OVERVIEW

Buckeye Partners, L.P. ("Buckeye") is a publicly traded Delaware master limited partnership (NYSE:BPL) that operates and reports in five business segments:
Pipeline Operations; Terminalling and Storage; Natural Gas Storage; Energy Services; and Other Operations. See Note 20 to the condensed consolidated financial statements for a more detailed discussion of Buckeye's business segments.

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 also publicly traded (NYSE:BGH).

The following discussion provides an analysis of the results for each of Buckeye's business 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.

RECENT DEVELOPMENTS

In early 2009, Buckeye began a "best practices" review of its business processes and organizational structure to identify improved efficiencies and cost savings in response to rapidly changing needs in the energy markets. This review culminated in the approval of an organizational restructuring by the Board of Directors of Buckeye GP.

The organizational restructuring includes a workforce reduction of approximately 260 employees, or nearly 25% of Buckeye's workforce. The program was initiated in the second quarter of 2009 and is expected to be substantially complete by the end of 2009. From June 18 to June 29, 2009, Buckeye offered certain eligible employees the option of enrolling in a voluntary early retirement program, which approximately 80 employees accepted. The remaining affected positions are being eliminated involuntarily under Buckeye's ongoing severance plan. Most terminations were effective as of July 20, 2009. The restructuring will also include the relocation of some employees consistent with the goals of the reorganization. Buckeye has incurred $29.1 million of expenses in connection with this organizational restructuring for the nine months ended September 30, 2009 and expects to incur additional expenses of approximately $2.0 to $4.0 million for the remainder of 2009 (see Note 3 to the condensed consolidated financial statements).

Buckeye also recorded a non-cash charge of $72.5 million in the nine months ended September 30, 2009 related to an impairment of its natural gas liquids pipeline system (the "Buckeye NGL Pipeline") that spans from Wattenberg, Colorado to Bushton, Kansas. This impairment was the result of significant volume losses to a competitive pipeline system during the second quarter of 2009 (see Note 2 to the condensed consolidated financial statements).

In September 2009, Buckeye entered into an agreement to acquire from ConocoPhillips certain refined petroleum product terminals and pipeline assets for approximately $47.5 million in cash. The assets that Buckeye agreed to acquire include over 300 miles of active pipeline that provide connectivity between the East St. Louis, Illinois and East Chicago, Indiana markets and three terminals providing 2.3 million barrels of storage tankage. In addition, Buckeye will acquire certain inventory on hand upon completion of the transaction for additional consideration, and ConocoPhillips has agreed to enter into certain commercial contracts with Buckeye that are associated with the acquired facilities. The transaction is currently expected to occur in November 2009. Buckeye expects to fund the acquisition through cash flow from operations and borrowings under Buckeye's existing credit facility.

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 (each as defined below). Adjusted EBITDA is now the primary measure used by senior management to evaluate Buckeye's operating results and to allocate Buckeye's resources.

EBITDA, a measure not defined under U.S. generally accepted accounting principles ("GAAP"), is defined by Buckeye as net income attributable to Buckeye unitholders from continuing operations before interest expense, income taxes and 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 non-cash depreciation and amortization expense that results from the capital-intensive nature of Buckeye's businesses and from intangible assets recognized in business combinations. In addition, EBITDA is unaffected by Buckeye's capital structure due to the elimination of interest expense and income taxes. Adjusted EBITDA, which is also a non-GAAP measure, is defined by Buckeye as EBITDA plus non-cash deferred lease expense, which is the difference between the estimated annual land lease expense for Buckeye's natural gas storage facility in the Natural Gas Storage segment to be recorded under GAAP and the actual cash to be paid for such annual land lease. In addition, Buckeye's management has excluded the Buckeye NGL Pipeline impairment expense of $72.5 million and the reorganization expense of $29.1 million from Adjusted EBITDA in order to evaluate the results of Buckeye's operations on a comparative basis over multiple periods.

The EBITDA and Adjusted EBITDA data presented may not be comparable to similarly titled measures at other companies 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. Management uses Adjusted EBITDA to evaluate consolidated operating performance and the operating performance of the business segments and to allocate resources and capital to the business segments. In addition, Buckeye's management uses Adjusted EBITDA as a performance measure 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 they are one of the bases for comparing Buckeye's operating performance with that of other companies with similar operations, although Buckeye's measures may not be directly comparable to similar measures used by other companies.

RESULTS OF OPERATIONS

The table below presents Adjusted EBITDA by segment and on a consolidated basis for the three and nine months ended September 30, 2009 and 2008, and a reconciliation of EBITDA and Adjusted EBITDA to net income attributable to unitholders of Buckeye, which is the most comparable GAAP financial measure (in thousands).

                                       Three Months Ended           Nine Months Ended
                                          September 30,               September 30,
                                       2009           2008          2009          2008

Adjusted EBITDA:
Pipeline Operations                 $    55,283    $   44,875    $  169,039    $  141,365
Terminalling and Storage                 19,668        18,659        47,958        44,999
Natural Gas Storage                      10,221        11,694        27,734        28,336
Energy Services                           7,003         6,207        15,035         8,454
Other Operations                          2,240         1,626         5,461         5,810
Total                               $    94,415    $   83,061    $  265,227    $  228,964

GAAP reconciliation:
Net income attributable to
Buckeye Partners, L.P.              $    57,889    $   46,602    $   63,278    $  130,271
Less: Income (loss) from
discontinued operations                       -          (176 )           -         1,230
Net income attributable to
Buckeye Partners, L.P.
unitholders from continuing
operations                               57,889        46,778        63,278       129,041
Interest and debt expense                20,543        19,053        53,780        55,008
Income tax expense (benefit)               (391 )           9          (263 )         435
Depreciation and amortization            14,253        15,457        43,408        41,415
EBITDA                                   92,294        81,297       160,203       225,899
Non-cash deferred lease expense           1,125         1,764         3,375         3,065
Asset impairment expense                      -             -        72,540             -
Reorganization expense                      996             -        29,109             -
Adjusted EBITDA                     $    94,415    $   83,061    $  265,227    $  228,964

A summary of financial information by business segment is as follows (in thousands):

                                      Three Months                Nine Months
                                   Ended September 30,        Ended September 30,
                                    2009         2008         2009          2008
Revenues:
Pipeline Operations              $    96,714   $  91,439   $   294,084   $   286,716
Terminalling and Storage              34,036      33,003        94,108        87,749
Natural Gas Storage                   28,576      16,762        60,325        43,412
Energy Services                      258,407     344,494       728,563       926,809
Other Operations                       7,516      12,011        25,446        33,637
Intersegment                          (1,805 )    (1,539 )     (11,022 )      (9,329 )
Total                            $   423,444   $ 496,170   $ 1,191,504   $ 1,368,994

Total costs and expenses: (1)
Pipeline Operations              $    54,248   $  58,352   $   256,735   $   177,921
Terminalling and Storage              16,497      15,976        54,535        47,455
Natural Gas Storage                   20,917       7,848        40,634        21,938
Energy Services                      252,704     340,684       717,928       921,570
Other Operations                       4,918      10,398        21,134        28,189
Intersegment                          (1,805 )    (1,539 )     (11,022 )      (9,329 )
Total                            $   347,479   $ 431,719   $ 1,079,944   $ 1,187,744

Depreciation and amortization:
Pipeline Operations              $     9,394   $  10,092   $    28,695   $    28,704
Terminalling and Storage               1,967       1,600         5,852         4,604
Natural Gas Storage                    1,346         982         4,272         3,732
Energy Services                        1,070       2,336         3,192         3,070
Other Operations                         476         447         1,397         1,305
Total                            $    14,253   $  15,457   $    43,408   $    41,415

Asset impaiment expense:
Pipeline Operations              $         -   $       -   $    72,540   $         -

Reorganization expense:
Pipeline Operations              $       518   $       -   $    23,572   $         -
Terminalling and Storage                 163           -         2,565             -
Natural Gas Storage                       91           -           382             -
Energy Services                          206           -         1,150             -
Other Operations                          18           -         1,440             -
Total                            $       996   $       -   $    29,109   $         -

Operating income:
Pipeline Operations              $    42,466   $  33,087   $    37,349   $   108,795
Terminalling and Storage              17,539      17,027        39,573        40,294
Natural Gas Storage                    7,659       8,914        19,691        21,474
Energy Services                        5,703       3,810        10,635         5,239
Other Operations                       2,598       1,613         4,312         5,448
Total                            $    75,965   $  64,451   $   111,560   $   181,250

Third Quarter of 2009 Compared to Third Quarter of 2008

Consolidated

Adjusted EBITDA increased by $11.3 million to $94.4 million in the third quarter of 2009 from $83.1 million in the corresponding period in 2008. All business segments, except for the Natural Gas Storage segment, contributed to this increase in Adjusted EBITDA. The Pipeline Operations segment generated an increase of $10.4 million of Adjusted EBITDA, despite lower transportation volumes. The shortfall in volumes was offset by increased tariffs, more favorable settlement experience and lower overall operating expenses. The Terminalling and Storage segment contributed $1.0 million to the increase in Adjusted EBITDA, driven by new terminals and growth in other terminalling and storage revenues, partially offset by less favorable settlement experience. The Energy Services segment generated a $0.8 million increase in Adjusted EBITDA from increased volumes and improved margins, partially offset by higher operating expenses. The Other Operations segment realized increased Adjusted EBITDA of $0.6 million from improved construction contract margins. The Natural Gas Storage segment's Adjusted EBITDA decreased $1.5 million in the third quarter of 2009 as compared to the third quarter of 2008 due to increased expenses associated with certain hub services transactions stemming from delays in the start-up of a natural gas storage expansion project known as Kirby Hills phase II (the "Kirby Hills II project") and general market conditions. The revenue and expense factors affecting the increase in consolidated Adjusted EBITDA are more fully discussed below.

Revenue was $423.4 million in the third quarter of 2009, which is a decrease of $72.8 million or 14.7% from the corresponding period in 2008. This overall decrease was caused primarily by a decrease in revenue from the Energy Services segment of $86.1 million resulting from a reduction in petroleum product prices in the current quarter. This decrease was partially offset by increased revenues from the Pipeline Operations segment due to increased tariffs, increased Terminalling and Storage segment revenues from new terminals and increased Natural Gas Storage segment revenues from increased marketing efforts. The Other Operations segment reported lower revenue due to decreased construction activities.

Total costs and expenses were $347.4 million in the third quarter of 2009, which is a decrease of $84.2 million or 19.5% from the corresponding period in 2008. Generally, operating expenses were down across all segments, with the exception of the Natural Gas Storage segment. The decrease in total costs and expenses resulted primarily from a decrease in petroleum product prices, which resulted in an $88.0 million decrease in the Energy Services segment's cost of product sales. In addition, there were lower operating expenses in the Pipeline Operations segment due to decreased costs associated with contract service activities and in the Other Operations segment due to decreased construction activities, which contributed to the overall decrease in costs and expenses. The Natural Gas Storage segment experienced increased expenses associated with certain hub services transactions stemming from delays in the Kirby Hills II project and general market conditions.

Consolidated income from continuing operations attributable to Buckeye unitholders was $57.9 million in the third quarter of 2009 compared to $46.8 million in the third quarter of 2008. The current quarter results also include an increase of $1.5 million in interest and debt expense from the third quarter 2008 largely attributable to the issuance of $275.0 million aggregate principal amount of 5.500% Notes due 2019 (the "5.500% Notes") in August 2009. In addition, depreciation and amortization decreased by $1.2 million due primarily to the cessation of depreciation related to the assets held for sale (see Note 2 to the condensed consolidated financial statements).

Pipeline Operations

Adjusted EBITDA from the Pipeline Operations segment of $55.3 million in the third quarter of 2009 increased by $10.4 million from $44.9 million in the third quarter of 2008. The increase in Adjusted EBITDA was driven primarily by the benefit of increased tariffs and more favorable settlement experience of $11.3 million, offset by the impact of lower volumes, including lower volumes from the Buckeye NGL Pipeline (see Note 2 to the condensed consolidated financial statements), and miscellaneous revenue of $4.6 million. Reduced operating expenses of $2.2 million and increased income from equity investments of $1.4 million also contributed to the improvement in Adjusted EBITDA. The revenue and expense factors affecting the variance in Adjusted EBITDA are more fully discussed below.

Revenue was $96.7 million in the third quarter of 2009, which is an increase of $5.3 million or 5.8% from the corresponding period in 2008. Despite a decrease in transportation volumes of 5.7%, net transportation revenues were up $7.8 million due to increased tariffs and settlement experience compared with the third quarter of 2008. Tariff increases of 3.7% and 3.8% were implemented on January 1, 2009 and July 1, 2009, respectively. Revenues from storage, rentals, product sales and other incidental services were down $2.5 million from the third quarter of 2008, which is primarily related to reduced contract service activities at customer facilities connected to Buckeye's refined product pipelines.

Total costs and expenses were $54.2 million in the third quarter of 2009, which is a decrease of $4.1 million or 7.0% from the corresponding period in 2008. Total costs and expenses include $0.5 million of reorganization expense (see Note 3 to the condensed consolidated financial statements), which is not a component of Adjusted EBITDA as presented in the reconciliation above. Other factors impacting total costs and expenses include decreases in costs associated with contract service activities at customer facilities connected to Buckeye's refined product pipelines of $2.3 million, a decrease in product costs of $1.5 million associated with fuel purchases related to a product supply arrangement, a decrease in operating power costs of $1.1 million resulting from lower rates and volumes transported, a decrease in depreciation and amortization expense of $0.7 million, and a decrease in remediation activities of $0.8 million. These decreases were partially offset by an increase in integrity expenditures of $2.3 million.

Operating income was $42.5 million in the third quarter of 2009 compared to $33.1 million in the third quarter of 2008. Depreciation and amortization decreased by $0.7 million in the third quarter of 2009, primarily due to the cessation of depreciation on the Buckeye NGL Pipeline as a result of its classification as an asset held for sale.

Product volumes transported in the Pipeline Operations segment for the three months ended September 30, 2009 and 2008 were as follows:

Average Barrels Per Day

                          Three Months Ended
                            September 30,
                         2009           2008
Product
Gasoline                  666,900        682,500
Distillate                233,500        263,100
Jet Fuel                  350,000        363,600
LPGs                       17,700         18,800
Natural gas liquids         9,600         21,000
Other products              5,000         11,400
Total                   1,282,700      1,360,400

Terminalling and Storage

Adjusted EBITDA from the Terminalling and Storage segment of $19.7 million in the third quarter of 2009 increased by $1.0 million from $18.7 million in the third quarter of 2008. The increase in Adjusted EBITDA is due to the contribution from new terminals of $2.0 million, increased fees, storage and rental revenue growth of $3.8 million and decreases in operating expenses of $0.6 million, partially offset by the impact of lower volumes and settlement experience of $5.5 million. The revenue and expense factors affecting the variance in Adjusted EBITDA are more fully discussed below.

Revenue was $34.0 million in the third quarter of 2009, which is an increase of $1.0 million or 3.1% from the corresponding period in 2008. This overall increase resulted primarily from $2.6 million of revenue in 2009 from terminals that were acquired at various times in 2008. This increase was partially offset by a decrease in settlement experience and a 9.8% volume decrease in the third quarter of 2009 as compared to the third quarter of 2008.

Total costs and expenses were $16.5 million in the third quarter of 2009, which is an increase of $0.5 million or 3.3% from the corresponding period in 2008. Total costs and expenses include $0.2 million of reorganization expense (see Note 3 to the condensed consolidated financial statements), which is not a component of Adjusted EBITDA as presented in the reconciliation above. Other factors impacting total costs and expenses include an increase of $0.9 million of operating expenses associated with the terminals acquired at various times in 2008, offset by a reduction of $0.6 million for environmental remediation expenses and payroll and payroll benefit expenses.

Operating income was $17.5 million in the third quarter of 2009 compared to $17.0 million in the third quarter of 2008. Depreciation and amortization increased by $0.4 million in the third quarter of 2009 as a result of new terminals acquired in 2008.

Average daily throughput for the refined products terminals for the three months ended September 30, 2009 and 2008 were as follows:

                           Average Barrels Per Day
                              Three Months Ended
                                September 30,
                             2009           2008

Third-party throughput        442,700        448,700
Intersegment throughput        43,800         90,500
Products throughput           486,500        539,200

Natural Gas Storage

Adjusted EBITDA from the Natural Gas Storage segment of $10.2 million in the third quarter of 2009 decreased by $1.5 million from $11.7 million in the third quarter of 2008. The decrease in Adjusted EBITDA is primarily attributable to increased expenses from certain hub services transactions stemming from delays in the Kirby Hills II project and general market conditions. The revenue and expense factors affecting the variance in Adjusted EBITDA are more fully discussed below.

Revenue was $28.6 million in the third quarter of 2009, which is an increase of $11.8 million or 70.5% from the corresponding period in 2008. Lease revenue increased $1.5 million and hub services and other revenue increased $10.3 million from the third quarter of 2008 due to increased marketing efforts.

Total costs and expenses were $20.9 million in the third quarter of 2009, which is an increase of $13.1 million or 166.5% from the corresponding period in 2008. Total costs and expenses include $0.1 million of reorganization expense (see Note 3 to the condensed consolidated financial statements), which is not a component of Adjusted EBITDA as presented in the reconciliation above. The increase in costs and expenses was primarily attributable to certain hub services activities transactions stemming from delays in the Kirby Hills II project and general market conditions.

Operating income was $7.7 million in the third quarter of 2009 compared to $8.9 million in the third quarter of 2008. Depreciation and amortization increased by $0.4 million in the third quarter of 2009 due to a purchase price adjustment resulting in a true-up of depreciation expense which occurred during the third quarter of 2008 related to the acquisition of Lodi Gas Storage, L.L.C. ("Lodi Gas") in 2008.

Energy Services

Adjusted EBITDA from the Energy Services segment of $7.0 million in the third quarter of 2009 increased by $0.8 million from $6.2 million in the third quarter of 2008. The increase in Adjusted EBITDA was driven by a 30.8% increase in sales volume and improved margins. The revenue and expense factors affecting the variance in Adjusted EBITDA are more fully discussed below.

Revenue was $258.4 million in the third quarter of 2009, which is a decrease of $86.1 million or 25.0% from the corresponding period in 2008. This overall decrease was primarily due to a decrease in petroleum product prices, which correspondingly lowers the cost of product sales, partially offset by a 30.8% increase in volumes.

Total costs and expenses were $252.7 million in the third quarter of 2009, which is a decrease of $88.0 million or 25.8% from the corresponding period in 2008. Total costs and expenses include $0.2 million of reorganization expense (see Note 3 to the condensed consolidated financial statements), which is not a component of Adjusted EBITDA as presented in the reconciliation above. Other factors impacting total costs and expenses include a decrease in petroleum product prices in the current quarter as compared to the same period last year.

Operating income was $5.7 million in the third quarter of 2009 compared to $3.8 million in the third quarter of 2008. Depreciation and amortization decreased by $1.3 million in the third quarter of 2009 due to a purchase price adjustment resulting in a true-up of depreciation expense which occurred during the third quarter of 2008 related to the acquisition of Farm & Home Oil Company LLC in 2008.

Total volumes for the Energy Services segment for the three months ended September 30, 2009 and 2008 were as follows:

Total Gallons Three Months Ended September 30, 2009 2008

Sales volumes (in thousands) 138,500 105,900

Other Operations

Adjusted EBITDA from the Other Operations segment of $2.2 million in the third quarter of 2009 increased by $0.6 million from $1.6 million in the third quarter of 2008. This increase in Adjusted EBITDA was driven by lower operating expenses partially offset by lower revenues from operations and maintenance contracts. The revenue and expense factors affecting the variance in Adjusted EBITDA are more fully discussed below.

Revenue for the Other Operations segment, which consists principally of Buckeye's contract operations and engineering services for third party . . .