Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Report") contains various forward-looking statements and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this Report, words such as "proposed," "anticipate," "project," "potential," "could," "should," "continue," "estimate," "expect," "may," "believe," "will," "plan," "seek," "outlook" and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that such expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Such statements are subject to a variety of risks, uncertainties and assumptions as described in more detail in Part I "Item 1A, Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2011 and Part II "Item 1A. Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. Although the expectations in the forward-looking statements are based on our current beliefs and expectations, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.

The following information should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Report.

Overview of Business

Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership and its limited partnership units representing limited partner interests ("LP Units") are listed on the New York Stock Exchange ("NYSE") under the ticker symbol "BPL." Buckeye GP LLC ("Buckeye GP") is our general partner. As used in this Report, unless otherwise indicated, "we," "us," "our" and "Buckeye" mean Buckeye Partners, L.P. and, where the context requires, includes our subsidiaries.

We were formed in 1986 and own and operate one of the largest independent refined petroleum products pipeline systems in the United States in terms of volumes delivered, with over 6,000 miles of pipeline and over 100 active products terminals that provide aggregate storage capacity of approximately 69 million barrels. We also operate and/or maintain approximately 2,800 miles of third-party pipelines under agreements with major oil and gas, petrochemical and chemical companies, and perform certain engineering and construction management services for third parties. We also own and operate a natural gas storage facility in Northern California, and are a wholesale distributor of refined petroleum products in the United States in areas also served by our pipelines and terminals. Our flagship marine terminal in The Bahamas, Bahamas Oil Refining Company International Limited ("BORCO"), is one of the largest marine crude oil and petroleum products storage facilities in the world, serving the international markets as a premier global logistics hub.

Our primary business objective is to provide stable and sustainable cash distributions to our LP unitholders, while maintaining a relatively low investment risk profile. The key elements of our strategy are to: (i) maximize utilization of our assets at the lowest cost per unit; (ii) maintain stable long-term customer relationships; (iii) operate in a safe and environmentally responsible manner; (iv) optimize, expand and diversify our portfolio of energy assets; and (v) maintain a solid, conservative financial position and our investment-grade credit rating.

Recent Developments

In February 2012, we signed a definitive agreement with Chevron U.S.A. Inc. ("Chevron") to acquire a marine terminal facility for liquid petroleum products in New York Harbor (the "Perth Amboy Facility") for $260.0 million in cash and paid a deposit of $14.0 million to Chevron at the time we signed the definitive agreement. We completed our acquisition of the Perth Amboy Facility in July 2012. The facility, which sits on approximately 250 acres on the Arthur Kill tidal strait in Perth Amboy, New Jersey, has over 4.0 million barrels of tankage, four docks, and significant undeveloped land available for potential expansion. The Perth Amboy Facility has water, pipeline, rail, and truck access, and is located six miles from our Linden, New Jersey complex. The facility provides a link between our inland pipelines and terminals and our BORCO facility in The Bahamas, improving service offerings for our customers and providing further support to our planned clean products tankage expansion at the BORCO facility. Concurrent with the acquisition, we entered into multi-year storage, blending, and throughput commitments with Chevron.

Additionally in February 2012, we issued 4,262,575 LP Units to institutional investors in a registered direct offering for aggregate consideration of approximately $250.0 million at a price of $58.65 per LP Unit, before deducting placement agents' fees and estimated offering expenses. We have used the majority of the net proceeds from this offering to reduce the indebtedness outstanding under our Revolving Credit Agreement dated September 26, 2011 (the "Credit Facility") with SunTrust Bank and have also funded a portion of the Perth Amboy Facility acquisition as well as certain other growth capital expenditures.

Results of Operations

Non-GAAP Financial Measures

Adjusted EBITDA is the primary measure used by our senior management, including our Chief Executive Officer, to: (i) evaluate our consolidated operating performance and the operating performance of our business segments;
(ii) allocate resources and capital to business segments; (iii) evaluate the viability of proposed projects; and (iv) determine overall rates of return on alternative investment opportunities. Distributable cash flow is another measure used by our senior management to provide a clearer picture of cash available for distribution to its unitholders. Adjusted EBITDA and distributable cash flow eliminate (i) non-cash expenses, including but not limited to, depreciation and amortization expense resulting from the significant capital investments we make in our businesses and from intangible assets recognized in business combinations; (ii) charges for obligations expected to be settled with the issuance of equity instruments; and (iii) items that are not indicative of our core operating performance results and business outlook.

We believe that investors benefit from having access to the same financial measures that we use and that these measures are useful to investors because they aid in comparing our operating performance with that of other companies with similar operations. The Adjusted EBITDA and distributable cash flow data presented by us may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies.

The following table presents Adjusted EBITDA by segment and on a consolidated basis, distributable cash flow and a reconciliation of net income, which is the most comparable GAAP financial measure, to Adjusted EBITDA and distributable cash flow for the periods indicated (in thousands):

                                                  Three Months Ended             Six Months Ended
                                                       June 30,                      June 30,
                                                 2012           2011           2012           2011
Adjusted EBITDA:
Pipelines & Terminals                          $  89,598      $  84,113      $ 177,830      $ 174,233
International Operations                          30,591         30,646         62,257         56,153
Natural Gas Storage                                 (388 )       (2,612 )       (1,656 )         (160 )
Energy Services                                   (3,206 )        3,841         (9,378 )        6,600
Development & Logistics                            3,337          1,643          5,866          3,044

Total Adjusted EBITDA                          $ 119,932      $ 117,631      $ 234,919      $ 239,870


Reconciliation of Net Income to Adjusted
EBITDA and Distributable Cash Flow:
Net income                                     $  56,026      $  93,592      $ 109,493      $ 161,405
Less: Net income attributable to
noncontrolling interests                          (1,647 )       (1,571 )       (3,155 )       (2,891 )

Net income attributable to Buckeye Partners,
L.P.                                              54,379         92,021        106,338        158,514
Add: Interest and debt expense                    27,612         28,596         56,422         57,093
Income tax expense (benefit)                         329            (17 )          666           (193 )
Depreciation and amortization                     34,325         29,756         67,352         55,997
Non-cash deferred lease expense                      975          1,031          1,950          2,061
Non-cash unit-based compensation expense           5,061          2,752          7,688          4,838
Less: Amortization of unfavorable storage
contracts (1)                                     (2,749 )       (2,396 )       (5,497 )       (4,328 )
Gain on sale of equity investment                     -         (34,112 )           -         (34,112 )

Adjusted EBITDA                                $ 119,932      $ 117,631      $ 234,919      $ 239,870

Less: Interest and debt expense, excluding
amortization of deferred financing costs and
debt discounts                                   (26,767 )      (27,438 )      (54,684 )      (54,832 )
Income tax (expense) benefit                        (329 )           17           (666 )          193
Maintenance capital expenditures                 (10,765 )      (12,293 )      (23,875 )      (19,766 )

Distributable cash flow                        $  82,071      $  77,917      $ 155,694      $ 165,465

(1) Represents amortization of negative fair values allocated to certain unfavorable storage contracts acquired in connection with the BORCO acquisition.

The following table presents product volumes transported and average daily throughput for the Pipelines & Terminals segment in barrels per day ("bpd") and total volumes sold in gallons for the Energy Services segment for the periods indicated:

                                                      Three Months Ended           Six Months Ended
                                                           June 30,                    June 30,
                                                      2012          2011          2012          2011
Pipelines & Terminals (average bpd in thousands):
Pipelines:
Gasoline                                                724.9         668.4         693.7         640.3
Jet fuel                                                342.9         348.1         337.7         337.3
Middle distillates (1)                                  297.9         277.1         318.9         314.9
Other products (2)                                       31.3          32.0          25.9          27.3

Total pipelines throughput                            1,397.0       1,325.6       1,376.2       1,319.8

Terminals:
Products throughput (3)                                 900.5         625.6         876.8         581.0

Energy Services (in millions of gallons):
Sales volumes                                           258.5         281.9         603.3         663.4

(1) Includes diesel fuel, heating oil and kerosene.

(2) Includes liquefied petroleum gas ("LPG").

(3) Amounts include throughput volumes at terminals acquired from BP Products North America Inc. and its affiliates ("BP") and ExxonMobil Corporation on June 1, 2011 and July 19, 2011, respectively.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Consolidated

Adjusted EBITDA was $119.9 million for the three months ended June 30, 2012, which is an increase of $2.3 million, or 2.0%, from $117.6 million for the corresponding period in 2011. The increase in Adjusted EBITDA was primarily related to positive contributions from acquisitions in the Pipelines & Terminals segment, an increase in hub services margin in the Natural Gas Storage segment and a positive contribution from the Development & Logistics segment's LPG storage caverns that were acquired in November 2011. These increases were partially offset by the losses incurred in the Energy Services segment as a result of continued market backwardation and declining basis in the Northeast refined petroleum commodity markets that adversely affected our profitability. Backwardation is a market condition in which commodity futures contracts with a delivery month further away in time have lower settlement prices than futures contracts with a delivery month closer in time.

Revenue was $982.6 million for the three months ended June 30, 2012, which is a decrease of $94.5 million, or 8.8%, from $1,077.1 million for the corresponding period in 2011. The decrease in revenue was primarily related to a decrease in refined petroleum product sales price and lower product volume sales in the Energy Services segment, which were partially offset by an increase in revenue from the assets acquired in 2011 in the Pipelines & Terminals segment.

Operating income was $81.8 million for the three months ended June 30, 2012, which is a decrease of $4.1 million, or 4.8%, from $85.9 million for the corresponding period in 2011. The decrease in operating income was primarily related to decreased earnings in the Energy Services segment due to unfavorable market conditions and an increase in depreciation due to the upgrades and expansions of the jetty structure at BORCO in the International Operations segment and assets acquired in 2011 in the Pipelines & Terminals segment. These decreases were partially offset by a positive contribution in the Pipelines & Terminals segment relating to the operating activities of the assets acquired in 2011 and positive contributions from the Development & Logistics segment related to the LPG storage caverns acquired in November 2011.

Distributable cash flow was $82.1 million for the three months ended June 30, 2012, which is an increase of $4.2 million, or 5.3%, from $77.9 million as compared to the corresponding period in 2011. The increase in distributable cash flow was primarily related to an increase of $2.3 million in Adjusted EBITDA as described above and a $1.5 million decrease in maintenance capital expenditures relating to pipeline and tank integrity work performed in the Pipelines & Terminals and International Operations segments.

Adjusted EBITDA by Segment

Pipelines & Terminals. Adjusted EBITDA from the Pipelines & Terminals segment was $89.6 million for the three months ended June 30, 2012, which is an increase of $5.5 million, or 6.5%, from $84.1 million for the corresponding period in 2011. The positive factors impacting Adjusted EBITDA were primarily related to $13.7 million in revenue from assets acquired in 2011, $9.3 million in additional revenue due to higher pipeline tariff rates and terminalling contract rate escalations on assets owned prior to the 2011 acquisitions (which we refer to as our "legacy" assets) and a $0.8 million increase in revenue due to higher terminalling volumes on our legacy assets.

The negative factors impacting Adjusted EBITDA were $6.8 million of operating expenses related to assets acquired during 2011, a $6.1 million increase in expenses primarily related to payroll costs, insurance and environmental remediation expenses and expenses related to the relocation of certain operations and administrative support functions to our Houston, TX headquarters, $3.3 million in unfavorable settlement experience, a $1.9 million decrease in other revenue primarily driven by a decline in our storage contracts due to the backwardated market and a $0.2 million decrease in earnings from equity investments primarily due to the sale of our interest in West Texas LPG Pipeline Limited Partnership in May 2011.

Overall pipeline and terminalling volumes increased by 5.4% and 43.9%, respectively, as a result of the acquisitions in 2011. Legacy pipeline volumes increased approximately 0.5% despite the impact of a train derailment that shut down one of our systems for approximately 40 days during the quarter. Legacy terminalling throughput volumes increased by 3.5% primarily due to higher demand for gasoline and middle distillates resulting from new customer contracts and service offerings at select locations.

International Operations. Adjusted EBITDA from the International Operations segment was $30.6 million for each of the three months ended June 30, 2012 and 2011. The offsetting changes in Adjusted EBITDA were primarily related to a $3.0 million decrease in storage fees and a $3.0 million decrease in expenses, which included professional fee expenses.

Natural Gas Storage. Adjusted EBITDA from the Natural Gas Storage segment was a loss of $0.4 million for the three months ended June 30, 2012, which is an increase of $2.2 million, or 85.1%, from a loss of $2.6 million for the corresponding period in 2011. The increase in Adjusted EBITDA was primarily the result of a $4.2 million increase in hub services margin, partially offset by a $1.7 million decrease in lease revenue due to lower firm storage rates and $0.3 million net increase in operating expenses. Lease revenue and hub service fees are primarily determined by the difference in natural gas commodity prices for the periods in which natural gas is injected and withdrawn from the storage facility (i.e., time spread).

Energy Services. Adjusted EBITDA from the Energy Services segment was a loss of $3.2 million for the three months ended June 30, 2012, which is a decrease of $7.0 million, or 183.5%, from earnings of $3.8 million for the corresponding period in 2011. During the period, basis volatility and continued market backwardation negatively impacted the value of our inventory portfolio and contributed to the unfavorable impact on our overall sales margin. Basis is the difference between the physical spot price for a commodity and the prompt New York Mercantile Exchange ("NYMEX") contract price for the respective physical commodity. The decrease in Adjusted EBITDA was primarily related to a $117.3 million decrease in revenue, which included a $45.6 million decrease as a result of approximately $0.18 per gallon decrease in refined petroleum product sales price (average sales prices per gallon were $2.89 and $3.07 for the 2012 and 2011 periods, respectively) and a $71.7 million decrease due to 8.3% of lower sales volumes.

This decrease in Adjusted EBITDA was partially offset by a $110.6 million decrease in cost of product sales, which included a $39.5 million decrease as a result of approximately $0.15 per gallon decrease in refined petroleum product cost price (average cost prices per gallon were $2.89 and $3.04 for the 2012 and 2011 periods, respectively) and a $71.1 million decrease due to 8.3% of lower volumes sold, and a $0.3 million increase in operating expenses, which primarily related to overhead costs.

Development & Logistics. Adjusted EBITDA from the Development & Logistics segment was $3.3 million for the three months ended June 30, 2012, which is an increase of $1.7 million, or 103.1%, from $1.6 million for the corresponding period in 2011. The increase in Adjusted EBITDA was primarily due to $1.4 million in revenue related to the LPG storage caverns acquired in November 2011, a $0.8 million increase in project management revenue and a $0.3 million increase in operating services contract revenue as a result of new contracts and higher fees. These increases were partially offset by a $0.6 million increase in expenses, which primarily related to overhead costs and a $0.2 million increase in operating expenses for the LPG storage caverns.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Consolidated

Adjusted EBITDA was $234.9 million for the six months ended June 30, 2012, which is a decrease of $5.0 million, or 2.1%, from $239.9 million for the corresponding period in 2011. The decrease in Adjusted EBITDA was primarily related to losses incurred in the Energy Services segment as a result of declining basis in the Midwest and Northeast refined petroleum commodity markets that adversely affected the value of our inventory portfolio and a decrease in lease revenue in the Natural Gas Storage segment due to lower storage prices caused by compressed seasonal spreads. These decreases were partially offset by positive contributions from assets acquired in 2011 in the Pipelines & Terminals segment, an increase in earnings at BORCO due to a full period of operations as well as lower professional fees incurred in the International Operations segment.

Revenue was $2,242.1 million for the six months ended June 30, 2012, which is a decrease of $87.5 million, or 3.8%, from $2,329.6 million for the corresponding period in 2011. The decrease in revenue was primarily related to a net decrease in revenue in the Energy Services segment, which was partially offset by the revenue from assets acquired in 2011 in the Pipelines & Terminals segment.

Operating income was $162.2 million for the six months ended June 30, 2012, which is a decrease of $16.3 million, or 9.1%, from $178.5 million for the corresponding period in 2011. The decrease in operating income was primarily related to a negative contribution associated with the operating activities in the Energy Services segment and an increase in depreciation due to the assets acquired in 2011 in the Pipelines & Terminals segment and the upgrades and expansions on the jetty structure and full period of operations at BORCO in the International Operations segment. These decreases were partially offset by a positive contribution in the Pipelines & Terminals segment relating to the operating activities of assets acquired in 2011.

Distributable cash flow was $155.7 million for the six months ended June 30, 2012, which is a decrease of $9.8 million, or 5.9%, from $165.5 million as compared to the corresponding period in 2011. The decrease in distributable cash flow was primarily related to a decrease of $5.0 million in Adjusted EBITDA as described above and a $4.1 million increase in maintenance capital expenditures relating to pipeline and tank integrity work performed in the Pipelines & Terminals and International Operations segments.

Adjusted EBITDA by Segment

Pipelines & Terminals. Adjusted EBITDA from the Pipelines & Terminals segment was $177.8 million for the six months ended June 30, 2012, which is an increase of $3.6 million, or 2.1%, from $174.2 million for the corresponding period in 2011. The positive factors impacting Adjusted EBITDA were $32.0 million in revenue related to the assets acquired in 2011 and a $19.0 million increase in revenue due to higher pipeline tariff rates and terminalling contract rate escalations on our legacy assets.

The negative factors impacting Adjusted EBITDA were primarily $19.1 million of operating expenses related to assets acquired in 2011, a $9.6 million increase in operating expenses, which included integrity program expenditures, payroll costs, insurance and environmental remediation expenses, $6.3 million in unfavorable settlement experience, a $4.9 million decrease in revenue due to lower pipeline and terminalling volumes on legacy assets, a $3.7 million net increase in expenses primarily related to the relocation of certain operations and administrative support functions to our Houston, TX headquarters, a $2.1 million increase in other costs and a $1.7 million decrease in earnings from equity investments primarily due to the sale of our interest in West Texas LPG Pipeline Limited Partnership in May 2011.

Overall pipeline and terminalling volumes increased by 4.3% and 50.9%, respectively, as a result of the acquisitions in 2011. Legacy pipeline volumes decreased by 1.9% primarily due to lower heating oil deliveries as a result of mild weather conditions in the Northeast and changes in supply patterns related to the recent refinery closures affecting the Pennsylvania market. Legacy terminalling volumes decreased by 1.1% primarily due to lower demand for heating oil and supply interruptions due to refinery closures in the Northeast.

International Operations. Adjusted EBITDA from the International Operations segment was $62.3 million for the six months ended June 30, 2012, which is an increase of $6.1 million, or 10.9%, from $56.2 million for the corresponding period in 2011. The increase in Adjusted EBITDA was primarily related to a $1.6 million increase in storage fees, which includes a full period of operations for BORCO, $1.7 million of noncontrolling interests income related to the remaining 20.0% in BORCO not acquired by us until February 16, 2011 and a $3.0 million net decrease in expenses primarily related to lower professional fees. These increases were partially offset by a $0.2 million decrease in ancillary service revenue.

Natural Gas Storage. Adjusted EBITDA from the Natural Gas Storage segment was a loss of $1.7 million for the six months ended June 30, 2012, which is a decrease of $1.5 million, or 935.0%, from a loss of $0.2 million for the corresponding period in 2011. The decrease in Adjusted EBITDA was primarily the result of a $7.8 million decrease in lease revenue due to lower firm storage rates, which was partially offset by a $4.3 million increase in hub services margin and a $2.0 million decrease in operating expenses, which primarily related to a decline in the number of well workovers performed during 2012 as compared to the 2011 period. Lease revenue and hub services revenue are affected by the difference in natural gas commodity prices for the periods in which natural gas is injected and withdrawn from the storage facility (i.e., time spread).

Energy Services. Adjusted EBITDA from the Energy Services segment was a loss of $9.4 million for the six months ended June 30, 2012, which is a decrease of $16.0 million, or 242.1%, from earnings of $6.6 million for the corresponding period in 2011. During the period, basis volatility due to changing supply patterns and continued market backwardation negatively impacted the value of our inventory portfolio and contributed to the unfavorable impact on our overall sales margin. In the first quarter of 2012, we developed and executed a strategy to mitigate the basis risk that included the reduction of refined petroleum . . .