that investors benefit from having access to the same financial measures used by Buckeye's management. Further, Buckeye believes that these measures are useful to investors because it is one of the bases for comparing Buckeye's operating performance with that of other companies with similar operations, although Buckeye's measure may not be directly comparable to similar measures used by other companies.

The table below presents EBITDA and Adjusted EBITDA (consolidated total and by segment) for the three months ended March 31, 2009 and 2008 and a reconciliation of EBITDA and Adjusted EBITDA to net income attributable to unitholders (excluding discontinued operations), which is the most comparable GAAP financial measure.

                                                         Three Months Ended March 31,
                                                           2009               2008
                                                                (In thousands)
GAAP reconciliation:
Net income attributable to Buckeye Partners, L.P.
unitholders (excluding discontinued operations)       $        53,760    $        41,404
Interest and debt expense                                      17,176             17,934
Income tax expense                                                 65                228
Depreciation and amortization                                  14,480             12,498
EBITDA                                                         85,481             72,064
Non-cash deferred lease expense                                 1,125                548
Adjusted EBITDA                                       $        86,606    $        72,612




                                 Three Months Ended March 31,
                                   2009               2008
                                        (In thousands)
Adjusted EBITDA by segment:
Pipeline Operations           $        55,813    $        47,505
Terminalling and Storage               12,825             14,499
Natural Gas Storage                     8,958              6,478
Energy Services                         7,479              2,062
Other Operations                        1,531              2,068
                              $        86,606    $        72,612

First Quarter of 2009 compared to First Quarter of 2008

Consolidated:

Consolidated income from continuing operations attributable to Buckeye unitholders was $53.8 million in the first quarter of 2009 compared to $41.4 million in the first quarter of 2008. Results of operations in the first quarter of 2009 include three months of operations of the Energy Services segment, compared to just over 1½ months in the first quarter of 2008, resulting from Buckeye's acquisition of Farm & Home Oil Company ("Farm & Home") on February 8, 2008. Operations in the first quarter of 2009 also include three months of operations of the Natural Gas Storage segment, compared to approximately 2½ months in the first quarter of 2008, resulting from Buckeye's acquisition of Lodi Gas Storage, LLC ("Lodi Gas") on January 18, 2008.

The improvement in results of operations resulted from significant increases in operating income and Adjusted EBITDA in Buckeye's Pipeline Operations, Energy Services and Natural Gas Storage segments, partially offset by decreases in operating income and Adjusted EBITDA in Buckeye's Terminalling and Storage and Other Operations segments. Consolidated revenues were $416.8 million, an increase of $36.5 million from $380.3 million in 2008, as revenues expanded at all operating segments except Other Operations. Total costs and expenses were $346.7 million in the first quarter of 2009, an increase of $24.6 million from $322.1 million in the first quarter of 2008. Investment and other income was $2.2 million in the first three months of 2009, compared to $2.6 million in the first three months of 2008. Interest and debt expense was $17.2 million in the first quarter of 2009, a decrease of $0.7 million from the first quarter of 2008. The decrease in interest expense reflected lower average borrowing rates on Buckeye's two revolving lines of credit (discussed under "Liquidity and Capital Resources" below). In addition, revolving credit borrowings in Buckeye's Energy Services segment were significantly lower in the first quarter of 2009 compared to 2008, which offset the fact that such working capital borrowings were outstanding for the entire quarter in 2009, compared to only a partial quarter in 2008.

A summary of operating income by segment is as follows:

                                                       Three Months Ended March 31,
                                                         2009               2008
                                                              (In thousands)
Revenues:
Pipeline Operations                                 $        99,195    $        96,389
Terminalling and Storage                                     30,643             27,632
Natural Gas Storage                                          15,077             11,464
Energy Services                                             268,480            234,547
Other Operations                                              9,125             10,869
Intersegment                                                 (5,680 )             (626 )
Total                                               $       416,840    $       380,275

Total costs and expenses (excluding depreciation
and amortization):
Pipeline Operations                                 $        44,702    $        50,453
Terminalling and Storage                                     17,784             13,174
Natural Gas Storage                                           7,258              5,547
Energy Services                                             261,009            232,531
Other Operations                                              7,184              8,566
Intersegment                                                 (5,680 )             (626 )
Total                                               $       332,257    $       309,645

Depreciation and amortization:
Pipeline Operations                                 $         9,577    $         9,248
Terminalling and Storage                                      1,866              1,488
Natural Gas Storage                                           1,581              1,048
Energy Services                                               1,059                290
Other Operations                                                397                424
Total                                               $        14,480    $        12,498

Operating income:
Pipeline Operations                                 $        44,916    $        36,688
Terminalling and Storage                                     10,993             12,970
Natural Gas Storage                                           6,238              4,869
Energy Services                                               6,412              1,726
Other Operations                                              1,544              1,879
Total                                               $        70,103    $        58,132

Pipeline Operations:

Revenue from the Pipeline Operations segment was $99.2 million in the first quarter of 2009, which is an increase of $2.8 million or 2.9% from the corresponding period in 2008. This overall increase was driven by increased transportation and settlement revenue of $8.5 million that was significantly offset by a decrease in product sales of $5.9 million. The increase in transportation revenue resulted from three tariff increases, which totaled 7.3% that were implemented on May 1, 2008, July 1, 2008 and January 1, 2009. The benefit of the tariff increases was partially offset by reduced transportation volumes of approximately 1% in 2009 as compared to 2008. The decreased product sales were caused by reduced product volumes sold to a wholesale distributor.

Costs and expenses, excluding depreciation and amortization, were $44.7 million for the Pipeline Operations segment in the first quarter of 2009, which is a decrease of $5.8 million from the corresponding period in 2008. This overall decrease was driven primarily by reduced costs of product sales of $5.8 million as noted above, along with reduced pipeline integrity expenses of $2.0 million. These expense reductions were offset primarily by an increase in environmental remediation expense of $1.5 million.

Product volumes transported in the Pipeline Operations segment for the first quarter ended March 31, 2009 and 2008 were as follows:

                          Average Barrels Per Day
                       Three Months Ended March 31,
Product                   2009              2008
Gasoline                    632,400           641,500
Distillate                  353,100           337,500
Jet Fuel                    333,300           356,400
LPG's                        14,400            15,300
Natural gas liquids          21,300            21,100
Other products               13,400            11,700
Total                     1,367,900         1,383,500

Terminalling and Storage:

Revenue from the Terminalling and Storage segment was $30.6 million in the first quarter of 2009, which is an increase of $3.0 million or 10.9% from the corresponding period in 2008. This overall increase resulted primarily from $4.3 million of revenue in 2009 from terminals that were acquired at various times in 2008. Aggregate terminal volumes in the first quarter of 2009, however, were virtually unchanged from the first quarter of 2008.

Costs and expenses, excluding depreciation and amortization, were $17.8 million for the Terminalling and Storage segment in the first quarter of 2009, which is an increase of $4.6 million from the corresponding period in 2008. This overall increase was driven primarily by additional operating expenses of $1.9 million from the terminal acquisitions made in 2008, combined with $2.3 million for environmental remediation expenses. The remaining increase in expense of $0.4 million was caused primarily by an increase in tank integrity expenses.

Average daily throughput for the refined products terminals for the quarters ended March 31, 2009 and 2008 were as follows:

Average Barrels Per Day Three Months Ended March 31, 2009 2008

Products throughput 521,000 522,300

Natural Gas Storage:

Revenue from the Natural Gas Storage segment was $15.1 million in first quarter of 2009, which is an increase of $3.6 million or 31.5% from the corresponding period in 2008. This overall increase resulted primarily from the inclusion of a full three months of revenue in 2009 compared to approximately 2½ months in the corresponding period in 2008, reflecting Buckeye's purchase of Lodi Gas on January 18, 2008, as well as increased hub services revenues in the first quarter of 2009 driven by increased marketing efforts.

Costs and expenses, excluding depreciation and amortization, were $7.3 million for the Natural Gas Storage segment in the first quarter of 2009, which is an increase of $1.7 million from the corresponding period in 2008. As noted above, this overall increase is related to the timing of this acquisition in 2008.

Energy Services:



Financial results for the Energy Services segment for the quarter ended
March 31, 2009 and 2008 are summarized below.



                                           Three Months Ended
                                               March 31,
                                            2009        2008

Product sales                            $  268,480   $ 234,547
Cost of product sales                       255,574     230,086
Gross margin                                 12,906       4,461

Gallons of product sold (in thousands)      205,200      83,400
Average revenue per gallon               $     1.31   $    2.81
Average cost per gallon                  $     1.25   $    2.76
Average gross margin per gallon          $     0.06   $    0.05

Buckeye believes that the most relevant statistic in analyzing results of operations for the Energy Services segment is gross margin. Energy Services strives to maintain a consistent margin per gallon on product sales irrespective of product cost, which can vary significantly depending on market conditions. In the first quarter of 2009, gross margin was $12.9 million compared to $4.5 million in the comparable period in 2008. This increase resulted principally from higher product sales volumes in the first quarter of 2009 compared to 2008. Increased product sales volumes resulted from the inclusion of a full three months of revenue in 2009 compared to just over 1½ months in the corresponding period in 2008, reflecting Buckeye's purchase of Farm & Home on February 8, 2008. Product sales volumes also increased as a result of substantial volumes of heating oil delivered in the first quarter as a result of a colder winter in Energy Services' principal Pennsylvania and New York markets in 2009 as compared to 2008. Further, substantial declines in the price of heating oil in the second half of 2008 caused customers to delay purchases of heating oil normally made in the fourth quarter into the first quarter of 2009.

Energy Services' average margin per gallon improved to $0.06 per gallon from $0.05 per gallon in the prior year, principally due to the benefit of fixed price contracts which were entered into in 2008 when prices were significantly higher but for which deliveries occurred in the first quarter of 2009.

Operating expenses, excluding cost of product sales and depreciation and amortization, were $5.4 million for the Energy Services segment in the first quarter of 2009, an increase of $3.0 million from the corresponding period in 2008. The increase resulted from the inclusion of three months of operations in 2009 compared to just over 1½ months in 2008. In addition, professional fees increased by $0.7 million primarily as a result of consulting expenses associated with implementing and integrating operational controls associated with the Energy Services segment's ongoing petroleum products marketing programs.

Other Operations:

Revenue for the Other Operations segment, which consists principally of Buckeye's contract operations and engineering services for third party pipelines, was $9.1 million in the first quarter of 2009 compared to $10.9 million in the corresponding period in 2008. The decrease in revenues resulted from reduced operating services revenues of $1.0 million reflecting a customer's termination of a contract in the second quarter of 2008, along with reduced construction management revenue of $0.7 million associated with fewer engineering projects in process in the first quarter of 2009 compared to the same period in the prior year.

Costs and expenses, excluding depreciation and amortization, were $7.2 million for the Other Operations segment in the first quarter of 2009, a reduction of $1.4 million from the corresponding period in 2008. The reduction resulted from reduced operating expenses associated with the terminated contract as well as the reduced engineering activity in the first quarter of 2009.

Total depreciation and amortization:

Total depreciation and amortization expense for the three months ended March 31, 2009 increased by $2.0 million compared to the same period in 2008, primarily due the inclusion of a full quarter of depreciation in 2009 for acquisitions made in the Terminalling and Storage, Natural Gas Storage, and Energy Services segments at various times in 2008.

Interest and debt expense for the three months ended March 31, 2009 and 2008 was as follows:

                               Three Months Ended March 31,
                                 2009               2008
                                      (In thousands)
Interest and debt expense   $       (17,176 )  $       (17,934 )
Total                       $       (17,176 )  $       (17,934 )

The reduction of interest and debt expense of $0.8 million was caused primarily by reduced interest rates on a credit facility and a credit agreement in 2009 as compared to 2008 (discussed under "Liquidity and Capital Resources" below).

LIQUIDITY AND CAPITAL RESOURCES

Buckeye's financial condition at March 31, 2009 and December 31, 2008 is highlighted in the following comparative summary:

Liquidity and Capital Indicators



                                                              As of
                                               March 31, 2009     December 31, 2008

Current ratio (1)                                     1.6 to 1              1.4 to 1
Working capital (in thousands) (2)            $        122,800   $           122,314
Ratio of total debt to total capital (3)             0.53 to 1             0.57 to 1
Book value per limited partnership unit (4)   $          24.85   $             24.30

(2) current assets minus current liabilities

(3) total debt divided by total debt plus total Buckeye Partners, L.P. Unitholders' capital

(4) total Buckeye Partners, L.P. Unitholders' capital divided by Buckeye's total limited partnership units ("LP Units") outstanding at the end of the period

Typically, Buckeye's principal sources of liquidity are cash from operations, borrowings under its unsecured revolving credit agreement (the "Credit Facility") and proceeds from the issuance of LP Units. Buckeye will, from time to time, issue debt securities to permanently finance amounts borrowed under the Credit Facility. Buckeye Energy Services ("BES") funds its working capital needs principally from operations and a secured credit facility (the "BES Credit Agreement"). Buckeye's principal uses of cash are capital expenditures, distributions to Unitholders and acquisitions as described in "Cash Flows from Investing Activities" below.

In Buckeye's annual report on Form 10-K, which was filed on March 2, 2009, Buckeye disclosed that, as a result of the financial credit crisis which emerged in the third and fourth quarters of 2008, Buckeye had taken steps to

preserve its liquidity. These steps included maintaining increased cash balances, reducing discretionary capital expenditures and appropriately managing operating and administrative expenses. In the first quarter of 2009, credit, capital markets and overall economic conditions remained difficult. However, credit and capital markets conditions improved enough that certain businesses with investment grade credit ratings were able to issue publicly-traded debt and other master limited partnerships were able to issue equity. Buckeye continued to evaluate the condition of the debt and equity capital markets and, on March 31, 2009, Buckeye sold and issued 2.6 million LP Units in an underwritten public offering at a net price of $35.08 per LP Unit, after underwriting discounts and commissions of $1.17 per LP Unit, for net proceeds of approximately $91.0 million. Proceeds from this offering were used to reduce outstanding borrowings under the Credit Facility. On April 29, 2009, the underwriters of the March 31 equity offering exercised their option to purchase an additional 390,000 LP Units. Similarly, Buckeye used the net proceeds from this offering of approximately $13.7 million to reduce outstanding borrowings under the Credit Facility.

At March 31, 2009, Buckeye had approximately $393.1 million of liquidity available, consisting of approximately $17.3 million of cash and cash equivalents plus approximately $375.8 million available under the Credit Facility. This availability assumes that Lehman Brothers, F.S.B. is unable to fund the remaining portion of its $20 million commitment under the Credit Facility as discussed under "Credit Facility" below. In addition, BES had $125 million available under the BES Credit Agreement, although such availability is subject to borrowing base requirements as discussed under "BES Credit Agreement" below.

Accordingly, Buckeye continues to believe that availability under its credit facilities coupled with cash flows from operations will be sufficient to fund its operations for 2009.

At March 31, 2009, Buckeye had an aggregate face amount of $1,408.0 million of debt, which consisted of $300.0 million of Buckeye's 4.625% Notes due 2013 (the "4.625% Notes"), $275.0 million of 5.300% Notes due 2014 (the "5.300% Notes"), $150.0 million of Buckeye's 6.75% Notes due 2033 (the "6.75% Notes"), $125.0 . . .